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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 For the Period Ended March 31, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
Commission File No. 0-19923
STM WIRELESS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-3758983
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification number)
One Mauchly
Irvine, California 92718
(Address of principal executive offices (Zip code)
(714) 753-7864
(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing
requirements for the last 90 days.
Yes No
X
- - - --- ---
As of April 30, 1996, there were 5,825,719 shares of Common Stock, no par
value, outstanding.
Page 1 of 12
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STM WIRELESS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1996 and
December 31, 1995 3
Consolidated Statements of Operations for the three
month periods ended March 31, 1996 and March 31, 1995 4
Consolidated Statements of Cash Flows for the three
month periods ended March 31, 1996 and March 31, 1995 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on 8-K 11
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
STM WIRELESS, INC
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
March 31, December 31,
1996 1995
-------- --------
Current assets:
Cash and cash equivalents $ 4,189 $ 4,145
Short-term investments 3,050 4,950
Accounts receivable, net 13,513 11,612
Note receivable 3,999 --
Inventories, net 7,148 6,255
Current portion of long-term receivables 882 544
Deferred income taxes 1,577 1,576
Net assets of discontinued operations -- 3,761
-------- --------
Total current assets 34,358 32,843
Property & equipment, net 8,544 8,598
Long-term receivables 3,944 3,515
Other assets 1,398 1,256
-------- --------
$ 48,244 $ 46,212
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 3,600 $ 1,600
Current portion of long-term debt 177 216
Accounts payable 4,287 3,923
Accrued liabilities 1,043 1,901
Customer deposits 48 --
Income taxes payable 1,278 1,102
-------- --------
Total current liabilities 10,433 8,742
Long-term debt 4,437 4,488
Minority Interest 404 452
Shareholders' equity:
Preferred stock, no par value; 5,000,000
shares authorized, none issued or
outstanding -- --
Common stock, no par value; 20,000,000
shares authorized; issued and
outstanding 5,825,219 shares at
March 31, 1996 and 5,816,219 shares at
December 31, 1995 32,104 32,068
Retained earnings 866 462
-------- --------
Total shareholders' equity 32,970 32,530
-------- --------
$ 48,244 $ 46,212
-------- --------
-------- --------
See accompanying notes to consolidated financial statements
3
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STM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
For the three months
ended March 31,
1996 1995
-------- --------
Revenues
Products $ 6,537 $ 4,683
Services 929 1,241
-------- --------
Total revenues 7,466 5,924
Cost of revenues
Products 3,957 2,959
Services 264 515
-------- --------
Total cost of revenues 4,221 3,474
Gross Profit 3,245 2,450
Operating costs
Selling, general & administrative expenses 1,471 1,361
Research & development 1,589 596
-------- --------
Total operating costs 3,060 1,957
Operating income 185 493
Other income -- 11
Interest income 382 251
Interest expense (144) (131)
-------- --------
Income from continuing operations, before
minority interest and income taxes 423 624
Income tax expense (151) (156)
-------- --------
Income from continuing operations
before minority interest 272 468
Minority interest in net loss of
consolidated subsidiary 48 --
-------- --------
Income from continuing operations 320 468
Income from and gain on sale of
discontinued operations 84 54
-------- --------
Net income $ 404 $ 522
-------- --------
-------- --------
Net income per share:
Continuing operations $ 0.05 $ 0.08
Discontinued operations 0.02 0.01
-------- --------
Total net income per share: $ 0.07 $ 0.09
-------- --------
-------- --------
Weighted average shares outstanding 5,997 5,963
-------- --------
-------- --------
See accompanying notes to consolidated financial statements
4
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STM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the three months
ended March 31,
1996 1995
-------- --------
Net cash used in operating activities $ (3,565) $ (237)
-------- --------
Cash flows provided by (used in) investing
activities:
Net decrease in short-term investments 1,900 423
Acquisition of property and equipment (237) (549)
-------- --------
Net cash provided by (used by) investing
activities 1,663 (126)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 36 109
Borrowings from banks 2,000 1,100
Repayments of long-term debt (90) (28)
-------- --------
Net cash provided by financing activities 1,946 1,181
-------- --------
Net increase in cash and cash equivalents 44 818
Cash and cash equivalents at beginning of period 4,145 5,026
-------- --------
Cash and cash equivalents at end of period $ 4,189 $ 5,844
-------- --------
-------- --------
See accompanying notes to consolidated financial statements
5
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STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1996 and 1995
(Unaudited)
1. BASIS OF PRESENTATION
These financial statements are unaudited; however, the information contained
herein for STM Wireless, Inc. (the "Company", or "STM") gives effect to all
adjustments (which are normal recurring accruals) necessary, in the opinion
of Company management, to present fairly the financial statements for the
interim periods presented.
The results of operations for the current interim period are not necessarily
indicative of the results to be expected for the current year.
Although the Company believes that the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"), and these
financial statements should be read in conjunction with the financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, which is on file with the SEC.
2. DISCONTINUED OPERATIONS
Effective March 31, 1996 the Company sold its RF Microsystems subsidiary to
Remec, Inc. for cash in the amount of $2,999,000. The gain on the sale has
been accounted for as discontinued operations and prior period financial
statements have been restated to reflect discontinuance of this segment of
the business. A summary of operating results for discontinued operations is
shown below:
For the three months
ended March 31,
--------------------------
1996 1995
---------- ----------
Net Revenues $1,216,000 $1,228,000
---------- ----------
---------- ----------
Net income from and gain on sale of discontinued
operations, net of income taxes $ 84,000 $ 54,000
---------- ----------
---------- ----------
6
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3. INVENTORIES
Inventories are summarized as follows:
March 31, December 31,
1996 1995
---------- ----------
Raw materials $3,750,500 $1,797,300
Work in process 1,757,000 865,500
Finished goods 1,640,200 3,592,000
---------- ----------
$7,147,700 $6,254,800
---------- ----------
---------- ----------
At December 31, 1995, inventories included $2,881,000 related to discontinued
operations which are classified separately in the consolidated balance sheet
as part of "Net assets of discontinued operations".
4. INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Income per share of common stock is computed using the weighted average
number of common and common equivalent shares of stock outstanding during the
period. Common stock equivalents consist of dilutive outstanding stock
options and warrants and are calculated using the treasury stock method.
Primary earnings per share approximates fully diluted earnings per share for
all periods presented.
7
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company develops, manufactures and markets satellite and wireless
communication products including VSATs (very small aperture terminals),
transceivers, modems, and other networking equipment. The Company's
proprietary hardware and software are designed to support data, fax, voice,
and video networks requiring cost effective connections between
geographically dispersed locations. The majority of the Company's revenue is
generated in the international market through foreign distributors and sales
representatives. The Company's customers include government agencies,
telephone companies, multi-location corporations and others.
Effective March 31, 1996 , the Company sold all the outstanding common
stock of RF Microsystems, Inc., its wholly owned subsidiary, for $2,999,000
cash to Remec, Inc.. The Company also entered into a Technology Purchase
Agreement on March 31, 1996, whereby the Company sold certain of its
technologies, which were not part of the RF Microsystems segment, to Remec,
Inc. for $1,000,000 cash. In addition, the Company entered into Development,
Manufacturing and Product Supply Agreements which establishes Remec, Inc. as
the sole provider of certain components that are incorporated into the
Company's products utilizing the aforementioned technologies for a term of at
least two years. The agreement also provides for joint development of other
products by the Company and Remec, Inc. which will require purchase of such
products by the Company from Remec, Inc. at specified market prices.
RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
Combined product and service revenues were $7,466,000 for the
three-month period ended March 31, 1996, compared to $5,924,000 for the
corresponding period of 1995, an increase of 26%. Product revenues were
$6,537,000 for the three-month period ended March 31, 1996, compared to
$4,683,000 for the corresponding period in 1995, an increase of 40%. This
increase in product revenues was primarily due to the sale of technology to
the purchaser of the Company's RF Microsystems subsidiary, and to shipments
related to the Company's major contracts. Service revenues were $929,000
for the three-month period ended March 31, 1996, compared to $1,241,000 for
the corresponding period in 1995, a decrease of 25%. Program management
services for the quarter ended March 31, 1995 were bolstered by a relatively
large contract to provide services to a Malaysian customer in connection
with the design, procurement, and supervision of a large personal
communication service (PCS) network. That contract was completed in 1995.
8
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Combined product and service gross profit margin in the three-month
period ended March 31, 1996 was 43% compared to 41% for the comparable period
in 1995. Product gross profit margin in the three-month period ended March
31, 1996 was 39% compared to 37% for the comparable period in 1995. This
increase in product gross profit margin was primarily due to sales mix.
Service gross profit margin in the three-month period ended March 31, 1996
was 72%, compared to 59% for the comparable period in 1995. This increase in
service gross profit margin was primarily due to higher margins in the
program management segment of services as compared to the corresponding
period in 1995.
Selling, general and administrative expenses for the three-month period
ended March 31, 1996 increased by $110,000 to $1,471,000, or 20% of revenues,
from $1,361,000, or 23% of revenues, in the corresponding period of 1995.
The increase in selling and general administrative expenses was the result of
an increase in expenses to support the Company's growth in revenues.
Research and development expenses for the three-month period ended March
31, 1996 increased significantly to $1,589,000, or 21% of total revenues,
from $596,000, or 10% of total revenues, in the corresponding period of 1995.
The increase in expenditures for the period was due to research and
development activity engaged in by the Company's TMSI subsidiary, and to
higher expenses related to personnel and utilization of outside services for
new product development.
Interest income increased by $131,000 to $382,000 for the three-month
period ended March 31, 1996, over the three-month period ended March 31,
1995. The increase in interest income was primarily the result of the
recognition of interest related to a long-term lease in Brazil, partially
offset by a lower level of short-term investments.
Interest expense increased by $13,000 to $144,000 for the three-month
period ended March 31, 1996, over the three-month period ended March 31,
1995. The increase was mainly due to the Company's utilization of bank lines
of credit.
DISCONTINUED OPERATIONS
Effective March 31, 1996 , the Company sold all the outstanding common
stock of RF Microsystems, Inc., its wholly owned subsidiary, for $2,999,000
cash to Remec, Inc.. A summary of operating results for discontinued
operations is shown below:
For the three months
ended March 31,
---------------------------
1996 1995
---------- ----------
Net Revenues $1,216,000 $1,228,000
---------- ----------
---------- ----------
Net income from and gain on sale of discontinued
operations, net of income taxes $ 84,000 $ 54,000
---------- ----------
---------- ----------
9
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LIQUIDITY AND CAPITAL RESOURCES
For the first three months of 1996, the Company had negative cash flows
from operations of $3,565,000, compared to negative cash flows of $237,000 in
the same period of 1995. The increase in negative cash flow was primarily due
to increased investments in inventory and receivables to support the
Company's growth in revenues, partially offset by net profits. Proceeds from
the sale of RF Microsystems, Inc. are reflected as a note receivable which
was paid by Remec, Inc. on April 30, 1996.
Cash provided by investing activities in the first three months of 1996
totaled $1,663,000. Sales and maturities of short-term investments exceeded
purchases of such investments by $1,900,000. The acquisition of fixed assets
used $237,000.
Cash flows from financing activities during the first three months
totaled $1,946,000 which included (1) net secured bank borrowings of $500,000
and (2) net unsecured borrowings of $1,500,000 against the Company's
$3,000,000 bank credit line. Proceeds from issuance of common stock related
to the exercise stock options totaled $36,000. Repayment of long-term debt
used $90,000.
Overall, the Company's cash, cash equivalents, and short-term investments
totaled $7,239,000 at March 31, 1996, as compared to $9,095,000 at December
31, 1995. The Company believes it has adequate capital resources to meet its
current working capital requirements and capital expenditure commitments for
at least the next 12 months, including the expansion of its international
marketing and sales efforts, and the purchase of additional capital equipment
for manufacturing and research and development.
10
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PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.22 - Stock Purchase Agreement between STM Wireless, Inc.
and Remec, Inc., dated March 31, 1996.
(b) Reports on Form 8-K
None
11
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SIGNATURES
Pursuant to the requirements 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.
Satellite Technology Management, Inc.
Date: May 13, 1996 By: PRESTON ROMM
-------------------------------------
Preston Romm
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
12
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TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
PURCHASE AND SALE OF SHARES. . . . . . . . . . . . . . . . . . . 4
2.1 Purchase and Sale Obligation . . . . . . . . . . . . 4
2.2 Price. . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Payments . . . . . . . . . . . . . . . . . . . . . . 4
2.3.1 Closing Payment. . . . . . . . . . . . . . 4
2.3.2 Terms. . . . . . . . . . . . . . . . . . . 5
2.4 Closing. . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Preparation of Audited Financials. . . . . . . . . . 5
2.6 STS Contract . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . 6
3.1 Ownership of Shares. . . . . . . . . . . . . . . . . 6
3.2 Authorization. . . . . . . . . . . . . . . . . . . . 6
3.3 Organization . . . . . . . . . . . . . . . . . . . . 6
3.4 Capitalization . . . . . . . . . . . . . . . . . . . 7
3.5 Investments in Others. . . . . . . . . . . . . . . . 7
3.6 Compliance with Law and Other Instruments. . . . . . 7
3.7 Financial Statements . . . . . . . . . . . . . . . . 8
3.8 Absence of Undisclosed Liabilities . . . . . . . . . 8
3.9 Tax Returns and Payments . . . . . . . . . . . . . . 8
3.10 Absence of Certain Changes and Events. . . . . . . . 9
3.11 Accounts Receivable. . . . . . . . . . . . . . . . . 10
3.12 Inventories. . . . . . . . . . . . . . . . . . . . . 10
3.13 Interests in Real Property . . . . . . . . . . . . . 10
3.14 Personal Property. . . . . . . . . . . . . . . . . . 11
3.15 Directors and Officers . . . . . . . . . . . . . . . 11
3.16 Certain Transactions . . . . . . . . . . . . . . . . 11
3.17 Patents, Trademarks, Etc.. . . . . . . . . . . . . . 11
3.18 Litigation and Other Proceedings . . . . . . . . . . 12
3.19 Contracts. . . . . . . . . . . . . . . . . . . . . . 12
3.20 Insurance and Banking Facilities . . . . . . . . . . 13
3.21 Personnel. . . . . . . . . . . . . . . . . . . . . . 13
3.22 Powers of Attorney and Suretyships . . . . . . . . . 14
3.23 Minutes and Stock Records. . . . . . . . . . . . . . 14
3.24 Governmental Consents. . . . . . . . . . . . . . . . 14
3.25 Product Warranties . . . . . . . . . . . . . . . . . 15
3.26 Compliance with ERISA. . . . . . . . . . . . . . . . 15
3.27 Labor Matters. . . . . . . . . . . . . . . . . . . . 16
3.28 Hazardous Materials. . . . . . . . . . . . . . . . . 16
i
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3.29 Backlog. . . . . . . . . . . . . . . . . . . . . . . 18
3.30 Brokers and Finders. . . . . . . . . . . . . . . . . 18
3.31 Property Taxes . . . . . . . . . . . . . . . . . . . 19
3.32 Accuracy of Documents and Information. . . . . . . . 19
3.33 Collapsible Corporation; Parachute Payments. . . . . 19
3.34 Commitments. . . . . . . . . . . . . . . . . . . . . 19
3.35 Liabilities to Government Agencies . . . . . . . . . 20
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . 20
4.1 Organization . . . . . . . . . . . . . . . . . . . . 20
4.2 Compliance with Law and Other Instruments. . . . . . 20
4.3 Authorization. . . . . . . . . . . . . . . . . . . . 20
4.4 Investment Purpose . . . . . . . . . . . . . . . . . 20
4.5 Brokers and Finders. . . . . . . . . . . . . . . . . 21
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF BUYER . . . . . . . . . . . . . 21
5.1 Representations and Warranties True at Closing . . . 21
5.2 Performance of Covenants . . . . . . . . . . . . . . 21
5.3 Certificate. . . . . . . . . . . . . . . . . . . . . 21
5.4 Opinion of Counsel . . . . . . . . . . . . . . . . . 22
5.5 Resignations of Directors and Officers . . . . . . . 22
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . 22
5.7 Good Standing Certificates . . . . . . . . . . . . . 22
5.8 Assignment and Assumption Agreement. . . . . . . . . 22
5.9 No Material Adverse Changes. . . . . . . . . . . . . 22
5.10 Development Agreement. . . . . . . . . . . . . . . . 22
5.11 Transfer of Shares . . . . . . . . . . . . . . . . . 22
5.12 Delivery of Audited Financials . . . . . . . . . . . 23
5.13 Revised Schedules. . . . . . . . . . . . . . . . . . 23
5.14 Employment Agreements. . . . . . . . . . . . . . . . 23
5.15 Non-Competition Agreement. . . . . . . . . . . . . . 23
ARTICLE 6
CONDITIONS TO THE OBLIGATIONS OF SELLER. . . . . . . . . . . . . 23
6.1 Representations and Warranties True at Closing . . . 23
6.2 Performance of Covenants . . . . . . . . . . . . . . 24
6.3 Certificate. . . . . . . . . . . . . . . . . . . . . 24
6.4 Opinion of Counsel . . . . . . . . . . . . . . . . . 24
6.5 Consents . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Identification of Certain Employees. . . . . . . . . 24
6.7 Development Agreement. . . . . . . . . . . . . . . . 24
6.8 Delivery of Audited Financials . . . . . . . . . . . 24
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ARTICLE 7
COVENANTS OF SELLER. . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Audited Financials . . . . . . . . . . . . . . . . . 25
7.2 Access to Properties and Records . . . . . . . . . . 25
7.3 Conduct of Business Prior to Closing . . . . . . . . 25
7.4 Notice of Events . . . . . . . . . . . . . . . . . . 27
7.5 Employee Stock Options . . . . . . . . . . . . . . . 27
7.6 RFM Work for Seller. . . . . . . . . . . . . . . . . 27
7.7 Cooperation. . . . . . . . . . . . . . . . . . . . . 27
7.8 Employees. . . . . . . . . . . . . . . . . . . . . . 28
7.9 Best Efforts to Close. . . . . . . . . . . . . . . . 28
7.10 Transfer of Certain ATM Business . . . . . . . . . . 28
7.11 Seller Loans . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 8
COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . 29
8.1 Cooperation in Filings . . . . . . . . . . . . . . . 29
8.2 Employee Benefits. . . . . . . . . . . . . . . . . . 29
8.3 Warranty Repairs . . . . . . . . . . . . . . . . . . 29
8.4 Best Efforts to Close. . . . . . . . . . . . . . . . 29
8.5 Collection of Excluded Receivables . . . . . . . . . 29
ARTICLE 9
COVENANTS OF SELLER AND BUYER. . . . . . . . . . . . . . . . . . 30
9.1 Tax Matters. . . . . . . . . . . . . . . . . . . . . 30
9.1.1 Tax Elections. . . . . . . . . . . . . . . 30
9.1.2 Tax Return . . . . . . . . . . . . . . . . 30
9.2 Insurance. . . . . . . . . . . . . . . . . . . . . . 30
9.3 Press Releases . . . . . . . . . . . . . . . . . . . 31
9.4 Confidential Information . . . . . . . . . . . . . . 31
ARTICLE 10
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 32
10.1 Survival of Representations and Warranties . . . . . 32
10.2 Indemnity. . . . . . . . . . . . . . . . . . . . . . 32
10.3 Limitations on Losses. . . . . . . . . . . . . . . . 33
10.4 Notice of Claims; Procedures . . . . . . . . . . . . 34
ARTICLE 11
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.1 Expenses . . . . . . . . . . . . . . . . . . . . . . 35
11.2 Amendment. . . . . . . . . . . . . . . . . . . . . . 35
11.3 Entire Agreement . . . . . . . . . . . . . . . . . . 35
11.4 Governing Law. . . . . . . . . . . . . . . . . . . . 35
11.5 Headings . . . . . . . . . . . . . . . . . . . . . . 35
11.6 Mutual Contribution. . . . . . . . . . . . . . . . . 35
11.7 Notices. . . . . . . . . . . . . . . . . . . . . . . 36
11.8 Waiver . . . . . . . . . . . . . . . . . . . . . . . 37
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11.9 Binding Effect; Assignment . . . . . . . . . . . . . 37
11.10 No Third Party Beneficiaries . . . . . . . . . . . . 37
11.11 Counterparts . . . . . . . . . . . . . . . . . . . . 37
11.12 Further Assurances . . . . . . . . . . . . . . . . . 37
11.13 Knowledge. . . . . . . . . . . . . . . . . . . . . . 37
11.14 Termination. . . . . . . . . . . . . . . . . . . . . 37
11.14.1 Mutual Consent. . . . . . . . . . . . . . . 37
11.14.2 Failure to Satisfy Conditions Not Waived. . 38
11.14.3 Closing Has Not Occurred. . . . . . . . . . 38
11.15 Arbitration and Procedure . . . . . . . . . . . . 38
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is dated as of March 31,
1996, and is entered into by and between STM WIRELESS INC., a Delaware
corporation ("Seller") and REMEC, INC., a California corporation ("Buyer").
R E C I T A L S
Seller owns all of the outstanding shares of capital stock (the
"Shares") of RF Microsystems, Inc. ("RFM"), a California corporation. Buyer
desires to purchase, and Seller desires to sell, the RFM Shares.
THE PARTIES AGREE AS FOLLOWS:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The terms defined in this Article 1, whenever used
herein, shall have the following meanings for all purposes of this Agreement:
"Affiliate" means any corporation, company, partnership, joint
venture and/or firm which controls, is controlled by or is under common
control with a party. For purposes of this paragraph "control" shall mean
(a) in the case of corporate entities, direct or indirect ownership of at
least fifty percent (50%) of the stock or shares entitled to vote for the
election of directors; and (b) in the case of non-corporate entities,
director or indirect ownership of at least fifty percent (50%) of the equity
interest, with a power to direct the management and policies of such
non-corporate entities.
"Audited Balance Sheet" means the balance sheet included in the
Audited Financials.
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"Audited Financials" shall mean the financial statements of RFM
referred to and prepared in accordance with Section 2.5 of this Agreement.
"Adjusted Audited March Net Worth" means (i) total assets of RFM
reflected on the Audited Balance Sheet, excluding inventory and Excluded
Receivables, minus (ii) total liabilities of RFM reflected on the Audited
Balance Sheet, excluding warranty reserve.
"Closing Payment" has the meaning ascribed in Section 2.3.1 of this
Agreement.
"Closing" means the purchase of the Shares by Buyer from Seller and
the transfer of title to the Shares from Seller to Buyer.
"Closing Date" means the date the Closing takes place.
"Code" means the Internal Revenue Code of 1986, as amended.
"Development Agreement" shall mean the Development, Manufacturing
and Product Supply Agreement attached as Exhibit 5.10 to the Disclosure
Letter.
"Disclosure Letter" means the Disclosure Letter between the Buyer
and Seller of even date herewith.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Excluded Receivables" shall mean amounts, whether billed or
unbilled, related to purchase orders from NRAD-EAST and Eagan McAllister
totalling $362,879.
"February Balance Sheet" means the balance sheet of RFM included in
the February Financials.
"February Financials" means the unaudited financial statements of
RFM for the two months ended February 29, 1996, containing a balance sheet at
February 29, 1996 and statement of operations for the two months ended
February 29, 1996, which are attached as part of Schedule 3.7 of the
Disclosure Letter.
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"GAAP" means generally accepted accounting principles and practices
as promulgated by the Accounting Research Board, Accounting Principles Board
and Financial Accounting Standards Board or any superseding or supplemental
documentation of equal authority promulgating generally accepted accounting
principles and practices, all as in effect from time to time.
"Hazardous Material" means any material, substance, waste or
component thereof which is identified to be "hazardous" or "toxic" or
otherwise poses an actual or potential risk to public health and safety or to
the environment by virtue of being actually or potentially toxic, corrosive,
bioaccumulative, reactive, ignitable, radioactive, infectious or otherwise
harmful to public health and safety or the environment, the handling or
disposal of, or exposure to which, is regulated under any applicable United
States federal, state or local environmental or health and safety law, rule
or regulation.
"Prior Years Financials" means the unaudited financial statements
of RFM for the three fiscal years ended December 31, 1995, containing balance
sheets at December 31, 1993, 1994 and 1995 and statements of operation for
the three years ended December 31, 1995 in the form previously provided to
Buyer.
"Shares" means all of the RFM Shares.
"Subsidiaries" means, for any corporation, any other corporation or
other entity in which such corporation beneficially owns, directly or
indirectly, fifty percent or more of any class of outstanding capital stock
(or other similar interests in a partnership or other entity).
"Technology Agreement" shall mean the Technology Purchase Agreement
among Seller, RFM and Buyer dated concurrently herewith.
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ARTICLE 2
PURCHASE AND SALE OF SHARES
2.1 PURCHASE AND SALE OBLIGATION. Seller shall sell the Shares to
Buyer, and Buyer shall purchase the Shares from Seller, on the terms and
conditions contained in this Agreement.
2.2 PRICE. The price which Buyer shall pay to the Seller for the
Shares shall be $3,500,000, adjusted as set forth in 2.2.1 and 2.2.2,
provided that if the amount of the adjustment with respect to Section 2.2.1
does not exceed $100,000, no adjustment shall be made pursuant to Section
2.2.1:
2.2.1 increased to the extent that the Adjusted Audited March
Net Worth exceeds $594,578 or decreased to the extent that the Adjusted
Audited March Net Worth is less than $594,578.
2.2.2 increased or decreased in an amount equal to the increase
or decrease, respectively, in inventories from the February Balance Sheet to
the Audited Balance Sheet (excluding from each such balance sheet the
inventories transferred to Seller pursuant to the Assignment and Assumption
Agreement) with inventories calculated in accordance with current RFM
inventory policies.
The amounts in Sections 2.2.1 and 2.2.2 above shall be computed by
Ernst & Young LLP at the expense of Buyer, which calculation shall be
delivered to Buyer and Seller with the Audited Financials.
2.3 PAYMENTS. Buyer shall make payments to Seller as follows:
2.3.1 CLOSING PAYMENT. At the Closing, Buyer shall pay to
Seller the price for the Shares as determined in accordance with Section 2.2
(the "Closing Payment"), subject to the adjustment in Section 2.6.
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2.3.2 TERMS. The Closing Payment shall be made by Buyer to
Seller in same day funds by wire transfer to an account specified by Seller
in writing to Buyer not less than three business days prior to the scheduled
time of payment.
2.4 CLOSING. The Closing shall take place on Tuesday, April 30, 1996,
at the offices of Buyer, 9404 Chesapeake Drive, San Diego, California, at
10:00 a.m. or at such other date, time or place as the parties may agree.
2.5 PREPARATION OF AUDITED FINANCIALS. Upon signing of this Agreement,
Buyer will instruct Ernst & Young LLP to render an opinion, at Buyer's
expense, that the financial statements of RFM at March 31, 1996 and for the
three months then ended, consisting of a balance sheet, statement of
operations and statement of cash flows, present fairly, in all material
respects, the financial position of RFM at March 31, 1996 and the results of
its operations and its cash flows in the three months ending March 31, 1996,
in conformity with GAAP. Seller may at its option and at its sole cost have
KPMG Peat Marwick review and comment upon the Audited Financial Statements
prior to completion. In the preparation of the Audited Financials Seller
shall cause RFM to exclude all intercompany receivables or liabilities
between Seller and RFM.
2.6 STS CONTRACT. RFM shall effective upon the Closing assign to
Seller, and Seller shall assume and be solely responsible for that certain
X-Band Converter contract between RFM and Satellite Transmission Systems,
Inc. (a complete copy of which has been provided to Buyer), including in that
assignment all rights, benefits, duties, liabilities and obligations related
thereto, and all inventory of finished products, raw materials, parts and
supplies related solely to the performance by RFM under such Purchase Order
(collectively the "STS Contract"), in which event the Closing Payment shall
be decreased by the book value of the inventory associated with the STS
Contract. Notwithstanding the foregoing, Buyer may at its option elect by
written notice to Seller on or before the Closing to have RFM retain the STS
Contract.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 OWNERSHIP OF SHARES. Seller is the true and lawful owner of all of
the Shares free and clear of all claims, liens, security interests, pledges,
options and encumbrances, other than restrictions under applicable securities
laws.
3.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement by Seller have been duly authorized by all necessary actions of the
Board of Directors and stockholders of Seller. This Agreement has been duly
executed and delivered by Seller, constitutes the valid and binding
obligation of Seller and is enforceable against Seller in accordance with its
terms, subject to insolvency, bankruptcy and other laws applicable to
creditors rights generally, and subject to the availability of equitable
remedies.
3.3 ORGANIZATION. RFM is a corporation duly incorporated, validly
existing and in good standing under the laws of California, and has full
power and authority to own or lease its properties and to carry on its
business as it is now being conducted. RFM is qualified to conduct business
as a foreign corporation in the jurisdictions indicated on Schedule 3.3 to
the Disclosure Letter. Schedule 3.3 to the Disclosure Letter lists all
states in which RFM owns or leases property or has resident employees. RFM
has not received any claim or notice, whether formal or otherwise, from any
jurisdiction to the effect that it is or was required to qualify to conduct
business, or that a jurisdiction in which it is authorized to conduct
business may withdraw such authorization. Seller has caused to be delivered
to Buyer complete and correct copies of the charter documents of RFM, as in
effect on the date of this Agreement. No action has been taken by the Board
of Directors or any holder of capital stock of RFM to amend further such
documents, and no such action will be taken before the Closing. RFM has no
Subsidiaries.
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3.4 CAPITALIZATION. The authorized capital stock of RFM consists of
1,000,000 shares of common stock, no par value per share, of which 1,000
shares are issued and outstanding and held free and clear of any liens or
encumbrances by Seller, other than restrictions under applicable securities
laws. All of the Shares were duly authorized and validly issued and are
fully paid and nonassessable and were issued in compliance with all
applicable securities laws. There are no outstanding options, warrants,
scrip, rights to acquire or subscribe for, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of RFM.
3.5 INVESTMENTS IN OTHERS. Except as shown on Schedule 3.5 to the
Disclosure Letter, RFM does not have any investment in or advance or loan to
or guarantee of, or any commitment to make any investment in, advance or loan
to or guarantee of, any person.
3.6 COMPLIANCE WITH LAW AND OTHER INSTRUMENTS. Except as set forth on
Schedule 3.6 to the Disclosure Letter, RFM holds all licenses, permits and
authorizations necessary for the lawful conduct of its business as now being
conducted pursuant to all applicable statutes, laws, ordinances, rules and
regulations of all governmental bodies, agencies and other authorities having
jurisdiction over it or any part of its respective operations, and there are
no violations or claimed violations by RFM of any such license, permit or
authorization or any such statute, law, ordinance, rule or regulation.
Except as shown on Schedule 3.6 to the Disclosure Letter, neither the
execution and delivery of this Agreement by Seller or RFM, as the case may
be, nor the performance by Seller or RFM of any of their respective
obligations under this Agreement, will violate any provision of any United
States federal, state or local statute, law, ordinance, rule or regulation or
any decree or order of any governmental body thereof or will conflict with,
result in the breach of any of the material terms or conditions of,
constitute a default under, permit any party to accelerate any right under or
terminate, constitute a waiver of any material right under,
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require consent of any party under, or result in the creation of any lien,
charge or encumbrance upon any of the properties, assets or capital stock of
RFM pursuant to, any charter document of RFM or any material agreement,
indenture, mortgage, lease, franchise, license, permit, authorization or
other similar instrument of any kind to which Seller or RFM is a party or by
which Seller or RFM or any of their respective properties or assets are bound.
3.7 FINANCIAL STATEMENTS. Except as shown on Schedule 3.7 to the
Disclosure Letter, each of the Prior Year Financials and the February
Financials: (i) have been prepared in accordance with the books and records
of RFM; (ii) fairly present the financial position of RFM as of the dates and
for the periods indicated therein; and (iii) have been prepared in accordance
with GAAP consistently applied.
3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as shown on Schedule
3.8 to the Disclosure Letter, RFM does not have any indebtedness and does not
have any other liability (absolute, contingent, asserted, unasserted, known
or unknown) which is not reflected on or provided for in full on the February
Balance Sheet except for liabilities of a nature included in the February
Balance Sheet incurred in the ordinary course of business subsequent to the
February Balance Sheet. As of the date of the Audited Financials, RFM will
not have any liability (absolute, contingent, asserted, unasserted, known or
unknown) which will not be reflected on or provided for in full on the
Audited Balance Sheet.
3.9 TAX RETURNS AND PAYMENTS. Except as shown on Schedule 3.9 to the
Disclosure Letter, all tax returns, reports and forms required to be filed
by, or with respect to any activities or income of, RFM have been or will be
timely filed, all such returns are true and correct in all material respects,
and all taxes, fees, penalties, interest and other governmental charges of
any nature whatsoever which were shown to be due or claimed to be due on such
returns, reports and forms or which otherwise may be owed have been paid or
adequate provision for the payment
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thereof has been made. Except as shown on Schedule 3.9 to the Disclosure
Letter, Seller has no knowledge of any assessment of deficiency or additional
tax or other governmental charge respecting RFM or its business or affairs,
or any knowledge of any completed, pending or threatened tax audit or
investigation respecting RFM or its business or affairs by any taxing or
other governmental authority, and no waivers of statutes of limitations have
been requested with respect to any tax or other governmental charge for which
RFM may be liable. The amounts provided for taxes on the February Balance
Sheet are sufficient and the amounts to be provided for taxes on the Audited
Balance Sheet will be sufficient for the payment of all accrued and unpaid
U.S. federal, state, provincial, or local taxes, interest, penalties,
assessments and deficiencies for all periods prior to the dates of such
balance sheets to the extent such taxes are obligations of RFM and not Seller.
3.10 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as shown on Schedule
3.10 to the Disclosure Letter, between February 29, 1996 and the date of this
Agreement, there has not been, and prior to the Closing there will not be:
(i) any transaction entered into by RFM other
than in the ordinary course of business or as contemplated
by this Agreement, any loss or damage to any of the
manufacturing facilities of RFM due to fire or other
casualty, whether or not insured, amounting to more than
$100,000 in aggregate replacement value; any event that
materially and adversely affects the ability of RFM to
operate its business as a whole in a manner consistent with
the way in which such business has been conducted prior to
February 29, 1996 or any change in the financial position,
assets, liabilities, results of operations or business of
RFM other than changes in the ordinary course of business
which in the aggregate have not been materially adverse;
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(ii) any declaration, payment or setting aside of
any dividend or other distribution to or for the holder of
any capital stock of RFM; or
(iii) any lawsuit, proceeding or governmental
investigation which is likely to have a material adverse
effect on the business of RFM.
3.11 ACCOUNTS RECEIVABLE. The accounts receivable reflected on the
February Balance Sheet and to be reflected on the Audited Balance Sheet will
be, based on RFM's reasonable judgment and its normal credit review
procedures, business practices and GAAP, collectible in accordance with their
terms in an amount not less than their aggregate book value. "Aggregate book
value", for this purpose, shall mean the recorded amounts of such accounts
receivable less any recorded allowance for doubtful accounts, trade
allowances and return allowances, all as established in accordance with GAAP
consistently applied. The accounts receivable reflected on the February
Balance Sheet do not, and to be reflected on the Audited Balance Sheet will
not, include Excluded Receivables.
3.12 INVENTORIES. The consolidated inventories reflected on the
February Balance Sheet have been, and those to be reflected on the Audited
Balance Sheet will be, valued in accordance with GAAP consistently applied.
3.13 INTERESTS IN REAL PROPERTY. Schedule 3.13 to the Disclosure Letter
comprises a complete and correct list and brief description of all real
property leased by RFM on the Closing Date. RFM owns no real property. All
real property leases to which RFM is a party are valid and enforceable, and
no party thereto is in default of any material provision thereof. Except as
shown on Schedule 3.13 to the Disclosure Letter, (i) all improvements and
fixtures on real properties leased by RFM conform in all material respects,
to Seller's knowledge, to all applicable health, fire, safety, environmental,
zoning and building laws and ordinances; and (ii) all materials, buildings,
structures and fixtures used by RFM in the conduct of its business
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are in good operating condition and repair, ordinary wear and tear excepted,
and are sufficient for the type and magnitude of their respective operations.
3.14 PERSONAL PROPERTY. Except as shown on Schedule 3.14 to the
Disclosure Letter, RFM has good and marketable title, free and clear of all
title defects, security interests, pledges, options, claims, liens,
encumbrances and restrictions of any nature whatsoever to all inventory and
receivables and to any item of machinery, equipment, or tangible personal
property reflected on the February Balance Sheet or used in the business by
RFM (regardless of whether reflected on the February Balance Sheet). Except
as shown on Schedule 3.14 to the Disclosure Letter, all the machinery,
equipment and other tangible personal property listed in such Schedule is in
good operating condition and repair, normal wear and tear excepted. Except
as set forth in Schedule 3.14 to the Disclosure Letter, at the Closing Date,
RFM will possess all of the personal property wherever located used to
conduct its business as conducted prior to the Closing.
3.15 DIRECTORS AND OFFICERS. Schedule 3.15 to the Disclosure Letter
comprises a complete and correct list of all present officers and directors
of RFM.
3.16 CERTAIN TRANSACTIONS. Except as shown on Schedule 3.16 to the
Disclosure Letter, neither Seller nor RFM nor any of their respective
Affiliates, is presently a party to any agreement or arrangement with RFM:
(i) providing for the furnishing of raw materials, products or services to or
by, or (ii) providing for the sale or rental of real or personal property to
or from, any such entity.
3.17 PATENTS, TRADEMARKS, ETC. Schedule 3.17 to the Disclosure Letter
contains a complete and correct list of all patents, patent applications,
trademarks, trademark applications, trade names, service marks, service
names, licenses, trade secrets and any other intellectual property rights,
and rights in any thereof (insofar as it is practical to list or describe
such rights), relating to or used in the business or operations of the
business of RFM, all of which are owned
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by RFM or RFM has the right to use, as the case may be, without, except as
disclosed in Schedule 3.17 to the Disclosure Letter, any notice to RFM of any
infringement on the rights of others. RFM owns or has the right to use all
patents, patent applications, trademarks, trademark applications, trade
names, service marks, service names, licenses, trade secrets and any other
intellectual property rights, and rights in any thereof, which are used in or
are necessary for the conduct of its business in the manner conducted
immediately prior to the Closing. To the best of Seller's knowledge, RFM has
not infringed and is not infringing upon any patent or other intellectual
property rights of others.
3.18 LITIGATION AND OTHER PROCEEDINGS. Except as shown on Schedule 3.18
to the Disclosure Letter, neither RFM nor any of its officers or directors is
a party to any pending or, to the best knowledge of Seller, threatened
action, suit, claim, proceeding or investigation in the United States or
elsewhere, and RFM is not subject to any order, writ, judgment, decree or
injunction which materially adversely affects or might so affect the business
of RFM. Schedule 3.18 to the Disclosure Letter contains a complete list of
all claims brought against RFM, or pending since December 9, 1993, together
with a brief statement of the nature and amount of the claim, the court and
jurisdiction in which the claim was brought, the resolution (if resolved),
and the availability of insurance to cover the claim.
3.19 CONTRACTS. Schedule 3.19 to the Disclosure Letter describes, and
Seller has caused to be delivered to Buyer complete and correct copies of,
all currently effective contracts to which RFM is a party or by which RFM or
any of its respective properties or assets are bound which (i) involve the
payment or receipt by RFM of more than $25,000 over the remaining term of the
contract; (ii) are financing documents, loan agreements or promissory notes;
(iii) are otherwise material to the business of RFM and are not for the
purchase or sale of goods or services in the ordinary course of business;
(iv) have a remaining term of more than one year from the date of
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this Agreement; or (v) are distributorship or other agreements relating to
the marketing of products. Except as set forth in Schedule 3.19 to the
Disclosure Letter, RFM, and to the best knowledge of Seller, all of the other
parties to such agreements, are in compliance with all material provisions of
all such agreements and no fact exists which is, or with the passage of time
could become, a default under any of them.
3.20 INSURANCE AND BANKING FACILITIES. Schedule 3.20 to the Disclosure
Letter comprises a complete and correct list of (i) all contracts of
insurance and indemnity of or relating to RFM (except insurance related to
employee benefits) in force at the date of this Agreement (including name of
insurer or indemnitor, agent, annual charge, coverage and expiration date);
(ii) the names and locations of all banks in which RFM has accounts; and
(iii) the names of all persons authorized to draw on such accounts. All
premiums and other payments due with respect to all contracts of insurance or
indemnity in force at the date hereof have been or will be paid, and Seller
knows of no circumstance (including without limitation the consummation of
the transaction contemplated by this Agreement) which has or might cause any
such contract to be canceled or terminated.
3.21 PERSONNEL. Schedule 3.21 to the Disclosure Letter comprises a
complete and correct list of, and Seller has caused Buyer to be furnished
with complete and correct copies of (or, if not in writing, a description of
the terms of), (i) all employment contracts, collective bargaining
agreements, and all compensation plans, agreements, programs, practices,
commitments or other arrangements of any type, including bonus, profit
sharing, incentive compensation, pension and retirement agreements respecting
or affecting any employees of RFM; and (ii) all insurance, health, medical,
hospitalization, dependent care, severance, fringe or other employee benefit
plans, agreements, programs, practices, commitments or other arrangements of
any type in effect for employees of RFM; provided, however, that clauses (i)
and (ii) hereof shall
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be deemed inapplicable to any employee benefit plan which is required to be
listed in Schedule 3.26 to the Disclosure Letter. Schedule 3.21 to the
Disclosure Letter includes a list of all employees of RFM. RFM has been and
is in compliance with the terms of, and any laws or regulations applicable
to, all such plans, agreements, practices, commitments or programs.
3.22 POWERS OF ATTORNEY AND SURETYSHIPS. Except as shown on Schedule
3.22 to the Disclosure Letter, RFM does not have any power of attorney
outstanding (other than a power of attorney issued in the ordinary course of
business with respect to tax matters or to customs agents and customs
brokers), and, except for obligations as an endorser of negotiable
instruments incurred in the ordinary course of business, RFM does not have
any obligations or liabilities (absolute or contingent) as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise respecting the
obligation of any other person.
3.23 MINUTES AND STOCK RECORDS. Seller has caused Buyer to be given
access to complete and correct copies of the minute books and stock records
of RFM. Such items contain a complete and correct record in all material
respects of all proceedings and actions taken at all meetings of, and all
actions taken by written consent by, the holders of capital stock of RFM and
its Board of Directors, and all original issuances and subsequent transfers
and repurchases of its capital stock.
3.24 GOVERNMENTAL CONSENTS. Schedule 3.24 to the Disclosure Letter
comprises a complete and correct list of all consents, approvals, orders and
authorizations from, and all registrations, qualifications, designations,
declarations and rulings with, any United States federal, state or local
governmental authority, required by or with respect to RFM in connection with
the consummation of the transactions contemplated by this Agreement or, to
the extent not listed in Schedule 3.6 to the Disclosure Letter, necessary to
enable RFM to conduct its business as it was conducted immediately before the
Closing.
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3.25 PRODUCT WARRANTIES. Attached to Schedule 3.25 to the Disclosure
Letter are copies of the standard forms of agreements containing warranties
or guarantees relating to the products of RFM. While specific agreements may
vary these terms, no agreement to which RFM is a party provides any warranty
for a period longer than 18 months from the date of the agreement. With
respect to RFM's fiscal years ended December 31, 1994 and 1995 warranty
expense during the year was not material, excluding warranty expense relating
to products sold to Seller. The February Balance sheet contains a $10,000
reserve for warranty liability.
3.26 COMPLIANCE WITH ERISA.
Schedule 3.26 to the Disclosure Letter comprises a complete and
correct list of all "employee pension benefit plans" and all "employee
welfare benefit plans" (within the meaning of ERISA) ("Plans") of RFM or in
which any of its employees participate. Except as indicated on Schedule
3.26, each such Plan intended to qualify under Section 401(a) or Section
501(c)(9) of the Code has received a favorable determination letter as to its
qualification and has been administered in compliance with ERISA and the Code
and no fact or circumstance exists which would preclude continuing, good
faith reliance on such determination letter or would adversely affect the
qualified status of any such Plan. No fact or circumstance exists,
including, without limitation, any "reportable event" (within the meaning of
ERISA), in connection with any such Plan which might constitute grounds for
termination of such Plan by the Pension Benefit Guaranty Corporation (the
"PBGC") or of the appointment by a court of a trustee to administer such
Plan. RFM has not incurred any liability to the PBGC (other than for payment
of premiums which have been timely paid), and RFM has complied in full with
the minimum funding requirements and in all material respects with the
reporting, disclosure and fiduciary requirements of ERISA and the Code.
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3.27 LABOR MATTERS. Except to the extent set forth in Schedule 3.27 to
the Disclosure Letter: (i) RFM is and has been in material compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including, without limitation,
any such laws respecting employment discrimination, occupational safety and
health, and unfair labor practices; (ii) there is no unfair labor practice
complaint against RFM pending or, to the knowledge of Seller, threatened
before the National Labor Relations Board, Office of Federal Contract
Compliance Programs, or any comparable state, local or foreign agency; (iii)
there is no labor strike, dispute, slowdown or stoppage actually pending, or,
to the knowledge of Seller, threatened against or directly affecting RFM,
(iv) no grievance or arbitration proceeding is pending and, to the knowledge
of Seller, no claims therefor exist; (v) no agreement which is binding on RFM
restricts RFM from relocating or closing any of its operations; (vi) RFM has
not experienced any material work stoppage in the last eighteen (18) months;
(vii) RFM is not delinquent in payments to any of the employees for any
wages, salaries, commissions, bonuses or other direct compensation for any
services performed by them or amounts required to be reimbursed to such
employees; or (viii) to the knowledge of Seller, upon termination of the
employment of any of the employees of RFM before or after the Closing Date,
neither Seller, RFM nor Buyer will be liable to such employee for severance
pay. RFM is not a party to or bound by any collective bargaining agreements.
3.28 HAZARDOUS MATERIALS. Except as set forth in Schedule 3.28 to the
Disclosure Letter:
(i) RFM has not caused, and is not causing or
threatening to cause, any disposals or releases of any
Hazardous Material on or under any properties which it (A)
leases, occupies or operates or (B) previously owned,
leased, occupied or operated and to the knowledge of Seller
no such disposals or releases occurred prior to RFM
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having taken title to, or possession or operation of, any of such
properties; and no such disposals or releases are migrating
or have migrated off of such properties in subsurface soils,
groundwater or surface waters after RFM has taken title to,
or possession or operation of any such properties and, to
the knowledge of Seller, no such disposals or releases are
migrating or have migrated off of such properties in
subsurface soils, groundwater or surface water prior to such
time;
(ii) RFM has neither (A) arranged for the disposal
or treatment of Hazardous Material at any facility owned or
operated by another person, or (B) accepted any Hazardous
Material for transport to disposal or treatment facilities
or other sites selected by RFM from which facilities or
sites there has been a release or there is a release or
threatened release of a Hazardous Material; any facility
identified in Schedule 3.28 to the Disclosure Letter under
(A) above was duly licensed in accordance with law and has
not been listed in connection with the Comprehensive
Environmental Response, Compensation, and Liability Act
(CERCLA) by the United States Environmental Protection
Agency's Comprehensive Environmental Response, Compensation,
and Liability Information System (CERCLIS) or National
Priorities List (NPL) or any equivalent or like listing of
sites under state or local law (whether for potential
releases of substances listed in CERCLA or other
substances).
(iii) Seller has no actual knowledge of, or
any reason to believe or suspect that, any release or
threatened release of any Hazardous Material originating
from a property other than those leased or operated by RFM
has come to be (or may come to be) located on or under
properties leased, occupied or operated by RFM;
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(iv) RFM has never installed, used, buried or
removed any surface impoundment or underground tank or
vessel on properties owned, leased, occupied or operated by
RFM;
(v) RFM is and has been in compliance in all
material respects for the last three years with all federal,
state, local or foreign laws, ordinances, regulations,
permits, approvals and authorizations relating to air,
water, industrial hygiene and worker health and safety,
anti-pollution, hazardous or toxic wastes, materials or
substances, pollutants or contaminants, and no condition
exists on any of the real property owned by or used in the
business of RFM that would constitute a material violation
of any such law or that constitutes or threatens to
constitute a public or private nuisance; and
(vi) There has been no litigation, administrative
proceedings or investigations or any other actions, claims,
demands notices of potential responsibility or requests for
information brought or, to the knowledge of Seller,
threatened against RFM or any settlement reached by any of
them, with, any person or persons alleging the presence,
disposal, release or threatened release of any Hazardous
Material on, from or under any of such properties or as
otherwise relating to potential environmental liabilities.
3.29 BACKLOG. Schedule 3.29 to the Disclosure Letter contains a list of
all orders outstanding at the date of the February Balance Sheet, identifying
for each such order the customer, product, price, deposit, required and
expected delivery dates.
3.30 BROKERS AND FINDERS. Except as disclosed on Schedule 3.30 to the
Disclosure Letter, neither Seller nor RFM has retained any broker or finder
in connection with the transactions contemplated by this Agreement.
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3.31 PROPERTY TAXES. Schedule 3.31 to the Disclosure Letter constitutes
a true and complete list of all real property and personal property tax bills
pertaining to any property owned or used by RFM for the current and two prior
property tax years and indicates whether or not Seller or RFM is aware of any
proposal by any taxing authority to change the assessed values or assessment
rate reflected in such bills.
3.32 ACCURACY OF DOCUMENTS AND INFORMATION. Neither the representations
or warranties made by Seller in this Agreement, nor those contained in any
document, written information, financial statement, other statement,
certificate, schedule or exhibit furnished or to be furnished (or caused to
be furnished) by Seller to Buyer pursuant to this Agreement taken as a whole,
contain or will contain any untrue statement of a material fact, or omit or
will omit a material fact necessary to make the statements or facts contained
herein or therein not misleading. Seller is not aware of any fact which
Seller currently and reasonably believes has or will have a material and
adverse effect upon the financial position, results of operations or business
of RFM which has not been disclosed to Buyer other than generally known facts
or conditions affecting RFM's industry generally.
3.33 COLLAPSIBLE CORPORATION; PARACHUTE PAYMENTS. No election has been
made to treat RFM as a "consenting corporation" under Section 341(f) of the
Code, and RFM is not a party to any written or oral, formal or informal,
agreement or contract with a "disqualified individual" (as defined in Section
280G(c) of the Code) which could result in a disallowance of the deduction
for any "excess parachute payment" (as defined in Section 280G(b)(1) of the
Code) under Section 280G of the Code.
3.34 COMMITMENTS. Attached as Schedule 3.34 to the Disclosure Letter is
a list of all outstanding commitments of RFM to purchase any materials,
equipment or other goods as of the date hereof, other than commitments
assumed by Seller pursuant to the Assignment and
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Assumption Agreement. Seller represents that the disclosed commitments are
for materials, equipment or other goods necessary to execute the backlog of
contracts disclosed in Schedule 3.29.
3.35 LIABILITIES TO GOVERNMENT AGENCIES. There are no liabilities to
any agency of the Federal Government in connection with sales by RFM as may
result from audits or investigations of the DCAA, GSA, OFCCP, Inspector
General or similar investigative body.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of California.
4.2 COMPLIANCE WITH LAW AND OTHER INSTRUMENTS. Neither the execution
and delivery of this Agreement by Buyer, nor the performance by Buyer of its
obligations under this Agreement, will violate any provision of any United
States federal, state or local statute, law, ordinance, rule or regulation or
any decree or order of any governmental body thereof or will conflict with,
result in the breach of any of the terms or conditions of, constitute a
default under, any charter document of Buyer, or any agreement, indenture,
mortgage, lease, franchise, license, permit, authorization or other
instrument of any kind to which Buyer is a party or by which Buyer or any of
the property or assets of Buyer is bound.
4.3 AUTHORIZATION. Buyer has duly and validly executed and delivered
this Agreement and this Agreement constitutes the valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
4.4 INVESTMENT PURPOSE. Buyer is purchasing the Shares for investment
only and not with a view to resale in connection with any distribution of the
Shares, except in compliance with
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the Securities Act of 1933, as amended (the "Securities Act"), and all other
applicable securities laws. Buyer is an "accredited investor" within the
meaning of Regulation D under the Securities Act.
4.5 BROKERS AND FINDERS. Except as disclosed on Schedule 4.5 to the
Disclosure Letter, Buyer has not retained any broker or finder in connection
with the transaction contemplated by this Agreement.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
fulfillment, at or before the Closing, of each and every one of the following
conditions, any one or more of which may be waived by Buyer. In the event
that one or more of the following conditions is not fulfilled by the Closing
Date, Buyer may at its option delay the Closing Date for a period of not more
than 60 days to permit such condition or conditions to be satisfied.
5.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of Seller contained in this Agreement shall be
deemed to have been made again at and as of the Closing with respect to the
state of facts then existing, and shall then be true and correct in all
material respects (without regard to the revised schedules delivered pursuant
to Section 5.14), except that if a representation is already limited to
matters characterized as "material", it shall be correct in all respects.
5.2 PERFORMANCE OF COVENANTS. All of the covenants required to be
performed by Seller at or before the Closing pursuant to the terms of this
Agreement shall have been duly performed.
5.3 CERTIFICATE. Buyer shall have received a certificate signed by
Seller to the effect that the conditions set forth in Sections 5.1 and 5.2
have been satisfied.
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5.4 OPINION OF COUNSEL. Buyer shall have received the opinion of
Stradling, Yocca, Carlson & Rauth, counsel to Seller and RFM, in form and
substance satisfactory to Buyer, dated as of the Closing Date, setting forth
the conclusions contained in Exhibit 5.4 to the Disclosure Letter.
5.5 RESIGNATIONS OF DIRECTORS AND OFFICERS. All directors and officers
of RFM from whom Buyer requests resignations shall have submitted their
written resignations to RFM.
5.6 CONSENTS. Buyer shall have received, in writing and in form and
substance reasonably acceptable to Buyer, all necessary consents, approvals
and waivers with respect to the consummation of the transactions contemplated
by this Agreement indicated or required to be indicated on Schedules 3.6 and
3.24 to the Disclosure Letter.
5.7 GOOD STANDING CERTIFICATES. Seller shall have caused to be
furnished to Buyer good standing certificates and tax good standing
certificates from the jurisdictions in which RFM is qualified to conduct
business, dated after February 29, 1996.
5.8 ASSIGNMENT AND ASSUMPTION AGREEMENT. Seller and RFM shall have
entered into an Assignment and Assumption Agreement substantially in the form
of Exhibit 5.8 to the Disclosure Letter.
5.9 NO MATERIAL ADVERSE CHANGES. There shall have been no material
adverse changes in RFM's financial condition, business, assets or liabilities
(actual or contingent) from the date of this Agreement through Closing.
5.10 DEVELOPMENT AGREEMENT. RFM and Buyer shall have executed the
Development Agreement.
5.11 TRANSFER OF SHARES. Seller and RFM shall have delivered to Buyer
certificates representing the Shares free of any liens or encumbrances and
shall have executed, acknowledged and delivered any assignments, assurances,
documents and instruments of transfer reasonably
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requested by Buyer, and shall have taken any other action consistent with the
terms of this Agreement that may reasonably be requested by Buyer prior to
the Closing Date, for the purpose of assigning and transferring the Shares to
Buyer at the Closing.
5.12 DELIVERY OF AUDITED FINANCIALS. There shall have been delivered to
Buyer the Audited Financials on or before April 25, 1996.
5.13 REVISED SCHEDULES. There shall have been delivered to Buyer, if
necessary, revised schedules to the representations in Article 3 on or before
April 25, 1996. The liability and obligations of Seller under Article 10
below with respect to the representations and warranties in Article 3 shall
be based on the representations and warranties in Article 3 as qualified by
the revised schedules.
5.14 EMPLOYMENT AGREEMENTS. Ara Sagerian, Dwayne Junker, Konrad
Andersen and Behzad Ziai shall each have entered into two-year employment
agreements with Buyer in a form acceptable to Buyer.
5.15 NON-COMPETITION AGREEMENT. Seller shall have entered into a
Non-Competition Agreement in the form of Exhibit 5.15 to the Disclosure
Letter.
ARTICLE 6
CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to the
fulfillment, at or before the Closing, of each and every one of the following
conditions, any one or more of which may be waived by Seller. In the event
that one or more of the following conditions is not fulfilled by the Closing
Date, Seller may at its option delay the Closing Date for a period of not
more than 60 days to permit such condition or conditions to be satisfied.
6.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of Buyer contained in this Agreement shall be
deemed to have been made again at and
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as of the Closing with respect to the state of affairs then existing, and
shall then be true in all material respects.
6.2 PERFORMANCE OF COVENANTS. All of the covenants required to be
performed by Buyer at or before the Closing pursuant to the terms of this
Agreement shall have been duly performed.
6.3 CERTIFICATE. At the Closing, Seller shall have received a
certificate signed on behalf of Buyer to the effect that the conditions set
forth in Sections 6.1 and 6.2 have been satisfied.
6.4 OPINION OF COUNSEL. Seller shall have received an opinion of
Heller Ehrman White & McAuliffe, Counsel to Buyer, in form and substance
satisfactory to Seller, dated as of the Closing Date, setting forth the
conclusions contained in Exhibit 6.4 to the Disclosure Letter.
6.5 CONSENTS. Seller shall have received all necessary consents,
approvals and waivers with respect to the consummation of the transactions
contemplated by this Agreement indicated on Schedules 3.6 and 3.24 to the
Disclosure Letter.
6.6 IDENTIFICATION OF CERTAIN EMPLOYEES. Buyer shall have identified
on or before April 15, 1996, from among the salaried personnel listed in
Schedule 3.21 to the Disclosure Letter not more than five persons who Buyer
desires not be employed by RFM on the Closing Date.
6.7 DEVELOPMENT AGREEMENT. RFM and Buyer shall have executed the
Development Agreement.
6.8 DELIVERY OF AUDITED FINANCIALS. There shall have been delivered to
Seller the Audited Financials on or before April 25, 1996.
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ARTICLE 7
COVENANTS OF SELLER
7.1 AUDITED FINANCIALS. Seller shall cause RFM to prepare, and shall
cooperate with Ernst & Young such that Ernst & Young will be able to deliver
to Buyer, the Audited Financials on or before April 25, 1996.
7.2 ACCESS TO PROPERTIES AND RECORDS. Subject to Section 9.2,
throughout the period between the date of this Agreement and the Closing,
Seller shall cause RFM to give Buyer and its authorized officers, employees,
attorneys, and independent public accountants and other representatives
reasonable access to information and documents relating to this Agreement,
the Prior Years Financials, the February Financials, the Audited Financials,
and the transactions contemplated by this Agreement. No investigation by
Buyer or its representatives made before or after the date of this Agreement
shall affect the representations or warranties of Seller contained in this
Agreement, and all such representations and warranties shall survive any such
investigation. If Buyer discovers before the Closing that a representation
or warranty of Seller contained in Section 3 of this Agreement is materially
incorrect, Buyer shall notify Seller within five (5) business days of such
incorrect representation or warranty; provided, however, that failure of
Buyer to so notify Seller shall not affect the rights or remedies of Buyer
hereunder.
7.3 CONDUCT OF BUSINESS PRIOR TO CLOSING. Concurrently herewith the
parties shall enter into a management agreement in the form of Exhibit 7.3 to
the Disclosure Letter, which provides that Buyer shall assume the general
management of the business and operations of RFM. The parties agree that,
after the date of this Agreement and before the Closing, except as otherwise
permitted, required or contemplated by this Agreement or expressly mutually
agreed, the business of RFM shall be conducted in the ordinary course
consistent with prior practices and in a prudent, businesslike fashion.
Without limiting in any way the generality of the foregoing
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and except as so permitted, required or contemplated, none of the following
actions shall be taken without the mutual agreement of Buyer and Seller,
which agreement shall not be unreasonably withheld:
(i) merge with or into or consolidate with any
other corporation;
(ii) amend its Articles of Incorporation or By-laws;
(iii) with respect to executive management and
employees not covered by collective bargaining agreements,
change its benefit structures or salary rates (other than
normal merit increases or promotions) or enter into or
materially modify any employment contracts or severance
arrangements, or enter into collective bargaining or similar
agreements;
(iv) make any change in its authorized or
outstanding capital stock or otherwise in its capital
structure;
(v) incur any indebtedness for borrowed money
except under RFM's line of credit with Union Bank or
pursuant to Section 7.11 hereof;
(vi) issue or deliver any stock, bonds or other
securities or debt instruments, or any options, warrants or
other rights calling for the issuance or delivery thereof;
(vii) declare or make, or agree to declare or
make, any payment or dividends or distributions, other than
as contemplated by this Agreement, or purchase or redeem, or
agree to purchase or redeem, any of its capital stock or
other securities;
(viii) enter into any transactions other than
in the ordinary course of business (including any capital
expenditure in an amount greater than $10,000 in the
aggregate);
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(ix) terminate or amend any material contract,
agreement, license or other instrument to which RFM is a
party or by which any of RFM or any of its assets are bound,
except agreements which by their terms are terminable in the
ordinary course of business, or
(x) enter into any contract or commitment in the
ordinary course of business which involves more than $50,000
or has a duration longer than one year.
Neither party shall change or permit to be changed in any material
respect the accounting or valuation practices applicable to the assets or
businesses of RFM.
7.4 NOTICE OF EVENTS. Throughout the period between the date of this
Agreement and the Closing, Seller shall promptly advise Buyer in writing of
any and all material events and developments concerning the financial
position, assets, liabilities, results of operations or business of RFM or
any of the items or matters covered by Seller's representations and
warranties contained in this Agreement.
7.5 EMPLOYEE STOCK OPTIONS. Schedule 7.5 to the Disclosure Letter
contains a list of all RFM employees who hold options to purchase stock of
Seller and describing the number of options held and the exercise prices of
such options. With respect to all employees listed on Schedule 7.5 to the
Disclosure Letter whose options are in the money at the date of this
Agreement or on or prior to April 25, 1996, Seller shall, by appropriate
corporate action, have caused all such options to be accelerated so as to
become exercisable in full.
7.6 RFM WORK FOR SELLER. After the Closing the only commitment of RFM
to Seller shall be the performance of RFM's obligations under the Development
Agreement.
7.7 COOPERATION. Seller shall cooperate, and cause the appropriate
parties to cooperate, with Buyer in preparing and making all filings or
submissions to governmental agencies required in connection with the
transactions contemplated by this Agreement. Seller, at
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any time before or after the Closing, shall execute, acknowledge and deliver
any further assignments, assurances, documents and instruments of transfer
reasonably requested by Buyer, and shall take any other action consistent
with the terms of this Agreement that may reasonably be requested by Buyer,
for the purpose of assigning and transferring and delivering the Shares to
Buyer.
7.8 EMPLOYEES. Seller shall use reasonable best efforts to assist
Buyer in retaining the continued services of RFM's key employees. Seller
shall cause all employees identified by Buyer to Seller as contemplated by
Section 6.6 not to be employed by RFM on the Closing Date. Seller shall be
responsible for any severance paid to such employees.
7.9 BEST EFFORTS TO CLOSE. Seller shall use, and shall cause RFM to
use, their respective reasonable best efforts to fulfill the conditions set
forth in Article 5 of this Agreement over which they have control or
influence, and to complete the transactions contemplated by this Agreement.
7.10 TRANSFER OF CERTAIN ATM BUSINESS. All RFM assets and liabilities
recorded in Seller's general ledger located in Irvine, California will be
transferred to RFM's general ledger located in San Diego, California
effective March 31, 1996 and will be included in the Audited Financial
Statements. All of Seller's employees located in San Diego shall be
transferred to RFM's payroll records effective April 1, 1996 and the related
payroll and other liabilities shall be transferred effective March 31, 1996
and shall be included in the Audited Financial Statements. Such employees
shall be considered employees of RFM for all purposes of this Agreement.
7.11 SELLER LOANS. To the extent reasonably necessary to finance the
business and operation of RFM in accordance with historic practice for
financing such operations, from April 1, 1996 through the Closing, Seller
agrees to loan funds to RFM from time to time which, unless Seller otherwise
agrees, will not exceed $250,000. All such funds loaned by Seller to
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RFM shall bear interest at the rate charged Seller by its primary lender. All
such financing activities shall be recorded in a separate intercompany
account. At Closing, Seller shall provide Buyer with evidence of such
transfers in the form of bank wire transfer receipts. Buyer shall reimburse
Seller for such amounts, including principle and interest, at Closing.
ARTICLE 8
COVENANTS OF BUYER
8.1 COOPERATION IN FILINGS. Buyer shall cooperate with Seller and RFM
in preparing and making all filings or submissions to governmental agencies
required in connection with the transactions contemplated by this Agreement.
8.2 EMPLOYEE BENEFITS. With respect to the employees of RFM at the
Closing Date, Buyer shall continue coverage of such employees under employee
benefit plans of RFM as they exist at the Closing Date or shall include such
employees under benefit plans of Buyer. Such employees who become covered
under Buyer's plans shall receive credit for length of service for the period
of their continuous service as employees of RFM or of Seller.
8.3 WARRANTY REPAIRS. Buyer shall cause RFM after Closing to perform
warranty repairs and service with respect to products of RFM sold prior to
the Closing Date in accordance with the warranty obligations of RFM disclosed
in writing to the Buyer, the costs of which shall be borne by Seller. On a
monthly basis, Buyer shall invoice Seller for the burdened time and materials
charges incurred in performing such work, which Seller shall pay within 60
days.
8.4 BEST EFFORTS TO CLOSE. Buyer shall use its best efforts to fulfill
all of the conditions set forth in Article 6 of this Agreement over which it
has control or influence, and to complete the transactions contemplated by
this Agreement.
8.5 COLLECTION OF EXCLUDED RECEIVABLES. Buyer shall use reasonable
efforts to assist Seller in collecting the Excluded Receivables. All
payments received by Buyer related to the
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Excluded Receivables shall be promptly remitted to the Seller. Seller shall
promptly reimburse Buyer for all reasonable out-of-pocket expenses incurred
in collecting Excluded Receivables.
ARTICLE 9
COVENANTS OF SELLER AND BUYER
9.1 TAX MATTERS.
9.1.1 TAX ELECTIONS. At the request of Buyer, Seller shall
make a joint election with the Buyer under Section 338(h)(10) of the Code
with respect to the purchase of the Shares and under any similar provisions
of state law. Seller represents that its sale of the Shares is eligible for,
and Buyer represents that it is qualified to make, such election. If the
election is made, Seller and Buyer shall within 30 days after the Closing
Date exchange completed and executed copies of Internal Revenue Service Form
8023-A, required schedules thereto, and any similar state forms. If any
changes are required in these forms as a result of information that is first
available after the Closing Date, the parties will promptly agree on such
changes. If such election is made, Seller and Buyer will negotiate in good
faith, and agree to, an allocation of a portion of the Purchase Price among
the assets of RFM that are deemed to have been acquired pursuant to Section
338(h)(10) of the Code or state law equivalent. Seller and Buyer shall use
the asset values determined from such allocation for purposes of all tax
reports and returns, including Internal Revenue Service Form 8594 or any
equivalent statement.
9.1.2 TAX RETURN. If RFM is part of a consolidated group with
STM for purposes of filing tax returns, STM shall include in those returns
the items of income, deductions, gain, loss and credit of RFM for the period
from January 1, 1996 through March 31, 1996.
9.2 INSURANCE. After Closing, Buyer may elect to have RFM included as
an insured on various insurance policies of Buyer. For up to one year after
Closing and provided coverage
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is available, Buyer may elect to have RFM continue to be insured under
insurance policies existing at Closing, provided, however, that RFM shall
bear its proportionate cost of continuing to be covered under such existing
insurance policies as well as any increases in premiums directly relating to
RFM and not Seller. To the extent that Seller is financially responsible for
liabilities of RFM after the Closing with respect to facts and circumstances
occurring prior to Closing, Seller shall maintain appropriate insurance
coverages with respect to such liabilities and name RFM as a co-insured.
Either party may request from the other certificates of insurance with
respect to the coverage of RFM.
9.3 PRESS RELEASES. Except as otherwise required by applicable law,
neither party hereto, nor any of its Affiliates, shall issue any press
release, make any public announcement or otherwise release any information
publicly regarding this transaction, without the consent of the other party.
Buyer and Seller shall give each other the right to review and comment upon
each other's press release relating to this Agreement prior to issuance of
such press releases.
9.4 CONFIDENTIAL INFORMATION. Except as otherwise required by
applicable law, Buyer will not disclose (other than to its attorneys,
accountants, advisors or prospective investors, who are themselves required
to keep such information confidential) prior to the Closing (or ever, if the
Closing does not occur) to any other party any data, information or documents
obtained from Seller or RFM or from any director, officer, employee or agent
of Seller or RFM or any data or documents prepared on the basis of such data,
information or documents except in each case for any data, information or
document which: (i) was or is in the public domain; (ii) was known to Buyer
prior to its disclosure by Seller or RFM; or (iii) is disclosed to Buyer by a
third party that is not an agent of Seller or RFM or otherwise bound by a
confidentiality obligation.
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ARTICLE 10
INDEMNIFICATION
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except with regard to
Sections 3.9 (relating to taxes), 3.28 (relating to Hazardous Materials) and
3.35 (relating to liabilities to governmental agencies) of this Agreement,
all representations and warranties contained in this Agreement, including
those contained in the exhibits, schedules and other documents delivered
pursuant to this Agreement, shall survive the Closing and shall remain in
full force and effect until April 30, 1997. All covenants contained in this
Agreement likewise shall survive the Closing but shall not be subject to the
limitation on survival set forth in the preceding sentence. Representations
and warranties made in Section 3.9 of this Agreement shall survive until the
third anniversary of the filing by Seller or RFM of U.S. federal income tax
returns reporting income, deductions, gains, losses and credits of RFM for
the period January 1, 1996 to the Closing Date. Representations and
warranties made in Sections 3.28 and 3.35 of this Agreement shall survive for
three years from the Closing Date. So long as a claim arising out of a
breach of a representation or warranty is made prior to the expiration of
such representation or warranty indemnification may be had (subject to the
other provisions of this Article) notwithstanding that the scope of loss may
not be determined, remedial work completed or claim otherwise resolved prior
to such expiration.
10.2 INDEMNITY. Each party hereto (the "Indemnifying Party") shall
indemnify and hold the other party hereto (the "Indemnified Party") harmless
to the extent provided in this Article 10 from and against any and all
losses, liabilities, claims, disputes, proceedings, demands, judgments,
settlements, costs and expenses of any nature whatsoever (including
reasonable fees and disbursements of attorneys, accountants, or other
professional advisors relating to investigation, prosecution, negotiation,
defense, settlement, or appeal) (the foregoing referred to
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individually as a "Loss" and collectively as "Losses") resulting from or
arising out of (i) any breach of any representation or warranty of the
Indemnifying Party contained in this Agreement or in any schedule, exhibit,
certificate, document or other item delivered to the Indemnified Party or its
representatives in connection with this Agreement (subject to Section 5.13)
or (ii) the nonperformance, partial or total, of any covenant of the
Indemnifying Party contained in this Agreement. In connection with any
litigation with respect to this Agreement, it is expressly understood and
agreed that any diminution in the value of RFM's business being acquired
hereunder, by reason of any of the foregoing, shall be deemed a "Loss" to
Buyer for purposes of this indemnity. Without limiting the foregoing,
Seller's indemnification liabilities arising from Section 3.9 of this
Agreement shall include Losses consisting of all taxes of any nature
whatsoever, and all fees, additions to tax, penalties, interest and other
governmental charges of any nature whatsoever related thereto, that RFM or
Buyer may be required to pay after the Closing with respect to the operations
of RFM or Buyer before the Closing Date other than those accrued in the
Audited Balance Sheet and all other Losses relating to the investigation,
prosecution, negotiation with applicable tax authorities, defense,
settlement, or appeal of any claim, dispute or proceeding relating to any
such taxes. The indemnification provided hereunder is an after-tax indemnity
for after-tax losses, taking into account whether or not any item indemnified
against is deductible for tax purposes when paid or accrued by Buyer or RFM
and whether or not any receipt of indemnity payments hereunder is taxable to
Buyer.
10.3 LIMITATIONS ON LOSSES. Except with respect to liabilities arising
from Section 3.9 of this Agreement, Seller shall not be required to indemnify
Buyer under Section 10.2 unless the aggregate amount of all Losses subject to
the limitation in this Section 10.3 for which indemnity is due exceeds
$100,000, in which case Seller shall be responsible for the indemnifiable
amount to the extent that it exceeds $100,000. All liabilities arising from
any breach of Section 3.9 of
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this Agreement shall be the responsibility of the Seller regardless of
amount. The aggregate liability of Seller under Article 10 shall not exceed
$1,000,000 plus the purchase price paid by Buyer to Seller for the Shares.
10.4 NOTICE OF CLAIMS; PROCEDURES. If an Indemnified Party makes any
claim against an Indemnifying Party for indemnification, such claim shall be
in writing and shall state in general terms the facts upon which the
Indemnified Party makes such claim. In the event of any claim or demand
asserted against the Indemnified Party by a third party upon which the
Indemnified Party may claim indemnification, the Indemnifying Party shall
give written notice to the Indemnified Party within 15 days after receipt of
notice from the Indemnified Party indicating whether the Indemnifying Party
intends to assume the defense of such claim or demand. Notwithstanding such
assumption, the Indemnified Party shall have the right to participate in such
defense, by written notice given to the Indemnifying Party within 15 days
from the date of the Indemnifying Party's notice, provided that such
participation shall be at the expense of the Indemnified Party unless there
is a conflict of interest between the Indemnified Party and the Indemnifying
Party in which case the cost of such participation (including attorneys fees
for counsel selected by the Indemnified Party) shall be reimbursed by the
Indemnifying Party. If the Indemnifying Party assumes the defense and the
Indemnified Party does not participate, the Indemnifying Party shall have the
right fully to control and to settle the proceeding. If the Indemnified
Party elects to participate in such defense, the parties shall cooperate in
the defense of the proceeding, and shall not settle the same without the
consent of each, which consent shall not be unreasonably withheld. If the
Indemnifying Party elects not to assume the defense, the Indemnified Party
shall have the right to do so (at the expense of the Indemnifying Party), and
may settle the same without the consent of the Indemnifying Party.
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ARTICLE 11
MISCELLANEOUS
11.1 EXPENSES. Each party to this Agreement shall pay (or cause an
Affiliate to pay) its and its Affiliates' own costs and expenses (including
all legal, accounting, broker, finder and investment banker fees) relating to
this Agreement, the negotiations leading up to this Agreement and the
transactions contemplated by this Agreement; provided, however, that Buyer
shall share bear the costs of Ernst & Young LLP in connection with the
Audited Financials.
11.2 AMENDMENT. This Agreement shall not be amended except by a writing
duly executed by Buyer and Seller.
11.3 ENTIRE AGREEMENT. This Agreement, including the exhibits,
schedules and other documents delivered pursuant to this Agreement, contains
all of the terms and conditions agreed upon by the parties relating to the
subject matter of this Agreement and supersedes all prior and contemporaneous
agreements, negotiations, correspondence, undertakings and communications of
the parties, oral or written, respecting the subject matter.
11.4 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California, excluding any laws
which direct the application of another jurisdiction's laws.
11.5 HEADINGS. The headings contained in this Agreement are intended
solely for convenience and shall not affect the rights of the parties to this
Agreement.
11.6 MUTUAL CONTRIBUTION. The parties to this Agreement and their
counsel have mutually contributed to its drafting. Consequently, no provision
of this Agreement shall be construed against any party on the ground that
party drafted the provision or caused it to be drafted.
35
<PAGE>
11.7 NOTICES. All notices, requests, demands and other communications
made in connection with this Agreement shall be in writing and shall be
deemed to have been duly given on the date of delivery, if delivered to the
persons identified below or via fax with confirmation, or three days after
mailing if mailed by certified or registered mail, postage prepaid, return
receipt requested, addressed as follows:
IF TO BUYER:
Ronald Ragland
Remec, Inc.
9404 Chesapeake Drive
San Diego, California 92123
Fax: (619) 560-4512
WITH A COPY TO:
Victor A. Hebert
Heller, Ehrman, White & McAuliffe
333 Bush Street, 31st Floor
San Francisco, California 94104
Fax: (415) 772-6268
IF TO SELLER:
STM Wireless Inc.
One Mauchly Avenue
Irvine, California 92718
Fax: (714) 753-0808
Attn: Emil Youssefzadeh
WITH A COPY TO:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660-6441
Fax: (714) 725-4100
Such persons and addresses may be changed, from time to time, by
means of a notice given in the manner provided in this Section.
36
<PAGE>
11.8 WAIVER. Waiver of any term or condition of this Agreement by
any party shall not be construed as a waiver of any subsequent breach or
failure of the same term or condition, or a waiver of any other term or
condition of this Agreement.
11.9 BINDING EFFECT; ASSIGNMENT. The parties agree that this
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns. No party to this Agreement may
assign or delegate, by operation of law or otherwise, all or any portion of
its rights, obligations or liabilities under this Agreement without the prior
written consent of all other parties to this Agreement, which they may
withhold in their absolute discretion; provided, however, that, without such
consent, Buyer may assign all or any portion of its rights, obligations or
liabilities under this Agreement to an affiliate of Buyer, which assignment
shall not relieve Buyer of its obligations or liabilities hereunder.
11.10 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall
confer any rights upon any person or entity which is not a party or an
assignee of a party to this Agreement.
11.11 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart
were upon a single instrument. All counterparts shall be deemed an original
of this Agreement.
11.12 FURTHER ASSURANCES. After the Closing the parties to this
Agreement shall take such further actions as they agree may be reasonably
necessary to carry out the transactions contemplated by this Agreement.
11.13 KNOWLEDGE. If a representation and warranty of Seller refers
to the knowledge of Seller, the knowledge of Seller includes the knowledge of
Seller and RFM.
11.14 TERMINATION.
11.14.1 MUTUAL CONSENT. This Agreement may be terminated at any
time prior to the Closing by means of the written consent of Buyer and
Seller.
37
<PAGE>
11.14.2 FAILURE TO SATISFY CONDITIONS NOT WAIVED. This Agreement
may be terminated by Buyer alone if there is a failure to satisfy a condition
set forth in Article 5 which condition is not waived, and by Seller alone if
there is a failure to satisfy a condition set forth in Article 6 which
condition is not waived.
11.14.3 CLOSING HAS NOT OCCURRED. This Agreement may be
terminated by Buyer alone or Seller alone, by written notice, if the Closing
shall not have taken place by June 30, 1996.
11.15 ARBITRATION AND PROCEDURE. All disputes arising out of or
related to this Agreement shall, at the option of either Buyer or Seller, be
resolved by and through an arbitration proceeding to be conducted under the
auspices of and in accordance with the commercial arbitration rules of the
American Arbitration Association. Both the foregoing agreement of Buyer and
Seller to arbitrate any and all such claims, and the results, determination,
findings, judgment and/or award rendered through such arbitration, shall be
final and binding upon each of Buyer and Seller. Such arbitration may be
initiated by written notice from either Buyer or Seller to the other. The
arbitration shall be conducted by a panel of three arbitrators. Each of
Buyer and Seller shall select one arbitrator from a list of arbitrators
provided by the organization sponsoring the arbitration, and the two
arbitrators so selected shall appoint the third arbitrator from such list.
The costs of such arbitrators and the arbitration shall be borne equally by
Buyer and Seller. Each of Buyer and Seller shall bear separately the cost of
their respective attorneys, witnesses and experts in connection with such
arbitration. Time is of the essence to this arbitration procedure, and the
arbitrators shall be instructed to render their decision within 30 days of
completion of the arbitration unless emergency injunctive relief is sought in
which case they shall be instructed to render their decision immediately.
38
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
STM WIRELESS INC.,
a Delaware corporation
By: /S/ FRANK T. CONNORS
-----------------------------------------------
Name: Frank T. Connors
Title: Executive Vice President
REMEC, INC.,
a California corporation
By: /S/ RONALD E. RAGLAND
-----------------------------------------------
Name: Ronald E. Ragland
Title: Chairman and Chief Executive Officer
39
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR PERIOD ENDED 3-31-96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANICAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,149
<SECURITIES> 3,050
<RECEIVABLES> 13,588
<ALLOWANCES> 75
<INVENTORY> 7,148
<CURRENT-ASSETS> 34,538
<PP&E> 11,553
<DEPRECIATION> 3,009
<TOTAL-ASSETS> 48,244
<CURRENT-LIABILITIES> 10,433
<BONDS> 4,437
0
0
<COMMON> 32,104
<OTHER-SE> 866
<TOTAL-LIABILITY-AND-EQUITY> 48,244
<SALES> 6,537
<TOTAL-REVENUES> 7,466
<CGS> 3,957
<TOTAL-COSTS> 4,421
<OTHER-EXPENSES> 3,060
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 594
<INCOME-TAX> 190
<INCOME-CONTINUING> 320
<DISCONTINUED> 123
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 404
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
