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<SEC-DOCUMENT>/in/edgar/work/0000950135-00-004525/0000950135-00-004525.txt : 20001009
<SEC-HEADER>0000950135-00-004525.hdr.sgml : 20001009
ACCESSION NUMBER:		0000950135-00-004525
CONFORMED SUBMISSION TYPE:	S-3
PUBLIC DOCUMENT COUNT:		7
FILED AS OF DATE:		20001006

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			TERADYNE INC
		CENTRAL INDEX KEY:			0000097210
		STANDARD INDUSTRIAL CLASSIFICATION:	 [3825
]		IRS NUMBER:				042272148
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			1231
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		S-3
			SEC ACT:		
			SEC FILE NUMBER:	333-47564
			FILM NUMBER:		736366
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		321 HARRISON AVE
				STREET 2:		MAIL STOP H93
				CITY:			BOSTON
				STATE:			MA
				ZIP:			02118
				BUSINESS PHONE:		6174822700
</BUSINESS-ADDRESS>

				MAIL ADDRESS:	
					STREET 1:		321 HARRISON AVENUE
					STREET 2:		H93
					CITY:			BOSTON
					STATE:			MA
					ZIP:			02118
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>S-3
<SEQUENCE>1
<FILENAME>b36797tis-3.txt
<DESCRIPTION>TERADYNE INC.
<TEXT>

<PAGE>   1

    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 2000

                                                     REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                            ------------------------

                                    FORM S-3
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                            ------------------------

                                 TERADYNE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                 <C>
                   MASSACHUSETTS                                        04-2272148
          (State or Other Jurisdiction of                              (IRS Employer
          Incorporation or Organization)                            Identification No.)
</TABLE>

             321 HARRISON AVENUE, BOSTON, MA 02118, (617) 482-2700
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

                               MICHAEL A. BRADLEY
                   Vice President and Chief Financial Officer
                                 Teradyne, Inc.
                              321 Harrison Avenue
                                Boston, MA 02118
                                 (617) 482-2700
    (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
                          CODE, OF AGENT FOR SERVICE)
                            ------------------------

                                    COPY TO:
                          WILLIAM B. ASHER, JR., ESQ.
                        TESTA, HURWITZ & THIBEAULT, LLP
                                125 HIGH STREET
                          BOSTON, MASSACHUSETTS 02110
                                 (617) 248-7000

     Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

     If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]

     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
                            ------------------------

                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
                                                          PROPOSED MAXIMUM      PROPOSED MAXIMUM
                                       AMOUNT TO           OFFERING PRICE          AGGREGATE             AMOUNT OF
TITLE OF SHARES TO BE REGISTERED     BE REGISTERED          PER SHARE(1)       OFFERING PRICE(1)    REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                   <C>                   <C>                   <C>
Common Stock, $.125 par value...    1,841,162 shares          $34.625            $63,750,234.25          $16,830.07
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee pursuant
    to Rule 457 under the Securities Act of 1933.

(2) Pursuant to Rule 457(c) of the Securities Act of 1933, the registration fee
    has been calculated based upon the average of the high and low prices per
    share of the Common Stock of Teradyne, Inc. on the New York Stock Exchange
    on October 2, 2000.

    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2

        THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
        WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
        WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
        PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
        SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
        OR SALE IS NOT PERMITTED.

                  SUBJECT TO COMPLETION DATED OCTOBER   , 2000

                                   PROSPECTUS

                                1,841,162 SHARES

                                 TERADYNE, INC.

                                  COMMON STOCK

                            ------------------------

     This prospectus is part of a registration statement that covers 1,841,162
shares of our common stock. The shares may be offered and sold from time to time
by certain selling stockholders of Teradyne, Inc. We will receive no proceeds
from the sale of the shares.

     Our shares are traded on the New York Stock Exchange under the symbol
"TER." On October 2, 2000, the last reported sale price of our common stock on
the New York Stock Exchange was $33.50 per share.

                            ------------------------

     INVESTING IN THE COMMON STOCK INVOLVES RISKS.  SEE "RISK FACTORS" BEGINNING
ON PAGE 6.

                            ------------------------

     THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                            ------------------------

                The date of this Prospectus is October   , 2000.
<PAGE>   3

                             AVAILABLE INFORMATION

     We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and accordingly file reports, proxy statements and
other information with the Securities and Exchange Commission. Reports, proxy
statements and other information filed by Teradyne may be inspected and copied
at prescribed rates at the Public Reference Room maintained by the Commission at
450 Fifth Street, N.W., Room 1200, Washington, D.C. 20549. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. Our common stock is traded on the New York Stock Exchange.

     We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 under the Securities Act of 1933, as amended, with respect
to the shares of our common stock offered by this prospectus. This prospectus
does not contain all information set forth in the registration statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Securities and Exchange Commission. For further information regarding us
and the shares of our common stock offered, we refer you to the registration
statement and to the exhibits and schedules filed with it. Statements contained
in this prospectus regarding the contents of any agreement or other document
filed as an exhibit to the registration statement are necessarily summaries of
those documents, and in each instance we refer you to the copy of that document
filed as an exhibit to the registration statement for a more complete
description of the matters involved. The registration statement, including the
exhibits and schedules thereto, may be inspected at the public reference
facilities maintained by the Securities and Exchange Commission at 450 Fifth
Street, N.W., Room 1200, Washington, D.C. 20549 and copies of all or any part of
the registration statement may be obtained from that office upon payment of the
prescribed fees. In addition, the Securities and Exchange Commission maintains a
web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission.

     We will provide without charge to each person who is delivered a
prospectus, on written or oral request, a copy of any or all of the documents
incorporated by reference herein (other than exhibits to those documents unless
those exhibits are specifically incorporated by reference into those documents).
Requests for copies should be directed to Investor Relations, Teradyne, Inc.,
321 Harrison Avenue, Boston, Massachusetts 02118, Telephone: (617) 482-2700.

                                        2
<PAGE>   4

               INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

     The following documents filed by us with the Securities and Exchange
Commission pursuant to the Exchange Act are incorporated in this prospectus by
reference:

     1. Teradyne's Annual Report on Form 10-K for the fiscal year ended December
        31, 1999 (File No. 001-06462).

     2. Teradyne's Quarterly Reports on Form 10-Q for the fiscal quarters ended
        April 2, 2000 and July 2, 2000 (both File No. 001-06462).

     All documents subsequently filed by us pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act, prior to the termination of this offering, shall
be deemed incorporated by reference in this prospectus and made a part hereof
from the date of filing of those documents. Any statement contained in a
document incorporated or deemed incorporated by reference in this prospectus
shall be deemed modified or superseded for purposes of this prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed incorporated by reference herein or in any
prospectus supplement modifies or supersedes that statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.

                                        3
<PAGE>   5

                                 TERADYNE, INC.

     We design, manufacture, market and service test systems and related
software, as well as backplanes and associated connectors. We currently have
five principal products:

     - semiconductor test systems;

     - backplane connection systems;

     - circuit-board inspection and test systems;

     - broadband test systems; and

     - software test systems.

     Semiconductor Test Systems.  We produce semiconductor test systems for use
by electronic component manufacturers in the design and testing of a wide
variety of semiconductor products, including logic, memory, mixed signal, and
"system on a chip" integrated circuits. Semiconductor test systems are sold to
semiconductor manufacturers and subcontractors to the semiconductor industry.
Semiconductor manufacturers use our semiconductor test systems to:

     - measure product performance;

     - improve product quality;

     - shorten time to market;

     - enhance manufacturability;

     - conserve labor costs; and

     - increase production yields.

     Backplane Connection Systems.  The computer, communications, and
military/aerospace industries are the principal users of our backplane
connection systems. A backplane is an assembly into which printed circuit boards
are inserted that provides for the interconnection of electrical signals between
the circuit boards and the other elements of the system. We produce both printed
circuit and metal backplanes, along with mating circuit-board connectors. Our
backplane connection systems customers include makers of data storage systems,
telecommunications gear, and routers and servers. In addition, backplane
connection systems have a long-standing military/aerospace customer base.

     Circuit-board Inspection and Test Systems.  Electronic equipment
manufacturers use our circuit-board inspection and test systems for the design,
inspection and testing of circuit boards and other assemblies. We also sell
circuit-board inspection and test systems to customers across most sectors of
the electronics industry and to companies in other industries that use
electronic devices in high volume. Similar to semiconductor test systems, our
customers use their systems and related software to increase product
performance, to improve product quality, to shorten time to market, to enhance
manufacturability, to conserve labor costs, and to increase production yields.

     Broadband Test Systems.  Broadband test systems support communications
service providers' goals to sell and deploy more services sooner and improve the
efficiency of qualification, provisioning and customer care.

     Software Test Systems.  A number of industries use our software test
systems to test communications networks, computerized telecommunication systems,
and web based applications. In September 2000, we announced that we are
consolidating our software test units into a single company to be called
Empirix. The employees of Empirix and an outside investor group will
subsequently own a controlling position in the new company, and we will retain
an ownership position. The transaction is expected to be completed at the end of
the fourth quarter of 2000.

     We have sales and service offices throughout North America, Europe, the
Asia Pacific region, and Japan, as our customers outside the United States are
located primarily in those geographic areas. We sell in these
                                        4
<PAGE>   6

areas predominantly utilizing a direct sales force and substantially all of our
manufacturing activities are conducted in the United States.

     We were incorporated in Massachusetts in September 1960. Our principal
executive offices are located at 321 Harrison Avenue, Boston, Massachusetts
02118, and our telephone number is (617) 482-2700. Our web site is located at
www.teradyne.com. The information contained on our web site is not part of this
prospectus.

                                        5
<PAGE>   7

                                  RISK FACTORS

     You should carefully consider the following risks before investing in our
common stock. These are not the only risks that we face. Additional risks may
also impair our business operations. If any of the following risks come to
fruition, our business, results of operations or financial condition could be
materially adversely affected. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment. You should
also refer to the other information set forth or incorporated by reference in
this prospectus, including our financial statements and the accompanying notes.

     This prospectus contains certain "forward-looking statements" based on our
current expectations, assumptions, estimates and projections about our company
and our industry. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of many factors, as more fully
described in this section and elsewhere in the prospectus.

OUR SEMICONDUCTOR TESTING BUSINESS IS DEPENDENT ON THE CURRENT AND ANTICIPATED
MARKET FOR SEMICONDUCTORS, WHICH IS HIGHLY CYCLICAL.

     Our business and results of operations depend in significant part upon
capital expenditures of manufacturers of semiconductors, which in turn depend
upon the current and anticipated market demand for semiconductors and products
incorporating semiconductors. The semiconductor industry has been highly
cyclical with recurring periods of over supply, which often have had a severe
effect on the semiconductor industry's demand for test equipment, including
systems manufactured and marketed by us. We believe that the markets for newer
generations of semiconductors will also be subject to similar fluctuations. We
cannot assure that any future increase in semiconductor test systems sales or
bookings for a calendar quarter will be sustained in subsequent quarters. In
addition, any factor adversely affecting the semiconductor industry or
particular segments within the semiconductor industry may adversely affect our
business, financial condition and operating results.

IF WE EXPERIENCE CANCELLATIONS OR OUR CUSTOMERS FAIL TO PLACE NEW ORDERS BECAUSE
OF OUR CURRENT ORDER BACKLOG, IT WOULD HAVE AN ADVERSE EFFECT ON OUR RESULTS OF
OPERATIONS.

     We typically maintain a large multi-week order backlog. If we are unable to
fill these orders and meet customer delivery expectations, customers may cancel
existing orders or fail to place new orders in the future, which would have an
adverse effect on our revenues and results of operations. Factors that affect
our ability to meet customer delivery expectations include:

     - the availability of expanded manufacturing facilities;

     - our ability to attract and retain qualified manufacturing personnel to
       meet anticipated manufacturing levels;

     - the difficulties inherent in manufacturing highly complex products that
       have only recently been introduced; and

     - the availability of components, including semiconductor chips, which may
       be in short supply from time to time.

     In addition, we rely upon third-party contract manufacturers for certain
subsystems used in our products, and our ability to meet customer orders for
those products depends upon the timeliness and quality of the work performed by
these subcontractors, over whom we do not exercise any control.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY LOSE A VALUABLE
ASSET OR MAY INCUR COSTLY LITIGATION TO PROTECT OUR RIGHTS.

     Our products incorporate technology that we protect in several ways,
including patents, copyrights, and trade secrets. While we believe that our
patents, copyrights, and trade secrets have value, in general no single one is
in itself essential. At times we have been notified that we may be in violation
of patents held by others.
                                        6
<PAGE>   8

An assertion of patent infringement against us, if successful, could have a
material adverse effect on our ability to sell our products, or could require a
lengthy and expensive defense which could adversely affect our operating
results.

IF WE FAIL TO DEVELOP NEW TECHNOLOGIES TO ADAPT TO OUR CUSTOMERS' NEEDS AND IF
OUR CUSTOMERS FAIL TO ACCEPT OUR NEW PRODUCTS, IT WILL ADVERSELY AFFECT OUR
REVENUES.

     We believe that our technological position depends primarily on the
technical competence and creative ability of our engineers. Our development of
new technologies, commercialization of those technologies into products, and
market acceptance and customer demand for those products is critical to our
success. Successful product development and introduction depends upon a number
of factors, including:

     - new product selection;

     - development of competitive products by competitors;

     - timely and efficient completion of product design; and

     - timely and efficient implementation of manufacturing and assembly
       processes and product performance at customer locations.

INTENSE COMPETITION IN OUR INDUSTRY MAY AFFECT OUR REVENUES.

     We face substantial competition, throughout the world, in each of our
operating segments. Some of these competitors also have substantial financial
and other resources to pursue engineering, manufacturing, marketing and
distribution of their products. We also face competition from internal suppliers
at several of our customers. Some of our competitors have introduced or
announced new products with certain performance characteristics which may be
considered equal or superior to those we currently offer. We expect our
competitors to continue to improve the performance of their current products and
to introduce new products or new technologies that provide improved cost of
ownership and performance characteristics. New product introductions by
competitors could cause a decline in sales or loss of market acceptance of our
products. Moreover, increased competitive pressure could lead to intensified
price based competition, which could materially adversely affect our business,
financial condition and results of operations.

WE ARE SUBJECT TO RISKS OF OPERATING INTERNATIONALLY.

     We derive a significant portion of our total revenue from customers outside
the United States. Our international sales are subject to significant risks and
difficulties, including:

     - unexpected changes in legal and regulatory requirements and in policy
       changes affecting our markets;

     - changes in tariffs and exchange rates;

     - political and economic instability;

     - difficulties in accounts receivable collection;

     - difficulties in staffing and managing international operations; and

     - potentially adverse tax consequences.

     In addition, we generate a significant portion of our semiconductor test
systems revenue from customers operating in South Asian countries and Taiwan.
Although the economies of South Asian countries and Taiwan have stabilized to
some degree since mid fiscal 1998, if these economies deteriorate the negative
economic developments would increase the likelihood of either a direct or
indirect adverse impact on the our future operating results.

                                        7
<PAGE>   9

OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY.

     Our quarterly and annual operating results are affected by a wide variety
of factors that could materially adversely affect revenues and profitability,
including:

     - competitive pressures on selling prices;

     - the timing and cancellation of customer orders;

     - changes in product mix;

     - our ability to introduce new products and technologies on a timely basis;

     - introduction of products and technologies by our competitors;

     - market acceptance of our and our competitors' products;

     - fulfilling backlog on a timely basis;

     - reliance on sole source suppliers;

     - potential retrofit costs;

     - the level of orders received which can be shipped in a quarter; and

     - the timing of investments in engineering and development.

     As a result of the foregoing and other factors, we have and may continue to
experience material fluctuations in future operating results on a quarterly or
annual basis which could materially and adversely affect our business, financial
condition, operating results and stock price.

                                        8
<PAGE>   10

                                USE OF PROCEEDS

     We will not receive any proceeds from the sale of shares by the selling
stockholders. See "Selling Stockholders" and "Plan of Distribution" described
below.

                              SELLING STOCKHOLDERS

     The following table sets forth, as of the date of the prospectus, the
number and percentage of shares of our common stock beneficially owned by each
of the selling stockholders prior to this offering and the maximum number of
shares that each selling stockholder, its transferees, distributees, pledgees,
donees or other successors in interest may offer and sell pursuant to this
prospectus. Since each of the selling stockholders may sell all, some or none of
its shares, we cannot estimate the actual number of shares of our common stock
that will be sold by such selling stockholder or the aggregate number or
percentage of shares of our common stock that such selling stockholder will own
upon completion of this offering. See "Plan of Distribution."

     The shares of our common stock offered under this prospectus may be offered
from time to time by and for the account of each of the selling stockholders.

<TABLE>
<CAPTION>
                                                           NUMBER AND PERCENTAGE
                                                           OF SHARES BENEFICIALLY         NUMBER OF
                                                         OWNED PRIOR TO OFFERING(1)         SHARES
                                                         --------------------------    OFFERED PURSUANT
                  SELLING STOCKHOLDER                      NUMBER       PERCENT(2)    TO THIS PROSPECTUS
                  -------------------                    ----------     -----------   ------------------
<S>                                                      <C>            <C>           <C>
Robert Herring, Sr.....................................  1,221,658(3)        *            1,221,658
Robert Herring, Jr.....................................    309,752(4)        *              309,752
Charles Herring........................................    309,752(5)        *              309,752
</TABLE>

- ---------------
* Less than 1%.

(1) Except as otherwise indicated, the persons named in the above table have
    sole voting and investment power with respect to all shares shown as
    beneficially owned by them. Beneficial ownership is determined in accordance
    with the rules of the Commission, and includes voting and investment power
    with respect to shares.

(2) Based upon 175,319,732 shares of our common stock outstanding as of October
    2, 2000.

(3) Includes 91,983 shares of our common stock that are held in escrow pursuant
    to the terms of an escrow agreement, dated as of August 15, 2000, by and
    among Teradyne, the selling stockholders, Herco Technology Corp., T-H
    Acquisition Corporation and the Chase Manhattan Bank (the "Herco Escrow
    Agreement") and 31,083 shares of our common stock that are held in escrow
    pursuant to the terms of an escrow agreement dated as of August 15, 2000, by
    and among Teradyne, Robert Herring, Sr., Perception Laminates, Inc., T-P
    Acquisition Corporation and the Chase Manhattan Bank (the "Perception Escrow
    Agreement"). Such shares may not be released from escrow and sold hereunder
    except in accordance with the terms and conditions of the respective escrow
    agreements.

(4) Includes 30,975 shares of our common stock that are held pursuant to the
    Herco Escrow Agreement. Such shares may not be released from escrow and sold
    hereunder except in accordance with the terms and conditions of the Herco
    Escrow Agreement.

(5) Includes 30,975 shares of our common stock that are held pursuant to the
    Herco Escrow Agreement. Such shares may not be released from escrow and sold
    hereunder except in accordance with the terms and conditions of the Herco
    Escrow Agreement.

     1,539,332 of the shares offered hereby were issued to the selling
stockholders in connection with our acquisition of all of the outstanding
capital stock of Herco Technology Corp. and the remaining 301,830 shares were
issued to one of the selling stockholders in connection with our acquisition of
all of the outstanding capital stock of Perception Laminates, Inc. Both
transactions occurred on August 15, 2000.

                                        9
<PAGE>   11

     Since our acquisition of Herco Technology Corp., Messrs. Robert Herring,
Jr. and Charles Herring have continued to be employed as managers of Herco, now
a wholly-owned subsidiary of Teradyne.

     Each of the selling stockholders represented to us that he was acquiring
his shares in the acquisition without any present intention of effecting a
distribution of those shares. In recognition of the fact, however, that each of
the selling stockholders may desire the ability to sell those shares of our
common stock he owns when he considers it appropriate, in connection with our
acquisition of Herco Technology Corp and Perception Laminates, Inc. we agreed to
file a registration statement with the Securities and Exchange Commission to
permit the public sale of the shares and to use our reasonable efforts to keep
the registration statement effective until the earlier of two years from the
effective date of the registration statement, and such time as all shares to be
registered hereunder are sold by the selling stockholders. We will prepare and
file such amendments and supplements to the registration statement as may be
necessary to keep it effective during such period.

                              PLAN OF DISTRIBUTION

     The shares of our common stock offered hereby may be sold from time to time
by the selling stockholders for their own account. We are responsible for the
expenses incurred in the registration of the shares, other than selling
discounts and commissions and stock transfer fees and taxes applicable to the
sale of the shares. In addition, we have agreed to indemnify the selling
stockholders against certain liabilities, including liabilities under the
Securities Act, and the selling stockholders have agreed to indemnify us against
certain liabilities, including liabilities under the Securities Act.

     The distribution of the shares by the selling stockholders is not currently
subject to any underwriting agreement. The shares covered by this prospectus may
be sold by the selling stockholders or their transferees, distributees,
pledgees, donees, or other successors in interest from time to time. Such sales
may be made at fixed prices that may be changed, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices, or at
negotiated prices. Such sales may be effected in the over-the-counter market, on
the New York Stock Exchange, or on any exchange on which the shares may then be
listed. The shares may be sold by one or more of the following:

     - one or more block trades in which a broker or dealer so engaged will
       attempt to sell all or a portion of the shares held by the selling
       stockholders as agent but may position and resell a portion of the block
       as principal to facilitate the transaction;

     - purchases by a broker or dealer as principal and resale by such broker or
       dealer for its account pursuant to this prospectus;

     - ordinary brokerage transactions and transactions in which the broker
       solicits purchasers;

     - in negotiated transactions; and

     - through other means.

     The selling stockholders may effect these transactions by selling shares to
or through broker-dealers, and the broker-dealers will receive compensation in
negotiated amounts in the form of discounts, concessions, commissions or fees
from the selling stockholders and/or the purchasers of the shares for whom the
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation to a particular broker-dealer might be in excess of
customary commissions). These brokers or dealers, or the participating brokers
or dealers, and the selling stockholders may be deemed to be "underwriters"
within the meaning of the Securities Act, in connection with these sales, and
any commissions received by the broker-dealers may be deemed to be underwriting
compensation.

     We have informed the selling stockholders that the antimanipulation rules
under the Securities Exchange Act of 1934 (including, without limitation, Rule
10b-5 and Regulation M -- Rule 102) may apply to sales in the market and we will
furnish the selling stockholders upon request with a copy of these Rules. We
will also inform the selling stockholders of the need for delivery of copies of
this prospectus.

                                       10
<PAGE>   12

     Any shares of our common stock covered by the prospectus that qualify for
sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144
rather than pursuant to this prospectus.

     We agreed to file a registration statement to register the resale of the
shares and to use our reasonable efforts to maintain the effectiveness of the
registration statement until the earlier of two years from the effective date of
this registration statement and the date on which no shares originally held by
the selling stockholders remain unsold.

     The selling stockholders are not restricted as to the price or prices at
which they may sell their shares. Sales of the shares at less than the market
price may depress the market price of our common stock. The selling stockholders
are not restricted as to the number of shares which may be sold at any one time,
and it is possible that a significant number of shares could be sold at the same
time.

     EquiServe L.P., 150 Royall Street, Canton, MA 02021 is the transfer agent
for our common stock.

                                       11
<PAGE>   13

                          DESCRIPTION OF COMMON STOCK

     Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. Since holders of common stock do
not have cumulative voting rights, the holders of more than 50% of our common
stock can elect all the directors if they so choose. Holders of common stock are
entitled to receive ratably dividends, if any, as may be declared by the board
of directors out of funds legally available for payment of dividends. Upon the
liquidation, dissolution or winding up of Teradyne, holders of common stock are
entitled to receive ratably the net assets of Teradyne available after the
payment of all debts and other liabilities of Teradyne. Holders of common stock
have no preemptive, subscription, redemption or conversion rights, nor are they
entitled to the benefit of any sinking fund.

                                 LEGAL MATTERS

     Certain legal matters with respect to the issuance of the shares offered
hereby will be passed upon for Teradyne, Inc. by Testa, Hurwitz & Thibeault,
LLP, Boston, Massachusetts. As of the date of this prospectus, certain attorneys
with the firm of Testa, Hurwitz & Thibeault, LLP beneficially own an aggregate
of 24,000 shares of our common stock. In addition, Richard J. Testa is a member
of the law firm Testa, Hurwitz & Thibeault, LLP and serves as Clerk of Teradyne
and on Teradyne's board of directors.

                                    EXPERTS

     The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K of Teradyne, Inc. for the year ended
December 31, 1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       12
<PAGE>   14

- ------------------------------------------------------
- ------------------------------------------------------

     YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE SELLING STOCKHOLDERS ARE OFFERING TO SELL, AND
SEEKING OFFERS TO BUY, THE SECURITIES ONLY IN JURISDICTIONS WHERE OFFERS AND
SALES ARE PERMITTED. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE
HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN IMPLICATION
CONTAINED HEREIN OR THAT THE AFFAIRS OF TERADYNE HAVE NOT CHANGED SINCE THE DATE
HEREOF. IN THIS PROSPECTUS, REFERENCES TO "TERADYNE, INC.," "TERADYNE," "WE,"
"OUR" AND "US" REFER TO TERADYNE, INC.

                            ------------------------

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
Available Information.................    2
Incorporation of Certain Information
  by Reference........................    3
Teradyne, Inc.........................    4
Risk Factors..........................    6
Selling Stockholders..................    9
Plan of Distribution..................   10
Legal Matters.........................   12
Experts...............................   12
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------

                                1,841,162 SHARES

                                 TERADYNE, INC.

                                  COMMON STOCK

                              --------------------
                                   PROSPECTUS
                              --------------------

                               OCTOBER    , 2000

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE>   15

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:

<TABLE>
<S>                                                           <C>
SEC Registration Fee........................................  $16,830
New York Stock Exchange Listing Fees........................  $ 6,300
Legal fees and expenses.....................................  $25,000
Accounting fees and expenses................................  $15,000
Miscellaneous...............................................  $ 5,000
                                                              -------
          TOTAL.............................................  $68,130
                                                              =======
</TABLE>

     We will bear all expenses shown above. The selling stockholders will bear
all underwriting discounts and selling commissions and stock transfer fees and
taxes applicable to the sale of the shares sold pursuant to this prospectus.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     Section 67 of the Massachusetts Business Corporation Law ("Section 67")
provides that a corporation may indemnify its directors and officers to the
extent specified in or authorized by (i) the articles of organization, (ii) a
by-law adopted by the stockholders, or (iii) a vote adopted by the holders of a
majority of the shares of stock entitled to vote on the election of directors.
In all instances, the extent to which a corporation provides indemnification to
its directors and officers under Section 67 is optional. Teradyne's Amended and
Restated By-laws provide that each director and officer shall be indemnified by
Teradyne against liabilities and expenses in connection with any legal
proceeding to which such officer or director may become a party by reason of
being or having been an officer or director, provided that such officer or
director acted in good faith in the reasonable belief that his or her action was
in the best interests of Teradyne. Reference is made to Teradyne's Amended and
Restated By-laws filed as Exhibit 3.3 to its Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (File No. 001-06462).

     Teradyne maintains directors and officers liability insurance for the
benefit of its directors and its officers.

ITEM 16. EXHIBITS.

<TABLE>
<C>     <S>
 2.1*   Agreement and Plan of Reorganization by and among Herco
        Technology Corp., the Stockholders listed on the signature
        pages thereto, Teradyne and T-H Acquisition Corp., dated as
        of August 1, 2000.
 2.2*   Escrow Agreement by and among The Chase Manhattan Bank,
        Herco Technology Corp., the Stockholders listed on the
        signature pages thereto, Teradyne and T-H Acquisition Corp.,
        dated as of August 15, 2000.
 2.3*   Agreement and Plan of Reorganization by and among Perception
        Laminates, Inc., Robert Herring, Sr., Teradyne and T-P
        Acquisition Corp., dated as of August 1, 2000
 2.4*   Escrow Agreement by and among The Chase Manhattan Bank,
        Perception Laminates, Inc., Robert Herring, Sr., Teradyne
        and T-P Acquisition Corp., dated as of August 15, 2000
 4.1    Amended and Restated Articles of Incorporation, as amended
        of Teradyne (filed as Exhibit 3.01 to Teradyne's Quarterly
        Report on Form 10-Q for the quarterly period ended July 2,
        2000 (File No. 001-06462) and incorporated herein by
        reference)
</TABLE>

                                      II-1
<PAGE>   16
<TABLE>
<C>     <S>
 4.2    Amended and Restated By-laws, as amended of Teradyne (filed
        as Exhibit 3.3 to Teradyne's Annual Report on Form 10-K for
        the fiscal year ended December 31, 1996 (File No. 001-06462)
        and incorporated herein by reference)
 5.1*   Opinion of Testa, Hurwitz & Thibeault, LLP
23.1*   Consent of PricewaterhouseCoopers LLP
23.2*   Consent of Testa, Hurwitz & Thibeault, LLP (included in
        Exhibit 5.1)
24.1*   Power of attorney (included on signature page)
</TABLE>

- ---------------
* Filed herewith.

ITEM 17. UNDERTAKINGS.

     The undersigned registrant hereby undertakes:

     (1) To file, during any period in which offers or sales are being made, a
         post-effective amendment to this registration statement:

        (i)  to include any prospectus required by Section 10(a)(3) of the
             Securities Act of 1933;

        (ii)  to reflect in the prospectus any facts or events arising after the
              effective date of this registration statement (or the most recent
              post-effective amendment thereof) which, individually or in the
              aggregate, represent a fundamental change in the information set
              forth in this registration statement; and

        (iii) to include any material information with respect to the plan of
              distribution not previously disclosed in the registration
              statement or any material change to such information in this
              registration statement.

     (2) That, for the purpose of determining any liability under the Securities
         Act of 1933, each such post-effective amendment shall be deemed to be a
         new registration statement relating to the securities offered therein,
         and the offering of such securities at that time shall be deemed to be
         the initial bona fide offering thereof.

     (3) To remove from registration by means of a post-effective amendment any
         of the securities being registered which remain unsold at the
         termination of the offering.

     The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where appropriate, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

                                      II-2
<PAGE>   17

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and Commonwealth of Massachusetts on October
6, 2000.

                                          TERADYNE, INC.

                                          By: /s/ MICHAEL A. BRADLEY
                                            ------------------------------------
                                            Michael A. Bradley
                                            Vice President and Chief Financial
                                              Officer

                        POWER OF ATTORNEY AND SIGNATURES

     We, the undersigned officers and directors of Teradyne, Inc., hereby
severally constitute and appoint George W. Chamillard and Michael A. Bradley,
and each of them singly, our true and lawful attorneys, with full power to them
and each of them singly, to sign for us in our names in the capacities indicated
below, all pre-effective and post-effective amendments to this registration
statement, and generally to do all things in our names and on our behalf in such
capacities to enable Teradyne, Inc. to comply with the provisions of the
Securities Act of 1933 and all requirements of the Securities and Exchange
Commission.

     Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                     SIGNATURE                                  TITLE(S)                    DATE
                     ---------                                  --------                    ----
<S>                                                  <C>                             <C>
/s/ GEORGE W. CHAMILLARD                             President, Chief Executive      October 6, 2000
- ---------------------------------------------------  Officer and Chairman
George W. Chamillard                                 (Principal Executive Officer)

/s/ MICHAEL A. BRADLEY                               Vice President and Chief        October 6, 2000
- ---------------------------------------------------  Financial Officer
Michael A. Bradley                                   (Principal Financial Officer)

/s/ DONALD J. HAMMAN                                 Controller                      October 6, 2000
- ---------------------------------------------------  (Principal Accounting Officer)
Donald J. Hamman

/s/ JAMES W. BAGLEY                                  Director                        October 6, 2000
- ---------------------------------------------------
James W. Bagley

/s/ ALBERT CARNESALE                                 Director                        October 6, 2000
- ---------------------------------------------------
Albert Carnesale

/s/ DANIEL S. GREGORY                                Director                        October 6, 2000
- ---------------------------------------------------
Daniel S. Gregory

                                                     Director                        October   , 2000
- ---------------------------------------------------
Dwight H. Hibbard

/s/ JOHN P. MULRONEY                                 Director                        October 6, 2000
- ---------------------------------------------------
John P. Mulroney

/s/ VINCENT M. O'REILLY                              Director                        September 30, 2000
- ---------------------------------------------------
Vincent M. O'Reilly
</TABLE>

                                      II-3
<PAGE>   18

<TABLE>
<CAPTION>
                     SIGNATURE                                  TITLE(S)                    DATE
                     ---------                                  --------                    ----
<S>                                                  <C>                             <C>

/s/ RICHARD J. TESTA                                 Director                        October 6, 2000
- ---------------------------------------------------
Richard J. Testa

/s/ ROY A. VALLEE                                    Director                        October 2, 2000
- ---------------------------------------------------
Roy A. Vallee

/s/ PATRICIA S. WOLPERT                              Director                        October 6, 2000
- ---------------------------------------------------
Patricia S. Wolpert
</TABLE>

                                      II-4
<PAGE>   19

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
   EXHIBIT
     NO.                     DESCRIPTION OF EXHIBIT
   -------                   ----------------------
<C>       <S>
     2.1* Agreement and Plan of Reorganization by and among Herco
          Technology Corp., the Stockholders listed on the signature
          pages thereto, Teradyne and T-H Acquisition Corp., dated as
          of August 1, 2000.
     2.2* Escrow Agreement by and among The Chase Manhattan Bank,
          Herco Technology Corp., the Stockholders listed on the
          signature pages thereto, Teradyne and T-H Acquisition Corp.,
          dated as of August 15, 2000.
     2.3* Agreement and Plan of Reorganization by and among Perception
          Laminates, Inc., Robert Herring, Sr., Teradyne and T-P
          Acquisition Corp., dated as of August 1, 2000.
     2.4* Escrow Agreement by and among The Chase Manhattan Bank,
          Perception Laminates, Inc., Robert Herring, Sr., Teradyne
          and T-P Acquisition Corp., dated as of August 15, 2000.
     4.1  Amended and Restated Articles of Incorporation, as amended
          of Teradyne (filed as Exhibit 3.01 to Teradyne's Quarterly
          Report on Form 10-Q for the quarterly period ended July 2,
          2000 (File No. 001-06462) and incorporated herein by
          reference)
     4.2  Amended and Restated By-laws, as amended of Teradyne (filed
          as Exhibit 3.3 to Teradyne's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1996 (File No. 001-06462)
          and incorporated herein by reference)
     5.1* Opinion of Testa, Hurwitz & Thibeault, LLP
    23.1* Consent of PricewaterhouseCoopers, LLP
    23.2* Consent of Testa, Hurwitz & Thibeault, LLP (included in
          Exhibit 5.1)
    24.1* Power of attorney (included on signature page)
</TABLE>

- ---------------
* Filed herewith.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.1
<SEQUENCE>2
<FILENAME>b36797tiex2-1.txt
<DESCRIPTION>AGREEMENT AND PLAN OF REORGANIZATION (HERCO)
<TEXT>

<PAGE>   1
                                                                     EXHIBIT 2.1







                      AGREEMENT AND PLAN OF REORGANIZATION

                                      AMONG

                             HERCO TECHNOLOGY CORP.,

             THE STOCKHOLDERS LISTED ON THE SIGNATURE PAGES HERETO,


                               TERADYNE, INC., AND

                           T-H ACQUISITION CORPORATION



                           DATED AS OF AUGUST 1, 2000




<PAGE>   2

                                TABLE OF CONTENTS
                                                                           PAGE
                                                                           ----

ARTICLE I -- DEFINITIONS.................................................... 1

   1.01.  DEFINITIONS....................................................... 1

ARTICLE II -- PURCHASE AND SALE............................................. 4

   2.01.  THE MERGER........................................................ 4
   2.02.  EFFECTS OF THE MERGER............................................. 5
   2.03.  THE CLOSING....................................................... 5
   2.04.  ESCROW SHARES..................................................... 6
   2.05   CONVERSION OF THE SHARES.......................................... 6

ARTICLE III -- REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY....... 7

   3.01.  CORPORATE EXISTENCE AND POWER..................................... 7
   3.02.  CORPORATE AUTHORIZATION........................................... 7
   3.03.  GOVERNMENTAL AUTHORIZATION; CONSENTS.............................. 7
   3.04.  NON-CONTRAVENTION................................................. 8
   3.05.  CAPITALIZATION.................................................... 8
   3.06.  SUBSIDIARIES...................................................... 8
   3.07.  FINANCIAL STATEMENTS.............................................. 8
   3.08.  ABSENCE OF CERTAIN CHANGES........................................ 9
   3.09.  PROPERTY AND EQUIPMENT........................................... 10
   3.10.  NO UNDISCLOSED MATERIAL LIABILITIES.............................. 11
   3.11.  LITIGATION....................................................... 12
   3.12.  MATERIAL CONTRACTS............................................... 12
   3.13.  INSURANCE COVERAGE............................................... 13
   3.14.  COMPLIANCE WITH LAWS; NO DEFAULTS................................ 13
   3.15.  FINDER'S FEES.................................................... 13
   3.16.  INTELLECTUAL PROPERTY............................................ 14
   3.17.  TAXES............................................................ 15
   3.18.  EMPLOYEES........................................................ 17
   3.19.  ENVIRONMENTAL COMPLIANCE......................................... 17
   3.20.  CUSTOMERS AND SUPPLIERS.......................................... 20
   3.21.  TRANSACTIONS WITH AFFILIATES..................................... 20
   3.22.  OTHER INFORMATION................................................ 20
   3.23.  INTERCOMPANY ARRANGEMENTS........................................ 20
   3.24.  INVENTORIES...................................................... 20
   3.25.  RECEIVABLES...................................................... 21
   3.26.  PRODUCTS......................................................... 21
   3.27.  LABOR MATTERS.................................................... 21
   3.28.  AFFILIATE AGREEMENTS............................................. 21
   3.29.  APPROVALS........................................................ 21
   3.30.  RELIANCE......................................................... 21

ARTICLE IV -- REPRESENTATIONS AND WARRANTIES RELATING TO THE SELLERS....... 22

   4.01.  TITLE TO AND VALIDITY OF SHARES.................................. 22
   4.02.  AUTHORITY........................................................ 22
   4.03.  POWER TO ACT AS TRUSTEE OR EXECUTOR.............................. 22
   4.04.  SECURITIES ACT REPRESENTATIONS................................... 22

ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF BUYER....................... 23

<PAGE>   3


                                                                           PAGE
                                                                           ----

   5.01.  ORGANIZATION AND EXISTENCE....................................... 23
   5.02.  CORPORATE AUTHORIZATION.......................................... 24
   5.03.  GOVERNMENTAL AUTHORIZATION....................................... 24
   5.04.  NON-CONTRAVENTION................................................ 24
   5.05.  FINDERS' FEES.................................................... 25
   5.06.  PURCHASE FOR INVESTMENT.......................................... 25
   5.07.  LITIGATION....................................................... 25
   5.08.  BUYER STOCK...................................................... 25
   5.09.  CAPITALIZATION OF BUYER AND MERGER SUB........................... 25
   5.10.  REPORTS AND FINANCIAL STATEMENTS................................. 25
   5.11.  ABSENCE OF CERTAIN CHANGES AND EVENTS............................ 26
   5.12.  FORM S-3 ELIGIBILITY............................................. 26
   5.13.  DOCUMENTS NOT MISLEADING......................................... 26

   5.14.  TAX REPRESENTATION LETTER........................................ 26

   5.15.  RELIANCE......................................................... 26

ARTICLE VI -- COVENANTS OF THE COMPANY AND SELLERS......................... 27

   6.01.  CONDUCT OF THE COMPANY........................................... 27
   6.02.  ACCESS TO INFORMATION............................................ 28
   6.03.  NOTICES OF CERTAIN EVENTS........................................ 28
   6.04.  RESIGNATIONS..................................................... 29
   6.05.  NONCOMPETITION; NONSOLICITATION.................................. 29
   6.06.  CONFIDENTIALITY.................................................. 31
   6.07.  CONTINUING DISCLOSURE............................................ 31
   6.08.  STOCKHOLDER APPROVAL............................................. 31
   6.09.  EXCLUSIVITY; ACQUISITION PROPOSALS............................... 31
   6.10.  THE DISCLOSURE SCHEDULE.......................................... 32

ARTICLE VII -- COVENANTS OF BUYER.......................................... 33

   7.01.  CONFIDENTIALITY.................................................. 33
   7.02.  REGISTRATION ON AND EFFECTIVENESS OF FORM S-3.................... 33
   7.03.  NOTICES OF CERTAIN EVENTS........................................ 34

ARTICLE VIII -- COVENANTS OF ALL PARTIES................................... 34

   8.01.  BEST EFFORTS..................................................... 34
   8.02.  CERTAIN FILINGS.................................................. 34
   8.03.  PUBLIC ANNOUNCEMENTS............................................. 35
   8.04.  POOLING.......................................................... 35
   8.05.  TAX MATTERS...................................................... 35

ARTICLE IX -- EMPLOYEE BENEFITS............................................ 37

   9.01.  EMPLOYEE BENEFITS DEFINITIONS.................................... 37
   9.02.  ERISA REPRESENTATIONS............................................ 38
   9.03.  NO THIRD PARTY BENEFICIARIES..................................... 39

ARTICLE X -- CONDITIONS TO CLOSING......................................... 40

   10.01.  CONDITIONS TO THE OBLIGATIONS OF EACH PARTY..................... 40
   10.02.  CONDITIONS TO OBLIGATION OF BUYER............................... 40
   10.03.  CONDITIONS TO OBLIGATION OF SELLERS............................. 42

ARTICLE XI -- SURVIVAL; INDEMNIFICATION.................................... 42

   11.01.  SURVIVAL........................................................ 42
   11.02.  INDEMNIFICATION................................................. 43

                                       ii
<PAGE>   4

                                                                           PAGE
                                                                           ----

   11.03.  PROCEDURES; NO WAIVER........................................... 45

ARTICLE XII -- TERMINATION................................................. 47

   12.01.  GROUNDS FOR TERMINATION......................................... 47
   12.02.  EFFECT OF TERMINATION........................................... 48

ARTICLE XII -- MISCELLANEOUS............................................... 48

   13.01.  NOTICES......................................................... 48
   13.02.  AMENDMENTS; NO WAIVERS.......................................... 49
   13.03.  EXPENSES........................................................ 49
   13.04.  SUCCESSORS AND ASSIGNS.......................................... 49
   13.05.  FURTHER ASSURANCES.............................................. 50
   13.06.  GOVERNING LAW................................................... 50
   13.07.  COUNTERPARTS; EFFECTIVENESS..................................... 50
   13.08.  ENTIRE AGREEMENT................................................ 50
   13.09.  CAPTIONS........................................................ 50
   13.10.  JURISDICTION.................................................... 50
   13.11.  TRANSFER, SALES DOCUMENTARY, STAMP AND OTHER SIMILAR TAXES...... 50
   13.12.  SEVERABILITY.................................................... 51
   13.13.  EXTENSION; WAIVER............................................... 51


SCHEDULES

Schedule 2.03   List of Stockholders
Schedule 3.17   Tax Representation Letter of Company and Sellers
Schedule 5.14   Tax Representation Letter of Buyer and Merger Sub

EXHIBITS

Exhibit A       Form of Escrow Agreement
Exhibit B       Form of Affiliate Agreement


                                      iii
<PAGE>   5

                      AGREEMENT AND PLAN OR REORGANIZATION


         AGREEMENT dated as of August 1, 2000 among Herco Technology Corp., a
California corporation (the "COMPANY"); the stockholders of the Company listed
on the signature pages hereto ("SELLERS"); Teradyne, Inc., a Massachusetts
corporation ("BUYER"); and T-H Acquisition Corporation, a Delaware corporation
and wholly owned subsidiary of Buyer ("MERGER SUB").

                              W I T N E S S E T H :

         WHEREAS, Buyer desires to obtain from Sellers all of the outstanding
shares of capital stock of the Company (the "SHARES");

         WHEREAS, each Seller desires to transfer to Buyer all of the Shares
owned by such Seller in exchange for Buyer Stock (as defined below); and

         WHEREAS, the exchange of Shares for Buyer Stock is intended to qualify
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
code of 1986, as amended (the "CODE").

         NOW, THEREFORE, the parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         1.01.  DEFINITIONS.  (a)  The following terms, as used herein, have the
following meanings:

         "AFFILIATE" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such Person.

         "ANCILLARY AGREEMENTS" means the Escrow Agreement and the Affiliate
Agreements.

         "BALANCE SHEET" means the unaudited balance sheet of the Company as of
June 30, 2000 referred to in Section 3.07.

         "BALANCE SHEET DATE" means June 30, 2000.

         "BUYER STOCK" means the common stock of Buyer, $0.125 par value per
share.

         "BUYER'S COUNSEL" means the law firm of Testa, Hurwitz & Thibeault,
LLP, Boston, Massachusetts.

         "CLOSING DATE" means the date of the Closing.

<PAGE>   6


         "COMMISSION" means the Securities and Exchange Commission.

         "COMMON STOCK" means the common stock, $10.00 par value, of the
Company.

         "COMPANY'S PROPRIETARY RIGHTS" means all Proprietary Rights that are
owned or licensed by the Company or any Affiliate of the Company and used or
held for use by the Company or any Subsidiary.

         "ESCROW AGENT" means the escrow agent that is a signatory to the Escrow
Agreement.

         "ESCROW AGREEMENT" means the Escrow Agreement among Sellers, Buyer and
the Escrow Agent in the form set forth in EXHIBIT A.

         "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.

         "KNOWLEDGE" means the actual knowledge after reasonable inquiry of
Robert Herring, Sr., Charles Herring or Robert Herring, Jr.

         "KNOWN" means actually known after reasonable inquiry by Robert
Herring, Sr., Charles Herring or Robert Herring, Jr.

         "LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, restriction or encumbrance of any kind in respect of
such asset.

         "MATERIAL ADVERSE CHANGE" means a material adverse change in the
business, assets, condition (financial or otherwise), or results of operations
of the Company.

         "MATERIAL ADVERSE EFFECT" means a material adverse effect on the
business, assets, condition (financial or otherwise), or results or operations
of the Company.

         "1934 ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.

         "PERSON" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.

         "PROPRIETARY RIGHTS" means all (A) patents, patent applications, patent
disclosures and all related continuation, continuation-in-part, divisional,
reissue, re-examination, utility, model, certificate of invention and design
patents, patent applications, registrations and applications for registrations,
(B) trademarks, URL addresses and/or domain names, service marks, trade dress,
logos, tradenames, service names and corporate names and registrations and
applications for registration thereof, (C) copyrights and registrations and
applications for registration thereof, (D) mask works and registrations and
applications for registration thereof, (E) computer

                                     - 2 -
<PAGE>   7


software, data and documentation, (F) trade secrets and confidential
business information, whether patentable or nonpatentable and whether or not
reduced to practice, know-how, manufacturing and product processes and
techniques, research and development information, copyrightable works,
financial, marketing and business data, pricing and cost information, business
and marketing plans and customer and supplier lists and information, (G) other
proprietary rights relating to any of the foregoing (including without
limitation associated goodwill and remedies against infringements thereof and
rights of protection of an interest therein under the laws of all jurisdictions)
and (H) copies and tangible embodiments thereof.

         "S CORPORATION TAX LIABILITY" means the aggregate federal and state
income tax liability imposed on the Sellers as a result of their ownership of
Shares during the Stub Period determined without regard to any other item of
income, gain, loss deduction or credit.

         "SECURITIES ACT" means the Securities Act of 1933, as amended.

         "SELLERS' COUNSEL" means the law firm of Luce, Forward, Hamilton &
Scripps, LLP, San Diego, CA.

         "STUB PERIOD" shall mean the period from January 1, 2000 through the
date immediately preceding the Closing Date.

         "SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.

         "TAX DISTRIBUTION AMOUNT" means the excess, if any, of the S
Corporation Tax Liability over the aggregate amount previously distributed by
the Company to the Sellers during the Stub Period with respect to their Shares.

         (b) Each of the following terms is defined in the Section set forth
opposite such term:

    Term                                                             Section
    ----                                                             -------

    Acquisition Transaction                                           6.09
    Affiliate Agreement                                               8.04
    Benefit Arrangement                                               9.01
    Buyer Audited Financial Statements                                5.10
    Cap                                                               11.02
    CERCLA                                                            3.19
    Closing                                                           2.03
    Code                                                              Recitals
    Commission Filings                                                5.10
    Company Affiliate                                                 3.29
    Company Securities                                                3.05
    Customers                                                         6.05

                                     - 3 -
<PAGE>   8


    Damages                                                           11.02
    Deductible                                                        11.02
    Effective Time                                                    2.01
    Engage in Competition                                             6.05
    Employee Plans                                                    9.01
    Environment                                                       3.19
    Environmental Laws                                                3.19
    Environmental Liabilities                                         3.19
    Environmental Permits                                             3.19
    ERISA                                                             9.01
    ERISA Affiliate                                                   9.01
    Escrow Shares                                                     2.04
    Financial Statements                                              3.07
    Hazardous Substance                                               3.19
    Indemnification                                                   11.03
    Indemnified Party                                                 11.03
    Indemnifying Party                                                11.03
    Merger                                                            2.01
    Merger Documents                                                  2.01
    Multiemployer Plan                                                9.01
    Permit                                                            3.14
    Registration Statement                                            7.02
    Release                                                           3.19
    Reports                                                           5.10
    Required Consent                                                  3.03
    Surviving Corporation                                             2.01
    Taxes                                                             3.17
    Tax Authority                                                     3.17
    Tax Return                                                        3.17
    Update                                                            2.03


                                   ARTICLE II

                                 MERGER; CLOSING

         2.01. THE MERGER. Upon the terms and subject to the conditions of this
Agreement, and in accordance with the General Corporation Law of the State of
Delaware and the California Corporations Code, Merger Sub will be merged with
and into the Company (the "MERGER"). A Certificate of Merger and any other
required documents (collectively, the "MERGER DOCUMENTS"), in such form as shall
be agreed to by the parties, will be duly prepared, executed and acknowledged by
the Company and Merger Sub and thereafter delivered to the Secretary of State of
California for filing in accordance with the California Corporations Code
contemporaneously with the Closing. The Merger will become effective at such
time as the Merger Documents have been filed with the Secretary of State of
California (the "EFFECTIVE TIME"). Following the

                                     - 4 -
<PAGE>   9

Merger, the Company will continue as the surviving corporation (the
"SURVIVING CORPORATION") of the Merger under the laws of the State of California
and the separate corporate existence of Merger Sub will cease.

         2.02. EFFECTS OF THE MERGER. At and after the Effective Time, (i) the
Merger will have all of the effects provided by the Certificate of Merger and
applicable law, (ii) the Articles of Incorporation of the Company will be
amended as provided in the Certificate of Merger until duly further amended,
(ii) the bylaws of the Company will be the bylaws of the Surviving Corporation
until duly amended, (iv) the directors of Merger Sub will be the directors of
the Surviving Corporation, to hold office in accordance with the bylaws of the
Surviving Corporation, (v) the officers of Merger Sub will be the officers of
the Surviving Corporation, to hold office in accordance with the bylaws of the
Surviving Corporation and (vi) the issued and outstanding certificates for
capital stock of Merger Sub will be the issued and outstanding certificates
initially representing all of the issued capital stock of the Surviving
Corporation. The Merger is intended to be a reorganization within the meaning of
Section 368(a) of the Code, and this Agreement is intended to constitute a "plan
of reorganization" within the meaning of the regulations promulgated under
Section 368 of the Code.

         2.03 THE CLOSING. The closing (the "CLOSING") of the transactions
contemplated hereby shall take place at the offices of Testa, Hurwitz &
Thibeault, LLP in Boston, Massachusetts as soon as possible, but in no event
later than five (5) business days after satisfaction or waiver of the conditions
set forth in Article X, or at such other time or place as Buyer and Sellers may
agree. If all of the conditions set forth in Article X are determined to be
satisfied (or duly waived) at the Closing, concurrently with the Closing the
parties hereto will cause the Merger to be consummated by the filing of the
Merger Documents with the Secretary of State of California. The Closing will be
deemed to have concluded at the Effective Time. At the Closing,

         (a) Buyer shall deliver to Sellers certificates for an aggregate of
1,385,399 shares of Buyer Stock, registered in the names of Sellers for the
number of shares shown in SCHEDULE 2.03.

         (b) Buyer shall deliver to the Escrow Agent certificates for an
aggregate of 153,933 shares of Buyer Stock registered in the names of the
Sellers for the number of shares shown on SCHEDULE 2.03 under the heading
"ESCROW SHARES", accompanied by undated stock powers or other transfer documents
covering such certificates or instruments, duly executed by each Seller in
blank.

         (c) Sellers shall deliver to Buyer certificates for the Shares duly
endorsed or accompanied by stock powers duly endorsed in blank, with any
required transfer stamps affixed thereto.

         (d)  The appropriate parties shall enter into the Ancillary Agreements.

         (e) In accordance with Section 6.10, the Company and Sellers shall
deliver to Buyer a final revised Disclosure Schedule updating and supplementing
the information shown thereon to the Closing Date (the "UPDATE").

                                     - 5 -
<PAGE>   10

         (f) The parties shall execute and deliver any other instruments,
documents and certificates that are required to be delivered pursuant to this
Agreement or as may be reasonably requested by any party in order to consummate
the transactions contemplated by this Agreement.

         2.04. ESCROW SHARES. Ten percent (10%) of the Buyer Stock, rounded down
to the nearest whole share (the "ESCROW SHARES") will be deposited and held in
escrow in accordance with the Escrow Agreement attached as EXHIBIT A as the
first source, but not the sole source, of indemnification payments that may
become due to Buyer or the Company pursuant to Article XI. The Escrow Shares
will be withheld on a pro rata basis among the Sellers based on the shares of
Company Common Stock owned by each Seller in accordance with SCHEDULE 2.03. The
delivery of the Escrow Shares will be made on behalf of the Sellers in
accordance with the provisions hereof, with the same force and effect as if such
shares had been delivered by Buyer directly to each Seller and subsequently
delivered by each Seller to the Escrow Agent.

         2.05     CONVERSION OF THE SHARES.

         (a) Subject to the provisions hereof, at the Effective Time, each Share
will automatically, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into 269.3494 shares of Buyer Stock or an
aggregate of 1,539,332 shares of Buyer Stock, to be allocated among the Sellers
as set forth in SCHEDULE 2.03.

         (b) If, between the date of this Agreement and the Closing Date, the
outstanding shares of Buyer Stock shall have been changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, stock split, combination, exchange of shares or
similar adjustment, or a stock dividend thereon shall be declared with a record
date prior to the Closing Date, the number of shares or class of Buyer Stock to
be issued and delivered at the Closing to Sellers as provided in this Agreement
shall be appropriately adjusted.

         (c) No certificates or scrip for fractional shares of Buyer Stock will
be issued (and any such fractional shares shall be rounded up to the nearest
whole share of Buyer Stock), no Buyer stock split or dividend will be paid in
respect of any fractional share interest, and no such fractional share interest
will entitle the owner thereof to vote or to any rights of or as a stockholder
of Buyer.

                                   ARTICLE III

                   REPRESENTATIONS AND WARRANTIES RELATING TO
                                   THE COMPANY

         The Company and each Seller hereby jointly and severally represent and
warrant to Buyer and Merger Sub as of the date hereof and as of the Closing Date
that except as set forth on the Company's disclosure schedules or delivered
pursuant to Section 6.10 (the "DISCLOSURE

                                     - 6 -
<PAGE>   11

SCHEDULE") and in the Update, which Disclosure Schedule and Update shall
make specific reference to the section to which exception is taken:

         3.01. CORPORATE EXISTENCE AND POWER. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where failure
to be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect. The Company has heretofore delivered to Buyer true and complete
copies of the corporate charter and bylaws of the Company as currently in
effect.

         3.02. CORPORATE AUTHORIZATION. The execution, delivery and performance
by the Company of this Agreement and the Ancillary Agreements to which it is a
party and the consummation by the Company of the transactions contemplated
hereby and thereby are within the Company's corporate powers and have been duly
authorized by all necessary corporate action on the part of the Company. The
Company's Board of Directors has approved the Company's execution of this
Agreement and consummation of the transactions contemplated hereby. This
Agreement and the Ancillary Agreements to which the Company is a party have been
duly executed and delivered by the Company and constitute valid and binding
agreements of the Company, enforceable in accordance with their terms.

         3.03.  GOVERNMENTAL AUTHORIZATION; CONSENTS.

         (a) The execution, delivery and performance by the Company and Sellers
of this Agreement and the Ancillary Agreements require no action by or in
respect of, or filing with, any governmental body, agency, official or authority
other than compliance with any applicable requirements of the HSR Act.

         (b) No consent, approval, waiver or other action (each, a "REQUIRED
CONSENT") by any Person (other than any governmental body, agency, official or
authority referred to in (a) above) under any contract, agreement, indenture,
lease, instrument or other document to which the Company is a party or by which
it is bound is required or necessary for the execution, delivery and performance
of this Agreement and the Ancillary Agreements by the Company or the
consummation of the transactions contemplated hereby.

         3.04. NON-CONTRAVENTION. The execution, delivery and performance by the
Company of this Agreement and the Ancillary Agreements to which it is a party
and the consummation of the transactions contemplated hereby and thereby do not
and will not (i) contravene or conflict with the corporate charter or bylaws of
the Company, (ii) assuming compliance with the matters referred to in Section
3.03(a), contravene or conflict with any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to the Company,
(iii) assuming the receipt of all Required Consents, constitute a default under
or give rise to any right of

                                     - 7 -
<PAGE>   12

termination, cancellation or acceleration of any right or obligation of the
Company or to a loss of any benefit to which the Company is entitled under
any provision of any agreement, contract or other instrument binding upon the
Company or any permit held by the Company, or (iv) assuming the receipt of all
Required Consents, result in the creation or imposition of any Lien on any asset
of the Company.

         3.05. CAPITALIZATION. THE DISCLOSURE SCHEDULE sets forth (i) the
designation of each class of capital stock of the Company, (ii) the number of
authorized shares of each class of capital stock of the Company, (iii) the
number of outstanding shares of each class of capital stock of the Company, (iv)
the number of outstanding employee stock options, (v) the number of outstanding
employee stock options that are currently exercisable and (vi) all relevant
information regarding any outstanding convertible securities and any other
outstanding options, warrants or other rights to acquire capital stock of, or
other equity interests in, the Company. All outstanding shares of capital stock
of the Company have been duly authorized and validly issued and are fully paid
and are owned by Sellers as shown on SCHEDULE 2.03. Except as set forth in this
Section, there are no outstanding (i) shares of capital stock, other securities
or phantom or other equity interests of the Company, (ii) securities of the
Company convertible into or exchangeable for shares of capital stock or other
securities of the Company or (iii) options or other rights to acquire from the
Company any capital stock, other securities or phantom or other equity interests
of the Company (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "COMPANY SECURITIES"). There are no outstanding obligations
of the Company, actual or contingent, to issue or deliver or to repurchase,
redeem or otherwise acquire any Company Securities.

         3.06. SUBSIDIARIES. The Company does not have and never has had any
Subsidiaries or any ownership or equity interest in or control of (direct or
indirect) any other Person.

         3.07. FINANCIAL STATEMENTS. (a) Attached to the Disclosure Schedule are
true and complete copies of:

                  (i) the balance sheets of the Company as of December 31, 1999
         and December 31, 1998 and the statements of operations, cash flows and
         changes in stockholders' equity of the Company for the respective
         fiscal years then ended, as audited by PricewaterhouseCoopers LLP; and

                  (ii) the unaudited statements of income, cash flows and
         changes in stockholders' equity of the Company for the six months ended
         June 30, 2000 (collectively, the "FINANCIAL STATEMENTS").

         (b) Each of the balance sheets included in the Financial Statements
fairly presents in all material respects the financial position of the Company
as of its date, and the other statements included in the Financial Statements
fairly present in all material respects the results of operations, cash flows
and stockholders' equity, as the case may be, of the Company for the periods
therein set forth, in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved except as otherwise
stated therein and,

                                     - 8 -
<PAGE>   13

with respect to the unaudited interim financial statements, for the
omission of footnote disclosures and, to the extent consistent with generally
accepted accounting principles, normally recurring year-end audit adjustments.

         3.08. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, except
as reflected in the unaudited Financial Statements or in the Disclosure
Schedule, the Company has conducted its business in the ordinary course
consistent with past practices and there has not been:

                  (a)  any Material Adverse Change;

                  (b) any declaration, setting aside or payment of any dividend
         or other distribution with respect to any Company Securities or any
         repurchase, redemption or other acquisition by the Company of any
         outstanding shares of capital stock or other securities of, or other
         ownership interests in, the Company other than distributions that do
         not exceed, in the aggregate, the Tax Distribution Amount;

                  (c)  any amendment of any outstanding security of the Company;

                  (d)  any incurrence, assumption or guarantee by the Company of
         any indebtedness for borrowed money;

                  (e)  any creation or assumption by the Company of any Lien on
         any asset;

                  (f)  any making of any loan, advance or capital contributions
         to or investment in any Person;

                  (g) any damage, destruction or other casualty loss (whether or
         not covered by insurance) affecting the business or assets of the
         Company that, individually or in the aggregate, has had a Material
         Adverse Effect;

                  (h) any transaction or commitment made, or any contract or
         agreement entered into, by the Company relating to its assets or
         business (including the acquisition or disposition of any assets) or
         any relinquishment by the Company of any contract or other right, in
         either case, material to the Company, other than transactions and
         commitments in the ordinary course of business consistent with past
         practices and those contemplated by this Agreement;

                  (i)  any change in any method of accounting or accounting
         practice by the Company;

                  (j) any (i) grant of any severance or termination pay to any
         director, officer or employee of the Company, (ii) entering into of any
         employment, deferred compensation or other similar agreement (or any
         amendment to any such existing agreement) with any director, officer or
         employee of the Company, (iii) change in benefits payable under
         existing severance or termination pay policies of the Company or
         employment


                                     - 9 -
<PAGE>   14

         agreements to which the Company is a party or (iv) change, other
         than in the ordinary course of business, in compensation, bonus
         or other benefits payable to directors, officers or employees of the
         Company or (v) amendment of any Employee Plan or Benefit Arrangement;
         or

                  (k) any labor dispute, other than routine individual
         grievances, or any activity or proceeding by a labor union or
         representation thereof to organize any employees of the Company, which
         employees were not subject to a collective bargaining agreement at the
         Balance Sheet Date, or any lockouts, strikes, slowdowns, work stoppages
         or threats thereof known by the Company or Sellers by or with respect
         to any employees of the Company.

         3.09.  PROPERTY AND EQUIPMENT.

         (a) The Company has good and marketable indefeasible, fee simple title
to, or in the case of leased property has valid leasehold interests in, all real
and personal property and assets (whether tangible or intangible) reflected on
the Balance Sheet or acquired after the Balance Sheet Date. None of such
properties or assets is subject to any Liens, except:

         (i)      Liens disclosed on the Balance Sheet;

         (ii)     Liens for taxes not yet due or being contested in good faith
                  (and for which adequate accruals or reserves have been
                  established on the Balance Sheet); or

         (iii)    Liens which do not materially detract from the value of such
                  property or assets as now used, or materially interfere with
                  any present or intended use of such property or assets.

         (iv)     Such owned and leased real property includes all real
                  property, and only such real property, as is used or held for
                  use or to be used or held for use primarily in connection with
                  the conduct of the business and operations of the Company as
                  heretofore conducted.

         (v)      All such leases of real property are in good standing and are
                  valid, binding and enforceable in accordance with their
                  respective terms and there does not exist under any such lease
                  of real property any material default or any event which with
                  notice or lapse of time or both would constitute a material
                  default.

         (vi)     The plants, buildings and structures reflected on the Balance
                  Sheet are in good operating condition and repair and have been
                  reasonably maintained consistent with standards generally
                  followed in the industry (giving due account to the age and
                  length of the use of same, ordinary wear and tear excepted),
                  are suitable to the Company for their present uses and, in the
                  case of plants, buildings and other structures (including
                  without limitation, the roofs thereof), to the knowledge of
                  Company and Sellers, are structurally sound.

                                     - 10 -
<PAGE>   15

         (vii)    The plants, buildings and structures referred to above
                  currently have access to (1) public roads or valid easements
                  over private streets or private property for such ingress to
                  and egress from all such real properties and (2) water supply,
                  storm and sanitary sewer facilities, telephone, gas and
                  electrical connections, fire protection, drainage and other
                  public utilities, in each case as is necessary for the present
                  conduct of the business of the Company by the Company.

         (viii)   None of the material structures on such owned or leased real
                  properties encroaches upon real property of another person,
                  and no structure of any other person substantially encroaches
                  upon any of such owned or leased real properties.

         (b) There are no developments affecting any of such properties or
assets (exclusive of general economic, political or other similar developments
not unique to such properties or assets) pending or, to the knowledge of Seller,
threatened, that might materially detract from the value of such property or
assets, materially interfere with any present use of any such property or
assets.

         (c) To the Company's and Seller's knowledge, the equipment owned by the
Company has no material defects, is in good operating condition and repair
(ordinary wear and tear excepted), and is substantially adequate for the uses to
which it is being put by the Company.

         (d) The assets owned or leased by the Company, or which it otherwise
has the right to use, constitute all of the assets held for use or used in
connection with the business of the Company and are generally adequate to
conduct such business as currently conducted.

         3.10. NO UNDISCLOSED MATERIAL LIABILITIES. Except as disclosed in the
Financial Statements or the Disclosure Schedule and the Update, there are no
liabilities of the Company of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability, other than liabilities incurred in the ordinary
course of business consistent with past practice since the Balance Sheet Date,
which in the aggregate are not material to the Company.

         3.11. LITIGATION. There is no action, suit or proceeding (or any
reasonably known basis therefore) pending against, or, to the knowledge of
Sellers, any of the foregoing or any investigation commenced or threatened
against or affecting, the Company or any of its properties or the transactions
contemplated hereby before any court or arbitrator or any governmental body,
agency, official or authority.

         3.12.  MATERIAL CONTRACTS.

         (a) Except for agreements, contracts, plans, leases, arrangements or
commitments disclosed in the Disclosure Schedule or any other schedule to this
Agreement, as of the date of this Agreement the Company is not a party to or
subject to:

                                     - 11 -
<PAGE>   16

                  (i)  any lease providing for annual rentals of $100,000 or
         more;

                  (ii) any contract relating to indebtedness for borrowed money
         or the deferred purchase price of property (whether incurred, assumed,
         guaranteed or secured by any asset), except contracts relating to
         indebtedness incurred in the ordinary course of business in an amount
         not exceeding $50,000;

                  (iii) any contract for the purchase of materials, supplies,
         goods, services, equipment or other assets providing for annual
         payments by the Company of $50,000 or more;

                  (iv) any sales, distribution or other similar agreement
         providing for the sale by the Company of materials, supplies, goods,
         services, equipment or other assets providing for annual payments to
         the Company of $50,000 or more;

                  (v) any agency, dealer, sales representative or other similar
         agreement;

                  (vi) any employment or consulting agreement;

                  (vii) any partnership, joint venture or other similar
         contract, arrangement or agreement;

                  (viii) any license agreement, franchise agreement or agreement
         in respect of similar rights granted to or held by the Company;

                  (ix) any contract or other document that limits the freedom of
         the Company to compete in any line of business or with any Person or in
         any area or which would so limit the freedom of the Company after the
         Closing Date; or

                  (x) any other contract or commitment not made in the ordinary
course of business that is material to the Company.

         (b) Each agreement, contract, plan, lease, arrangement and commitment
disclosed in any schedule to this Agreement or required to be disclosed pursuant
to Section 3.12(a) is a valid and binding agreement of the Company and is in
full force and effect, and the Company is not and to the knowledge of the
Company and Sellers, no other party thereto is in default in any material
respect under the terms of any such agreement, contract, plan, lease,
arrangement or commitment.

         3.13. INSURANCE COVERAGE. The Company has furnished to Buyer a list of,
and true and complete copies of, all insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company, other than insurance policies which are
Employee Plans or Benefit Arrangements disclosed in the Disclosure Schedule.
There is no claim by the Company pending under any of such policies or bonds as
to which coverage has been questioned, denied or disputed by the underwriters of
such

                                     - 12 -
<PAGE>   17


policies or bonds. All premiums payable under all such policies and bonds
have been paid and the Company is in full compliance with the all terms
and conditions of all such policies and bonds, the failure to comply of which
could reasonably be expected to lead to the cancellation of such policies or
bonds. Such policies of insurance and bonds (or other policies and bonds
providing substantially similar insurance coverage) have been in effect since
January 1, 1997 and remain in full force and effect. The Company and Sellers
have not received any written threatened termination of, or premium increase
with respect to, any of such policies or bonds.

         3.14.  COMPLIANCE WITH LAWS; NO DEFAULTS.

         (a) The Company is not in violation of, or since, January 1, 1997 has
not violated, any applicable provisions of any laws, statutes, ordinances or
regulations, except for violations that have not had and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

         (b) The Disclosure Schedule identifies and correctly describes each
license and permit (a "PERMIT") material to the business of the Company,
together with the name of the governmental agency or entity issuing such license
or permit. To the best of the Company's and Sellers' knowledge, such licenses
and permits are valid and in full force and effect, and none of such licenses or
permits will be terminated or become terminable as a result of the consummation
of the transactions contemplated hereby.

         (c) The Company is not in default under, and no condition exists that
with notice or lapse of time or both would constitute a default under, any
judgment, order or injunction of any court, arbitrator or governmental body,
agency, official or authority.

         3.15. FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on behalf
of Sellers or the Company who might be entitled to any fee or commission from
Buyer, Merger Sub, the Company or any of their respective Affiliates upon
consummation of the transactions contemplated by this Agreement.

         3.16.  INTELLECTUAL PROPERTY.

         (a) Other than off-the-shelf, commercially available software, the
Disclosure Schedule includes a list of all of the Company's Proprietary Rights
specifying as to each, as applicable: (i) the nature of such right; (ii) the
owner of such right; (iii) the jurisdictions by or in which such right has been
issued or registered or in which an application for such issuance or
registration has been filed, including the respective registration or
application numbers; and (iv) licenses, sublicenses and other agreements as to
which the Company or any of its Affiliates is a party and pursuant to which any
Person is authorized to use any such right, including the identity of all
parties thereto, a description of the nature and subject matter thereof, the
applicable royalty and the term thereof.

         (b)(i) Since January 1, 1997, and excluding any infringement by the
Company of which neither it nor Sellers have knowledge, the Company has not been
sued or charged in writing with

                                     - 13 -
<PAGE>   18

or been a defendant in any claim, suit, action or proceeding relating to
its business that has not been finally terminated prior to the date hereof
and that involves a claim of infringement of any patents, trademarks, service
marks or copyrights, and (ii) the Company and Sellers have no knowledge of any
other material claim of infringement by the Company, and no knowledge of any
continuing infringement by any other Person of any of the Company's Proprietary
Rights. No Company Proprietary Right is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting the use thereof by the
Company or restricting the licensing thereof by the Company to any Person. The
Company has not entered into any agreement to indemnify any other Person against
any charge of infringement of any patent, trademark, service mark or copyright.

         (c) To the knowledge of the Company and Sellers, none of the processes
and formulae, research and development results and other know-how of the
Company, the value of which to the Company is contingent upon maintenance of the
confidentiality thereof, has been disclosed by the Company to any Person other
than Persons (i) that are parties to confidentiality agreements with the Company
or (ii) who are required as a matter of law to maintain the confidentiality of
the processes and formulae, research and development results and other know-how
of the Company.

         (d) To the knowledge of the Company and Sellers, no third party has
asserted any claim, or has any reasonable basis to assert any valid claim,
against the Company, which claim the Company reasonably has concluded is likely
to be made, with respect to (i) the continued employment by, or association
with, the Company of any of the present officers, employees of or consultants to
the Company or (ii) the use by the Company or any of such Persons in connection
with their activities for or on behalf of the Company of any information which
the Company or any of such Persons would be prohibited from using under any
prior agreements or arrangements or any laws applicable to unfair competition,
trade secrets or proprietary information.

         3.17.  TAXES.

         (a) The term "TAXES" as used herein means all federal, state, local,
foreign net income, alternative or add-on minimum tax, estimated, gross income,
gross receipts, sales, use, ad valorem, value added, transfer, franchise,
capital profits, lease, service, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, environmental or
windfall profit taxes, customs, duties and other taxes, governmental fees and
other like assessments and charges of any kind whatsoever, together with all
interest, penalties, additions to tax and additional amounts with respect
thereto, and the term "Tax" means any one of the foregoing Taxes. The term "TAX
RETURNS" as used herein means all returns, declarations, reports, claims for
refund, information statements and other documents relating to Taxes, including
all schedules and attachments thereto, and including all amendments thereof, and
the term "Tax Return" means any one of the foregoing Tax Returns. "TAX
AUTHORITY" means any governmental authority responsible for the imposition of
any Tax.

         (b) The Company has timely filed all Tax Returns required to be filed
and has paid all Taxes owed (whether or not shown as due on such returns),
including, without limitation, all

                                     - 14 -
<PAGE>   19

Taxes which the Company is obligated to withhold for amounts paid or owing
to employees, creditors and third parties. All Tax Returns filed by the
Company were complete and correct in all material respects, and such Tax Returns
correctly reflected the facts regarding the income, business, assets,
operations, activities, status and other matters of the Company and any other
information required to be shown thereon. None of the Tax Returns filed by the
Company or Taxes payable by the Company have been the subject of an audit,
action, suit, proceeding, claim, examination, deficiency or assessment by any
governmental authority, and, to the Knowledge of the Company and Sellers, no
such audit, action, suit, proceeding, claim, examination, deficiency or
assessment is currently pending or, to the knowledge of the Company, threatened.
The Company is not currently the beneficiary of any extension of time within
which to file any Tax Return, and the Company has not waived any statute of
limitation with respect to any Tax or agreed to any extension of time with
respect to a Tax assessment or deficiency. All material elections with respect
to Taxes affecting the Company, as of the date hereof, are set forth in the
Financial Statements or in the Disclosure Schedule. None of the Tax Returns
filed by the Company contain a disclosure statement under former Section 6661 of
the Code or Section 6662 of the Code (or any similar provision of state, local
or foreign Tax law).

         (c) The Company is not a party to any agreement, contract, arrangement
or plan that has resulted or would result, separately or in the aggregate, in
the payment of (i) any "excess parachute payments" within the meaning of Section
280G of the Code (without regard to the exceptions set forth in Sections
280G(b)(4) and 280G(b)(5) of the Code) or (ii) any amount for which a deduction
would be disallowed or deferred under Section 162 or Section 404 of the Code.
The Company has not agreed to make any adjustment under Section 481(a) of the
Code (or any corresponding provision of state, local or foreign Tax law) by
reason of a change in accounting method or otherwise, and will not be required
to make such an adjustment as a result of the transactions contemplated by this
Agreement. The Company is not, and has not been, a U.S. real property holding
company (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code.

         (d) No claim has ever been made by a Tax Authority in a jurisdiction
where the Company does not file Tax Returns that it is or may be subject to Tax
in that jurisdiction. No portion of the Purchase Price is subject to the Tax
withholding provisions of Section 3406 of the Code, or of Subchapter A of
Chapter 3 of the Code or of any other provision of law. The Company is not a
party to any joint venture, partnership, or other arrangement or contract which
could be treated as a partnership for federal income tax purposes. The Company
does not have, and has not had, a permanent establishment in any foreign
country, as defined in any applicable Tax treaty or convention between the
United States and such foreign country. None of the shares of outstanding
capital stock of the Company are subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. The Company has never filed a
consent pursuant to Section 341(f) of the Code, relating to collapsible
corporations.

         (e) The Company is not a party to any Tax sharing agreement or similar
arrangement. The Company has never been a member of a group filing a
consolidated federal income Tax Return (other than a group the common parent of
which was the Company), and the Company does not have any liability for the
Taxes of any Person (other than the Company) under Treasury

                                     - 15 -
<PAGE>   20


Regulation Section 1.1502-6 (or any corresponding provision of state, local
or foreign Tax law), as a transferee or successor, by contract, or
otherwise. The Company has no net operating losses or other tax attributes
presently subject to limitation under Sections 382, 383 or 384 of the Code, or
the federal consolidated return regulations (other than limitations imposed as a
result of the transactions contemplated pursuant to this Agreement).

         (f) There are no liens for Taxes upon any of the assets, other than for
ad valorem Taxes not yet due and payable. The unpaid Taxes of the Company did
not, as of June 30, 2000, exceed the reserve for actual Taxes (as opposed to any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) as shown on the Financial Statements dated June 30, 2000,
and will not exceed such reserve as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company in
filing their Tax Returns. The Company will not incur any liability for Taxes
from June 30, 2000 through the Closing Date other than in the ordinary course of
business and consistent with past practice.

         (g) The Disclosure Schedule contains a list of all jurisdictions
(whether foreign or domestic) to which any Tax is properly payable by the
Company.

         (h) The Company and its shareholders made (i) a valid election for the
Company to be treated as an "S corporation", as that term is defined in Section
1361(a) of the Code, for federal income tax purposes and (ii) a similar valid
election under the laws of California or any other applicable governmental
authority, and all of such elections will be in effect at the Effective Time. An
election under Section 1362(a) of the Code has been in effect with respect to
the Company and any predecessor corporation (within the meaning of Section
1374(c) of the Code) for each of its taxable years beginning December 1, 1984.
The Disclosure Schedule lists each such election and a true copy of each such
election is attached thereto; there are no grounds for the revocation of any
such election and no such election will be revoked retroactively or otherwise
except at the Effective Time by reason of the Merger. The Company has been an S
corporation at all times since December 1, 1984 through the date hereof. Neither
the Company nor any of its shareholders has taken any action that would cause,
or would result in, the termination of the S corporation status of the Company,
other than pursuant to this Agreement.

         (i)      The Company's shareholders have timely filed all Tax Returns
                  with respect to Taxes required to be paid attributable to
                  items of income, gain, deductions, losses and credits of the
                  Company, and have timely paid all such Taxes (whether or not
                  shown on such Tax Returns). There has not been any audit of
                  any Tax Return filed by a shareholder of the Company with
                  respect to, or which may relate to, items of income, gain,
                  deduction, loss or credit of the Company; and no such audit of
                  any shareholder of the Company is in progress and such
                  shareholders have not been notified by any taxing authority
                  that any such audit is contemplated or pending.

         (j) The representations of the Company and Sellers set forth in the
representation letter set forth in SCHEDULE 3.17 to this Agreement will be true
and correct as of the Closing.


                                     - 16 -
<PAGE>   21

         3.18. EMPLOYEES. The Disclosure Schedule sets forth a true and complete
list of (a) the names, titles, annual salaries and other compensation of all
salaried employees of the Company and (b) wage rates for non-salaried employees
of the Company (by classification). None of such employees has indicated to the
Company or a Seller that he or she intends to resign or retire as a result of
the transactions contemplated by this Agreement.

         3.19.  ENVIRONMENTAL COMPLIANCE.

         (a)  ENVIRONMENTAL DEFINITIONS.  The following terms, as used herein,
have the following meanings:

         "CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.

         "ENVIRONMENT" means any and all environmental media, including without
limitation ambient air, surface water, ground water, drinking water supply, land
surface or subsurface strata, and also means any indoor location other than any
such location that is intended to contain Hazardous Substances and that is
constructed, maintained and operated in compliance with all applicable
Environmental Laws.

         "ENVIRONMENTAL LAWS" means any and all existing federal, state, local
and foreign statutes, laws (including common or case law), regulations,
ordinances or rules, and any judgments, judicial decisions, orders, decrees,
plans, injunctions, Environmental Permits, or governmental restrictions, arising
thereunder, relating to the protection of human health or safety or the
Environment or to emissions, discharges or Releases of any Hazardous Substance
into the Environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
Hazardous Substance or the containment, removal or remediation thereof.

         "ENVIRONMENTAL LIABILITIES" means any and all liabilities arising in
connection with or in any way relating to the Company's business, past or
present, whether contingent or fixed, actual or potential, known or unknown,
which (i) arise under or relate to matters governed by Environmental Laws or
arise in connection with or relate to any matter disclosed in the Disclosure
Schedule and (ii) to the extent they arise from or relate in any way to actions
occurring or conditions existing before the Closing Date.

         "ENVIRONMENTAL PERMITS" means any and all governmental permits,
licenses, concessions, grants, franchises, agreements, authorizations,
registrations or other governmental approvals issued or required under any
Environmental Laws.

         "HAZARDOUS SUBSTANCE" means any and all environmental pollutants and
contaminants, and any and all toxic, caustic, radioactive or otherwise hazardous
materials, substances or wastes that are regulated under any Environmental Laws,
and includes, without limitation, petroleum and its derivatives and by-products,
and any other hydrocarbons.

                                     - 17 -
<PAGE>   22


         "RELEASE" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the Environment (including, without limitation, the abandonment or discarding of
barrels, containers, and other closed receptacles containing any Hazardous
Substance).

         (b)  ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES.

                  (i)  The Company has complied in all material respects with
         all Environmental Laws.

                  (ii) No notice, notification, demand, request for information,
         citation, summons or order has been issued, no complaint has been
         filed, no penalty has been assessed and no investigation or review is
         pending or, to the Company's and Sellers' knowledge, threatened, by any
         governmental or other potential claimant with respect to (A) any
         alleged violation by the Company of any Environmental Law, or any
         liability thereunder, (B) any alleged failure by the Company to have
         any Environmental Permit, or (C) the use, generation, treatment,
         storage, recycling, release, transportation or disposal of any
         Hazardous Substance.

                  (iii) During, or prior to, the Company's use, ownership or
         lease of any property now or previously owned, used or leased, by the
         Company there have been: (A) no urea formaldehyde or polychlorinated
         biphenyls present;; (B) no asbestos or asbestos-containing materials
         present; (C) no underground storage tanks or related piping for
         Hazardous Substances, active or abandoned present and (D) no Hazardous
         Substance, Released at, on or under any such property, in a reportable
         or threshold planning quantity, where such a quantity has been
         established by any Environmental Law.

                  (iv) The Company has not transported or arranged for the
         transportation (directly or indirectly) of any Hazardous Substance to
         any location which is (A) listed or proposed for listing on the
         National Priorities List promulgated pursuant to CERCLA or on any
         similar state list of sites requiring investigation or clean-up or (B)
         the subject of federal, state or local enforcement actions or other
         investigations which may lead to claims against the Company for any
         Environmental Liabilities including, without limitation, clean-up
         costs, remedial work, damages to natural resources or for personal
         injury claims, and claims under CERCLA.

                  (v) No oral or written notification of a Release of a
         Hazardous Substance has been filed by or on behalf of the Company and
         no property now or previously owned or leased by the Company is listed
         or, to the Company's knowledge, proposed for listing, on the National
         Priorities List promulgated pursuant to CERCLA or on any similar state
         list of sites requiring investigation or clean-up.

                  (vi) No notice, lien or other restriction relating to the
         presence of Hazardous Substances or otherwise arising under and
         Environmental Law has been placed on any


                                     - 18 -
<PAGE>   23

         property or facility now or (to the best of the Company's and Seller's
         knowledge) previously owned or leased by the Company, and no
         governmental actions have been taken or are in process that could
         subject any such property or facility to such a notice, lien or other
         restriction. The Company is not required to place any such notice, lien
         or other restriction relating to the presence of Hazardous Substances
         or otherwise arising under any Environmental Law at any property used
         in connection with the operation of its business or in any deed to such
         property.

                  (vii) There have been no environmental investigations,
         studies, audits, tests, reviews or other analyses conducted by or for
         the Company, or which are or were in the Company's possession, in
         relation to any property or facility now or previously owned or leased
         by the Company, which have not been delivered to Buyer.

                  (viii) The Company has applied for and received all
         Environmental Permits required in connection with its business. The
         Disclosure Schedule sets forth a list of all such Environmental
         Permits, each of which is in full force and effect. No suspension or
         cancellation is threatened and there is no basis for believing that any
         such Environmental Permit will not be renewable upon expiration. Each
         such Environmental Permit will continue to be in full force and effect
         immediately following the Closing in accordance with the terms thereof
         as in effect immediately prior to the Closing, and the consummation of
         the transactions contemplated herein will not conflict with, result in
         a violation or breach of or constitute a default under (or would result
         in a violation, breach or default with the giving of notice or the
         passage of time or both) any such Environmental Permit.

                  (ix) The Company has not contracted, or otherwise agreed, to
         indemnify any Person, in whole or in part, with respect to any
         liability, claim, costs, fees, or demand, known or unknown, arising
         under, or related to, any Environmental Law. The Company has not
         contractually agreed to assume any liability, costs, expenses, claims
         or fees arising under any Environmental Law, nor is it obligated under
         any agreement to undertake any remediation, removal, response or site
         assessment activities at any site, property or location.

         3.20. CUSTOMERS AND SUPPLIERS. The Company has not received notice from
a customer , or group of customers that are under common ownership or control,
and that accounted for 10% or more of the aggregate products and services
furnished by the Company during the past 18 months that such customer or group
of customers has stopped or intends to stop purchasing the Company's products or
services, nor has the Company lost any supplier, or group of suppliers that are
under common ownership or control, the loss of which would be reasonably
expected to have a Material Adverse Effect.

         3.21. TRANSACTIONS WITH AFFILIATES. Except as set forth in the
Disclosure Schedule, there are no loans, leases, royalty agreements or other
continuing transactions between the Company and any Seller, any Affiliate of any
Seller, or any member of any Seller's family. To the knowledge of the Company
and Sellers, none of the officers or directors of the Company or

                                     - 19 -
<PAGE>   24


Sellers (a) has any material direct or indirect interest in any entity that
does business with the Company; (b) has any direct or indirect interest in
any property, asset or right that is used by the Company in the conduct of its
business; or (c) has any contractual relationship with the Company other than
such relationships that results solely from being an officer, director, employee
or stockholder of the Company.

         3.22. OTHER INFORMATION. None of this Agreement, including the
schedules and exhibits, the Ancillary Agreements, nor the Financial Statements
delivered to Buyer in connection with the transactions contemplated by this
Agreement, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein not
misleading.

         3.23. INTERCOMPANY ARRANGEMENTS. The Company does not own any note,
bond, debenture or other indebtedness, and is not otherwise a creditor of any
Seller or any of its Affiliates. Since the Balance Sheet Date there has not been
any payment by the Company to any Seller or any of its Affiliates, charge by any
Seller or any of its Affiliates to the Company or other transaction between the
Company and a Seller or any of its Affiliates.

         3.24. INVENTORIES. The inventories set forth in the Balance Sheet were
properly stated therein at the lesser of cost or net realizable value determined
in accordance with generally accepted accounting principles consistently applied
by the Company. Since the Balance Sheet Date, the inventories of the Company
have been maintained in the ordinary course of business. All such inventory is
owned free and clear of all Liens except as disclosed in the Financial
Statements. All of the inventory recorded on the Balance Sheet consists of, and
all inventory on the Closing Date will consist of, items of a quality usable or
saleable in the ordinary course of business consistent with past practices and
are and will be in quantities sufficient for the normal operation of the
business of the Company in accordance with past practice, except for obsolete
items and items of below standard quality, all of which have been written down
to net realizable value in the Financial Statements.

         3.25. RECEIVABLES. All accounts, notes receivable and other receivables
(other than receivables collected since the Balance Sheet Date) reflected on the
Balance Sheet are, and all accounts and notes receivable of the Company at the
Closing Date arose in the ordinary course of business of the Company and in bona
fide transactions and are valid. All accounts, notes receivable and other
receivables of the Company at the Balance Sheet Date have been included in the
Balance Sheet.

         3.26. PRODUCTS. Each of the products produced or sold by the Company
(i) is, and at all times has been, in compliance in all material respects with
all applicable federal, state, local and foreign laws and regulations and (ii)
is, and at all relevant times has been, fit for the ordinary purposes for which
it is intended to be used and conforms in all material respects to any promises
or affirmations of fact made on the container or label for such product or in
connection with its sale. There is no known design defect with respect to any of
such products and each of such products contains adequate warnings, presented in
a reasonably prominent manner, in accordance with applicable laws and current
industry practice with respect to its contents and use. The


                                     - 20 -
<PAGE>   25


Company has no products placed with its customers under an understanding
permitting their return to the Company other than pursuant to a breach of
warranty.

         3.27 LABOR MATTERS. The Company is in compliance with all currently
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice, failure to comply with which or engagement in which, as the case
may be, would reasonably be expected to have a Material Adverse Effect. There is
no unfair labor practice complaint pending or, to the knowledge of Seller,
threatened against the Company before the National Labor Relations Board.

         3.28 AFFILIATE AGREEMENTS. The Company has consulted with its counsel
and has been advised that all persons who may be deemed "affiliates" of the
Company as such term is used in Rule 145 under the Securities Act, and
applicable accounting pronouncements of the Commission (each such Person, a
"COMPANY AFFILIATE") are listed on SCHEDULE 8.04(b).

         3.29 APPROVALS. On or before the Closing, the Agreement and Certificate
of Merger have been duly approved and adopted by the affirmative vote of a
number of the outstanding shares of the Company's capital stock that equals or
exceeds the number of such shares required by law to approve the Agreement and
the Certificate of Merger.

         3.30 RELIANCE. The representations and warranties of the Buyer and
Merger Sub set forth in this Agreement, and in any certificate or other writing
delivered by the Buyer or Merger Sub pursuant hereto, constitute all of the
representations and warranties of the Buyer and Merger Sub upon which The
Company and Sellers have relied in entering into and performing this Agreement.


                                   ARTICLE IV

                                 REPRESENTATIONS
                       AND WARRANTIES RELATING TO SELLERS

         Each Seller, severally but not jointly, represents and warrants to, and
agrees with, Buyer and Merger Sub as follows:

         4.01. TITLE TO AND VALIDITY OF SHARES. Seller now has, and on the
Closing Date will have, good and marketable title to and unrestricted power to
vote and transfer the Shares designated as owned by such Seller opposite such
Seller's name on SCHEDULE 2.03, free and clear of any Lien and, upon payment
therefor and delivery to Buyer thereof in accordance with the terms of this
Agreement, Buyer will obtain good and marketable title to such Shares free and
clear of any Lien. All Shares owned by such Seller have been duly authorized and
validly issued and are fully paid and non-assessable. All Shares to be sold by
such Seller are registered in the name of such Seller.


                                     - 21 -
<PAGE>   26

         4.02. AUTHORITY. Such Seller has the legal power, right and authority
to enter into and perform this Agreement and the Ancillary Agreements to which
he is a party, and to perform each of his obligations hereunder and thereunder.
The execution, delivery and performance of this Agreement and the Ancillary
Agreements to which he is a party by such Seller (a) require no action by or in
respect of, or filing with, or consent of, any governmental body, agency or
official or any other Person and (b) do not contravene, or constitute a default
under, any provision of applicable law or regulation or of any agreement,
judgment, injunction, order, decree or any other instrument binding upon such
Seller. This Agreement and the Ancillary Agreements to which he is a party have
been duly executed and delivered by such Seller and constitute valid and binding
obligations of such Seller, enforceable in accordance with their terms.

         4.03. POWER TO ACT AS TRUSTEE OR EXECUTOR. If such Seller is serving as
trustee or executor with respect to its Shares, such Seller is duly authorized
and empowered by the instruments creating such trust or trusts or by the will of
which such Seller is acting as executor and under applicable law to enter into
this Agreement and the Ancillary Agreements to which he is a party with respect
to the Shares held by such Seller and to consummate the transactions
contemplated herein.

         4.04.  SECURITIES ACT REPRESENTATIONS.

         (a) Seller has substantial experience in evaluating and investing in
private placement transactions of securities in companies similar to the Buyer
such that Seller is capable of evaluating the merits and risks of its investment
in the Buyer and has the capacity to protect its own interest. Seller is an
"accredited investor" as that term is defined in Rule 501 promulgated under the
Securities Act.

         (b) Seller is acquiring the Buyer Stock for investment for Seller's own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof. Seller understands that the Buyer
Stock has not been, and will not be when issued, registered under the Securities
Act and is being issued pursuant to a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the representations expressed herein.

         (c) Seller acknowledges that the Buyer Stock must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from such registration is available. Seller is aware of the provisions of Rule
145 promulgated under the Securities Act which permit limited resale of shares
received in certain private placements subject to the satisfaction of certain
conditions.

         (d) Seller acknowledges that the certificates representing Buyer Stock
will bear a legend substantially as follows:

                       "The securities represented hereby have not been
               registered under the Securities Act of 1933, as amended, and may
               not be sold, transferred

                                     - 22 -
<PAGE>   27

               or otherwise disposed of except in accordance with the terms
               thereof and unless registered with the Securities and Exchange
               Commission of the United States and the securities regulatory
               authorities of certain states or unless an exemption from
               registration is available."


                                    ARTICLE V

             REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB

         Buyer and Merger Sub hereby jointly and severally represent and warrant
to the Company and Sellers that:

         5.01. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. Buyer is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where failure
to be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect. Buyer has heretofore delivered to the Company true and complete
copies of the corporate charter and bylaws of Buyer as currently in effect.
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, is recently
organized and has conducted no business activities other than as contemplated by
this Agreement.

         5.02. CORPORATE AUTHORIZATION. The execution, delivery and performance
by Buyer and Merger Sub of this Agreement and the Ancillary Agreements to which
they are party and the consummation by Buyer and Merger Sub of the transactions
contemplated hereby and thereby are within the corporate powers of Buyer and
Merger Sub, respectively and have been duly authorized by all necessary
corporate action on the part of such party. Buyer's Board of Directors has
approved Buyer's execution of this Agreement and consummation of the
transactions contemplated hereby. This Agreement and the Ancillary Agreements to
which they are party have been duly executed and delivered by Buyer and Merger
Sub and constitute valid and binding agreements of Buyer and Merger Sub,
respectively.

         5.03.  GOVERNMENTAL AUTHORIZATION.

         (a) The execution, delivery and performance by Buyer and Merger Sub of
this Agreement and the Ancillary Agreements to which they are party require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority other than (i) compliance with any applicable requirements
of the HSR Act; and (ii) compliance with any applicable requirements of the 1934
Act.

                                     - 23 -
<PAGE>   28

         (b) No consent, approval, waiver or other action by any Person (other
than any governmental body, agency, official or authority referred to in (a)
above) under any contract, agreement, indenture, lease, instrument or other
document to which Buyer or Merger Sub is a party or by which it is bound is
required or necessary for the execution, delivery and performance of this
Agreement of the Ancillary Agreements to which they are party by Buyer and
Merger Sub or the consummation of the transactions contemplated hereby or
thereby.

         5.04. NON-CONTRAVENTION. The execution, delivery and performance by
Buyer and Merger Sub of this Agreement and the Ancillary Agreements to which
they are party and the consummation by Buyer and Merger Sub of the transactions
contemplated hereby and thereby do not and will not (i) contravene or conflict
with the corporate charter or bylaws of Buyer or Merger Sub, (ii) assuming
compliance with the matters referred to in Section 5.03, contravene or conflict
with any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to Buyer or Merger Sub, (iii) violate, conflict with
or constitute a default under any material contract to which Buyer or Merger Sub
is a party or by which Buyer's or Merger Sub's property is bound, or (iv)
require the consent of any party to any material contract to which Buyer or
Merger Sub is a party or by which Buyer's or Merger Sub's property is bound.

         5.05. FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on behalf
of Buyer or Merger Sub who might be entitled to any fee or commission from the
Company, Sellers or any Affiliate thereof upon consummation of the transactions
contemplated by this Agreement.

         5.06. PURCHASE FOR INVESTMENT. Buyer is acquiring the Shares for
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof.

         5.07. LITIGATION. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of Buyer or Merger Sub threatened against
or affecting, Buyer or any of its subsidiaries or any of their properties or
rights before any court or arbitrator or any governmental body, agency or
official which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated hereby.

         5.08. BUYER STOCK. The Buyer Stock has been duly authorized and, when
issued in accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Buyer's common stock, $0.125 par value per share, with
no personal liability attaching to the ownership thereof and will be free and
clear of all liens, charges, restrictions, claims and encumbrances imposed by or
through Buyer, except as may arise in connection with or be imposed as a result
of the transactions contemplated hereby.

         5.09. CAPITALIZATION OF BUYER AND MERGER SUB. As of July 29, 2000, the
authorized capital stock of Buyer consists of 1 billion shares of common stock.
As of such date, 196,957,131 shares of Buyer Stock are issued and outstanding,
of which 23,516,330 shares of Buyer Stock are held in the treasury of Buyer, and
29,979,859 shares of Buyer Stock have been reserved for issuance upon exercise
of options granted or reserved for grant under Buyer's

                                     - 24 -
<PAGE>   29


various stock option and stock purchase plans for its employees and
directors. All of the shares of Buyer Stock have the same voting and other
rights.

         5.10. REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1998, Buyer
has filed all forms, reports and documents with the Commission required to be
filed by it pursuant to the federal securities laws and the Commission rules and
regulations thereunder, and all such forms, reports and documents filed with the
Commission have complied in all material respects with all applicable
requirements of the federal securities laws and the Commission rules and
regulations promulgated thereunder. Buyer has heretofore made available to the
Company and Sellers, true and complete copies of its Form 10-K for the period
ended December 31, 1999 and its Quarterly Report on Form 10-Q for the period
ended March 31, 2000, and Buyer shall forward to Sellers true and correct copies
of all forms, reports, documents and amendments thereto filed by it with the
Commission after the date hereof prior to Closing all in the form (including
exhibits) so filed (collectively, the "REPORTS"). All forms, reports, documents,
amendments thereto and other filings filed by Buyer with the Commission,
including the Reports, prior to the date hereof are collectively referred to
herein as the "COMMISSION FILINGS". As of their respective dates, the Commission
Filings did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited financial statements of Buyer for its fiscal year
ended December 31, 1999, included in the Commission Filings (the "BUYER AUDITED
FINANCIAL STATEMENTS"), were prepared in accordance with generally accepted
accounting principles consistently applied and fairly present the consolidated
financial position of Buyer as of the dates thereof and the results of its
operations, shareholders' equity and cash flows for the period then ended. The
unaudited financial statements of Buyer for the three-month period ended March
31, 2000 included in the Commission Filings, have been prepared in accordance
with generally accepted accounting principles consistently applied and fairly
present the consolidated financial position of Buyer as of March 31, 2000 and
the results of operations, shareholders' equity and cash flows for the three
month period then ended in accordance with generally accepted accounting
principles consistently applied (subject, in the case of unaudited statements,
to the absence of footnote disclosure and in the case of unaudited interim
statements to year-end adjustments, which will not be material either
individually or in the aggregate).

         5.11. ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as expressly
disclosed in the Reports filed since December 31, 1999, there has not been any
Material Adverse Change in the business, assets, condition (financial or
otherwise), or results of operation of Buyer.

         5.12. FORM S-3 ELIGIBILITY. Buyer meets the "Registrant Requirements"
set forth in Instruction I.A. of the General Instructions for the use of Form
S-3 (Registration Statement under the Securities Act).

         5.13 DOCUMENTS NOT MISLEADING. Neither this Agreement, including all
schedules and exhibits, nor the Ancillary Agreements delivered by Buyer or
Merger Sub to Seller and the Company contains any untrue statement of any
material fact or omits to state any material fact required to be stated in order
to make such statement or document not misleading.

                                     - 25 -
<PAGE>   30

         5.14 TAX REPRESENTATION LETTER. The representations of Buyer and Merger
Sub set forth in the representation letter set forth in SCHEDULE 5.14 will be
true and correct as of the Closing.

         5.15 RELIANCE. The representations and warranties of The Company and
Sellers set forth in this Agreement, in the Disclosure Schedule and the Update,
and in any certificate or other writing delivered by The Company or Sellers
pursuant hereto, constitute all of the representations and warranties of the
Company and Sellers upon which the Buyer and the Merger Sub have relied in
entering into and performing this Agreement.

                                   ARTICLE VI

                      COVENANTS OF THE COMPANY AND SELLERS

         The Company and each Seller agree that:

         6.01. CONDUCT OF THE COMPANY. From the date hereof until the Closing
Date, the Company shall conduct its business in the ordinary course consistent
with past practices and use commercially reasonable efforts to preserve intact
its business organization and relationships with third parties and keep
available the services of its present officers and employees. If requested by
Buyer, the Company will confer on a regular and frequent basis with
representatives of Buyer to report operational matters of a material nature and
to report on the general status of the Company's ongoing operations. Without
limiting the generality of the foregoing, from the date hereof until the Closing
Date, the Company will not:

                  (a)  adopt or propose any change in its corporate charter or
         bylaws;

                  (b) merge or consolidate with any other Person or acquire
         assets of the business of any other Person for a purchase price in
         excess of $10,000;

                  (c) sell, lease, license, encumber or otherwise dispose of any
         assets or property except (i) pursuant to existing contracts or
         commitments and (ii) in the ordinary course consistent with past
         practices;

                  (d) take any action that would adversely affect the parties'
         ability to account for the transaction contemplated by this Agreement
         as a "pooling of interests" in accordance with United States generally
         accepted accounting principles, as acceptable to the Commission or pay
         any dividend or make any other distribution of cash, shares or property
         other than distributions that do not exceed, in the aggregate, the Tax
         Distribution Amount;

                  (e) grant any bonus, severance or termination pay to any
         officer, director or independent contractor or, except in the ordinary
         course of business consistent with past practices, to any employee of
         the Company;

                                     - 26 -
<PAGE>   31

                  (f) other than in the ordinary course of business consistent
         with prior practice, enter into or terminate any contracts,
         arrangements, plans, agreements, leases, licenses, franchises, permits,
         indentures, authorizations, instruments, or commitments, or amend or
         otherwise change in any material respect the terms thereof in a manner
         adverse to the Company;

                  (g) modify in any material respect existing discounts or other
         terms and conditions with dealers, distributors and other resellers of
         the Company's products or services in a manner adverse to the Company;

                  (h) incur any indebtedness for borrowed money by way of direct
         loan, sale of debt securities, purchase money obligation, conditional
         sale, guarantee or otherwise;

                  (i) adopt or amend, or modify in any material respect, any
         Employee Plan or Benefit Arrangement or pay any pension, other
         retirement benefit not required by any existing Employee Plan or
         Benefit Arrangement; enter into or modify any employment or severance
         contracts, increase the salaries, wage rates or fringe benefits of its
         officers, directors or employees;

                  (j) make or change any material election in respect of Taxes,
         adopt or change any accounting method in respect of Taxes, enter into
         any closing agreement, settle any claim or assessment in respect of
         Taxes, or consent to any extension or waiver of the limitation period
         applicable to any claim or assessment in respect of Taxes; or

                  (k) agree or commit to do any of the foregoing.

The Company will not (i) take or agree or commit to take any action that would
make any representation and warranty of the Company or Sellers under this
Agreement on the date of its execution and delivery inaccurate in any material
respect at, or as of any time prior to, the Closing Date or (ii) omit or agree
or commit to omit to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect at any such
time.

         6.02. ACCESS TO INFORMATION. From the date hereof until the Closing
Date, Sellers and the Company (a) will give Buyer, its counsel, financial
advisors, auditors and other authorized representatives full access to the
offices, properties, books and records of the Company, (b) will furnish Buyer's
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to the Company as
such Persons may reasonably request, and (c) will instruct the employees,
counsel and financial advisors of the Company to cooperate with Buyer in its
investigation of the Company; PROVIDED that no investigation pursuant to this
Section shall affect any representation or warranty given by the Company or
Sellers hereunder.

         6.03. NOTICES OF CERTAIN EVENTS. From the date hereof until the Closing
Date, the Company will promptly notify Buyer of:

                                     - 27 -
<PAGE>   32

                  (i) any notice from any Person alleging that the consent of
         such Person is or may be required in connection with the transactions
         contemplated by this Agreement;

                  (ii)  any notice from any governmental or regulatory agency or
         authority in connection with the transactions contemplated by this
         Agreement;

                  (iii) any actions, suits, claims or proceedings commenced or,
         to its Knowledge, any of the foregoing threatened or any investigation
         commenced against the Company or that relate to the consummation of the
         transactions contemplated by this Agreement; and

                  (iv) any event which would or reasonably could be expected to
         render any representation or warranty of Company or a Seller untrue or
         inaccurate in any material respect or would or might cause Company or a
         Seller to fail to comply with its obligations hereunder in any material
         respect.

         6.04. RESIGNATIONS. The Company will deliver to Buyer the resignations
of all officers and directors of the Company from their positions with the
Company at or prior to the Closing Date, unless otherwise specified by Buyer.

         6.05.  NONCOMPETITION; NONSOLICITATION.

         (a) Sellers each, severally and not jointly, agree that for a period of
three (3) full years from the Closing Date, neither they nor any of their
Affiliates shall:

                  (i) own, manage, operate, join, control, be employed or
         retained by or participate in (including permitting such Sellers' name
         or business name to be associated with) any business that competes with
         the business of the Company as it exists on the Closing Date ("Engage
         in Competition"), directly or indirectly, or derive any financial
         benefits whatsoever from, or be an officer, director, employee,
         employer, partner, joint venturer, agent, consultant, member, managing
         member, independent contractor or shareholder of, any business which
         Engages in Competition, or renders assistance or advice for which
         Sellers, or an Affiliate of Sellers, receives any financial
         remuneration, directly or indirectly, to any person, firm or enterprise
         which it so engages; provided, however, that no Seller shall be in
         violation of this covenant solely by reason of his ownership of less
         than five percent (5%) of the outstanding stock of a Person, so long as
         such Seller has no active participation in the management or business
         of such Person; or

                  (ii) approach, solicit or accept business from, or otherwise
         do business or communicate in any way with any customer, supplier,
         licensee, sales representative, distributor, dealer, manufacturer,
         vendor, consultant or other business relation (collectively
         "CUSTOMERS") of Buyer or its Affiliates thereof with respect to any
         activity which constitutes Engaging in Competition or induce or attempt
         to induce any Customers of Buyer or its Affiliates to cease doing
         business with Buyer or its Affiliates.

                                     - 28 -
<PAGE>   33


         (b) For the purposes of Section 6.05(a) of this Agreement, a business
or other commercial entity "Engaging in Competition" shall mean a company,
business, or entity whose products or services are similar in function or
capability or otherwise directly competitive to the products or services being
designed, conceived, developed, marketed, manufactured, distributed, provided or
sold by the Company as of the Closing Date, including printed circuit boards and
back panels.

         (c) Sellers each, severally and not jointly, further agree that for a
period of five (5) full years from the Closing Date, neither they nor any of
their Affiliates shall:

                  (i) solicit, induce or attempt to induce any person who is
         then in the employ of or an independent contractor with Buyer or its
         Affiliates to leave the employ of, or terminate his/her or its
         contractual relationship with Buyer or its Affiliates, or in any way
         interfere with the relationship between Buyer or its Affiliates and any
         such employee or independent contractor, or employ or attempt to employ
         directly or through another entity any such person or in an activity
         which constitutes Engaging in Competition, or approach any such
         employee or independent contractor for any of the foregoing purposes;

                  (ii)     aid, assist or counsel any other Person to do any of
         the above; or

                  (iii)    engage in a course of conduct for the purpose of
         circumventing the provisions of this Section.

         (d) Sellers hereby agree that each provision and the subparts of each
provision herein shall be treated as separate and independent clauses, and the
unenforceability of any one clause shall in no way impair the enforceability of
any of the other clauses in this Section. Moreover, if one or more of the
provisions contained in this Section shall for any reason be held to be
excessively broad as to scope, activity, subject or otherwise so as to be
unenforceable at law, such provision or provisions shall be construed by the
appropriate judicial body by limiting or reducing it or them, so as to be
enforceable to the maximum extent compatible with the applicable law as it shall
then appear. Sellers hereby further agree that the language of all parts of this
Section shall in all cases be construed as a whole according to its fair meaning
and not strictly for or against either of the parties. Any waiver by the Buyer
of a breach of any provision of this Section shall not operate or be construed
as a waiver of any subsequent breach of such provision or any other provision
hereof.

         (e) Sellers' obligations under this Section shall be binding upon their
heirs, executors, administrators and legal representatives.

         (f) Sellers agree that any breach of this Section by them will cause
irreparable damage to the Buyer and that in the event of such breach the Buyer
shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of Sellers obligations hereunder. The Buyer may apply for such
injunctive relief in any court of competent jurisdiction without the necessity
of posting any bond or other security. Buyer agrees that before pursuing any of
its remedies for breach by a Seller of this

                                     - 29 -
<PAGE>   34


Section 6.05, it shall give such Seller written notice of such breach and
30 days to cure such breach to the reasonable satisfaction of Buyer.

         6.06. CONFIDENTIALITY. The Company, and Sellers and their Affiliates,
will hold, and will use their best efforts to cause their respective officers,
directors, employees, accountants, counsel, consultants, advisors and agents to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents and
information concerning Buyer or Merger Sub furnished to the Company, or to
Sellers or their Affiliates, in connection with the transactions contemplated by
this Agreement, and all confidential documents and information concerning the
Company, except to the extent that such information can be shown to have been
(i) previously known on a nonconfidential basis by Sellers, (ii) in the public
domain through no fault of Sellers or (iii) later lawfully acquired by Sellers
from sources other than the Company or Buyer; PROVIDED that the Company and
Sellers may disclose such information to their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents in connection
with the transactions contemplated by this Agreement so long as such persons are
informed by the Company and Sellers of the confidential nature of such
information and are directed by the Company and Sellers to treat such
information confidentially. The obligation of the Company, and Sellers and their
Affiliates, to hold any such information in confidence shall be satisfied if
they exercise the same care with respect to such information as they would take
to preserve the confidentiality of their own similar information. If this
Agreement is terminated, the Company, and Sellers and their Affiliates, will,
and will use their best efforts to cause their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents to, destroy or
deliver to Buyer, upon request, all documents and other materials, and all
copies thereof, obtained by the Company, or by Sellers or their Affiliates, or
on their behalf from Buyer in connection with this Agreement that are subject to
such confidence.

         6.07. CONTINUING DISCLOSURE. From the date hereof until the Closing
Date, the Company and Sellers shall have the continuing obligation promptly to
advise Buyer with respect to any matter hereafter arising or discovered that, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in a schedule to this Agreement, or that constitutes a
breach or prospective breach of this Agreement by the Company or a Seller;
provided, however that Buyer shall have no remedy to the extent Buyer is
notified of any such matter prior to Closing and subsequently waives such matter
in writing.

         6.08. STOCKHOLDER APPROVAL. To the extent required, each Seller in his
capacity as a stockholder agrees to support and to vote all of such Seller's
shares of Company Common Stock for the approval of this Agreement and the
Ancillary Agreements.

         6.09. EXCLUSIVITY; ACQUISITION PROPOSALS. Unless and until this
Agreement will have been terminated by either party pursuant to Article XII
hereof and thereafter subject to Section 12.02, neither the Company nor any
Seller will (and each will use its reasonable best efforts to ensure that none
of its officers, directors, agents, representatives or affiliates) take or cause
or permit any Person to take, directly or indirectly, any of the following
actions with any party other than Buyer and its designees: (i) solicit,
encourage, initiate or participate in any negotiations,


                                     - 30 -
<PAGE>   35

inquiries, or discussions with respect to any offer or proposal to acquire
all or any significant part of the Company's business, assets or capital
stock, whether by merger, consolidation, other business combination, purchase of
assets, tender or exchange offer or otherwise (each of the foregoing, an
"ACQUISITION TRANSACTION"), (ii) disclose, in connection with an Acquisition
Transaction, any information not customarily disclosed to any Person other than
Buyer or its representatives concerning the Company's business or properties or
afford to any Person other than Buyer or its representatives access to its
properties, books, or records, except in the ordinary course of business and as
required by law or pursuant to a governmental request for information, (iii)
enter into or execute any binding or non-binding letter of intent, memorandum of
understanding or other document or agreement relating to an Acquisition
Transaction. In the event that the Company or a Seller is contacted by any third
party expressing an interest in discussing an Acquisition Transaction, the
Company or such Seller will promptly notify Buyer of such contact and the
identity of the party so contacting the Company or such Seller.

         6.10. THE DISCLOSURE SCHEDULE. As soon as practicable, but in no event
later than 5:00 PM Eastern Time on August 4, 2000, the Company and Sellers shall
deliver to Buyer the Disclosure Schedule and all schedules and exhibits to be
attached thereto. The Disclosure Schedule shall: (a) contain accurate, true,
correct and complete information and data; (b) be executed by the Company and
Sellers and dated the date of this Agreement; (c) be deemed to modify the
representations, warranties and obligations of the Company and Sellers made
pursuant to Articles III ,IV and IX of this Agreement, or constitute
qualifications or exceptions thereto; and (d) be updated, amended and
supplemented, as appropriate through the final Update. Terms used and defined in
this Agreement shall have the same definition when used in the Disclosure
Schedule and the Update and the schedules and exhibits attached thereto.

         The Update and all schedules and exhibits thereto shall include all
information relevant to the disclosures therein which relates to events which
have occurred after the date of the Disclosure Schedule until the Closing Date,
and Sellers shall deliver a draft of the Update to Buyer at least five (5) days
prior to the Closing Date and shall deliver the final Update to Buyer on the
Closing Date. The Update shall contain accurate, true, correct and complete
information and data and shall also be deemed to modify the representations,
warranties and obligations of the Company and Sellers made pursuant to Articles
III, IV and IX of this Agreement, or constitute qualifications or exceptions
thereto.

         As soon as practicable and in any event within seven (7) business days
after its receipt of the Disclosure Schedule, Buyer shall give Company and
Sellers notice if, on the basis of any information contained in the Disclosure
Schedule or any schedules or exhibits thereto, or of any information obtained
during the course of Buyer's own investigation through that date, it has
determined that it wishes to terminate this Agreement. Such notice shall specify
the information contained in the Disclosure Schedule, or any schedules or
exhibits thereto, or obtained during such investigation which is the basis for
such decision. The Company and Sellers shall have three (3) business days to
review with Buyer such information, and if Buyer does not withdraw its notice by
the end of such three (3) business day period, then all further obligations of
Buyer and of the Company and Sellers shall terminate without further liability
of Buyer to Sellers or of Company and Sellers to Buyer, subject, however, to the
obligations of

                                     - 31 -
<PAGE>   36

the parties under Section 12.02. If Buyer does not advise Company and Sellers
within seven (7) business days after its receipt of the Disclosure
Schedule that it wishes to terminate the Agreement, Buyer shall be deemed to
have been satisfied with the information relating to the Company and Sellers
contained in the Disclosure Schedule, any schedules or exhibits thereto and any
information obtained during the course of Buyer's investigation.

         6.11. REPAYMENT OF LOAN. Following the Closing Date but prior to
January 31, 2001, each Seller shall repay to the Company, by certified check or
wire transfer, the loan to such Seller from the Company in the principal amount
set forth on SCHEDULE 6.11 hereto. If any Seller shall fail to repay such amount
on or before such date, the parties acknowledge that Buyer shall have the right
to proceed directly against such Seller to recover such amount.


                                   ARTICLE VII

                               COVENANTS OF BUYER

         Buyer agrees that:

         7.01. CONFIDENTIALITY. Prior to the Closing Date and after any
termination of this Agreement, Buyer and its Affiliates will hold, and will use
their best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
Company and the Subsidiaries furnished to Buyer or its Affiliates in connection
with the transactions contemplated by this Agreement, except to the extent that
such information can be shown to have been (i) previously known on a
nonconfidential basis by Buyer, (ii) in the public domain through no fault of
Buyer or (iii) later lawfully acquired by Buyer from sources other than the
Company or its Subsidiaries; PROVIDED that Buyer may disclose such information
to its officers, directors, employees, accountants, counsel, consultants,
advisors and agents in connection with the transactions contemplated by this
Agreement so long as such Persons are informed by Buyer of the confidential
nature of such information and are directed by Buyer to treat such information
confidentially. The obligation of Buyer and its Affiliates to hold any such
information in confidence shall be satisfied if they exercise the same care with
respect to such information as they would take to preserve the confidentiality
of their own similar information. If this Agreement is terminated, Buyer and its
Affiliates will, and will cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, destroy or deliver to
Seller, upon request, all documents and other materials, and all copies thereof,
obtained by Buyer or its Affiliates or on their behalf from a Seller, the
Company or the Subsidiaries in connection with this Agreement that are subject
to such confidence.

         7.02. REGISTRATION ON AND EFFECTIVENESS OF FORM S-3. Promptly following
the Closing, at the expense of Buyer, Buyer shall file a registration statement
on Form S-3 (the "REGISTRATION STATEMENT") to register the Buyer Stock. Buyer
shall use commercially reasonable efforts to cause the Registration Statement to
become effective (but in no event prior to expiration of any

                                     - 32 -
<PAGE>   37

lock-up period required in order for the transactions contemplated hereby
to be accounted for as a "pooling of interests") and to remain effective
until the earlier to occur of (i) two years from the date such Registration
Statement first becomes effective, and (ii) such time as all Buyer Stock has
been sold. Buyer shall use commercially reasonable efforts to take all
reasonable and customary actions in connection with the filing and effectiveness
of the Registration Statement (including but not limited to the delivery of
prospectuses, compliance with blue sky and notice of any suspension of the
Registration Statement) to enable Sellers to sell the Buyer Stock. The
Registration Statement shall comply in all material respects with all applicable
requirements of the federal securities laws and the Commission rules and
regulations promulgated thereunder.

         7.03 NOTICES OF CERTAIN EVENTS. From the date hereof until the Closing
Date, Buyer will promptly notify the Company and Sellers of any event occurring
subsequent to the date of this Agreement which would or might render any
representation or warranty of Buyer or Merger Sub untrue or inaccurate in any
material respect or would or reasonably could be expected to cause Buyer or
Merger Sub to fail to comply with its obligations hereunder in any material
respect.

         7.04 CONTINUITY OF BUSINESS ENTERPRISE. Buyer will cause the Company to
continue its historic business or use a significant portion of its historic
business assets in a business.


                                  ARTICLE VIII

                            COVENANTS OF ALL PARTIES

         The parties hereto agree that:

         8.01. BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each party will use its commercially reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement; provided, however, that no party
shall be required to appeal in a court of law any denial of regulatory approval,
to commence any litigation, or to agree to conditions that may be burdensome to
such party in its reasonable discretion in order to obtain any such approval.
Merger Sub, Sellers and Buyer each agree, and Sellers, prior to the Closing, and
Buyer, after the Closing, agree to cause the Company, to execute and deliver
such other documents, certificates, agreements and other writings and to take
such other actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement.

         8.02. CERTAIN FILINGS. The Company, Merger Sub, Sellers and Buyer shall
cooperate with each other (a) in determining whether any action by or in respect
of, or filing with, any governmental body, agency, official or authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement and (b) in
taking such

                                     - 33 -
<PAGE>   38

actions or making any such filings, furnishing information required in
connection therewith and seeking timely to obtain any such actions, consents,
approvals or waivers.

         8.03. PUBLIC ANNOUNCEMENTS. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.

         8.04.  POOLING.

         (a) Each party will use all reasonable best efforts, will cooperate
fully and will take all actions as are reasonably necessary to allow the
transaction contemplated by this Agreement to be accounted for as a "pooling of
interests" in accordance with United States generally accepted accounting
principles which will be acceptable to the Commission.

         (b) Each SELLER has executed and delivered to Buyer a written agreement
(an "AFFILIATE AGREEMENT") in the form of EXHIBIT B hereto to the effect that
such Seller (i) has not made and will not make any disposition of any shares of
Company Common Stock or other securities of the Company in the 30-day period
prior to the Closing Date, and (ii) will not make any disposition of any of the
Buyer Stock to be received by such Person after the Closing Date until Buyer
shall have publicly released a report including the combined financial results
of Buyer and the Company for a period of at least 30 days of combined operations
of Buyer and the Company.

         8.05. TAX MATTERS. (a) In the event that it is determined by a finding
or order in connection with any governmental or judicial audit or proceeding,
including any settlement of such a proceeding to which any of the parties hereto
are parties that the Company's S corporation election pursuant to Section 1362
of the Code was not validly in effect for any period after such election was
purportedly made, then the Sellers shall promptly remit to Buyer in cash any
federal, state and/or local Tax liability (including any penalties, additions to
Tax or interest assessed with respect thereto) of the Company in connection with
Taxes that are imposed on the Company or Buyer as a result of such invalid
election. Such payment shall be made within 15 days after the date such Tax
liability has been so determined. The obligations to remit such cash to Buyer as
described in this Section shall be treated as separate from the Sellers' other
indemnification obligations hereunder and in addition to amounts that may be
owed to Buyer under the Escrow Agreement. Notwithstanding anything to the
contrary contained in this Agreement or in the Escrow Agreement, the provisions
of this Section shall survive the termination of the Escrow Agreement and shall
remain in effect as personal obligations of the Sellers until the applicable
statutes of limitations shall have expired.

         (b) Sellers and Buyer shall engage PricewaterhouseCoopers ("PWC") to
prepare for filing by the Company all S Corporation Tax Returns (for federal
income tax purposes and for comparable state or local income tax purposes) for
all periods ending prior to or on the Closing Date which are filed after the
Closing Date. Such Tax Returns shall be prepared on a basis


                                     - 34 -
<PAGE>   39


consistent with reasonable past practice, subject to compliance with
applicable law including all Tax rules and regulations. Sellers and Buyer shall
each review drafts of such Tax Returns and may provide comments, which shall be
reflected in the final Tax Returns to be filed to the extent agreed upon by all
parties. Any disputes between Sellers and Buyer shall be resolved through
consultation with PWC or, in the absence of resolution through such process,
shall be resolved by an independent accounting firm chosen by mutual agreement
of Sellers and Buyer. Sellers and Buyer shall take all actions necessary and in
a timely fashion to ensure that the Company shall meet its obligations to file
such Tax Returns on a timely basis. Sellers shall include any income, gain,
loss, deduction, or other tax items for such periods on their Tax Returns in a
manner consistent with the Schedule K-1s (or comparable state or local
materials) furnished by the Company to Sellers for such periods in accordance
with the S Corporation Tax Returns.

         (c) If it is determined, based upon the foregoing, that the Company's
distributions to Sellers with respect to their Shares during the Stub Period and
through the Closing Date are greater or lesser than the actual S Corporation Tax
Liability, then as the case may be: (i) Sellers shall promptly pay to Buyer, on
behalf of the Company, the amount of such distributions in excess of the S
Corporation Tax Liability, if any; and (ii) Buyer shall promptly cause the
Company to pay to Sellers the amount by which such distributions are less than
the S Corporation Tax Liability.

         (d) Buyer shall not file or cause to be filed an amended Tax Return for
periods ending prior to or on the Closing Date except (i) with the approval of
the Sellers, which shall not be unreasonably withheld, (ii) if the previously
filed Tax Return for any such period or periods is contrary to law, including
applicable Tax rules and regulations, or (iii) if PWC (or an alternative
accounting firm selected in accordance with the procedure described in Section
8.05(b)) determines that such amendment is necessary to reasonably reflect the
interests of the parties in accordance with this Agreement.

         (e) (i) Buyer, the Company, and Sellers shall cooperate fully, as and
to the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation, or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information and access to relevant personnel of the other party which are
reasonably relevant to any such audit, litigation or other proceeding. The
Company and Sellers agree to retain all books and records with respect to Tax
matters pertinent to the Company relating to any taxable period beginning before
the Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or Sellers, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any Tax Authority. (ii) Buyer will not take any action in connection with
any audit, litigation, or other proceeding encompassing a period covered by an S
Corporation Tax Return that would be inconsistent with the reasonable interests
of the Sellers in accordance with this Agreement. Any dispute between Buyer and
the Sellers in connection with matters subject to this subsection (d)(ii) shall
be resolved through consultation with PWC (or an alternative accounting firm
selected in accordance with the procedure described in Section 8.05(b)). In the
event the parties are unable to resolve any

                                     - 35 -
<PAGE>   40

claim by or dispute with a Tax Authority in the manner described herein,
the parties will follow the procedures set forth in Section 11.03.

         (f) Buyer, Sellers, and the Company agree to treat and report the
Merger as a reorganization within the meaning of Section 368(a) of the Code
("Reorganization"), subject to applicable law including all tax rules and
regulations. Each party agrees to use its reasonable best efforts to take such
actions as reasonably required to achieve treatment of the Merger as a
Reorganization and to refrain from taking such actions as would reasonably be
expected to jeopardize the status of the Merger as a Reorganization.
Notwithstanding these covenants, no party shall be viewed as providing any
assurances to any other party with respect to the Tax status or consequences of
the Merger or any related transaction.




                                   ARTICLE IX

                                EMPLOYEE BENEFITS
                              AND EMPLOYEE MATTERS

         9.01. EMPLOYEE BENEFITS DEFINITIONS. The following terms, as used
herein, having the following meanings:

         "BENEFIT ARRANGEMENT" means each employment, severance or other similar
contract, arrangement or policy (written or oral) and each plan or arrangement
(written or oral) providing for severance benefits, insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (i) is not an Employee
Plan, (ii) is entered into, maintained or contributed to, as the case may be, by
the Company or any of its ERISA Affiliates and (iii) covers any employee or
former employee of the Company.

         "EMPLOYEE PLANS" means each "employee benefit plan", as such term is
defined in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA
and (ii) is maintained or contributed to by the Company or any of its ERISA
Affiliates, as the case may be.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

         "ERISA AFFILIATE" of any entity means any other entity that, together
with such entity, would be treated as a single employer under Section 414 of the
Code.

         "MULTIEMPLOYER PLAN" means each Employee Plan that is a multiemployer
plan, as defined in Section 3(37) of ERISA.

                                     - 36 -
<PAGE>   41

         9.02. ERISA REPRESENTATIONS. The Company and each Seller, jointly and
severally, hereby represent and warrant to Buyer that:

         (a) The Company has provided Buyer with complete salary, service and
related data as of the most recent practicable date for employees of the
Company.

         (b) SCHEDULE 9.02 lists each Employee Plan that covers any employee of
the Company, copies of all of which have previously been furnished to Buyer.
With respect to each Employee Plan, the Company has provided the most recently
filed Form 5500 an accurate summary description of such plan; and if applicable,
each ERISA bond, excise tax returns, most recent actuarial and other financial
or testing reports, insurance documents, other funding and investment contracts,
form of COBRA notices and elections, and form of HIPAA notices.

         (c) SCHEDULE 9.02 also includes a list of each Benefit Arrangement of
the Company, copies of which have been made furnished previously to Buyer.

         (d) None of the Employee Plans or Benefit Arrangements listed on
SCHEDULE 9.02 covers any non-United States employee or former employee of the
Company.

         (e) No non-exempt "prohibited transaction", as defined in Section 406
of ERISA or Section 4975 of the Code, has occurred with respect to any Employee
Plan.

         (f) No Employee Plan is a Multiemployer Plan. With respect to any
Employee Plan that is subject to Title IV of ERISA, during the six-year period
prior to the date on which this representation is made or deemed made with
respect to any such Employee Plan, no "accumulated funding deficiency" (within
the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred, no
termination has occurred nor has any lien in favor of the PBGC or a Plan arisen,
during such six-year period and the present value of all accrued benefits under
each such Employer Plan (on a plan termination basis) did not, as of the last
annual valuation date prior to the date on which this representation is made or
deemed made, exceed the value of the assets of such Plan allocable to such
accrued benefits. The Company and its Affiliates have not incurred nor do they
reasonably expect to incur any liability under Title IV or ERISA arising in
connection with the termination of any plan covered or previously covered by
Title IV of ERISA.

         (g) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. The Company has furnished to Buyer
copies of the most recent Internal Revenue Service determination letters with
respect to each such plan. Each Employee Plan has been maintained in compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations, including but not limited to ERISA and the Code,
which are applicable to such plan.

                                     - 37 -
<PAGE>   42

         (h) Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Benefit
Arrangement.

         (i) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code or similar state law.

         (j) All contributions and payments required to be made by the Company
under each Employee Plan and Benefit Arrangement, determined in accordance with
prior funding and accrual practices, as adjusted to include proportional
accruals for the period ending on the Closing Date, will be discharged and paid
on or prior to the Closing Date except to the extent (i) reflected on the
Closing Balance Sheet. Except as disclosed in writing to Buyer prior to the date
hereof, there has been no amendment to, written interpretation of or
announcement (whether or not written) by Seller or any of its ERISA Affiliates
relating to, or change in employee participation or coverage under, any Employee
Plan or Benefit Arrangement that would increase materially the expense of
maintaining such Employee Plan or Benefit Arrangement above the level of the
expense incurred in respect thereof for the fiscal year ended prior to the date
hereof.

         (k) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.

         (l) No tax under Sections 4980B or 4980D of the Code has been incurred
in respect of any Employee Plan that is a group health plan, as defined in
Section 5000(b)(1) of the Code.

         (m) No employee of the Company will become entitled to any bonus,
retirement, severance or similar benefit or enhanced benefit solely as a result
of the transactions contemplated hereby.

         9.03. NO THIRD PARTY BENEFICIARIES. No provision of this Article IX
shall create any third party beneficiary or other rights in any employee or
former employee (including any beneficiary or dependent thereof) of the Company
in respect of continued employment (or resumed employment) with the Company and
no provision of this Article IX shall create any such rights in any such Persons
in respect of any benefits that may be provided, directly or indirectly, under
any Employee Plan or Benefit Arrangement or any plan or arrangement that may be
established by Buyer or any of its Affiliates. No provision of this Agreement
shall constitute a limitation on rights to amend, modify or terminate after the
Closing Date any Employee Plan or Benefit Arrangement. Buyer shall indemnify,
defend and hold the Company and Sellers harmless from any claims made by any
Person employed by the Company at the Closing Date arising from actions taken by
the Buyer subsequent to the Closing Date. The Buyer shall pay for and have
complete control of and discretion in prosecuting the defense and/or settlement
of any

                                     - 38 -
<PAGE>   43

such claims. The limitations on Buyer's indemnification obligations set
forth in Section 11.02(c) shall be inapplicable to Buyer's indemnification
obligations under this Section 9.03.

                                    ARTICLE X

                              CONDITIONS TO CLOSING

         10.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of
Buyer, the Company and Sellers to consummate the Closing are subject to the
satisfaction of the following conditions:

                  (a) Any applicable waiting period under the HSR Act relating
to the transactions contemplated hereby shall have expired or been terminated.

                  (b) No proceeding challenging this Agreement or the
transactions contemplated hereby or seeking to prohibit, alter, prevent or
materially delay the Closing shall have been instituted by any Person before any
court, arbitrator or governmental body, agency or official and be pending.

                  (c) Each other party to this Agreement shall have executed and
delivered each of the Ancillary Agreements to be entered into by it at Closing,
in each case substantially in the form attached as an exhibit to this Agreement.

          (d) All actions by or in respect of or filings with any governmental
body, agency, official or authority required to permit the consummation of the
Closing shall have been obtained.

         10.02. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the Closing is subject to the satisfaction of the following further
conditions:

         (a)(i) the Company and each Seller shall have performed in all material
respects all of his or its obligations hereunder required to be performed on or
prior to the Closing Date, (ii) the representations and warranties of the
Company and each Seller contained in this Agreement at the time of its execution
and delivery and in the Disclosure Schedule and the Update, and in any
certificate or other writing delivered by the Company or a Seller pursuant
hereto shall be true and correct in every material respect at and as of the
Closing Date as if made at and as of such date and (iii) Buyer shall have
received a certificate signed by the President of the Company and by each Seller
to the foregoing effect.

         (b) No court, arbitrator or governmental body, agency or official shall
have issued any order, and there shall not be any statute, rule or regulation,
restraining the effective operation by Buyer of the business of the Company
after the Closing Date.

         (c) Buyer shall have received an opinion of Sellers' Counsel, dated the
Closing Date, acceptable to Buyer and its counsel.

         (d) Each Seller shall have executed and delivered an Affiliate
Agreement.

                                     - 39 -
<PAGE>   44


         (e) The Company shall have received all consents, authorizations or
approvals from the governmental agencies referred to in Section 3.03(a), in each
case in form and substance reasonably satisfactory to Buyer, and no such
consent, authorization or approval shall have been revoked.

          (f) Buyer and the Company shall have each received an unqualified
written opinion from their respective independent accountants, to the effect
that such accountants concur that no condition exists that would preclude Buyer
from accounting for the transaction contemplated by this agreement as a "pooling
of interests" under applicable rules and regulations of the Commission.

         (g) All stockholders of the Company shall have voted in favor of, or
consented to in writing, the consummation of the transactions contemplated
hereby.

         (h) Buyer shall have received all other closing documents specified in
Section 2.03 of this Agreement and all other closing documents that it may
reasonably request, all in form and substance reasonably satisfactory to Buyer.

         (i) The Company's Board of Directors will have passed and not rescinded
resolutions satisfactory to Buyer's counsel effectively terminating the
Company's 401(k) Plan immediately prior to the Closing.

         (j) Buyer shall have received a written statement confirming the total
amount(s) distributed to Sellers with respect to their Shares during the Stub
Period through the Closing Date , itemized by Seller, amount of distribution and
distribution date, which amount shall not exceed the S Corporation Tax
Liability, determined to the Knowledge of Sellers. Such written statement shall
also set forth the basis for the determination of the S Corporation Tax
Liability.


         (k) The Company shall have either (i) delivered to Buyer a properly
executed statement satisfying the requirements of Treasury Regulation Sections
1.897-2(h) and 1.1445-2(c)(3) in a form reasonably acceptable to Buyer or (ii)
caused each of the Sellers to have executed and delivered to Buyer certificates
of non-foreign status satisfying the requirements of Treasury Regulations
Section 1.1445-2(b).

         (l) Simultaneously with the Closing, Buyer shall have purchased all of
the outstanding shares of Perception Laminates, Inc.

         (m) Buyer shall have received from the Company and Sellers the Update,
and any material additions or changes to the Disclosure Schedules set forth in
the Update shall be in form and substance acceptable to Buyer in its sole
discretion.

                                     - 40 -

<PAGE>   45

         10.03. CONDITIONS TO OBLIGATION OF SELLERS. The obligation of Sellers
to consummate the Closing is subject to the satisfaction of the following
further conditions:

         (a)(i) Each of Buyer and Merger Sub shall have performed in all
material respects all of its obligations hereunder required to be performed by
it at or prior to the Closing Date, (ii) the representations and warranties of
each of Buyer and Merger Sub contained in this Agreement at the time of its
execution and delivery and in any certificate or other writing delivered by such
party pursuant hereto shall be true and correct in every material respect at and
as of the Closing Date as if made at and as of such date and (iii) Sellers shall
have received a certificate signed by the Vice President and Treasurer of Buyer
to the foregoing effect.

         (b) Sellers shall have received an opinion of Buyer's Counsel, dated
the Closing Date, satisfactory to Sellers and their counsel.

         (c) Sellers shall have received all items specified in Section 2.02 of
this Agreement and all other closing documents that they may reasonably request,
all in form and substance reasonably satisfactory to them.

         (d) Sellers shall have received an opinion of Luce, Forward, Hamilton &
Scripps, LLP to the effect, among other matters, that no gain or loss will be
recognized for federal income tax purposes by a Seller as a result of the
transfer of such Seller's shares in the Company in exchange for shares of Buyer
stock.


                                   ARTICLE XI

                            SURVIVAL; INDEMNIFICATION

         11.01. SURVIVAL. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Closing until the first anniversary of the Closing Date or (i)
in the case of Sections 6.05 and 7.02, for the period set forth therein, (ii) in
the case of Sections 6.06 and 7.01, indefinitely, (iii) in the case of the items
set forth in Section 11.02(f), for the periods set forth therein, and (iv) in
the case of the covenants, agreements, representations and warranties contained
in Sections 3.17 and 8.05, until the expiration of the applicable statutory
period of limitations (giving effect to any waiver, mitigation or extension
thereof), if later. No claim for indemnity under this Agreement with respect to
any breach of any representations, warranties and/or covenants of Company and/or
Sellers shall be made after the applicable period specified in the preceding
sentence and all such claims shall be made in accordance with the applicable
provisions of the Escrow Agreement.

         11.02.  INDEMNIFICATION.

         (a) Each Seller, jointly and severally, hereby indemnifies Buyer and
Merger Sub and, effective at the Closing, without duplication, the Company
against and agrees to hold them

                                     - 41 -
<PAGE>   46

harmless from any and all damage, loss, liability and expense (including
without limitation reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any action, suit or
proceeding) ("DAMAGES") incurred or suffered by Buyer, Merger Sub or the Company
arising out of any misrepresentation or breach of warranty, representation,
covenant or agreement made or to be performed by the Company or a Seller
pursuant to this Agreement (other than the Covenants and agreements of Sellers
contained in Articles II and IV and in sections 3.17 and 8.05 as to which each
Seller shall have several liability only as provided in Section 11.02(b)). With
the exception of those matters set forth in Sections 11.02(b) and 3.19, Sellers
shall not be liable under this Section 11.02(a) with respect to a breach of
representation, warranty or covenant unless the aggregate amount of Damages with
respect to all such breaches of representation or warranty (determined without
regard to any materiality qualification contained in any representations,
warranty or covenant giving rise to claim for indemnity hereunder) exceeds
$750,000 (the "DEDUCTIBLE") and then only to the extent of such excess; and each
Seller's maximum liability under this Section 11.02(a) shall not exceed 10% of
the amount paid to such Seller (or the Escrow Agent) with respect to the Shares
transferred by such Seller to Buyer (the "CAP"). Any individual claim or Damages
amounting to $2,500 or less shall be ignored and disregarded in aggregating
Damages for the Deductible or the Cap.

         (b) Each Seller, severally but not jointly, hereby indemnifies Buyer,
Merger Sub and, effective at the Closing, without duplication, the Company and
agrees to hold them harmless from and against all Damages incurred or suffered
by Buyer, Merger Sub or the Company arising out of any breach of any covenant or
agreement of such Seller pursuant to Article II or the inaccuracy or breach of
any representation, warranty, covenant or agreement made by such Seller pursuant
to Article IV or Sections 3.17 and 8.05.

         (c) Buyer hereby indemnifies Sellers against and agrees to defend and
hold them harmless from any and all Damages incurred or suffered by Sellers
arising out of any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by Buyer pursuant to this Agreement; PROVIDED
that (i) Buyer shall not be liable under this Section 11.02(c) with respect to a
breach of representation or warranty unless the aggregate amount of Damages with
respect to all such breaches of representation or warranty (determined without
regard to any materiality qualification contained in any representations,
warranty or covenant giving rise to the claim for indemnity hereunder) exceeds
$750,000 and then only to the extent of such excess and (ii) Buyer's maximum
liability under this Section 11.02(c) shall not exceed 10% of the aggregate
purchase price paid by Buyer to Sellers for the Shares. Any individual claim or
Damages amounting to $2,500 or less shall be ignored and disregarded in
aggregating Damages for the Deductible or the Cap.

         (d) Sellers shall have no right of indemnification, contribution or
subrogation against the Company with respect to any indemnification by any
Seller or Sellers under this Section 11.02 if the transactions contemplated by
this Agreement are consummated. Sellers shall have a right of contribution
against each other with respect to amounts actually paid pursuant to this
Section 11.02, but such right of contribution shall in no way limit or affect
Buyer's, Merger Sub's and the Company's rights contained in this Article XI.

                                     - 42 -
<PAGE>   47

         (e) Buyer's claims for indemnification pursuant to this Article XI
shall be satisfied first from the escrow established pursuant to the Escrow
Agreement and thereafter against one or more Sellers.

         (f) Notwithstanding anything herein to the contrary, and without giving
effect to the limitations set forth in the last two sentences of Section
11.02(a), each Seller, jointly and severally, hereby indemnifies Buyer, Merger
Sub and, effective at the Closing, without duplication, the Company, and agrees
to hold them harmless from and against, all Damages or demands incurred, claimed
against, or suffered by Buyer, Merger Sub or the Company arising out of the
following:

              (i) any inaccuracy or breach of any representation or warranty in
         Section 3.19 (provided that Sellers' obligations to indemnify and hold
         harmless Buyer and Company shall apply only with respect to claims
         arising prior to the tenth anniversary of the Closing);

              (ii) any Environmental Liabilities (provided that Sellers'
         obligations to indemnify and hold harmless Buyer and Company shall
         apply only with respect to claims arising prior to the tenth
         anniversary of the Closing);

               (iii) any litigation matters disclosed in the Disclosure Schedule
         and/or Update;

               (iv) fines, penalties, levies and assessments arising from the
         failure of the Company to make any filings, reports or notices with
         governmental agencies or participants in respect of the Company's
         Employee Plans or Benefit Arrangements;

                (v) any Tax liabilities arising pursuant to Section 8.05(a) or
         8.05(c).

         (g) Any amounts payable or paid to the Buyer or payable or paid to the
Sellers pursuant to Section 11.02, shall be reduced by any insurance recoveries
(net of any premium increases reasonably anticipated to be paid over the
following three years by the recipient of such insurance recovery as a result of
the incident giving rise to such recovery) of the indemnified party with respect
to the incident giving rise to such indemnification obligations. The parties
hereto agree that no indemnified party shall be required to pursue or exhaust
insurance recoveries prior to seeking and recovering indemnification hereunder,
but shall use reasonable efforts to pursue such recoveries and that any such
insurance recoveries received after the related indemnification has been paid
hereunder shall be paid over to the Indemnifying Party (to the extent of such
indemnification payments previously made hereunder) in reimbursement of such
portion of indemnification payments.

      11.03.  PROCEDURES.

         (a) Promptly after receipt of notice of the commencement of any action
against any Person in respect of which indemnification ("INDEMNIFICATION") may
be sought hereunder, the

                                     - 43 -
<PAGE>   48

Person receiving such notice (the "INDEMNIFIED PARTY") shall notify the
party from whom Indemnification is sought (the "INDEMNIFYING PARTY") in writing
of the commencement thereof and the basis hereunder upon which a claim for
Indemnification is asserted. In the event of the commencement of any such action
as to which the Indemnified Party notifies the Indemnifying Party as aforesaid,
the Indemnifying Party will be entitled to participate therein and to assume the
defense thereof at the Indemnifying Party's expense, provided that the
Indemnifying Party promptly notifies the Indemnified Party of such election to
assume the defense thereof and acknowledges the Indemnifying Party's
Indemnification obligations pursuant to this Agreement in writing to the
Indemnified Party, and provided further that the Indemnifying Party's interest
in such action does not conflict with the interests of the Indemnified Party,
without regard to the Deductible, the relief sought does not exceed the
Indemnifying Party's maximum Indemnification obligations under Section 11.02(a)
or 11.02(b), and that equitable relief is not being sought against Buyer, Merger
Sub or the Company. Nothing herein shall be construed to create any rights
enforceable by any Person not a party to this Agreement.

         (b) The Indemnified Party shall be entitled to participate in the
defense of any action and to be represented at its expense by counsel of its own
selection. If, however, the Indemnifying Party's interest in such action
conflicts with the interests of the Indemnified Party, or the relief sought
exceeds the Indemnifying Party's maximum Indemnification obligations under
Section 11.02(a) or 11.02(b), or if equitable relief is being sought against
Buyer or the Company, then the Indemnified Party shall assume such defense at
the Indemnifying Party's expense. If the attorneys provided for the defense of
the Indemnified Party by the Indemnifying Party withdraw from or are removed by
court order from the Indemnified Party's representation, then the cost of
counsel selected by the Indemnified Party shall be part of the Indemnified
Party's Damages, and the Indemnified Party shall have the right in all respects
to conduct its own defense. If the Indemnified Party otherwise retains its own
counsel, the cost thereof shall be for the account of the Indemnified Party. The
Indemnified Party shall allow the Indemnifying Party reasonable access to its
personnel, books and records relevant to the claim upon reasonable advance
notice (and subject to the Indemnifying Party's agreement to maintain such books
and records in confidence) to the Indemnified Party, during normal business
hours, and at no cost to the Indemnifying Party.

         (c) At to cases in which the Indemnifying Party has assumed and is
providing the defense for the Indemnified Party under Section 11.03(a), the
control of such defense and the right to reach settlement in such action shall
be vested in the Indemnifying Party; provided, that if the Indemnified Party
objects to a settlement which has otherwise been fully agreed to by the
Indemnifying Party, the Indemnified Party may nevertheless prohibit the
Indemnifying Party from making such settlement, in which case the Indemnifying
Party shall pay to the Indemnified Party the proposed cost to the Indemnifying
Party of such settlement (plus any other sum to satisfy the Indemnifying Party's
Indemnification obligations to the Indemnified Party as provided by and
contemplated in this Article XI) (together, the "SETTLEMENT COST"), in cash, and
the Indemnified Party shall thereafter be responsible for such matter and the
Indemnifying Party shall have no further Indemnification obligations with
respect to such matter and shall be indemnified by the Indemnified Party for any
loss or liability in excess of the Settlement Cost imposed on the Indemnifying
Party by any later settlement or adjudication; provided further, that if the

                                     - 44 -
<PAGE>   49


Indemnified Party objects to the continuation of any such action by the
Indemnifying Party, the Indemnified Party may direct the Indemnifying Party to
settle such case, the cost of which shall be paid by the Indemnified Party, and
the Indemnifying Party shall have no further Indemnification obligations for
such settled matter other than litigation costs and professional fees incurred
by the Indemnifying Party therein. As to any action, the party which is
controlling such action shall provide to the other party reasonable information
(including reasonable advance notice of all proceedings and depositions in
respect thereto) regarding the conduct of the action and the right to attend all
proceedings and depositions in respect thereto through its agents and attorneys,
and the right to discuss the action with counsel for the party controlling such
action.

         (d) If within twenty (20) days after receipt by the Indemnifying Party
of notice from the Indemnified Party to the Indemnifying Party as to the
commencement of any action in respect of which Indemnification is sought
hereunder, the Indemnifying Party has not notified the Indemnified Party that
the Indemnifying Party assumes the defense of such action and has actually
assumed such defense, then the Indemnified Party shall have the right to defend
such action and to proceed immediately against the Indemnifying Party to enforce
all Indemnification obligations of the Indemnifying Party hereunder (including
but not limited to the costs of defense, as the same may be incurred). The
Indemnification obligations of the Indemnifying Party with respect to such
action shall, however, in no way be diminished by virtue of the forgoing, and
the fact that the Indemnified Party shall have defended, settled, compromised or
otherwise dealt with such action shall not, in any circumstances, be deemed to
constitute any waiver, release or exoneration of the Indemnifying Party from
their Indemnification obligations, regardless of the outcome of such action.

         (e) Notwithstanding the foregoing provisions of this Section, and
subject to Section 8.05, in the event that (x) any third party suit, action or
proceeding may, in Buyer's good faith reasonable discretion, have a material
continuing adverse effect on the business and operations of the Buyer and/or the
Company (it being understood that any action relating to Environmental Laws,
Intellectual Property or Taxes shall be deemed to have a material continuing
adverse effect on the business and operations of the Buyer and/or the Company),
or (y) the Board of Directors of the Buyer determines in good faith that matters
of corporate or management policy or a conflict of interest make assumption and
control by the Buyer of the defense of such claim advisable, then Buyer (i)
shall have the right to assume and control the defense of the claim by
appropriate proceedings with its counsel, (ii) shall be entitled to
reimbursement for reasonable costs of such defense from the Escrow Fund, and
(iii) shall have the authority to negotiate, compromise and settle such claim
with the consent of the Sellers which shall not be unreasonably withheld,
conditioned or delayed, and Buyer shall have a right to indemnification with
respect to such claim in accordance with the provisions of this Article XI. The
Sellers may participate in the defense, at their sole expense, of any such claim
for which Buyer shall have assumed the defense pursuant to the preceding
sentence, provided that counsel for the Buyer shall act as lead counsel in all
matters pertaining to the defense or settlement of such claims or proceedings.
Buyer will cooperate with Sellers and will provide Sellers, or Sellers' counsel,
without cost, with copies of all notices, pleadings, material communications and
documents relating to the defense of any such claim and reasonable access to and
communication with Buyer's counsel and personnel involved therein.

                                     - 45 -

<PAGE>   50

                                   ARTICLE XII

                                   TERMINATION

         12.01. GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time prior to the Closing:

                  (i)  by written agreement of Sellers and Buyer;

                  (ii)  by either Sellers or Buyer if the Closing shall not have
         been consummated on or before August 31, 2000;

                  (iii) by either Sellers or Buyer if there shall be any law or
         regulation that makes consummation of the transactions contemplated
         hereby illegal or otherwise prohibited or if consummation of the
         transactions contemplated hereby would violate any nonappealable final
         order, decree or judgment of any court or governmental body having
         competent jurisdiction;

                  (iv) by Buyer (provided that it is not then in material breach
         of any representation, warranty, covenant or agreement contained in
         this Agreement) alone, by means of written notice to the Company, if
         there has been a material breach by the Company or a Seller of any
         representation, warranty, covenant or agreement set forth in this
         Agreement or the Ancillary Agreements, which breach would result in a
         failure to satisfy the closing conditions contained in Section 10.02
         and has not been cured within ten (10) business days following receipt
         by the Company of notice of such breach;

                  (v) by the Company (provided that it is not then in material
         breach of any representation, warranty, covenant or agreement contained
         in this Agreement) alone, by means of written notice to Buyer, if there
         has been a material breach by Buyer of any representation, warranty,
         covenant or agreement set forth in the Agreement or the Ancillary
         Agreements, which breach would result in a failure to satisfy the
         closing conditions contained in Section 10.03 and has not been cured
         within ten (10) business days following receipt by Buyer of notice of
         such breach;

                  (vi)  by Buyer in accordance with Section 6.10.

         The party desiring to terminate this Agreement shall give notice of
such termination to the other parties.

         12.02. EFFECT OF TERMINATION. If this Agreement is terminated as
permitted by Section 12.01, such termination shall be without liability of
either party (or any shareholder, director,

                                     - 46 -

<PAGE>   51

officer, employee, agent, consultant or representative of such party) to
the other party to this Agreement; PROVIDED that if such termination shall
result from the willful failure of any party to fulfill a condition to the
performance of the obligations of another party or to perform a covenant of this
Agreement or from a willful breach by any party to this Agreement, such party
shall be fully liable for any and all Damages incurred or suffered by the other
parties as a result of such failure or breach. The provisions of Sections 6.06,
7.01, 8.03 and 13.03 (other than Buyer's obligation to pay Company and Seller's
costs thereunder) shall survive any termination hereof pursuant to Section 6.10
or Section 12.01.


                                  ARTICLE XIII

                                  MISCELLANEOUS

         13.01. NOTICES. All notices, requests and other communications to
either party hereunder shall be in writing (including telecopy or similar
writing) and shall be given,

         if to Buyer or Merger Sub, to:

                  Teradyne, Inc.
                  321 Harrison Avenue
                  Boston, MA  02118
                  Attn:  President
                  Telecopy: (617) 422-2910

         with a copy to:

                  William B. Asher, Jr., Esq.
                  Testa, Hurwitz & Thibeault, LLP
                  125 High Street
                  Boston, MA 02110
                  Telecopy: (617) 248-7100

         if to the Company, to:

                  Herco Technology Corp.
                  13330 Evening Creek Drive North
                  San Diego, CA  92128
                  Attn:  President
                  Telecopy:

         with a copy to:

                  Luce, Forward, Hamilton & Scripps, LLP
                  600 West Broadway, Suite 2600

                                     - 47 -
<PAGE>   52

                  San Diego, CA  92101
                  Attn:  Robert Copeland
                  Telecopy:  (619) 645-5332

         if to a Seller:

                  at his address shown in
                  SCHEDULE 2.01

         13.02.  AMENDMENTS; NO WAIVERS.

         (a) Any provision of this Agreement may be amended or waived prior to
the Closing Date if, and only if, such amendment or waiver is in writing and
signed by Buyer, the Company and Sellers.

         (b) No failure or delay by either party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.

         13.03. EXPENSES. Buyer shall pay all expenses, and any and all federal,
state and local stamp, stock issuance or similar taxes and other charges, that
may be payable in connection with the preparation, issuance and delivery of
certificates for the Buyer Stock under Section 2.03(a) and any stock listing or
stock quotation application required to be filed by Buyer with respect to such
for the Buyer Stock. A registration effected under Section 7.02 shall be
effected at the Buyer's expense except for underwriting discounts and
commissions and the fees and the expenses of counsel to the Sellers. All costs
and expenses incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense; provided, however, that if the Closing
shall occur, all such costs and expenses of the Company and Sellers not
exceeding $50,000 incurred by the Company and Sellers shall be paid by Buyer,
and Sellers shall bear all such costs in excess of $50,000.

         13.04. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; PROVIDED that no party may assign, delegate
or otherwise transfer any of his or its rights or obligations under this
Agreement without the consent of the other parties hereto, except that Buyer may
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 a portion of the Shares, but no such
transfer or assignment will relieve Buyer of its obligations hereunder.

         13.05. FURTHER ASSURANCES. From time to time after the Closing, at the
request of Buyer and without further consideration, Sellers will execute and
deliver to Buyer such other documents, and take such other action, as Buyer may
reasonably request in order to consummate

                                     - 48 -
<PAGE>   53

more effectively the transactions contemplated hereby and to vest in Buyer
good, valid and marketable title to the Shares.

         13.06. GOVERNING LAW. This Agreement and the Ancillary Agreements shall
be construed in accordance with and governed by the law of the State of
California without regard to the conflicts of law rules of such state.

         13.07. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be deemed an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
a counterpart hereof signed by the other parties hereto.

         13.08. ENTIRE AGREEMENT. This Agreement and the Ancillary Agreements
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter hereof.

         13.09. CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.

         13.10. JURISDICTION. Any action or proceeding relating to or arising
out of, or based on this Agreement or arising from or in any manner related to
the relationship between the parties shall only be brought in the state or
federal courts in San Diego, California, and each of the parties hereto submits
to the personal jurisdiction of such court (and of the appropriate appellate
courts wherever located) in any such action or proceeding, and selects the
courts in San Diego, California for proper venue in any such or proceeding.

         13.11. TRANSFER, SALES DOCUMENTARY, STAMP AND OTHER SIMILAR TAXES. Any
and all transfer, sales, documentary, stamp and other similar Taxes imposed in
connection with the transactions contemplated by this Agreement will be paid by
the Seller with respect to which such Tax relates.

         13.12. SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it will be modified rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to the
extent possible. In any event, all other provisions of this Agreement will be
deemed valid and enforceable to the full extent.

         13.13. EXTENSION; WAIVER. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of any other party hereto to
the party extending such time, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements, covenants or conditions for the benefit of such party contained
herein. any agreement on the part of a party hereto to any such extension or
waiver will be valid only if set forth in an instrument in writing signed on
behalf of such party.

                                     - 49 -

<PAGE>   54

         IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

                                      TERADYNE, INC.


                                      By:  /s/  Stuart M. Osattin
                                         ---------------------------------------
                                      Name:  Stuart M. Osattin
                                      Title:  Vice President

                                      T-H Acquisition Corporation

                                      By:  /s/  Stuart M. Osattin
                                         ---------------------------------------
                                      Name:  Stuart M. Osattin
                                      Title:  President

                                      Herco Technology Corp.


                                      By:  /s/  Robert Herring, Sr.
                                         ---------------------------------------
                                      Name:  Robert Herring, Sr.
                                      Title:  President


                                       /s/  Robert Herring, Sr.
                                      ------------------------------------------
                                      Robert Herring, Sr.


                                       /s/  Robert Herring, Jr.
                                      ------------------------------------------
                                      Robert Herring, Jr.


                                       /s/  Charles Herring
                                      ------------------------------------------
                                      Charles Herring


                                     - 50 -
<PAGE>   55

                                  SCHEDULE 2.03

- --------------------------------------------------------------------------------

                             SHARES OF COMPANY  SHARES OF BUYER
SELLER'S NAME AND ADDRESS      COMMON STOCK         STOCK         ESCROW SHARES
- --------------------------------------------------------------------------------
Robert Herring, Sr.               3,415            827,845          91,983
4951 Concannon Court
San Diego, CA 92130
                                  -----          ---------        --------
Robert Herring, Jr.               1,150            278,777          30,975
3599 Corte Castillo
Carlsbad, CA  92009
                                  -----          ---------         -------
Charles Herring                   1,150            278,777          30,975
P.O. Box 675990
Rancho Santa Fe, CA  92067
                                  -----          ---------         -------
         TOTAL                    5,715          1,385,399         153,933
                                  =====          =========         =======



                                     - 51 -

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.2
<SEQUENCE>3
<FILENAME>b36797tiex2-2.txt
<DESCRIPTION>ESCROW AGREEMENT   HERCO TECHNOLOGY CORP.
<TEXT>

<PAGE>   1
                                                                     EXHIBIT 2.2

                                                                    EXHIBIT A TO
                                                 HERCO TECHNOLOGY CORP AGREEMENT

                                ESCROW AGREEMENT

         This Escrow Agreement (this "ESCROW AGREEMENT") is made and entered
into as of the date (the "EFFECTIVE DATE") set forth on SCHEDULE 1 hereto
("SCHEDULE 1") by and among Teradyne, Inc., a Massachusetts corporation
("BUYER"); Herco Technology Corp., a California corporation (the "COMPANY");
Robert Herring as the "INDEMNIFICATION REPRESENTATIVE"; the undersigned security
holders of the Company set forth on SCHEDULE 1 hereto ("SCHEDULE 1")
(collectively with the Indemnification Representative, the "HOLDERS"); and The
Chase Manhattan Bank, as escrow agent and custodian of the Escrow Fund (as
defined below) (the "ESCROW AGENT").

         A. Buyer, the Company, T-H Acquisition Corp., a Delaware corporation,
and the Holders have entered into an Agreement and Plan of Reorganization dated
as of August 1, 2000 (the "AGREEMENT") setting forth certain terms and
conditions pursuant to which Buyer is acquiring all outstanding shares of the
Company from the Holders.

         B. Pursuant to Section 2.04 of the Agreement, Shares of Buyer Stock (as
defined therein) are to be issued to the Holders.

         C. The Agreement provides that ten percent (10%) (the "ESCROW
PERCENTAGE") of the Buyer Stock issued in exchange for outstanding Shares
pursuant to the Agreement will be placed in an escrow account to secure certain
indemnification obligations of the Holders to Buyer and the Company under
Article XI of the Agreement on the terms and conditions set forth therein and
herein.

         D. Unless otherwise indicated herein, all terms used herein without
definition shall have the same meaning as set forth in the Agreement.

         NOW THEREFORE, for and in consideration of the foregoing and the mutual
covenants and agreements contained in the Agreement and in this Escrow
Agreement, the parties agree as follows:

         1.       ESTABLISHMENT OF ESCROW ACCOUNT

                  1.1 DEPOSIT OF SHARES. Buyer shall deposit as soon as
practicable on the Holders' behalf with the Escrow Agent stock certificates
representing the Escrow Shares issued pursuant to the Agreement registered in
the respective names of the Holders and in the relative amounts set forth on
EXHIBIT 1.1 hereto (the "INITIAL ESCROW SHARES") and an Assignment separate from
the stock certificates executed by such Holder. Any shares of Buyer capital
stock that result from any share dividend, reclassification, stock split,
subdivision or combination of shares, recapitalization, merger or other events
made with respect to any Escrow Shares held in escrow under this Escrow
Agreement ("ADDITIONAL SHARES") shall be delivered to the Escrow Agent by the
Buyer on behalf of the Holders and shall be held by the Escrow Agent in
accordance with this Escrow Agreement. Unless otherwise indicated, as used in
this Escrow Agreement, the term "ESCROW SHARES" includes the Initial Escrow
Shares and any Additional Shares, and the term "ESCROW FUND" shall include the
Escrow Shares and the Proceeds (as defined below). The Escrow Agent agrees to
accept delivery of the Escrow Shares and to hold the Escrow Fund in escrow in
accordance with this Escrow Agreement and to release the Escrow Fund out of
escrow as provided in this Escrow Agreement.


<PAGE>   2

                  1.2 DIVIDENDS; VOTING AND RIGHTS OF OWNERSHIP. Any cash
dividends, dividends payable in property or other distributions of any kind
(except for Additional Shares) made in respect of the Escrow Shares shall be
held by the Escrow Agent pursuant to this Agreement. Each Holder shall have the
right to vote the Escrow Shares held in escrow for the account of such Holder so
long as such Escrow Shares are held in escrow. While the Escrow Shares remain in
the Escrow Agent's possession pursuant to this Escrow Agreement, the Holders
shall retain and shall be able to exercise all other incidents of ownership of
the Escrow Shares that are not inconsistent with the terms and conditions
hereof. Without limiting the foregoing, following the expiration of the lock-up
period required under the "pooling of interests" accounting rules (the "Lock-Up
Date"), the Indemnification Representative may instruct the Escrow Agent to sell
the Escrow Shares for cash provided that any and all proceeds (the "PROCEEDS")
from such sale shall become part of the Escrow Fund and shall be disbursed in
accordance with this Agreement. The Escrow Agent shall hold such Proceeds in the
Escrow Fund and shall invest such Proceeds as hereinafter provided.

                  1.3 NO ENCUMBRANCE. None of the Escrow Fund or any beneficial
interest therein may be pledged, sold, assigned or transferred, including by
operation of law or by a Holder, or may be taken or reached by any legal or
equitable process in satisfaction of any debt or other liability of a Holder,
prior to the delivery of the Escrow Fund by the Escrow Agent or Buyer to such
Holder pursuant to this Escrow Agreement.

                  1.4 POWER TO TRANSFER ESCROW FUND. The Escrow Agent is hereby
granted the power to effect any transfer of the Escrow Fund provided for in this
Escrow Agreement.

                  1.5 INVESTMENT OF PROCEEDS. During the term of this Escrow
Agreement and following the Lock-Up Date, the Proceeds (if any) shall be
invested and reinvested by the Escrow Agent (i) in the investment indicated on
SCHEDULE 1, (ii) at the direction, if any, of the Indemnification
Representative, in the investments described in SCHEDULE 2, or (iii) in such
other investments as shall be directed in writing by the Buyer and the
Indemnification Representative and as shall be acceptable to the Escrow Agent.
All investment orders involving U.S. Treasury obligations, commercial paper and
other direct investments may be executed through broker-dealers selected by the
Escrow Agent (which shall include affiliates of the Escrow Agent). Periodic
statements will be provided to the Indemnification Representative and Buyer
reflecting transactions executed on behalf of the Escrow Fund. The Buyer and
Indemnification Representative, upon written request, will receive a statement
of transaction details upon completion of any securities transaction in the
Proceeds without any additional cost. The Escrow Agent shall have the right to
liquidate any investments held in order to provide funds necessary to make
required payments under this Escrow Agreement. The Escrow Agent shall have no
liability for any loss sustained as a result of any investment in an investment
indicated on SCHEDULE 1 or any investment made pursuant to the instructions of
the parties hereto or as a result of any liquidation of any investment prior to
its maturity or for the failure of the parties to give the Escrow Agent
instructions to invest or reinvest the Proceeds.

         2.       RESOLUTION OF CLAIMS

                  2.1 INDEMNIFICATION OBLIGATIONS. The Escrow Fund shall serve
as the first source, but not the sole source, of payment for the indemnity
obligations of the Holders under Article XI of the Agreement, which obligations
shall continue in accordance with Article XI of the Agreement. Payment for any
amount determined as provided below to be owing to Buyer or the Company under
such indemnity obligations under the Agreement ("DAMAGES") and any award of
attorneys' fees and charges owing to Buyer pursuant to Sections 2.3(c)(iv) or
4.3 of this Agreement (a "PREVAILING PARTY

<PAGE>   3


AWARD") shall be made by the release of all or a portion, as the case may
be, of the Escrow Fund to Buyer (each such payment, an "ESCROW ADJUSTMENT"),
subject to the limitations set forth in Section 11.02 of the Agreement. By the
execution of this Escrow Agreement, each of the Holders agrees to be bound by
the indemnification provisions set forth in Article XI of the Agreement and
confirms that the issuance by Buyer of the Escrow Percentage of the Buyer Stock
pursuant to the Agreement is subject to this Escrow Agreement. Notwithstanding
anything to the contrary herein, Buyer shall not be entitled to receive payment
of any portion of a Prevailing Party Award which is already a part of Damages
(i.e., there shall be no double payment of legal fees). Any Escrow Adjustments
and corresponding release to Buyer of the Escrow Fund shall be made in
proportion to each of the Holders' interest in the Escrow Fund as of the date or
dates specified and the manner provided for in this Escrow Agreement. Each
Escrow Adjustment to the Escrow Fund shall be made by the release to Buyer of a
portion of the Escrow Fund having an aggregate value equal to the Damages and
any Prevailing Party Award, with the per share value of any Escrow Shares being
equal, for all purposes under this Escrow Agreement, to the closing price of
such Escrow Shares on the Closing Date (the "BUYER STOCK PRICE"). Any such
release shall be made first through the release of Escrow Shares, if any are
then held in the Escrow Fund, and thereafter through the release of Proceeds
having an aggregate value equal to the value of the number of Escrow Shares
which would otherwise have been so released hereunder in satisfaction of the
Holders' indemnification obligation. In lieu of releasing any fractional Escrow
Shares, any fraction of a released Escrow Share that would otherwise be released
shall be rounded to the nearest whole Escrow Share and any amounts released in
excess of the Damages as a result of such rounding shall be returned to Escrow
Fund. In the event of doubt, and notwithstanding any contained in this Section
2.1 to the contrary, Buyer, the Indemnification Representative and the Holders
agree that the foregoing provisions of this Section 2.1 shall be applied and
interpreted in a manner consistent with the "pooling of interests" accounting
rules.

                  2.2 NOTICE OF CLAIMS. Promptly after the receipt by Buyer of
notice or discovery of any claim, damage, or legal action or proceeding giving
rise to indemnification rights under the Agreement (a "CLAIM") Buyer shall give
the Indemnification Representative written notice of such Claim and shall
provide a copy of such notice to the Escrow Agent. Each notice of a Claim by
Buyer (a "NOTICE OF CLAIM") shall be in writing, shall be delivered on or before
the Release Date (as defined in Section 3.1 below) and shall contain a detailed
account of the specific facts known to Buyer on which the Claim is based,
including a description of the specific representation, warranty or covenant in
the Agreement (if any) which Buyer reasonably believes has been breached. The
Notice of Claim shall specify whether the matter is subject to a third-party
claim against Buyer or the Company in a litigation or arbitration or whether the
matter concerns disputes regarding a breach of representations and warranties or
performance or nonperformance of a party's obligations under the Agreement.

                  2.3 RESOLUTION OF CLAIMS. Any Notice of Claim received by the
Indemnification Representative and the Escrow Agent pursuant to Section 2.2
above shall be resolved as follows:

                           (a)  UNCONTESTED CLAIMS.  In the event that the
Indemnification Representative does not contest a Notice of Claim (an
"UNCONTESTED CLAIM") in writing within thirty (30) calendar days, as provided
below in Section 2.3(b), Buyer may deliver to the Escrow Agent, with a copy to
the Indemnification Representative, a written demand by Buyer (a "BUYER DEMAND")
stating that a Notice of Claim has been given as required in this Escrow
Agreement and that no notice of contest has been received from the
Indemnification Representative during the period specified in this Escrow
Agreement and further setting forth the proposed Escrow Adjustments to be made
in accordance with this Section 2.3(a). Within thirty (30) calendar days after
receipt of the Buyer Demand, the Indemnification Representative may object in a
written notice delivered to Buyer and the Escrow


<PAGE>   4

Agent to the computations or other administrative matters relating to the
proposed Escrow Adjustments (but may not object to the validity or amount of the
Claim previously disclosed in the Notice of Claim), whereupon neither the Escrow
Agent nor Buyer shall make any of the Escrow Adjustments until either: (i) Buyer
and the Indemnification Representative shall have given the Escrow Agent joint
written notice setting forth the agreed Escrow Adjustments, or (ii) the matter
is resolved as provided in Sections 2.3(b) and 2.3(c). Upon satisfaction of the
foregoing, the Escrow Agent, as directed in writing by Buyer, and Buyer shall
promptly take all steps to implement the final Escrow Adjustments.

                           (b)  CONTESTED CLAIMS.  In the event that the
Indemnification Representative gives written notice to Buyer and the Escrow
Agent contesting all or a portion of a Notice of Claim (a "CONTESTED CLAIM")
within the 30-day period provided above, matters relating to such Contested
Claim that are subject to third party claims against Buyer or the Company in a
litigation or arbitration shall await the final decision, award or settlement of
such litigation or arbitration, while matters relating to such Contested Claim
that arise between Buyer on the one hand and the Company and/or the Holders on
the other hand, including any disputes regarding breach of representations and
warranties or performance or nonperformance of a party's obligations under the
Agreement ("ARBITRABLE CLAIMS") shall be settled in accordance with Section
2.3(c) below. Any portion of a Notice of Claim that is not contested or is
subsequently settled by Buyer and the Indemnification Representative shall be
resolved as set forth above in Section 2.3(a). If written notice is received by
the Escrow Agent that a Notice of Claim is contested by the Indemnification
Representative, then the Escrow Agent shall hold hereunder after what would
otherwise be the Release Date (as defined in Section 3.1 below), the number of
Escrow Shares specified in the Release Notice or as otherwise provided in
Section 3.1, until the earlier of: (i) receipt of a settlement agreement
executed by Buyer and the Indemnification Representative setting forth a
resolution of the Notice of Claim and the Escrow Adjustments; (ii) receipt of a
written notice from Buyer (a "BUYER DISTRIBUTION NOTICE") attaching a copy of
the final award or decision of the arbitrator and setting forth the Escrow
Adjustments (Buyer shall at the same time provide a copy of the Buyer
Distribution Notice to the Indemnification Representative); or (iii) receipt of
a written notice from the Indemnification Representative (a "REPRESENTATIVE
DISTRIBUTION NOTICE") attaching a copy of the final award or decision of the
arbitrator that no Escrow Adjustments are to be made as a result of such award
(the Indemnification Representative shall at the same time provide a copy of the
Representative Distribution Notice to Buyer). If the earliest of the three
events described in the preceding sentence is (i) or (ii), the Escrow Agent
shall, within twenty (20) calendar days of receipt of the settlement agreement
or the Buyer Distribution Notice, as applicable, (a) release to Buyer of that
portion of the Escrow Fund specified in the Escrow Adjustments and (b) if the
Release Date has occurred, and there are no remaining unresolved Contested
Claims, release to the Holders the balance of the Escrow Fund. If the earliest
of the three events described above is (iii) and the Release Date has occurred,
and there are no remaining unresolved Contested Claims, the Escrow Agent shall,
within twenty (20) calendar days of receipt of the Representative Distribution
Notice, release to the Holders the Retained Escrow (as defined in Section 3.1),
in accordance with the Holders' interests therein, provided that if the Release
Date has not occurred the Escrow Fund shall continue to be held pursuant to the
terms of this Agreement.

                           (c)  ARBITRATION.

                                     (i) ARBITRATION RULES. Any Arbitrable
Claim, and any dispute between the Holders and Buyer under this Escrow
Agreement, shall be submitted to final and binding arbitration before a single
arbitrator in San Diego, California in accordance with the commercial
arbitration rules of the American Arbitration Association; provided, however,
that if the Arbitrable

<PAGE>   5

Claim shall exceed $1,000,000, the arbitration shall be before three
arbitrators, two of whom shall be lawyers with not less than ten (10) years of
corporate or related business experience. Among other matters, such
arbitrator(s) shall be authorized upon request of either Buyer or the
Indemnification Representative determine whether such Arbitrable Claim is of a
nature which may be resolved, and appropriate relief afforded, pursuant to
arbitration.

                                    (ii)  BINDING EFFECT. The final decision of
the arbitrator shall be furnished in writing to the Escrow Agent, the
Indemnification Representative, the Holders and Buyer and will constitute a
conclusive determination of the issue in question, binding upon the Holders, the
Indemnification Representative and Buyer. The arbitrator shall have the
authority to grant any equitable and legal remedies that would be available in
any judicial proceeding instituted to resolve an Arbitrable Claim. Any judgment
upon the award rendered by the arbitrator may be entered in any court having
jurisdiction over the subject matter thereof.

                                   (iii) COMPENSATION OF ARBITRATOR. The
arbitrator will be compensated for his or her services, as provided below in
Section 2.3(c)(iv), in accordance with the commercial arbitration rules of the
American Arbitration Association.

                                    (iv) PAYMENT OF COSTS. The substantially
prevailing party in any arbitration shall be entitled to an award of attorneys'
fees and costs, and all costs of arbitration, including those provided for
above, will be paid by the losing party, subject in each case to a determination
by the arbitrator as to which party is the substantially prevailing party and
the amount of such fees and costs to be allocated to such party and subject to
the terms of Section 2.3(c)(iii). Any amounts payable to Buyer by or on account
of the Holders under this subsection will be reimbursed as if the amount of such
awarded fees and expenses were an Uncontested Claim.

                                     (v) TERMS OF ARBITRATION. The arbitrator
chosen in accordance with these provisions shall not have the power to alter,
amend or otherwise affect the terms of these arbitration provisions or the
provisions of this Escrow Agreement, the Agreement or any other documents that
are executed in connection therewith.

                                    (vi)  EXCLUSIVE REMEDY. Arbitration or
mediation under this Section 2.3(c) shall be the sole and exclusive remedy of
the parties for any Arbitrable Claim arising out of this Escrow Agreement.

         3.       RELEASE FROM ESCROW

                  3.1 RELEASE OF ESCROW FUND. The Escrow Fund shall be released
by the Escrow Agent and Buyer as soon as practicable, taking into account the
notices to be delivered under this Section 3.1, after the first anniversary of
the date of this Escrow Agreement (the "RELEASE DATE") LESS: (a) any of the
Escrow Fund delivered to or deliverable to Buyer in satisfaction of Uncontested
Claims or Contested Claims which have been settled by the parties hereto, and
(b) any of the Escrow Fund subject to delivery to Buyer in accordance with
Section 2.3(b) with respect to any then pending Contested Claims. Within ten
(10) of the Escrow Agent's Business Days (as defined in Section 7.4) after the
Release Date, Buyer and the Indemnification Representative shall deliver to the
Escrow Agent a written notice jointly signed (a "RELEASE NOTICE") setting forth
the amount of the Escrow Fund to be released by the Escrow Agent (the "RELEASED
ESCROW") including the amount of the Escrow Fund to be released to each Holder
and the amount of the Escrow Fund to be retained as provided in this Section 3.1
(the "RETAINED ESCROW"). Buyer and the Indemnification Representative shall make
a good faith


<PAGE>   6

effort to agree on a reasonable portion of the Escrow Fund to retain for pending
Contested Claims and Prevailing Party Awards and related expenses, which shall
be an amount reasonably determined by Buyer to cover the amount of the Contested
Claim or Prevailing Party Award plus related indemnifiable costs, but not to
exceed two times the value of the Contested Claim or Prevailing Party Award.
Until such agreement is reached, or a determination is made in accordance with
Section 2.3(c), the remaining Escrow Fund shall be the Retained Escrow. The
Released Escrow shall be released to the Holders in proportion to their
respective interests in the Initial Escrow Shares. In lieu of releasing any
fractional Escrow Shares, any fraction of a released Escrow Share that would
otherwise be released shall be rounded to the nearest whole Escrow Share.
Promptly after receipt of the Release Notice, the Escrow Agent shall deliver the
Escrow Fund in accordance with the Release Notice. The Escrow Agent shall not be
required to take such action until the Escrow Agent has received the Release
Notice executed by Buyer and the Indemnification Representative or, in the event
Buyer and the Indemnification Representative fail to execute and deliver a
jointly approved Release Notice, a final award or decision which specifies the
distribution of the Escrow Fund.

                  3.2 RELEASE OF RETAINED ESCROW. Upon the resolution of
Contested Claims as provided for in Section 2.3(b), the Retained Escrow shall be
subject to release by the Escrow Agent to Buyer and/or to the Holders in
accordance with Section 2.3(b), this Section and as otherwise provided for in
this Escrow Agreement. The Escrow Agent and Buyer shall cause the transfer agent
to transfer to Buyer the number of Escrow Shares to be released to Buyer
pursuant to Section 2.3(b) and reissue certificates for Escrow Shares that are
to be either distributed to the Holders pursuant to Section 3.1 or further
retained by the Escrow Agent pending the resolution of Contested Claims and/or
Prevailing Party Awards. Any Escrow Fund released from escrow to Buyer shall be
subject to cancellation by Buyer without requiring Buyer to pay any
consideration whatsoever in receipt thereof to the Company or any of the
Holders, except in satisfaction of the Claim.

                  3.3 EXPENSES OF INDEMNIFICATION REPRESENTATIVE. The
Indemnification Representative shall be entitled to be reimbursed his reasonable
out-of-pocket expenses and the reasonable fees and disbursements of counsel
retained by him. Such reimbursements shall be treated as an Uncontested Claim on
a pro rata basis among the contributors to the Escrow Fund, for all services
performed pursuant to the Agreement and this Escrow Agreement; provided,
however, that payment of any Escrow Adjustment shall take priority over payments
to the Indemnification Representative, as provided herein. The Escrow Agent
shall follow the joint written instructions of the Indemnification
Representative and Buyer concerning the release or sale of Escrow Fund relating
to the reimbursement of the Indemnification Representative. If upon termination
of this Agreement, the Indemnification Representative shall not have received
the reimbursements to which he is entitled hereunder, then the Indemnification
Representative shall be entitled to reimbursement from the other Holders on a
joint and several basis.

         4.       ESCROW AGENT

                  4.1 ESCROW AGENT. The Escrow Agent undertakes to perform only
such duties as are expressly set forth herein and no duties shall be implied.
The Escrow Agent shall have no liability under and no duty to inquire as to the
provisions of any agreement other than this Escrow Agreement. The Escrow Agent
may rely upon and shall not be liable for acting or refraining from acting upon
any written notice, instruction or request furnished to it hereunder and
believed by it to be genuine and to have been signed or presented by the proper
party or parties. The Escrow Agent shall be under no duty to inquire into or
investigate the validity, accuracy or content of any such document. The Escrow
Agent shall have no duty to solicit any payments which may be due it. The Escrow
Agent shall not be

<PAGE>   7

liable for any action taken or omitted by it in good faith except to the extent
that a court of competent jurisdiction determines that the Escrow Agent's gross
negligence or willful misconduct was the primary cause of any loss to the Buyer
or Holders. The Escrow Agent may execute any of its powers and perform any of
its duties hereunder directly or through agents or attorneys (and shall be
liable only for the careful selection of any such agent or attorney) and may
consult with independent counsel and accountants to be selected and retained by
it. The Escrow Agent shall not be liable for anything done, suffered or omitted
in good faith by it in accordance with the advice or opinion of any such
counsel, accountants or other skilled persons. In the event that the Escrow
Agent shall be uncertain as to its duties or rights hereunder or shall receive
instructions, claims or demands from any party hereto which, in its opinion,
conflict with any of the provisions of this Escrow Agreement, it shall be
entitled to refrain from taking any action and its sole obligation shall be
entitled to keep safely all property held in escrow until it shall be directed
otherwise in writing by all of the other parties hereto or by a final order or
judgment of a court of competent jurisdiction. Anything in this Escrow Agreement
to the contrary notwithstanding, in no event shall the Escrow Agent be liable
for special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.

                  4.2 SUCCESSION. The Escrow Agent may resign and be discharged
from its duties or obligations hereunder by giving 10 days advance notice in
writing of such resignation to the other parties hereto specifying a date when
such resignation shall take effect. Any corporation or association into which
the Escrow Agent may be merged or converted or with which it may be
consolidated, or any corporation or association to which all or substantially
all the escrow business of the Escrow Agent's corporate trust line of business
may be transferred, shall be the Escrow Agent under this Escrow Agreement
without further act.

                  4.3 FEES. The Buyer and the Indemnification Representative
agree to equally (i) pay the Escrow Agent upon execution of this Escrow
Agreement and from time to time thereafter reasonable compensation for the
services to be rendered hereunder, which unless otherwise agreed in writing
shall be as described in SCHEDULE 1 attached hereto, and (ii) pay or reimburse
the Escrow Agent upon request for all expenses, disbursements and advances,
including reasonable attorney's fees and expenses, incurred or made by it in
connection with the preparation, execution, performance, delivery, modification
and termination of this Escrow Agreement. Each party shall have a right of
contribution against the other party to the extent such party pays more than its
50% share of the expenses set forth in (i) and (ii) of this Section 4.3.

                  4.4 INDEMNITY. The Buyer and the Holders shall jointly and
severally indemnify, defend and save harmless the Escrow Agent and its
directors, officers, agents and employees (the "indemnitees") from all loss,
liability or expense (including the fees and expenses of in house or outside
counsel) arising out of or in connection with (i) the Escrow Agent's execution
and performance of this Escrow Agreement, except in the case of any indemnitee
to the extent that such loss, liability or expense is due to the gross
negligence or willful misconduct of such indemnitee, or (ii) its following any
instructions or other directions from the Buyer or Holders, except to the extent
that its following any such instruction or direction is expressly forbidden by
the terms hereof. The parties hereto acknowledge that the foregoing indemnities
shall survive the resignation or removal of the Escrow Agent or the termination
of this Escrow Agreement. The parties hereby grant the Escrow Agent a lien on,
right of set-off against and security interest in the Escrow Fund for the
payment of any claim for indemnification, compensation, expenses and amounts due
hereunder.

<PAGE>   8

                  4.5 TINS. The Buyer and Holders each represent that its
correct Taxpayer Identification Number ("TIN") assigned by the Internal Revenue
Service or any other taxing authority is set forth in SCHEDULE 1. All interest
or other income earned under the Escrow Agreement shall be allocated to Holders
in proportion to each Holders's interest in the Escrow Fund and reported by the
Holders to the Internal Revenue Service or any other taxing authority.
Notwithstanding such written directions, Escrow Agent shall report and, as
required withhold any taxes as it determines may be required by any law or
regulation in effect at the time of the distribution. In the event that any
earnings remain undistributed at the end of any calendar year, Escrow Agent
shall report to the Internal Revenue Service or such other authority such
earnings as it deems appropriate or as required by any applicable law or
regulation or, to the extent consistent therewith, as directed in writing by
Buyer and the Indemnification Representative. In addition, Escrow Agent shall
withhold any taxes it deems appropriate and shall remit such taxes to the
appropriate authorities.


         5.       INDEMNIFICATION REPRESENTATIVE

                           5.1 APPOINTMENT AND AUTHORITY. For purposes of this
Escrow Agreement, the Holders have, by the execution of this Escrow Agreement,
irrevocably consented to the appointment of the Indemnification Representative
as representative of the Holders and as the attorney-in-fact for and on behalf
of each Holder, and, subject to the express limitations set forth below, the
taking by the Indemnification Representative of any and all actions and the
making of any decisions required or permitted to be taken by him under this
Escrow Agreement, including but not limited to the exercise of the power to: (i)
authorize delivery to Buyer of the Escrow Fund, or any portion thereof, in
satisfaction of Claims otherwise in connection with an Escrow Adjustment, (ii)
agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such Claims, (iii) resolve any Claims, and (iv) take all actions
necessary in the judgment of the Indemnification Representative for the
accomplishment of the foregoing and all of the other terms, conditions, and
limitations of this Escrow Agreement. Any notice given to the Indemnification
Representative will constitute notice to each and all of the Holders at the time
notice is given to the Indemnification Representative. Any action taken by, or
notice or instruction received from, the Indemnification Representative will be
deemed to be an action by, or notice or instruction from, each and all of the
Holders. Buyer and the Escrow Agent will disregard any notice or instruction
received from any Holder other than the Indemnification Representative with
regard to this Escrow Agreement. The Indemnification Representative shall have
unlimited authority and power to act on behalf of each Holder with respect to
this Escrow Agreement and the disposition, settlement, or other handling of all
Claims, notices, rights, or obligations arising under this Escrow Agreement so
long as all Holders are treated in the same manner (in respect of their
proportional interests in the Initial Escrow Shares).

                           5.2 INDEMNIFICATION. The Indemnification
Representative, in his role as such, but not in his role as a Holder, shall not
suffer any liability or loss for any act performed or omitted to be performed by
him under this Escrow Agreement in the absence of adjudicated gross negligence,
bad faith or willful misconduct. The Indemnification Representative may consult
with counsel and other experts as may be reasonably necessary to advise him with
respect to his rights and obligations hereunder and shall be fully protected by
any act taken, suffered, permitted, or omitted in good faith in accordance with
the advice of such counsel and experts except for notices and other documents
delivered by the Indemnification Representative pursuant to this Escrow
Agreement. The Indemnification Representative shall not be responsible for the
sufficiency or accuracy of the form, execution, validity, or genuineness of
documents or securities now or hereafter deposited hereunder, or

<PAGE>   9

of any endorsement thereof or for any lack of endorsement thereon, or for any
description therein, nor shall he be responsible or liable in any respect on
account of the identity, authority or rights of the persons executing or
delivering or purporting to execute or deliver any such document, security or
endorsement, and the Indemnification Representative shall be fully protected in
relying upon any written notice, demand, certificate or document which he in
good faith believes to be genuine.

                           5.3  DEATH OR DISABILITY; SUCCESSORS. In the event of
the death or permanent disability of the Indemnification Representative, or his
resignation as the Indemnification Representative, a successor Indemnification
Representative shall be elected by a majority vote of the Holders, with each
Holder to be given a vote equal to his proportionate share of the Escrow Fund.
The Holders shall cause to be delivered to Buyer and the Escrow Agent prompt
written notice of such election of a successor Indemnification Representative.
Each successor Indemnification Representative shall have all of the power,
authority, rights, and privileges conferred by this Agreement upon the original
Indemnification Representative, and the term, "INDEMNIFICATION REPRESENTATIVE"
as used herein shall be deemed to include any successor Indemnification
Representative.

         6.       TERMINATION; DEFICIENCY CLAIMS

                  This Escrow Agreement and the escrow created hereby shall
terminate following Escrow Agent's delivery, and the Indemnification
Representative's and Buyer's release of all remaining Escrow Fund to the Holders
and/or Buyer pursuant to Sections 2 or 3. In the event that upon the termination
of this Escrow Agreement, the value of the Escrow Fund released to Buyer
pursuant to the provisions of this Escrow Agreement is insufficient to pay in
full to Buyer the total amount of the Damages and Prevailing Party Awards to
which it is entitled, then Buyer shall be entitled to pursue its remedies for
any such deficiency under the Agreement; provided, however, that no party hereto
in connection with any such action may contest any Uncontested Claim or any
Contested Claim that has been resolved in accordance with the provisions of this
Escrow Agreement.

         7.       MISCELLANEOUS PROVISIONS

                  7.1 PARTIES IN INTEREST. This Escrow Agreement is not
intended, nor shall it be construed, to confer any enforceable rights on any
Person not a party hereto. All of the terms and provisions of this Escrow
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto.

                  7.2 ATTORNEYS' FEES. In the event of any action to enforce any
provision of this Escrow Agreement by the Buyer or the Indemnification
Representative, or on account of any default under or breach of this Escrow
Agreement by the Buyer or the Indemnification Representative, the substantially
prevailing party in such action shall be entitled to recover, in addition to all
other relief, from the other party all attorneys' fees incurred by the
substantially prevailing party in connection with such action (including, but
not limited to, any appeal thereof); provided, however that any such fees shall
not be duplicative of attorneys fees and expenses payable under Section
2.3(c)(iv).

                  7.3  ENTIRE AGREEMENT. This Escrow Agreement constitutes the
final and entire agreement among the parties with respect to the subject matter
hereof and supersedes all prior arrangements or understandings.

<PAGE>   10

                  7.4  All communications hereunder shall be in writing and
shall be deemed to be duly given and received:

     (i) upon delivery if delivered personally or upon confirmed transmittal if
     by facsimile; (ii) on the next Business Day (as hereinafter defined) if
     sent by overnight courier; or (iii) four (4) Business Days after mailing if
     mailed by prepaid registered mail, return receipt requested, to the
     appropriate notice address set forth on Schedule 1 or at such other address
     as any party hereto may have furnished to the other parties in writing by
     registered mail, return receipt requested.

Notwithstanding the above, in the case of communications delivered to the Escrow
Agent pursuant to (ii) and (iii) of this Section 7.4, such communications shall
be deemed to have been given on the date received by the Escrow Agent. In the
event that the Escrow Agent, in its sole discretion, shall determine that an
emergency exists, the Escrow Agent may use such other means of communication as
the Escrow Agent deems appropriate. "BUSINESS DAY" shall mean any day other than
a Saturday, Sunday or any other day on which the Escrow Agent located at the
notice address set forth on SCHEDULE 1 is authorized or required by law or
executive order to remain closed.

                  7.5 SECURITY PROCEDURES. In the event Escrow Share transfer
instructions are given (other than in writing at the time of execution of this
Escrow Agreement), whether in writing, by telecopier or otherwise, the Escrow
Agent is authorized to seek confirmation of such instructions by telephone
call-back to the person or persons designated on SCHEDULE 2 hereto ("SCHEDULE
2"), and the Escrow Agent may rely upon the confirmation of anyone purporting to
be the person or persons so designated. The persons and telephone numbers for
call-backs may be changed only in a writing actually received and acknowledged
by the Escrow Agent. The Escrow Agent and the beneficiary any Escrow Share
transfer may rely solely upon any account numbers or similar identifying numbers
provided by the Buyer or Holders to identify such beneficiary. The Escrow Agent
may apply any of the Escrow Fund for any payment order it executes using any
such identifying number, even where its use may result in a person other than
the beneficiary being paid. The parties to this Escrow Agreement acknowledge
that these security procedures are commercially reasonable.

                  7.6 SEVERABILITY. If any term or provision of this Escrow
Agreement or the application thereof as to any Person or circumstance shall to
any extent be invalid or unenforceable, the remaining terms and provisions of
this Escrow Agreement or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable
shall not be affected thereby and each term and provision of this Escrow
Agreement shall be valid and enforceable to the fullest extent permitted by law.

                  7.7 COUNTERPARTS. This Escrow Agreement may be executed in two
or more partially or fully executed counterparts, each of which shall be deemed
an original and shall bind the signatory, but all of which together shall
constitute but one and the same instrument. The execution and delivery of a
Signature Page to Escrow Agreement in the form annexed to this Escrow Agreement
by any party hereto who shall have been furnished the final form of this Escrow
Agreement shall constitute the execution and delivery of this Escrow Agreement
by such party.

                  7.8 HEADINGS. The headings of the various sections of this
Escrow Agreement have been inserted for convenience of reference only and shall
not be deemed to be a part of this Escrow Agreement.

<PAGE>   11

                  7.9 MISCELLANEOUS. The provisions of this Escrow Agreement may
be waived, altered, amended or supplemented, in whole or in part, only by a
writing signed by all of the parties hereto. Neither this Escrow Agreement nor
any right or interest hereunder may be assigned in whole or in part by any
party, except as provided in Section 6, without the prior consent of the other
parties. This Escrow Agreement shall be governed by and construed under the laws
of the State of California, except the rights, duties and obligations of the
Escrow Agent shall be governed by the laws of the State of New York. The parties
further hereby waive any right to a trial by jury with respect to any lawsuit or
judicial proceeding arising or relating to this Escrow Agreement. No party to
this Escrow Agreement is liable to any other party for losses due to, or if it
is unable to perform its obligations under the terms of this Escrow Agreement
because of, acts of God, fire, floods, strikes, equipment or transmission
failure, or other causes reasonably beyond its control.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>   12


Signature Page to Escrow Agreement

         IN WITNESS WHEREOF, the parties have duly executed this Escrow
Agreement as of the day and year set forth on Schedule 1.


TERADYNE, INC.                                 HERCO TECHNOLOGY CORP.


                                               By: /s/  Robert Herring, Sr.
                                                  ------------------------------
By:  /s/  Stuart M. Osattin                        Name:   Robert Herring, Sr.
    ----------------------------------             Title:  President
    Name:   Stuart M. Osattin
    Title:  Vice President



Indemnification Representative:


  /s/  Robert Herring, Sr.
- --------------------------------------
Name:  Robert Herring, Sr.


THE CHASE MANHATTAN BANK
AS ESCROW AGENT



By:  /s/  Mary Lou Bessey
   -----------------------------------
         Authorized Signatory

HOLDERS:


  /s/  Robert Herring, Sr.
- --------------------------------------
Name:

  /s/  Robert Herring, Jr.
- --------------------------------------
Name:

  /s/  Charles Herring
- --------------------------------------
Name:

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.3
<SEQUENCE>4
<FILENAME>b36797tiex2-3.txt
<DESCRIPTION>AGREEMENT AND PLAN OF REORGANIZATION (PERCEPTION)
<TEXT>

<PAGE>   1
                                                                     EXHIBIT 2.3





                      AGREEMENT AND PLAN OF REORGANIZATION

                                      AMONG

                           PERCEPTION LAMINATES, INC.,

                              ROBERT HERRING, SR.,


                               TERADYNE, INC., AND

                           T-P ACQUISITION CORPORATION



                           DATED AS OF AUGUST 1, 2000




<PAGE>   2

                                TABLE OF CONTENTS


                                                                           PAGE
                                                                           ----

ARTICLE I -- DEFINITIONS.....................................................1

   1.01.  Definitions........................................................1

ARTICLE II -- PURCHASE AND SALE..............................................4

   2.01.  The Merger.........................................................4
   2.02.  Effects of the Merger..............................................5
   2.03.  The Closing........................................................5
   2.04.  Escrow Shares......................................................6
   2.05.  Conversion of the Shares...........................................6

ARTICLE III -- REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY........6

   3.01.  Corporate Existence and Power......................................7
   3.02.  Corporate Authorization............................................7
   3.03.  Governmental Authorization; Consents...............................7
   3.04.  Non-Contravention..................................................7
   3.05.  Capitalization.....................................................8
   3.06.  Subsidiaries.......................................................8
   3.07.  Financial Statements...............................................8
   3.08.  Absence of Certain Changes.........................................9
   3.09.  Property and Equipment............................................10
   3.10.  No Undisclosed Material Liabilities...............................11
   3.11.  Litigation........................................................11
   3.12.  Material Contracts................................................11
   3.13.  Insurance Coverage................................................12
   3.14.  Compliance with Laws; No Defaults.................................13
   3.15.  Finder's Fees.....................................................13
   3.16.  Intellectual Property.............................................13
   3.17.  Taxes.............................................................14
   3.18.  Employees.........................................................17
   3.19.  Environmental Compliance..........................................17
   3.20.  Customers and Suppliers...........................................19
   3.21.  Transactions with Affiliates......................................20
   3.22.  Other Information.................................................20
   3.23.  Intercompany Arrangements.........................................20
   3.24.  Inventories.......................................................20
   3.25.  Receivables.......................................................20
   3.26.  Products..........................................................21
   3.27.  Labor Matters.....................................................21
   3.28.  Affiliate Agreements..............................................21
   3.29.  Approvals.........................................................21
   3.30.       Reliance.....................................................21

ARTICLE IV -- REPRESENTATIONS AND WARRANTIES RELATING TO THE SELLER.........22

   4.01.  Title to and Validity of Shares...................................22
   4.02.  Authority.........................................................22
   4.03.  Power To Act as Trustee or Executor...............................22
   4.04.  Securities Act Representations....................................22

ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF BUYER........................23
<PAGE>   3

                                                                           PAGE
                                                                           ----

   5.01.  Organization and Existence........................................23
   5.02.  Corporate Authorization...........................................24
   5.03.  Governmental Authorization........................................24
   5.04.  Non-Contravention.................................................24
   5.05.  Finders' Fees.....................................................24
   5.06.  Purchase for Investment...........................................25
   5.07.  Litigation........................................................25
   5.08.  Buyer Stock.......................................................25
   5.09.  Capitalization of Buyer and Merger Sub............................25
   5.10   Reports and Financial Statements..................................25
   5.11.  Absence of Certain Changes and Events.............................26
   5.12.  Form S-3 Eligibility..............................................26
   5.13.  Documents Not Misleading..........................................26
   5.14.  Tax Representation Letter.........................................26
   5.15.  Reliance..........................................................26

ARTICLE VI -- COVENANTS OF THE COMPANY AND SELLER...........................27

   6.01.  Conduct of the Company............................................27
   6.02.  Access to Information.............................................28
   6.03.  Notices of Certain Events.........................................28
   6.04.  Resignations......................................................29
   6.05.  Noncompetition; Nonsolicitation...................................29
   6.06.  Confidentiality...................................................31
   6.07.  Continuing Disclosure.............................................31
   6.08.  Stockholder Approval..............................................31
   6.09.  Exclusivity; Acquisition Proposals................................31
   6.10.  The Disclosure Schedule...........................................32

ARTICLE VII -- COVENANTS OF BUYER...........................................33

   7.01.  Confidentiality...................................................33
   7.02.  Registration on and Effectiveness of Form S-3.....................33
   7.03   Notices of Certain Events.........................................34

ARTICLE VIII -- COVENANTS OF ALL PARTIES....................................34

   8.01.  Best Efforts......................................................34
   8.02.  Certain Filings...................................................34
   8.03.  Public Announcements..............................................35
   8.04.  Pooling...........................................................35
   8.05.  Tax Matters.......................................................35

ARTICLE IX -- EMPLOYEE BENEFITS.............................................37

   9.01.  Employee Benefits Definitions.....................................37
   9.02.  ERISA Representations.............................................38
   9.03.  No Third Party Beneficiaries......................................39

ARTICLE X -- CONDITIONS TO CLOSING..........................................40

   10.01.  Conditions to the Obligations of Each Party......................40
   10.02.  Conditions to Obligation of Buyer................................40
   10.03.  Conditions to Obligation of Seller...............................42

ARTICLE XI -- SURVIVAL; INDEMNIFICATION.....................................42

   11.01.  Survival.........................................................42
   11.02.  Indemnification..................................................42
   11.03.  Procedures; No Waiver............................................44


                                       ii
<PAGE>   4

                                                                           PAGE
                                                                           ----

ARTICLE XII -- TERMINATION..................................................47

   12.01.  Grounds for Termination..........................................47
   12.02.  Effect of Termination............................................47

ARTICLE XII -- MISCELLANEOUS................................................48

   13.01.  Notices..........................................................48
   13.02.  Amendments; No Waivers...........................................49
   13.03.  Expenses.........................................................49
   13.04.  Successors and Assigns...........................................49
   13.05.  Further Assurances...............................................49
   13.06.  Governing Law....................................................50
   13.07.  Counterparts; Effectiveness......................................50
   13.08.  Entire Agreement.................................................50
   13.09.  Captions.........................................................50
   13.10.  Jurisdiction.....................................................50
   13.11.  Transfer, Sales Documentary, Stamp and Other Similar Taxes.......50
   13.12.  Severability.....................................................50
   13.13.  Extension; Waiver................................................50


SCHEDULES
- ---------

Schedule 2.03  List of Stockholders
Schedule 3.17  Tax Representation Letter of Company and Seller
Schedule 5.14  Tax Representation Letter of Buyer and Merger Sub

EXHIBITS
- --------

Exhibit A      Form of Escrow Agreement
Exhibit B      Form of Affiliate Agreement


                                      iii
<PAGE>   5


                      AGREEMENT AND PLAN OR REORGANIZATION


     AGREEMENT dated as of August 1, 2000 among Perception Laminates, Inc.,
d.b.a. Synthane Taylor, a California corporation (the "COMPANY"); the
stockholder of the Company listed on the signature pages hereto ("SELLER");
Teradyne, Inc., a Massachusetts corporation ("BUYER"); and - T-P Acquisition
Corporation, a Delaware corporation and wholly owned subsidiary of Buyer
("MERGER SUB").

                                   WITNESSETH:

     WHEREAS, Buyer desires to obtain from Seller all of the outstanding shares
of capital stock of the Company (the "SHARES");

     WHEREAS, the Seller desires to transfer to Buyer all of the Shares owned by
such Seller in exchange for Buyer Stock (as defined below); and

     WHEREAS, the exchange of Shares for Buyer Stock is intended to qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue code
of 1986, as amended (the "CODE").

     NOW, THEREFORE, the parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

     1.01. DEFINITIONS. (a) The following terms, as used herein, have the
following meanings:

     "AFFILIATE" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such Person.

     "ANCILLARY AGREEMENTS" means the Escrow Agreement and the Affiliate
Agreements.

     "BALANCE SHEET" means the unaudited balance sheet of the Company as of June
30, 2000 referred to in Section 3.07.

     "BALANCE SHEET DATE" means June 30, 2000.

     "BUYER STOCK" means the common stock of Buyer, $0.125 par value per share.

     "BUYER'S COUNSEL" means the law firm of Testa, Hurwitz & Thibeault, LLP,
Boston, Massachusetts.

     "CLOSING DATE" means the date of the Closing.
<PAGE>   6
     "COMMISSION" means the Securities and Exchange Commission.

     "COMMON STOCK" means the common stock, $10.00 par value, of the Company.

     "COMPANY'S PROPRIETARY RIGHTS" means all Proprietary Rights that are owned
or licensed by the Company or any Affiliate of the Company and used or held for
use by the Company or any Subsidiary.

     "ESCROW AGENT" means the escrow agent that is a signatory to the Escrow
Agreement.

     "ESCROW AGREEMENT" means the Escrow Agreement among Seller, Buyer and the
Escrow Agent in the form set forth in EXHIBIT A.

     "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.

     "KNOWLEDGE" means the actual knowledge after reasonable inquiry of Seller

     "KNOWN" means actually known after reasonable inquiry by Seller

     "LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, restriction or encumbrance of any kind in respect of
such asset.

     "MATERIAL ADVERSE CHANGE" means a material adverse change in the business,
assets, condition (financial or otherwise), or results of operations of the
Company.

     "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business,
assets, condition (financial or otherwise), or results or operations of the
Company.

     "1934 ACT" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

     "PERSON" means an individual, corporation, partnership, association, trust
or other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.

     "PROPRIETARY RIGHTS" means all (A) patents, patent applications, patent
disclosures and all related continuation, continuation-in-part, divisional,
reissue, re-examination, utility, model, certificate of invention and design
patents, patent applications, registrations and applications for registrations,
(B) trademarks, URL addresses and/or domain names, service marks, trade dress,
logos, tradenames, service names and corporate names and registrations and
applications for registration thereof, (C) copyrights and registrations and
applications for registration thereof, (D) mask works and registrations and
applications for registration thereof, (E) computer software, data and
documentation, (F) trade secrets and confidential business information,



                                      -2-
<PAGE>   7

whether patentable or nonpatentable and whether or not reduced to practice,
know-how, manufacturing and product processes and techniques, research and
development information, copyrightable works, financial, marketing and business
data, pricing and cost information, business and marketing plans and customer
and supplier lists and information, (G) other proprietary rights relating to any
of the foregoing (including without limitation associated goodwill and remedies
against infringements thereof and rights of protection of an interest therein
under the laws of all jurisdictions) and (H) copies and tangible embodiments
thereof.

     "S CORPORATION TAX LIABILITY" means the aggregate federal and state income
tax liability imposed on the Seller as a result of his ownership of Shares
during the Stub Period determined without regard to any other item of income,
gain, loss deduction or credit.

     "SECURITIES ACT" means the Securities Act of 1933, as amended.

     "SELLER'S COUNSEL" means the law firm of Luce, Forward, Hamilton & Scripps,
LLP, San Diego, CA.

     "STUB PERIOD" shall mean the period from January 1, 2000 through the date
immediately preceding the Closing Date.

     "SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.

     "TAX DISTRIBUTION AMOUNT" means the excess, if any, of the S Corporation
Tax Liability over the aggregate amount previously distributed by the Company to
the Seller during the Stub Period with respect to their shares.

     (b) Each of the following terms is defined in the Section set forth
opposite such term:

         Term                                    Section
         ----                                    -------

         Acquisition Transaction                 6.09
         Affiliate Agreement                     8.04
         Benefit Arrangement                     9.01
         Buyer Audited Financial Statements      5.10
         Cap                                     11.02
         CERCLA                                  3.19
         Closing                                 2.03
         Code                                    Recitals
         Commission Filings                      5.10
         Company Affiliate                       3.29
         Company Securities                      3.05
         Customers                               6.05
         Damages                                 11.02



                                      -3-
<PAGE>   8

         Deductible                              11.02
         Effective Time                          2.01
         Engage in Competition                   6.05
         Employee Plans                          9.01
         Environment                             3.19
         Environmental Laws                      3.19
         Environmental Liabilities               3.19
         Environmental Permits                   3.19
         ERISA                                   9.01
         ERISA Affiliate                         9.01
         Escrow Shares                           2.04
         Financial Statements                    3.07
         Hazardous Substance                     3.19
         Indemnification                         11.03
         Indemnified Party                       11.03
         Indemnifying Party                      11.03
         Merger                                  2.01
         Merger Documents                        2.01
         Multiemployer Plan                      9.01
         Permit                                  3.14
         Registration Statement                  7.02
         Release                                 3.19
         Reports                                 5.10
         Required Consent                        3.03
         Surviving Corporation                   2.01
         Taxes                                   3.17
         Tax Authority                           3.17
         Tax Return                              3.17
         Update                                  2.03


                                   ARTICLE II

                                 MERGER; CLOSING

     2.01. THE MERGER. Upon the terms and subject to the conditions of this
Agreement, and in accordance with the General Corporation Law of the State of
Delaware and the California Corporations Code, Merger Sub will be merged with
and into the Company (the "MERGER"). A Certificate of Merger and any other
required documents (collectively, the "MERGER DOCUMENTS"), in such form as shall
be agreed to by the parties, will be duly prepared, executed and acknowledged by
the Company and Merger Sub and thereafter delivered to the Secretary of State of
California for filing in accordance with the California Corporations Code
contemporaneously with the Closing. The Merger will become effective at such
time as the Merger Documents have been filed with the Secretary of State of
California (the "EFFECTIVE TIME"). Following the Merger, the Company will
continue as the surviving corporation (the "SURVIVING CORPORATION")



                                      -4-
<PAGE>   9

of the Merger under the laws of the State of California and the separate
corporate existence of Merger Sub will cease.

     2.02. EFFECTS OF THE MERGER. At and after the Effective Time, (i) the
Merger will have all of the effects provided by the Certificate of Merger and
applicable law, (ii) the Articles of Incorporation of the Company will be
amended as provided in the Certificate of Merger until duly further amended,
(iii) the bylaws of the Company will be the bylaws of the Surviving Corporation
until duly amended, (iv) the directors of Merger Sub will be the directors of
the Surviving Corporation, to hold office in accordance with the bylaws of the
Surviving Corporation, (v) the officers of Merger Sub will be the officers of
the Surviving Corporation, to hold office in accordance with the bylaws of the
Surviving Corporation and (vi) the issued and outstanding certificates for
capital stock of Merger Sub will be the issued and outstanding certificates
initially representing all of the issued capital stock of the Surviving
Corporation. The Merger is intended to be a reorganization within the meaning of
Section 368(a) of the Code, and this Agreement is intended to constitute a "plan
of reorganization" within the meaning of the regulations promulgated under
Section 368 of the Code.

     2.03. THE CLOSING. The closing (the "CLOSING") of the transactions
contemplated hereby shall take place at the offices of Testa, Hurwitz &
Thibeault, LLP in Boston, Massachusetts as soon as possible, but in no event
later than five (5) business days after satisfaction or waiver of the conditions
set forth in Article X, or at such other time or place as Buyer and Seller may
agree. If all of the conditions set forth in Article X are determined to be
satisfied (or duly waived) at the Closing, concurrently with the Closing the
parties hereto will cause the Merger to be consummated by the filing of the
Merger Documents with the Secretary of State of California. The Closing will be
deemed to have concluded at the Effective Time. At the Closing,

     (a) Buyer shall deliver to Seller a certificate for an aggregate of 270,747
shares of Buyer Stock, registered in the names of Seller for the number of
shares shown in SCHEDULE 2.03.

     (b) Buyer shall deliver to the Escrow Agent certificates for an aggregate
of 31,083 shares of Buyer Stock registered in the name of the Seller for the
number of shares shown on SCHEDULE 2.03 under the heading "ESCROW SHARES",
accompanied by an undated stock power or other transfer document covering such
certificates or instruments, duly executed by each Seller in blank.

     (c) Seller shall deliver to Buyer a certificate for the Shares duly
endorsed or accompanied by stock powers duly endorsed in blank, with any
required transfer stamps affixed thereto.

     (d) The appropriate parties shall enter into the Ancillary Agreements.

     (e) In accordance with Section 6.10, the Company and Seller shall deliver
to Buyer a final revised Disclosure Schedule updating and supplementing the
information shown thereon to the Closing Date (the "UPDATE").



                                      -5-
<PAGE>   10

     (f) The parties shall execute and deliver any other instruments, documents
and certificates that are required to be delivered pursuant to this Agreement or
as may be reasonably requested by any party in order to consummate the
transactions contemplated by this Agreement.

     2.04. ESCROW SHARES. Ten percent (10%) of the Buyer Stock, rounded down to
the nearest whole share (the "ESCROW SHARES") will be deposited and held in
escrow in accordance with the Escrow Agreement attached as EXHIBIT A as the
first source, but not the sole source, of indemnification payments that may
become due to Buyer or the Company pursuant to Article XI. The delivery of the
Escrow Shares will be made on behalf of the Seller in accordance with the
provisions hereof, with the same force and effect as if such shares had been
delivered by Buyer directly to the Seller and subsequently delivered by the
Seller to the Escrow Agent.

     2.05. CONVERSION OF THE SHARES.

     (a) Subject to the provisions hereof, at the Effective Time, each Share
will automatically, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into 503.05 shares of Buyer Stock, or an
aggregate of 301,830 Shares of Buyer Stock in accordance with SCHEDULE 2.03.

     (b) If, between the date of this Agreement and the Closing Date, the
outstanding shares of Buyer Stock shall have been changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, stock split, combination, exchange of shares or
similar adjustment, or a stock dividend thereon shall be declared with a record
date prior to the Closing Date, the number of shares or class of Buyer Stock to
be issued and delivered at the Closing to Seller as provided in this Agreement
shall be appropriately adjusted.

     (c) No certificates or scrip for fractional shares of Buyer Stock will be
issued (and any such fractional shares shall be rounded up to the nearest whole
share of Buyer Stock), no Buyer stock split or dividend will be paid in respect
of any fractional share interest, and no such fractional share interest will
entitle the owner thereof to vote or to any rights of or as a stockholder of
Buyer.

                                   ARTICLE III

                   REPRESENTATIONS AND WARRANTIES RELATING TO
                                   THE COMPANY

     The Company and the Seller hereby jointly and severally represent and
warrant to Buyer and Merger Sub as of the date hereof and as of the Closing Date
that except as set forth on the Company's disclosure schedules or delivered
pursuant to Section 6.10 (the "DISCLOSURE SCHEDULE") and in the Update, which
Disclosure Schedule and Update shall make specific reference to the section to
which exception is taken:



                                      -6-
<PAGE>   11

     3.01. CORPORATE EXISTENCE AND POWER. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where failure
to be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect. The Company has heretofore delivered to Buyer true and complete
copies of the corporate charter and bylaws of the Company as currently in
effect.

     3.02. CORPORATE AUTHORIZATION. The execution, delivery and performance by
the Company of this Agreement and the Ancillary Agreements to which it is a
party and the consummation by the Company of the transactions contemplated
hereby and thereby are within the Company's corporate powers and have been duly
authorized by all necessary corporate action on the part of the Company. The
Company's Board of Directors has approved the Company's execution of this
agreement and consummation of the transactions contemplated hereby. This
Agreement and the Ancillary Agreements to which the Company is a party have been
duly executed and delivered by the Company and constitute valid and binding
agreements of the Company, enforceable in accordance with their terms.

     3.03. GOVERNMENTAL AUTHORIZATION; CONSENTS.

     (a) The execution, delivery and performance by the Company and Seller of
this Agreement and the Ancillary Agreements require no action by or in respect
of, or filing with, any governmental body, agency, official or authority other
than compliance with any applicable requirements of the HSR Act.

     (b) No consent, approval, waiver or other action (each, a "REQUIRED
CONSENT") by any Person (other than any governmental body, agency, official or
authority referred to in (a) above) under any contract, agreement, indenture,
lease, instrument or other document to which the Company is a party or by which
it is bound is required or necessary for the execution, delivery and performance
of this Agreement and the Ancillary Agreements by the Company or the
consummation of the transactions contemplated hereby.

     3.04. NON-CONTRAVENTION. The execution, delivery and performance by the
Company of this Agreement and the Ancillary Agreements to which it is a party
and the consummation of the transactions contemplated hereby and thereby do not
and will not (i) contravene or conflict with the corporate charter or bylaws of
the Company, (ii) assuming compliance with the matters referred to in Section
3.03(a), contravene or conflict with any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to the Company,
(iii) assuming the receipt of all Required Consents, constitute a default under
or give rise to any right of termination, cancellation or acceleration of any
right or obligation of the Company or to a loss of any benefit to which the
Company is entitled under any provision of any agreement, contract or other
instrument binding upon the Company or any permit held by the Company, or (iv)



                                      -7-
<PAGE>   12

assuming the receipt of all Required Consents, result in the creation or
imposition of any Lien on any asset of the Company.

     3.05. CAPITALIZATION. THE DISCLOSURE SCHEDULE sets forth (i) the
designation of each class of capital stock of the Company, (ii) the number of
authorized shares of each class of capital stock of the Company, (iii) the
number of outstanding shares of each class of capital stock of the Company, (iv)
the number of outstanding employee stock options, (v) the number of outstanding
employee stock options that are currently exercisable and (vi) all relevant
information regarding any outstanding convertible securities and any other
outstanding options, warrants or other rights to acquire capital stock of, or
other equity interests in, the Company. All outstanding shares of capital stock
of the Company have been duly authorized and validly issued and are fully paid
and are owned by Seller as shown on SCHEDULE 2.03. Except as set forth in this
Section, there are no outstanding (i) shares of capital stock, other securities
or phantom or other equity interests of the Company, (ii) securities of the
Company convertible into or exchangeable for shares of capital stock or other
securities of the Company or (iii) options or other rights to acquire from the
Company any capital stock, other securities or phantom or other equity interests
of the Company (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "COMPANY SECURITIES"). There are no outstanding obligations
of the Company, actual or contingent, to issue or deliver or to repurchase,
redeem or otherwise acquire any Company Securities.

     3.06. SUBSIDIARIES. The Company does not have and never has had any
Subsidiaries or any ownership or equity interest in or control of (direct or
indirect) any other Person.

     3.07. FINANCIAL STATEMENTS. (a) Attached to the Disclosure Schedule are
true and complete copies of:

          (i) the balance sheets of the Company as of December 31, 1999 and
     December 31, 1998 and the statements of operations, cash flows and changes
     in the stockholder's equity of the Company for the respective fiscal years
     then ended, as audited by PricewaterhouseCoopers LLP; and

          (ii) the unaudited statements of income, cash flows and changes in the
     stockholder's equity of the Company for the six months ended June 30, 2000
     (collectively, the "FINANCIAL STATEMENTS").

     (b) Each of the balance sheets included in the Financial Statements fairly
presents in all material respects the financial position of the Company as of
its date, and the other statements included in the Financial Statements fairly
present in all material respects the results of operations, cash flows and
stockholders' equity, as the case may be, of the Company for the periods therein
set forth, in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved except as otherwise
stated therein and, with respect to the unaudited interim financial statements,
for the omission of footnote disclosures and, to the extent consistent with
generally accepted accounting principles, normally recurring year-end audit
adjustments.



                                      -8-
<PAGE>   13

     3.08. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, except as
reflected in the unaudited Financial Statements or in the Disclosure Schedule,
the Company has conducted its business in the ordinary course consistent with
past practices and there has not been:

          (a) any Material Adverse Change;

          (b) any declaration, setting aside or payment of any dividend or other
     distribution with respect to any Company Securities or any repurchase,
     redemption or other acquisition by the Company of any outstanding shares of
     capital stock or other securities of, or other ownership interests in, the
     Company other than distributions that do not exceed, in the aggregate, the
     Tax Distribution Amount;

          (c) any amendment of any outstanding security of the Company;

          (d) any incurrence, assumption or guarantee by the Company of any
     indebtedness for borrowed money;

          (e) any creation or assumption by the Company of any Lien on any
     asset;

          (f) any making of any loan, advance or capital contributions to or
     investment in any Person;

          (g) any damage, destruction or other casualty loss (whether or not
     covered by insurance) affecting the business or assets of the Company that,
     individually or in the aggregate, has had a Material Adverse Effect;

          (h) any transaction or commitment made, or any contract or agreement
     entered into, by the Company relating to its assets or business (including
     the acquisition or disposition of any assets) or any relinquishment by the
     Company of any contract or other right, in either case, material to the
     Company, other than transactions and commitments in the ordinary course of
     business consistent with past practices and those contemplated by this
     Agreement;

          (i) any change in any method of accounting or accounting practice by
     the Company;

          (j) any (i) grant of any severance or termination pay to any director,
     officer or employee of the Company, (ii) entering into of any employment,
     deferred compensation or other similar agreement (or any amendment to any
     such existing agreement) with any director, officer or employee of the
     Company, (iii) change in benefits payable under existing severance or
     termination pay policies of the Company or employment agreements to which
     the Company is a party or (iv) change, other than in the ordinary course of
     business, in compensation, bonus or other benefits payable to directors,
     officers



                                      -9-
<PAGE>   14

     or employees of the Company or (v) amendment of any Employee Plan or
     Benefit Arrangement; or

          (k) any labor dispute, other than routine individual grievances, or
     any activity or proceeding by a labor union or representation thereof to
     organize any employees of the Company, which employees were not subject to
     a collective bargaining agreement at the Balance Sheet Date, or any
     lockouts, strikes, slowdowns, work stoppages or threats thereof known by
     the Company or Seller by or with respect to any employees of the Company.

     3.09. PROPERTY AND EQUIPMENT.

     (a) The Company has good and marketable indefeasible, fee simple title to,
or in the case of leased property has valid leasehold interests in, all real and
personal property and assets (whether tangible or intangible) reflected on the
Balance Sheet or acquired after the Balance Sheet Date. None of such properties
or assets is subject to any Liens, except:

     (i)  Liens disclosed on the Balance Sheet;

     (ii) Liens for taxes not yet due or being contested in good faith (and for
          which adequate accruals or reserves have been established on the
          Balance Sheet); or

     (iii) Liens which do not materially detract from the value of such property
          or assets as now used, or materially interfere with any present or
          intended use of such property or assets.

     (iv) Such owned and leased real property includes all real property, and
          only such real property, as is used or held for use or to be used or
          held for use primarily in connection with the conduct of the business
          and operations of the Company as heretofore conducted.

     (v)  All such leases of real property are in good standing and are valid,
          binding and enforceable in accordance with their respective terms and
          there does not exist under any such lease of real property any
          material default or any event which with notice or lapse of time or
          both would constitute a material default.

     (vi) The plants, buildings and structures reflected on the Balance Sheet
          are in good operating condition and repair and have been reasonably
          maintained consistent with standards generally followed in the
          industry (giving due account to the age and length of the use of same,
          ordinary wear and tear excepted), are suitable to the Company for
          their present uses and, in the case of plants, buildings and other
          structures (including without limitation, the roofs thereof), to the
          knowledge of Company and Seller, are structurally sound.



                                      -10-
<PAGE>   15

     (vii)  The plants, buildings and structures referred to above currently
            have access to (1) public roads or valid easements over private
            streets or private property for such ingress to and egress from all
            such real properties and (2) water supply, storm and sanitary sewer
            facilities, telephone, gas and electrical connections, fire
            protection, drainage and other public utilities, in each case as is
            necessary for the present conduct of the business of the Company by
            the Company.

     (viii) None of the material structures on such owned or leased real
            properties encroaches upon real property of another person, and no
            structure of any other person substantially encroaches upon any of
            such owned or leased real properties.

     (b) There are no developments affecting any of such properties or assets
(exclusive of general economic, political or other similar developments not
unique to such properties or assets) pending or, to the knowledge of Seller,
threatened, that might materially detract from the value of such property or
assets, materially interfere with any present use of any such property or
assets.

     (c) To the Company's and Seller's knowledge, the equipment owned by the
Company has no material defects, is in good operating condition and repair
(ordinary wear and tear excepted), and is substantially adequate for the uses to
which it is being put by the Company.

     (d) The assets owned or leased by the Company, or which it otherwise has
the right to use, constitute all of the assets held for use or used in
connection with the business of the Company and are generally adequate to
conduct such business as currently conducted.

     3.10. NO UNDISCLOSED MATERIAL LIABILITIES. Except as disclosed in the
Financial Statements or the Disclosure Schedule and the Update, there are no
liabilities of the Company of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability, other than liabilities incurred in the ordinary
course of business consistent with past practice since the Balance Sheet Date,
which in the aggregate are not material to the Company.

     3.11. LITIGATION. There is no action, suit or proceeding (or any reasonably
known basis therefore) pending against, or, to the knowledge of the Seller, any
of the foregoing or any investigation commenced or threatened against or
affecting, the Company or any of its properties or the transactions contemplated
hereby before any court or arbitrator or any governmental body, agency, official
or authority.

     3.12. MATERIAL CONTRACTS.

     (a) Except for agreements, contracts, plans, leases, arrangements or
commitments disclosed in the Disclosure Schedule or any other schedule to this
Agreement, as of the date of this Agreement the Company is not a party to or
subject to:

          (i) any lease providing for annual rentals of $100,000 or more;



                                      -11-
<PAGE>   16

          (ii) any contract relating to indebtedness for borrowed money or the
     deferred purchase price of property (whether incurred, assumed, guaranteed
     or secured by any asset), except contracts relating to indebtedness
     incurred in the ordinary course of business in an amount not exceeding
     $50,000;

          (iii) any contract for the purchase of materials, supplies, goods,
     services, equipment or other assets providing for annual payments by the
     Company of $50,000 or more;

          (iv) any sales, distribution or other similar agreement providing for
     the sale by the Company of materials, supplies, goods, services, equipment
     or other assets providing for annual payments to the Company of $50,000 or
     more;

          (v) any agency, dealer, sales representative or other similar
     agreement;

          (vi) any employment or consulting agreement;

          (vii) any partnership, joint venture or other similar contract,
     arrangement or agreement;

          (viii) any license agreement, franchise agreement or agreement in
     respect of similar rights granted to or held by the Company;

          (ix) any contract or other document that limits the freedom of the
     Company to compete in any line of business or with any Person or in any
     area or which would so limit the freedom of the Company after the Closing
     Date; or

          (x) any other contract or commitment not made in the ordinary course
     of business that is material to the Company.

     (b) Each agreement, contract, plan, lease, arrangement and commitment
disclosed in any schedule to this Agreement or required to be disclosed pursuant
to Section 3.12(a) is a valid and binding agreement of the Company and is in
full force and effect, and the Company is not and to the knowledge of the
Company and the Seller, no other party thereto is in default in any material
respect under the terms of any such agreement, contract, plan, lease,
arrangement or commitment.

     3.13. INSURANCE COVERAGE. The Company has furnished to Buyer a list of, and
true and complete copies of, all insurance policies and fidelity bonds covering
the assets, business, equipment, properties, operations, employees, officers and
directors of the Company, other than insurance policies which are Employee Plans
or Benefit Arrangements disclosed in the Disclosure Schedule. There is no claim
by the Company pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums payable under all such policies and bonds have been paid and



                                      -12-
<PAGE>   17

the Company is in full compliance with the all terms and conditions of all such
policies and bonds, the failure to comply of which could reasonably be expected
to lead to the cancellation of such policies or bonds. Such policies of
insurance and bonds (or other policies and bonds providing substantially similar
insurance coverage) have been in effect since January 1, 1997 and remain in full
force and effect. The Company and Seller have not received any written
threatened termination of, or premium increase with respect to, any of such
policies or bonds.

     3.14. COMPLIANCE WITH LAWS; NO DEFAULTS.

     (a) The Company is not in violation of, or since, January 1, 1997 has not
violated, any applicable provisions of any laws, statutes, ordinances or
regulations, except for violations that have not had and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

     (b) The Disclosure Schedule identifies and correctly describes each license
and permit (a "PERMIT") material to the business of the Company, together with
the name of the governmental agency or entity issuing such license or permit. To
the best of the Company's and Seller's knowledge, such licenses and permits are
valid and in full force and effect, and none of such licenses or permits will be
terminated or become terminable as a result of the consummation of the
transactions contemplated hereby.

     (c) The Company is not in default under, and no condition exists that with
notice or lapse of time or both would constitute a default under, any judgment,
order or injunction of any court, arbitrator or governmental body, agency,
official or authority.

     3.15. FINDERS' FEES. There is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of the
Seller or the Company who might be entitled to any fee or commission from Buyer,
Merger Sub, the Company or any of their respective Affiliates upon consummation
of the transactions contemplated by this Agreement.

     3.16. INTELLECTUAL PROPERTY.

     (a) Other than off-the-shelf, commercially available software, the
Disclosure Schedule includes a list of all of the Company's Proprietary Rights
specifying as to each, as applicable: (i) the nature of such right; (ii) the
owner of such right; (iii) the jurisdictions by or in which such right has been
issued or registered or in which an application for such issuance or
registration has been filed, including the respective registration or
application numbers; and (iv) licenses, sublicenses and other agreements as to
which the Company or any of its Affiliates is a party and pursuant to which any
Person is authorized to use any such right, including the identity of all
parties thereto, a description of the nature and subject matter thereof, the
applicable royalty and the term thereof.

     (b)(i) Since January 1, 1997, and excluding any infringement by the Company
of which neither it nor the Seller have knowledge, the Company has not been sued
or charged in writing with or been a defendant in any claim, suit, action or
proceeding relating to its business that has



                                      -13-
<PAGE>   18

not been finally terminated prior to the date hereof and that involves a claim
of infringement of any patents, trademarks, service marks or copyrights, and
(ii) the Company and the Seller have no knowledge of any other material claim of
infringement by the Company, and no knowledge of any continuing infringement by
any other Person of any of the Company's Proprietary Rights. No Company
Proprietary Right is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by the Company or
restricting the licensing thereof by the Company to any Person. The Company has
not entered into any agreement to indemnify any other Person against any charge
of infringement of any patent, trademark, service mark or copyright.

     (c) To the knowledge of the Company and Seller, none of the processes and
formulae, research and development results and other know-how of the Company,
the value of which to the Company is contingent upon maintenance of the
confidentiality thereof, has been disclosed by the Company to any Person other
than Persons (i) that are parties to confidentiality agreements with the Company
or (ii) who are required as a matter of law to maintain the confidentiality of
the processes and formulae, research and development results and other know-how
of the Company.

     (d) To the knowledge of the Company and the Seller, no third party has
asserted any claim, or has any reasonable basis to assert any valid claim,
against the Company, which claim the Company reasonably has concluded is likely
to be made, with respect to (i) the continued employment by, or association
with, the Company of any of the present officers, employees of or consultants to
the Company or (ii) the use by the Company or any of such Persons in connection
with their activities for or on behalf of the Company of any information which
the Company or any of such Persons would be prohibited from using under any
prior agreements or arrangements or any laws applicable to unfair competition,
trade secrets or proprietary information.

     3.17. TAXES.

     (a) The term "TAXES" as used herein means all federal, state, local,
foreign net income, alternative or add-on minimum tax, estimated, gross income,
gross receipts, sales, use, ad valorem, value added, transfer, franchise,
capital profits, lease, service, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, environmental or
windfall profit taxes, customs, duties and other taxes, governmental fees and
other like assessments and charges of any kind whatsoever, together with all
interest, penalties, additions to tax and additional amounts with respect
thereto, and the term "Tax" means any one of the foregoing Taxes. The term "TAX
RETURNS" as used herein means all returns, declarations, reports, claims for
refund, information statements and other documents relating to Taxes, including
all schedules and attachments thereto, and including all amendments thereof, and
the term "Tax Return" means any one of the foregoing Tax Returns. "TAX
AUTHORITY" means any governmental authority responsible for the imposition of
any Tax.

     (b) The Company has timely filed all Tax Returns required to be filed and
has paid all Taxes owed (whether or not shown as due on such returns),
including, without limitation, all Taxes which the Company is obligated to
withhold for amounts paid or owing to employees, creditors and third parties.
All Tax Returns filed by the Company were complete and correct in



                                      -14-
<PAGE>   19

all material respects, and such Tax Returns correctly reflected the facts
regarding the income, business, assets, operations, activities, status and other
matters of the Company and any other information required to be shown thereon.
None of the Tax Returns filed by the Company or Taxes payable by the Company
have been the subject of an audit, action, suit, proceeding, claim, examination,
deficiency or assessment by any governmental authority, and, to the Knowledge of
the Company and Seller, no such audit, action, suit, proceeding, claim,
examination, deficiency or assessment is currently pending or, to the knowledge
of the Company, threatened. The Company is not currently the beneficiary of any
extension of time within which to file any Tax Return, and the Company has not
waived any statute of limitation with respect to any Tax or agreed to any
extension of time with respect to a Tax assessment or deficiency. All material
elections with respect to Taxes affecting the Company, as of the date hereof,
are set forth in the Financial Statements or in the Disclosure Schedule. None of
the Tax Returns filed by the Company contain a disclosure statement under former
Section 6661 of the Code or Section 6662 of the Code (or any similar provision
of state, local or foreign Tax law).

     (c) The Company is not a party to any agreement, contract, arrangement or
plan that has resulted or would result, separately or in the aggregate, in the
payment of (i) any "excess parachute payments" within the meaning of Section
280G of the Code (without regard to the exceptions set forth in Sections
280G(b)(4) and 280G(b)(5) of the Code) or (ii) any amount for which a deduction
would be disallowed or deferred under Section 162 or Section 404 of the Code.
The Company has not agreed to make any adjustment under Section 481(a) of the
Code (or any corresponding provision of state, local or foreign Tax law) by
reason of a change in accounting method or otherwise, and will not be required
to make such an adjustment as a result of the transactions contemplated by this
Agreement. The Company is not, and has not been, a U.S. real property holding
company (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code.

     (d) No claim has ever been made by a Tax Authority in a jurisdiction where
the Company does not file Tax Returns that it is or may be subject to Tax in
that jurisdiction. No portion of the Purchase Price is subject to the Tax
withholding provisions of Section 3406 of the Code, or of Subchapter A of
Chapter 3 of the Code or of any other provision of law. The Company is not a
party to any joint venture, partnership, or other arrangement or contract which
could be treated as a partnership for federal income tax purposes. The Company
does not have, and has not had, a permanent establishment in any foreign
country, as defined in any applicable Tax treaty or convention between the
United States and such foreign country. None of the shares of outstanding
capital stock of the Company are subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. The Company has never filed a
consent pursuant to Section 341(f) of the Code, relating to collapsible
corporations.

     (e) The Company is not a party to any Tax sharing agreement or similar
arrangement. The Company has never been a member of a group filing a
consolidated federal income Tax Return (other than a group the common parent of
which was the Company), and the Company does not have any liability for the
Taxes of any Person (other than the Company) under Treasury Regulation Section
1.1502-6 (or any corresponding provision of state, local or foreign Tax law), as
a transferee or successor, by contract, or otherwise. The Company has no net
operating losses



                                      -15-
<PAGE>   20

or other tax attributes presently subject to limitation under Sections 382, 383
or 384 of the Code, or the federal consolidated return regulations (other than
limitations imposed as a result of the transactions contemplated pursuant to
this Agreement).

     (f) There are no liens for Taxes upon any of the assets, other than for ad
valorem Taxes not yet due and payable. The unpaid Taxes of the Company did not,
as of June 30, 2000, exceed the reserve for actual Taxes (as opposed to any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) as shown on the Financial Statements dated June 30, 2000,
and will not exceed such reserve as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company in
filing their Tax Returns. The Company will not incur any liability for Taxes
from June 30, 2000 through the Closing Date other than in the ordinary course of
business and consistent with past practice.

     (g) The Disclosure Schedule contains a list of all jurisdictions (whether
foreign or domestic) to which any Tax is properly payable by the Company.

     (h) The Company and its shareholder made (i) a valid election for the
Company to be treated as an "S corporation", as that term is defined in Section
1361(a) of the Code, for federal income tax purposes and (ii) a similar valid
election under the laws of California or any other applicable governmental
authority, and all of such elections will be in effect at the Effective Time. An
election under Section 1362(a) of the Code has been in effect with respect to
the Company and any predecessor corporation (within the meaning of Section
1374(c) of the Code) for each of its taxable years. The Disclosure Schedule
lists each such election and a true copy of each such election is attached
thereto; there are no grounds for the revocation of any such election and no
such election will be revoked retroactively or otherwise except at the Effective
Time by reason of the Merger. The Company has been an S corporation at all times
since its inception through the date hereof. Neither the Company nor its
shareholders has taken any action that would cause, or would result in, the
termination of the S corporation status of the Company, other than pursuant to
this Agreement.

     (i) The Company's shareholder has timely filed all Tax Returns with respect
to Taxes required to be paid attributable to items of income, gain, deductions,
losses and credits of the Company, and has timely paid all such Taxes (whether
or not shown on such Tax Returns). There has not been any audit of any Tax
Return filed by the shareholder of the Company with respect to, or which may
relate to, items of income, gain, deduction, loss or credit of the Company; and
no such audit of the shareholder of the Company is in progress and such
shareholder has not been notified by any taxing authority that any such audit is
contemplated or pending.

     (j) The representations of the Company and Seller set forth in the
representation letter set forth in Schedule 3.17 to this Agreement will be true
and correct as of the Closing.

     3.18. EMPLOYEES. SCHEDULE 3.18 sets forth a true and complete list of (a)
the names, titles, annual salaries and other compensation of all salaried
employees of the Company and (b) wage rates for non-salaried employees of the
Company (by classification). None of such



                                      -16-
<PAGE>   21

employees has indicated to the Company or the Seller that he or she intends to
resign or retire as a result of the transactions contemplated by this Agreement.

     3.19. ENVIRONMENTAL COMPLIANCE.

     (a) ENVIRONMENTAL DEFINITIONS. The following terms, as used herein, have
the following meanings:

     "CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.

     "ENVIRONMENT" means any and all environmental media, including without
limitation ambient air, surface water, ground water, drinking water supply, land
surface or subsurface strata, and also means any indoor location other than any
such location that is intended to contain Hazardous Substances and that is
constructed, maintained and operated in compliance with all applicable
Environmental Laws.

     "ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign
statutes, laws (including common or case law), regulations, ordinances, rules,
judgments, judicial decisions, orders, decrees, codes, plans, injunctions,
Environmental Permits, or governmental restrictions, arising thereunder,
relating to the protection of human health or safety or the Environment or to
emissions, discharges or Releases of any Hazardous Substance into the
Environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any Hazardous
Substance or the containment, removal or remediation thereof.

     "ENVIRONMENTAL LIABILITIES" means any and all liabilities arising in
connection with or in any way relating to the Company's business, past or
present, whether contingent or fixed, actual or potential, known or unknown,
which (i) arise under or relate to matters governed by Environmental Laws or
arise in connection with or relate to any matter disclosed in the Disclosure
Schedule and (ii) to the extent they arise from or relate in any way to actions
occurring or conditions existing before the Closing Date.

     "ENVIRONMENTAL PERMITS" means any and all governmental permits, licenses,
concessions, grants, franchises, agreements, authorizations, registrations or
other governmental approvals issued or required under any Environmental Laws.

     "HAZARDOUS SUBSTANCE" means any and all environmental pollutants and
contaminants, and any and all toxic, caustic, radioactive or otherwise hazardous
materials, substances or wastes that are regulated under any Environmental Laws,
and includes, without limitation, petroleum and its derivatives and by-products,
and any other hydrocarbons.

     "RELEASE" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the Environment



                                      -17-
<PAGE>   22

(including, without limitation, the abandonment or discarding of barrels,
containers, and other closed receptacles containing any Hazardous Substance).

     (b) ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES.

          (i) The Company has complied in all material respects with all
     Environmental Laws.

          (ii) No notice, notification, demand, request for information,
     citation, summons or order has been issued, no complaint has been filed, no
     penalty has been assessed and no investigation or review is pending or, to
     the Company's and the Seller's knowledge, threatened, by any governmental
     or other potential claimant with respect to (A) any alleged violation by
     the Company of any Environmental Law, or any liability thereunder, (B) any
     alleged failure by the Company to have any Environmental Permit, or (C) the
     use, generation, treatment, storage, recycling, release, transportation or
     disposal of any Hazardous Substance.

          (iii) During, or prior to, the Company's use, ownership or lease of
     any property now or previously owned, used or leased by the Company there
     have been: (A) no urea formaldehyde or polychlorinated biphenyls; (B) no
     asbestos or asbestos-containing materials are present; (C)no underground
     storage tanks or related piping for Hazardous Substances, active or
     abandoned, present and (D) no Hazardous Substance at, on or under any such
     property, in a reportable or threshold planning quantity, where such a
     quantity has been established by any Environmental Law.

          (iv) The Company has not transported or arranged for the
     transportation (directly or indirectly) of any Hazardous Substance to any
     location which is (A) listed or proposed for listing on the National
     Priorities List promulgated pursuant to CERCLA or on any similar state list
     of sites requiring investigation or clean-up or (B) the subject of federal,
     state or local enforcement actions or other investigations which may lead
     to claims against the Company for any Environmental Liabilities including,
     without limitation, clean-up costs, remedial work, damages to natural
     resources or for personal injury claims, and claims under CERCLA.

          (v) No oral or written notification of a Release of a Hazardous
     Substance has been filed by or on behalf of the Company and no property now
     or previously owned or leased by the Company is listed or, to the Company's
     knowledge, proposed for listing, on the National Priorities List
     promulgated pursuant to CERCLA or on any similar state list of sites
     requiring investigation or clean-up.

          (vi) No notice, lien or other restriction relating to the presence of
     Hazardous Substances or otherwise arising under and Environmental Law has
     been placed on any property or facility now or previously (to the best of
     the Company's and Seller's knowledge) previously owned or leased by the
     Company, and no governmental actions have been taken or are in process that
     could subject any such property or facility to such a



                                      -18-
<PAGE>   23

     notice, lien or other restriction. The Company is not required to place any
     such notice, lien or other restriction relating to the presence of
     Hazardous Substances or otherwise arising under any Environmental Law at
     any property used in connection with the operation of its business or in
     any deed to such property.

          (vii) There have been no environmental investigations, studies,
     audits, tests, reviews or other analyses conducted by or for the Company,
     or which are or were in the Company's possession, in relation to any
     property or facility now or previously owned or leased by the Company,
     which have not been delivered to Buyer.

          (viii) The Company has applied for and received all Environmental
     Permits required in connection with its business. The Disclosure Schedule
     sets forth a list of all such Environmental Permits, each of which is in
     full force and effect. No suspension or cancellation is threatened and
     there is no basis for believing that any such Environmental Permit will not
     be renewable upon expiration. Each such Environmental Permit will continue
     to be in full force and effect immediately following the Closing in
     accordance with the terms thereof as in effect immediately prior to the
     Closing, and the consummation of the transactions contemplated herein will
     not conflict with, result in a violation or breach of or constitute a
     default under (or would result in a violation, breach or default with the
     giving of notice or the passage of time or both) any such Environmental
     Permit.

          (ix) The Company has not contracted, or otherwise agreed, to indemnify
     any Person, in whole or in part, with respect to any liability, claim,
     costs, fees, or demand, known or unknown, arising under, or related to, any
     Environmental Law. The Company has not contractually agreed to assume any
     liability, costs, expenses, claims or fees arising under any Environmental
     Law, nor is it obligated under any agreement to undertake any remediation,
     removal, response or site assessment activities at any site, property or
     location.

     3.20. CUSTOMERS AND SUPPLIERS. The Company has not received notice from a
customer, or group of customers that are under common ownership or control, and
that accounted for 10% or more of the aggregate products and services furnished
by the Company during the past 18 months that such customer or group of
customers has stopped or intends to stop purchasing the Company's products or
services, nor has the Company lost any supplier, or group of suppliers that are
under common ownership or control, the loss of which would be reasonably
expected to have a Material Adverse Effect.

     3.21. TRANSACTIONS WITH AFFILIATES. Except as set forth in the Disclosure
Schedule, there are no loans, leases, royalty agreements or other continuing
transactions between the Company and the Seller, any Affiliate of the Seller, or
any member of the Seller's family. To the knowledge of the Company and the
Seller, none of the officers or directors of the Company or Seller (a) has any
material direct or indirect interest in any entity that does business with the
Company; (b) has any direct or indirect interest in any property, asset or right
that is used by the Company in the conduct of its business; or (c) has any
contractual relationship with the Company



                                      -19-
<PAGE>   24

other than such relationships that results solely from being an officer,
director, employee or stockholder of the Company.

     3.22. OTHER INFORMATION. None of this Agreement, including the schedules
and exhibits, the Ancillary Agreements, nor the Financial Statements delivered
to Buyer in connection with the transactions contemplated by this Agreement,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading.

     3.23. INTERCOMPANY ARRANGEMENTS. The Company does not own any note, bond,
debenture or other indebtedness, and is not otherwise a creditor of the Seller
or any of its Affiliates. Since the Balance Sheet Date there has not been any
payment by the Company to the Seller or any of its Affiliates, charge by the
Seller or any of its Affiliates to the Company or other transaction between the
Company and the Seller or any of its Affiliates.

     3.24. INVENTORIES. The inventories set forth in the Balance Sheet were
properly stated therein at the lesser of cost or net realizable value determined
in accordance with generally accepted accounting principles consistently applied
by the Company. Since the Balance Sheet Date, the inventories of the Company
have been maintained in the ordinary course of business. All such inventory is
owned free and clear of all Liens except as disclosed in the Financial
Statements. All of the inventory recorded on the Balance Sheet consists of, and
all inventory on the Closing Date will consist of, items of a quality usable or
saleable in the ordinary course of business consistent with past practices and
are and will be in quantities sufficient for the normal operation of the
business of the Company in accordance with past practice, except for obsolete
items and items of below standard quality, all of which have been written down
to net realizable value in the Financial Statements.

     3.25. RECEIVABLES. All accounts, notes receivable and other receivables
(other than receivables collected since the Balance Sheet Date) reflected on the
Balance Sheet are, and all accounts and notes receivable of the Company at the
Closing Date arose in the ordinary course of business of the Company and in bona
fide transactions and are valid. All accounts, notes receivable and other
receivables of the Company at the Balance Sheet Date have been included in the
Balance Sheet.

     3.26. PRODUCTS. Each of the products produced or sold by the Company (i)
is, and at all times has been, in compliance in all material respects with all
applicable federal, state, local and foreign laws and regulations and (ii) is,
and at all relevant times has been, fit for the ordinary purposes for which it
is intended to be used and conforms in all material respects to any promises or
affirmations of fact made on the container or label for such product or in
connection with its sale. There is no known design defect with respect to any of
such products and each of such products contains adequate warnings, presented in
a reasonably prominent manner, in accordance with applicable laws and current
industry practice with respect to its contents and use. The Company has no
products placed with its customers under an understanding permitting their
return to the Company other than pursuant to a breach of warranty.


                                      -20-
<PAGE>   25

     3.27. LABOR MATTERS. The Company is in compliance with all currently
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice, failure to comply with which or engagement in which, as the case
may be, would reasonably be expected to have a Material Adverse Effect. There is
no unfair labor practice complaint pending or, to the knowledge of the Seller,
threatened against the Company before the National Labor Relations Board.

     3.28. AFFILIATE AGREEMENTS. The Company has consulted with its counsel and
has been advised that all persons who may be deemed "affiliates" of the Company
as such term is used in Rule 145 under the Securities Act, and applicable
accounting pronouncements of the Commission (each such Person, a "COMPANY
AFFILIATE") are listed on SCHEDULE 8.04(b).

     3.29 APPROVALS. On or before the Closing, the Agreement and Certificate of
Merger have been duly approved and adopted by the affirmative vote of a number
of the outstanding shares of the Company's capital stock that equals or exceeds
the number of such shares required by law to approve the Agreement and the
Certificate of Merger.

     3.30. RELIANCE. The representations and warranties of the Buyer and Merger
Sub set forth in this Agreement, and in any certificate or other writing
delivered by the Buyer or Merger Sub pursuant hereto, constitute all of the
representations and warranties of the Buyer and Merger Sub upon which The
Company and Seller have relied in entering into and performing this Agreement.


                                   ARTICLE IV

                                 REPRESENTATIONS
                        AND WARRANTIES RELATING TO SELLER

     The Seller represents and warrants to, and agrees with, Buyer and Merger
Sub as follows:

     4.01. TITLE TO AND VALIDITY OF SHARES. Seller now has, and on the Closing
Date will have, good and marketable title to and unrestricted power to vote and
transfer the Shares designated as owned by such Seller opposite such Seller's
name on SCHEDULE 2.03, free and clear of any Lien and, upon payment therefor and
delivery to Buyer thereof in accordance with the terms of this Agreement, Buyer
will obtain good and marketable title to such Shares free and clear of any Lien.
All Shares owned by such Seller have been duly authorized and validly issued and
are fully paid and non-assessable. All Shares to be sold by such Seller are
registered in the name of such Seller.

     4.02. AUTHORITY. Seller has the legal power, right and authority to enter
into and perform this Agreement and the Ancillary Agreements to which he is a
party, and to perform each of his obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and the Ancillary
Agreements to which he is a party by such Seller (a) require no action by or in
respect of, or filing with, or consent of, any governmental body, agency or
official



                                      -21-
<PAGE>   26

or any other Person and (b) do not contravene, or constitute a default under,
any provision of applicable law or regulation or of any agreement, judgment,
injunction, order, decree or any other instrument binding upon such Seller. This
Agreement and the Ancillary Agreements to which he is a party have been duly
executed and delivered by such Seller and constitute valid and binding
obligations of such Seller, enforceable in accordance with their terms.

     4.03. POWER TO ACT AS TRUSTEE OR EXECUTOR. If Seller is serving as trustee
or executor with respect to its Shares, such Seller is duly authorized and
empowered by the instruments creating such trust or trusts or by the will of
which Seller is acting as executor and under applicable law to enter into this
Agreement and the Ancillary Agreements to which he is a party with respect to
the Shares held by Seller and to consummate the transactions contemplated
herein.

     4.04. SECURITIES ACT REPRESENTATIONS.

     (a) Seller has substantial experience in evaluating and investing in
private placement transactions of securities in companies similar to the Buyer
such that Seller is capable of evaluating the merits and risks of its investment
in the Buyer and has the capacity to protect its own interest. Seller is an
"accredited investor" as that term is defined in Rule 501 promulgated under the
Securities Act.

     (b) Seller is acquiring the Buyer Stock for investment for Seller's own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof. Seller understands that the Buyer
Stock has not been, and will not be when issued, registered under the Securities
Act and is being issued pursuant to a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the representations expressed herein.

     (c) Seller acknowledges that the Buyer Stock must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from such registration is available. Seller is aware of the provisions of Rule
145 promulgated under the Securities Act which permit limited resale of shares
received in certain private placements subject to the satisfaction of certain
conditions.

     (d) Seller acknowledges that the certificates representing Buyer Stock will
bear a legend substantially as follows:

          "The securities represented hereby have not been registered under the
     Securities Act of 1933, as amended, and may not be sold, transferred or
     otherwise disposed of except in accordance with the terms thereof and
     unless registered with the Securities and Exchange Commission of the United
     States and the securities regulatory authorities of certain states or
     unless an exemption from registration is available."


                                      -22-
<PAGE>   27
                                    ARTICLE V

             REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB

     Buyer and Merger Sub hereby jointly and severally represent and warrant to
the Company and Seller that:

     5.01. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. Buyer is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where failure to be so
qualified would not, individually or in the aggregate, have a Material Adverse
Effect. Buyer has heretofore delivered to the Company true and complete copies
of the corporate charter and bylaws of Buyer as currently in effect. Merger Sub
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, is recently organized and has
conducted no business activities other than as contemplated by this Agreement.

     5.02. CORPORATE AUTHORIZATION. The execution, delivery and performance by
Buyer and Merger Sub of this Agreement and the Ancillary Agreements to which
they are party and the consummation by Buyer and Merger Sub of the transactions
contemplated hereby and thereby are within the corporate powers of Buyer and
Merger Sub, respectively and have been duly authorized by all necessary
corporate action on the part of such party. Buyer's Board of Directors has
approved Buyer's execution of this Agreement and consummation of the
transactions contemplated hereby. This Agreement and the Ancillary Agreements to
which they are party have been duly executed and delivered by Buyer and Merger
Sub and constitute valid and binding agreements of Buyer and Merger Sub,
respectively.

     5.03. GOVERNMENTAL AUTHORIZATION.

     (a) The execution, delivery and performance by Buyer and Merger Sub of this
Agreement and the Ancillary Agreements to which they are party require no action
by or in respect of, or filing with, any governmental body, agency, official or
authority other than (i) compliance with any applicable requirements of the HSR
Act; and (ii) compliance with any applicable requirements of the 1934 Act.

     (b) No consent, approval, waiver or other action by any Person (other than
any governmental body, agency, official or authority referred to in (a) above)
under any contract, agreement, indenture, lease, instrument or other document to
which Buyer or Merger Sub is a party or by which it is bound is required or
necessary for the execution, delivery and performance of this Agreement of the
Ancillary Agreements to which they are party by Buyer and Merger Sub or the
consummation of the transactions contemplated hereby or thereby.



                                      -23-
<PAGE>   28

     5.04. NON-CONTRAVENTION. The execution, delivery and performance by Buyer
and Merger Sub of this Agreement and the Ancillary Agreements to which they are
party and the consummation by Buyer and Merger Sub of the transactions
contemplated hereby and thereby do not and will not (i) contravene or conflict
with the corporate charter or bylaws of Buyer or Merger Sub, (ii) assuming
compliance with the matters referred to in Section 5.03, contravene or conflict
with any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to Buyer or Merger Sub, (iii) violate, conflict with
or constitute a default under any material contract to which Buyer or Merger Sub
is a party or by which Buyer's or Merger Sub's property is bound, or (iv)
require the consent of any party to any material contract to which Buyer or
Merger Sub is a party or by which Buyer's or Merger Sub's property is bound.

     5.05. FINDERS' FEES. There is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of
Buyer or Merger Sub who might be entitled to any fee or commission from the
Company, Seller or any Affiliate thereof upon consummation of the transactions
contemplated by this Agreement.

     5.06. PURCHASE FOR INVESTMENT. Buyer is acquiring the Shares for investment
for its own account and not with a view to, or for sale in connection with, any
distribution thereof.

     5.07. LITIGATION. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of Buyer or Merger Sub threatened against
or affecting, Buyer or any of its subsidiaries or any of their properties or
rights before any court or arbitrator or any governmental body, agency or
official which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated hereby.

     5.08. BUYER STOCK. The Buyer Stock has been duly authorized and, when
issued in accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Buyer's common stock, $0.125 par value per share, with
no personal liability attaching to the ownership thereof and will be free and
clear of all liens, charges, restrictions, claims and encumbrances imposed by or
through Buyer, except as may arise in connection with or be imposed as a result
of the transactions contemplated hereby.

     5.09. CAPITALIZATION OF BUYER AND MERGER SUB. As of July 29, 2000, the
authorized capital stock of Buyer consists of 1 billion shares of common stock.
As of such date 196,957,131 shares of Buyer Stock are issued and outstanding, of
which 23,516,330 shares of Buyer Stock are held in the treasury of Buyer, and
29,979,859 shares of Buyer Stock have been reserved for issuance upon exercise
of options granted or reserved for grant under Buyer's various stock option and
stock purchase plans for its employees and directors. All of the shares of Buyer
Stock have the same voting and other rights.

     5.10. REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1998, Buyer has
filed all forms, reports and documents with the Commission required to be filed
by it pursuant to the federal securities laws and the Commission rules and
regulations thereunder, and all such forms, reports and documents filed with the
Commission have complied in all material respects with all



                                      -24-
<PAGE>   29

applicable requirements of the federal securities laws and the Commission rules
and regulations promulgated thereunder. Buyer has heretofore made available to
the Company and the Seller, true and complete copies of its Form 10-K for the
period ended December 31, 1999 and its Quarterly Report on Form 10-Q for the
period ended March 31, 2000, and Buyer shall forward to Seller true and correct
copies of all forms, reports, documents and amendments thereto filed by it with
the Commission after the date hereof prior to Closing all in the form (including
exhibits) so filed (collectively, the "REPORTS"). All forms, reports, documents,
amendments thereto and other filings filed by Buyer with the Commission,
including the Reports, prior to the date hereof are collectively referred to
herein as the "COMMISSION FILINGS". As of their respective dates, the Commission
Filings did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited financial statements of Buyer for its fiscal year
ended December 31, 1999, included in the Commission Filings (the "BUYER AUDITED
FINANCIAL STATEMENTS"), were prepared in accordance with generally accepted
accounting principles consistently applied and fairly present the consolidated
financial position of Buyer as of the dates thereof and the results of its
operations, shareholders' equity and cash flows for the period then ended. The
unaudited financial statements of Buyer for the three-month period ended March
31, 2000 included in the Commission Filings, have been prepared in accordance
with generally accepted accounting principles consistently applied and fairly
present the consolidated financial position of Buyer as of March 31, 2000 and
the results of operations, shareholders' equity and cash flows for the three
month period then ended in accordance with generally accepted accounting
principles consistently applied (subject, in the case of unaudited statements,
to the absence of footnote disclosure and in the case of unaudited interim
statements to year-end adjustments, which will not be material either
individually or in the aggregate).

     5.11. ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as expressly disclosed
in the Reports filed since December 31, 1999, there has not been any Material
Adverse Change in the business, assets, condition (financial or otherwise), or
results of operation of Buyer.

     5.12. FORM S-3 ELIGIBILITY. Buyer meets the "Registrant Requirements" set
forth in Instruction I.A. of the General Instructions for the use of Form S-3
(Registration Statement under the Securities Act).

     5.13. DOCUMENTS NOT MISLEADING. Neither this Agreement, including all
schedules and exhibits, nor the Ancillary Agreements delivered by Buyer or
Merger Sub to Seller and the Company contains any untrue statement of any
material fact or omits to state any material fact required to be stated in order
to make such statement or document not misleading.

     5.14. TAX REPRESENTATION LETTER. The representations of Buyer and Merger
Sub set forth in the representation letter set forth in SCHEDULE 5.14 will be
true and correct as of the Closing.

     5.15. RELIANCE. The representations and warranties of the Company and
Seller set forth in this Agreement, in the Disclosure Schedule and Update, and
in any certificate or other writing delivered by the Company or Seller pursuant
hereto, constitute all of the representations and



                                      -25-
<PAGE>   30

warranties of the Company and Seller upon which the Buyer and Merger Sub have
relied in entering into and performing this Agreement.


                                   ARTICLE VI

                       COVENANTS OF THE COMPANY AND SELLER

     The Company and the Seller agree that:

     6.01. CONDUCT OF THE COMPANY. From the date hereof until the Closing Date,
the Company shall conduct its business in the ordinary course consistent with
past practices and use commercially reasonable efforts to preserve intact its
business organization and relationships with third parties and keep available
the services of its present officers and employees. If requested by Buyer, the
Company will confer on a regular and frequent basis with representatives of
Buyer to report operational matters of a material nature and to report on the
general status of the Company's ongoing operations. Without limiting the
generality of the foregoing, from the date hereof until the Closing Date, the
Company will not:

          (a) adopt or propose any change in its corporate charter or bylaws;

          (b) merge or consolidate with any other Person or acquire assets of
     the business of any other Person for a purchase price in excess of $10,000;

          (c) sell, lease, license, encumber or otherwise dispose of any assets
     or property except (i) pursuant to existing contracts or commitments and
     (ii) in the ordinary course consistent with past practices;

          (d) take any action that would adversely affect the parties' ability
     to account for the transaction contemplated by this Agreement as a "pooling
     of interests" in accordance with United States generally accepted
     accounting principles, as acceptable to the Commission or pay any dividend
     or make any other distribution of cash, shares or property other than
     distributions that do not exceed, in the aggregate, the Tax Distribution
     Amount;

          (e) grant any bonus, severance or termination pay to any officer,
     director or independent contractor or, except in the ordinary course of
     business consistent with past practices, to any employee of the Company;

          (f) other than in the ordinary course of business consistent with
     prior practice, enter into or terminate any contracts, arrangements, plans,
     agreements, leases, licenses, franchises, permits, indentures,
     authorizations, instruments, or commitments, or amend or otherwise change
     in any material respect the terms thereof in a manner adverse to the
     Company;



                                      -26-
<PAGE>   31

          (g) modify in any material respect existing discounts or other terms
     and conditions with dealers, distributors and other resellers of the
     Company's products or services in a manner adverse to the Company;

          (h) incur any indebtedness for borrowed money by way of direct loan,
     sale of debt securities, purchase money obligation, conditional sale,
     guarantee or otherwise;

          (i) adopt or amend, or modify in any material respect, any Employee
     Plan or Benefit Arrangement or pay any pension, other retirement benefit
     not required by any existing Employee Plan or Benefit Arrangement; enter
     into or modify any employment or severance contracts, increase the
     salaries, wage rates or fringe benefits of its officers, directors or
     employees;

          (j) make or change any material election in respect of Taxes, adopt or
     change any accounting method in respect of Taxes, enter into any closing
     agreement, settle any claim or assessment in respect of Taxes, or consent
     to any extension or waiver of the limitation period applicable to any claim
     or assessment in respect of Taxes; or

          (k) agree or commit to do any of the foregoing.

The Company will not (i) take or agree or commit to take any action that would
make any representation and warranty of the Company or the Seller under this
Agreement on the date of its execution and delivery inaccurate in any material
respect at, or as of any time prior to, the Closing Date or (ii) omit or agree
or commit to omit to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect at any such
time.

     6.02. ACCESS TO INFORMATION. From the date hereof until the Closing Date,
the Seller and the Company (a) will give Buyer, its counsel, financial advisors,
auditors and other authorized representatives full access to the offices,
properties, books and records of the Company, (b) will furnish Buyer's counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information relating to the Company as such Persons
may reasonably request, and (c) will instruct the employees, counsel and
financial advisors of the Company to cooperate with Buyer in its investigation
of the Company; PROVIDED that no investigation pursuant to this Section shall
affect any representation or warranty given by the Company or the Seller
hereunder.

     6.03. NOTICES OF CERTAIN EVENTS. From the date hereof until the Closing
Date, the Company will promptly notify Buyer of:

          (i) any notice from any Person alleging that the consent of such
     Person is or may be required in connection with the transactions
     contemplated by this Agreement;

          (ii) any notice from any governmental or regulatory agency or
     authority in connection with the transactions contemplated by this
     Agreement;



                                      -27-
<PAGE>   32
          (iii) any actions, suits, claims or proceedings commenced or, to its
     Knowledge, any of the foregoing threatened or any investigation commenced
     against the Company or that relate to the consummation of the transactions
     contemplated by this Agreement; and

          (iv) any event which would or reasonably could be expected to render
     any representation or warranty of Company or the Seller untrue or
     inaccurate in any material respect or would or might cause Company or the
     Seller to fail to comply with its obligations hereunder in any material
     respect.

     6.04. RESIGNATIONS. The Company will deliver to Buyer the resignations of
all officers and directors of the Company from their positions with the Company
at or prior to the Closing Date, unless otherwise specified by Buyer.

     6.05. NONCOMPETITION; NONSOLICITATION.

     (a) The Seller agrees that for a period of three (3) full years from the
Closing Date, neither he nor any of its Affiliates shall:

          (i) own, manage, operate, join, control, be employed or retained by or
     participate in (including permitting such Seller's name or business name to
     be associated with) any business that competes with the business of the
     Company as it exists on the Closing Date ("Engage in Competition"),
     directly or indirectly, or derive any financial benefits whatsoever from,
     or be an officer, director, employee, employer, partner, joint venturer,
     agent, consultant, member, managing member, independent contractor or
     shareholder of, any business which Engages in Competition, or renders
     assistance or advice for which Seller, or an Affiliate of Seller, receives
     any financial remuneration, directly or indirectly, to any person, firm or
     enterprise which it so engages; provided, however, that the Seller shall be
     in violation of this covenant solely by reason of his ownership of less
     than five percent (5%) of the outstanding stock of a Person, so long as
     such Seller has no active participation in the management or business of
     such Person; or

          (ii) approach, solicit or accept business from, or otherwise do
     business or communicate in any way with any customer, supplier, licensee,
     sales representative, distributor, dealer, manufacturer, vendor, consultant
     or other business relation (collectively "Customers") of Buyer or its
     Affiliates thereof with respect to any activity which constitutes Engaging
     in Competition or induce or attempt to induce any Customers of Buyer or its
     Affiliates to cease doing business with Buyer or its Affiliates.

     (b) For the purposes of Section 6.05(a) of this Agreement, a business or
other commercial entity "Engaging in Competition," shall mean a company,
business, or entity whose products or services are similar in function or
capability or otherwise directly competitive to the products or services being
designed, conceived, developed, marketed, manufactured, distributed, provided or
sold by the Company as of the Closing Date, including printed circuit boards and
back panels.



                                      -28-
<PAGE>   33

     (c) Seller further agrees that for a period of five (5) full years from the
Closing Date, neither he nor any of his Affiliates shall:

          (i) solicit, induce or attempt to induce any person who is then in the
     employ of or an independent contractor with Buyer or its Affiliates to
     leave the employ of, or terminate his/her or its contractual relationship
     with Buyer or its Affiliates, or in any way interfere with the relationship
     between Buyer or its Affiliates and any such employee or independent
     contractor, or employ or attempt to employ directly or through another
     entity any such person or in an activity which constitutes Engaging in
     Competition, or approach any such employee or independent contractor for
     any of the foregoing purposes;

          (ii) aid, assist or counsel any other Person to do any of the above;
     or

          (iii) engage in a course of conduct for the purpose of circumventing
     the provisions of this Section.

     (d) Seller hereby agrees that each provision and the subparts of each
provision herein shall be treated as separate and independent clauses, and the
unenforceability of any one clause shall in no way impair the enforceability of
any of the other clauses in this Section. Moreover, if one or more of the
provisions contained in this Section shall for any reason be held to be
excessively broad as to scope, activity, subject or otherwise so as to be
unenforceable at law, such provision or provisions shall be construed by the
appropriate judicial body by limiting or reducing it or them, so as to be
enforceable to the maximum extent compatible with the applicable law as it shall
then appear. Seller hereby further agrees that the language of all parts of this
Section shall in all cases be construed as a whole according to its fair meaning
and not strictly for or against either of the parties. Any waiver by the Buyer
of a breach of any provision of this Section shall not operate or be construed
as a waiver of any subsequent breach of such provision or any other provision
hereof.

     (e) Seller's obligations under this Section shall be binding upon their
heirs, executors, administrators and legal representatives.

     (f) Seller agrees that any breach of this Section by them will cause
irreparable damage to the Buyer and that in the event of such breach the Buyer
shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of Seller's obligations hereunder. The Buyer may apply for such
injunctive relief in any court of competent jurisdiction without the necessity
of posting any bond or other security. Buyer agrees that before pursuing any of
its remedies for breach by Seller of this Section 6.05, it shall give such
Seller written notice of such breach and 30 days to cure such breach to the
reasonable satisfaction of Buyer.

     6.06. CONFIDENTIALITY. The Company, and Seller and their Affiliates, will
hold, and will use their best efforts to cause their respective officers,
directors, employees, accountants, counsel, consultants, advisors and agents to
hold, in confidence, unless compelled to disclose by



                                      -29-
<PAGE>   34

judicial or administrative process or by other requirements of law, all
confidential documents and information concerning Buyer or Merger Sub furnished
to the Company, or to Seller or their Affiliates, in connection with the
transactions contemplated by this Agreement, and all confidential documents and
information concerning the Company, except to the extent that such information
can be shown to have been (i) previously known on a nonconfidential basis by
Seller, (ii) in the public domain through no fault of Seller or (iii) later
lawfully acquired by Seller from sources other than the Company or Buyer;
PROVIDED that the Company and Seller may disclose such information to their
respective officers, directors, employees, accountants, counsel, consultants,
advisors and agents in connection with the transactions contemplated by this
Agreement so long as such persons are informed by the Company and Seller of the
confidential nature of such information and are directed by the Company and
Seller to treat such information confidentially. The obligation of the Company,
and Seller and their Affiliates, to hold any such information in confidence
shall be satisfied if they exercise the same care with respect to such
information as they would take to preserve the confidentiality of their own
similar information. If this Agreement is terminated, the Company, and Seller
and their Affiliates, will, and will use their best efforts to cause their
respective officers, directors, employees, accountants, counsel, consultants,
advisors and agents to, destroy or deliver to Buyer, upon request, all documents
and other materials, and all copies thereof, obtained by the Company, or by
Seller or their Affiliates, or on their behalf from Buyer in connection with
this Agreement that are subject to such confidence.

     6.07. CONTINUING DISCLOSURE. From the date hereof until the Closing Date,
the Company and Seller shall have the continuing obligation promptly to advise
Buyer with respect to any matter hereafter arising or discovered that, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in a schedule to this Agreement, or that constitutes a
breach or prospective breach of this Agreement by the Company or Seller;
provided, however that Buyer shall have no remedy to the extent Buyer is
notified of any such matter prior to Closing and subsequently waives such matter
in writing.

     6.08. STOCKHOLDER APPROVAL. To the extent required, Seller in his capacity
as a stockholder agrees to support and to vote all of such Seller's shares of
Company Common Stock for the approval of this Agreement and the Ancillary
Agreements.

     6.09. EXCLUSIVITY; ACQUISITION PROPOSALS. Unless and until this Agreement
will have been terminated by either party pursuant to Article XII hereof and
thereafter subject to Section 12.02, neither the Company nor Seller will (and
each will use its reasonable best efforts to ensure that none of its officers,
directors, agents, representatives or affiliates) take or cause or permit any
Person to take, directly or indirectly, any of the following actions with any
party other than Buyer and its designees: (i) solicit, encourage, initiate or
participate in any negotiations, inquiries, or discussions with respect to any
offer or proposal to acquire all or any significant part of the Company's
business, assets or capital stock, whether by merger, consolidation, other
business combination, purchase of assets, tender or exchange offer or otherwise
(each of the foregoing, an "ACQUISITION TRANSACTION"), (ii) disclose, in
connection with an Acquisition Transaction, any information not customarily
disclosed to any Person other than Buyer or its representatives concerning the
Company's business or properties or afford to any Person other than Buyer or its


                                      -30-
<PAGE>   35
representatives access to its properties, books, or records, except in the
ordinary course of business and as required by law or pursuant to a governmental
request for information, (iii) enter into or execute any binding or non-binding
letter of intent, memorandum of understanding or other document or agreement
relating to an Acquisition Transaction. In the event that the Company or Seller
is contacted by any third party expressing an interest in discussing an
Acquisition Transaction, the Company or such Seller will promptly notify Buyer
of such contact and the identity of the party so contacting the Company or such
Seller.

     6.10. THE DISCLOSURE SCHEDULE. As soon as practicable, but in no event
later than 5:00 PM Eastern Time on August 4, 2000, the Company and Seller shall
deliver to Buyer the Disclosure Schedule and all schedules and exhibits to be
attached thereto. The Disclosure Schedule shall: (a) contain accurate, true,
correct and complete information and data; (b) be executed by the Company and
Seller and dated the date of this Agreement; (c) be deemed to modify the
representations, warranties and obligations of the Company and Seller made
pursuant to Articles III, IV and IX of this Agreement, or constitute
qualifications or exceptions thereto; and (d) be updated, amended and
supplemented, as appropriate through the final Update. Terms used and defined in
this Agreement shall have the same definition when used in the Disclosure
Schedule and the Update and the schedules and exhibits attached thereto.

     The Update and all schedules and exhibits thereto shall include all
information relevant to the disclosures therein which relates to events which
have occurred after the date of the Disclosure Schedule until the Closing Date,
and Seller shall deliver a draft of the Update to Buyer at least five (5) days
prior to the Closing Date and shall deliver the final Update to Buyer on the
Closing Date. The Update shall contain accurate, true, correct and complete
information and data and shall also be deemed to modify the representations,
warranties and obligations of the Company and Seller made pursuant to Articles
III, IV and IX of this Agreement, or constitute qualifications or exceptions
thereto.

     As soon as practicable and in any event within seven (7) business days
after its receipt of the Disclosure Schedule, Buyer shall give Company and
Seller notice if, on the basis of any information contained in the Disclosure
Schedule or any schedules or exhibits thereto, or of any information obtained
during the course of Buyer's own investigation through that date, it has
determined that it wishes to terminate this Agreement. Such notice shall specify
the information contained in the Disclosure Schedule, or any schedules or
exhibits thereto, or obtained during such investigation which is the basis for
such decision. The Company and Seller shall have three (3) business days to
review with Buyer such information, and if Buyer does not withdraw its notice by
the end of such three (3) business day period, then all further obligations of
Buyer and of the Company and Seller shall terminate without further liability of
Buyer to Seller or of Company and Seller to Buyer, subject, however, to the
obligations of the parties under Section 12.02. If Buyer does not advise Company
and Seller within seven (7) business days after its receipt of the Disclosure
Schedule that it wishes to terminate the Agreement, Buyer shall be deemed to
have been satisfied with the information relating to the Company and Seller
contained in the Disclosure Schedule, any schedules or exhibits thereto and any
information obtained during the course of Buyer's investigation.


                                      -31-
<PAGE>   36

                                   ARTICLE VII

                               COVENANTS OF BUYER

     Buyer agrees that:

     7.01. CONFIDENTIALITY. Prior to the Closing Date and after any termination
of this Agreement, Buyer and its Affiliates will hold, and will use their best
efforts to cause their respective officers, directors, employees, accountants,
counsel, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
Company and the Subsidiaries furnished to Buyer or its Affiliates in connection
with the transactions contemplated by this Agreement, except to the extent that
such information can be shown to have been (i) previously known on a
nonconfidential basis by Buyer, (ii) in the public domain through no fault of
Buyer or (iii) later lawfully acquired by Buyer from sources other than the
Company or its Subsidiaries; PROVIDED that Buyer may disclose such information
to its officers, directors, employees, accountants, counsel, consultants,
advisors and agents in connection with the transactions contemplated by this
Agreement so long as such Persons are informed by Buyer of the confidential
nature of such information and are directed by Buyer to treat such information
confidentially. The obligation of Buyer and its Affiliates to hold any such
information in confidence shall be satisfied if they exercise the same care with
respect to such information as they would take to preserve the confidentiality
of their own similar information. If this Agreement is terminated, Buyer and its
Affiliates will, and will cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, destroy or deliver to
Seller, upon request, all documents and other materials, and all copies thereof,
obtained by Buyer or its Affiliates or on their behalf from Seller, the Company
or the Subsidiaries in connection with this Agreement that are subject to such
confidence.

     7.02. REGISTRATION ON AND EFFECTIVENESS OF FORM S-3. Promptly following the
Closing, at the expense of Buyer, Buyer shall file a registration statement on
Form S-3 (the "REGISTRATION STATEMENT") to register the Buyer Stock. Buyer shall
use commercially reasonable efforts to cause the Registration Statement to
become effective (but in no event prior to expiration of any lock-up period
required in order for the transactions contemplated hereby to be accounted for
as a "pooling of interests") and to remain effective until the earlier to occur
of (i) two years from the date such Registration Statement first becomes
effective, and (ii) such time as all Buyer Stock has been sold. Buyer shall use
commercially reasonable efforts to take all reasonable and customary actions in
connection with the filing and effectiveness of the Registration Statement
(including but not limited to the delivery of prospectuses, compliance with blue
sky and notice of any suspension of the Registration Statement) to enable Seller
to sell the Buyer Stock. The Registration Statement shall comply in all material
respects with all applicable requirements of the federal securities laws and the
Commission rules and regulations promulgated thereunder.

     7.03 NOTICES OF CERTAIN EVENTS. From the date hereof until the Closing
Date, Buyer will promptly notify the Company and Seller of any event occurring
subsequent to the date of this



                                      -32-
<PAGE>   37

Agreement which would or might render any representation or warranty of Buyer or
Merger Sub untrue or inaccurate in any material respect or would or reasonably
could be expected to cause Buyer or Merger Sub to fail to comply with its
obligations hereunder in any material respect.

     7.04 CONTINUITY OF BUSINESS ENTERPRISE. Buyer will cause the Company to
continue its historic business or use a significant portion of its historic
business assets in a business.


                                  ARTICLE VIII

                            COVENANTS OF ALL PARTIES

     The parties hereto agree that:

     8.01. BEST EFFORTS. Subject to the terms and conditions of this Agreement,
each party will use its commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement; provided, however, that no party shall be
required to appeal in a court of law any denial of regulatory approval, to
commence any litigation, or to agree to conditions that may be burdensome to
such party in its reasonable discretion in order to obtain any such approval.
Merger Sub, Seller and Buyer each agree, and Seller, prior to the Closing, and
Buyer, after the Closing, agree to cause the Company, to execute and deliver
such other documents, certificates, agreements and other writings and to take
such other actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement.

     8.02. CERTAIN FILINGS. The Company, Merger Sub, Seller and Buyer shall
cooperate with each other (a) in determining whether any action by or in respect
of, or filing with, any governmental body, agency, official or authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement and (b) in
taking such actions or making any such filings, furnishing information required
in connection therewith and seeking timely to obtain any such actions, consents,
approvals or waivers.

     8.03. PUBLIC ANNOUNCEMENTS. The parties agree to consult with each other
before issuing any press release or making any public statement with respect to
this Agreement or the transactions contemplated hereby and, except as may be
required by applicable law or any listing agreement with any national securities
exchange, will not issue any such press release or make any such public
statement prior to such consultation.

     8.04. POOLING.

     (a) Each party will use all reasonable best efforts, will cooperate fully
and will take all actions as are reasonably necessary to allow the transaction
contemplated by this Agreement to



                                      -33-
<PAGE>   38

be accounted for as a "pooling of interests" in accordance with United States
generally accepted accounting principles which will be acceptable to the
Commission.

     (b) Seller has executed and delivered to Buyer a written agreement (an
"AFFILIATE AGREEMENT") in the form of EXHIBIT B hereto to the effect that such
Seller (i) has not made and will not make any disposition of any shares of
Company Common Stock or other securities of the Company in the 30-day period
prior to the Closing Date, and (ii) will not make any disposition of any of the
Buyer Stock to be received by such Person after the Closing Date until Buyer
shall have publicly released a report including the combined financial results
of Buyer and the Company for a period of at least 30 days of combined operations
of Buyer and the Company.

     8.05. TAX MATTERS.

     (a) In the event that it is determined by a finding or order in connection
with any governmental or judicial audit or proceeding, including any settlement
of such a proceeding to which any of the parties hereto are parties that the
Company's S corporation election pursuant to Section 1362 of the Code was not
validly in effect for any period after such election was purportedly made, then
the Seller shall promptly remit to Buyer in cash any federal, state and/or local
Tax liability (including any penalties, additions to Tax or interest assessed
with respect thereto) of the Company in connection with Taxes that are imposed
on the Company or Buyer as a result of such invalid election. Such payment shall
be made within 15 days after the date such Tax liability has been so determined.
The obligations to remit such cash to Buyer as described in this Section shall
be treated as separate from the Seller's other indemnification obligations
hereunder and in addition to amounts that may be owed to Buyer under the Escrow
Agreement. Notwithstanding anything to the contrary contained in this Agreement
or in the Escrow Agreement, the provisions of this Section shall survive the
termination of the Escrow Agreement and shall remain in effect as personal
obligations of the Seller until the applicable statutes of limitations shall
have expired.

     (b) Seller and Buyer shall engage PricewaterhouseCoopers ("PWC") to prepare
for filing by the Company all S Corporation Tax Returns (for federal income tax
purposes and for comparable state or local income tax purposes) for all periods
ending prior to or on the Closing Date which are filed after the Closing Date.
Such Tax Returns shall be prepared on a basis consistent with reasonable past
practice, subject to compliance with applicable law including all Tax rules and
regulations. Seller and Buyer shall each review drafts of such Tax Returns and
may provide comments, which shall be reflected in the final Tax Returns to be
filed to the extent agreed upon by all parties. Any disputes between Seller and
Buyer shall be resolved through consultation with PWC or, in the absence of
resolution through such process, shall be resolved by an independent accounting
firm chosen by mutual agreement of Seller and Buyer. Seller and Buyer shall take
all actions necessary and in a timely fashion to ensure that the Company shall
meet its obligations to file such Tax Returns on a timely basis. Seller shall
include any income, gain, loss, deduction, or other tax items for such periods
on their Tax Returns in a manner consistent with the Schedule K-1s (or
comparable state or local materials) furnished by the Company to Seller for such
periods in accordance with the S Corporation Tax Returns.



                                      -34-
<PAGE>   39

     (c) If it is determined, based upon the foregoing, that the Company's
distributions to Seller with respect to their Shares during the Stub Period and
through the Closing Date are greater or lesser than the actual S Corporation Tax
Liability, then as the case may be: (i) Seller shall promptly pay to Buyer, on
behalf of the Company, the amount of such distributions in excess of the S
Corporation Tax Liability, if any; and (ii) Buyer shall promptly cause the
Company to pay to Seller the amount by which such distributions are less than
the S Corporation Tax Liability.

     (d) Buyer shall not file or cause to be filed an amended Tax Return for
periods ending prior to or on the Closing Date except (i) with the approval of
the Seller, which shall not be unreasonably withheld, (ii) if the previously
filed Tax Return for any such period or periods is contrary to law, including
applicable Tax rules and regulations, or (iii) if PWC (or an alternative
accounting firm selected in accordance with the procedure described in Section
8.05(b)) determines that such amendment is necessary to reasonably reflect the
interests of the parties in accordance with this Agreement.

     (e) (i) Buyer, the Company, and Seller shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the filing of
Tax Returns pursuant to this Section and any audit, litigation, or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
and access to relevant personnel of the other party which are reasonably
relevant to any such audit, litigation or other proceeding. The Company and
Seller agree to retain all books and records with respect to Tax matters
pertinent to the Company relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or Seller, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any Tax Authority. (ii) Buyer will not take any action in connection with
any audit, litigation, or other proceeding encompassing a period covered by an S
Corporation Tax Return that would be inconsistent with the reasonable interests
of the Seller in accordance with this Agreement. Any dispute between Buyer and
the Seller in connection with matters subject to this subsection (d)(ii) shall
be resolved through consultation with PWC (or an alternative accounting firm
selected in accordance with the procedure described in Section 8.05(b)). In the
event the parties are unable to resolve any claim by or dispute with a Tax
Authority in the manner described herein, the parties will follow the procedures
set forth in Section 11.03.

     (f) Buyer, Seller, and the Company agree to treat and report the Merger as
a reorganization within the meaning of Section 368(a) of the Code
("Reorganization"), subject to applicable law including all tax rules and
regulations. Each party agrees to use its reasonable best efforts to take such
actions as reasonably required to achieve treatment of the Merger as a
Reorganization and to refrain from taking such actions as would reasonably be
expected to jeopardize the status of the Merger as a Reorganization.
Notwithstanding these covenants, no party shall be viewed as providing any
assurances to any other party with respect to the Tax status or consequences of
the Merger or any related transaction.



                                      -35-
<PAGE>   40

                                   ARTICLE IX

                                EMPLOYEE BENEFITS
                              AND EMPLOYEE MATTERS

     9.01. EMPLOYEE BENEFITS DEFINITIONS. The following terms, as used herein,
having the following meanings:

     "BENEFIT ARRANGEMENT" means each employment, severance or other similar
contract, arrangement or policy (written or oral) and each plan or arrangement
(written or oral) providing for severance benefits, insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (i) is not an Employee
Plan, (ii) is entered into, maintained or contributed to, as the case may be, by
the Company or any of its ERISA Affiliates and (iii) covers any employee or
former employee of the Company.

     "EMPLOYEE PLANS" means each "employee benefit plan", as such term is
defined in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA
and (ii) is maintained or contributed to by the Company or any of its ERISA
Affiliates, as the case may be.

     "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

     "ERISA AFFILIATE" of any entity means any other entity that, together with
such entity, would be treated as a single employer under Section 414 of the
Code.

     "MULTIEMPLOYER PLAN" means each Employee Plan that is a multiemployer plan,
as defined in Section 3(37) of ERISA.

     9.02. ERISA REPRESENTATIONS. The Company and Seller, jointly and severally,
hereby represent and warrant to Buyer that:

     (a) The Company has provided Buyer with complete salary, service and
related data as of the most recent practicable date for employees of the
Company.

     (b) SCHEDULE 9.02 lists each Employee Plan that covers any employee of the
Company, copies of all of which have previously been furnished to Buyer. With
respect to each Employee Plan, the Company has provided the most recently filed
Form 5500 an accurate summary description of such plan; and if applicable, each
ERISA bond, excise tax returns, most recent actuarial and other financial or
testing reports, insurance documents, other funding and investment contracts,
form of COBRA notices and elections, and form of HIPAA notices.



                                      -36-
<PAGE>   41

     (c) SCHEDULE 9.02 also includes a list of each Benefit Arrangement of the
Company, copies of which have been made furnished previously to Buyer.

     (d) None of the Employee Plans or Benefit Arrangements listed on SCHEDULE
9.02 covers any non-United States employee or former employee of the Company.

     (e) No non-exempt "prohibited transaction", as defined in Section 406 of
ERISA or Section 4975 of the Code, has occurred with respect to any Employee
Plan.

     (f) No Employee Plan is a Multiemployer Plan. With respect to any Employee
Plan that is subject to Title IV of ERISA, during the six-year period prior to
the date on which this representation is made or deemed made with respect to any
such Employee Plan, no "accumulated funding deficiency" (within the meaning of
Section 412 of the Code or Section 302 of ERISA) has occurred, no termination
has occurred nor has any lien in favor of the PBGC or a Plan arisen, during such
six-year period and the present value of all accrued benefits under each such
Employer Plan (on a plan termination basis) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits. The Company and its Affiliates have not incurred nor do they
reasonably expect to incur any liability under Title IV or ERISA arising in
connection with the termination of any plan covered or previously covered by
Title IV of ERISA.

     (g) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. The Company has furnished to Buyer
copies of the most recent Internal Revenue Service determination letters with
respect to each such plan. Each Employee Plan has been maintained in compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations, including but not limited to ERISA and the Code,
which are applicable to such plan.

     (h) Each Benefit Arrangement has been maintained in substantial compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations which are applicable to such Benefit Arrangement.

     (i) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code or similar state law.

     (j) All contributions and payments required to be made by the Company under
each Employee Plan and Benefit Arrangement, determined in accordance with prior
funding and accrual practices, as adjusted to include proportional accruals for
the period ending on the Closing Date, will be discharged and paid on or prior
to the Closing Date except to the extent (i) reflected on the Closing Balance
Sheet. Except as disclosed in writing to Buyer prior to the date hereof, there
has been no amendment to, written interpretation of or announcement (whether or
not written) by Seller or any of its ERISA Affiliates relating to, or change in



                                      -37-
<PAGE>   42

employee participation or coverage under, any Employee Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Plan or Benefit Arrangement above the level of the expense incurred in
respect thereof for the fiscal year ended prior to the date hereof.

     (k) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.

     (l) No tax under Sections 4980B or 4980D of the Code has been incurred in
respect of any Employee Plan that is a group health plan, as defined in Section
5000(b)(1) of the Code.

     (m) No employee of the Company will become entitled to any bonus,
retirement, severance or similar benefit or enhanced benefit solely as a result
of the transactions contemplated hereby.

     9.03. NO THIRD PARTY BENEFICIARIES. No provision of this Article IX shall
create any third party beneficiary or other rights in any employee or former
employee (including any beneficiary or dependent thereof) of the Company in
respect of continued employment (or resumed employment) with the Company and no
provision of this Article IX shall create any such rights in any such Persons in
respect of any benefits that may be provided, directly or indirectly, under any
Employee Plan or Benefit Arrangement or any plan or arrangement that may be
established by Buyer or any of its Affiliates. No provision of this Agreement
shall constitute a limitation on rights to amend, modify or terminate after the
Closing Date any Employee Plan or Benefit Arrangement. Buyer shall indemnify,
defend and hold the Company and Seller harmless from any claims made by any
Person employed by the Company at the Closing Date arising from actions taken by
the Buyer subsequent to the Closing Date. The Buyer shall pay for and have
complete control of and discretion in prosecuting the defense and/or settlement
of any such claims. The limitations on Buyer's indemnification obligations set
forth in Section 11.02(c) shall be inapplicable to Buyer's indemnification
obligations under this Section 9.03.

                                    ARTICLE X

                              CONDITIONS TO CLOSING

     10.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of
Buyer, the Company and Seller to consummate the Closing are subject to the
satisfaction of the following conditions:

     (a) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.



                                      -38-
<PAGE>   43

     (b) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Closing shall have been instituted by any Person before any court,
arbitrator or governmental body, agency or official and be pending.

     (c) Each other party to this Agreement shall have executed and delivered
each of the Ancillary Agreements to be entered into by it at Closing, in each
case substantially in the form attached as an exhibit to this Agreement.

     (d) All actions by or in respect of or filings with any governmental body,
agency, official or authority required to permit the consummation of the Closing
shall have been obtained.

     10.02. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the Closing is subject to the satisfaction of the following further
conditions:

     (a)(i) the Company and Seller shall have performed in all material respects
all of his or its obligations hereunder required to be performed on or prior to
the Closing Date, (ii) the representations and warranties of the Company and
Seller contained in this Agreement at the time of its execution and delivery and
in the Disclosure Schedule and the Update, and in any certificate or other
writing delivered by the Company or Seller pursuant hereto shall be true and
correct in every material respect at and as of the Closing Date as if made at
and as of such date and (iii) Buyer shall have received a certificate signed by
the President of the Company and by Seller to the foregoing effect.

     (b) No court, arbitrator or governmental body, agency or official shall
have issued any order, and there shall not be any statute, rule or regulation,
restraining the effective operation by Buyer of the business of the Company
after the Closing Date.

     (c) Buyer shall have received an opinion of Seller's Counsel, dated the
Closing Date, acceptable to Buyer and its counsel.

     (d) Seller shall have executed and delivered an Affiliate Agreement.

     (e) The Company shall have received all consents, authorizations or
approvals from the governmental agencies referred to in Section 3.03(a), in each
case in form and substance reasonably satisfactory to Buyer, and no such
consent, authorization or approval shall have been revoked.

     (f) Buyer and the Company shall have each received an unqualified written
opinion from their respective independent accountants, to the effect that such
accountants concur that no condition exists that would preclude Buyer from
accounting for the transaction contemplated by this agreement as a "pooling of
interests" under applicable rules and regulations of the Commission.

     (g) All stockholders of the Company shall have voted in favor of, or
consented to in writing, the consummation of the transactions contemplated
hereby.



                                      -39-
<PAGE>   44

     (h) Buyer shall have received all other closing documents specified in
Section 2.03 of this Agreement and all other closing documents that it may
reasonably request, all in form and substance reasonably satisfactory to Buyer.

     (i) The Company's Board of Directors will have passed and not rescinded
resolutions satisfactory to Buyer's counsel effectively terminating the
Company's 401(k) Plan immediately prior to the Closing.

     (j) Buyer shall have received a written statement confirming the total
amount(s) distributed to Seller with respect to their Shares during the Stub
Period through the Closing Date, which amount shall not exceed the S Corporation
Tax Liability, determined to the Knowledge of Seller. Such written statement
shall also set forth the basis for the determination of the S Corporation Tax
Liability.

     (k) The Company shall have either (i) delivered to Buyer a properly
executed statement satisfying the requirements of Treasury Regulation Sections
1.897-2(h) and 1.1445-2(c)(3) in a form reasonably acceptable to Buyer or (ii)
caused each of the Stockholders to have executed and delivered to Buyer
certificates of non-foreign status satisfying the requirements of Treasury
Regulations Section 1.1445-2(b).

     (l) Simultaneously with the Closing, Buyer shall have purchased all of the
outstanding shares of Herco Technology Corp.

     (m) Buyer shall have received from the Company and Seller the Update, and
any material additions or changes to the Disclosure Schedules set forth in the
Update shall be in form and substance acceptable to Buyer in its sole
discretion.

     10.03. CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to
consummate the Closing is subject to the satisfaction of the following further
conditions:

     (a)(i) Each of Buyer and Merger Sub shall have performed in all material
respects all of its obligations hereunder required to be performed by it at or
prior to the Closing Date, (ii) the representations and warranties of each of
Buyer and Merger Sub contained in this Agreement at the time of its execution
and delivery and in any certificate or other writing delivered by such party
pursuant hereto shall be true and correct in every material respect at and as of
the Closing Date as if made at and as of such date and (iii) Seller shall have
received a certificate signed by the Vice President and Treasurer of Buyer to
the foregoing effect.

     (b) Seller shall have received an opinion of Buyer's Counsel, dated the
Closing Date, satisfactory to Seller and his counsel.

     (c) Seller shall have received all items specified in Section 2.02 of this
Agreement and all other closing documents that they may reasonably request, all
in form and substance reasonably satisfactory to them.



                                      -40-
<PAGE>   45

     (d) Seller shall have received an opinion of Luce, Forward, Hamilton &
Scripps, LLP to the effect, among other matters, that no gain or loss will be
recognized for federal income tax purposes by Seller as a result of the transfer
of such Seller's shares in the Company in exchange for shares of Buyer stock.


                                   ARTICLE XI

                            SURVIVAL; INDEMNIFICATION

     11.01. SURVIVAL. The covenants, agreements, representations and warranties
of the parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall survive the
Closing until the first anniversary of the Closing Date or (i) in the case of
Sections 6.05 and 7.02, for the period set forth therein, (ii) in the case of
Sections 6.06 and 7.01, indefinitely, (iii) in the case of the items set forth
in Section 11.02(f), for the periods set forth therein, and (iv) in the case of
the covenants, agreements, representations and warranties contained in Sections
3.17 and 8.05, until the expiration of the applicable statutory period of
limitations (giving effect to any waiver, mitigation or extension thereof), if
later. No claim for indemnity under this Agreement with respect to any breach of
any representations, warranties and/or covenants of Company and/or Seller shall
be made after the applicable period specified in the preceding sentence and all
such claims shall be made in accordance with the applicable provisions of the
Escrow Agreement.

     11.02. INDEMNIFICATION.

     (a) Seller hereby indemnifies Buyer and Merger Sub and, effective at the
Closing, without duplication, the Company against and agrees to hold them
harmless from any and all damage, loss, liability and expense (including without
limitation reasonable expenses of investigation and reasonable attorneys' fees
and expenses in connection with any action, suit or proceeding) ("DAMAGES")
incurred or suffered by Buyer, Merger Sub or the Company arising out of any
misrepresentation or breach of warranty, representation, covenant or agreement
made or to be performed by the Company or Seller pursuant to this Agreement.
Seller shall not be liable under this Section 11.02(a) with respect to a breach
of representation, warranty or covenant unless the aggregate amount of Damages
with respect to all such breaches of representation or warranty (determined
without regard to any materiality qualification contained in any
representations, warranty or covenant giving rise to claim for indemnity
hereunder) exceeds $250,000 (the "DEDUCTIBLE") and then only to the extent of
such excess; and Seller's maximum liability under this Section 11.02(a) shall
not exceed 10% of the amount paid to such Seller (or the Escrow Agent) with
respect to the Shares transferred by such Seller to Buyer (the "CAP"). Any
individual claim or Damages amounting to $2,500 or less shall be ignored and
disregarded in aggregating Damages for the Deductible or the Cap.

     (b) Seller hereby indemnifies Buyer, Merger Sub and, effective at the
Closing, without duplication, the Company and agrees to hold them harmless from
and against all Damages



                                      -41-
<PAGE>   46

incurred or suffered by Buyer, Merger Sub or the Company arising out of any
breach of any covenant or agreement of such Seller pursuant to Article II or the
inaccuracy or breach of any representation, warranty, covenant or agreement made
by such Seller pursuant to Article IV or Sections 3.17 and 8.05.

     (c) Buyer hereby indemnifies Seller against and agrees to defend and hold
him harmless from any and all Damages incurred or suffered by Seller arising out
of any misrepresentation or breach of warranty, covenant or agreement made or to
be performed by Buyer pursuant to this Agreement; PROVIDED that (i) Buyer shall
not be liable under this Section 11.02(c) with respect to a breach of
representation or warranty unless the aggregate amount of Damages with respect
to all such breaches of representation or warranty (determined without regard to
any materiality qualification contained in any representations, warranty or
covenant giving rise to the claim for indemnity hereunder) exceeds $250,000 and
then only to the extent of such excess and (ii) Buyer's maximum liability under
this Section 11.02(c) shall not exceed 10% of the aggregate purchase price paid
by Buyer to Seller for the Shares. Any individual claim or Damages amounting to
$2,500 or less shall be ignored and disregarded in aggregating Damages for the
Deductible or the Cap.

     (d) Seller shall have no right of indemnification, contribution or
subrogation against the Company with respect to any indemnification by Seller
under this Section 11.02 if the transactions contemplated by this Agreement are
consummated.

     (e) Buyer's claims for indemnification pursuant to this Article XI shall be
satisfied first from the escrow established pursuant to the Escrow Agreement and
thereafter against the Seller.

     (f) Notwithstanding anything herein to the contrary, and without giving
effect to the limitations set forth in the last two sentences of Section
11.02(a), Seller hereby indemnifies Buyer, Merger Sub and, effective at the
Closing, without duplication, the Company, and agrees to hold them harmless from
and against, all Damages or demands incurred , claimed against, or suffered by
Buyer, Merger Sub or the Company arising out of the following:

          (i) any inaccuracy or breach of any representation or warranty in
     Section 3.19 (provided that Seller's obligations to indemnify and hold
     harmless Buyer and Company shall apply only with respect to claims arising
     prior to the tenth anniversary of the Closing);

          (ii) any Environmental Liabilities (provided that Seller's obligations
     to indemnify and hold harmless Buyer and Company shall apply only with
     respect to claims arising prior to the tenth anniversary of the Closing);

          (iii) any litigation matters disclosed in the Disclosure Schedule
     and/or Update;

          (iv) fines, penalties, levies and assessments arising from the failure
     of the Company to make any filings, reports or notices with governmental
     agencies or participants in respect of the Company's Employee Plans or
     Benefit Arrangements;



                                      -42-
<PAGE>   47

          (v) any Tax liabilities arising pursuant to Section 8.05(a) or
     8.05(c).


     (g) Any amounts payable or paid to the Buyer or payable or paid to the
Seller pursuant to Section 11.02, shall be reduced by any insurance recoveries
(net of any premium increases reasonably anticipated to be paid over the
following three years by the recipient of such insurance recovery as a result of
the incident giving rise to such recovery) of the indemnified party with respect
to the incident giving rise to such indemnification obligations. The parties
hereto agree that no indemnified party shall be required to pursue or exhaust
insurance recoveries prior to seeking and recovering indemnification hereunder,
but shall use reasonable efforts to pursue such recoveries and that any such
insurance recoveries received after the related indemnification has been paid
hereunder shall be paid over to the Indemnifying Party (to the extent of such
indemnification payments previously made hereunder) in reimbursement of such
portion of indemnification payments.

     11.03. PROCEDURES.

     (a) Promptly after receipt of notice of the commencement of any action
against any Person in respect of which indemnification ("INDEMNIFICATION") may
be sought hereunder, the Person receiving such notice (the "INDEMNIFIED PARTY")
shall notify the party from whom Indemnification is sought (the "INDEMNIFYING
PARTY") in writing of the commencement thereof and the basis hereunder upon
which a claim for Indemnification is asserted. In the event of the commencement
of any such action as to which the Indemnified Party notifies the Indemnifying
Party as aforesaid, the Indemnifying Party will be entitled to participate
therein and to assume the defense thereof at the Indemnifying Party's expense,
provided that the Indemnifying Party promptly notifies the Indemnified Party of
such election to assume the defense thereof and acknowledges the Indemnifying
Party's Indemnification obligations pursuant to this Agreement in writing to the
Indemnified Party, and provided further that the Indemnifying Party's interest
in such action does not conflict with the interests of the Indemnified Party,
without regard to the Deductible, the relief sought does not exceed the
Indemnifying Party's maximum Indemnification obligations under Section 11.02(a)
or 11.02(b), and that equitable relief is not being sought against Buyer, Merger
Sub or the Company. Nothing herein shall be construed to create any rights
enforceable by any Person not a party to this Agreement.

     (b) The Indemnified Party shall be entitled to participate in the defense
of any action and to be represented at its expense by counsel of its own
selection. If, however, the Indemnifying Party's interest in such action
conflicts with the interests of the Indemnified Party, or the relief sought
exceeds the Indemnifying Party's maximum Indemnification obligations under
Section 11.02(a) or 11.02(b), or if equitable relief is being sought against
Buyer or the Company, then the Indemnified Party shall assume such defense at
the Indemnifying Party's expense. If the attorneys provided for the defense of
the Indemnified Party by the Indemnifying Party withdraw from or are removed by
court order from the Indemnified Party's representation, then the cost of
counsel selected by the Indemnified Party shall be part of the Indemnified
Party's Damages, and the Indemnified Party shall have the right in all respects
to conduct its own defense. If the Indemnified Party otherwise retains its own
counsel, the cost thereof shall be for the account of the Indemnified Party. The
Indemnified Party shall allow the Indemnifying Party



                                      -43-
<PAGE>   48

reasonable access to its personnel, books and records relevant to the claim upon
reasonable advance notice (and subject to the Indemnifying Party's agreement to
maintain such books and records in confidence) to the Indemnified Party, during
normal business hours, and at no cost to the Indemnifying Party.

     (c) At to cases in which the Indemnifying Party has assumed and is
providing the defense for the Indemnified Party under Section 11.03(a), the
control of such defense and the right to reach settlement in such action shall
be vested in the Indemnifying Party; provided, that if the Indemnified Party
objects to a settlement which has otherwise been fully agreed to by the
Indemnifying Party, the Indemnified Party may nevertheless prohibit the
Indemnifying Party from making such settlement, in which case the Indemnifying
Party shall pay to the Indemnified Party the proposed cost to the Indemnifying
Party of such settlement (plus any other sum to satisfy the Indemnifying Party's
Indemnification obligations to the Indemnified Party as provided by and
contemplated in this Article XI) (together, the "SETTLEMENT COST"), in cash, and
the Indemnified Party shall thereafter be responsible for such matter and the
Indemnifying Party shall have no further Indemnification obligations with
respect to such matter and shall be indemnified by the Indemnified Party for any
loss or liability in excess of the Settlement Cost imposed on the Indemnifying
Party by any later settlement or adjudication; provided further, that if the
Indemnified Party objects to the continuation of any such action by the
Indemnifying Party, the Indemnified Party may direct the Indemnifying Party to
settle such case, the cost of which shall be paid by the Indemnified Party, and
the Indemnifying Party shall have no further Indemnification obligations for
such settled matter other than litigation costs and professional fees incurred
by the Indemnifying Party therein. As to any action, the party which is
controlling such action shall provide to the other party reasonable information
(including reasonable advance notice of all proceedings and depositions in
respect thereto) regarding the conduct of the action and the right to attend all
proceedings and depositions in respect thereto through its agents and attorneys,
and the right to discuss the action with counsel for the party controlling such
action.

     (d) If within twenty (20) days after receipt by the Indemnifying Party of
notice from the Indemnified Party to the Indemnifying Party as to the
commencement of any action in respect of which Indemnification is sought
hereunder, the Indemnifying Party has not notified the Indemnified Party that
the Indemnifying Party assumes the defense of such action and has actually
assumed such defense, then the Indemnified Party shall have the right to defend
such action and to proceed immediately against the Indemnifying Party to enforce
all Indemnification obligations of the Indemnifying Party hereunder (including
but not limited to the costs of defense, as the same may be incurred). The
Indemnification obligations of the Indemnifying Party with respect to such
action shall, however, in no way be diminished by virtue of the forgoing, and
the fact that the Indemnified Party shall have defended, settled, compromised or
otherwise dealt with such action shall not, in any circumstances, be deemed to
constitute any waiver, release or exoneration of the Indemnifying Party from
their Indemnification obligations, regardless of the outcome of such action.

     (e) Notwithstanding the foregoing provisions of this Section, and subject
to Section 8.05, in the event that (x) any third party suit, action or
proceeding may, in Buyer's good faith reasonable discretion, have a material
continuing adverse effect on the business and operations



                                      -44-
<PAGE>   49

of the Buyer and/or the Company (it being understood that any action relating to
Environmental Laws, Intellectual Property or Taxes shall be deemed to have a
material continuing adverse effect on the business and operations of the Buyer
and/or the Company), or (y) the Board of Directors of the Buyer determines in
good faith that matters of corporate or management policy or a conflict of
interest make assumption and control by the Buyer of the defense of such claim
advisable, then Buyer (i) shall have the right to assume and control the defense
of the claim by appropriate proceedings with its counsel, (ii) shall be entitled
to reimbursement for reasonable costs of such defense from the Escrow Fund, and
(iii) shall have the authority to negotiate, compromise and settle such claim
with the consent of the Seller which shall not be unreasonably withheld,
conditioned or delayed, and Buyer shall have a right to indemnification with
respect to such claim in accordance with the provisions of this Article XI. The
Seller may participate in the defense, at his sole expense, of any such claim
for which Buyer shall have assumed the defense pursuant to the preceding
sentence, provided that counsel for the Buyer shall act as lead counsel in all
matters pertaining to the defense or settlement of such claims or proceedings.
Buyer will cooperate with Seller and will provide Seller, or Seller's counsel,
without cost, with copies of all notices, pleadings, material communications and
documents relating to the defense of any such claim and reasonable access to and
communication with Buyer's counsel and personnel involved therein.


                                   ARTICLE XII

                                   TERMINATION

     12.01. GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time prior to the Closing:

          (i) by written agreement of Seller and Buyer;

          (ii) by either Seller or Buyer if the Closing shall not have been
     consummated on or before August 31, 2000;

          (iii) by either Seller or Buyer if there shall be any law or
     regulation that makes consummation of the transactions contemplated hereby
     illegal or otherwise prohibited or if consummation of the transactions
     contemplated hereby would violate any nonappealable final order, decree or
     judgment of any court or governmental body having competent jurisdiction;

          (iv) by Buyer (provided that it is not then in material breach of any
     representation, warranty, covenant or agreement contained in this
     Agreement) alone, by means of written notice to the Company, if there has
     been a material breach by the Company or Seller of any representation,
     warranty, covenant or agreement set forth in this Agreement or the
     Ancillary Agreements, which breach would result in a failure to satisfy the
     closing



                                      -45-
<PAGE>   50

     conditions contained in Section 10.02 and has not been cured within ten
     (10) business days following receipt by the Company of notice of such
     breach;

          (v) by the Company (provided that it is not then in material breach of
     any representation, warranty, covenant or agreement contained in this
     Agreement) alone, by means of written notice to Buyer, if there has been a
     material breach by Buyer of any representation, warranty, covenant or
     agreement set forth in the Agreement or the Ancillary Agreements, which
     breach would result in a failure to satisfy the closing conditions
     contained in Section 10.03 and has not been cured within ten (10) business
     days following receipt by Buyer of notice of such breach,

          (vi) by Buyer in accordance with Section 6.10.

     The party desiring to terminate this Agreement shall give notice of such
termination to the other parties.

     12.02. EFFECT OF TERMINATION. If this Agreement is terminated as permitted
by Section 12.01, such termination shall be without liability of either party
(or any shareholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement; PROVIDED
that if such termination shall result from the willful failure of any party to
fulfill a condition to the performance of the obligations of another party or to
perform a covenant of this Agreement or from a willful breach by any party to
this Agreement, such party shall be fully liable for any and all Damages
incurred or suffered by the other parties as a result of such failure or breach.
The provisions of Sections 6.06, 7.01, 8.03 and 13.03 (other than Buyer's
obligation to pay Company and Seller's costs thereunder) shall survive any
termination hereof pursuant to Section 6.10 or Section 12.01.


                                  ARTICLE XIII

                                  MISCELLANEOUS

     13.01. NOTICES. All notices, requests and other communications to either
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given,

     if to Buyer or Merger Sub, to:

           Teradyne, Inc.
           321 Harrison Avenue
           Boston, MA  02118
           Attn:  President
           Telecopy: (617) 422-2910

     with a copy to:


                                      -46-
<PAGE>   51

            William B. Asher, Jr., Esq.
            Testa, Hurwitz & Thibeault, LLP
            125 High Street
            Boston, MA 02110
            Telecopy: (617) 248-7100

     if to the Company, to:

            Perception Laminates, Inc.
            1400 Arrow Highway
            La Vern, CA 91750-5219.

            Attn:  President
            Telecopy:

     with a copy to:

            Luce, Forward, Hamilton & Scripps, LLP
            600 West Broadway, Suite 2600
            San Diego, CA  92101
            Attn:  Robert Copeland
            Telecopy:  (619) 645-5332

     if to Seller:

            at his address shown in
            SCHEDULE 2.01

     13.02. AMENDMENTS; NO WAIVERS.

     (a) Any provision of this Agreement may be amended or waived prior to the
Closing Date if, and only if, such amendment or waiver is in writing and signed
by Buyer, the Company and Seller.

     (b) No failure or delay by either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.

     13.03. EXPENSES. Buyer shall pay all expenses, and any and all federal,
state and local stamp, stock issuance or similar taxes and other charges, that
may be payable in connection with the preparation, issuance and delivery of
certificates for the Buyer Stock under Section 2.03(a) and any stock listing or
stock quotation application required to be filed by Buyer with respect to



                                      -47-
<PAGE>   52

such for the Buyer Stock. A registration effected under Section 7.02 shall be
effected at the Buyer's expense except for underwriting discounts and
commissions and the fees and the expenses of counsel to the Seller. All costs
and expenses incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense; provided, however, that if the Closing
shall occur, all such costs and expenses of the Company and Seller not exceeding
$10,000 incurred by the Company and Seller shall be paid by Buyer, and Seller
shall bear all such costs in excess of $10,000.

     13.04. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED that no party may assign, delegate or otherwise
transfer any of his or its rights or obligations under this Agreement without
the consent of the other parties hereto, except that Buyer may 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 a portion of the Shares, but no such transfer or
assignment will relieve Buyer of its obligations hereunder.

     13.05. FURTHER ASSURANCES. From time to time after the Closing, at the
request of Buyer and without further consideration, Seller will execute and
deliver to Buyer such other documents, and take such other action, as Buyer may
reasonably request in order to consummate more effectively the transactions
contemplated hereby and to vest in Buyer good, valid and marketable title to the
Shares.

     13.06. GOVERNING LAW. This Agreement and the Ancillary Agreements shall be
construed in accordance with and governed by the law of the State of California
without regard to the conflicts of law rules of such state.

     13.07. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be deemed an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
a counterpart hereof signed by the other parties hereto.

     13.08. ENTIRE AGREEMENT. This Agreement and the Ancillary Agreements
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter hereof.

     13.09. CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.

     13.10. JURISDICTION. Any action or proceeding relating to or arising out
of, or based on this Agreement or arising from or in any manner related to the
relationship between the parties shall only be brought in the state or federal
courts in San Diego, California, and each of the parties hereto submits to the
personal jurisdiction of such court (and of the appropriate appellate courts
wherever located) in any such action or proceeding, and selects the courts in
San Diego, California for proper venue in any such or proceeding.



                                      -48-
<PAGE>   53

     13.11. TRANSFER, SALES DOCUMENTARY, STAMP AND OTHER SIMILAR TAXES. Any and
all transfer, sales, documentary, stamp and other similar Taxes imposed in
connection with the transactions contemplated by this Agreement will be paid by
the Seller with respect to which such Tax relates.

     13.12. SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it will be modified rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to the
extent possible. In any event, all other provisions of this Agreement will be
deemed valid and enforceable to the full extent.

     13.13. EXTENSION; WAIVER. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of any other party hereto to
the party extending such time, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements, covenants or conditions for the benefit of such party contained
herein. any agreement on the part of a party hereto to any such extension or
waiver will be valid only if set forth in an instrument in writing signed on
behalf of such party.



                                      -49-
<PAGE>   54


     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.

                                       TERADYNE, INC.


                                       By: /s/ Stuart M. Osattin
                                          ------------------------------
                                       Name:  Stuart M. Osattin
                                       Title: Vice President

                                       T-P ACQUISITION CORPORATION

                                       By: /s/ Stuart M. Osattin
                                          ------------------------------
                                       Name:  Stuart M.  Osattin
                                       Title: President

                                       PERCEPTION LAMINATES, INC.


                                       By: /s/ Robert Herring, Sr.
                                          ------------------------------
                                       Name:  Robert Herring, Sr.
                                       Title: President


                                        /s/ Robert Herring, Sr.
                                       ---------------------------------
                                       Robert Herring, Sr.



                                      -50-
<PAGE>   55


                                  SCHEDULE 2.03
                                  -------------



- -------------------------------------------------------------------------------

                            SHARES OF COMPANY       SHARES OF
SELLER'S NAME AND ADDRESS     COMMON STOCK         BUYER STOCK    ESCROW SHARES
- -------------------------------------------------------------------------------
Robert Herring, Sr.
4951 Concannon Court
San Diego, CA 92130                600               270,747          31,083
- -------------------------------------------------------------------------------




                                      -51-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.4
<SEQUENCE>5
<FILENAME>b36797tiex2-4.txt
<DESCRIPTION>ESCROW AGREEMENT   PERCEPTION LAMINATES
<TEXT>

<PAGE>   1
                                                                     Exhibit 2.4

                                                                    EXHIBIT A TO
                                                                    ------------
                                                  PERCEPTION LAMINATES AGREEMENT
                                                  ------------------------------


                                ESCROW AGREEMENT

     This Escrow Agreement (this "ESCROW AGREEMENT") is made and entered into as
of the date (the "EFFECTIVE DATE") set forth on SCHEDULE 1 hereto ("SCHEDULE 1")
by and among Teradyne, Inc., a Massachusetts corporation ("BUYER"); Precision
Laminates, Inc., a California corporation (the "COMPANY"); Robert Herring, a
security Holder of the Company Holder(the "HOLDER"); and The Chase Manhattan
Bank, as escrow agent and custodian of the Escrow Fund (as defined below) (the
"ESCROW AGENT").

     A.   Buyer, the Company, T-P Acquisition Corp., a Delaware corporation, and
the Holder have entered into an Agreement and Plan of Reorganization dated as of
August 1, 2000 (the "AGREEMENT") setting forth certain terms and conditions
pursuant to which Buyer is acquiring all outstanding shares of the Company from
the Holder.

     B.   Pursuant to Section 2.04 of the Agreement, Shares of Buyer Stock (as
defined therein) are to be issued to the Holder.

     C.   The Agreement provides that ten percent (10%) (the "ESCROW
PERCENTAGE") of the Buyer Stock issued in exchange for outstanding Shares
pursuant to the Agreement will be placed in an escrow account to secure certain
indemnification obligations of the Holder to Buyer and the Company under Article
XI of the Agreement on the terms and conditions set forth therein and herein.

     D.   Unless otherwise indicated herein, all terms used herein without
definition shall have the same meaning as set forth in the Agreement.

     NOW THEREFORE, for and in consideration of the foregoing and the mutual
covenants and agreements contained in the Agreement and in this Escrow
Agreement, the parties agree as follows:

     1.   ESTABLISHMENT OF ESCROW ACCOUNT
          -------------------------------

          1.1  DEPOSIT OF SHARES. Buyer shall deposit as soon as practicable on
the Holder's behalf with the Escrow Agent stock certificates representing the
Escrow Shares issued pursuant to the Agreement registered in the name of the
Holder and in the relative amounts set forth on EXHIBIT 1.1 hereto (the "INITIAL
ESCROW SHARES") and an Assignment separate from the stock certificates executed
by such Holder. Any shares of Buyer capital stock that result from any share
dividend, reclassification, stock split, subdivision or combination of shares,
recapitalization, merger or other events made with respect to any Escrow Shares
held in escrow under this Escrow Agreement ("ADDITIONAL SHARES") shall be
delivered to the Escrow Agent by the Buyer on behalf of the Holder and shall be
held by the Escrow Agent in accordance with this Escrow Agreement. Unless
otherwise indicated, as used in this Escrow Agreement, the term "ESCROW SHARES"
includes the Initial Escrow Shares and any Additional Shares, and the term
"ESCROW FUND" shall include the Escrow Shares and the Proceeds (as defined
below). The Escrow Agent agrees to accept delivery of the Escrow Shares and to
hold the Escrow Fund in escrow in accordance with this Escrow Agreement and to
release the Escrow Fund out of escrow as provided in this Escrow Agreement.

          1.2  DIVIDENDS; VOTING AND RIGHTS OF OWNERSHIP. Any cash dividends,
dividends payable in property or other distributions of any kind (except for
Additional Shares) made in respect of

<PAGE>   2

the Escrow Shares shall be held by the Escrow Agent pursuant to this Agreement.
The Holder shall have the right to vote the Escrow Shares held in escrow for the
account of Holder so long as such Escrow Shares are held in escrow. While the
Escrow Shares remain in the Escrow Agent's possession pursuant to this Escrow
Agreement, the Holder shall retain and shall be able to exercise all other
incidents of ownership of the Escrow Shares that are not inconsistent with the
terms and conditions hereof. Without limiting the foregoing, following the
expiration of the lock-up period required under the "pooling of interests"
accounting rules (the "Lock-Up Date"), the Holder may instruct the Escrow Agent
to sell the Escrow Shares for cash provided that any and all proceeds (the
"PROCEEDS") from such sale shall become part of the Escrow Fund and shall be
disbursed in accordance with this Agreement. The Escrow Agent shall hold such
Proceeds in the Escrow Fund and shall invest such Proceeds as hereinafter
provided.

          1.3  NO ENCUMBRANCE. None of the Escrow Fund or any beneficial
interest therein may be pledged, sold, assigned or transferred, including by
operation of law or by Holder, or may be taken or reached by any legal or
equitable process in satisfaction of any debt or other liability of Holder,
prior to the delivery of the Escrow Fund by the Escrow Agent or Buyer to Holder
pursuant to this Escrow Agreement.

          1.4  POWER TO TRANSFER ESCROW FUND. The Escrow Agent is hereby granted
the power to effect any transfer of the Escrow Fund provided for in this Escrow
Agreement.

          1.5  INVESTMENT OF PROCEEDS. During the term of this Escrow Agreement
and following the Lock-Up Date, the Proceeds (if any) shall be invested and
reinvested by the Escrow Agent (i) in the investment indicated on SCHEDULE 1,
(ii) at the direction, if any, of the Holder, in the investments described in
SCHEDULE 2, or (iii) in such other investments as shall be directed in writing
by the Buyer and the Holder and as shall be acceptable to the Escrow Agent. All
investment orders involving U.S. Treasury obligations, commercial paper and
other direct investments may be executed through broker-dealers selected by the
Escrow Agent (which shall include affiliates of the Escrow Agent). Periodic
statements will be provided to the Holder and Buyer reflecting transactions
executed on behalf of the Escrow Fund. The Buyer and Holder, upon written
request, will receive a statement of transaction details upon completion of any
securities transaction in the Proceeds without any additional cost. The Escrow
Agent shall have the right to liquidate any investments held in order to provide
funds necessary to make required payments under this Escrow Agreement. The
Escrow Agent shall have no liability for any loss sustained as a result of any
investment in an investment indicated on SCHEDULE 1 or any investment made
pursuant to the instructions of the parties hereto or as a result of any
liquidation of any investment prior to its maturity or for the failure of the
parties to give the Escrow Agent instructions to invest or reinvest the
Proceeds.

     2.   RESOLUTION OF CLAIMS
          --------------------

          2.1  INDEMNIFICATION OBLIGATIONS. The Escrow Fund shall serve as the
first source, but not the sole source, of payment for the indemnity obligations
of the Holder under Article XI of the Agreement, which obligations shall
continue in accordance with Article XI of the Agreement. Payment for any amount
determined as provided below to be owing to Buyer or the Company under such
indemnity obligations under the Agreement ("DAMAGES") and any award of
attorneys' fees and charges owing to Buyer pursuant to Sections 2.3(c)(iv) or
4.3 of this Agreement (a "PREVAILING PARTY AWARD") shall be made by the release
of all or a portion, as the case may be, of the Escrow Fund to Buyer (each such
payment, an "ESCROW ADJUSTMENT"), subject to the limitations set forth in
Section 11.02 of the Agreement. By the execution of this Escrow Agreement, the
Holder agrees to be bound

<PAGE>   3

by the indemnification provisions set forth in Article XI of the Agreement and
confirms that the issuance by Buyer of the Escrow Percentage of the Buyer Stock
pursuant to the Agreement is subject to this Escrow Agreement. Notwithstanding
anything to the contrary herein, Buyer shall not be entitled to receive payment
of any portion of a Prevailing Party Award which is already a part of Damages
(i.e., there shall be no double payment of legal fees). Any Escrow Adjustments
and corresponding release to Buyer of the Escrow Fund shall be made as of the
date or dates specified and the manner provided for in this Escrow Agreement.
Each Escrow Adjustment to the Escrow Fund shall be made by the release to Buyer
of a portion of the Escrow Fund having an aggregate value equal to the Damages
and any Prevailing Party Award, with the per share value of any Escrow Shares
being equal, for all purposes under this Escrow Agreement, to the closing price
of such Escrow Shares on the Closing Date (the "BUYER STOCK PRICE"). Any such
release shall be made first through the release of Escrow Shares, if any are
then held in the Escrow Fund, and thereafter through the release of Proceeds
having an aggregate value equal to the value of the number of Escrow Shares
which would otherwise have been so released hereunder in satisfaction of the
Holder's indemnification obligation. In lieu of releasing any fractional Escrow
Shares, any fraction of a released Escrow Share that would otherwise be released
shall be rounded to the nearest whole Escrow Share and any amounts released in
excess of the Damages as a result of such rounding shall be returned to Escrow
Fund. In the event of doubt, and notwithstanding any contained in this Section
2.1 to the contrary, Buyer, and the Holder agree that the foregoing provisions
of this Section 2.1 shall be applied and interpreted in a manner consistent with
the "pooling of interests" accounting rules.

          2.2  NOTICE OF CLAIMS. Promptly after the receipt by Buyer of notice
or discovery of any claim, damage, or legal action or proceeding giving rise to
indemnification rights under the Agreement (a "CLAIM") Buyer shall give the
Holder written notice of such Claim and shall provide a copy of such notice to
the Escrow Agent. Each notice of a Claim by Buyer (a "NOTICE OF CLAIM") shall be
in writing, shall be delivered on or before the Release Date (as defined in
Section 3.1 below) and shall contain a detailed account of the specific facts
known to Buyer on which the Claim is based, including a description of the
specific representation, warranty or covenant in the Agreement (if any) which
Buyer reasonably believes has been breached. The Notice of Claim shall specify
whether the matter is subject to a third-party claim against Buyer or the
Company in a litigation or arbitration or whether the matter concerns disputes
regarding a breach of representations and warranties or performance or
nonperformance of a party's obligations under the Agreement.

          2.3  RESOLUTION OF CLAIMS. Any Notice of Claim received by the Holder
and the Escrow Agent pursuant to Section 2.2 above shall be resolved as follows:

               (a) UNCONTESTED CLAIMS. In the event that the Holder does not
contest a Notice of Claim (an "UNCONTESTED CLAIM") in writing within thirty (30)
calendar days, as provided below in Section 2.3(b), Buyer may deliver to the
Escrow Agent, with a copy to the Holder, a written demand by Buyer (a "BUYER
DEMAND") stating that a Notice of Claim has been given as required in this
Escrow Agreement and that no notice of contest has been received from the Holder
during the period specified in this Escrow Agreement and further setting forth
the proposed Escrow Adjustments to be made in accordance with this Section
2.3(a). Within thirty (30) calendar days after receipt of the Buyer Demand, the
Holder may object in a written notice delivered to Buyer and the Escrow Agent to
the computations or other administrative matters relating to the proposed Escrow
Adjustments (but may not object to the validity or amount of the Claim
previously disclosed in the Notice of Claim), whereupon neither the Escrow Agent
nor Buyer shall make any of the Escrow Adjustments until either: (i) Buyer and
the Holder shall have given the Escrow Agent joint written notice setting forth
the agreed Escrow Adjustments, or (ii) the matter is resolved as provided in
Sections 2.3(b) and 2.3(c).

<PAGE>   4

Upon satisfaction of the foregoing, the Escrow Agent, as directed in writing by
Buyer, and Buyer shall promptly take all steps to implement the final Escrow
Adjustments.

               (b) CONTESTED CLAIMS. In the event that the Holder gives written
notice to Buyer and the Escrow Agent contesting all or a portion of a Notice of
Claim (a "CONTESTED CLAIM") within the 30-day period provided above, matters
relating to such Contested Claim that are subject to third party claims against
Buyer or the Company in a litigation or arbitration shall await the final
decision, award or settlement of such litigation or arbitration, while matters
relating to such Contested Claim that arise between Buyer on the one hand and
the Company and/or the Holder on the other hand, including any disputes
regarding breach of representations and warranties or performance or
nonperformance of a party's obligations under the Agreement ("ARBITRABLE
CLAIMS") shall be settled in accordance with Section 2.3(c) below. Any portion
of a Notice of Claim that is not contested or is subsequently settled by Buyer
and the Holder shall be resolved as set forth above in Section 2.3(a). If
written notice is received by the Escrow Agent that a Notice of Claim is
contested by the Holder, then the Escrow Agent shall hold hereunder after what
would otherwise be the Release Date (as defined in Section 3.1 below), the
number of Escrow Shares specified in the Release Notice or as otherwise provided
in Section 3.1, until the earlier of: (i) receipt of a settlement agreement
executed by Buyer and the Holder setting forth a resolution of the Notice of
Claim and the Escrow Adjustments; (ii) receipt of a written notice from Buyer (a
"BUYER DISTRIBUTION NOTICE") attaching a copy of the final award or decision of
the arbitrator and setting forth the Escrow Adjustments (Buyer shall at the same
time provide a copy of the Buyer Distribution Notice to the Holder); or (iii)
receipt of a written notice from the Holder (a "REPRESENTATIVE DISTRIBUTION
NOTICE") attaching a copy of the final award or decision of the arbitrator that
no Escrow Adjustments are to be made as a result of such award (the Holder shall
at the same time provide a copy of the Representative Distribution Notice to
Buyer). If the earliest of the three events described in the preceding sentence
is (i) or (ii), the Escrow Agent shall, within twenty (20) calendar days of
receipt of the settlement agreement or the Buyer Distribution Notice, as
applicable, (a) release to Buyer of that portion of the Escrow Fund specified in
the Escrow Adjustments and (b) if the Release Date has occurred, and there are
no remaining unresolved Contested Claims, release to the Holder the balance of
the Escrow Fund. If the earliest of the three events described above is (iii)
and the Release Date has occurred, and there are no remaining unresolved
Contested Claims, the Escrow Agent shall, within twenty (20) calendar days of
receipt of the Representative Distribution Notice, release to the Holder the
Retained Escrow (as defined in Section 3.1), provided that if the Release Date
has not occurred the Escrow Fund shall continue to be held pursuant to the terms
of this Agreement.

               (c) ARBITRATION.

                    (i) ARBITRATION RULES. Any Arbitrable Claim, and any dispute
between the Holder and Buyer under this Escrow Agreement, shall be submitted to
final and binding arbitration before a single arbitrator in San Diego,
California in accordance with the commercial arbitration rules of the American
Arbitration Association; provided, however, that if the Arbitrable Claim shall
exceed $1,000,000, the arbitration shall be before three arbitrators, two of
whom shall be lawyers with not less than ten (10) years of corporate or related
business experience. Among other matters, such arbitrator(s) shall be authorized
upon request of either Buyer or the Holder determine whether such Arbitrable
Claim is of a nature which may be resolved, and appropriate relief afforded,
pursuant to arbitration.

                    (ii) BINDING EFFECT. The final decision of the arbitrator
shall be furnished in writing to the Escrow Agent, the Holder, the Holder and
Buyer and will constitute a conclusive determination of the issue in question,
binding upon the Holder and Buyer. The arbitrator

<PAGE>   5

shall have the authority to grant any equitable and legal remedies that would be
available in any judicial proceeding instituted to resolve an Arbitrable Claim.
Any judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction over the subject matter thereof.

                    (iii) COMPENSATION OF ARBITRATOR. The arbitrator will be
compensated for his or her services, as provided below in Section 2.3(c)(iv), in
accordance with the commercial arbitration rules of the American Arbitration
Association.

                    (iv) PAYMENT OF COSTS. The substantially prevailing party in
any arbitration shall be entitled to an award of attorneys' fees and costs, and
all costs of arbitration, including those provided for above, will be paid by
the losing party, subject in each case to a determination by the arbitrator as
to which party is the substantially prevailing party and the amount of such fees
and costs to be allocated to such party and subject to the terms of Section
2.3(c)(iii). Any amounts payable to Buyer by or on account of the Holder under
this subsection will be reimbursed as if the amount of such awarded fees and
expenses were an Uncontested Claim.

                    (v) TERMS OF ARBITRATION. The arbitrator chosen in
accordance with these provisions shall not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or the provisions of
this Escrow Agreement, the Agreement or any other documents that are executed in
connection therewith.

                    (vi) EXCLUSIVE REMEDY. Arbitration or mediation under this
Section 2.3(c) shall be the sole and exclusive remedy of the parties for any
Arbitrable Claim arising out of this Escrow Agreement.

     3.   RELEASE FROM ESCROW
          -------------------

          3.1  RELEASE OF ESCROW FUND. The Escrow Fund shall be released by the
Escrow Agent and Buyer as soon as practicable, taking into account the notices
to be delivered under this Section 3.1, after the first anniversary of the date
of this Escrow Agreement (the "RELEASE DATE") LESS: (a) any of the Escrow Fund
delivered to or deliverable to Buyer in satisfaction of Uncontested Claims or
Contested Claims which have been settled by the parties hereto, and (b) any of
the Escrow Fund subject to delivery to Buyer in accordance with Section 2.3(b)
with respect to any then pending Contested Claims. Within ten (10) of the Escrow
Agent's Business Days (as defined in Section 7.4) after the Release Date, Buyer
and the Holder shall deliver to the Escrow Agent a written notice jointly signed
(a "RELEASE NOTICE") setting forth the amount of the Escrow Fund to be released
by the Escrow Agent (the "RELEASED ESCROW") including the amount of the Escrow
Fund to be released to each Holder and the amount of the Escrow Fund to be
retained as provided in this Section 3.1 (the "RETAINED ESCROW"). Buyer and the
Holder shall make a good faith effort to agree on a reasonable portion of the
Escrow Fund to retain for pending Contested Claims and Prevailing Party Awards
and related expenses, which shall be an amount reasonably determined by Buyer to
cover the amount of the Contested Claim or Prevailing Party Award plus related
indemnifiable costs, but not to exceed two times the value of the Contested
Claim or Prevailing Party Award. Until such agreement is reached, or a
determination is made in accordance with Section 2.3(c), the remaining Escrow
Fund shall be the Retained Escrow. The Released Escrow shall be released to the
Holder in proportion to their respective interests in the Initial Escrow Shares.
In lieu of releasing any fractional Escrow Shares, any fraction of a released
Escrow Share that would otherwise be released shall be rounded to the nearest
whole Escrow Share. Promptly after receipt of the Release Notice, the Escrow
Agent shall deliver the Escrow Fund in accordance with the Release Notice. The
Escrow Agent shall not be required to take

<PAGE>   6

such action until the Escrow Agent has received the Release Notice executed by
Buyer and the Holder or, in the event Buyer and the Holder fail to execute and
deliver a jointly approved Release Notice, a final award or decision which
specifies the distribution of the Escrow Fund.

          3.2  RELEASE OF RETAINED ESCROW. Upon the resolution of Contested
Claims as provided for in Section 2.3(b), the Retained Escrow shall be subject
to release by the Escrow Agent to Buyer and/or to the Holder in accordance with
Section 2.3(b), this Section and as otherwise provided for in this Escrow
Agreement. The Escrow Agent and Buyer shall cause the transfer agent to transfer
to Buyer the number of Escrow Shares to be released to Buyer pursuant to Section
2.3(b) and reissue certificates for Escrow Shares that are to be either
distributed to the Holder pursuant to Section 3.1 or further retained by the
Escrow Agent pending the resolution of Contested Claims and/or Prevailing Party
Awards. Any Escrow Fund released from escrow to Buyer shall be subject to
cancellation by Buyer without requiring Buyer to pay any consideration
whatsoever in receipt thereof to the Company or any of the Holder, except in
satisfaction of the Claim.

          3.3  EXPENSES OF HOLDER. The Holder shall be entitled to be reimbursed
his reasonable out-of-pocket expenses and the reasonable fees and disbursements
of counsel retained by him. Such reimbursements shall be treated as an
Uncontested Claim on a pro rata basis among the contributors to the Escrow Fund,
for all services performed pursuant to the Agreement and this Escrow Agreement;
provided, however, that payment of any Escrow Adjustment shall take priority
over payments to the Holder, as provided herein. The Escrow Agent shall follow
the joint written instructions of the Holder and Buyer concerning the release or
sale of Escrow Fund relating to the reimbursement of the Holder. If upon
termination of this Agreement, the Holder shall not have received the
reimbursements to which he is entitled hereunder, then the Holder shall be
entitled to reimbursement from the other Holder on a joint and several basis.

     4.   ESCROW AGENT
          ------------

          4.1  ESCROW AGENT. The Escrow Agent undertakes to perform only such
duties as are expressly set forth herein and no duties shall be implied. The
Escrow Agent shall have no liability under and no duty to inquire as to the
provisions of any agreement other than this Escrow Agreement. The Escrow Agent
may rely upon and shall not be liable for acting or refraining from acting upon
any written notice, instruction or request furnished to it hereunder and
believed by it to be genuine and to have been signed or presented by the proper
party or parties. The Escrow Agent shall be under no duty to inquire into or
investigate the validity, accuracy or content of any such document. The Escrow
Agent shall have no duty to solicit any payments which may be due it. The Escrow
Agent shall not be liable for any action taken or omitted by it in good faith
except to the extent that a court of competent jurisdiction determines that the
Escrow Agent's gross negligence or willful misconduct was the primary cause of
any loss to the Buyer or Holder. The Escrow Agent may execute any of its powers
and perform any of its duties hereunder directly or through agents or attorneys
(and shall be liable only for the careful selection of any such agent or
attorney) and may consult with independent counsel and accountants to be
selected and retained by it. The Escrow Agent shall not be liable for anything
done, suffered or omitted in good faith by it in accordance with the advice or
opinion of any such counsel, accountants or other skilled persons. In the event
that the Escrow Agent shall be uncertain as to its duties or rights hereunder or
shall receive instructions, claims or demands from any party hereto which, in
its opinion, conflict with any of the provisions of this Escrow Agreement, it
shall be entitled to refrain from taking any action and its sole obligation
shall be entitled to keep safely all property held in escrow until it shall be
directed otherwise in writing by all of the other parties hereto or by a final
order or judgment of a court of competent jurisdiction. Anything in this Escrow
Agreement to the

<PAGE>   7

contrary notwithstanding, in no event shall the Escrow Agent be liable for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.

          4.2  SUCCESSION. The Escrow Agent may resign and be discharged from
its duties or obligations hereunder by giving 10 days advance notice in writing
of such resignation to the other parties hereto specifying a date when such
resignation shall take effect. Any corporation or association into which the
Escrow Agent may be merged or converted or with which it may be consolidated, or
any corporation or association to which all or substantially all the escrow
business of the Escrow Agent's corporate trust line of business may be
transferred, shall be the Escrow Agent under this Escrow Agreement without
further act.

          4.3  FEES. The Buyer and the Holder agree to equally (i) pay the
Escrow Agent upon execution of this Escrow Agreement and from time to time
thereafter reasonable compensation for the services to be rendered hereunder,
which unless otherwise agreed in writing shall be as described in SCHEDULE 1
attached hereto, and (ii) pay or reimburse the Escrow Agent upon request for all
expenses, disbursements and advances, including reasonable attorney's fees and
expenses, incurred or made by it in connection with the preparation, execution,
performance, delivery, modification and termination of this Escrow Agreement.
Each party shall have a right of contribution against the other party to the
extent such party pays more than its 50% share of the expenses set forth in (i)
and (ii) of this Section 4.3.

          4.4  INDEMNITY. The Buyer and the Holder shall jointly and severally
indemnify, defend and save harmless the Escrow Agent and its directors,
officers, agents and employees (the "indemnitees") from all loss, liability or
expense (including the fees and expenses of in house or outside counsel) arising
out of or in connection with (i) the Escrow Agent's execution and performance of
this Escrow Agreement, except in the case of any indemnitee to the extent that
such loss, liability or expense is due to the gross negligence or willful
misconduct of such indemnitee, or (ii) its following any instructions or other
directions from the Buyer or Holder, except to the extent that its following any
such instruction or direction is expressly forbidden by the terms hereof. The
parties hereto acknowledge that the foregoing indemnities shall survive the
resignation or removal of the Escrow Agent or the termination of this Escrow
Agreement. The parties hereby grant the Escrow Agent a lien on, right of set-off
against and security interest in the Escrow Fund for the payment of any claim
for indemnification, compensation, expenses and amounts due hereunder.

          4.5  TINS. The Buyer and Holder each represent that its correct
Taxpayer Identification Number ("TIN") assigned by the Internal Revenue Service
or any other taxing authority is set forth in SCHEDULE 1. All interest or other
income earned under the Escrow Agreement shall be allocated to Holder in
proportion to Holder's interest in the Escrow Fund and reported by the Holder to
the Internal Revenue Service or any other taxing authority. Notwithstanding such
written directions, Escrow Agent shall report and, as required withhold any
taxes as it determines may be required by any law or regulation in effect at the
time of the distribution. In the event that any earnings remain undistributed at
the end of any calendar year, Escrow Agent shall report to the Internal Revenue
Service or such other authority such earnings as it deems appropriate or as
required by any applicable law or regulation or, to the extent consistent
therewith, as directed in writing by Buyer and the Holder. In addition, Escrow
Agent shall withhold any taxes it deems appropriate and shall remit such taxes
to the appropriate authorities.

<PAGE>   8
     5.   TERMINATION; DEFICIENCY CLAIMS
          ------------------------------

          This Escrow Agreement and the escrow created hereby shall terminate
following Escrow Agent's delivery, and the Holder's and Buyer's release of all
remaining Escrow Fund to the Holder and/or Buyer pursuant to Sections 2 or 3. In
the event that upon the termination of this Escrow Agreement, the value of the
Escrow Fund released to Buyer pursuant to the provisions of this Escrow
Agreement is insufficient to pay in full to Buyer the total amount of the
Damages and Prevailing Party Awards to which it is entitled, then Buyer shall be
entitled to pursue its remedies for any such deficiency under the Agreement;
provided, however, that no party hereto in connection with any such action may
contest any Uncontested Claim or any Contested Claim that has been resolved in
accordance with the provisions of this Escrow Agreement.

     6.   MISCELLANEOUS PROVISIONS
          ------------------------

          6.1  PARTIES IN INTEREST. This Escrow Agreement is not intended, nor
shall it be construed, to confer any enforceable rights on any Person not a
party hereto. All of the terms and provisions of this Escrow Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto.

          6.2  ATTORNEYS' FEES. In the event of any action to enforce any
provision of this Escrow Agreement by the Buyer or the Holder, or on account of
any default under or breach of this Escrow Agreement by the Buyer or the Holder,
the substantially prevailing party in such action shall be entitled to recover,
in addition to all other relief, from the other party all attorneys' fees
incurred by the substantially prevailing party in connection with such action
(including, but not limited to, any appeal thereof); provided, however that any
such fees shall not be duplicative of attorneys fees and expenses payable under
Section 2.3(c)(iv).

          6.3  ENTIRE AGREEMENT. This Escrow Agreement constitutes the final and
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior arrangements or understandings.

          6.4  All communications hereunder shall be in writing and shall be
deemed to be duly given and received:

          (i) upon delivery if delivered personally or upon confirmed
     transmittal if by facsimile; (ii) on the next Business Day (as hereinafter
     defined) if sent by overnight courier; or (iii) four (4) Business Days
     after mailing if mailed by prepaid registered mail, return receipt
     requested, to the appropriate notice address set forth on Schedule 1 or at
     such other address as any party hereto may have furnished to the other
     parties in writing by registered mail, return receipt requested.

Notwithstanding the above, in the case of communications delivered to the Escrow
Agent pursuant to (ii) and (iii) of this Section 6.4, such communications shall
be deemed to have been given on the date received by the Escrow Agent. In the
event that the Escrow Agent, in its sole discretion, shall determine that an
emergency exists, the Escrow Agent may use such other means of communication as
the Escrow Agent deems appropriate. "BUSINESS DAY" shall mean any day other than
a Saturday,

<PAGE>   9

Sunday or any other day on which the Escrow Agent located at the notice address
set forth on SCHEDULE 1 is authorized or required by law or executive order to
remain closed.

          6.5  SECURITY PROCEDURES. In the event Escrow Share transfer
instructions are given (other than in writing at the time of execution of this
Escrow Agreement), whether in writing, by telecopier or otherwise, the Escrow
Agent is authorized to seek confirmation of such instructions by telephone
call-back to the person or persons designated on SCHEDULE 2 hereto ("SCHEDULE
2"), and the Escrow Agent may rely upon the confirmation of anyone purporting to
be the person or persons so designated. The persons and telephone numbers for
call-backs may be changed only in a writing actually received and acknowledged
by the Escrow Agent. The Escrow Agent and the beneficiary any Escrow Share
transfer may rely solely upon any account numbers or similar identifying numbers
provided by the Buyer or Holder to identify such beneficiary. The Escrow Agent
may apply any of the Escrow Fund for any payment order it executes using any
such identifying number, even where its use may result in a person other than
the beneficiary being paid. The parties to this Escrow Agreement acknowledge
that these security procedures are commercially reasonable.

          6.6  SEVERABILITY. If any term or provision of this Escrow Agreement
or the application thereof as to any Person or circumstance shall to any extent
be invalid or unenforceable, the remaining terms and provisions of this Escrow
Agreement or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable
shall not be affected thereby and each term and provision of this Escrow
Agreement shall be valid and enforceable to the fullest extent permitted by law.

          6.7  COUNTERPARTS. This Escrow Agreement may be executed in two or
more partially or fully executed counterparts, each of which shall be deemed an
original and shall bind the signatory, but all of which together shall
constitute but one and the same instrument. The execution and delivery of a
Signature Page to Escrow Agreement in the form annexed to this Escrow Agreement
by any party hereto who shall have been furnished the final form of this Escrow
Agreement shall constitute the execution and delivery of this Escrow Agreement
by such party.

          6.8  HEADINGS. The headings of the various sections of this Escrow
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Escrow Agreement.

          6.9  MISCELLANEOUS. The provisions of this Escrow Agreement may be
waived, altered, amended or supplemented, in whole or in part, only by a writing
signed by all of the parties hereto. Neither this Escrow Agreement nor any right
or interest hereunder may be assigned in whole or in part by any party, except
as provided in Section 6, without the prior consent of the other parties. This
Escrow Agreement shall be governed by and construed under the laws of the State
of California, except the rights, duties and obligations of the Escrow Agent
shall be governed by the laws of the State of New York. The parties further
hereby waive any right to a trial by jury with respect to any lawsuit or
judicial proceeding arising or relating to this Escrow Agreement. No party to
this Escrow Agreement is liable to any other party for losses due to, or if it
is unable to perform its obligations under the terms of this Escrow Agreement
because of, acts of God, fire, floods, strikes, equipment or transmission
failure, or other causes reasonably beyond its control.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>   10


Signature Page to Escrow Agreement

     IN WITNESS WHEREOF, the parties have duly executed this Escrow Agreement as
of the day and year set forth on Schedule 1.


TERADYNE, INC.
                                             PERCEPTION LAMINATES, INC.


By: /s/ Stuart M. Osattin                    By: /s/ Robert Herring, Sr.
   -----------------------------------          --------------------------
   Name:  Stuart M. Osattin                     Name:  Robert Herring, Sr.
   Title: Vice President                        Title: President



HOLDER:


 /s/ Robert Herring, Sr.
- --------------------------------------
Robert Herring, Sr.


THE CHASE MANHATTAN BANK
AS ESCROW AGENT


By: /s/ Mary Lou Bessey
   -----------------------------------
   Authorized Signatory

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5.1
<SEQUENCE>6
<FILENAME>b36797tiex5-1.txt
<DESCRIPTION>OPINION OF TESTA, HURWITZ & THIBEAULT  LLP
<TEXT>

<PAGE>   1
                                                                     Exhibit 5.1

                                                     October 6, 2000

Teradyne, Inc.
321 Harrison Avenue
Boston, Massachusetts 02118

     Re: S-3 Registration Statement
         --------------------------


Ladies and Gentlemen:

     We are counsel to Teradyne, Inc., a Massachusetts corporation (the
"Company"), and have represented the Company in connection with the preparation
and filing of the Company's Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended, covering
the sale to the public of up to an aggregate of 1,841,162 outstanding shares of
the Company's Common Stock, $.125 par value per share (the "Shares"), being sold
by certain stockholders of the Company.

     We have reviewed the corporate proceedings taken by the Board of Directors
of the Company with respect to the authorization and issuance of the Shares. We
have also examined and relied upon originals or copies, certified or otherwise
authenticated to our satisfaction, of all corporate records, documents,
agreements or other instruments of the Company and have made all investigations
of law and have discussed with the Company's officers all questions of fact that
we have deemed necessary or appropriate.

     Based upon and subject to the foregoing, we are of the opinion that the
Shares are validly issued, fully paid and non-assessable.

     We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm in the Prospectus
contained in the Registration Statement under the caption "Legal Matters."


                                 Very truly yours,

                                 /s/ Testa, Hurwitz & Thibeault, LLP
                                 ---------------------------------------
                                 TESTA, HURWITZ & THIBEAULT, LLP
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>7
<FILENAME>b36797tiex23-1.txt
<DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS  LLP
<TEXT>

<PAGE>   1
                                                                    Exhibit 23.1


                       CONSENT OF INDEPENDENT ACCOUNTANTS

     We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated January 14, 2000 relating to the
financial statements and financial statement schedule, which appears in
Teradyne Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.

/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
October 5, 2000



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
