<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
REMEC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 3812 95-3814301
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFIED CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
9404 CHESAPEAKE DRIVE, SAN DIEGO, CALIFORNIA 92123, (619) 560-1301
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RONALD E. RAGLAND, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
9404 CHESAPEAKE DRIVE, SAN DIEGO, CALIFORNIA 92123, (619) 560-1301
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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VICTOR A. HEBERT DOUGLAS J. REIN
PAUL H. GREINER GRAY CARY WARE & FREIDENRICH
HELLER EHRMAN WHITE & MCAULIFFE 4365 EXECUTIVE DRIVE, SUITE 1600
601 SOUTH FIGUEROA STREET SAN DIEGO, CALIFORNIA 92121-2189
LOS ANGELES, CALIFORNIA 90017-5758 (619) 677-1400
(213) 689-0200
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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======================================================================================================
PROPOSED MAXIMUM
AGGREGATE PROPOSED MAXIMUM
TITLE OF EACH CLASS OF OFFERING AGGREGATE
SECURITIES AMOUNT TO BE PRICE PER OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01
per share................... 2,645,000 $26.50 $70,092,500 $20,678
======================================================================================================
</TABLE>
(1) Includes 345,000 shares which the Underwriters will be granted the option to
purchase to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 based upon the
average of the high and low prices of the Registrant's Common Stock on
February 3, 1998, as reported on the Nasdaq National Market.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
REMEC, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-3
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1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Facing Page of Registration
Statement, Outside Front Cover Page
2. Inside Front Cover and Outside Back Cover Pages of
Prospectus........................................ Inside Front and Outside Back Cover
Pages
3. Summary Information, Risk Factors, and Ratio of
Earnings to Fixed Charges......................... Prospectus Summary; Risk Factors
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price..................... Outside Front Cover Page;
Underwriting
6. Dilution............................................ Not Applicable
7. Selling Security Holders............................ Principal and Selling Shareholders
8. Plan of Distribution................................ Outside Front and Inside Front
Cover Pages; Underwriting
9. Description of Securities to be Registered.......... Not Applicable
10. Interests of Named Experts and Counsel.............. Legal Matters
11. Material Changes.................................... Selected Financial Data;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Financial Statements
12. Incorporation of Certain Information by Reference... Incorporation of Certain Documents
by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1998
PROSPECTUS
2,300,000 Shares
REMEC LOGO
Common Stock
------------------------
Of the 2,300,000 shares of Common Stock offered hereby, 1,300,000 shares
are being sold by REMEC, Inc. ("REMEC" or the "Company") and 1,000,000 shares
are being sold by certain shareholders of the Company (the "Selling
Shareholders"). The Company will not receive any of the proceeds from the sale
of shares by the Selling Shareholders. See "Principal and Selling Shareholders."
The Common Stock is traded on the Nasdaq National Market under the symbol
"REMC." On February 3, 1998, the last reported sale price for the Company's
Common Stock was $26.3125 per share. See "Price Range of Common Stock."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN INFORMATION WHICH SHOULD
BE CAREFULLY CONSIDERED BEFORE PURCHASING SHARES OF COMMON STOCK
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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======================================================================================================
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------
Per Share..................... $ $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
======================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated to be
$350,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 345,000 shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them, subject to the right of the Underwriters to reject any order
in whole or in part. It is expected that certificates for the shares of Common
Stock will be available for delivery at the offices of Needham & Company, Inc.,
445 Park Avenue, New York, New York 10022, on or about , 1998.
------------------------
NEEDHAM & COMPANY, INC.
CIBC OPPENHEIMER
A.G. EDWARDS & SONS, INC.
The date of this Prospectus is , 1998
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
of 1934, as amended (the "Exchange Act"). In accordance therewith, the Company
files proxy statements, annual reports and other information with the United
States Securities and Exchange Commission (the "Commission"). Such material
concerning the Company is available for inspection and copying at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at 7
World Trade Center, Suite 1300, New York, New York 10008 and 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material also can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1993, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Common Stock, reference is made to the Registration Statement and the exhibits
and schedules filed as part thereof. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, if such contract or document is
filed as an exhibit, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each statement being
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Commission's principal office, Public Reference Room of the
Securities and Exchange Commission, 450 Fifth Street, Washington, D.C. 20549,
and at the Commission's regional offices at 7 World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Chicago, Illinois 60661.
Copies of all or any part thereof may be obtained from the Commission at its
principal office in Washington, D.C. after payment of fees prescribed by the
Commission. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File No.
0-027414) pursuant to the Exchange Act are hereby incorporated by reference in
this Prospectus: (1) the Company's Annual Report on Form 10-K for the year ended
January 31, 1997 and all amendments thereto on Form 10-K/A; (2) the Company's
Quarterly Reports on Form 10-Q for the quarters ended May 4, 1997, August 1,
1997 and October 31, 1997; and (3) the description of the Company's Common Stock
contained in its Registration Statement on Form 8-A, filed with the Commission
on December 13, 1995.
Any statement contained in a document incorporated by reference into this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all of
the foregoing documents incorporated by reference into this Prospectus (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Requests for such documents
should be submitted in writing to Investor Relations, REMEC, Inc., 9404
Chesapeake Drive, San Diego, California 92123, (619) 560-1301.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S
SECURITIES ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus.
THE COMPANY
REMEC is a leader in the design and manufacture of microwave multi-function
modules ("MFMs") for microwave transmission systems used in commercial
telecommunications and defense applications. The Company believes that its
expertise in microwave transmission system components such as filters,
amplifiers, mixers, switches and oscillators and its expertise in integrating
these components into MFMs give REMEC a strong competitive position in the
commercial wireless infrastructure equipment market. The Company's capabilities
enable it to develop and manufacture MFMs with reduced size, weight, parts count
and cost, and increased reliability and performance.
The Company's products operate at radio (300 MHz to 1 GHz), microwave (1
GHz to 20 GHz) and millimeter wave (20 GHz to 50 GHz) frequencies (collectively
referred to in this Prospectus as "microwave"). Modern wireless
telecommunications systems employ microwave transmission technology pioneered in
the defense industry. Microwave frequency bands have been used for emerging
wireless telecommunications applications because they are less congested and
have more available bandwidth, affording greater voice, data and video
transmission capacity than lower frequency bands. Driven by technological
advances and regulatory changes, demand for wireless telecommunications products
has increased in recent years for applications such as mobile telephony
(cellular and PCS), rural telephony (VSAT), paging, wireless cable, interactive
television and wireless local loop. These emerging wireless applications require
a large infrastructure of microwave transmission equipment such as base stations
and point-to-point radios. The Company believes that the evolution of cellular
and PCS infrastructure, as well as other wireless telecommunications systems,
will require increased integration in order to reduce size, weight and cost and
to increase reliability and producibility of base station equipment.
An MFM typically consists of one or a number of microwave circuit boards
and/or ceramic substrates mounted into a single package on which electronic
components are interconnected to perform signal processing functions such as
switching, amplification, frequency conversion and filtering. Integrating
multiple functions into one assembly results in reduced packaging and
interconnects, permits improved performance through optimal partitioning and
implementation of functions, reduces product size and parts count and increases
reliability at lower costs.
REMEC's strategy is to maintain and enhance its core MFM technology
leadership through selective participation in defense industry programs and to
leverage this technology leadership by designing and manufacturing MFMs for
original equipment manufacturers ("OEM") supplying wireless telecommunications
infrastructure equipment. REMEC's customers for commercial wireless MFMs and
components include P-COM, Inc., Digital Microwave Corporation, STM Wireless,
Inc. and Alcatel Network Systems. REMEC's customers for defense microwave MFMs
and components include Lockheed Martin Corporation, Motorola, Inc., Northrop
Grumman Corporation, Raytheon Company (including business from Hughes Aircraft
Co. and Texas Instruments which were acquired by Raytheon in 1997) and TRW Inc.
As of January 31, 1998, REMEC's total backlog of $214.9 million was comprised of
$136.0 million (63%) commercial wireless backlog and $78.9 million (37%) defense
backlog.
The Company pursues acquisitions to augment MFM technology by acquiring
specialized component firms and to take advantage of opportunities to
consolidate smaller, niche companies in a currently fragmented microwave
equipment industry. Over the last two years, REMEC acquired Magnum Microwave
Corporation (August 1996), Radian Technology, Inc. (February 1997), Verified
Technical Corporation (March 1997), C&S Hybrid, Inc. (June 1997), Q-bit
Corporation (October 1997), and Nanowave Technologies Inc. (October 1997). The
Company believes that each of these acquired companies has industry leading
niche microwave capabilities which further complement the Company's broad
microwave technology base.
3
<PAGE> 6
THE OFFERING
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Common Stock Offered by the Company............... 1,300,000 Shares
Common Stock Offered by the Selling Shareholders.. 1,000,000 Shares
Common Stock to be Outstanding After the 22,482,651 Shares(1)
Offering........................................
Use of Proceeds................................... General corporate purposes, including
working capital. See "Use of Proceeds."
Nasdaq National Market Symbol..................... REMC
</TABLE>
SUMMARY FINANCIAL INFORMATION(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JANUARY 31, ------------------------
------------------------------------------------- NOVEMBER 3, OCTOBER 31,
1993 1994 1995 1996 1997 1996 1997
------- ------- -------- ------- -------- ----------- -----------
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STATEMENTS OF OPERATIONS
DATA:
Net sales.................... $62,627 $66,599 $ 81,978 $93,228 $118,554 $85,499 $ 111,850
Gross profit................. 19,744 21,172 23,984 27,056 32,895 23,868 33,989
Income from operations....... 6,355 6,517 6,271 6,429 8,941 6,915 12,118
Net income................... $ 4,481 $ 4,496 $ 3,287 $ 3,599 $ 4,972 $ 3,977 $ 10,791
Net income per share......... $ 0.29 $ 0.34 $ 0.25 $ 0.28 $ 0.30 $ 0.24 $ 0.50
Shares used in per share
calculations............... 15,559 13,309 13,031 12,989 16,669 16,619 21,532
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1997 OCTOBER 31, 1997
---------------- -------------------------
ACTUAL ACTUAL AS ADJUSTED(3)
---------------- -------- --------------
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BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 63,172 $ 48,885 $ 80,860
Working capital......................................... 84,142 82,401 114,376
Total assets............................................ 125,440 147,742 179,717
Long-term debt.......................................... 2,493 -- --
Total shareholders' equity.............................. 103,555 122,995 154,970
</TABLE>
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<CAPTION>
JANUARY 31, 1997 JANUARY 31, 1998
---------------- ----------------
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BACKLOG(4):
Commercial.................................................... $ 75,118 $136,005
Defense....................................................... 71,711 78,850
-------- --------
Total............................................... $146,829 $214,855
======== ========
</TABLE>
- ---------------
(1) Based on shares outstanding as of January 31, 1998. Does not include
1,686,539 shares of Common Stock issuable upon the exercise of outstanding
options at a weighted average price of $14.93 per share of which options to
purchase 254,959 shares are currently exercisable.
(2) Includes statements of operations, balance sheet data and backlog of Magnum
Microwave Corporation (acquired in August 1996), Radian Technology, Inc.
(acquired February 1997), C&S Hybrid, Inc. (acquired June 1997) and Q-bit
Corporation (acquired October 1997), each of which was accounted for as a
pooling of interests. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(3) As adjusted to reflect the sale by the Company of 1,300,000 shares of Common
Stock offered by the Company hereby at an assumed price of $26.3125 per
share. See "Capitalization."
(4) Backlog is not necessarily indicative of future sales and is generally
subject to cancellation. See "Risk Factors -- Backlog" and
"Business -- Backlog."
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option.
The Company was incorporated in California in January 1983. The Company's
executive offices are located at 9404 Chesapeake Drive, San Diego, California
92123. Its phone number at that address is (619) 560-1301.
4
<PAGE> 7
RISK FACTORS
The statements in this Prospectus that relate to future plans, events or
performance are forward-looking statements. The Company's future operations,
financial performance, business and share price may be affected by a number of
factors, including the factors listed below, any of which could cause actual
results to vary materially from anticipated results. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. 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 hereof or to reflect the
occurrence of unanticipated events.
DEPENDENCE ON COMMERCIAL WIRELESS TELECOMMUNICATIONS MARKET
Historically, the Company's business has been almost exclusively focused on
the defense market. The Company believes that its future growth depends on
continued success in the commercial wireless telecommunications market. The
Company believes that, while the technologies used in the defense and commercial
industries are very similar, the two industries differ significantly in terms of
the customer base, manufacturing requirements and lead times, the need to expend
substantial resources for research and development without the assurance of
reimbursement or recovery of those costs, and credit risks with customers. As a
result, the Company is subject to risks inherent in the operation of a new
business enterprise, including risks associated with attracting and servicing a
new customer base, manufacturing products in a cost effective and profitable
manner, managing the expansion of a business operation and attracting and
retaining qualified engineering, manufacturing and marketing personnel with
industry experience. For example, the Company believes that microwave engineers
with the skills necessary to develop products for the wireless
telecommunications market currently are in high demand and that the Company may
not be able to attract and retain sufficient engineering expertise.
A number of the commercial markets for the Company's products in the
wireless telecommunications area have only recently begun to develop. Because
these markets are relatively new, it is difficult to predict the rate at which
these markets will grow, if at all. Existing or potential wireless
telecommunications market applications for the Company's products may fail to
develop or may erode for many different reasons, including insufficient growth
to support expensive infrastructure equipment, insufficient consumer demand for
wireless products or services because of pricing or otherwise, or real or
perceived security risks associated with wireless communications. If the markets
for the Company's products in commercial wireless telecommunications fail to
grow, or grow more slowly than anticipated, the Company's business, financial
condition and results of operations could be materially adversely affected.
DEPENDENCE ON DEFENSE MARKET
A substantial portion of the Company's sales has been to the defense
market. As a result, the Company's sales could be materially adversely impacted
by a decrease in defense spending by the United States government because of
defense spending cuts, general budgetary constraints or otherwise. The United
States defense budget has been reduced over the last several years and may be
further reduced. Fewer available defense industry production programs, coupled
with continued pricing pressure on follow-on orders for programs on which the
Company participates, caused sales of the Company's core defense
products -- MFMs and components for microwave systems -- to decline from $35.3
million in the year ended January 31, 1994 to $27.5 million for the year ended
January 31, 1997. The Company expects to continue to derive a substantial
portion of its revenues from these business segments and to develop microwave
products for defense applications. Failure of the Company to replace sales
attributable to a significant defense program or contract at the end of that
program or contract, whether due to cancellation, spending cuts, budgetary
constraints or otherwise, could have a material adverse effect upon the
Company's business, financial condition and results of operations in subsequent
periods. In addition, a large portion of the Company's expenses are fixed and
difficult to reduce, thus magnifying the material adverse effect of any revenue
shortfall. Also, defense contracts frequently contain provisions that are not
standard in private commercial transactions, such as provisions permitting the
cancellation of a contract if funding for a program is reduced or canceled. For
example, the government terminated a large defense program in December 1992 for
which the Company had been
5
<PAGE> 8
supplying in excess of $4.0 million of products on an annual basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CUSTOMER CONCENTRATION AND EXCLUSIVITY
The Company derives significant revenues from a limited group of customers,
including, P-COM, Inc. ("P-COM"), STM Wireless, Inc. ("STM"), Digital Microwave
Corporation ("Digital Microwave"), General Instrument Corporation ("General
Instrument"), Northrop Grumman Corporation ("Northrop Grumman"), Motorola, Inc.
("Motorola"), ITT Industries ("ITT"), Raytheon Company ("Raytheon," including
revenues from Hughes Aircraft Co. and Texas Instruments, portions of which were
acquired by Raytheon in 1997), Lockheed Martin Corporation ("Lockheed Martin"),
TRW Inc. ("TRW") and Alcatel Network Systems ("Alcatel"). As of January 31,
1998, these customers comprised 72% of total backlog, with Digital Microwave
(22%) and Northrop Grumman (10%) being the only customers that accounted for
more than 10% of total backlog as of such date. The Company anticipates that it
will continue to sell products to a relatively small group of customers. As a
result, any cancellation, reduction or delay in orders by or shipments by any
significant customer, as a result of manufacturing or supply difficulties or
otherwise, or the inability of any customer to finance its purchases of the
Company's products would materially adversely affect the Company's business,
financial condition and results of operations. The Company has granted some of
its customers exclusivity for certain products and expects that in order to
enter into other significant relationships in the wireless telecommunications
industry, customers will either expressly or implicitly require exclusivity on
components used in their products. In entering into such exclusive arrangements,
the Company may have to forego opportunities to supply products to competing
companies. If the Company enters into exclusive relationships with customers who
prove to be unsuccessful, the Company may be materially adversely affected and
the Company may be unable then to establish relationships with the industry
leaders. There can be no assurance that the Company will be able to locate, or
negotiate acceptable arrangements with, significant customers or that its
current or future arrangements with significant customers will continue or will
be successful. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Customers."
INTEGRATION OF ACQUISITIONS
The Company recently acquired two companies of significant size: C&S
Hybrid, Inc. ("C&S Hybrid"), which was acquired in June 1997, and Q-bit
Corporation ("Q-bit"), which was acquired in October 1997. The anticipated
benefits of the acquisitions of C&S Hybrid and Q-bit will not be achieved unless
these companies are successfully combined with the Company in an efficient and
effective manner. The transition to a combined Company in which C&S Hybrid and
Q-bit are wholly owned subsidiaries of the Company will require substantial
attention from management, which has limited experience in integrating companies
the size of REMEC, C&S Hybrid and Q-bit. In addition, the Company acquired in
1996 and 1997 Magnum Microwave Corporation ("Magnum"), Radian Technology, Inc.
("Radian"), Verified Technical Corporation ("Veritek") and Nanowave Technologies
Inc. ("Nanowave"). The collective integration of Magnum, Radian, Veritek and
Nanowave also will require substantial attention from management. The diversion
of management attention and any difficulties encountered in the integration of
Magnum, Radian, Veritek, C&S Hybrid, Q-bit and Nanowave as a group could have an
adverse impact on the business, financial condition and results of operations of
the Company. There can be no assurance that Magnum, Radian, Veritek, C&S Hybrid,
Q-bit or Nanowave will be successfully integrated or that the consolidated
operations of REMEC and its subsidiaries will be profitable. The Company will
face similar risks in the integration of any future acquisitions.
MANAGEMENT OF GROWTH
The growth in size and complexity of the Company's business and expansion
of its product lines and customer base have placed, and are expected to continue
to place, significant demands on the Company's management and operations. The
Company's ability to compete effectively and to manage future growth will depend
on its ability to continue to implement and improve operational and financial
systems on a timely basis.
6
<PAGE> 9
There can be no assurance that the Company will be able to manage its future
growth, and the failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operations.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly results have in the past been, and will continue to
be, subject to significant variations due to a number of factors, any one of
which could substantially affect the Company's results of operations for any
particular fiscal quarter. In particular, quarterly results of operations can
vary due to the timing, cancellation or rescheduling of customer orders and
shipments, the pricing and mix of products sold, new product introductions by
the Company, the Company's ability to obtain components and subassemblies from
contract manufacturers and suppliers, and variations in manufacturing
efficiencies. In addition, with the decline in available defense industry
production programs, the Company has placed more reliance on development
contracts as a source of defense revenues, resulting in an increased
susceptibility to fluctuations due to an increase in revenues from fixed price
development contracts as a percentage of total revenues. Development contracts
carry reduced gross margins and are typically for minimal hardware deliveries
and sporadic non-hardware revenue items which results in fluctuating sales and
gross margins. Accordingly, the Company's performance in any one fiscal quarter
is not necessarily indicative of financial trends or future performance.
BACKLOG
The Company's order backlog is subject to fluctuations and is not
necessarily indicative of future sales. There can be no assurance that current
order backlog will necessarily lead to sales in any future period. The Company's
order backlog as of January 31, 1998 was approximately $214.9 million,
approximately 63% of which was attributable to commercial customers and
approximately 37% of which was attributable to defense customers. In certain
circumstances, customers place purchase orders but release quantities
incrementally against those purchase orders, subject to an agreed period of
performance. At the time a purchase order is placed, the Company records the
entire amount of the purchase order as backlog, even if the customer releases
quantities incrementally against the purchase order. A substantial amount of the
Company's order backlog can be canceled at any time without penalty, except, in
some cases, the recovery of the Company's actual committed costs and profit on
work performed up to the date of cancellation. Cancellations of pending purchase
orders or termination or reductions of purchase orders in progress from
customers of the Company could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISKS OF COST OVERRUNS AND PRODUCT NON-PERFORMANCE; LOSS OF INVESTMENT IN DESIGN
AND ENGINEERING
The Company's customers establish demanding specifications for product
performance, reliability and cost. Certain contracts with its commercial
customers and a significant portion of the Company's defense contracts are firm
fixed-price ("FFP") contracts that provide for a predetermined fixed price for
stipulated products, regardless of the costs incurred. The Company has made
pricing commitments to certain customers in anticipation of achieving more cost
effective product designs and introducing more widespread manufacturing
automation. The Company faces the risk of experiencing cost overruns or order
cancellation if it fails to achieve forecasted product design and manufacturing
efficiencies or if products cost more to produce because of increased cost of
materials, components or labor or otherwise. Manufacture of the Company's
products is an extremely complex process. The Company has in the past
experienced cost overruns on FFP contracts. There can be no assurance that cost
overruns or problems with performance or reliability of Company products will
not occur in the future. Any such cost overruns or performance problems may have
a material adverse effect on the Company's business, financial condition and
results of operation. In addition, the Company often makes significant
investments in design and engineering of new products for customers without any
commitment by the customer for the future purchase of such products. Failure to
receive initial or follow-on orders may have a material adverse effect on the
Company's business, financial condition and results of operations.
7
<PAGE> 10
NECESSITY OF IMPLEMENTING HIGH VOLUME MANUFACTURING
Historically, the volume of the Company's production requirements in the
defense market was not sufficient to justify the widespread implementation of
automated manufacturing processes. Fulfillment of substantial orders in the
commercial wireless telecommunications industry will require continued increase
in the Company's manufacturing capacity. There can be no assurance that the
Company will be able to implement the desired automated manufacturing processes
on a timely basis or at all or that, if implemented, such manufacturing
processes will be sufficient to fulfill the Company's current and future
production commitments in a cost effective manner or that the Company will
obtain a sufficient amount of high volume orders to absorb the capital costs
incurred.
COMPETITION
The markets for the Company's products are extremely competitive and are
characterized by technological change, new product development, product
obsolescence and evolving industry standards. In addition, price competition is
intense and significant price erosion generally occurs over the life of a
product. The Company faces some competition from component manufacturers which
have integration capabilities, but believes that its primary competition is from
the captive manufacturing operations of large wireless telecommunications OEMs
(including all of the major telecommunications equipment providers) and defense
prime contractors which are responsible for a substantial majority of the
present worldwide production of MFMs. The Company's future success is dependent
upon the extent to which these OEMs and defense prime contractors elect to
purchase from outside sources rather than manufacture their own microwave MFMs
and components. The Company's customers and large manufacturers of microwave
transmission equipment could also elect to enter into the non-captive market for
microwave products and compete directly with the Company. Many of the Company's
current and potential competitors have substantially greater technical,
financial, marketing, distribution and other resources than the Company and have
greater name recognition and market acceptance of their products and
technologies. No assurance can be given that the Company's competitors will not
develop new technologies or enhancements to existing products or introduce new
products that will offer superior price or performance features or that new
products or technologies will not render obsolete the products of the Company's
customers. For example, Magnum experienced a $2.3 million reduction in cavity
oscillator shipments to a customer in its 1996 fiscal year due to obsolescence.
In addition, innovations such as a wireless telephone system utilizing
satellites instead of terrestrial base stations or a device that integrates
microwave functionality could significantly reduce the potential market for the
Company's products. The Company believes that to remain competitive in the
future it will need to invest significant financial resources in research and
development.
DECLINING AVERAGE SELLING PRICES
Many of the Company's customers are under continuous pressure to reduce
prices and, therefore, the Company expects to continue to experience downward
pricing pressure on its products. The Company's customers frequently negotiate
supply arrangements well in advance of delivery dates, requiring the Company to
commit to price reductions before it is determined that assumed cost reductions
can be achieved. To offset declining average sales prices, the Company believes
that it must achieve manufacturing cost reductions and obtain orders for higher
volume products. If the Company is unable to offset declining average selling
prices, the Company's gross margins will decline, and such decline will have a
material adverse effect on the Company's business, financial condition and
results of operations.
ENVIRONMENTAL REGULATIONS AND RISKS
The Company is subject to a variety of local, state, federal governmental,
foreign regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic or other hazardous substances used
to manufacture the Company's products. The failure to comply with current or
future regulations could result in the imposition of substantial fines on the
Company, suspension of production, alteration of its manufacturing processes or
cessation of operations.
8
<PAGE> 11
News reports have asserted that power levels associated with hand held
cellular telephones and infrastructure equipment may pose certain health risks.
If it were determined or perceived that electromagnetic waves carried through
wireless telecommunications equipment create a significant health risk, the
market for these products could be materially adversely affected, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Moreover, if wireless telecommunications systems or
other systems or devices that rely on or incorporate the Company's products are
determined or alleged to create a significant health risk, the Company could be
named as a defendant, and held liable, in product liability lawsuits commenced
by individuals alleging that the Company's products harmed them, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
GOVERNMENT REGULATIONS
The Company's products are incorporated into wireless telecommunications
systems that are subject to regulation domestically by the Federal
Communications Commission ("FCC") and internationally by other government
agencies. Although the equipment operators and not the Company are responsible
for compliance with such regulations, regulatory changes, including changes in
the allocation of available frequency spectra, could materially adversely affect
the Company's operations by restricting development efforts by the Company's
customers, obsoleting current products or increasing the opportunity for
additional competition. Changes in, or the failure by the Company to manufacture
products in compliance with, applicable domestic and international regulations
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the increasing demand for
wireless telecommunications has exerted pressure on regulatory bodies worldwide
to adopt new standards for such products, generally following extensive
investigation of and deliberation over competing technologies. The delays
inherent in this governmental approval process have in the past caused and may
in the future cause the cancellation, postponement or rescheduling of the
installation of communications systems by the Company's customers, which in turn
may have a material adverse effect on the sale of products by the Company to
such customers.
Because of its participation in the defense industry, the Company is
subject to audit from time to time for its compliance with government
regulations by various agencies, including the Defense Contract Audit Agency,
the Defense Investigative Service and the Office of Federal Control Compliance
Programs. These and other governmental agencies may also from time to time
conduct inquiries or investigations that cover a broad range of Company
activity. Responding to any such audits, inquiries or investigations may involve
significant expense and divert management attention. Also, an adverse finding in
any such audit, inquiry or investigation could involve penalties that may have a
material adverse effect on the Company's business, financial condition or
results of operations.
DEPENDENCE ON SUPPLIERS AND CONTRACT MANUFACTURERS
The Company relies on contract manufacturers and suppliers, in some cases
sole suppliers or limited groups of suppliers, to provide it with services and
materials necessary for the manufacture of products. For example, certain
ceramic low drift substrates (supplied by NTK of Japan and Alpha Industries,
Inc.), certain semiconductors (supplied by Alpha Industries, Inc., NEC Corp.,
M/A-Com, Inc., Microwave Technology, Inc., Raytheon, Raytheon TI Systems, Inc.,
Siemens Corporation, Fujitsu International, Inc., Compound Semiconductor, Inc.
and others) and certain components used in amplifiers and VCO products (supplied
by Alpha Industries, Inc., Lockheed Martin, Scientific Components Corp. (d/b/a
Mini Circuits Laboratories, "Mini Circuits"), M/A Com, Inc., FSI Investment
Corporation (a subsidiary of Loral Corporation) and Micrometrics, Ltd.) and
prescalers, carriers and transformers (supplied by Sciteq Communications, Inc.,
UMS Group, Inc., Hewlett-Packard Company, Elcon Products International Company
and Mini Circuits) used by the Company are sole source items and would require
significant effort, time or design changes to develop alternate sources. The
Company's reliance on contract manufacturers and on sole suppliers involves
several risks, including a potential inability to obtain critical materials or
services and reduced control over production costs, delivery schedules,
reliability and quality of components or assemblies. Any inability to obtain
timely deliveries of acceptable quality, or any other circumstance that would
require the Company to
9
<PAGE> 12
seek alternative contract manufacturers or suppliers, could delay the Company's
ability to deliver products to customers, which in turn would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, in the event that costs for the Company's contract
manufacturers or suppliers increase, the Company may suffer losses due to an
inability to recover such cost increases under fixed price production
commitments to its customers.
VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock, like the stock prices of
many technology companies, is subject to wide fluctuations in response to such
factors as actual or anticipated operating results, announcements of
technological innovations or new products developed by, or new contracts
acquired by, the Company, its competitors or their customers, government
regulatory action, developments with respect to wireless telecommunications,
general market conditions and other factors. In addition, the stock market has
from time to time experienced significant price and volume fluctuations that
have particularly affected the market prices for the stocks of technology
companies and that have often been unrelated to the operating performance of
particular companies. The market price of REMEC Common Stock has been volatile
and may continue to be highly volatile.
LIMITATION ON PROTECTION OF PROPRIETARY TECHNOLOGY; RISK OF THIRD PARTY CLAIMS
The Company does not presently hold any significant patents applicable to
its products. In order to protect its intellectual property rights, the Company
relies on a combination of trade secret, copyright and trademark laws and
employee and third-party nondisclosure agreements, as well as limiting access to
and distribution of proprietary information. There can be no assurance that the
steps taken by the Company to protect its intellectual property rights will be
adequate to prevent misappropriation of the Company's technology or to preclude
competitors from independently developing such technology. Furthermore, there
can be no assurance that, in the future, third parties will not assert
infringement claims against the Company or with respect to its products for
which the Company has indemnified certain of its customers. Asserting the
Company's rights or defending against third party claims could involve
substantial costs and diversion of resources, thus materially and adversely
affecting the Company's business, financial condition and results of operations.
In the event a third party were successful in a claim that one of the Company's
products infringed its proprietary rights, the Company may have to pay
substantial royalties or damages, remove that product from the marketplace or
expend substantial amounts in order to modify the product so that it no longer
infringes such proprietary rights, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
INTERNATIONAL SALES
Although less than 5% of the Company's revenue is derived from sales to its
customers located in Southeast Asia (excluding Japan), certain of the Company's
customers may sell products into Southeast Asian markets. Recent adverse
economic developments in Southeast Asia could affect sales by certain of the
Company's customers into this region which may, in turn, have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the continued service of, and on its
ability to attract and retain, qualified engineering, management, manufacturing,
quality assurance, marketing and support personnel. The Company does not
maintain key man life insurance on its key executive officers and, except for
Joseph Lee (Executive Vice President), Tao Chow (Senior Vice President), James
Mongillo (Senior Vice President) and Justin Miller (Vice President), such
personnel do not have employment or non-competition agreements with the Company.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting or retaining such personnel. For
example, the Company believes that microwave engineers with the skills necessary
to develop products for the wireless telecommunications market currently
10
<PAGE> 13
are in high demand and that the Company may not be able to attract and retain
sufficient engineering expertise.
CONTROL BY MANAGEMENT
The Company's executive officers comprise five of the ten members of the
Board of Directors. As a result, such persons have the ability to exercise
influence over significant matters regarding the Company. Such a high level of
influence may have a significant effect in delaying, deferring or preventing a
change in control of the Company.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries to represent years. For example, the year
"1997" would be represented by "97." These systems and products will need to be
able to accept four digit entries to distinguish years beginning with 2000 from
prior years. As a result, systems and products that do not accept four digit
year entries will need to be upgraded or replaced to comply with such "Year
2000" requirements. The Company believes that its internal systems are Year 2000
compliant or will be upgraded or replaced in connection with previously planned
changes to information systems prior to the need to comply with Year 2000
requirements. However, many of the Company's customers may be affected by Year
2000 issues that require that they expend significant resources to modify or
replace their existing systems, which may result in such clients having reduced
funds to purchase the Company's products.
11
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,300,000 shares of
Common Stock being offered by the Company at an assumed price of $26.3125 per
share are approximately $31,975,000 (approximately $40,553,000 if the
Underwriters' over-allotment option is exercised in full), after deducting the
underwriting discount and estimated offering expenses payable by the Company.
The Company plans to use the proceeds of the offering for general corporate
purposes, including routine capital expenditures and working capital. The
Company currently has no specific plans for any significant portion of the
proceeds. The Company may use a portion of the proceeds to acquire technologies,
products or businesses that complement the Company's current business, as such
opportunities may arise. Although the Company does consider such acquisitions
from time to time, as a part of its normal business operations and planning, it
has no present commitments or agreements with respect to any such acquisitions.
Pending their use, the proceeds will be invested in short-term, United
States Government or investment grade interest-bearing securities. The Company
will not receive any of the proceeds from the sale of Common Stock by the
Selling Shareholders. See "Principal and Selling Shareholders."
PRICE RANGE OF COMMON STOCK
Prior to the quotation of the Common Stock on the Nasdaq National Market
beginning on February 1, 1996, there was no established trading market for the
Common Stock. Since February 1, 1996, the Common Stock has been quoted on the
Nasdaq National Market under the symbol "REMC." The following table sets forth
the range of high and low closing sale prices of the Common Stock as reported on
the Nasdaq National Market for the quarterly periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED JANUARY 31, 1997
First Quarter (1)...................................... $11.578 $ 5.422
Second Quarter (1)..................................... 14.922 7.578
Third Quarter (1)...................................... 10.500 7.500
Fourth Quarter (1)..................................... 17.500 9.328
FISCAL YEAR ENDED JANUARY 31, 1998
First Quarter (1)...................................... 18.828 14.000
Second Quarter (1)..................................... 31.250 16.000
Third Quarter.......................................... 38.313 20.000
Fourth Quarter......................................... 27.250 17.125
FISCAL YEAR ENDING JANUARY 31, 1999
First Quarter (through February 3, 1998)............... 26.500 26.313
</TABLE>
(1) Adjusted for a three-for-two stock split paid on June 27, 1997 to
shareholders of record as of June 20, 1997.
The last reported sale price of the Common Stock on the Nasdaq National
Market on February 3, 1998 was $26.3125. As of January 30, 1998, there were
approximately 640 holders of record of Common Stock.
12
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 31, 1997 and as adjusted to reflect the sale of 1,300,000 shares of
Common Stock offered by the Company in this offering at an assumed price of
$26.3125 per share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company.
<TABLE>
<CAPTION>
OCTOBER 31, 1997
-----------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Long-term debt.................................................. $ -- $ --
Shareholders' equity(1)(2):.....................................
Common Stock, $.01 par value; 40,000,000 shares authorized;
21,080,959 shares issued and outstanding, actual;
22,380,959 shares issued and outstanding, as adjusted...... 210,810 223,810
Additional paid-in capital...................................... 94,283,652 126,245,558
Retained earnings............................................... 28,500,132 28,500,132
-------- --------
Total shareholders' equity...................................... 122,994,594 154,969,500
-------- --------
Total capitalization....................................... $122,994,594 $154,969,500
======== ========
</TABLE>
- ---------------
(1) Excludes 345,000 shares of Common Stock issuable by the Company upon the
full exercise of the Underwriters' over-allotment option. Excludes 1,725,637
shares of Common Stock issuable upon exercise of options outstanding as of
October 31, 1997, which have a weighted average exercise price of $14.51 per
share. Also excludes 2,363,215 additional shares reserved for issuance under
the Equity Incentive Plan, 1996 Nonemployee Directors Stock Option Plan and
Employee Stock Purchase Plan.
(2) Common Stock and Additional paid-in capital, as adjusted, will be $227,260
and $134,820,642, respectively, if the Underwriters' over-allotment option
is exercised in full.
13
<PAGE> 16
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein and the Consolidated Financial Statements
for REMEC and the Notes thereto incorporated herein by reference. The selected
consolidated financial data set forth below with respect to the Company's
statements of operations 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 incorporated herein by reference 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 or incorporated by reference herein. The
statement of operations data for the nine months ended November 3, 1996 and
October 31, 1997, and the balance sheet data at October 31, 1997 are derived
from unaudited financial statements which are incorporated by reference into
this Prospectus. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, which the Company considers
necessary for a fair presentation of the financial position and the results of
operations for these periods. Operating results for the nine months ended
October 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending January 31, 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JANUARY 31, ----------------------------
------------------------------------------------ NOVEMBER 3, OCTOBER 31,
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- -------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA(1):
Net sales........................................ $62,627 $66,599 $81,978 $93,228 $118,554 $ 85,499 $111,850
Cost of sales.................................... 42,883 45,427 57,994 66,172 85,659 61,631 77,861
------ ------ ------ ------ ------- ------ ------
Gross profit................................... 19,744 21,172 23,984 27,056 32,895 22,868 33,989
Operating expenses:
Selling, general and administrative............ 11,864 13,332 15,646 16,611 19,349 13,465 18,009
Research and development....................... 1,525 1,323 2,067 4,016 4,605 3,488 3,862
------ ------ ------ ------ ------- ------ ------
Total operating expenses................. 13,389 14,655 17,713 20,627 23,954 16,953 21,871
------ ------ ------ ------ ------- ------ ------
Income from operations........................... 6,355 6,517 6,271 6,429 8,941 6,915 12,118
Gain on sale of subsidiary....................... -- -- -- -- -- -- 2,833
Interest (income) expense and other, net......... 222 191 590 401 (48) (63) (1,834)
------ ------ ------ ------ ------- ------ ------
Income before provision for income taxes......... 6,133 6,326 5,681 6,028 8,989 6,978 16,785
Provision for income taxes....................... 1,819 1,830 2,394 2,429 4,017 3,001 5,994
------ ------ ------ ------ ------- ------ ------
Income before extraordinary item................. 4,314 4,496 3,287 3,599 4,972 3,977 10,791
Extraordinary item............................... 167 -- -- -- -- -- --
------ ------ ------ ------ ------- ------ ------
Net income....................................... $ 4,481 $ 4,496 $ 3,287 $ 3,599 $ 4,972 $ 3,977 $ 10,791
====== ====== ====== ====== ======= ====== ======
Net income per share............................. $ 0.29 $ 0.34 $ 0.25 $ 0.28 $ 0.30 $ 0.24 $ 0.50
====== ====== ====== ====== ======= ====== ======
Shares used in per share calculations............ 15,559 13,309 13,031 12,989 16,669 16,619 21,532
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31, 1997
------------------------------------------------ ----------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED(2)
------- ------- ------- ------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Cash and cash equivalents........................ $ 4,248 $ 4,156 $ 3,628 $ 3,828 $ 63,172 $ 48,885 $ 80,860
Accounts receivable, net......................... 6,823 8,580 9,092 10,043 15,973 22,761 22,761
Inventory, net................................... 11,188 14,439 14,633 16,476 19,332 28,142 28,142
------- ------- ------- ------- -------- ----------- --------------
Total current assets............................. 22,887 29,434 28,808 32,698 102,094 103,251 135,226
Fixed assets..................................... 7,150 11,284 10,999 13,416 18,543 26,842 26,842
Total assets..................................... 30,143 42,424 42,357 48,558 125,440 147,742 179,717
Current liabilities.............................. 9,084 12,827 13,188 15,123 17,982 20,850 20,850
Long-term debt................................... 2,446 5,846 3,235 4,781 2,493 -- --
Total liabilities................................ 12,172 20,247 17,868 21,311 21,886 24,747 24,747
Total shareholders' equity....................... 17,971 22,177 24,489 27,247 103,555 122,995 154,970
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1997 JANUARY 31, 1998
---------------- ----------------
<S> <C> <C>
BACKLOG(1)(3):
Commercial................................................................................ $ 75,118 $136,005
Defense................................................................................... 71,711 78,850
------- -------
Total............................................................................. $146,829 $214,855
======= =======
</TABLE>
- ---------------
(1) The Company acquired Magnum in August 1996, Radian in February 1997, C&S
Hybrid in June 1997 and Q-bit in October 1997, each of which was accounted
for as a pooling of interests and, as such, all financial amounts contained
in the table have been restated to include the financial results and data of
Magnum, Radian, C&S Hybrid and Q-bit for all periods presented.
(2) As adjusted to reflect the sale by the Company of 1,300,000 shares of Common
Stock offered by the Company hereby at an assumed price of $26.3125 per
share. See "Use of Proceeds" and "Capitalization."
(3) Backlog is not necessarily indicative of future sales and is generally
subject to cancellation. See "Risk Factors -- Backlog" and
"Business -- Backlog."
14
<PAGE> 17
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, Inc. ("RFM"), Magnum
Microwave Corporation ("Magnum"), Radian Technology, Inc. ("Radian"), Verified
Technical Corporation ("Veritek"), C&S Hybrid, Inc. ("C&S Hybrid"), Q-bit
Corporation ("Q-bit") and Nanowave Technologies Inc. ("Nanowave").
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
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. 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
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 Veritek, a producer of high quality surface
mount manufacturing assemblies in a transaction accounted for as a purchase. The
consolidated statements of income and cash flow for all periods subsequent to
March 31, 1997 include Veritek's operating results from April 1, 1997. 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, 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 effective as of October 29, 1997. The consolidated balance sheet at
October 31, 1997 includes the assets and liabilities of Nanowave.
15
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total net sales, certain
consolidated statements of income data for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
JANUARY 31, ---------------------------
---------------------- NOVEMBER 3, OCTOBER 31
1995 1996 1997 1996 1997
---- ---- ---- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales....................................... 100% 100% 100% 100% 100%
Cost of goods sold.............................. 71 71 72 72 70
--- --- --- --- ---
Gross profit.................................. 29 29 28 28 30
Operating expenses:
Selling, general & administrative............. 19 18 17 16 16
Research and development...................... 2 4 4 4 4
--- --- --- --- ---
Total operating expenses.............. 21 22 21 20 20
--- --- --- --- ---
Income from operations.......................... 8 7 7 8 10
Gain on sale of subsidiary...................... - - - - 3
Interest (income) expense and other, net........ 1 - - - 2
--- --- --- --- ---
Income before income taxes...................... 7 7 7 8 15
Provision for income taxes...................... 3 3 3 3 5
--- --- --- --- ---
Net income...................................... 4 % 4 % 4 % 5% 10%
=== === === === ===
</TABLE>
NINE MONTHS ENDED OCTOBER 31, 1997 VS. NINE MONTHS ENDED NOVEMBER 3, 1996
Net Sales. Net sales increased 31% from $85.5 million for the nine months
ended November 3, 1996 to $111.9 million for the nine months ended October 31,
1997. Commercial sales increased 67% from $35.6 million to $59.4 and defense
sales increased 5% from $49.9 million to $52.5 million during these periods. The
increase in commercial sales was primarily attributable to increased customer
demand for the Company's wireless products. The increase in defense sales was
attributable to increased MFM and component sales offsetting reduced precision
instrument sales.
Gross Profit. Gross profit increased 42% from $23.9 million for the nine
months ended November 3, 1996 to $34.0 million for the nine months ended October
31, 1997. Gross margins increased from 28% to 30% for the periods indicated due
to the mix of products shipped and improved margins on defense products. Gross
margins for defense increased from 25% to 30% and commercial gross margins
remained constant at 31% in both periods.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased 34% from $13.5 million during the
nine months ended November 3, 1996 to $18.0 million for the nine months ended
October 31, 1997. This increase was primarily attributable to increased
personnel, legal and other administrative costs resulting from the Company's
growth, as well as approximately $1.1 million of direct transaction costs
associated with the Radian, C&S Hybrid and Q-bit mergers. As a percentage of net
sales, SG&A expenses remained constant at 16% for the periods indicated.
Research and Development Expenses. Research and development expenses
increased 11% from $3.5 million during the nine months ended November 3, 1996 to
$3.9 million for the nine months ended October 31, 1997. These expenditures are
almost entirely attributable to the commercial wireless business.
Gain on Sale of Subsidiary. The Company's results of operations for the
nine months ended October 31, 1997 included the gain from the sale of the
Company's RFM subsidiary. There was no similar gain in the prior fiscal year.
Interest (Income) Expense and Other, net. Interest income and other, net
increased from $63,000 during the nine months ended November 3, 1996 to $1.8
million for the nine months ended October 31, 1997. This
16
<PAGE> 19
increase was due to the increased level of cash on hand as a result of the funds
generated from the Company's follow-on public offering which was completed in
January 1997.
Provision for Income Taxes. The Company's effective tax rate declined from
43% during the nine months ended November 3, 1996 to 36% for the nine months
ended October 31, 1997. The decrease in the effective tax rate was a result of
the Company's merger with Q-bit, which had operated as an S corporation under
the Internal Revenue Code prior to the acquisition by REMEC, and the reduction
in REMEC's tax rate due to the benefit of tax credits for certain capital
expenditures.
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 was due to sales
increases at all of the Company's operating subsidiaries, including $4.8 million
of net sales of RFM from the effective date of the acquisition. Commercial sales
increased 62% from $30.2 million to $48.8 million due primarily to the
production of microwave front ends and VSAT equipment for P-COM and STM,
respectively. Defense sales increased 11% from $63.0 million to $69.8 million as
a result of increased bookings during fiscal 1997 and increased shipments on
production contracts for existing programs and customers.
Gross Profit. Gross profit increased 22% from $27.1 million in fiscal 1996
to $32.9 million in fiscal 1997. Gross margins decreased from 29% in fiscal 1996
to 28% for fiscal 1997. Gross margins for defense were 26% in fiscal 1996 and
27% in fiscal 1997. Commercial gross margins were 36% in fiscal 1996 and 29% in
fiscal 1997. The decline in commercial margins was 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. SG&A expenses increased 16%
from $16.6 million during fiscal 1996 to $19.3 million for fiscal 1997. This
increase was primarily attributable to additional SG&A costs associated with the
Wireless and RFM operations, neither of which were significant contributors to
fiscal 1996 SG&A costs. Wireless was operating at start-up levels during fiscal
1996, while RFM was not included in fiscal 1996 results as it was not acquired
until the second quarter of fiscal 1997. In addition, SG&A expenses for fiscal
1997 increased due to $424,000 of non-recurring acquisition costs associated
with the Magnum merger. As a percentage of net sales, SG&A expenses declined
from 18% in fiscal 1996 to 17% in fiscal 1997, due to increased sales volume.
Research and Development Expenses. Research and development expenses
increased 15% from $4.0 million in fiscal 1996 to $4.6 million for fiscal 1997.
This increase resulted primarily from wireless telecommunications research and
development expenses arising from the expansion of the Company's commercial
business. As a percentage of net sales, research and development expenses
remained constant at 4% for the periods indicated.
Interest (Income) Expense and Other, net. Interest expense was $401,000 in
fiscal 1996 as compared to interest income of $48,000 for fiscal 1997. The
change was primarily attributable to the increased interest income associated
with the increased level of cash on hand as a result of the funds generated from
the Company's initial public offering which was completed in February 1996.
Provision for Income Taxes. The Company's effective income tax rate
increased from 40% in fiscal 1996 to 45% for fiscal 1997. The increase reflected
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 fiscal 1997 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 for fiscal 1996. Commercial sales increased 38% from $21.9 million
in fiscal 1995 to $30.2 million for fiscal 1996 and defense sales increased 5%
from $60.1 million in fiscal 1995 to $63.0 million for fiscal 1996.
17
<PAGE> 20
Gross Profit. Gross profit increased 13% from $24.0 million in fiscal 1995
to $27.1 million for fiscal 1996. Gross margins were 29% in both fiscal 1995 and
fiscal 1996. Commercial gross margins decreased from 42% in fiscal 1995 to 36%
for fiscal 1996. Commercial gross margins were affected by a change in sales mix
from the Company's subsidiaries and start-up costs associated with the Company's
new P-COM contract. Defense gross margins increased from 25% in fiscal 1995 to
26% for fiscal 1996.
Selling, General and Administrative Expenses. SG&A expenses increased 6%
from $15.6 million during fiscal 1995 to $16.6 million during fiscal 1996. As a
percentage of net sales, SG&A expenses decreased from 19% in 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 in fiscal 1995 to $4.0 million for fiscal 1996. This
increase resulted primarily from increased commercial wireless
telecommunications research and development expenses.
Interest (Income) Expense and Other, net. Interest expense decreased from
$590,000 for fiscal 1995 to $401,000 for fiscal 1996. The decrease was
attributable to continued reductions in average bank borrowings as the Company
reduced the debt attributable to the Humphrey acquisition.
Provision for Income Taxes. The Company's effective income tax rate
decreased from 42% in fiscal 1995 to 40% for fiscal 1996 primarily as a result
of the benefit of Q-bit's status as an S corporation under the Internal Revenue
Code.
18
<PAGE> 21
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial information
for each of the Company's last seven quarters. The information for each of these
quarters is unaudited but includes all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for a fair
presentation of this information when read in conjunction with the Consolidated
Financial Statements and Notes thereto incorporated herein by reference. The
results of operations for any quarter and any quarter-to-quarter trends are not
necessarily indicative of the results to be expected for any future periods.
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------
FISCAL 1997 FISCAL 1998
-------------------------------------------- -------------------------------
MAY 5, AUGUST 4, NOVEMBER 3, JANUARY 31, MAY 4, AUGUST 1, OCTOBER 31,
1996 1996 1996 1997 1997 1997 1997
------- --------- ----------- ----------- ------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $25,619 $29,324 $30,557 $33,054 $33,861 $39,428 $38,561
Cost of goods sold................... 18,363 21,086 22,182 24,027 23,684 27,388 26,789
------ ------ ------ ------ ------ ------ ------
Gross profit......................... 7,256 8,238 8,375 9,027 10,177 12,040 11,772
Operating expenses:
Selling, general and
administrative................... 4,175 4,509 4,782 5,896 5,378 6,189 6,442
Research and development........... 1,206 1,331 943 1,113 1,322 1,323 1,217
------ ------ ------ ------ ------ ------ ------
Total operating expenses.... 5,381 5,840 5,725 7,009 6,700 7,512 7,659
------ ------ ------ ------ ------ ------ ------
Income from operations............... 1,875 2,398 2,650 2,018 3,477 4,528 4,113
Gain on sale of subsidiary........... -- -- -- -- -- -- (2,833)
Interest (income) expense and other,
net................................ (70) (27) 41 7 (644) (580) (608)
------ ------ ------ ------ ------ ------ ------
Income before income taxes........... 1,945 2,425 2,609 2,011 4,123 5,108 7,554
Provision for income taxes........... 834 936 1,233 1,015 1,691 1,682 2,621
------ ------ ------ ------ ------ ------ ------
Net income........................... $ 1,111 $ 1,489 $ 1,376 $ 996 $ 2,432 $ 3,426 $ 4,933
====== ====== ====== ====== ====== ====== ======
Net income per share................. $ 0.07 $ 0.09 $ 0.08 $ 0.06 $ 0.11 $ 0.16 $ 0.23
====== ====== ====== ====== ====== ====== ======
Shares used per share calculations... 16,461 16,446 16,711 17,354 21,307 21,490 21,877
</TABLE>
The following table sets forth the above unaudited financial information as
a percentage of total net sales.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------------
FISCAL 1997 FISCAL 1998
----------------------------------------------- ---------------------------------
MAY 5, AUGUST 4, NOVEMBER 3, JANUARY 31, MAY 4, AUGUST 1, OCTOBER 31,
1996 1996 1996 1997 1997 1997 1997
------- ---------- ------------ ------------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ 100% 100% 100% 100% 100% 100% 100%
Cost of goods sold................... 71 72 73 73 70 70 69
--- --- --- --- --- --- ---
Gross profit......................... 29 28 27 27 30 30 31
Operating expenses:
Selling, general and
administrative................... 16 15 15 18 16 16 17
Research and development........... 5 5 3 3 4 3 3
--- --- --- --- --- --- ---
Total operating expenses.... 21 20 18 21 20 19 20
--- --- --- --- --- --- ---
Income from operations............... 7 8 9 6 10 11 11
Gain on sale of subsidiary........... -- -- -- -- -- -- (7)
Interest (income) expense and other,
net................................ (1) -- -- -- (2) (2) (2)
--- --- --- --- --- --- ---
Income before income taxes........... 8 8 9 6 12 13 20
Provision for income taxes........... 3 3 4 3 5 4 7
--- --- --- --- --- --- ---
Net income........................... 5% 5% 5% 3% 7% 9% 13%
=== === === === === === ===
</TABLE>
The increase in net sales in the second quarter of fiscal 1998 was
primarily due to the contribution of sales from Veritek, which was purchased in
March 1997, as well as an approximately $1 million increase in REMEC Wireless
sales. The decline in net sales in the third quarter of fiscal 1998 was
primarily due to the loss of sales from RFM following the Company's divestiture
of RFM on August 26, 1997. In addition, sales
19
<PAGE> 22
from Humphrey decreased in the third quarter of fiscal 1998. Gross margins
increased to 30% in the first quarter of fiscal 1998 from 27% in the fourth
quarter of fiscal 1997 as a result of increased contribution to total sales from
Radian and Magnum as well as higher gross margins on those sales.
The Company's quarterly results have fluctuated in the past and may
continue to fluctuate in the future due to a number of factors, including the
timing, cancellation or delay of customer orders, mix of products sold, the
timing of new product introductions by the Company or its competitors, the long
sales cycles associated with the Company's application-specific products, market
acceptance of the Company's and its customers' products, and other competitive
factors. In addition, with the decline in available defense industry production
programs, the Company has placed more reliance on development contracts as a
source of defense revenues, resulting in quarterly fluctuations due to this
changed product mix. Development contracts carry reduced gross margins and
typically call for minimal hardware deliveries and sporadic non-hardware revenue
items, which result in fluctuating revenues and gross margins. A large portion
of the Company's expenses are fixed and difficult to reduce. If net sales do not
meet the Company's expectations, the fixed nature of the Company's expenses
would exacerbate the effect of any net sales shortfall. Any unfavorable changes
in the factors listed above or others could have a material adverse effect on
the Company's business, operating results and financial condition. There can be
no assurance that the Company will be able to maintain quarterly profitability
in the future.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1997, REMEC had $82.4 million of working capital which
included cash and cash equivalents totaling $48.9 million. 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 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. The Company's Q-bit subsidiary had a $1.65 million line of credit facility
which was terminated at the time it was acquired by the Company. As of October
31, 1997, there were no borrowings outstanding under REMEC's credit facilities.
During the nine month period ended October 31, 1997, net cash provided by
operations totaled $1.4 million as the cash flow from earnings and depreciation
expense more than offset the $11.9 million increase in receivables and
inventory. Investing activities utilized $10.3 million during the nine months
ended October 31, 1997, primarily as a result of $10.8 million in capital
expenditures. The bulk of the capital expenditures were associated with the
expansion of REMEC's commercial wireless telecommunications business. In
addition, from January 31, 1997 to October 31, 1997, inventory increased 46% to
$28.1 million and fixed assets increased 45% to $26.8 million. These increases
were required to support the increased level of the Company's operations and
backlog. The above expenditures were financed primarily by funds raised in
REMEC's public offering of Common Stock completed in 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. Financing activities utilized approximately $5.0 million
during the first nine months of fiscal 1998, principally as a result of the
Company's repayment of certain bank and other obligations assumed in certain of
the Company's acquisitions.
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 will be adequate to fund its operations for at least
twelve months.
20
<PAGE> 23
BUSINESS
INTRODUCTION
REMEC is a leader in the design and manufacture of microwave multi-function
modules ("MFMs") for microwave transmission systems used in commercial
telecommunications and defense applications. The Company believes that its
expertise in microwave transmission system components such as filters,
amplifiers, mixers, switches and oscillators and its expertise in integrating
these components into MFMs give REMEC a strong competitive position in the
commercial wireless infrastructure equipment market. The Company's capabilities
enable it to develop and manufacture MFMs with reduced size, weight, parts count
and cost, and increased reliability and performance.
The Company's products operate at radio (300 MHz to 1 GHz), microwave (1
GHz to 20 GHz) and millimeter wave (20 GHz to 50 GHz) frequencies (these
frequencies are collectively referred to elsewhere in this Prospectus as
"microwave"). Modern wireless telecommunications systems employ microwave
transmission technology pioneered in the defense industry. Microwave frequency
bands have been used for emerging wireless telecommunications applications
because they are less congested and have more available bandwidth, affording
greater voice, data and video transmission capacity than lower frequency bands.
Driven by technological advances and regulatory changes, demand for wireless
telecommunications products has increased in recent years for applications such
as mobile telephony (cellular and PCS), rural telephony (VSAT), paging, wireless
cable, interactive television and wireless local loop. These emerging wireless
applications require a large infrastructure of microwave transmission equipment
such as base stations and point-to-point radios. The Company believes that the
evolution of cellular and PCS infrastructure, as well as other wireless
telecommunications systems, will require increased integration in order to
reduce size, weight and cost and to increase reliability and producibility of
base station equipment.
The Company also designs and manufactures precision instruments for
guidance, control and measurement systems used by the defense, aerospace,
petroleum and mining industries.
INDUSTRY BACKGROUND
In recent years there has been continually increasing demand for wireless
telecommunications services from businesses and consumers worldwide. This trend
has led to significant growth in the number of subscribers for existing wireless
communications systems and to the emergence of new wireless applications. In
response to this increasing demand, governmental regulatory agencies continue to
allocate additional frequencies for a broad range of wireless voice, data and
facsimile services. All of these services require substantial deployment or
expansion of microwave transmission infrastructure equipment to meet traffic
demand.
Cellular and PCS mobile telephony has accounted for much of the growth in
the wireless telecommunications industry. Cellular service uses radio base
stations that transmit and receive calls in localized areas. Each base station
has a finite capacity so as demand increases, the number of base stations
required to provide services also increases. A number of other factors are
currently increasing demand for base station infrastructure equipment.
Additional PCS frequency bands have recently been licensed, requiring new
equipment operating at frequencies different than current cellular frequencies.
Conversion from analog to CDMA/TDMA digital cellular systems requires the
replacement and/or expansion of current cellular networks. In large urban areas,
increased demand has required the deployment of micro base stations to maintain
service quality and reliability. Wireless "local loop" services, which use the
same equipment as cellular/PCS networks, are being installed in developing
regions of the world, since they can be implemented more rapidly and
economically than wired telephone systems.
The wireless telecommunications industry has also seen significant growth
from point-to-point and point-to-multipoint radio systems which operate at
higher frequencies and with much higher capacities. Point-to-point radios have
been traditionally used in low volumes for high capacity trunking applications
in telephony networks. As a result of telecommunications industry deregulation,
these radios are now being used in large area networks and in telephone bypass
applications by competitors to the traditional phone companies.
21
<PAGE> 24
New cellular and PCS networks are now typically interconnected using
point-to-point radios. New point-to-multipoint systems are being developed by
certain other companies to provide voice and data services in large urban areas
in direct competition with the local telephone companies. The FCC has announced
that it will auction additional frequency spectrum in 1998 for LMDS (local
multi-point distribution system) services.
Another growing segment of the wireless communications industry is VSATs
(very small aperture terminals), which are communications systems utilizing
fixed-site satellite terminals. Historically, these systems were primarily
designed for specific data applications. However, recent improvements in VSAT
technology for satellite-based wireless voice and data networks have led to
their increasing use in a variety of broader, higher system throughput
commercial applications such as mobile and rural telephony and more complicated
data transmissions. Satellite telephony systems are being utilized by developing
countries that lack a terrestrial-based telecommunication infrastructure, and
which seek to provide telephone service for large areas fairly rapidly and on a
cost-effective basis. Additionally, even where terrestrial systems exist,
satellite systems are used to fill in coverage for remote areas.
Wireless transmissions require the conversion of information into a higher
frequency signal that can be transmitted and received through the air.
Generally, the frequency spectrum is allocated for different wireless uses by
governmental entities. The following diagram illustrates the frequency ranges at
which various wireless applications operate or are expected to operate.
ALLOCATION OF FREQUENCY RANGE FOR WIRELESS APPLICATIONS
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
BAND FREQUENCY RANGE USES
- ------------------------------------------------------------------------------------------
LOW FREQUENCY (LF) <300 MHz Navigation Equipment
VERY HIGH FREQUENCY (VHF) (Aeronautical/Marine)
AM/FM Radio
Amateur/CB Radio
Television
Dispatch Radio
- ------------------------------------------------------------------------------------------
ULTRA HIGH FREQUENCY (UHF) 300 - 800 MHz UHF Television
Specialized Mobile Radio (SMR)
Paging
Wireless Data Collection
- ------------------------------------------------------------------------------------------
HIGH RADIO FREQUENCY (RF) 800 MHz - 1 GHz Analog Cellular
Digital Cellular
Two-way Messaging
Cordless Phone
- ------------------------------------------------------------------------------------------
MICROWAVE 1 - 2 GHz Private Radio Networks
PCS
Mobile Satellite Telephony
Military Communications/
Navigations
- ------------------------------------------------------------------------------------------
MICROWAVE/MILLIMETER WAVE 2 - 50 GHz VSAT
Satellite Voice/Messaging
Point-to-Point Radios
Wireless TV
Radar
Electronic Warfare
- ------------------------------------------------------------------------------------------
</TABLE>
THE REMEC OPPORTUNITY
All of the wireless communications services described above require
substantial deployment or expansion of microwave transmission infrastructure
equipment. The Company believes that it is particularly well suited to address
those requirements due to its broad portfolio of microwave capabilities and its
expertise at integrating microwave functions in a single package.
22
<PAGE> 25
Historically, microwave systems for defense applications were built by
prime contractors who would procure single function components (such as filters,
amplifiers and mixers) from various specialized manufacturers. These single
function components were then connected to create the complete microwave
transmission system. In order to prevent components from interfering with each
other or being damaged, components were individually packaged. In response to
the demands of the Department of Defense to increase performance for microwave
transmission systems (especially systems on aircraft and missiles), prime
contractors integrated more functionality into the systems while reducing size
and weight. To accomplish this, the prime contractors demanded higher levels of
integration from component suppliers.
The Company, which started in 1983 as a producer of single function
components, took a leadership role in developing microwave MFMs in which
numerous component functions are integrated into a single module. Integrating
multiple functions into one module reduces packaging and interconnects, permits
improved performance through optimal partitioning and implementation of
functions and minimizes "over engineering." The result has been significant
reductions in size, weight and cost and improvements in producibility and
reliability.
The Company believes that the evolution of commercial wireless
telecommunications systems also requires increased integration to reduce size,
weight and cost and to increase reliability and producibility of base station
equipment. The Company believes that the high cost of facilities, power and
maintenance necessitates the development of small, highly reliable and cost
effective microwave "front ends" (the circuitry of the radio that enables
signals to be transmitted and received at microwave frequencies) for wireless
transmission systems, requiring the increased use of MFMs. In addition,
increasing use of MFMs facilitates higher volume commercial production of
wireless infrastructure equipment.
23
<PAGE> 26
The following diagram illustrates the integration of functional and
physical characteristics of components into an MFM.
[LOGO]
The Company believes that the following core competencies enable it to
address the microwave requirements of customers in the wireless
telecommunications market:
Integration Expertise. Integration is a key part of designing high
performance equipment that operates at higher frequencies or that must operate
over a broad frequency range. By effectively integrating multiple functions into
single modules, REMEC has been able to accomplish the following:
- reduce packaging and interconnects
- improve performance through optimal partitioning and implementation of
functions
- reduce product size and parts count
- increase reliability
- minimize "over engineering" (e.g., avoid using higher performance, more
costly components than are necessary in order to compensate for the
performance degradation effects resulting from combining different
components into one system)
- reduce unit cost
Concurrent Engineering. The Company has excelled at developing products
optimized in design, process and manufacturing implementation by employing
"concurrent engineering" during the product development cycle. REMEC's
concurrent engineering approach extends to both its customer and supplier base.
REMEC often participates in its customers' product development cycle during the
conceptual design stage and is able to influence its customers' system
architecture/design in order to optimize for cost and performance at the MFM
level. Likewise, REMEC invites suppliers to participate in the design process to
optimize material and device selection. In the product design process, product
teams with design, process, quality and manufacturing engineering expertise
review the product design to assure its producibility, high quality and
affordability. Manufacturing process development and tooling occurs concurrently
with product development. REMEC
24
<PAGE> 27
believes that its concurrent engineering process reduces cycle times and costly
product redesigns when products move to volume production.
Technology Leadership. Since its inception in 1983, the Company has
developed over 2,500 microwave MFMs and components and has become an important
supplier of MFMs to many of the nation's leading telecommunication OEMs and
defense contractors. The Company is strategically partnered with a number of
OEMs, including P-COM, STM, Digital Microwave, and Lucent Technologies where the
Company provides all, or a large percentage of, the microwave content in the OEM
product. This partnership typically includes concurrent engineering activity and
shared technology development. The Company also has received significant
recognition, including "preferred supplier" designations, from numerous defense
customers including Lockheed Martin, TRW, Northrop Grumman and Raytheon. These
distinctions generally carry with them the opportunity to bid on all new product
procurements by the customer in the Company's area of expertise allowing REMEC
to increase market share. REMEC has developed a large number of proprietary
designs that provide performance/cost advantage to its customers. These designs
are continuously improved through technological evolution which is guided by the
Company's Technology Board. These designs can be re-applied or re-used resulting
in rapid product development and time to market. A large number of proprietary
manufacturing processes have also been developed to support large volume
production of microwave circuits.
Vertical Integration in Design and Manufacturing. With vertical
integration, the Company focuses on and retains control of each step of the
entire design and manufacturing process while minimizing the use of outside
sources and subcontractors for key services. Vertical integration reduces time
to market and unit costs and improves quality control, reliability and the
Company's ability to implement volume production. The Company has enhanced its
vertical integration capability with recent acquisitions, including a surface
mount board assembly manufacturer and several microwave component companies
which provide key functional capabilities that can be used in the Company's MFM
designs.
STRATEGY
REMEC intends to enhance its position as a leading developer and supplier
of microwave MFMs and components to wireless telecommunications infrastructure
OEMs and to retain leadership in developing and supplying microwave MFMs and
components to the defense industry. Execution of the Company's strategy
incorporates the following key elements:
Leverage Breadth of Microwave Capabilities in Telecom Equipment
Market. Through internal development and acquisitions, the Company believes that
it has compiled one of the broadest portfolio of microwave capabilities in the
industry. The Company intends to leverage that breadth of expertise by offering
total microwave solutions to telecommunications infrastructure OEMs for all of
their microwave component and subsystem needs. The Company believes that it can
provide such customers significant benefits in cost, performance, and time to
market compared to other microwave vendors who can supply only single function
components.
Maintain and Enhance Leadership in Microwave Technology. The Company
intends to maintain and enhance its leadership in microwave technology by
continuing its participation in selected defense programs that involve highly
sophisticated, state-of-the-art microwave technology. The Company has formed a
Technology Board comprised of its key executives and chief engineers to
disseminate throughout the Company technological improvements made in various
subsidiaries of the Company and to anticipate changes in technology and the
evolving technological needs of its customers. The Company believes that the
skills developed by REMEC in the defense industry and honed in the commercial
wireless market will continue to be a key factor in achieving substantial
reductions in the size and cost of commercial wireless infrastructure equipment.
Build Strategic Customer Alliances. The Company intends to continue its
focus on developing significant customer alliances with leading wireless OEMs
and defense prime contractors. The Company concentrates its efforts on
applications which offer the potential for recurring high volume production. In
wireless telecommunications the Company's strategy is to enter into strategic
alliances with selected leaders in each of the wireless market segments targeted
by the Company. REMEC supports its customers during their conceptual design
25
<PAGE> 28
stage to influence the system architecture/design to optimize for cost,
performance and producibility, further enhancing the likelihood of follow-on
business.
Maintain Cost Competitiveness. The Company intends to continue to implement
process manufacturing automation and believes that its ability to develop a high
level of automated product alignment and test capability offers an important
competitive advantage. The Company also intends to expand its foreign
manufacturing operations (in Canada, Costa Rica and Mexico) when appropriate to
lower its costs and/or to access an available workforce. The Company also
believes that its capabilities in integrating numerous functions into single
modules will enable it to continue to produce high performance products at
competitive cost.
Pursue Acquisitions. The Company pursues acquisitions to augment
technology by acquiring specialized component firms and to take advantage of
opportunities to consolidate niche companies in a currently fragmented microwave
equipment industry. The Company believes that expansion of capability through
the acquisition of component firms when combined with the Company's
technological and manufacturing skills at the component level will allow it to
achieve improved levels of MFM integration. The Company believes that it will
thereby be better able to respond to customer requirements for reduced size and
weight and lower cost.
PRODUCTS
Every microwave transmission system contains a microwave "front end" that
performs the function of transforming modulated voice, data or video from an
intermediate frequency ("IF") signal (generally 10 MHz to 500 MHz) into a
microwave frequency signal for transmission and/or converting an incoming signal
from microwave frequencies back into an IF modulated voice, data or video
signal. A microwave front end will usually consist of several interconnected
MFMs and single function components.
Point-to-Point Radio Market. In the point-to-point radio market, REMEC
manufactures microwave front ends or outdoor units (ODUs) as well as the
individual microwave modules (including diplexers, transceivers, synthesizers)
that provide the microwave front end functionality. Traditionally, radio
companies such as P-COM purchased individual modules and performed ODU
integration internally. As these radio companies have grown, there has been a
significant trend towards outsourcing the entire ODU. Using REMEC's broad
functional microwave capability, the Company has been able to obtain a large
portion of ODU business from its existing customers. REMEC also supplies a
significant portion of microwave modules to traditional customers with
established in-house integration capability.
VSAT Market. Like the point-to-point radio business, the Company has
focused its VSAT business at the ODU level. Most VSAT system integrators procure
the complete ODU. REMEC also provides microwave modules such as power amplifiers
to ODU integrators. A significant portion of this business is with STM, although
the Company is currently marketing an industry standard SCPC (single channel per
carrier) ODU at C-Band with plans to develop an additional product this year.
The Company has also completed development of a low cost SES VSAT terminal for
STM for rural telephony applications.
Cellular/PCS Market. In the cellular/PCS market, the Company sells
components including filters, amplifiers, VCOs and mixers that are used in base
station infrastructure equipment. The Company also sells a number of MFMs
including delay filter assemblies and filter/LNA assemblies for higher
performance digital base stations. The Company expects to derive significant
synergy from recently acquired component capability to provide more fully
integrated radio solutions to this industry much like the VSAT and
point-to-point radio business.
Defense Market. REMEC focuses its efforts on defense programs which it
believes have the highest probability of follow-on production. Tactical
aircraft, satellites, missile systems and smart weapons comprise the majority of
the platforms of the Company's customers. Defense industry programs from which
REMEC derives or may derive significant revenues include: (i) the F-22 Stealth
Tactical Fighter Aircraft program for the U.S. Air Force for which the Company
is developing switch amplifiers, switch filters, integrated switch modules,
power amplifiers, frequency generators, frequency converters and frequency
multipliers for three different microwave subsystems (CNI, Radar and Electronic
Warfare); (ii) the Airborne Self-Protection
26
<PAGE> 29
Jammer (ASPJ) program for foreign military customers and the U.S. Navy for which
the Company has developed and produced a 28-channel switched filter bank and
multi-function components such as frequency modulators; (iii) the Advanced
Medium Range Air to Air Missile (AMRAAM) program for the U.S. Air Force for
which the Company has developed and produced frequency multipliers, converters
and filters; and (iv) the Longbow Missile and Radar programs for the U.S. Army
for which the Company has developed and is producing MFMs, amplifiers, VCOs and
filters.
The following table delineates a more complete list of certain of the
Company's microwave components and MFMs:
<TABLE>
<CAPTION>
PRODUCT TYPES FUNCTION PRICE RANGE(1)
- --------------------------------- ----------------------------------------------------- ---------------
<S> <C> <C>
Filters, Duplexers and
Multiplexers................... Separate desired frequency bands from undesired bands $10 - 500
Amplifiers....................... Increase signal strength and power $25 - 5,000
Frequency Mixers................. Provide frequency conversion function $25 - 2,500
Voltage Controlled Oscillators... Generate frequency controlled by an input voltage $10 - 1,000
Dielectric Resonator
Oscillators.................... Generate fixed frequency microwave signal $250 - 2,000
Cavity Oscillators............... Generate fixed frequency microwave signal $250 - 4,000
Switches......................... Switch signal between different signal paths $100 - 2,000
Switch Attenuators............... Select discrete attenuation values $100 - 3,000
Variable Attenuators............. Select continuously variable attenuation values $100 - 3,000
Switch Matrices.................. Allow MxN connectivity between M-inputs and N-outputs $5,000 - 50,000
Switched Delay Lines............. Select discrete phase delays $1,000 - 3,000
Switched Filters................. Select between multiple filters $500 - 25,000
Multipliers...................... Multiply an input frequency by an integer $100 - 2,000
Comb Generators.................. Provide several multiplied frequencies in a single
output $100 - 2,000
Frequency Generators............. Generate multiple discrete frequency outputs $300 - 25,000
Frequency Synthesizers........... Generate a discrete stepped frequency output $300 - 50,000
Frequency Converters............. Provide frequency conversion function $300 - 5,000
Tranceivers...................... Transmit, receive and channel select microwave
signals $500 - 6,000
Point-to-Point Radio Front Transmit, receive and channel select microwave
Ends........................... signals for terrestrial applications $500 - 12,000
</TABLE>
- ---------------
(1) Price is affected by complexity and tolerance of specifications and
production quantities.
CUSTOMERS
The Company's customers for commercial wireless MFMs and components include
P-COM, STM, Digital Microwave, General Instrument and Alcatel. The Company's
customers for defense microwave MFMs and components include Lockheed Martin,
Motorola, Northrop Grumman and Raytheon (including portions of Hughes Aircraft
Co. and Texas Instruments which Raytheon acquired in 1997). During fiscal 1997,
sales to P-COM accounted for approximately 13% of net sales.
BACKLOG
The Company's backlog of orders as of January 31, 1997 and January 31, 1998
was $146.8 million ($75.1 million commercial and $71.7 million defense) and
$214.9 million ($136.0 million commercial and $78.9 million defense),
respectively. The Company includes in its backlog only those orders for which it
has accepted purchase orders. However, backlog is not necessarily indicative of
future sales. A substantial amount of the Company's backlog can be canceled at
any time without penalty, except, in most cases, for the recovery of the
Company's actual committed costs and profit on work performed up to the date of
cancellation. A failure to develop products meeting contract specifications
could lead to a cancellation of the related purchase orders. See "Risk
Factors -- Customer Concentration and Exclusivity," "-- Risk of Cost Overruns
and Product Non-Performance; Loss of Investment in Design and Engineering" and
"-- Backlog."
27
<PAGE> 30
SALES AND MARKETING
The Company uses a team-based sales approach to facilitate close management
by Company personnel of relationships at multiple levels of the customer's
organization, including management, engineering and purchasing personnel. The
Company's integrated sales approach involves a team consisting of a senior
executive, a business development specialist, members of the Company's
engineering department and, occasionally, a local technical sales
representative. In particular, the use of experienced engineering personnel as
part of the sales effort enables close technical collaboration with the customer
during the design and qualification phase of new communications equipment which,
the Company believes, is critical to the integration of its products into its
customers equipment. The Company's executive officers are also involved in all
aspects of the Company's relationships with its major customers and work closely
with their senior management. The Company utilizes manufacturers and sales
representatives to identify opportunities.
To date, the Company has sold its products overseas with the assistance of
independent sales representatives. Sales outside of the United States
represented 11%, 17% and 17% of net sales in fiscal years ended January 31, 1996
and 1997 and the nine months ended October 31, 1997, respectively. Sales outside
of the United States are denominated in U.S. dollars in order to reduce the
risks associated with the fluctuations of foreign currency exchange rates. The
international sales do not include products sold to foreign end users by the
Company's domestic OEM customers.
MANUFACTURING
The Company assembles, tests, packages and ships products at its
manufacturing facilities located in: San Diego, Escondido, San Jose, Santa Clara
and Milpitas, California; Melbourne, Florida; Toronto, Canada; San Jose, Costa
Rica; and Tijuana, Mexico. The Company believes that process expertise and
discipline are key elements of successful high volume production of microwave
MFMs because of the precise specifications required. Since inception, the
Company has been manufacturing products for defense programs in compliance with
the stringent MIL-Q-9858 specifications. The Company received ISO-9001
certification from the Defense Electronics Supply Center for its facilities at
REMEC Microwave. ISO-9001 is a standard established by the International
Organization for Standardization that provides a methodology by which
manufacturers can obtain quality certification. Although this certification is
not currently required by any of its customers, REMEC believes that it will be
beneficial to the acquisition of future business. To assure the highest product
quality and reliability and to maximize control over the complete manufacturing
cycle and costs, the Company seeks to achieve vertical integration in the
manufacturing process wherever appropriate.
Historically, the volume of the Company's production requirements in the
defense markets was not sufficient to justify the widespread implementation of
automated manufacturing processes. The Company anticipates that increased sales
of its products to the wireless telecommunications industry will require a
significant increase in the Company's manufacturing capacity. Accordingly, the
Company has introduced automated manufacturing techniques for product assembly
and testing and is currently planning to expand its facilities.
The Company attempts to utilize standard parts and components that are
available from multiple vendors. However, certain components used in the
Company's products are currently available only from single sources, and other
components are available from only a limited number of sources. The Company's
reliance on contract manufacturers and on sole suppliers involves several risks,
including a potential inability to obtain critical materials or services and
reduced control over production costs, delivery schedules, reliability and
quality of components or assemblies. Any inability to obtain timely deliveries
of acceptable quality, or any other circumstance that would require the Company
to seek alternative contract manufacturers or suppliers, could delay the
Company's ability to deliver its products to its customers, which in turn would
have a material adverse effect on the Company's business, financial condition
and results of operations. Despite the risks associated with purchasing
components from single sources or from a limited number of sources, the Company
has made the strategic decision to select single source or limited source
suppliers in order to obtain lower pricing, receive more timely delivery and
maintain quality control. In 1997, the Company acquired Veritek which provides
surface mount capabilities and expertise. The Company also relies on contract
manufacturers for circuit board assembly. The Company generally orders
components and circuit boards from its suppliers
28
<PAGE> 31
and contract manufacturers by purchase order on an as needed basis. See "Risk
Factors Dependence on Suppliers and Contract Manufacturers" and "-- Government
Regulations."
COMPETITION
The markets for the Company's products are extremely competitive and are
characterized by rapid technological change, new product development, product
obsolescence and evolving industry standards. In addition, price competition is
intense and significant price erosion generally occurs over the life of a
product. The Company faces some competition from component manufacturers who
have integration capabilities, but believes that its primary competition is from
the captive manufacturing operations of large wireless telecommunications OEMs
(including all of the major telecommunications equipment providers) and defense
prime contractors who are responsible for a substantial majority of the present
worldwide production of MFMs. The Company's future success is dependent upon the
extent to which these OEMs and defense prime contractors elect to purchase from
outside sources rather than manufacture their own microwave MFMs and components.
The Company's customers and large manufacturers of microwave transmission
equipment could also elect to enter into the non-captive market for microwave
products and compete directly with the Company. Many of the Company's current
and potential competitors have substantially greater technical, financial,
marketing, distribution and other resources than the Company and have greater
name recognition and market acceptance of their products and technologies. No
assurance can be given that the Company's competitors will not develop new
technologies or enhancements to existing products or introduce new products that
will offer superior price or performance features or that new products or
technologies will not render obsolete the products of the Company's customers.
For example, innovations such as a wireless telephone system utilizing
satellites instead of terrestrial base stations or a device that integrates
microwave functionality could significantly reduce the potential market for the
Company's products. The Company believes that to remain competitive in the
future it will need to invest significant financial resources in research and
development.
RESEARCH AND DEVELOPMENT
Research and development expenses recorded by the Company for the fiscal
years ended January 31, 1995, 1996 and 1997 and for the nine months ended
October 31, 1997 were approximately $2,067,000, $4,016,000, $4,605,000 and
$3,862,000, respectively. The Company'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, are included in cost of sales and the
related funding in net sales. The Company expects that as its commercial
business expands, research and development expenses will increase in amount and
as a percentage of sales.
GOVERNMENT REGULATIONS
The Company's products are incorporated into wireless telecommunications
systems that are subject to regulation domestically by the FCC and
internationally by other government agencies. Although the equipment operators
and not the Company are responsible for compliance with such regulations,
regulatory changes, including changes in the allocation of available frequency
spectrum, could materially adversely affect the Company's operations by
restricting development efforts by the Company's customers, obsoleting current
products or increasing the opportunity for additional competition. Changes in,
or the failure by the Company to manufacture products in compliance with,
applicable domestic and international regulations could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the increasing demand for wireless telecommunications has exerted
pressure on regulatory bodies worldwide to adopt new standards for such
products, generally following extensive investigation of and deliberation over
competing technologies. The delays inherent in this governmental approval
process have in the past caused and may in the future cause the cancellation,
postponement or rescheduling of the installation of communications systems by
the Company's customers, which in turn may have a material adverse effect on the
sale of products by the Company to such customers.
The Company is also subject to a variety of local, state, federal and
foreign governmental regulations relating to the storage, discharge, handling,
emission, generation, manufacture and disposal of toxic or other
29
<PAGE> 32
hazardous substances used to manufacture the Company's products. The failure to
comply with current or future regulations could result in the imposition of
substantial fines on the Company, suspension of production, alteration of its
manufacturing processes or cessation of operations.
Because of its participation in the defense industry, the Company is
subject to audit from time to time for its compliance with government
regulations by various agencies, including the Defense Contract Audit Agency,
the Defense Investigative Service and the Office of Federal Control Compliance
Programs. These and other governmental agencies may also, from time to time,
conduct inquiries or investigations that may cover a broad range of Company
activity. Responding to any such audits, inquiries or investigations may involve
significant expense and divert management attention. Also, an adverse finding in
any such audit, inquiry or investigation could involve penalties that may have a
material adverse effect on the Company's business, financial condition or
results of operation.
The Company believes that it operates its business in material compliance
with applicable government regulations.
INTELLECTUAL PROPERTY
The Company does not presently hold a patent applicable to its products
which is significant. In order to protect its intellectual property rights, the
Company relies on a combination of trade secret, copyright and trademark laws
and employee and third-party nondisclosure agreements, as well as limiting
access to and distribution of proprietary information. There can be no assurance
that the steps taken by the Company to protect its intellectual property rights
will be adequate to prevent misappropriation of the Company's technology or to
preclude competitors from independently developing such technology. Furthermore,
there can be no assurance that, in the future, third parties will not assert
infringement claims against the Company or with respect to its products for
which the Company has indemnified certain of its customers. Asserting the
Company's rights or defending against third party claims could involve
substantial costs and diversion of resources, thus materially and adversely
affecting the Company's business, financial condition and results of operations.
In the event a third party were successful in a claim that one of the Company's
products infringed its proprietary rights, the Company may have to pay
substantial royalties or damages, remove that product from the marketplace or
expend substantial amounts in order to modify the product so that it no longer
infringes such proprietary rights, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
EMPLOYEES
As of January 16, 1998, the Company had a total of 1,820 employees,
including 1,340 in manufacturing and operations, 227 in research, development
and engineering (including 54 designers and drafters, 27 manufacturing
engineers, 14 quality engineers and 132 electrical and mechanical engineers), 98
in quality assurance, 31 in sales and marketing and 124 in administration. The
Company believes its future performance will depend in large part on its ability
to attract and retain highly skilled employees. None of the Company's employees
is represented by a labor union and the Company has not experienced any work
stoppage. The Company considers its employee relations to be good.
FACILITIES
The Company's principal administrative, engineering and manufacturing
facilities are located in eight buildings aggregating approximately 200,000
square feet in San Diego and Escondido, California, consisting of one 21,000
square foot facility owned by the Company and seven leased facilities, pursuant
to leases which expire on various dates beginning January 2000 through March
2007. The Company's Northern California operations are located in four leased
buildings aggregating approximately 101,000 square feet in San Jose, Milpitas
and Santa Clara, California. These leases expire on various dates beginning in
March 1998 through October 2003. Q-bit owns a 51,000 square foot building
located in Melbourne, Florida and leases 8,000 square feet in a building in San
Jose, Costa Rica, with lease expiration in June 1998. Nanowave leases
approximately 25,000 square feet in two buildings located in Toronto, Canada,
under leases which expire in September 2001. The Company believes that its
existing facilities are adequate to meet its current needs and that suitable
additional or alternative space will be available on commercially reasonable
terms as needed.
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<PAGE> 33
MANAGEMENT
OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
January 31, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------- ---- ---------------------------------------------------------
<S> <C> <C>
Ronald E. Ragland(1)..... 56 Chairman of the Board and Chief Executive Officer
Errol Ekaireb............ 59 President, Chief Operating Officer and Director
Jack A. Giles............ 55 Executive Vice President, President of REMEC Microwave
and Director
Joseph T. Lee............ 43 Executive Vice President, President of Northern
California Operations and Director
Denny Morgan............. 44 Senior Vice President, Chief Engineer and Director
Tao Chow................. 46 Senior Vice President and President of C&S Hybrid
Michael McDonald......... 44 Senior Vice President, Chief Financial Officer and
Secretary
James Mongillo........... 59 Senior Vice President and President of Radian and Magnum
Justin Miller............ 48 Vice President and President of REMEC Canada and Nanowave
Thomas A. 53 Director
Corcoran(1)(2).........
William H. Gibbs(1)(2)... 54 Director
Andre R. Horn(3)......... 69 Director
Gary L. Luick(3)......... 57 Director
Jeffrey M. Nash(2)(3).... 50 Director
</TABLE>
- ---------------
(1) Member of the Nominating Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Mr. Ragland was a founder of the Company and has served as Chairman of the
Board and Chief Executive Officer of the Company since January 1983. Prior to
joining the Company, he was General Manager of KW Engineering and held program
management positions with Ford Aerospace Communications Corp., E-Systems, Inc.
and United Telecommunications, Inc. Mr. Ragland was a Captain in the United
States Army and holds a B.S.E.E. degree from Missouri University at Rolla and an
M.S.E.E. degree from St. Louis University.
Mr. Ekaireb has served as President and Chief Operating Officer of the
Company since 1990 and a director of the Company since 1985. Mr. Ekaireb served
as Vice President of the Company from 1984 to 1987 and as Executive Vice
President and Chief Operating Officer from 1987 to 1990. Prior to joining the
Company, he spent 23 years with Ford Aerospace Communications Corp. Mr. Ekaireb
holds B.S.E.E. and B.S.M.E. degrees from West Coast University and has completed
the University of California, Los Angeles Executive Program.
Mr. Giles joined the Company in 1984. He was elected as a director in 1984,
Vice President in 1985, Executive Vice President in 1987 and was elected
President of REMEC Microwave in 1994. Prior to joining the Company he spent
approximately 19 years with Texas Instruments in program management and
marketing. Mr. Giles holds a B.S.M.E. degree from the University of Arkansas and
is a graduate of Defense Systems Management College.
Mr. Lee has been a director and Executive Vice President of the Company
since September 1996 and was elected as President of the Company's Northern
California Operations in December 1997. Prior to the acquisition of Magnum by
the Company he was Chairman of the Board, President and Chief Executive
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<PAGE> 34
Officer of Magnum. Mr. Lee holds a B.S.E.E. degree from the University of
Michigan and M.S.E.E. and ENGINEER (Doctor of Engineering) degrees from Stanford
University.
Mr. Morgan was a founder of the Company and has served as Senior Vice
President, Chief Engineer and a director of the Company since January 1983.
Prior to joining the Company, he worked with KW Engineering, Micromega, General
Dynamics Corporation and Pacific Aerosystems, Inc. Mr. Morgan holds a B.S.E.E.
degree from the Massachusetts Institute of Technology and was the Four Year
Chancellor's Intern Fellowship Recipient at the University of California, Los
Angeles.
Mr. Chow has served as the President and a director of C&S Hybrid and
Senior Vice President of REMEC since July 1997. Prior to the acquisition of C&S
Hybrid by REMEC, Mr. Chow was a founder of C&S Hybrid and has served as
President and a director of C&S Hybrid since September 1984. Mr. Chow has also
served as a director and the President and Chief Financial Officer of Custom
Micro Machining, Inc. since 1990, and as a director of Applied Thin-Film
Products since April 1995. Mr. Chow holds a B.S.E.E. degree from National
Chiao-Tung University in Taiwan and a M.S.E.E. degree from the University of
California, Los Angeles.
Mr. McDonald was appointed Senior Vice President, Chief Financial Officer
and Secretary in December 1997. Prior to the acquisition of Magnum by the
Company, he had been Vice President and Chief Financial Officer of Magnum. Prior
to joining Magnum in 1984, he worked at Watkins-Johnson Company. Mr. McDonald
holds a B.S. degree from the University of San Francisco and an M.B.A. degree
from California Polytechnic State University at San Luis Obispo.
Mr. Mongillo joined the Company in February 1997 as part of the Radian
Technology acquisition. He is a Senior Vice President of the Company, and is
serving as President of both Radian Technology and Magnum Microwave. Prior to
the acquisition of Radian Technology, he was the Chairman of the Board,
President and Chief Executive Officer of Radian. Mr. Mongillo holds a B.S.E.E.
degree from Brown University.
Dr. Miller has served as President and director of Nanowave Technologies
and REMEC Canada and Vice President of REMEC since October 1997. Prior to the
Nanowave acquisition by REMEC, he was a founder of Nanowave and served as its
President and a director since 1992. Prior to that he served as Vice
President -- Engineering of Microwave Technologies, a division of Lucas
Industries plc. Dr. Miller holds a Ph.D. from the University of Warwick.
Mr. Corcoran was elected a director of the Company in May, 1996. Mr.
Corcoran has been the President and Chief Operating Officer of the Electronic
Systems sector of Lockheed Martin Corporation since March 1995. From 1993 to
1995 Mr. Corcoran was President of the Electronics Group of Martin Marietta
Corporation, and from 1983 to 1993 he held various management positions with the
Aerospace segment of General Electric Company. Mr. Corcoran is a member of the
Board of Trustees of Worcester Polytechnic Institute, the Board of Trustees of
Stevens Institute of Technology and the Board of Governors of the Electronic
Industries Association and a Director of the U.S. Navy Submarine League.
Mr. Gibbs was elected a director of the Company in May, 1996. Mr. Gibbs has
been the President and Chief Executive Office of DH Technology, Inc. since
November 1985 and Chairman of DH Technology, Inc. since February 1987. From
August 1983 to November 1985, he held various positions, including those of
President and Chief Operating Officer, with Computer and Communications
Technology, a supplier of rigid disc magnetic recording heads to the peripheral
equipment segment of the computer industry.
Mr. Horn has been a director of the Company since 1988. Mr. Horn is the
retired Chairman of the Board of Joy Manufacturing Company. From 1985 to 1991,
Mr. Horn served as the Chairman of the Board of Needham & Company, Inc., which
is serving as one of the representatives of the underwriters in the offering
made hereby. He currently holds the honorary position of Chairman Emeritus of
Needham & Company, Inc. Mr. Horn is a director of Western Digital Corporation, a
computer equipment manufacturer, and Varco International, Inc., a manufacturer
of petroleum industry equipment.
Mr. Luick has been a director of the Company since 1994. Currently, Mr.
Luick is President, Chief Executive Officer and Director of Coded Communications
Corporation, a manufacturer of mobile wireless
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<PAGE> 35
data networking and communications systems providing connectivity to public
safety, government and commercial customers worldwide. Mr. Luick served as
President and a director of GTI Corporation from 1989 through 1995 and as Chief
Executive Officer of GTI Corporation from 1991 through 1995.
Dr. Nash has been a director of the Company since 1988. From 1995 to 1998,
he was the President, Chief Executive Officer and a Director of TransTech
Information Management Systems, Inc. From 1994 to 1995, Dr. Nash was Chairman,
Chief Executive Officer and President of Digital Perceptions, Inc., and, from
1989 to 1994, was the Chief Executive Officer and President of Visqus as well as
Conner Technology, Inc., both subsidiaries of Conner Peripherals, Inc. Dr. Nash
is currently a director of Proxima Corporation, a computer equipment
manufacturer, ViaSat, Inc., a manufacturer of satellite communication equipment,
and Chairman of the Board of Esscor, Inc., a producer of power plant simulators
for the electrical utility industry.
Members of the Company's Board of Directors are each elected for one year
terms at the annual shareholders meeting. Officers are elected at the first
Board of Directors meeting following the shareholders meeting at which directors
are elected and serve at the discretion of the Board of Directors.
The Board of Directors has a standing Compensation Committee, Audit
Committee and Nominating Committee. The Compensation Committee provides
recommendations to the Board concerning salaries and incentive compensation for
officers of the Company and approves equity grants to the Company's officers.
The Audit Committee recommends the Company's independent auditors and reviews
the results of and scope of audits and other accounting-related services
provided by such auditors. The Nominating Committee reviews potential candidates
for service on the Board.
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<PAGE> 36
PRINCIPAL AND SELLING SHAREHOLDERS
The following sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 31, 1998, and as adjusted to reflect
the sale of the shares offered by this Prospectus (i) by each of the Company's
directors and each of the Named Executive Officers, (ii) by all directors and
executive officers as a group, (iii) by each person who is known by the Company
to own beneficially more than 5% of the Common Stock, and (iv) by the Selling
Shareholders:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) NUMBER AFTER OFFERING(1)
------------------------ OF SHARES ------------------------
NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
--------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Ronald E. Ragland(3)............... 1,146,090 5.40% 292,180 853,910 3.79%
Errol Ekaireb(4)................... 169,819 * 43,293 126,526 *
Joseph T. Lee(5)................... 548,674 2.59% 139,877 408,797 1.82%
Denny Morgan(6).................... 374,746 1.77% 56,212 318,536 1.42%
Jack A. Giles(7)................... 279,878 1.32% 66,063 213,815 *
Gary L. Luick(8)................... 12,350 * 0 12,350 *
Andre R. Horn(9)................... 19,856 * 5,000 14,856 *
Jeffrey M. Nash(9)................. 49,400 * 12,594 36,806 *
Thomas A. Corcoran(10)............. 19,088 * 0 19,088 *
William H. Gibbs(8)................ 10,838 * 0 10,838 *
Michael McDonald(11)............... 86,775 * 22,122 64,653 *
Tao Chow........................... 837,324 3.95% 213,464 623,860 2.77%
James Mongillo..................... 257,920 1.22% 65,753 192,167 *
Justin Miller...................... 182,671 * 45,000 137,671 *
All directors and executive
officers as a group (14
persons)(12)..................... 3,995,431 18.76% 961,558 3,995,431 17.68%
Harold Kries(13)................... 12,286 * 1,000 11,286 *
Jon Opalski(14).................... 89,819 * 2,500 87,319 *
Gary Callaway...................... 84,813 * 21,622 63,191 *
Keith Butler(15)................... 56,070 * 5,820 50,250 *
Clark Hickock(16).................. 37,884 * 7,500 30,384 *
</TABLE>
- ---------------
* Less than one percent of the outstanding shares of Common Stock.
(1) Except pursuant to applicable community property laws or as indicated in
the footnotes to this table, to the Company's knowledge, each shareholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such
shareholder.
(2) Applicable percentage of ownership prior to offering for each shareholder
is based on 21,182,651 shares of Common Stock outstanding as of January 31,
1998, together with applicable options for such shareholders. Applicable
percentage of ownership after offering for each shareholder is based on
22,482,651 shares of Common Stock, together with applicable options for
such shareholders. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission, and includes voting
and investment power with respect to the shares. Shares of Common Stock
subject to outstanding options are deemed outstanding for computing the
percentage of ownership of the person holding such options, but are not
deemed outstanding for computing the percentage ownership of any other
person.
(3) Includes 19,000 shares held by Mr. Ragland's minor children, 3,750 shares
held by Mr. Ragland's spouse and 26,650 shares issuable upon exercise of
outstanding options that are exercisable on or before April 1, 1998. Mr.
Ragland's address is 9404 Chesapeake Drive, San Diego, California 92123.
(4) Includes 12,000 shares held by Mr. Ekaireb's spouse and 13,500 shares
issuable upon exercise of outstanding options that are exercisable on or
before April 1, 1998.
(5) Includes 13,500 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 1998.
(6) Includes 11,700 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 1998. All shares beneficially owned
by Mr. Morgan are held in the Morgan Trust, of which Mr. Morgan and his
spouse act as co-trustees.
(7) Includes 11,625 shares held by Mr. Giles' spouse and 4,000 shares issuable
upon exercise of outstanding options that are exercisable on or before
April 1, 1998.
(8) Issuable upon exercise of outstanding options that are exercisable on or
before April 1, 1998.
(9) Includes 4,850 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 1998.
(10) Includes 10,838 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 1998.
(11) Includes 2,835 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 1998.
(12) Includes 108,411 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 1998.
(13) Includes 900 shares issuable upon exercise of outstanding options that are
exercisable on or before April 1, 1998.
(14) Includes 2,250 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 1998.
(15) Includes 2,511 shares held by Mr. Opalski's spouse and 2,250 shares
issuable upon exercise of outstanding options that are exercisable on or
before April 1, 1998.
(16) Includes 4,050 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 1998.
34
<PAGE> 37
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement, the Underwriters named below, for whom Needham & Company, Inc., CIBC
Oppenheimer Corp. and A.G. Edwards & Sons, Inc. are acting as representatives
(the "Representatives"), have severally agreed to purchase from the Company and
Selling Shareholders, and the Company and Selling Shareholders have agreed to
sell to each Underwriter, the aggregate number of shares of Common Stock set
forth opposite their respective names in the table below. The Underwriting
Agreement provides that the obligations of the Underwriters to pay for and
accept delivery of the shares of Common Stock are subject to certain conditions
precedent, and that the Underwriters are committed to purchase and pay for all
shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------------ ---------
<S> <C>
Needham & Company, Inc ...........................................
CIBC Oppenheimer Corp. ...........................................
A.G. Edwards & Sons, Inc .........................................
---------
Total................................................... 2,300,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price less a concession not in excess of
$ per share, of which $ may be reallowed to other dealers.
After the offering to the public, the offering price and other selling terms may
be changed by the Representatives. No such reduction shall change the amount of
the proceeds to be received by the Company and the Selling Shareholders as set
forth on the cover page of this Prospectus.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 345,000
shares of Common Stock at the same price per share as the Company and the
Selling Shareholders receive for the 2,300,000 shares that the Underwriters have
agreed to purchase from them. To the extent the Underwriters exercise such
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares of Common Stock to be purchased by such
Underwriter, as shown in the above table, bears to the total shown.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Company and the Underwriters and the Selling Shareholders against
certain civil liabilities that may be incurred in connection with this offering,
including liabilities under the Securities Act.
Pursuant to the terms of lock-up agreements, all officers, directors and
Selling Shareholders have agreed with the Representatives not to sell, otherwise
dispose of, contract to sell, grant any option to sell, transfer or otherwise
dispose of, directly or indirectly, shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock or any substantially
similar securities for a period of 180 days after the date of this Prospectus,
without the prior written consent of Needham & Company, Inc. The Company has
agreed, with certain limited exceptions, not to sell, contract to sell, grant
any option to sell, transfer or otherwise dispose of, directly or indirectly,
shares of Common Stock or any substantially similar securities for a period of
180 days after the date of this Prospectus, without the prior written consent of
Needham & Company, Inc.
35
<PAGE> 38
The Underwriters will not make sales to accounts over which they exercise
discretionary authority (i) in excess of 5% of the number of shares of Common
Stock offered hereby, and (ii) unless they obtain specific written consent of
the customer.
In connection with the offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualifying registered
market makers on the Nasdaq National Market, may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 103 of Regulation M during a period before the commencement of offers
of sales of the Common Stock offered hereby. The passive market making
transactions must comply with applicable volume and price limits and be
identified as such.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Heller Ehrman White & McAuliffe, Los Angeles, California. Certain
legal matters relating to the offering will be passed upon for the Underwriters
by Gray Cary Ware & Freidenrich, San Diego, California.
EXPERTS
The consolidated financial statements and schedule of REMEC, Inc. at
January 31, 1997 and 1996, and for each of the three years in the period ended
January 31, 1997 have been audited by Ernst & Young LLP, independent auditors,
as set forth in their reports thereon included therein and incorporated herein
by reference which, as to the years 1997, 1996 and 1995, are based in part on
the report of Ireland San Filippo, LLP, independent auditors, and on the report
of Bray, Beck & Koetter, independent auditors. Such consolidated financial
statements are incorporated by reference in this Prospectus and Registration
Statement in reliance upon such reports given upon the authority of such firms
as experts in accounting and auditing.
36
<PAGE> 39
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 12
Price Range of Common Stock........... 12
Capitalization........................ 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 21
Management............................ 31
Principal and Selling Shareholders.... 34
Underwriting.......................... 36
Legal Matters......................... 37
Experts............................... 37
</TABLE>
======================================================
======================================================
2,300,000 Shares
REMEC LOGO
Common Stock
-------------------
PROSPECTUS
-------------------
Needham & Company, Inc.
CIBC Oppenheimer
A.G. Edwards & Sons, Inc.
------------------------
, 1998
======================================================
<PAGE> 40
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company will pay all expenses incident to the offering and sale to the
public of the shares being registered other than any commissions and discounts
of underwriters, dealers or agents and any transfer taxes. Such expenses are set
forth in the following table. All of the amounts shown are estimates except the
SEC Registration Fee, the NASD Filing Fee and the Nasdaq National Market
Additional Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 20,678
NASD filing fee................................................... $ 7,510
Nasdaq National Market Additional Listing Fee..................... $ 17,500
Blue Sky Qualification Fees and Expenses.......................... $ 2,000
Transfer Agent and Registrar Fees................................. $ 5,000
Printing and Engraving............................................ $ 65,000
Legal fees and expenses........................................... $150,000
Accounting fees and expenses...................................... $ 35,000
Miscellaneous expenses............................................ $ 47,312
--------
Total................................................... $350,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has the power to indemnify its officers and directors
against liability for certain acts pursuant to Section 317 of the General
Corporation Law of California. Articles Fifth and Sixth of the Registrant's
Amended and Restated Articles of Incorporation provide as follows:
"Fifth: The liability of directors of this Corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law."
"Sixth: This Corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) for
breach of duty to this Corporation and its shareholders through bylaw
provisions, or through agreements with the agents, or otherwise, in excess
of the indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject to the limits on such excess indemnification set
forth in Section 204 of the Code."
In addition, Article V of the Registrant's By-laws provides that the
Registrant shall indemnify its directors and executive officers to the fullest
extent not prohibited by California General Corporation Law and provides for the
advancement of expenses upon a receipt of an undertaking to repay such amounts
if the person is determined ultimately not to be entitled to indemnification.
The Registrant has entered into Indemnification Agreements with its
officers and directors.
II-1
<PAGE> 41
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1(1) Restated Articles of Incorporation.
3.2(1) By-Laws, as amended.
5.1 Opinion of Heller Ehrman White & McAuliffe.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Ireland San Filippo, LLP, Independent Public Accountants.
23.3 Consent of Bray, Beck & Koetter, Independent Public Accountants.
23.4 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).
</TABLE>
- ---------------
(1) 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.
ITEM 17. UNDERTAKINGS
A. UNDERTAKING PURSUANT TO RULE 415
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement; provided, however, that paragraphs A(l)(i) and A(l)(ii) do
not apply if the Registration Statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that are incorporated by
reference in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of this offering.
II-2
<PAGE> 42
B. UNDERTAKING REGARDING FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT
DOCUMENTS BY REFERENCE
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. UNDERTAKING IN RESPECT OF INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 43
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, REMEC, Inc. has
duly caused this Registration Statement on Form S-3 to be signed on its behalf
by the undersigned, thereunto duly authorized, in San Diego, California on
February 4, 1998.
REMEC, INC.
By: /s/ RONALD E. RAGLAND
------------------------------------
Ronald E. Ragland
Chairman of the Board and
Chief Executive Officer
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ronald
E. Ragland, Errol Ekaireb and Michael McDonald his true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to the Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, and all post-effective amendments thereto, and to file the same, with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
or her substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------------------------- ---------------------------- -------------------
<C> <S> <C>
/s/ RONALD E. RAGLAND Chairman of the Board and February 4, 1998
- --------------------------------------------- Chief Executive Officer
Ronald E. Ragland (Principal Executive
Officer)
/s/ ERROL EKAIREB President, Chief Operating February 4, 1998
- --------------------------------------------- Officer and Director
Errol Ekaireb
/s/ JACK A. GILES Executive Vice President, February 4, 1998
- --------------------------------------------- President of REMEC Microwave
Jack A. Giles Division and Director
/s/ DENNY MORGAN Senior Vice President, Chief February 4, 1998
- --------------------------------------------- Engineer and Director
Denny Morgan
/s/ JOSEPH T. LEE Executive Vice President and February 4, 1998
- --------------------------------------------- Director
Joseph T. Lee
/s/ MICHAEL MCDONALD Senior Vice President, Chief February 4, 1998
- --------------------------------------------- Financial Officer and
Michael McDonald Secretary (Principal
Financial and Accounting
Officer)
</TABLE>
II-4
<PAGE> 44
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------------------------- ---------------------------- -------------------
<C> <S> <C>
/s/ ANDRE R. HORN Director February 4, 1998
- ---------------------------------------------
Andre R. Horn
/s/ GARY L. LUICK Director February 4, 1998
- ---------------------------------------------
Gary L. Luick
/s/ JEFFREY M. NASH Director February 4, 1998
- ---------------------------------------------
Jeffrey M. Nash
Director February 4, 1998
- ---------------------------------------------
Thomas A. Corcoran
Director February 4, 1998
- ---------------------------------------------
William H. Gibbs
</TABLE>
II-5
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGES
- -------- ---------------------------------------------------------------------- ---------------
<S> <C> <C>
1.1 Form of Underwriting Agreement........................................
3.1(1) Restated Articles of Incorporation....................................
3.2(1) By-Laws, as amended...................................................
5.1 Opinion of Heller Ehrman White & McAuliffe............................
23.1 Consent of Ernst & Young LLP, Independent Auditors....................
23.2 Consent of Ireland San Filippo, LLP, Independent Public Accountants...
23.3 Consent of Bray, Beck & Koetter, Independent Public Accountants.......
23.4 Consent of Counsel (included in Exhibit 5.1)..........................
24.1 Power of Attorney (included on page II-4).............................
</TABLE>
- ---------------
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to the Registrant's Registration Statement on Form S-1 (No. 333-80381) filed
on February 1, 1996 and incorporated herein by reference.
<PAGE> 1
EXHIBIT 1.1
2,300,000 SHARES(1)
REMEC, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
February __, 1998
NEEDHAM & COMPANY, INC.
A.G. EDWARDS & SONS, INC.
CIBC OPPENHEIMER CORP.
As Representatives of the Underwriters
c/o Needham & Company, Inc.
445 Park Avenue, 3rd Floor
New York, New York 10022
Ladies and Gentlemen:
REMEC, Inc., a California corporation (the "Company") and certain
shareholders of the Company named in Schedule II hereto (the "Selling
Shareholders") propose to sell 2,300,000 shares (the "Firm Shares") of Common
Stock, $0.01 per share par value, of the Company (the "Common Stock"), to you
and to the other Underwriters (as defined below). The Company has agreed to
grant to you and the other Underwriters named in Schedule I hereto
(collectively, the "Underwriters"), an option (the "Option") to purchase up to
an additional 345,000 shares of Common Stock (the "Option Shares") on the terms
and for the purposes set forth in Section 1(b). In the event the Option is
exercised, all of the Option Shares will be purchased by the Underwriters from
the Company. The Firm Shares and the Option Shares are referred to collectively
herein as the "Shares."
It is understood that, subject to the conditions hereinafter
stated, the Firm Shares will be sold to you and the Underwriters, for whom you
are acting as the Representatives (the "Representatives").
The Company and the Selling Shareholders confirm as follows their
agreement with the Representatives and the other Underwriters.
1. Agreement to Sell and Purchase.
a. On the basis of the representations, warranties and
agreements herein contained and subject to all the terms and conditions of this
Agreement, (i) the Company agrees to issue and sell an aggregate of 1,300,000
shares of Common Stock to the Underwriters, (ii) each Selling Shareholder agrees
to sell to the Underwriters the number of shares of Common Stock set forth
opposite his, her, or its name in Schedule II hereto, and (iii) each of the
Underwriters, severally and not jointly, agrees to purchase from the Company and
the Selling Shareholders the respective number of Firm Shares set forth opposite
that Underwriter's name in Schedule I hereto, at the purchase price of $[______]
for each Firm Share.
b. Subject to all the terms and conditions of this
Agreement, the Company grants the Option to the Underwriters to purchase up to
345,000 Option shares from the Company at the same price per share as the
Underwriters shall pay for the Firm Shares. The Option may be exercised only to
cover over-allotments in the sale of the Firm Shares by the Underwriters and may
be exercised in whole or in part at any time (but not more than once) on or
before the 30th day after the date of this Agreement upon written or
- --------
(1) Plus an option to purchase up to an additional 345,000 shares to cover
over-allotments.
<PAGE> 2
telegraphic notice (the "Option Shares Notice") by the Representatives to the
Company no later than 12:00 noon, New York City time, at least two and no more
than four business days before the date specified for closing in the Option
Shares Notice (the "Option Closing Date"), setting forth the aggregate number of
Option Shares to be purchased and the time and date for such purchase. On the
Option Closing Date, the Company will sell to the Underwriters the number of
Option Shares set forth in the Option Shares Notice, and each Underwriter will
purchase such percentage of the Option Shares as is equal to the percentage of
the Firm Shares that such Underwriter is purchasing, as adjusted by the
Representatives in such manner as it deems advisable to avoid fractional shares.
2. Delivery and Payment. Delivery of the Firm Shares
shall be made to the Representatives for the accounts of the Underwriters
against payment of the purchase price by wire transfer or by certified or
official bank checks payable in New York Clearing House (next-day) funds to the
order of the Company and the Selling Shareholders, at the offices of Gray Cary
Ware & Freidenrich, at 7:00 a.m., San Diego time, on the third business day
following the commencement of the offering contemplated by this Agreement, or at
such time on such other date, not later than five business days after the date
of this Agreement, as may be agreed upon by the Company and the Representatives
(such date is hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option
Shares against payment by the Underwriters (in the manner specified above) will
take place at the offices specified above for the Closing Date at the time and
date (which may be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form
and shall be registered in such names and in such denominations as the
Representatives shall request at least two business days prior to the Closing
Date or the Option Closing Date, as the case may be, by written notice to the
Company and the Custodian, as that term is defined in Section 4(b) hereof. For
the purpose of expediting the checking and packaging of certificates for the
Shares, the Company agrees to make such certificates available for inspection at
least 24 hours prior to the Closing Date or the Option Closing Date, as the case
may be.
The cost of original issue tax stamps, if any, in connection with
the issuance and delivery of the Shares by the Company to the respective
Underwriters shall be borne by the Company. The Company will pay and hold each
Underwriter and any subsequent holder of the Shares harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or sale to
such Underwriter of the Shares.
3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
a. A registration statement (Registration No.
333-[_______]) on Form S-3 relating to the Shares, including a preliminary
prospectus and such amendments to such registration statement as may have been
required to the date of this Agreement, has been prepared by the Company under
the provisions of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (collectively referred to as the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. The term "preliminary prospectus" as used herein
means a preliminary prospectus as contemplated by Rule 430 or Rule 430A of the
Rules and Regulations included at any time as part of the registration
statement. Copies of such registration statement and amendments and of each
related preliminary prospectus have been delivered to the Representatives. If
such registration statement has not become effective, a further amendment to
such registration statement, including a form of final prospectus, necessary to
permit such registration statement to become effective will be filed promptly by
the Company with the Commission. If the registration statement has become
effective, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with Rule 424(b)
of the Rules and Regulations. The term "Registration Statement" means the
registration statement as amended at the time it becomes or became effective
(the "Effective Date"), including financial statements and all exhibits and any
information incorporated by reference or deemed to be included by Rule 430A. The
term "Prospectus" means the prospectus as filed with the Commission pursuant to
<PAGE> 3
Rule 424(b) of the Rules and Regulations or, if no such filing is required, the
form of final prospectus included in the Registration Statement at the Effective
Date.
b. On the Effective Date, the date the Prospectus is first
filed with the Commission pursuant to Rule 424(b) (if required), at all times
subsequent to and including the Closing Date and, if later, the Option Closing
Date and when any post-effective amendment to the Registration Statement becomes
effective or any amendment or supplement to the Prospectus is filed with the
Commission, the Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
or supplement thereto), including the financial statements included in the
Prospectus, did and will comply with all applicable provisions of the Act and
the Rules and Regulations and will contain all statements required to be stated
therein in accordance with the Act and the Rules and Regulations. On the
Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement, the
Prospectus or any such amendment or supplement did or will contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. At the Effective Date, the date the Prospectus or any amendment or
supplement to the Prospectus is filed with the Commission and at the Closing
Date and, if later, the Option Closing Date, the Prospectus did not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The foregoing representations and
warranties in this Section 3(b) do not apply to any statements or omissions made
in reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives specifically for
inclusion in the Registration Statement or Prospectus or any amendment or
supplement thereto. The Company acknowledges that the statements set forth under
the heading "Underwriting" in the Prospectus and the statements relating to
underwriting commissions set forth on the cover page of the Prospectus and the
Preliminary Prospectus constitute the only information relating to any
Underwriter furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement.
c. The Company and each of its subsidiaries is, and at the
Closing Date and, if later, the Option Closing Date will be, corporations duly
organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation. The Company and each of its subsidiaries
have, and at the Closing Date and, if later, the Option Closing Date will have,
full power and authority to conduct all the activities conducted by them, to own
or lease all the material assets owned by or leased by them and to conduct their
business as described in the Registration Statement and the Prospectus. The
Company and each of its subsidiaries is, and at the Closing Date and, if later,
the Option Closing Date will be, duly licensed or qualified to do business and
in good standing as foreign corporations in all jurisdictions in which the
nature of the activities conducted by them or the character of the assets owned
or leased by them makes such license or qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not
materially and adversely affect the Company or its business, properties,
condition (financial or otherwise) or results of operations. Except as disclosed
in the Registration Statement and Prospectus, the Company (i) does not own, and
at the Closing Date and, if later, the Option Closing Date will not own,
directly or indirectly, any shares of stock or any other equity or long-term
debt securities of any corporation or have any equity interest in any
corporation, firm, partnership, joint venture, association or other entity and
(ii) is not, and at the Closing Date and, if later, the Option Closing Date will
not be, engaged in any discussions or a party to any agreement or understanding,
written or oral, regarding the acquisition of an interest in any corporation,
firm, partnership, joint venture, association or other entity where such
discussions, agreements or understandings would require amendment to the
Registration Statement pursuant to applicable securities laws. Complete and
correct copies of the articles of incorporation and of the by-laws of the
Company and each of its subsidiaries and all amendments thereto have been
delivered to the Representatives, and no changes therein will be made subsequent
to the date hereof and prior to the Closing Date or, if later, the Option
Closing Date.
d. All of the outstanding shares of capital stock of the
Company (including the Shares when delivered and paid for as contemplated
herein) have been duly authorized and validly issued, are fully paid and
nonassessable and were issued in compliance with all applicable state and
federal securities laws; the Firm Shares and the Option Shares have been duly
authorized and when issued and paid for as contemplated herein, as applicable,
will be validly issued, fully paid and nonassessable; no preemptive or similar
rights exist with respect to any of the Shares. The description of the capital
stock of the Company in the Registration Statement and
<PAGE> 4
the Prospectus is, and at the Closing Date and, if later, the Option Closing
Date will be, complete and accurate in all respects. Except as set forth in the
Prospectus, the Company does not have outstanding, and at the Closing Date and,
if later, the Option Closing Date will not have outstanding, any options to
purchase, or any rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
any shares of Common Stock, or any such warrants, convertible securities or
obligations. All of the outstanding shares of capital stock of each of the
Company's subsidiaries are owned by the Company, have been validly issued, are
fully paid and non-assessable, and are free of any liens and any pre-emptive or
similar rights.
e. The financial statements and schedules included in the
Registration Statement or the Prospectus present fairly the financial condition
of the Company and its subsidiaries, taken as a whole, as of the respective
dates thereof and the results of operations and cash flows of the Company and
its subsidiaries, taken as a whole, for the respective periods covered thereby,
all in conformity with generally accepted accounting principles applied on a
consistent basis throughout the entire period involved, except as otherwise
disclosed in the Prospectus. No other financial statements or schedules of the
Company are required by the Act or the Rules and Regulations to be included in
the Registration Statement or the Prospectus. Ernst & Young LLP (the
"Accountants"), who have reported on such financial statements and schedules,
are independent accountants with respect to the Company as required by the Act
and the Rules and Regulations. The summary financial and statistical data
included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the financial
statements presented therein.
f. Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and prior
to the Closing Date and, if later, the Option Closing Date, except as set forth
in or contemplated by the Registration Statement and the Prospectus, (i) there
has not been and will not have been any change in the capitalization of the
Company (other than grants of options or rights to acquire securities of the
Company under the Company's Equity Incentive Plan, Employee Stock Purchase Plan,
or Incentive Stock Option Plan III or any material adverse change in the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company, arising for any reason whatsoever, (ii)
the Company and its subsidiaries have not incurred nor will any of them incur,
except in the ordinary course of business as described in the Prospectus, any
material liabilities or obligations, direct or contingent, nor has it entered
into nor will it enter into, except in the ordinary course of business as
described in the Prospectus, any material transactions other than pursuant to
this Agreement and the transactions referred to herein and (iii) the Company has
not and will not have paid or declared any dividends or other distributions of
any kind on any class of its capital stock.
g. The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
h. Except as set forth in the Registration Statement and
the Prospectus, there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its subsidiaries or any of the directors or officers of the Company or any of
its subsidiaries in their capacity as such, nor to the knowledge of the Company
any reasonable basis therefor, before or by any federal or state court,
commission, regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding would
materially and adversely affect the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of operations.
i. The Company and each of its subsidiaries have, and at
the Closing Date and, if later, the Option Closing Date will have, performed all
obligations required to be performed by each of them, respectively, and each of
them are not, and at the Closing Date and, if later, the Option Closing Date
will not be, in default, under any contract or other instrument to which they
are a party or by which their property is bound or affected, which default might
materially and adversely affect the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of operations.
To the Company's knowledge, no other party under any contract or other
instrument to which it or any of its subsidiaries is a party is in default in
any respect thereunder, which default would materially and adversely affect the
Company or its business, properties, business prospects, condition (financial or
otherwise) or results of operations. Neither the Company nor any of its
<PAGE> 5
subsidiaries is, and at the Closing Date and, if later, the Option Closing Date
will be, in violation of any provision of their articles of incorporation or
by-laws.
j. No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is required
for the consummation by the Company of the transactions on its part contemplated
herein, except such as have been obtained under the Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or the Rules and Regulations and
such as may be required under state securities or Blue Sky laws or the by-laws
and rules of the National Association of Securities Dealers, Inc. (the "NASD")
in connection with the purchase and distribution by the Underwriters of the
Shares to be sold by the Company.
k. The Company has full power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as to (i)
rights to indemnity and contribution hereunder which may be limited by
applicable law, (ii) bankruptcy and laws relating to the rights and remedies of
creditors generally and (iii) the availability of equitable remedies. The
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in the action or imposition of any lien,
charge or encumbrance upon any of the assets of the Company pursuant to the
terms or provisions of, or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or give any party a right to
terminate any of its obligations under, or result in the acceleration of any
obligation under the articles of incorporation or by-laws of the Company, any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which the Company is a party or by
which the Company or any of its properties is bound or affected, or to the
knowledge of the Company violate or conflict with any judgment, ruling, decree,
order, statute, rule or regulation of any court or other governmental agency or
body applicable to the business or properties of the Company presently in
effect.
l. The Company and each of its subsidiaries have good and
marketable title to all properties and assets described in the Prospectus as
owned by them, free and clear of all liens, charges, encumbrances or
restrictions, except such liens, charges, encumbrances or restrictions as are
described in the Prospectus and those which, individually and in the aggregate,
are not material in amount or which, individually and in the aggregate, do not
adversely affect the use made or proposed to be made of such properties and
assets by the Company. The Company and each of its subsidiaries have, as lessee,
valid, subsisting and enforceable leases for the properties described in the
Prospectus as leased by it, except such as are described in the Prospectus or
are not material to the business of the Company. The agreements to which the
Company or any of its subsidiaries is a party and which are described in the
Prospectus are valid agreements, enforceable by the Company or any of its
subsidiaries (as applicable), except as the enforcement thereof may be limited
by bankruptcy and laws relating to the rights and remedies of creditors
generally or by the availability of general equitable remedies. The Company and
its subsidiaries own or lease all such properties as are necessary to their
operations as now conducted or as proposed to be conducted, except where the
failure to so own or lease would not materially and adversely affect the Company
or its business, properties, condition (financial or otherwise) or results of
operations.
m. There is no document or contract of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement which is not described or
filed as required. All such contracts to which the Company is a party have been
duly authorized, executed and delivered by the Company, constitute valid and
binding agreements of the Company and are enforceable against the Company in
accordance with the terms thereof, except as to (i) rights to indemnity and
contribution thereunder which may be limited by applicable law, (ii) bankruptcy
and laws relating to the rights and remedies of creditors generally and (iii)
the availability of equitable remedies.
n. No statement, representation, warranty or covenant made
by the Company in this Agreement or made in any certificate or document required
by Section 7(l) of this Agreement to be delivered to the Representatives was or
will be, when made, inaccurate, untrue or incorrect.
<PAGE> 6
o. Neither the Company nor any of its directors, officers
or controlling persons has taken, directly or indirectly, any action designed,
or which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.
p. Except as disclosed in the Prospectus, no holder of
securities of the Company has rights to the registration of any securities of
the Company because of the filing of the Registration Statement.
q. The Common Stock is listed and duly admitted to trading
on the Nasdaq National Market (the "NASDAQ/NM") and the Company has received
notification that the listing by the NASDAQ/NM of the Shares has been approved,
subject only to official notice of issuance of the Shares.
r. The Company and each of its subsidiaries have
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals and governmental authorizations to conduct its business as now
conducted and as proposed to be conducted, where the failure to have any such
right would have a material and adverse effect on the Company or its business,
properties, condition (financial or otherwise) or results of operations. The
Company and each of its subsidiaries is not infringing any rights, copyrights,
trade secrets or other similar rights of others or, to the best knowledge of the
Company, any trademarks, trade name rights or patent rights of others, where
such infringement would have a material and adverse effect on the Company or its
business, properties, condition (financial or otherwise) or results of
operations. No claim has been made against the Company or any of its
subsidiaries regarding trademark, trade name, patent, copyright, license, trade
secret or other infringement which would have a material and adverse effect on
the Company or its business, properties, condition (financial or otherwise) or
results of operations.
s. The Company has timely filed all federal, state and
foreign income tax returns which have been required to be filed and has paid all
taxes and assessments received by it to the extent that such taxes or
assessments have become due. The Company has no tax deficiency which has been or
to the Company's knowledge might be asserted or threatened against the Company
which could have a material and adverse effect on the Company or its business,
properties, condition (financial or otherwise) or results of operations.
t. The pro forma financial information set forth, or
incorporated by reference, in the Registration Statement reflects, subject to
the limitations set forth in the Registration Statement, or incorporated by
reference, as to such pro forma financial information, the results of operations
of the Company purported to be shown thereby for the periods indicated and
conforms to the requirements of Regulation S-X of the Rules and Regulations.
u. The Company and its subsidiaries own or possess all
authorizations, approvals, orders, licenses, registrations, other certificates
and permits of and from all governmental regulatory officials and bodies
necessary to conduct their business as contemplated in the Prospectus, except
where the failure to own or possess all such authorizations, approvals, orders,
licenses, registrations, other certificates and permits would not materially and
adversely affect the Company or its business, properties, business prospects,
condition (financial or otherwise) or results of operations. There is no
proceeding pending or threatened, or to the Company's knowledge any reasonable
basis therefor, which may cause any such authorization, approval, order,
license, registration, certificate or permit to be revoked, withdrawn, canceled,
suspended or not renewed; and the Company and each of its subsidiaries are
conducting their business in compliance with all laws, rules and regulations
applicable thereto, including, without limitation, all applicable local, state
and federal environmental laws and regulations.
v. The Company and each of its subsidiaries maintains
insurance of the types and in the amounts generally deemed adequate for its
business, including, but not limited to, insurance covering real and personal
property owned or leased by the Company or its subsidiaries, as applicable,
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
w. Neither the Company nor any of its subsidiaries has at
any time during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any
<PAGE> 7
contribution in violation of law, or (ii) made any payment to any federal or
state governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof.
x. The Company has not taken and shall not take, directly
or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to cause or result in, under
the Exchange Act, the Exchange Act Rules and Regulations or otherwise, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares. No bid or purchase by the Company
and, to the best knowledge of the Company, no bid or purchase that could be
attributed to the Company (as a result of bids or purchases by an "affiliated
purchaser" within the meaning of Regulation M under the Exchange Act) for or of
the Shares, the Common Stock, any securities of the same class or series as the
Common Stock or any securities convertible into or exchangeable for or that
represent any right to acquire the Common Stock is now pending or in progress or
will have commenced at any time prior to the completion of the distribution of
the Shares.
y. No labor disturbance by the employees of the Company or
any of its subsidiaries exists, is imminent or, to the knowledge of the Company,
is contemplated or threatened; and the Company is not aware of an existing,
imminent or threatened labor disturbance by the employees of any principal
suppliers, contract manufacturing organizations, manufacturers, authorized
dealers or distributors that might be expected to result in any material change
in the business, properties, condition (financial or otherwise), results of
operations or prospects of the Company and its subsidiaries taken as a whole. No
collective bargaining agreement exists with any of the Company's or any of the
Company's subsidiaries' employees and, to the best knowledge of the Company, no
such agreement is imminent.
z. There are no outstanding loans, advances or guaranties
of indebtedness by the Company to or for the benefit of any of (i) its
"affiliates," as such term is deemed in the Rules and Regulations, (ii) any of
the officers or directors of any of its subsidiaries or (iii) any of the members
of the families of any of them.
aa. Except as may be disclosed in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), neither the Company nor any of its
subsidiaries has any liability, absolute or contingent, relating to: (i) public
health or safety; (ii) worker health or safety; (iii) product defect or
warranty; or (iv) pollution, damage to or protection of the environment,
including, without limitation, relating to damage to natural resources,
emissions, discharges, releases or threatened releases of hazardous materials
into the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, use, treatment, storage, generation, disposal,
transport or handling of any hazardous materials, which, in any case or in the
aggregate, would have a material adverse effect on the Company and its
subsidiaries taken as a whole. As used herein, "hazardous material" includes
chemical substances, wastes, pollutants, contaminants, hazardous or toxic
substances, constituents, materials or wastes, whether solid, gaseous or liquid
in nature.
bb. The Company has not distributed and will not
distribute prior to the Closing Date or on or prior to any date on which the
Option Stock is to be purchased, as the case may be, any prospectus or other
offering material in connection with the offering and sale of the Stock other
than the Prospectus, the Registration Statement and any other material which may
be permitted by the Act and the Rules and Regulations.
cc. The Company has complied in all respects with the
requirements of the Act and the Exchange Act, including the periodic reporting
requirements under the Exchange Act, and each such filing has conformed in all
respects to the requirements of the Act or the Exchange Act, as applicable, and,
as of its date, did not include any untrue misstatement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
4. Representations and Warranties of the Selling Shareholders.
Except as to Sections 4(e) and 4(f), as to which only the Selling Shareholders
(as herein defined) make any representation, warranty or agreement, each Selling
Shareholder severally represents, warrants and agrees that:
<PAGE> 8
a. The Selling Shareholder has, and immediately prior to
the Closing Date (as defined in Section 2 hereof) the Selling Shareholder will
have, good and marketable title to the shares of Common Stock to be sold by the
Selling Shareholder hereunder on such date, free and clear of all liens,
encumbrances, equities or claims; and upon delivery of such shares and payment
therefor pursuant hereto, good and valid title to such shares, free and clear of
all liens, encumbrances, equities or claims, will pass to the Underwriters.
b. The Selling Shareholder has placed in custody under a
custody agreement (the "Custody Agreement" and, together with all other similar
agreements executed by the other Selling Shareholders, the "Custody Agreements")
with Chemical Trust Company of California, as custodian (the "Custodian"), for
delivery under this Agreement, certificates in negotiable form (with signature
guaranteed by a commercial bank or trust company having an office or
correspondent in the United States or a member firm of the New York or American
Stock Exchanges) representing the shares of Common Stock to be sold by the
Selling Shareholder hereunder.
c. The Selling Shareholder has duly and irrevocably
executed and delivered a power of attorney (the "Power of Attorney" and,
together with all other similar agreements executed by the other Selling
Shareholders, the "Powers of Attorney") appointing Ronald Ragland and one or
more other persons, as attorneys-in-fact, with full power of substitution, and
with full authority (exercisable by any one or more of them) to execute and
deliver this Agreement and to take such other action as may be necessary or
desirable to carry out the provisions hereof on behalf of the Selling
Shareholder.
d. The Selling Shareholder has full right, power and
authority to enter into this Agreement, the Power of Attorney and the Custody
Agreement; the execution, delivery and performance of the Agreement, the Power
of Attorney and the Custody Agreement by the Selling Shareholder and the
consummation by the Selling Shareholder of the transactions contemplated hereby
will not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Selling
Shareholder is a party or by which the Selling Shareholder is bound or to which
any of the property or assets of the Selling Shareholder is subject, nor will
such actions result in any violation of the provisions of the charter or by-laws
of the Selling Shareholder, the articles of partnership of the Selling
Shareholder or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Selling Shareholder or
the property or assets of the Selling Shareholder; and, except for the
registration of the Shares under the Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under the
Exchange Act and applicable state securities laws in connection with the
purchase and distribution of the Shares by the Underwriters, no consent,
approval, authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution delivery and
performance of the Agreement, the Power of Attorney or the Custody Agreement by
the Selling Shareholder and the consummation by the Selling Shareholder of the
transactions contemplated hereby.
e. Nothing has come to the attention of any of the persons
identified on Schedule II hereto to cause them to believe that the
representations and warranties of the Company set forth in Section 3(b) of this
Agreement are not true and correct.
f. Each Selling Shareholder has no reason to believe that
the representations and warranties of the Company contained in Section 3 hereof
are not materially true and correct, is familiar with the Registration Statement
and the Prospectus (as amended or supplemented) and has no knowledge of any
material fact, condition or information not disclosed in the Registration
Statement, as of the effective date, or the Prospectus (or any amendment or
supplement thereto), as of the applicable filing date, which has adversely
affected or may adversely affect the business of the Company and is not prompted
to sell shares of Common Stock by any information concerning the Company which
is not set forth in the Registration Statement and the Prospectus.
g. The Selling Shareholder has not taken and will not
take, directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the shares of the Stock.
<PAGE> 9
h. To the extent that any statement or omissions made in
the Registration Statement or Prospectus are made in reliance upon and in
conformity with written information furnished to the Company by the Selling
Shareholder specifically for use therein, on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and on the Effective Date
and the Closing Date, the Prospectus did not and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5. Agreements of the Company. The Company agrees with the
Underwriters as follows:
a. The Company will not, either prior to the Effective
Date or thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
b. The Company will use its best efforts to cause the
Registration Statement to become effective, and will notify the Representatives
promptly, and will confirm such advice in writing, (1) when the Registration
Statement has become effective and when any post-effective amendment thereto
becomes effective, (2) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information, (3) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose or the threat thereof, (4) of the happening of any
event during the period mentioned in the second sentence of Section 4(e) that
makes any statement made in the Registration Statement or the Prospectus untrue
or that requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances in which they are made, not misleading, and (5) of receipt by the
Company or any Representatives or attorney of the Company of any other
communication from the Commission relating to the Company, the Registration
Statement, any preliminary prospectus or the Prospectus. If at any time the
Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. If the Company has
omitted any information from the Registration Statement pursuant to Rule 430A of
the Rules and Regulations, the Company will comply with the provisions of, and
make all requisite filings with the Commission pursuant to, said Rule 430A and
to notify the Representatives promptly of all such filings.
c. The Company will furnish to the Representatives,
without charge, three signed copies of the Registration Statement and of any
post-effective amendment thereto, including financial statements and schedules,
and all exhibits thereto, and will furnish to the Representatives, without
charge, for transmittal to each of the other Underwriters, a copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, but without exhibits.
d. The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
e. On the Effective Date, and thereafter from time to
time, the Company will deliver to each of the Underwriters, without charge, as
many copies of the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request. The Company consents to the use of the
Prospectus or any amendment or supplement thereto by the Underwriters and by all
dealers to whom the Shares may be sold, both in connection with the offering or
sale of the Shares and for any period of time thereafter during which the
Prospectus is required by law to be delivered in connection therewith. If during
such period of time any event shall occur which in the judgment of the Company
or counsel to the Underwriters should be set forth in the Prospectus in order to
make any statement therein, in light of the circumstances under which it was
made, not misleading, or if it is necessary to supplement or amend the
Prospectus to comply with law, the Company will forthwith prepare and duly file
with the Commission an appropriate supplement or amendment thereto, and will
<PAGE> 10
deliver to each of the Underwriters, without charge, such number of copies of
such supplement or amendment to the Prospectus as the Representatives may
reasonably request.
f. Prior to any public offering of the Shares, the Company
will cooperate with the Representatives and counsel to the Underwriters in
connection with the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions as the
Representatives may request; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general service of
process in any jurisdiction where it is not now so subject.
g. During the period of five years commencing on the
Effective Date, the Company will furnish to the Representatives, and each other
Underwriter who may so request, copies of such financial statements and other
periodic and special reports or statements as the Company may from time to time
distribute generally to the holders of any class of its capital stock, and will
furnish to the Representatives, and each other Underwriter who may so request, a
copy of each annual or other report it shall be required to file with the
Commission.
h. The Company will make generally available to holders of
its securities as soon as may be practicable but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in which
the Effective Date falls, an earnings statement (which need not be audited but
shall be in reasonable detail) for the applicable 12-month period after the
Effective Date, satisfying the provisions of Section 11(a) of the Act (including
Rule 158 of the Rules and Regulations).
i. Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will pay,
or reimburse if paid by the Representatives, all costs and expenses incident to
the performance of the obligations of the Company and the Selling Shareholders
under this Agreement, including but not limited to costs and expenses of or
relating to (1) the preparation, printing and filing by the Company of the
Registration Statement and exhibits to it, each preliminary prospectus,
Prospectus and any amendment or supplement to the Registration Statement or
Prospectus, (2) the preparation and delivery of certificates representing the
Shares, (3) the printing of this Agreement, the Agreement Among Underwriters,
any Dealer Agreements and any Underwriters' Questionnaires, (4) furnishing
(including costs of shipping and mailing) such copies of the Registration
Statement, the Prospectus and any preliminary prospectus, and all amendments and
supplements thereto, as may be requested for use in connection with the offering
and sale of the Shares by the Underwriters or by dealers to whom Shares may be
sold, (5) the costs of delivering and distributing the Custody Agreements and
the Powers of Attorney, (6) the quotation of the Shares on the Nasdaq National
Market, (7) any filings required to be made by the Underwriters with the NASD,
and the fees, disbursements and other charges of counsel for the Underwriters in
connection therewith, (8) the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of such jurisdictions
designated pursuant to Section 5(f), including the fees, disbursements and other
charges of counsel to the Underwriters in connection therewith, and the
preparation and printing of preliminary, supplemental and final Blue Sky
memoranda, (9) fees, disbursements and other charges to the Company (but not
those of counsel for the Underwriters, except as otherwise provided herein) and
(10) the transfer agent for the Shares.
j. If this Agreement shall be terminated by the Company
pursuant to any of the provisions hereof (other than pursuant to Section 10 or
Section 11 hereof) or if for any reason the Company shall be unable to perform
its obligations hereunder, the Company will reimburse the Underwriters for all
reasonable out-of-pocket expenses (including the fees, disbursements and other
charges of counsel to the Underwriters) actually incurred by them in connection
herewith.
k. The Company will not at any time, directly or
indirectly, take any action designed, or which might reasonably be expected, to
cause or result in, or which will constitute, stabilization of the price of the
shares of Common Stock to facilitate the sale or resale of any of the Shares.
l. The Company will apply the net proceeds from the
offering and sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds," and shall file
<PAGE> 11
such reports with the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required in accordance with Rule
463 under the Act.
m. During the period of 180 days commencing at the
Effective Date, without the prior written consent of the Representatives, other
than pursuant to the Company's Equity Incentive Plan, Employee Stock Purchase
Plan, or Incentive Stock Option Plan III described in the Prospectus, the
Company will not issue, offer, sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities or any other securities
convertible into or exchangeable with its Common Stock or other equity security.
6. Agreements of the Selling Shareholders. Each Selling
Shareholder agrees:
a. For a period of 180 days from the date of the
Prospectus, not to offer for sale, sell or otherwise dispose of (or enter into
any transaction which is designed to, or could be expected to, result in the
disposition by any person of), directly or indirectly, any shares of Common
Stock (other than the Shares), without the prior written consent of the
Representatives.
b. That the shares of Common Stock to be sold by the
Selling Shareholder hereunder, which are represented by the certificates held in
custody for the Selling Shareholder, are subject to the interest of the
Underwriters and the other Selling Shareholders thereunder, that the
arrangements made by the Selling Shareholder for such custody are to that extent
irrevocable, and that the obligations of the Selling Shareholder hereunder shall
not be terminated by any act of the Selling Shareholder, by operation of law, by
the death or incapacity of any individual Selling Shareholder or the occurrence
of any other event.
c. To deliver to the Representatives prior to the Closing
Date a properly completed and executed United States Treasury Department Form
W-8 if the Selling Shareholder is a non-United States person or Form W-9 if the
Selling Shareholder is a United States person.
7. Conditions of the Obligations of the Underwriters. The
several obligations of each Underwriter hereunder are subject to the following
conditions:
a. Notification that the Registration Statement has become
effective shall be received by the Representatives not later than 5:00 p.m., New
York City time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by the Representatives and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made.
b. (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for such
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the Commission
or such authorities and (iv) after the date hereof no amendment or supplement to
the Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Representatives and the Representatives do
not object thereto in good faith, and the Representatives shall have received
certificates, dated the Closing Date and the Option Closing Date and signed by
the Chief Executive Officer and the Chief Financial Officer of the Company (who
may, as to proceedings threatened, rely upon the best of their knowledge), to
the effect of clauses (i), (ii) and (iii) of this Section 7(b).
c. Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there shall not have
been a material adverse change in the general affairs, business, business
prospects, properties, management, condition (financial or otherwise) or results
of operations of the Company, whether or not arising from transactions in the
ordinary course of business, in each case other than as described in or
contemplated by the Registration Statement and the Prospectus, and (ii) the
Company shall not have sustained any material loss or interference with its
business or properties from fire, explosion, flood,
<PAGE> 12
earthquake or other casualty, whether or not covered by insurance, or from any
labor dispute or any court of legislative or other governmental action, order or
decree, which is not described in the Registration Statement and the Prospectus,
if in the judgment of the Representatives any such development makes it
impracticable or inadvisable to consummate the sale and delivery of the Shares
by the Underwriters at the public offering price.
d. Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
officers or directors in their capacities as such, before or by any federal,
state or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would materially and adversely affect
the business, properties, business prospects, condition (financial or otherwise)
or results of operations of the Company.
e. Each of the representations and warranties of the
Company and the Selling Shareholders contained herein shall be true and correct
in all material respects at the Closing Date and, with respect to the Option
Shares, at the Option Closing Date, and all covenants and agreements contained
herein to be performed on the part of the Company and the Selling Shareholders
and all conditions contained herein to be fulfilled or complied with by the
Company and the Selling Shareholders at or prior to the Closing Date and, with
respect to the Option Shares, at or prior to the Option Closing Date, shall have
been duly performed, fulfilled or complied with.
f. The Representatives shall have received an opinion,
dated the Closing Date and, with respect to the Option Shares, the Option
Closing Date, satisfactory in form and substance to the Representatives and
counsel for the Underwriters, from Heller, Ehrman, White & McAuliffe, counsel to
the Company, covering the following matters:
(i) the Company and each of its subsidiaries have been
duly organized, are validly existing as corporations in good standing under the
laws of their respective states of incorporation, have the corporate power and
authority to own their property and to conduct their business as described in
the Prospectus and are duly qualified to transact business and are in good
standing in each jurisdiction in which the conduct of their business or their
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not
materially and adversely affect the Company and its subsidiaries or their
business, properties, financial condition or results of operations;
(ii) the authorized capital stock of the Company
conforms as to legal matters to the description thereof contained in the
Prospectus;
(iii) the authorized, issued and outstanding number
of shares of capital stock of the Company is as set forth under the caption
"Capitalization" in the Prospectus as of the date therein; the shares of Common
Stock outstanding prior to the issuance of the Shares have been duly authorized
and are validly issued, fully paid and nonassessable, and there is no right of
rescission with respect to any outstanding shares of the Company and none of
such shares are void or voidable by reason of the Company's failure to issue
such shares in compliance with federal and state securities laws;
(iv) the specimen certificate evidencing the Shares
filed as an exhibit to the Company's Registration Statement is in due and proper
form under California law, the Shares have been duly authorized and, when the
certificates evidencing the Shares have been issued and delivered in accordance
with the terms of this Agreement, the Shares will be validly issued, fully paid
and non-assessable, and the issuance of such Shares is not subject to any
preemptive rights, or, to the best of such counsel's knowledge, other rights to
subscribe for or purchase securities;
(v) the Registration Statement has become effective
under the Act, and no stop order suspending the effectiveness of the
Registration Statement or preventing the use of the Prospectus has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated by the Commission; any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has been
made in the manner and within the time period required by such Rule 424(b);
<PAGE> 13
(vi) the Registration Statement and the Prospectus and
any supplements or amendments thereto (except for financial statements,
schedules and financial and statistical information included therein, as to
which such counsel need not express any opinion) comply as to form in all
material respects with the Act and the Rules and Regulations;
(vii) this Agreement has been duly authorized,
executed and delivered by the Company, and the Company has all requisite
corporate power and authority to enter into this Agreement and consummate the
transactions contemplated hereby;
(viii) this Agreement is a valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except as to (a) rights to indemnity and contribution thereunder which may be
limited by applicable law, (b) bankruptcy and laws relating to the rights and
remedies of creditors generally, and (c) the availability of equitable remedies;
the execution and delivery by the Company of, and the performance by the Company
of its obligations under, this Agreement does not contravene any provision of
applicable law or the articles of incorporation or by-laws of the Company or any
agreement or other instrument known to such counsel after due inquiry and which
is binding upon and material to the Company or, any judgment or decree of any
governmental body, agency or court having jurisdiction over the Company known to
such counsel after due inquiry, presently in effect and a breach or violation of
which, a default under which, a termination of which, an acceleration under
which, or a conflict with which would materially and adversely affect the
Company or its business, properties, financial condition or results of
operations, and no consent, approval or authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except such
as may have been obtained under the Act and such as required by the securities
or Blue Sky laws of the various states in connection with the offer and sale of
the Shares by the Underwriters;
(ix) the statements in the Prospectus under
"Management -- Officers and Directors" (but excluding the paragraphs describing
the business experience of such persons), insofar as such statements constitute
a summary of the legal matters, documents or proceedings referred to therein,
fairly present and summarize the information with respect to such legal matters,
documents and proceedings required under the Act and the Rules and Regulations;
(x) to such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened to which the Company or any
subsidiary is a party or to which any of the properties of the Company is
subject that are required to be described in the Registration Statement or the
Prospectus and are not so described;
(xi) to such counsel's knowledge, except as described
in the Registration Statement, no holder of securities of the Company has rights
to require the Company to register with the Commission shares of Common Stock or
other securities, as part of the offering contemplated hereby;
(xii) such counsel does not know of any contracts or
documents required to be filed as exhibits, or documents incorporated by
reference, to the Registration Statement or described in the Registration
Statement or Prospectus or any supplements or amendments thereto which are not
so filed, or described as required, and to such counsel's knowledge, each
description of such contracts and documents as is contained in the Registration
Statement and Prospectus fairly presents in all material respects the
information required under the Act and the Rules and Regulations; and
(xiii) the Shares have been approved for listing on the
Nasdaq National Market pursuant to an Additional Listing Application upon
official notice of issuance; and
(xiv) the outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and are validly issued,
fully paid and non-assessable and are owned by the Company.
<PAGE> 14
In addition, such counsel shall state that, although they
have not independently verified the accuracy and completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel that has caused them to believe that the
Registration Statement (other than the financial statements, as to which such
counsel need express no opinion or belief), at the time it was declared
effective, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus (other than the
financial statements, as to which such counsel need express no opinion or
belief), at the time the Registration Statement was declared effective (unless
the term "Prospectus" refers to a prospectus that has been provided to the
Underwriters by the Company after the time the Registration Statement was
declared effective for use in connection with the offering of the Firm Shares
that differs from the Prospectus on file at the Commission at the time the
Registration Statement was declared effective, in which case at the time such
Prospectus was first provided to the Underwriters for such use), or at the
Closing Date or any later date on which the Option Shares are to be purchased,
included or includes any untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
In rendering such opinion, such counsel may rely as to
matters not involving the laws of the United States or the State of California
upon opinions of local counsel, and as to matters of fact, on representations or
certificates of officers of the Company and of governmental officials, in which
case their opinion is to state that they are so doing, that they have no actual
knowledge of any material misstatement or inaccuracy in such opinions,
representations or certificates and that the Underwriters are justified in
relying on such opinions or certificates and copies of said opinions or
certificates are to be attached to the opinion.
In rendering such opinion, such counsel may rely upon
opinions of counsel satisfactory in form and substance to the Representatives
and counsel for the Underwriters, in which case, the opinion of counsel for the
Company shall state that it has no reason to believe that such counsel, the
Representatives and counsel for the Underwriters are not justified in so
relying.
g. The counsel for the Selling Shareholders shall have
furnished to the Representatives their written opinion, as counsel to the
Selling Shareholders, addressed to the Underwriters and dated the Closing Date,
in form and substance reasonably satisfactory to the Representatives, to the
effect that:
(i) Each Selling Shareholder has all requisite, power
and authority to enter into this Agreement, the Power of Attorney and the
Custody Agreement; the execution and delivery of, and performance by each
Selling Shareholder of his obligations under, this Agreement, the Power of
Attorney and the Custody Agreement will not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute a default
under, any statute, any indenture, mortgage deed of trust, loan agreement or
other agreement or instrument to which any Selling Shareholder is a party or by
which any Selling Shareholder is bound or to which any of the property or assets
of any Selling Shareholder is subject, nor will such actions result in any
violation of the provisions of the charter or by-laws of any Selling Shareholder
or the articles of partnership of any Selling Shareholder, if applicable, or any
statute, order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over any Selling Shareholder or
the property or assets of any Selling Shareholder; and, except for the
registration of the Shares under the Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under the
Exchange Act and applicable state securities laws in connection with the
purchase and distribution of the Shares by the Underwriters, no consent,
approval, authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Power of Attorney or the Custody Agreement by
any Selling Shareholder and the consummation by any Selling Shareholder of the
transactions contemplated hereby;
(ii) This Agreement has been duly authorized, executed
and delivered by or on behalf of each Selling Shareholder;
<PAGE> 15
(iii) A Power-of-Attorney and a Custody Agreement have
been duly authorized, executed and delivered by each Selling Shareholder and
constitute valid and binding agreements of each Selling Shareholder, enforceable
in accordance with their respective terms; and
(iv) Good and valid title to the Shares to be sold by
each Selling Shareholder under this agreement, free and clear of all liens,
encumbrances, equities or claims, has been transferred to each of the several
Underwriters.
In rendering such opinion, such counsel may rely as to
matters not involving the laws of the United States or the State of California
upon opinions of local counsel, and as to matters of fact, on representations or
certificates of officers of the Selling Shareholders and of governmental
officials, in which case their opinion is to state that they are so doing, that
they have no actual knowledge of any material misstatement or inaccuracy in such
opinions, representations or certificates and that the Underwriters are
justified in relying on such opinions or certificates and copies of said
opinions or certificates are to be attached to the opinion.
h. The Representatives shall have received an opinion,
dated the Closing Date and, with respect to the Option Shares, the Option
Closing Date, from Gray Cary Ware & Freidenrich LLP, counsel to the
Underwriters, with respect to the Registration Statement, the Prospectus and
this Agreement, which opinion shall be satisfactory in all respects to the
Representatives.
i. The Representatives shall have received, on or prior to
the Closing Date, agreements in substantially the form attached hereto as
Schedule III from all, officers, and Selling Shareholders of the Company.
j. Concurrently with the execution and delivery of this
Agreement, the Accountants shall have furnished to the Representatives a letter
("Original Letter"), dated the date of its delivery, addressed to the
Representatives and in form and substance satisfactory to the Representatives,
confirming that they are independent accountants with respect to the Company as
required by the Act and the Rules and Regulations and with respect to certain
financial and other statistical and numerical information contained in the
Registration Statement. At the Closing Date, and, as to the Option Shares, the
Option Closing Date, the Accountants shall have furnished to the Representatives
a letter, dated the date of its delivery, which shall confirm, on the basis of a
review in accordance with the procedures set forth in the letter from the
Accountants, that nothing has come to their attention during the period from the
date of the letter referred to in the prior sentence to a date (specified in the
letter) not more than two business days prior to the Closing Date and the Option
Closing Date, as the case may be, which would require any change in their letter
dated the date hereof if it were required to be dated and delivered at the
Closing Date and the Option Closing Date. The Original Letter shall state that
the Accountants have performed the procedures set out in the Statement of
Accounting Standards No. 71 ("SAS 71") for a review of interim financial
information with respect to each of the quarters for which financial information
is reported under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Quarterly Results" to the Registration
Statement.
k. The Representatives shall have received, on or prior to
the Closing Date, copies of a letter to the Company from the Accountants stating
that their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their examination
of the Company's financial statements as of and at January 31, 1997, did not
disclose any weakness in internal controls that they considered to be material
weaknesses.
l. Concurrently with the execution and delivery of this
Agreement and at the Closing Date and, with respect to the Option Shares, the
Option Closing Date, there shall be furnished to the Representatives a
certificate, dated the date of its delivery, signed by the Chief Executive
Officer and the Chief Financial Officer of the Company and of any subsidiary
reasonably requested by the Representatives, in form and substance satisfactory
to the Representatives, to the effect that:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and (A) as of the date of
such certificate, the Registration Statement and the
<PAGE> 16
Prospectus do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading and (B) in the case of the
certificate delivered at the Closing Date and the Option Closing Date, since the
Effective Date no event has occurred as a result of which it is necessary to
amend or supplement the Prospectus in order to make the statements therein not
untrue or misleading in any material respect.
(ii) Each of the representations and warranties of the
Company contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct in all material respects.
(iii) Each of the covenants required to be performed
by the Company herein on or prior to the date of such certificate has been duly,
timely and fully performed and each condition herein required to be satisfied or
fulfilled on or prior to the date of such certificate has been duly, timely and
fully satisfied or fulfilled.
m. Each Selling Shareholder (or the Custodian or one or
more attorneys-in-fact on behalf of the Selling Shareholder) shall have
furnished to the Representatives on the Closing Date a certificate, dated the
Closing Date, signed by, or on behalf of, the Selling Shareholder (or the
Custodian or one or more attorneys-in-fact) stating that the representations,
warranties and agreements of the Selling Shareholder contained herein are true
and correct as of the Closing Date and that the Selling Shareholder has complied
with all agreements contained herein to be performed by the Selling Shareholder
at or prior to the Closing Date.
n. The Shares shall be qualified for sale in such
jurisdictions as the Representatives may reasonably request, and each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Closing Date or the Option Closing Date.
o. Prior to the Closing Date, the Shares shall have been
duly authorized for listing on the Nasdaq National Market upon official notice
of issuance.
p. The Company shall have furnished to the Representatives
such certificates, in addition to those specifically mentioned herein, as the
Representatives may have reasonably requested as to the accuracy and
completeness at the Closing Date and the Option Closing Date of any statement in
the Registration Statement or the Prospectus, as to the accuracy at the Closing
Date and the Option Closing Date of the representations and warranties of the
Company herein, as to the performance by the Company of its obligations
hereunder, or as to the fulfillment of the conditions concurrent and precedent
to the obligations hereunder of the Representatives.
8. Indemnification.
a. The Company will indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls, within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, each Underwriter, from and against any
and all losses, claims, liabilities, expenses and damages arising out of any
action, suit or proceeding brought by a third party (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted by a third party), to which they, or any of them, may become
subject under the Act, the Exchange Act or other federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages (i) relate to, arise out of or are based on any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus, or the
omission or alleged omission to state in such document a material fact required
to be stated in it or necessary to make the statements in it not misleading in
light of the circumstances in which they were made, (ii) relate to, arise out of
or are based on whole or in part on any inaccuracy in the representations and
warranties of the Company or the Selling Shareholders contained herein or (iii)
arise out of or are based upon any failure of the Company to perform its
obligations hereunder or under law in connection with the transactions
contemplated hereby; provided that the Company will not be liable to the extent
that such loss,
<PAGE> 17
claim, liability, expense or damage arises from the sale of the Shares in the
public offering to any person by an Underwriter and is based on an untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to any Underwriter furnished in
writing to the Company by the Representatives, on behalf of any Underwriter,
expressly for inclusion in the Registration Statement, the preliminary
prospectus or the Prospectus, or any amendment or supplement thereto, and
provided further that the Company will not be liable to any Underwriter, the
directors, officers, employees or agents of such Underwriter or any person
controlling such Underwriter with respect to any loss, claim, liability,
expense, or damage arising out of or based on any untrue statement or omission
or alleged untrue statement or omission or alleged omission to state a material
fact in the preliminary prospectus which is corrected in the Prospectus if the
person asserting any such loss, claim, liability, charge or damage purchased any
of the Shares from such Underwriter, was entitled by law to receive a Prospectus
but was not sent or given a copy of the Prospectus at or prior to the written
confirmation of the sale of such Shares to such person. The Company acknowledges
that the statements set forth under the heading "Underwriting" in the
preliminary prospectus and the Prospectus constitute the only information
relating to any Underwriter furnished in writing to the Company by the
Representatives on behalf of the Underwriters expressly for inclusion in the
Registration Statement, the preliminary prospectus or the Prospectus. This
indemnity will be in addition to any liability that the Company might otherwise
have.
b. Each Selling Shareholder, severally in proportion to
the number of Shares to be sold by each of them hereunder, shall indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Shares), to which that Underwriter or
controlling person may become subject, under the Act or otherwise, insofar as
such loss, claim, damage, liability or action relates to, arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
each Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by that Underwriter or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Selling Shareholders shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action arises
out of, or is based upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any such amendment or supplement
in reliance upon and in conformity with written information furnished to the
Company through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein. The Selling Shareholders acknowledge that
the statements set forth under the heading "Underwriting" in the Prospectus
constitute the only information relating to any Underwriter furnished in writing
to the Company by the Representatives specifically for inclusion in the
Registration Statement. The foregoing indemnity agreement is in addition to any
liability which the Selling Shareholders may otherwise have to any Underwriter
or any controlling person of that Underwriter. The liability of each Selling
Shareholder under this Section 8(b) shall be limited to an amount equal to the
public offering price of the stock sold by such Selling Shareholder to the
Underwriters less the amount of any discounts or commissions paid by such
Selling Shareholder to the Underwriters.
c. Each Underwriter will indemnify and hold harmless the
Company, each person, if any, who controls, within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, the Company, and each director of the
Company and each officer of the Company who signs the Registration Statement to
the same extent as the foregoing indemnity from the Company to each Underwriter,
as set forth in Section 8(a), but only insofar as losses, claims, liabilities,
expenses or damages relate to, arise out of or are based on any untrue statement
or omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company by the Representatives, on behalf of such Underwriter, expressly for
use in the Registration Statement, the preliminary prospectus or the Prospectus,
or any amendment or supplement thereto. The Company acknowledges that the
statements set forth under the heading "Underwriting" in the preliminary
prospectus and the Prospectus constitute the only information relating to any
Underwriter furnished in writing to the Company by the Representatives on
<PAGE> 18
behalf of the Underwriters expressly for inclusion in the Registration
Statement, the preliminary prospectus or the Prospectus. This indemnity will be
in addition to any liability that each Underwriter might otherwise have.
d. Any party that proposes to assert the right to be
indemnified under this Section 8, shall, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 8, notify
each such indemnifying party in writing of the commencement of such action,
enclosing with such notice a copy of all papers served, but the omission so to
notify such indemnifying party will not relieve it from any liability that it
may have to any indemnified party under the foregoing provisions of this Section
unless, and only to the extent that, such omission results in the loss of
substantive rights or defenses by the indemnifying party. If any such action is
brought against any indemnified party and it notifies the indemnifying party of
its commencement, the indemnifying party will be entitled to participate in and,
to the extent that it elects by delivering written notice to the indemnified
party promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly notified,
to assume the defense of the action, with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense, the indemnifying party will not be
liable to the indemnified party for any legal or other expenses except as
provided below and except for the reasonable costs of investigation subsequently
incurred by the indemnified party in connection with the defense. The
indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (i) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (ii)
there are legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party,
(iii) the indemnified party has reasonably concluded that a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (iv) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. All such fees, disbursements and other charges will be reimbursed by
the indemnifying party promptly as they are incurred. Any indemnifying party
will not be liable for any settlement of any action or claim effected without
its written consent (which consent will not be unreasonably withheld).
e. In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 8 is applicable in accordance with its terms, but for
any reason is held to be unavailable from the Company, the Selling Shareholders
or the Underwriters, the indemnifying party will contribute to the total losses,
claims, liabilities, expenses and damages (including any investigative, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim asserted, but
after deducting any contribution received by the Company or the Selling
Shareholders from persons other than the Underwriters, such as persons who
control the Company or a Selling Shareholder within the meaning of the Act,
officers of the Company who signed the Registration Statement and directors of
the Company, who also may be liable for contribution) to which the Company, any
one or more of the Selling Shareholders and any one or more of the Underwriters
may be subject in such proportion as shall be appropriate to reflect the
relative benefits received by the Company, the Selling Shareholders and the
Underwriters. The relative benefits received by the Company, the Selling
Shareholders and the Underwriters shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Shareholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence, but also the relative fault of the Company, the Selling
Shareholders and the Underwriters with respect to the statements or omissions
which resulted in such loss, claim, liability, expense or damage, or action in
respect thereof, as well as any other relevant equitable considerations with
respect
<PAGE> 19
to such offering. Such relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Shareholders or the Representatives on behalf of the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section 8(d) were to
be determined by pro rata allocation (even if the Selling Shareholders or the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, liability, expense or damage, or action in respect
thereof, referred to above in this Section 8(d), shall be deemed to include, for
purpose of this Section 8(d), any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8(d), no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts received by it and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 8(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 8(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against any such party in respect of which a claim for contribution may be made
under this Section 8(d), will notify any such party or parties from whom
contribution may be sought from any other obligation it or they may have under
this Section 8(d). No party will be liable for contribution with respect to any
action or claim settled without its written consent (which consent will not be
unreasonably withheld).
f. The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Act and the
Exchange Act. The parties are advised that federal or state public policy, as
interpreted by the courts in certain jurisdictions, may be contrary to certain
of the provisions of this Section 8, and the parties hereto hereby expressly
waive and relinquish any right or ability to assert such public policy as a
defense to a claim under this Section 8 and further agree not to attempt to
assert any such defense.
g. The indemnity and contribution agreements contained in
this Section 8 and the representations and warranties of the Company and Selling
Shareholders contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any investigation made by or on behalf of the
Underwriters, (ii) acceptance of any of the Shares and payment therefor or (iii)
any termination of this Agreement.
9. Reimbursement of Certain Expenses. In addition to its
other obligations under Section 8(a) of this Agreement, the Company hereby
agrees to reimburse on a quarterly basis the Underwriters for all reasonable
legal and other expenses incurred in connection with investigating or defending
any claim, action, investigation, inquiry or other proceeding brought by a third
party relating to, arising out of or based upon in whole or part, (i) as
described in Section 8(a), any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or the omission or alleged omission to state in
such document a material fact required to be stated in it or necessary to make
the statements in it not misleading in light of the circumstances in which they
were made, (ii) any inaccuracy in the representations and warranties of the
Company or the Selling Shareholders contained herein or (iii) any failure of the
Company or the Selling Shareholders to perform their obligations hereunder or
under law in connection with the transactions contemplated hereby,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the obligations under this Section 9 and the possibility that
such payment might later be held to be improper; provided,
<PAGE> 20
however, that, to the extent any such payment is ultimately held to be improper,
the persons receiving such payments shall promptly refund them.
10. Termination. The obligations of the Underwriters, the
Company and the Selling Shareholders under this Agreement may be terminated at
any time on or prior to the Closing Date (or, with respect to the Option Shares,
on or prior to the Option Closing Date), by notice to the Company from the
Representatives, without liability on the part of any Underwriter to the Company
and the Selling Shareholders or the Company and the Selling Shareholders to any
underwriter (except as set forth in section 5(i) above) if, prior to delivery
and payment for the Firm Shares or Option Shares, as the case may be, in the
sole judgment of the Representatives, (a) trading in any of the equity
securities of the Company shall have been suspended by the Commission, by an
exchange that lists the Shares or by the Nasdaq National Market, (b) trading in
securities generally on the New York Stock Exchange or the Nasdaq National
Market shall have been suspended or minimum or maximum prices shall have been
generally established on such exchange, or additional material governmental
restrictions, not in force on the date of this Agreement, shall have been
imposed upon trading in securities generally by such exchange or by order of the
Commission or any court or other governmental authority, (c) a general banking
moratorium shall have been declared by either federal or New York State
authorities or (d) any material adverse change in the financial or securities
markets in the United States, or in political, financial or economic conditions
in the United States or any outbreak or material escalation of hostilities or
other calamity or crises, shall have occurred, the effect of which is such as to
make it, in the sole judgment of the Representatives, impracticable to market
the Shares.
11. Substitution of Underwriters. If any one or more of the
Underwriters shall fail or refuse to purchase the Firm Shares which it or they
have agreed to purchase hereunder, and the aggregate number of Firm Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase is not more than one-tenth of the aggregate number of Firm Shares, the
other Underwriters shall be obligated, severally, to purchase the Firm Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase, in the proportions which the number of Firm Shares which they have
respectively agreed to purchase pursuant to Section 1 bears to the aggregate
number of Firm Shares which all such non-defaulting Underwriters have so agreed
to purchase, or in such other proportions as the Representatives may specify;
provided that in no event shall the maximum number of Firm Shares which any
Underwriter has become obligated to purchase pursuant to Section 1 be increased
pursuant to this Section 11 by more than one-ninth of such number of Firm Shares
without the prior written consent of such Underwriter. If any Underwriter or
Underwriters shall fail or refuse to purchase any Firm Shares and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase exceeds one-tenth of the aggregate number of
the Firm Shares and arrangements satisfactory to the Representatives and the
Company for the purchase of such Firm Shares are not made within 48 hours after
such default, this Agreement will terminate without liability on the part of any
nondefaulting Underwriter, the Company or the Selling Shareholders for the
purchase or sale of any Shares under this Agreement. In any such case either the
Representatives or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Any action taken pursuant to
this Section 11 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
12. Miscellaneous. Notice given pursuant to any of the
provisions of this Agreement shall be in writing and, unless otherwise
specified, shall be mailed or delivered (a) if to the Company, at the offices of
the Company, 9404 Chesapeake Drive, San Diego, California, 92123, Attention:
Chief Executive Officer, with a copy to Victor A. Hebert, Esq., Heller, Ehrman,
White & McAuliffe, 601 South Figueroa Street, 40th Floor, Los Angeles,
California 90017-5758 (b) if to any of the Selling Shareholders, to the address
of each as set forth on Schedule II hereto, or (c) if to the Underwriters, to
the Representatives at the offices of Needham & Company, Inc., 445 Park Avenue,
3rd Floor, New York, New York 10022, Attention: Corporate Finance Department,
with a copy to Douglas J. Rein, Esq., Gray Cary Ware & Freidenrich LLP, 4365
Executive Drive, Suite 1600, San Diego, California 92121. Any such notice shall
be effective only upon receipt. Any notice may be made by telex or facsimile
transmission, but if so made shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Selling Shareholders and the Company and of the controlling
persons, directors and officers referred to in Section 8, and
<PAGE> 21
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" as used in this Agreement shall not include a purchaser, as such
purchaser, of Shares from any of the Underwriters.
This Agreement shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts made and to be
performed entirely within such State.
This Agreement may be signed in two or more counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
In case any provision in this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Please confirm that the foregoing correctly sets forth the
Agreement among the Company and the Underwriters.
Very truly yours,
REMEC, INC.
By:______________________________________
Title: Chief Executive Officer
The Selling Shareholders named in
Schedule II to this Agreement
By:______________________________________
Attorney-in-Fact
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
NEEDHAM & COMPANY, INC.
A.G. EDWARDS & SONS, INC.
CIBC OPPENHEIMER CORP.
As Representatives of the Underwriters
listed on Schedule I
By: Needham & Company, Inc.
By:________________________________
Title: Managing Director
<PAGE> 22
SCHEDULE I
<TABLE>
<CAPTION>
SCHEDULE OF UNDERWRITERS NUMBER OF
FIRM SHARES
TO BE
UNDERWRITERS PURCHASED
------------ ---------
<S> <C>
Needham & Company, Inc. ........................................................
A.G. Edwards & Sons, Inc. ......................................................
CIBC Oppenheimer Corp...........................................................
Total ................................................................ 2,300,000
</TABLE>
<PAGE> 23
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
NUMBER OF
SHAREHOLDER FIRM SHARES
- ----------- -----------
<S> <C>
BUTLER .........................................................................
CALLAWAY .......................................................................
CHOW ...........................................................................
CORCORAN .......................................................................
EKAIREB ........................................................................
GIBBS ..........................................................................
GILES ..........................................................................
HICKOCK ........................................................................
HINKLE .........................................................................
HORN ...........................................................................
KRIES ..........................................................................
LEE ............................................................................
LUICK ..........................................................................
MCDONALD .......................................................................
MILLER .........................................................................
MONGILLO .......................................................................
MORGAN .........................................................................
NASH ...........................................................................
OPALSKI ........................................................................
RAGLAND ........................................................................
---------
Total ................................................................ 1,000,000
</TABLE>
<PAGE> 24
SCHEDULE III
FORM OF LOCK-UP AGREEMENT TO BE SIGNED BY ALL
DIRECTORS, OFFICERS AND SELLING SHAREHOLDERS OF THE COMPANY
The undersigned is a holder of securities of REMEC, Inc., a
California corporation (the "Company"), and wishes to facilitate the public
offering of shares of the Common Stock (the "Common Stock") of the Company (the
"Offering"). The undersigned recognizes that such Offering will be of benefit to
the undersigned.
In consideration of the foregoing and in order to induce you to
act as underwriters in connection with the Offering, the undersigned hereby
agrees that he, she or it will not, directly or indirectly, sell, contract to
sell, transfer or encumber the economic risk of ownership interest in, make any
short sale, pledge, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act of 1934, as amended, or
otherwise dispose of, any shares of Common Stock, options to acquire shares of
Common Stock or securities exchangeable for or convertible into shares of Common
Stock of the Company which he, she or it may own, exclusive of any shares of
Common Stock purchased in connection with the Company's public offering or
purchased in the public trading market subsequent to the Company's public
offering, without the prior written approval of Needham & Company, Inc., acting
on its own behalf and/or on behalf of other representatives of the underwriters,
for a period commencing as of the day on which the Form S-3 Registration
Statement to be filed on behalf of the Company in connection with the Offering
(the "Registration Statement") shall become effective by order of the Securities
and Exchange Commission (the "Effective Date") and ending on the date which is
one hundred eighty (180) days after the Effective Date. The undersigned confirms
that he, she or it understands that the underwriters and the Company will rely
upon the representations set forth in this Agreement in proceeding with the
Offering. The undersigned further confirms that the agreements of the
undersigned are irrevocable and shall be binding upon the undersigned's heirs,
legal representatives, successors and assigns. The undersigned agrees and
consents to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of securities held by the undersigned except in
compliance with this Agreement.
This Agreement shall be binding on the undersigned and his, her
or its respective successors, heirs, personal representatives and assigns upon
the effectiveness of the Registration Statement.
<PAGE> 1
EXHIBIT 5.1
February 3, 1998
REMEC, Inc.
9404 Chesapeake Drive
San Diego, California 92123
REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have acted as counsel to REMEC, Inc., a California corporation (the
"Company"), in connection with the Registration Statement on Form S-3
contemplated to be filed with the Securities and Exchange Commission on February
4, 1998 (the "Registration Statement"), for the purpose of registering under the
Securities Act of 1933, as amended, 1,645,000 shares (the "Company Shares") of
the Company's Common Stock, $0.01 par value per share (the "Common Stock"), to
be issued by the Company and 1,000,000 currently issued and outstanding shares
of Common Stock (the "Selling Shareholder Shares" and together with the Company
Shares, collectively the "Shares"), that may be sold by certain shareholders
(the "Selling Shareholders") of the Company pursuant to the Registration
Statement.
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the originals of all records, documents and instruments submitted to us as
copies. We have based our opinion upon our review of the following records,
documents, instruments and certificates:
(a) The Restated Articles of Incorporation of the Company certified by
the Secretary of State of the State of California as of February 3, 1998,
and certified to us by an officer of the Company as being complete and in
full force and effect as of the date of this opinion;
(b) The Bylaws of the Company certified to us by an officer of the
Company as being complete and in full force and effect as of the date of
this opinion;
(c) A Certificate of the Secretary of the Company: (i) certifying that
copies of all records of proceedings and actions of the Board of Directors
of the Company, including any committee thereof, relating to the issuance
of the Shares and the proposed resale of the Shares pursuant to the
Registration Statement have been provided to us; and (ii) certifying as to
certain factual matters; and
(d) The Registration Statement.
This opinion is limited to the laws of the State of California, and we
disclaim any opinion as to the laws of any other jurisdiction. We further
disclaim any opinion as to any other statute, rule, regulation, ordinance, order
or other promulgation of any other jurisdiction or any regional or local
governmental body or as to any related judicial or administrative opinion. Our
opinion to the effect that all issued and outstanding Shares are fully paid and
nonassessable is based on the certification obtained from the Company identified
in item (c) above to the effect that the consideration for such Shares recited
in the Board of Directors' resolutions for such Shares has been received.
Our opinion expressed below also assumes that: (i) the Registration
Statement is effective at the time the Shares are sold; (ii) the capitalization
of the Company is as described in the Registration Statement; and (iii) all
applicable securities laws are complied with in connection with the sale of the
Shares by the Selling Shareholders.
Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, it is our
opinion that the currently issued and outstanding Shares covered by the
Registration Statement to be sold by the Selling Shareholders are legally
issued, fully paid and nonassessable.
<PAGE> 2
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon by
you for any other purpose, or relied upon by any other person, firm, corporation
or other entity for any purpose, without our prior written consent. We disclaim
any obligation to advise you of any change of law that occurs, or any facts of
which we become aware, after the date of this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the reference to our firm under the
caption "Legal Matters" in the Registration Statement and any amendments
thereto.
Very truly yours,
/s/ HELLER EHRMAN WHITE & McAULIFFE
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of REMEC, Inc. for the
registration of 2,645,000 shares of its common stock and to the incorporation by
reference therein 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 of REMEC, Inc. included in its Annual Report (Form 10-K/A)
for the year ended January 31, 1997, and the related financial statement
schedule included therein, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Diego, California
February 4, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the reference to
our firm under the caption "Experts" in the Registration Statement (Form S-3)
and related Prospectus of REMEC, Inc. for the registration of 2,645,000 shares
of its common stock and to the incorporation by reference therein of our report,
dated March 6, 1997, on the financial statements of Radian Technology, Inc. as
of December 27, 1996 and December 29, 1995, and for the three years ended
December 27, 1996.
/s/ IRELAND SAN FILIPPO, LLP
San Jose, California
February 4, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the reference to
our firm under the caption "Experts" in the Registration Statement (Form S-3)
and related Prospectus of REMEC, Inc. for the registration of 2,645,000 shares
of its common stock and to the incorporation by reference therein of our report,
dated February 28, 1997, on the financial statements of Q-bit Corporation as of
December 31, 1996 and December 31, 1995, and for the two years ended December
31, 1996.
/s/ BRAY, BECK & KOETTER
Melbourne, Florida
February 4, 1998
