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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-K/A
(Amendment No. 2)
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended January 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ________________ to _________________
Commission File Number 0-27414
REMEC, INC.
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 95-3814301
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9404 CHESAPEAKE DRIVE, SAN DIEGO, CALIFORNIA 92123
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (619) 560-1301
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: NONE
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 twelve (12) months (or such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (90) days: Yes X No
--- ---
Indicate by check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will to be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on April 8, 1997 was approximately $248.7 million based on the last
reported sale price on the Nasdaq National Market of $23 3/4 per share of such
stock on April 8, 1997.
The number of outstanding shares of Registrant's Common Stock as of
April 8, 1997 was 12,301,266.
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LIST OF ITEMS AMENDED
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ITEM PAGE
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6. Selected Financial Data.....................................................
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................
8. Financial Statements and Supplementary Data.................................
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............
</TABLE>
TEXT OF AMENDMENT
Each of the above-listed Items is hereby amended by deleting the item
in its entirety appearing in the Form 10-K of REMEC, Inc. (the "Company" or
"REMEC") filed with the Securities and Exchange Commission ("SEC") on April 17,
1997 (the "Initial Filing") and the first amendment thereto on Form 10-K/A filed
with the SEC on June 16, 1997 (the "Amendment No. 1"), and replacing each such
Item with the corresponding Item that appears in this Amendment No. 2 to Annual
Report on Form 10-K (the "Amendment No. 2"). The purpose of this Amendment No. 2
is to restate the Consolidated Financial Statements of REMEC to reflect its
acquisition of Q-bit Corporation ("Q-bit") that was completed in October 1997
and its acquisition of C&S Hybrid, Inc. that was completed in June 1997, both of
which were accounted for by REMEC as a pooling of interests.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the Consolidated Financial Statements for REMEC and Notes thereto and Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The selected consolidated financial data
set forth below with respect to the Company's statements of income for each of
the years in the three year period ended January 31, 1997 and with respect to
the balance sheets at January 31, 1996 and 1997, are derived from the audited
consolidated financial statements. These consolidated financial statements are
included elsewhere in this Annual Report on Form 10-K and are qualified by
reference to such financial statements. The statement of operations data for the
years ended January 31, 1993 and 1994 and the balance sheet data at January 31,
1993, 1994 and 1995, are derived from audited and unaudited financial statements
not included in this Annual Report on Form 10-K.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEARS ENDED JANUARY 31,
-------------------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $62,627 $66,599 $81,978 $93,228 $118,554
Cost of sales........................... 42,883 45,427 57,994 66,172 85,659
------- ------- ------- ------- --------
Gross profit.......................... 19,744 21,172 23,984 27,056 32,895
Operating expenses:
Selling, general and
administrative..................... 11,864 13,332 15,646 16,611 19,349
Research and development 1,525 1,323 2,067 4,016 4,605
------- ------- ------- ------- --------
Total operating expenses....... 13,389 14,655 17,713 20,627 23,954
------- ------- ------- ------- --------
Income from operations.................. 6,355 6,517 6,271 6,429 8,941
Interest (income) expense and other..... 222 191 590 401 (48)
------- ------- ------- ------- --------
Income before provision for income taxes 6,133 6,326 5,681 6,028 8,989
Provision for income taxes.............. 1,819 1,830 2,394 2,429 4,017
------- ------- ------- ------- --------
Income before extraordinary item........ 4,314 4,496 3,287 3,599 4,972
Extraordinary item...................... 167 -- -- -- --
------- ------- ------- ------- --------
Net income.............................. $ 4,481 $ 4,496 $ 3,287 $ 3,599 $ 4,972
======= ======= ======= ======= ========
Net income per share.................... $ .29 $ .34 $ .25 $ .28 $ .30
======= ======= ======= ======= ========
Shares used in per share calculations... $15,559 $13,309 $13,031 $12,989 $ 16,669
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 31,
----------------------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................... $ 4,248 $ 4,156 $ 3,628 $ 3,828 $ 63,172
Working capital......................... 13,803 16,607 15,620 17,575 84,142
Total assets............................ 30,143 42,424 42,357 48,558 125,440
Long-term debt.......................... 2,446 5,846 3,235 4,781 2,493
Total shareholders' equity.............. 17,971 22,177 24,489 27,247 103,555
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REMEC commenced operations in 1983 and has become a leader in the
design and manufacture of microwave multi-function modules ("MFMs") for
microwave transmission systems used in defense applications and the commercial
wireless telecommunications industry. REMEC's consolidated results of operations
include the operations of REMEC Microwave ("Microwave"), REMEC Wireless, Inc.
("Wireless"), Humphrey, Inc. ("Humphrey"), RF Microsystems ("RFM"), Magnum
Microwave ("Magnum"), Radian Technology, Inc. ("Radian"), C&S Hybrid, Inc.
("C&S") and Q-bit Corporation ("Q-bit").
REMEC's research and development efforts in the defense industry are
conducted in direct response to the unique requirements of a customer's order
and, accordingly, expenditures related to such efforts are included in cost of
sales and the related funding is included in net sales. As a result, historical
REMEC funded research and development expenses in the defense industry have been
minimal. As REMEC's commercial business has expanded, research and development
expenses have generally increased in amount and as a percentage of sales. REMEC
expects this trend to continue, although research and development expenses may
fluctuate on a quarterly basis both in amount and as a percentage of sales.
Effective January 31, 1994, REMEC acquired all of the outstanding stock
of Humphrey in a transaction that was accounted for as a purchase. Humphrey
designs and manufactures precision instruments for guidance, control and
measurement systems used in defense and commercial applications. Effective April
30, 1996, REMEC acquired all of the outstanding common stock of RFM and various
VSAT (very small aperture terminals) microwave design and manufacturing
resources from STM in a transaction that was accounted for as a purchase. RFM
provides the Department of Defense with research and analysis, systems
engineering and test evaluation services. The consolidated statements of income
and cash flows for all periods subsequent to April 30, 1996 include RFM's
operating results from April 30, 1996. After the 1997 fiscal year end, on August
26, 1997, the Company sold RFM in exchange for cash consideration of $5.0
million. The sale resulted in an after tax gain of $1,728,000, or $0.08 per
share.
On August 26, 1996, REMEC acquired all of the outstanding common stock
of Magnum in a transaction that was accounted for as a pooling of interests.
Magnum is a leading supplier of oscillators and mixers. On February 28, 1997,
REMEC acquired all of the outstanding common stock of Radian, in a transaction
that was accounted for as a pooling of interests. Radian provides the defense
market with microwave components, primarily synthesizers, receivers, oscillators
and filters. On June 27, 1997, REMEC acquired all of the outstanding common
stock of C&S Hybrid in a transaction that was accounted for as a pooling of
interests. C&S Hybrid is a manufacturer of transmitter and receiver hardware
assemblies ("transceivers") that are integrated into terrestrial-based
point-to-point microwave radios primarily for use in commercial applications. On
October 24, 1997, REMEC acquired all of the outstanding common stock of Q-bit in
a transaction that was accounted for as a pooling of interests. Q-bit is a
manufacturer of amplifier-based microwave components and multi-function modules.
All accompanying historical financial statement information has been restated to
include the operations, assets and liabilities of Magnum, Radian, C&S Hybrid,
and Q-bit.
In March 1997, REMEC acquired Verified Technical Corporation
("Veritek"), a producer of high quality surface mount manufacturing assemblies
in a transaction accounted for as a purchase. In October 1997, REMEC formed
REMEC Canada (as a wholly owned subsidiary) for the purpose of facilitating the
acquisition of Canadian companies, including the then contemplated acquisition
of Nanowave Technologies, Inc., a manufacturer of amplifier based microwave and
millimeter wave components and multi-function modules, in a transaction
accounted for as a purchase. REMEC Canada completed the acquisition of Nanowave
Technologies, Inc. effective as of October 29, 1997. Since both Veritek and
Nanowave were acquired after the 1997 fiscal year end (and accounted for as
purchases), the consolidated results of operations of REMEC presented herein do
not include the operations of either Veritek or Nanowave.
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RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total net sales,
certain consolidated statement of income data for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY 31,
------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales.............................................. 100% 100% 100%
Cost of sales.......................................... 71 71 72
--- --- ---
Gross profit........................................ 29 29 28
Operating expenses:
Selling, general & administrative................... 19 18 17
Research and development............................ 2 4 4
--- --- ---
Total operating expenses............................... 21 22 21
Income from operations.............................. 8 7 7
Interest (income) expense and other.................... 1 -- --
--- --- ---
Income before provision
for income taxes.................................... 7 7 7
Provision for income taxes............................. 3 3 3
--- --- ---
Net income.......................................... 4% 4% 4%
=== === ===
</TABLE>
FISCAL YEAR ENDED JANUARY 31, 1997 VS. FISCAL YEAR ENDED JANUARY 31, 1996
Net Sales. Net sales increased 27% from $93.2 million during fiscal
1996 to $118.6 million for fiscal 1997. The increase in net sales is attributed
to sales increases at all of REMEC's operating subsidiaries, including $4.8
million of net sales of RFM from the effective date of the acquisition. Defense
sales increased from $63.0 million for fiscal 1996, to $69.8 million for fiscal
1997, an 11% increase. Commercial sales increased from $30.2 million in fiscal
1996 to $48.8 million in fiscal 1997, a 62% increase. The increase in defense
net sales is attributable to increased bookings during fiscal 1997 and increased
shipments on production contracts for existing programs and customers. Results
for fiscal 1996 include $2.4 million of non-recurring revenue, $0.9 million of
gross profit and $0.3 million of selling, general and administrative expenses
associated with the settlement of a termination claim for a large defense
contract. A significant portion of the sales to commercial wireless customers
were attributable to the production of microwave front-ends and VSAT equipment
for P-COM and STM, respectively.
Gross Profit. Gross profit increased 22% from $27.1 million for fiscal
1996 to $32.9 million for fiscal 1997. Gross margin decreased from 29% in fiscal
1996 to 28% in fiscal 1997. Gross margins for defense were 26% in fiscal 1996
and 27% in fiscal 1997. The improved defense gross margins in fiscal 1997 is
primarily attributable to the increased sales volume in fiscal 1997 resulting in
lower unit costs through improved overhead absorption. Commercial gross margins
were 36% in fiscal 1996 and 29% in fiscal 1997. The decline in commercial
margins were primarily the result of a change in sales mix and start-up costs
associated with the introduction of new products at certain of the Company's
subsidiaries.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased 16% from $16.6 million during fiscal
1996 to $19.3 million for fiscal 1997. This increase is primarily attributable
to additional SG&A costs associated with the Wireless and RFM operations,
neither of which were significant contributors to prior year SG&A costs.
Wireless was operating at start-up levels during fiscal 1996, while RFM was not
included in prior year results as it was not acquired until the second quarter
of fiscal 1997. In
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addition, SG&A expenses for fiscal 1997 increased due to $424,000 of
non-recurring acquisition costs associated with the Magnum merger. SG&A declined
as a percentage of net sales from 18% for fiscal 1996 to 17% for fiscal 1997,
due to increased sales volume. REMEC expects SG&A expenses to increase in
absolute dollars in the future as it pursues opportunities in the commercial
wireless telecommunications market.
Research and Development Expenses. Research and development expenses
increased from $4.0 million for fiscal 1996 to $4.6 million for fiscal 1997.
This increase resulted primarily from commercial wireless telecommunications
research and development expenses arising from the expansion of the Company's
commercial business.
Interest (Income) Expense and Other. Interest expense was $401,000 for
fiscal 1996 as compared to interest income of $48,000 for fiscal 1997. The
change is primarily attributable to the increased interest income associated
with the increased level of cash on hand as a result of the funds generated from
REMEC's initial public offering which was consummated in February 1996.
Provision for Income Taxes. REMEC's effective income tax rate increased
from 40% for fiscal 1996 to 45% for fiscal 1997. The increase in the Company's
effective tax rate reflects the net loss generated at the Company's Q-bit
subsidiary. Prior to its acquisition by REMEC, Q-bit had operated as an "S
corporation" under the Internal Revenue Code. Accordingly, the consolidated
financial statements reflect no benefit for Q-bit's net operating losses.
FISCAL YEAR ENDED JANUARY 31, 1996 VS. FISCAL YEAR ENDED JANUARY 31, 1995
Net Sales. Net sales increased 14% from $82.0 million during fiscal
1995 to $93.2 million during fiscal 1996. Defense sales increased from $60.1
million in fiscal 1995 to $63.0 million in fiscal 1996, a 5% increase.
Commercial sales increased from $21.9 million in fiscal 1995 to $30.2 million in
fiscal 1996, a 38% increase.
Gross Profit. Gross profit increased 13% from $24.0 million for fiscal
1995 to $27.1 million for fiscal 1996. Gross margin was 29% in both fiscal 1995
and fiscal 1996. Gross margins for commercial were 42% in fiscal 1995 versus 36%
in fiscal 1996. Commercial gross margins were affected by start-up costs
associated with the Company's new P-COM contract. Gross margins for defense were
25% in fiscal 1995 versus 26% in fiscal 1996. The improved defense gross margins
in fiscal 1996 are primarily attributable to the increased sales volume in
fiscal 1996 resulting in lower unit costs through improved overhead absorption.
Selling, General and Administrative Expenses. SG&A expenses increased
6% from $15.6 million during fiscal 1995 to $16.6 million for fiscal 1996. SG&A
declined as a percentage of net sales from 19% for fiscal 1995 to 18% for fiscal
1996 due to increased sales volume.
Research and Development Expenses. Research and development expenses
increased from $2.1 million for fiscal 1995 to $4.0 million for fiscal 1996.
This increase resulted primarily from commercial wireless telecommunications
research and development expenses.
Interest (Income) Expense and Other. Interest expense decreased from
$590,000 for fiscal 1995 to $401,000 for fiscal 1996. The decrease is
attributable to continued reductions in average bank borrowings as REMEC reduced
the debt attributable to the Humphrey acquisition.
Provision for Income Taxes. REMEC's effective income tax rate decreased
from 42% in fiscal 1995 to 40% in fiscal 1996 primarily as a result of the
benefit of Q-bit's status as an "S corporation" under the Internal Revenue Code.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1997, REMEC had $63.2 million of cash and cash
equivalents and $84.1 million of working capital. REMEC also has $17.0 million
in available credit facilities consisting of a $9.0 million revolving working
capital line of credit and a $8.0 million revolving term loan. The borrowing
rate under both credit facilities is
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prime. The revolving working capital line of credit terminates July 1, 1998. The
revolving period under the term loan expires July 1, 1998, at which time any
loan amount outstanding converts to a term loan to be fully amortized and paid
in full by January 2, 2002. As of January 31, 1997, there were no borrowings
outstanding under REMEC's credit facilities. During fiscal 1997, REMEC's net
cash provided by operations was approximately $829,000. The fiscal year 1997 net
cash provided by operations primarily consisted of approximately $8.6 million of
net income and depreciation and amortization expenses offsetting increases in
accounts receivable and inventories of $4.9 million and $2.5 million,
respectively. The increase in accounts receivable and inventories during fiscal
1997 resulted from REMEC's increased level of sales.
Investing activities utilized $10.0 million in cash during fiscal 1997,
primarily a result of the $4.0 million cash acquisition of RFM and $7.4 million
of capital expenditures offset by approximately $1.5 million in sales of
short-term investments. The bulk of the fiscal 1997 capital expenditures were
associated with the expansion of REMEC's commercial wireless telecommunications
business. The above expenditures were financed primarily by funds raised in
REMEC's public offerings completed in February 1996 and January 1997. REMEC's
future capital expenditures will continue to be substantially higher than
historical levels as a result of commercial wireless telecommunications
expansion requirements.
In February 1996, REMEC completed an initial public offering in which
it sold a total of approximately 2.3 million shares of Common Stock at $8.00 per
share. The net proceeds from the offering after deducting underwriting
commissions and expenses totaled $15.6 million. In January 1997, REMEC sold
approximately 2.4 million shares of Common Stock at $23.00 per share in a public
offering. The net proceeds from the offering after deducting underwriting
commissions and expenses totaled $52.0 million. REMEC also realized proceeds of
approximately $3.7 million from additional issuances of stock primarily
attributable to REMEC's Employee Stock Purchase Plan and a private equity
placement by REMEC's Magnum subsidiary completed prior to its merger in August
1996. In addition to the funds invested in connection with the acquisition of
RFM, an additional $2.4 million of the initial public offering proceeds were
utilized to pay down certain bank obligations, including $526,000 of obligations
assumed in the acquisition of RFM.
REMEC's future capital requirements will depend upon many factors,
including the nature and timing of orders by OEM customers, the progress of
REMEC's research and development efforts, expansion of REMEC's marketing and
sales efforts, and the status of competitive products. REMEC believes that
available capital resources and the proceeds from its public offerings will be
adequate to fund its operations for at least twelve months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is included as a separate section following
Item 14 of this Amendment to Annual Report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets at January 31, 1996
and 1997
Consolidated Statements of Income for the
years ended January 31, 1995, 1996 and 1997
Consolidated Statements of Shareholders' Equity
as of January 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows for the
years ended January 31, 1995, 1996 and 1997
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Notes to Consolidated Financial Statements
2. Financial Statement Schedule
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted since the required
information is not present or is not present in amounts
sufficient to require submission of the schedules or because
the information required is included in the Consolidated
Financial Statements or Notes thereto.
3. Exhibits
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<CAPTION>
Exhibit No. Description
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<S> <C>
2.1(1) Agreement and Plan of Reorganization and Merger between
Magnum Microwave Corporation, the Registrant and REMEC
Acquisition Corporation
2.2(2) Stock Purchase Agreement dated March 31, 1996 between STM
Wireless, Inc., a Delaware Corporation, and the Registrant
3.1(3) Restated Articles of Incorporation
3.2(3) By-Laws, as amended
10.1(3) Equity Incentive Plan
10.2(3) Employee Stock Purchase Plan
10.3(3) Form of Indemnification Agreements between Registrant and
its officers and directors
10.4(3) Credit Agreement between the Registrant and
The Bank of California, N.A., dated June 17,
1993, as amended
+10.5(3) Manufacturing Agreement Terms and Conditions
dated August 10, 1995 between the Registrant
and P-COM, Inc.
10.6(3) Standard Industrial Lease between the Registrant and
Transcontinental Realty Investors, Inc., dated February 1,
1990, as amended.
10.7(3) Standard Industrial Lease between the Registrant and
Chesapeake Business Park 1983, dated December 13, 1988, as
amended.
10.8(1) Form of Employment and Non-Competition Agreement with
Joseph Lee (attached as Exhibit 1 to Agreement and Plan of
Reorganization and Merger filed as Exhibit 2.1)
10.9(4) 1996 Nonemployee Directors Stock Option Plan
10.10(7) Employment and Non-Competition Agreement between Jim
Mongillo and the Registrant
10.11(5) Agreement and Plan of Reorganization and Merger by and
among REMEC, Inc., C&S Acquisition Corporation and C&S
Hybrid, Inc., dated as of April 10, 1997
10.12(6) C&S Hybrid, Inc. 1996 Equity Incentive Plan
10.13(8) Agreement and Plan of Reorganization and Merger by and
among the Registrant, RQB Acquisition Corporation and Q-bit
Corporation, dated as of October 24, 1997
10.14(8) Stock Purchase Agreement by and among Justin
Miller, Ph.D., RoyNat, Inc., REMEC Canada
ULC and the Registrant, dated as of
September 30, 1997
11.1(8) Statement Re: Computation of per Share Data
21.1(8) Subsidiaries of the Registrant
23.1(8) Consent of Ernst & Young LLP, Independent Auditors
23.2(8) Consent of Ireland San Filippo, LLP
23.3(8) Consent of Bray, Beck & Koetter
24.1(7) Power of Attorney (included on Page S-1 of the Initial
Filing of the Annual Report on Form 10-K)
</TABLE>
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8
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<TABLE>
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(1) Previously filed with the Securities and Exchange Commission as an
exhibit to Registrant's Registration Statement on Form S-4 (No.
333-05343) filed on July 30, 1996 and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an
exhibit to Registrant's Form 8-K filed on May 3, 1996 and incorporated
herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an
exhibit to Registrant's Registration Statement on Form S-1 (No.
333-80381) filed on February 1, 1996 and incorporated herein by
reference.
(4) Previously filed with the Securities and Exchange Commission as an
exhibit to Registrant's Registration Statement on Form S-8 (No.
333-16687) filed on November 25, 1996 and incorporated herein by
reference.
(5) Previously filed with the Securiteis and Exchange Commission as an
exhibit to Amendment No. 1 to Registrant's Registration Statement on
Form S-4 (No. 333-27023) filed on June 13, 1997 and incorporated
herein by reference.
(6) Previously filed with the Securities and Exchange Commission as an
exhibit to Registrant's Registration Statement on Form S-8 (No.
333-37191) filed on October 6, 1997 and incorporated herein by
reference.
(7) Filed with the Initial Filing of the Annual Report on Form 10-K.
(8) Filed with this Amendment No. 2.
+ Confidential treatment granted.
(b) Report on Form 8-K
There were no reports on Form 8-K filed in the fourth quarter of fiscal
1997.
</TABLE>
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
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PAGE
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REMEC, INC.
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Report of Ireland San Filippo LLP, Independent Auditors.................... F-3
Report of Bray, Beck & Koetter, Independent Auditors....................... F-4
Consolidated Balance Sheets at January 31, 1996 and 1997................... F-5
Consolidated Statements of Income for the years ended January 31, 1995, 1996
and 1997.............................................................. F-6
Consolidated Statements of Shareholders' Equity as of January 31, 1995, 1996
and 1997.............................................................. F-7
Consolidated Statements of Cash Flows for the years ended January 31, 1995,
1996 and 1997......................................................... F-8
Notes to Consolidated Financial Statements................................. F-9
</TABLE>
F-1
<PAGE> 11
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
REMEC, Inc.
We have audited the accompanying consolidated balance sheets of REMEC,
Inc. as of January 31, 1996 and 1997, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended January 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements of Radian Technology, Inc. and Q-bit Corporation, wholly-owned
subsidiaries, which statements reflect total assets constituting 20% in 1996 and
8% in 1997, and total revenues constituting 20% in 1995, 22% in 1996, and 17% in
1997 of the related consolidated totals. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to data included for Radian Technology, Inc. and Q-bit Corporation, is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of REMEC, Inc. at January 1996 and
1997, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended January 31, 1997 in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
------------------------------------
ERNST & YOUNG LLP
San Diego, California
February 24, 1997
except for the first three paragraphs of Note 2, as
to which the dates are October 24, 1997, June 27,
1997 and February 28, 1997, respectively.
F-2
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REPORT OF IRELAND SAN FILIPPO LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Radian Technology, Inc.
Santa Clara, California
We have audited the accompanying balance sheet of RADIAN TECHNOLOGY, INC. (a
California corporation), as of December 27, 1996, and December 29, 1995, and
the related statements of income and expense, stockholders' equity, and cash
flows for each of the years ended December 30, 1994, December 29, 1995, and
December 27, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RADIAN TECHNOLOGY, INC. as of
December 27, 1996, and December 29, 1995, and the results of its operations and
its cash flows for each of the years ended December 30, 1994, December 29, 1995,
and December 27, 1996, in conformity with generally accepted accounting
principles.
IRELAND SAN FILIPPO, LLP
March 6, 1997
F-3
<PAGE> 13
REPORT OF BRAY, BECK & KOETTER, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Q-bit Corporation
Palm Bay, Florida
We have audited the accompanying balance sheets of Q-bit Corporation (an S
Corporation) as of December 31, 1996 and 1995 and the related statements of
operations, retained earnings (deficit) and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Q-bit Corporation as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information on pages
15 through 16 is presented for the purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ BRAY, BECK & KOETTER
Melbourne, Florida
February 28, 1997
F-4
<PAGE> 14
REMEC, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
-----------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 2,345,632 $ 63,159,932
Short-term investments............................ 1,482,548 12,430
Accounts receivable, net.......................... 10,042,770 15,972,993
Inventories, net.................................. 16,475,802 19,332,056
Deferred income taxes............................. 2,051,314 3,033,818
Prepaid expenses and other current assets......... 299,687 582,542
----------- -----------
Total current assets................. 32,697,753 102,093,771
Property, plant and equipment, net................ 13,416,276 18,543,405
Deferred offering costs........................... 1,108,424 --
Intangible and other assets....................... 1,335,969 4,803,307
----------- -------------
$48,558,422 $125,440,483
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit and other short-term
debt.......................................... $ 203,194 $ 1,891,449
Accounts payable.................................. 5,341,806 5,973,537
Accrued salaries, benefits and related taxes...... 5,140,821 4,845,956
Income taxes payable.............................. 1,731,494 2,249,087
Accrued expenses.................................. 2,029,264 2,540,037
Current portion of notes payable and
capital lease obligations..................... 676,136 482,200
---------- ----------
Total current liabilities............ 15,122,715 17,982,266
Deferred rent.......................................... 443,164 262,432
Deferred income taxes.................................. 964,000 1,179,353
Notes payable, less current portion.................... 4,682,837 1,882,776
Capital lease obligations, less current portion........ 98,475 579,000
Commitments
Shareholders' equity:
Convertible preferred shares -- $.01 par value,
718,607 shares authorized, issued and
outstanding at January 31, 1996; aggregate
liquidation preference of $6,000,000......... 7,186 --
Common shares -- $.01 par value, 40,000,000 shares
authorized; issued and outstanding shares --
11,073,539 and 20,535,457 at January 31, 1996
and 1997, respectively........................ 110,736 205,356
Paid-in capital................................... 14,404,746 85,787,686
Retained earnings................................. 12,724,563 17,561,614
---------- ------------
Total shareholders' equity........... 27,247,231 103,554,656
---------- -----------
$48,558,422 $125,440,483
========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 15
REMEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.......................................... $81,977,953 $93,228,090 $118,553,842
Cost of sales...................................... 57,993,998 66,172,461 85,658,524
----------- ----------- -----------
Gross profit.................................. 23,983,955 27,055,629 32,895,318
Operating expenses:
Selling, general & administrative............. 15,645,929 16,610,999 19,349,733
Research and development...................... 2,067,133 4,016,335 4,605,000
----------- ----------- -----------
Total operating expenses........................... 17,713,062 20,627,334 23,954,733
----------- ----------- -----------
Income from operations........................ 6,270,893 6,428,295 8,940,585
Interest (income) expense and other................ 589,997 400,593 (48,405)
----------- ----------- -----------
Income before provision for income taxes...... 5,680,896 6,027,702 8,988,990
Provision for income taxes......................... 2,393,420 2,428,658 4,016,667
----------- ----------- -----------
Net income.................................... $ 3,287,476 $ 3,599,044 $ 4,972,323
=========== =========== ===========
Net income per share............................... $ .25 $ .28 $ .30
=========== =========== ===========
Shares used in per share calculations.............. 13,031,000 12,989,000 16,669,000
=========== =========== ===========
</TABLE>
F-6
<PAGE> 16
REMEC, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED SHARES COMMON SHARES PAID-IN RETAINED
------------------- ------------------------ ----------- --------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1994........... 718,607 $ 7,186 11,624,878 $116,249 $16,041,520 $6,012,302 $22,177,257
Issuance of common shares upon
exercise of stock options........ -- -- 9,393 94 7,016 -- 7,110
Repurchase of common shares........ -- -- (311,391) (3,114) (925,240) -- (928,354)
Cash dividends..................... -- -- -- -- -- (54,789) (54,789)
Net income......................... -- -- -- -- -- 3,287,476 3,287,476
--------- -------- ------------- ----------- ------------ --------- ---------
Balance at January 31, 1995........... 718,607 7,186 11,322,880 113,229 15,123,296 9,244,989 24,488,700
Issuance of common shares upon
exercise of stock options........ -- -- 28,365 284 67,176 -- 67,460
Repurchase of common shares........ -- -- (277,706) (2,777) (785,726) -- (788,503)
Cash dividends..................... -- -- -- -- -- (119,470) (119,470)
Net income......................... -- -- -- -- -- 3,599,044 3,599,044
--------- -------- ------------- ---------- -------------- --------- ---------
Balance at January 31, 1996........... 718,607 7,186 11,073,539 110,736 14,404,746 12,724,563 27,247,231
Issuance of common shares in
initial public offering.......... -- -- 3,397,340 33,973 15,615,236 -- 15,649,209
Conversion of preferred shares..... (718,607) (7,186) 1,616,864 16,169 (8,983) -- --
Issuance of common shares -- -- 443,467 4,435 1,872,140 -- 1,876,575
for cash.........................
Issuance of common shares
under employee stock -- -- 347,850 3,479 1,670,637 -- 1,674,116
purchase plan....................
Issuance of common shares upon
exercise of stock options........ -- -- 37,647 376 88,824 -- 89,200
Income tax benefits related to
employee stock purchase plan
and stock options exercised...... -- -- -- -- 209,399 -- 209,399
Issuance of common shares in
stock offering................... -- -- 3,618,750 36,188 51,935,687 -- 51,971,875
Net income......................... -- -- -- -- -- 4,972,323 4,972,323
Elimination of Magnum activity
for the duplicated two months
ended March 31, 1996............. -- -- -- -- -- (135,272) (135,272)
--------- ------- ---------- -------- ----------- ----------- ------------
Balance at January 31, 1997........... -- $ -- 20,535,457 $205,356 $85,787,686 $17,561,614 $103,554,656
========= ======== ========== ======== =========== =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 17
REMEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income......................................... $3,287,476 $3,599,044 $4,972,323
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............. 2,840,500 2,946,040 3,647,507
Deferred income taxes..................... 801,099 (779,470) (767,151)
Changes in operating assets and liabilities:
Accounts receivable.................. (680,349) (786,153) (4,862,195)
Inventories.......................... (23,497) (2,008,355) (2,539,276)
Prepaid expenses and other
current assets................... 10,897 33,297 (256,477)
Accounts payable..................... 131,751 1,726,676 78,089
Accrued expenses, income taxes
payable and deferred rent........ (91,069) 1,355,040 556,250
----------- ----------- -----------
Net cash provided by
operating activities......... 6,276,808 6,086,119 829,070
Investing activities:
Additions to property, plant and equipment.... (2,717,564) (4,808,031) (7,362,734)
Payment for purchase of RF Microsystems,
net of $60,337 cash acquired.............. -- -- (4,011,735)
Purchase of short-term investments............ (1,454,598) (981,607) --
Sale of short-term investments................ -- 953,657 1,482,565
Other assets.................................. 24,646 99,820 (145,750)
----------- ----------- -----------
Net cash used by investing activities..... (4,147,516) (4,736,161) (10,037,654)
Financing activities:
Proceeds from bank revolving term loan,
line-of-credit and long-term debt......... 11,525,000 14,367,464 1,100,000
Repayments on bank revolving term loan,
line-of-credit and long-term debt......... (14,050,314) (14,056,928) (3,412,956)
Repurchase of common stock.................... (928,354) (788,503) --
Proceeds from issuance of common stock........ 7,110 67,460 71,260,975
Change in deferred offering costs............. -- (1,108,424) 1,108,424
Cash dividends................................ (204,729) (119,470) --
----------- ----------- -----------
Net cash provided (used) by financing activities (3,651,287) (1,638,401) 70,056,443
Increase (decrease) in cash and cash equivalents... (1,521,995) (288,443) 60,847,859
Cash and cash equivalents at beginning of year..... 4,156,070 2,634,075 2,345,632
Elimination of Magnum's net cash activities for the
duplicated two months ended March 31, 1996.... -- -- (33,559)
----------- ----------- -----------
Cash and cash equivalents at end of year........... $2,634,075 $2,345,632 $63,159,932
=========== =========== -----------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest.................................. $ 759,000 $ 568,000 $ 414,000
=========== =========== -----------
Income taxes.............................. $1,824,000 $2,558,000 $ 3,091,000
=========== =========== -----------
Supplemental disclosure of noncash investing
and financing activities:
Assets acquired under capital leases
and notes payable.................... $ 255,000 $ 371,000 $ 962,000
=========== =========== -----------
</TABLE>
F-8
<PAGE> 18
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
REMEC, Inc. (the "Company") was incorporated in the State of California
in January 1983. The Company is engaged in a single business segment consisting
of the research, design, development and manufacture of microwave and radio
frequency (RF) components and subsystems and precision instruments for control
and measurement systems. Prior to fiscal 1996, the majority of the Company's
sales have been to prime contractors, to various agencies of the U.S. Department
of Defense and to foreign governments. In May 1995, the Company incorporated
REMEC Wireless, Inc. (a wholly owned subsidiary) to research, design, develop
and manufacture products based on microwave technologies for commercial
customers. In fiscal 1997, the Company acquired Magnum Microwave Corporation, a
manufacturer of microwave components and subsystems, and RF Microsystems, Inc.,
a satellite communications engineering company. During fiscal 1998, the Company
acquired Radian Technology, Inc., C&S Hybrid, Inc., and Q-bit Corporation, in a
series of transactions accounted for as poolings of interests. The Company's
consolidated financial statements for the periods prior to these acquisitions
have been restated to include each of the acquired Company's financial position,
results of operations and cash flows.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries Humphrey, Inc., REMEC Wireless, Inc.,
RF Microsystems, Inc., Magnum Microwave Corporation, Radian Technology, Inc.,
C&S Hybrid, Inc. and Q-bit Corporation. All intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents. Short-term investments are recorded at the amortized cost plus
accrued interest which approximates market value. The Company evaluates the
financial strength of institutions at which significant investments are made and
believes the related credit risk is limited to an acceptable level.
The Company has adopted Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities. Statement
No. 115 requires companies to record certain debt and equity security
investments at market value. At January 31, 1996 and 1997, the cost of cash
equivalents and short-term investments approximated fair value.
Concentration of Credit Risk
Accounts receivable are principally from U.S. government contractors,
companies in foreign countries and domestic customers in the telecommunications
industry. Credit is extended based on an evaluation of the customer's financial
condition and generally collateral is not required. The Company performs
periodic credit evaluations of its customers and maintains reserves for
potential credit losses.
Inventory
Inventories are stated at the lower of cost or market. In accordance
with industry practice, the Company has adopted a policy of capitalizing general
and administrative costs as a component of the cost of government contract
related inventories to achieve a better matching of costs with the related
revenues.
F-9
<PAGE> 19
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Progress Payments
Progress payments received from customers are offset against
inventories associated with the contracts for which the payments were received.
Property, Plant and Equipment
Property, plant and equipment, including equipment under capital
leases, is stated at cost less accumulated depreciation and amortization.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets which range from three to thirty years. Depreciation
expense includes the amortization of equipment under capital leases. Leasehold
improvements are amortized using the straight-line method over the shorter of
their estimated useful lives or the lease period.
Intangible Assets
Intangible assets in the accompanying balance sheets are primarily
comprised of goodwill and purchased technology recorded in connection with the
acquisitions of Humphrey, Inc. (in February 1994) and RF Microsystems, Inc. (See
Note 2.) These assets are being amortized using the straight-line method over
ten and fifteen years, respectively. Amortization expense related to intangible
assets totaled $183,772 and $345,531 for fiscal years 1996 and 1997,
respectively.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets' carrying amount. Adoption of
Statement No. 121 on February 1, 1996 did not have a significant impact on the
Company's financial position or results of operations.
Revenue Recognition
Revenues on fixed-price long-term and commercial contracts are
recognized using the units of delivery method. Revenues associated with the
performance of non-recurring engineering and development contracts are
recognized when earned under the terms of the related contract. Revenues for
cost-reimbursement contracts are recorded as costs are incurred and includes
estimated earned fees in the proportion that costs incurred to date bears to
estimated costs. Prospective losses on long-term contracts are based upon the
anticipated excess of inventoriable manufacturing costs over the selling price
of the remaining units to be delivered. Actual losses could differ from those
estimated due to changes in the ultimate manufacturing costs and contract terms.
Research and Development
Research and development costs incurred by the Company are expensed in
the period incurred.
Net Income Per Share
Net income per share is computed based on the weighted average number
of common and common equivalent shares outstanding during each period using the
treasury stock method. Pursuant to the requirements of the Securities and
Exchange Commission, common and common equivalent shares issued during the
twelve-month period prior to the Company's initial public offering ("IPO") (See
Note 6) have been included in the calculations as if they were outstanding for
all periods presented using the treasury stock method. In addition, the
calculation of the number of shares used in computing net income per share also
includes convertible preferred stock, which converted into 1,077,909 common
shares upon the closing of the initial public offering, as if they were
converted into common shares as of their original dates of issuance. The
calculation of net income per share reflects the historical information for
REMEC, Magnum, Radian, C&S Hybrid and Q-bit after adjusting the Magnum, Radian,
F-10
<PAGE> 20
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
C&S Hybrid and Q-bit information to reflect the conversion of Magnum, Radian,
C&S Hybrid and Q-bit common shares into REMEC shares as stipulated in the
respective acquisition agreements. (See Note 2.)
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128, Earnings per Share,
which supersedes APB Opinion No. 15. Statement No. 128 replaces the presentation
of primary EPS with "Basic EPS" which includes no dilution and is based on
weighted-average common shares outstanding for the period. Companies with
complex capital structures, including REMEC, Inc., will also be required to
present "Diluted EPS" that reflects the potential dilution of securities like
employee stock options. Statement No. 128 is effective for financial statements
issued for periods ending after December 15, 1997. The presentation of diluted
earnings per share is expected to be substantially equivalent to amounts
previously reported as primary earnings per share as calculated under APB
Opinion No. 15.
On June 6, 1997, the Company's Board of Directors approved a
three-for-two stock split of the Company's common stock in the form of a 50%
stock dividend payable on June 27, 1997 to shareholders of record as of June 30,
1997. All stock related data in the consolidated financial statements have been
adjusted to reflect the stock dividend for all periods presented.
Stock Options
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement 123") requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions about the future that affect the amounts reported in the
consolidated financial statements. These estimates include assessing the
collectibility of accounts receivable, the usage and recoverability of
inventories and long-lived assets and the incurrence of losses on long term
contracts and warranty costs. Actual results could differ from those estimates.
2. ACQUISITIONS
Q-bit Corporation ("Q-bit")
In October 1997, the Company acquired Q-bit, a manufacturer of
amplifier based microwave components and multi-function modules, in exchange for
1,047,482 shares of the Company's common stock. Prior to the combination,
Q-bit's fiscal year ended on December 31, 1996. In recording the business
combination, Q-bit's financial statements for the fiscal years ended December
31, 1994, 1995 and 1996 were combined with REMEC's for the fiscal years ended
January 31, 1995, 1996 and 1997, respectively. Q-bit's net sales and net income
for the one month period ended January 31, 1997 were $1,295,557 and $103,610,
respectively.
C&S Hybrid ("C&S Hybrid")
In June 1997, the Company acquired C&S Hybrid, a manufacturer of
transmitter and receiver hardware assemblies ("transceivers") that are
integrated by C&S Hybrid's customers into terrestrial-based point-to-point
microwave radios primarily for use in commercial applications, in exchange for
approximately 1,290,000 shares of the Company's common stock. Prior to the
combination, C&S Hybrid's fiscal year ended on December 27, 1996. In recording
the business combination, C&S Hybrid's financial statements for the fiscal years
ended December 16, 1994, December 22, 1995 and December 27, 1996 were combined
with REMEC's for the fiscal years ended
F-11
<PAGE> 21
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 31, 1995, 1996 and 1997, respectively. C&S Hybrid's net sales and net
income for the one month ended January 31, 1997 were $1,569,129 and $53,976,
respectively.
Radian Technology, Inc. ("Radian")
On February 28, 1997, the Company issued 950,024 shares of its common
stock in exchange for all of the outstanding shares of common stock of Radian, a
manufacturer of microwave components and subsystems. Prior to the combination,
Radian's fiscal year ended on Friday closest to December 31. In recording the
business combination, Radian's financial statements for the fiscal years ended
December 30, 1994, December 29, 1995 and December 27, 1996 were combined with
REMEC's for the fiscal years ended January 31, 1995, 1996 and 1997,
respectively. Radian's net sales and net loss for the one month period ended
January 31, 1997 were $299,000 and $10,000, respectively.
Magnum Microwave Corporation ("Magnum")
On August 26, 1996, the Company issued 1,612,399 shares of its common
stock in exchange for all of the outstanding shares of common stock of Magnum, a
manufacturer of microwave components and subsystems. Immediately prior to the
acquisition, Magnum issued 197,187 equivalent shares of stock for cash of
approximately $1,500,000. Prior to the combination, Magnum's fiscal year ended
on the Friday closest to March 31. In recording the business combination,
Magnum's financial statements for the fiscal years ended March 31, 1995 and
March 29, 1996 were combined with REMEC's for the fiscal years ended January 31,
1995 and 1996, respectively. Consolidated operating results and the net change
in consolidated cash and cash equivalents for the year ended January 31, 1997
include Magnum's results of operations and change in cash flows for the two
months ended March 31, 1996. Magnum's net sales and net income for the two month
period ended March 31, 1996 were $1,743,000 and $135,000, respectively. Included
in general and administrative expenses in the consolidated statement of income
for the year ended January 31, 1997 are costs of $424,000 related to the
acquisition of Magnum.
Net sales and net income reported by REMEC, Magnum, Radian, C&S Hybrid
and Q-bit for periods prior to the acquisitions are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------------------------
1995 1996 1997
---------- --------- ----------
<S> <C> <C> <C>
Net Sales:
REMEC................................. $46,246,959 $52,784,385 $ 74,643,897
Magnum................................ 11,306,499 9,360,322 11,300,351
----------- ----------- ------------
Total previously reported...... 57,553,458 62,144,707 85,944,248
Radian................................ 7,051,030 9,100,000 9,127,554
C&S Hybrid............................ 8,216,920 10,939,493 13,026,276
Q-bit................................. 9,156,545 11,043,890 10,455,764
----------- ----------- ------------
Total.......................... $81,977,953 $93,228,090 $118,553,842
=========== =========== ============
Net Income:
REMEC................................. $ 1,427,925 $1,480,744 $3,765,120
Magnum................................ 1,104,004 675,650 1,105,188
----------- ----------- ------------
Total previously reported...... 2,531,929 2,156,394 4,870,308
Radian................................ 454,724 697,716 857,752
C&S Hybrid............................ 266,721 522,373 493,967
Q-bit................................. 34,102 222,561 (1,249,704)
----------- ----------- ------------
Total.......................... $ 3,287,476 $ 3,599,044 $ 4,972,323
=========== =========== ============
</TABLE>
RF Microsystems, Inc. ("RFM")
Effective April 30, 1996, the Company acquired all of the outstanding
common stock of RFM and certain other assets in exchange for cash consideration
of approximately $4,066,000. The acquisition has been accounted for as a
purchase, and accordingly, the total purchase price has been allocated to the
acquired assets and liabilities assumed at their estimated fair values in
accordance with the provisions of Accounting Principles Board Opinion
F-12
<PAGE> 22
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
No. 16. The estimated excess of the purchase price over the net assets acquired
of $3,559,000 is being carried as intangible assets, and will be amortized over
an estimated life of 15 years. The Company's consolidated financial statements
include the results of RFM from April 30, 1996.
A summary of the RFM acquisition costs and an allocation of the
purchase price to the assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Total acquisition cost:
Cash paid....................................................... $ 3,933,000
Payment of acquisition related expenses......................... 133,000
-----------
$ 4,066,000
Allocated as follows:
Current assets.................................................. $ 1,622,000
Machinery and equipment......................................... 320,000
Acquired intangibles............................................ 3,559,000
Liabilities assumed............................................. (1,435,000)
-----------
$ 4,066,000
</TABLE>
Assuming that the acquisition of RFM had occurred on the first day of
the Company's fiscal year-ended January 31, 1996, pro forma condensed
consolidated results of operations would be as follows:
PRO FORMA RESULTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
---------------------------
1996 1997
---- ----
<S> <C> <C>
Net Sales..................................................... $101,299 $120,519
Net Income.................................................... 3,384 4,931
Net Income Per Share.......................................... $ .26 $ .30
</TABLE>
See Note 11 for additional information regarding acquisitions completed
after January 31, 1997 and accounted for under the purchase method.
3. FINANCIAL STATEMENT DETAILS
Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------------
1996 1997
---------- ----------
<S> <C> <C>
Raw Materials................................................. $ 9,905,225 $10,017,387
Work in progress.............................................. 10,880,637 11,687,168
----------- -----------
20,785,862 21,704,555
Less unliquidated progress payments........................... (4,310,060) (2,372,499)
----------- -----------
$16,475,802 $19,332,056
</TABLE>
Inventories related to contracts with prime contractors to the U.S.
Government included capitalized general and administrative expenses of
$1,924,000 and $1,642,000 at January 31, 1996 and 1997, respectively.
During fiscal 1993, the Company received notice to terminate, for
convenience, a production contract and in turn, the Company terminated related
subcontracts. In fiscal 1996, the Company obtained final approval to bill the
contractors for remaining inventory and fees associated with the contract. The
accompanying consolidated statement of income for the year ended January 31,
1996 includes $2,444,000 of revenue and $1,803,000 of costs related to this
contract.
F-13
<PAGE> 23
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------------
1996 1997
----------- -----------
<S> <C> <C>
Land, building and improvements............................... $ 3,235,597 $ 3,351,885
Machinery and equipment....................................... 30,715,554 37,932,615
Furniture and fixtures........................................ 2,022,979 2,312,295
Leasehold improvements........................................ 1,758,883 2,364,977
----------- -----------
37,733,013 45,961,772
Less accumulated depreciation and amortization................ (24,316,737) (27,418,367)
----------- -----------
$13,416,276 $18,543,405
=========== ===========
</TABLE>
4. BANK REVOLVING TERM CREDIT FACILITY AND LINE-OF-CREDIT
The Company has a $9,000,000 working capital line-of-credit with a
bank, which is due July 1, 1998. Interest is due monthly on advances at the
bank's prime interest rate (8.5% at January 31, 1997). At January 31, 1997,
there were no outstanding borrowings on the facility.
The Company also has a $8,000,000 term credit facility with the bank
which is available until July 1, 1998. Outstanding borrowings at July 1, 1998
under this facility automatically convert into a term note payable in 42 monthly
installments. Interest is due monthly on advances under the facility at the
bank's prime interest rate. At January 31, 1997, there were no outstanding
borrowings on the facility.
The Company's Radian subsidiary has a separate revolving accounts
receivable line of credit with a bank under which it may borrow up to $750,000.
Borrowings under this facility bore interest at the bank's prime rate plus
1.75%. No borrowings were outstanding on this facility as of January 31, 1997.
Subsequent to the closing of the acquisition of Radian by the Company, this
credit facility was canceled.
The Company's C&S Hybrid subsidiary has a separate revolving line of
credit with a bank under which it may borrow up to $750,000. Borrowings under
this facility bore interest at 9.5%. $500,000 was outstanding under this
facility as of January 31, 1997. Subsequent to the closing of the acquisition of
C&S Hybrid by the Company, this obligation was repaid and the credit facility
was canceled.
The Company's Q-bit subsidiary has a separate revolving line of credit
facility with a bank under which it may borrow up to $1,650,000. Borrowings
under this facility bore interest at 8.5%. $1,391,449 was outstanding under this
facility as of January 31, 1997. Subsequent to the closing of the acquisition of
Q-bit by the Company, this obligation was repaid and the credit facility was
canceled.
Advances under these agreements are secured by substantially all assets
of the Company. The agreements also contain covenants which require the Company
to maintain certain financial ratios, achieve specified levels of profitability,
restrict the incurrence of additional debt, restrict the incurrence of capital
expenditures in excess of specified amounts, limit the payment of cash
dividends, and include certain other restrictions. As of January 31, 1997, the
Company was in compliance with all covenants specified.
5. LONG-TERM DEBT
At January 31, 1997, long-term debt consisted of notes payable of
$1,991,388. The notes payable bore interest at the bank's prime rate plus 0.25%
(8.75% at January 31, 1997), matured in December 2000, and was secured by
various assets of the Company's Q-bit subsidiary. Subsequent to the closing of
the acquisition of Q-bit by the Company, these notes were repaid by the Company.
F-14
<PAGE> 24
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. SHAREHOLDERS' EQUITY
Convertible Preferred Shares
A summary of the convertible preferred shares issued and outstanding is
as follows:
<TABLE>
<CAPTION>
SHARES
ISSUED AND PREFERENCE IN
OUTSTANDING PAR VALUE LIQUIDATION
----------- --------- -----------
<S> <C> <C> <C>
Series A...................... 461,538 $ 4,615 $ 3,000,000
Series B...................... 257,069 2,571 3,000,000
------- ----- ---------
718,607 $ 7,186 $ 6,000,000
======= ===== ==========
</TABLE>
Concurrent with the closing of the Company's initial public offering
("IPO") in February 1996 all of the outstanding shares of Series A and Series B
preferred stock were converted into 1,616,864 shares of common stock.
Equity Offerings
In February 1996, the Company completed an IPO of its common stock in
which the Company issued a total of 3,397,340 shares of common stock. The net
proceeds from the offering were $15,649,209. In connection with the Company's
IPO, certain shareholders also sold 1,777,660 shares as part of the offering.
In January 1997, the Company issued in a public offering an additional
3,618,750 shares of common stock. The net proceeds from this offering were
$51,971,875. Certain shareholders also sold 1,125,000 shares as part of this
offering.
Dividends
In each of the two years ended January 31, 1996, the Company paid a
cash dividend of $.01 per share including a payment to preferred shareholders on
an as converted basis. The Company currently anticipates that it will not pay
dividends in the foreseeable future.
The Company's Q-bit subsidiary paid a cash dividend totaling $64,670
during the fiscal year ended January 31, 1996.
Stock Option Plans
In January 1996, the Company's shareholders approved the 1995 Equity
Incentive Plan, under which 1,125,000 common shares were reserved for issuance
pursuant to stock options, restricted stock awards, stock purchase rights or
performance shares. The Plan provides for the grant of incentive and
non-statutory stock options. The exercise price of the incentive stock options
must at least equal the fair market value of the common stock on the date of
grant, and the exercise price of nonstatutory options may be no less than 85% of
the fair market value of the common stock on the date of grant. Options granted
under the plans vest over a period of three years and expire four and one-half
years from the date of grant.
The Company had maintained previous stock option plans prior to the
inception of the 1995 Equity Incentive Plan. These incentive plans were
terminated upon the closing of the Company's IPO in February 1996 and all
outstanding options remain exercisable in accordance with their original terms.
A summary of the Company's stock option activity and related
information is as follows:
F-15
<PAGE> 25
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding - - beginning of
year...................... 211,140 $ 2.11 230,046 $ 2.07 305,380 $ 2.25
Granted................... 71,973 $ 2.09 128,501 $ 2.65 668,012 $ 9.90
Exercised................. (9,393) $ 0.76 (26,865) $ 2.36 (37,649) $ 2.37
Forfeited................. (43,674) $ 2.60 (26,302) $ 2.61 ( 7,205) $ 6.79
------- ------ ------- ------ ------- ------
Outstanding -- end year...... 230,046 $ 2.07 305,380 $ 2.25 928,538 $ 4.29
======= ===== ======= ====== ======= ====
Exercisable -- end of year 148,317 $ 1.99 128,157 $ 1.87 163,338 $ 2.04
======= ===== ======= ====== ======= ====
</TABLE>
Exercise prices for options outstanding as of January 31, 1997 ranged
from $0.14 to $17.09. Of the options outstanding at January 31, 1997,
approximately 138,000 and 144,000 options have a weighted average exercise price
of approximately $1.69 and $2.67 per share, respectively, and the remaining
outstanding options have a weighted average exercise price of $10.94 per share.
The weighted-average remaining contractual life of options outstanding at
January 31, 1997 is approximately 3.95 years. At January 31, 1997, options for
498,233 shares were available for future grant.
Pro forma information regarding net income and net income per share is
required by Statement 123, and has been determined as if the Company has
accounted for its employee stock options and employee stock purchase plan shares
under the fair value method of that statement. The fair value of these options
or employee stock purchase rights was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1997, respectively: risk-free interest rates of 5.9%
and 6.0%; dividend yields of 0%; volatility factors of the expected market price
of the Company's common stock of 0% and 90.9%; a weighted-average life of the
option of 3.2 years; and a weighted-average life of the stock purchase rights of
three months.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options and rights under the
employee stock purchase plan have characteristics significantly different from
those of trade options, and because changes in the subjective assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair market
value of its employee stock options or the rights granted under the employee
stock purchase plan.
For purposes of pro forma disclosures, the estimated fair value of the
options and the shares granted under the employee stock purchase plan is
amortized to expense over their respective vesting or option periods. The
effects of applying Statement 123 for pro forma disclosure purposes are not
likely to be representative of the effects on pro forma net income in future
years because they do not take into consideration pro forma compensation expense
related to grants made prior to 1996. The Company's pro forma information
follows:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------------
1996 1997
---------- -----------
<S> <C> <C>
Pro forma net income............................................ $3,589,792 $2,083,189
Pro forma net income per share.................................. $.28 $.12
Weighted-average fair value of options granted during the year.. $.52 $5.09
</TABLE>
F-16
<PAGE> 26
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Stock Purchase Plan
In January 1996, the Company's shareholders approved the Employee Stock
Purchase Plan (the Purchase Plan) under which 375,000 common shares may be
issued to eligible employees. The price of the common shares purchased under the
Purchase Plan will be equal to 85% of the fair market value of the common shares
on the first or last day of the offering period, whichever is lower. During
fiscal 1997, the Company issued a total of 347,850 shares of its common stock
under the Purchase Plan.
Changes in Capitalization
In January 1996, the Company's shareholders approved an increase in the
authorized common stock of the Company to 40,000,000 shares, the creation of a
new undesignated class of preferred stock consisting of 5,000,000 shares and a
1-for-2 reverse split of the Company's common stock. Fractional shares resulting
from the split were settled in cash. All share, per share and stock option
amounts have been restated to reflect retroactively the reverse stock split.
7. COMMITMENTS
Deferred Savings Plan
The Company has established a Deferred Savings Plan for its employees,
which allows participants to make contributions by salary reduction pursuant to
section 401(k) of the Internal Revenue Code. The Company matches contributions
up to $100 per quarter, per employee, subject to the attainment of certain
quarterly profit levels by the Company. Employees vest immediately in their
contributions and Company contributions vest over a two year period. The Company
has charged to operations contributions of approximately $65,000, $88,000 and
$218,000, for the years ended January 31, 1995, 1996 and 1997, respectively.
Prior to its acquisition in fiscal 1997, the Company's Magnum
subsidiary maintained a separate defined contribution 401(k0 retirement plan for
substantially all of its employees. Magnum made contributions to this plan of
$55,000 and $38,000 for fiscal 1995 and 1996, respectively. This plan was merged
into the REMEC plan in March 1997.
The Company's Radian subsidiary has a separate defined contribution
401(k) retirement plan for substantially all of its employees. Radian made no
contributions to this plan for fiscal 1995, 1996 and 1997. This plan was merged
into the REMEC plan in August 1997.
The Company's C&S Hybrid subsidiary has a separate defined contribution
401(k) retirement plan for substantially all of its employees. C&S Hybrid made
contributions to this plan of $15,000, $33,000 and $42,000 for fiscal 1995, 1996
and 1997, respectively. This plan will be merged into the REMEC plan in February
1998.
Prior to its acquisition in fiscal 1998, the Company's Q-bit subsidiary
maintained a separate defined contribution 401(k) retirement plan for
substantially all of its employees. Q-bit made contributions to this plan of
$75,000, $54,000 and $95,000 for fiscal 1995, 1996 and 1997, respectively. This
plan will be merged into the REMEC plan in April 1998.
Leases
The Company leases equipment under capital leases. The Company also
leases offices and production facilities under noncancelable operating leases
that expire in 2003. Interest rates on capital leases range from 8.5% to 12%. At
January 31, 1997, future minimum payments are as follows:
F-17
<PAGE> 27
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
<S> <C> <C>
1998.......................................................... $ 360,000 $ 2,964,000
1999.......................................................... 273,000 2,657,000
2000.......................................................... 265,000 2,227,000
2001.......................................................... 126,000 948,000
2002.......................................................... 712,000
Thereafter.................................................... 1,320,000
--------- -----------
Total minimum lease payments.................................. 1,024,000 $10,828,000
========= ===========
Less amount representing interest............................. (165,000)
---------
Less current portion.......................................... 859,000
Long-term portion............................................. (280,000)
---------
$ 579,000
=========
</TABLE>
Certain of these lease agreements provide for annual rental adjustments
based on changes in the Consumer Price Index.
At January 31, 1996 and 1997, equipment under capital leases amounted
to $511,000 and $1,231,000. Related accumulated amortization for the same
periods of time were $277,000 and $440,000, respectively.
Rent expense totaled $2,311,000, $2,587,000 and $2,717,000 during
fiscal 1995, 1996 and 1997, respectively.
F-18
<PAGE> 28
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. INCOME TAXES
Significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------------
1996 1997
----------- ----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation................................. $ 1,202,000 $ 1,293,000
Inventory costs capitalization............................. 516,000 248,000
Other...................................................... 47,000 47,000
----------- -----------
1,765,000 1,588,000
----------- -----------
Deferred tax assets:
Inventory and other reserves.............................. 1,278,000 1,771,000
Deferred rent............................................. 238,000 108,000
Accrued expenses.......................................... 1,250,000 1,221,000
Other..................................................... 86,000 342,000
----------- -----------
Total deferred tax assets..................................... 2,852,000 3,442,000
----------- -----------
Net deferred tax liabilities (assets)......................... $(1,087,000) $(1,854,000)
=========== ===========
</TABLE>
The provision for taxes based on income consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.............................. $1,266,000 $2,619,000 $3,910,000
State................................ 429,000 588,000 874,000
Deferred:
Federal.............................. 616,000 (624,000) (646,000)
State................................ 82,000 (154,000) (121,000)
---------- ---------- ----------
$2,393,000 $2,429,000 $4,017,000
========== ========== ==========
</TABLE>
A reconciliation of the effective tax rates and the statutory Federal
income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------
1995 1996 1997
----------------------- ----------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT %
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Tax at Federal rate..................... $1,988,000 35% $2,110,000 35% $3,146,000 35%
State income tax net of federal......... 379,000 7 295,000 5 605,000 7
Loss (Earnings) distributed to
S Corporation shareholders........... (12,000) (1) (78,000) (2) 438,000 5
Other................................... 38,000 1 102,000 2 (172,000) (2)
---------- ----- ---------- ----- ---------- -----
$2,393,000 42% $2,429,000 40% $4,017,000 45%
========== ===== ========== ===== ========== =====
</TABLE>
Prior to its acquisition, Q-bit Corporation had elected to be treated
as an "S corporation" for income tax purposes and, accordingly, any liability
for income taxes was that of the shareholders and not Q-bit.
9. SIGNIFICANT CUSTOMERS AND EXPORT SALES
During fiscal 1997, one customer accounted for 13% of the Company's net
sales. No customer accounted for more than 10% of the Company's net sales during
1995 or 1996.
Export sales were 9%, 11% and 7% of net sales for fiscal 1995, 1996 and
1997, respectively.
F-19
<PAGE> 29
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. RELATED PARTY TRANSACTIONS
An officer of the Company holds certain interests in various suppliers
to one of the Company's subsidiaries. Amounts paid to these suppliers in fiscal
1995, 1996 and 1997 totaled $175,000, $307,000 and $1,054,000, respectively.
11. SUBSEQUENT EVENTS (UNAUDITED)
Verified Technical Corporation ("Veritek")
On March 31, 1997, the Company acquired all of the outstanding common
stock of Veritek and certain other assets in exchange for cash and the Company's
common stock of approximately $3.0 million and the assumption of certain
liabilities totaling $1.1 million. The acquisition has been accounted for as a
purchase, and accordingly, the total purchase price has been allocated to the
acquired assets and liabilities assumed at their estimated fair values in
accordance with the provisions of Accounting Principles Board Opinion No. 16.
The estimated excess of the purchase price over the net assets acquired of
$2,406,000 will be carried as an intangible asset, and will be amortized over an
estimated life of 15 years. The pro forma results of operations of REMEC and
Veritek assuming Veritek was acquired on the first day of the Company's 1997
fiscal year would not be materially different from reported results.
RF Microsystems ("RFM")
On August 26, 1997, the Company sold its RFM subsidiary in exchange for
cash consideration of $5.0 million. The sale resulted in an after tax gain of
$1,728,000, or $0.08 per share. RFM provided satellite communications
engineering services to agencies of the U.S. Government.
Nanowave Technologies, Inc. ("Nanowave")
In October 1997, the Company formed REMEC Canada (as a wholly owned
subsidiary) for the purpose facilitating the acquisition of Canadian companies,
including the then contemplated acquisition of Nanowave, a manufacturer of
amplifier based microwave and millimeter wave components and multi-function
modules. Effective October 29, 1997, REMEC Canada acquired all of the
outstanding common stock of Nanowave in exchange for cash consideration of
$4,025,000 and 182,183 Dividend Access Shares with a fair value of $4,646,000.
These Dividend Access Shares are convertible into an equivalent number of shares
of REMEC Common Stock. The acquisition has been accounted for as a purchase, and
accordingly, the total purchase price has been allocated to the acquired assets
and liabilities assumed at their estimated fair values in accordance with the
provisions of Accounting Principles Board Opinion No. 16. The estimated excess
of the purchase price over the net assets acquired of $11,130,000 will be
carried as intangible assets, and will be amortized over periods ranging from 9
to 15 years.
Assuming that the acquisition of Nanowave had occurred on the first day
of the Company's fiscal year ended January 31, 1997, pro forma condensed
consolidated results of operations would be as follows (in thousands except per
share amounts):
<TABLE>
<CAPTION>
Year ended Year ended
---------------- ----------------
January 31, 1996 January 31, 1997
---------------- ----------------
<S> <C>
Net sales............................... $96,551 $124,434
Net income.............................. $2,806 $4,549
Net income per share.................... $.21 $.27
</TABLE>
F-20
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, on January 30, 1998.
REMEC, INC.
By: /s/ MICHAEL D. McDONALD
---------------------------------
Michael D. McDonald
Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment to Annual Report on Form 10-K has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
/s/ RONALD E. RAGLAND Chairman of the Board and Chief January 30, 1998
- ----------------------------------- Executive Officer
Ronald E. Ragland (Principal Executive Officer)
* President, Chief Operating Officer January 30, 1998
- ----------------------------------- and Director
Errol Ekaireb
* Executive Vice President, President January 30, 1998
- ----------------------------------- of REMEC Microwave Division and
Jack A. Giles Director
* Director, Senior Vice President and January 30, 1998
- ----------------------------------- Chief Engineer
Denny Morgan
* Executive Vice President and Director January 30, 1998
- -----------------------------------
Joseph T. Lee
/s/ MICHAEL D. McDONALD Chief Financial Officer and January 30, 1998
- ----------------------------------- Secretary (Principal Financial and
Michael D. McDonald Accounting Officer)
* Director January 30, 1998
- -----------------------------------
Andre R. Horn
* Director January 30, 1998
- -----------------------------------
Gary L. Luick
</TABLE>
S-1
<PAGE> 31
<TABLE>
<S> <C> <C>
* Director January 30, 1998
- -----------------------------------
Jeffrey M. Nash
Director January 30, 1998
*
- -----------------------------------
Thomas A. Corcoran
Director January 30, 1998
*
- -----------------------------------
William H. Gibbs
* By: /s/ RONALD E. RAGLAND
----------------------------
Ronald E. Ragland
Attorney-in-Fact
</TABLE>
S-2
<PAGE> 32
SCHEDULE II
REMEC, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE
BEGINNING OF TO PERIOD COSTS AT END
CONTRACT LOSS RESERVE PERIOD DEDUCTIONS OF PERIOD
--------------------- ------------ ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended January 31, 1995........... $3,250,000 $ 455,000 $(1,799,000) $1,906,000
Year ended January 31, 1996........... 1,906,000 2,139,000 (2,675,000) 1,370,000
Year ended January 31, 1997........... 1,370,000 822,000 (620,000) 1,572,000
</TABLE>
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1(1) Agreement and Plan of Reorganization and Merger between
Magnum Microwave Corporation, the Registrant and REMEC
Acquisition Corporation
2.2(2) Stock Purchase Agreement dated March 31, 1996 between STM
Wireless, Inc., a Delaware Corporation, and the Registrant
3.1(3) Restated Articles of Incorporation
3.2(3) By-Laws, as amended
10.1(3) Equity Incentive Plan
10.2(3) Employee Stock Purchase Plan
10.3(3) Form of Indemnification Agreements between Registrant and
its officers and directors
10.4(3) Credit Agreement between the Registrant and
The Bank of California, N.A., dated June 17,
1993, as amended
+10.5(3) Manufacturing Agreement Terms and Conditions
dated August 10, 1995 between the Registrant
and P-COM, Inc.
10.6(3) Standard Industrial Lease between the Registrant and
Transcontinental Realty Investors, Inc., dated February 1,
1990, as amended.
10.7(3) Standard Industrial Lease between the Registrant and
Chesapeake Business Park 1983, dated December 13, 1988, as
amended.
10.8(1) Form of Employment and Non-Competition Agreement with
Joseph Lee (attached as Exhibit 1 to Agreement and Plan of
Reorganization and Merger filed as Exhibit 2.1)
10.9(4) 1996 Nonemployee Directors Stock Option Plan
10.10(7) Employment and Non-Competition Agreement between Jim
Mongillo and the Registrant
10.11(5) Agreement and Plan of Reorganization and Merger by and
among REMEC, Inc., C&S Acquisition Corporation and C&S
Hybrid, Inc., dated as of April 10, 1997
10.12(6) C&S Hybrid, Inc. 1996 Equity Incentive Plan
10.13(8) Agreement and Plan of Reorganization and Merger by and
among the Registrant, RQB Acquisition Corporation and Q-bit
Corporation, dated as of October 24, 1997
10.14(8) Stock Purchase Agreement by and among Justin
Miller, Ph.D., RoyNat, Inc., REMEC Canada
ULC and the Registrant, dated as of
September 30, 1997
11.1(8) Statement Re: Computation of per Share Data
21.1(8) Subsidiaries of the Registrant
23.1(8) Consent of Ernst & Young LLP, Independent Auditors
23.2(8) Consent of Ireland San Filippo, LLP
23.3(8) Consent of Bray, Beck & Koetter
24.1(7) Power of Attorney (included on Page S-1 of the Initial
Filing of the Annual Report on Form 10-K)
</TABLE>
- -----------------
(1) Previously filed with the Securities and Exchange Commission as an
exhibit to Registrant's Registration Statement on Form S-4 (No.
333-05343) filed on July 30, 1996 and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an
exhibit to Registrant's Form 8-K filed on May 3, 1996 and incorporated
herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an
exhibit to Registrant's Registration Statement on Form S-1 (No.
333-80381) filed on February 1, 1996 and incorporated herein by
reference.
<PAGE> 34
(4) Previously filed with the Securities and Exchange Commission as an
exhibit to Registrant's Registration Statement on Form S-8 (No.
333-16687) filed on November 25, 1996 and incorporated herein by
reference.
(5) Previously filed with the Securiteis and Exchange Commission as an
exhibit to Amendment No. 1 to Registrant's Registration Statement on
Form S-4 (No. 333-27023) filed on June 13, 1997 and incorporated herein
by reference.
(6) Previously filed with the Securities and Exchange Commission as an
exhibit to Registrant's Registration Statement on Form S-8 (No.
333-37191) filed on October 6, 1997 and incorporated herein by
reference.
(7) Filed with the Initial Filing of the Annual Report on Form 10-K.
(8) Filed with this Amendment No. 2.
+ Confidential treatment granted.
<PAGE> 1
EXHIBIT 10.13
AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
BY AND AMONG
REMEC, INC., RQB ACQUISITION CORPORATION AND
Q-BIT CORPORATION
OCTOBER 24, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS...........................................................................1
1.1 Definitions.......................................................................1
ARTICLE II MERGER, CLOSING AND CONVERSION OF SHARES.............................................5
2.1 Merger............................................................................5
2.2 Closing...........................................................................5
2.3 Conversion of Shares..............................................................5
2.4 Rights After the Effective Time...................................................6
2.5 Dissenting Shares.................................................................6
2.6 Adjustments.......................................................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY SHAREHOLDERS..........6
3.1 Organization and Authority........................................................7
3.2 Capitalization....................................................................7
3.3 Authority Relating to this Agreement; No Violation of Other Instruments...........8
3.4 Compliance With Law...............................................................9
3.5 Investments in Others.............................................................9
3.6 Financial Statements..............................................................9
3.7 Absence of Undisclosed Liabilities...............................................10
3.8 Tax Returns and Payments.........................................................10
3.9 Absence of Certain Changes and Events............................................11
3.10 Payables; Receivable............................................................12
3.11 Inventories.....................................................................12
3.12 Interests in Real Property......................................................12
3.13 Personal Property...............................................................13
3.14 Directors and Officers..........................................................13
3.15 Certain Transactions............................................................13
3.16 Patents, Trademarks, Etc........................................................13
3.17 Litigation and Other Proceedings................................................14
3.18 Contracts.......................................................................14
3.19 Insurance and Banking Facilities................................................14
3.20 Personnel.......................................................................15
3.21 Powers of Attorney and Suretyships..............................................15
3.22 Minutes and Stock Records.......................................................15
3.23 Governmental Compliance and Consents............................................15
3.24 Product Warranties..............................................................16
3.25 Compliance with ERISA and Costa Rican Law.......................................16
3.26 Labor Matters...................................................................16
3.27 Hazardous Materials.............................................................17
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3.28 Order Backlog; Customer Complaints..............................................18
3.29 Brokers and Finders.............................................................18
3.30 Accuracy of Documents and Information...........................................18
3.31 Certain Tax Matters.............................................................18
3.32 Credit Cards....................................................................19
3.33 Business Practices..............................................................19
3.33 Minimum Consolidated Net Worth..................................................19
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.............................20
4.1 Organization and Authority.......................................................20
4.2 Capitalization...................................................................20
4.3 Authority Relating to this Agreement; No Violation of Other Instruments..........20
4.4 Financial Statements.............................................................21
4.5 Shares Issued in Connection With the Merger......................................21
4.6 Full Disclosure..................................................................22
4.7 Activities of Merger Sub.........................................................22
4.8 Compliance with Laws.............................................................22
4.9 Eligibility to Use Form S-3......................................................23
4.10 Litigation......................................................................23
4.11 Absence of Undisclosed Liabilities..............................................23
ARTICLE V COVENANTS OF THE COMPANY AND THE COMPANY SHAREHOLDERS.................................23
5.1 Access to Properties and Records.................................................23
5.2 Conduct of Business Prior to Closing.............................................23
5.3 Notice of Events.................................................................24
5.4 Company Shareholders Approval and Board Recommendation...........................25
5.5 No Other Negotiations............................................................25
5.6 Cooperation......................................................................25
5.7 Employees........................................................................25
5.8 Best Efforts to Close............................................................25
5.9 Agreements with Respect to Affiliates............................................25
5.10 Shareholder Agreement and Investment Letter.....................................25
5.11 Registration Rights Agreement...................................................26
5.12 Updated Company Disclosure Letter...............................................26
ARTICLE VI COVENANTS OF PARENT AND MERGER SUB...................................................26
6.1 Access to Properties and Records.................................................26
6.2 Information......................................................................26
6.3 Notice of Events.................................................................26
6.4 Employee Benefits................................................................26
6.5 Best Efforts to Close............................................................27
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6.6 Nasdaq Listing...................................................................27
6.7 No Actions Inconsistent with Tax-Free Reorganization.............................27
6.8 Indemnification of Company Directors and Officers................................27
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.............................28
7.1 Representations and Warranties True at Closing...................................28
7.2 Performance of Covenants.........................................................29
7.3 Certificate......................................................................29
7.4 Opinion of Counsel...............................................................29
7.5 Resignations of Directors........................................................29
7.6 Material Changes.................................................................29
7.7 Consents.........................................................................29
7.8 Shareholder Approval; Potential Dissenting Shares................................29
7.9 Pooling Letter from Accountants..................................................29
7.10 No Action to Prevent Completion.................................................29
7.11 Employment and Non-Competition Agreements.......................................30
7.12 No Material Adverse Changes.....................................................30
7.13 Agreements with Respect to Affiliates...........................................30
7.14 Investment Letter...............................................................30
7.15 Approval of the Merger..........................................................30
7.16 Contribution of Stock of Corporacion Q-bit to the Company.......................30
7.18 HSR Act Waiting Period..........................................................30
7.19 Termination of Shareholder Agreement............................................30
ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY......................................30
8.1 Representations and Warranties True at Closing...................................30
8.2 Performance of Covenants.........................................................31
8.3 Certificate......................................................................31
8.4 Opinion of Counsel...............................................................31
8.5 Consents.........................................................................31
8.7 Shareholder Approval.............................................................31
8.8 Pooling of Interests.............................................................31
8.9 Employment Agreements............................................................31
8.10 Approval of Merger..............................................................31
8.11 Rights Agreement................................................................31
8.12 No Material Adverse Changes.....................................................31
8.13 Contribution of Stock of Corporacion Q-bit to the Company.......................32
8.14 HSR Act Waiting Period..........................................................32
8.15 Termination of Shareholder Agreement............................................32
ARTICLE IX COVENANTS OF THE COMPANY, COMPANY SHAREHOLDERS, PARENT AND MERGER SUB...............32
9.1 Press Releases...................................................................32
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9.2 Confidential Information.........................................................32
9.3 Eligibility for Use of S-3.......................................................32
9.4 Certain Post-Closing Tax Matters.................................................32
9.5 Notification of Certain Events...................................................34
9.6 Regulatory Approvals.............................................................34
ARTICLE X INDEMNIFICATION......................................................................34
10.1 Indemnification.................................................................34
10.2 Notice..........................................................................35
10.3 Claims of Parent................................................................35
10.3.1 Claims of Parent.....................................................35
10.3.2 Third Party Claims...................................................35
10.3.3 Defense of Third Party Claims........................................36
10.3.4 Settlement of Third Party Claims.....................................36
10.3.5 Limitation on Indemnification........................................36
ARTICLE XI MISCELLANEOUS.......................................................................37
11.1 Survival of Representations and Warranties......................................37
11.2 Expenses........................................................................37
11.3 Amendment.......................................................................37
11.4 Entire Agreement................................................................38
11.5 Governing Law...................................................................38
11.6 Headings........................................................................38
11.7 Mutual Contribution.............................................................38
11.8 Notices.........................................................................38
11.9 Waiver..........................................................................39
11.10 Binding Effect; Assignment....................................................39
11.11 No Third Party Beneficiaries...................................................39
11.12 Counterparts...................................................................39
11.13 Further Assurances.............................................................39
11.14 Termination....................................................................39
11.14.1 Mutual Consent.....................................................39
11.14.2 Failure to Satisfy Conditions Not Waived...........................39
11.14.3 Closing Has Not Occurred...........................................40
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LIST OF EXHIBITS
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EXHIBIT A List of Company Shareholders
EXHIBIT B Form of Articles of Merger
EXHIBIT 3.3 Shareholder Agreement and Investment Letter
EXHIBIT 5.9 Form of Q-bit Affiliate Agreement
EXHIBIT 5.11 Form of Registration Rights Agreement
EXHIBIT 7.4 Form of Opinion of Counsel to the Company and Corporacion Q-bit
EXHIBIT 7.11(a) Form of Employment and Non-Competition Agreement
EXHIBIT 7.11(b) Form of Employment Agreement
EXHIBIT 8.4 Form of Opinion of Heller Ehrman White & McAuliffe
</TABLE>
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<PAGE> 7
AGREEMENT AND PLAN OF
REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (the "Agreement")
is made as of October 24, 1997 by and among REMEC, Inc., a California
corporation ("Parent"), RQB Acquisition Corporation, a Florida corporation and
wholly owned subsidiary of Parent ("Merger Sub"), Q-bit Corporation, a Florida
corporation (the "Company") and the shareholders of the Company named in Exhibit
A hereto (the "Company Shareholders").
Background
Parent, Merger Sub, the Company and the Company Shareholders desire
that Merger Sub be merged with and into the Company; that the Company be the
surviving corporation and become a wholly owned subsidiary of Parent and that
each share of the Common Stock of the Company which is outstanding immediately
prior to the effective time of the merger be converted as set forth in this
Agreement and the Articles of Merger into shares of the Common Stock of Parent.
Parent, Merger Sub, the Company and the Company Shareholders intend that the
merger constitute a "reorganization" under Section 368(a)(1)(A), by application
of Section 368(a)(2)(E), of the Internal Revenue Code of 1986, as amended.
THE PARTIES AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
1.1 Definitions. The terms defined in this Article I, whenever used
herein, shall have the following meanings for all purposes of this Agreement:
"Affiliate" means, with respect to any corporation, any person or
entity which controls, is controlled by or is under common control with such
corporation.
"Articles of Merger" means the Articles of Merger to be executed by the
Company, Merger Sub and Parent, in the form attached to this Agreement as
Exhibit B.
"Average Closing Price" means the weighted average closing price
(weighted based upon the volume of shares of Parent Common traded during the
day) of a share of Parent Common on the Nasdaq National Market for the five
consecutive trading days that precede the third trading day that is immediately
prior to the Closing Date, as reported (absent manifest error in the printing
thereof) by The Wall Street Journal (Western Edition). For example, assume the
trading activity for the applicable five-day period is as follows:
<PAGE> 8
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Nasdaq
Trading Nasdaq Closing
Day Volume Sales Price Total
--- -------- -------------- -----------
<S> <C> <C> <C>
One 69,100 $32.75 2,263,025
Two 220,800 $34.375 7,590,000
Three 272,600 $35.00 9,541,000
Four 17,600 $35.50 624,800
Five 49,000 $35.875 1,757,875
-------- -----------
629,100 21,776,700
</TABLE>
The weighted average closing price for this example would be calculated by
dividing the sum of the numbers in the "Total" column above (21,776,700) by the
sum of the numbers in the "Volume" column above (629,100) to equal $34.62 (using
a rounding convention for determining the average sales price of rounding up
fractions of a cent that are equal to .500 or more to the next highest whole
cent and rounding down fractions of a cent that are less than .500 to the next
lowest whole cent).
"Closing" means the delivery by the Company, Parent and Merger Sub of
the various documents contemplated by this Agreement and otherwise required in
order to consummate the Merger.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Q-bit Corporation, a Florida corporation.
"Company Audited Balance Sheet" means the balance sheet of the Company
at December 31, 1996 included in the Audited Financials.
"Company Audited Financials" means the balance sheets of the Company at
December 31, 1995 and December 31, 1996 and the related statements of income,
shareholders' equity and cash flows for the two years then ended, including the
notes thereto, in each case accompanied by an unqualified report of Bray, Beck &
Koetter, certified public accountants.
"Company Common" means shares of Company Common Stock.
"Company Financials" means the Company Audited Financials and the
Company Interim Financials.
"Company Interim Balance Sheet" means the balance sheet of the Company
at September 30, 1997.
"Company Interim Financials" means the balance sheet of the Company at
September 30, 1997 and the related statements of income for the eight-month
period then ended.
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<PAGE> 9
"Corporacion Financials" means the balance sheets of Corporacion Q-bit
at September 30, 1996 and September 30, 1997 and the related statements of
income for the six-month and twelve-month periods then ended, respectively.
"Corporacion Interim Balance Sheet" means the balance sheet of
Corporacion Q-bit at September 30, 1997.
"Corporacion Interim Financials" means the balance sheet of Corporacion
Q-bit at September 30, 1997 and the related statements of income for the
twelve-month period then ended.
"Corporacion Q-bit" means Corporacion Q-bit, S.A., a corporation
organized and existing under the laws of the Republic of Costa Rica.
"Dissenting Shares" means those shares of Company Common as to which
the holders thereof are exercising or have exercised their dissenters' rights
pursuant to Sections 1301 et seq. of the FBCA.
"Effective Time" means the time when the Articles of Merger are filed
with the Department of State of the State of Florida and the Merger becomes
effective.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Ratio" shall have the meaning ascribed to it in Section 2.3
of this Agreement.
"Expiration Date" shall have the meaning ascribed to it in Section
10.3.5 of this Agreement.
"FBCA " means the Business Corporation Act of the State of Florida.
"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.
"Governmental Entity" means any government or any agency, bureau,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local and
whether domestic or foreign.
"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,
3
<PAGE> 10
rule or regulation or, as applied to Corporacion Q-bit, any applicable law of
the Republic of Costa Rica.
"Holder" means the holder of shares of Company Common immediately prior
to the Effective Time.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnifiable Claim" means any Loss for or against which any party is
entitled to indemnification under this Agreement; "Indemnified Party" means the
party entitled to indemnity hereunder; and "Indemnifying Party" means the party
obligated to provide indemnification hereunder.
"Loss" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other reasonable professional fees and
expenses incurred in the investigation, collection, prosecution and defense of
claims and amounts paid in settlement, that may be imposed on or otherwise
incurred or suffered by the specified person.
"Merger Sub Common" means the Common Stock of Merger Sub, par value
$.01.
"1933 Act" means the Securities Act of 1933, as amended, and the rules,
regulations and forms of the SEC promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules, regulations and forms of the SEC promulgated thereunder.
"Parent Common" means the Common Stock of Parent, par value $.01.
"Purchase Price" shall have the meaning ascribed to it in Section 2.3
of this Agreement.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means, with respect to any entity, any corporation or
other organization, whether incorporated or unincorporated, of which at least a
majority of the securities or interests having by their terms ordinary voting
power to elect a majority of the board of directors or others performing similar
functions is owned, directly or indirectly, by such entity.
"Tax" means any tax, charge or levy, including without limitation
income, franchise, transfer, sales, use, gross receipts, business and
occupation, real and personal property, ad valorem, value-added, employment,
withholding, payroll, disability, capital stock, production, severance, excise,
minimum and windfall profits taxes, imposed by any Governmental Entity, together
with any interest, penalties (civil or criminal), fines and additions to tax
related thereto or to the nonpayment thereof, and any Loss in connection with
the determination, settlement or litigation of any Tax liability.
4
<PAGE> 11
"Tax Return" means any return (including without limitation any
consolidated return and information return), report (including without
limitation any combined report), statement, schedule, notice, form, estimate or
declaration of estimated tax relating to or required to be filed with any
Governmental Entity in connection with the determination, assessment, collection
or payment of any Tax with respect to the Company and/or Corporacion Q-bit.
The word "knowledge," when used with reference to the Company, Parent
or the Company Shareholders, shall mean the current actual knowledge of the
officers and directors of the Company or Parent or the current actual knowledge
of the Company Shareholders, as applicable, and any written information within
such officers' and directors' possession, but shall not mean any constructive
knowledge of the Company, Parent or their respective officers and directors or
the Company Shareholders and shall not create any inference that the Company,
Parent or their respective officers and directors or the Company Shareholders
have undertaken an independent inquiry or investigation of any matter to which
the Company's, Parent's or Company Shareholders' respective knowledge is
referenced in this Agreement, and the word "know" shall have a corresponding
meaning. With respect to the use of the word knowledge as to any party, the
pronoun "it" or "its" shall also include the pronoun of either gender ("he,"
"she" or "their") with regard to the individuals deemed to have knowledge as to
any matter.
ARTICLE II
MERGER, CLOSING AND CONVERSION OF SHARES
2.1 Merger. Subject to and in accordance with the terms and conditions
of this Agreement and the Articles of Merger, the Company, Parent and Merger Sub
shall execute and file the Articles of Merger with the Department of State of
the State of Florida, whereupon Merger Sub shall be merged with and into the
Company pursuant to Sections 1101 et seq. of the FBCA.
2.2 Closing. The Closing shall take place at the offices of the Company
at 2144 Franklin Drive, N.E., Palm Bay, Florida 32905 at 5:00 p.m., Eastern
Standard Time, on the date the Articles of Merger are filed with the Department
of State of the State of Florida, or at such other place, date or time as the
Company, Parent and Merger Sub shall agree writing (the "Closing Date"), such
Articles of Merger to be filed as soon as practicable after all of the
conditions to the parties' obligations to consummate the Merger set forth in
Articles VII and VIII of this Agreement have been satisfied or waived.
2.3 Conversion of Shares. In accordance with the Articles of Merger,
(i) each share of Merger Sub Common issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted at and as of the Effective Time, into
one share of Company Common, and (ii) each share of Company Common outstanding
immediately prior to the Effective Time (except those shares of Company Common
which are Dissenting Shares and whose holder and the Company do not thereafter
agree in writing should not be treated as Dissenting Shares) shall, by virtue of
the Merger and without any action on the part of the holder thereof be
converted, at and as of the
5
<PAGE> 12
Effective Time into the right to receive a number of shares of Parent Common for
each share of Company Common (the "Exchange Ratio") determined by dividing (i)
$30,000,000 (the "Purchase Price") by (ii) the Average Closing Price; and by
dividing the result by (iii) the number of shares of Company Common outstanding
immediately prior to the Effective Time. Holders of Company Common shall receive
only whole shares of Parent Common; in lieu of any fractional share of Parent
Common, Holders shall receive in cash the fair market value of such fractional
share valuing Parent Common at the Average Closing Price.
2.4 Rights After the Effective Time. As soon as practicable after the
Effective Time, each holder of record of a certificate or certificates which,
prior to the Effective Time, represented outstanding shares of the Company
Common shall be entitled, upon surrender of such certificate or certificates to
Parent (or in the case of certificates that have been lost, stolen or destroyed,
lost certificate affidavits therefor and indemnification in connection
therewith) or to an exchange agent designated by Parent, in form suitable for
transfer, to receive a certificate or certificates representing the number of
whole shares of Parent Common to which such shareholder is entitled under this
Article II together with cash in lieu of any fractional share of Parent Common
in an amount calculated in accordance with Section 2.3.
2.5 Dissenting Shares. Holders of Dissenting Shares shall have those
rights, but only those rights, to which they are entitled under Sections 1301 et
seq. of the FBCA. The Company shall give Parent prompt notice of any demand,
purported demand or other communication received by the Company with respect to
any Dissenting Shares or shares claimed to be Dissenting Shares, and Parent
shall have the right to participate in all negotiations and proceedings with
respect to such shares. The Company agrees that, without the prior written
consent of Parent, it shall not voluntarily make any payment with respect to, or
settle or offer to settle, any demand or purported demand respecting such
shares.
2.6 Adjustments. Appropriate adjustments shall be made in this
Agreement, the Articles of Merger and the number and type of securities into
which shares of the Company Common shall be converted in connection with the
Merger, in order to reflect any recapitalization, reclassification, split-up,
merger, consolidation, exchange, stock dividend, stock split or similar event
made, declared or effected with respect to Parent Common between the date of
this Agreement and the date such shares are issued.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY SHAREHOLDERS
Except as set forth in the disclosure letter, a true and correct copy
of which has been delivered to Parent on or prior to the date of this Agreement
(the "Company Disclosure Letter"), the Company, jointly and severally, and the
Company Shareholders, severally, represent to Parent that:
6
<PAGE> 13
3.1 Organization and Authority.
(i) The Company: (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida; (b) has
all necessary corporate power to own and lease its properties, to carry on its
business as now being conducted and to enter into and perform this Agreement and
all agreements to which the Company is or will be a party that are exhibits to
this Agreement; and (c) is qualified to do business in all jurisdictions in
which the failure to so qualify would have a material adverse effect on its
business or financial condition. Other than Corporacion Q-bit, which is wholly
owned by the Company, the Company does not have any Subsidiaries and does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity. The Company has delivered to Parent and its
representatives complete and correct copies of the Articles of Incorporation and
Bylaws of the Company and similar organizational documents of Corporacion Q-bit,
all of which as in effect on the date of this Agreement, certified as true,
complete and correct copies by the Secretary of the Company or Corporacion
Q-bit, as the case may be. Such Articles of Incorporation and Bylaws and
organizational documents are in full force and effect. Neither the Company nor
Corporacion Q-bit is in violation of any provisions of its respective Articles
of Incorporation or Bylaws or organizational documents.
(ii) Corporacion Q-bit: (a) is a corporation duly organized,
validly existing and in good standing under the laws of the Republic of Costa
Rica; (b) has all necessary corporate power to own and lease its properties and
to carry on its business as now being conducted; and (c) is qualified to do
business in all jurisdictions in which the failure to so qualify would have a
material adverse effect on the condition, financial or otherwise, assets,
liabilities, business or results of operation of the Company and Corporacion
Q-bit taken as a whole.
3.2 Capitalization.
3.2.1 The authorized capital stock of the Company consists of
7,500 shares of Common Stock, of which 2,473 shares are issued and outstanding.
The authorized capital stock of Corporacion Q-bit consists of 2,473 common
shares of Series A stock, all of which are issued and outstanding. A list of all
of the shareholders of the Company, with the number of shares owned by each of
them as of the date of this Agreement, is contained in Section 3.2 of the
Company Disclosure Letter. All such issued and outstanding shares have been duly
authorized and validly issued, and are fully paid and nonassessable, and, with
respect to the outstanding shares of Corporacion Q-bit, have been issued in
compliance with all applicable laws of the Republic of Costa Rica. Except as
contemplated under this Agreement, there are no outstanding warrants, options,
agreements, convertible or exchangeable securities or other commitments pursuant
to which the Company or Corporacion Q-bit is or may become obligated to issue,
sell, purchase, retire or redeem any shares of capital stock or other
securities.
3.2.2 Neither the Company nor Corporacion Q-bit has in effect
any stock appreciation rights plan and no stock appreciation rights issued by
the Company or Corporacion Q-bit are currently outstanding.
7
<PAGE> 14
3.2.3 There is no right of first refusal, co-sale right, right
of participation, right of first offer, option or other restriction on transfer
applicable to any shares of capital stock of the Company or Corporacion Q-bit
which apply to or survive the transactions contemplated by this Agreement.
3.2.4 Except as contemplated under this Agreement, neither the
Company nor Corporacion Q-bit is a party or is subject to any agreement or
understanding, and there is no agreement or understanding between or among any
persons that affects or relates to the voting or giving of written consent with
respect to any outstanding security of the Company or Corporacion Q-bit.
3.3 Authority Relating to this Agreement; No Violation of Other
Instruments.
3.3.1 The execution and delivery of this Agreement and all
agreements to which the Company is or will be a party that are exhibits to this
Agreement and the performance hereunder and thereunder by the Company have been
duly authorized by all necessary corporate action on the part of the Company,
and, assuming execution of this Agreement and such other agreements by each of
the other parties thereto, this Agreement and such other agreements will
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject as to enforcement:
(i) to bankruptcy, insolvency, reorganization, arrangement, moratorium and other
laws of general applicability relating to or affecting creditors' rights; and
(ii) to general principles of equity, whether such enforcement is considered in
a proceeding in equity or at law. The Company has obtained executed copies of
the Shareholder Agreement and Investment Letter in the form attached hereto as
Exhibit 3.3 (the "Investment Letter") from the persons identified in Section 3.3
of the Company Disclosure Letter.
3.3.2 Neither the execution of this Agreement or any other
agreement to which the Company or any Company Shareholder is or will be a party
that is an exhibit to this Agreement nor the performance of any of them by the
Company will: (i) conflict with or result in any breach or violation of the
terms of any decree, judgment, order, or to its knowledge, any law or regulation
of any court or other governmental body now in effect applicable to the Company
or Corporacion Q-bit other than state securities or Blue Sky laws, as to which
no representation is given; (ii) conflict with, or result in, with or without
the passage of time or the giving of notice, any breach of any of the terms,
conditions and provisions of, or constitute a default under or otherwise give
another party the right to terminate, or result in the creation of any lien,
charge, or encumbrance upon any of the assets or properties of the Company or
Corporacion Q-bit pursuant to, any material indenture, mortgage, lease,
agreement or other instrument to which the Company or Corporacion Q-bit is a
party or by which it or any of its assets or properties are bound; (iii) permit
the acceleration of the maturity of any indebtedness of the Company or
Corporacion Q-bit or of any other person secured by the assets or properties of
the Company and Corporacion Q-bit; or (iv) violate or conflict with any
provision of the Articles of Incorporation, Bylaws or similar organizational
instruments of the Company or Corporacion Q-bit.
8
<PAGE> 15
3.3.3 Other than (i) filings and approvals pursuant to the HSR
Act, (ii) any necessary blue sky filings and approvals and (iii) consents or
approvals disclosed in Section 3.3 of the Company Disclosure Letter, no consent
from any third party and no consent, approval or authorization of, or
declaration, filing or registration with, any government or regulatory authority
is required to be made or obtained by the Company or Corporacion Q-bit in order
to permit the execution, delivery or performance of this Agreement or any other
agreement to which the Company is or will be a party that is an exhibit to this
Agreement, or the consummation of the transactions contemplated by this
Agreement and such other agreements.
3.4 Compliance With Law. Each of the Company and Corporacion Q-bit
holds all licenses, permits and authorizations (other than any such licenses,
permits or authorizations the absence of which would not have a material adverse
effect on the condition, financial or otherwise, assets, liabilities, business
or results of operations of the Company and Corporacion Q-bit taken as a whole)
necessary for the lawful conduct of their respective businesses as currently
conducted pursuant to all applicable statutes, laws, ordinances, rules and
regulations of all governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over it or over any part of their respective
operations, and the Company knows of no violation thereof, other than any such
violation that would not have a material adverse effect on the condition,
financial or otherwise, assets, liabilities, business or results of operations
of the Company and Corporacion Q-bit taken as a whole. Neither the Company nor
Corporacion Q-bit is in violation of any decree, judgment, order, or to the
Company's knowledge, any law or regulation, of any court or other governmental
body (including without limitation, applicable environmental protection
legislation and regulations, equal employment and civil rights regulations,
wages, hours and the payment of social security taxes and occupational health
and safety legislation), which violation would reasonably be expected to have a
material adverse effect on the condition, financial or otherwise, assets,
liabilities, business or results of operations of the Company and Corporacion
Q-bit taken as a whole. Section 3.4 of the Company Disclosure Letter contains a
true and complete list of all licenses, permits and authorizations (other than
any such licenses, permits or authorizations the absence of which would not have
a material adverse effect on the condition, financial or otherwise, assets,
liabilities, business or results of operations of the Company and Corporacion
Q-bit taken as a whole) necessary for the lawful conduct of the business of the
Company and Corporacion Q-bit wherever conducted pursuant to all applicable
statutes, laws, ordinances, rules and regulations of all governmental bodies,
agencies and subdivisions having, asserting or claiming jurisdiction over the
Company or Corporacion Q-bit or over any part of the operations of the Company
or Corporacion Q-bit.
3.5 Investments in Others. Other than loans between the Company and
Corporacion Q-bit which are included in the Company Interim Balance Sheet and
the Corporacion Interim Balance Sheet, neither the Company nor Corporacion Q-bit
has 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 Financial Statements. The Company Financials and the Corporacion
Financials: (i) have been prepared in accordance with the books and records of
the Company and Corporacion Q-bit; (ii) fairly present the financial position,
results of operations, owners equity
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and cash flow of the Company and Corporacion Q-bit as of the dates and for the
periods indicated therein; and (iii) with respect to the Company Financials
only, have been prepared in accordance with GAAP consistently applied. The
Company Interim Financials are stated without notes and, with respect to the
Company Interim Financials and the Corporacion Interim Financials, are subject
to normal and customary year-end adjustments.
3.7 Absence of Undisclosed Liabilities. Except for obligations incurred
in the ordinary course of business which are not required under GAAP to be
reflected on a balance sheet included in the Company Interim Balance Sheet and
the Corporacion Interim Balance Sheet, neither the Company nor Corporacion Q-bit
has any indebtedness or any other liability (absolute, contingent, asserted or
known) which is not reflected on or provided for in full on such balance sheets.
3.8 Tax Returns and Payments. Except where failure to file would not
have a material adverse effect on the condition, financial or otherwise, assets,
liabilities, business or results of operations of the Company and Corporacion
Q-bit taken as a whole, all Tax Returns required to be filed on or before the
Closing Date by, or with respect to any assets, activities or income of, the
Company and Corporacion Q-bit have been or will be timely filed, and all such
returns are true, correct and complete in all material respects. All Taxes and
other material governmental charges of any nature whatsoever which were shown to
be due or claimed to be due on such returns or which otherwise may be owed for
any period or portion thereof ending on or before the Closing Date, whether or
not shown or required to be shown on any such Tax Return, have been paid or
adequate provision for the payment thereof has been made. Section 3.8 of the
Company Disclosure Letter includes a complete and correct list of all such
returns filed in connection with any year or portion thereof which ended on or
after December 31, 1992. Except as set forth in Section 3.8 of the Company
Disclosure Letter, the Company has no knowledge of any assessment of deficiency
or additional Tax or other governmental charge respecting the Company,
Corporacion Q-bit or their respective businesses or affairs, or any knowledge of
any completed, pending or threatened Tax audit or investigation respecting the
Company, Corporacion Q-bit or their respective businesses or affairs by any
taxing or other Governmental Entity, and no waivers of statutes of limitations
have been requested with respect to the Company or Corporacion Q-bit. The
amounts provided for Taxes on the Company Interim Balance Sheet and the
Corporacion Interim Balance Sheet are sufficient for the payment of all accrued
and unpaid U.S. federal, state, local or foreign Taxes for all periods prior to
the dates of such balance sheets. Notwithstanding the foregoing, (i) the Company
has filed a protest in connection with an Internal Revenue Service audit for its
1994 and 1995 years; provided, however, that the 30-day letter issued by the
Internal Revenue Service would not result in the assessment of any Tax
deficiencies to the Company other than a Code Section 1374 built-in gains tax of
$16,813 plus applicable interest, and (ii) the Company is presently undergoing a
Florida sales and use tax audit that is anticipated by the Company to result in
a Tax deficiency to the Company of less than $50,000, including interest.
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3.9 Absence of Certain Changes and Events. Since the date of the
Company Interim Balance Sheet there has not been, and prior to the Closing there
will not be:
(i) any transaction entered into by the Company or Corporacion
Q-bit other than in the ordinary course of business or as contemplated
by this Agreement or any loss or damage to any of the manufacturing
facilities of the Company or Corporacion Q-bit due to fire or other
casualty, whether or not insured, amounting to more than $50,000 in
aggregate replacement value; any event that materially and adversely
affects the ability of the Company or Corporacion Q-bit to operate its
business as a whole in a manner consistent with the way in which such
business has been conducted prior to September 30, 1997 or any change
in the financial position, assets, liabilities, results of operations
or business of the Company and Corporacion Q-bit taken as a whole other
than changes in the ordinary course of business which in the aggregate
have not been materially adverse;
(ii) any declaration, payment or setting aside of any dividend
or other distribution to or for the holder of any capital stock of the
Company or Corporacion Q-bit;
(iii) any lawsuit, proceeding or governmental investigation
which is likely to have a material adverse effect on the business of
the Company and Corporacion Q-bit taken as a whole;
(iv) any event or condition of any character which had or is
reasonably likely to have a material adverse effect on the condition,
financial or otherwise, assets, liabilities, business or results of
operations of the Company and Corporacion Q-bit taken as a whole that
has not been disclosed in the Company Disclosure Letter;
(v) any increase or decrease in the rates of compensation
payable or to become payable by the Company or Corporacion Q-bit to any
director, officer, employee, agent or consultant, or any bonus,
percentage compensation, service award or other benefit, granted, made
or accrued to or to the credit of any such person, or any welfare,
pension, retirement or similar payment or arrangement made or agreed to
by the Company or Corporacion Q-bit other than salary adjustments for
non-officer employees in accordance with past practice;
(vi) any modification or rescission of, or waiver by the
Company or Corporacion Q-bit of rights under, any existing contract
which has had or is reasonably likely to have a material adverse effect
on the condition, financial or otherwise, assets, liabilities, business
or results of operation of the Company and Corporacion Q-bit taken as a
whole;
(vii) any discharge or satisfaction by the Company or
Corporacion Q-bit of any lien or encumbrance, or any payment of any
obligation or liability (absolute or contingent) other than current
liabilities shown on the Interim Balance Sheet and the
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Corporacion Interim Balance Sheet and current liabilities incurred
since the dates of such balance sheets in the ordinary course of
business; or
(viii) any mortgage, pledge, imposition of any security
interest, claim, encumbrance or other restriction on any of the assets,
tangible or intangible, of the Company or Corporacion Q-bit.
3.10 Payables; Receivable.
3.10.1 All accounts payable and notes payable by the Company
and Corporacion Q-bit to third parties listed in the Company Interim Balance
Sheet and Corporacion Interim Balance Sheet as of the date of the balance sheet
to which each such account payable or note payable relates, arose in the
ordinary course of business.
3.10.2 The accounts receivable listed in the Company Interim
Balance Sheet and the Corporacion Interim Balance Sheet and reflected in the
Company Interim Financials and the Corporacion Interim Financials are based on
the Company's reasonable judgment and its normal credit review procedures,
business practices and GAAP and are 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.
3.11 Inventories. The inventories listed in the balance sheets included
in the Company Financials and the Corporacion Financials and reflected in the
Company Financials and the Corporacion Financials are valued in accordance with
GAAP consistently applied and as described in clause (i) of Section 3.6 of this
Agreement.
3.12 Interests in Real Property. Section 3.12(a) of the Company
Disclosure Letter comprises a complete and correct list and a brief description
of all real property leased by the Company and Corporacion Q-bit. Section
3.12(b) of the Company Disclosure Letter comprises a complete and correct list
and a brief description of all real property owned by the Company and
Corporacion Q-bit. All real property leases to which the Company or Corporacion
Q-bit is a party are valid and enforceable (subject, as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting creditors' rights, and, with respect to the remedy of
specific performance, equitable doctrines applicable thereto) and no party
thereto is in default of any material provision thereof. All improvements and
fixtures on real properties owned or leased by the Company or Corporacion Q-bit
conform to all applicable material health, fire, safety, environmental, zoning
and building laws and ordinances, and any applicable covenants, conditions,
restrictions or limitations affecting the real property. Each of the Company and
Corporacion Q-bit, as applicable, 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 (except for such
non-monetary imperfections of title and encumbrances, if any, as do not
materially detract from the value of or materially interfere with the present
use of such property) to all owned properties listed in Section 3.12(b) of the
Company Disclosure Letter. All materials, buildings, structures and fixtures
used by the
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Company or Corporacion Q-bit in the conduct of their respective businesses are
in good operating condition and repair, ordinary wear and tear excepted, and are
sufficient for the type and magnitude of their respective current operations.
3.13 Personal Property. Each of the Company and Corporacion Q-bit has
good and marketable title (or, in the case of leased properties and assets,
valid leasehold interests), free and clear of all title defects, security
interests, pledges, options, claims, liens, encumbrances and restrictions of any
nature whatsoever (except for such non-monetary imperfections of title and
encumbrances, if any, as do not materially detract from the value of or
materially interfere with the present use of such property) to or in all
inventory and receivables and to any item of machinery, equipment, or tangible
or intangible personal property reflected on the Company Interim Balance Sheet
and Corporacion Interim Balance Sheet, as applicable, or used in the business of
the Company and Corporacion Q-bit (regardless of whether reflected on the
Company Interim Balance Sheet or the Corporacion Interim Balance Sheet). Section
3.13 of the Company Disclosure Letter sets forth a list of items of machinery,
equipment, and other personal tangible property having a current book value of
$15,000 or more used in the business of the Company and Corporacion Q-bit.
Except as shown on Section 3.13 to the Company Disclosure Letter, all the
machinery, equipment and other tangible personal property is in good operating
condition and repair, normal wear and tear excepted, and is sufficient for the
type and magnitude of their operations as currently conducted. At the Closing
Date, each of the Company and Corporacion Q-bit will possess all of the personal
property wherever located used to conduct its business as conducted immediately
prior to the Closing.
3.14 Directors and Officers. Section 3.14 of the Company Disclosure
Letter sets forth a complete and correct list of all present officers and
directors of the Company and Corporacion Q-bit.
3.15 Certain Transactions. No Affiliate is presently a party to any
agreement or arrangement with the Company or Corporacion Q-bit: (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 Affiliate.
3.16 Patents, Trademarks, Etc. All rights, patents, trademarks, trade
names, service marks, mask work rights, copyrights, processes, designs,
formulas, inventions, trade secrets, know-how, technology or other intellectual
rights and any applications or registrations therefor, and all mask works, net
lists, schematics, source code, computer software programs and all other
tangible and intangible information or material (collectively, the "Intellectual
Property Rights") which are necessary to the current conduct of the business of
the Company and Corporacion Q-bit are owned, licensed or possessed, by the
Company and Corporacion Q-bit, respectively. To the Company's knowledge, the
current conduct of the business of the Company and Corporacion Q-bit does not
infringe any Intellectual Property Rights of any other person. No litigation is
pending or, to the knowledge of the Company, has been threatened against the
Company or Corporacion Q-bit or any officer, director, shareholder or employee
of the Company or Corporacion Q-bit, for the infringement of any Intellectual
Property Rights of any other party or for the misuse or misappropriation of any
Intellectual Property Rights owned by
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any other party nor does any basis exist for such litigation. To the Company's
knowledge, there has been no infringement or unauthorized use by any other party
of any Intellectual Property Rights belonging to the Company or Corporacion
Q-bit. Section 3.16 of the Company Disclosure Letter sets forth a list of all
Intellectual Property Rights belonging to or used by the Company and Corporacion
Q-bit.
3.17 Litigation and Other Proceedings. None of the Company, Corporacion
Q-bit, or any of their respective officers or directors in such capacity is a
party to any pending or, to the best knowledge of the Company, threatened
action, suit, claim, proceeding or investigation in the United States (including
the Defense Contract Audit Agency, the Inspector General or the General
Accounting Office) or elsewhere, and neither the Company nor Corporacion Q-bit
is subject to any order, writ, judgment, decree or injunction which materially
adversely affects or may reasonably be expected to so affect the business or
assets of the Company and Corporacion Q-bit taken as a whole or which prevents
or may reasonably be expected to prevent completion of the Merger. Section 3.17
to the Disclosure Letter contains a complete list of all claims brought against
the Company and Corporacion Q-bit since December 31, 1992, 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.
3.18 Contracts. Section 3.18 to the Company Disclosure Letter lists all
currently effective contracts to which the Company or Corporacion Q-bit is a
party or by which the Company, Corporacion Q-bit or any of their respective
properties or assets are bound which (i) involve the payment by the Company or
Corporacion Q-bit 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 the Company and Corporacion Q-bit taken as
a whole and are not for the purchase or sale of goods or services in the
ordinary course of business, or (iv) are distributorship or other agreements
relating to the marketing of products. The Company, Corporacion Q-bit, and to
the knowledge of the Company, all of the other parties to such agreements, are
in compliance with all material provisions of all such agreements in which
failure to so comply would have a material adverse effect on the condition,
financial or otherwise, assets, liabilities, business or results of operations
of the Company and Corporacion Q-bit taken as a whole, and to the knowledge of
the Company, no fact exists which is, or with the passage of time is reasonably
likely to become, a material default under any of them.
3.19 Insurance and Banking Facilities. Section 3.19 to the Company
Disclosure Letter sets forth a complete and correct list of (i) all contracts of
insurance and indemnity of or relating to the Company and Corporacion Q-bit
(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 the Company and Corporacion Q-bit 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 as of the date
of this Agreement have been or will be paid.
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3.20 Personnel. Section 3.20 to the Company Disclosure Letter sets
forth a complete and correct list 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 the Company and Corporacion Q-bit; 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 the
Company and Corporacion Q-bit; provided, however, that clauses (i) and (ii) of
this Section 3.20 shall be deemed inapplicable to any employee benefit plan
which is required to be listed in Section 3.25 of the Company Disclosure Letter.
Section 3.20 of the Disclosure Letter includes a list of all employees of the
Company and Corporacion Q-bit and their compensation levels sorted by exempt and
non-exempt status. The Company and Corporacion Q-bit has been and is in
compliance with the terms of, and any material laws or regulations applicable
to, all such plans, agreements, practices, commitments or programs.
3.21 Powers of Attorney and Suretyships. Neither the Company nor
Corporacion Q-bit has 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,
neither the Company nor Corporacion Q-bit has 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.
3.22 Minutes and Stock Records. The Company has provided Parent and
Merger Sub and their representatives complete and correct copies of the minute
books and stock records of the Company and Corporacion Q-bit. Such items contain
an accurate and correct record of all proceedings and actions taken at all
meetings of, and all actions taken by written consent by, the holders of capital
stock of the Company and Corporacion Q-bit and their respective Boards of
Directors and any committees thereof, and all original issuances and subsequent
transfers and repurchases of their respective capital stock.
3.23 Governmental Compliance and Consents. Each of Company and
Corporacion Q-bit has complied with all laws and regulations of the United
States Department of Defense and other governmental agencies with which Company
or Corporacion Q-bit has contracts, directly or indirectly, relating to
contracts including estimation of costs and reporting. Except as described in
the Company Disclosure Letter, neither the Company nor Corporacion Q-bit has
been audited by any agency of the United States, including the Defense
Investigative Service, the Criminal Defense Investigative Service, the Inspector
General or the Defense Contract Administrative Agency. Section 3.23 to the
Company 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
the Company or Corporacion Q-bit in connection with the consummation of the
transactions contemplated by this Agreement or, to
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<PAGE> 22
the extent not listed in Section 3.4 to the Disclosure Letter, necessary to
enable the Company or Corporacion Q-bit to conduct its business as it was
conducted immediately before the Closing.
3.24 Product Warranties. Attached to the Company Disclosure Letter are
copies of the standard forms of agreements containing warranties or guarantees
relating to the catalog products of the Company and Corporacion Q-bit. No
agreement to which the Company or Corporacion Q-bit is a party provides any
warranty for a period longer than three years from the date of the agreement.
3.25 Compliance with ERISA and Costa Rican Law. Section 3.25 to the
Company Disclosure Letter sets forth a complete and correct list of all
"employee pension benefit plans" and all "employee welfare benefit plans"
("Plans") of the Company or in which any of its employees participate. To the
Company's knowledge, 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 to the knowledge of the Company 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 would
reasonably be expected to 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. The Company has not incurred any
liability to the PBGC (other than for payment of premiums which have been timely
paid), and the Company 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. Also set forth in Section 3.25 to
the Company Disclosure Letter is a complete and correct list of all employee
benefit plans of Corporacion Q-bit. All such plans of Corporacion Q-bit have
been administered in compliance with applicable laws of the Republic of Costa
Rica and Corporacion Q-bit has not incurred any liability under such plans that
is not reflected in the Corporacion Interim Financials.
3.26 Labor Matters. Each of the Company and Corporacion Q-bit 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.
There is no unfair labor practice complaint against the Company or Corporacion
Q-bit pending or, to the knowledge of the Company, threatened before the
National Labor Relations Board, Office of Federal Contract Compliance Programs,
or any comparable state, local or foreign agency. There is no (i) labor strike,
dispute, slowdown or stoppage actually pending, or, to the knowledge of the
Company, threatened against or directly affecting the Company or Corporacion
Q-bit, (ii) grievance or arbitration proceeding pending and, to the knowledge of
the Company, no claims therefor exist, or (iii) agreement which is binding on
the Company or Corporacion Q-bit which restricts the Company or Corporacion
Q-bit from relocating or closing any of their respective operations. Neither the
Company nor Corporacion Q-bit has experienced any material work stoppage in the
last 18 months. Neither the Company nor Corporacion Q-bit is delinquent in
payments to any of its employees for any wages, salaries,
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commissions, bonuses or other direct compensation for any services performed by
them or amounts required to be reimbursed to such employees. Upon termination of
the employment of any of the employees of the Company or Corporacion Q-bit
before or after the Closing Date, none of the Company, Corporacion Q-bit or
Parent will be liable to such employee for severance pay. To the knowledge of
the Company and subject to any applicable law, neither the Company nor
Corporacion Q-bit is a party to or bound by any collective bargaining
agreements.
3.27 Hazardous Materials. Except as set forth in Section 3.27 of the
Company Disclosure Letter:
(i) neither the Company nor Corporacion Q-bit, nor, to the
Company's knowledge, any invitee, has caused, is causing or is contemplating to
cause, any disposals or releases of any Hazardous Material on or under any
properties which the Company or Corporacion Q-bit (A) owns, leases, occupies or
operates or (B) previously owned, leased, occupied or operated and to the
Company's knowledge, no such disposals or releases occurred prior to the Company
or Corporacion Q-bit having taken title to, or possession or operation of, any
of such properties; and no such disposals or releases are (and in case of such
disposals or releases referred to in (B) above to the Company's knowledge)
migrating or have migrated off of such properties in subsurface soils,
groundwater or surface waters;
(ii) neither the Company nor Corporacion Q-bit has (A)
arranged for the disposal or treatment of Hazardous Material at any facility
owned or operated by another person, or (B) arranged for transport of any
Hazardous Materials to, or accepted any Hazardous Materials for transport to,
disposal or treatment facilities or other sites selected by the Company from
which facilities or sites, to the Company's knowledge, there has been a release
or there is a release or threatened release of a Hazardous Material, or (C)
conducted or permitted the treatment of Hazardous Materials at any facility
owned, leased, occupied or operated by the Company or Corporacion Q-bit. Any
facility identified in Section 3.27 of the Company Disclosure Letter under (A)
above has represented to the Company that it was duly licensed in accordance
with applicable law and that such facility was operated in accordance with
applicable laws and with respect to any facility located in the United States,
to the Company's knowledge, 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) the Company 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 owned, leased or operated
by the Company or Corporacion Q-bit has come to be (or may come to be) located
on or under properties owned, leased, occupied or operated by the Company or
Corporacion Q-bit;
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(iv) neither the Company nor Corporacion Q-bit has installed,
used, buried or removed any surface impoundment or underground tank or vessel on
properties owned, leased, occupied or operated by the Company or Corporacion
Q-bit, and, to their knowledge, no such underground vessels are present on the
property;
(v) each of the Company and Corporacion Q-bit is and has been
in compliance in all material respects for the last three years with all
applicable federal, state, local or foreign laws, ordinances, regulations,
permits, approvals and authorizations applicable to it relating to air, water,
industrial hygiene and worker health and safety, anti-pollution, hazardous or
toxic wastes, materials or substances, pollutants or contaminants and with any
lease provisions or restrictions relating to Hazardous Materials, and, to the
Company's knowledge, no condition exists on any of the real property owned by or
used in the business of the Company and Corporacion Q-bit that would constitute
a violation of any such law or lease provision, or that constitutes or threatens
to constitute a public or private nuisance; and
(vi) There has been no litigation, administrative proceeding
or investigation or any other action, claim, demand, notice of potential
responsibility or request for information brought or, to the knowledge of the
Company, threatened against the Company or Corporacion Q-bit or any settlement
reached with any person or persons alleging the presence, disposal, release or
contemplated release of any Hazardous Material on, from or under any of such
properties or as otherwise relating to potential environmental liabilities.
3.28 Order Backlog; Customer Complaints. Section 3.28 of the Company
Disclosure Letter contains a list of the aggregate orders for the products of
the Company and Corporacion Q-bit as of October 15, 1997, and identifies for
each such order the customer, product and price.
3.29 Brokers and Finders. The Company has not retained any broker or
finder in connection with the transactions contemplated by this Agreement.
3.30 Accuracy of Documents and Information. Neither the representations
or warranties made by the Company in this Agreement, nor those contained in any
document or written information prepared by the Company or its representatives,
financial statement, certificate, schedule or exhibit furnished or to be
furnished (or caused to be furnished) by the Company to Parent pursuant to this
Agreement, taken together 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, in light of the
circumstances under which they were made, not misleading.
3.31 Certain Tax Matters.
(i) The Company since January 1, 1989 has been, and through
and including the day immediately preceding the Closing Date will continue to
be, an S corporation within the meaning of Section 1361 of the Code and for
purposes of Florida's corporate income tax.
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(ii) Except for a disputed Code Section 1374 built-in gains
tax of $16,813 plus applicable interest which has been asserted by the Internal
Revenue Service in a 30-day letter, the Company since January 1, 1989 has not
been, and for its taxable year ending on the day immediately preceding the
Closing Date will not be, subject to any Tax imposed by either Section 1374 or
Section 1375 of the Code that has not previously been paid.
(iii) The Company has had a taxable year ended December 31 in
each of the past five years.
(iv) The Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
in the past five years.
(v) Neither the Company nor Corporacion Q-bit is a party to
any written or oral, formal or informal, contract, agreement, plan or
arrangement, including without limitation the provisions of this Agreement, with
or covering any employee or former employee of the Company or Corporacion Q-bit
that, individually or collectively, could result in the disallowance of the
deduction for the payment of any amount (or portion thereof) pursuant to
Sections 280G, 404 or 162 of the Code.
(vi) No election has been made to treat the Company or
Corporacion Q-bit as a "consenting corporation" under Section 341(f) of the
Code.
(vii) The Company operates at least one significant historic
line of business, or owns at least a significant portion of its historic
business assets, in each case within the meaning of Section 1.368-1(d) of the
Treasury Regulations.
3.32 Credit Cards. Section 3.32 of the Company Disclosure Letter sets
forth a complete and correct list of all credit cards issued or caused to be
issued by the Company and Corporacion Q-bit to any person, firm or entity or
under which the Company or Corporacion Q-bit is or may be liable for charges or
payments.
3.33 Business Practices. Neither the Company nor Corporacion Q-bit has
made, offered or agreed to offer anything of value to any government official,
political party or candidate for government office nor has it taken any other
action which would cause it to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended.
3.34 Minimum Consolidated Net Worth. At Closing, the Company and
Corporacion Q-bit shall have a consolidated net worth of not less than the sum
of (i) $2.2 million and (ii) the amount of any earnings before taxes of the
Company and Corporacion Q-bit from September 1, 1997 through and including the
day immediately preceding the Closing Date.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the disclosure letter, a true and correct copy
of which has been delivered to Company on or prior to the date of this Agreement
(the "Parent Disclosure Letter"), Parent and Merger Sub, jointly and severally,
represent to the Company and the Company Shareholders that:
4.1 Organization and Authority. Each of Parent and Merger Sub (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and Florida, respectively; (ii) has all necessary
corporate power to own and lease its properties, to carry on its business as now
being conducted and to enter into and perform this Agreement; and (iii) is
qualified to do business in all jurisdictions in which the failure to so qualify
would have a material adverse effect on its business or financial condition.
4.2 Capitalization. (i) The authorized capital stock of Parent is
5,000,000 shares of Preferred Stock, none of which are issued and outstanding,
and 40,000,000 shares of Parent Common, of which 19,819,783 shares were issued
and outstanding as of September 5, 1997. All such issued and outstanding shares
have been duly authorized and validly issued, and are fully paid and
nonassessable. As of September 5, 1997, Parent had outstanding options to
purchase 1,701,300 shares of Parent Common pursuant to its existing plans.
Except as set forth in the preceding sentence, there are no outstanding
warrants, options, agreements, convertible or exchangeable securities or other
commitments pursuant to which the Company is or may become obligated to issue,
sell, purchase, retire or redeem any shares of capital stock or other
securities. The Parent has delivered to the Company copies of its Articles of
Incorporation, as amended, and Bylaws as in effect on the date of this
Agreement.
(ii) The authorized capital stock of Merger Sub is 1,000,000 shares of
Merger Sub Common, of which 1,000 shares are issued and outstanding. All such
issued and outstanding shares have been duly authorized and validly issued, are
fully paid an nonassessable, and are held by Parent. There are no outstanding
warrants, options, agreements, convertible or exchangeable securities or other
commitments pursuant to which Merger Sub is or may become obligated to issue,
sell, purchase, retire or redeem any shares of stock or other securities.
4.3 Authority Relating to this Agreement; No Violation of Other
Instruments.
4.3.1 The execution and delivery of this Agreement and all
other agreements to which Parent or Merger Sub is a party or will be a party
that are exhibits to this Agreement and the performance hereunder and thereunder
by Parent or Merger Sub have been duly authorized by all necessary corporate
action on the part of Parent or Merger Sub and, assuming execution of this
Agreement and such other agreements by the Company and each of the parties
thereto, this Agreement and such other agreements will constitute a legal, valid
and binding obligation of Parent or Merger Sub, enforceable against Parent or
Merger Sub in accordance with its terms, subject as to enforcement: (i) to
bankruptcy, insolvency, reorganization, arrangement,
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moratorium and other laws of general applicability relating to or affecting
creditors' rights; and (ii) to general principles of equity, whether such
enforcement is considered in a proceeding in equity or at law.
4.3.2 Neither the execution of this Agreement or any other
agreements to which Parent or the Merger Sub is a party or will be a party that
is an exhibit to this Agreement nor the performance of any of them by Parent or
Merger Sub will: (i) conflict with or result in the breach or violation of the
terms of any decree, judgment, order, law or regulation of any court or other
governmental body now in effect applicable to Parent or Merger Sub; (ii)
conflict with, or result in, with or without the passage of time or the giving
of notice, any breach of any of the terms, conditions and provisions of, or
constitute a default under, any material indenture, mortgage, lease, agreement
or other instrument to which Parent or Merger Sub is a party or by which it is
bound; or (iii) violate or conflict with any provisions of Parent's or Merger
Sub's Articles of Incorporation, Bylaws, or similar organizational instruments.
4.3.3 Except for the filings, registrations, consents,
approvals and authorizations that may be required under the 1933 Act, the 1934
Act, the HSR Act, the rules and regulations of the Nasdaq National Market and
any applicable blue sky laws, no consent from any third party and no consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained by
Parent or Merger Sub in order to permit the execution, delivery or performance
of this Agreement or any other agreement to which Parent or Merger Sub is a
party or will be a party that is an exhibit to this Agreement, or the
consummation of the transactions contemplated by this Agreement and such other
agreements.
4.4 Financial Statements. Parent has delivered the following
consolidated financial statements of Parent (the "Parent Financial Statements")
to the Company:
(i) Balance Sheet of Parent as of August 1, 1997 (unaudited);
(ii) Statement of Income for the period ended August 1, 1997
(unaudited);
(iii) Audited Balance Sheets of Parent dated as of January 31,
1997 and 1996 together with audited Statements of Operations, Shareholders'
Equity and Changes in Cash Flow during the two year ended January 31, 1997.
Each Parent Financial Statement together with the notes thereto is in accordance
with the books and records of Parent, fairly presents the financial position of
Parent and the results of operations of Parent for the period indicated, and has
been prepared in accordance with generally accepted accounting principles
consistently applied, except that the unaudited income statement does not
contain all the notes required under generally accepted accounting principles
and comply as to form with applicable accounting requirements of the SEC.
4.5 Shares Issued in Connection With the Merger. The shares of Parent
Common to be issued to the Holders pursuant to the Merger, when issued in
accordance with this Agreement and the Articles of Merger, will be duly
authorized, validly issued, fully paid and nonassessable,
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and the issuance of such shares by Parent does not and will not require any
further corporate action and will not be subject to preemptive rights.
4.6 Full Disclosure. All reports, schedules and statements (including
all exhibits and schedules thereto and all documents incorporated by reference
therein) required to be filed by the Parent within the year prior to the date of
this Agreement under the 1933 Act and 1934 Act, copies of which have been
furnished to the Company, have been duly filed, were in substantial compliance
with the requirements applicable under the 1933 Act and 1934 Act, and were
complete and correct in all material respects as of the dates at which the
information was furnished. As of the date of filing, no such report, including
any financial statements or schedules included therein, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the statements in
all such reports that relate to future plans, events or performance are
forward-looking statements and the Parent's future operations, financial
performance, business and share price may be affected by a number of factors,
any of which could cause actual results to vary materially from anticipated
results; and provided, further, that the Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date of such
reports or to reflect the occurrence of unanticipated events. The Company is
current in all of its required filings under the 1934 Act. Since August 1, 1997,
except as contemplated by this Agreement, Parent has conducted its business in
the ordinary course and there has not been any material adverse change in the
assets, liabilities, existing contracts, business, condition (financial or
otherwise) or results of operations or cash flows of Parent, and, to Parent's
knowledge, no fact or condition exists or is contemplated which might cause such
a change in the future; provided, however, that Parent's quarterly results have
in the past been, and will continue to be, subject to significant variations due
to a number of factors (including the timing, cancellation or rescheduling of
customer orders and shipments, the pricing and mix of products sold, new product
introductions by Parent, the Parent's ability to obtain components and
subassemblies from contract manufacturers and suppliers, and variations in
manufacturing efficiencies), any one of which could substantially affect
Parent's results of operations for any particular quarter; and provided,
further, that Parent makes no representation or warranty under this Agreement
regarding (i) the estimates of revenue and operating income made by financial
analysts and other third parties, (ii) the ability of Parent to meet such
estimates and (iii) the consequences or effect on the trading price of Parent's
Common Stock in not meeting such estimates.
4.7 Activities of Merger Sub. Merger Sub was formed for the purpose of
participating in the Merger as contemplated in this Agreement. Parent has
carried on no business on behalf of the Merger Sub.
4.8 Compliance with Laws. Parent holds all material 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 to the
knowledge of Parent, there are no violations or claimed violations by Parent of
any
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such license, permit or authorization or any such statute, law, ordinance, rule
or regulation other than any such violation that would not have a material
adverse effect on the financial results of operations of Parent.
4.9 Eligibility to Use Form S-3. Parent meets the eligibility
requirements for use of a registration statement on Form S-3.
4.10 Litigation. Except as disclosed in Parent's filings with the SEC
or in the Parent Disclosure Letter, there is no pending or, to the best of
Parent's knowledge, threatened action, claim, lawsuit, administrative
proceeding, arbitration, labor dispute or governmental investigation to which
Parent or any of its officers or directors in such capacity is a party or by
which any material portion of its assets taken as a whole may be bound, and
which, if adversely determined, would have a material adverse effect on Parent.
There are no outstanding orders, judgments, awards or decrees of any court,
governmental or regulatory body or arbitration tribunal against Parent.
4.11 Absence of Undisclosed Liabilities. As of August 1, 1997, Parent
had no indebtedness or liability (absolute or contingent) which is not shown or
provided for in full on the Balance Sheet dated August 1, 1997 included in the
Parent Financial Statements. Except as set forth in the Balance Sheet dated
August 1, 1997 included in the Parent Financial Statements, Parent and its
Subsidiaries do not have outstanding on the date of this Agreement, nor will it
have outstanding on the Closing Date, any indebtedness or liability (absolute or
contingent, asserted or unasserted, known or unknown) other than those incurred
since August 1, 1997 in the ordinary course of business which are not material.
ARTICLE V
COVENANTS OF THE COMPANY AND THE COMPANY SHAREHOLDERS
5.1 Access to Properties and Records. Throughout the period between the
date of this Agreement and the Closing, the Company shall give Parent and its
authorized officers, employees, attorneys, and independent public accountants
and other representatives reasonable access to information and documents
relating to this Agreement and the transactions contemplated by this Agreement,
and shall provide Parent with such financial, technical and operating data and
other information pertaining to the business of the Company as Parent may
request. If requested by Parent, the Company will use its best efforts to cause
the auditors of the Company to provide Parent with access to the auditors' work
papers in connection with the Audited Financials. No investigation by Parent or
its representatives made before or after the date of this Agreement shall affect
the representations or warranties of the Company contained in this Agreement,
and, subject to Section 11.1, all such representations and warranties shall
survive any such investigation.
5.2 Conduct of Business Prior to Closing. The Company agrees that,
after the date of this Agreement and before the Closing, except as otherwise
permitted, required or contemplated by this Agreement or expressly permitted by
Parent in writing, the business of the Company
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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 and except as so permitted, required or contemplated, the Company
shall not:
(i) merge with or into or consolidate with any other
corporation;
(ii) amend its Articles of Incorporation or Bylaws;
(iii) change its benefit structures or salary rates (other
than normal merit increases or promotions), 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, other than any
draw made by the Company for working capital purposes under its existing credit
facilities consistent with past practices;
(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 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 make any capital expenditure in an amount greater
than $100,000 in the aggregate);
(ix) terminate or amend any material term of any material
contract, agreement, license or other instrument to which the Company is a party
or by which any of the Company 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 $100,000 or has a duration longer
than one year without prior consultation with and consent of Parent which
consent shall not be unreasonably withheld.
Without limiting the generality of the foregoing, the Company shall
continue to pay accounts payable and to collect accounts receivable in the
ordinary course of business in accordance with past practice, to maintain and
preserve customer relations and to maintain insurance; and the Company shall not
change or permit to be changed in any material respect the accounting or
valuation practices applicable to its assets or businesses.
5.3 Notice of Events. Throughout the period between the date of this
Agreement and the Closing, the Company shall promptly advise Parent in writing
of any and all material events and developments concerning its financial
position, assets, liabilities, results of operations
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or business or any of the items or matters covered by the Company's
representations and warranties contained in this Agreement.
5.4 Company Shareholders Approval and Board Recommendation. The Company
shall submit this Agreement and the Merger to its shareholders for approval in
accordance with all applicable laws and the Articles of Incorporation and Bylaws
of the Company. Each Company Shareholder entitled to vote on the Merger agrees
to vote all of his or her shares in favor of the Merger.
5.5 No Other Negotiations. Until the earlier of November 30, 1997, the
termination of this Agreement or the Closing, the Company shall not conduct
negotiations or discussions with any other party regarding a possible
acquisition of the Company or of all or a substantial part of its business or
assets.
5.6 Cooperation. The Company and the Company Shareholders shall
cooperate with Parent in preparing and making all filings or submissions to
governmental agencies required in connection with the transactions contemplated
by this Agreement. The Company and the Company Shareholders, at any time before
or after the Closing, shall execute, acknowledge and deliver any further
assignments, assurances, documents and instruments of transfer reasonably
requested by Parent and Merger Sub and shall take any other action consistent
with the terms of this Agreement that may reasonably be requested by Parent and
Merger Sub for the purpose of consummating the Merger.
5.7 Employees. The Company shall use its best efforts to assist Parent
and Merger Sub in retaining the continued services of its key employees.
5.8 Best Efforts to Close. The Company shall use its best efforts to
fulfill the conditions set forth in Article VII of this Agreement over which it
has control or influence, and to complete the transactions contemplated by this
Agreement.
5.9 Agreements with Respect to Affiliates. The Company shall deliver to
Parent a letter (the "Q-bit Affiliate Letter") identifying all persons who are
"affiliates" of the Company under the 1933 Act. The Company shall use its best
efforts to cause each person who is identified as an "affiliate" in the Q-bit
Affiliate Letter to deliver to Parent, prior to the Effective Time a written
agreement (a "Q-bit Affiliate Agreement") in connection with restrictions on
affiliates in respect of pooling of interests accounting treatment, in
substantially the form of Exhibit 5.9.
5.10 Shareholder Agreement and Investment Letter. The Company shall use
its best efforts to cause each shareholder of the Company to execute the
Investment Letter concurrently with the execution of this Agreement or as
promptly as practicable after (i) the date of this Agreement (with respect to
shareholders as of the date of this Agreement) or (ii) the date such persons
become a shareholder.
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5.11 Registration Rights Agreement. The Company shall use its best
efforts to cause each Holder to execute and deliver the Registration Rights
Agreement ("Rights Agreement") in the form attached hereto as Exhibit 5.11.
5.12 Updated Disclosure Letter. The Company may deliver to Parent, and
Parent may deliver to Company, on or before the date that is three days
preceding the Closing Date a revised disclosure letter (the "Updated Disclosure
Letter") with respect to the disclosures by the Company contained in Article III
and disclosures by Parent contained in Article IV, and such Updated Disclosure
Letter together with any disclosure letter with respect to the disclosures by
the Company contained in Article III delivered to Parent, and the disclosures by
Parent contained in Article IV of this Agreement, on the date of this Agreement
shall collectively constitute the Company Disclosure Letter and the Parent
Disclosure Letter, respectively.
ARTICLE VI
COVENANTS OF PARENT AND MERGER SUB
6.1 Access to Properties and Records. Throughout the period between the
date of this Agreement and the Closing, Parent shall give the Company and its
authorized officers, employees, attorneys, and independent public accountants
and other representatives reasonable access to information and documents
relating to this Agreement and the transactions contemplated by this Agreement,
and shall provide the Company with such financial, technical and operating data
and other information pertaining to the business of Parent as the Company may
request, including the auditors work papers in connection with Parent's
financial statements. No investigation by the Company or its representatives
made before or after the date of this Agreement shall affect the representations
or warranties of Parent contained in this Agreement, and, subject to Section
11.1, all such representations and warranties shall survive any such
investigation.
6.2 Information. Parent shall supply to the Company such information as
the Company shall reasonably request in connection with the Company's
solicitation of shareholder approval of this Agreement and the Merger.
6.3 Notice of Events. Throughout the period between the date of this
Agreement and the Closing, Parent shall promptly advise the Company in writing
of any and all material events and developments concerning its financial
position, assets, liabilities, results of operations or business or any of the
items or matters covered by the Parent's representations and warranties
contained in this Agreement.
6.4 Employee Benefits. With respect to the employees of the Company at
the Closing Date, Parent and Merger Sub shall continue coverage of such
employees under employee benefit plans of the Company as they exist at the
Closing Date or shall include such employees under benefit plans of Parent. Such
employees who become covered under Parent's plans shall receive credit for
length of service for the period of their continuous service as employees of the
Company.
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6.5 Best Efforts to Close. Parent and Merger Sub shall use their best
efforts to fulfill all of the conditions set forth in Article VIII of this
Agreement over which they have control or influence, and to complete the
transactions contemplated by this Agreement.
6.6 Nasdaq Listing. Parent shall file with the National Association of
Securities Dealers, Inc. a Notification Form for Listing of Additional Shares on
the Nasdaq Stock Market of the Parent Common to be received by the Holders in
the Merger.
6.7 No Actions Inconsistent with Tax-Free Reorganization. Parent and
Merger Sub shall (and, following the Effective Time, Parent shall cause the
Company to) take no action with respect to the capital stock, assets or
liabilities of the Company that would cause the Merger to fail to qualify as a
"reorganization" within the meaning of Sections 368(a)(1)(A) and (a)(2)(E) of
the Code. Without limitation on the generality of the foregoing, following the
Effective Time, Parent shall cause the Company to either continue a significant
historic line of business of the Company or use a significant portion of the
Company's historic business assets in a business.
6.8 Indemnification of Company Directors and Officers.
(A) From and after the Closing, Parent will fulfill and honor
and will cause the Company to fulfill and honor in all respects the obligations
of the Company pursuant to any indemnification agreements between the Company
and its directors and officers existing on or prior to the date hereof. From and
after the Closing, such obligations shall be the joint and several obligations
of Parent and the Company and, by executing this Agreement, Parent hereby
assumes such obligations. The Articles of Incorporation and the Bylaws of the
surviving corporation in the Merger will contain the provisions with respect to
indemnification and elimination of liability set forth in the Articles of
Incorporation and Bylaws of the Company as in effect on the Closing, which
provisions will not be amended, repealed or otherwise modified from the Closing
in any manner that would adversely affect the rights thereunder of individuals
who, immediately prior to the Closing, were directors, officers, employees or
agents of the Company, unless such modification is required by law. The Parent
and Merger Sub acknowledge and agree that prior to the Closing the Company's
Articles of Incorporation and Bylaws will be amended to provide for
indemnification to the fullest extent provided under applicable law.
(B) In the event of any claim, action, suit, proceeding or
investigation to restrain, enjoin, prevent, set aside, invalidate or seek
damages with respect to this Agreement or the transactions hereby contemplated
or seek damages from or to impose obligations upon the Company or its directors
or officers by reason of this Agreement or the transactions hereby contemplated
(collectively a "Claim"), then, subject to the conditions set forth below,
Parent agrees to indemnify and hold harmless Company, its officers and directors
from and against any and all losses, liabilities, obligations, claims, actions,
suits, proceedings, investigations, demands, judgments, damages, expenses and
costs (including, without limitation, reasonable fees, expenses and
disbursements of counsel) as and when incurred, arising out of, based upon, or
in connection with any Claim on the terms set forth in this Section 6.8.
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(C) In the event of any (i) claim, action, suit, proceeding or
investigation to which Section 6.8(A) is claimed to apply or (ii) Claim under
Section 6.8(B) (collectively "Indemnifiable Claims"), such party(ies) claiming
indemnity ("Indemnifiable Parties") shall promptly notify Parent in writing of
the institution of such Indemnifiable Claim and Parent shall promptly and in any
event within 10 days assume the defense of such Indemnifiable Claim, including
the employment of counsel (which counsel shall not otherwise be counsel to
Parent and shall otherwise be reasonably satisfactory to such Indemnified
Party(ies)); provided, that Indemnified Party(ies) shall have the right to
employ its or their own additional counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party(ies)
unless (i) the employment of such counsel shall have been authorized in writing
by Parent in connection with the defense of such Indemnifiable Claim or (ii)
Parent shall not have promptly employed counsel reasonably satisfactory to such
indemnified party(ies) to have charge of defense of such Indemnifiable Claim or
(iii) there is, under applicable standards of professional conduct, a conflict
of any significant issue between the position of any two or more individual
parties to the Indemnifiable Claim, in any of which events such fees and
expenses of one such additional counsel shall be borne and promptly paid by
Parent as they are incurred by such Indemnified Party(ies). The Company and
Parent will cooperate in the defense of any Indemnifiable Claim. Parent shall
not be liable for any settlement of any Indemnifiable Claim effected without its
prior written consent, which shall not be unreasonably withheld. Parent shall
not, without the prior written consent of each Indemnified Party that is not
released as described in this sentence, settle or compromise any Indemnifiable
Claim or permit a default or consent to the entry of judgment in or otherwise
seek to terminate any pending or threatened Indemnifiable Claim in respect of
which indemnity may be sought under this Section 6.8 unless such settlement,
compromise, consent, or termination includes an unconditional release of such
Indemnified Party from all liability in respect of such Indemnifiable Claim.
(D) This Section 6.8 will survive any termination of this
Agreement and the consummation of the Merger at the Closing, is intended to
benefit the Company and the persons who are or were directors or officers of the
Company on or prior to the Closing, and will be binding on all successors and
assigns of the Company.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to consummate the Merger 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 Parent and
Merger Sub.
7.1 Representations and Warranties True at Closing. The representations
and warranties of the Company contained in this Agreement, as amended by the
Company Disclosure Letter and any additional disclosure letters delivered by the
Company and accepted by Parent pursuant to Section 9.5, 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
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material respects, except that if a representation is already limited to matters
characterized as "material," it shall be correct in all respects.
7.2 Performance of Covenants. All of the covenants required to be
performed by the Company at or before the Closing pursuant to the terms of this
Agreement shall have been duly performed.
7.3 Certificate. Parent and Merger Sub shall have received a
certificate signed by the Company to the effect that the conditions set forth in
Sections 7.1 and 7.2 have been satisfied.
7.4 Opinion of Counsel. Parent and Merger Sub shall have received
opinions of counsel to the Company and Corporacion Q-bit satisfactory to Parent,
in the form attached hereto as Exhibit 7.4.
7.5 Resignations of Directors. Parent shall have received from each
director of the Company a duly executed resignation of such director effective
as of the Effective Time.
7.6 Material Changes. Between the date of this Agreement and the
Closing there shall not have occurred any event or transaction of the nature
described in Section 3.9 of this Agreement.
7.7 Consents. Parent shall have received, in writing and in form and
substance reasonably acceptable to Parent, all necessary consents, approvals and
waivers with respect to the consummation of the transactions contemplated by
this Agreement indicated or required to be indicated in Sections 3.3 and 3.23 of
this Agreement and the Company Disclosure Letter. Parent shall have received in
writing all necessary consents, approvals and waivers with respect to the
consummation of the transactions contemplated by this Agreement indicated or
required to be indicated in Section 4.3 of this Agreement and the Parent
Disclosure Letter.
7.8 Shareholder Approval; Potential Dissenting Shares. The Agreement
and the Merger shall have been duly approved by the shareholders of the Company
in accordance with all applicable laws, the Articles of Incorporation and Bylaws
of the Company and otherwise and there shall be no Dissenting Shares.
7.9 Pooling Letter from Accountants. The Board of Directors of Parent
shall have received a letter from each of Ernst & Young LLP and Bray, Beck &
Koetter, dated as of the Closing in form and substance satisfactory to Parent,
stating that the Merger will be treated as a pooling of interests for financial
accounting purposes.
7.10 No Action to Prevent Completion. Parent shall not have determined,
in the reasonable exercise of its discretion, that the transactions contemplated
by this Agreement have become inadvisable or impractical by reason of the
institution or threat of institution, by any federal, state, local or foreign
governmental authority or any other person or entity, of litigation or other
proceedings with respect to or affecting the transactions contemplated by this
Agreement.
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7.11 Employment and Non-Competition Agreements. Gary R. Callaway shall
have entered into his employment and non-competition agreement (the "Employment
and Non-Competition Agreement") with Parent in the form attached hereto as
Exhibit 7.11(a), and each of Curtis L. Stephens, Frank Decker, Richard
Sobolewski and Mary Rogers shall have entered into his or her respective
employment agreement (the "Employment Agreement") with Parent in the form
attached hereto as Exhibit 7.11(b).
7.12 No Material Adverse Changes. There shall have been no material
adverse changes in the Company's financial condition, business, assets or
liabilities (actual or contingent) from the date of this Agreement through the
Closing.
7.13 Agreements with Respect to Affiliates. Parent shall have received
executed Q-bit Affiliate Agreements.
7.14 Investment Letter. Parent shall have received an executed
Investment Letter from each Holder.
7.15 Approval of the Merger. The Board of Directors of Parent and
Merger Sub and the shareholder of Merger Sub shall have approved the Merger.
7.16 Contribution of Stock of Corporacion Q-bit to the Company. Prior
to the Closing, the shareholders of Corporacion Q-bit, shall have contributed
all of the outstanding capital stock of Corporacion Q-bit to the Company as a
capital contribution.
7.17 HSR Act Waiting Period. All waiting periods under the HSR Act
relating to the transactions contemplated under this Agreement shall have
expired or been terminated.
7.18 Termination of Shareholder Agreement. Prior to the Closing, the
Shareholder Agreement dated as of May 1, 1993 among the Company and the Company
Shareholders shall have been terminated.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligations of the Company 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 the Company.
8.1 Representations and Warranties True at Closing. The representations
and warranties of Parent and Merger Sub contained in this Agreement, as amended
by the Parent Disclosure Letter and any additional disclosure letters delivered
by Parent and Merger Sub and accepted by the Company pursuant to Section 9.5,
shall be deemed to have been made again at and as of the Closing with respect to
the state of affairs then existing, and shall then be true in all
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material respects except that if a representation is already limited to matters
characterized as "material" it shall be correct in all respects.
8.2 Performance of Covenants. All of the covenants required to be
performed by Parent and Merger Sub at or before the Closing pursuant to the
terms of this Agreement shall have been duly performed.
8.3 Certificate. At the Closing, the Company shall have received a
certificate signed on behalf of Parent and Merger Sub to the effect that the
conditions set forth in Sections 8.1 and 8.2 have been satisfied.
8.4 Opinion of Counsel. The Company shall have received an opinion of
Heller Ehrman White & McAuliffe, counsel to Parent, dated as of the Closing Date
in the form attached as Exhibit 8.4.
8.5 Consents. The Company shall have received in writing all necessary
consents, approvals and waivers with respect to the consummation of the
transactions contemplated by this Agreement indicated or required to be
indicated in Sections 3.3 and 3.23 of this Agreement and the Company Disclosure
Letter. Parent shall have received in writing all necessary consents, approvals
and waivers, copies of which shall have been provided to the Company, with
respect to the consummation of the transactions contemplated by this Agreement
indicated or required to be indicated in Section 4.3 of this Agreement and the
Parent Disclosure Letter.
8.7 Shareholder Approval. This Agreement and the Merger shall have been
duly approved by the shareholders of the Company in accordance with all
applicable laws, the Articles of Incorporation and Bylaws of the Company and
otherwise.
8.8 Pooling of Interests. The Board of Directors of the Company shall
have received copies of the letter set forth in Section 7.9 above.
8.9 Employment Agreements. Gary R. Callaway shall have entered into his
Employment and Non-Competition Agreement with Parent, and each of Curtis L.
Stephens, Frank Decker, Richard Sobolewski and Mary Rogers shall have entered
into his or her respective Employment Agreement with Parent.
8.10 Approval of Merger. The Board of Directors of Parent and Merger
Sub and the shareholder of Merger Sub shall have approved the Merger.
8.11 Rights Agreement. Parent shall have entered into the Rights
Agreement with each Holder.
8.12 No Material Adverse Changes. There shall have been no material
adverse changes in Parent's financial condition, business, assets or liabilities
(actual or contingent) from the date of this Agreement through the Closing.
31
<PAGE> 38
8.13 Contribution of Stock of Corporacion Q-bit to the Company. Prior
to the Closing, the shareholders of Corporacion Q-bit, S.A., a Costa Rica
corporation, shall have contributed all of the capital stock of Corporacion
Q-bit, S.A. to the Company as a capital contribution.
8.14 HSR Act Waiting Period. All waiting periods under the HSR Act
relating to the transactions contemplated under this Agreement shall have
expired or been terminated.
8.15 Termination of Shareholder Agreement. Prior to the Closing, the
Shareholder Agreement dated as of May 1, 1993 among the Company and the Company
Shareholders shall have been terminated.
ARTICLE IX
COVENANTS OF THE COMPANY, COMPANY SHAREHOLDERS,
PARENT AND MERGER SUB
9.1 Press Releases. No party hereto, nor any of their Affiliates, shall
issue any press release, make any public announcement or otherwise release any
information publicly regarding the Merger, without the consent of the other
parties which shall not be unreasonably withheld or delayed.
9.2 Confidential Information. Except as otherwise required by
applicable law, each party to this Agreement will keep confidential data,
information or documents it obtains from the other and will not disclose (other
than to its attorneys, accountants, or advisors, who are themselves required to
keep such information confidential) prior to the Closing (or ever, if the
Closing does not occur) to any third party such data, information or documents
obtained from the other or from any director, officer, employee or agent of the
other 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 already known prior to its
disclosure by the other or (iii) is disclosed to a party by a third party that
is not an agent of the other.
9.3 Eligibility for Use of S-3. Parent covenants to use its reasonable
best efforts to remain eligible for the use of a Registration Statement on Form
S-3 during the term of the Rights Agreement.
9.4 Certain Post-Closing Tax Matters.
(i) The Company shall prepare or cause to be prepared at its
own expense, in accordance with applicable law, and shall file or cause to be
filed, within the time and in the manner provided by law, all Tax Returns, and
any and all amended Tax Returns the filing of which may be necessary or
appropriate, of the Company for all periods ending on or before the Closing Date
that are due after the Closing Date, and the Company shall prepare at its own
expense a Schedule K-1 and, if applicable, an amended Schedule K-1 (IRS Form
1120S) for
32
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each Company Shareholder for such periods. Since the acquisition of the
Company's stock by Parent on the Closing Date terminates the Company's S
corporation election at the close of the immediately preceding day and the
Company's income, deductions and other items are not included in Parent's
consolidated federal income Tax Return until the day after the Closing Date,
such Tax Returns shall include a federal income tax S corporation return for the
Company's short taxable year ending on the day immediately preceding the Closing
Date (the "Final S Corporation Return") and a one-day federal income tax C
corporation return for the Company's short taxable year consisting of the
Closing Date. In allocating its income, deductions and other items among its
three short taxable years for purposes of such income Tax Returns, (a) the
Company shall not prorate its income, deductions or other items on the basis of
the number of days in each short taxable year but shall use the "closing of the
books" approach as of the end of the day immediately preceding the Closing Date
and as of the end of the Closing Date, and (b) the Company, in its reasonable
discretion, may prorate any or all of its income, deductions or other items for
the month in which the Closing Date occurs on the basis of the number of days in
such month falling within each short taxable year. The Final S Corporation
Return and any amendment thereto, prior to filing, shall be subject to review
and approval by Howard B. Hillman and Gary R. Callaway as representatives of the
Company Shareholders, which approval shall not be unreasonably withheld.
(ii) Parent and the Company on one hand and the Company
Shareholders on the other hand shall (a) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns pursuant
to this Section 9.4 and any audit, appeal, litigation or other proceeding with
respect to Taxes, including without limitation executing Tax Returns or other
documents reasonably requested or required by law, (b) make available to the
other, as reasonably requested, all information, records or documents with
respect to Tax matters pertinent to the Company or Corporacion Q-bit for all
periods ending prior to or including the Closing Date and (c) preserve
information, records or documents relating to Tax matters pertinent to the
Company or Corporacion Q-bit that is in their possession or under their control
until the expiration of any applicable statute of limitations or extensions
thereof.
(iii) All authority in connection with the Company's current
Internal Revenue Service appeal for its 1994 and 1995 years, any amended federal
income Tax Return (IRS Form 1120S) for any taxable year of the Company ending on
or before December 31, 1996, the filing of which may be necessary or
appropriate, any Internal Revenue Service audit for any taxable year of the
Company ending on or before the day immediately preceding the Closing Date and
any appeal, litigation or other proceeding resulting from any such audit shall
reside in Howard B. Hillman and Gary R. Callaway, as representatives of the
Company Shareholders; provided, however, that all liability for costs and
expenses relating to each such amended return, audit, appeal, litigation or
other proceeding, including costs and expenses of outside accountants, attorneys
and other consultants from and after the Closing, and all liability for Taxes
imposed on the Company Shareholders shall be the responsibility of the Company
Shareholders, and that all refunds of Taxes imposed on the Company Shareholders
shall belong to the Company Shareholders. Messrs. Hillman and Callaway shall
timely provide the Company with copies of all correspondence and other documents
associated with each such amended return, audit, appeal, litigation or other
proceeding and the Company shall execute all documents in
33
<PAGE> 40
connection therewith that are reasonably requested by them, subject, however, to
the Company's right to approve, modify or reject any proposed change that would
or might result in a federal income Tax deficiency for the Company for any
taxable year ending before, on or after the Closing Date other than a Code
Section 1374 built-in gains tax deficiency for the Company for 1995 in an amount
not exceeding $16,813 plus interest.
9.5 Notification of Certain Events. Each party shall give prompt notice
to the other party as soon as practicable after it has actual knowledge of (i)
the occurrence, or failure to occur, of any event which would or would be likely
to cause any party's representations or warranties contained in this Agreement
to be untrue or incorrect in any material respect at any time from the date
hereof to the Effective Time, or (ii) any failure on its part or on the part of
any of its or its Subsidiaries, officers, directors, employees, representatives
or agents (other than persons or entities who are such employees,
representatives or agents only because they are appointed insurance agents of
such parties) to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by such party under this
Agreement. Each party shall have the right to deliver to another party a written
disclosure letter as to any matter of which it becomes aware following execution
of this Agreement which would constitute a breach of any representation,
warranty or covenant of this Agreement by such party, identifying on such
disclosure letter the representation, warranty or covenant which would be so
breached, provided that each such disclosure letter shall be delivered as soon
as practicable after such party becomes aware of the matter disclosed therein.
The non-disclosing party shall have five business days from its receipt of such
disclosure letter to notify the disclosing party that (a) it will close
notwithstanding the new disclosure, (b) it will not close based on such new
disclosure, or (c) further investigation or negotiation is required for it to
reach a determination whether or not to close based on such new disclosure.
9.6 Regulatory Approvals. Parent and the Company each have filed with
the United States Federal Trade Commission (the "FTC") and the Antitrust
Division of the United States Department of Justice ("DOJ") Notification and
Report Forms relating to the transactions contemplated under this Agreement as
required by the HSR Act. Parent and the Company shall promptly supply any
additional information which may be reasonably required by the FTC and the DOJ
which the parties may reasonably deem appropriate.
ARTICLE X
INDEMNIFICATION
10.1 Indemnification . Subject to Sections 10.3.5 and 11.1, the Company
and each Company Shareholder, severally but not jointly, agrees to defend,
indemnify and hold Parent and Merger Sub harmless from and against, and to
reimburse Parent and Merger Sub with respect to, any and all losses, damages,
liabilities, claims, judgments, settlements, costs and expenses (including
reasonable attorneys' fees) of every nature ("Damages") incurred by Parent and
Merger Sub by reason of or arising out of or in connection with (i) any breach
by the Company or any Company Shareholder of any representation or warranty
contained in this
34
<PAGE> 41
Agreement or in any certificate or other document delivered to Parent and Merger
Sub pursuant to the provisions of this Agreement, including, without limitation,
the Company Disclosure Letter, (ii) the failure, partial or total, of the
Company or a Company Shareholder to perform any agreement or covenant required
by this Agreement to be performed by it, (iii) Taxes and costs and expenses
(including fees of attorneys, accountants and other consultants) relating to the
Company's current appeal of the 30-day letter issued by the Internal Revenue
Service for the Company's 1994 and 1995 years and any litigation or other
proceeding resulting therefrom, or (iv) Taxes and costs and expenses (including
fees of outside attorneys, accountants and other consultants from and after the
Closing) relating to the Company's current Florida sales and use tax audit and
any appeal, litigation or other proceeding resulting therefrom.
10.2 Notice. In the event that Parent suffers Damages, Parent shall
within 60 days of discovering such Damage give written notice thereof ("Notice
of Claim") to the Company and each of the Company Shareholders, which in order
to be effective, shall be signed by an officer of Parent and state in reasonable
detail the nature of the claim, the specific provisions in this Agreement
alleged to have been breached, and the amount of the claim for indemnification.
Such amount shall represent Parent's good faith estimate of the Damages. The
Company and the Company Shareholders shall have 30 days from receipt of the
Notice of Claim to accept or reject the claim for indemnification. Any claim for
Damages accepted by the Company and the Company Shareholders, or any claim
determined as valid under the claim procedure set forth below, shall be deemed
"Established Damages" for the purposes of this Agreement.
10.3 Claims of Parent .
10.3.1 Claims of Parent . If a Notice of Claim is given
pursuant to Section 10.2 above, and no rejection is received within the 30-day
period specified above, then the Company and the Company Shareholders shall be
deemed to have accepted such claim. If the Company and the Company Shareholders
reject a claim within such 30-day period, the parties shall, in good faith,
attempt to negotiate a resolution of such claim within 60 days thereafter (the
"Resolution Period"). If the parties do not reach resolution during the
Resolution Period, then Parent may, within 30 days after the end of the
Resolution Period, proceed to submit the controversy to arbitration in Brevard
County, Florida under the rules then in effect of the American Arbitration
Association. The determination of the arbitrator(s) shall be binding, final and
conclusive on the parties. The expenses in connection with any arbitration shall
be borne equally by the parties unless determined otherwise by the
arbitrator(s). If as a result of such arbitration it is determined that the
Company and the Company Shareholders are obligated for such Damages, the amount
set by such arbitration shall be the amount of the Established Damages and the
Company and Company Shareholders shall owe Parent such amount.
10.3.2 Third Party Claims . If a claim for indemnification
arises out of a claim by a third party, including, without limitation, any
governmental agency, body or authority, ("Third Party Claim"), then in the Claim
Certificate, Parent shall state in reasonable detail the nature of the claim and
specific provisions of the Agreement which have been breached (if applicable)
and shall specify whether Parent intends to defend the claim. If the claim has
resulted in the commencement of litigation, Parent shall take all necessary
legal steps to preserve the legal
35
<PAGE> 42
rights of the Company and the Company Shareholders until such time as such
parties are able to assume or participate in the defense of the litigation. If
Parent elects to defend the claim, the Company and the Company Shareholders
shall have the right to participate in the defense of the claim. If Parent does
not elect to defend the claim, the Company and the Company Shareholders shall
have the obligation to defend the claim and Parent shall have the right to
participate in such defense and hereby agrees to cooperate with the Company and
the Company Shareholders and make available to them or their counsel all records
and other material reasonably required to defend the claim.
10.3.3 Defense of Third Party Claims. If Parent is defending
the claim, the Company and the Company Shareholders shall be given written
notice of any bona fide settlement offers received with respect to the claim.
Within 20 days of receipt of such offer, the Company and the Company
Shareholders may elect in writing to accept the settlement offer. If the Company
and the Company Shareholders wish to accept such settlement offer and Parent
does not, then the claim shall be subject to a maximum indemnification in the
amount of the settlement offer and the right to such indemnification of Parent
shall be deemed established in such amount. For purposes of this Section 10.3.3,
and in connection with the Company's current Florida sales and use tax audit as
to any quarter, (i) a "bona fide settlement offer received" shall include,
without limitation, any notice received from a Florida taxing agency that sets
forth the amount of additional Florida sales and use tax that is or, in the
absence of a timely appeal, would be payable by the Company for such quarter,
and (ii) the "amount of the settlement offer" in the event of such a notice
shall include, in addition to the tax, (A) any interest, penalties, fines and
additions to tax that are or, in the absence of a timely appeal, would be
payable by the Company for such quarter, whether or not calculated or otherwise
specified in such notice, and (B) all costs and expenses (including fees of
attorneys, accountants and other consultants) relating to such audit and any
appeal, litigation or other proceeding resulting therefrom that are incurred by
the Company after the Closing and on or before the date the settlement offer is
accepted by the Company and the Company Shareholders hereunder.
10.3.4 Settlement of Third Party Claims. If a settlement is
reached which results in any liability on the part of the Company and the
Company Shareholders, or if a judgment is rendered against Parent which is not
properly appealed or appealable, then Parent shall be entitled to assert its
claim for indemnification. Each party shall be responsible for its own costs and
expenses including legal fees incurred in defending such Third Party Claim,
except that the Company and the Company Shareholders shall pay the reasonable
attorneys' fees: (i) for taking legal actions necessary to preserve the legal
rights of the Company and the Company Shareholders in connection with defending
the claim of Parent; or (ii) which are found to be indemnifiable under any other
provision of this Agreement.
10.3.5 Limitation on Indemnification. Notwithstanding the
provisions of this Article X and any other provisions of this Agreement to the
contrary, (i) neither the Company nor any Company Shareholder shall have any
obligation to pay for indemnification or Damages unless and until the cumulative
amount of such payment obligations of the Company and the Company Shareholders
as a group exceeds the threshold amount of $100,000, and then the Company and
the Company Shareholders shall be responsible only for their obligations for
36
<PAGE> 43
amounts above such $100,000 threshold amount, (ii) the Company's obligation to
pay for indemnification or Damages shall not survive the Closing, (iii) each
Company Shareholder's obligation to pay for indemnification or Damages shall
arise only in the event of and after the Closing, (iv) each Company
Shareholder's obligations shall be several with the Company Shareholder being
responsible only for (A) the Company Shareholder's pro rata portion of Damages
relating to a breach of any representation that survives the Closing pursuant to
Section 11.1, (B) all Damages relating to a breach by the Company Shareholder of
a representation applicable to the Company Shareholder or a covenant to be
performed by the Company Shareholder and (C) no Damages relating to a breach by
another Company Shareholder of a representation applicable to the other Company
Shareholder or a covenant to be performed by the other Company Shareholder, and
(v) such Company Shareholder's obligation to pay for indemnification or Damages
after the Closing shall be limited to, and shall not exceed, the value of the
shares of Parent Common such Company Shareholder was entitled to receive
pursuant to Section 2.3 (with the value of each such share being the Average
Closing Price). No indemnification shall be payable by the Company Shareholders
pursuant to Section 10.1, except with respect to (a) representations and
warranties that survive the Closing pursuant to the provisions of Section 11.1
hereof, (b) the current Tax proceedings described in subsections (iii) and (iv)
of Section 10.1 above and (c) claims made prior to the expiration date of such
representations as provided in Section 11.1, but not resolved by such expiration
date.
ARTICLE XI
MISCELLANEOUS
11.1 Survival of Representations and Warranties. No 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 all such representations and warranties shall
expire at the Effective Time, except that the representations and warranties
given in Sections 3.1, 3.2, 3.3, 3.8, 3.31, 4.1, 4.2, 4.3 and 4.5 shall survive
the Closing and expire on October 24, 1998.
11.2 Expenses. Each party to this Agreement shall pay its 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 the
costs and expenses of counsel and accountants to the Company in connection with
the negotiation and execution of this Agreement shall be paid by the Company.
11.3 Amendment. This Agreement shall not be amended except by a writing
duly executed by the Company, Parent and Merger Sub. This Agreement may be
amended by the parties hereto at any time before or after the approval of the
Merger by the shareholders of the Company; provided, however, that following
approval of the Merger by the shareholders of the Company, no amendment shall be
made that by law requires the further approval of such shareholders without
obtaining such further approval.
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11.4 Entire Agreement. This Agreement and the Agreement or Merger,
including the exhibits, schedules and other documents delivered pursuant to this
Agreement, contain all of the terms and conditions agreed upon by the parties
relating to the subject matter of this Agreement and supersede all prior and
contemporaneous agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, respecting the subject matter.
11.5 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Florida.
11.6 Headings. The headings contained in this Agreement are intended
solely for convenience and shall not affect the rights of the parties to this
Agreement.
11.7 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.
11.8 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 by hand delivery or
by facsimile to the persons identified below, two days after dispatch if sent by
a nationally-recognized overnight courier service or five days after mailing if
mailed by certified or registered mail postage prepaid return receipt requested
addressed as follows:
If to Parent or Merger Sub:
Mr. Ronald E. Ragland
REMEC, INC.
9404 Chesapeake Drive
San Diego, California 92123
Facsimile: (619) 560-4512
Confirmation Number: (619) 560-1301
With a copy to:
Victor A. Hebert, Esq.
Heller Ehrman White & McAuliffe
601 S. Figueroa Street, 40th Floor
Los Angeles, California 90017-5758
Facsimile: (213) 614-1868
Confirmation Number: (213) 689-0200
If to the Company or to the Company Shareholders:
Q-bit Corporation
2144 Franklin Drive, NE
Palm Bay, Florida 32905-4021
Attention: President
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<PAGE> 45
Facsimile: (407)-727-3729
Confirmation Number: (407) 727-1838
With a copy to:
Lee Mermelstein, Esq.
Jacobson & Mermelstein, P.C.
52 Vanderbilt Avenue, 15th Floor
New York, New York 10017
Facsimile: (212) 697-1427
Confirmation Number: (212) 697-1420
Such persons and addresses may be changed, from time to time, by means of a
notice given in the manner provided in this Section.
11.9 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.
11.10 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.
11.11 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.
11.12 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.
11.13 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.
11.14 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 Parent and the
Company.
11.14.2 Failure to Satisfy Conditions Not Waived. This
Agreement may be terminated by Parent and Merger Sub alone if there is a failure
to satisfy a condition set forth in Article VII which condition is not waived,
and by the Company if there is a failure to satisfy a condition set forth in
Article VIII which condition is not waived.
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11.14.3 Closing Has Not Occurred. This Agreement may be
terminated by Parent alone or the Company alone, by written notice, if the
Closing shall not have taken place by October 31, 1997; provided that such right
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been a principal cause of or resulted in the failure of
the Merger to occur on or before such date.
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<PAGE> 47
IN WITNESS WHEREOF, REMEC, Inc., RQB Acquisition Corporation, Q-bit
Corporation and the Company Shareholders have executed this Agreement and Plan
of Reorganization and Merger as of the first date written above.
REMEC, INC.
By /s/ ERROL EKAIREB
----------------------------------
Errol Ekaireb, President
RQB ACQUISITION CORPORATION
By /s/ ERROL EKAIREB
----------------------------------
Errol Ekaireb, President
Q-BIT CORPORATION
By /s/ GARY R. CALLAWAY
----------------------------------
Gary R. Callaway, President
S-1
<PAGE> 48
COMPANY SHAREHOLDERS:
/s/ GARY R. CALLAWAY
------------------------------------
Gary R. Callaway
/s/ HOWARD B. HILLMAN,
------------------------------------
Howard B. Hillman,
/s/ HOWARD B. HILLMAN, JR.
------------------------------------
Howard B. Hillman, Jr.
/s/ ELISE HILLMAN GREEN
------------------------------------
Elise Hillman Green
/s/ TATNALL L. HILLMAN
------------------------------------
Tatnall L. Hillman
The Hansel Byron Mead Revocable Living
Trust dated 12/01/94
By: /s/ HANSEL B. MEAD
------------------------------------
Hansel B. Mead, as Trustee
/s/ IRENE H. RIEBE
------------------------------------
Irene H. Riebe
S-2
<PAGE> 1
EXHIBIT 10.14
SHARE PURCHASE AGREEMENT
DATED AS OF
SEPTEMBER 30, 1997,
AMONG
JUSTIN MILLER, PH.D.,
MILDRED ELIZABETH LAYNE-MILLER,
MILLER FAMILY TRUST,
1256393 ONTARIO LIMITED,
ROYNAT INC.,
REMEC CANADA ULC
AND
REMEC, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION................................ 2
1.1 Definitions.......................................................... 2
1.2 Rules of Construction................................................ 9
ARTICLE II PURCHASE AND SALE OF SHARES; CLOSING................................. 10
2.1 Sale of Shares by Sellers............................................ 10
2.2 Purchase of Shares by Buyer.......................................... 11
2.3 Capitalization of Buyer.............................................. 12
2.4 REMEC Liquidation Call Rights........................................ 12
2.5 REMEC Redemption Call Right.......................................... 13
2.6 REMEC Retraction Call Right.......................................... 15
2.7 Withholding Rights................................................... 16
2.8 Put Right............................................................ 17
2.9 Cash Option; Securities Law Compliance............................... 18
2.10 Support Agreement.................................................... 19
2.11 Execution of Counterpart............................................. 19
2.12 Section 85 Elections................................................. 19
2.13 The Closing.......................................................... 19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
DR. MILLER AND MILLER HOLDCO......................................... 19
3.1 Organization and Authority........................................... 20
3.2 Capitalization of Company and Amalgamated Company.................... 20
3.3 Authorization........................................................ 21
3.4 Title to Shares...................................................... 22
3.5 No Violation of Other Instruments.................................... 22
3.6 Consents............................................................. 22
3.7 Compliance With Law.................................................. 23
3.8 Investments in Others................................................ 23
3.9 Financial Statements................................................. 23
3.10 Absence of Undisclosed Liabilities................................... 23
3.11 Tax Returns and Payments............................................. 23
3.12 Absence of Certain Changes and Events................................ 25
3.13 Accounts Receivable.................................................. 27
3.14 Inventories.......................................................... 27
3.15 Backlog.............................................................. 27
3.16 Product Warranties................................................... 27
3.17 Credit Cards......................................................... 27
3.18 Interests in Real Property........................................... 27
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
3.19 Personal Property.................................................... 28
3.20 Directors and Officers............................................... 28
3.21 Certain Transactions................................................. 28
3.22 Intellectual Property................................................ 29
3.23 Litigation and Other Proceedings..................................... 29
3.24 Contracts............................................................ 29
3.25 Insurance and Banking Facilities..................................... 30
3.26 Personnel............................................................ 30
3.27 Powers of Attorney and Suretyships................................... 30
3.28 Minutes and Share Records............................................ 30
3.29 Governmental Consents................................................ 31
3.30 Pension and Benefit Plans............................................ 31
3.31 Labor Matters........................................................ 31
3.32 Hazardous Materials.................................................. 32
3.33 Brokers and Finders.................................................. 33
3.34 Business Practices................................................... 33
3.35 Place of Business.................................................... 33
3.36 Activities of Millowave.............................................. 33
3.37 Accuracy of Documents and Information................................ 33
3.38 Representations and Warranties Applicable to the Amalgamated Company. 34
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ROYNAT............................. 34
4.1 Organization and Authority........................................... 34
4.2 Capitalization....................................................... 34
4.3 Authorization........................................................ 35
4.4 Title to Shares...................................................... 35
4.5 No Violation of Other Instruments.................................... 36
4.6 Consents............................................................. 36
4.7 Compliance With Law.................................................. 36
4.8 Absence of Undisclosed Liabilities................................... 36
4.9 Tax Returns and Payments............................................. 37
4.10 Certain Transactions................................................. 37
4.11 Accuracy of Documents and Information................................ 37
4.12 Representations and Warranties Applicable to the Amalgamated Company. 38
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF REMEC AND
BUYER................................................................ 38
5.1 Activities of Buyer.................................................. 38
5.2 Organization and Authority........................................... 38
5.3 Capitalization of REMEC.............................................. 39
5.4 Capitalization of Buyer.............................................. 39
5.5 Authorization........................................................ 40
5.6 No Violation of Other Instruments.................................... 40
5.7 Consents............................................................. 40
5.8 Financial Statements................................................. 41
5.9 Absence of Undisclosed Liabilities................................... 41
5.10 Issuance of Shares................................................... 41
5.11 Litigation........................................................... 42
5.12 Brokers and Finders.................................................. 42
5.13 Business Practices................................................... 42
5.14 Form S-3 Eligibility................................................. 42
5.15 Full Disclosure...................................................... 42
ARTICLE VI COVENANTS PRIOR TO CLOSING........................................... 43
6.1 Access............................................................... 43
6.2 Conduct of Business Prior to Closing................................. 43
6.3 Notice of Events..................................................... 45
6.4 No Other Negotiations................................................ 45
6.5 Company Audited Financials........................................... 46
6.6 Cooperation.......................................................... 46
6.7 Employees............................................................ 47
6.8 Nasdaq Listing....................................................... 47
6.9 Press Releases....................................................... 47
6.10 Best Efforts to Close................................................ 47
6.11 Covenants Applicable to the Amalgamated Company...................... 47
ARTICLE VII ADDITIONAL CONTINUING COVENANTS...................................... 48
7.1 Confidential Information............................................. 48
7.2 Tax Cooperation...................................................... 48
7.3 Pre-Closing Reorganization........................................... 48
7.4 Post-Closing Reorganization Cooperation.............................. 49
7.5 Intercompany Debt.................................................... 49
7.6 Release from Personal Guarantees..................................... 49
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE VIII REGISTRATION RIGHTS.................................................. 50
8.1 Registration on Form S-3............................................. 50
8.2 Right of Deferral.................................................... 50
8.3 REMEC Trading Policies............................................... 50
8.4 No Legend on Shares.................................................. 50
ARTICLE IX CONDITIONS TO THE OBLIGATIONS OF REMEC AND
BUYER................................................................ 51
9.1 Representations and Warranties True at Closing....................... 51
9.2 Performance of Covenants............................................. 51
9.3 Certificate.......................................................... 51
9.4 Resignation of Directors............................................. 51
9.5 Material Changes..................................................... 51
9.6 Consents............................................................. 52
9.7 Good Standing Certificates........................................... 52
9.8 No Action to Prevent Completion...................................... 52
9.9 Governmental Filings................................................. 52
9.10 Miller Employment Agreement.......................................... 52
9.11 Opinion of Counsel................................................... 52
9.12 Company Shareholders' Equity......................................... 53
9.13 Bonus to Amalgamated Company Employees............................... 53
9.14 OHM Agreement........................................................ 53
9.15 No Material Adverse Changes.......................................... 53
9.16 Due Diligence........................................................ 53
9.17 Defence Industry Productivity Program Cooperation Agreement.......... 53
9.18 Interim Financials................................................... 54
9.19 Amalgamation of Millowave and Nanowave............................... 54
ARTICLE X CONDITIONS TO THE OBLIGATIONS OF SELLERS............................. 54
10.1 Representations and Warranties True at Closing....................... 54
10.2 Performance of Covenants............................................. 54
10.3 Certificate.......................................................... 54
10.4 Consents............................................................. 55
10.5 Good Standing Certificate............................................ 55
10.6 Governmental Filings................................................. 55
10.7 Support Agreement.................................................... 55
10.8 Miller Employment Agreements......................................... 55
10.9 Opinion of Counsel................................................... 55
10.10 Payment to RoyNat.................................................... 56
10.11 OHM Agreement........................................................ 56
10.12 No Material Adverse Change........................................... 56
10.13 Due Diligence........................................................ 56
10.14 Defence Industry Productivity Program Cooperation Agreement.......... 56
10.15 Amalgamation of Millowave and Nanowave............................... 57
10.16 Closing Payments..................................................... 57
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C> <C>
ARTICLE XI TERMINATION OF OBLIGATIONS; SURVIVAL................................. 57
11.1 Termination of Agreement............................................. 57
11.2 Effect of Termination................................................ 58
11.3 Survival of Representations and Warranties........................... 58
ARTICLE XII INDEMNIFICATION...................................................... 59
12.1 Obligations of Sellers............................................... 59
12.2 Obligations of Buyer................................................. 59
12.3 Procedure............................................................ 59
12.4 Survival............................................................. 60
12.5 Notice of Breach..................................................... 60
12.6 Non-Exclusive Remedy................................................. 60
ARTICLE XIII MISCELLANEOUS........................................................ 61
13.1 Expenses............................................................. 61
13.2 Amendment............................................................ 61
13.3 Entire Agreement..................................................... 61
13.4 Governing Law........................................................ 61
13.5 Attorneys Fees....................................................... 61
13.6 Severability......................................................... 61
13.7 Headings............................................................. 62
13.8 Mutual Contribution.................................................. 62
13.9 Notices.............................................................. 62
13.10 Waiver............................................................... 64
13.11 Binding Effect; Assignment........................................... 64
13.12 No Third Party Beneficiaries......................................... 64
13.13 Counterparts......................................................... 65
13.14 Further Assurances................................................... 65
</TABLE>
-v-
<PAGE> 7
<TABLE>
<CAPTION>
Exhibits
--------
<S> <C>
EXHIBIT A Dividend Access Share Provisions
EXHIBIT B Form of Report of Company's Auditors
EXHIBIT C Form of Support Agreement
EXHIBIT D Form of Counterpart
EXHIBIT E Form of Employment Agreement among Dr. Miller, Company and REMEC
EXHIBIT F Form of Employment Agreement between Dr. Miller and REMEC
Schedules
Schedule 3.2 Capitalization
Schedule 3.5 No Violation of Other Instruments
Schedule 3.6 Consents
Schedule 3.7 Compliance with Law
Schedule 3.8 Investment in Others
Schedule 3.11 Tax Returns and Payments
Schedule 3.12 Absence of Certain Changes and Events
Schedule 3.15 Backlog
Schedule 3.16 Product Warranties
Schedule 3.17 Credit Cards
Schedule 3.18 Interests in Real Property
Schedule 3.19 Personal Property
Schedule 3.20 Directors and Officers
Schedule 3.21 Certain Transactions
Schedule 3.22 Intellectual Property
Schedule 3.23 Litigation and Other Proceedings
Schedule 3.24 Contracts
Schedule 3.25 Insurance and Banking Facilities
Schedule 3.26 Personnel
Schedule 3.29 Governmental Consents
Schedule 3.30 Pension and Benefit Plans
Schedule 3.32 Hazardous Materials
Schedule 3.35 Place of Business
Schedule 6.2 Conduct of Business Prior to Closing
Schedule 6.7 Employees
</TABLE>
iv
<PAGE> 8
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement ("Agreement") is entered into as
of September 30, 1997, among Justin Miller, Ph.D, an individual ("Dr. Miller"),
Mildred Elizabeth Layne-Miller, an individual ("Mrs. Miller"), the Miller Family
Trust, an Ontario trust formed pursuant to a trust deed dated as of March 27,
1997 ("Miller Trust"), 1256393 Ontario Limited, a corporation incorporated under
the laws of Ontario ("Miller Holdco"), RoyNat Inc., a corporation incorporated
under the laws of Canada ("RoyNat"), REMEC Canada ULC, an unlimited company
incorporated under the laws of Nova Scotia ("Buyer"), and REMEC, Inc., a
corporation incorporated under the laws of California ("REMEC"). Dr. Miller,
Mrs. Miller and the Miller Trust are sometimes collectively referred to as the
"Miller Family." The Miller Family, Miller Holdco and RoyNat are sometimes
collectively referred to in this Agreement as "Sellers."
R E C I T A L S
A. Millowave Technologies Inc., a corporation incorporated under the
laws of Ontario ("Millowave"), and RoyNat own all of the issued and outstanding
shares in the capital of Nanowave Technologies Inc., a corporation incorporated
under the laws of Canada ("Company"). The issued and outstanding shares in
capital of Company currently consists of 78 Class A common shares owned by
Millowave and 8 Class A common shares and 14 Class B common shares owned by
RoyNat. All of the issued and outstanding shares in the capital of Millowave are
owned by the Miller Family and Miller Holdco.
B. Prior to the closing date, it is anticipated that (i) Company will
amend its constating documents to authorize the issuance of an unlimited number
of Class C common shares; (ii) RoyNat will exchange the 8 Class A common shares
of Company owned by it for 8 Class C common shares of Company; (iii) pursuant to
resolutions of its Board of Directors, Company will increase its paid-up capital
as to the shares in the capital of Company owned by RoyNat (its outstanding
Class B and Class C common shares); (iv) pursuant to resolutions of its Board of
Directors, Millowave will increase its paid-up capital as to its capital stock
owned by Miller Holdco (its outstanding Class B common shares); (v) Millowave
and Company each will continue as corporations incorporated under the laws of
Nova Scotia; and (vi) Millowave and Company will amalgamate pursuant to the laws
of Nova Scotia ("Amalgamated Company").
C. After completion of the events described in paragraph B above, and
prior to the closing date, it is anticipated that (i) the Miller Family will own
780 Class A common shares of Amalgamated Company, (ii) RoyNat will own 140 Class
B common shares and 80 Class C common shares of Amalgamated Company, and (iii)
Miller Holdco will own 200 Class D common shares of Amalgamated Company.
1
<PAGE> 9
D. REMEC owns all of the issued and outstanding shares in the capital
of Buyer, consisting of 100 common shares (the "Buyer Common Shares"). In
addition to the common shares of Buyer currently owned by REMEC, it is
contemplated that Buyer's Articles of Incorporation will authorize the issuance
of one million dividend access shares (the "Dividend Access Shares"), such
shares having the rights, privileges, restrictions and conditions set forth in
Exhibit A to this Agreement. It is contemplated that each Dividend Access Share
may be exchanged into one share of REMEC's common stock and US $0.01 in
accordance with the rights, privileges, restrictions and conditions of such
shares to be set forth in Buyer's Articles of Incorporation and the terms of
this Agreement and the Support Agreement to be entered into among the Buyer and
REMEC.
E. Buyer desires to purchase from Sellers, and Sellers desire to sell
to Buyer, all of the shares in the capital of Amalgamated Company outstanding
immediately prior to closing, for an aggregate purchase price of US $4,000,000
and issuance of a certain number of Dividend Access Shares, pursuant to the
terms and conditions set forth in this Agreement.
A G R E E M E N T
In consideration of the mutual promises contained herein and
intending to be legally bound the parties agree as follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
1.1 DEFINITIONS.
As used in this Agreement and the Exhibits and Schedules
delivered pursuant to this Agreement, capitalized terms shall have the meaning
ascribed to them set forth below.
"1997 Balance Sheet" means the unaudited balance sheet of
Company contained in the 1997 Financials.
"1997 Financials" means the unaudited balance sheet of Company
at June 30, 1997 and the related statements of income, shareholders' equity and
cash flows for the year then ended, prepared in accordance with GAAP.
"Act" means the Income Tax Act (Canada), as amended.
"Action" means any action, complaint, investigation, suit or
other proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental Entity.
2
<PAGE> 10
"Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified Person. For purposes of this Agreement, RoyNat
shall be considered an Affiliate of Company.
"Agreement" means this Agreement by and among Sellers, Buyer
and REMEC as amended or supplemented together with all Exhibits and Schedules
attached or incorporated by reference.
"Amalgamated Company" means the company resulting from the
amalgamation of Millowave and Company to be completed prior to Closing pursuant
to the Nova Scotia Companies Act.
"Amalgamation Date" means the date on which Millowave and
Company have amalgamated pursuant to the Nova Scotia Companies Act.
"Approval" means any approval, authorization, consent,
qualification or registration, or any waiver of the foregoing, or any required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to any Governmental Entity or any other Person.
"Acquisition Cost" has the meaning set forth in Section 2.9.
"Audited Balance Sheet" means the balance sheet included in
the Audited Financials.
"Audited Financials" means the audited balance sheet of
Company at June 30, 1996 and the related statements of income, shareholders'
equity and cash flows for the year then ended, including the notes thereto, in
each case accompanied by a report of Company's Auditors substantially in the
form attached hereto as Exhibit B.
"Automatic Redemption Date" has the meaning set forth in
Section 1.1 of the Dividend Access Share Provisions annexed as Exhibit A.
"Business" means the design, manufacture and sale of microwave
components and multifunction subassemblies, including amplifiers, thin film
hybrids, transceivers and any other active microwave and millimeter wave
products, but excluding optical and cooled microwave and cooled millimeter wave
products and cable/wireless products, all of which constitute the business of
Amalgamated Company at Closing.
"Business Day" means any day other than a Saturday, a Sunday
or a day when banks are not open for business in both California and Ontario.
3
<PAGE> 11
"Buyer" means REMEC Canada ULC, an unlimited company
incorporated under the laws of Nova Scotia.
"Closing" means the consummation of the purchase and sale of
the Purchased Shares under this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the United States Internal Revenue Code of 1986,
as amended.
"Company" means Nanowave Technologies Inc., a corporation
incorporated under the laws of Canada, and its legal successors and assigns.
"Company Auditors" means Richter, Usher & Vineberg,
independent auditors to Company.
"Company Financials" means the 1997 Financials and the Audited
Financials.
"Confidential Information" means all information and
compilations of information in whatever form (oral, written, machine readable or
otherwise) pertaining to Company, Amalgamated Company or REMEC or their
respective business, operations, properties, assets and liabilities, including,
without limitation, lists of customers and suppliers, pricing structures,
business files and records, trade secrets, Intellectual Property Rights and
financial information now or heretofore known to the disclosing party; provided,
however, that the phrase "Confidential Information" shall not include
information which:
(i) is in the public domain through no fault of the disclosing
party;
(ii) is lawfully received by any disclosing party from another
Person who, to the knowledge of the disclosing party, is lawfully in
possession of such Confidential Information and, to the knowledge of
the disclosing party, such other Person was not restricted from
disclosing the information to the disclosing party; or
(iii) is approved for disclosure by the party whose
information is to be disclosed prior to its disclosure.
"Contract" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"Current Market Price" has the meaning set forth in Section
1.1 of the Dividend Access Share Provisions annexed as Exhibit A.
"Delivery Date" has the meaning set forth in Section 2.9.
4
<PAGE> 12
"Dividend Access Shares" means the Dividend Access Shares in
the share capital of Buyer having the rights, privileges, restrictions and
conditions set forth in Exhibit A and "Dividend Access Share Provisions" means
the rights, privileges, restrictions and conditions set forth in Exhibit A.
"Dr. Miller" means Justin Miller, Ph.D., an individual.
"Encumbrance" means any claim, charge, easement, encumbrance,
defect of title, lease, covenant, security interest, lien, option, pledge,
rights of others, or restriction (whether on voting, sale, transfer, disposition
or otherwise), whether imposed by agreement, understanding, law, equity or
otherwise.
"Environmental Laws" means any and all applicable United
States and Canadian federal, state or provincial, municipal or local Laws
pertaining to the environment, health and safety matters or conditions,
Hazardous Materials, pollution or protection of the environment, including,
without limitation, Laws relating to: (i) on-site or off-site contamination;
(ii) occupational health and safety; (iii) chemical substances or products; (iv)
release of pollutants, contaminants, chemicals or other industrial, toxic or
radioactive substances or Hazardous Materials into the environment; (v) the
manufacture, processing, distribution, use, treatment, storage, transport,
packaging, labeling, sale, recycling, disposal, destruction, incineration,
burial, advertising, display or handling of Hazardous Materials; and (vi) any
preventive measures, remedial actions and notifications in connection with the
foregoing.
"Equity Securities" means any shares, capital stock or other
equity interest or any securities convertible into or exchangeable for shares,
capital stock or any other rights, warrants or options to acquire any of the
foregoing securities.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated by the SEC
thereunder.
"GAAP (Canada)" means generally accepted accounting principles
and practices as approved by the Canadian Institute of Chartered Accountants or
any superseding or supplemental documentation of equal authority promulgating
generally accepted accounting principles and practices, all as in effect from
time to time.
"GAAP (United States)" means generally accepted accounting
principles and practices in the United States as promulgated by the United
States 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.
"Governmental Entity" means any government or any agency,
bureau, commission, court, department, official, political subdivision, tribunal
or other
5
<PAGE> 13
instrumentality of any government, whether federal, state, provincial,
municipal, county or local, domestic or foreign.
"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 and
Canadian federal, provincial, state or local Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the related regulations and published
interpretations.
"Indemnifiable Claim" means any Loss for or against which any
party is entitled to indemnification under this Agreement; "Indemnified Party"
means the party entitled to indemnity hereunder; and "Indemnifying Party" means
the party obligated to provide indemnification hereunder.
"Intellectual Property Rights" means rights, patents,
trademarks, trade names, service marks, mask work rights, copyrights, processes,
designs, formulas, inventions, trade secrets, know-how, technology or other
intellectual rights and any applications or registrations therefor, and all mask
works, net lists, schematics, source code, computer software programs and all
other tangible and intangible information or material.
"Interim Balance Sheet" means the balance sheet included in
the Interim Financials.
"Interim Financials" means the unaudited balance sheet of
Company at August 30, 1997 and the related statements of income, shareholders'
equity and cash flows for the months ended July 31 and August 30, 1997.
"ITCs" means research and development investment tax credits
within the meaning of the Act.
"Laws" means all statutes, codes, ordinances, decrees, rules,
regulations, municipal by-laws, judicial or arbitral or administrative or
ministerial or departmental or regulatory judgments, orders, decisions, rulings
or awards, or any provisions of the foregoing, including general principles of
common and civil law and equity, binding on or affecting the Person referred to
in the context in which such word is used; and "Law" means any one of them.
"Liquidation Call Purchase Price" has the meaning set forth in
Section 2.4(a).
6
<PAGE> 14
"Liquidation Call Right" has the meaning set forth in Section
2.4(a).
"Liquidation Date" has the meaning set forth in Section 5.1 of
the Dividend Access Share Provisions annexed as Exhibit A.
"Loss" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified person.
"Material Contract" means any Contract material to the
business of the subject person as of or after the date hereof and includes those
Contracts referenced in Section 3.24.
"Miller Employment Agreements" means the employment agreements
contemplated under Sections 9.11 and 10.8 to be entered into between Dr. Miller,
Company and REMEC and Dr. Miller and REMEC substantially in the form attached as
Exhibit E and Exhibit F, respectively.
"Miller Family" means Dr. Miller, Mrs. Miller and the Miller
Trust.
"Miller Holdco" means 1256393 Ontario Limited, a corporation
incorporated under the laws of Ontario.
"Miller Trust" means the Miller Family Trust, an Ontario trust
formed pursuant to a trust deed dated as of March 27, 1997.
"Millowave" means Millowave Technologies Inc., a corporation
incorporated under the laws of Ontario.
"Millowave Shares" means all of the issued and outstanding
shares in the capital of Millowave.
"Mrs. Miller" means Mildred Elizabeth Layne-Miller, an
individual.
"OHM" means OHM Technologies Inc.
"Permit" means any license, permit, authorization, franchise,
registration, certificate of authority or approval, or order, or any waiver of
the foregoing, required to be issued by any Governmental Entity.
"Person" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
7
<PAGE> 15
"Plans" has the meaning set forth in Section 3.30.
"Purchase Price" has the meaning set forth in Section 2.2.
"Purchased Shares" means the 780 Class A common shares of
Amalgamated Company to be owned by the Miller Family and Miller Holdco
immediately prior to Closing, the 140 Class B Common Shares and the 80 Class C
Shares of Amalgamated Company to be owned by RoyNat immediately prior to Closing
and the 200 Class D common shares of Amalgamated Company to be owned by Miller
Holdco immediately prior to Closing.
"Put Exercise Date" has the meaning set forth in Section
2.9(b).
"Put Purchase Price" has the meaning set forth in Section
2.9(a).
"Put Right" has the meaning set forth in Section 2.9(a).
"Put Trigger Event" has the meaning set forth in Section
2.9(d).
"Redemption Call Right" has the meaning set forth in Section
2.6(a).
"Registrable Securities" has the meaning set forth in Section
8.1.
"Registration Statement" has the meaning set forth in Section
8.1.
"REMEC" means REMEC, Inc., a corporation incorporated under
the laws of California.
"REMEC Common Stock" means shares of the common stock of
REMEC, par value $0.01 per share.
"REMEC Financial Statements" means the balance sheet of REMEC
and its Subsidiaries as of August 1, 1997 (unaudited), the statement of income
of REMEC and its Subsidiaries for the period ended August 1, 1997 (unaudited),
and the audited balance sheet of REMEC and its Subsidiaries dated as of January
31, 1997 together with audited statements of operations, shareholders' equity
and changes in cash flow during the year ended January 31, 1997.
"Retraction Call Purchase Price" has the meaning set forth in
Section 2.6(a).
"Retraction Call Right" has the meaning set forth in Section
2.6(a).
"Retraction Date" has the meaning set forth in Section 6.1 of
the Dividend Access Share Provisions annexed as Exhibit A.
8
<PAGE> 16
"RoyNat" means RoyNat Inc., a corporation incorporated under
the laws of Canada.
"SEC" means the United States Securities and Exchange
Commission or any successor entity.
"Securities Act" means the United States Securities Act of
1933, as amended, and the rules and regulations promulgated by the SEC
thereunder.
"Sellers" means the Miller Family, Miller Holdco and RoyNat.
"Subsidiary" means, with respect to any entity, any
corporation or other organization, whether incorporated or unincorporated, of
which at least a majority of the securities or interests having by their terms
ordinary voting power to elect a majority of the board of directors or others
performing similar functions is owned, directly or indirectly, by such entity.
"Support Agreement" means the support agreement contemplated
under Section 10.7 to be entered into between Buyer and REMEC substantially in
the form of Exhibit C.
"Tax" means any foreign, federal, state, provincial, county or
local income, capital sales and use, goods and services, excise, franchise, real
and personal property, transfer, gross receipt, capital stock, production,
business and occupation, disability, employment, payroll, severance or
withholding tax or charge imposed by any Governmental Entity, any interest and
penalties (civil or criminal) related thereto or to the nonpayment thereof, and
any Loss in connection with the determination, settlement or litigation of any
Tax liability.
"Tax Return" means a report, return or other information
required to be supplied to a Governmental Entity with respect to Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities that includes Company, Amalgamated Company or any Subsidiary.
1.2 RULES OF CONSTRUCTION.
For all purposes of this Agreement, the following rules of
construction shall apply, except as otherwise expressly provided:
(a) the terms defined in Section 1.1 have the meanings
assigned to them in that section and include the plural as well as the singular;
9
<PAGE> 17
(b) all accounting terms not otherwise defined herein
have the meanings assigned under GAAP (Canada) (or, if applicable to REMEC,
under GAAP (United States));
(c) all references in this Agreement to designated
"Articles," "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of the body of this Agreement;
(d) pronouns of either gender or neuter shall include,
as appropriate, the other pronoun forms;
(e) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;
(f) the words "includes" and "including" are not
limiting; and
(g) the word "knowledge," when used with reference to
RoyNat, shall mean the current actual knowledge of the officers and directors of
RoyNat who have served as officers or directors of Company and any written
information within RoyNat's or such officers' and directors' possession, but
shall not mean any constructive knowledge of RoyNat or its officers or directors
and shall not create any inference that RoyNat or its officers and directors
have undertaken an independent inquiry, review or investigation of any matter to
which RoyNat's knowledge is referenced in this Agreement, and the word "know"
shall have a corresponding meaning.
ARTICLE II
PURCHASE AND SALE OF SHARES; CLOSING
2.1 SALE OF SHARES BY SELLERS.
Subject to the terms and conditions of this Agreement, each
Seller agrees to sell, assign and transfer the Purchased Shares owned by it at
Closing and deliver the certificates evidencing the Purchased Shares to Buyer at
Closing. Each Seller shall deliver to Buyer at Closing all certificates
evidencing the Purchased Shares held by it properly endorsed for transfer to or
accompanied by a duly executed stock power in favor of Buyer and otherwise in a
form acceptable for transfer on the books of Amalgamated Company. Sellers shall
be responsible for the payment of any Taxes payable with respect to the transfer
of the Purchased Shares to Buyer, except for Taxes, if any, payable by
Amalgamated Company solely on account of the change of control of Amalgamated
Company occurring as a result of the acquisition of the Purchased Shares or the
transactions described in Section 7.4. The previous sentence shall not in any
way affect or reduce the representations and warranties
10
<PAGE> 18
made by Dr. Miller and Miller Holdco contained in Section 3.11 nor shall it in
any way affect the representations and warranties made by RoyNat contained in
Section 4.9.
2.2 PURCHASE OF SHARES BY BUYER.
Subject to the terms and conditions of this Agreement, Buyer
agrees to purchase from Sellers the number of Purchased Shares set forth
opposite each Seller's name below, for the aggregate consideration ("Purchase
Price") of US $4,000,000 and the number of Dividend Access Shares determined in
accordance with the formula set forth below, payable to each Seller as indicated
below:
<TABLE>
<CAPTION>
Number of Shares Consideration
Seller to be Sold to be Received
------ ---------- --------------
<S> <C> <C>
Dr. Miller 624 Class A common US $440,000 and 72,000
shares Dividend Access Shares
Mrs. Miller 78 Class A common US $440,000
shares
Miller Trust 78 Class A common US $440,000
shares
Miller Holdco 200 Class D shares US $1,240,000 and the number
of Dividend Access Shares
determined in accordance with
the formula set forth below
RoyNat 140 Class B common US $1,440,000
shares and 80 Class C
common shares
</TABLE>
The number of Dividend Access Shares issuable to Miller Holdco as part of the
Purchase Price shall be equal to 115,500 minus the quotient of US $125,000
divided by the five-day weighted average of the closing sales price of REMEC
Common Stock reported on the Nasdaq National Market for the period ending the
day immediately preceding the Closing Date rounded to the nearest whole number
[115,500 -- (US $125,000/five-day weighted average closing sales price on REMEC
Common Stock)]. The Purchase Price is payable at Closing. The cash portion of
the Purchase Price is payable to the Miller Family, Miller Holdco and RoyNat in
United States dollars by wire transfer, bank draft, or certified cheque in
immediately available funds. The non-cash portion of the Purchase Price is
payable by delivery to Dr. Miller and Miller Holdco of certificates evidencing
the number of Dividend Access Shares set forth above or determined in accordance
with the formula described above, registered in the names of Dr. Miller and
Miller Holdco as so determined.
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2.3 CAPITALIZATION OF BUYER.
The Articles of Incorporation of Buyer shall provide for
authorized capital consisting of (i) one million common shares (all of the
issued and outstanding shares of which shall initially be held by REMEC) and
(ii) on or prior to Closing, one million Dividend Access Shares having the
rights, privileges, restrictions and conditions set forth in Exhibit A.
2.4 REMEC LIQUIDATION CALL RIGHTS.
(a) REMEC shall have the overriding right (the "Liquidation
Call Right"), in the event of and notwithstanding the proposed liquidation,
dissolution or winding-up of Buyer pursuant to Article V of the Dividend Access
Share Provisions, to purchase from all but not less than all of the holders of
the Dividend Access Shares all but not less than all of the Dividend Access
Shares held by each such holder on payment by REMEC of an amount per Dividend
Access Share equal to (a) the "Current Market Price" (as such term is defined in
Section 1.1 of the Dividend Access Shares Provisions) of a share of REMEC Common
Stock on the last Business Day prior to the "Liquidation Date" (as defined in
Section 5.1 of the Dividend Access Share Provisions), which shall be satisfied
in full by causing to be delivered to such holder one share of REMEC Common
Stock, plus (b) an additional amount equivalent to the full amount of all
declared and unpaid dividends on each such Dividend Access Share and an amount
equal to the amount of all dividends declared on REMEC Common Stock in respect
of which dividends in an identical amount have not been declared and paid on
each such Dividend Access Share in accordance with Section 3.1 of the Dividend
Access Share Provisions, plus (c) US $0.01 (collectively, the "Liquidation Call
Purchase Price"), provided that if the record date for any such declared and
unpaid dividends occurs on or after the Liquidation Date, the Liquidation Call
Purchase Price shall not include such additional amount equivalent to such
dividends. In the event of the exercise of the Liquidation Call Right by REMEC,
each holder shall be obligated to sell all the Dividend Access Shares held by
the holder to REMEC on the Liquidation Date on payment by REMEC to the holder of
the Liquidation Call Purchase Price for each such Dividend Access Share.
(b) To exercise the Liquidation Call Right, REMEC must notify
Buyer and the holders of Dividend Access Shares of REMEC's intention to exercise
such right at least 20 days before the Liquidation Date in the case of a
voluntary liquidation, dissolution or winding up of Buyer and at least five
Business Days before the Liquidation Date in the case of an involuntary
liquidation, dissolution or winding up of Buyer (in either case, the
"Liquidation Notification Date"). Buyer or an agent authorized by Buyer shall
notify the holders of Dividend Access Shares as to whether or not REMEC has
exercised the Liquidation Call Right forthwith after the Liquidation
Notification Date. If REMEC exercises the Liquidation Call Right on or before
the Liquidation Notification Date and notice is so given, on the Liquidation
Date, REMEC will purchase, and the holders will sell, all of
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the Dividend Access Shares then outstanding for a price per Dividend Access
Share equal to the Liquidation Call Purchase Price.
(c) Subject to Section 2.9, for the purposes of completing the
purchase of the Dividend Access Shares pursuant to the Liquidation Call Right,
REMEC shall deposit with Buyer or an agent authorized by Buyer, prior to the
Liquidation Date, certificates representing the aggregate number of shares of
REMEC Common Stock deliverable by REMEC in payment of the Liquidation Call
Purchase Price which shall be duly issued as fully paid and non-assessable
shares of REMEC Common Stock and a cheque or cheques in the amount of the
remaining portion of the total Liquidation Call Purchase Price. Provided that
the total Liquidation Call Purchase Price has been so deposited with Buyer or an
agent authorized by Buyer, on and after the Liquidation Date, the rights of each
holder of Dividend Access Shares will be limited to receiving such holder's
proportionate part of the total Liquidation Call Purchase Price payable by REMEC
upon presentation and surrender by the holder of certificates representing the
Dividend Access Shares held by such holder and the holder shall on and after the
Liquidation Date be considered and deemed for all purposes to be the holder of
the shares of REMEC Common Stock delivered to it. Upon surrender to Buyer or an
agent authorized by Buyer of a certificate or certificates representing Dividend
Access Shares properly endorsed by the holder for transfer to REMEC and delivery
of such additional documents and instruments as Buyer or the authorized agent
may reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and Buyer or the
authorized agent on behalf of REMEC shall deliver to such holder, certificates
representing the shares of REMEC Common Stock to which the holder is entitled
and a cheque or cheques of REMEC payable in US dollars at any branch of the
bankers of REMEC or of Buyer in Canada in payment of the remaining portion of
the total Liquidation Call Purchase Price. If REMEC does not exercise the
Liquidation Call Right in the manner described above, on the Liquidation Date
the holders of the Dividend Access Shares will be entitled to receive in
exchange therefore the liquidation price otherwise payment by Buyer in
connection with the liquidation, dissolution or winding-up of Buyer pursuant to
Article V of the Dividend Access Share Provisions.
2.5 REMEC REDEMPTION CALL RIGHT.
(a) REMEC shall have the overriding right (the "Redemption
Call Right"), in the event of and notwithstanding the proposed redemption of
Dividend Access Shares by Buyer pursuant to Article VII of the Dividend Access
Share Provisions, to purchase from all but not less than all of the holders of
Dividend Access Shares to be redeemed on the "Automatic Redemption Date" (as
such term is defined in Section 1.1 of the Dividend Access Share Provisions) all
but not less than all of the Dividend Access Shares held by each such holder
that are otherwise to be redeemed on payment by REMEC to the holder of an amount
per such Dividend Access Share equal to (a) the Current Market Price of a share
of REMEC Common Stock on the last Business Day prior to the Automatic Redemption
Date which shall be satisfied in full by causing to be delivered to such holder
one share of REMEC Common Stock, plus (b) an additional amount equivalent to the
full amount of all declared and unpaid
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dividends on each such Dividend Access Share and an amount equal to the amount
of all dividends declared on REMEC Common Stock in respect of which dividends in
an identical amount have not been declared and paid on each such Dividend Access
Share in accordance with Section 3.1 of the Dividend Access Share Provisions,
plus (c) US $0.01 (collectively, the "Redemption Call Purchase Price"), provided
that if the record date for any such declared and unpaid dividends occurs on or
after the Automatic Redemption Date, the Redemption Call Purchase Price shall
not include such additional amount equivalent to such dividends. In the event of
the exercise of the Redemption Call Right by REMEC, each holder shall be
obligated to sell all the Dividend Access Shares held by the holder and
otherwise to be redeemed to REMEC on the Automatic Redemption Date on payment by
REMEC to the holder of the Redemption Call Purchase Price for each such Dividend
Access Share.
(b) To exercise the Redemption Call Right, REMEC must notify
Buyer and the holders of Dividend Access Shares of REMEC's intention to exercise
such right at least 20 days before the Automatic Redemption Date (the
"Redemption Notification Date"). Buyer or an agent authorized by Buyer shall
notify the holders of the Dividend Access Shares as to whether or not REMEC has
exercised the Redemption Call Right forthwith after the Redemption Notification
Date. If REMEC exercises the Redemption Call Right on or before the Redemption
Notification Date and notice is so given, on the Automatic Redemption Date REMEC
will purchase, and the holders will sell, all of the Dividend Access Shares to
be otherwise redeemed for a price per Dividend Access Share equal to the
Redemption Call Purchase Price.
(c) Subject to Section 2.9, for the purposes of completing the
purchase of Dividend Access Shares pursuant to the Redemption Call Right, REMEC
shall deposit with Buyer or an agent authorized by Buyer prior to the Automatic
Redemption Date, certificates representing the aggregate number of shares of
REMEC Common Stock deliverable by REMEC in payment of the Redemption Call
Purchase Price which shall be duly issued as fully paid and non-assessable
shares of REMEC Common Stock and a cheque or cheques in the amount of the
remaining portion of the total Redemption Call Purchase Price. Provided that the
total Redemption Call Purchase Price has been so deposited with Buyer or an
authorized agent, on and after the Automatic Redemption Date the rights of each
holder of Dividend Access Shares so purchased will be limited to receiving such
holder's proportionate part of the Redemption Call Purchase Price payable by
REMEC upon presentation and surrender by the holder of certificates representing
the Dividend Access Shares purchased by REMEC from such holder and the holder
shall on and after the Automatic Redemption Date be considered and deemed for
all purposes (including for purposes of dividend entitlement, if any) to be the
holder of the shares of REMEC Common Stock delivered to such holder. Upon
surrender to Buyer or an authorized agent of a certificate or certificates
representing Dividend Access Shares properly endorsed by the holder for transfer
to REMEC and delivery of such additional documents and instruments as Buyer or
the authorized agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange therefor,
and Buyer or the authorized agent on behalf of REMEC
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<PAGE> 22
shall deliver to such holder, certificates representing the shares of REMEC
Common Stock to which the holder is entitled and a cheque or cheques of REMEC
payable in US dollars at any branch of the bankers of REMEC or of Buyer in
Canada in payment of the remaining portion of the total Redemption Call Purchase
Price. If REMEC does not exercise the Redemption Call Right in the manner
described above, on the Automatic Redemption Date, the holders of the Dividend
Access Shares will be entitled to receive in exchange therefor the redemption
prices otherwise payable by Buyer in connection with the redemption of Dividend
Access Shares pursuant to Article VII of the Dividend Access Share Provisions.
2.6 REMEC RETRACTION CALL RIGHT.
(a) REMEC shall have the overriding right (the "Retraction
Call Right"), notwithstanding the proposed retraction of Dividend Access Shares
by a Seller pursuant to Article VI of the Dividend Access Share Provisions, to
purchase from the holder having exercised the right to cause Buyer to redeem on
the "Retraction Date" (as such term is defined in Section 6.1 of the Dividend
Access Share Provisions) all but not less than all of the Dividend Access Shares
held by each such holder that are otherwise to be redeemed on payment by REMEC
to the holder of an amount per such Dividend Access Share equal to (a) the
Current Market Price of a share of REMEC Common Stock on the last Business Day
prior to the Retraction Date which shall be satisfied in full by causing to be
delivered to such holder one share of REMEC Common Stock, plus (b) an additional
amount equivalent to the full amount of all declared and unpaid dividends on
each such Dividend Access Share and an amount equal to the amount of all
dividends declared on REMEC Common Stock in respect of which dividends in an
identical amount have not been declared and paid on each such Dividend Access
Share in accordance with Section 3.1 of the Dividend Access Share Provisions,
plus (c) US $0.01 (collectively the "Retraction Call Purchase Price"), provided
that if the record date for any such declared and unpaid dividends occurs on or
after the Retraction Date, the Retraction Call Purchase Price shall not include
such additional amount equivalent to such dividends. In the event of the
exercise of the Retraction Call Right by REMEC, each holder shall be obligated
to sell all the Dividend Access Shares held by the holder and otherwise to be
redeemed to REMEC on the Retraction Date on payment by REMEC to the holder of
the Retraction Call Purchase Price for each such Dividend Access Share.
(b) Upon receipt by Buyer of a "Retraction Request" (as such
term is defined in Section 6.1 of the Dividend Access Share Provisions), Buyer
shall immediately notify REMEC thereof. To exercise the Retraction Call Right,
REMEC must notify Buyer and the relevant holders of Dividend Access Shares of
REMEC's intention to exercise such right within ten Business Days of the receipt
by Buyer of a Retraction Request (the "Retraction Notification Date"). Buyer or
an agent authorized by Buyer shall notify the holders of the Dividend Access
Shares as to whether or not REMEC has exercised the Retraction Call Right
forthwith after the Retraction Notification Date. If REMEC exercises the
Retraction Call Right on or before the Retraction Notification Date and notice
is so given, on the Retraction Date, REMEC will purchase and the holders will
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<PAGE> 23
sell all of the Dividend Access Shares to be otherwise redeemed for a price per
Dividend Access Share equal to the Retraction Call Purchase Price.
(c) Subject to Section 2.9, for the purposes of completing the
purchase of Dividend Access Shares pursuant to the Retraction Call Right, REMEC
shall deposit with Buyer or an agent authorized by Buyer prior to the Retraction
Date, certificates representing the aggregate number of shares of REMEC Common
Stock deliverable by REMEC in payment of the Retraction Call Purchase Price
which shall be duly issued as fully paid and non-assessable shares of REMEC
Common Stock and a cheque or cheques in the amount of the remaining portion of
the total Retraction Call Purchase Price. Provided that the total Retraction
Call Purchase Price has been so deposited with Buyer or an agent authorized by
Buyer, on and after the Retraction Date the rights of each holder of Dividend
Access Shares so purchased will be limited to receiving such holder's
proportionate part of the Retraction Call Purchase Price payable by REMEC upon
presentation and surrender by the holder of certificates representing the
Dividend Access Shares purchased by REMEC from such holder and the holder shall
on and after the Retraction Date be considered and deemed for all purposes
(including for purposes of dividend entitlement, if any) to be the holder of the
shares of REMEC Common Stock delivered to such holder. Upon surrender to Buyer
or an agent authorized by Buyer of a certificate or certificates representing
Dividend Access Shares properly endorsed by the holder for transfer to REMEC and
delivery of such additional documents and instruments as Buyer or the authorized
agent may reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and Buyer or the
authorized agent on behalf of REMEC shall deliver to such holder, certificates
representing the shares of REMEC Common Stock to which the holder is entitled
and a cheque or cheques of REMEC payable in US dollars at any branch of the
bankers of REMEC or of Buyer in Canada in payment of the remaining portion of
the total Retraction Call Purchase Price. If REMEC does not exercise the
Retraction Call Right in the manner described above, on the Retraction Date, the
holders of the Dividend Access Share will be entitled to receive in exchange
therefor the retraction price otherwise payable by Buyer in connection with the
retraction of Dividend Access Shares pursuant to Article VI of the Dividend
Access Share Provisions.
2.7 WITHHOLDING RIGHTS.
(a) REMEC and Buyer shall be entitled to deduct and withhold
from the consideration otherwise payable to any holder of Dividend Access
Shares, including any dividend payments in respect of the Dividend Access
Shares, such amount as REMEC or Buyer is required to deduct and withhold with
respect to such payment under the Code, the Act or any provision of state,
federal, provincial, local or foreign tax law. To the extent that amounts are so
withheld, such withheld amounts shall be treated for all purposes hereof as
having been paid to the holder of Dividend Access Shares in respect of which
such deduction and withholding was made, provided that such withheld amounts are
actually remitted to the
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<PAGE> 24
appropriate taxing authority. To the extent that the amount so required or
permitted to be deducted or withheld from any payment to a holder exceeds the
cash portion of the consideration otherwise payable to the holder REMEC and
Buyer, upon at least ten days prior written notice to such holder, are hereby
authorized to sell or otherwise dispose of at fair market value such portion of
such non-cash consideration otherwise payable to the holder as is necessary to
provide sufficient funds to REMEC or Buyer, as the case may be, in order to
enable it to comply with such deduction or withholding requirement and REMEC or
Buyer, as the case may be, shall give an accounting to the holder with respect
thereof and any balance of such proceeds of sale.
2.8 PUT RIGHT.
(a) Dr. Miller shall have the right and, subject to obtaining
any necessary regulatory relief, each holder of Dividend Access Shares shall
have the right (the "Put Right"), at any time and from time to time, to require
REMEC to purchase a minimum of 10,000 Dividend Access Shares held by each such
holder on payment by REMEC of an amount per Dividend Access Share equal to (a)
the Current Market Price of a share of REMEC Common Stock on the last Business
Day prior to the Put Closing Date, which shall be satisfied in full by causing
to be delivered to such holder one share of REMEC Common Stock, plus (b) an
additional amount equivalent to the full amount of all dividends declared and
unpaid on each such Dividend Access Share and an amount equal to the amount of
all dividends declared on REMEC Common Stock in respect of which dividends in an
identical amount have not been declared and paid on each such Dividend Access
Share in accordance with the Dividend Access Share Provisions, plus (c) US $0.01
(collectively the "Put Purchase Price"), provided that if the record date for
any such declared and unpaid dividends occurs on or after the last Business Day
prior to the Put Closing Date, the Put Purchase Price shall not include such
additional amount equivalent to such dividends. REMEC will use its reasonable
best efforts to obtain all regulatory relief necessary to issue the Put Right to
each holder of the Dividend Access Shares within 90 days of Closing.
(b) To exercise the Put Right, a holder of Dividend Access
Shares must notify REMEC of such holder's intention to exercise such right (the
date of such notification is referred to in this Agreement as the "Put Exercise
Date"). If a holder exercises the Put Right, REMEC will purchase, and such
holder will sell, all of the Dividend Access Shares set forth in the holder's
Put Right notification and then held by such holder for a price per Dividend
Access Share equal to the Put Purchase Price. The closing of the transaction
resulting from the exercise of a Put Right shall occur on the tenth Business Day
following the Put Exercise Date (the "Put Closing Date").
(c) Subject to Section 2.9, for the purposes of completing the
purchase of the Dividend Access Shares pursuant to the Put Right, REMEC shall
deposit with Buyer or an agent authorized by Buyer, prior to the Put Closing
Date, certificates representing the aggregate number of shares of REMEC Common
Stock deliverable by REMEC in payment of the Put Purchase Price which shall be
duly issued as fully paid and non-assessable shares
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of REMEC Common Stock and a cheque or cheques in the amount of the remaining
portion of the total Put Purchase Price. Provided that the total Put Purchase
Price has been so deposited with Buyer or an authorized agent, on and after the
Put Closing Date the rights of each holder of Dividend Access Shares will be
limited to receiving such holder's proportionate part of the total Put Purchase
Price payable by REMEC upon presentation and surrender by the holder of
certificates representing the Dividend Access Shares held by such holder and the
holder shall on and after the Put Closing Date by considered and deemed for all
purposes to be the holder of the shares of REMEC Common Stock delivered to it.
Upon surrender to Buyer or an agent authorized by Buyer of a certificate or
certificates representing Dividend Access Shares properly endorsed by the holder
for transfer to REMEC and delivery of such additional documents and instruments
as Buyer or the authorized agent may reasonably require, the holder of such
surrendered certificate or certificates shall be entitled to receive in exchange
therefor, and Buyer or the authorized agent on behalf of REMEC shall deliver to
such holder, certificates representing the shares of REMEC Common Stock to which
the holder is entitled and a cheque or cheques of REMEC payable in US dollars at
any branch of the bankers of REMEC or of Buyer in Canada in payment of the
remaining portion of the total Put Purchase Price.
2.9 CASH OPTION; SECURITIES LAW COMPLIANCE.
(a) Notwithstanding any provision to the contrary in Sections
2.4, 2.5, 2.6 and 2.8, in the event that, on the Liquidation Date, the Automatic
Redemption Date, any Retraction Date or any Put Exercise Date, a holder of
Dividend Access Shares resident in Ontario would be entitled to receive,
pursuant to either of Sections 2.4, 2.5, 2.6 or 2.8, REMEC Common Stock having
an aggregate acquisition cost determined by reference to the Current Market
Price (the "Acquisition Cost") of less than CDN $150,000, then REMEC may, at its
sole option either: (i) issue the said REMEC Common Stock within 90 days from
the date upon which delivery of the REMEC Common Stock to such holder is
otherwise due (the "Delivery Date"); or (ii) not deliver REMEC Common Stock to
such holder on the Delivery Date, but, in lieu thereof, pay to the holder on a
date which is not later than 90 days after the Delivery Date an amount equal to
the Acquisition Cost, whereupon the obligation to issue and transfer REMEC
Common Stock to such holder shall be deemed to have been fulfilled.
(b) Notwithstanding any provision to the contrary in Sections
2.4, 2.5, 2.6 and 2.8, in the event that, on the Liquidation Date, the Automatic
Redemption Date, any Retraction Date or any Put Exercise Date, any holder of
Dividend Access Shares is not resident in Ontario or the United States of
America, such holder shall not be entitled to receive any payment from REMEC
pursuant to Sections 2.4, 2.5, 2.6 and 2.8, as the case may be, unless and until
such holder provides (at its own expense) an opinion of counsel acceptable to
REMEC and qualified to practice law in the jurisdiction where the holder is
resident to the effect that the issuance and transfer of REMEC Common Stock to
such holder will not require the preparation by REMEC of a prospectus,
registration statement or similar document, will not expose REMEC to ongoing
compliance obligations similar to those
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imposed on a "reporting issuer" under the Securities Act (Ontario) and any fee
relating to such transaction in excess of that which would have been paid had
the holder been resident in Ontario has been paid (for which purpose, such
counsel shall be entitled to rely on a certificate of the holder as to the
details of such payment). If requested by such holder, REMEC shall (at such
holder's expense) use its reasonable best efforts to obtain any necessary
regulatory relief in order that the opinion referred to above may be provided.
2.10 SUPPORT AGREEMENT.
REMEC agrees to enter into a support agreement on Closing with
Buyer in the form annexed hereto as Exhibit C.
2.11 EXECUTION OF COUNTERPART.
No Person shall become a holder of Dividend Access Shares
without first having executed a counterpart of this Agreement substantially in
the form of Exhibit D annexed hereto for the purposes of being bound by Sections
2.4, 2.5, 2.6, 2.7, 2.8 and 2.9 of this Agreement.
2.12 SECTION 85 ELECTIONS.
Buyer, Dr. Miller and Miller Holdco agree to jointly elect in
prescribed form and within the prescribed time elections under subsection 85(1)
of the Act and relevant provisions of any applicable provincial legislation at
the respective amounts selected by Dr. Miller and Miller Holdco to be the
proceeds of disposition and the cost of the Purchased Shares sold hereunder.
2.13 THE CLOSING.
The Closing shall take place at the offices of Stikeman,
Elliott, Commerce Court West, Suite 5300, Toronto, at 10:00 a.m. local time, on
October 15, 1997, or on such later date as Sellers and Buyer may agree.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
DR. MILLER AND MILLER HOLDCO
Dr. Miller and Miller Holdco each represent and warrant,
jointly and severally, to Buyer and REMEC as follows:
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3.1 ORGANIZATION AND AUTHORITY.
Company: (i) is a corporation duly incorporated, validly
existing and in good standing under the laws of Canada; (ii) has all necessary
corporate power to own and lease its properties, to carry on its business as now
being conducted and to enter into and perform its obligations pursuant to this
Agreement and all agreements to which Company is or will be a party that are
Exhibits to this Agreement; and (iii) is qualified to do business in all
jurisdictions in which the failure to so qualify would have a material adverse
effect on its business or financial condition. Company does not have any
Subsidiaries and does not directly or indirectly own any Equity Securities in
any Person. Company has delivered to REMEC or its representatives complete and
correct copies of its constating documents, as amended, as in effect on the date
of this Agreement, certified as true, complete and correct copies by Company's
President. Such constating documents are in full force and effect. Company is
not in violation of any provisions of its constating documents.
On the Amalgamation Date, the Amalgamated Company: (i) will be
a corporation duly amalgamated, validly existing and in good standing under the
laws of Nova Scotia; (ii) will have all necessary corporate power to own and
lease its properties, to carry on the business of the Company as conducted
immediately prior to the Amalgamation Date and will be able to enter into and
perform its obligations pursuant to this Agreement and all agreements to which
Company or Amalgamated Company is or will be a party that are Exhibits to this
Agreement; and (iii) will be qualified to do business in all jurisdictions in
which the failure to so qualify would have a material adverse effect on its
business or financial condition. Amalgamated Company will not have any
Subsidiaries and will not directly or indirectly own any Equity Securities in
any Person. Amalgamated Company will deliver to REMEC, or its representatives,
complete and correct copies of its constating documents, as amended, as in
effect on the Amalgamation Date, certified as true, complete and correct copies
by Amalgamated Company's President. Such constating documents shall, on the
Amalgamation Date, be in full force and effect. The Amalgamated Company shall
not, on the Amalgamation Date, be in violation of any provisions of its
constating documents.
3.2 CAPITALIZATION OF COMPANY AND AMALGAMATED COMPANY.
(a) As of the date of this Agreement, the authorized capital
of Company consists of an unlimited number of Class A common shares and an
unlimited number of Class B common shares of which only 86 Class A common shares
and 14 Class B common shares are issued and outstanding. Immediately preceding
the Closing and on the Amalgamation Date, the authorized capital of Amalgamated
Company will consist of one million Class A common shares, 780 shares of which
will be issued and outstanding at such time, one million Class B common shares,
140 shares of which will be issued and outstanding at such time, one million
Class C common shares, 80 shares of which will be issued and outstanding at such
time and one million Class D common shares, 200 shares of which will be issued
and outstanding at such time. All issued and outstanding shares in the
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<PAGE> 28
capital of Company have been duly authorized and validly issued, and are fully
paid and nonassessable, and have been issued in compliance with all applicable
securities laws. All of the issued and outstanding shares in the capital of
Amalgamated Company will, immediately prior to Closing, be duly authorized and
validly issued, fully paid and nonassessable and issued in compliance with all
applicable securities laws. Except as set forth on Schedule 3.2 and as
contemplated under Section 7.3 or otherwise under this Agreement, there are no
outstanding warrants, options, agreements, convertible or exchangeable
securities or other commitments pursuant to which Company is or may become
obligated to issue, sell, purchase, retire or redeem any shares of capital stock
or other securities.
(b) Except as set forth on Schedule 3.2, Company does not have
in effect any stock options, stock appreciation rights or other similar plan
granting the right to acquire any Equity Security of Company to any Person. None
of the plans set forth on Schedule 3.2 will survive the transactions
contemplated by this Agreement.
(c) Except as set forth on Schedule 3.2, there is no right of
first refusal, co-sale right, right of participation, right of first offer,
option or other restriction on transfer applicable to any shares in the capital
of Company which apply to or survive the transactions contemplated by this
Agreement.
(d) Except as set forth on Schedule 3.2, none of Company,
Miller Family or Miller Holdco is a party or subject to any agreement or
understanding, and there is no agreement or understanding between or among any
persons that affects or relates to the voting or giving of written consent with
respect to any outstanding security of Company. None of such agreements or
understandings set forth on Schedule 3.2 will survive the transactions
contemplated by this Agreement.
3.3 AUTHORIZATION.
The execution and delivery of this Agreement and all
agreements to which Miller Holdco is or will be a party that are Exhibits to
this Agreement and the performance hereunder and thereunder by Miller Holdco
have been duly authorized by all necessary corporate action on the part of
Miller Holdco. No trust action is required on the part of the Miller Trust in
order to duly execute, deliver and perform its obligations under this Agreement
and all agreements to which Miller Trust is or will be a party that are Exhibits
to this Agreement. Dr. Miller and Mrs. Miller have the legal capacity and
authority to enter into and perform this Agreement and all other agreements to
which he or she is or will be a party that are Exhibits to this Agreement. This
Agreement and all other agreements to which the Miller Family or Miller Holdco
is or will be a party will constitute legal, valid and binding obligations of
the Miller Family and Miller Holdco, enforceable against the Miller Family or
Miller Holdco in accordance with their terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws
of general applicability relating to or affecting creditors' rights and to
general principles of equity.
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3.4 TITLE TO SHARES.
Dr. Miller, Mrs. Miller and the Miller Trust own, beneficially
and of record, 624, 78 and 78 Class A shares of Millowave, respectively, free
and clear of all Encumbrances. Miller Holdco owns, beneficially and of record,
200 Class B shares of Millowave free and clear of all Encumbrances. Such Class A
common shares and Class B common shares constitute all of the issued and
outstanding shares in the capital of Millowave. Immediately preceding the
Closing and on the Amalgamation Date (i) Dr. Miller, Mrs. Miller and the Miller
Trust will own, beneficially and of record, 624, 78 and 78 Class A common shares
of Amalgamated Company, respectively, (ii) Miller Holdco will own, beneficially
and of record, 200 Class D common shares of Amalgamated Company free and clear
of all Encumbrances. Upon consummation of the transactions contemplated under
this Agreement, the Miller Family and Miller Holdco will transfer to Buyer the
Purchased Shares owned by them free and clear of all Encumbrances.
3.5 NO VIOLATION OF OTHER INSTRUMENTS.
Except as set forth on Schedule 3.5, neither the execution of
this Agreement or any other agreement to which the Miller Family or Miller
Holdco is or will be a party that is an Exhibit to this Agreement nor the
performance of any of them by them will: (i) conflict with or result in any
breach or violation of the terms of any Law applicable to the Miller Family,
Miller Holdco or Company; (ii) conflict with, or result in, with or without the
passage of time or the giving of notice, any breach of any of the terms,
conditions and provisions of, or constitute a default under or otherwise give
another party the right to terminate, or result in the creation of any
Encumbrance upon any of the assets or properties of Company pursuant to, any
material indenture, mortgage, lease, agreement or other instrument to which
Company is a party or by which it or any of its assets or properties are bound;
(iii) permit the acceleration of the maturity of any indebtedness of Company or
of any other person secured by the assets or properties of Company; or (iv)
violate or conflict with any provision of Company's or Miller Holdco's
constating documents or the Miller Trust.
3.6 CONSENTS.
No consent from any third party and no consent, approval or
authorization of, or declaration, filing or registration with, any government or
regulatory authority is required to be made or obtained by Company, the Miller
Family or Miller Holdco in order to permit the execution, delivery or
performance of this Agreement or any other agreement to which the Miller Family
or Miller Holdco is or will be a party that is an Exhibit to this Agreement, or
the consummation of the transactions contemplated by this Agreement and such
other agreements, except for such consents, approvals, orders, authorizations,
registrations, declarations and filings set forth on Schedule 3.6.
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3.7 COMPLIANCE WITH LAW.
Company holds all Permits necessary for the lawful conduct of
Company's business as currently conducted pursuant to all applicable Laws, and
the Miller Family and Miller Holdco know of no violation thereof, other than any
such violation that would not have a material adverse effect on Company's
business or financial results. Company is not in violation of any Law (including
applicable Environmental Laws, equal employment and civil rights regulations,
wages, hours and the payment of employment Taxes and occupational health and
safety legislation), which violation would reasonably be expected to have a
material adverse effect on the condition, financial or otherwise, assets,
liabilities, business or results of operations of Company. Schedule 3.7 contains
a true and complete list of all Permits necessary for the lawful conduct of
Company's business wherever conducted pursuant to all applicable Laws.
3.8 INVESTMENTS IN OTHERS.
Except as set forth on Schedule 3.8, Company 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.
3.9 FINANCIAL STATEMENTS.
The Company Financials (i) have been and will be prepared in
accordance with the books and records of Company; (ii) fairly present and will
present the financial position results of operations, owners equity and cash
flow of Company as of the dates and for the periods indicated therein; and (iii)
have been and will be prepared in accordance with GAAP (Canada) consistently
applied.
3.10 ABSENCE OF UNDISCLOSED LIABILITIES.
As of June 30, 1997, Company had no indebtedness or liability
(absolute, contingent, asserted, unasserted, known or unknown) which is not
shown or provided for in full on the 1997 Balance Sheet. Except as set forth or
provided for in the 1997 Balance Sheet, Company does not have outstanding on the
date of this Agreement, nor will it have outstanding on the Closing Date, any
indebtedness or liability (absolute, contingent, asserted, unasserted, known or
unknown) other than those incurred since June 30, 1997 in the ordinary course of
business consistent with past practice.
3.11 TAX RETURNS AND PAYMENTS.
(a) All Tax returns, reports and forms required to be filed
by, or with respect to any activities or income of, Company have been or will be
timely filed, all such returns are true and correct in all material respects,
and all Taxes and other governmental charges of any nature whatsoever which were
shown to be due or claimed to be due on such
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returns, reports and forms or which otherwise may be owed have been paid or
adequate provision for the payment thereof has been made. Schedule 3.11 includes
a complete and correct list of all such returns, reports and forms filed in
connection with any year or portion thereof which ended on or after the
Company's incorporation. Except as set forth on Schedule 3.11, Dr. Miller and
Miller Holdco have no knowledge of any assessment of deficiency or additional
Tax or other governmental charge respecting Company or its business or affairs,
or any knowledge of any completed, pending or threatened assessment, Tax audit,
investigation, suits or claims respecting Company or its business or affairs by
any taxing or other governmental authority, and, to the knowledge of Dr. Miller
and Miller Holdco, no waivers of statutes of limitations have been requested
with respect to Company or any of its corporate Affiliates and no extensions of
time have been requested with respect to the filing of any Tax return, election
or designation. Company has no liability for Taxes arising from previously filed
Tax returns, reports or forms, or any assessments or reassessments relating
thereto. The amounts provided for taxes on the 1997 Balance Sheet are, and will
be, sufficient for the payment of all accrued and unpaid Taxes for all periods
prior to the date of such balance sheet.
(b) There is no pending, or, to the knowledge of Dr. Miller
and Miller Holdco, threatened claim by any Governmental Entity in any
jurisdiction in which Company does not pay taxes or file Tax Returns that
Company is required to pay taxes or file Tax Returns in such jurisdiction.
(c) Company has been reviewed, determined and assessed for
Canadian federal and provincial income tax for all years to and including the
fiscal year of Company ended March 31, 1995 and has been assessed with respect
to its original return for the year ended March 31, 1995.
(d) Dr. Miller and Miller Holdco are not aware of any
contingent tax liabilities or any grounds that could prompt an assessment or
reassessment of Company, including, without limitation, aggressive treatment of
income, expenses, credits or other amounts in filing of any Tax Return, and have
not received any indication from any Governmental Entity that an assessment or
reassessment of Company, regardless of its merits, is proposed.
(e) Company has not at any time benefited from a forgiveness
of debt or entered into any transaction or arrangement (including conversion of
debt into shares) which would have resulted in the application of Section 80 to
80.04 of the Act.
(f) Except as described in Schedule 3.11, Company has not made
any elections or designations for purposes of the Act including, for greater
certainty, in any election under Section 85 or 83 of the Act or any relevant
provincial taxing statute, or for purposes of any administrative ruling or
notices or administrative practices pursuant to such Act or any such statute.
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(g) Company has duly collected and remitted all good and
services taxes and provincial sales taxes in accordance with the Excise Tax Act
(Canada) and all applicable Canadian provincial statutes.
(h) Each of Millowave, Miller Holdco and the Miller Trust is
not a non-resident of Canada for purposes of the Act. Each of Dr. Miller and
Mrs. Miller is a citizen and not a non-resident of Canada for purposes of the
Act and is a nonresident alien of the United States for purposes of the Code.
Millowave is a corporation incorporated under the laws of Ontario and its
principal place of business is Toronto, Canada. Miller Holdco is a corporation
incorporated under the laws of Ontario and its principal place of business is
Toronto, Canada. None of Company, Millowave or Miller Holdco is engaged in
United States trade or business as interpreted under the Code.
(i) All ITCs claimed by Company in any Tax return were claimed
by Company in accordance with the Act and all applicable provincial statutes,
and the Company satisfied at all times the relevant criteria and conditions
entitling it to such ITCs. All refunds, if any, of ITCs received or receivable
by Company in any financial year were claimed in accordance with the Act and all
applicable provincial statutes, and the Company satisfied at all times the
relevant criteria and conditions entitling it to claim a refund of such ITCs.
(j) Since its date of incorporation, Company has been a
"Canadian controlled private corporation" within the meaning of the Act.
3.12 ABSENCE OF CERTAIN CHANGES AND EVENTS.
Since the date of the 1997 Balance Sheet, there has not been,
and prior to the Closing there will not be:
(i) except as set forth on Schedule 3.12, any transaction
entered into by Company other than in the ordinary course of business
consistent with past practice; any Contract entered into by Company
requiring payment by any party thereto of more than US $100,000 in the
aggregate or with a duration longer than one year; any capital
expenditure made or incurred by the Company in an amount greater than
US $100,000; any loss or damage to any of the manufacturing facilities
of Company due to fire or other casualty, whether or not insured,
amounting to more than US $100,000 in aggregate replacement value; any
event that materially and adversely affects the ability of Company to
operate its business as a whole in a manner consistent with past
practice; or any change in the financial position, assets, liabilities,
results of operations or business of Company which in the aggregate
have been materially adverse;
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(ii) except as set forth on Schedule 3.12, any declaration,
payment or setting aside of any dividend or other distribution to or
for the holder of shares in the capital of Company; or
(iii) any Action or governmental investigation which may have
a material adverse effect on the business of Company.
(iv) except as set forth on Schedule 3.12, any increase or
decrease in the rates of compensation payable or to become payable by
Company to any director, officer, employee, agent or consultant, or any
bonus, percentage compensation, service award or other benefit,
granted, made or accrued to or to the credit of any such person, or any
welfare, pension, severance, retirement or similar payment or
arrangement made or agreed to by Company other than salary adjustments
for non-officer employees in accordance with past practice;
(v) any amendment, modification, rescission or termination of,
or waiver by Company of rights under, any Material Contract to which
Company is a party;
(vi) except as set forth on Schedule 3.12, any discharge or
satisfaction by Company of any lien or encumbrance, or any payment of
any obligation or liability (absolute or contingent) other than current
liabilities shown on the 1997 Balance Sheet and current liabilities
incurred since the date of the 1997 Balance Sheet in the ordinary
course of business;
(vii) any incurrence of indebtedness for borrowed money by
Company;
(viii) any sale, alienation or disposition of any of Company's
assets, other than in the ordinary course of business and in a manner
consistent with past practice;
(ix) any sale, purchase or redemption of any of the shares in
the capital of Company or other Equity Securities;
(x) any mortgage, pledge, imposition of any security interest,
claim, encumbrance or other restriction on any of the assets, tangible
or intangible, of Company;
(xi) any merger with or into or consolidation with any other
Person involving Company;
(xii) except as set forth in Schedule 3.12, any amendment of
Company's constating documents;
(xiii) except as set forth in Schedule 3.12, any change in
Company's authorized or outstanding share capital or its capital
structure; or
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(xiv) authorization, agreement or commitment to any of the
foregoing.
3.13 ACCOUNTS RECEIVABLE.
The accounts receivable reflected on the 1997 Balance Sheet
are bona fide, based on Company's reasonable judgment and its normal credit
review procedures, business practices and GAAP (Canada), result from the
ordinary course of business and are collectible in accordance with their terms
in an amount not less than their aggregate book value. For purposes of the
preceding sentence, the term "aggregate book value" 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 (Canada) consistently applied.
3.14 INVENTORIES.
The inventories reflected on the 1997 Balance Sheet are valued
in accordance with GAAP (Canada) consistently applied and have been prepared in
accordance with the books and records of Company.
3.15 BACKLOG.
Schedule 3.15 contains a list of all orders outstanding as of
September 12, 1997 identifying for each such order the customer, product, price
and expected delivery dates.
3.16 PRODUCT WARRANTIES.
The Company does not utilize standard forms of agreements
containing warranties or guarantees relating to the catalog products of Company.
No agreement to which Company is a party provides any warranty for a period
longer than three years from the date of delivery of the applicable product.
3.17 CREDIT CARDS.
Schedule 3.17 sets forth a complete and correct list of all
credit cards issued or caused to be issued by Company to any person, firm or
entity or under which Company is or may be liable for charges or payments.
3.18 INTERESTS IN REAL PROPERTY.
Schedule 3.18 sets forth a complete and correct list and brief
description of all real property leased by Company. Company owns no real
property. All real property leases to which Company is a party are, to the best
knowledge of Dr. Miller and Miller Holdco, valid and enforceable (subject, as to
the enforcement of remedies, to applicable bankruptcy,
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reorganization, insolvency, moratorium and similar laws affecting creditors'
rights, and, with respect to the remedy of specific performance, equitable
doctrines applicable thereto) and no party thereto is in default of any material
provision thereof. To the best knowledge of Dr. Miller and Miller Holdco, all
improvements and fixtures on real properties leased by Company conform to all
material applicable health, fire, safety, zoning and building Laws,
Environmental Laws and ordinances, and all materials, buildings, structures and
fixtures used by Company in the conduct of its business are in good operating
condition and repair, ordinary wear and tear excepted, and are sufficient for
the type and magnitude of their respective operations.
3.19 PERSONAL PROPERTY.
Except as set forth on Schedule 3.19, Company has good and
marketable title, free and clear of all Encumbrances whatsoever (except for such
non-monetary imperfections of title and Encumbrances, if any, as do not
materially detract from the value of or do not materially interfere with the
present use of such property) to (or, in the case of leased properties and
assets, valid leasehold interests in) all inventory and receivables and to any
item of machinery, equipment, or tangible or intangible personal property
reflected on the 1997 Balance Sheet or used in the business by Company
(regardless of whether reflected on the 1997 Balance Sheet). Schedule 3.19 sets
forth a list of all items of machinery, equipment and tangible personal property
used in Company's business. Except as disclosed on Schedule 3.19, all the
machinery, equipment and other tangible personal property of Company is in good
operating condition and repair, normal wear and tear excepted, and is sufficient
for the type and magnitude of Company's business and operations as currently
conducted. At the Closing Date, Company will possess all of the personal
property wherever located used to conduct its business as conducted prior to the
Closing.
3.20 DIRECTORS AND OFFICERS.
Schedule 3.20 sets forth a complete and correct list of all
present officers and directors of Company, Millowave and Miller Holdco and all
present trustees of the Miller Trust.
3.21 CERTAIN TRANSACTIONS.
Except as set forth on Schedule 3.21, no Affiliate of Company
is presently a party to any agreement or arrangement with Company (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.
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3.22 INTELLECTUAL PROPERTY.
Except as set forth on Schedule 3.22, all the Intellectual
Property Rights which are necessary to the conduct of Company's business are
owned or are useable, without restriction, by Company. To the knowledge of Dr.
Miller and Miller Holdco, the conduct of any business conducted by Company does
not infringe any Intellectual Property Rights of any other person. No litigation
is pending or, to the knowledge of Dr. Miller and Miller Holdco, has been
threatened against Company or any officer, director, shareholder, employee or
agent of Company, for the infringement of any Intellectual Property Rights of
any other party or for the misuse or misappropriation of any Intellectual
Property Rights owned by any other party nor does any basis exist for such
litigation. To the knowledge of Dr. Miller and Miller Holdco, there has been no
infringement or unauthorized use by any other party of any Intellectual Property
Rights belonging to Company. Schedule 3.22 sets forth a list of all Intellectual
Property Rights belonging to or used by Company.
3.23 LITIGATION AND OTHER PROCEEDINGS.
Except as set forth on Schedule 3.23, neither Company nor any
of its officers or directors in such capacity is a party to any pending or, to
the best knowledge of Dr. Miller and Miller Holdco, threatened Action in Canada
or the United States (including the United States Defense Contract Audit Agency,
the United States Inspector General or the United States General Accounting
Office) or elsewhere, and Company is not subject to any Order which materially
adversely affects or might so affect the business or assets of Company or which
prevents or might prevent completion of the sale of the Purchased Shares.
Schedule 3.23 contains a complete list of all claims brought against Company
since June 30, 1992, 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.
3.24 CONTRACTS.
Schedule 3.24 lists and describes all currently effective
Contracts to which Company is a party or by which Company or any of its
respective properties or assets are bound which: (i) involve the payment by
Company of more than US $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 Company and are not for the purchase or
sale of goods or services in the ordinary course of business; or (iv) are
distributorship or other agreements relating to the marketing of products.
Company and all of the other parties to such contracts, are in compliance with
all provisions of all such contracts and no circumstance exists which is, or
with the passage of time could become, a material default under any of such
contracts.
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3.25 INSURANCE AND BANKING FACILITIES.
Schedule 3.25 sets forth a complete and correct list of: (i)
all contracts of insurance and indemnity of or relating to Company (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 Company 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.
3.26 PERSONNEL.
Schedule 3.26 sets forth a complete and correct list 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 Company; 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
Company. Schedule 3.26 includes a list of all employees of Company and their
compensation levels. Company has been and is in compliance with the terms of,
and any Laws applicable to, all such plans, agreements, practices, commitments
or programs.
3.27 POWERS OF ATTORNEY AND SURETYSHIPS.
Company 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, Company 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.
3.28 MINUTES AND SHARE RECORDS.
The minute books and share records of Company, Millowave and
Miller Holdco contain a complete and correct record of all proceedings and
actions taken at all meetings of, and all resolutions of the Board of Directors
and shareholders of Company, Millowave and Miller Holdco and any committees
thereof, and all original issuances and subsequent transfers and repurchases of
shares of its capital.
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3.29 GOVERNMENTAL CONSENTS.
To the knowledge of Dr. Miller and Miller Holdco, Company has
complied with all Laws of any Governmental Entity having jurisdiction over
Company, its business and operations or any Governmental Entity with which
Company has contracts. Except as described on Schedule 3.29, Company has not
been audited by any Governmental Entity having jurisdiction over Company, its
business and operations. Schedule 3.29 sets forth a complete and correct list of
all consents, approvals, orders and authorizations from, and all registrations,
qualifications, designations, declarations and rulings with, any Governmental
Entity, required by or with respect to Company in connection with the
consummation of the transactions contemplated by this Agreement or, to the
extent not listed on Schedule 3.29, necessary to enable Company to conduct its
business as it was conducted immediately before the Closing.
3.30 PENSION AND BENEFIT PLANS.
Schedule 3.30 sets forth a complete and correct list of all
pension, retirement, profit-sharing, incentive, bonus, deferred compensation,
stock option, purchase, and appreciation and group insurance plans, programs and
arrangements in Canada (collectively, "Plans") of Company or in which any of its
employees participate. Each such Plan intended to qualify under applicable
Canadian pension and tax legislation has received the requisite registration and
has been administered in compliance with applicable Canadian legislation and no
fact or circumstance exists which would preclude continuing, good faith reliance
on such requisite registration or would adversely affect the qualified status or
registration of any such Plan. No fact or circumstance exists in connection with
any such Plan which might constitute grounds for the appointment by a court or
any other competent authority of a trustee to administer such Plan. Company has
complied in full with the minimum funding requirements and in all material
respects with the reporting, disclosure and fiduciary requirements of applicable
Canadian legislation, and every Plan which is a funded plan is fully funded on
both a going-concern basis and a winding-up basis in accordance with the methods
and assumptions utilized in the most recent actuarial report therefor.
3.31 LABOR MATTERS.
Company is and has been in 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. There is no unfair labor practice complaint against Company
pending or, to the knowledge of Dr. Miller and Miller Holdco, threatened before
any Governmental Entity. There is no: (i) labor strike, dispute, slowdown or
stoppage actually pending, or, to the knowledge of Dr. Miller and Miller Holdco,
threatened against or directly affecting Company; (ii) grievance or arbitration
proceeding pending and, to the knowledge of Dr. Miller and Miller Holdco, no
claims therefor exist; or (iii) agreement which is binding on Company, restricts
Company from relocating or closing
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any of its operations. Company has not experienced any material work stoppage in
the last two (2) years. Company is not delinquent in payments to any of its
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. Company is not a party to or bound by any
collective bargaining agreements.
3.32 HAZARDOUS MATERIALS.
Except as set forth on Schedule 3.32:
(i) Company 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
Dr. Miller and Miller Holdco, no such disposals or releases occurred
prior to Company 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;
(ii) Company 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 Company
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 on Schedule 3.32 as an exception to clause (A) above was
duly licensed in accordance with applicable Environmental Laws.
(iii) Dr. Miller and Miller Holdco have 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 Company has come to be (or may come to
be) located on or under properties leased, occupied or operated by
Company;
(iv) Company has never installed, used, buried or removed any
surface impoundment or underground tank or vessel on properties owned,
leased, occupied or operated by Company;
(v) Company is and has been in compliance in all material
respects for the last three years with all United States and Canadian
federal, state, local or foreign Environmental Laws, and no condition
exists on any of the real property owned by or used in the business of
Company that would constitute a violation of any Environmental Laws or
Permits or that constitutes or threatens to constitute a public or
private nuisance; and
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(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 Dr. Miller and Miller Holdco, threatened against Company
or any settlement reached 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.
3.33 BROKERS AND FINDERS.
Neither Company nor any Seller has retained any broker or
finder in connection with the transactions contemplated by this Agreement.
3.34 BUSINESS PRACTICES.
Company has not made, offered or agreed to offer anything of
value to any government official, political party or candidate for government
office nor has it taken any action which would cause it to be in violation of
the Foreign Corrupt Practices Act of 1977.
3.35 PLACE OF BUSINESS.
Other than inventory in transit, Company does not hold,
directly or indirectly, any of its personal or real property anywhere other than
in the locations set forth on Schedule 3.35.
3.36 ACTIVITIES OF MILLOWAVE.
Millowave was incorporated on December 23, 1996 for the
purpose of acting as a holding company. Millowave has carried on no business and
has not engaged in any transaction prior to the date of this Agreement other
than the acquisition of shares of Company. Except as contemplated under Section
7.3, Millowave will not carry on any business prior to its amalgamation with
Company. Millowave will have no liabilities (absolute, contingent, asserted,
unasserted, known or unknown) as of the date of such amalgamation.
3.37 ACCURACY OF DOCUMENTS AND INFORMATION.
Neither the representations or warranties made by Dr. Miller
or Miller Holdco 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 Dr. Miller,
Miller Holdco or Company to Buyer or REMEC pursuant to this Agreement, taken
together 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
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statements or facts contained herein or therein, in light of the circumstances
under which they were made, not misleading.
3.38 REPRESENTATIONS AND WARRANTIES APPLICABLE TO THE
AMALGAMATED COMPANY.
All of the representations and warranties made by Dr. Miller
and Miller Holdco in this Article III which relate to the Company, its business
and operations shall, on the Closing Date, also be deemed to be made with
respect to and apply to the Amalgamated Company mutatis mutandis.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ROYNAT
RoyNat represents and warrants, severally and not jointly, to
Buyer and REMEC as follows:
4.1 ORGANIZATION AND AUTHORITY.
RoyNat: (i) is a corporation duly incorporated, validly
existing and in good standing under the laws of Canada; and (ii) has all
necessary corporate power to own and lease its properties, to carry on its
business as now being conducted and to enter into and perform its obligations
pursuant to this Agreement and all agreements to which RoyNat is or will be a
party that are Exhibits to this Agreement.
4.2 CAPITALIZATION.
(a) Relying on opinions of counsel to Company, all of the
Class A common shares and Class B common shares of Company owned by RoyNat have
been duly authorized and validly issued, are fully paid and nonassessable, and
have been issued in compliance with all applicable securities laws. Relying on
opinions of counsel to Company, the Class C common shares of Company to be
issued to RoyNat upon the contemplated exchange of Class A common shares of
Company that RoyNat currently owns, upon such exchange, will be duly authorized,
validly issued, fully paid and nonassessable, and will be issued in compliance
with applicable securities laws. To RoyNat's knowledge, except as contemplated
under this Agreement and as set forth on Schedule 3.2, there are no outstanding
warrants, options, agreements, convertible or exchangeable securities or other
commitments pursuant to which Company is or may become obligated to issue, sell,
purchase, retire or redeem any shares of capital stock or other securities.
(b) Except as set forth on Schedule 3.2, to RoyNat's
knowledge, Company does not have in effect any stock options, stock appreciation
rights or other similar plan
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granting the right to acquire any Equity Security of Company to any Person. None
of the plans set forth on Schedule 3.2 will survive the transactions
contemplated by this Agreement.
(c) To RoyNat's knowledge, there is no right of first refusal,
co-sale right, right of participation, right of first offer, option or other
restriction on transfer applicable to any shares in the capital of Company which
apply to or survive the transactions contemplated by this Agreement.
(d) Except as set forth on Schedule 3.2, to RoyNat's
knowledge, neither Company nor RoyNat is a party or subject to any agreement or
understanding, and there is no agreement or understanding between or among any
persons that affects or relates to the voting or giving of written consent with
respect to any outstanding security of Company. None of such agreements or
understandings set forth on Schedule 3.2 will survive the transactions
contemplated by this Agreement.
4.3 AUTHORIZATION.
The execution and delivery of this Agreement and all
agreements to which RoyNat is or will be a party that are Exhibits to this
Agreement and the performance hereunder and thereunder by RoyNat has been duly
authorized by all necessary corporate action on the part of RoyNat. This
Agreement and all other agreements to which RoyNat is or will be a party will
constitute legal, valid and binding obligations of RoyNat, enforceable against
RoyNat in accordance with their terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity.
4.4 TITLE TO SHARES.
RoyNat owns, beneficially and of record, 8 Class A common
shares and 14 Class B common shares of Company, free and clear of all
Encumbrances. RoyNat shall exchange 8 Class A common shares of Company for 8
Class C common shares of Company prior to Closing. The 8 Class C common shares
of Company, when issued to RoyNat in exchange for the 8 Class A common shares of
Company that RoyNat currently owns in accordance with Section 7.4, will be owned
by RoyNat, beneficially and of record, free and clear of all Encumbrances.
Immediately preceding the Closing and on the Amalgamation Date, RoyNat will own,
beneficially and of record, 140 Class B common shares and 80 Class C common
shares of Amalgamated Company free and clear of all Encumbrances. Upon
consummation of the transactions contemplated under this Agreement, RoyNat will
transfer to Buyer the Purchased Shares owned by it free and clear of all
Encumbrances.
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4.5 NO VIOLATION OF OTHER INSTRUMENTS.
Except as set forth on Schedule 3.5, to RoyNat's knowledge,
neither the execution of this Agreement or any other agreement to which RoyNat
is or will be a party that is an Exhibit to this Agreement nor the performance
of any of them by RoyNat will: (i) conflict with or result in any breach or
violation of the terms of any Law applicable to RoyNat or Company; (ii) conflict
with, or result in, with or without the passage of time or the giving of notice,
any breach of any of the terms, conditions and provisions of, or constitute a
default under or otherwise give another party the right to terminate, or result
in the creation of any Encumbrance upon any of the assets or properties of
Company pursuant to, any material indenture, mortgage, lease, agreement or other
instrument to which Company is a party or by which it or any of its assets or
properties are bound; (iii) permit the acceleration of the maturity of any
indebtedness of Company or of any other Person secured by the assets or
properties of Company; or (iv) violate or conflict with any provision of
Company's or RoyNat's constating documents.
4.6 CONSENTS.
No consent from any third party and no consent, approval or
authorization of, or declaration, filing or registration with, any government or
regulatory authority is required to be made or obtained by RoyNat or, to the
knowledge of RoyNat, Company in order to permit the execution, delivery or
performance of this Agreement or any other agreement to which RoyNat is or will
be a party that is an Exhibit to this Agreement, or the consummation of the
transactions contemplated by this Agreement and such other agreements, except
for such consents, approvals, orders, authorizations, registrations,
declarations and filings set forth on Schedule 3.6.
4.7 COMPLIANCE WITH LAW.
To RoyNat's knowledge, Company holds all Permits necessary for
the lawful conduct of Company's business as currently conducted pursuant to all
applicable Laws, and RoyNat knows of no violation thereof, other than any such
violation that would not have a material adverse effect on Company's business or
financial results. To RoyNat's knowledge, Company is not in violation of any Law
(including applicable Environmental Laws, equal employment and civil rights
regulations, wages, hours and the payment of employment Taxes and occupational
health and safety legislation), which violation would reasonably be expected to
have a material adverse effect on the condition, financial or otherwise, assets,
liabilities, business or results of operations of Company.
4.8 ABSENCE OF UNDISCLOSED LIABILITIES.
Except for obligations and liabilities incurred in the
ordinary course of business which are not material or are not required under
GAAP (Canada) to be reflected on a balance sheet or set forth in the notes
thereto, to RoyNat's knowledge, Company does not
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have any indebtedness or any other liability (absolute, contingent, asserted,
unasserted, known or unknown) which is not reflected on or provided for in full
on the 1997 Balance Sheet.
4.9 TAX RETURNS AND PAYMENTS.
(a) RoyNat has no knowledge of any assessment of deficiency or
additional Tax or other governmental charge respecting Company or its business
or affairs, or any knowledge of any completed, pending or threatened assessment,
Tax audit, investigation, suits or claims respecting Company or its business or
affairs by any taxing or other governmental authority, and, to the knowledge of
RoyNat, no waivers of statutes of limitations have been requested with respect
to Company or any of its corporate Affiliates and no extensions of time have
been requested with respect to the filing of any Tax return, election or
designation. To RoyNat's knowledge, Company has no liability for Taxes arising
from previously filed Tax returns, reports or forms, or any assessments or
reassessments relating thereto.
(b) To the knowledge of RoyNat, there is no pending or
threatened claims by any Governmental Entity in any jurisdiction in which
Company does not pay taxes or file Tax Returns that Company is required to pay
taxes or file Tax Returns in such jurisdiction.
(c) RoyNat has no knowledge of any contingent tax liabilities
or any grounds that could prompt an assessment or reassessment of Company,
including, without limitation, aggressive treatment of income, expenses, credits
or other amounts in filing of any Tax Return, and have not received any
indication from any Governmental Entity that an assessment or reassessment of
Company, regardless of its merits, is proposed.
(d) RoyNat is not a non-resident of Canada for purposes of the
Act. RoyNat is a corporation incorporated under the laws of Canada and its
principal place of business is Toronto, Canada. RoyNat is not engaged in United
States trade or business as interpreted under the Code.
4.10 CERTAIN TRANSACTIONS.
Except as set forth on Schedule 3.21, to the knowledge of
RoyNat, no Affiliate of Company is presently a party to any agreement or
arrangement with Company (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.
4.11 ACCURACY OF DOCUMENTS AND INFORMATION.
Neither the representations or warranties made by RoyNat 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
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furnished) by RoyNat to Buyer or REMEC pursuant to this Agreement, taken
together 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, in light of the circumstances under which
they were made, not misleading.
4.12 REPRESENTATIONS AND WARRANTIES APPLICABLE TO THE
AMALGAMATED COMPANY.
All of the representations and warranties made by RoyNat in
this Article IV which relate to the Company, its business and operations shall,
on the Amalgamation Date, also be deemed to be made with respect to and apply to
the Amalgamated Company mutatis mutandis.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF REMEC AND BUYER
REMEC and Buyer represent and warrant, jointly and severally,
to each Seller as follows:
5.1 ACTIVITIES OF BUYER.
Buyer was incorporated on September 15, 1997 for the purpose
of purchasing the Purchased Shares as contemplated in this Agreement. Buyer has
carried on no business and has not engaged in any transaction prior to the date
of this Agreement and, except as required for purposes of this Agreement, will
not carry on any business prior to Closing. Except for the liabilities arising
out of this Agreement, Buyer will have no liabilities (absolute, contingent,
asserted, unasserted, known or unknown) immediately prior to the Closing other
than indebtedness owing to REMEC and costs and expenses arising out of the
transactions contemplated under this Agreement.
5.2 ORGANIZATION AND AUTHORITY.
Each of REMEC and Buyer (i) is a corporation and an unlimited
company, respectively, duly incorporated or organized and validly existing and
in good standing under the laws of the State of California and Nova Scotia,
respectively; (ii) has all necessary corporate power to own and lease its
properties, to carry on its business as now being conducted and to enter into
and perform their respective obligations under this Agreement; and (iii) is
qualified to do business in all jurisdictions in which the failure to so qualify
would have a material adverse effect on its business or financial condition.
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5.3 CAPITALIZATION OF REMEC.
(a) The authorized capital stock of REMEC is 5,000,000 shares
of Preferred Stock, none of which are issued and outstanding, and 40,000,000
shares of REMEC Common Stock, of which 19,819,783 shares were issued and
outstanding as of September 5, 1997. All such issued and outstanding shares have
been duly authorized and validly issued, and are fully paid and nonassessable.
As of September 5, 1997, REMEC had outstanding options to purchase 1,701,300
shares of REMEC Common Stock pursuant to its existing plans. Except as set forth
in the preceding sentence and as contemplated under this Agreement, there are no
outstanding warrants, options, agreements, convertible or exchangeable
securities or other commitments pursuant to which REMEC is or may become
obligated to issue, sell, purchase, retire or redeem any shares of its capital
stock or other Equity Securities.
(b) Except for the options referenced in Section 5.3(a), REMEC
does not have in effect any stock options, stock appreciation rights or other
similar plan granting the right to acquire any Equity Security of REMEC to any
Person.
(c) There is no right of first refusal, co-sale right, right
of participation, right of first offer, option or other restriction on transfer
applicable to the REMEC Common Stock issuable upon exchange of the Dividend
Access Shares.
(d) Neither REMEC nor Buyer is a party or subject to any
agreement or understanding, and there is no agreement or understanding between
or among any persons that affects or relates to the voting or giving of written
consent with respect to any outstanding security of REMEC or Buyer.
5.4 CAPITALIZATION OF BUYER.
(a) The authorized share capital of Buyer consists of one
million common shares and, on or prior to Closing, one million Dividend Access
Shares, of which 100 common shares are issued and outstanding. All such issued
and outstanding common shares have been duly authorized and validly issued, are
fully paid and nonassessable, and are owned beneficially and of record by REMEC.
Except as contemplated under this Agreement, there are no outstanding warrants,
options, agreements, convertible or exchangeable securities or other commitments
pursuant to which Buyer is or may become obligated to issue, sell, purchase,
retire or redeem any shares of stock or other Equity Securities.
(b) Buyer does not have in effect any stock options, stock
appreciation rights or other similar plan granting the right to acquire any
Equity Security of Buyer to any Person.
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(c) There is no right of first refusal, co-sale right, right
of participation, right of first offer, option or other restriction on transfer
applicable to any shares in the capital of Buyer other than those contemplated
by this Agreement.
5.5 AUTHORIZATION.
The execution and delivery of this Agreement and all other
agreements to which REMEC or Buyer is a party or will be a party that are
Exhibits to this Agreement and the performance hereunder and thereunder by REMEC
or Buyer have been duly authorized by all necessary corporate action on the part
of REMEC and Buyer. This Agreement constitutes, and the other agreements to
which REMEC or Buyer is a party that are Exhibits to this Agreement will, once
executed by REMEC and Buyer, constitute a legal, valid and binding obligation of
REMEC or Buyer, enforceable against REMEC or Buyer in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency, reorganization,
arrangement, moratorium and other laws of general applicability relating to or
affecting creditors' right and to general principles of equity.
5.6 NO VIOLATION OF OTHER INSTRUMENTS.
Except as set forth on the disclosure letter of REMEC, neither
the execution of this Agreement or any other agreement to which REMEC or Buyer
are or will be a party that is an Exhibit to this Agreement nor the performance
of any of them by REMEC or Buyer will: (i) conflict with or result in any breach
or violation of the terms of any Law applicable to REMEC or Buyer; (ii) conflict
with, or result in, with or without the passage of time or the giving of notice,
any breach of any of the terms, conditions and provisions of, or constitute a
default under or otherwise give another party the right to terminate, or result
in the creation of any Encumbrance upon any of the assets or properties of REMEC
or Buyer pursuant to, any material indenture, mortgage, lease, agreement or
other instrument to which REMEC or Buyer is a party or by which it or any of its
assets or properties are bound; (iii) permit the acceleration of the maturity of
any indebtedness of REMEC or Buyer or of any other person secured by the assets
or properties of REMEC or Buyer; or (iv) violate or conflict with any provision
of REMEC's or Buyer's constating documents.
5.7 CONSENTS.
No consent from any third party and no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required to be made or obtained by REMEC or Buyer in
order to permit the execution, delivery or performance of this Agreement or any
other agreement to which REMEC or Buyer is a party or will be a party that is an
Exhibit to this Agreement, or the consummation of the transactions contemplated
by this Agreement and such other agreements, except for such consents,
approvals, orders, authorizations, registrations, declarations, filings listed
in the disclosure letter of REMEC.
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5.8 FINANCIAL STATEMENTS.
REMEC has delivered the following consolidated financial
statements of REMEC to Dr. Miller:
(i) Balance Sheet of REMEC as of August 1, 1997, (unaudited);
(ii) Statement of Income of REMEC for the period ended August
1, 1997 (unaudited); and
(iii) Audited Balance Sheet of REMEC dated as of January 31,
1997 together with audited Statements of Operations, Shareholders'
Equity and Changes in Cash Flow for the year ended January 31, 1997.
Each REMEC Financial Statement (together with the notes thereto) is in
accordance with the books and records of REMEC, fairly presents the financial
position of REMEC and the results of operations of REMEC for the period
indicated, has been prepared in accordance with generally accepted accounting
principles in the United States consistently applied (except that the unaudited
income statement does not contain all the notes required under such generally
accepted accounting principles) and complies as to form with applicable
accounting requirements of the SEC.
5.9 ABSENCE OF UNDISCLOSED LIABILITIES.
As of August 1, 1997, REMEC had no indebtedness or liability
(absolute or contingent, asserted, unasserted, known or unknown) which is not
shown or provided for in full on the Balance Sheet dated August 1, 1997 included
in the REMEC Financial Statements. Except as set forth or provided for in the
Balance Sheet dated August 1, 1997 included in the REMEC Financial Statements,
REMEC and its Subsidiaries do not have outstanding on the date of this
Agreement, nor will it have outstanding on the Closing Date, any indebtedness or
liability (absolute, contingent, asserted, unasserted, known or unknown) other
than those incurred since August 1, 1997 in the ordinary course of business
consistent with past practice other than any obligations or liabilities arising
out of the transaction with Q-Bit Corporation described in REMEC's disclosure
letter.
5.10 ISSUANCE OF SHARES.
The Dividend Access Shares, when issued in accordance with
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable. The shares of REMEC Common Stock which are required to be issued
to Miller Holdco and Dr. Miller or their assignees pursuant to and in accordance
with this Agreement, the Dividend Access Share Provisions and the Support
Agreement, when issued in accordance therewith, will be duly authorized, validly
issued, fully paid and nonassessable and free and clear of all Encumbrances.
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5.11 LITIGATION.
Except as disclosed in REMEC's disclosure letter or in REMEC's
filings with the SEC, there is no pending or, to the best of REMEC's knowledge,
threatened lawsuit, administrative proceeding, arbitration, labor dispute or
governmental investigation to which REMEC is a party or by which any material
portion of its assets taken as a whole may be bound, and which, if adversely
determined, would have a material adverse effect on REMEC. There are no
outstanding orders of any court or Governmental Entity against REMEC.
5.12 BROKERS AND FINDERS.
Neither Buyer nor REMEC has retained any broker or finder in
connection with the transactions contemplated by this Agreement.
5.13 BUSINESS PRACTICES.
Neither REMEC nor any of its Subsidiaries has made, offered or
agreed to offer anything of value to any government official, political party or
candidate for government office, and neither REMEC nor any of its Subsidiaries
has taken any action which would cause it to be in violation of the Foreign
Corrupt Practices Act of 1977.
5.14 FORM S-3 ELIGIBILITY.
REMEC meets the registrant requirements set forth under
General Instruction IA (Eligibility Requirements for Use of Form S-3) of Form
S-3 under the Securities Act.
5.15 FULL DISCLOSURE.
All reports, schedules and statements (including all exhibits
and schedules thereto and all documents incorporated by reference therein)
required to be filed by REMEC within the year prior to the date of this
Agreement under the Exchange Act, copies of which have been furnished to Dr.
Miller, have been duly filed, were in substantial compliance with the
requirements of their respective forms, and were complete and correct in all
material respects as of the dates at which the information was furnished. As of
the date of filing, no such report contained any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Since August 1, 1997, except as contemplated by this
Agreement, REMEC has conducted its business in the ordinary course and there has
not been any material adverse change in the business, financial condition or
results or operations or cash flows of REMEC.
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ARTICLE VI
COVENANTS PRIOR TO CLOSING
6.1 ACCESS.
Throughout the period between the date of this Agreement and
the Closing, Dr. Miller and Miller Holdco shall cause Company to give REMEC, and
REMEC shall provide to Dr. Miller and Miller Holdco, and each of their
respective authorized officers, employees, attorneys, and independent public
accountants and other representatives reasonable access to information and
documents relating to this Agreement and the transactions contemplated by this
Agreement, and each such party shall provide the other party with such
financial, technical and operating data and other information pertaining to the
business of Company or REMEC, as applicable, as may be reasonably requested.
RoyNat consents to the granting of access by Dr. Miller and Miller Holdco as
provided in this Section 6.1. No investigation by any party or its
representatives made before or after the date of this Agreement shall affect the
representations or warranties contained in this Agreement.
6.2 CONDUCT OF BUSINESS PRIOR TO CLOSING.
(a) Except as set forth on Schedule 6.2, Dr. Miller and
Miller Holdco agree that, from the date of this Agreement up to the Closing
Date, except as otherwise permitted, required or contemplated by this Agreement
or expressly permitted by REMEC in writing, Dr. Miller and Miller Holdco shall
cause the business of Company to 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 and except as so permitted, required or
contemplated, Dr. Miller and Miller Holdco shall cause Company not to:
(i) enter into any transaction other than in the ordinary
course of business consistent with past practice; enter into any
Contract requiring payment by any party thereto of more than US
$100,000 in the aggregate or with a duration longer than one year; make
any capital expenditure in an amount greater than US $50,000; take any
action that materially and adversely affects the ability of Company to
operate its Business as a whole in a manner consistent with past
practice; or take any action that materially and adversely affects in
the financial position, assets, liabilities, results of operations or
Business of Company;
(ii) declare, pay or set aside any dividend or other
distribution to or for the holder of shares in the capital of Company;
(iii) take any action that results in any Action or
governmental investigation which may have a material adverse effect on
the Business of Company.
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(iv) increase or decrease the rates of compensation payable
or to become payable by Company to any director, officer, employee,
agent or consultant, or any bonus, percentage compensation, service
award or other benefit, granted, made or accrued to or to the credit
of any such person, or any welfare, pension, severance, retirement or
similar payment or arrangement made or agreed to by Company other than
salary adjustments for non-officer employees in accordance with past
practice;
(v) amend, modify, rescind, terminate or waive any rights
under any material Contract;
(vi) discharge or satisfy any lien or Encumbrance, or pay or
incur any obligation or liability (absolute or contingent) other than
current liabilities shown on the 1997 Balance Sheet and current
liabilities incurred since the date of the 1997 Balance Sheet in the
ordinary course of business;
(vii) incur any indebtedness for borrowed money;
(viii) sell, alienate or dispose of any of Company's assets,
other than in the ordinary course of business and in a manner
consistent with past practice;
(ix) sell, purchase or redeem any of the shares in the
capital of Company or other Equity Securities.
(x) mortgage, pledge, impose any security interest, claim,
Encumbrance or other restriction on any of the assets, tangible or
intangible, of Company;
(xi) merge with or into or consolidate with any other
Person;
(xii) amend its constating documents;
(xiii) make any change in its authorized or outstanding share
capital or otherwise in its capital structure; or
(xiv) authorize, agree or commit to any of the foregoing.
Without limiting the generality of the foregoing, Dr. Miller
and Miller Holdco shall cause Company from the date hereof up to the Closing
Date to comply with all Laws, duly and punctually file all reports and returns
required to be filed by any Laws and pay or provide for the payment of all
Taxes, perform duly and punctually all of its contractual obligations in
accordance with the terms thereof, continue to pay accounts payable and to
collect accounts receivable in the ordinary course of business in accordance
with past practice, to maintain and preserve customer relations and to maintain
insurance. Further, Dr. Miller and Miller Holdco shall prevent Company from
changing or permitting to be
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changed in any material respect the accounting or valuation practices applicable
to Company's assets or Business.
(b) Except for the transaction with Q-Bit Corporation
described in REMEC's disclosure letter, REMEC shall not enter into any agreement
relating to the sale of assets to or from, merger with or into, or consolidation
with any other Person valued at more than US $35 million without informing Dr.
Miller prior to entering into such a transaction.
6.3 NOTICE OF EVENTS.
Throughout the period between the date of this Agreement up to
the Closing Date, Sellers shall cause Company to promptly advise REMEC in
writing, and REMEC shall promptly advise Sellers in writing, of any and all
material events and developments concerning Company's or REMEC's financial
position, assets, liabilities, results of operations or business or any of the
items or matters covered by each party's representations and warranties
contained in this Agreement of which they have or acquire knowledge. Sellers
shall give prompt notice to REMEC, and REMEC shall give prompt notice to
Sellers, of (i) the occurrence, or failure to occur, of any event that would be
likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date of this
Agreement to Closing and (ii) any failure of REMEC, Buyer or Sellers, as the
case may be, to comply with or satisfy, in any material respect, any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement. No such notification shall affect the representations or warranties
of the parties or the conditions to their respective obligations hereunder.
6.4 NO OTHER NEGOTIATIONS.
Until the earlier of (i) the Closing or (ii) October 31, 1997:
(A) Sellers shall not, and shall cause Company not to,
directly or indirectly, through any of Company's officers, directors, agents or
representatives (including, without limitation, investment bankers, attorneys,
accountants and consultants):
(i) solicit, initiate or further the submission
of proposals or offers from, or enter into any agreement with, any
firm, corporation, partnership, association, group (as defined in
Section 13(d)(3) of the Exchange Act) or other Person or entity,
individually or collectively (including, without limitation, any
managers or other employees of Company or any Affiliates) (a "Third
Party"), relating to any acquisition or purchase of the stock or any of
the assets of, or any equity interest in, Company or any merger,
consolidation or business combination with Company;
(ii) participate in any discussions or negotiations
regarding, or furnish to any Third Party any confidential information
with respect to Company in
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connection with any acquisition or purchase of all or any substantial
portion of the assets of, or any equity interest in, Company or any
merger, consolidation or business combination with Company; or
(iii) otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage, any effort or
attempt by any Third Party to undertake or seek to undertake any
acquisition or purchase of all or any portion of the assets of, or any
equity interest in, Company, or any merger, consolidation or business
combination with Company.
(B) In the event Sellers or Company receives any offer or
indication of interest from any Third Party relating to any acquisition or
purchase of all or any portion of the stock or the assets of, or any equity
interest in, Company or any merger, consolidation or business combination with
Company, Sellers shall promptly notify REMEC in writing, and shall in any such
notice, set forth in reasonable detail the identity of the Third Party, the
terms and conditions of any proposal and any other information requested of it
by the Third Party or in connection therewith.
(C) Sellers shall cause Company to immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
Third Party conducted prior to the date of this Agreement relating to matters
referred to in paragraphs (A) and (B) above.
6.5 COMPANY AUDITED FINANCIALS.
Dr. Miller and Miller Holdco shall use their best efforts to
cause to be delivered to REMEC on or before October 1, 1997 copies of the
Audited Financials of Company (audited balance sheet of Company dated June 30,
1997 and the related statements of income, shareholders' equity and cash flows
for the year then ended, including the notes thereto, accompanied by a report of
the Auditors of Company substantially in the form attached as Exhibit B.
6.6 COOPERATION.
Sellers shall cooperate, and Dr. Miller and Miller Holdco
shall cause Company to cooperate, with REMEC in preparing and making all
filings, notices or submissions to Governmental Entities required in connection
with the transactions contemplated by this Agreement, including any filings,
notices or submissions required under the Investment Canada Act, the Competition
Act (Canada), any applicable securities laws and the HSR Act. Sellers shall, and
Dr. Miller and Miller Holdco shall cause Company to, at any time before or after
the Closing, execute, acknowledge and deliver any further assignments,
assurances, documents and instruments of transfer reasonably requested by REMEC
and Buyer and shall take any other action consistent with the terms of this
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Agreement that may reasonably be requested by REMEC and Buyer for the purpose of
consummating the purchase and sale of the Purchased Shares.
6.7 EMPLOYEES.
Dr. Miller and Miller Holdco shall, and shall cause Company
to, use their respective best efforts prior to Closing to assist REMEC and Buyer
in retaining the continued services of Company's key employees. Dr. Miller and
Miller Holdco shall use their respective best efforts to cause employment
agreements in a form acceptable to REMEC to be entered into between Company and
each of the employees listed in Schedule 6.7. The failure of Dr. Miller and
Miller Holdco to obtain such continued services or agreements shall not permit
REMEC or Buyer to terminate their obligations under this Agreement or relieve
them of their obligations on Closing.
6.8 NASDAQ LISTING.
REMEC shall file prior to Closing with the Nasdaq Stock Market
a Notification Form for Listing of Additional Shares on the Nasdaq Stock Market
of the shares of REMEC Common Stock to be received by Dr. Miller and Miller
Holdco upon the exchange of Dividend Access Shares pursuant to and in accordance
with this Agreement, the Dividend Access Share Provisions and the Support
Agreement.
6.9 PRESS RELEASES.
No party hereto, nor any of their Affiliates, shall issue any
press release, make any public announcement or otherwise release any information
publicly regarding the purchase and sale of the Purchased Shares, without the
consent of the other parties which shall not be unreasonably withheld or
delayed.
6.10 BEST EFFORTS TO CLOSE.
REMEC, Buyer, each Seller and Miller shall use their
respective best efforts prior to Closing to fulfill the conditions set forth in
Articles IX and X of this Agreement over which it or he has control or influence
and to complete the transactions contemplated by this Agreement.
6.11 COVENANTS APPLICABLE TO THE AMALGAMATED COMPANY.
All references made in this Article VI to the Company shall,
on the Amalgamation Date, also be deemed to be made to the Amalgamated Company.
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ARTICLE VII
ADDITIONAL CONTINUING COVENANTS
7.1 CONFIDENTIAL INFORMATION.
Except as otherwise required by applicable Law, each party to
this Agreement shall not disclose (other than to its attorneys, accountants,
advisors, analysts or prospective investors, who are themselves required to keep
such information confidential) any Confidential Information concerning any other
party and the consideration to be received by Sellers under this Agreement.
Except as otherwise required by applicable Law, REMEC shall not file a copy of
this Agreement with the SEC.
7.2 TAX COOPERATION.
After Closing, Sellers shall cooperate fully with Buyer,
Amalgamated Company and REMEC in the preparation of all Tax Returns and shall
provide, or cause to be provided at Sellers' sole cost and expense, to Buyer,
Amalgamated Company and REMEC any records and other information in Sellers'
possession or control requested by such parties in connection therewith. Dr.
Miller and Miller Holdco shall use best efforts to provide access to, and the
cooperation of, the Company Auditors. Sellers shall cooperate fully with Buyer,
Amalgamated Company and REMEC in connection with any Tax investigation, audit or
other proceeding. Any information obtained pursuant to this Section 7.3 or
pursuant to any other Section hereof providing for the sharing of information or
the review of any Tax return or other Schedule relating to Taxes shall be
subject to Section 7.2.
7.3 PRE-CLOSING REORGANIZATION.
Prior to Closing, Sellers shall cause the following
reorganization to be effected in the sequence set forth below in contemplation
of and as an integral part of the purchase and sale of the Purchased Shares
under this Agreement.
(a) Company will amend its constating documents to authorize
the issuance of an unlimited number of Class C common shares in the capital of
Company.
(b) RoyNat will exchange the 8 Class A common shares it owns
in Company for 8 Class C common shares of Company.
(c) By resolution of its Board of Directors, Company will
increase its paid-up capital as to its capital stock owned by RoyNat (its
outstanding Class B and Class C common shares).
(d) By resolution of its Board of Directors, Millowave will
increase its paid-up capital as to its capital stock owned by Miller Holdco (its
outstanding Class B shares).
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(e) Millowave and Company each will continue as corporations
incorporated under the laws of Nova Scotia.
(f) After all conditions to Closing other than the conditions
set forth in Sections 9.3, 9.19, 10.3 and 10.15 have been satisfied or waived,
(i) REMEC and Buyer and (ii) the Miller Family, Miller Holdco and RoyNat shall
deliver pre-Closing certificates to each other certifying that, as of such date
(which shall be at least one day prior to the Closing Date), the representations
and warranties of each such party are true and correct in all respects as of
that date as if made on that date and that each such party has performed or
complied with each of the covenants contained in this Agreement to be performed
or complied with prior to Closing. After delivery of these certificates, at
least one day prior to the Closing Date, Millowave and Company will amalgamate
in accordance with applicable Law and the capitalization of Amalgamated Company
shall be as contemplated under Section 3.2.
7.4 POST-CLOSING REORGANIZATION COOPERATION.
As soon as possible after Closing (but at least one day after
the Closing Date), Buyer shall be re-constituted as a corporation with limited
liability. At least one day after Buyer is re-constituted as a corporation,
Buyer may effect an amalgamation involving Buyer and Amalgamated Company or take
such other action relating to the reorganization of Amalgamated Company as Buyer
or REMEC deems necessary or desirable. Sellers agree to cooperate fully with
Buyer, Amalgamated Company and REMEC in connection with any such amalgamation or
other reorganization of Amalgamated Company so long as Sellers reasonably
believe that any such amalgamation or other reorganization does not produce any
material adverse financial effect on Sellers.
7.5 INTERCOMPANY DEBT.
At and after Closing, REMEC and Buyer shall not permit
Amalgamated Company or Buyer to incur debt owing to REMEC or, in the case of
Amalgamated Company, Buyer in such amount as to cause the Government of Canada,
due to the amount of total debt incurred by Amalgamated Company or Buyer, to
discontinue or diminish funding under the Defence Industry Productivity Program
under which Amalgamated Company is a participant and any successor program
thereto.
7.6 RELEASE FROM PERSONAL GUARANTEES.
As soon as practicable after Closing, REMEC and Buyer shall use their
respective best efforts to cause the release of Dr. Miller and PSI Technologies
Inc. from any guarantees and postponements given by Dr. Miller and PSI
Technologies to secure the debt of Company and OHM. In the event REMEC and Buyer
are unable to secure such releases, REMEC and Buyer shall indemnify and hold
harmless Dr. Miller and PSI Technologies Inc. from liability arising out of such
guarantees and postponements that secure the debt of Company and OHM.
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ARTICLE VIII
REGISTRATION RIGHTS
8.1 REGISTRATION ON FORM S-3.
REMEC shall prepare and file with the SEC on or before the
date which is 60 days after the Closing Date, a Registration Statement on Form
S-3 (the "Registration Statement") registering under the Securities Act the
REMEC Common Stock issuable in exchange for Dividend Access Shares (the
"Registrable Securities") . REMEC shall use its reasonable efforts to have the
Registration Statement declared effective promptly and to maintain the
effectiveness of the Registration Statement until all of the Dividend Access
Shares have been exchanged for shares of REMEC Common Stock registered under the
Securities Act pursuant to the Registration Statement as contemplated under this
Agreement, the Dividend Access Share Provisions and the Support Agreement. It
shall be a condition precedent of REMEC's obligations under this Article VIII
that Dr. Miller and Miller Holdco furnish to REMEC such information regarding
Dr. Miller and Miller Holdco as REMEC may reasonably request. All expenses
relating to preparation and filing of the Registration Statement (including,
without limitation, REMEC's legal fees, accounting fees, printing costs and Blue
Sky and SEC filing fees), other than fees of legal counsel for Miller Holdco,
shall be borne by REMEC.
8.2 RIGHT OF DEFERRAL.
Notwithstanding anything in this Article VIII to the contrary,
REMEC may defer for a period not to exceed 45 days the filing of the
Registration Statement if REMEC believes in good faith that filing such
registration statement would be detrimental to REMEC and its shareholders.
8.3 REMEC TRADING POLICIES.
In connection with any subsequent sale by Miller Holdco or the
Miller Family to third parties of shares of REMEC Common Stock issued in
exchange for Dividend Access Shares, Miller Holdco and the Miller Family shall
comply with the terms of REMEC's policies regarding trading in its capital stock
in effect from time to time for so long as Miller Holdco or any member of the
Miller Family would be deemed an affiliate of REMEC for purposes of Rule 144
under the Securities Act.
8.4 NO LEGEND ON SHARES.
Certificates evidencing the shares of REMEC Common Stock
issued to Miller Holdco or the Miller Family pursuant to the Registration
Statement upon exchange of the
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Dividend Access Shares shall not contain any legend restricting the
transferability of such shares.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF REMEC AND BUYER
The obligations of REMEC and Buyer to consummate the purchase
and sale of the Purchased Shares 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 REMEC and Buyer.
9.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING.
The representations and warranties of Sellers 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, except that if a representation is already
limited to matters characterized as "material," it shall be correct in all
respects.
9.2 PERFORMANCE OF COVENANTS.
All of the covenants required to be performed by Sellers or
any of them at or before the Closing pursuant to the terms of this Agreement
shall have been duly performed.
9.3 CERTIFICATE.
REMEC and Buyer shall have received a certificate signed by
Sellers to the effect that each of the representations and warranties of Sellers
in this Agreement is true and correct in all respects as of the Closing Date as
if made on the Closing Date and that Sellers have complied with each of their
respective covenants in this Agreement.
9.4 RESIGNATION OF DIRECTORS.
Buyer shall have received a copy of a duly executed
resignation letter to Amalgamated Company from each director of Amalgamated
Company other than Dr. Miller effective as of the Closing.
9.5 MATERIAL CHANGES.
Between the date of this Agreement and the Closing there shall
not have occurred any event or transaction of the nature described in Section
3.12 of this Agreement.
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9.6 CONSENTS.
REMEC and Buyer shall have received, in writing and in form
and substance reasonably acceptable to REMEC and 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 Schedule
3.6 and Schedule 3.29 hereof.
9.7 GOOD STANDING CERTIFICATES.
Dr. Miller shall have caused to be furnished to REMEC at
Closing a certificate of status of Amalgamated Company from the appropriate
Governmental Entity in Nova Scotia or other evidence of status satisfactory to
REMEC, and a certificate of payment from the Ministry of Finance (Ontario)
pursuant to Section 6 of the Retail Sales Tax Act (Ontario).
9.8 NO ACTION TO PREVENT COMPLETION.
REMEC shall not have determined, in the reasonable exercise of
its discretion, that the transactions contemplated by this Agreement have become
inadvisable or impractical by reason of the institution or threat of
institution, by any Governmental Entity or any other Person or entity, of
litigation or other proceedings with respect to or affecting the transactions
contemplated by this Agreement.
9.9 GOVERNMENTAL FILINGS.
If the purchase and sale of the Purchased Shares is subject to
the notification requirements of the Competition Act (Canada) or the HSR Act,
all waiting periods under such acts relating to the transactions contemplated
under the Agreement shall have expired or terminated.
9.10 MILLER EMPLOYMENT AGREEMENTS.
Miller shall have entered into the Miller Employment Agreement
with Company or Amalgamated Company and REMEC substantially in the form attached
as Exhibit E and the Miller Employment Agreement with REMEC substantially in the
form attached as Exhibit F.
9.11 OPINION OF COUNSEL.
REMEC and Buyer shall have received the opinion of Borden &
Elliot, counsel to Sellers, in form and substance to the reasonable satisfaction
of REMEC and Buyer.
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9.12 COMPANY SHAREHOLDERS' EQUITY.
The shareholders' equity of Company, as reported in the 1997
Audited Financials delivered to REMEC in accordance with Section 6.5, shall not
be less than CDN $1,000,000.
9.13 BONUS TO AMALGAMATED COMPANY EMPLOYEES.
At Closing, Buyer shall cause Amalgamated Company to pay
bonuses to certain employees of Amalgamated Company designated by Miller in an
aggregate amount not to exceed US $70,000.
9.14 OHM AGREEMENT.
On or before Closing, Company or Amalgamated Company, as the
case may be, and Dr. Miller shall have entered into an agreement reasonably
satisfactory to Dr. Miller and REMEC providing for (i) the purchase by Company
or Amalgamated Company, as the case may be, from Dr. Miller of all the
outstanding shares in capital of OHM Technologies Inc. ("OHM") for nominal
consideration, and (ii) release of Dr. Miller and PSI Technologies Inc. from any
guarantees and postponements given by Dr. Miller and PSI Technologies Inc.
to secure the debt of OHM.
9.15 NO MATERIAL ADVERSE CHANGES.
There shall have been no material adverse change in Company's
and Amalgamated Company's financial condition, business, assets or liabilities
(actual or contingent) from the date of this Agreement through the Closing and
REMEC and Buyer shall have received a certificate signed by Dr. Miller to that
effect.
9.16 DUE DILIGENCE.
REMEC shall have completed to its reasonable satisfaction, on
or before October 8, 1997, legal due diligence relating to Company, Amalgamated
Company, the pre- closing reorganization involving the Miller Family, Miller
Holdco and Millowave and the contemplated post-closing amalgamation of
Amalgamated Company and Buyer.
9.17 DEFENCE INDUSTRY PRODUCTIVITY PROGRAM COOPERATION
AGREEMENT.
On or before Closing, REMEC, Buyer and Company or Amalgamated
Company, as the case may be, shall have entered into a cooperation agreement
reasonably satisfactory to REMEC and Sellers relating to the Defence Industry
Productivity Program sponsored by the Government of Canada, which shall provide
that, among other things, (i) RoyNat will not have any liability with respect to
Company's or Amalgamated Company's participation in the program or any contracts
relating thereto, (ii) Dr. Miller and Miller
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Holdco, jointly and severally, will be responsible for 50% of any losses or
damages incurred by Company or Amalgamated Company on account of the failure to
obtain the assignment of contracts relating to the program from GHZ Technologies
Inc. to Company or Amalgamated Company, and (iii) Sellers will not be
responsible for any losses or damages to Company or Amalgamated Company under
any contracts (or any cancellation thereof) relating to the program on account
of the change of control of Company or Amalgamated Company occurring as a result
of Buyer's acquisition of the Purchased Shares.
9.18 INTERIM FINANCIALS.
The Interim Financials shall have been delivered to REMEC
prior to Closing.
9.19 AMALGAMATION OF MILLOWAVE AND NANOWAVE.
At least one day prior to the Closing Date, Millowave and
Nanowave shall have amalgamated in accordance with the laws of Nova Scotia.
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF SELLERS
The obligations of Sellers 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 Sellers.
10.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING.
The representations and warranties of REMEC and Buyer
contained in this Agreement shall be deemed to have been made again at and as of
the Closing with respect to the state of affairs then existing, and shall then
be true in all material respects except that if a representation is already
limited to matters characterized as "material" it shall be correct in all
respects.
10.2 PERFORMANCE OF COVENANTS.
All of the covenants required to be performed by REMEC and
Buyer at or before the Closing pursuant to the terms of this Agreement shall
have been duly performed.
10.3 CERTIFICATE.
At the Closing, Sellers shall have received a certificate
signed on behalf of REMEC and Buyer to the effect that each of the
representatives and warranties of REMEC and Buyer in this Agreement is true and
correct in all respects as of the Closing Date as if made on the Closing Date
and that REMEC and Buyer have complied with each of their respective covenants
in this Agreement.
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10.4 CONSENTS.
Buyer shall have received all necessary consents, approvals
and waivers with respect to the consummation of the transactions contemplated by
this Agreement except for those indicated in REMEC's disclosure letter as not
being obtained before Closing.
10.5 GOOD STANDING CERTIFICATE.
REMEC shall have furnished Sellers with a good standing
certificate, dated as near to the date of the Closing as practical, from the
Secretary of State of California and the California Franchise Tax Board. Buyer
shall have furnished Sellers with a good standing certificate, dated as near to
the Closing Date as practical, from the appropriate Governmental Entity in Nova
Scotia.
10.6 GOVERNMENTAL FILINGS.
If the purchase and sale of the Purchased Shares is subject to
the notification requirements of the Competition Act (Canada) or the HSR Act,
all waiting periods under such acts relating to the transactions contemplated
under the Agreement shall have expired or terminated.
10.7 SUPPORT AGREEMENT.
Buyer and REMEC shall have entered into the Support Agreement
substantially in the form attached as Exhibit C.
10.8 MILLER EMPLOYMENT AGREEMENTS.
Company or Amalgamated Company and REMEC shall have entered
into the Miller Employment Agreement with Dr. Miller substantially in the form
of Exhibit E. REMEC shall have entered into the Miller Employment Agreement with
Dr. Miller substantially in the form of Exhibit F.
10.9 OPINION OF COUNSEL.
Sellers shall have received an opinion of Stikeman, Elliott,
counsel to Buyer, in form and substance to the reasonable satisfaction of
Sellers. Sellers shall have received an opinion of Heller Ehrman White &
McAuliffe, counsel to REMEC, in form and substance to the reasonable
satisfaction of Sellers.
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10.10 PAYMENT TO ROYNAT.
At Closing, Buyer shall cause Amalgamated Company to pay CDN
$2,000,000 of outstanding debt owed to RoyNat at Closing pursuant to the terms
of the Equity Financing Debenture dated March 26, 1997, upon release by RoyNat
of any other liability owing by Company or Amalgamated Company to RoyNat under
that debenture.
10.11 OHM AGREEMENT.
On or before Closing, Company or Amalgamated Company, as the
case may be, and Dr. Miller shall have entered into an agreement reasonably
satisfactory to Dr. Miller and REMEC providing for (i) the purchase by Company
or Amalgamated Company, as the case may be, from Dr. Miller of all the
outstanding shares in capital of OHM for nominal consideration, and (ii) the
release of Dr. Miller and PSI Technologies Inc. from any guarantees and
postponements given by Dr. Miller and PSI Technologies Inc. to secure the debt
of OHM.
10.12 NO MATERIAL ADVERSE CHANGE.
Sellers shall have been no material adverse change in REMEC's
financial condition, business, assets or liabilities (actual or contingent) from
the date of this Agreement through the Closing. Buyer shall have engaged in no
business activity prior to the Closing. Sellers shall have received a
certificate signed by officers of REMEC and Buyer as to the matters referenced
in this Section 10.11.
10.13 DUE DILIGENCE.
Dr. Miller and Miller Holdco shall have completed to each of
their reasonable satisfaction, on or before October 8, 1997, legal due diligence
relating to REMEC and the post-closing reorganization contemplated in Section
7.4.
10.14 DEFENCE INDUSTRY PRODUCTIVITY PROGRAM COOPERATION
AGREEMENT.
On or before Closing, REMEC, Buyer and Company or Amalgamated
Company, as the case may be, shall have entered into a cooperation agreement
reasonably satisfactory to REMEC and Sellers relating to the Defence Industry
Productivity Program sponsored by the Government of Canada, which shall provide
that, among other things, (i) RoyNat will not have any liability with respect to
Company's or Amalgamated Company's participation in the program or any contracts
relating thereto, (ii) Dr. Miller and Miller Holdco, jointly and severally, will
be responsible for 50% of any losses or damages incurred by Company or
Amalgamated Company on account of the failure to obtain the assignment of
contracts relating to the program from GHZ Technologies Inc. to Company or
Amalgamated Company, and (iii) Sellers will not be responsible for any losses or
damages to Company or Amalgamated Company under any contracts (or any
cancellation thereof) relating to the
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program on account of the change of control of Company or Amalgamated Company
occurring as a result of Buyer's acquisition of the Purchased Shares.
10.15 AMALGAMATION OF MILLOWAVE AND NANOWAVE.
At least one day prior to the Closing Date, Millowave and
Nanowave shall have amalgamated in accordance with the laws of Nova Scotia.
10.16 CLOSING PAYMENTS.
At Closing (i) Amalgamated Company shall pay to PSI
Technologies Inc. CDN $27,950 in payment of an existing accounts payable amount
owing to PSI Technologies Inc. recorded on the books of Company on or before
June 30, 1997, (ii) Amalgamated Company shall pay to Dr. Miller US $20,000 in
payment in full of deferred salary of Dr. Miller of US $55,000 recorded on the
books of Company on or before June 30, 1997 and (iii) Amalgamated Company shall
pay to Dr. Miller CDN $10,000 in reimbursement of a financing fee paid on behalf
of Company by Dr. Miller to RoyNat recorded on the books of Company on or before
June 30, 1997; provided, however, that the obligations of Amalgamated Company to
make each of the payments set forth in clauses (i), (ii) and (iii) above are
conditioned on presentation to REMEC of documentation to the reasonable
satisfaction of REMEC that each such cost or expense was a bona fide cost or
expense of Company incurred in the ordinary course of business consistent with
past practices. If such documentation relating to any of the payments set forth
in clauses (i), (ii) or (iii) above is not presented to REMEC to its reasonable
satisfaction on or before Closing, the obligation of Amalgamated Company to make
any such payment shall cease to be a condition to the obligations of Sellers to
complete the transactions contemplated under this Agreement.
ARTICLE XI
TERMINATION OF OBLIGATIONS; SURVIVAL
11.1 TERMINATION OF AGREEMENT.
Anything herein to the contrary notwithstanding, this
Agreement and the transactions contemplated by this Agreement shall terminate if
the Closing does not occur on or before the close of business on October 22,
1997 unless extended by mutual consent in writing of Sellers, Buyer and REMEC
and may otherwise be terminated at any time before the Closing as follows and in
no other manner:
(a) Mutual Consent. By mutual consent in writing of Sellers,
Buyer and REMEC.
(b) Conditions to REMEC's and Buyer's Performance Not Met. By
Buyer or REMEC with written notice to Sellers if any event occurs or
condition exists which
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would render impossible the satisfaction of one or more conditions to
the obligations of Buyer or REMEC to consummate the transactions
contemplated by this Agreement as set forth in Article IX.
(c) Conditions to Sellers' Performance Not Met. By any Seller
with written notice to Buyer, REMEC and the other Sellers if any event
occurs or condition exists which would render impossible the
satisfaction of one or more conditions to the obligation of Sellers to
consummate the transactions contemplated by this Agreement as set forth
in Article X.
(d) Inaccurate Information. By Buyer or REMEC if any material
information (whether or not in writing) delivered by or on behalf of
Sellers, Company or Amalgamated Company to REMEC is inaccurate or
incomplete in any material respect. By any Seller if any material
information (whether or not in writing) delivered by or on behalf of
Buyer or REMEC to any Seller is inaccurate or incomplete in any
material respect.
11.2 EFFECT OF TERMINATION.
In the event that this Agreement shall be terminated pursuant
to Section 11.1, all further obligations of the parties under this Agreement
shall terminate; provided that the obligations of the parties contained in
Section 7.2 [Confidential Information] and Section 13.1 [Expenses] shall survive
any such termination. A termination under Section 11.1 shall not relieve any
party of any liability for a breach of, or for any misrepresentation under this
Agreement, or be deemed to constitute a waiver of any available remedy
(including specific performance if available) for any such breach or
misrepresentation; provided, however, that monetary damages for all such
liability shall be limited to out-of-pocket costs and expenses, including
attorneys' fees incurred to enforce a party's rights under this Agreement, up to
an aggregate amount of $250,000 to be paid (i) by REMEC or Buyer for costs and
expenses of The Miller Family, Miller Holdco and RoyNat and (ii) by The Miller
Family, Miller Holdco or RoyNat for costs and expenses of REMEC and Buyer;
provided, further, that the limitation on monetary damages set forth above shall
not affect the rights of any party to obtain any equitable remedy, including
specific performance of another party's obligations under this Agreement.
11.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained in or made
pursuant to this Agreement shall expire on the Closing Date, except that the
representations and warranties contained in Section 3.4 [Title to Shares],
Section 3.36 [Activities of Millowave], Section 4.4 [Title to Shares], Section
5.1 [Activities of Buyer] shall survive the Closing and remain in full force and
effect indefinitely.
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ARTICLE XII
INDEMNIFICATION
12.1 OBLIGATIONS OF SELLERS.
Each of Dr. Miller, Mrs. Miller, the Miller Trust and Miller
Holdco, jointly and severally, and RoyNat, severally but not jointly, agrees to
indemnify and hold harmless Buyer, Company and REMEC, and their respective
directors, officers, employees, affiliates, agents and assigns from and against
any and all Losses of Buyer, Company, Amalgamated Company or REMEC, directly or
indirectly, as a result of, or based upon or arising from any inaccuracy in or
breach or nonperformance of any of the surviving representations and warranties
referenced in Section 11.3 and the covenants or agreements made by such Seller
in or pursuant to Article VII of this Agreement; provided, however, that the
joint and several obligations of Miller Holdco, Dr. Miller, Mrs. Miller and the
Miller Trust to indemnify all Indemnified Parties pursuant to this Section 12.1
shall be limited to, and shall not exceed, US $7,560,000 and RoyNat's several
obligations to indemnify all Indemnified Parties pursuant to this Section 12.1
shall be limited to, and shall not exceed, US $1,440,000, respectively.
12.2 OBLIGATIONS OF BUYER AND REMEC.
Each of Buyer and REMEC agree, jointly and severally, to
indemnify and hold harmless any Seller from and against any Losses of such
Seller, directly or indirectly, as a result of, or based upon or arising from,
any inaccuracy in or breach or nonperformance of any of the surviving
representations and warranties referenced in Section 11.3 and the covenants or
agreements made by Buyer or REMEC in or pursuant to Article VII of this
Agreement; provided, however, that the joint obligations of Buyer and REMEC to
indemnify all Indemnified Parties pursuant to this Section 12.2 shall be limited
to, and shall not exceed, US $9,000,000.
12.3 PROCEDURE.
(a) Notice. Any party seeking indemnification with respect to
any Loss shall give notice to the party required to provide indemnity hereunder
on or before the date specified in Section 12.4.
(b) If any claim, demand or liability is asserted by any third
party against any Indemnified Party, the Indemnifying Party shall upon the
written request of the Indemnified Party, defend any actions or proceedings
brought against the Indemnified Party in respect of matters embraced by the
indemnity, but the Indemnified Party shall have the right to conduct and control
the defense; provided, however, that any compromise or settlement of any
Indemnifiable Claim must be approved by the Indemnifying Party, such approval
not to be unreasonably withheld. If, after a request to defend any action or
proceeding, the Indemnifying Party neglects to defend the Indemnified Party, a
recovery
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against the latter suffered by it in good faith, is conclusive in its favor
against the Indemnifying Party, provided, however, that, if the Indemnifying
Party has not received reasonable notice of the Action or proceeding against the
Indemnified Party, or is not allowed to control its defense, judgment against
the Indemnified Party is only presumptive evidence against the Indemnifying
Party.
(c) The provisions of this Article are subject to the rights
of any Indemnified Party's insurer which may be defending any such claim.
Nothing in this Section 12.3 shall be deemed to obligate any person to maintain
any insurance or to pursue any claim against any insurer or third party.
12.4 SURVIVAL OF INDEMNIFICATION.
The obligation of indemnification set out in this Article XII
shall survive the Closing and shall terminate on the six year anniversary of the
Closing Date. Any matter as to which a claim has been asserted by notice to the
other party that is pending or unresolved at the end of such six-year
anniversary date shall continue to be covered by this Article XII
notwithstanding any applicable statute of limitations (which the parties hereby
waive) until such matter is finally terminated or otherwise resolved by the
parties under this Agreement or by a court of competent jurisdiction and any
amounts payable hereunder are finally determined and paid.
12.5 NOTICE OF BREACH.
Sellers agree to notify Buyer and REMEC, and Buyer and REMEC
agree to notify Sellers, of any liabilities, claims or inaccurate surviving
representations or warranties or breaches by such party which may give rise to a
claim for indemnification by the other party under this Article XII upon
discovery or receipt of notice thereof, whether before or after Closing.
12.6 NON-EXCLUSIVE REMEDY.
This Article XII shall not be deemed to preclude or otherwise
limit in any way the exercise of any other rights or pursuit of other remedies
for the breach of this Agreement or with respect to any inaccurate surviving
representation or warranty.
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ARTICLE XIII
MISCELLANEOUS
13.1 EXPENSES.
Each party to this Agreement shall pay its 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.
13.2 AMENDMENT.
This Agreement shall not be amended except by a writing duly
executed by Sellers, REMEC and Buyer.
13.3 ENTIRE AGREEMENT.
This Agreement, including the Exhibits, Schedules and other
documents delivered pursuant to this Agreement, contain all of the terms and
conditions agreed upon by the parties relating to the subject matter of this
Agreement and supersede all prior and contemporaneous agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written,
respecting the subject matter.
13.4 GOVERNING LAW.
This Agreement and the legal relations between the parties
shall be governed by and construed in accordance with the laws of the Province
of Ontario and the laws of Canada applicable therein and without regard to
conflicts of law doctrines of any other jurisdiction. In the event of any action
at law or equity to enforce any of the provisions or rights under this
Agreement, the parties agree to attorn and submit to the non-exclusive
jurisdiction of the Ontario Court (General Division).
13.5 ATTORNEYS FEES.
In the event of any Action for the breach of this Agreement or
misrepresentation by any party, the prevailing party shall be entitled to
reasonable attorney's fees, costs and expenses incurred such Action.
13.6 SEVERABILITY.
If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement shall remain in full force and effect.
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13.7 HEADINGS.
The headings contained in this Agreement are intended solely
for convenience and shall not affect the rights of the parties to this
Agreement.
13.8 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.
13.9 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 by hand delivery or by
facsimile to the persons identified below, two days after dispatch if sent by a
nationally-recognized overnight courier service or five days after mailing if
mailed by certified or registered mail postage prepaid return receipt requested
addressed as follows:
If to REMEC or Buyer:
Mr. Ronald E. Ragland
REMEC, Inc.
9404 Chesapeake Drive
San Diego, California 92123
U.S.A.
Facsimile: (619) 560-4512
Confirmation Number: (619) 560-1301
With a copy to:
Victor A. Hebert, Esq.
Heller Ehrman White & McAuliffe
601 South Figueroa Street
40th Floor
Los Angeles, California 90017-5758
U.S.A.
Facsimile: (213) 614-1868
Confirmation Number: (213) 689-0200
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and
John W. Leopold, Esq.
Stikeman, Elliott
1155 Rene-Levesque Boulevard West
40th Floor
Montreal, Quebec H3B 3V2
CANADA
Facsimile: (514) 397-3422
Confirmation Number: (514) 397-3000
If to Sellers:
Justin Miller, Ph.D.
Nanowave Technologies Inc.
425 Horner Avenue
Unit 1
Etobicoke, Ontario M8W 4W3
CANADA
Facsimile:
Confirmation Number:
RoyNat Inc.
Scotia Plaza
40 King Street West
Suite 2600
Toronto, Ontario M5H 1H1
CANADA
Facsimile: (416) 833-2783
Confirmation Number: (416) 833-2730
63
<PAGE> 71
With a copy to:
Alfred Page, Esq.
Borden & Elliot
Scotia Plaza
40 King Street West
Suite 4400
Toronto, Ontario M5H 3Y4
CANADA
Facsimile: (416) 367-6749
Confirmation Number: (416) 367-6000
and
Gary Shiff, Esq.
Blake, Cassels & Graydon
Commerce Court West, Box 25
Toronto, Ontario M5L 1A9
CANADA
Facsimile: (416) 863-2653
Confirmation Number: (416) 863-2400
Such persons and addresses may be changed, from time to time, by means of a
notice given in the manner provided in this Section.
13.10 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.
13.11 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.
13.12 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, but the Support Agreement shall not be so limited.
64
<PAGE> 72
13.13 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.
13.14 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.
65
<PAGE> 73
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
/s/ JUSTIN MILLER, PH.D. REMEC, INC.
- -----------------------------------------
Justin Miller, Ph.D.
/s/ MILDRED ELIZABETH LAYNE-MILLER By /s/ ERROL EKAIREB
- ----------------------------------------- ------------------------------
Mildred Elizabeth Layne-Miller Errol Ekaireb, President
MILLER FAMILY TRUST REMEC CANADA ULC
By /s/ JUSTIN MILLER By /s/ ERROL EKAIREB
-------------------------------------- ------------------------------
Justin Miller, Ph.D, Trustee Errol Ekaireb, President
By /s/ ALFRED L.J. PAGE
--------------------------------------
Alfred L.J. Page, Trustee
1256393 ONTARIO LIMITED
By /s/ JUSTIN MILLER
--------------------------------------
Justin Miller, Ph.D., President
ROYNAT INC.
By /s/ EARL LANDE
--------------------------------------
Earl Lande
Senior Vice President
66
<PAGE> 1
EXHIBIT 11.1
REMEC, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------------------
1995 1996 1997
------- ------- -------
(In Thousands Except Per Share Data)
<S> <C> <C> <C>
Net income per share:
Net income ........................ $ 3,287 $ 3,599 $ 4,972
------- ------- -------
Weighted average shares
outstanding:
Common stock ...................... 11,249 11,207 16,424
Effect of common stock
equivalents ..................... 99 99 245
Adjustments to reflect requirements
of the Securities and Exchange
Commission (Effect of SAB 83) ..... 66 66 --
Effect of assumed conversion of
preferred ............................ 1,617 1,617 --
------- ------- -------
shares from date of issuance
Shares used in per share calculation . 13,031 12,989 16,669
------- ------- -------
Net income per share ................. $ .25 $ .28 $ .30
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
<S> <C>
REMEC Wireless, Inc. California
Humphrey, Inc. California
Magnum Microwave Corporation California
Radian Technology, Inc. California
C&S Hybrid, Inc. California
Verified Technical Corporation California
Q-bit Corporation Florida
REMEC Canada Incorporated Nova Scotia, Canada
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements on
Form S-8 and Form S-3 of REMEC, Inc. of our report dated February 24, 1997,
except for the first three paragraphs of Note 2, as to which the dates are
October 24, 1997, June 27, 1997 and February 28, 1997, respectively, with
respect to the consolidated financial statements and schedule, as amended, of
REMEC, Inc. included in the Annual Report on Form 10-K/A of REMEC, Inc. for the
year ended January 31, 1997.
Our audits also included the financial statement schedule of REMEC, Inc. listed
in Item 14(a). This schedule is the responsibility of REMEC, Inc.'s management.
Our responsibility is to express an opinion based on our audits. In our opinion,
the financial statement schedule referred to above, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
San Diego, California
January 30, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the registration statements on Form S-8 and Form S-3 of REMEC, Inc.
of our report dated March 6, 1997, with respect to the financial statements of
Radian Technology, Inc. as of December 31, 1996, and for the three years then
ended, included in the consolidated financial statements of REMEC, Inc. in its
Annual Report on Form 10-K/A for the year ended January 31, 1997.
IRELAND SAN FILIPPO LLP
January 30, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF BRAY, BECK & KOETTER, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements on
Form S-8 and Form S-3 of REMEC, Inc. of our report dated February 28, 1997,
with respect to the financial statements of Q-bit Corporation as of December 31,
1996, and for the two years then ended, included in the consolidated financial
statements of REMEC, Inc. in its Annual Report on Form 10-K/A for the year ended
January 31, 1997.
BRAY, BECK & KOETTER
Melbourne, Florida
January 30, 1998
