SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended March 30, 1996,
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ________ to
________
Commission file number 0-12719
GIGA-TRONICS INCORPORATED
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2656341
- -------------------------------- ------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
4650 Norris Canyon Road, San Ramon, CA 94583
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (510) 328-4650
---------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- -------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The aggregate market value of voting stock held by non-affiliates of the
Registrant calculated on the closing average bid and asked prices as of May 20,
1996 was $20,717,599. For purposes of this determination only, directors and
officers of the Registrant have been assumed to be affiliates. There were a
total of 2,603,420 shares of the Registrant's Common Stock outstanding as of May
20, 1996.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference into the
parts indicated:
PART OF FORM 10-K DOCUMENT
PART II Registrant's ANNUAL REPORT TO
Items 5, 6, 7 and 8 SHAREHOLDERS for the fiscal year
ended March 30, 1996.
PART III Registrant's PROXY STATEMENT for
Items 10, 11, 12 and 13 its 1996 annual meeting of shareholders to
be filed no later than 120
days after the close of the
fiscal year ended March 30,
1996.
2.
<PAGE>
PART I
ITEM 1. BUSINESS
General and Business
Giga-tronics designs, manufactures and markets microwave and radio
frequency (RF) signal generation and power measurement instruments. These
products are used primarily in the design, production, repair and maintenance of
telecommunications, radar, electronic warfare, and transportation systems.
Recent Developments - Acquisition of ASCOR, Inc.
The Company has entered into an Agreement and Plan of Reorganization,
dated as of May 2, 1996 (the "Reorganization Agreement"), by and among the
Company, ASCOR Acquisition Corp., a California corporation and wholly owned
subsidiary of Giga-tronics ("Acquisition Corp.") and ASCOR, Inc., a California
corporation ("ASCOR") which provides for the acquisition by the Company of ASCOR
through the merger (the "Merger") of ASCOR and Acquisition Corp. The Merger will
be accounted for as a pooling of interests. ASCOR is a privately-held company in
Fremont, California that designs, manufactures and markets a line of switching
and connecting devices that link together many specific purpose instruments that
comprise a portion of automatic test systems. ASCOR sales are primarily U.S.
government related orders.
Pursuant to the Reorganization Agreement (i) Acquisition Corp. will be
merged with and into ASCOR and ASCOR will become a wholly owned subsidiary of
Giga-tronics; (ii) each (a) share of ASCOR no par value Common Stock ("ASCOR
Common Stock") and no par value preferred stock ("ASCOR Preferred Stock" and,
together with ASCOR Common Stock, the "ASCOR Shares") outstanding immediately
prior to the Merger (other than ASCOR Shares held by shareholders who have
perfected and not withdrawn their right to seek appraisal of their shares under
applicable California law) and (b) outstanding options for the purchase of ASCOR
Shares ("ASCOR Option") and warrants exercisable for the purchase of ASCOR
Shares ("ASCOR Warrant" and, together with any ASCOR Options, the "ASCOR
Convertible Securities") will be converted into the right to receive a pro rata
portion of an aggregate of 724,986 Shares of Giga-tronics Common Stock to be
issued in the Merger (the "Merger Consideration"). In determining the fraction
of a Giga-tronics Stock (the "Exchange Ratio") which holders of ASCOR Shares and
ASCOR Convertible Securities (collectively "ASCOR Securities") will be entitled
to receive, all ASCOR Convertible Securities will be treated as having been
converted or exercised into ASCOR Shares. Any ASCOR Convertible Securities which
are considered "out-of-the-money" will be assumed by Giga-tronics and will be
exercisable for Giga-tronics Common Stock as adjusted by the Merger. Shares of
Giga-tronics Common Stock attributable to ASCOR Convertible Securities which are
assumed by Giga-tronics will be retained by Giga-tronics from the Merger
Consideration pending their exercise.
In a Letter Agreement between the Company and ASCOR dated May 20, 1996
amending the Reorganization Agreement, the Company has agreed to use its best
faith efforts to file with the Securities and Exchange Commission, and cause the
effectiveness
3.
<PAGE>
under federal securities law of, a registration statement on Form S-4 (or such
other form as may be applicable) covering the shares of Giga-tronics Common
Stock to be issued in the Merger. If the Company Common Stock issued in the
Merger is not issued pursuant to such an effective registration statement, the
Reorganization Agreement contemplates that the Company Common Stock would be
issued pursuant to an exemption from registration and be legended to indicate
that it is not freely transferable. The Reorganization Agreement provides that
if the Company Common Stock issuable in the Merger is not issued pursuant to an
effective registration statement, at the closing of the Merger, the Company will
enter into a Registration Rights Agreement with each of the former holders of
ASCOR Securities granting them registration rights, including (a) one demand
registration and (b) piggyback registration rights.
The Merger will be effective at the time an Agreement of Merger is
filed with the Secretary of State of the State of California. Assuming all
conditions to the Merger are met or waived prior thereto, it is anticipated that
the Effective Time will occur late in the first fiscal quarter or during the
second fiscal quarter of 1997.
Industry Segments
Giga-tronics operates in one industry segment: electronic test and
measurement equipment.
Products and Markets
Giga-tronics produces signal sources, generators and sweepers, and
power measurement instruments for use in the microwave and RF frequency range
(10 kHz to 75 GHz). Within each product line are a number of different models
and options allowing customers to select frequency range and specialized
capabilities, features and functions.
The end-user markets can be divided into three broad segments:
telecommunications, radar and electronic warfare. Giga-tronics' instruments are
used in the design, production, repair and maintenance and calibration of other
manufacturers' products, from discrete components to complex systems.
Sources and Availability of Raw Materials and Components
Substantially all of the components required by the Company to make its
assemblies are available from more than one source. The Company occasionally
uses sole source arrangements to obtain leading-edge technology, favorable
pricing or supply terms. Although extended delays in delivering components could
result in longer product delivery schedules, the Company believes that its
protection against this possibility stems from its practice of dealing with
well-established suppliers and maintaining good relationships with such
suppliers.
Patents and Licenses
The Company attempts to obtain patents when appropriate. In addition,
the Company has acquired numerous patents in the course of its two recent
acquisitions.
4.
<PAGE>
However, the Company believes that its competitive position depends on the
creative ability and technical competence of its personnel and the timely
introduction of new products rather than on the ownership or development of
patents.
The Company licenses certain instrument operating system software from
third parties. Other than such software licenses, the Company is not aware that
the manufacture and sale of its products requires licenses from others. The
Company believes, based on industry practice, that any necessary licenses could
be obtained on conditions which would not have a materially adverse financial
effect on the Company.
Seasonal Nature of Business
The business of the Company is not seasonal.
Working Capital Practices
The Company does not believe that it has any special practices or
special conditions affecting working capital items that are significant for an
understanding of its business.
Importance of Limited Number of Customers
Since its inception, the Company has been a leading supplier of test
instruments to various U.S. Government defense agencies, as well as to their
prime contractors. U.S. Government agencies accounted for 31%, 26%, and 27% of
net sales in fiscal 1996, 1995, and 1994, respectively. Management anticipates
sales to U.S. Government agencies will remain significant in fiscal 1997, even
though the outlook for defense-related orders continues to be soft.
Backlog of Orders
On March 30, 1996, Giga-tronics had a backlog of approximately
$6,112,000 compared to $10,154,000 at March 25, 1995. Orders for the Company's
products include large program orders, from both the U.S. Government and defense
contractors, with extended delivery dates. Accordingly, the backlog of orders
may vary substantially from quarter to quarter and the backlog entering any
single quarter may not necessarily be indicative of sales for any period.
Backlog includes only those customer orders for which a delivery
schedule has been agreed upon between Giga-tronics and the customer and, in the
case of U.S. Government orders, for which funding has been appropriated.
Giga-tronics believes that essentially all of the year ending backlog will be
shipped within the next twelve months.
A substantial portion of the year-end backlog consisted of U.S.
Government contracts. These contracts contain customary provisions permitting
termination at the convenience of the Government upon payment of a negotiated
cancellation charge. The Company never has experienced a significant contract
termination.
5.
<PAGE>
Competition
The principal competitive factors in the marketing of microwave and RF
test instruments include product functionality, reliability and price. The
Company competes mainly with Hewlett-Packard, Anritsu, Marconi and Rohde &
Schwarz. These competitors are larger and have greater financial, engineering
and marketing resources than the Company. Nonetheless, the Company believes that
within its chosen markets and applications, its products are fully competitive
with those of other manufacturers.
Product Development
Microwave and RF test instruments of the type manufactured by
Giga-tronics historically have had relatively long product life cycles. However,
the electronics industry is subject to rapid technological changes at the
component level. The future success of the Company is dependent on its ability
to steadily incorporate advancements in semiconductor and related microwave
component technologies into its new products.
Product development expense was approximately $2,512,000, $2,700,000
and $2,569,000 in fiscal 1996, 1995 and 1994, respectively. Activities included
the development of new products and the improvement of existing products. It is
management's intention to maintain expenditures for product development at
levels required to sustain its competitive position. All of the Company's
product development activities are internally funded and expensed as incurred.
Manufacturing
The assembly and testing of the Company's microwave, RF and power
measurement products is done at its relatively new San Ramon facility. The
Sunnyvale manufacturing operations (performing assembly and test of power
measurement products) relocated to the San Ramon facility in July, 1995.
Environment
To the best of its knowledge, the Company is in compliance with all
federal, state and local laws and regulations involving the protection of the
environment.
Employees
As of March 30, 1996, the Company employed 146 persons. Management
believes that the future success of the Company depends on its ability to
attract and retain skilled personnel. None of the Company's employees is
represented by a labor union and the Company considers its employee relations to
be excellent.
Information about Foreign Operations
The Company sells to its international customers through a network of
foreign technical sales representative organizations. Sales to foreign customers
were approximately $6,791,000, $4,458,000, and $4,544,000 in fiscal 1996, 1995
and 1994, respectively.
6.
<PAGE>
The Company has no foreign-based operations or material amount of
identifiable assets in foreign countries. Its gross margins on foreign and
domestic sales are similar. Management does not believe that foreign sales are
subject to materially greater risks than domestic sales.
Outlook
Even though the Company has now achieved more balance between its
defense and commercial businesses, defense related orders remain very important
to the Company. The outlook for such orders continues to be soft. The Company
believes that some growth can be realized by sustaining an effective new product
development program, aggressively pursuing new markets, vigorously competing for
defense business, and making synergistic acquisitions.
ITEM 2. PROPERTIES
As of March 30, 1996, the Company's executive, marketing, sales and
engineering offices and manufacturing facilities are located in approximately
47,000 square feet in San Ramon, California, which the Company occupies under a
lease agreement expiring December 31, 2006.
The 30,000 square foot facility in Pleasant Hill, California, which formerly
housed all of the signal generator operations, was vacated at the end of April,
1994. The Pleasant Hill lease agreement expired April 30, 1994. The 40,000
square foot facility in Sunnyvale, California, which formerly housed all of the
power measurement instrument operations, was vacated in July, 1994. The
Sunnyvale lease agreement expired July 31, 1994.
ITEM 3. LEGAL PROCEEDINGS
As of March 30, 1996, the Company has no pending legal proceedings,
other than routine litigation incidental to the Company's business, to which the
Company is a party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended March 30, 1996. Executive Officers of
Giga-tronics are listed on page 14 of this Form 10-K.
7.
<PAGE>
PART II
The Registrant's Annual Report to Shareholders for the year ended March
30, 1996, is filed as Exhibit 13.0 with this Form 10-K (the "1996 Annual
Report"). The information responsive to items 5, 6, 7 and 8, which is contained
in the 1996 Annual Report, is specifically incorporated by reference in this
Form 10-K. With the exception of such information, the 1996 Annual Report is not
deemed filed as part of this report.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Incorporated by reference from the 1996 Annual Report, see "Per Share
Stock Data" which appears on page 32.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from the 1996 Annual Report, see "Selected
Financial Data" which appears on page 31.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Incorporated by reference from the 1996 Annual Report, see
"Management's Discussion and Analysis of Results" which appears on pages 18 and
19.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following items which appear in the 1996 Annual Report are incorporated by
reference:
Balance Sheets.....................................page 20
Statements of Operations...........................page 21
Statements of Shareholders' Equity.................page 22
Statements of Cash Flows...........................page 23
Notes to Financial Statements......................page 24
Independent Auditors' Report.......................page 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
8.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is set forth under the
heading "Election of Directors" of the Company's Proxy Statement for the 1996
Annual Meeting of Shareholders, incorporated herein by reference. This proxy
statement is to be filed no later than 120 days after the close of the fiscal
year ended March 30, 1996.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the Company's compensation of its executive
officers is set forth under the heading "Executive Compensation" of the Proxy
Statement, incorporated herein by reference. This proxy statement is to be filed
no later than 120 days after the close of the fiscal year ended March 30, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management is set forth under the heading "Stock Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement, incorporated herein by
reference. This proxy statement is to be filed no later than 120 days after the
close of the fiscal year ended March 30, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable
9.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements
The following financial statements and schedules are filed or
incorporated by reference as a part of this report.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
1996 Annual Report
to Shareholders
Financial Statements (Page No.)
- -------------------- ------------------
Balance Sheets - 20
As of March 30, 1996 and
March 25, 1995
Statements of Operations - 21
Years Ended March 30, 1996,
March 25, 1995 and March 26, 1994
Statements of Shareholders' Equity - 22
Years Ended March 30, 1996,
March 25, 1995 and March 26, 1994
Statements of Cash Flows - 23
Years Ended March 30, 1996,
March 25, 1995 and March 26, 1994
Notes to Financial Statements 24-29
Independent Auditors' Report 30
Form 10-K
(a)(2) Schedules (Page No.)
--------- ----------
Independent Auditor's Report on Schedule
and Consent 12
Schedule II Valuation and Qualifying 13
Accounts
All other schedules are not submitted because they are not applicable
or not required or because the required information is included in the financial
statements or notes thereto.
10.
<PAGE>
Except for those portions thereof incorporated by reference in this
Form 10-K, the 1996 Annual Report and the Proxy Statement are not to be deemed
filed as part of this report.
(a)(3) Exhibits
Reference is made to the Exhibit Index which is found on pages 15 and
16 of this Form 10-K Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 30,
1996.
11.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GIGA-TRONICS INCORPORATED
By /s/
----------------------------------
George H. Bruns, Jr.
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Chairman of the Board 5/20/96
- ------------------------ and Chief Executive Officer -----------------
George H. Bruns, Jr. (Principal Executive Officer) (Date)
/s/ Vice President, Finance 5/20/96
- ------------------------ and Chief Financial Officer -----------------
Gregory L. Overholtzer (Principal Accounting Officer) (Date)
/s/ Director 5/20/96
- ------------------------ -----------------
James A. Cole (Date)
/s/ Director 5/20/96
- ------------------------ -----------------
Edward D. Sherman (Date)
/s/ Director 5/20/96
- ------------------------ -----------------
Robert C. Wilson (Date)
12.
<PAGE>
Exhibit 23.0
INDEPENDENT AUDITOR'S REPORT ON SCHEDULE AND CONSENT
The Board of Directors and Shareholders
Giga-tronics Incorporated:
Under date of April 18, 1996, except for Note 10, which is as of May 2,
1996 we reported on the balance sheets of Giga-tronics Incorporated as of March
30, 1996 and we related statements of operations, shareholders' equity and cash
flows for the fifty-three week period ended March 30, 1996, and for the fifty
two week periods in the two year period ended March 25, 1995. In connection with
our audits of the aforementioned financial statements, we also audited the
related financial statement Schedule II, Valuation and Qualifying Accounts. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We consent to incorporation by reference in the registration statements
(Nos. 2-91843 and 33-85278) on Form S-8 of Giga-tronics Incorporated of our
reports included herein and incorporated herein by reference.
/s/
--------------------------------
KPMG Peat Marwick LLP
San Jose, California
May 29, 1996
13.
<PAGE>
<TABLE>
GIGA-TRONICS INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------ -------------- -------------------------------- -------------- ------------
Balance at Charged to Charged to Balance at
beginning of cost and other end of
Description period expenses Accounts Deductions period
- ------------------------------ -------------- --------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $
Year ended March 30, 1996
- ------------------------------
Allowances deducted from
assets:
Accounts receivable: 31,676 209,907 -- 19,824 221,759
For doubtful accounts1 -------------- --------------- --------------- -------------- ------------
Total 31,676 209,907 -- 19,824 221,759
============== =============== =============== =============== ============
Year ended March 25, 1995
Allowances deducted from
assets:
Accounts receivable: 87,065 13,775 -- 69,164 31,676
For doubtful accounts1 -------------- --------------- --------------- -------------- ------------
Total 87,065 13,775 -- 69,164 31,676
============== =============== =============== =============== ============
Year ended March 26, 1994
Allowance deducted from
assets:
Accounts receivable: 43,265 45,000 -- 1,200 87,065
For doubtful accounts1 -------------- --------------- --------------- -------------- ------------
Total 43,265 45,000 -- 1,200 87,065
============== =============== =============== =============== ============
<FN>
1 Reserve for accounts receivable collection exposure.
</FN>
</TABLE>
14.
<PAGE>
<TABLE>
GIGA-TRONICS INCORPORATED
CORPORATE EXECUTIVE OFFICERS
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
George H. Bruns, Jr. 78 Chairman of the Board and Chief Executive Officer
Gregory L. Overholtzer 39 Vice President, Finance & Chief Financial Officer
Bradley C. Stribling 50 Vice President, Engineering
David L. White 41 Vice President, Marketing and Sales
</TABLE>
15.
<PAGE>
GIGA-TRONICS INCORPORATED
INDEX TO EXHIBITS
2.1* Agreement and Plan of Reorganization, dated as of May 2, 1996 by and
among Giga-tronics Incorporated, ASCOR Acquisition Corp. and ASCOR,
Inc.
2.2* Letter Agreement between Giga-tronics Incorporated and ASCOR, Inc.,
dated May 20, 1996.
3.1 Articles of Incorporation of Registrant, as amended, previously filed
on May 6, 1983, as Exhibit 3.1 to Form S-1 registration, File No.
2-83581 (hereinafter "Form S-1"), and subsequently filed on July 3,
1991, as Exhibit 3.1 to Form 10-K for the fiscal year ended March 30,
1991, and incorporated herein by reference.
3.2 By-laws of Registrant, as amended, previously filed on May 6, 1983, as
Exhibit 3.2 to Form S-1, and subsequently filed on July 3, 1991, as
Exhibit 3.2 to Form 10-K for the fiscal year ended March 30, 1991, and
incorporated herein by reference.
10.2 Lease between Giga-tronics Incorporated and Lowenberg Realty Company
for 2477, 2479, 2481, 2487, 2489, 2491 and 2495 Estand Way, Pleasant
Hill, CA, previously filed on June 28, 1985, as Exhibit 10.2 to Form
10-K for the fiscal year ended March 31, 1985, and subsequently filed
on July 3, 1991, as Exhibit 10.2 to Form 10-K for the fiscal year ended
March 30, 1991, and incorporated herein by reference.
10.3 1981 Incentive Stock Option Plan and form of Incentive Stock Option
Agreement, as amended, previously filed on June 26, 1987, as Exhibit
10.3 to form 10-K for the fiscal year ended March 31, 1987, and
incorporated herein by reference.
10.4 1990 Restated Stock Option Plan and form of Incentive Stock Option
Agreement, previously filed on July 3, 1991, as Exhibit 10.4 to Form
10-K for the fiscal year ended March 30, 1991, and incorporated herein
by reference.
10.5 Standard form Indemnification Agreement for Directors and Officers,
previously filed on July 3, 1991, as Exhibit 10.5 to Form 10-K for the
fiscal year ended March 30, 1991, and incorporated herein by reference.
10.6 Proposal for Retired Officers' Health Insurance, previously filed on
July 3, 1991, as Exhibit 10.6 to Form 10-K for the fiscal year ended
March 30, 1991, and incorporated herein by reference.
10.7 Form Stock Option Agreement for Automatic Director Grants, previously
filed on July 3, 1991, as Exhibit 10.7 to Form 10-K for the fiscal year
ended March 30, 1991, and incorporated herein by reference.
10.8 Special One Time Option Grant to Robert Wilson, previously filed on
July 3, 1991, as Exhibit 10.8 to Form 10-K for the fiscal year ended
March 30, 1991, and incorporated herein by reference.
16.
<PAGE>
10.9 Purchase Agreement between Wavetek Corporation, Wavetek U.S. Inc. and
Giga-tronics Incorporated dated May 22, 1992, previously filed on June
25, 1992, as Exhibit 10.9 to Form 10-K for the fiscal year ended March
28, 1992 and incorporated herein by reference.
10.10 Assignment of Lease from Wavetek U.S., Inc. to Giga-tronics,
Incorporated dated May 22, 1992, previously filed on June 25, 1992, as
Exhibit 10.10 to Form 10-K for the fiscal year ended March 28, 1992 and
incorporated herein by reference.
10.11 Asset Purchase and Licensing Agreement between John Fluke Mfg. Co.,
Inc. and Giga-tronics Incorporated dated June 3, 1993, previously filed
on June 23, 1993, as Exhibit 10.11 to Form 10-K for the fiscal year
ended March 27, 1993 and incorporated herein as reference.
10.12 Lease between Giga-tronics Incorporated and Calfront Associates for
4650 Norris Canyon Road, San Ramon, CA, dated December 6, 1993,
previously filed as an exhibit to Form 10K for the fiscal year ended
March 26, 1994.
11.0* Statement regarding Computation of Per Share Earnings. (See page 17 of
this Annual Report on Form 10-K.)
13.0* 1996 Annual Report to Shareholders.
23.0* Independent Auditor's Report on Schedule and Consent. (see page 12 of
this Annual Report on Form 10-K).
27.0* Financial Data Schedule.
* Attached as exhibits to this Form 10-K.
17.
<PAGE>
<TABLE>
EXHIBIT 11.0
GIGA-TRONICS INCORPORATED
COMPUTATION OF NET EARNINGS (LOSS) PER SHARE AND
COMMON SHARE EQUIVALENT
Loss per share is computed using the weighted average number of shares
outstanding. Earnings per share are computed using the weighted average number
of shares outstanding plus any incremental shares issuable upon exercise of
outstanding options under the treasury stock method.
<CAPTION>
YEAR ENDED
----------------------------------------------------------
3/30/96 3/25/95 3/26/94
------------------ ------------------ ------------------
<S> <C> <C> <C>
Weighted average number of common shares outstanding:
Common Stock outstanding 2,574,087 2,569,920 2,569,920
Incremental Shares from Outstanding 64,876 -- --
Options (Treasury Stock Method) ------------------ ------------------ ------------------
2,638,963 2,569,920 2,569,920
================== ================== ==================
Net earnings (loss) $901,000 $(1,576,000) $231,000
================== ================== ==================
Earnings (loss) per share of Common Stock $0.34 $(0.61) $0.09
================== ================== ==================
</TABLE>
18.
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
dated as of
May 2, 1996
by and among
GIGA-TRONICS INCORPORATED
ASCOR ACQUISITION CORP.
and
ASCOR, INC.
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C>
RECITALS ....................................................................... 1
ARTICLE I THE MERGER............................................................. 2
1.01 The Merger..................................................... 2
1.02 Conversion of Shares........................................... 2
1.03 Exchange of Certificates....................................... 3
1.04 Dissenting Shares.............................................. 4
1.05 Fractional Shares.............................................. 5
1.06 ASCOR Stock Options and Warrants............................... 5
1.07 No Registration of Giga-tronics Common Stock................... 6
ARTICLE II THE SURVIVING CORPORATION.............................................. 6
2.01 Certificate of Incorporation................................... 6
2.02 Bylaws......................................................... 6
2.03 Directors and Officers......................................... 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ASCOR................................ 7
3.01 Corporate Existence and Power.................................. 7
3.02 Corporate Authorization........................................ 7
3.03 Governmental Authorization..................................... 7
3.04 Non-Contravention.............................................. 8
3.05 Capitalization................................................. 8
3.06 Subsidiaries and Investments................................... 9
3.07 Financial Statements........................................... 9
3.08 Absence of Changes or Events................................... 9
3.09 No Undisclosed Liabilities..................................... 11
3.10 Litigation..................................................... 12
3.11 Taxes.......................................................... 12
3.12 Insurance...................................................... 13
3.13 Employee Benefit Plans; ERISA.................................. 13
3.14 Material Agreements............................................ 13
3.15 Real Property; Leases.......................................... 14
3.16 Title to Assets................................................ 14
3.17 Environmental Matters.......................................... 15
3.18 Intellectual Property.......................................... 16
3.19 No Guaranties.................................................. 16
3.20 Absence of Certain Business Practices.......................... 16
3.21 Compliance with Laws and Other Instruments..................... 16
i.
<PAGE>
PAGE
3.22 Disclosure Documents........................................... 17
3.23 Tax Matters.................................................... 17
3.24 Accounting Matters............................................. 17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF GIGA-TRONICS......................... 17
4.01 Corporate Existence and Power.................................. 17
4.02 Corporate Authorization........................................ 18
4.03 Governmental Authorization..................................... 18
4.04 Non-Contravention.............................................. 19
4.05 Capitalization of Giga-tronics................................. 19
4.06 Capitalization of Merger Sub; Subsidiaries..................... 20
4.07 SEC Filings.................................................... 20
4.08 Financial Statements........................................... 21
4.09 Disclosure Documents........................................... 21
4.10 Absence of Certain Changes..................................... 21
4.11 Litigation..................................................... 22
4.12 Advisor's Fees................................................. 22
ARTICLE V COVENANTS OF ASCOR..................................................... 22
5.01 Conduct of ASCOR............................................... 22
5.02 Shareholders' Meeting; Proxy Material.......................... 24
5.03 Access to Financial and Operation Information.................. 24
5.04 Other Offers................................................... 24
5.05 Maintenance of Business........................................ 25
5.06 Compliance with Obligations.................................... 25
5.07 Notices of Certain Events...................................... 25
5.08 Confidentiality................................................ 26
5.09 Compliance with the Securities Act............................. 26
ARTICLE VI COVENANTS OF GIGA-TRONICS AND MERGER SUB............................... 26
6.01 Conduct of Giga-tronics........................................ 26
6.02 Shareholders' Meeting; Proxy Material.......................... 27
6.03 Maintenance of Business........................................ 27
6.04 Compliance with Obligations.................................... 27
6.05 Notices of Certain Events...................................... 28
6.06 Confidentiality................................................ 28
6.07 Obligations of Merger Sub...................................... 28
6.08 Compliance with the Securities Act............................. 29
ii.
<PAGE>
PAGE
ARTICLE VII OTHER COVENANTS OF THE PARTIES......................................... 29
7.01 Advice of Changes.............................................. 29
7.02 Regulatory Approvals........................................... 29
7.03 Actions Contrary to Stated Intent.............................. 29
7.04 Certain Filings................................................ 29
7.05 Communications................................................. 30
7.06 Satisfaction of Conditions Precedent........................... 30
ARTICLE VIII CONDITIONS TO THE MERGER............................................... 30
8.01 Conditions to Obligations of Giga-tronics and Merger Sub....... 30
8.02 Conditions to Obligations of ASCOR............................. 31
8.03 Conditions to Obligations of Each Party........................ 32
ARTICLE IX TERMINATION OF AGREEMENT............................................... 33
9.01 Termination.................................................... 33
9.02 Effect of Termination.......................................... 34
ARTICLE X ADDITIONAL AGREEMENTS OF THE PARTIES................................... 35
10.01 Registration Rights Agreement.................................. 35
ARTICLE XI MISCELLANEOUS.......................................................... 35
11.01 Further Assurances............................................. 35
11.02 Fees and Expenses.............................................. 35
11.03 Nonsurvival of Representations and Warranties.................. 35
11.04 Notices........................................................ 35
11.05 Governing Laws................................................. 36
11.06 Binding upon Successors and Assigns; Assignment................ 36
11.07 Severability................................................... 37
11.08 Entire Agreement............................................... 37
11.09 Other Remedies................................................. 37
11.10 Amendment and Waivers.......................................... 37
11.11 No Waiver...................................................... 37
11.12 Construction of Agreement; Knowledge........................... 37
11.13 Counterparts................................................... 38
GLOSSARY ....................................................................... 40
iii.
<PAGE>
SCHEDULES
ASCOR Disclosure Schedule
Giga-tronics Disclosure Schedule
EXHIBITS
Exhibit 1.01 Form of Agreement of Merger
Exhibit 5.09 Form of ASCOR Affiliates Agreement
Exhibit 6.08 Form of Giga-tronics Affiliates Agreement
Exhibit 10.01 Form of Registration Rights Agreement
iv.
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is entered into as of the 2nd day of May, 1996, by and among Giga-tronics
Incorporated, a California corporation ("Giga-tronics"), ASCOR Acquisition
Corp., a California corporation and a wholly owned subsidiary of Giga-tronics
("Merger Sub"), and ASCOR, Inc., a California corporation ("ASCOR").
RECITALS
A. The Boards of Directors of Giga-tronics, Merger Sub and
ASCOR have each determined to engage in the transactions contemplated hereby,
pursuant to which (i) Merger Sub will merge (the "Merger") with and into ASCOR,
(ii) each share of common stock, no par value, of ASCOR ("ASCOR Common Stock")
and any other shares of ASCOR stock which shall have previously been converted
into Ascor Common Stock (except for shares of ASCOR stock as to which
dissenters' rights, if available, shall have been perfected) shall be converted
into the right to receive a fraction of a share of common stock, no par value,
of Giga-tronics ("Giga-tronics Common Stock"), in the manner and amount herein
described, and (iii) the capital stock of Merger Sub shall be converted into
shares of ASCOR Common Stock, all upon the terms and subject to the conditions
set forth herein.
B. The Board of Directors of ASCOR has approved, and has
resolved to recommend that the shareholders of ASCOR approve, the Merger and
this Agreement.
C. The respective Boards of Directors of Giga-tronics and
Merger Sub have approved the Merger and this Agreement. The Board of Directors
of Giga-tronics has resolved to recommend that the shareholders of Giga-tronics
approve the Merger and this Agreement. Giga-tronics, as the sole shareholder of
Merger Sub, has approved the Merger and this Agreement.
D. The parties intend for the transactions contemplated by
this Agreement to qualify as a tax-free reorganization in accordance with the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and to be accounted for as a pooling of interests transaction.
NOW, THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:
1.
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER.
(a) Subject to the terms and conditions hereof, and in
accordance with the General Corporation Law of California, Merger Sub will be
merged with and into ASCOR (the "Merger"), as soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI hereof.
Following the Merger, ASCOR shall continue as the surviving corporation (the
"Surviving Corporation"), and the separate corporate existence of Merger Sub
shall cease.
(b) Concurrent with the Closing (as defined in subsection
(d) below), Giga-tronics, and ASCOR and Merger Sub shall file an agreement of
merger in the form attached hereto as Exhibit 1.01 (the "Agreement of Merger")
in the Office of the Secretary of State of the State of California in accordance
with California Law. The Merger shall become effective at such time as the
Agreement of Merger is duly filed in the Office of the Secretary of State of the
State of California (the date of such filing being hereinafter referred to as
the "Effective Date" and the time of such filing being hereinafter referred to
as the "Effective Time").
(c) From and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises and
be subject to all of the restrictions, disabilities and duties of ASCOR and
Merger Sub, all as provided under California Law.
(d) The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on June 27, 1996 at the offices of
Brobeck Phleger & Harrison LLP, One Market Plaza, San Francisco, CA 94105, or at
such other date and place as Giga-tronics and ASCOR may agree. The date of the
Closing determined pursuant to this Section 1.01(d) is referred to as the
"Closing Date."
SECTION 1.02 CONVERSION OF SHARES.
(a) At the Effective Time:
(i) Subject to Section 1.05 hereof, at the
Effective Time each issued and outstanding share of ASCOR Common Stock,
Series A Preferred Stock of ASCOR (the "ASCOR Series A Shares"), Series
B Preferred Stock of ASCOR (the "ASCOR Series B Shares") and Series C
Preferred Stock of ASCOR (the "ASCOR Series C Shares" and collectively
with the ASCOR Series A Shares and the ASCOR Series B Shares, the
"ASCOR Preferred Shares") issued and outstanding immediately prior to
the Effective Time (other than Dissenting ASCOR Shares (as defined in
Section 1.04 hereof)) shall automatically, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into
a right to
2.
<PAGE>
receive the number of shares of Giga-tronics Common Stock as is
determined pursuant to this Section 1.02. The ASCOR Common Stock and
ASCOR Preferred Shares are collectively referred to herein as the
"ASCOR Shares." A maximum total of 724,986 shares of Giga-tronics
Common Stock (the "Merger Consideration") will be issued in the Merger,
including (1) shares issuable in respect of any warrants for the
purchase of ASCOR Common Shares ("ASCOR Common Warrants") and warrants
for the purchase of any series of ASCOR preferred stock ("ASCOR
Preferred Warrants") (the ASCOR Common Warrants and the ASCOR Preferred
Warrants are referred to collectively as the "ASCOR Warrants") which
remain outstanding at the Effective Time, (2) shares deemed surrendered
on exercise of any ASCOR Warrant for which a deemed net exercise
pursuant to Section 1.06 below has been made; (3) shares that would
have been issued to holders of Dissenting ASCOR Shares; and (4)
fractional shares that would have been issuable but for Section 1.05
below.
(ii) The Agreement of Merger to be filed shall
contain the final exchange ratio (the "Exchange Ratio") for ASCOR
Shares into Giga-tronics Common Stock and shall be equal to 724,986
divided by the fully diluted number of ASCOR Shares outstanding at the
Effective Time (the "ASCOR Outstanding Equivalent Number"). The ASCOR
Outstanding Equivalent Number shall be equal to the sum of (1) the
number of ASCOR Shares outstanding at the Effective time; plus (2) the
total number of ASCOR Shares which would be issuable on the exercise of
any ASCOR Warrants or ASCOR Options (as such terms are defined below).
All ASCOR Shares shall be exchangeable into Giga-tronics Common Stock
at the same Exchange Ratio.
(b) If between the date of this Agreement and the
Effective Time, the number of outstanding ASCOR Shares or shares of Giga-tronics
Common Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split-up, combination, exchange of shares or the like, the
Exchange Ratio shall be correspondingly adjusted.
SECTION 1.03 EXCHANGE OF CERTIFICATES.
(a) Giga-tronics (or such third party as Giga-tronics
shall appoint) shall act as Exchange Agent (the "Exchange Agent") for delivery
of the Merger Consideration to the ASCOR shareholders and, if applicable, the
cash to which holders of ASCOR shares shall be entitled pursuant to Section 1.05
hereof.
(b) As soon as practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record (other than Giga-tronics or
Merger Sub or any other subsidiary of Giga-tronics) of a certificate or
certificates which immediately prior to the Effective Time represented issued
and outstanding ASCOR Shares (individually a "Certificate" and collectively the
"Certificates"), a letter of transmittal for return to the Exchange Agent which
shall specify that delivery shall be effected, and risk of loss and the
3.
<PAGE>
title to the Certificates shall pass, only upon receipt of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with and in accordance with such
letter of transmittal, the holder of such Certificate shall be entitled to
receive in exchange therefor the Merger Consideration that such holder is
entitled to receive pursuant to Section 1.02(a) hereof. Upon such surrender the
Exchange Agent shall promptly deliver such Merger Consideration.
(c) Until surrendered, each Certificate shall be deemed
for all purposes to evidence only the right to receive the Merger Consideration
into which ASCOR Shares formerly represented thereby shall have been converted
pursuant to Section 1.02(a) hereof. No dividends or other distribution declared
after the Effective Time with respect to Giga- tronics Common Stock shall be
paid to the holders of any unsurrendered Certificate until the holder thereof
surrenders such Certificate.
(d) After the Effective Time there shall be no transfers
on the stock transfer books of either ASCOR (the stock transfer books of which
shall be closed) or the Surviving Corporation of ASCOR Shares which were
outstanding immediately prior to the Effective Time. If after the Effective Time
Certificates are presented for transfer to the Exchange Agent, together and in
accordance with the letter of transmittal from the Exchange Agent, they shall be
cancelled and exchanged for the Merger Consideration.
SECTION 1.04 DISSENTING SHARES. ASCOR Shares that have not been voted
for approval of this Agreement and with respect to which a demand for payment
and appraisal shall have been properly made in accordance with Chapter 13 of the
General Corporation Law of California ("Dissenting ASCOR Shares") shall not be
converted into the right to receive the Merger Consideration at or after the
Effective Time but shall be converted into the right to receive such
consideration as may be determined to be due with respect to such Dissenting
ASCOR Shares pursuant to the law of the State of California. If a holder of
Dissenting ASCOR Shares ("Dissenting Shareholder"), shall withdraw his or her
demand for such payment and appraisal or shall become ineligible for such
payment and appraisal, then, as of the Effective Time of the occurrence of such
event of withdrawal or ineligibility, whichever last occurs, such holder's
Dissenting ASCOR Shares shall cease to be Dissenting ASCOR Shares and shall be
converted into the right to receive, and shall be exchangeable for, the Merger
Consideration into which such Dissenting ASCOR Shares would have been converted
pursuant to Section 1.02(a) hereof. ASCOR shall give Giga-tronics prompt notice
of any demand received by ASCOR from a holder of Dissenting ASCOR Shares for
appraisal of ASCOR Shares, and Giga-tronics shall have the right to participate
in all negotiations and proceedings with respect to such demand. ASCOR agrees
that, except with the prior written consent of Giga-tronics, or as required
under the General Corporation Law of California, it will not voluntarily make
any payment with respect to, or settle or offer to settle, any such demand for
appraisal. Each Dissenting Shareholder who, pursuant to the provisions of
Chapter 13 of the General Corporation Law of California, becomes entitled to
payment of the value of shares of ASCOR stock shall receive payment therefor
(but only after the value therefor shall have been agreed upon or finally
determined pursuant to such provisions). Any Merger Consideration which would
have been issuable with respect to Dissenting ASCOR Shares shall be retained by
Giga-tronics.
4.
<PAGE>
SECTION 1.05 FRACTIONAL SHARES. Notwithstanding any other provision of
this Agreement to the contrary, no fractional shares of Giga-tronics Common
Stock shall be issued in connection with the Merger. All shares of Giga-tronics
Common Stock to which a holder of ASCOR Shares is entitled immediately prior to
the Effective Time shall be aggregated. If a fractional share results from such
aggregation, in lieu of any such fractional share, each holder of ASCOR Shares
who would otherwise have been entitled to receive a fraction of a share of
Giga-tronics Common Stock upon surrender of Certificates for exchange pursuant
to Section 1.03 shall be entitled to receive from the Exchange Agent a cash
payment equal to such fraction multiplied by the closing sale price per share of
Giga-tronics Common Stock on the last business day on which Giga-tronics Common
Stock is traded on the NASD, prior to the Effective Time.
SECTION 1.06 ASCOR STOCK OPTIONS AND WARRANTS.
(a) Except as described below in Section 1.06(b),
Giga-tronics will not assume any options for the purchase of ASCOR Shares (an
"ASCOR Option") or ASCOR Warrants. At the Effective Time, outstanding ASCOR
Options and ASCOR Warrants shall be deemed exercised for such number of shares
of Giga-tronics Common Stock as would be exchanged in the Merger for the ASCOR
Shares which would have been issued had such ASCOR Options or ASCOR Warrants
been exercised in full and such ASCOR Shares been outstanding immediately prior
to the Effective Time, subject to the following provisions of this Section 1.06.
Such deemed exercise of ASCOR Options and ASCOR Warrants shall be on a "net
exercise" basis. The full number of shares issuable on exercise of such ASCOR
Warrant or ASCOR Option (including such number of shares as are deemed
surrendered in the net exercise) shall be added to the ASCOR Outstanding
Equivalent Number as described in Section 1.02 above. The value of the ASCOR
Shares issuable on the exercise of any ASCOR Warrant or ASCOR Option for
purposes of determining the number of ASCOR Shares to be surrendered in the
deemed net exercise shall be equal to the number of ASCOR Shares issuable on
exercise of such ASCOR Warrant or ASCOR Option, multiplied by the Exchange
Ratio, multiplied by the average closing price of a share of Giga-tronics Stock
on such stock exchange as Giga-tronics Stock is then traded for the five (5)
business days immediately preceding the Closing Date. Shares of Giga-tronics
Common Stock which would otherwise be issuable in respect of the ASCOR Shares
deemed surrendered upon such net exercise shall be retained by Giga-tronics.
(b) Notwithstanding the foregoing, any ASCOR Warrant
which, based upon the foregoing determination of the value of ASCOR Shares
issuable on its exercise, would be "out-of-the-money" shall be assumed by
Giga-tronics. An ASCOR Warrant shall be deemed out-of-the-money if its exercise
price per share is greater than the value of such share as determined in Section
1.06(a) above. Any assumed ASCOR Warrant shall remain outstanding and
exercisable in accordance with its terms except that (1) it shall be exercisable
for such number of shares of Giga-tronics Common Stock as equals the number of
ASCOR Shares for which it was exercisable multiplied by the Exchange Ratio and
(2) the exercise price per share of such warrant shall be the exercise price as
stated on such warrant divided by the Exchange Ratio. The number of shares of
Giga-tronics Common Stock as would be issuable on exercise in full of any ASCOR
Warrants assumed shall be
5.
<PAGE>
reserved out of the Merger Consideration. If any ASCOR Warrant assumed by
Giga-tronics pursuant to this Section 1.06 shall expire unexercised in full or
in part, the Giga-tronics Common Stock which would have been issuable on
exercise shall be retained by Giga-tronics and not otherwise issued.
SECTION 1.07 NO REGISTRATION OF GIGA-TRONICS COMMON STOCK. The parties
acknowledge and agree that the Giga-tronics Common Stock to be issued pursuant
to the Merger will be issued pursuant to a transaction not involving a public
offering and therefore will be characterized as "restricted securities" under
federal securities laws. The parties further acknowledge and agree that pursuant
to the Securities Act of 1933, as amended (the "Securities Act") the
Giga-tronics Common Stock so issued may be resold without registration under the
Securities Act only in certain limited circumstances. It is understood that the
Certificates issued pursuant to the Merger will bear the following legend:
"These securities have not been registered under the
Securities Act of 1993, as amended. They may not be sold,
offered for sale, pledged or hypothecated in the absence
of a registration statement in effect with respect to the
securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not
required or unless sold pursuant to Rule 144 of such Act."
Giga-tronics shall be under no obligation to effect a
registration statement with respect to Giga-tronics Common Stock received in the
Merger other than as required pursuant to the Registration Rights Agreement (as
such term is defined in Section 10.01 below).
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.01 CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Surviving Corporation shall be amended at the Effective
Time to conform to the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time.
SECTION 2.02 BYLAWS. The Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation,
until thereafter amended in accordance with applicable law.
SECTION 2.03 DIRECTORS AND OFFICERS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, the directors of Merger Sub at the Effective Time shall become
the initial directors of the Surviving Corporation, and the officers of ASCOR at
the Effective Time shall become the initial officers of the Surviving
Corporation.
6.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ASCOR
Except as disclosed in a document referring specifically to this
Agreement (the "ASCOR Disclosure Schedule") which is delivered by ASCOR to
Giga-tronics no less than five days prior to the execution of this Agreement
(which shall contain appropriate and reasonably detailed references to each
representation and warranty to which any item there disclosed pertains), ASCOR
represents and warrants to Giga-tronics as set forth below:
SECTION 3.01 CORPORATE EXISTENCE AND POWER. ASCOR is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals (collectively, "Governmental
Authorizations") required to carry on its business as now conducted. ASCOR 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. ASCOR has
delivered to Giga-tronics true and complete copies of ASCOR's Articles of
Incorporation and Bylaws as currently in effect.
SECTION 3.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by ASCOR of this Agreement, the ASCOR and Giga-tronics Affiliates
Agreements (as defined in Sections 5.09 and 6.08 respectively, hereof) and the
consummation by ASCOR of the transactions contemplated hereby and thereby are
within ASCOR's corporate powers and have been duly authorized by all necessary
corporate action, except for the approval by ASCOR's shareholders in connection
with the consummation of the Merger. The ASCOR and Giga-tronics Affiliates
Agreement are collectively referred to herein as the "ASCOR Ancillary
Agreements." This Agreement and the ASCOR Ancillary Agreements constitute, or
upon execution will constitute, valid and binding agreements of ASCOR,
enforceable against ASCOR in accordance with their respective terms.
SECTION 3.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by ASCOR of this Agreement, the ASCOR Ancillary Agreements and the
Agreement of Merger and the consummation of the Merger by ASCOR require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority other than:
(a) the filing of the Agreement of Merger in accordance
with California Law;
(b) compliance with any applicable requirements of the
Hart-Scott- Rodino Antitrust Improvements Act of 1976 (the "HSR Act");
(c) compliance with any applicable requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder;
7.
<PAGE>
(d) compliance with any applicable foreign or state
securities or "blue sky" laws; and
(e) such other filings or registrations with, or
authorizations, consents or approvals of, governmental bodies, agencies,
officials or authorities, the failure of which to make or obtain would not
materially adversely affect the ability of ASCOR, Giga-tronics or Merger Sub to
consummate the transactions contemplated hereby and operate their businesses as
heretofore operated.
SECTION 3.04 NON-CONTRAVENTION. The execution, delivery and performance
by ASCOR of this Agreement, the ASCOR Ancillary Agreements and the Certificate
of Merger and the consummation by ASCOR of the transactions contemplated hereby
and thereby do not and will not:
(a) contravene or conflict with the Articles of
Incorporation or Bylaws of ASCOR;
(b) assuming compliance with the matters referred to in
Section 3.03 and assuming the requisite approval of ASCOR's shareholders of the
Merger, contravene or conflict with or constitute a violation of any provision
of any law, regulation, judgment, injunction, order or decree binding upon or
applicable to ASCOR;
(c) conflict with or result in a breach or violation of,
or constitute a default under, or result in the termination or cancellation of,
or right to accelerate, any agreement, contract or other instrument binding upon
ASCOR or any license, franchise, permit or other similar authorization held by
ASCOR; or
(d) result in the creation or imposition of any Lien (as
defined below) on any asset of ASCOR.
For purposes of this Agreement, the term "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind in respect of such asset.
SECTION 3.05 CAPITALIZATION. The authorized capital stock of ASCOR
consists of 30,000,000 shares of ASCOR Common Stock and 5,712,283 shares of
ASCOR Preferred Stock. As of the date hereof, there are outstanding:
(a) 3,947,375 shares of ASCOR Common Stock;
(b) 2,340,425 ASCOR Series A Shares, 2,000,000 ASCOR
Series B Shares and 909,091 ASCOR Series C Shares;
(c) ASCOR Preferred Warrants for the purchase of 68,409
ASCOR Preferred Shares and ASCOR Common Warrants for the purchase of 5,119,395
shares of
8.
<PAGE>
ASCOR Common Stock. The exercise prices of said warrants is $0.55 per warrant
for the ASCOR Preferred Warrants and $0.07 per warrant for the ASCOR Common
Warrants;
(d) No ASCOR Options for the purchase of any ASCOR Shares;
and
5,119,395 shares of ASCOR Common Stock reserved for
issuance upon exercise of outstanding ASCOR Warrants and ASCOR Options. All
outstanding ASCOR Common Shares have been duly authorized and validly issued and
are fully paid and nonassessable and free from any preemptive rights. Except as
set forth in this Section and as otherwise contemplated by this Agreement, there
are outstanding (i) no shares of capital stock or other voting securities of
ASCOR, (ii) no securities of ASCOR convertible into or exchangeable for shares
of capital stock or voting securities of ASCOR and (iii) no options or other
rights to acquire from ASCOR, and no obligation of ASCOR to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or other voting securities of ASCOR (the items in clauses (i),
(ii) and (iii) being referred to collectively as the "ASCOR Securities"). There
are no outstanding obligations of ASCOR to repurchase, redeem or otherwise
acquire any ASCOR Securities. No holder of ASCOR Securities has, as of the date
hereof, any contractual right to include any such securities in any registration
statement proposed to be filed by Giga-tronics under the Securities Act.
SECTION 3.06 SUBSIDIARIES AND INVESTMENTS. ASCOR does not own, directly
or indirectly, any outstanding capital stock or equity interest in any
corporation, partnership, joint venture or other entity.
SECTION 3.07 FINANCIAL STATEMENTS. ASCOR has delivered to Purchaser
copies (initialled by ASCOR's Secretary and identified with a reference to this
Section of this Agreement) of financial statements (hereinafter collectively
called the "Financial Statements"), all of which are complete and correct, have
been prepared in accordance with generally accepted accounting principles
consistently applied and maintained throughout the periods indicated and fairly
present the financial condition of ASCOR as at their respective dates and the
results of its operations for the periods covered thereby, as follows: balance
sheets of ASCOR as at March 30, 1996 and March 25, 1995 and March 26, 1994 and
the related audited statements of earnings and cash flows for the years then
ended, audited by KPMG Peat Marwick LLP, independent certified public
accountants. The audited balance sheet of ASCOR as at March 30, 1996 (the "ASCOR
Balance Sheet Date") is referred to herein as the "ASCOR Balance Sheet."
Such statements of earnings do not contain any items of special or nonrecurring
income or any other income not earned in the ordinary course of business except
as expressly specified therein, and such interim financial statements include
all adjustments, which consist only of normal recurring accruals, necessary for
such fair presentation.
SECTION 3.08 ABSENCE OF CHANGES OR EVENTS. Since the ASCOR Balance
Sheet Date ASCOR has conducted its business only in the ordinary course
consistent with its prior practices and has not:
9.
<PAGE>
(a) incurred any obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to become due, except current
liabilities for trade or business obligations incurred in connection with the
purchase of goods or services in the ordinary course of business and consistent
with its prior practice, none of which liabilities, in any case or in the
aggregate, materially and adversely affects the business, liabilities or
financial condition of ASCOR;
(b) discharged or satisfied any lien, charge or
encumbrance other than those then required to be discharged or satisfied, or
paid any obligation or liability, absolute, accrued, contingent or otherwise,
whether due or to become due, other than current liabilities shown on the
Balance Sheet and current liabilities incurred since the Balance Sheet Date in
the ordinary course of business and consistent with its prior practice;
(c) declared or made any payment of dividends or other
distribution to its shareholders or upon or in respect of any shares of its
capital stock, or purchased, retired or redeemed, or obligated itself to
purchase, retire or redeem, any of its shares of capital stock or other
securities;
(d) mortgaged, pledged or subjected to lien, charge,
security interest or any other encumbrance or restriction any of its property,
business or assets, tangible or intangible;
(e) sold, transferred, leased to others or otherwise
disposed of any of its assets, except for inventory sold in the ordinary course
of business, or cancelled or compromised any debt or claim, or waived or
released any right of substantial value;
(f) received any notice of termination of any contract,
lease or other agreement or suffered any damage, destruction or loss (whether or
not covered by insurance) which in any case or in the aggregate, has had a
materially adverse effect on the assets, operations or prospects of ASCOR;
(g) encountered any labor union organizing activity, had
any actual or threatened employee strikes, work stoppages, slow-downs or
lock-outs, or had any material change in its relations with its employees,
agents, customers or suppliers or with any governmental authorities or
self-regulatory organizations;
(h) transferred or granted any rights under, or entered
into any settlement regarding the breach or infringement of, any United States
or foreign license, patent, copyright, trademark, trade name, invention or
similar rights, or modified any existing rights with respect thereto;
(i) made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable, or paid or
agreed or orally promised to pay, conditionally or otherwise, any bonus, extra
compensation, pension or severance or vacation pay, to any shareholder,
director, officer, employee, salesman, distributor or agent of ASCOR;
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(j) issued or sold any shares of its capital stock or
other securities, or issued, granted or sold any options, rights or warrants
with respect thereto, or acquired any capital stock or other securities of any
corporation or any interest in any business enterprise, or otherwise made any
loan or advance to or investment in any person, firm or corporation;
(k) made any capital expenditures or capital additions or
betterments in excess of an aggregate of $50,000;
(l) changed its banking or safe deposit arrangements;
(m) instituted, settled or agreed to settle any
litigation, action or proceeding before any court or governmental body relating
to ASCOR or its property;
(n) failed to replenish its inventories and supplies in a
normal and customary manner consistent with its prior practice and prudent
business practices prevailing in the industry, or made any purchase commitment
in excess of the normal, ordinary and usual requirements of its business or at
any price in excess of the then current market price or upon terms and
conditions more onerous than those usual and customary in the industry, or made
any change in its selling, pricing, advertising or personnel practices
inconsistent with its prior practice and prudent business practices prevailing
in the industry;
(o) suffered any change, event or condition which, in any
case or in the aggregate, has had or may have a materially adverse effect on
ASCOR's condition (financial or otherwise), properties, assets, liabilities,
operations or prospects, including, without limitation, any change in ASCOR's
revenues, costs, backlog or relations with its employees, agents, customers, or
suppliers;
(p) entered into any transaction, contract or commitment
other than in the ordinary course of business or paid or agreed to pay any
legal, accounting, brokerage, finder's fee, taxes or other expenses in
connection with, or incurred any severance pay obligations by reason of, this
Agreement or the transactions contemplated hereby; or
(q) entered into any agreement or made any commitment to
take any of the types of action described in subparagraphs (a) through (p)
above.
SECTION 3.09 NO UNDISCLOSED LIABILITIES. There are no liabilities of
ASCOR or any of its Subsidiaries, including contingent liabilities, of the type
required to be reflected in financial statements (including the notes thereto)
under generally accepted accounting principles that are material to ASCOR, other
than:
(a) liabilities disclosed or provided for in the ASCOR
Balance Sheet (including the notes thereto);
(b) liabilities incurred in the ordinary course of
business consistent with past practice since the ASCOR Balance Sheet Date and
which do not exceed $100,000 in the aggregate;
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(c) liabilities incurred other than in the ordinary course
of business and which do not exceed $25,000 in the aggregate; and
(d) liabilities under this Agreement.
SECTION 3.10 LITIGATION. There is no action, suit, proceeding, claim or
investigation pending or, to the best of ASCOR's knowledge, overtly threatened,
against ASCOR or any of its assets or against or involving any of its officers,
directors or employees in connection with the business or affairs of ASCOR,
including, without limitation, any claims for indemnification arising under any
agreement to which ASCOR is a party, which could, individually or in the
aggregate, have a Material Adverse Effect on ASCOR or which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay any of the
transactions contemplated hereby. ASCOR is not subject to or in default with
respect to any writ, order, judgment, injunction or decree, which would have a
Material Adverse Effect on ASCOR.
SECTION 3.11 TAXES.
(a) For purposes of this Agreement, "Tax" or "Taxes" means
any and all taxes, fees, levies, duties, tariffs, imposts, and other charges of
any kind (together with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any governmental or
taxing authority including, without limitation: taxes or other charges on or
with respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added, or gains taxes; license, registration and documentation fees; and
customs' duties, tariffs, and similar charges.
(b) Except as described in Schedule 3.11 of the ASCOR
Disclosure Schedule, (i) ASCOR has filed all federal, state, local and foreign
tax returns and reports required to be filed by it and has paid and discharged
all Taxes shown as due thereon and has paid all of such other Taxes as are due,
other than (a) such filings, payments or other occurrences that would not have a
Material Adverse Effect; (ii) neither the IRS nor any other taxing authority or
agency, domestic or foreign, is now asserting or, to the best knowledge of ASCOR
after due inquiry, threatening to assert against ASCOR any deficiency or claim
for additional Taxes or interest thereon or penalties in connection therewith;
(iii) ASCOR has not granted any waiver of any statute of limitations with
respect to, or any extension of a period for the assessment of, any federal,
state, county, municipal or foreign income Tax; (iv) the accruals and reserves
for Taxes reflected in the ASCOR Balance Sheet and the most recent quarterly
financial statements are adequate to cover all Taxes accruable through the date
thereof (including interest and penalties, if any, thereon) in accordance with
generally accepted accounting principals; (v) ASCOR has not made an election
under Section 341(f) of the Code; (vi) ASCOR has withheld or collected and paid
over to the appropriate governmental authorities or is properly holding for such
payment all Taxes required by law to be withheld or collected, except for such
failures to have so withheld or collected and paid over or to be so holding for
payment which would not have a Material
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Adverse Effect and (vii) there are no material liens for Taxes upon the assets
of ASCOR, other than liens for Taxes that are being contested in good faith by
appropriate proceedings.
(c) ASCOR is not party to or bound by, nor has any
obligation under any Tax sharing, Tax indemnity or Tax allocation or similar
agreement.
SECTION 3.12 INSURANCE. ASCOR maintains the policies of fire,
liability, use and occupancy and other forms of insurance covering its
properties and businesses set forth in the ASCOR Disclosure Schedule. Such
policies are in full force and effect.
SECTION 3.13 EMPLOYEE BENEFIT PLANS; ERISA. Schedule 3.13 of the ASCOR
Disclosure Schedule lists (i) all the employee benefit plans, programs and
arrangements maintained for the benefit of any current or former employee,
officer or director of ASCOR (the "Plans") and (ii) all contracts and agreements
relating to employment that provide for annual compensation in excess of $75,000
and all severance agreements, with any of the directors, officers or employees
of ASCOR (other than, in each case, any such contract or agreement that is
terminable by ASCOR at will without penalty or other adverse consequence) (the
"Employment Contracts"). Giga-tronics has been furnished with a copy of each
Plan, any summary plan descriptions, annual reports, actuarial reports,
registration statements or other securities law filings and determination
letters produced or filed with respect thereto, and each Employment Contract.
Except as set forth in Section 3.13 of the ASCOR Disclosure Schedule: (i) none
of the Plans is a multiemployer plan within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"); (ii) none of the
Plans promises or provides retiree medical or life insurance benefits to any
person; (iii) each Plan intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue
Service (the "IRS") that it is so qualified and nothing has occurred since the
date of such letter to affect the qualified status of such Plan; (iv) none of
the Plans promises or provides severance benefits or benefits contingent upon a
change in ownership or control, within the meaning of Section 280G of the Code;
(v) each Plan has been operated in all material respects in accordance with its
terms and the requirements of applicable law; (vi) no Plan is or has been
covered by Title IV of ERISA or Section 412 of the Code; (vii) ASCOR has not
incurred any direct or indirect liability under, arising out of or by operation
of Title IV of ERISA in connection with the termination of, or withdrawal from,
any Plan or other retirement plan or arrangement, and no fact or event exists
that could give rise to any such liability; and (viii) ASCOR has not incurred
any liability under, and has complied in all respects with, the Worker
Adjustment Retraining Notification Act, and no fact or event exists that could
give rise to liability under such act.
SECTION 3.14 MATERIAL AGREEMENTS.
(a) The ASCOR Disclosure Schedule includes a complete and
accurate list of all contracts, agreements, leases and instruments to which
ASCOR is a party or by which it or its properties or assets are bound which
individually involve payments or receipts in excess of $25,000, inclusive of
contracts entered into with customers and suppliers in the ordinary course of
business, or that pertain to employment or severance benefits for any
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officer, director or employee of ASCOR, whether written or oral (each a
"Material ASCOR Agreement").
(b) Neither ASCOR nor, to the knowledge of ASCOR, any
other party is in default under any Material ASCOR Agreement and no event has
occurred which (after notice or lapse of time or both) would become a breach or
default under, or would permit modification, cancellation, acceleration or
termination of any Material ASCOR Agreement or result in the creation of any
security interest upon, or any person obtaining any right to acquire, any
properties, assets or rights of ASCOR.
(c) Each Material ASCOR Agreement is in full force and
effect and is valid and legally binding, there are, to the knowledge of ASCOR,
no unresolved disputes involving or with respect to any Material ASCOR
Agreement, and no party to a Material ASCOR Agreement has advised ASCOR that it
intends either to terminate a Material ASCOR Agreement or to refuse to renew a
Material ASCOR Agreement upon the expiration of the term thereof.
(d) ASCOR is not in violation of, or in default with
respect to, any term of its Certificate of Incorporation or any material term of
its Bylaws.
SECTION 3.15 REAL PROPERTY; LEASES.
(a) The ASCOR Disclosure Schedule includes a correct and
complete list of all items of real property, including leased property, and any
material buildings, structures and improvements located thereon or therein,
which are owned or leased by ASCOR.
(b) To ASCOR's knowledge, with respect to any real
property of ASCOR, including any leased property, and any material buildings,
structures and improvements located thereon or therein, such buildings, fixtures
and improvements, and the present use thereof, are not the subject of any
official complaint or notice of violation of any applicable zoning ordinance,
building code or environmental laws, and such premises are not affected or
threatened by any condemnation or eminent domain proceeding.
(c) All leases of real property and all material leases of
personal property by ASCOR are in full force and effect and, to ASCOR's
knowledge, there exists no default on the part of ASCOR which would interfere
with the use made and proposed to be made of such real and personal property,
and, except for leases of personal property terminated in the ordinary course of
business, upon consummation of the Merger, will continue to entitle ASCOR to the
use and possession of the real or personal property purported to be covered
thereby for the terms specified in such leases and for the purposes for which
such real or personal property is now used.
SECTION 3.16 TITLE TO ASSETS. ASCOR has good, marketable and insurable
title to all the properties and assets it owns or uses in its business or
purports to own, including, without limitation, those reflected in its books and
records and in the Balance Sheet (except
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inventory sold after the Balance Sheet Date in the ordinary course of business).
None of such properties and assets are subject to any mortgage, pledge, lien,
charge, security interest, encumbrance, restriction, lease, license, easement,
liability or adverse claim of any nature whatsoever, except (i) mortgages or
security interests shown on the Balance Sheet as securing specific liabilities
or obligations or (ii) those imperfections of title and encumbrances, if any,
which, individually or in the aggregate, (A) are not substantial in character,
amount or extent and do not materially detract from the value of the properties
subject thereto, (B) do not interfere with either the present and continued use
of such property or the conduct of ASCOR's normal operations and (C) have arisen
only in the ordinary course of business. All of the properties and assets owned,
leased or used by ASCOR are in good operating condition and repair, are suitable
for the purposes used, are adequate and sufficient for all current operations of
ASCOR and are directly related to the business of ASCOR.
SECTION 3.17 ENVIRONMENTAL MATTERS.
(a) For purposes of this Agreement, the following terms
shall have the following meanings: (i) "Hazardous Substances" means (A) those
substances defined in or regulated under the following United States federal
statutes and their state or foreign counterparts, as each may be amended from
time to time, and all regulations thereunder: the Hazardous Materials
Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the Clean
Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal
Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act; (B) petroleum
and petroleum products including crude oil and any fractions thereof; (C)
natural gas, synthetic gas, and any mixtures thereof; (D) radon; (E) asbestos;
(F) any other pollutant or contaminant; and (G) any substance with respect to
which a federal, state or local agency requires environmental investigation,
monitoring, reporting or remediation; and (ii) "Environmental Laws" means any
United States or foreign, federal, state or local law relating to (A) releases
or threatened releases of Hazardous Substances or materials containing Hazardous
Substances; (B) the manufacture, handling, transport, use, treatment, storage or
disposal of Hazardous Substances or materials containing Hazardous Substances;
or (C) otherwise relating to pollution of the environment or the protection of
human health.
(b) Except as would not have a Material Adverse Effect:
(i) ASCOR has not violated and is not in violation of any Environmental law;
(ii) there has been no contamination, disposal, spilling, dumping, incineration,
discharge, storage, treatment or handling of any Hazardous Substance, on or from
any of the properties owned or leased by ASCOR (including, without limitation,
soils and surface and ground waters); (iii) ASCOR is not liable for any off-site
contamination; (iv) ASCOR is not liable under any Environmental Law; (v) ASCOR
has all permits, licenses and other authorizations required under any
Environmental Law ("Environmental Permits"); (vi) ASCOR has been and is in
compliance with its Environmental Permits; and (vii) there are no pending, or,
to the best knowledge of ASCOR after due inquiry, threatened claims against
ASCOR relating to any Environmental Law or Hazardous Substance.
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SECTION 3.18 INTELLECTUAL PROPERTY. No claim is pending or, to the
knowledge of ASCOR, threatened to the effect that the present or past operations
of ASCOR infringes upon or conflicts with the rights of others with respect to
any intellectual property (including, without limitation, licenses, patents,
patent rights, patent applications, trademarks, trademark applications, trade
names, copyrights, drawings, trade secrets, know-how and computer software)
necessary to permit ASCOR to conduct its business as now operated (the "ASCOR
Intellectual Property"), except as disclosed in the ASCOR Disclosure Schedule,
no claim is pending or, to the best knowledge of ASCOR, threatened to the effect
that any of the ASCOR Intellectual Property is invalid or unenforceable. ASCOR
has provided Giga-tronics with a list of all licenses, patents, patent rights,
patent applications, trademarks, trademark applications, trade names, copyrights
and service marks of ASCOR and each of its subsidiaries. Except as set forth in
the ASCOR Disclosure Schedule, no contract, agreement or understanding between
ASCOR or any of its subsidiaries and any other party exists which would impede
or prevent the continued use by ASCOR and its subsidiaries of the entire right,
title and interest of ASCOR and its subsidiaries in and to the ASCOR
Intellectual Property.
SECTION 3.19 NO GUARANTIES. None of the obligations or liabilities of
ASCOR is guaranteed by, or subject to a similar contingent liability of, any
other person, firm or corporation, nor has ASCOR guaranteed, or otherwise become
contingently liable for, the obligations or liabilities of any other person,
firm or corporation.
SECTION 3.20 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither ASCOR nor
any officer, employee or agent of ASCOR, nor any other person acting on its
behalf, has, directly or indirectly, within the past five years given or agreed
to give any gift or similar benefit to any customer, supplier, governmental
employee or other person who is or may be in a position to help or hinder the
business of ASCOR (or assist ASCOR in connection with any actual or proposed
transaction) which (a) might subject ASCOR to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (b) if not given in
the past, might have had an adverse effect on the assets, business or operations
of ASCOR as reflected in the Financial Statements or (c) if not continued in the
future, might adversely affect ASCOR's assets, business, operations or prospects
or which might subject ASCOR to suit or penalty in any private or governmental
litigation or proceeding.
SECTION 3.21 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS. ASCOR had
complied with all existing laws, rules, regulations, ordinances, orders,
judgments and decrees now applicable to its business, properties or operations
as presently conducted. Neither the ownership nor use of ASCOR's properties nor
the conduct of its business conflicts with the rights of any other person, firm
or corporation or violates, or with or without the giving of notice or the
passage of time, or both, will violate, conflict with or result in a default,
right to accelerate or loss of rights under, any terms or provisions of its
certificate of incorporation or by-laws as presently in effect, or any lien,
encumbrance, mortgage, deed of trust, lease, license, agreement, understanding,
law, ordinance, rule or regulation, or any order, judgment or decree to which
ASCOR is a party or by which it may be bound or affected. Neither ASCOR nor any
Shareholder is aware of any proposed laws, rules, regulations, ordinances,
orders, judgments, decrees, governmental takings, condemnations
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or other proceedings which would be applicable to its business, operations or
properties and which might adversely affect its properties, assets, liabilities,
operations or prospects, either before or after the Closing.
SECTION 3.22 DISCLOSURE DOCUMENTS. None of the information supplied or
to be supplied by ASCOR for inclusion in the proxy statement relating to the
meeting of Giga-tronics's shareholders to be held in connection with the Merger
(the "Proxy Statement") at the time of mailing of the Proxy Statement to
shareholders of Giga-tronics, and at the time of the meeting of Giga-tronics
shareholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omits or will omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder, except that no representation is made by ASCOR with respect to
information supplied by Giga-tronics or Merger Sub for inclusion therein.
SECTION 3.23 TAX MATTERS. Neither ASCOR nor any of its affiliates has
taken or agreed to take any action that would prevent the Merger from being
effected as a pooling of interests or would prevent the Merger from constituting
a transaction qualifying under Section 368(a) of the Code. Neither ASCOR nor any
of its affiliates or agents is aware of any agreement, plan or other
circumstances that would prevent the Merger from qualifying under Section 368(a)
of the Code and to their best knowledge after due inquiry, the Merger will so
qualify.
SECTION 3.24 ACCOUNTING MATTERS. Schedule 3.24 of the ASCOR Disclosure
Schedule sets forth all persons who, as of the date of this Agreement, may be
deemed to be affiliates of ASCOR under Rule 145 of the Securities Act or
otherwise under applicable SEC accounting releases with respect to
pooling-of-interests accounting treatment. Prior to the date hereof, ASCOR has
advised such persons of the resale restrictions imposed by applicable securities
Laws and required to cause the Merger to qualify for pooling-of-interests
accounting treatment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GIGA-TRONICS
Except as disclosed in a document referring specifically to this
Agreement (the "Giga- tronics Disclosure Schedule) which is delivered by
Giga-tronics to ASCOR concurrently with the execution of this Agreement or as
disclosed in public filings made by Giga-tronics with the SEC prior to the date
hereof, Giga-tronics represents and warrants to ASCOR as set forth below:
SECTION 4.01 CORPORATE EXISTENCE AND POWER. Giga-tronics and Merger Sub
are corporations duly incorporated, validly existing and in good standing under
the laws of the State of California. Each of Giga-tronics and Merger Sub has all
corporate powers and all
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material Governmental Authorizations required to carry on its business as now
conducted. Giga-tronics 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. Giga-tronics has delivered to ASCOR true and complete
copies of Giga-tronics's Articles of Incorporation and Bylaws and Merger Sub's
Articles of Incorporation and Bylaws, each as currently in effect.
SECTION 4.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Giga-tronics and Merger Sub of this Agreement, the ASCOR and the
Giga-tronics Affiliates Agreements and the consummation by Giga-tronics and
Merger Sub of the transactions contemplated hereby and thereby are within the
corporate powers of Giga-tronics and Merger Sub and have been duly authorized
by all necessary corporate action. The ASCOR and Giga-tronics Affiliates
Agreements are collectively referred to herein as the "Giga-tronics Ancillary
Agreements." This Agreement and the Giga-tronics Ancillary Agreements
constitute, or upon execution will constitute, valid and binding agreements of
Giga-tronics and Merger Sub, enforceable in each case against each in accordance
with their respective terms.
SECTION 4.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Giga-tronics and Merger Sub of this Agreement and the
Giga-tronics Ancillary Agreements and the consummation of the Merger by
Giga-tronics and Merger Sub, require no action by or in respect of, or filing
with, any governmental body, agency, official or authority other than:
(a) the filing of an agreement of merger in accordance
with California Law;
(b) compliance with any applicable requirements of the HSR
Act;
(c) compliance with any applicable requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder;
(d) compliance with any applicable requirements of the
Securities Act and the rules and regulations promulgated thereunder;
(e) compliance with any applicable foreign or state
securities or "blue sky" laws; and
(f) such other filings or registrations with, or
authorizations, consents or approvals of, governmental bodies, agencies,
officials or authorities, the failure of which to make or obtain would not
materially adversely affect the ability of ASCOR, Giga-tronics or Merger Sub to
consummate the transactions contemplated hereby and operate their businesses as
heretofore operated.
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SECTION 4.04 NON-CONTRAVENTION. The execution, delivery and performance
by Giga-tronics and Merger Sub of this Agreement and the Giga-tronics Ancillary
Agreements and the consummation by Giga-tronics and Merger Sub of the
transactions contemplated hereby and thereby do not and will not:
(a) contravene or conflict with the respective Articles of
Incorporation or Bylaws of Giga-tronics or Merger Sub;
(b) assuming compliance with the matters referred to in
Section 4.03, contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to Giga-tronics, Merger Sub or any Subsidiary of
Giga-tronics;
(c) conflict with or result in a breach or violation of,
or constitute a default under, or result in the termination or cancellation of,
or right to accelerate, any agreement, contract or other instrument binding upon
Giga-tronics or Merger Sub or any such Subsidiary or any material license,
franchise, permit or other similar authorization held by Giga-tronics, Merger
Sub or any such Subsidiary; or
(d) result in the creation or imposition of any Lien on
any asset of Giga-tronics, Merger Sub or any Subsidiary of Giga-tronics.
SECTION 4.05 CAPITALIZATION OF GIGA-TRONICS.
(a) The authorized capital stock of Giga-tronics consists
of 40,000,000 shares of Giga-tronics Common Stock and 1,000,000 shares of
preferred stock. As of the date hereof, there were outstanding:
(i) 2,603,420 shares of Giga-tronics Common Stock;
and
(ii) employee and director stock options to
purchase an aggregate of 156,150 shares of Giga-tronics Common Stock.
Giga-tronics has authorized the issuance of employee rights to purchase 400,000
shares of Giga-tronics Common Stock under Giga-tronics's 1990 Restated Stock
Option Plan (the "Giga-tronics Stock Option Plan"). All outstanding shares of
Giga-tronics Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable and free from any preemptive rights. Except as set
forth in this Section and as otherwise contemplated by this Agreement, there are
outstanding (i) no shares of capital stock or other voting securities of
Giga-tronics, (ii) no securities of Giga-tronics convertible into or
exchangeable for shares of capital stock or voting securities of Giga-tronics
and (iii) no options or other rights to acquire from Giga-tronics, and no
obligation of Giga-tronics to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or other voting
securities of Giga-tronics (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "Giga-tronics Securities"). There are no
outstanding obligations of Giga-tronics or any of its Subsidiaries to
repurchase, redeem or otherwise
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acquire any Giga-tronics Securities. No holder of Giga-tronics Securities has,
as of the date hereof, any contractual right to include any such securities in
any registration statement proposed to be filed by Giga-tronics under the
Securities Act.
(b) All shares of Giga-tronics Common Stock issued in the
Merger shall, upon issuance, be fully paid, validly issued and nonassessable.
Giga-tronics has reserved sufficient shares of Giga-tronics Common Stock for
issuance in the Merger based on the number of ASCOR Shares outstanding on the
date hereof.
SECTION 4.06 CAPITALIZATION OF MERGER SUB; SUBSIDIARIES. The authorized
capital stock of Merger Sub consists of 1,000 shares of common stock, no par
value, all of which are outstanding. All the issued and outstanding capital
stock of Merger Sub is owned by Giga-tronics. Merger Sub has not conducted any
business prior to the date hereof and has no assets, liabilities or obligations
of any nature other than those incident to its formation and pursuant to this
Agreement. Giga-tronics does not own, directly or indirectly, any outstanding
capital stock or equity interest in any corporation, partnership, joint venture
or other entity other than Merger Sub.
SECTION 4.07 SEC FILINGS.
(a) Giga-tronics has since March 27, 1993 filed all proxy
statements, schedules and reports required to be filed by it with the SEC
pursuant to the Exchange Act.
(b) Giga-tronics has delivered to ASCOR:
(i) its annual reports on Form 10-K for its fiscal
years ended March 26, 1994 and March 25, 1995;
(ii) its quarterly report on Form 10-Q for its
fiscal quarter ending June 24, September 30 and December 30, 1995;
(iii) its proxy or information statements relating
to meetings of, or actions taken without a meeting by, the shareholders of
Giga-tronics held since March 31, 1994; and
(iv) all of its other reports, statements,
schedules and registration statements filed with the SEC since March 31, 1994.
(c) As of its filing date, no such report or statement
filed pursuant to the Exchange Act contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(d) No such registration statement, as amended or
supplemented, if applicable, filed pursuant to the Securities Act, as of the
date such statement or amendment became effective, contained any untrue
statement of a material fact or omitted to state any
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material fact required to be stated therein or necessary to make the statements
therein not misleading.
SECTION 4.08 FINANCIAL STATEMENTS. The audited financial statements
Giga-tronics included in its annual reports on Form 10-K and the unaudited
financial statements of Giga-tronics included in its quarterly reports on Form
10-Q referred to in Section 4.07 present fairly, in conformity with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of
Giga-tronics as of the dates thereof and its results of operations,
shareholders' equity and cash flows for the periods then ended (subject to
normal year-end adjustments in the case of any interim financial statements).
For purposes of this Agreement, "Giga-tronics Balance Sheet" means the balance
sheet of Giga-tronics as of December 30, 1995, and the notes thereto, contained
in Giga-tronics's quarterly report on Form 10-Q filed for its fiscal quarter
then ended, and "Giga-tronics Balance Sheet Date" means December 30, 1995.
SECTION 4.09 DISCLOSURE DOCUMENTS. None of the information supplied or
to be supplied by Giga-tronics or Merger Sub for inclusion in the Proxy
Statement and the Registration Statement, will, in the case of the Proxy
Statement, at the time of mailing of the Proxy Statement to shareholders of
Giga-tronics and at the time of the meeting of such shareholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omits or will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading or will, in the case of the
Registration Statement, at the time the Registration Statement becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Registration Statement and Proxy
Statement will comply as to form in all material respects with the provisions of
the Securities Act and Exchange Act, respectively, and the rules and regulations
thereunder, except that no representation is made by Giga-tronics with respect
to information supplied by ASCOR for inclusion therein.
SECTION 4.10 ABSENCE OF CERTAIN CHANGES. Since the Giga-tronics Balance
Sheet Date Giga-tronics and its Subsidiaries have in all material respects
conducted their business in the ordinary course and there has not been:
(a) any Material Adverse Change with respect to
Giga-tronics;
(b) any declaration, setting aside or payment of any
dividend or other distribution in respect of any shares of capital stock of
Giga-tronics;
(c) any repurchase, redemption or other acquisition by
Giga-tronics or any of its Subsidiaries of any outstanding shares of capital
stock or other securities of, or other ownership interests in, Giga-tronics or
any such Subsidiary;
(d) any amendment of any material term of any outstanding
Giga-tronics Securities or any Giga-tronics Subsidiary Securities;
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(e) any damage, destruction or other casualty loss
(whether or not covered by insurance) materially and adversely affecting the
business, assets, liabilities, earnings or prospects of Giga-tronics or any of
its Subsidiaries;
(f) any new (or amendment to or alteration of any
existing) bonus, incentive compensation, severance, stock option, stock
appreciation right, pension, matching gift, profit-sharing, employee stock
ownership, retirement, pension group insurance, death benefit, or other fringe
benefit plan, arrangement or trust agreement adopted or implemented by
Giga-tronics which would result in a material increase in cost to Giga-tronics;
(g) the entering into of any agreement by Giga-tronics or
any person on behalf of Giga-tronics to take any of the foregoing actions.
SECTION 4.11 LITIGATION. There is no action, suit, proceeding, claim or
investigation pending or, to the best of Giga-tronics's knowledge, overtly
threatened, against Giga-tronics or any of its assets or against or involving
any of its officers, directors or employees in connection with the business or
affairs of Giga-tronics, including, without limitation, any claims for
indemnification arising under any agreement to which Giga-tronics is a party,
which could, individually or in the aggregate, have a Material Adverse Effect on
Giga-tronics or which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay any of the transactions contemplated hereby.
Giga-tronics is not subject to or in default with respect to any writ, order,
judgment, injunction or decree, which would have a Material Adverse Effect on
Giga-tronics.
SECTION 4.12 ADVISOR'S FEES. Except for an investment banking firm
which may be selected by Giga-tronics (the "Giga-tronics Financial Advisor")
following the date hereof to render a fairness opinion in connection with the
transactions contemplated by the terms of this Agreement, whose fees will be
disclosed in writing to ASCOR and whose fees will be paid by Giga-tronics, there
is no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of Giga-tronics or any of its
Subsidiaries who is entitled to any fee or commission from Giga-tronics or any
of its affiliates upon consummation of the transactions contemplated by this
Agreement.
ARTICLE V
COVENANTS OF ASCOR
ASCOR agrees that:
SECTION 5.01 CONDUCT OF ASCOR. From the date hereof until the Effective
Time, ASCOR shall in all material respects conduct its business in the ordinary
course. Without limiting the generality of the foregoing, from the date hereof
until the Effective Time, except as contemplated hereby or previously disclosed
by ASCOR to Giga-tronics in writing, without the prior written consent of
Giga-tronics:
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(a) ASCOR will not adopt or propose any change in its
Articles of Incorporation or Bylaws;
(b) ASCOR will not enter into or amend any employment
agreements, oral or written or increase the compensation payable or to become
payable by it to any of its officers, directors, or consultants over the amount
payable as of December 31, 1995, or increase the compensation payable to any
other employees (other than (A) increases in the ordinary course of business
which are not in the aggregate material to ASCOR, or (B) pursuant to plans
disclosed in ASCOR Disclosure Schedule), or adopt or amend any employee benefit
plan or arrangement (oral or written);
(c) Except pursuant to the exercise of ASCOR Options or
ASCOR Warranties already outstanding, ASCOR will not issue any ASCOR Securities;
(d) ASCOR will keep in full force and effect its existing
directors' and officers' liability insurance and will not modify or reduce the
coverage thereunder;
(e) ASCOR will not pay any dividend or make any other
distribution to holders of its capital stock nor will ASCOR redeem or otherwise
acquire any ASCOR Securities;
(f) ASCOR will not, directly or indirectly, merge or
consolidate with another entity or dispose of or acquire any material properties
or assets except in the ordinary course of business;
(g) ASCOR will not incur any additional indebtedness for
borrowed money in excess of $50,000 in the aggregate, except pursuant to
existing arrangements which have been disclosed to Giga-tronics prior to the
date hereof;
(h) ASCOR will not amend or change the period of
exercisability or accelerate the exercisability of any outstanding options or
warrants to acquire shares of capital stock, or accelerate, amend or change the
vesting period of any outstanding restricted stock;
(i) Except as provided in Section 5.04, ASCOR will not
enter into any transaction that would require the Proxy Statement to be delayed
or recirculated under circumstances which would in the reasonable judgment of
Giga-tronics delay the occurrence of the Effective Date beyond the date
specified in Section 9.01(viii);
(j) ASCOR will not, except in the ordinary course of
business consistent with past practices, sell, license or otherwise transfer to
any person any ASCOR intellectual property rights; and
(k) ASCOR will not agree or commit to do any of the
foregoing.
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SECTION 5.02 SHAREHOLDERS' MEETING; PROXY MATERIAL. ASCOR shall cause a
meeting of its shareholders to be duly called and held as soon as reasonably
practicable or shall seek the written consent of its shareholders following the
approval of the Proxy Statement for the purpose of voting on (or in the case of
a written consent, consenting to) the approval and adoption of this Agreement
and the Merger. The Board of Directors of ASCOR shall, subject to their
fiduciary duties, recommend approval and adoption of this Agreement and the
Merger by ASCOR's shareholders. In connection with such meeting or seeking of
written consent, ASCOR:
(a) will, together with Giga-tronics and Merger Sub,
promptly prepare and file with the SEC, will use all reasonable efforts to have
cleared by the SEC and will thereafter deliver to its shareholders as promptly
as practicable the Proxy Statement and all other proxy materials for such
meeting;
(b) will use all reasonable efforts to obtain the
necessary approvals by its shareholders of this Agreement and the transactions
contemplated hereby; and
(c) will otherwise comply with all legal requirements
applicable to such meeting.
SECTION 5.03 ACCESS TO FINANCIAL AND OPERATION INFORMATION. From the
date hereof until the Effective Time, ASCOR will give Giga-tronics, its counsel,
financial advisors, auditors and other authorized representatives reasonable
access during normal business hours to the offices, properties, books and
records of ASCOR, will furnish to Giga- tronics, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data as such persons may reasonably request and will instruct ASCOR's
employees, counsel and financial advisors to cooperate with Giga-tronics in its
investigation of the business of ASCOR and in the planning for the combination
of the businesses of ASCOR and Giga-tronics following the consummation of the
Merger; provided that no investigation pursuant to this Section shall affect any
representation or warranty given by ASCOR to Giga-tronics hereunder. In
addition, ASCOR will cooperate in arranging joint meetings among representatives
of ASCOR and Giga-tronics and persons with whom ASCOR maintains business
relationships. All requests for information made pursuant to this Section shall
be directed to the Controller of ASCOR or such person as may be designated by
him. All information obtained pursuant to this Section 5.03 shall be governed by
any confidentiality agreements currently in effect between Giga-tronics and
ASCOR as well as the terms of Section 5.08 of this Agreement.
SECTION 5.04 OTHER OFFERS. From the date hereof until the earlier of
the Effective Date or the termination of this Agreement in accordance with the
terms hereof, ASCOR and the officers, directors, employees or other agents of
ASCOR will not, directly or indirectly, (i) take any action to solicit, initiate
or encourage the making of any Acquisition Proposal (as hereinafter defined); or
(ii) engage in negotiations with, or disclose any nonpublic information relating
to ASCOR or afford access to the properties, books or records of ASCOR to, any
person or entity that informs the Board of Directors that it is considering
making, or has made, an Acquisition Proposal. Until this Agreement shall be
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terminated in accordance with the terms hereof, ASCOR will not enter into any
agreement to merge or consolidate with, or sell a substantial portion of its
assets to, any person or entity. ASCOR will promptly notify Giga-tronics after
receipt of any Acquisition Proposal or any request for nonpublic information
relating to ASCOR in connection with an Acquisition Proposal or for access to
the properties, books or records of ASCOR by any person or entity that informs
the Board of Directors that it is considering making, or has made, an
Acquisition Proposal. The term "Acquisition Proposal" shall mean (i) any merger,
consolidation, tender offer or other similar transaction or related transactions
pursuant to which the holders of the voting securities of ASCOR prior to the
transaction hold following the consummation of such transaction less than 80% of
the voting securities of the surviving entity, (ii) a sale of a material portion
of the assets of ASCOR, or (iii) any equity or convertible debt transaction or
related transactions in which any person or group of affiliated persons other
than current security holders of ASCOR acquire securities of ASCOR representing
more than 20% of the aggregate voting power of ASCOR's outstanding securities,
other than in each case the transactions contemplated by this Agreement. For
purposes of the foregoing definition, one person shall be deemed to be
affiliated with a second person if such first person controls, is controlled by
or is under common control with the second person, and control, for purposes
hereof, shall be deemed to exist only in the event there exists ownership of or
the right to vote, in either case directly or indirectly, securities
representing more than 50% of the aggregate voting power of an entity's
outstanding securities.
SECTION 5.05 MAINTENANCE OF BUSINESS. ASCOR will use its best efforts
to carry on its business, keep available the services of its officers and
employees and preserve its relationships with those of its customers, suppliers,
licensors and others having business relationships with it that are material to
its business in substantially the same manner as it has prior to the date
hereof. If ASCOR becomes aware of a material deterioration or facts which are
likely to result in a material deterioration in the relationship with any
material customer, supplier, licensor or others having business relationships
with it, it will promptly bring such information to the attention of the
Giga-tronics in writing.
SECTION 5.06 COMPLIANCE WITH OBLIGATIONS. Prior to the Effective Date,
ASCOR shall comply with (i) all applicable federal, state, local and foreign
laws, rules and regulations, (ii) all material agreements and obligations,
including its Articles of Incorporation and Bylaws, by which it, its properties
or its assets may be bound, and (iii) all decrees, orders, writs, injunctions,
judgments, statutes, rules and regulations applicable to ASCOR and its
properties or assets.
SECTION 5.07 NOTICES OF CERTAIN EVENTS. ASCOR shall, upon obtaining
knowledge of any of the following, promptly notify Giga-tronics of:
(a) any notice or other communication from any person
alleging that the consent of such person is or may be required in connection
with the Merger;
(b) any notice or other communication from any
governmental or regulatory agency or authority in connection with the Merger;
and
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(c) any actions, suits, claims, investigations or other
judicial proceedings commenced or threatened against ASCOR which, if pending on
the date of this Agreement, would have been required to have been disclosed
pursuant to Sections 3.10 or 3.20 or which relate to the consummation of the
Merger.
SECTION 5.08 CONFIDENTIALITY. ASCOR agrees that for a period of three
years following any termination of this Agreement ASCOR shall not (a) disclose
to any person, association, firm, corporation or other entity in any manner,
directly or indirectly, any confidential information or data relevant to the
operations of Giga-tronics whether of a technical or commercial nature, nor (b)
use, or permit or assist, by acquiescence or otherwise, any person, association,
firm, corporation or other entity to use, directly or indirectly, any such
information or data in any manner which reasonably would be deemed to be
competitive with the operations of Giga-tronics excepting only use of (i)
information in the public domain at the time of disclosure to ASCOR (ii)
information subsequently coming into the public domain by means other than
disclosure by ASCOR or any of its agents (iii) information ASCOR can establish
and document was in its possession or was known to it prior to its disclosure to
ASCOR by Giga-tronics; (iv) information disclosed to ASCOR by a third party not
in violation of any obligation of confidentiality or nondisclosure known to
ASCOR or of which ASCOR should reasonably have known; or (v) information which
was independently developed by ASCOR or which is generally known in ASCOR's
industry.
SECTION 5.09 COMPLIANCE WITH THE SECURITIES ACT. ASCOR shall prior to
15 days after signing but in any event prior to mailing of the Proxy Statement
cause each person who is an "affiliate," as that term is used in paragraphs (c)
and (d) of Rule 145 under the Securities Act, of ASCOR to deliver to
Giga-tronics an Affiliates Agreement in substantially the form attached hereto
as Exhibit 5.09 (an "ASCOR Affiliates Agreement").
ARTICLE VI
COVENANTS OF GIGA-TRONICS AND MERGER SUB
Giga-tronics and Merger Sub agree that:
SECTION 6.01 CONDUCT OF GIGA-TRONICS. From the date hereof until the
Effective Time, Giga-tronics and its Subsidiaries shall in all material respects
conduct their business in the ordinary course. Without limiting the generality
of the foregoing, from the date hereof until the Effective Time, except as
contemplated hereby or previously disclosed by Giga-tronics to ASCOR in writing,
without the prior written consent of ASCOR:
(a) Giga-tronics will not adopt or propose any changes in
its Certificate of Incorporation or Bylaws (other than those contemplated by the
Giga-tronics Reincorporation);
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(b) Except pursuant to the exercise of options described
in Section 4.05 or stock purchase rights under Giga-tronics's Stock Option Plan
and except the granting of stock options in the ordinary course of business
consistent with past practice, Giga-tronics will not issue any Giga-tronics
Securities;
(c) Giga-tronics will not pay any dividend or make any
other distribution to holders of its capital stock nor will Giga-tronics or any
of its Subsidiaries redeem or otherwise acquire any Giga-tronics Securities;
(d) Giga-tronics will not, directly or indirectly, merge
or consolidate with another entity or dispose of or acquire any material
properties or assets except in the ordinary course of business;
(e) Giga-tronics shall take no extraordinary actions
affecting its capital structure (e.g., declaration of stock dividends or stock
splits);
(f) Giga-tronics will not except, in the ordinary course
of business consistent with past practices, sell, license or otherwise transfer
to any person any Giga-tronics intellectual property rights or any intellectual
property rights of any of its Subsidiaries; and
(g) Giga-tronics will not, and will not permit any of its
Subsidiaries to, agree or commit to do any of the foregoing.
SECTION 6.02 SHAREHOLDERS' MEETING; PROXY MATERIAL. Giga-tronics shall
promptly prepare and file with the SEC under the Securities Act the Proxy
Statement and shall use all reasonable efforts to cause the Proxy Statement to
be approved as promptly as practicable. Giga-tronics shall cause a meeting of
its shareholders (the "Giga-tronics Shareholders' Meeting") to be duly called
and held as soon as reasonably practicable following the approval of the Proxy
Statement for the purpose of voting on the approval and adoption of this
Agreement and the Merger. Giga-tronics shall take any action required to be
taken under foreign or state securities or "blue sky" laws in connection with
the issuance of Giga-tronics Common Stock in the Merger.
SECTION 6.03 MAINTENANCE OF BUSINESS. Giga-tronics will use its best
efforts to carry on its business, keep available the services of its officers
and employees and preserve its relationships with those of its customers,
suppliers, licensors and other persons having business relationships with it
that are material to its business in substantially the same manner as it has
prior to the date hereof. If Giga-tronics becomes aware of a material
deterioration or facts which are likely to result in a material deterioration in
the relationship with any customer, supplier, licensor or others having business
relationships with it, it will promptly bring such information to the attention
of ASCOR in writing.
SECTION 6.04 COMPLIANCE WITH OBLIGATIONS. Prior to the Effective Date,
Giga-tronics and its Subsidiaries shall each comply with (i) all applicable
federal, state, local and foreign laws, rules and regulations, (ii) all material
agreements and obligations, including
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its respective certificate or articles of incorporation and bylaws, by which it,
its properties or its assets may be bound, and (iii) all decrees, orders, writs,
injunctions, judgments, statutes, rules and regulations applicable to
Giga-tronics and its Subsidiaries and their respective properties or assets.
SECTION 6.05 NOTICES OF CERTAIN EVENTS. Giga-tronics shall, upon
obtaining knowledge of any of the following, promptly notify ASCOR of:
(a) any notice or other communication from any person
alleging that the consent of such person is or may be required in connection
with the Merger;
(b) any notice or other communication from any
governmental or regulatory agency or authority in connection with the Merger;
and
(c) any actions, suits, claims, investigations or other
judicial proceedings commenced or threatened against Giga-tronics or any of its
Subsidiaries which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 4.11 or which relate to the
consummation of the Merger.
SECTION 6.06 CONFIDENTIALITY. Giga-tronics agrees that for a period of
three years following any termination of this Agreement Giga-tronics shall not
(a) disclose to any person, association, firm, corporation or other entity in
any manner, directly or indirectly, any confidential information or data
relevant to the operations of ASCOR, whether of a technical or commercial
nature, nor (b) use, or permit or assist, by acquiescence or otherwise, any
person, association, firm, corporation or other entity to use, directly or
indirectly, any such information or data in any manner which reasonably would be
deemed to be competitive with the operations of ASCOR excepting only use of (i)
information in the public domain at the time of disclosure to Giga-tronics (ii)
information subsequently coming into the public domain by means other than
disclosure by Giga-tronics or any of its agents (iii) information Giga-tronics
can establish and document was in its possession or was known to it prior to its
disclosure to Giga-tronics by ASCOR; (iv) information disclosed to Giga-tronics
by a third party not in violation of any obligation of confidentiality or
nondisclosure known to Giga-tronics or of which Giga-tronics should reasonably
have known; or (v) information which was independently developed by Giga-tronics
or which is generally known in ASCOR's industry.
SECTION 6.07 OBLIGATIONS OF MERGER SUB. Giga-tronics will take all
action necessary to cause Merger Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement. Merger Sub will not issue any shares of its capital stock, any
securities convertible into or exchangeable for its capital stock, or any
option, warrant or other right to acquire its capital stock to any Person other
than Giga-tronics or a wholly owned Subsidiary of Giga-tronics. Merger Sub shall
not incur any indebtedness or liabilities of any kind except pursuant to this
Agreement.
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SECTION 6.08 COMPLIANCE WITH THE SECURITIES ACT. Giga-tronics shall use
its best efforts to cause each person who is an "affiliate," as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act, of
Giga-tronics to enter on or prior to the Effective Date an Affiliates Agreement
in substantially the form attached hereto as Exhibit 6.08 (a "Giga-tronics
Affiliates Agreement").
ARTICLE VII
OTHER COVENANTS OF THE PARTIES
The Parties agree that:
SECTION 7.01 ADVICE OF CHANGES. Each party will promptly advise each
other party in writing (i) of any event known to its executive officers
occurring subsequent to the date of this Agreement that would render any
representation or warranty of such party contained in this Agreement, if made on
or as of the date of such event or the Effective Date, untrue, inaccurate or
misleading in any material respect (other than an event so affecting a
representation or warranty which is expressly limited to a state of facts
existing at a time prior to the occurrence of such event) and (ii) of any
Material Adverse Change in the business condition of the party and its
Subsidiaries, taken as a whole.
SECTION 7.02 REGULATORY APPROVALS. Prior to the Effective Time, each
party shall execute and file, or join in the execution and filing of, any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any governmental body, federal, state,
local or foreign, which may be reasonably required, or that the other company
may reasonably request, in connection with the consummation of the Merger. Each
party shall use its reasonable best efforts to obtain all such authorizations,
approvals and consents.
SECTION 7.03 ACTIONS CONTRARY TO STATED INTENT. No party hereto shall,
from or after the date hereof and either before or after the Effective Time,
take any action that would prevent the Merger from qualifying as a
reorganization under Section 368 of the Code.
SECTION 7.04 CERTAIN FILINGS. The Parties shall cooperate with one
another:
(a) in connection with the preparation of the Proxy
Statement;
(b) in connection with the preparation of any filing
required by the HSR Act;
(c) in determining whether any action by or in respect of,
or filing with, any governmental body, agency or 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
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(d) in seeking any such actions, consents, approvals or
waivers or making any such filings, furnishing information required in
connection therewith or with the Proxy Statement and seeking timely to obtain
any such actions, consents, approvals or waivers.
SECTION 7.05 COMMUNICATIONS. Between the date hereof and the Effective
Time, no party will furnish any written communication to its shareholders or to
the public generally if the subject matter thereof relates to the transactions
contemplated by this Agreement without the prior approval of ASCOR and
Giga-tronics as to the content thereof, which approval shall not be unreasonably
withheld; provided that the foregoing shall not be deemed to prohibit any
disclosure required by any applicable law or by any competent governmental
authority.
SECTION 7.06 SATISFACTION OF CONDITIONS PRECEDENT. The parties will use
their reasonable best efforts to satisfy or cause to be satisfied all the
conditions precedent that are set forth in Article VIII, as applicable to each
of them, and to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 CONDITIONS TO OBLIGATIONS OF GIGA-TRONICS AND MERGER SUB.
The obligations of Giga-tronics and Merger Sub hereunder are subject to the
fulfillment or satisfaction, on and as of the Effective Date, of each of the
following conditions (any one or more of which may be waived by Giga-tronics,
but only in a writing signed by Giga-tronics):
(a) Accuracy of Representations and Warranties. The
representations and warranties of ASCOR contained in Article III shall be true
and accurate in all material respects on and as of the Effective Date with the
same force and effect as if they had been made on the Effective Date (except to
the extent a representation or warranty speaks only as of an earlier date) and
ASCOR shall have provided Giga-tronics with a certificate executed by the
President and the Chief Financial Officer of ASCOR, dated as of the Effective
Date, to such effect; provided, however, that any inaccuracy of a representation
or warranty, on the date hereof or on the Effective Date, shall not result in
the non-satisfaction of this Section 8.01(a) unless any such inaccuracy or
inaccuracies, either (i) individually or in the aggregate, represent a Material
Adverse Effect on ASCOR or (ii) are willful and intentional misrepresentations
of a material matter that constitute common law fraud. For purposes of this
Agreement, a "Material Adverse Effect," with respect to any person or entity,
means a material adverse effect on the financial condition, business,
liabilities (including contingent liabilities) or results of operations of such
person or entity and its
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subsidiaries, taken as a whole; and "Material Adverse Change" shall mean a
change or a development involving a prospective change which would have a
Material Adverse Effect.
(b) Covenants. ASCOR shall have performed and complied
with all of its covenants contained in Articles V and VII in all material
respects on or before the Effective Date, and Giga-tronics shall receive a
certificate to such effect signed by ASCOR's President and Chief Financial
Officer.
(c) No Material Adverse Change. There shall have been no
Material Adverse Change in ASCOR since the ASCOR Balance Sheet Date.
(d) Affiliates Agreements. Giga-tronics shall have
received from each person or entity who may be deemed pursuant to Section 5.09
to be an affiliate of ASCOR a duly executed Affiliates Agreement, and such
Affiliates Agreements shall remain in full force and effect.
(e) Satisfactory Completion of Due Diligence Review.
Giga-tronics shall have completed its due diligence review of the business,
operations and financial condition of ASCOR by May 24, 1996 and such review
shall not have revealed any facts or circumstances which in the reasonable
judgment of Giga-tronics could have a Material Adverse Effect on ASCOR. If such
due diligence review shall reveal facts or circumstances which in the reasonable
judgement of Giga-tronics could have a Material Adverse Effect on ASCOR,
Giga-tronics shall promptly notify ASCOR of its determination or shall be deemed
to have waived compliance with this condition.
(f) Pooling of Interests Matters. In the sole discretion
of Giga-tronics, the Merger shall qualify for accounting treatment as a pooling
of interests in accordance with Accounting Principles Board Release No. 16. In
determining whether the Merger so qualifies Giga-tronics may consider the impact
on such qualification of ASCOR Shares which are voted against the Merger or
which have abstained from voting with respect to the Merger.
(g) Giga-tronics Dissenters' Rights. Shareholders of
Giga-tronics shall not have perfected dissenters' rights with respect to
Giga-tronics Common Stock with respect to five percent (5%) or more of the
Giga-tronics Common Stock outstanding on the date of the Giga-tronics
Shareholder Meeting.
(h) ASCOR Preferred Stock. As of the Closing Date all
shares of ASCOR Preferred Stock outstanding as of the date of this Agreement
shall (i) have remained outstanding (ii) shall have been tendered at the Closing
with instructions that such shares are to be exchanged at the Effective Time for
Giga-tronics Common Stock in accordance with the terms of this Agreement, and
(iii) not have been transferred by the owners of such shares as of the date of
this Agreement to any other person.
SECTION 8.02 CONDITIONS TO OBLIGATIONS OF ASCOR. ASCOR's obligations
hereunder are subject to the fulfillment or satisfaction, on and as of the
Effective Date, of
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each of the following conditions (any one or more of which may be waived by
ASCOR, but only in a writing signed by ASCOR):
(a) Accuracy of Representations and Warranties. The
representations and warranties of Giga-tronics set forth in Article IV shall be
true and accurate in all material respects on and as of the Effective Date with
the same force and effect as if they had been made on the Effective Date (except
to the extent a representation or warranty speaks only as of an earlier date and
except for changes contemplated by this Agreement) and Giga-tronics shall have
provided ASCOR with a certificate executed by the President and the Chief
Financial Officer of Giga-tronics, dated as of the Effective Date, to such
effect; provided, however, that any inaccuracy of a representation or warranty,
on the date hereof or on the Effective Date, shall not result in the
non-satisfaction of this Section 8.02(a) unless any such inaccuracy or
inaccuracies, either (i) individually or in the aggregate, represent a Material
Adverse Effect on Giga-tronics or (ii) are willful and intentional
misrepresentations that constitute common law fraud of a material matter.
(b) Covenants. Giga-tronics shall have performed and
complied with all of its covenants contained in Section 2.03 and Articles VI and
VII in all material respects on or before the Effective Date, and ASCOR shall
receive a certificate to such effect signed by Giga-tronics's President and
Chief Financial Officer.
(c) No Material Adverse Change. There shall have been no
Material Adverse Change in Giga-tronics since the Giga-tronics Balance Sheet
Date.
SECTION 8.03 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of ASCOR and Giga-tronics hereunder are subject to the fulfillment,
on and as of the Effective Date, of each of the following conditions (any one or
more of which may be waived by such parties, but only in a writing signed by
such parties):
(a) Shareholder Approval. Each of ASCOR's shareholders and
Giga-tronics' shareholders shall have duly approved this Agreement, the Merger
Agreement and the Merger, all in accordance with applicable laws and regulatory
requirements.
(b) Tax-Free Reorganization. Each of ASCOR and
Giga-tronics shall have received a written opinion from Brobeck, Phleger &
Harrison LLP ("Brobeck") to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code, which opinions
shall be substantially identical in form and substance. In preparing ASCOR and
the Giga-tronics tax opinions, Brobeck may rely on (and to the extent reasonably
required, the parties and ASCOR's shareholders shall make) reasonable
representations related thereto.
(c) Illegality or Legal Constraint. No statute, rule,
regulation, executive order, decree, injunction or restraining order shall have
been enacted, promulgated or enforced (and not repealed, superseded or otherwise
made inapplicable) by any court or governmental authority which prohibits the
consummation of the Merger (each party
32.
<PAGE>
agreeing to use its reasonable best efforts to have any such order, decree or
injunction lifted).
(d) Consents. All written consents, assignments, waivers
or authorizations ("Consents"), other than Governmental Authorizations, that are
required as a result of the Merger for the continuation in full force and effect
of any material contracts or leases of ASCOR or Giga-tronics shall have been
obtained, other than those Consents the failure of which to obtain would not
have a Material Adverse Effect on ASCOR or Giga-tronics.
(e) Governmental Authorizations. There shall have been
obtained any and all Governmental Authorizations, permits, approvals and
consents of securities or "blue sky" commissions of any jurisdiction and of any
other governmental body or agency, that may reasonably be deemed necessary so
that the consummation of the Merger will be in compliance with applicable laws,
the failure to comply with which would have a Material Adverse Effect on
Giga-tronics, ASCOR or the Surviving Corporation or would be reasonably likely
to subject any of Giga-tronics, Merger Sub, ASCOR or any of their respective
directors or officers to substantial penalties or criminal liability.
(f) HSR Act. The waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act shall
have expired or been terminated.
ARTICLE IX
TERMINATION OF AGREEMENT
SECTION 9.01 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time whether before or after the approval by the
shareholders of ASCOR or Giga-tronics:
(i) by mutual consent of the Boards of Directors
of Giga-tronics, Merger Sub and ASCOR;
(ii) by either Giga-tronics and Merger Sub or
ASCOR, if the requisite vote of the shareholders of Giga-tronics shall
not have been obtained or the written consent of shareholders of ASCOR
shall not be obtained by December 31, 1996;
(iii) by Giga-tronics, if it is not in material
breach of its obligations under this Agreement and if the Board of
Directors of ASCOR shall have:
(A) withdrawn its recommendation of the
Merger, or
33.
<PAGE>
(B) recommended or approved any
acceptance by shareholders of any Acquisition Proposal (other than an
Acquisition Proposal made by Giga-tronics or an affiliate of
Giga-tronics); or
(iv) by ASCOR, if it is not in material breach of
its obligations under this Agreement and if the Board of Directors of
Giga-tronics shall have:
(A) withdrawn its recommendation of the
Merger, or
(B) recommended or approved any
acceptance by shareholders of any Acquisition Proposal (other than an
Acquisition Proposal made by ASCOR or an affiliate of ASCOR); or
(v) by either Giga-tronics and Merger Sub or
ASCOR, respectively, (A) if there has been a breach of any
representation and warranty such that Section 8.01(a) or 8.02(a),
respectively, cannot be satisfied or (B) if there has been the willful
breach on the part of ASCOR or Giga-tronics and Merger Sub,
respectively, of any covenant or agreement contained in this Agreement
such that Sections 8.01(b) or 8.02(b) cannot be satisfied, and in both
case (A) and case (B) such breach has not been promptly cured after
notice to the breaching party; or
(vi) by Giga-tronics, if the conditions contained
in Section 8.02(f), (g) or (h) are not satisfied; or
(vii) by Giga-tronics, if ASCOR shall have issued
any ASCOR Securities between the date of this Agreement and the Closing
Date without the prior consent of Giga-tronics; or
(viii) by either Giga-tronics and Merger Sub or
ASCOR, respectively, at any time after December 31, 1996, unless the
delay is caused by the failure of the terminating party to fulfill its
obligations hereunder.
SECTION 9.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void, and
there shall be no liability on the part of either Giga-tronics, Merger Sub or
ASCOR, except that each of the agreements contained or referred to in Sections
5.08, 6.06 and 11.02 shall survive the termination hereof; provided, however,
that each party shall be entitled to any remedies at law or in equity in the
event of a breach of this Agreement by the other party, except as provided in
Sections 11.02(b) and (c).
34.
<PAGE>
ARTICLE X
ADDITIONAL AGREEMENTS OF THE PARTIES
SECTION 10.01 REGISTRATION RIGHTS AGREEMENT. Concurrent with the
Effective Time Giga-tronics will execute and deliver to the ASCOR Share holders
a Registration Rights Agreement substantially in the form of Exhibit 10.01
hereto.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 FURTHER ASSURANCES. Each party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
SECTION 11.02 FEES AND EXPENSES. Whether or not the Merger is
consummated, each party shall pay all fees and expenses incurred by such party,
including counsel fees and fees of accountants and investment bankers contracted
by such party, and any other expenses specifically identifiable to such party in
connection with the transactions contemplated hereby. Any other costs and
expenses not specifically identified as applicable to either ASCOR or
Giga-tronics shall be shared equally.
SECTION 11.03 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made herein, and in any instrument delivered
pursuant hereto, shall be deemed to be conditions to the Merger and shall not
survive the Merger.
SECTION 11.04 NOTICES. Any notice or communication required or
permitted by this Agreement shall be deemed sufficiently given if in writing
and, if delivered personally, when it is delivered or, if delivered in another
manner, the earlier of when it is actually received by the party to whom it is
directed or when the period set forth below expires (whether or not it is
actually received):
(a) if deposited with the U.S. Postal Service, postage
prepaid, and addressed to the party to receive it as set forth below, 48 hours
after such deposit as registered or certified mail; or
(b) if accepted by Federal Express or a similar delivery
service in general usage for delivery to the address of the party to receive it
as set forth next below, 24 hours after the delivery time promised by the
delivery service.
35.
<PAGE>
Giga-tronics and Merger Sub:
Giga-tronics Incorporated
4650 Norris Canyon Road
San Ramon, CA 94583
Attention: George H. Bruns, Jr.
Chief Executive Officer
Facsimile: (510) 328-4700
With copy to:
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market Plaza
San Francisco, CA 94105
Attention: William L. Hudson, Esq.
Facsimile: (415) 442-1010
ASCOR:
ASCOR, Inc.
47790 Westinghouse Drive
Fremont, CA 94539
Attention: Jeffrey Lum
President
Facsimile: (510) 490-8493
With copy to:
Brian Fraser, Esq.
Attorney at Law
6114 La Salle Avenue, Suite 646
Oakland, CA 94611
Facsimile: (510) 839-3461
Such communications shall be effective when they are
received by the addressee thereof. Any party may change its address for such
communications by giving notice thereof to the other parties in conformity with
this Section.
SECTION 11.05 GOVERNING LAWS. The laws of the State of California
(irrespective of its choice of law principles) shall govern all issues
concerning the Merger and all other issues concerning the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties.
SECTION 11.06 BINDING UPON SUCCESSORS AND ASSIGNS; ASSIGNMENT. This
Agreement and the provisions hereof shall be binding upon each of the parties,
their permitted successors and assigns. This Agreement may not be assigned by
any party without the prior consent of the other.
36.
<PAGE>
SECTION 11.07 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall continue in full force and effect and in
no way be affected, impaired or invalidated.
SECTION 11.08 ENTIRE AGREEMENT. This Agreement and the other agreements
and instruments referenced herein constitute the entire understanding and
agreement of the parties with respect to the subject matter hereof and supersede
all prior and contemporaneous agreements or understandings, inducements or
conditions, express or implied, written or oral, between the parties with
respect hereto other than the Confidentiality Agreement.
SECTION 11.09 OTHER REMEDIES. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party shall be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy shall not preclude the
exercise of any other.
SECTION 11.10 AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof
shall not be deemed to constitute a waiver of any other default or any
succeeding breach or default. At any time before or after approval of this
Agreement and the Merger by the shareholders of ASCOR and prior to the Effective
Time, this Agreement may be amended or supplemented by ASCOR or Giga-tronics
with respect to any of the terms contained in this Agreement, except that
following approval by the shareholders of ASCOR there shall be no amendment or
change to the provisions hereof with respect to the Exchange Ratio without
further approval by the shareholders of ASCOR, and no other amendment shall be
made which by law requires further approval by such shareholders without such
further approval.
SECTION 11.11 NO WAIVER. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
SECTION 11.12 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. A reference to an
Article, Section or an Exhibit shall mean an Article of, a Section in, or
Exhibit to, this Agreement unless otherwise explicitly set forth. The titles and
headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a whole.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation." For purposes of
this Agreement, "knowledge" of any party shall mean the knowledge of the
executive officers of such party after such officers shall have made inquiry
that is customary and appropriate under the circumstances to which reference is
made.
37.
<PAGE>
SECTION 11.13 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original as against any party
whose signature appears thereon and all of which together shall constitute one
and the same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the paries reflected hereon as signatories.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GIGA-TRONICS INCORPORATED R. HATCH
By:___________________________________ _________________________________
Name: George H. Bruns, Jr.
Title: Chief Executive Officer
ASCOR ACQUISITION CORP. DOMINION PARTNERS
By:___________________________________ By:______________________________
Name:_________________________________ Name:____________________________
Title:________________________________ Firm:____________________________
ASCOR, INC. SBH ASSOCIATES, INC.
By:___________________________________ By:______________________________
Name:_________________________________ Name:____________________________
Title:________________________________ Firm:____________________________
[CONTINUES ON NEXT PAGE]
38.
<PAGE>
CONTINENTAL CAPITAL EUCLID PARTNERS III L.P.
CORPORATION
By:___________________________________ By:______________________________
Name:_________________________________ Name:____________________________
Firm: ________________________________ Title:___________________________
SPECTRA ENTERPRISES INTERVEN II, S.A.
ASSOCIATES
By:___________________________________ By:______________________________
Name:_________________________________ Name:____________________________
Firm: ________________________________ Title:___________________________
THE BRUNS COMPANY
By:___________________________________
Name:_________________________________
Title:________________________________
39.
<PAGE>
GLOSSARY
PAGE
Acquisition Proposal ......................................................25
Agreement .......................................................1
Agreement of Merger .......................................................2
Ascor .......................................................1
Ascor Affiliates Agreement..................................................26
Ascor Ancillary Agreements...................................................7
Ascor Balance Sheet .......................................................9
Ascor Balance Sheet Date.....................................................9
Ascor Common Stock .......................................................1
Ascor Common Warrants .......................................................3
Ascor Disclosure Schedule....................................................7
Ascor Intellectual Property.................................................16
Ascor Option .......................................................5
Ascor Outstanding Equivalent Number..........................................3
Ascor Preferred Shares.......................................................2
Ascor Preferred Warrants.....................................................3
Ascor Securities .......................................................9
Ascor Series A Shares .......................................................2
Ascor Series B Shares .......................................................2
Ascor Series C Shares .......................................................2
Ascor Shares .......................................................3
Ascor Warrants .......................................................3
Brobeck ......................................................32
Certificate .......................................................3
Certificates .......................................................3
Closing .......................................................2
Closing Date .......................................................2
Code .......................................................1
Consents ......................................................33
Dissenting Ascor Shares......................................................4
Dissenting Shareholder.......................................................4
Effective Date .......................................................2
Effective Time .......................................................2
Employment Contracts ......................................................13
Environmental Laws ......................................................15
Environmental Permits ......................................................15
ERISA ......................................................13
Exchange Act ...................................................7, 18
Exchange Agent .......................................................3
Exchange Ratio .......................................................3
Financial Statements .......................................................9
Giga-tronics .......................................................1
40.
<PAGE>
PAGE
Giga-tronics Affiliates Agreement...........................................29
Giga-tronics Ancillary Agreements...........................................18
Giga-tronics Balance Sheet..................................................21
Giga-tronics Balance Sheet Date.............................................21
Giga-tronics Common Stock....................................................1
Giga-tronics Disclosure Schedule............................................17
Giga-tronics Financial Advisor..............................................22
Giga-tronics Securities.....................................................19
Giga-tronics Shareholders' Meeting..........................................27
Giga-tronics Stock Option Plan..............................................19
Governmental Authorizations..................................................7
Hazardous Substances ......................................................15
HSR Act .......................................................7
IRS ......................................................13
Lien .......................................................8
Material Adverse Change.....................................................31
Material Adverse Effect.....................................................30
Material Ascor Agreement....................................................14
Merger ....................................................1, 2
Merger Consideration .......................................................3
Merger Sub .......................................................1
Plans ......................................................13
Proxy Statement ......................................................17
Securities Act .......................................................6
Surviving Corporation .......................................................2
Tax ......................................................12
Taxes ......................................................12
41.
May 20, 1996
ASCOR, Incorporated.
47790 Westinghouse Drive
Fremont, CA 94539
Attention: Jeffrey Lum, President
ASCOR, Incorporated ("ASCOR") and Giga-tronics, Incorporated
("Giga-tronics") are parties to that certain AGREEMENT AND PLAN OF
REORGANIZATION (the "Reorganization Agreement") entered into as of the 2nd day
of May, 1996, by and among Giga-tronics , ASCOR Acquisition Corp., a California
corporation and a wholly owned subsidiary of Giga-tronics ("Merger Sub"), and
ASCOR. All capitalized terms used but not defined herein shall have the meaning
ascribed to them in the Reorganization Agreement.
Pursuant to the terms of the Reorganization Agreement
Giga-tronics is to issue a maximum of 724,986 shares of Giga-tronics Common
Stock in the Merger. Further pursuant to the terms of the Reorganization
Agreement, such issuance is to be not pursuant to a registration under federal
securities laws, rather pursuant to an exemption therefrom. The Reorganization
Agreement also contemplates that at the Closing of the Merger Giga-tronics will
enter into a Registration Rights Agreement (in the form of Exhibit 10.01 to the
Reorganization Agreement) with the former shareholders of ASCOR. Pursuant to
Section 2.14 of the Registration Rights Agreement the registration rights
granted thereunder will not be available if the Giga-tronics Common Stock issued
in the merger was "issued by Giga-tronics to the Holder pursuant to a
registration statement filed with the SEC".
Giga-tronics believes it is in the interests of Giga-tronics
and the combined companies to issue the Giga-tronics Common Stock pursuant to
such a registration statement. Therefore, Giga-tronics now agrees to use its
best faith efforts to file with the Securities and Exchange Commission, and
cause the effectiveness under federal securities law of, a registration
statement on Form S-4 (or such other form as may be applicable) covering the
shares of Giga-tronics Common Stock to be issued in the Merger.
The undersigned hereby agree that upon the issuance of such
Giga-tronics Common Stock pursuant to an effective registration statement the
Registration Rights Agreement will be of no force and effect and will therefore
not be delivered at the Closing.
<PAGE>
Please acknowledge your acceptance and agreement to the
foregoing by signing and returning a copy of this letter.
Very truly yours,
GIGA-TRONICS, INCORPORATED
By:________________________________
Name:
Title:
ACCEPTED AND AGREED
ASCOR, INCORPORATED
By:________________________
Name:
Title:
Management's Discussion and Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR FISCAL 1996, 1995, 1994
New orders received in 1996 were $20,856,000, a decrease of 21% from
1995, which increased 30% over 1994. In 1996, the decrease reflects large order
decreases in both the microwave signal generator (SG) and radio frequency signal
generator (RF) product line. In 1995, the increase in orders results from
additional orders in both the microwave signal generator and RF product line.
Overall, the approximate proportion of net sales coming from defense-related
customers was 31% in 1996 and less than 30% in 1995 and 1994. Continuing the
focus of a business better balanced between commercial and defense markets has
been and remains a major strategic priority. At year-end 1996, the Company's
backlog of unfilled orders was $6,112,000, compared to $10,154,000 at the end of
1995 and $5,800,000 at the end of 1994. The decrease in backlog from 1995 to
1996 resulted mostly from a decline in SG product line defense-related orders.
Net sales for 1996 were $24,898,000, a 13% increase from 1995, which
follows a 10% increase in 1995 from 1994. Somewhat greater sales for SG products
was the major factor. Gross profit as a percentage of sales increased to 37% in
1996, from 32% in 1995, due to better factory efficiencies. Gross profit as a
percentage of sales decreased from 40% to 32% from 1994 to 1995 due to factory
inefficiencies associated with the acquired RF signal generator product lines,
manufacturing scaleup of new microwave products, inventory reserve increases
related to the above product lines, and certain costs for upgrading the
Company's management information system. The Company continues to implement
programs to improve manufacturing efficiencies and reduce costs.
Operating expenses decreased 9% in 1996 over 1995. Costs were tightly
controlled in many areas despite higher sales. In 1995, operating expenses
increased 17% from 1994 due to personnel severance costs (including those
associated with the resignation of Mr. Donald F. Bogue as President and Chief
Executive Officer) and additional inventory reserves taken for customer
demonstration equipment utilized by sales and marketing.
Amortization expense, relating to the intellectual property and
non-compete convenants associated with two prior acquisitions, amounted to
$560,000, the same as 1995 and increasing from $410,000 in fiscal 1994. The
increase from 1994 to 1995 is due to 1995 being the first fiscal year with the
full 12 month effect of the two acquisitions (the RF product line in fiscal 1994
and the power measurement product line in fiscal 1993).
Interest income increased by 43% to $323,000 in 1996, following a
decrease of 28% from 1994 to 1995. The increase in 1996 interest income from
1995 was due primarily to an increase in cash, resulting from an earnings
increase and much lower inventory levels. The decrease in 1995 was due to the
earnings decline in 1995 and higher inventory balances in fiscal 1995 relative
to the inventory level in fiscal 1994. The Company continues to invest
principally in securities which are exempt from federal taxes.
The provision for income taxes in 1996 was $301,000. In 1995, income tax
expense was a benefit due to a pretax loss of approximately $2,220,000.
-18-
<PAGE>
Management's Discussion and Analysis
The Company recorded net earnings of $901,000, or $0.34 per share, in
1996, an increase in earnings per share from a $0.61 loss in 1995, and $0.09
earnings per share in 1994. The improved results in 1996 were due to a sales
increase of 13%, an improved gross profit margin, a decrease in operating
expenses of 9%, and an increase in interest income. The loss in 1995 was largely
a result of delayed product shipments, depressed manufacturing margins in
certain microwave and RF signal generator product lines, related inventory
reserve increases, personnel severance costs, and certain costs for upgrading
the Company's management information systems.
Financial Condition and Liquidity
At year-end 1996, the Company had $10,785,000 in cash, cash equivalents
and investments, compared to $5,768,000 at the beginning of the year. Most of
the increase resulted from the higher earnings and lower inventories in 1996.
Cash provided from operations amounted to $5,191,000 in 1996, compared to cash
provided from operations of $127,000 in 1995, and cash used by operations of
$1,267,000 in 1994.
The Company continues to maintain a strong financial position, with
working capital at year-end of $15,830,000, compared to $13,242,000 and
$14,209,000 at the end of 1995 and 1994, respectively. The Company's current
ratio of 5.3 increased somewhat from the 1995 and 1994 figures.
Additions to property and equipment were $356,000 in 1996, compared to
$670,000 and $673,000 in 1995 and 1994, respectively. This spending reflects
continuing investments to support new product development, increase productivity
and improve product quality.
Management believes that the Company has adequate resources to meet its
operating and capital expenditure needs for the foreseeable future.
-19-
<PAGE>
<TABLE>
Balance Sheets
- ----------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED MARCH 30, MARCH 25,
(IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 5,772 $ 2,137
Investments 5,013 3,631
Trade accounts receivable, less allowance for doubtful
accounts of $222 and $32, respectively 2,715 3,524
Inventories 4,660 6,701
Prepaid expenses 188 588
Deferred income taxes 1,185 868
-------- ---------
Total current assets 19,533 17,449
Property and Equipment
Machinery and equipment 6,518 6,095
Office furniture and fixtures 322 411
Leasehold improvements 103 93
-------- ---------
6,943 6,599
Accumulated depreciation and amortization (5,185) (4,212)
--------- ----------
Net property and equipment 1,758 2,387
Patents and licenses 1,590 2,150
Other assets 146 239
-------- ---------
Total assets $ 23,027 $ 22,225
======== =========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 1,540 $ 1,477
Accrued commissions 156 318
Accrued payroll and benefits 474 778
Accrued warranty 480 417
Accrued earnout payment 393 472
Accrued expenses 660 745
-------- ---------
Total current liabilities 3,703 4,207
Deferred income taxes 223 --
-------- ---------
Total liabilities 3,926 4,207
Shareholders' Equity
Convertible preferred stock of no par value;
1,000,000 shares authorized; no shares
outstanding in 1996 and 1995 -- --
Common stock of no par value;
40,000,000 shares authorized;
2,602,420 shares in 1996 and 2,569,920
shares in 1995 issued and outstanding 7,925 7,773
Unrealized loss on securities (47) (77)
Retained earnings 11,223 10,322
-------- ---------
Total shareholders' equity 19,101 18,018
-------- ---------
Total liabilities and shareholders' equity $ 23,027 $ 22,225
======== =========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
-20-
<PAGE>
<TABLE>
Statements of Operations
- ----------------------------------------------------------------------------------------------------
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED
-------------- ------------------------
MARCH 30, MARCH 25, MARCH 26,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
<S> <C> <C> <C>
Net sales $ 24,898 $ 21,937 $ 19,890
Cost of sales 15,616 15,019 11,947
--------- -------- ---------
Gross profit 9,282 6,918 7,943
--------- -------- ---------
Product development expense 2,512 2,700 2,569
Selling, general and administrative expenses 5,488 6,104 4,984
--------- -------- ---------
Operating expenses 8,000 8,804 7,553
--------- -------- ---------
Net operating income (loss) 1,282 (1,886) 390
Amortization of intangibles (560) (560) (410)
Interest income, net 323 226 313
Other income 157 -- --
--------- -------- ---------
Earnings (loss) before income taxes 1,202 (2,220) 293
Provision for income taxes (benefit) 301 (644) 62
--------- --------- ---------
Net earnings (loss) $ 901 $ (1,576) $ 231
========= ========= =========
Net earnings (loss) per share of common stock $ 0.34 $ (0.61) $ 0.09
========= ========= =========
Weighted average common shares outstanding 2,639 2,570 2,570
========= ======== =========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
-21-
<PAGE>
<TABLE>
Statement of Shareholders' Equity
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
COMMON STOCK UNREALIZED
(IN THOUSANDS, EXCEPT SHARE DATA) ----------------------- RETAINED LOSS ON
SHARES AMOUNT EARNINGS SECURITIES TOTAL
<S> <C> <C> <C> <C> <C>
Balances as of March 27, 1993 2,569,920 $ 7,773 $ 11,667 $ -- $ 19,440
Net earnings -- -- 231 -- 231
--------- ---------- --------- ---------- -----------
Balances as of March 26, 1994 2,569,920 7,773 11,898 -- 19,671
Unrealized loss on securities net
of income tax credit of $41 -- -- -- (77) (77)
Net loss -- -- (1,576) -- (1,576)
--------- ---------- --------- ---------- -----------
Balances as of March 25, 1995 2,569,920 7,773 10,322 (77) 18,018
Repurchase of stock (12,500) (94) (94)
Exercise of stock options 45,000 246 -- -- 246
Unrealized gain on investments
net of income tax expense of $16 -- -- -- 30 30
Net earnings -- -- 901 -- 901
---------- ---------- --------- ---------- --------
Balances as of March 30, 1996 2,602,420 $ 7,925 $ 11,223 $ (47) $ 19,101
========== ========== ========= ========== ========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
-22-
<PAGE>
<TABLE>
Statements of Cash Flows
<CAPTION>
- ----------------------------------------------------------------------------------------------------
53 WEEKS ENDED 52 WEEKS ENDED
-------------- -------------------
(IN THOUSANDS) MARCH 30, MARCH 25, MARCH 26,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operations:
Net earnings (loss) $ 901 $ (1,576) $ 231
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operations:
Depreciation and amortization 1,608 1,527 1,263
Deferred income taxes, net (94) (296) (119)
Changes in operating assets and liabilities
Trade accounts receivable 809 (126) 410
Inventories 2,041 625 (2,104)
Prepaid expenses 400 (434) 111
Patents and licenses, other assets 30 (31) (335)
Accounts payable 63 (68) (3)
Accrued commissions (162) (45) 97
Accrued payroll and benefits (304) 237 (181)
Accrued warranty 63 55 38
Accrued earnout and other expenses (164) 292 (506)
Income taxes payable -- (33) (169)
--------- --------- ----------
Net cash provided by (used in) operations 5,191 127 (1,267)
--------- -------- ----------
Cash flows from investing activities:
Purchases of investments (1,352) -- (3,749)
Acquisitions -- -- (1,123)
Additions to property and equipment (356) (670) (673)
---------- --------- ----------
Net cash used in investing activities (1,708) (670) (5,545)
---------- -------- ---------
Cash flows from financing activities:
Issuance of common stock 246 -- --
Repurchase of common stock (94) -- --
---------- -------- ---------
Net cash provided by financing activities 152 -- --
--------- -------- ---------
Increase (decrease) in cash and cash equivalents 3,635 (543) (6,812)
Beginning cash and cash equivalents 2,137 2,680 9,492
--------- -------- ---------
Ending cash and cash equivalents $ 5,772 $ 2,137 $ 2,680
========= ======== =========
Supplementary disclosure of cash flow information:
Cash paid for income taxes $ 340 $ 255 $ 22
========= ======== =========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
-23-
<PAGE>
Notes to Financial Statements
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Operations The Company designs, manufacturers and
markets microwave and radio frequency (RF) signal generation and power
measurement instruments. The market for the Company is the test and
measurement industry. These products are used primarily in the design,
production, repair and maintenance of wireless communications, radar
and electronic warfare systems.
Use of Estimates Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from these
estimates.
Revenue Recognition Revenues are recognized when products are shipped.
Interest income is recognized when earned.
Cash Equivalents For purposes of the accompanying statements of cash
flows, the Company considers all highly liquid debt instruments with
maturity dates of 90 days or less from date of purchase to be cash
equivalents.
Inventories Inventories are stated at the lower of cost or market. Cost
is determined on a first-in, first-out basis.
Property and Equipment Property and equipment are stated at cost.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the respective assets, which range from 3 to
10 years. Leasehold improvements are amortized using the straight-line
method over the shorter of the estimated useful lives of the respective
improvements or the lease term.
Income Taxes The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 prescribes an
asset and liability approach that results in the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future
events other than enactment of changes in tax laws or rates.
Patents and Licenses Patents and licenses are being amortized using the
straight-line method over periods of five to seven years. As of March
30, 1996 and March 25, 1995, accumulated amortization on patents and
licenses was $1,741,000 and $1,180,000, respectively.
Earnings (Loss) Per Share Earnings (loss) per common and common
equivalent share is based on the weighted average number of shares of
common stock and dilutive common stock equivalent shares outstanding
during the year.
Investments During fiscal 1995, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." This statement addresses
the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. The Company's investments have been classified as
available-for-sale securities and are reported at fair value.
Unrealized gains and losses have been reported as a separate component
of shareholders' equity.
Concentration of Credit Risk and Financial Instruments Financial
instruments, which potentially subject the Company to credit risk,
consist principally of investments and trade accounts receivable. The
Company's investments consist principally of variable and fixed rate
bonds issued by state and local governmental agencies. The Company
individually evaluates the creditworthiness of its customers and
generally does not require collateral or other security. Historically,
the Company has not incurred any significant credit related losses.
Fair Market Value of Financial Instruments The carrying amount for the
Company's trade accounts receivable, accounts payable and other accrued
expenses approximates fair market value because of the short maturity
of these financial instruments.
Recent Accounting Pronouncements In October, 1995 the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 will be effective for fiscal
years beginning after December 15, 1995, and will require that the
Company either recognize in its financial statements costs related to
its employee stock-based compensation plans, such as stock option
-24-
<PAGE>
Notes to Financial Statements
and stock purchase plans, or make pro forma disclosures of such costs
in a footnote to the financial statements.
The Company expects to continue to use the intrinsic value-based method
of Accounting Principles Board Opinion No. 25, as allowed under SFAS
No. 123, to account for all of its employee stock-based compensation
plans. Therefore, in its financial statements for fiscal 1997, the
Company will make the required pro forma disclosures in a footnote to
the financial statements. SFAS No. 123 is not expected to have a
material effect on the Company's results of operations or financial
position.
2 CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents consist of bank and money market accounts,
variable and fixed rate bonds, and fixed rate municipal notes which are
stated at cost. Investments consist of municipal notes and bonds and
U.S. Treasury Bills of varying maturities. The cash equivalents and
investments mature or are marketable within 30 days, thus being
available for current operating cash needs. As of March 30, 1996, the
interest rates on cash, cash equivalents and investments ranged from
3.5% to 6.6%.
As of March 30, 1996 and March 25, 1995, the Company had $3,822,000 and
$4,249,000, respectively, invested in variable and fixed rate bonds and
fixed rate notes issued by governmental agencies. The portfolio is
diversified, consisting of five and six different governmental agencies
located in various geographic regions of the United States as of March
30, 1996 and March 25, 1995, respectively.
<TABLE>
3 ESTIMATED VALUE OF INVESTMENTS
Certain cash equivalents and all investments have been classified as
available-for-sale securities, and as of March 30, 1996 consisted of
the following.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MARCH 30, 1996
(IN THOUSANDS) AVAILABLE-FOR-SALE SECURITIES
----------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bills $ 429 $ 1 $ -- $ 430
U.S. Treasury Notes 498 -- 1 497
Municipal securities 4,158 -- 72 4,086
--------- -------- -------- ---------
Total debt securities $ 5,085 $ 1 $ 73 $ 5,013
========= ======== ======== =========
</TABLE>
There were no realized gains (losses) on sales of available-for-sale
securities in fiscal 1996. Unrealized losses on available-for-sale
securities are included as a separate component of shareholders' equity
net of a tax benefit of $25,000.
<TABLE>
The Company's investments are classified as follows:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MARCH 30,
1996
<S> <C>
Short-term investments $ 5,013
=========
</TABLE>
<TABLE>
The amortized cost and estimated fair value of debt securities as of
March 30, 1996 are shown below, by contractual maturity.
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
MARCH 30, 1996
(IN THOUSANDS) AVAILABLE-FOR-SALE
---------------------------
ESTIMATED
FAIR
COST VALUE
---------------------------
<S> <C> <C>
Due in 90 days or less $ 2,689 $ 2,693
Due after 90 days through one year 2,396 2,320
-------- ---------
$ 5,085 $ 5,013
======== =========
</TABLE>
-25-
<PAGE>
Notes to Financial Statements
4 SALES TO SIGNIFICANT CUSTOMERS AND EXPORT SALES
Sales on contracts with offices and agencies of the U.S. government
accounted for 31%, 26%, and 27% of the Company's sales in fiscal 1996,
1995 and 1994, respectively. Export sales accounted for 27%, 20%, and
23% of the Company's sales in fiscal 1996, 1995 and 1994, respectively.
<TABLE>
5 INVENTORIES
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
MARCH 30, MARCH 25,
(IN THOUSANDS) 1996 1995
<S> <C> <C>
Raw materials $ 1,705 $ 2,489
Work-in-progress 2,022 3,347
Finished goods 933 865
-------- ---------
$ 4,660 $ 6,701
======== =========
</TABLE>
6 SELLING EXPENSES
Selling expenses consist primarily of commissions paid to various
marketing agencies. Commission expense totaled $1,598,000, $1,564,000,
and $1,420,000 in fiscal 1996, 1995 and 1994, respectively. Advertising
costs totaled $583,000, $663,000, and $520,000 for fiscal 1996, 1995
and 1994, respectively.
<TABLE>
7 INCOME TAXES
Following are the components of the provision for income taxes:
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED MARCH 30, MARCH 25, MARCH 26,
(IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ 319 $ (307) $ 114
State 91 -- 67
--------- --------- --------
410 (307) 181
Deferred:
Federal (104) (337) (154)
State (5) -- 35
---------- --------- --------
(109) (337) (119)
---------- --------- --------
Provision for income taxes (benefit) $ 301 $ (644) $ 62
========= ========== ========
</TABLE>
-26-
<PAGE>
Notes to Financial Statements
<TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED MARCH 30, MARCH 25,
(IN THOUSANDS) 1996 1995
<S> <C> <C>
Current tax assets, net $ 1,185 $ 868
Noncurrent tax liabilities, net (223) --
-------- -------
Net deferred taxes $ 962 $ 868
======= =======
Future state tax effect $ 29 $ (133)
Allowance for doubtful accounts 96 14
Fixed asset depreciation (223) (91)
Inventory reserves and additional costs capitalized 1,059 936
Inventory purchase accounting difference -- (11)
Deferred revenue 71 58
Alternative minimum federal tax credit carryforward 16 47
Accrued vacation 92 118
Accrued warranty 170 152
Other accrued liabilities 59 130
General business credit carryforward 115 184
State net operating loss carryforward -- 37
Unrealized loss on equity securities 25 --
Valuation allowances (547) (573)
-------- --------
$ 962 $ 868
======= =======
</TABLE>
-27-
<PAGE>
Notes to Financial Statements
<TABLE>
Income tax expense differs from the amounts computed by applying the
U.S. federal income tax rate to pretax income as a result of the following:
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YEARS ENDED MARCH 30, MARCH 25, MARCH 26,
(IN THOUSANDS, EXCEPT PERCENTAGES) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax $ 409 34% $ (755) (34.0)% $ 99 34.0%
Beginning of year change in deferred
tax asset valuation allowance (26) (2.2) 236 10.6 -- --
State income tax, net of
federal benefit 56 4.7 -- -- 68 23.1
Nontax deductible expenses 20 1.6 34 1.5 -- --
Interest income exempt
from federal tax (52) (4.3) (66) (3.0) (92) (31.4)
Tax credits (106) (8.8) (122) (5.5) (27) (9.3)
Other -- -- 29 1.3 14 6.2
------ -------- ------ --------- ------ -------
Effective income tax $ 301 25% $ (644) (29.1)% $ 62 22.6%
====== ====== ======= ========== ====== =======
</TABLE>
8 STOCK OPTION AND EMPLOYEE BENEFIT PLANS
Stock Option Plans In March 1990, the Company established a stock
option plan which provided for the granting of up to 300,000 shares of
common stock at 100% of fair market value at the date of grant, with
each grant needing approval by the Board of Directors of the Company.
Options granted vest in one or more installments as set forth in the
option agreement and must be exercised while the grantee is employed by
the Company or within a certain period after termination of employment.
Options granted to employees shall not have terms in excess of 10 years
from the grant date. In May 1994, the Company amended the 1990 Stock
Option Plan to allow the total number of shares of common stock
available for issuance to be increased by 100,000 shares to 400,000
shares. During fiscal 1995, the Company offered option holders the
opportunity to have outstanding options repriced to current fair value,
with the related vesting period starting over. The Company cancelled
and reissued (repriced) 77,900 options pursuant to the repricing.
Options granted vest in annual installments and must be exercised while
the grantee is employed by the Company, or within a certain period
after termination of employment. During fiscal 1996, 45,000 options
were exercised. As of March 30, 1996, the total number of shares of
common stock available for issuance is 355,000. As of March 30, 1996,
157,900 options for shares have been granted, all of which have a term
of 5 years.
Holders of options may be granted stock appreciation rights
which entitle them to surrender outstanding options for a cash
distribution under certain changes in ownership of the Company, as
defined in the stock option plan.
-28-
<PAGE>
Notes to Financial Statements
<TABLE>
Following is a summary of stock option activity:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SHARES OPTION PRICE
<S> <C> <C>
Outstanding as of March 27, 1993 361,000 5.50-8.50
Cancelled (41,750) 5.88-8.50
Granted 30,000 6.25
--------------
Outstanding as of March 26, 1994 349,250 5.50-8.50
Cancelled (260,900) 5.50-8.50
Granted 124,800 4.00-5.50
--------------
Outstanding as of March 25, 1995 213,150 4.00-7.25
Exercised (45,000) 4.00-5.87
Cancelled (37,250) 4.00-7.25
Granted 27,000 7.75
--------------
Outstanding as of March 30, 1996 157,900 4.00-7.75
==============
</TABLE>
As of March 30, 1996, options to purchase 48,350 shares were
exercisable at prices ranging from $4.00 to $7.00 per share.
401(k) Plan The Company has adopted a 401(k) plan which covers substantially all
employees. Participants may make voluntary contributions to the plan up to 15%
of their defined compensation. The Company is required to match 50% of the first
5% contributed by plan participants. The Company added a discretionary match of
20% of the first 5% contributed by plan participants for calendar 1995.
Participants vest ratably in the Company contribution over a four-year period.
Company contributions to the plan for fiscal 1996 and 1995 were approximately
$127,000 and $101,100, respectively.
-29-
<PAGE>
Notes to Financial Statements
<TABLE>
9 COMMITMENTS AND CONTINGENCIES
On December 6, 1993, the Company entered into an agreement to lease a
47,300 square foot facility located in San Ramon, California, for a
period of 10 years commencing April 15, 1994, and ending April 14,
2004. On June 22, 1995, the Company renegotiated the lease. The revised
expiration date is December 31, 2006. The facility accommodates all of
the Company's present operations. The future minimum lease payments are
shown below:
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FISCAL YEARS
<S> <C>
1997 $ 561,737
1998 568,368
1999 568,368
2000 625,678
2001 630,888
Remaining six years 3,858,742
--------------
$ 6,813,781
=============
</TABLE>
The aggregate rental expense was $637,000, $568,000 and $595,000 in
fiscal 1996, 1995 and 1994, respectively.
The Company maintains a $2,000,000 line of credit collateralized by all
of the Company's assets. This line of credit bears interest at prime
plus 2.25% and expires on July 31, 1996. As of March 30, 1996, none of
this line has been utilized.
10 SUBSEQUENT EVENT
On May 2, 1996 the Company entered into an agreement to merge with
ASCOR, Inc., a private company that designs, manufactures and markets a
line of switching and connecting devices. The merger will be accounted
for as a pooling-of-interests. Accordingly the historical accounts of
ASCOR will be combined with those of the Company as if they had always
been merged. The merger is expected to be effective in June 1996. The
merger is subject to final approval of the transaction by Giga-tronics
and ASCOR shareholders.
<TABLE>
If the merger had been effective as of March 30, 1996 revenues, net
earnings (loss) and earnings (loss) per share would have been as
follows:
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues (000's) $ 30,811 $ 25,969 $ 23,467
Net earnings (loss) (000's) 1,865 (867) 1,305
Earnings (loss) per share $ 0.55 $ (0.26) $ 0.40
</TABLE>
-30-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Giga-tronics Incorporated:
We have audited the accompanying balance sheets of Giga-tronics
Incorporated as of March 30, 1996, and March 25, 1995, and the related
statements of operations, shareholders' equity and cash flows for the
fifty-three week period ended March 30, 1996, and for each of the fifty-two week
periods in the two-year period ended March 25, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Giga-tronics
Incorporated as of March 30, 1996, and March 25, 1995, and the results of its
operations and its cash flows for the fifty-three week period ended March 30,
1996, and for each of the fifty-two week periods in the two-year period ended
March 25, 1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Jose, California
April 18, 1996
except as to note 10, which is as of May 2, 1996
-31-
<PAGE>
<TABLE>
Information for Shareholders
Summary of Operations:
- ------------------------------------------------------------------------------------------------------
53 WEEKS ENDED 52 WEEKS ENDED
----------------- ---------------------------------------------------
MARCH 30, MARCH 25, MARCH 26, MARCH 27, MARCH 28,
(IN THOUSANDS) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales $ 24,898 $ 21,937 $ 19,890 $ 23,085 $ 16,181
Gross profit 9,282 6,918 7,943 9,287 5,503
Operating expenses 8,000 8,804 7,553 7,367 4,847
Interest income, net 323 226 313 244 414
Earnings (loss) before income taxes 1,202 (2,220) 293 1,954 1,070
Net earnings (loss) 901 (1,576) 231 1,327 878
Net earnings (loss) per share $ 0.34 $ (0.61) $ 0.09 $ 0.52 $ 0.34
Financial Position:
- ------------------------------------------------------------------------------------------------------
53 WEEKS ENDED 52 WEEKS ENDED
----------------- ---------------------------------------------------
MARCH 30, MARCH 25, MARCH 26, MARCH 27, MARCH 28,
(IN THOUSANDS, EXCEPT RATIO) 1996 1995 1994 1993 1992
Current ratio 5.3 4.1 4.8 4.9 11.7
Working capital $ 15,830 $ 13,242 $ 14,209 $ 15,370 $ 16,588
Total assets 23,027 22,225 23,580 23,597 19,817
Shareholders' equity 19,101 18,018 19,671 19,440 18,113
Shares of common stock 2,602 2,570 2,570 2,570 2,570
Percentage Data:
- ------------------------------------------------------------------------------------------------------
53 WEEKS ENDED 52 WEEKS ENDED
----------------- ---------------------------------------------------
MARCH 30, MARCH 25, MARCH 26, MARCH 27, MARCH 28,
1996 1995 1994 1993 1992
Percent of net sales:
Gross profit 37.3% 31.5% 39.9% 40.2% 34.0%
Operating expenses 32.1 40.1 38.0 31.9 30.0
Interest income, net 1.3 1.0 1.6 1.1 2.6
Earnings (loss) before income taxes 4.8 (10.1) 1.5 8.5 6.6
Net earnings (loss) 3.6 (7.2) 1.2 5.7 5.4
</TABLE>
-32-
<PAGE>
<TABLE>
Information for Shareholders
<CAPTION>
Quarterly Financial Information (Unaudited)
- ------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) 1996
-------------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
<S> <C> <C> <C> <C> <C>
Net sales $ 6,261 $ 6,212 $ 6,171 $ 6,254 $ 24,898
Gross profit 2,285 2,314 2,264 2,419 9,282
Operating expenses 2,112 2,036 1,862 1,990 8,000
Interest income, net 52 76 91 104 323
Earnings before income taxes 157 287 360 398 1,202
Net earnings 118 215 270 298 901
Net earnings per share $ 0.05 $ 0.08 $ 0.10 $ 0.11 $ 0.34
Shares of common stock 2,570 2,570 2,570 2,602 2,602
- ------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) 1995
-------------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
Net sales $ 5,547 $ 5,606 $ 5,853 $ 4,931 $ 21,937
Gross profit 2,205 2,103 2,298 312 6,918
Operating expenses 1,954 1,858 2,033 2,959 8,804
Interest income, net 35 52 48 91 226
Earnings (loss) before income taxes 147 157 173 (2,697) (2,220)
Net earnings (loss) 93 102 129 (1,900) (1,576)
Net earnings (loss) per share $ 0.04 $ 0.04 $ 0.05 $ (0.74) $ (0.61)
Shares of common stock 2,570 2,570 2,570 2,570 2,570
</TABLE>
<TABLE>
Common Stock Market Prices
The Company's common stock is traded over the counter on NASDAQ/NMS National
Market System using the symbol "GIGA." The number of record holders of the
Company's common stock as of March 30, 1996 exceeded 300. The table below shows
the high and low closing bid quotations for the common stock during the
indicated fiscal periods.
<CAPTION>
1996 HIGH LOW 1995 HIGH LOW
--------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter (3/26-6/24) 7-7/8 6 (3/27-6/25) 7-1/4 5-7/8
Second Quarter (6/25-9/30) 10-1/2 6-3/4 (6/26-9/24) 6 4-3/4
Third Quarter (10/1-12/30) 9 6-7/8 (9/25-12/24) 6-3/8 5
Fourth Quarter (12/31-3/30) 8 6-5/8 (12/25-3/25) 6-3/16 4
-33-
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000719274
<NAME> Giga-tronics
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-START> MAR-26-1995
<PERIOD-END> MAR-30-1996
<EXCHANGE-RATE> 1
<CASH> 5,772
<SECURITIES> 5,013
<RECEIVABLES> 2,937
<ALLOWANCES> (222)
<INVENTORY> 4,660
<CURRENT-ASSETS> 19,533
<PP&E> 6,943
<DEPRECIATION> (5,185)
<TOTAL-ASSETS> 23,027
<CURRENT-LIABILITIES> 3,703
<BONDS> 0
<COMMON> 7,925
0
0
<OTHER-SE> 11,176
<TOTAL-LIABILITY-AND-EQUITY> 23,027
<SALES> 24,898
<TOTAL-REVENUES> 24,898
<CGS> 15,616
<TOTAL-COSTS> 23,616
<OTHER-EXPENSES> 403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (323)
<INCOME-PRETAX> 1,202
<INCOME-TAX> 301
<INCOME-CONTINUING> 901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 901
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
