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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 1999
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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REMEC, INC.
(Exact Name of Registrant as Specified in Its Charter)
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CALIFORNIA 73812 95-3814301
(State or other jurisdiction of (Primary Standard Industrial (I.R.S.
incorporation or organization) Classification Code Number) Employer 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)
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Copies to:
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VICTOR A. HEBERT DAVID HULL
PAUL H. GREINER PAUL CLIFF
HELLER EHRMAN WHITE & MCAULIFFE EDGE ELLISON
601 SOUTH FIGUEROA STREET RUTLAND HOUSE
LOS ANGELES, CALIFORNIA 90017-5758 148 EDMUND STREET, BIRMINGHAM B3 2JR
TELEPHONE: (213) 689-0200 UNITED KINGDOM
FACSIMILE: (213) 614-1868 TELEPHONE: 011-44-121 214 2713
FACSIMILE: 011-44-121 200 1991
</TABLE>
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 being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, par value $0.01 per share...... 2,197,359 shares $12.50 $27,485,015 $7,640.83
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</TABLE>
(1) Represents 2,152,825 shares of Common Stock of the Registrant which may be
issued to former stockholders of Airtech plc pursuant to the acquisition
described herein and 44,534 which may be issued to an affiliate of Airtech
plc pursuant to the purchase by Registrant of the New Airtech Factory as
described herein.
(2) The proposed maximum offering price is estimated solely for the purpose of
computing the amount of the registration fee and the value of the securities
to be (a) received by the Registrant in exchange for its Common Stock,
computed pursuant to Rule 457(f)(1) under the Securities Act of 1933, as
amended, based on the average of the high and low prices of the Airtech
Common Stock reported on SEDOL on March 3, 1999, and using an exchange rate
of L1:1.6134, and (b) issued to an affiliate of Airtech pursuant to the
acquisition by REMEC of certain assets in exchange for the Registrant's
Common Stock, computed pursuant to Rule 457(d) under the Securities Act of
1933, as amended, based on the average of the high and low prices of the
REMEC Common Stock quoted on the Nasdaq National Market on March 3, 1999 and
the above exchange rate of L1:1.6134.
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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.
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THIS OFFER DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. WHEN
CONSIDERING WHAT ACTION YOU SHOULD TAKE, YOU ARE RECOMMENDED TO SEEK YOUR OWN
FINANCIAL ADVICE FROM YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR
OTHER INDEPENDENT FINANCIAL ADVISER DULY AUTHORISED UNDER THE FINANCIAL SERVICES
ACT 1986.
This Offer Document should be read in conjunction with the accompanying Form of
Acceptance.
If you have sold or transferred all your holding of Airtech Shares, please
forward this Offer Document and the accompanying Form of Acceptance and
reply-paid envelope to the purchaser or transferee or to the stockbroker, bank
or other agent through whom the sale or transfer was effected for transmission
to the purchaser or transferee. However, such documents should not be forwarded
or transmitted in, into or from Canada, Australia or Japan.
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RECOMMENDED OFFER
BY
QUARTZ CAPITAL PARTNERS LIMITED
ON BEHALF OF
REMEC, INC.
FOR
AIRTECH PLC
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The Offer is not being made, directly or indirectly, in or into Canada,
Australia or Japan and this document and the Form of Acceptance are not being,
and must not be, mailed or transmitted in or into Canada, Australia or Japan.
A letter from the Chairman of Airtech recommending the Offer is set out on pages
6 to 9.
The procedure for acceptance is set out on pages 15 to 19 of this Offer Document
and in the accompanying Form of Acceptance. To accept the Offer, the Form of
Acceptance must be completed and returned as soon as possible, and in any event
so as to be received NO LATER THAN 3.00 P.M. (UK TIME) ON 1999.
A NOTICE OF AN EXTRAORDINARY GENERAL MEETING OF AIRTECH TO CONSIDER CERTAIN
RELATED PROPERTY TRANSACTIONS TO BE HELD AT THE OFFICES OF AIRTECH ON
1999 AT IS SET OUT AT THE END OF THIS DOCUMENT.
See Appendix VIII for definitions of terms used in this Offer Document.
THE SHAREHOLDERS OF AIRTECH ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY
THIS OFFER DOCUMENT IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER
"INFORMATION REGARDING REMEC -- RISK FACTORS" BEGINNING ON PAGE 24.
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE OFFER HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SEC OR THE SECURITIES COMMISSION OF ANY STATE OF THE
UNITED STATES NOR HAS THE SEC OR ANY SUCH STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS OFFER DOCUMENT; ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENCE.
Quartz Capital, which is regulated in the United Kingdom by The Securities and
Futures Authority Limited, and Needham & Company are acting for REMEC and no-one
else in connection with the Offer and will not be responsible to anyone other
than REMEC for providing the protections afforded to customers of Quartz Capital
or Needham for giving advice in relation to the Offer.
1
<PAGE> 3
Albert E Sharp, which is regulated in the United Kingdom by The Securities and
Futures Authority Limited, and Dain Rauscher Wessels are acting for Airtech and
no-one else in connection with the Offer and will not be responsible to anyone
other than Airtech for providing the protections afforded to customers of Albert
E Sharp and Dain Rauscher Wessels or for giving advice in relation to the Offer.
REMEC HAS APPLIED TO THE SEC FOR AN EXEMPTION FROM RULE 10b-13 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH WOULD PERMIT REMEC TO
PURCHASE AIRTECH SHARES, SUBJECT TO CERTAIN CONDITIONS, IN ANY PERIOD DURING
WHICH THE OFFER REMAINS OPEN, BUT AFTER REMEC SHALL HAVE BECOME ENTITLED TO
APPLY THE PROVISIONS OF SECTIONS 428-430F OF THE COMPANIES ACT TO ACQUIRE
COMPULSORILY ANY OUTSTANDING AIRTECH SHARES.
AVAILABLE INFORMATION
REMEC has filed with the SEC the Registration Statement with respect to the
offering of REMEC Common Stock to be issued in connection with the Offer. This
Offer Document constitutes a part of the Registration Statement and, in
accordance with the rules of the SEC, omits certain of the information contained
in the Registration Statement. For such information, reference is made to the
Registration Statement and the exhibits thereto.
REMEC is subject to the information requirements of the Exchange Act and in
accordance therewith files reports, proxy statements and other information with
the SEC. The Registration Statement, as well as such reports, proxy statements
and other information, can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at
Southwest Atrium Centre, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and at Seven World Trade Centre, Suite 1300, New York, New York 10048.
The SEC also maintains a WorldWide Web site that contains reports, proxy and
information statements, and other information regarding registrants that file
electronically with the SEC. The site and this Registration Statement may be
accessed at http:www.sec.gov. REMEC Common Stock is traded on the Nasdaq
National Market under the symbol "REMC." In addition, such materials and other
information concerning REMEC also can be inspected at the Nasdaq National Market
at Nasdaq Operations, 17th 35th Street NW, Washington, D.C. 20006. The
Registration Statement may also be inspected at the offices of Ashurst Morris
Crisp, Broadwalk House, 5 Appold Street, London EC2A 2HA, England, during normal
business hours on any weekday (English public holidays excepted) while the Offer
remains open for acceptance.
INCORPORATION OF DOCUMENTS BY REFERENCE
This Offer Document incorporates by reference certain documents that are not
presented herein or delivered herewith. REMEC hereby undertakes to provide
without charge to each person, including any beneficial owner, to whom a copy of
this Offer Document is delivered, upon written or oral request of such person, a
copy of any and all documents and information that have been incorporated by
reference herein (not including exhibits thereto unless such exhibits are
specifically incorporated by reference into the information incorporated
herein). Such documents and information are available in the United States upon
request from REMEC, 9404 Chesapeake Drive, San Diego, California 92123, USA,
Attention: Mr Michael McDonald, telephone: 619 560 1301 and in the United
Kingdom upon request from Ashurst Morris Crisp, Broadwalk House, 5 Appold
Street, London EC2A 2HA, Attention: Ms Julie A. Roberts, Telephone: 0171 638
1111. In addition, such documents and information may also be inspected at the
offices of Ashurst Morris Crisp (address as above), during normal business hours
on any weekday (English public holidays excepted) while the Offer remains open
for acceptance.
The following documents filed by REMEC with the SEC are hereby incorporated by
reference in this Offer Document: (1) REMEC's Annual Report on Form 10-K for the
year ended January 31, 1998; (2) REMEC's Quarterly Reports on Form 10-Q for the
quarters ended May 1, 1998, July 31, 1998 and October 30, 1998; and (3) REMEC's
Definitive Proxy Statement in connection with its 1998 Annual Meeting of
Shareholders.
All documents filed by REMEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Offer Document and prior to the date on
which the Offer becomes or is declared unconditional in all respects shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing thereof. Any statement contained herein or in any document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Offer Document to the
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<PAGE> 4
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 such statement so modified or
superseded shall not be deemed to constitute a part of this Offer Document
except as so modified or superseded.
RULE 8 NOTICES
Any person who, alone or acting together with any other person(s) pursuant to
any agreement (formal or informal), owns or controls, or becomes the owner or
controller of, directly or indirectly, one per cent. or more of any relevant
securities (as such term is defined on page IV-4 of this Offer Document) is
required, under the provisions of Rule 8 of the City Code, to notify the Company
Announcements Office of the London Stock Exchange, which will notify the Panel
and the United Kingdom press, by no later than 12:00 noon on the business day
following the date of the relevant transaction of every dealing in any relevant
securities until the first closing date of the Offer or (if later) such time as
the Offer becomes or is declared unconditional in all respects or lapses, in
accordance with Rule 8. Dealings by "associates" (within the meaning of the City
Code) of REMEC or Airtech in REMEC Common Stock or Airtech Shares until such
time must also be disclosed. Please consult your legal counsel immediately if
you believe Rule 8 may be applicable to you.
FINANCIAL INFORMATION
The extracts from the consolidated financial statements of, and other
information about, REMEC appearing in this Offer Document are presented in US
dollars ($) and have been prepared in accordance with US generally acceptable
accounting principles ("GAAP"). The extracts from the consolidated financial
statements of, and other information about, Airtech appearing in this Offer
Document are presented in pounds sterling (L) and have been prepared in
accordance with UK GAAP. US GAAP and UK GAAP differ in certain significant
respects. As a result, and for the convenience of the reader, the financial
information of Airtech used in the preparation of the pro forma information
appearing in this Offer Document has been adjusted to comply with US GAAP and
contains translations of pounds sterling amounts into US dollars at rates
specified below. Such translations should not be construed as representations
that the pounds sterling amounts represent, or have been, or could be converted
into US dollars at that or any other rate. The mid-point of the closing spread
of the dollar to sterling spot rate, as shown in the Financial Times (UK
edition) on 25 February 1999, the last dealing date before the announcement of
the Offer, was L1: $1.5988 and on 1999, the last practicable date
prior to the posting of this Offer Document, was . The noon buying rate
in New York City for cable transfers in pounds sterling as certified for customs
purposes by the Federal Reserve Bank of New York on these dates was and
, respectively. This information is provided for the convenience of the
reader and may differ from the actual rates in effect during the periods covered
by the Airtech financial information discussed herein. All US GAAP information
for Airtech appearing in this Offer Document is unaudited.
3
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TABLE OF CONTENTS
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PAGE
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LETTER FROM THE CHAIRMAN OF AIRTECH......................... 6
LETTER FROM QUARTZ CAPITAL.................................. 10
1. Introduction................................. 10
2. Irrevocable Undertakings..................... 10
3. The Offer.................................... 10
4. Fractions.................................... 11
5. REMEC Common Stock........................... 11
6. Information on REMEC......................... 11
7. Information on Airtech....................... 12
8. Background to and Reasons for the Offer...... 13
9. Financial Effects of Acceptance.............. 14
10. Management and Employees...................... 14
11. Airtech Share Option Schemes.................. 15
12. The New Airtech Factory....................... 15
13. Accounting Treatment.......................... 15
14. Procedure for Acceptance of the Offer......... 15
15. Settlement.................................... 18
16. Taxation...................................... 19
17. Further Information........................... 23
18. Action to be Taken............................ 23
INFORMATION REGARDING REMEC................................. 24
1. Risk Factors................................. 24
2. Consolidated Selected REMEC Financial Data... 33
INFORMATION REGARDING AIRTECH............................... 37
1. Business..................................... 37
2. Selected Financial Information............... 37
3. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 39
4. Nature of Trading Market..................... 41
5. Market Risk.................................. 41
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APPENDICES
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APPENDIX I Conditions and Further Terms of the Offer................... I-1
APPENDIX II REMEC Financial Statements.................................. II-1
APPENDIX III Airtech Financial Statements................................ III-1
APPENDIX IV Additional Information...................................... IV-1
APPENDIX V Description of REMEC Capital Stock and Changes in the Rights
of Airtech Shareholders..................................... V-1
APPENDIX VI Valuation of New Airtech Factory............................ VI-1
APPENDIX VII Certain Provisions of The Companies Act..................... VII-1
APPENDIX VIII Definitions................................................. VIII-1
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NOTICE OF EXTRAORDINARY GENERAL MEETING
5
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[LOGO OF AIRTECH PLC APPEARS HERE]
AIRTECH PLC
(REGISTERED IN ENGLAND NO. 3193039)
N.J.S. Randall (Executive Chairman) Registered Office:
Dr. B.J. Mulady (Chief Executive Officer) Coldharbour Way
M.J. White (Finance Director) Aylesbury
D.S. Haggett (Non Executive Director) Buckinghamshire HP19 3SU
G.F. Hardymon (Non Executive Director)
R.A.F. Heath (Non Executive Director) March 1999
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To Airtech Shareholders and, for information only, to option holders under the
Airtech Share Option Schemes
Dear Shareholder,
RECOMMENDED SHARE FOR SHARE OFFER BY REMEC FOR AIRTECH
It was announced on 12 January 1999 that your Board had held a number of
preliminary discussions with several potential partners or trade investors with
a view to technical collaboration and the provision of additional funding for
the Company. It was also announced that one of the companies approached by
Airtech had expressed an interest in merging with Airtech and that discussions
were at a very early stage and might or might not lead to an offer for the
Company.
On 26 February 1999, the Boards of REMEC and Airtech announced the terms of a
recommended share for share offer to be made by Quartz Capital on behalf of
REMEC to acquire the whole of the share capital of Airtech. This letter sets out
the background to the Offer and the reasons why your Board is recommending all
Airtech Shareholders to accept the Offer.
The formal Offer is set out in the letter from Quartz Capital on pages 10 to 23
of this document.
TERMS OF THE OFFER
The Offer is being made on the following basis:
FOR EACH AIRTECH SHARE 0.0372 OF A SHARE OF REMEC COMMON STOCK
The Offer is subject to adjustment if the market price of REMEC Common Stock
falls below $17.75 or rises above $22 per share of REMEC Common Stock.
If the market price of REMEC Common Stock falls to $15 or below, the Offer will
be fixed at 0.0440 of a share of REMEC Common Stock for each Airtech Share and
if it falls to a level between $15 and $17.75 the Offer will be calculated on a
pro rata basis between 0.0440 and 0.0372 of a share of REMEC Common Stock for
each Airtech Share.
If the market price of REMEC Common Stock rises to $24.75 or above, the Offer
will be fixed at 0.0331 of a share of REMEC Common Stock for each Airtech Share
and if it rises to a level between $22 and $24.75 the Offer will be calculated
on a pro rata basis between 0.0372 and 0.0331 of a share of REMEC Common Stock
for each Airtech Share.
For the purposes of these adjustments to the Offer, the market price of REMEC
Common Stock will be calculated as the average of the closing sales price of
REMEC Common Stock on the Nasdaq National Market for each of the Trading Days
between 15th March 1999 and 26th March 1999 inclusive. REMEC anticipates that it
will publicly announce results for the fiscal year ended 31 January 1999 before
15 March 1999 and, therefore, the market price of REMEC Common Stock after that
announcement should be reflective of REMEC's fiscal 1999 year-end results.
6
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Based on the closing REMEC Common Stock price on the Nasdaq National Market on
March 1999 (the latest practicable date prior to the posting of this document)
and the Illustrative Exchange Rate, the sterling equivalent value of the Offer
would be p per Airtech Share. On this basis, the Offer values the issued share
capital of Airtech at approximately L million. This represents a premium of
per cent. over the closing middle market price of 27.5p per Airtech share
on 11 January 1999, the last dealing day before the announcement by Airtech that
it had received an approach that might lead to an offer being made for the
Company. It also represents a premium of per cent. to the price of 19.5p
per Airtech Share, being the average of the closing middle market prices for the
30 days prior to the announcement by Airtech on 12 January 1999 that it had
received an approach that might lead to an offer being made for the company.
BACKGROUND TO AND REASONS FOR RECOMMENDING ACCEPTANCE OF THE OFFER
Since its flotation in September 1996, Airtech has made significant progress in
establishing itself as one of the leading suppliers of mobile communications
coverage enhancement products. The company's aim is to be a technological leader
in the design of advanced coverage enhancement products and to serve all the
major markets for these products throughout the world.
Despite the successes that we have achieved, 1998 has been a very difficult
trading year for a variety of reasons. Internally, our upgrade programme for
mast-head amplifiers has proved costly, although the problems are being
addressed. We were also affected by a number of external factors in 1998 which
included continued slippage in PCS orders in the US, coupled with financial
instability in the Far East. On a more positive note, our Generation 3 series of
mast-head amplifiers, and booster products have been well received by the
market.
In the light of our difficulties, your Board has given very careful
consideration to the strategic and financing alternatives open to Airtech in
view of the company's need for short and medium term working capital. The
Directors of Airtech have assessed the prospects for the business as an
independent entity, having regard to our cash position, the debt facilities
available to us and the likelihood of obtaining significant further equity
finance from the market. Having considered these alternatives, your Board
believes that it is in the best interests of the business, and its shareholders
and employees to be part of a larger group committed, to and with the resources
to achieve, further expansion.
Your Board believes that the merger with REMEC represents an excellent
opportunity for Airtech and REMEC to work in partnership with Airtech's existing
customer base in order to offer a range of complementary products and services
to those customers. The merger with REMEC will also assist Airtech in the sale
of its products in the US, as REMEC's products are technologically compatible
with Airtech's. The merger will also provide Airtech with access to REMEC's
significant cash resources to increase its market base by developing new
products. The Board anticipates that the merger should strengthen Airtech and
help us offer highly integrated solutions to our customers.
It is intended that the merger of Airtech and REMEC will be accounted for as a
pooling of interests under US GAAP. REMEC has received advice from Ernst & Young
LLP confirming that they concur with the conclusion of REMEC management that
this accounting treatment is permissible. If for any reason it proves impossible
or impracticable to achieve this accounting treatment prior to the Offer
becoming or being declared wholly unconditional, however, REMEC has agreed that
it will, subject to the requisite Airtech shareholder and regulatory approvals
and the satisfaction of certain other conditions, subscribe for 11.2 million new
Airtech ordinary shares at 40p per share.
MANAGEMENT AND EMPLOYEES
REMEC has given assurances to the Directors of Airtech that the existing
employment rights, including pension rights, of employees of the Airtech Group
will be fully safeguarded.
If the Offer becomes unconditional in all respects, I will enter into an
agreement with REMEC to continue to serve as Chairman of the Board of Airtech
and to take up a position with REMEC as an Executive Vice President. Details of
the agreement are described in paragraph 5 of Appendix IV.
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AIRTECH SHARE OPTION SCHEMES
The Offer will extend to any Airtech Shares which are issued or unconditionally
allotted while the Offer remains open for acceptance as a result of the exercise
of options granted under the Airtech Share Options Schemes. Appropriate
proposals reflecting the terms of the Offer will be made in due course to
participants of the Airtech Share Option Schemes if the Offer becomes or is
declared unconditional in all respects.
PURCHASE OF THE NEW AIRTECH FACTORY AND ADJOINING LAND
It has been agreed, subject to the approval of Airtech Shareholders in general
meeting and upon the offer becoming wholly unconditional, that REMEC will also
purchase the long leasehold interest in the New Airtech Factory and adjoining
land suitable for expansion purposes from a company owned and controlled by me,
for a consideration of L3.8 million less the mortgage outstanding on the
property in exchange for the issue of New REMEC Common Stock which will be
valued at the average of the closing price on the Nasdaq National Market for
each of the 10 Trading Days ending on the day before completion of the purchase
of the New Airtech Factory. It is anticipated that the attached mortgage on the
New Airtech Factory will be some L3.4 million and accordingly New REMEC Common
Stock with a value of some L400,000 would be issued.
As part of these arrangements, REMEC will also be granted pre-emption rights
over some 2.3 acres of land adjacent to the New Airtech Factory currently on a
long leasehold by a company owned and controlled by me.
Further details of the agreement relating to the New Airtech Factory are set out
at paragraph 12 of the letter from Quartz Capital and a copy of an independent
valuation of the New Airtech Factory is set out in Appendix VI.
This proposed disposal of the New Airtech Factory requires shareholder approval
and a notice to Airtech Shareholders convening the requisite Extraordinary
General Meeting of Airtech and seeking such approval of this transaction, as
required by the Panel on Takeovers and Mergers, is set out at the end of this
document. As a result of the requirements of the Panel on Take-overs and
Mergers, neither I nor any parties connected with me may vote on the resolution
to approve the property transaction. Accordingly I will and will procure that
such parties abstain from voting at the Extraordinary General Meeting. The Panel
on Takeovers and Mergers require that the vote at the Extraordinary General
Meeting must be taken on a poll. Polling forms will be available at the Meeting.
WHETHER OR NOT YOU INTEND TO ATTEND THE MEETING IN PERSON YOU ARE URGED TO
COMPLETE AND RETURN THE FORM OF PROXY. TO BE VALID, THIS MUST BE RETURNED SO AS
TO BE RECEIVED BY THE COMPANY'S REGISTRARS NOT LATER THAN 48 HOURS BEFORE THE
TIME OF THE MEETING.
IRREVOCABLE UNDERTAKINGS
REMEC has received irrevocable undertakings to accept the Offer in respect of
23,682,428 Airtech Shares representing a total of 52.0 per cent. of Airtech's
issued share capital. The Directors of Airtech and their associates have given
irrevocable undertakings to accept the Offer in respect of their entire holdings
amounting in total to 20,669,597 Airtech shares, representing 45.4 per cent. of
Airtech's issued share capital. In addition, funds managed by Bessemer Venture
Partners have irrevocably undertaken to accept the Offer in respect of their
holdings amounting to 3,012,831 Airtech Shares, representing 6.6 per cent of
Airtech's issued share capital.
Further information on the irrevocable undertakings is contained in paragraph 2
of the letter from Quartz Capital and in Appendix IV of this document.
ACTION TO BE TAKEN TO ACCEPT THE OFFER
To accept the Offer you should ensure that you return your completed Form of
Acceptance in the reply paid envelope as soon as possible and in any event so as
to be received by no later than 3:00 p.m. on 1999.
The procedure for acceptance is set out on pages 14 to 19 of this document and
in the Form of Acceptance. The attention of Airtech Shareholders who are
citizens or residents of jurisdictions outside the United Kingdom is drawn to
paragraph 14(g) of the letter from Quartz Capital.
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RECOMMENDATION
Your Board, which has been so advised by Albert E Sharp Securities and Dain
Rauscher Wessels, considers the terms of the Offer to be fair and reasonable.
The independent members of your Board, who have been so advised by Albert E
Sharp Securities, also consider the arrangements for the purchase of the New
Airtech Factory, described above, to be fair and reasonable. In providing advice
to the Board, Albert E Sharp Securities and Dain Rauscher Wessels have taken
into account the commercial assessments of the directors of Airtech.
THE DIRECTORS OF AIRTECH UNANIMOUSLY RECOMMEND ALL AIRTECH SHAREHOLDERS TO
ACCEPT THE OFFER AS THEY HAVE UNDERTAKEN TO DO IN RESPECT OF THEIR AGGREGATE
HOLDINGS OF AIRTECH SHARES, WHICH TOGETHER WITH THOSE OF THEIR FAMILIES,
ASSOCIATES AND RELATED TRUSTS, TOTAL 20,669,597 AIRTECH SHARES REPRESENTING 45.4
PER CENT OF THE ISSUED SHARE CAPITAL OF AIRTECH.
THE DIRECTORS OF AIRTECH (OTHER THAN ME FOR THE REASON SET OUT ABOVE) ARE ALSO
RECOMMENDING ALL AIRTECH SHAREHOLDERS TO VOTE IN FAVOUR OF THE RESOLUTION AT THE
EXTRAORDINARY GENERAL MEETING, AS THEY HAVE UNDERTAKEN TO DO IN RESPECT OF THEIR
AGGREGATE HOLDINGS OF AIRTECH SHARES WHICH, TOGETHER WITH THOSE OF THEIR
FAMILIES AND ASSOCIATES, TOTAL 567,512 AIRTECH SHARES REPRESENTING 1.2 PER CENT.
OF THE ISSUED SHARE CAPITAL OF AIRTECH.
Yours sincerely,
N.J.S. RANDALL
Executive Chairman
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[LOGO OF QUARTZ CAPITAL APPEARS HERE]
To Airtech Shareholders and, for information only, to participants in the
Airtech Share Option Schemes
Dear Sir/Madam,
RECOMMENDED SHARE FOR SHARE OFFER BY REMEC FOR AIRTECH
1. INTRODUCTION
The Boards of REMEC and Airtech announced on 26 February 1999 that they
had reached agreement on the terms of a recommended share for share
offer to be made by Quartz Capital on behalf of REMEC for the whole of
the share capital of Airtech on the basis of 0.0372 of a share of REMEC
Common Stock for each Airtech Share, which is subject to possible
adjustment in the event of material changes in the REMEC Common Stock
price.
The Offer values each Airtech Share at approximately pence and
Airtech's share capital at approximately L million.
REMEC will also purchase from a company owned and controlled by Mr Nick
Randall, Chairman of Airtech, the New Airtech Factory at a value of L3.8
million. This will be satisfied in REMEC Common Stock net of the
mortgage on the property of approximately L3.4 million. This arrangement
is subject to the approval of the shareholders of Airtech.
Your attention is drawn to the letter from Mr Nick Randall, the Chairman
of Airtech, set out on pages 6 to 9 of this document, which sets out the
reasons why the directors of Airtech consider the terms of the Offer to
be fair and reasonable and why they unanimously recommend Airtech
Shareholders to accept the Offer.
The Offer is being made to all Airtech Shareholders, including United
States persons. Accordingly, the Offer and this document are subject to
the requirements of both the Panel and the SEC.
2. IRREVOCABLE UNDERTAKINGS
REMEC has received irrevocable undertakings to accept the Offer in
respect of 23,682,427 Airtech Shares representing a total of 52.0 per
cent of Airtech's issued share capital. REMEC has received irrevocable
undertakings to accept the Offer from the directors of Airtech and their
associates amounting in total to 20,669,597 Airtech Shares representing
approximately 45.4 per cent. of the current issued share capital of
Airtech. In addition, funds managed by Bessemer Venture Partners have
given similar undertakings to accept the Offer amounting in total to
3,012,830 Airtech Shares, representing 6.6 per cent of Airtech's issued
share capital. These undertakings continue to be binding in the event of
a competing offer being made for Airtech.
3. THE OFFER
On behalf of REMEC, Quartz Capital hereby offers to acquire, on the terms
and subject to the conditions set out in this document and the Form of
Acceptance, all of the Airtech Shares on the following basis:
for each Airtech Share 0.0372 of a share of REMEC Common Stock
The Offer is subject to adjustment if the market price of REMEC Common
Stock (calculated as set out below) falls below $17.75 or rises above $22
per share.
If the REMEC Common Stock market price falls to $15 or below, the Offer
will be fixed at 0.0440 of a share of REMEC Common Stock for each Airtech
Share and if it falls to a level between $15 and $17.75 the Offer will be
calculated on a pro rata basis between 0.0440 and 0.0372 of a share of
REMEC Common Stock for each Airtech Share.
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If the REMEC Common Stock market price rises to $24.75 or above, the
Offer will be fixed at 0.0331 of a share of REMEC Common Stock for each
Airtech Share and if it rises to a level between $22 and $24.75 the Offer
will be calculated on a pro rata basis between 0.0372 and 0.0331 of a
share of REMEC Common Stock per Airtech Share.
For the purposes of these adjustments to the Offer, the market price of
REMEC Common Stock will be calculated as the average of the closing sales
prices of REMEC Common Stock as quoted on the Nasdaq National Market for
each of the Trading Days between 15 March 1999 and 26 March 1999
inclusive. REMEC anticipates that it will publicly announce results for
he fiscal year ended 31 January 1999 before 15 March 1999 and, therefore,
the market price of REMEC Common Stock after that announcement should be
reflective of REMEC's fiscal 1999 year-end results.
Based on the REMEC Common Stock closing price as quoted on the Nasdaq
National Market on March 1999 (the last practicable date before the
issue of this document) and the Illustrative Exchange Rate, the sterling
equivalent value of the Offer would be p per Airtech Share. The
Offer values the existing share capital of Airtech at approximately
L million and represents a premium of per cent. over the closing
middle-market quotation of 27.5 pence for an Airtech Share on 11 January
1999, the last dealing day prior to the announcement by Airtech that it
had received an approach that might lead to an offer being made for the
Company. It is also a premium of per cent to the price of 19.5p per
Airtech Share, being the average of the closing middle market prices for
the 30 days prior to the announcement by Airtech on 12 January 1999 that
it had received an approach that might lead to an offer being made for
the company.
Airtech Shares will be acquired by REMEC fully paid and free from all
liens, equities, charges, encumbrances and other interests and together
with all rights now or hereafter attaching thereto including the right
to receive and retain all dividends and other distributions declared,
made or paid after 26 February 1999.
The Offer extends to any Airtech Shares which are unconditionally
allotted or issued prior to the date on which the Offer closes (or such
earlier date as, with the Panel's consent or in accordance with the
Code, REMEC may decide) as a result of the exercise of options under the
Airtech Share Option Schemes or otherwise.
The conditions and further terms of the Offer are set out in Appendix I
to this document and in the Form of Acceptance.
4. FRACTIONS
If the Offer becomes or is declared unconditional in all respects,
fractions of REMEC shares of Common Stock will not be issued to
accepting Airtech Shareholders who will instead receive from REMEC an
amount in cash in lieu of any entitlements to a fraction of a share of
REMEC Common Stock. However, individual entitlements of less than L3.00
will not be paid to Airtech Shareholders but will be retained for the
benefit of the Enlarged REMEC Group.
5. REMEC COMMON STOCK
The New REMEC Common Stock will be issued credited as fully paid and
will rank pari passu in all respects with the existing REMEC Common
Stock, including the right to any dividends and other distributions
declared, paid or made after 26 February 1999. The New REMEC Common
Stock will be issued free from all liens, equities, charges,
encumbrances and other interests.
Airtech Shareholders should bear in mind that the sterling value of any
investment in REMEC Common Stock and any dividend income from that
investment (payable in US dollars and subject to US withholding tax)
will be affected by the dollar to sterling exchange rate.
6. INFORMATION ON REMEC
REMEC is a leader in the design and manufacture of microwave
multi-function modules ("MFMs") and sub-systems for microwave
transmission systems used in defence and commercial
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wireless applications. The company believes that its expertise in
microwave transmission systems components such as filters, amplifiers,
mixers, switches and oscillators and its expertise in integrating these
components into MFMs and sub-systems give it a strong competitive
position in the growing commercial wireless infrastructure equipment
market. REMEC's capabilities enable it to develop and manufacture MFMs
and sub-systems with reduced size, weight, parts count and cost and
increased reliability and performance.
REMEC comprises an expanding family of companies that provide components,
MFMs and sub-systems across the total functionality of a microwave
transmission system. Corporate offices are located in San Diego,
California with engineering and manufacturing facilities located in the
San Diego and San Jose areas of California; Etobicoke, Ontario, Canada;
and Palm Bay, Florida. Manufacturing operations are established in San
Jose, Costa Rica and in Tijuana, Mexico, supporting high volume component
fabrication and electronic assembly and test functions. REMEC's customer
base consists primarily of US based wireless infrastructure original
equipment manufacturers ("OEM"s) and prime defence contractors.
The company's products operate at radio (300 MHz to 1 GHz), microwave (1
GHz to 20 GHz) and millimetre wave (20 GHz to 50 GHz) frequencies. Modern
wireless telecommunications systems employ microwave transmission
technology pioneered in the defence 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 personal
communication systems "PCS"), rural telephony, very small aperture
terminals (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
productibility of base-station equipment.
REMEC also designs and manufactures precision instruments for guidance,
control and measurement systems used by the defence, aerospace, petroleum
and mining industries.
For the year ended 31 January 1998, REMEC generated income before taxes
of $23.2 million on revenues of $156.1 million. As at 31 January 1998,
REMEC had total stockholders' equity of $128.5 million. For the nine
months ended 30 October 1998, REMEC generated income before taxes of $9.5
million on revenues of $120.6 million. At 30 October 1998, REMEC had
total shareholders' equity of $186.0 million. REMEC had a market
capitalisation of approximately $ million at the close of business on
March 1999, the last practicable date before the issue of this
document, based on the closing market price of REMEC Common Stock of
$ .
7. INFORMATION ON AIRTECH
Airtech is a leading supplier of coverage enhancement products for
wireless mobile communications networks. Airtech's corporate office and
principal engineering and manufacturing facilities are located in the UK,
with sales and service offices located in the US and Malaysia. Airtech's
customers include the world's leading base-station OEMs and wireless
mobile communication service providers.
The company believes that as the number of wireless subscribers and
service providers continues to grow, service providers must improve and
expand their service offerings in order to remain competitive. The
company has identified and developed a number of products to extend the
coverage capabilities of wireless network base-station equipment. Tower
top amplifier products, which extend the receive range of the
base-station, are currently in production. Tower top booster products,
which extend both the receive and transmit range of the base-station,
are currently entering production. In addition, the company offers
custom radio frequency sub-system solutions that integrate the
filtering, combining, multiplexing and amplification functionality found
in its standard products for base-
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station OEMs, the Private Mobile Radio (PMR) market and the Royal Navy
for various ship bound communications systems.
In the year ended 31 December 1997, Airtech made a profit before tax of
approximately L250,000 on turnover of L21.3 million. At that date, the
Airtech Group had shareholders' funds of L10.5 million. For the
unaudited six months ended 30 June 1998, Airtech made a loss before tax
of L6.8 million on turnover of L5.8 million. At that date, the Airtech
Group had shareholders' funds of L3.7 million. Airtech's preliminary
results for the year ended 31 December 1998 are expected to be announced
in the week commencing 15 March 1999. Those results are expected to
contain further provisions totalling L1 million relating to Airtech's
MHA programme.
8. BACKGROUND TO AND REASONS FOR THE OFFER
REMEC has developed a strong position in a range of complementary
markets within the US wireless telecommunications arena. REMEC has
identified a number of strategic goals, including expansion into Europe,
which represents a significant portion of the worldwide wireless
infrastructure OEM and service provider market, and extension of the
company's product offerings in the mobile communications market with a
higher level integrated product.
On 11 November 1998, Ronald Ragland, Chairman and Chief Executive
Officer, and Jon Opalski, Senior Vice President of Business Development,
and other representatives of REMEC met with Nick Randall, Chairman. Mr
Randall indicated that he was looking for a strategic partner to
collaborate on new product development and make an investment in Airtech
to help fund new product development and continued operations.
Subsequent to 11 November 1998, Mr Ragland and Mr Randall spoke on
several other occasions regarding such possible business collaborations
and combinations.
On 4 December 1998, REMEC's Board met and authorised REMEC management to
pursue discussions concerning a potential offer to acquire Airtech. On
16 December 1998, Mr Randall presented a summary of the discussions with
REMEC regarding REMEC's interest in acquiring Airtech and the Airtech
Board authorised its management to proceed with such discussions with
REMEC.
On 12 January 1999, REMEC and Airtech each commenced a due diligence
review of the other's business, financial and legal affairs as
negotiations continued.
On 12 January 1999, Airtech issued a press release which noted the recent
movement in the company's share price and announced that it had had
preliminary discussions with several potential partners or trade
investors relating to technical collaboration and procuring additional
funding, including negotiations with a company interested in merging with
Airtech.
On 13 January 1999, terms of a formal offer were tentatively agreed to by
REMEC and Airtech for the merger of the two companies, subject to further
negotiations between the parties.
On 22 January 1999, REMEC's Board met and unanimously resolved to
authorise Needham & Company, Inc., REMEC's US financial adviser and
Quartz Capital, to make the Offer on behalf of REMEC and to approve the
issuance of REMEC Common Stock pursuant to the Offer. In evaluating the
Offer, REMEC's Board reviewed its strategic positioning and plans, the
past performance and further potential of Airtech, Airtech's line of
business and its existing and planned products, and the alternatives
available to REMEC in carrying out its strategic objectives.
The Board of REMEC believes that the acquisition of Airtech represents an
excellent opportunity to bring a range of highly complementary products
and services into its family of companies and at the same time
establishes a base for the expansion of both Airtech's and its own
existing products into Europe and the rest of the world. The REMEC Board
believes that it will be able to assist Airtech in the manufacture and
sale of its products in the US as Airtech's products are technologically
compatible. REMEC will also provide Airtech with the resources required
to increase its market base by developing new products.
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The acquisition of Airtech by REMEC should strengthen both companies and
help them offer highly integrated solutions to their customer base whose
operations are expanding on a global scale. REMEC believes that the
acquisition of Airtech will significantly enhance its strategic position
in the wireless telecommunications market.
9. FINANCIAL EFFECTS OF ACCEPTANCE
(a) CAPITAL VALUE
The following tables set out, for illustrative purposes only and on the
bases and assumptions set out below, the financial effects of acceptance
on capital value and income for a holder of 1000 Airtech Shares accepting
the Offer if the Offer becomes or is declared unconditional in all
respects:-
<TABLE>
<S> <C>
-- Compared to the day before the Offer period:
Sterling equivalent value of New REMEC Common Stock issued
in exchange for 1000 Airtech Shares under the Offer (i)... L
Market value of 1000 Airtech Shares (ii).................... L275
---------------
Increase in value (iii)..................................... L144
===============
Percentage increase (iii)................................... 52.4percent.
===============
-- Compared to the average of the 30 dealing days prior to
the Offer period:
Sterling equivalent value of New REMEC Common Stock issued
in exchange for 1000 Airtech Shares under the Offer (i)... L
Market value of 1000 Airtech Shares (iv).................... L195
---------------
Increase in value (iii)..................................... L224
===============
Percentage increase (iii)................................... percent.
===============
</TABLE>
- ---------------
Notes:
(i) The sterling equivalent value of New REMEC Common Stock is based
on the closing sales price of REMEC Common Stock as quoted on the
Nasdaq National Market of $18 on March 1999, the last
practicable date prior to the issue of this document, and the
Illustrative Exchange Rate.
(ii) The market value attributed to one Airtech Share is based on the
closing middle market price of 27.5p as derived from SEDOL on 11
January 1999, the last dealing day prior to the announcement by
Airtech that it had received an approach that might lead to an
offer being made for the company.
(iii) No account has been taken of any liability to taxation or for the
treatment of fractional entitlements to REMEC Common Stock.
(iv) The average of the closing middle market prices of Airtech Shares
for the 30 days prior to the announcement by Airtech on 12
January 1999 that it had received an approach that might lead to
an offer being made for the company.
(b) INCOME
REMEC intends to continue its policy of retaining earnings for use in its
operations and in the expansion of its business and therefore does not
anticipate paying any cash dividends or making any other form of
distribution of income for the foreseeable future. Neither REMEC nor
Airtech have paid a cash dividend during the last 12 months.
10. MANAGEMENT AND EMPLOYEES
The existing employment rights, including pension rights, of employees of
the Airtech Group will be fully safeguarded. If the offer becomes or is
declared wholly unconditional,
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REMEC and Mr Nick Randall, Chairman of Airtech, will enter into a
service agreement pursuant to which Mr Randall will continue to serve as
Chairman of the Board of Airtech and also will take up a position with
REMEC as an Executive Vice President. Details of the Agreement are
described in paragraph 5 of Appendix IV.
11. AIRTECH SHARE OPTION SCHEMES
The Offer will extend to any Airtech Shares which are issued or
unconditionally allotted while the Offer remains open for acceptance as
a result of the exercise of options granted under the Airtech Share
Option Schemes. Appropriate proposals reflecting the terms of the Offer
will be made in due course to participants of the Airtech Share Option
Schemes if the Offer becomes or is declared unconditional in all
respects.
12. THE NEW AIRTECH FACTORY
REMEC has agreed to purchase the long leasehold interest in the New
Airtech Factory from a company owned and controlled by Mr Nick Randall,
the Chairman of Airtech, for a consideration of L3.8 million, less any
mortgage outstanding on the property. A copy of the valuation report
prepared by Haslams is set out at Appendix VI. REMEC will acquire the
New Airtech Factory, following the Offer becoming wholly unconditional,
including the attached debt, in exchange for the issue of REMEC Common
Stock which will be valued at the average of the closing price on the
Nasdaq National Market for each of the 10 Trading Days ending on the day
before completion of the purchase of the New Airtech Factory. It is
anticipated that the attached debt will be some L3.4 million and
accordingly New REMEC Common Stock with a value of some L400,000 would
be issued.
As part of these arrangements, REMEC will also be granted pre-emption
rights over 2.3 acres of land adjacent to the New Airtech Factory
currently owned by a company owned and controlled by Mr Randall. REMEC
can then acquire this land at the price agreed between that company and
any other bona fide third party wishing to acquire it. These
arrangements are subject to the approval of Airtech shareholders and the
Offer is conditional on such approval. The independent members of the
Board of Airtech, consider the arrangements for the purchase of the New
Airtech Factory, described above, to be fair and reasonable and are
recommending shareholders to vote in favour of the proposals.
13. ACCOUNTING TREATMENT
It is a condition of the Offer that REMEC receives a letter from Ernst &
Young LLP, REMEC's auditors, dated as of the date on which the Offer
becomes or is declared unconditional in all respects, confirming that
they continue to concur with REMEC management's conclusion that the
acquisition of Airtech may be accounted for as a pooling of interests
under US GAAP.
In order that the acquisition of Airtech may be treated as a pooling of
interests under US GAAP, the directors of Airtech and certain persons
associated with them have entered into agreements with REMEC in respect
of a total of 21,180,557 Airtech Shares (representing approximately 46.5
per cent of Airtech's issued share capital), under which they have
agreed, unless certain conditions set out in these agreements are
satisfied, not to deal in their Airtech Shares (other than to accept the
Offer) or their New REMEC Common Stock until REMEC has published
financial statements incorporating at least 30 days of combined
operations of REMEC and Airtech.
If it proves impossible or impracticable to achieve this accounting
treatment prior to the Offer becoming or being declared wholly
unconditional however, the Offer will lapse and REMEC has agreed that it
will, subject to the requisite Airtech shareholder and or regulatory
approvals and the satisfaction of certain other conditions, subscribe
for 11.2 million new Airtech ordinary shares at 40p per share.
14. PROCEDURE FOR ACCEPTANCE OF THE OFFER
This section should be read together with the notes on the Form of
Acceptance.
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(a) COMPLETION OF THE FORM OF ACCEPTANCE
If you hold Airtech Shares in both certificated and uncertificated
form (that is to say, in CREST), you should complete a separate Form
of Acceptance for each holding. In addition, you should complete
separate Forms of Acceptance for Airtech Shares held in
uncertificated form but under different member account IDs and for
Airtech Shares held in certificated form but under different
designations. Additional Forms of Acceptance are available from New
Issues Department, IRG plc, Balfour House, 390-398 High Road,
Ilford, Essex IG1 1NQ (telephone number 0181-639-2000).
To accept the Offer in respect of all your Airtech Shares, you must
complete Boxes 1 and 3 and, where appropriate, Boxes 5 and/or 6 and,
if your Airtech Shares are in CREST, Box 4 on the Form of
Acceptance. In all cases you must sign Box 2 on the Form of
Acceptance IN THE PRESENCE OF A WITNESS, WHO SHOULD ALSO SIGN IN
ACCORDANCE WITH THE INSTRUCTIONS PRINTED THEREON.
(b) RETURN OF FORM OF ACCEPTANCE
To accept the Offer, the completed Form of Acceptance should be
returned (whether or not your Airtech Shares are in CREST) signed
and witnessed by post or by hand to New Issues Department, IRG plc,
Balfour House, 390-398 High Road, Ilford, Essex IG1 1NQ together
(subject to paragraphs (c) and (d) below) with the relevant share
certificate(s) and/or other document(s) of title as soon as
possible, BUT IN ANY EVENT SO AS TO ARRIVE NO LATER THAN 3.00 P.M.
ON 1999. A reply-paid envelope for use in the UK only is
enclosed for your convenience. No acknowledgement of receipt of
documents will be given by or on behalf of REMEC. The instructions
printed on the Form of Acceptance are deemed to form part of the
terms of the Offer.
Any Form of Acceptance received in an envelope postmarked in Canada,
Australia or Japan or otherwise appearing to REMEC or its agents to
have been sent from Canada, Australia or Japan may be rejected as an
invalid acceptance of the Offer. For further information on overseas
shareholders, see paragraph (g) below.
(c) DOCUMENTS OF TITLE
If your Airtech Shares are in certificated form, a completed, signed
and witnessed Form of Acceptance should be accompanied by the
relevant share certificate(s) and/or other document(s) of title. If
for any reason the relevant share certificate(s) and/or other
document(s) of title is/are lost or not readily available, you
should nevertheless complete, sign and return the Form of
Acceptance, as stated above, so as to be received by IRG plc by no
later than 3.00pm on 1999. You should send with the Form of
Acceptance any share certificate(s) and/or other document(s) of
title which you may have available and a letter stating that the
remaining documents will follow as soon as possible or that you have
lost one or more of your share certificate(s) and/or other
document(s) of title. No acknowledgement of receipt of documents
will be given. If you have lost your share certificate(s) and/or
other document(s) of title, you should contact Mr Matthew White,
Company Secretary of Airtech, Coldharbour Way, Aylesbury,
Buckinghamshire HP19 3SU, for a letter of indemnity for lost share
certificate(s) and/or other document(s) of title which, when
completed in accordance with the instructions given, should be
returned by post to IRG plc.
(d) ADDITIONAL PROCEDURES FOR AIRTECH SHARES IN UNCERTIFICATED FORM
(THAT IS, IN CREST)
If your Airtech Shares are in uncertificated form, you should insert
in Box 4 of the Form of Acceptance the participant ID and member
account ID under which such Airtech Shares are held by you in CREST
and otherwise complete and return the Form of Acceptance as
described above. In addition, you should take (or procure to be
taken) the action set out below to transfer the Airtech Shares in
respect of which you wish to accept the Offer to an escrow balance
(that is, a TTE instruction) specifying IRG plc (in its capacity as
a CREST participant under its participant ID referred to below) as
the escrow agent, as soon as possible AND IN ANY EVENT SO THAT THE
TRANSFER TO ESCROW SETTLES NO LATER THAN 3.00 P.M. ON 1999.
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IF YOU ARE A CREST SPONSORED MEMBER, YOU SHOULD REFER TO YOUR CREST
SPONSOR BEFORE TAKING ANY ACTION. Your CREST sponsor will be able to
confirm details of your participant ID and the member account ID
under which your Airtech Shares are held. In addition, only your
CREST sponsor will be able to send the required TTE instruction to
CRESTCo in relation to your Airtech Shares.
You should send (or, if you are a CREST sponsored member, procure
that your CREST sponsor sends) a TTE instruction to CRESTCo which
must be properly authenticated in accordance with CRESTCo's
specifications and which must contain, in addition to the other
information that is required for a TTE instruction to settle in
CREST, the following details
- the number of Airtech Shares to be transferred to an escrow
balance;
- your member account ID. This must be the same member account ID
as that inserted in Box 4 of the Form of Acceptance;
- your participant ID. This must be the same participant ID as
that inserted in Box 4 of the Form of Acceptance;
- the member account ID of the escrow agent. This is ;
- the participant ID of the escrow agent, IRG plc, in its capacity
as CREST receiving agent. This is ;
- the Form of Acceptance reference number. This is the reference
number that appears next to Box 4 on page of the Form of
Acceptance. This reference number should be inserted in the
first eight characters of the shared note field on the TTE
instruction. Such insertion will enable IRG plc to match the TTE
to your Form of Acceptance. You should keep a separate record of
this reference number for future reference;
- the intended settlement date. This should be as soon as possible
and in any event not later than 3.00 p.m. on 1999; and
- Corporate Action Number. This is allocated by CRESTCo and can be
found by viewing the relevant corporation action details in
CREST.
After settlement of the TTE instruction, you will not be able to
access the Airtech Shares concerned in CREST for any transaction or
charging purposes. If the Offer becomes or is declared unconditional
in all respects, the escrow agent will transfer the Airtech Shares
concerned to itself.
You are recommended to refer to the CREST manual published by
CRESTCo for further information on the CREST procedures outlined
above. For ease of processing, you are requested, wherever possible,
to ensure that a Form of Acceptance relates to only one TTE
instruction.
If no Form of Acceptance reference number, or an incorrect Form of
Acceptance reference number, is included in the TTE instruction,
REMEC may treat any amount of Airtech Shares transferred to an
escrow balance in favour of the escrow agent specified above from
the participant ID and member account ID identified in the TTE
instruction as relating to any Form(s) of Acceptance which relate(s)
to the same member account ID and participant ID (up to the amount
of Airtech Shares inserted or deemed to be inserted on the Form(s)
of Acceptance concerned).
YOU SHOULD NOTE THAT CRESTCO DOES NOT MAKE AVAILABLE SPECIAL
PROCEDURES IN CREST FOR ANY PARTICULAR CORPORATE ACTION. NORMAL
SYSTEM TIMINGS AND LIMITATIONS WILL THEREFORE APPLY IN CONNECTION
WITH A TTE INSTRUCTION AND ITS SETTLEMENT. YOU SHOULD THEREFORE
ENSURE THAT ALL NECESSARY ACTION IS TAKEN BY YOU (OR BY YOUR CREST
SPONSOR) TO ENABLE A TTE INSTRUCTION RELATING TO YOUR AIRTECH SHARES
TO SETTLE PRIOR TO 3.00 P.M. ON 1999. IN THIS REGARD, YOU ARE
REFERRED IN PARTICULAR TO THOSE SECTIONS OF THE CREST MANUAL
CONCERNING PRACTICAL LIMITATIONS OF THE CREST SYSTEM AND TIMINGS.
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REMEC will make an appropriate announcement if any of the details
contained in this paragraph (d) alter for any reason in any respect
that is material to Airtech Shareholders.
(e) DEPOSITS OF AIRTECH SHARES INTO, AND WITHDRAWALS OF AIRTECH
SHARES FROM, CREST
Normal CREST procedures (including timings) apply in relation to any
Airtech Shares that are, or are to be, converted from uncertificated
to certificated form, or from certificated to uncertificated form,
during the course of the Offer (whether any such conversion arises
as a result of a transfer of Airtech Shares or otherwise). Holders
of Airtech Shares who are proposing so to convert any such Airtech
Shares are recommended to ensure that the conversion procedures are
implemented in sufficient time to enable the person holding or
acquiring the Airtech Shares as a result of the conversion to take
all necessary steps in connection with an acceptance of the Offer
(in particular, as regards delivery of share certificate(s) and/or
other document(s) of title or transfers to an escrow balance as
described above) prior to 3.00 p.m. on 1999.
(f) VALIDITY OF ACCEPTANCE
Without prejudice to Part B of Appendix I, REMEC reserves the right
(subject to the terms of the Offer and the Code) to treat as valid
in whole or in part any acceptance of the Offer which is not
entirely in order or which is not accompanied by the relevant TTE
instruction or (as applicable) the relevant share certificate(s)
and/or other document(s) of title. In that event, no shares of
REMEC Common Stock will be issued under the Offer until after the
relevant TTE instruction has settled or (as applicable) the
relevant share certificate(s) and/or other document(s) of title or
indemnities satisfactory to REMEC have been received.
(g) OVERSEAS SHAREHOLDERS
The attention of Airtech Shareholders who are citizens or residents
of jurisdictions outside the United Kingdom is drawn to paragraphs
6 and 7 of Part B of Appendix 1 and to the relevant provisions of
the Form of Acceptance.
The availability of the Offer to persons not resident in the United
Kingdom may be affected by the laws of the relevant jurisdictions.
Any persons who are subject to the laws of any jurisdiction other
than the United Kingdom should inform themselves about and observe
any applicable requirements.
All Airtech Shareholders (including nominees, trustees or
custodians) who would, or otherwise intend to, forward this
document and/or the Form of Acceptance, should read the further
details in this regard which are contained in paragraphs 6 and 7(c)
of Part B of Appendix I before taking any action.
IF YOU ARE IN ANY DOUBT AS TO THE PROCEDURE FOR ACCEPTANCE, PLEASE
CONTACT IRG PLC BY TELEPHONE ON 0181 639-2000. YOU ARE REMINDED THAT, IF
YOU ARE A CREST SPONSORED MEMBER IN RESPECT OF YOUR AIRTECH SHARES, YOU
SHOULD CONTACT YOUR CREST SPONSOR BEFORE TAKING ANY ACTION.
15. SETTLEMENT
Subject to the Offer becoming or being declared unconditional in all
respects, settlement of the consideration to which any Airtech
Shareholder is entitled under the Offer (except as provided in paragraph
6 of Part B of Appendix I in the case of certain overseas Airtech
Shareholders), will be effected (i) in the case of acceptances received,
complete in all respects, by the date on which the Offer becomes or is
declared unconditional in all respects, within 14 days of such date, or
(ii) in the case of acceptances received, complete in all respects,
after the date on which the Offer becomes or is declared unconditional
in all respects but while the Offer remains open for acceptance, within
14 days of such receipt. Certificates for New REMEC Common Stock and,
where applicable, cheques representing fractional entitlements, will be
despatched to Airtech Shareholders. In the case of joint holders of
Airtech Shares, these will be despatched to the joint holder whose name
appears first in the register of members. All documents will be sent by
pre-paid post at the risk of the person entitled thereto. Accepting
Airtech Shareholders will receive their New REMEC Common Stock
certificates without having to take any further action. Dealings in
REMEC Common Stock are expected to commence on the Nasdaq National
Market shortly after the Offer becomes or is
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declared unconditional in all respects. Pending despatch of
certificates, transfers of New REMEC Common Stock will be certified
against the register of members of REMEC.
If the Offer does not become or is not declared unconditional in all
respects (i) share certificate(s) and/or other document(s) of title will
be returned by post (or such other method as may be approved by the
Panel) within 14 days of the Offer lapsing, to the person or agent whose
name and address is set out in the appropriate box of the Form of
Acceptance or, if none is set out, to the first named holder at his or
her registered address and (ii) IRG plc will, immediately after the
lapsing of the Offer (or within such longer period, not exceeding 14
days after the Offer lapsing, as the Panel may approve), give TTE
instructions to CRESTCo to transfer all relevant Airtech Shares held in
escrow balances and in relation to which it is the escrow agent for the
purposes of the Offer to the original available balances of the Airtech
Shareholders concerned. All documents and remittances sent by, to or
from Airtech Shareholders or their appointed agents will be sent at
their own risk.
16. TAXATION
The following discussion of taxation is included for general information
and relates only to the position of a person who is either a UK Resident
or a US Resident and who is the absolute beneficial owner of Airtech
Shares and accepts the Offer as to all such Airtech Shares. In
particular, the following does not discuss all of the tax consequences
that may be relevant to an Airtech Shareholder in light of such
shareholder's particular circumstances or to holders subject to special
rules, such as life insurance companies, dealers in securities,
financial institutions, tax-exempt entities, persons who have acquired
or acquire Airtech Shares pursuant to the exercise of options under the
Airtech Share Option Schemes or otherwise (or otherwise as
compensation), persons whose REMEC Common Stock will form part of the
business property of a permanent establishment of an enterprise in the
US within the meaning of Article 7(1) of the UK-US estate tax treaty
presently in force, persons who are UK Residents and US Residents,
certain US non-resident alien individuals who were US citizens or US
lawful permanent residents within the past ten years, or US Residents
whose functional currency is not the US dollar. The explanation of US
and UK tax laws set out below is based on laws and, in the case of the
UK, practice at present in effect, including the Treaty, and, in the
case of both the US and the UK, judicial and administrative precedent as
of March 1999. This explanation is subject to any changes in those
laws, practice (in the case of the UK) and precedent occurring after
that date, possibly with retroactive effect, and does not discuss any
tax laws other than those of the US and the UK. No US state or local tax
considerations are discussed. All Airtech Shareholders are urged to
consult their professional tax advisers regarding the specific tax
consequences of the Offer to them, including the applicability of UK tax
laws, US federal, state and local tax laws and the tax laws of any other
jurisdiction to which they may be subject.
The comments on US tax consequences are based upon an opinion provided
by Heller Ehrman White & McAuliffe, REMEC's US counsel. This opinion is
subject to certain assumptions and qualifications and is based on the
accuracy of representations made by Airtech, Mr Randall and REMEC. In
addition, the opinion is not binding on the IRS or the courts and
represents only Heller Ehrman White & McAuliffe's judgment as to the
likely outcome if the federal income tax issues discussed herein were
properly presented to a court of competent jurisdiction. No assurance
can be given that future legislative, judicial or administrative changes
or interpretations will not adversely affect the accuracy of the federal
income tax conclusions herein. No advance ruling from the IRS has been
or will be sought with respect to any of the tax matters discussed
herein. The comments on UK tax consequences have been reviewed by
Ashurst Morris Crisp, REMEC's UK counsel, and assume that REMEC is not
tax resident in the UK.
16.1 TAXATION OF UK RESIDENTS
UK Taxation
The following discussion summarises for an Airtech Shareholder who is a
UK Resident and who holds Airtech Shares as an investment the principal
UK tax consequences associated with the exchange of securities pursuant
to the Offer.
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<PAGE> 21
(a) TAXATION OF CAPITAL GAINS
The exchange of Airtech Shares by an Airtech Shareholder in return
for New REMEC Common Stock will not be treated as a disposal of
Airtech Shares for the purposes of UK taxation of capital gains,
provided that either the Airtech Shareholder, together with persons
connected with him, owns not more than five per cent. of, or of any
class of, the shares in or debentures of Airtech or the clearance
from the UK Inland Revenue referred to below is granted. The New
REMEC Common Stock will instead be treated as the same asset as the
Airtech Shares, acquired as and when the Airtech Shares were
acquired.
REMEC and Airtech have applied to the UK Inland Revenue for a tax
clearance under section 138 of the Taxation of Chargeable Gains Act
1992 which, if granted, will confirm that the Inland Revenue is
satisfied that the exchange of securities pursuant to the Offer is
being effected for the bona fide commercial reasons and not for tax
avoidance purposes.
The Directors of REMEC and of Airtech believe that this tax
clearance should be forthcoming, but the Offer is not conditional
upon this tax clearance being granted.
An Airtech Shareholder will, to the extent that he receives cash in
lieu of a fraction of a share of New REMEC Common Stock, be treated
as making a part disposal of his Airtech Shares which may,
depending upon his individual circumstances, give rise to a
liability to UK taxation of capital gains.
A subsequent disposal of New REMEC Common Stock by a UK Resident
may give rise to a liability to UK taxation of capital gains.
(b) STAMP DUTY AND STAMP DUTY RESERVE TAX
No UK stamp duty or stamp duty reserve tax will be payable by an
Airtech Shareholder on the transfer of Airtech Shares to REMEC. Any
liability to UK stamp duty or stamp duty reserve tax on the
transfer of such Airtech Shares to REMEC will be borne by REMEC. No
UK stamp duty or stamp duty reserve tax will be payable on the
issue of New REMEC Common Stock.
(c) DIVIDENDS
A UK Resident will generally be liable to income tax or corporation
tax in the UK on the aggregate of any dividend received from REMEC
and any tax withheld at source in the US (see below under "Taxation
of US Residents -- US Taxation") and any tax withheld in the UK
(see below). In computing that liability to taxation, credit will
be given for any tax withheld in the US and any tax withheld in the
UK. No repayment of the US tax credit will be available to a UK
Resident. In the case of a corporate UK Resident which controls ten
per cent. or more of the voting stock of REMEC, credit will also be
available for underlying tax against UK taxes in respect of the
dividend.
Special rules apply to UK Residents who are not domiciled in the
UK.
An agent in the UK, who on behalf of a UK Resident, collects a
dividend paid by REMEC may be required to withhold a sum on account
of UK income tax or corporation tax, currently at the rate of 20
per cent. Regulations, however, allow credit to be given for tax
withheld in the US, thereby reducing the aggregate withholding to
20 per cent. of the gross dividend.
(d) INHERITANCE TAX
Where REMEC Common Stock is held by an individual who is neither
domiciled nor deemed to be domiciled in the UK, no liability to UK
inheritance tax will arise. Where REMEC Common Stock is held by an
individual who is either domiciled or deemed to be domiciled in the
UK, liability to UK inheritance tax may arise on the death of, or on
a gift (or disposal at an undervalue) of the REMEC Common Stock by,
that individual.
US Taxation
UK persons acquiring New REMEC Common Stock will be subject to US
taxation on dividends received from REMEC. Generally, such dividends
would be subject to a 30 per cent. withholding
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tax. However, under the terms of the Treaty, the rate of withholding tax
will be reduced to 15 per cent. of the gross dividend or, in the case of
any corporate UK resident shareholder of REMEC controlling, directly or
indirectly, at least ten per cent. of the voting stock of REMEC, the
rate of withholding tax will be reduced to five per cent. of the gross
dividend. Such tax will be withheld by REMEC in its capacity as
withholding agent. No withholding taxes will apply if the dividends
received are effectively connected with a US trade or business of the
shareholder in the US; rather, the dividends will be subject to US tax
at the graduated rates applicable to US Residents. A corporate
shareholder may also be subject to a US branch profits tax on such
effectively connected income, with certain adjustments.
Eligibility for the reduced rate of withholding or exemption from
withholding tax is contingent on the UK shareholder complying with
certain formal IRS requirements. The requirements to obtain a reduced
rate of withholding include, but are not limited to, providing REMEC with
valid documentation of UK residency. Under certain circumstances, until 1
January 2000, the UK residency documentation requirement is satisfied by
a dividend payment address in the UK.
A person who is not a US Resident generally will not be subject to US
federal income tax on a gain on the sale of New REMEC Common Stock.
However, if such gain is effectively connected with the conduct of a US
trade or business, the gain will be subject to US tax at the graduated
rates applicable to US Residents. A corporate shareholder may also be
subject to a US branch profits tax on such effectively connected income,
with certain adjustments. An individual non-resident alien who is present
in the US for 183 days or more during the year of sale and whose gain is
not effectively connected with the conduct of a US trade or business will
be taxed at a rate of 30 per cent. on the gain.
"Backup" withholding and information reporting requirements apply to
certain payments of proceeds from the sale of stock by certain
non-corporate UK Residents under certain circumstances. A payment of the
proceeds of any such sale to or through the US office of a "broker" (as
defined in applicable Treasury regulations) is subject to backup
withholding unless the beneficial owner of the stock either provides a
Form W-8 (or a suitable substitute form) signed under penalty of perjury
that certifies as to the owner's foreign status in compliance with
applicable Treasury regulations or otherwise establishes an exemption.
The applicability of backup withholding to a payment of the proceeds of
any such sale effected outside the US by a foreign office of a broker
depends on the broker's connections with the US, if any. Any amounts
withheld under the backup withholding rules from a payment to a
non-corporate UK Resident would be allowed as a refund or credit against
such person's US federal income tax if the required information is
furnished to the IRS.
Where REMEC Common Stock is held by an individual who, under the UK-US
estate tax treaty presently in force, is either domiciled or deemed to
be domiciled in the UK and is neither domiciled nor deemed to be
domiciled in the US, no liability for US federal estate or gift tax will
arise on the death of, or on a gift (or disposition for less than fair
market value) of REMEC Common Stock by, that individual.
16.2 TAXATION OF US RESIDENTS
UK Taxation
The following discussion summarises for an Airtech Shareholder who is a
US Resident, but not a UK Resident, the principal UK tax consequences
associated with the exchange of securities pursuant to the Offer.
(a) TAXATION OF CAPITAL GAINS
The exchange of Airtech Shares by an Airtech Shareholder in return
for New REMEC Common Stock will not be subject to the regime
governing UK taxation of capital gains unless, at the time of the
disposal, the Airtech Shareholder carries on a business in the UK
through a branch or agency, and the Airtech Shares are or have been
used, held or acquired for the purposes of such branch or agency,
in which event the comments contained in "Taxation of UK Residents
-- Taxation of Capital Gains" will apply in the same was as they
apply to UK Residents.
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(b) STAMP DUTY AND STAMP DUTY RESERVE TAX
No UK stamp duty or stamp duty reserve tax will be payable by an
Airtech Shareholder on the transfer of Airtech Shares to REMEC. Any
liability to UK stamp duty or stamp duty reserve tax on the
transfer of such Airtech Shares to REMEC will be borne by REMEC. No
UK stamp duty or stamp duty reserve tax will be payable on the
issue of New REMEC Common Stock.
(c) DIVIDENDS
Dividends, if any, paid on REMEC Common Stock to a person who is
not a UK Resident will not be subject to UK tax unless that person
carries on a business in the UK through a branch or agency and the
REMEC Common Stock is effectively connected with that branch or
agency.
US Taxation
The US federal income tax consequences of the exchange of securities
pursuant to the Offer to an Airtech Shareholder who is a US Resident
depend on whether the Offer becomes unconditional in all respects after
REMEC obtains within the UK statutory four-month period acceptances of
the Offer as to at least 90 per cent. in value of the Airtech Shares to
which the Offer relates.
REMEC has stated that if it obtains acceptances of at least 90 per
cent., it intends to acquire compulsorily the remainder of the
outstanding Airtech Shares in accordance with UK law. In that event, and
subject to certain assumptions and qualifications and based on the
accuracy of representations made by Airtech, Mr Randall and REMEC, the
exchange by accepting Airtech Shareholders of Airtech Shares for shares
of New REMEC Common Stock pursuant to the Offer will be treated as a
"reorganization" as described in Section 368(a) of the IRC. As a result,
an accepting Airtech Shareholder will not recognise gain or loss on the
exchange of Airtech Shares pursuant to the Offer (except to the extent
cash is received or deemed received in lieu of a fraction of a share of
New REMEC Common Stock). An accepting Airtech Shareholder will have an
aggregate basis in the New REMEC Common Stock received in exchange for
Airtech Shares equal to such Airtech Shareholder's basis in the Airtech
Shares immediately prior to the exchange (less any portion of such basis
allocable to any fractional interest in a share of New REMEC Common
Stock for which the Airtech Shareholder receives or is deemed to receive
cash). Cash received or deemed received in lieu of a fraction of a share
of New REMEC Common Stock will result in taxable gain or loss equal to
the difference between the amount of such cash and the portion of the
Airtech Shareholder's basis in the Airtech Shares immediately prior to
the exchange allocable to the fractional share. Individual entitlements
that are not paid to an Airtech Shareholder because they are less than
L3.00 may be deemed received by the Airtech Shareholder for this
purpose. The holding period of shares of New REMEC Common Stock acquired
in exchange for Airtech Shares in the Offer will include the accepting
Airtech Shareholder's holding period in the Airtech Shares, provided
that the Airtech Shares are held as capital assets by the Airtech
Shareholder on the date of the exchange. Each Airtech Shareholder who
receives New REMEC Common Stock in the exchange pursuant to the Offer
will be required to file with such shareholder's federal income tax
return a statement setting forth the basis of the Airtech Shares
surrendered and the fair market value of the New REMEC Common Stock
received in the exchange, and to retain permanent records of these facts
relating to the exchange.
However, under UK law REMEC may elect to declare the Offer unconditional
in all respects at a time when it has obtained within the UK statutory
four-month period acceptances of the Offer as to more than 50 per cent.
but less than 90 per cent. in value of the Airtech Shares to which the
Offer relates. If REMEC does so, or otherwise does not acquire
compulsorily in accordance with UK law all outstanding Airtech Shares
with respect to which acceptances are not received, the conclusions in
the immediately preceding paragraph concerning reorganization treatment
and various consequences thereof do not apply. Moreover, if, due to the
percentage of acceptances of the Offer, the number of outstanding
Airtech stock options that are exercised without accepting the Offer,
and/or other factors, REMEC is not treated for purposes of Section 368
of the IRC as acquiring and maintaining ownership of Airtech Shares
possessing at least 80 per cent. of the total voting power of all of the
Airtech Shares, then the exchange by accepting Airtech Shareholders of
Airtech Shares for shares of New REMEC Common Stock pursuant to the
Offer will not be treated as a reorganization as
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described in Section 368(a) of the IRC. As a result, an accepting
Airtech Shareholder who is a US Resident will recognise taxable gain or
loss on the exchange of Airtech Shares pursuant to the Offer. The amount
of the gain or loss will be equal to the difference between (i) the sum
of the fair market value of the New REMEC Common Stock received and the
amount of any cash received or deemed received in lieu of a fraction of
a share of New REMEC Common Stock and (ii) the Airtech Shareholder's
adjusted basis in the Airtech Shares. The gain or loss will generally be
a capital gain or loss, assuming that the Airtech Shares are held as a
capital asset on the date of the exchange. Any capital gain or loss will
be a long-term capital gain or loss if the Airtech Shares have been held
for more than one year as of the date of the exchange.
"Backup" withholding and information reporting requirements apply to
certain payments of dividends to, and of proceeds from the sale of stock
by, certain non-corporate US Residents. REMEC, its agent, a broker or
any paying agent, as the case may be, will be required to withhold from
any payment that is subject to backup withholding a tax equal to 31 per
cent. of such payment if the US Resident fails to furnish to the payor
in the manner required his taxpayer identification number (social
security number or employer identification number), to certify to the
payor, under penalty of perjury, that such holder is not subject to
backup withholding or to comply otherwise with the applicable
requirements of the backup withholding rules. Any amounts withheld under
the backup withholding rules from a payment to a US Resident would be
allowed as a refund or a credit against such US Resident's US federal
income tax if the required information is furnished to the IRS.
17. FURTHER INFORMATION
Your attention is drawn to the further information contained in the
appendices.
18. ACTION TO BE TAKEN
To accept the Offer, the Form of Acceptance must be completed and
returned in respect of your Airtech Shares, whether or not your Airtech
Shares are in CREST. Forms of Acceptance should be returned by post or
by hand to IRG plc Balfour House, 390-398 High Road, Ilford, Essex IG1
1NQ as soon as possible and in any event so as to be received no later
than 3.00 p.m. on 1999.
Yours faithfully,
Guy Innes, Director
QUARTZ CAPITAL PARTNERS LIMITED
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INFORMATION REGARDING REMEC
RISK FACTORS
This Offer Document contains forward-looking statements that involve risks and
uncertainties. REMEC's and Airtech's actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
risks and uncertainties, including risks relating to: (a) the integration of
REMEC and Airtech; (b) the integration by REMEC of other prior acquisitions; (c)
the respective businesses of REMEC and Airtech, including risks relating to the
timing and magnitude of sales, the timing and scope of technological advances
and the overall condition of the wireless telecommunications industry; and (d)
other matters set forth in this section and elsewhere in this Offer Document and
in the documents incorporated herein by reference. In addition to the other
information in this Offer Document, the following risk factors should be
considered carefully by Airtech Shareholders in determining whether or not to
accept the Offer.
GENERAL RISKS RELATING TO REMEC'S BUSINESS
Dependence on Expansion into the Commercial Wireless Telecommunications Market
Could Result in Fluctuations in Revenue
The commercial markets for REMEC's products could fail to grow, or could grow
more slowly than anticipated. Lack of growth or slow growth could materially
adversely affect REMEC's business, financial condition and results of
operations.
Historically, REMEC's business focused almost exclusively on making wireless
telecommunication products for the national defence industry. In recent years,
REMEC increased its business in the commercial (non-defence) wireless
telecommunications market. REMEC believes that its future growth depends on its
continued success in the commercial market. Further, REMEC believes that, while
the technologies used in the defence and commercial markets are very similar,
the two markets differ significantly in a number of areas. These areas include:
- - customer base
- - manufacturing requirements and lead times
- - research and development costs which may not be reimbursed or recovered and
- - credit risks associated with customers.
Because REMEC is increasing its business in the commercial market, REMEC is
subject to the risks of entering that new market, including risks associated
with:
- - attracting and servicing a new customer base
- - manufacturing products in a cost effective and profitable manner
- - managing the expansion of the business and
- - attracting and retaining qualified engineering, manufacturing and marketing
personnel who have industry experience.
For example, REMEC believes that microwave engineers with the skills necessary
to develop products for the wireless telecommunications market currently are in
high demand. As a result, it may be difficult for REMEC to attract and retain
those engineers.
Some of the commercial markets in which REMEC sells products 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 applications for REMEC's products may fail to develop or may erode for
many different reasons. These reasons include:
- - insufficient economic 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,
such as eavesdropping.
Dependence on Defence Market May Result in Limited Growth in Revenues
REMEC makes a substantial portion of its sales to the United States defence
market. As a result, lower defence spending by the US government could
materially adversely impact REMEC's business. Lower defence spending by the US
government might occur because of defence budget cuts, general budget cuts or
other causes. The US recently has reduced its defence budget and may further
reduce it. In addition, the
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<PAGE> 26
US has reduced the number of newly initiated defence industry production
programs. In the existing defence programs in which REMEC participates, pricing
pressure continues to be exerted on follow-on orders.
REMEC expects to continue to derive a substantial portion of its revenues from
defence programs and to develop microwave products for defence applications. If
a significant defence program or contract ends, and REMEC fails to replace sales
from that program or contract, there could be a material adverse effect on
REMEC's business, financial condition and results of operations. In addition, a
large portion of REMEC's expenses are fixed and difficult to reduce, thus
magnifying the material adverse effect of any shortfall in revenue.
Defence contracts frequently contain provisions that are not standard in private
commercial transactions, such as provisions that permit the cancellation of a
contract if funding for a program is reduced or cancelled. For example, the
government terminated a large defence program in December 1992 for which REMEC
had been supplying in excess of $4.0 million products on an annual basis.
Customer Concentration Could Cause Manufacturing and Supply Delays
REMEC derives significant revenues from a limited group of customers. If any
significant customer cancels, reduces or delays orders or shipments, as a result
of manufacturing or supply difficulties or otherwise, there could be a material
adverse effect on REMEC's business, financial condition and results of
operations. Likewise, if any significant customer is unable to finance its
purchases of REMEC's products, there could be a similar material adverse effect.
REMEC's customers include the following:
- - Motorola, Inc.
- - Raytheon Company
- - P-COM, Inc.
- - Northrop Grumman Corporation
- - Digital Microwave Corporation
- - ITT Industries
- - Alcatel Network Systems.
- - TRW Inc.
- - Lockheed Martin Corporation and
- - STM Wireless, Inc.
As of 31 January 1999 these customers comprised approximately 64.7 per cent. of
REMEC's year to date revenues, with Motorola and Raytheon Company being the only
customers that accounted for more than ten per cent.. of total year to date
revenues as of that date. REMEC anticipates that it will continue to sell
products to a relatively small group of customers.
Customer Exclusivity May Prevent REMEC from Pursuing Market Activities
REMEC has granted some of its customers exclusivity on certain products, which
means that REMEC is only permitted to make the products for them. REMEC expects
that in some cases its existing customers and new customers may require REMEC to
give them exclusivity on new products that REMEC makes for them. By entering
into such exclusive arrangements, REMEC may forego opportunities to supply
products to other companies. If REMEC enters into exclusive relationships with
customers who prove to be unsuccessful, REMEC's business may be materially
adversely affected, and REMEC may be unable to establish relationships with the
industry leaders. REMEC can give no assurance that it will be able to establish
business relationships with, or negotiate acceptable arrangements with,
significant customers. REMEC also can given no assurance that its current or
future arrangements with significant customers will continue or will be
successful.
Management's Limited Acquisition Experience May Slow the Integration of Acquired
Companies
Any difficulties encountered in the integration of companies REMEC has acquired
as a group could have a material adverse impact on REMEC's business, financial
condition and results of operations. In addition to the proposed acquisition of
Airtech, REMEC has acquired the following companies over the last several years:
- - C&S Hybrid, Inc.
- - Q-bit Corporation
- - Magnum Microwave Corporation
- - Radian Technology, Inc.
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- - Verified Technical Corporation
- - Nanowave Technologies Inc.
REMEC's operation as a combined enterprise requires substantial attention from
management, which has limited experience in integrating companies the size of
REMEC and some of the acquired companies. REMEC can give no assurance that it
will successfully complete the integration of these companies or that the
consolidated operations of REMEC and its subsidiaries will be profitable. REMEC
will face similar risks in the integration of any future acquisitions, including
the acquisition of Airtech.
Expanded Product Lines and Customer Base Could Cause Management of Growth
Problems
Failure to manage growth could materially adversely affect REMEC's business,
financial condition and results of operations. REMEC's business has grown in
size and complexity, and REMEC has expanded its product lines and customer base.
This growth and expansion has placed significant demands on REMEC's management
and operations, and these demands are expected to continue. REMEC's ability to
compete effectively and to manage future growth will depend on its ability to
implement and improve operating and financial systems on a timely basis. REMEC
can given no assurance that it will be able to manage its future growth
effectively.
Nature of REMEC's Production and Manufacturing Processes May Cause Fluctuations
in Quarterly Results
REMEC's quarterly results have varied significantly in the past, and will likely
to continue to vary significantly, due to a number of factors, including the
following:
- - timing, cancellation or rescheduling of customer orders and shipments;
- - the pricing and mix of products sold;
- - introductions of new products;
- - REMEC's ability to obtain components and subassemblies from contract
manufacturers and suppliers; and
- - variations in manufacturing efficiencies
Any one of these factors could substantially affect REMEC's results of
operations for any particular fiscal quarter.
Reliance on Defence Development Contracts Could Cause Fluctuations in Quarterly
Results
Because of the decline in the number of defence industry production programs,
REMEC has entered into more defence industry development contracts as a source
of defence revenues. Development contracts are contracts for the development of
products, rather than the production of products; they tend to be fixed price
contracts giving REMEC lower gross profit margins than production contracts. As
a result, REMEC's increased reliance on development contracts has led to an
increased quarterly fluctuation in sales and gross profit margins. Accordingly,
REMEC's comparative performance from any one fiscal quarter to the next is not
necessarily an accurate indicator of the direction of future performance.
Order Backlog Fluctuations May Not Necessarily Indicate Future Sales
REMEC can give no assurance that current order backlog will necessarily lead to
sales in any future period. REMEC's order backlog as of 31 January 1999 was
approximately $222.8 million, approximately 63 per cent. of which was
attributable to commercial customers and approximately 37 per cent. of which was
attributable to defence customers. In certain circumstances, customers place
purchase orders but request that product be delivered only over a specified
period of time as customers' needs may require. At the time a purchase order is
placed, REMEC records the entire amount of the purchase order as backlog, even
if the customer requests delivery of product against the purchase order over a
specified time period. A substantial amount of REMEC's order backlog can be
cancelled at any time without penalty. When a cancellation occurs, REMEC
sometimes, but not always, can recover its actual committed costs and make a
profit on work performed up to the date of cancellation. Cancellations of
pending purchase orders of REMEC's customers or termination or reductions of
purchase orders could have a material adverse effect on REMEC's business,
financial condition and results of operations.
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Dependence on Fixed-Price Contracts May Increase the Risks of Cost Overruns and
Product Non-Performance
In the past, REMEC has experienced cost overruns on defence contracts that are
on firm fixed price contracts (FFP). REMEC can give no assurance that cost
overruns or problems with the performance or reliability of its products will
not occur in the future. Any such cost overruns or performance problems may have
a material adverse effect on REMEC's business, financial condition and results
of operations. REMEC's customers establish demanding specifications for product
performance, reliability and cost. Certain contracts with REMEC's commercial
customers and a significant portion of its defence contracts are firm
fixed-price contracts. FFP contracts provide for a predetermined fixed price for
the products REMEC makes, regardless of the costs it incurs. REMEC has made
pricing commitments to P-COM and STM and to other customers based upon REMEC's
expectation that it will achieve more cost effective product designs and
automate more of its manufacturing operations. A substantial portion of the
P-COM backlog involves REMEC's re-design of a substantial portion of specific
radio component, which redesign needs to be successful in order for REMEC to
realise the P-COM backlog.
REMEC 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 than expected. The expense of producing products
can rise due to increased cost of materials, components or labour, or other
factors. Manufacture of REMEC's products is an extremely complex process.
Certain Customer Relationships May Lead to Loss of Investment in Design and
Engineering
REMEC often makes significant investments in the 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 for
such products may have a material adverse effect on REMEC's business, financial
condition and results of operations.
Increased Reliance on Commercial Market Could Increase the Necessity of
Implementing High Volume Manufacturing
Historically, in the defence market, REMEC has not automated its manufacturing
processes as fully as REMEC might have because the volume of product orders was
not high enough to make automation cost-effective. Product orders in the
commercial market tend to be higher in volume. As a result, as REMEC continues
to increase its sales to the commercial market, REMEC will need to increase its
manufacturing capacity significantly. Higher volume manufacturing generally
requires greater automation in order to be cost-effective. REMEC can give no
assurance that it will be able to automate sufficiently in order to fulfill
high-volume production orders in a cost-effective manner. REMEC also can give no
assurance that it will obtain a sufficient amount of high volume orders to
absorb the capital costs incurred in increasing its automation.
Competition in Telecommunications Industry May Increase the Technological
Obsolescense of REMEC's Products and Decrease Product Prices and REMEC Revenues
Technological innovations in the telecommunications industry could significantly
reduce the potential market for REMEC's products. Such innovations could include
a wireless telephone system using satellites instead of base stations on the
ground, or a device that integrates microwave functionality. The markets for
REMEC's telecommunication products are extremely competitive and are
characterised by rapid technological change. Specifically, new products are
generally developed quickly, products can become obsolete over a short period of
time, and industry standards are constantly evolving. In addition, price
competition is intense and the market prices of products frequently decline
after competitors begin making similar products. REMEC believes that to remain
competitive in the future it will need to invest significant financial resources
in research and development.
REMEC believes that its primary competitors are the captive manufacturing
operations of large wireless telecommunications OEM's (including all of the
major telecommunications equipment providers) and defence prime contractors. The
OEMs and the defence prime contractors manufacture a substantial majority of the
present worldwide production of MFM's. Some of REMEC's current customers and
some large manufacturers of microwave transmission equipment could also enter
into the market for microwave products and compete directly with REMEC. REMEC
also faces some competition from microwave component manufacturers who have
capabilities to integrate their components into MFMs.
27
<PAGE> 29
REMEC believes that its future success depends largely upon the extent to which
the OEMs and defence prime contractors elect to purchase MFMs and components
from outside sources such as REMEC. OEMs and defence prime contractors could
decide to manufacture these products in-house, rather than outsourcing them, and
this would have a material adverse effect on REMEC's business, financial
condition and results of operations.
Many of REMEC's current and potential competitors have substantially greater
technical, financial, marketing, distribution and other resources than REMEC
does.
Many of them also have greater name recognition and market acceptance of their
products and technologies. REMEC's competitors, or the competitors of its
customers, may develop new technologies, enhancements to existing products or
new products that offer superior price or performance features. Such new
products or technologies could render obsolete REMEC's products or the products
of REMEC's customers. For example, in its 1996 fiscal year, the cavity
oscillator shipments made by REMEC's subsidiary, Magnum, to Harris-Farinon were
reduced by $2.3 million due to obsolescence.
Customer Pressure to Reduce Prices May Cause Reductions in Revenues
If REMEC is unable to offset declining average selling prices, REMEC's gross
profit margins will decline, and such decline will have a material adverse
effect on REMEC's business, financial condition and results of operations. Many
of REMEC's customers are under continuous pressure to reduce prices and,
therefore, REMEC expects to continue to experience pressure from its customers
to reduce the prices on its products. REMEC's customers frequently negotiate
supply arrangements with REMEC well in advance of delivery dates, requiring
REMEC to commit to price reductions before it can determine whether it can
achieve its assumed cost reductions. To offset declining average sales prices,
REMEC believes that it must reduce its manufacturing costs and obtain higher
volume orders for products.
Environmental Regulations and Risks
REMEC is subject to a variety of environmental regulations by local, state,
federal and foreign governments. If REMEC failed to comply with current or
future regulations, the following adverse effects could occur:
- - it could be forced to alter manufacturing processes
- - it could be fined substantial amounts
- - its production could be suspended or
- - it would be forced to cease operations
The cost of defending such lawsuits or the cost of any judgement against REMEC
could have a material adverse effect on REMEC's business, financial condition
and results of operations. News reports have asserted that power levels
associated with hand held cellular telephones and related infrastructure
equipment may pose certain health risks. If wireless telecommunications
equipment (or other devices that incorporate REMEC's products) were determined
or perceived to create a significant health risk, the market for REMEC's
products could be materially adversely affected. This could have a material
adverse effect on REMEC's business, financial condition and results of
operations. Moreover, if such a health risk were determined or perceived to
exist, REMEC might be named as a defendant in product liability lawsuits
commenced by individuals alleging that REMEC's products harmed them. REMEC would
be required to defend such lawsuits and REMEC might be held liable. These
regulations govern the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic or other hazardous substances used to
manufacture REMEC's products.
New Government Regulation Could Interfere with REMEC's Business Growth
Certain equipment operators incorporate REMEC's products into wireless
telecommunications systems that are regulated domestically by the Federal
Communications Commission and internationally by other government agencies. The
equipment operators and not REMEC are responsible for compliance with such
regulations. However, regulatory changes, including changes in the allocation of
available frequency spectra, could materially adversely affect REMEC's business,
financial condition and results of operations. For example, regulatory changes
could restrict development efforts by REMEC's customers, make REMEC's current
products obsolete or increase the opportunity for additional competition.
Changes in applicable domestic and international regulations could have a
material adverse effect on REMEC's business, financial condition and results of
operation. If REMEC manufactured products that failed to comply with such
regulations, this could also have a similar material adverse effect.
28
<PAGE> 30
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 REMEC's customers.
This in turn may have a material adverse effect on the sale of REMEC's products
to such customers. In addition, the increasing demand for wireless
telecommunications has exerted pressure on regulatory bodies world-wide to adopt
new standards for such products. The approval of new standards generally follows
extensive investigation of and deliberation over competing technologies.
Governmental Audits Could Create Significant Expenses for REMEC
Because of REMEC's participation in the defence industry, REMEC is subject to
audit from time to time for its compliance with government regulations by
various agencies, including the following:
- - the Defence Contract Audit Agency
- - the Defence 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 REMEC's activity.
Responding to such governmental audits, inquiries or investigations may involve
significant expense and divert management attention. Also, an adverse finding in
any such audit, inquiry of investigation could involve penalties that could have
a material adverse effect on REMEC's business, financial condition or operating
results.
Dependence on Suppliers and Contract Manufacturers May Decrease Timeliness of
Product Delivery to Customers
REMEC relies on contract manufacturers and suppliers, in some cases role
suppliers or limited groups of suppliers, to provide it with services and
materials necessary for the manufacture of its products. REMEC's reliance on
contract manufacturers and on sole suppliers involves several risks. These risks
include a potential inability to obtain critical materials or services and
reduced control over productions costs, delivery schedules, reliability and
quality of materials. Any inability to obtain timely deliveries of acceptable
quality materials, or any other circumstances that would require REMEC to seek
alternative contract manufacturers or suppliers, could adversely affect REMEC's
ability to deliver products to its customers. This in turn would have a material
adverse effect on REMEC's business, financial condition and results of
operations. In addition, if costs for its contract manufacturers or suppliers
increase, REMEC may suffer losses if it is unable to recover such cost increases
under fixed price production commitments to its customers.
Volatility of Stock Price
The market price of REMEC Common Stock, like the stock prices of many companies
in the telecommunications industry, is subject to wide fluctuations in response
to a variety of factors, including:
- - actual or anticipated operating results
- - announcements of technological innovations
- - announcements of new products or new contracts by REMEC, its competitors or
customers
- - government regulatory action
- - developments with respect to wireless telecommunications and
- - general market conditions and other factors.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations. These fluctuations have particularly affected the
market prices for the stocks of technology companies and have often been
unrelated to the operating performance of particular companies. The market price
of REMEC Common Stock has been highly volatile and may continue to be highly
volatile.
Lack of Patent Protection May Not Prevent Competitors From Developing Similar
Proprietary Technology
REMEC does not presently hold any significant patents applicable to its
products. In order to protect its intellectual property rights, REMEC relies on
a combination of trade secret, copyright and trademark laws and employee and
third party nondisclosure agreements, REMEC also limits access to and
distribution of proprietary information. REMEC can give no assurance that the
steps it has taken to protect REMEC's intellectual property rights will be
adequate to prevent misappropriation of its technology or to preclude
competitors from independently developing such technology.
29
<PAGE> 31
Indemnity Obligations Could Result in Substantial Royalty Damages Obligations in
Infringement Claims
If a third party were successful in a claim that one of REMEC products infringed
the third party's proprietary rights, REMEC might have to pay substantial
royalties or damages or remove that product from the marketplace. REMEC might
also have to expend substantial amounts in order to modify the product so that
it would no longer infringe such proprietary rights. Any of these results could
have a material adverse effect on REMEC's business, financial condition and
results of operations. As to certain of its products, REMEC has agreed to
indemnify its customers against possible claims by third parties that the
products infringe their intellectual property rights. REMEC can give no
assurance that, in the future, third parties will not assert infringement claims
against REMEC or with respect to its products. Asserting REMEC's rights or
defending against third party claims could involve substantial costs and
diversion of resources and could materially and adversely affect REMEC's
business, financial condition and results of operations.
Adverse Economic Conditions in Other Countries May Affect International Sales
As of 31 January 1999 approximately 6 per cent. of REMEC's revenue is derived
from sales to international customers. Certain of REMEC's customers may sell
products into these markets. Recent adverse international economic developments
could affect sales by certain of REMEC's customers into these regions which may
in turn, have a material adverse effect on REMEC's business, financial condition
and results of operations.
Increased Technological Competition May Create Dependence on Key Personnel
REMEC depends to a great extent on the continued service of its qualified
personnel in the areas of management, engineering, manufacturing, quality
assurance, marketing and support. REMEC also depends on its ability to attract
and retain such personnel. Competition for such personnel is intense, and REMEC
can give no assurance that it will be successful in attracting or retaining such
personnel. For example, REMEC believes that microwave engineers with the skills
necessary to develop products for the wireless telecommunications market
currently are in high demand. As a result, REMEC may not be able to attract and
retain sufficient engineering expertise.
REMEC does not have "key man" life insurance on its key executive officers. It
also does not have employment or non-competition agreements with its key
executive officers, except for Tao Chow (Senior Vice President), James Mongillo
(Senior Vice President) and Justin Miller (Vice President). It is anticipated
that following completion of the Offer, REMEC will enter into a service
agreement with Mr Nick Randall, the current Chairman of the Board of Airtech,
under which Mr Randall will continue to serve as Chairman of Airtech and will
also serve as an Executive Vice President of REMEC.
Control of REMEC by Management May Prevent Change in Control
REMEC's executive officers comprise five of the nine members of the Board of
Directors. As a result, such persons have the ability to exercise influence over
significant matters regarding the REMEC. Such a high level of influence may have
a significant effect in delaying, deferring or preventing a change in control of
REMEC.
Year 2000 Compliance Modifications Could Divert Company Resources and Harm
Customer Relationships
Many currently installed computer systems and software products are coded to
accept only two-digit entries to represent years. For example "98" in some
systems and products represents the year "1998". Until they are recorded to
accept four-digit year entries, these systems and products will not be able to
distinguish years beginning with 2000 from years beginning with 1900. These
systems and products will need to be upgraded or replaced in order to comply
with "Years 2000" requirements.
REMEC believes that its internal systems either (1) already comply with Year
2000 requirements or (2) will be upgraded or replaced by December 31, 1999
without material cost or expense, in connection with previously planned changes,
prior to the need to comply with Year 2000 requirements. REMEC has made an
estimate of the costs of necessary Year 2000 modifications which has been
estimated to be approximately $350,000. REMEC's management derived this estimate
using numerous assumptions of future events, including the continued
availability of certain resources and other assumptions. REMEC cannot guarantee
that these estimates will be achieved, and the actual results could differ
materially from those that it anticipate. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in Year 2000 compliance, the ability to locate and correct
all relevant computer codes, and other factors. In addition, REMEC can give no
assurance that additional Year 2000
30
<PAGE> 32
compliance problems will not arise in the future. Any such problems could have a
material adverse effect on REMEC's business, financial condition and results of
operations.
Year 2000 issues may affect many of REMEC's customers and suppliers, and they
may need to expend significant resources to modify or replace their existing
systems. As a result, REMEC's customers could lack funds to purchase REMEC's
products, and REMEC's suppliers could experience difficulties in producing or
shipping key materials to REMEC on a timely basis or at all. This in turn could
materially adversely effect REMEC's business, financial condition and results of
operations.
Increased International Market Presence May Increase the Marketing and Sales
Costs of Delivering Products in Such Countries
REMEC seeks to expand its presence in international wireless telecommunications
and related markets by entering into partnerships or alliances with OEMs and
service providers in such countries and acquiring complementary international
business. REMEC currently has had limited experience in partnering with and
acquiring international entities and managing international operations. The
success of REMEC's ability to increase its international market presence is
dependent on a number of factors, including, but not limited to, the success of
its domestic operations, level of funding, stability of its stock price, ability
to produce competitive international products, attraction and retention of key
employees at its international locations and its strategic objectives.
RISKS RELATING TO THE OFFER
Inexperience with Integration of International Subsidiaries Could Decrease
Effectiveness of European Operation
The Offer involves the integration of two companies that have previously
operated independently. Such integration will require significant effort from
each company, including the co-ordination of their operations, research and
development and sales and marketing efforts. There can be no assurance that
REMEC will integrate the operations of Airtech without encountering difficulties
or experiencing the loss of Airtech or REMEC personnel or that the benefits
expected from such integration will be realised. The difficulties are
exacerbated by the fact that the two companies are located on different
continents separated by economic, governmental and cultural differences. REMEC
has no prior experience integrating a European operation. The diversion of the
attention of management and any difficulties encountered in the transition
process (including the interruption of, or a loss of momentum in, Airtech's
activities, problems associated with integration of management information and
reporting systems, and delays in implementation of consolidation plans) could
have an adverse impact on REMEC's ability to realise anticipated synergies from
the acquisition of Airtech.
Operating Losses of Airtech
For the six month period ended 30 June, 1998, Airtech reported a pre-tax loss of
approximately L6.8 million equivalent to approximately $11.2 million. REMEC's
pre-tax income for the comparable six month period ended 31 July, 1998 was
approximately $7.6 million. If the operating results of the two companies had
been combined on a consolidated basis during this period, the consolidated
company would have reported a pre-tax loss of approximately $3.6 million before
UK-US GAAP adjustments and application of merger accounting principles. No
assurances can be made that the consolidated company will generate income in the
future.
Change of Control of Airtech Could Weaken Relationships with Customers and
Partners
Certain of Airtech's existing customers or strategic partners may take the
opportunity following a change of control of Airtech to review their contractual
relationships. Such a review could result in delayed or lost sales to either
REMEC or Airtech.
Expansion into International Markets Could Increase Risks of Operating Losses
In such regions, OEMs, suppliers and customers may, on average, present greater
credit risks than for those companies in the United States and Europe and may,
on average, be subject to greater market volatility than those companies in the
United States and Europe. The Offer will permit REMEC to use Airtech's Far
Eastern sales offices to market and distribute REMEC's technology and products
into this region. REMEC has limited experience marketing and selling its
technology and products into this region and into other similar less developed
regions.
31
<PAGE> 33
Failure to Qualify for Pooling of Interests Accounting Treatment Could Cause
Future Reported Operating Losses
The Offer is intended to qualify for pooling of interests treatment under US
GAAP. Under pooling of interests treatment, the accounts of REMEC will be
combined with those of Airtech at their historical carrying amounts and REMEC's
financial statements for all prior periods will be restated to reflect the
accounts of REMEC as if the two companies had been combined for all periods.
REMEC anticipates that most of the requirements necessary for the transaction to
be treated as a pooling of interests will be met at the date that the Offer
becomes or is declared unconditional in all respects. Certain requirements will
continue after such date, including the requirement that no Affiliate of either
company may reduce its risk relative to its shareholdings within the period
beginning 30 days prior to the date that the Offer is declared unconditional in
all respects and ending when financial results covering at least 30 days of
post-combination operations have been published. REMEC has entered into
Affiliate Agreements with Airtech's Directors and certain persons associated
with them to restrict the disposition of shares by such persons to the extent
necessary to preserve pooling of interests treatment. There can be no assurance,
however, that the acquisition of Airtech, if consummated, will qualify for
pooling of interests treatment.
Should the transaction become or be declared unconditional in all respects and
not qualify for pooling of interests treatment, the purchase method of
accounting may be applied. Under that method, the fair market value of the New
REMEC Common Stock issued to effect the transaction would be recorded as the
cost of acquiring Airtech's business. That cost would be allocated to the
individual assets acquired and liabilities assumed according to their respective
fair values. The fair market value of the New REMEC Common Stock to be issued in
the transaction in excess of the amounts at which the net assets are carried in
Airtech's accounts would be capitalised as an intangible asset and amortised
over a certain period of time. Such treatment could have a material adverse
impact on the future reported operating results of the combined companies.
Failure to Qualify for Tax-Free Reorganization Treatment May Lead to Increased
Cost of Offer to Airtech Shareholders Who Are US Residents
The Offer is intended to be structured as a tax-free reorganization for US
federal income tax purposes. If REMEC does not acquire and maintain ownership of
Airtech Shares possessing at least 80 per cent. of the total voting power of all
of the Airtech Shares, or if for any other reason the Offer is not treated as a
tax-free reorganization for US income tax purposes, then the Airtech
Shareholders who are US Residents will recognise taxable gain or loss on the
exchange of their Airtech Shares for New REMEC Common Stock.
Future Sales of Shares Issued Under the Offer
Assuming the Offer is successfully completed, up to 2,197,359 shares of New
REMEC Common Stock will be issued, 1,305,707 of which shares will be immediately
freely tradeable under the Securities Act. Sales of a substantial number of such
shares of New REMEC Common Stock could adversely affect the market price of the
REMEC Common Stock. The remaining shares, which will be issued to the Directors
of Airtech and certain other persons associated with them, will become freely
tradeable after REMEC has published financial results covering at least 30 days
of combined operations.
Holders of Airtech Shares May Have Less Advantageous Rights After the Offering
Following the Offer, Airtech Shareholders will become holders of REMEC Common
Stock. Differences exist between the rights of Airtech Shareholders under
Airtech's Articles of Association and the rights of REMEC Stockholders under
REMEC's Articles of Incorporation and Bylaws. See Appendix VI -- Description of
REMEC Capital Stock and Changes in the Rights of Airtech Shareholders.
32
<PAGE> 34
2. CONSOLIDATED SELECTED REMEC FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements for REMEC, Inc. and the notes thereto
included elsewhere herein and "REMEC's Management Discussion and Analysis of
Financial Condition and Results of Operations" incorporated herein by reference.
The following selected financial data for the five years ended January 31, 1998
are derived from the audited consolidated financial statements of REMEC, Inc.
The consolidated selected financial data for the nine month periods ended
October 31, 1998 and 1997 are derived from unaudited consolidated financial
statements. The unaudited consolidated financial statements include all
adjustments, consisting of normal and recurring accruals, which REMEC, Inc.
considers necessary for a fair presentation of the financial position and the
results of operations for these periods.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REMEC
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net Sales............ $66,599 $81,978 $93,228 $118,554 $156,057 $111,850 $120,552
Cost of sales........ 45,427 57,994 66,172 85,659 108,053 77,861 85,973
------- ------- ------- -------- -------- -------- --------
Gross Profit......... 21,172 23,984 27,056 32,895 48,004 33,989 34,579
Operating expenses:
Selling, general and
administrative..... 13,332 15,646 16,611 19,349 24,773 18,009 21,767
Research and
development........ 1,323 2,067 4,016 4,605 5,108 3,862 5,553
------- ------- ------- -------- -------- -------- --------
Total operating
expenses........... 14,655 17,713 20,627 23,954 29,881 21,871 27,320
------- ------- ------- -------- -------- -------- --------
Income from
operations......... 6,517 6,271 6,429 8,941 18,123 12,118 7,259
Gain on sale of
subsidiary......... -- -- -- -- 2,833 2,833 --
Interest income
(expense) and
other.............. (191) (590) (401) 48 2,280 1,834 2,267
------- ------- ------- -------- -------- -------- --------
Income before
provision for
income taxes....... 6,326 5,681 6,028 8,989 23,236 16,785 9,526
Provisions for income
taxes.............. 1,830 2,394 2,429 4,017 8,501 5,994 1,247
------- ------- ------- -------- -------- -------- --------
Net income........... $ 4,496 $ 3,287 $ 3,599 $ 4,972 $ 14,735 $ 10,791 $ 8,279
======= ======= ======= ======== ======== ======== ========
EARNING PER SHARE:
Basic................ $ .34 $ .25 $ .28 $ .30 $ .71 $ .52 $ .36
Diluted.............. $ .34 $ .25 $ .28 $ .30 $ .68 $ .50 $ .35
SHARES USED IN
COMPUTING PER SHARE
AMOUNT:
Basic................ 13,309 12,965 12,892 16,517 20,841 20,747 22,993
Diluted.............. 13,309 12,965 13,009 16,828 21,534 21,549 23,403
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
AT JANUARY 31, OCTOBER 31,
------------------------------------------------- -----------
1994 1995 1996 1997 1998 1998
------- ------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 4,156 $ 3,628 $ 3,828 $ 63,172 $ 41,937 $ 80,702
Working capital................. 16,607 15,620 17,575 84,112 84,496 132,962
Total assets.................... 42,424 42,357 48,558 125,440 153,865 205,361
Long-term debt.................. 5,846 3,235 4,781 2,462 -- --
Total shareholders' equity...... 22,177 24,489 27,247 103,555 128,495 185,980
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 31, AT OCTOBER 31,
------------------- --------------
1997 1998 1998
-------- -------- --------------
<S> <C> <C> <C>
BACKLOG(1):...............................................
Commercial................................................ $ 75,118 $136,005 $ 146,556
Defense................................................... 71,711 78,850 59,817
-------- -------- --------------
Total..................................................... $146,829 $214,855 $ 206,373
======== ======== ==============
</TABLE>
- ---------------
(1) Backlog is not necessarily indicative of future sales and is generally
subject to cancellation.
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<PAGE> 36
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma combined financial data give effect to the
Acquisition using the pooling of interests method of accounting and are based
upon the respective historical financial statements and notes thereto of Airtech
and REMEC appearing elsewhere in this Offer Document. To reflect the pooling of
interests, the operating results of Airtech for each of its three fiscal years
ended December 31, 1997 and the nine months ended September 30, 1998 and 1997
have been converted into US dollars and combined with the REMEC's operating
results for each of its three fiscal years ended January 31, 1998 and the nine
months ended October 31, 1998 and 1997. The unaudited pro forma condensed
combined financial data should be read in conjunction with each of the
historical statements referred to above and appearing elsewhere herein. The pro
forma condensed combined financial data are presented for comparative purposes
only and do not purport to be indicative of what the actual results of
operations or financial position would have been for the periods presented had
the transactions occurred on the dates indicated and do not purport to indicate
the results of future operations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
YEAR ENDED JANUARY 31, OCTOBER 31,
------------------------------ -------------------------
1996 1997 1998 1997 1998
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA
(UNAUDITED):
Net sales............................... $ 97,700 $131,643 $191,008 $137,562 $136,679
Cost of sales........................... 68,776 95,359 132,932 95,622 106,291
-------- -------- -------- -------- --------
Gross profit.......................... 28,924 36,284 58,076 41,940 30,388
Operating expenses:
Selling, general & administrative..... 18,159 23,313 31,696 23,086 28,947
Research and development.............. 4,707 6,349 7,887 5,976 7,741
-------- -------- -------- -------- --------
Total operating expenses................ 22,866 29,662 39,583 29,062 36,688
-------- -------- -------- -------- --------
Income (loss) from operations........... 6,058 6,622 18,493 12,878 (6,300)
Gain on sale of subsidiary.............. -- -- 2,833 2,833 --
Interest income (expense) and other,
net................................... (426) 14 2,314 1,910 2,190
-------- -------- -------- -------- --------
Income before provision for income
taxes................................. 5,632 6,636 23,640 17,621 (4,110)
Provision for income taxes............ 2,328 3,780 9,134 6,375 1,004
-------- -------- -------- -------- --------
Net income (loss)....................... $ 3,304 $ 2,856 $ 14,506 $ 11,246 $ (5,114)
======== ======== ======== ======== ========
Pro forma net income (loss) per share:
Basic................................. $ 0.24 $ 0.16 $ 0.64 $ 0.50 $ (0.21)
======== ======== ======== ======== ========
Diluted............................... $ 0.24 $ 0.16 $ 0.62 $ 0.48 $ (0.21)
======== ======== ======== ======== ========
Shares used in computing pro forma per
share amount:
Basic................................. 13,819 17,610 22,535 22,441 24,687
======== ======== ======== ======== ========
Diluted............................... 13,936 17,921 23,393 23,407 24,687
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 31, AT OCTOBER 31,
1998 1998
-------------- --------------
<S> <C> <C>
PRO FORMA BALANCE SHEET DATA (UNAUDITED):
Cash and cash equivalents................................... $ 47,966 $ 81,532
Working capital............................................. 99,441 134,754
Total assets................................................ 178,888 220,706
Notes payable, net of current portion....................... -- --
Total stockholders' equity.................................. $143,741 $187,972
</TABLE>
35
<PAGE> 37
COMPARATIVE PER SHARE DATA
The following tabulation reflects: (a) the historical diluted income per share
of REMEC Common Stock in comparison with the pro forma income per share after
giving effect to the Acquisition on a "pooling of interests" accounting method
with Airtech; and (b) the historical net income per share of REMEC Common Stock
in comparison with the pro forma net income attributable to 0.0372 of a share of
REMEC Common Stock which will be received for each share of Airtech Common
Stock. The information presented in this tabulation should be read in
conjunction with the pro forma combined financial data and the separate
financial statements of the respective companies and the notes thereto appearing
elsewhere herein. The unaudited pro forma combined condensed financial data are
not necessarily indicative of the operating results that would have been
achieved had the transaction been in effect as of the beginning of the periods
present and should not be construed as representative of future operations.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
----------------------- ------------
1996 1997 1998 1998
----- ----- ----- ------------
<S> <C> <C> <C> <C>
HISTORICAL -- REMEC
Net income........................................... $ .28 $ .30 $ .68 $ .35
Book value........................................... $2.46 $5.04 $6.07 $8.04
HISTORICAL -- AIRTECH
Net income (loss).................................... $(.01) $ .07 $ -- $(.29)
Book value........................................... $2.45 $ .39 $ .38 $ .09
PRO FORMA COMBINED(1)(2)
Net income (loss).................................... $ .24 $ .16 $ .62 $(.20)
Book value........................................... N/A N/A $6.28 $7.58
EQUIVALENT PRO FORMA COMBINED(1)(2)
Net income (loss).................................... $ .01 $ .01 $ .02 $(.01)
Book value........................................... N/A N/A $ .23 $ .28
</TABLE>
(1) The pro forma combined and equivalent pro forma combined per share data as
effected for a conversion factor of .0440 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
----------------------- ------------
1996 1997 1998 1998
----- ----- ----- ------------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED
Net income (loss).................................... $ .23 $ .16 $ .61 $(.20)
Book value........................................... N/A N/A $6.20 $7.48
EQUIVALENT PRO FORMA COMBINED
Net income (loss).................................... $ .01 $ .01 $ .03 $(.01)
Book value........................................... N/A N/A $ .27 $ .33
</TABLE>
(2) The pro forma combined and equivalent pro forma combined per share data as
effected for a conversion factor of .0331 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
----------------------- ------------
1996 1997 1998 1998
----- ----- ----- ------------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED
Net income (loss).................................... $ .24 $ .16 $ .63 $(.21)
Book value........................................... N/A N/A $6.33 $7.63
EQUIVALENT PRO FORMA COMBINED
Net income (loss).................................... $ .01 $ .01 $ .02 $(.01)
Book value........................................... N/A N/A $ .21 $ .25
</TABLE>
36
<PAGE> 38
INFORMATION REGARDING AIRTECH
1. BUSINESS
Airtech is a leading supplier of coverage enhancement products for
wireless mobile communications networks. Airtech is now largely involved
in the design, manufacture and sale of coverage enhancement products for
the global mobile communications market. Airtech's principal products
are its family of masthead amplifiers which enhance the coverage of
mobile communications networks through advanced filtering and low noise
amplifier technology. Airtech's corporate offices and principal
engineering manufacturing facility is located in the UK, with sales and
service offices located in the US and Malaysia. Airtech's customers
include a number of the world's leading base station OEMs and wireless
mobile communication service providers.
Airtech's first orders for masthead amplifiers were received from Orange
in June 1995. The Company subsequently received major orders for MHA
products from OEMs and service providers in the UK and mainland Europe.
In 1996, Airtech established a US subsidiary in Dallas, Texas to address
the opportunities in the US market. To better serve the Far East, a
sales office was established in Kuala Lumpur in 1997.
In addition, Airtech offers customer RF sub system solutions that
integrate the filtering, combining, multiplexing and amplification
functionality found in its standard products to base stations OEMs, the
Private Mobile Radio market, and the Royal Navy for various ship bound
communication systems.
Airtech was floated on the Alternative Investment Market (AIM) of the
London Stock Exchange in September 1996 raising L10.5 million and was
admitted to the Official List of the London Stock Exchange in December
1997.
2. SELECTED FINANCIAL INFORMATION
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
AIRTECH
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX
MONTHS ENDED 30 JUNE
YEAR ENDED 31 DECEMBER (AUDITED) (UNAUDITED)
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
L'000 L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C> <C>
PROFIT AND LOSS ACCOUNT DATA:
Turnover........................ 1,954 1,585 2,834 8,221 21,315 10,609 5,813
Cost of Sales................... (948) (908) (1,650) (5,436) (14,985) (7,696) (8,438)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross Profit.................... 1,006 677 1,184 2,785 6,330 2,913 (2,625)
Operating Expenses:
Selling and distribution
costs....................... (216) (241) (393) (518) (1,325) (662) (820)
Administrative expenses....... (526) (595) (1,025) (2,909) (4,776) (2,015) (3,289)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating profit/(loss)......... 264 (159) (234) (642) 229 236 (6,734)
Interest (net).................. 21 (1) (16) (26) 21 69 (21)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Profit/(loss) on ordinary
activities before taxation.... 285 (160) (250) (668) 250 305 (6,755)
Tax on profit/(loss) on ordinary
activities.................... (94) 65 -- -- (145) -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Retained profit/(loss)
attributable to
shareholders.................. 191 (95) (250) (668) 105 305 (6,755)
========== ========== ========== ========== ========== ========== ==========
Earnings/(loss) per share....... 0.81p (0.40)p (1.00)p (2.27)p 0.23p 0.67p (14.83)p
========== ========== ========== ========== ========== ========== ==========
Shares used in per share
calculations.................. 23,510,482 23,510,482 24,919,088 29,378,965 45,547,830 45,547,830 45,547,830
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Cash and cash equivalents....... 177 3 1,159 6,990 3,670 3,405 1,068
Working capital................. 262 108 1,284 9,558 9,233 9,617 4,712
Total assets.................... 838 903 3,288 15,038 15,233 15,619 9,904
Long term debt.................. 12 1 97 451 285 207 119
Total shareholders' equity...... 352 257 563 10,363 10,532 10,734 3,747
========== ========== ========== ========== ========== ========== ==========
</TABLE>
37
<PAGE> 39
The following table shows certain of the above items reconciled to US GAAP.(1)
AIRTECH PLC
US GAAP RECONCILIATION
ALL FIGURES IN 000'S EXCEPT EARNINGS PER SHARE IN PENCE/CENTS.
<TABLE>
<CAPTION>
30 JUNE 30 JUNE 31 DECEMBER 31 DECEMBER 31 DECEMBER
1998 1997 1997 1996 1995
------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PROFIT FOR THE PERIOD ATTRIBUTABLE TO
ORDINARY SHAREHOLDERS:
UK GAAP (L).............................. (6,755) 305 105 (668) (250)
Adjustment: Stock compensation charge.... -- -- -- (828) --
Recognition of deferred tax.............. 98 (35) (245) 151 63
US GAAP (L).............................. (6,657) 270 (140) (1,345) (187)
Exchange rate (average).................. 1.6545 1.6326 1.6397 1.5729 1.5772
US GAAP ($).............................. (11,014) 440 (229) (2,115) (295)
EARNINGS PER SHARE:
UK GAAP (L).............................. (14.83) 0.67 0.23 (2.27) (1.00)
Adjustment: Stock compensation charge.... -- -- -- (2.82) --
Recognition of deferred tax.............. 0.21 (0.08) (0.53) 0.51 0.25
------- ------ ------ ------ ------
US GAAP (L).............................. (14.62) 0.59 (0.30) (4.58) (0.75)
Exchange rate (average).................. 1.6545 1.6326 1.6397 1.5729 1.5772
US GAAP ($).............................. (24.18) 0.97 (0.50) (7.20) (1.18)
TOTAL ASSETS
UK GAAP (L).............................. 9,904 15,619 15,233 15,038 3,288
Recognition of deferred tax.............. 65 176 -- 199 67
Translation difference on fixed assets... -- (64) -- (89) 25
------- ------ ------ ------ ------
US GAAP (L).............................. 9,969 15,731 15,233 15,148 3,380
Exchange rate (closing).................. 1.6695 1.6838 1.6427 1.7120 1.5505
US GAAP ($).............................. 16,643 26,486 25,023 25,931 5,240
SHAREHOLDERS' EQUITY
UK GAAP (L).............................. 3,747 10,734 10,532 10,363 563
Reinstated preference shares............. -- -- -- -- 941
Recognition of deferred tax.............. 65 176 (33) 199 67
Translation difference on fixed assets... -- (64) -- (89) 2
------- ------ ------ ------ ------
US GAAP (L).............................. 3,812 10,846 10,499 10,473 1,596
Exchange rate (closing).................. 1.6695 1.6838 1.6427 1.7120 1.5505
US GAAP ($).............................. 6,364 18,263 17,247 17,931 2,475
</TABLE>
- ---------------
(1) An explanation of the reconciliations to US GAAP in this table can be found
on page 3 of this Offer Document.
Airtech has paid no dividends during the last five years.
The following table sets forth for the periods indicated, certain information
concerning the high, low, average and end of period noon buying rates for U.K.
pounds sterling expressed in US dollars per L1.00 reported by the Federal
Reserve Bank of New York ("Noon Buying Rate"). Such rates are provided solely
for the convenience of the reader and are not necessarily the exchange rates (if
any) used by the Company in the preparation of its Consolidated Financial
Statements and related notes thereto included elsewhere in this Prospectus. No
representation is made that the U.K. pounds sterling could have been, or could
be, converted into US dollars at these rates or any other rates.
38
<PAGE> 40
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE
30 JUNE FINANCIAL YEAR ENDED
------------------ -------------------------------------------------------------------
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
1998 1997 1998 1997 1996 1995 1994
-------- ------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
End of financial period... 1.6695 1.6838 1.6605 1.6427 1.7120 1.5505 1.5647
Average for period........ 1.6545 1.6326 1.6575 1.6397 1.5729 1.5772 1.5326
High...................... 1.6914 1.7115 1.7115 1.7115 1.7140 1.6400 1.6382
Low....................... 1.6128 1.5885 1.6128 1.5797 1.4929 1.5310 1.4620
</TABLE>
3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIX MONTHS ENDED 30 JUNE 1998 VS. SIX MONTHS ENDED 30 JUNE 1997
Turnover. Turnover decreased 45% from L10.6 million for the six months
ended 30 June 1997 to L5.8 million for the six months ended 30 June
1998. The decline in sales was attributable to a number of factors
including delays to new PCS mobile infrastructure "roll-outs" in the US,
delays to Motorola's CDMA new product programme, financial instability
in the Far East impacting new mobile infrastructure projects in the
region and customers delaying orders pending availability of Airtech's
next generation product, the G3 MHA.
Gross Profit. Gross profit before exceptional items decreased 59% from
L2.9 million in the six months ended 30 June 1997 to L1.2 million in the
six months ended 30 June 1998. Gross margins before taking into account
exceptional items declined from 27.5% to 20.4% for the periods
indicated. In addition, non-recurring exceptional costs of L3.8 million
were incurred in the six months ended 30 June 1998 reflecting the costs
associated with Airtech's MHA upgrade programme.
Selling and Distribution Costs. Selling and Distribution costs
increased 24% from L0.7 million in the six months ended 30 June 1997 to
L0.8 million in the six months ended 30 June 1998 reflecting the
continued development of Airtech's international sales infrastructure,
particularly in the Far East.
Administrative Expenses. Administrative Expenses before exceptional
costs increased 46% from L2.0 million in the six months ended 30 June
1997 to L2.9 million in the six months ended 30 June 1998. This increase
included L0.54 million of bad debt charges, of which L0.15 million was
written back in subsequent periods. Administrative expenses also
included Research and Development costs, which increased by 11% from
L0.84 million for the six months ended 30 June 1997 to L0.94 million in
the six months ended 30 June 1998. In addition, a non-recurring
exceptional charge of L0.35 million was provided in the six months ended
30 June 1998 in respect to the cost of relocating the Group's operations
from three sites in the UK to a single new purpose-built factory unit.
Net Interest Income/Expense. Net interest income of L0.07 million was
reported in the six months ended 30 June 1997 compared to a net charge
of L0.02 million in the six months ended 30 June 1998. The swing was
reflected by the change in the Group's net cash position over the two
periods.
Taxation on Profit/Loss on Ordinary Activities. No tax charge arose in
either period.
FISCAL YEAR ENDED 31 DECEMBER 1997 VS. FISCAL YEAR ENDED 31 DECEMBER
1996
Turnover. Turnover increased 159% from L8.2 million in fiscal 1996 to
L21.3 million in fiscal 1997 following a massive increase in demand for
the Group's MHA products underpinned by an expansion of the Group's
international sales capability.
Gross Profit Gross profit increased 127% from L2.8 million in fiscal
1996 to L6.3 million in fiscal 1997, chiefly as a result of the
increased trading volume. Gross margin fell from 33.8% in fiscal 1996 to
29.6% in fiscal 1997 due to the mix of products shipped and upgrade
costs incurred.
Selling and Distribution Costs Selling and Distribution costs increased
155% from L0.5 million in fiscal 1996 to L1.3 million in fiscal 1997.
This was in line with the increase in turnover and reflected the
international expansion of the sales and marketing infrastructure.
Administrative Expenses Administrative Expenses before exceptional
items increased 52% from L2.8 million in fiscal 1996 to L4.3 million in
fiscal 1997. This was primarily attributable to the
39
<PAGE> 41
increased personnel and other administrative costs resulting from the
Groups' growth in all major areas of activity. In addition,
non-recurring exceptional costs of L0.07 million and L0.46 million were
incurred in fiscal 1996 and 1997 respectively relating to the Group's
stock exchange listing expenses and associated professional costs.
Net Interest Income/Expense Net interest income/expense improved from
L0.03 million net expense in fiscal 1996 to L0.02 million net income in
fiscal 1997. This reflected the improvement in the Group's average net
cash position over these periods, following its Initial Public Offering
in September 1996.
Taxation on Profit/Loss on Ordinary Activities. There was no tax charge
in fiscal 1996 due to the availability of tax losses. The tax charge in
fiscal 1997 was L0.15 million.
FISCAL YEAR ENDED 31 DECEMBER 1996 VS. FISCAL YEAR ENDED 31 DECEMBER
1995
Turnover Turnover increased 190% from L2.8 million in fiscal 1995 to
L8.2 million in fiscal 1996. This was attributable to the move into
volume production of MHAs following the Initial Public Offering of the
Group in September 1996.
Gross Profit Gross Profit increased 135% from L1.2 million in fiscal
1995 to L2.8 million in fiscal 1996 following the increase in sales
volumes. The move towards volume products with lower margins affected
the product mix and gross margin fell as a result from 41.8% in fiscal
1995 to 33.8% in fiscal 1996.
Selling & Distribution Costs Selling and Distribution costs increased
32% from L0.4 million in fiscal 1995 to L0.5 million in fiscal 1996, as
a result of the increase in the Group's activity and expansion of sales
resource in the US.
Administrative Expenses. Administrative Expenses before exceptional
items increased 177% from L1.0 million in fiscal 1995 to L2.8 million in
fiscal 1996, although these expenses remained broadly comparable as a
percentage of sales at 36.2% and 34.5% respectively.
Net Interest Income/Expense. Net Interest income/expense increased from
L0.02 million in fiscal 1995 to L0.03 million in fiscal 1996. This
reflected the increased finance charges payable on capital leases
following substantial investment in new equipment during fiscal 1996.
Taxation on Profit/Loss on Ordinary Activities. No tax charge arose in
either period.
LIQUIDITY AND CAPITAL RESOURCES
As of 30 June 1998, the Group had cash and cash equivalents of L1.07
million and working capital at the date was L4.71 million. In September
1996, the Group received net proceeds of L10.35 million from the sale of
its ordinary shares in the UK (the "UK Offering") and in June 1995
received net proceeds of L1.47 million in a private placement of its
redeemable preference shares and warrants (the "1995 Placement"). The
Group generated negative cash flow from operations in fiscal 1995, 1996
and 1997 and during the first two quarters of 1998.
Capital expenditures were approximately L0.13 million, L0.41 million,
L0.48 million and L0.09 million in fiscal 1995, 1996, 1997 and the six
months ended 30 June 1998 respectively. The Group has utilised lease
financing for the equipment used in its manufacturing operations and
expects to continue to do so in the future. The Group financed its
operations, including net losses and capital expenditures, over the last
three years primarily from bank financings and the net proceeds of the
UK Offering and the 1995 Placement. As of 30 June 1998 the Group had
borrowings under a working capital facility of approximately L0.88
million and liabilities under finance leases of approximately L0.38
million. The working capital facility and loan are secured by
substantially all of the assets of the Group.
The Group's future capital requirements will depend on many factors,
including the nature and timing of orders from major customers, the
working out of the upgrade programme, the progress of research and
development efforts, expansion of Airtech's marketing and sales effort
and the status of competitive products. Airtech believes that it has
access to adequate capital resources to fund its
40
<PAGE> 42
operations for at least twelve months, although it recognizes that this
may need to include an injection of equity capital during the year.
IMPACT OF INFLATION
During the periods under review, the business of Airtech was not
materially affected by inflation.
RECONCILIATION OF UK TO US GAAP
Certain profit and loss and balance sheet items in the UK published
accounts of the Airtech Group have been adjusted for the purposes of
this document principally to reflect the different treatment of deferred
tax and investment in its own shares under UK and US GAAP. US GAAP
requires the recognition of deferred tax assets whereas UK GAAP does
not. Under UK GAAP, a company's investment in its own shares (for
example where held by an employee benefit trust) is considered an asset
of the business whereas US GAAP treats such items as treasury stock.
This reconciliation is shown in Section 2 above.
4. NATURE OF TRADING MARKET
Airtech's shares have been traded on the London Stock Exchange since
1997. There is no trading market for Airtech Shares in the US.
As at 23 January 1999, there were approximately 27 holders of record of
Airtech's Shares with registered addresses in the US, holding an
aggregate of 5,250,455 Airtech Shares (approximately 9.9 per cent. of
Airtech's then issued share capital). Certain US holdings may be held in
nominee accounts with registered addresses outside the US.
The following table sets out, for the quarters indicated, the reported
highest and lowest middle market quotations for Airtech Shares, as
derived from SEDOL:
<TABLE>
<CAPTION>
PER ORDINARY PER ORDINARY
SHARE SHARE
QUARTER HIGH LOW
- ------- ------------ ------------
<S> <C> <C>
1 January 1997 to 30 March 1997.................... 115.5p 101.5p
1 April 1997 to 30 June 1997....................... 102.5p 77.5p
1 July 1997 to 30 September 1997................... 90.0p 72.5p
1 October 1997 to 31 December 1997................. 107.5p 61.5p
1 January 1998 to 31 March 1998.................... 99.5p 62.5p
1 April 1998 to 30 June 1998....................... 69.5p 45.5p
1 July 1998 to 31 September 1998................... 57.5p 15.5p
1 October 1998 to 31 December 1998................. 20.5p 15.0p
</TABLE>
5. MARKET RISK
Airtech is not exposed to any market risk sensitive instruments except
its treasury investments. These investments constitute sterling
denominated cash bank deposits yielding rates of interest available on
London money markets. To the extent that these rates of interest are
affected by market conditions, Airtech's interest income will change but
this is currently not expected to impact materially on its results.
41
<PAGE> 43
APPENDIX I
CONDITIONS AND FURTHER TERMS OF THE OFFER
PART A -- CONDITIONS
The Offer is subject to the following conditions:
(a) valid acceptances being received (and not, where permitted, withdrawn) by
not later than 3.00 p.m. on [D + 20 business days] 1999 (or such later
time(s) and/or date(s) as REMEC may, subject to the rules of the Code,
decide) in respect of not less than 90 per cent. (or such lesser percentage
as REMEC may decide) of the Airtech shares to which the Offer relates,
provided that, unless agreed by the Panel, this condition will not be
satisfied unless REMEC and/or its wholly-owned subsidiaries have acquired
or agreed to acquire (pursuant to the Offer or otherwise), directly or
indirectly, Airtech shares carrying, in aggregate, over 50 per cent. of the
voting rights then normally exercisable at general meetings of Airtech on
such basis as may be required by the Panel (including for this purpose, to
the extent (if any) required by the Panel, any voting rights attaching to
any shares which are unconditionally allotted or issued before the Offer
becomes or is declared unconditional as to acceptances, whether pursuant to
the exercise of conversion or subscription rights or otherwise); and for
this purpose (i) the expression "Airtech shares to which the Offer relates"
shall be construed in accordance with sections 428-430F of the Companies
Act 1985; and (ii) shares which have been unconditionally allotted shall be
deemed to carry the voting rights which they will carry on issue;
(b) approval for listing the New REMEC Common Stock on the Nasdaq National
Market being granted subject to official notice of issuance;
(c) the passing at an Extraordinary General Meeting of Airtech (or at any
adjournment thereof) of such resolutions as may be necessary to approve the
purchase of the New Airtech Factory;
(d) the Registration Statement, and any post-effective amendments thereto,
having become effective under the Securities Act and no stop order
suspending the effectiveness of such registration statement or any part
thereof having been issued and no proceeding for that purpose having been
initiated or threatened by the SEC;
(e) REMEC having received a letter from Ernst & Young LLP, dated as of the date
on which the Offer becomes or is declared unconditional in all respects,
confirming their concurrence with REMEC's management's conclusion that the
acquisition of Airtech may be accounted for as a pooling of interests under
US GAAP;
(f) no government or governmental, quasi-governmental, supranational, statutory
or regulatory body, or any court, institution, investigative body,
association, trade agency or professional or environmental body or (without
prejudice to the generality of the foregoing) any other person or body in
any jurisdiction (each, a "Relevant Authority") having decided to take,
instituted, implemented or threatened any action, proceedings, suit,
investigation or enquiry or enacted, made or proposed any statute,
regulation or order or otherwise taken any other step or done any thing,
and there not being outstanding any statute, legislation or order, that
would or might:
(i) restrict, restrain, prohibit, delay, impose additional conditions or
obligations with respect to, or otherwise interfere with the
implementation of, the acquisition of any Airtech shares by REMEC or
any matters arising therefrom;
(ii) result in a delay in the ability of REMEC, or render REMEC unable, to
acquire some or all of the Airtech shares;
(iii) require, prevent, delay or affect the divestiture by REMEC or any of
its subsidiaries, subsidiary undertakings or associated undertakings
(including any company of which 20 per cent. or more of the voting
capital is held by the REMEC Group) or any partnership, joint
venture, firm or company in which any of them may be interested)
(together the "wider REMEC Group") or Airtech or any of its
subsidiaries, subsidiary undertakings or associated undertakings
(including any company of which 20 per cent. or more of the voting
capital is held by the Airtech Group) or any partnership, joint
venture, firm or company in which any of them may be interested)
(together the "wider Airtech Group") of all or any portion of their
businesses, assets or property or of any Airtech Shares or other
securities in Airtech or impose any limitation on the ability of
I-1
<PAGE> 44
any of them to conduct their respective businesses or own their
respective assets or properties or any part thereof;
(iv) impose any limitation on the ability of any member of the wider REMEC
Group to acquire or hold or exercise effectively, directly or
indirectly, all rights of all or any of the Airtech shares (whether
acquired pursuant to the Offer or otherwise);
(v) require any member of the wider REMEC Group or the wider Airtech Group
to offer to acquire any shares or other securities or rights thereover
in any member of the wider Airtech Group owned by any third party;
(vi) make the Offer or its implementation or the proposed acquisition of
Airtech or any member of the wider Airtech Group or of any Airtech
shares or any other shares or securities in, or control of, Airtech,
illegal, void or unenforceable in or under the laws of any
jurisdiction;
(vii) impose any limitation on the ability of any member of the wider REMEC
Group or the wider Airtech Group to co-ordinate its business, or any
part of it, with the business of any other member of the wider REMEC
Group or the wider Airtech Group; or
(viii) otherwise adversely affect any or all of the businesses, assets,
prospects or profits of any member of the wider REMEC Group or the
wider Airtech Group or the exercise of rights of shares of any
company in the Airtech Group;
and all applicable waiting periods during which such Relevant Authority could
institute, implement or threaten any such action, proceeding, suit,
investigation, enquiry or reference or otherwise intervene, having expired,
lapsed or been terminated;
(g) all authorisations, orders, grants, consents, clearances, licences,
permissions and approvals, in any jurisdiction, deemed necessary or
appropriate by REMEC for or in respect of the Offer, the proposed
acquisition of any shares or securities in, or control of, Airtech or any
member of the wider Airtech Group by any member of the wider REMEC Group or
the carrying on of the business of any member of the wider Airtech Group or
the wider REMEC Group, the issue of the New REMEC Common Stock or any
matters arising therefrom being obtained in terms satisfactory to REMEC
from all appropriate Relevant Authorities or (without prejudice to the
generality of the foregoing) from any persons or bodies with whom any
members of the wider Airtech Group or the wider REMEC Group has entered
into contractual arrangements and such authorisations, orders, grants,
consents, clearances, licences, permissions and approvals remaining in full
force and effect and there being no intimation of any intention to revoke
or not to renew the same and all necessary filings having been made, all
appropriate waiting and other time periods (including extensions thereto)
under any applicable legislation and regulations in any jurisdiction having
expired, lapsed or been terminated and all necessary statutory or
regulatory obligations in any jurisdiction in respect of the Offer or the
proposed acquisition of Airtech by REMEC or of any Airtech shares or any
matters arising therefrom having been complied with;
(h) appropriate assurances being received, in terms satisfactory to REMEC, from
the relevant authorities or any party with whom any member of the wider
Airtech Group has any material contractual or other relationship that the
interests held by any member of the wider Airtech Group under any material
licences, leases, consents, permits and other rights will not be adversely
amended or otherwise affected by the Offer or the proposed acquisition of
Airtech or any matters arising therefrom, that such material licences,
leases, consents, permits and other rights are in full force and effect and
that there is no intention to revoke or amend any of the same;
(i) save as disclosed in writing by Airtech to REMEC prior to 26 February 1999
and accepted by REMEC as such, there being no provision of any agreement,
instrument, permit, licence or other arrangement to which any member of
the wider Airtech Group is a party or by or to which it or any of its
assets may be bound or subject which, as a consequence of the Offer or the
acquisition of Airtech or because of a change in the control or management
of Airtech or any member of the Airtech Group or any matters arising
therefrom or otherwise, could or might have the result that:
(i) any moneys borrowed by, or other indebtedness, actual or contingent,
of, or grant available to, any member of the wider Airtech Group
becomes or is capable of being declared repayable immediately or
earlier than the repayment date stated in such agreement, instrument
or other
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arrangement or the ability of any member of the wider Airtech Group to
borrow moneys or incur indebtedness is withdrawn, inhibited or
adversely affected;
(ii) any mortgage, charge or other security interest is created over the
whole or any part of the business, property or assets of any member
of the wider Airtech Group or any such security (whenever arising)
becomes enforceable;
(iii) any such agreement, instrument, permit, licence or other arrangement,
or any right, interest, liability or obligation of any member of the
wider Airtech Group therein, is terminated or adversely modified or
affected or any action is taken or onerous obligation arises
thereunder;
(iv) the value of any member of the wider Airtech Group or its financial or
trading position is prejudiced or adversely affected;
(v) any material asset or, other than in the ordinary course of business,
any asset of the wider Airtech Group being or falling to be charged or
disposed of;
(vi) the rights, liabilities, obligations or interests or business of any
member of the wider Airtech Group in or with any other person, firm or
company (or any arrangement relating to such interest or business) is
terminated, modified or adversely affected; or
(vii) any member of the wider Airtech Group ceases to be able to carry on
business under any name under which it currently does so;
in each case to an extent which is material in the context of the Airtech
Group;
(j) since 31 December 1997 (being the date to which the latest published
audited report and accounts of Airtech were made up) and save as disclosed
in writing by Airtech to REMEC prior to 26 February 1999 and accepted by
REMEC as such, or announced publicly and delivered to the London Stock
Exchange prior to 26 February 1999, no member of the Airtech Group having:
(i) issued or agreed to issue or authorised or proposed the issue of
additional shares of any class or issued or authorised or proposed
the issue of or granted securities convertible into or rights,
warrants or options to subscribe for or acquire such shares or
convertible securities or redeemed, purchased or reduced or announced
any intention to do so or made any other change to any part of its
share capital;
(ii) recommended, declared, paid or made or proposed to recommend,
declare, pay or make any dividend, bonus or other distribution other
than dividends lawfully paid to Airtech or wholly-owned subsidiaries
of Airtech;
(iii) authorised or proposed or announced its intention to propose any
merger or acquisition or disposal or transfer of assets or shares or
any change in its share or loan capital;
(iv) issued or authorised or proposed the issue of any debentures or
incurred or increased any indebtedness or contingent liability;
(v) disposed of or transferred, mortgaged or encumbered any asset or any
right, title or interest in any asset or entered into or varied any
contract, commitment or arrangement (whether in respect of capital
expenditure or otherwise) which is of a long term or unusual nature or
which involves or could involve an obligation of a nature or magnitude
which is material or authorised, proposed or announced any intention
to do so;
(vi) entered into or varied or proposed to enter into or vary any contract,
reconstruction, amalgamation, arrangement or other transaction which
is of a long term or unusual or onerous nature or is otherwise than in
the ordinary course of business or announced any intention to do so;
(vii) entered into, or varied the terms of, any contract or agreement with
any of the directors or senior executives of Airtech;
(viii) taken or proposed any corporate action or had any legal proceedings
started or threatened against it for its winding-up, dissolution or
reorganisation or for the appointment of a receiver, administrator,
administrative receiver, trustee or similar officer of all or any of
its assets and revenues;
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(ix) waived or compromised any claim other than in the ordinary course of
business;
(x) made any amendment to its memorandum or articles of association;
(xi) entered into any contract, transaction or arrangement which is or may
be restrictive on the business of any member of the wider Airtech
Group or the wider REMEC Group;
(xii) entered into any contract, commitment or agreement with respect to
any of the transactions or events referred to in this condition (i);
and
(xiii) been unable or admitted that it is unable to pay its debts or having
stopped or suspended (or threatened to stop or suspend) payment of
its debts generally or ceased or threatened to cease carrying on all
or a substantial part of its business;
(k) since 31 December 1997 (being the date to which the latest published
audited report and accounts of Airtech were made up) and save as disclosed
in writing by Airtech to REMEC prior to 26 February 1999 and accepted by
REMEC as such or save as announced publicly and in each case delivered to
the London Stock Exchange prior to 26 February 1999:
(i) no litigation, arbitration, prosecution or other legal proceedings
having been instituted, announced or threatened or become pending or
remained outstanding by or against any member of the wider Airtech
Group or to which any member of the wider Airtech Group is or may
become a party (whether as plaintiff, defendant or otherwise) to an
extent which is material in the context of the Airtech Group;
(ii) no material adverse change having occurred in the business, assets,
financial or trading position, profits or prospects of any member of
the wider Airtech Group;
(iii) no investigation by any Relevant Authority having been threatened,
announced, implemented or instituted or remaining outstanding;
(l) REMEC not having discovered that:
(i) any business, financial or other information concerning any member of
the Airtech Group disclosed, publicly or otherwise at any time to
REMEC, by or on behalf of any member of the Airtech Group, either
contains a misrepresentation of fact or omits to state a fact
necessary to make the information contained therein not misleading to
an extent which is material in the context of the information
provided; or
(ii) any member of the wider Airtech Group is subject to any liability,
actual or contingent, which is not disclosed in the annual report and
accounts of Airtech for the financial year ended 31 December 1997;
and
(m) REMEC not having discovered that:-
(i) any past or present member of the wider Airtech Group has not
complied with all applicable legislation or regulations of any
jurisdiction with regard to the storage, disposal, discharge,
spillage, leak or emission of any waste or hazardous substance or any
substance likely to impair the environment or to harm human health or
otherwise relating to environmental matters (which non-compliance
might give rise to any liability (whether actual or contingent) on
the part of any member of the wider Airtech Group) or that there has
otherwise been any such disposal, discharge, spillage, leak or
emission (whether or not the same constituted a non-compliance by any
person with any such legislation or regulations and wherever the same
may have taken place) which in any such case might give rise to any
liability (whether actual or contingent) on the part of any member of
the wider Airtech Group;
(ii) there is or is likely to be any liability (whether actual or
contingent) to make good, repair, reinstate or clean up any property
now or previously owned, occupied or made use of by any past or
present member of the wider Airtech Group or any controlled waters
under any environmental legislation, regulation, notice, circular or
order of any Relevant Authority or third party or otherwise;
(iii) that circumstances exist (whether as a result of the making of the
Offer or otherwise) which might lead to any Relevant Authority
instituting or any member of the wider Airtech Group or the
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wider REMEC Group might be required to institute, an environmental
audit or take any other steps which in any such case might result in
any actual or contingent liability to improve or install new plant or
equipment or make good, repair, re-instate or clean up any land or
other asset now or previously owned, occupied or made use of by any
member of the wider Airtech Group; or
(iv) circumstances exist whereby a person or class of persons might have
any claim or claims in respect of any product or process of
manufacture or materials used therein now or previously manufactured,
sold or carried out by any past or present member of the wider Airtech
Group;
in each case to an extent which is material in the context of the Airtech
Group
REMEC reserves the right to waive all or any of conditions (e) to (m)
(inclusive) above, in whole or in part. Conditions (b), (c) and (d) must be
fulfilled within 21 days after the later of [D + 20 business days] 1999 and the
date on which condition (a) is fulfilled and conditions (e) to (m) (inclusive)
must be satisfied as at, or waived on or before, 21 days after the later of [D +
20 business days] and the date on which condition (a) is fulfilled (or in each
case such later date as the Panel may agree) provided that REMEC shall be under
no obligation to waive or treat as satisfied any of conditions (e) to (m)
(inclusive) by a date earlier than the latest date specified above for the
satisfaction thereof notwithstanding that the other conditions of the Offer may
at such earlier date have been waived or fulfilled and that there are at such
earlier date no circumstances indicating that any of such conditions may not be
capable of fulfillment.
If REMEC is required by the Panel to make an offer for Airtech shares under the
provisions of Rule 9 of the Code, REMEC may make such alterations to the
conditions as are necessary to comply with the provisions of that Rule.
The Offer will lapse if the Offer is referred to the Monopolies and Mergers
Commission or if the European Commission in respect thereof either initiates
proceedings under article 6(1)(c) of Council Regulation (EEC) 4064/89 or makes a
referral to a competent authority of the United Kingdom under article 9(1) of
that Regulation, before (in any such case) the later of the first closing date
of the Offer and the date when the Offer becomes or is declared unconditional as
to acceptances.
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PART B
FURTHER TERMS OF THE OFFER
The following further terms apply, unless the context requires otherwise. Except
where the context requires otherwise, any reference in this Part B of Appendix I
and in the Form of Acceptance to:
(i) "Offer" means the Offer and any revision thereof or extension
thereto;
(ii) "Offer becoming unconditional" includes the Offer being declared
unconditional;
(iii) "Offer becoming unconditional" shall be construed as a reference
to the Offer being declared or becoming unconditional as to
acceptances whether or not any other condition thereof remains to
be fulfilled;
(iv) "acceptance condition" means the condition as to acceptances set
out in paragraph 1(i) of Part A of this Appendix I;
(v) an extension of the Offer shall include an extension of the date
by which the acceptance condition has to be fulfilled;
(vi) "Offer document" means any document containing an Offer;
(vii) "Airtech shareholders" means holders of Airtech shares; and
(viii) "Form of Acceptance" means any of the Forms of Acceptance.
1. ACCEPTANCE PERIOD
(a) The Offer will initially remain open for acceptance until 3.00
p.m. on [D + 20 business days ]. although no revision is
envisaged, if the Offer is revised it will remain open for
acceptance for a period of at least 14 days from the date of
posting of written notification of the revision to airtech
shareholders. Except with the consent of the Panel, no such
written notification of the revision of the Offer may be posted to
airtech shareholders after [D + 46] or, if later, the date falling
14 days prior to the last date on which the Offer can become
unconditional.
(b) The Offer, whether revised or not, shall not (except with the
consent of the Panel) be capable of becoming unconditional after
midnight on [D + 60] (or any earlier time and/or date beyond which
REMEC has stated that the Offer will not be extended and in
respect of which it has not withdrawn that statement) nor of being
kept open after that time and/or date unless it has previously
become unconditional. However, REMEC reserves the right, with the
consent of the Panel, to extend the Offer to (a) later time(s)
and/or date(s). Except with the consent of the Panel, REMEC may
not, for the purpose of determining whether the acceptance
condition has been satisfied, take into account acceptances
received, or purchases of airtech shares made, in respect of which
relevant documents have been received by IRG plc after 1.00 p.m.
on [D + 60] (or on any earlier date beyond which REMEC has stated
that the Offer will not be extended and in respect of which it has
not withdrawn that statement) or such later time and/or date as
REMEC may, with the permission of the Panel, decide. If the Offer
is extended beyond midnight on [D + 60], acceptances received and
purchases made in respect of which relevant documents have been
received by IRG plc after 1.00 p.m. on the relevant date may
(except where the Code otherwise permits) only be taken into
account with the consent of the Panel.
(c) If the Offer becomes unconditional, it will remain open for
acceptance for not less than 14 days from the date on which it
would otherwise have expired. If the Offer has become
unconditional and it is stated that the Offer will remain open
until further notice, then not less than 14 days' notice will be
given prior to the closing of the Offer.
(d) If a competitive situation (as determined by the Panel) arises
after REMEC has given a "no extension" statement or a "no
increase" statement, REMEC may (if it has specifically reserved
the right to do so at the time such statement was made or
otherwise with the consent of the Panel) withdraw such statement
provided that notice is given to that effect within four business
days of the announcement of the competing offer and airtech
shareholders are
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informed in writing thereof (or, in the case of airtech
shareholders with registered addresses outside the United Kingdom
or whom REMEC knows to be nominees holding airtech shares for such
persons, by announcement in the United Kingdom) at the earliest
opportunity thereafter. REMEC may (if it has reserved the right to
do so) choose not to be bound by the terms of a "no increase" or
"no extension" statement, if it would otherwise prevent the posting
of an increased or improved Offer which is recommended for
acceptance by the board of airtech, or in other circumstances
permitted by the Panel.
(e) For the purpose of determining at any particular time whether the
acceptance condition has been satisfied, REMEC shall not be bound
(unless otherwise required by the Panel) to take into account any
Airtech shares which have been unconditionally allotted or issued
before such determination takes place, unless IRG plc on behalf of
REMEC has received written notice of the relevant details of such
allotment or issue (including the price thereof) before that time.
Telex, e-mail or facsimile transmission will not be sufficient for
this purpose.
2. ANNOUNCEMENTS
(a) By 8.30 a.m. on the business day (the "relevant day") next
following the day on which the Offer is due to expire or becomes
unconditional or is revised or extended, or such later time and/or
date as the Panel may agree, REMEC will make an appropriate
announcement and simultaneously inform the London Stock Exchange
of the position. Such announcement will (unless otherwise
permitted by the Panel) also state (as nearly as practicable) the
total number of Airtech shares and rights over Airtech shares (i)
for which acceptances of the Offer have been received (showing the
extent, if any, to which such acceptances have been received from
persons acting or deemed to be acting in concert with REMEC), (ii)
acquired or agreed to be acquired by or on behalf of REMEC or any
person acting or deemed to be acting in concert with REMEC during
the Offer Period and (iii) held by or on behalf of REMEC or any
person acting or deemed to be acting in concert with REMEC prior
to the Offer Period, and will specify the percentage of the share
capital of Airtech represented by these figures. Any decision to
extend the time and/or date by which the acceptance condition has
to be fulfilled may be made at any time up to, and will be
announced not later than, 8.30 a.m. on the relevant day (or such
later time and/or date as the Panel may agree) and the
announcement will state the next expiry date (unless the Offer is
unconditional in all respects in which case a statement may be
made that the Offer will remain open until further notice). In
computing the number of Airtech shares represented by acceptances
and/or purchases there may, at the discretion of REMEC, be
included or excluded for announcement purposes acceptances and
purchases which are not complete in all respects or are subject to
verification where such acceptances or purchases of Airtech shares
could be counted towards fulfilling the acceptance condition in
accordance with paragraph 5(i) below.
(b) References in this Part B of Appendix I to the making of an
announcement by REMEC include the release of an announcement by
public relations consultants or by Quartz Capital, to the press,
and the delivery or telephone, telex or facsimile or other
electronic transmission of an announcement to the London Stock
Exchange. An announcement made otherwise than to the London Stock
Exchange will be notified simultaneously to the London Stock
Exchange.
3. RIGHTS OF WITHDRAWAL
(a) If REMEC, having announced the Offer to be unconditional, fails to
comply by 3.30 p.m. on the relevant day (or such later time and/or
date as the Panel may agree) with any of the other relevant
requirements specified in paragraph 2(a) above, an accepting
Airtech shareholder may (unless the Panel agrees otherwise)
immediately thereafter withdraw his acceptance by written notice
(signed by the accepting shareholder or his agent duly appointed
in writing and evidence of whose appointment in a form reasonably
satisfactory to REMEC is produced with the notice) given by post
or by hand to IRG plc Balfour House, 390-398 High Road, Ilford,
Essex IG1 1NQ on behalf of REMEC. Subject to paragraph 1(b) above,
this right of withdrawal may be terminated not less than eight
days after the relevant day by REMEC confirming, if that be the
case, that the Offer is still unconditional and complying with the
other requirements specified in paragraph 2(a) above.
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If any such confirmation is given, the first period of 14 days
referred to in paragraph 1(c) above will run from the date of such
confirmation and compliance.
(b) If by 3.00 p.m. on [D + 42] (or such later time and/or date as the
Panel may agree) the Offer has not become unconditional, an
accepting Airtech shareholder may withdraw his acceptance at any
time thereafter at either of the addresses and in the manner
referred to in paragraph 3(a) above before the earlier of (i) the
time that the Offer becomes unconditional and (ii) the final time
for lodgement of acceptances which can be taken into account in
accordance with paragraph 1(b) above. If REMEC withdraws a "no
extension" statement or a "no increase" statement in accordance
with paragraph 1(d) above, any Airtech shareholder who accepts the
Offer after the date of such statement may withdraw his acceptance
thereafter at either of the addresses and in the manner referred
to in paragraph 3(a) above for a period of eight days after the
date of posting of written notice to that effect by REMEC to the
relevant Airtech shareholders.
(c) Except as provided by this paragraph 3, acceptances and elections
shall be irrevocable. In this paragraph 3 "written notice"
(including any letter of appointment, direction or authority)
means notice in writing bearing the original signature(s) of the
relevant accepting Airtech shareholders or his/their agent(s) duly
appointed in writing (evidence of whose appointment in a form
reasonably satisfactory to REMEC is produced with the notice) and
telex, e-mail or facsimile transmissions or copies will not be
sufficient. No notice which appears to REMEC, its agents or
advisers to have been sent from Canada, Australia or Japan will be
treated as valid.
4. REVISED OFFER
(a) Although no such revision is envisaged, if the Offer (in its
original or any previously revised form(s)) is revised (either in
its terms or conditions or otherwise) and such revision represents
on the date on which such revision is announced (on such basis as
Quartz Capital may consider appropriate) an improvement or no
diminution in the value of the Offer as so revised compared with
the value of the consideration previously offered, the benefit of
the revised Offer will (subject to this paragraph 4 and paragraph
6 below) be made available to Airtech shareholders who have
accepted the Offer in its original or any previously revised
form(s) (hereinafter called "Previous Acceptor(s)"). The
acceptance by or on behalf of a Previous Acceptor of the Offer (in
its original or any previously revised form(s)) shall, subject as
provided in this paragraph 4 and paragraph 6 below, be deemed to
be an acceptance of the Offer as so revised and shall also
constitute the separate appointment of any director of REMEC as
his attorney and/or agent with authority to accept any such
revised Offer on behalf of such Previous Acceptor.
(b) Although no such revision is envisaged, if any revised Offer
provides for Airtech shareholders who accept it to elect for (or
accept) alternative forms of consideration, the acceptance by or
on behalf of a Previous Acceptor of the Offer (in its original or
any previously revised form(s)) shall, subject as provided below,
also constitute the separate appointment of any director of REMEC
as his attorney and/or agent to make on his behalf elections for
and/or to accept such alternative forms of consideration on his
behalf as such attorney and/or agent in his absolute discretion
thinks fit and to execute on behalf of and in the name of such
Previous Acceptor all such further documents (if any) as may be
required to give effect to such acceptances and/or elections. In
making any such acceptance or election, such attorney and/or agent
shall take into account the nature of any previous acceptances
and/or elections made by the Previous Acceptor and such other
facts or matters as he may reasonably consider relevant.
(c) The deemed acceptances referred to in paragraphs 4(a) and (b)
above shall not apply and the authorities conferred by paragraphs
4(a) and (b) above shall not be exercised if as a result thereof a
Previous Acceptor would (on such basis as the Quartz Capital may
consider appropriate) receive less in aggregate than he would have
received as a result of his acceptance of the Offer in the form in
which it was originally accepted by him unless the Previous
Acceptor has previously otherwise agreed in writing.
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(d) The deemed acceptances referred to in paragraphs 4(a) and (b)
above shall not apply and the authorities conferred by paragraphs
4(a) and (b) above shall be ineffective to the extent that a
Previous Acceptor shall lodge with IRG plc, within 14 days of the
posting of the document pursuant to which the revision of the
Offer referred to in paragraphs 4(a) and (b) above is made
available to Airtech shareholders (or such later date as REMEC may
determine), a form in which he validly elects to receive the
consideration receivable by him under that revised Offer in some
other manner.
(e) The powers of attorney and authorities referred to in this
paragraph 4 and any acceptance of a revised Offer and/or election
pursuant thereto shall be irrevocable unless and until the
Previous Acceptor becomes entitled to withdraw his acceptance
under paragraph 3 above and duly and validly does so.
(f) REMEC reserves the right to treat an executed Form of Acceptance
relating to the Offer (in its original or any previously revised
form(s)) which is received after the announcement or the issue of
the Offer in any revised form as a valid acceptance of the
revised Offer and/or election thereunder and such acceptance
shall constitute an authority and request in the terms of this
paragraph 4 mutatis mutandis on behalf of the relevant Airtech
shareholders.
5. GENERAL
(a) Except with the consent of the Panel, the Offer will lapse unless
all the conditions to the Offer have been fulfilled by or (if
capable of waiver) waived by or (where appropriate) have been
determined by REMEC to be or remain satisfied as at midnight on [D
+ 42] or within 21 days after the date on which the Offer becomes
unconditional (whichever is the later) or such later date as REMEC
may, with the consent of the Panel, decide provided that REMEC
shall be under no obligation to waive or treat as satisfied any
condition by a date earlier than the latest date specified above
for the satisfaction thereof notwithstanding that the other
conditions of the Offer may at such earlier date have been waived
or fulfilled and that there are at such earlier date no
circumstances indicating that any such conditions may not be
capable of fulfilment. If the Offer lapses, for any reason, it
shall cease to be capable of acceptance and REMEC, Quartz Capital
and Airtech shareholders shall thereupon cease to be bound by
prior acceptances. If the Offer is referred to the Monopolies and
Mergers Commission before [D + 20 business days] or the date when
the Offer becomes unconditional (whichever is the later) the Offer
will lapse.
(b) No acknowledgement of receipt of any Form of Acceptance, transfer
by means of CREST, share certificate(s) or other documents will be
given. All communications, notices, certificates, documents of
title, other documents and remittances to be delivered by or to or
sent to or from Airtech shareholders (or their designated agents)
or as otherwise directed will be delivered by or to or sent to or
from them (or their designated agents) at their risk.
(c) The expression "Offer Period" when used in this document means the
period commencing on 12 January 1999 and ending on whichever of
the following dates shall be the latest:
(i) [D + 20 business days];
(ii) the date on which the Offer lapses; and
(iii) the date on which the Offer becomes unconditional.
(d) Except with the consent of the Panel, settlement of the
consideration to which any Airtech shareholder is entitled under
the Offer will be implemented in full in accordance with the terms
of the Offer without regard to any lien, right of set-off,
counterclaim or other analogous right to which REMEC may otherwise
be, or claim to be, entitled as against such Airtech shareholder.
(e) The instructions, terms, provisions and authorities contained in
or deemed to be incorporated in the Form of Acceptance constitute
part of the terms of the Offer. Words and expressions defined in
this document shall, unless the context otherwise requires, have
the same meanings when used in the Form of Acceptance.
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(f) Execution by or on behalf of an Airtech Shareholder of a Form of
Acceptance will constitute his submission, in relation to all
matters arising out of the Offer and the Form of Acceptance, to
the jurisdiction of the courts of England and the relevant
shareholder's agreement that nothing shall limit the right of
REMEC to bring any action, suit or proceeding arising out of or
in connection with the Offer and the Form of Acceptance in any
other manner permitted by law or in any court of competent
jurisdiction.
(g) Any accidental omission to despatch this document or the Form of
Acceptance or any notice required to be given under the terms of
the Offer to, or any failure to receive the same by, any person to
whom the Offer is made or should be made, shall not invalidate the
Offer in any way or create any implication that the Offer has not
been made to any such person.
(h) Subject to paragraph 5(i) below, REMEC and Quartz Capital reserve
the right to treat acceptances of the Offer as valid if received
by or on behalf of either of them at any place or places or in any
manner determined by them otherwise than as stated herein or in
the Form of Acceptance.
(i) Notwithstanding the right reserved by REMEC to treat (a) Form(s)
of Acceptance as valid even though not entirely in order or not
accompanied by the relevant share certificate(s) and/or other
document(s) of title or not accompanied by the relevant transfer
to escrow except with the consent of the Panel an acceptance of
the Offer will only be counted towards fulfilling the acceptance
condition if the requirements of Note 4 and, if applicable, Note
6 on Rule 10 of the Code are satisfied in respect of it. Except
with the consent of the Panel, a purchase of Airtech shares by
REMEC or its nominee(s) (or, if REMEC is required to make an
offer or offers under the provisions of Rule 9 of the Code, by a
person acting in concert with REMEC for the purpose of such
offer(s) or its nominee(s)) will only be counted towards
fulfilling the acceptance condition if the requirements of Note 5
and, if applicable, Note 6 on Rule 10 of the Code are satisfied
in respect of it. The Offer may not be accepted otherwise than by
means of a Form of Acceptance.
(j) Except with the consent of the Panel, the Offer will not become
unconditional until IRG plc has issued a certificate to REMEC or
Quartz Capital (or their respective agents) which states the
number of Airtech shares in respect of which acceptances have
been received which meet the requirements of Note 4 on Rule 10 of
the Code and the number of Airtech shares otherwise acquired
(whether before or during the Offer Period) which meet the
requirements of Note 5 on Rule 10 of the Code and, in each case,
if applicable, Note 6 on Rule 10 of the Code. Copies of such
certificate will be sent to the Panel and to the financial
advisers of Airtech as soon as possible after it is issued.
(k) Due completion of a Form of Acceptance will constitute an
instruction to REMEC, on the Offer becoming unconditional in all
respects, to cancel all mandates and other instructions entered in
the records of Airtech in force relating to holdings of Airtech
Shares. Such mandates and other instructions will not continue in
force in relation to New REMEC Common Stock issued to such
shareholders.
(l) All powers of attorney and authorities on the terms conferred by
or referred to in this Part B of Appendix I or in the Form of
Acceptance are given by way of security for the performance of
the obligations of the Airtech shareholders concerned and are
irrevocable in accordance with section 4 of the Powers of
Attorney Act 1971, except in the circumstances where the donor of
such power of attorney or authority is entitled to withdraw his
acceptance in accordance with paragraph 3 above and duly does so.
(m) The Offer extends to any Airtech shareholders not resident in the
United Kingdom to whom this document, the Form of Acceptance and
any related documents may not have been despatched or by whom such
documents may not have been received and such Airtech shareholders
may collect copies of those documents from IRG plc Balfour House,
390-398 High Road, Ilford, Essex IG1 1NQ. REMEC and Quartz Capital
reserve the right to notify any matter, including the making of the
Offer, to all or any Airtech shareholders with a registered address
outside the United Kingdom (or whom REMEC knows to be nominees,
trustees or custodians for such persons) by announcement in the
United Kingdom or paid advertisement in a daily newspaper published
and circulated in the United Kingdom, in
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which event such notice shall be deemed to have been sufficiently
given notwithstanding any failure by an Airtech shareholder to
receive such notice and all references in this document to notice,
or the provision of information in writing, by REMEC, Quartz
Capital and/or their respective agents and/or public relations
consultants shall be construed accordingly.
(h) Save, in the case of any New REMEC Common Stock to be issued to
any Affiliate, as agreed under the terms of the Affiliate
Agreements:
(i) the New REMEC Common Stock will be issued free from all
liens, charges and other encumbrances or other equitable
interests; and
(ii) the New REMEC Common Stock will rank pari passu in all
respects with existing REMEC Common Stock, including the
right to receive in full all dividends (which are payable in
US dollars), if any, and other distributions declared, paid
or made on such shares after the date hereof.
(o) The Offer is made on March 1999 and is capable of acceptance
from and after that date. Form(s) of Acceptance are available for
collection from IRG plc from that date.
(p) If the Offer does not become unconditional in all respects:
(i) Form(s) of Acceptance, share certificate(s) and other
document(s) of title will be returned by post (or by such
other method as may be approved by the Panel) within 14 days
of the Offer lapsing to the person or agent whose name and
address is set out in the relevant box on the Form of
Acceptance or, if none is set out, to the first named holder
at his registered address; and
(ii) IRG plc will, immediately after the lapsing of the Offer (or
within such longer period as the Panel may permit, not
exceeding 14 days from the lapsing of the Offer), give
instructions to CRESTCo to transfer all Airtech shares held
in escrow balances and in relation to which it is the escrow
agent for the purposes of the Offer to the original
available balances of the Airtech shareholders concerned.
(q) If sufficient acceptances are received, REMEC intends to apply the
provisions of sections 428 to 430F of the Companies Act 1985 to
acquire compulsorily any outstanding Airtech shares and to apply
for cancellation of Airtech's listing on the London Stock
Exchange.
(r) In relation to any acceptance of the Offer in respect of a
holding of Airtech shares which are in uncertificated form, REMEC
reserves the right to make such alterations, additions or
modifications as may be necessary or desirable to give effect to
any purported acceptance of the Offer, whether in order to comply
with the facilities or requirements of CREST or otherwise
provided that such alterations, additions or modifications are
consistent with the requirements of the Code or are otherwise
made with the consent of the Panel.
(s) All references in this Offer Document and in the Form of
Acceptance to each of [D+20 business days] 1999 and the First
Closing Date of the Offer shall (except in paragraphs 5(c) and
the referral date for the MMC described in 5(a) of this Part B
and except where the context otherwise requires) be deemed, if
the expiry date of the Offer be extended, to refer to the expiry
date of the Offer as to extended.
6. AIRTECH OVERSEAS SHAREHOLDERS
(a) The making of the Offer in, or to persons resident in, or citizens
or nationals of, jurisdictions outside the United Kingdom or who
are nominees of, or custodians, trustees or guardians for,
citizens or nationals of such jurisdictions ("overseas
shareholders"), may be affected or prohibited by the laws of the
relevant overseas jurisdiction. Such overseas shareholders should
inform themselves about and observe any applicable legal
requirements. It is the responsibility of any overseas shareholder
wishing to accept the Offer to satisfy himself as to the full
observance of the laws of the relevant jurisdiction in connection
therewith, including the obtaining of any governmental, exchange
control or other consents which may be required, the compliance
with other necessary formalities and the payment of any issue,
transfer or other taxes or duties due in such territory. Any
overseas shareholder will be responsible for any issue, transfer
or other taxes or other requisite payments by whomsoever
I-11
<PAGE> 54
payable and REMEC, Quartz Capital and any person acting on their
behalf shall be fully indemnified and held harmless by such
shareholder for any such issue, transfer or other taxes or other
requisite payments as REMEC, Quartz Capital and any person acting
on their behalf may be required to pay.
(b) In particular, the Offer is not being made directly or indirectly
in, or into, Canada, Australia or Japan. This includes, but is not
limited to, facsimile transmission, telex and telephone.
Furthermore, the relevant clearances will not be obtained from the
regulatory authority of any province or territory of Canada. No
prospectus in relation to the New REMEC Common Stock has been, or
will be, lodged with or registered by the Australian Securities
Commission and no steps have been, nor will any be taken to enable
the New REMEC Common Stock to be offered in compliance with
applicable securities laws in Japan. REMEC will not (unless
otherwise determined by REMEC in its sole discretion and save as
provided for in paragraph 6(d) below) mail or deliver, or
authorise the mailing or delivery of, this document, the Form of
Acceptance, or any related offering document in or into Canada,
Australia or Japan, including to Airtech shareholders with
registered addresses in Canada, Australia or Japan or to persons
whom REMEC knows to be nominees, trustees or custodians holding
Airtech shares for such persons ("Restricted Overseas Person").
Persons receiving such documents (including, without limitation,
nominees, trustees or custodians) should not distribute or send
them in or into, Canada, Australia or Japan or use such mails or
any such means or instrumentality for any purpose directly or
indirectly in connection with the Offer and so doing may
invalidate any purported acceptance. Persons wishing to accept the
Offer should not use such mails or any such means or
instrumentality for any purpose directly or indirectly related to
acceptance of the Offer. Envelopes containing Form(s) of
Acceptance should not be postmarked in Canada, Australia or Japan
or otherwise despatched from Canada, Australia or Japan, and all
acceptors must provide addresses outside Canada, Australia or
Japan for the receipt of the New REMEC Common Stock, or for the
return of Form(s) of Acceptance, certificate(s) for Airtech shares
and/or other document(s) of title. Unless an exemption under the
relevant securities laws is available and save as aforesaid REMEC
will not issue New REMEC Common Stock or authorise the delivery of
any document(s) of title in respect of New REMEC Common Stock to
(i) any person who is, or who REMEC has reason to believe is, a
Restricted Overseas Person or resident in Australia or Japan or
(ii) any person who is unable or fails to give the warranty set
out in paragraph 7(c) below or (iii) any person with a registered
address in Canada, Australia or Japan.
(c) The provisions of this paragraph 6 and/or any other terms of the
Offer relating to overseas shareholders may be waived, varied or
modified as regards (a) specific Airtech shareholder(s) or on a
general basis by REMEC in its absolute discretion. Subject as
aforesaid the provisions of this paragraph 6 shall have precedence
over any terms of the Offer which are inconsistent therewith.
7. FORM OF ACCEPTANCE
Each Airtech shareholder by whom, or on whose behalf, a Form of Acceptance is
executed irrevocably undertakes, represents, warrants and agrees to and with
REMEC and Quartz Capital and their respective agents (so as to bind him, his
personal representatives and his heirs, successors and assigns) that:
(a) the execution of a Form of Acceptance shall constitute an
acceptance of the Offer in respect of the number of Airtech shares
inserted or deemed to be inserted in Box 1 of the Form of
Acceptance on and subject to the terms and conditions set out or
referred to in this document and the Form of Acceptance and that,
subject to the rights of withdrawal set out in paragraph 3 above,
each such acceptance and election shall be irrevocable;
(b) the Airtech shares in respect of which the Offer is accepted or
deemed to be accepted are sold with full title guarantee and free
from all liens, charges, encumbrances, equities, rights of
pre-emption and any other third party rights of whatsoever nature
and together with all rights now or hereafter attaching thereto,
including the right to receive all dividends or other
distributions declared, paid or made after 26 February 1999;
I-12
<PAGE> 55
(c) unless "YES" is put in Box 5 of the Form of Acceptance, such
Airtech shareholder has not received or sent copies of this
document, the Form of Acceptance or any related offering documents
in, into or from Canada, Australia or Japan.
(d) the execution of the Form of Acceptance constitutes, subject to
the Offer becoming unconditional in all respects in accordance
with its terms and to the accepting Airtech shareholder not having
validly withdrawn his acceptance, the irrevocable appointment of
REMEC or Quartz Capital and/or any of their respective directors
or agents as such shareholder's attorney and/or agent, and an
irrevocable instruction to the attorney and/or agent, to complete
and execute all or any form(s) of transfer and/or other
document(s) at the discretion of the attorney and/or agent in
relation to the Airtech shares referred to in paragraph 7(a) in
favour of REMEC or such other person or persons as REMEC may
direct and to deliver such form(s) of transfer and/or other
document(s) at the discretion of the attorney and/or agent,
together with the share certificate(s) and/or other document(s)
relating to the Airtech shares, for registration within six months
of the Offer becoming unconditional in all respects and to execute
all such documents and to do all such other acts and things as may
in the opinion of such attorney and/or agent be necessary or
expedient for the purpose of, or in connection with, the
acceptance of the Offer and to vest in REMEC or its nominee(s) or
as it may direct such Airtech shares;
(e) the execution of the Form of Acceptance constitutes the
irrevocable appointment of IRG plc as such shareholder's attorney
and/or agent and an irrevocable instruction to the attorney and/or
agent (i) subject to the Offer becoming unconditional in all
respects in accordance with its terms and to the accepting Airtech
shareholder not having validly withdrawn his acceptance, to
transfer to itself (or such other person or persons as REMEC or
its agents may direct) by means of CREST all or any of the
Relevant Airtech shares (but not exceeding the number of Airtech
shares in respect of which the Offer is accepted or deemed to be
accepted) and (ii), if the Offer does not become unconditional in
all respects, to give instructions to CRESTCo immediately after
the lapsing of the Offer (or within such longer period as the
Panel may permit not exceeding 14 days from the lapsing of the
Offer) to transfer all Relevant Airtech shares to the original
available balance of the accepting Airtech shareholder. As used in
this Part B of Appendix I, "Relevant Airtech shares" means Airtech
shares in uncertificated form and in respect of which a transfer
or transfers to escrow has or have been effected. and where the
transfer(s) to escrow was or were made in respect of Airtech
shares held under the same member account ID and participant ID as
the member account ID and participant ID relating to the Form of
Acceptance concerned (but irrespective of whether or not any Form
of Acceptance Reference Number, or a Form of Acceptance Reference
Number corresponding to that appearing on the Form of Acceptance
concerned, was included in the TTE instruction concerned);
(f) the execution and delivery of the Form of Acceptance constitutes,
subject to the Offer becoming unconditional in all respects in
accordance with its terms and to the accepting Airtech
shareholder not having validly withdrawn his acceptance, separate
irrevocable authorities and requests;
(i) to the Airtech or its agents, to procure the registration of
the transfer of the Airtech shares referred to in paragraph
7(a) in certificated form pursuant to the Offer and the
delivery of the share certificate(s) and/or other
document(s) of title in respect thereof to REMEC or as it
may direct;
(ii) (subject to the provisions of paragraph 6 of this Part B of
Appendix I) to REMEC or its agents, to procure that such
Airtech shareholder's name is entered on the register of
stockholders of REMEC in respect of the New REMEC Common
Stock (if any) to which such Airtech shareholder becomes
entitled under the Offer (subject to the provisions of
REMEC's restated certificate of incorporation and by-laws);
(iii) if the Airtech shares are in certificated form or if either
of the provisos to sub-paragraph (iv) applies to REMEC or
Quartz Capital or their agents, to procure the despatch by
post or by such other method as may be approved by the Panel
of (subject to the provisions of paragraph 6 above) a
certificate or other document(s) of title for any REMEC
Common Stock to which an accepting Airtech shareholder
I-13
<PAGE> 56
becomes entitled pursuant to his acceptance of the Offer (and
at the risk of such person) to the person whose name and
address is set out in Box 6 of the Form of Acceptance or, if
none is set out, to the person whose name and address is set
out in Box 3 of the Form of Acceptance or to the first named
holder at his registered address;
(iv) if the Airtech shares concerned are in uncertificated form,
to REMEC or Quartz Capital or their agents to issue any New
REMEC Common Stock to which such Airtech shareholder is
entitled in uncertificated form, provided that (a) REMEC may
(if, for any reason, it wishes to do so) determine that all
or any such New REMEC Common Stock shall be issued in
certificated form and (bb) if the Airtech shareholder
concerned is a CREST member and the registered address is in
Canada, Australia or Japan, any cash consideration to which
such shareholder is entitled shall be paid by cheque
despatched by post (or by any such other method as may be
approved by the Panel) and any New REMEC Common Stock to
which such shareholder is entitled shall be issued in
certificated form and, in either of such cases,
sub-paragraph (iii) above shall apply;
(v) to REMEC or its agents, to record and act, in respect of any
REMEC Common Stock to be received by such Airtech
shareholder, upon any instructions with regard to payments or
notices which have been recorded in the records of the
Airtech in respect of such shareholder's holding(s) of
Airtech shares;
(g) the execution of the Form of Acceptance constitutes a separate
authority to any director of REMEC and to any director of Quartz
Capital and/or their respective agents and the irrevocable
appointment of any such director and/or agent as such
shareholder's attorney and/or agent within the terms of paragraph
4 above;
(h) after the Offer becomes or is declared unconditional in all
respects (or if the Offer would become or be declared
unconditional in all respects or lapse immediately upon the
outcome of the resolution in question or if the Panel otherwise
gives its consent) and pending registration;
(i) REMEC shall be entitled to direct the exercise of any votes
attaching to any Airtech shares in respect of which the
Offer has been accepted or is deemed to have been accepted
(and in respect of which such acceptance has not been
validly withdrawn) and any other rights and privileges
attaching to such Airtech shares, including the right to
requisition a general meeting or separate class meeting of
Airtech, such votes (where relevant) to be cast so far as
possible to satisfy any outstanding condition of the Offer;
and
(ii) the execution of the Form of Acceptance by an Airtech
shareholder constitutes, with regard to the Airtech shares
comprised in such acceptance and in respect of which such
acceptance has not been validly withdrawn:
(a) an authority to the Airtech from such Airtech
shareholder to send any notice, warrant, document or
other communication which may be required to be sent to
him as a member of the Airtech (including any share
certificate(s) or other document(s) of title issued as
a result of a conversion of such Airtech shares into
uncertificated form) to REMEC at its registered office
or such other address nominated by REMEC;
(b) the irrevocable appointment of REMEC or any of its
directors or agents to sign such documents and to do
such things as may in the opinion of such person seem
necessary or desirable in connection with the exercise
of any votes or other rights or privileges attaching to
such Airtech shares (including, without limitation, an
authority to sign any consent to short notice of a
general or separate class meeting on his behalf and/or
to execute a form of proxy in respect of such Airtech
shares appointing any person nominated by REMEC to
attend general or separate class meetings of the
Airtech or its members or any of them and to exercise
the votes attaching to such Airtech shares on his
I-14
<PAGE> 57
behalf), such votes (where relevant) to be cast so far
as possible to satisfy any outstanding condition of the
Offer; and
(c) the agreement of such Airtech shareholder not to
exercise any of such rights without the consent of
REMEC and the irrevocable undertaking of such
shareholder not to appoint a proxy or representative
for or to attend any such meetings;
(i) he will deliver, or procure the delivery, to IRG plc his share
certificate(s) and/or other document(s) of title in respect of
the Airtech shares referred to in subparagraph 7(a) above in
certificated form, or an indemnity acceptable to REMEC in lieu
thereof, as soon as possible and in any event within six months
of the Offer becoming unconditional in all respects;
(j) he will take (or procure to be taken) the action set out in
paragraph 14 of the letter from Quartz Capital set out in this
document to transfer all of the Airtech shares referred to in
sub-paragraph 7(a)(i) above in uncertificated form to an escrow
balance as soon as possible and in any event so that the transfer
to escrow settles within six months of the Offer becoming
unconditional in all respects;
(k) if, for any reason, any Airtech shares in respect of which a
transfer to an escrow balance has been effected in accordance with
paragraph 14 of the letter from Quartz Capital contained in this
document are converted to certificated form, he will (without
prejudice to paragraph (7)(h)(ii)(a) above) immediately deliver or
procure the immediate delivery of the share certificate(s) or
other document(s) of title in respect of all such Airtech shares
so converted to IRG plc or to REMEC at its registered office or as
REMEC or its agents may direct;
(l) the terms and conditions of the Offer shall be deemed to be
incorporated in and form part of the Form of Acceptance, which
shall be read and construed accordingly;
(m) if he accepts the Offer, he shall do all such acts and things as
shall be necessary or expedient to vest in REMEC or its nominees or
such other persons as it may decide the Airtech shares as aforesaid
and all such acts and things as may be necessary to enable IRG plc
to perform its function as escrow agent for the purposes of the
Offer;
(n) he agrees to ratify each and every act or thing which may be done
or effected by REMEC, Quartz Capital or IRG plc or by any of their
respective directors or their respective agents or Airtech or its
agents, as the case may be, in the proper exercise of any of his
or its powers and/or authorities conferred by or referred to in
this Part B of Appendix I and to indemnify each such person
against any losses arising therefrom;
(o) the execution of the Form of Acceptance constitutes his
submission, in relation to all matters arising out of the Offer
and the Form of Acceptance, to the jurisdiction of the courts of
England and his agreement that nothing shall limit the right of
REMEC or Quartz Capital to bring any action, suit or proceeding
arising out of or in connection with the Offer or in any other
manner permitted by law or in any court of competent jurisdiction;
and
(p) if any provision of this Part B of Appendix I shall be
unenforceable or invalid or shall not operate so as to afford
REMEC and Quartz Capital and/or any director of either of them or
their agents the full benefit of the authorities and powers of
attorney expressed to be given therein, he shall with all
practicable speed do all such acts and things and execute all such
documents as may be required or desirable to enable REMEC and
Quartz Capital and/or any director of either of them or their
agents to secure the full benefit of such authorities and powers
of attorney.
On execution the Form of Acceptance shall take effect as a Deed.
References in this Part B of Appendix I to "Airtech shareholder(s)"
shall include reference to the person or persons executing a Form of
Acceptance and, in the event of more than one person executing a Form of
Acceptance, the provisions of this Part B of Appendix I shall apply to
them jointly and to each of them. References to the masculine gender
shall include the feminine.
I-15
<PAGE> 58
APPENDIX II
REMEC FINANCIAL STATEMENTS
<TABLE>
<S> <C>
1. Report of Ernst & Young LLP, Independent Auditors...... II-2
2. Audited Annual Financial Statements (as filed with the
SEC)................................................... II-3
3. Unaudited Interim Financial Statements (as filed with
the SEC)............................................... II-18
</TABLE>
II-1
<PAGE> 59
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
REMEC, Inc.
We have audited the accompanying consolidated balance sheets of REMEC, Inc. as
of January 31, 1998 and 1997, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended January 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Radian Technology, Inc. and Q-bit Corporation, wholly-owned
subsidiaries, which statements reflect total assets constituting 8% in 1997, and
total revenues constituting 17% in 1997 and 22% in 1996 of the related
consolidated totals. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
data included for Radian Technology, Inc. and Q-bit Corporation, is based solely
on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of REMEC, Inc. at January 31, 1998 and 1997,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended January 31, 1998 in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
--------------------------------------
Ernst & Young LLP
San Diego, California
February 27, 1998
II-2
<PAGE> 60
REMEC, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 41,937,101 $ 63,172,362
Accounts receivable, net.................................. 25,494,474 15,972,993
Inventories, net.......................................... 30,380,941 19,332,056
Deferred income taxes..................................... 6,241,957 3,033,818
Prepaid expenses and other current assets................. 589,053 582,542
------------ ------------
Total current assets.............................. 104,643,526 102,093,771
Property, plant and equipment, net........................ 31,988,934 18,543,405
Intangible and other assets............................... 17,232,241 4,803,307
------------ ------------
$153,864,701 $125,440,483
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under bank line of credit and other short-term
debt................................................... $ -- $ 1,891,449
Accounts payable.......................................... 8,531,756 5,973,537
Accrued salaries, benefits and related taxes.............. 5,999,248 4,845,956
Income taxes payable...................................... 2,546,479 2,249,087
Accrued expenses.......................................... 3,070,515 2,540,037
Current portion of notes payable and capital lease
obligations............................................ -- 482,200
------------ ------------
Total current liabilities......................... 20,147,998 17,982,266
Deferred rent............................................... 104,236 262,432
Deferred income taxes....................................... 5,117,933 1,179,353
Notes payable, less current portion......................... -- 1,882,776
Capital lease obligations, less current portion............. -- 579,000
Commitments
Shareholders' equity:
Preferred shares -- $.01 par value, 5,000,000 shares
authorized; none issued and outstanding................ -- --
Common shares -- $.01 par value, 40,000,000 shares
authorized; issued and outstanding shares -- 21,182,663
and 20,535,457 at January 31, 1998 and 1997,
respectively........................................... 211,828 205,356
Paid-in capital........................................... 95,303,154 85,787,686
Retained earnings......................................... 32,979,552 17,561,614
------------ ------------
Total shareholders' equity........................ 128,494,534 103,554,656
------------ ------------
$153,864,701 $125,440,483
============ ============
</TABLE>
See accompanying notes.
II-3
<PAGE> 61
REMEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net sales......................................... $156,056,929 $118,553,842 $93,228,090
Cost of sales..................................... 108,052,891 85,658,524 66,172,461
------------ ------------ -----------
Gross profit.................................... 48,004,038 32,895,318 27,055,629
Operating expenses:
Selling, general & administrative............... 24,773,466 19,349,733 16,610,999
Research and development........................ 5,107,984 4,605,000 4,016,335
------------ ------------ -----------
Total operating expenses................ 29,881,450 23,954,733 20,627,334
------------ ------------ -----------
Income from operations............................ 18,122,588 8,940,585 6,428,295
Gain on sale of subsidiary........................ 2,833,240 -- --
Interest income (expense) and other, net.......... 2,280,329 48,405 (400,593)
------------ ------------ -----------
Income before provision for income taxes.......... 23,236,157 8,988,990 6,027,702
Provision for income taxes........................ 8,500,799 4,016,667 2,428,658
------------ ------------ -----------
Net income........................................ $ 14,735,358 $ 4,972,323 $ 3,599,044
============ ============ ===========
Earnings per share:
Basic........................................... $ .71 $ .30 $ .28
============ ============ ===========
Diluted......................................... $ .68 $ .30 $ .28
============ ============ ===========
Shares used in computing earnings per share:
Basic........................................... 20,841,000 16,517,000 12,892,000
============ ============ ===========
Diluted......................................... 21,534,000 16,828,000 13,009,000
============ ============ ===========
</TABLE>
See accompanying notes.
II-4
<PAGE> 62
REMEC, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED SHARES COMMON SHARES
----------------- --------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- ------ ---------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1995............. 718,607 $7,186 11,322,880 $113,229 $15,123,296 $ 9,244,989 $ 24,488,700
Issuance of common shares upon
exercise of stock options........... -- -- 28,365 284 67,176 -- 67,460
Repurchase of common shares........... -- -- (277,706) (2,777) (785,726) -- (788,503)
Cash dividends........................ -- -- -- -- -- (119,470) (119,470)
Net income............................ -- -- -- -- -- 3,599,044 3,599,044
-------- ------ ---------- -------- ----------- ----------- ------------
Balance at January 31, 1996............. 718,607 7,186 11,073,539 110,736 14,404,746 12,724,563 27,247,231
Issuance of common shares in initial
public offering..................... -- -- 3,397,340 33,973 15,615,236 -- 15,649,209
Conversion of preferred shares........ (718,607) (7,186) 1,616,864 16,169 (8,983) -- --
Issuance of common shares for cash.... -- -- 443,467 4,435 1,872,140 -- 1,876,575
Issuance of common shares under
employee stock purchase plan........ -- -- 347,850 3,479 1,670,637 -- 1,674,116
Issuance of common shares upon
exercise of stock options........... -- -- 37,647 376 88,824 -- 89,200
Income tax benefits related to
employee stock purchase plan and
stock options exercised............. -- -- -- -- 209,399 -- 209,399
Issuance of common shares in stock
offering............................ -- -- 3,618,750 36,188 51,935,687 -- 51,971,875
Net income............................ -- -- -- -- -- 4,972,323 4,972,323
Adjustment for Magnum activity for the
duplicated two months ended March
29, 1996............................ -- -- -- -- -- (135,272) (135,272)
-------- ------ ---------- -------- ----------- ----------- ------------
Balance at January 31, 1997............. -- -- 20,535,457 205,356 85,787,686 17,561,614 103,554,656
Issuance of common shares in
acquisitions........................ -- -- 320,183 3,202 6,620,465 -- 6,623,667
Issuance of common shares under
employee stock purchase plan........ -- -- 150,023 1,500 2,143,385 -- 2,144,885
Issuance of common shares upon
exercise of stock options........... -- -- 177,000 1,770 751,618 -- 753,388
Income tax benefits related to
employee stock purchase plan and
stock options exercised............. -- -- -- -- -- 535,013 535,013
Net income............................ -- -- -- -- -- 14,735,358 14,735,358
Adjustment for net equity activity of
pooled companies.................... -- -- -- -- -- 147,567 147,567
-------- ------ ---------- -------- ----------- ----------- ------------
Balance at January 31, 1998............. -- $ -- 21,182,663 $211,828 $95,303,154 $32,979,552 $128,494,534
======== ====== ========== ======== =========== =========== ============
</TABLE>
See accompanying notes.
II-5
<PAGE> 63
REMEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------------------------
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................................... $14,735,358 $ 4,972,323 $ 3,599,044
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 5,380,811 3,647,507 2,946,040
Gain on sale of Subsidiary................... (2,833,240) -- --
Deferred income taxes........................ (2,407,832) (767,151) (779,470)
Changes in operating assets and liabilities:
Accounts receivable........................ (6,525,349) (4,862,195) (786,153)
Inventories................................ (9,303,804) (2,539,276) (2,008,355)
Prepaid expenses and other current
assets.................................. 201,838 (256,477) 33,297
Accounts payable........................... 686,941 78,089 1,726,676
Accrued expenses, income taxes payable and
deferred rent........................... 852,733 556,250 1,355,040
----------- ------------ ------------
Net cash provided by operating activities.... 787,456 829,070 6,086,119
INVESTING ACTIVITIES:
Additions to property, plant and equipment...... (17,351,394) (7,362,734) (4,808,031)
Payment for acquisitions, net of cash
acquired..................................... (5,066,075) (4,011,735) --
Proceeds from sale of subsidiary................ 5,000,000 -- --
Purchase of short-term investments.............. -- -- (981,607)
Sale of short-term investments.................. -- 1,482,565 953,657
Other assets.................................... 120,637 (133,320) 99,820
----------- ------------ ------------
Net cash used by investing activities... (17,296,832) (10,025,224) (4,736,161)
FINANCING ACTIVITIES:
Proceeds from bank revolving term loan,
line-of-credit and long-term debt............ 12,212,858 1,100,000 14,367,464
Repayments on bank revolving term loan,
line-of-credit and long-term debt............ (19,510,512) (3,412,956) (14,056,928)
Repurchase of common stock...................... -- -- (788,503)
Proceeds from issuance of common stock.......... 2,898,273 71,260,975 67,460
Change in deferred offering costs............... -- 1,108,424 (1,108,424)
Cash dividends.................................. -- -- (119,470)
----------- ------------ ------------
Net cash provided (used) by financing
activities................................. (4,399,381) 70,056,443 (1,638,401)
----------- ------------ ------------
Increase (decrease) in cash and cash
equivalents..................................... (20,908,759) 60,860,289 (288,443)
Cash and cash equivalents at beginning of year.... 63,172,362 2,345,632 2,634,075
Adjustment for net cash activity of pooled
companies....................................... (326,504) (33,559) --
----------- ------------ ------------
Cash and cash equivalents at end of year.......... $41,937,101 $ 63,172,362 $ 2,345,632
=========== ============ ============
Supplemental disclosures of cash flow information:
Cash paid for:
Interest..................................... $ 321,000 $ 414,000 $ 568,000
=========== ============ ============
Income taxes................................. $10,162,000 $ 3,091,000 $ 2,558,000
=========== ============ ============
Supplemental disclosure of noncash investing and
financing activities:
Assets acquired under capital leases and notes
payable obligations.......................... $ -- $ 962,000 $ 371,000
=========== ============ ============
Common shares issued in connection with
acquisitions................................. $ 6,623,667 $ -- $ --
=========== ============ ============
</TABLE>
See accompanying notes.
II-6
<PAGE> 64
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business and Basis of Presentation
REMEC, Inc. (the "Company") was incorporated in the State of California in
January 1983. The Company is engaged in a single business segment consisting of
the research, design, development and manufacture of microwave and radio
frequency (RF) components and subsystems and precision instruments for control
and measurement systems. Prior to fiscal 1996, the majority of the Company's
sales were to prime contractors to various agencies of the US Department of
Defense and to foreign governments. In May 1995, the Company incorporated REMEC
Wireless, Inc. (a wholly owned subsidiary) to research, design, develop and
manufacture products based on microwave technologies for commercial customers.
In fiscal 1997, the Company acquired Magnum Microwave Corporation, a
manufacturer of microwave components and subsystems, in a transaction accounted
for as a pooling of interests. During 1997, the Company also acquired RF
Microsystems, Inc. ("RFM"), a satellite communications engineering company, in a
transaction accounted for as a purchase. During fiscal 1998, the Company
acquired Radian Technology, Inc., C&S Hybrid, Inc., and Q-bit Corporation, in a
series of transactions accounted for as poolings of interests. The Company's
consolidated financial statements for all periods prior to these acquisitions
have been restated to include each of the acquired Company's financial position,
results of operations and cash flows. During fiscal 1998, the Company also
acquired Verified Technical Corporation and Nanowave Technologies Inc. in
transactions which were accounted for as purchases and sold its RFM subsidiary.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries Humphrey, Inc., REMEC Wireless, Inc., RF
Microsystems, Inc., Magnum Microwave Corporation, Radian Technology, Inc.,
Verified Technical Corporation, C&S Hybrid, Inc., Nanowave Technologies Inc. and
Q-bit Corporation. All intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less at the date of acquisition to be cash equivalents.
Short-term investments are recorded at the amortized cost plus accrued interest
which approximates market value. The Company evaluates the financial strength of
institutions at which significant investments are made and believes the related
credit risk is limited to an acceptable level.
The Company has adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Statement No.
115 requires companies to record certain debt and equity security investments at
market value. At January 31, 1998 and 1997, the cost of cash equivalents and
short-term investments approximated fair value.
Concentration of Credit Risk
Accounts receivable are principally from US government contractors, companies in
foreign countries and domestic customers in the telecommunications industry.
Credit is extended based on an evaluation of the customer's financial condition
and generally collateral is not required. The Company performs periodic credit
evaluations of its customers and maintains reserves for potential credit losses.
Inventory
Inventories are stated at the lower of weighted average cost or market. In
accordance with industry practice, the Company has adopted a policy of
capitalizing general and administrative costs as a component of the cost of
government contract related inventories to achieve a better matching of costs
with the related revenues.
Progress Payments
Progress payments received from customers are offset against inventories
associated with the contracts for which the payments were received.
II-7
<PAGE> 65
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Long-Lived Assets
Property, plant and equipment, including equipment under capital leases, is
stated at cost less accumulated depreciation and amortization. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets which range from three to thirty years. Depreciation expense includes the
amortization of equipment under capital leases. Leasehold improvements and
equipment under capital leases are amortized using the straight-line method over
the shorter of their estimated useful lives or the lease period.
Intangible assets in the accompanying balance sheets represent the excess of
costs over the fair value of net assets acquired and are primarily comprised of
goodwill and acquired technology recorded in connection with the acquisitions of
Humphrey, Inc. (in February 1994), RF Microsystems, Inc., Verified Technical
Corporation and Nanowave Technologies Inc. (See Note 2). These assets are being
amortized using the straight-line method over the estimated useful lives of the
relevant intangibles ranging from nine to fifteen years, respectively.
Amortization expense related to intangible assets totaled $766,616, $345,531 and
$148,956 for fiscal years 1998, 1997 and 1996, respectively.
Effective February 1, 1996, the Company adopted Statement of Financial
Accounting Standard No. 121 "Accounting for Long-Lived Assets and Long-Lived
Assets to be Disposed Of" which established standards for recording the
impairment of long-lived assets, including property, equipment and leasehold
improvements, intangible assets and goodwill.
In accordance with this Statement, the Company reviews the carrying value of
property, equipment and leasehold improvements for evidence of impairment
through comparison of the undiscounted cash flows generated from those assets to
the related carrying amounts of those assets. The carrying value of intangible
assets are evaluated for impairment through comparison of the undiscounted cash
flows derived from those assets to the carrying value of the related
intangibles.
Revenue Recognition
Revenues from commercial contracts are recognized upon shipment of product and
transfer of title to customers. Revenues on long-term fixed-price contracts with
prime contractors to US Government Agencies are recognized using the units of
delivery method. Revenues associated with the performance of non-recurring
engineering and development contracts are recognized when earned under the terms
of the related contract. Revenues for cost-reimbursement contracts are recorded
as costs are incurred and includes estimated earned fees in the proportion that
costs incurred to date bears to estimated costs. Prospective losses on long-term
contracts are based upon the anticipated excess of inventoriable manufacturing
costs over the selling price of the remaining units to be delivered. Actual
losses could differ from those estimated due to changes in the ultimate
manufacturing costs and contract terms.
Research and Development
Research and development costs incurred by the Company are expensed in the
period incurred.
Net Income Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share." Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the Company's previously reported earnings
per share. In accordance with Statement 128, all earnings per share amounts for
all periods presented have been restated. The calculation of net income per
share reflects the historical information for REMEC and its acquired
subsidiaries and the conversion of the common shares of those companies acquired
in pooling of interests transactions into REMEC shares as stipulated in the
respective acquisition agreements. (See Note 2.)
II-8
<PAGE> 66
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table reconciles the shares used in computing basic and diluted
earnings per share in the respective fiscal years:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares outstanding..... 20,841,000 16,517,000 11,306,000
Effect of assumed conversion of preferred of... -- -- 1,617,000
---------- ---------- ----------
Shares used in basic earnings per share
calculation.................................. 20,841,000 16,517,000 12,892,000
Effect of dilutive stock options............... 693,000 311,000 117,000
---------- ---------- ----------
Shares used in diluted earnings per share
calculation.................................. 21,534,000 16,828,000 13,009,000
========== ========== ==========
</TABLE>
On June 6, 1997, the Company's Board of Directors approved a three-for-two stock
split of the Company's common stock in the form of a 50% stock dividend payable
on June 27, 1997 to shareholders of record as of June 20, 1997. All share and
per share related data in the consolidated financial statements have been
adjusted to reflect the stock dividend for all periods presented.
Stock Options
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement 123") requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
about the future that affect the amounts reported in the consolidated financial
statements. These estimates include assessing the collectibility of accounts
receivable, the usage and recoverability of inventories and long-lived assets
and the incurrence of losses on long term contracts and warranty costs. Actual
results could differ from those estimates.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued FAS No. 130,
"Reporting Comprehensive Income" and FAS No. 131, "Segment Information." Both of
these standards are effective for fiscal years beginning after December 15,
1997. FAS No. 130 requires that all components of comprehensive income,
including net income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-owner sources. Net income and other comprehensive income, including foreign
currency translation adjustments, and unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income. The Company believes that comprehensive income or loss
will not be materially different than net income or loss. FAS No. 131 amends the
requirements for public enterprises to report financial and descriptive
information about its reportable operating segments. Operating segments, as
defined in FAS No. 131, are components of an enterprise for which separate
financial information is required to be reported on the basis that is used
internally for evaluating the segment performance. As stated above, the Company
believes it operates in one business and operating segment and that adoption of
these standards will not have a material impact on the Company's financial
statements.
2. ACQUISITION TRANSACTIONS
Q-bit Corporation ("Q-bit")
In October 1997, the Company acquired all of the outstanding shares of common
stock of Q-bit, a manufacturer of amplifier based microwave components and
multi-function modules, in exchange for 1,047,482 shares of the Company's common
stock. Prior to the combination, Q-bit's fiscal year ended on December 31, 1996.
In recording the business combination, Q-bit's financial statements for the
fiscal years
II-9
<PAGE> 67
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ended December 31, 1995 and 1996 were combined with REMEC's for the fiscal years
ended January 31, 1996 and 1997, respectively. Q-bit's net sales and net income
for the one month period ended January 31, 1997 were $1,295,557 and $103,610,
respectively. In accordance with Accounting Principles Board Opinion No. 16
("APB No. 16"), Q-bit's results of operations and cash flows for the one-month
period ended January 31, 1997 have been added directly to the retained earnings
and cash flows of the Company and excluded from reported fiscal 1998 results of
operations and cash flows. Q-bit's revenues and net income for the period from
February 1, 1997 through the date of acquisition totalled $12,315,818 and
$1,578,333, respectively.
C&S Hybrid ("C&S Hybrid")
In June 1997, the Company acquired all of the outstanding shares of common stock
of C&S Hybrid, a manufacturer of transmitter and receiver hardware assemblies
("transceivers") that are integrated by C&S Hybrid's customers into
terrestrial-based point-to-point microwave radios primarily for use in
commercial applications, in exchange for 1,290,000 shares of the Company's
common stock. Prior to the combination, C&S Hybrid's fiscal year ended on
December 27, 1996. In recording the business combination, C&S Hybrid's financial
statements for the fiscal years ended December 22, 1995 and December 27, 1996
were combined with REMEC's for the fiscal years ended January 31, 1996 and 1997,
respectively. C&S Hybrid's net sales and net income for the one month ended
January 31, 1997 were $1,569,129 and $53,976, respectively. In accordance with
APB No. 16, C&S Hybrid's results of operations and cash flows for the one-month
period ended January 31, 1997 have been added directly to the retained earnings
and cash flows of the Company and excluded from reported fiscal 1998 results of
operations and cash flows. C&S Hybrid's revenues and net income for the period
from February 1, 1997 through the date of acquisition totalled $8,033,729 and
$357,249, respectively.
Radian Technology, Inc. ("Radian")
On February 28, 1997, the Company issued 950,024 shares of its common stock in
exchange for all of the outstanding shares of common stock of Radian, a
manufacturer of microwave components and subsystems. Prior to the combination,
Radian's fiscal year ended on the Friday closest to December 31. In recording
the business combination, Radian's financial statements for the fiscal years
ended December 29, 1995 and December 27, 1996 were combined with REMEC's for the
fiscal years ended January 31, 1996 and 1997, respectively. Radian's net sales
and net loss for the one month period ended January 31, 1997 were $299,000 and
$10,019, respectively. In accordance with APB No. 16, Radian's results of
operations and cash flows for the one-month period ended January 31, 1997 have
been added directly to the retained earnings and cash flows of the Company and
excluded from reported fiscal 1998 results of operations and cash flows.
Radian's revenues and net income for the period from February 1, 1997 through
the date of acquisition totalled $731,089 and $141,888, respectively.
Magnum Microwave Corporation ("Magnum")
On August 26, 1996, the Company issued 1,612,399 shares of its common stock in
exchange for all of the outstanding shares of common stock of Magnum, a
manufacturer of microwave components and subsystems. Immediately prior to the
acquisition, Magnum issued 197,187 equivalent shares of stock for cash of
approximately $1,500,000. Prior to the combination, Magnum's fiscal year ended
on the Friday closest to March 31. In recording the business combination,
Magnum's financial statements for the 1996 fiscal year were combined with
REMEC's for the fiscal year ended January 31, 1996. Consolidated operating
results and the net change in consolidated cash and cash equivalents for the
year ended January 31, 1997 include Magnum's results of operations and change in
cash flows for the two months ended March 29, 1996. Magnum's net sales and net
income for the two month period ended March 29, 1996 were $1,743,000 and
$135,000, respectively. Included in general and administrative expenses in the
consolidated statement of income for the year ended January 31, 1997 are costs
of $424,000 related to the acquisition of Magnum.
Verified Technical Corporation ("Veritek")
On March 31, 1997, the Company acquired all of the outstanding common stock of
Veritek in exchange for cash consideration of $1,000,000 and 138,000 shares of
the Company's common stock with a fair value of
II-10
<PAGE> 68
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
approximately $2.0 million and the assumption of liabilities totaling $1.1
million. The acquisition has been accounted for as a purchase, and accordingly,
the total purchase price has been allocated to the acquired assets and
liabilities assumed at their estimated fair values in accordance with the
provisions of Accounting Principles Board Opinion No. 16. The excess of the
purchase price over the net assets acquired of $2,406,000 has been recorded as
an intangible asset, and is being amortized over an estimated life of 15 years.
The pro forma results of operations of REMEC and Veritek assuming Veritek was
acquired on the first day of the Company's 1997 fiscal year would not be
materially different from reported results.
Nanowave Technologies Inc. ("Nanowave")
In October 1997, the Company 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. Effective
October 29, 1997, REMEC Canada acquired all of the outstanding common stock of
Nanowave in exchange for cash consideration of $4,025,000 and 182,183 Dividend
Access Shares with a fair value of $4,646,000 which was equal to the fair value
of an equivalent number of common shares of the Company on the date of
acquisition. These Dividend Access Shares are convertible at any time into an
equivalent number of shares of REMEC Common Stock at the option of the security
holder. The acquisition has been accounted for as a purchase, and accordingly,
the total purchase price has been allocated to the acquired assets and
liabilities assumed at their estimated fair values in accordance with the
provisions of APB No. 16. The excess of the purchase price over the net assets
acquired of $11,130,000 has been recorded as intangible assets (acquired
technology, trademarks, assembled workforce and goodwill), and will be amortized
over periods ranging from 9 to 15 years.
Assuming that the acquisition of Nanowave had occurred on the first day of the
Company's fiscal year ended January 31, 1997, pro forma condensed consolidated
results of operations would be as follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------
1998 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales.............................................. $160,581 $124,434
Net income............................................. 14,288 4,441
Earnings per share:
Basic................................................ $ .68 $ .27
Diluted.............................................. $ .66 $ .26
</TABLE>
RF Microsystems, Inc. ("RFM")
Effective April 30, 1996, the Company acquired all of the outstanding common
stock of RFM and certain other assets in exchange for cash consideration of
approximately $4,066,000. RFM provided satellite communications engineering
services to agencies of the US Government. The acquisition was accounted for as
a purchase, and accordingly, the total purchase price was allocated to the
acquired assets and liabilities assumed at their estimated fair values in
accordance with the provisions of Accounting Principles Board Opinion No. 16.
The excess of the purchase price over the net assets acquired of $3,559,000 was
recorded as intangible assets, and was being amortized over an estimated life of
15 years. Upon completion of the acquisition, certain tangible and intangible
assets associated with the design and production of commercial wireless products
with a fair value of approximately $3.8 million were transferred to another
subsidiary of the Company. On August 26, 1997, the Company sold its RFM
subsidiary in exchange for cash consideration of $5.0 million. The sale resulted
in an after-tax gain of $1,728,000 or $.08 per share. The Company's consolidated
financial statements include the results of RFM from April 30, 1996 through
August 26, 1997.
II-11
<PAGE> 69
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FINANCIAL STATEMENT DETAILS
Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Raw Materials..................................... $16,087,158 $10,017,387
Work in progress.................................. 14,968,767 11,687,168
----------- -----------
31,055,925 21,704,555
Less unliquidated progress payments............... (674,984) (2,372,499)
----------- -----------
$30,380,941 $19,332,056
=========== ===========
</TABLE>
Inventories related to contracts with prime contractors to the US Government
included capitalized general and administrative expenses of $2,076,000 and
$1,642,000 at January 31, 1998 and 1997, respectively.
Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Land, building and improvements................. $ 3,293,776 $ 3,351,885
Machinery and equipment......................... 54,574,755 37,932,615
Furniture and fixtures.......................... 3,270,147 2,312,295
Leasehold improvements.......................... 3,049,130 2,364,977
------------ ------------
64,187,808 45,961,772
Less accumulated depreciation and
amortization.................................. (32,198,874) (27,418,367)
------------ ------------
$ 31,988,934 $ 18,543,405
============ ============
</TABLE>
Intangible and Other Assets
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
Acquired technology................................ $ 8,358,556 $3,559,000
Goodwill........................................... 7,775,775 1,489,619
Trademarks and other intangible assets............. 2,250,000 --
----------- ----------
18,384,331 5,048,619
Less accumulated amortization...................... (1,391,456) (624,833)
----------- ----------
16,992,875 4,423,786
Other assets....................................... 239,366 379,521
----------- ----------
$17,232,241 $4,803,307
=========== ==========
</TABLE>
4. BANK REVOLVING TERM CREDIT FACILITY AND LINE-OF-CREDIT
The Company has a $9,000,000 working capital line-of-credit with a bank, which
expires July 1, 1998. Interest is due monthly on advances at the bank's prime
interest rate (8.5% at January 31, 1998). At January 31, 1998, there were no
outstanding borrowings on the facility.
The Company also has a $8,000,000 term credit facility with the bank which is
available until July 1, 1998. Outstanding borrowings at July 1, 1998 under this
facility automatically convert into a term note payable in 42 monthly
installments. Interest is due monthly on advances under the facility at the
bank's prime interest rate. At January 31, 1998, there were no outstanding
borrowings on the facility.
II-12
<PAGE> 70
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Advances under these agreements are secured by substantially all assets of the
Company. The agreements also contain covenants which require the Company to
maintain certain financial ratios, achieve specified levels of profitability,
restrict the incurrence of additional debt, restrict the incurrence of capital
expenditures in excess of specified amounts, limit the payment of cash
dividends, and include certain other restrictions. As of January 31, 1998, the
Company was in compliance with all covenants specified.
5. SHAREHOLDERS' EQUITY
Equity Offerings
In January 1997, the Company issued in a public offering an additional 3,618,750
shares of common stock. The net proceeds from this offering were $51,971,875.
Certain shareholders also sold 1,125,000 shares as part of this offering.
In February 1996, the Company completed an initial public offering ("IPO") of
its common stock in which the Company issued a total of 3,397,340 shares of
common stock. The net proceeds from the offering were $15,649,209. Concurrent
with the closing of the Company's IPO, all of the then outstanding shares of the
Company's preferred stock were converted into 1,616,864 shares of common stock.
In connection with the Company's IPO, certain shareholders also sold 1,777,660
shares as part of the offering.
Dividends
In the year ended January 31, 1996, the Company paid a cash dividend of $.01 per
share including a payment to preferred shareholders on an as converted basis.
The Company's Q-bit subsidiary also paid a cash dividend totaling $64,670 during
the fiscal year ended January 31, 1996. The Company currently anticipates that
it will not pay dividends in the foreseeable future.
Stock Option Plans
The Company's 1995 Equity Incentive Plan provides for the grant of incentive
stock options, non-qualified stock options, restricted stock awards, stock
purchase rights or performance shares to employees and non-employee directors of
the Company. During fiscal 1998, the Company's shareholders approved an increase
in the number of shares available for issuance under the Plan by 2,250,000
shares to a total of 3,375,000 shares of common stock. The exercise price of the
incentive stock options must at least equal the fair market value of the common
stock on the date of grant, and the exercise price of non-qualified options may
be no less than 85% of the fair market value of the common stock on the date of
grant. Options granted under the plans vest over a period of three to four years
and expire from four and one-half years to nine years from the date of grant.
The Company had maintained previous stock option plans prior to the inception of
the 1995 Equity Incentive Plan. These incentive plans were terminated upon the
closing of the Company's IPO in February 1996 and all outstanding options remain
exercisable in accordance with their original terms.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------------------------------------
1998 1997 1996
-------------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
--------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of year....... 928,538 $ 7.71 305,380 $2.25 230,046 $2.07
Granted.............................. 1,024,214 22.42 668,012 9.90 128,501 2.65
Exercised............................ (170,965) 4.37 (37,649) 2.37 (26,865) 2.36
Forfeited............................ (90,813) 10.17 (7,205) 6.79 (26,302) 2.61
--------- ------ ------- ----- ------- -----
Outstanding -- end of year............. 1,690,974 $16.86 928,538 $7.71 305,380 $2.25
========= ====== ======= ===== ======= =====
</TABLE>
II-13
<PAGE> 71
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes by price range the number, weighted average
exercise price and weighted average life (in years) of options outstanding and
the number and weighted average exercise price of exercisable options as of
January 31, 1998:
<TABLE>
<CAPTION>
TOTAL OUTSTANDING TOTAL EXERCISABLE
----------------------------- ------------------
WEIGHTED AVERAGE WEIGHTED
NUMBER ----------------- NUMBER AVERAGE
OF EXERCISE OF EXERCISE
PRICE RANGE SHARES PRICE LIFE SHARES PRICE
----------- --------- --------- ----- ------- --------
<S> <C> <C> <C> <C> <C>
$ 1.61 - $ 7.40 191,120 $ 2.18 2.2 103,780 $ 2.13
$ 7.41 - $11.10 338,350 $ 9.55 2.8 85,439 $ 9.51
$11.11 - $14.80 325,919 $14.14 3.3 48,052 $13.96
$14.81 - $22.20 484,676 $20.89 3.8 16,535 $15.15
$22.21 - $25.90 168,875 $25.37 3.8 -- --
$25.91 - $37.00 182,034 $32.99 4.0 -- --
--------- -------
Total Plan 1,690,974 $16.86 3.3 253,806 $ 7.71
========= =======
</TABLE>
At January 31, 1998, options for 1,641,746 shares were available for future
grant.
Pro forma information regarding net income and net income per share is required
by Statement 123, and has been determined as if the Company has accounted for
its employee stock options and employee stock purchase plan shares under the
fair value method of that statement. The fair value of these options or employee
stock purchase rights was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for 1998
and 1997, respectively: risk-free interest rates of 6.0%; dividend yields of 0%;
volatility factors of the expected market price of the Company's common stock of
71.3% and 90.9%, a weighted-average life of the option of 3.2 years; and a
weighted-average life of the stock purchase rights of three months.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options and rights under the employee stock
purchase plan have characteristics significantly different from those of trade
options, and because changes in the subjective assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair market value of its
employee stock options or the rights granted under the employee stock purchase
plan.
For purposes of pro forma disclosures, the estimated fair value of the options
and the shares granted under the employee stock purchase plan is amortized to
expense over their respective vesting or option periods. The effects of applying
Statement 123 for pro forma disclosure purposes are not likely to be
representative of the effects on pro forma net income in future years because
they do not take into consideration pro forma compensation expense related to
grants made prior to 1996. The Company's pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
---------------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported................................. $14,735,358 $4,972,323 $3,599,044
Pro forma................................... 10,603,372 2,083,189 3,589,792
Earning per share:
As reported --
Basic.................................... $ .71 $ .30 $ .28
Diluted.................................. .68 .30 .28
Pro forma --
Basic.................................... $ .51 $ .13 $ .28
Diluted.................................. .49 .12 .28
Weighted average fair value of options granted
during the year............................. $ 11.48 $ 5.09 $ .52
</TABLE>
II-14
<PAGE> 72
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan") provides for
the issuance of shares of the Company's common stock to eligible employees.
During fiscal 1998, the Company's shareholders approved an increase in the
number of shares available for issuance under the Plan by 825,000 shares to a
total of 1,200,000 shares of common stock. The price of the common shares
purchased under the Purchase Plan will be equal to 85% of the fair market value
of the common shares on the first or last day of the offering period, whichever
is lower. As of January 31, 1998, 702,127 shares remain available for issuance
under the Purchase Plan.
6. COMMITMENTS
Deferred Savings Plan
The Company has established a Deferred Savings Plan for its employees, which
allows participants to make contributions by salary reduction pursuant to
section 401(k) of the Internal Revenue Code. The Company matches contributions
up to $100 per quarter, per employee, subject to the attainment of certain
quarterly profit levels by the Company. Employees vest immediately in their
contributions and Company contributions vest over a two year period. The Company
has charged to operations contributions of approximately $399,000, $218,000 and
$88,000 for the years ended January 31, 1998, 1997 and 1996, respectively.
Prior to its acquisition in fiscal 1997, the Company's Magnum subsidiary
maintained a separate defined contribution 401(k) retirement plan for
substantially all of its employees. Magnum made contributions to this plan of
$88,000 for fiscal 1996. This plan was merged into the REMEC plan in March 1997.
The Company's C&S Hybrid subsidiary maintained a separate defined contribution
401(k) retirement plan for substantially all of its employees. C&S Hybrid made
contributions to this plan of $42,000 and $33,000 for fiscal 1997 and 1996,
respectively. This plan was merged into the REMEC plan in February 1998.
Prior to its acquisition in fiscal 1998, the Company's Q-bit subsidiary
maintained a separate defined contribution 401(k) retirement plan for
substantially all of its employees. Q-bit made contributions to this plan of
$95,000 and $54,000 for fiscal 1997 and 1996, respectively. This plan was merged
into the REMEC plan in April 1998.
Leases
The Company leases offices and production facilities under noncancelable
agreements classified as operating leases. At January 31, 1998, future minimum
payments under these operating leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1999........................................................ $ 3,464,000
2000........................................................ 3,595,000
2001........................................................ 1,918,000
2002........................................................ 989,000
2003........................................................ 842,000
Thereafter.................................................. 1,093,000
-----------
Total minimum lease payments................................ $11,901,000
===========
</TABLE>
Certain of these lease agreements provide for annual rental adjustments based on
changes in the Consumer Price Index. Certain of these lease agreements also
include renewal options.
At January 31, 1997, equipment under capital leases amounted to $1,231,000.
Related accumulated amortization for the same period of time was $440,000.
During fiscal 1998, all obligations under capital leases were repaid and
ownership of the related assets was transferred to the Company.
Rent expense totaled $3,186,000, $2,717,000 and $2,587,000 during fiscal 1998,
1997 and 1996, respectively.
II-15
<PAGE> 73
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
For financial reporting purposes, income before taxes includes the following
components:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
---------------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Pretax income:
United States......................... $22,369,180 $8,988,990 $6,027,702
Foreign............................... 866,977 -- --
----------- ---------- ----------
$23,236,157 $8,988,990 $6,027,702
=========== ========== ==========
</TABLE>
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation................................ $4,270,000 $1,293,000
Inventory costs capitalization............................ 846,000 248,000
Other..................................................... 2,000 47,000
---------- ----------
5,118,000 1,588,000
---------- ----------
Deferred tax assets:
Inventory and other reserves.............................. 3,696,000 1,771,000
Deferred rent............................................. 65,000 108,000
Accrued expenses.......................................... 1,623,000 1,221,000
Other..................................................... 858,000 342,000
---------- ----------
Total deferred tax assets................................... 6,242,000 3,442,000
---------- ----------
Net deferred tax assets..................................... $1,124,000 $1,854,000
========== ==========
</TABLE>
The provision for taxes based on income consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
---------------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal..................................... $ 7,933,000 $3,910,000 $2,619,000
Foreign..................................... 308,000 -- --
State....................................... 1,634,000 874,000 588,000
Deferred:
Federal..................................... (1,188,000) (646,000) (624,000)
State....................................... ( 186,000) (121,000) (154,000)
----------- ---------- ----------
$ 8,501,000 $4,017,000 $2,429,000
=========== ========== ==========
</TABLE>
A reconciliation of the effective tax rates and the statutory Federal income tax
rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
---------------------------------------------------------
1998 1997 1996
---------------- ---------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Tax at Federal rate................. $8,115,000 35% $3,146,000 35% $2,110,000 35%
State income tax net of federal..... 941,000 4 605,000 7 295,000 5
Loss (Earnings) distributed to S
Corporation shareholders.......... (642,000) (2) 438,000 5 (78,000) (2)
Other............................... 87,000 -- (172,000) (2) 102,000 2
---------- --- ---------- --- ---------- ---
$8,501,000 37% $4,017,000 45% $2,429,000 40%
========== === ========== === ========== ===
</TABLE>
Prior to its acquisition by the Company in October 1997, Q-bit Corporation had
elected to be treated as an "S corporation" for income tax purposes and,
accordingly, any liability for income taxes was that of the shareholders and not
Q-bit.
II-16
<PAGE> 74
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SIGNIFICANT CUSTOMERS AND EXPORT SALES
During fiscal 1998 and 1997, respectively, one customer accounted for 14% and
13% of the Company's net sales. No customer accounted for more than 10% of the
Company's net sales during 1996.
Export sales were 7%, 7% and 11% of net sales for fiscal 1998, 1997 and 1996,
respectively.
9. RELATED PARTY TRANSACTIONS
An officer of the Company holds certain interests in various suppliers to one of
the Company's subsidiaries. Amounts paid to these suppliers in fiscal 1998, 1997
and 1996 totaled $2,667,000, $1,054,000 and $307,000, respectively.
10. SUBSEQUENT EVENT
In March 1998, the Company sold in an underwritten public offering an additional
1,990,000 shares of common stock. The net proceeds received by the Company from
this offering totaled approximately $49.6 million. Certain shareholders of the
Company also sold 1,000,000 shares as part of this offering.
II-17
<PAGE> 75
PART I -- FINANCIAL INFORMATION
ITEM 1
REMEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 30, JANUARY 31,
1998 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 80,702,480 $ 41,937,101
Accounts receivable, net.................................. 22,758,458 25,494,474
Inventories, net.......................................... 35,077,302 30,380,941
Prepaid expenses and other current assets................. 8,979,476 6,831,010
------------ ------------
Total current assets.............................. 147,517,716 104,643,526
Property, plant and equipment, net........................ 40,622,330 31,988,934
Intangible and other assets, net.......................... 17,221,345 17,232,241
------------ ------------
$205,361,391 $153,864,701
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,008,749 $ 8,531,756
Accrued expenses.......................................... 9,547,204 11,616,242
------------ ------------
Total current liabilities......................... 14,555,953 20,147,998
Deferred income taxes and other long-term liabilities..... 4,825,507 5,222,169
Shareholders' equity...................................... 185,979,931 128,494,534
------------ ------------
$205,361,391 $153,864,701
============ ============
</TABLE>
See accompanying notes.
II-18
<PAGE> 76
REMEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- ----------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales........................... $35,165,597 $38,560,919 $120,551,662 $111,850,276
Cost of sales....................... 25,226,316 26,788,816 85,972,678 77,861,350
----------- ----------- ------------ ------------
Gross profit........................ 9,939,281 11,772,103 34,578,984 33,988,926
Operating expenses:
Selling, general and
administrative................. 6,775,900 6,442,512 21,766,652 18,008,794
Research and development.......... 2,061,994 1,217,040 5,553,352 3,862,233
----------- ----------- ------------ ------------
Total operating
expenses................ 8,837,894 7,659,552 27,320,004 21,871,027
----------- ----------- ------------ ------------
Income from operations............ 1,101,387 4,112,551 7,258,980 12,117,899
Gain on sale of subsidiary........ -- 2,833,240 -- 2,833,240
Interest income................... 798,683 608,390 2,266,663 1,833,624
----------- ----------- ------------ ------------
Income before provision for income
taxes.......................... 1,900,070 7,554,181 9,525,643 16,784,763
Provision for income taxes........ 554,232 2,621,027 1,246,819 5,993,812
----------- ----------- ------------ ------------
Net income........................ $ 1,345,838 $ 4,933,154 $ 8,278,824 $ 10,790,951
=========== =========== ============ ============
Earnings per share:
Basic............................. $ 0.06 $ 0.24 $ 0.36 $ 0.52
=========== =========== ============ ============
Diluted........................... $ 0.06 $ 0.23 $ 0.35 $ 0.50
=========== =========== ============ ============
Shares used in computing earnings
per share:
Basic............................. 23,177,000 20,881,000 22,993,000 20,747,000
=========== =========== ============ ============
Diluted........................... 23,293,000 21,876,000 23,403,000 21,549,000
=========== =========== ============ ============
</TABLE>
See accompanying notes.
II-19
<PAGE> 77
REMEC, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 31,
1998....................... 21,182,663 $211,828 $ 95,838,167 $32,444,539 $128,494,534
Issuance of common shares in
stock offering............. 1,990,000 19,900 49,543,600 -- 49,563,500
Issuance of common shares
upon exercise of stock
options.................... 80,768 807 403,079 -- 403,886
Issuance of common shares
under employee stock
purchase plan.............. 193,749 1,937 1,732,406 -- 1,734,343
Issuance of common shares.... 39,627 396 355,854 -- 356,250
Purchase and retirement of
common shares.............. (366,500) (3,665) (2,847,741) -- (2,851,406)
Net income................... -- -- -- 8,278,824 8,278,824
---------- -------- ------------ ----------- ------------
Balance at October 30,
1998....................... 23,120,307 $231,203 $145,025,365 $40,723,363 $185,979,931
========== ======== ============ =========== ============
</TABLE>
See accompanying notes.
II-20
<PAGE> 78
REMEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
OCTOBER 30, OCTOBER 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 8,278,824 $ 10,790,951
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 6,826,722 3,916,830
Gain on sale of subsidiary................................ -- (2,833,240)
Changes in operating assets and liabilities:
Accounts receivable....................................... 2,736,016 (4,260,780)
Inventories............................................... (4,696,361) (7,644,546)
Prepaid expenses and other current assets................. (2,148,466) 245,308
Accounts payable.......................................... (3,523,007) 1,145,856
Accrued expenses, deferred income taxes and other
long-term liabilities.................................. (2,465,700) 37,894
------------ ------------
Net cash provided by operating activities.............. 5,008,028 1,398,273
INVESTING ACTIVITIES
Additions to property, plant and equipment.................. (14,262,226) (10,785,093)
Proceeds from sale of subsidiary............................ -- 5,000,000
Payment for acquisitions, net of cash acquired.............. -- (5,066,075)
Other assets................................................ (1,186,996) 539,001
------------ ------------
Net cash used by investing activities.................. (15,449,222) (10,312,167)
FINANCING ACTIVITIES
Borrowings under credit facilities and long-term debt....... -- 11,628,387
Repayments on credit facilities and long-term debt.......... -- (18,553,066)
Proceeds from sale of common shares......................... 52,057,979 1,877,754
Purchase and retirement of common shares.................... (2,851,406) --
------------ ------------
Net cash provided (used) by financing activities....... 49,206,573 (5,046,925)
------------ ------------
Increase (decrease) in cash and cash equivalents............ 38,765,379 (13,960,819)
Cash and cash equivalents at beginning of period............ 41,937,101 63,172,362
Adjustment for net cash activity of pooled companies........ -- (326,504)
------------ ------------
Cash and cash equivalents at end of period............. $ 80,702,480 $ 48,885,039
============ ============
</TABLE>
See accompanying notes.
II-21
<PAGE> 79
REMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. QUARTERLY FINANCIAL STATEMENTS
The interim condensed consolidated financial statements included herein have
been prepared by REMEC, Inc. (the "Company") without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures, normally included in annual
financial statements, have been condensed or omitted pursuant to such SEC rules
and regulations; nevertheless, management of the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended January 31, 1998 included in the Company's Annual Report on Form
10-K. In the opinion of management, the condensed consolidated financial
statements included herein reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated financial
position of the Company as of October 30, 1998 and the results of its operations
for the three and nine month periods ended October 30, 1998 and October 31,
1997. The results of operations for the interim periods ended October 30, 1998
are not necessarily indicative of the results which may be reported for any
other interim period or for the entire fiscal year.
In June 1997, the Financial Accounting Standards Board issued FAS No. 130,
"Reporting Comprehensive Income" and FAS No. 131, "Segment Information." Both of
these standards are effective for fiscal years beginning after December 15,
1997. FAS No. 130 requires that all components of comprehensive income,
including net income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-owner sources. Net income and other comprehensive income, including foreign
currency translation adjustments, and unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income. Comprehensive income is not materially different than
reported net income for the three and nine month periods ended October 30, 1998
and October 31, 1997. FAS No. 131 amends the requirements for public enterprises
to report financial and descriptive information about its reportable operating
segments. Operating segments, as defined in FAS No. 131, are components of an
enterprise for which separate financial information is required to be reported
on the basis that is used internally for evaluating the segment performance. The
Company believes it operates in one business and operating segment and that
adoption of these standards will not have a material impact on the Company's
financial statements.
The statements in this report on Form 10-Q that relate to future plans, events
or performance are forward-looking statements. Actual results could differ
materially due to a variety of factors, including the Company's success in
penetrating the commercial wireless market, risks associated with the
cancellation or reduction of orders by significant commercial or defence
customers, trends in the commercial wireless and defence markets, risks of cost
overruns and product nonperformance and other factors and considerations
described in the Company's Annual Report on Form 10-K, and the other documents
the company files from time to time with the SEC. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. Other than as required by applicable law, the Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
2. NET INCOME PER SHARE
The Company presents its earnings per share information in accordance with FAS
No. 128, "Earnings per Share." Statement 128 replaced the previously reported
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share, which includes the dilutive effects of options, warrants and
convertible securities, is very similar to the previously reported fully diluted
earning per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements.
II-22
<PAGE> 80
REMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table reconciles the shares used in computing basic and diluted
earnings per share for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding
used in basic earnings per share
calculation............................. 23,177,000 20,881,000 22,993,000 20,747,000
Effect of dilutive stock options.......... 116,000 995,000 410,000 802,000
---------- ---------- ---------- ----------
Shares used in diluted earnings per share
calculation............................. 23,293,000 21,876,000 23,403,000 21,549,000
========== ========== ========== ==========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
OCTOBER 30, JANUARY 31,
1998 1998
----------- -----------
<S> <C> <C>
Raw materials..................................... $21,382,292 $16,087,158
Work in progress.................................. 13,940,291 14,968,767
----------- -----------
35,322,583 31,055,925
Less unliquidated progress payments............... (245,281) (674,984)
----------- -----------
$35,077,302 $30,380,941
=========== ===========
</TABLE>
Inventories related to contracts with prime contractors to the US Government
included capitalized general and administrative expenses of $2,168,000 and
$2,076,000 at October 30, 1998 and January 31, 1998, respectively.
4. EQUITY OFFERING
In March 1998, the Company sold in an underwritten public offering an additional
1,990,000 shares of common stock. The net proceeds received by the Company from
this offering totaled approximately $49.6 million. Certain shareholders of the
Company also sold 1,000,000 shares as part of this offering.
II-23
<PAGE> 81
APPENDIX III
AIRTECH FINANCIAL STATEMENTS
<TABLE>
<S> <C>
1. Report of Arthur Andersen, Independent Auditors........ III-2
2. Report of Binder Hamlyn, Independent Auditors.......... III-3
3. Audited Annual Financial Statements.................... III-4
4. Unaudited Six Month Financial Statements............... III-19
</TABLE>
III-1
<PAGE> 82
[ARTHUR ANDERSEN LETTERHEAD]
TO THE SHAREHOLDERS OF AIRTECH PLC
We have audited the financial statements on pages III-4 to III-17 which have
been prepared under the historical cost convention and the accounting policies
set out on pages III-6 and III-7.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors are responsible for the preparation of the financial
statements. It is our responsibility to form an independent opinion, based on
our audit, on those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with generally accepted auditing standards
in the United Kingdom which are substantially equivalent to auditing standards
in the United States of America and for which purpose our report is dual dated
in respect of note 28. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the circumstances of the Group,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we have also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the Group at December 31, 1997, and of the Group's profit and cash
flows for the year then ended in accordance with generally accepted accounting
principles in the United Kingdom.
/s/ ARTHUR ANDERSEN
- ---------------------------------------------------------
Arthur Andersen
Chartered Accountants
St. Albans, England
21 April 1998, except for Note 28 as to which the date is 5 March 1999.
III-2
<PAGE> 83
[BINDER HAMLYN LETTERHEAD]
TO THE SHAREHOLDERS OF AIRTECH PLC
We have audited the financial statements on pages III-4 to III-17 which have
been prepared under the historical cost convention and the accounting policies
set out on pages III-6 and III-7.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors are responsible for the preparation of the financial
statements. It is our responsibility to form an independent opinion, based on
our audit, on those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with generally accepted auditing standards
in the United Kingdom which are substantially equivalent to auditing standards
in the United States of America. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgments made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the circumstances of the Group,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we have also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the Group at December 31, 1996 and of the Group's loss and cash
flows for each of the years ended 1995 and 1996 in accordance with generally
accepted accounting principles in the United Kingdom.
/s/ BINDER HAMLYN
- ---------------------------------------------------------
Binder Hamlyn
London, England
26 March 1997
III-3
<PAGE> 84
AIRTECH PLC
AUDITED ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
1997
----------------------------------
PRE EXCEPTIONAL
NOTES EXCEPTIONAL COSTS TOTAL
----- ----------- ----------- ------
L000'S L000'S L000'S
<S> <C> <C> <C> <C>
Turnover................. 1 21,315 -- 21,315
Cost of Sales............ 14,985 -- 14,985
------ ---- ------
Gross Profit............. 6,330 -- 6,330
Selling & Distribution
Costs.................. 1,325 -- 1,325
Administrative Expenses.. 4,321 455 4,776
------ ---- ------
Operating Result......... 2 684 (455) 229
Interest receivable and
similar income......... 5 157 -- 157
Interest payable and
similar charges........ 5 (136) -- (136)
------ ---- ------
Profit/(Loss) on ordinary
activities before
taxation............... 705 (455) 250
------ ---- ------
Taxation on profit/(loss)
on ordinary
activities............. 6 (145)
------
Profit/(Loss) on ordinary
activities after
taxation............... 105
------
Retained Profit/(Loss)
for the financial
year................... 17 105
======
Basic earnings/(loss) per
share.................. 7 0.23p
Fully diluted earnings
per share.............. 7 0.21p
<CAPTION>
1996 1995
------------------------------------ ----------------------------------
PRE EXCEPTIONAL PRE EXCEPTIONAL
EXCEPTIONAL COSTS TOTAL EXCEPTIONAL COSTS TOTAL
------------- ----------- ------ ----------- ----------- ------
L000'S L000'S L000'S L000'S L000'S L000'S
<S> <C> <C> <C> <C> <C> <C>
Turnover................. 8,221 -- 8,221 2,834 -- 2,834
Cost of Sales............ 5,436 -- 5,436 1,650 -- 1,650
----- --- ----- ----- -- -----
Gross Profit............. 2,785 -- 2,785 1,184 -- 1,184
Selling & Distribution
Costs.................. 518 -- 518 393 -- 393
Administrative Expenses.. 2,837 73 2,910 1,025 -- 1,025
----- --- ----- ----- -- -----
Operating Result......... (570) (73) (643) (234) -- (234)
Interest receivable and
similar income......... 93 -- 93 26 -- 26
Interest payable and
similar charges........ (118) -- (118) (42) -- (42)
----- --- ----- ----- -- -----
Profit/(Loss) on ordinary
activities before
taxation............... (595) (73) (668) (250) -- (250)
----- --- ----- ----- -- -----
Taxation on profit/(loss)
on ordinary
activities............. -- --
----- -----
Profit/(Loss) on ordinary
activities after
taxation............... (668) (250)
----- -----
Retained Profit/(Loss)
for the financial
year................... (668) (250)
===== =====
Basic earnings/(loss) per
share.................. (2.27)p (1.00)p
Fully diluted earnings
per share.............. N/A N/A
</TABLE>
All the above results derive from continuing activities and there were no
acquisitions in any period.
The accompanying notes are an integral part of this consolidated profit and loss
account.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
L000'S L000'S L000'S
<S> <C> <C> <C>
Profit/(Loss) on ordinary activities after taxation......... 105 (668) (250)
Gain on foreign currency translation of subsidiary
undertaking............................................... 64 -- --
--- ---- ----
Total gains and losses recognised since last Annual Report
and Accounts.............................................. 169 (668) (250)
=== ==== ====
</TABLE>
III-4
<PAGE> 85
AIRTECH PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOTES 1997 1996
----- ------ ------
L000'S L000'S
<S> <C> <C> <C>
FIXED ASSETS
Tangible Assets............................................. 8 1,686 1,336
CURRENT ASSETS
Stocks...................................................... 10 3,864 3,544
Debtors..................................................... 11 6,013 3,168
Cash at Bank................................................ 3,670 6,990
------ ------
13,547 13,702
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR.............. 12 4,314 4,144
------ ------
NET CURRENT ASSETS.......................................... 9,233 9,559
------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 10,919 10,895
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR..... 13 285 451
PROVISIONS FOR LIABILITIES AND CHARGES...................... 15 102 80
------ ------
NET ASSETS.................................................. 10,532 10,363
====== ======
CAPITAL AND RESERVES
Called up share capital..................................... 16 2,277 2,277
Share premium account....................................... 17 9,946 9,946
Other reserves.............................................. 17 (1,189) (1,189)
Profit and loss account..................................... 17 (502) (671)
------ ------
Equity shareholders' funds.................................. 18 10,532 10,363
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
AIRTECH PLC
CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- ------ ------ ------
L000'S L000'S L000'S
<S> <C> <C> <C> <C>
Net cash inflow/(outflow) from operating activities........ 19 (1,414) (4,112) (669)
Returns on investments and servicing of finance............ 20 21 (25) (16)
Taxation................................................... 20 -- 64 2
Capital expenditure and financial investment............... 20 (480) (409) (131)
------ ------ ------
Cash inflow/(outflow) before management of liquid reserves
and financing............................................ (1,873) (4,482) (814)
Financing.................................................. 20 (400) 9,405 1,468
------ ------ ------
Increase/(decrease) in cash in the period.................. 21 (2,273) 4,923 654
====== ====== ======
</TABLE>
The accompanying notes are an integral part of this consolidated cash flow
statement.
III-5
<PAGE> 86
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
a) ACCOUNTING BASIS
The financial statements have been prepared under the historical cost convention
and in accordance with applicable accounting standards. A summary of the
principal accounting policies are summarised below and they have been applied
consistently throughout the periods reported.
b) BASIS OF CONSOLIDATION
In September 1996, as part of a demerger and reorganisation prior to flotation,
Airtech plc acquired the whole of the issued share capital of Airtech Wireless
Communications Limited and its two wholly owned subsidiaries, Airtech Cellular
Limited and Airtech Wireless Systems Incorporated, by means of a share for share
exchange. Accordingly the principles of merger accounting have been applied and
the accounts consolidate the results of Airtech plc and its subsidiaries to the
end of each financial period as if the Airtech plc group had been in existence
throughout the whole of the periods covered by these accounts.
c) TURNOVER
Turnover represents the amounts receivable for goods and services provided in
the normal course of business net of trade discounts, VAT and other related
taxes.
d) RESEARCH AND DEVELOPMENT
Expenditure on research and development is written off to the profit and loss
account in the year in which it is incurred unless it is specifically funded by
a customer in which case it is held in sundry debtors until such time as the
relevant sale is traded.
e) TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost, net of depreciation. Depreciation is
provided on all tangible fixed assets at rates calculated to write off the cost
of each asset on a straight line basis over its expected useful life as follows:
<TABLE>
<S> <C>
Plant and machinery................................... 5 years
Fixtures, fittings, and tools......................... 3 to 5 years
Motor vehicles........................................ 2 to 4 years
Test gear............................................. 3 to 5 years
Leasehold improvements................................ Term of lease
</TABLE>
f) LEASED ASSETS
Assets held under finance leases , which confer rights and obligations similar
to those attached to owned assets, are capitalised as tangible fixed assets and
are depreciated at the appropriate rate. The capital elements of future lease
obligations are recorded as liabilities, while the interest elements are charged
to the profit and loss account over the period of the lease to produce a
constant rate of charge on the balance of capital repayments outstanding.
Rentals payable under operating leases are charged to the profit and loss
account over the term of the lease.
g) STOCKS AND WORK IN PROGRESS
Stocks and work in progress are valued at the lower of cost and net realisable
value. The cost of work in progress includes materials and labour appropriate to
the state of completion.
h) PENSIONS
The Group operates defined contribution pension schemes. The assets of the
schemes are held separately from those of the Group in independently
administered funds. The pension cost charge represents contributions payable by
the Group to the funds.
III-6
<PAGE> 87
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
i) TAXATION
Corporation tax payable is provided for at the rate ruling at the balance sheet
date. Deferred taxation is calculated on the liability method in respect of
timing differences. Provision is made except to the extent that a liability is
not expected to crystallise.
j) FOREIGN CURRENCIES
Transactions in foreign currencies are recorded at the rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies are translated at the rates of exchange prevailing at the balance
sheet date. The results of overseas subsidiaries are translated using the
average rate of exchange for the period and their balance sheets are translated
at the rates of exchange ruling at the balance sheet date. Exchange differences
arising on the retranslation of the opening net assets and results of overseas
subsidiaries are dealt with through reserves. All other exchange gains or losses
are taken to the profit and loss account.
k) WARRANTY CLAIMS
Provision is made for the expected cost of claims under product warranties
granted in respect of equipment delivered and invoiced.
l) EMPLOYEE SHARE SCHEMES
The cost of awards to employees that take the form of shares or rights to
shares, are recognised over the period of the employee's related performance.
Where there are no performance criteria, the cost is recognised when the
employee becomes unconditionally entitled to the shares. No cost is recognised
in respect of SAYE schemes that are offered on similar terms to all or
substantially all employees.
2. OPERATING RESULT IS STATED AFTER CHARGING:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
L000'S L000'S L000'S
<S> <C> <C> <C>
Depreciation
- -- owned assets............................................. 224 129 103
- -- leased assets............................................ 193 74 17
Research and development expenditure........................ 1,056 915 438
Auditors' remuneration
- -- audit services........................................... 24 25 5
- -- non audit services....................................... 98 83 3
Operating lease rentals
- -- land and buildings....................................... 113 76 48
Loss on exchange............................................ 480 425 --
===== === ===
</TABLE>
III-7
<PAGE> 88
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SEGMENTAL INFORMATION
Geographical analysis
<TABLE>
<CAPTION>
EUROPE UNITED STATES OTHER TOTAL
1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996
------ ------ ------ ------ ------------- ------ ------ ------ ------ ------ ------
L000'S L000'S L000'S L000'S L000'S L000'S L000'S L000'S L000'S L000'S L000'S
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Turnover by
destination........ 10,989 5,900 2,834 9,716 2,321 -- 610 -- -- 21,315 8,221
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Turnover by source... 11,599 5,900 2,834 9,716 2,321 -- -- -- -- 21,315 8,221
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Operating
profit/(loss)...... 288 (567) (234) (59) (76) -- -- -- -- 229 (643)
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Interest
receivable......... 157 93
Interest payable..... (136) (118)
------ ------
Profit on ordinary
activities before
taxation........... 250 (668)
====== ======
Net assets........... 10,677 10,449 563 (145) (86) -- -- -- 10,532 10,363
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
1995
------
L000'S
<S> <C>
Turnover by
destination........ 2,834
======
Turnover by source... 2,834
======
Operating
profit/(loss)...... (234)
======
Interest
receivable......... 26
Interest payable..... (42)
------
Profit on ordinary
activities before
taxation........... (250)
======
Net assets........... 563
======
</TABLE>
All turnover is derived from the principal activity of the Group
4. EXCEPTIONAL COSTS
The exceptional cost in 1997 of L455,000 comprises L 144,000 of fees in respect
of the company's move from AIM to the Official List of the London Stock
Exchange, and L311,000 of fees incurred in preparing for a NASDAQ Initial Public
Offering. Given that the NASDAQ exercise did not proceed to its logical
conclusion by 31 December 1997, the Directors have taken the view that it would
be more prudent to write-off the cost incurred in the year.
The exceptional cost of L73,000 in 1996 related to one-off consultancy costs
incurred in reorganising the group subsequent to its AIM flotation.
5. INTEREST
<TABLE>
<CAPTION>
1997 1996 1995
L000'S L000'S L000'S
------ ------ ------
<S> <C> <C> <C>
Interest receivable
Bank interest receivable.................................. 157 93 26
=== === ==
Interest payable
On loans and overdrafts repayable within 5 years.......... 72 72 22
On finance leases repayable within 5 years................ 64 46 20
--- --- --
136 118 42
=== === ==
</TABLE>
6. TAXATION ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES
The tax charge is based on the profit/(loss) for the year and comprises:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
L000'S L000'S L000'S
<S> <C> <C> <C>
Corporation Tax @ 31% (1996 33%).......................... 145 -- --
=== == ==
</TABLE>
At 31 December 1997 there are accumulated tax losses amounting to approximately
L140,000 available for offset against taxable profits in future years for
Airtech Wireless Systems Inc. (1996: L716,000 for the Group, 1995: L204,327).
III-8
<PAGE> 89
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EARNINGS/(LOSS) PER SHARE
The earnings/(loss) per share figures are based on the profit/(loss) on ordinary
activities after taxation which is attributable to ordinary shareholders and on
the weighted average number of shares in issue. They are calculated in
accordance with Financial Reporting Standard number 3. The fully diluted
earnings per share figure for 1997 is calculated using the weighted average
number of shares and outstanding share options.
<TABLE>
<S> <C> <C> <C>
Weighted average number of ordinary shares used for
basic earnings/(loss) per share calculation........... 45,547,830 29,378,965 24,919,088
Weighted average number of ordinary shares used for the
fully diluted earnings per share calculation.......... 49,985,807 N/A N/A
</TABLE>
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES,
FITTINGS, PLANT MOTOR
TEST GEAR AND MACHINERY VEHICLES TOTAL
--------- --------------- -------- ------
L000'S L000'S L000'S L000'S
<S> <C> <C> <C> <C>
Cost
1 January 1997........................................ 1,070 540 96 1,706
Additions............................................. 367 376 31 774
Disposals............................................. -- -- (74) (74)
----- ----- --- -----
31 December 1997...................................... 1,437 916 53 2,406
----- ----- --- -----
Depreciation
1 January 1997........................................ 158 142 70 370
Charge for the year................................... 223 184 10 417
Disposals............................................. -- -- (67) (67)
----- ----- --- -----
31 December 1997...................................... 381 326 13 720
----- ----- --- -----
Net book value
Owned Assets.......................................... 178 590 -- 768
Leased Assets......................................... 878 -- 40 918
----- ----- --- -----
31 December 1997...................................... 1,056 590 40 1,686
===== ===== === =====
Owned Assets.......................................... 78 398 7 483
Leased Assets......................................... 834 -- 19 853
----- ----- --- -----
31 December 1996...................................... 912 398 26 1,336
===== ===== === =====
</TABLE>
9. SUBSIDIARY UNDERTAKINGS
<TABLE>
<CAPTION>
PERCENTAGE
CLASS OF SHARE HELD PRINCIPAL ACTIVITIES
-------------- ---------- --------------------
<S> <C> <C> <C>
Airtech Wireless Communications Limited....... Ordinary 100% Intermediate holding
Preference 100% company
Airtech Cellular Limited...................... Ordinary 100%* Design and production
Airtech Wireless Inc. (USA)................... Ordinary 100%* of frequency filtering
and combining equipment
Supply of frequency
filtering and combining
equipment
</TABLE>
- ---------------
* Both Airtech Cellular Limited and Airtech Wireless Inc. are wholly owned
subsidiaries of Airtech Wireless Communications Limited
III-9
<PAGE> 90
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCKS
<TABLE>
<CAPTION>
1997 1996
------ ------
L000'S L000'S
<S> <C> <C>
Component stock............................................. 2,104 2,699
Work in progress............................................ 705 76
Finished goods.............................................. 1,055 769
----- -----
3,864 3,544
===== =====
</TABLE>
11. DEBTORS
<TABLE>
<CAPTION>
1997 1996
------ ------
L000'S L000'S
<S> <C> <C>
Trade Debtors............................................... 5,472 2,525
Other debtors including taxation and social security........ 169 523
Prepayments and accrued income.............................. 370 118
Corporation tax recoverable................................. 2 2
----- -----
6,013 3,168
===== =====
</TABLE>
12. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
------ ------
L000'S L000'S
<S> <C> <C>
Obligations under finance leases............................ 371 318
Bank overdraft.............................................. 512 1,574
Bank loan................................................... -- 18
Trade Creditors............................................. 2,158 2,061
Corporation tax............................................. 145 --
Other taxes and social security costs....................... 101 92
Other creditors and accruals................................ 1,027 81
----- -----
4,314 4,144
===== =====
</TABLE>
13. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
------ ------
L000'S L000'S
<S> <C> <C>
Obligations under finance leases............................ 285 429
Bank loan................................................... -- 22
----- -----
285 451
===== =====
</TABLE>
Bank loans and overdrafts are secured by an unlimited debenture over the assets
of Airtech Cellular Limited, an unlimited guarantee from Airtech Wireless
Communications Limited, and an unlimited guarantee from Airtech plc.
III-10
<PAGE> 91
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. BORROWINGS
<TABLE>
<CAPTION>
1997 1996
------ ------
L000'S L000'S
<S> <C> <C>
The bank loan was repayable as follows:
Within one year............................................. -- 18
Between one and two years................................... -- 22
----- -----
-- 40
===== =====
The obligations under finance leases are repayable as
follows:
Within one year............................................. 371 318
Between one and two years................................... 285 429
----- -----
656 747
===== =====
</TABLE>
15. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1997 1996
------ ------
L000'S L000'S
<S> <C> <C>
Provision for warranty claims
1 January................................................... 80 63
Charged to profit and loss account.......................... 22 17
----- -----
31 December................................................. 102 80
===== =====
</TABLE>
Deferred taxation
There are no deferred tax liabilities. Details of the potential deferred tax
asset, which has not been recognised, are set out below:
<TABLE>
<CAPTION>
1997 1996
------ ------
L000'S L000'S
<S> <C> <C>
Accelerated capital allowances.............................. (68) 63
Short term timing differences............................... (7) (26)
Losses carried forward...................................... (43) (236)
----- -----
(118) (199)
===== =====
</TABLE>
16. CALLED UP SHARE CAPITAL
Authorised
<TABLE>
<CAPTION>
NUMBER L'S
---------- ---------
<S> <C> <C>
On 1 January 1997 -- ordinary shares of 5p.................. 50,000,000 2,500,000
========== =========
On 31 December 1997 -- ordinary shares of 5p................ 50,000,000 2,500,000
========== =========
</TABLE>
III-11
<PAGE> 92
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. CALLED UP SHARE CAPITAL (CONTINUED)
a) Authorised share capital
On incorporation, the company had authorised share capital of 1,000 ordinary
shares of L1, two shares of which were issued and fully paid up. On 13 September
1996, the company converted the nominal value of its ordinary shares from L1
each to 5 pence each and increased its authorised share capital to L2,500,000.
b) Issued share capital
<TABLE>
<CAPTION>
NUMBER L'S
---------- ---------
<S> <C> <C>
On incorporation -- ordinary shares of L1 subsequently
converted into 5 pence shares............................. 40 2
Share issue 13 September 1996 at par........................ 22,099,960 1,104,998
Share issue 24 September 1996 at par........................ 2,865,648 143,282
Share issue 24 September 1996 at 12.6 pence................. 4,405,702 220,285
Share issue 3 October 1996 at 68 pence...................... 16,176,480 808,824
---------- ---------
At 31 December 1996......................................... 45,547,830 2,277,391
========== =========
At 31 December 1997......................................... 45,547,830 2,277,391
========== =========
</TABLE>
On 13 September 1996 the company entered a demerger agreement whereby in
consideration for the transfer of 949,306 "A" ordinary shares of 1 pence each in
the share capital of Airtech Wireless Communications Limited being transferred
to it, the company issued and allotted 22,099,960 ordinary shares of 5 pence
each at par to the majority shareholders of AWCL.
On 24 September 1996 the company issued and allotted 2,819,088 ordinary shares
of 5 pence each at par in consideration for the transfer of 121,094 "B" ordinary
shares of 1 pence each in the share capital of AWCL being transferred to it.
Also on 24 September 1996 the company issued and allotted 46,560 ordinary shares
of 5 pence each at par for cash.
On the same day the company issued and allotted 4,405,702 ordinary shares of 5
pence each for a cash consideration of L555,118 (12.6 pence per share), thereby
creating a share premium of L334,833. This was in connection with the surrender
of the warrant over 15% of the share capital of AWCL referred to above.
On 3 October 1996 the company issued and allotted 16,176,480 ordinary shares of
5 pence each for a cash consideration of L11 million, thereby creating a share
premium of L10,191,177.
In accordance with the principles of merger accounting these shares have been
treated as if they were in issue throughout the periods covered by this report.
17. RESERVES
<TABLE>
<CAPTION>
SHARE PREMIUM OTHER PROFIT AND
ACCOUNT RESERVES LOSS ACCOUNT
------------- -------- ------------
L000'S L000'S L000'S
<S> <C> <C> <C>
At 1 January 1996......................................... 335 (1,235) (3)
Loss for the period....................................... -- -- (668)
Premium on share issue.................................... 10,191 46 --
Costs of issue............................................ (580) -- --
------ ------ ----
At 31 December 1996....................................... 9,946 (1,189) (671)
Profit for the period..................................... -- -- 105
Exchange Variance......................................... -- -- 64
------ ------ ----
31 December 1997.......................................... 9,946 (1,189) (502)
====== ====== ====
</TABLE>
III-12
<PAGE> 93
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. RECONCILIATION OF SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1997 1996
------ ------
L000'S L000'S
<S> <C> <C>
Opening shareholders' funds................................. 10,363 563
Retained profit/(loss) for the year attributable to
shareholders.............................................. 105 (668)
Gain on foreign currency translation of subsidiary
undertaking............................................... 64 --
Share capital issued in the year (net of expenses).......... -- 10,468
------ ------
Closing shareholders' funds................................. 10,532 10,363
====== ======
</TABLE>
19. RECONCILIATION OF OPERATING PROFIT/(LOSS) TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
L000'S L000'S L000'S
<S> <C> <C> <C>
Operating profit/(loss)..................................... 229 (643) (234)
Depreciation charges........................................ 417 203 120
Profit/(loss) on sale of tangible fixed assets.............. (3) (2) (3)
Increase in stocks.......................................... (316) (2,983) (409)
Increase in debtors......................................... (2,812) (2,051) (611)
Increase in creditors and provisions........................ 1,071 1,364 468
------ ------ ----
Net cash outflow from operating activities.................. (1,414) (4,112) (669)
====== ====== ====
</TABLE>
20. ANALYSIS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
L000'S L000'S L000'S
<S> <C> <C> <C>
Returns on investments and servicing of finance
Interest received........................................... 157 93 26
Interest paid............................................... (72) (72) (22)
Interest element of finance lease rentals................... (64) (47) (20)
---- ------ -----
Net cash inflow/(outflow)................................... 21 (25) (16)
==== ====== =====
Taxation
UK Corporation tax refund................................... -- 64 2
---- ------ -----
Net cash inflow/(outflow)................................... -- 64 2
==== ====== =====
Capital expenditure and financial investment
Purchase of tangible fixed assets........................... (501) (422) (135)
Sale of tangible fixed assets............................... 21 13 4
---- ------ -----
Net cash inflow/(outflow)................................... (480) (409) (131)
==== ====== =====
Financing
Issue of ordinary share capital (net of expenses)........... -- 10,469 --
Issue of ordinary share capital by subsidiary............... -- -- 1,500
Redemption of shares by subsidiary.......................... -- (945) --
Unsecured loan.............................................. -- 40 --
Repayment of unsecured loan................................. (40) -- --
Capital element of finance lease rental repayments.......... (360) (159) (32)
---- ------ -----
Net cash inflow/(outflow)................................... (400) 9,405 1,468
==== ====== =====
</TABLE>
III-13
<PAGE> 94
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. ANALYSIS AND RECONCILIATION OF NET FUNDS
<TABLE>
<CAPTION>
OTHER
NON-
1 JANUARY CASH CASH 31 DECEMBER
1995 FLOW CHANGES 1995
--------- ------ ------- -----------
L000'S L000'S L000'S L000'S
<S> <C> <C> <C> <C>
Cash in hand, at bank.................................. 3 1,156 -- 1,159
Overdrafts............................................. (164) (502) -- (666)
---- ----- ---- -----
(161) 654 -- 493
-----
Finance leases......................................... (12) 32 (182) (162)
---- ----- ---- -----
Net funds (debt)....................................... (173) 686 (182) 331
==== ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
OTHER
NON-
1 JANUARY CASH CASH 31 DECEMBER
1996 FLOW CHANGES 1996
--------- ------ ------- -----------
L000'S L000'S L000'S L000'S
<S> <C> <C> <C> <C>
Cash in hand, at bank.................................. 1,159 5,831 -- 6,990
Overdrafts............................................. (666) (908) -- (1,574)
----- ----- ---- ------
-----
493 4,923 -- 5,416
-----
Debt due after 1 year.................................. -- (18) -- (18)
Debt due within 1 year................................. -- (22) -- (22)
Finance leases......................................... (162) 159 (744) (747)
-----
119
-----
-----
----- ---- ------
Net funds (debt)....................................... 5,042
331 (744) 4,629
===== ===== ==== ======
</TABLE>
<TABLE>
<CAPTION>
OTHER
NON-
1 JANUARY CASH 31 DECEMBER
1997 CASH FLOW CHANGES 1997
--------- --------- ------- -----------
L000'S L000'S L000'S L000'S
<S> <C> <C> <C> <C>
Cash in hand, at bank............................... 6,990 (3,335) 15 3,670
Overdrafts.......................................... (1,574) 1,062 (512)
------ ------ ---- -----
5,416 (2,273) 15 3,158
------
Debt due after 1 year............................... (22) 22 --
Debt due within 1 year.............................. (18) 18 --
Finance leases...................................... (747) 360 (269) (656)
------
400
------ ------ ---- -----
Net funds (debt).................................... 4,629 (1,873) (254) 2,502
====== ====== ==== =====
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
L000'S L000'S L000'S
<S> <C> <C> <C>
Increase/(decrease) in cash in the year..................... (2,273) 4,923 654
Cash outflow from increase in debt and lease financing...... 400 119 32
------ ----- ----
Change in net debt resulting from cash flows................ (1,873) 5,042 686
New finance leases.......................................... (254) (744) (182)
------ ----- ----
Movement in net debt in year................................ (2,127) 4,298 504
Net funds at beginning of year.............................. 4,629 331 (173)
------ ----- ----
Net funds at end of period.................................. 2,502 4,629 331
====== ===== ====
</TABLE>
III-14
<PAGE> 95
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. MAJOR NON-CASH TRANSACTIONS
During the year the group entered into finance lease arrangements in respect of
assets with a total capital value at the inception of the leases of L269,000
(1996: L745,000, 1995: L194,000).
23. FINANCIAL COMMITMENTS
Operating leases
The group has annual commitments under operating leases on land and buildings as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
L000'S L000'S L000'S
<S> <C> <C> <C>
Expiring between two and five years......................... 133 87 58
=== == ==
</TABLE>
One lease for an annual rental of L75,000 is cancellable on six month's notice
and two other leases for annual rentals of L29,000 and L29,000 can be terminated
on the anniversary of the grant.
Capital commitments
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
L000'S L000'S L000'S
<S> <C> <C> <C>
Finance leases entered into................................. -- 76 --
=== === ===
</TABLE>
24. DIRECTORS
Directors' emoluments including pension contributions were as follows
<TABLE>
<CAPTION>
FEES/ PENSION TAXABLE 1997 1996 1995
SALARY CONTRIBUTIONS BENEFITS TOTAL TOTAL TOTAL
------ ------------- -------- ------ ------ ------
L000'S L000'S L000'S L000'S L000'S L000'S
<S> <C> <C> <C> <C> <C> <C>
Executive
NJS Randall (Chairman)......................... 95 14 14 123 81 13
BJ Mulady...................................... 70 10 10 90 68 --
HL Barrow...................................... 61 8 4 73 19 --
AK Bostock..................................... 2 -- -- 2 -- --
MV Wood........................................ 91 9 1 101 53 57
Non-executive
DS Haggett..................................... 15 -- -- 15 8 2
RAF Heath...................................... 15 -- -- 15 3 --
C Masterson.................................... -- -- -- -- 5 2
GF Hardymon.................................... 10 -- -- 10 -- --
--- --- --- --- --- ---
359 41 29 429 237 74
=== === === === === ===
</TABLE>
III-15
<PAGE> 96
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. DIRECTORS (CONTINUED)
Aggregate emoluments do not include any amounts for the value of share options
held by directors.
Details on options are as follows:
Directors' share options
<TABLE>
<CAPTION>
1 JANUARY 31 DECEMBER EXERCISE
1997 GRANTED EXERCISED LAPSED 1997 PRICE
--------- ------- --------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
NJ Randall....................... 16,250 -- -- -- 16,250 L0.60
BJ Mulady........................ 1,366,434 -- -- -- 1,366,434 L0.68
HL Barrow........................ 1,366,434 -- -- -- 1,366,434 L0.68
16,250 -- -- -- 16,250 L0.60
AK Bostock....................... -- 57,142 -- -- 57,142 L0.88
MV Wood.......................... 294,117 -- -- -- 294,117 L0.68
======== ======= ======= ======= ======== =====
</TABLE>
No options were exercised during 1996 or 1997. The share price at 31 December
1997 was 65.5p and the price range during the year was 61.5p to 115.5p.
The directors who held office at 31 December 1997 held the following interests
in the share capital of the company:
<TABLE>
<CAPTION>
31 DECEMBER ON DATE OF
1997 APPOINTMENT
----------- -----------
<S> <C> <C>
NJS Randall................................................. 17,348,824 --
BJ Mulady................................................... 263,450 --
HL Barrow................................................... 298,755 --
MV Wood..................................................... 1,175,532 --
DS Haggett.................................................. 232,802 --
GF Hardymon................................................. 3,089,987 2,809,987
</TABLE>
In addition to the above shareholding 3,317,059 shares were held
non-beneficially by Mr Randall's Children's Trust. HSBC Equity Limited is a
connected party of RAF Heath and holds 3,282,107 shares. This is not a
beneficial interest of Mr Heath. The shares beneficially held by GF Hardymon
were held by entities in which Mr Hardymon is either a general partner or the
manager of the general partner.
Directors' service contracts
The directors each have a service contract with the company with the exception
of AK Bostock who has a service contract with Airtech Cellular Limited. The
service agreements of NJ Randall, BJ Mulady, and HL Barrow are terminable on 12
months notice, the equivalent periods for MV Wood and AK Bostock are 6 months
and 3 months respectively.
25. EMPLOYEES
Number of employees
The average monthly number of persons (including directors) employed by the
group was:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Engineering and Production.................................. 157 103 29
Sales and Marketing......................................... 10 6 4
Administration.............................................. 13 10 4
--- --- ---
180 119 37
=== === ===
</TABLE>
III-16
<PAGE> 97
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. EMPLOYEES (CONTINUED)
Employee costs
<TABLE>
<CAPTION>
1997 1996 1995
L000'S L000'S L000'S
------ ------ ------
<S> <C> <C> <C>
Wages and salaries.......................................... 3,310 1,992 695
Social security costs....................................... 286 194 69
Other pension costs......................................... 103 48 34
----- ----- ---
3,699 2,234 798
===== ===== ===
</TABLE>
26. TRANSACTIONS WITH RELATED PARTIES
During 1997 Airtech Cellular Limited purchased services to the value of L49,000
from Applied Interactive Limited, a company of which NJS Randall is the
controlling shareholder. These services were purchased on a normal commercial
basis.
Management charges
Until September 1996, the ultimate parent undertaking of the group was The Air
Group Limited, a company registered in England and Wales. A management charge of
L13,248 was paid by Airtech Cellular Limited to The Air Group Limited in 1995
and of L56,980 in 1996. This charge was principally in respect of the services
of the group Chairman, NJS Randall. NJS Randall is the controlling shareholder
of The Air Group Limited. No charges have been raised since September 1996.
Inter-company balance
During the period to June 1996 Airtech Cellular Limited repaid a debt of
L169,870 to The Air Group Limited. This debt had arisen in the normal course of
business.
Share sale agreement
An agreement was signed on 13 September 1996 between The Air Group Limited, the
Company and NJS Randall and others relating to the demerger by way of
distribution of Airtech Wireless Communications Limited. Under the terms of this
agreement The Air Group Limited transferred 949,306 "A" Ordinary shares of 1p
each in the capital of Airtech Wireless Communications Limited to the company in
consideration of the allotment and issue by the Company of 22,100,000 Ordinary
shares in its capital to the shareholders of The Air Group Limited in proportion
to their shareholdings in The Air Group Limited.
Share sale agreement
An agreement was also signed on 24 September 1996 between H Barrow and others
(the Minority Shareholders), the Company, HSBC Equity Limited, Airtech Wireless
Communications Limited and NJS Randall and others under the terms of which (i)
the Minority Shareholders agreed to sell the Company their shares in Airtech
Wireless Communications Limited in consideration of the allotment and issue to
them of 2,819,088 ordinary shares, (ii) the Company agreed to subscribe for
1,500,000 new preference shares in Airtech Wireless Communications Limited,
(iii) Airtech Wireless Communications Limited agreed to redeem 1,500,000 of the
existing preference shares and (iv) HSBC Equity Limited agreed to surrender a
warrant to subscribe for equity shares in Airtech Wireless Communications
Limited and subscribe for 4,405,702 ordinary shares in Airtech Plc.
27. SHARE OPTION SCHEMES
In 1996, the Company adopted four share option schemes which cover various
employee and executive groups, as described further below. All schemes were
authorised by the Board of Directors. For each of the schemes, the vesting
period is three years from the date of the grant. There is no taxation effect on
the Company with respect to any of these schemes.
III-17
<PAGE> 98
AIRTECH PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. SHARE OPTION SCHEMES (CONTINUED)
Individual Share Option Agreements
During 1996, two Directors, Howard Barrow and Barry Mulady, were granted
individual options to acquire ordinary shares (the "Individual agreements").
The Airtech Executive Share Option Scheme
In 1996, the Company adopted the Airtech Executive Share Option Scheme (the
"Executive scheme"). This scheme is administered by the Remuneration Committee
of the Board of Directors. The Remuneration Committee has absolute discretion in
selecting the persons to whom options under the Executive scheme are to be
granted and in determining the number and terms of options to be granted.
The Airtech Unapproved Share Option Scheme
In 1996, the Company adopted the Airtech Unapproved Share Option Scheme (the
"Unapproved scheme"). This scheme provides for the grant of options on similar
terms to the Executive scheme outside of UK Inland Revenue approval.
The Airtech Savings-Related Share Option Scheme
In 1996, the Company adopted the Airtech Savings Related Share Option Scheme
(the "Savings related scheme"). Under this scheme, all employees who have been
employed for more than six months by the Company may be permitted to participate
in this scheme at the discretion of the Board of Directors.
The following options to acquire ordinary shares were outstanding at the end of
the relevant periods:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS OUTSTANDING
ON 31 DECEMBER
EXERCISE ---------------------------------
DATE OF GRANT EXERCISE PERIOD PRICE 1997 1996 1995
----------------- -------------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Individual agreements............. 26 September 1996 26 September 1999 to L0.68 2,732,868 2,732,868 --
26 September 2001
Executive scheme.................. 2 October 1996 3 October 1999 to L0.68-L0.88 754,322 794,097 --
1 October 2006
Unapproved scheme................. 2 October 1996 3 October 1999 to L0.68-L0.88 739,062 632,354 --
1 October 2003
Savings related scheme............ 30 November 1996 30 November 1999 to L0.60 223,275 326,625 --
30 May 2000
</TABLE>
The following table sets forth information relating to changes in options
outstanding during the year to 31 December 1997:
<TABLE>
<CAPTION>
INDIVIDUAL EXECUTIVE UNAPPROVED SAVINGS RELATED
AGREEMENTS SCHEME SCHEME SCHEME TOTAL
---------- --------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Outstanding 31 December 1996....... 2,732,868 794,097 632,354 326,625 4,485,944
Granted.......................... -- 148,569 125,714 -- 274,283
Forfeited........................ -- (196,043) (22,857) (103,350) (322,250)
--------- -------- ------- -------- ---------
Outstanding 31 December 1997....... 2,732,868 746,623 735,211 223,275 4,437,977
========= ======== ======= ======== =========
</TABLE>
28. SUBSEQUENT EVENT
Subsequent to the issue of these financial statements dated 31 December 1997,
Airtech plc announced in their interim report and accounts for the six months
ended 30 June 1998, published on 15 October 1998, that they had incurred
exceptional costs of L1.81m in connection with a product upgrade programme on
products manufactured prior to May 1997. A further L2m of costs were accrued at
that date. As at the 5 March 1999 Airtech plc estimate that the total costs
incurred during the upgrade programme will be L4.41m.
III-18
<PAGE> 99
AIRTECH PLC
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim results for the six months to June 1998 which were
announced on 15 October 1998 are set out below together with comparatives for
prior periods as reported:
CONSOLIDATED PROFIT & LOSS ACCOUNT
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS
UNAUDITED SIX MONTHS ENDED AUDITED YEAR ENDED
ENDED 30 JUNE 1998 30 JUNE 31 DECEMBER 1997
-------------------------------------- 1997 --------------------------------------
PRE EXCEPTIONAL ---------- PRE EXCEPTIONAL
EXCEPTIONAL COSTS TOTAL TOTAL EXCEPTIONAL COSTS TOTAL
L000'S L000'S L000'S L000'S L000'S L000'S L000'S
----------- ----------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Turnover........................... 5,813 -- 5,813 10,609 21,315 -- 21,315
Cost of sales...................... (4,626) (3,812) (8,438) (7,696) (14,985) -- (14,985)
------ ------ ---------- ---------- ------- ---- ----------
Gross profit....................... 1,187 (3,812) (2,625) 2,913 6,330 -- 6,330
Selling and distribution costs..... (820) -- (820) (662) (1,325) -- (1,325)
Administrative expenses............ (2,939) (350) (3,289) (2,015) (4,321) (455) (4,776)
------ ------ ---------- ---------- ------- ---- ----------
Operating profit/(loss)............ (2,572) (4,162) (6,734) 236 684 (455) 229
Net interest income/expense........ (21) -- (21) 69 21 -- 21
------ ------ ---------- ---------- ------- ---- ----------
Profit/(loss) on ordinary
activities before taxation....... (2,593) (4,162) (6,755) 305 705 (455) 250
------ ------ ---------- ---------- ------- ---- ----------
Tax on profit/(loss) on ordinary
activities....................... -- -- (145)
---------- ---------- ----------
Retained profit/(loss) for the
period........................... (6,755) 305 105
========== ========== ==========
Basic earnings/(loss) per share.... (14.83)p 0.67p 0.23p
Fully diluted earnings per share... N/A 0.61p 0.21p
Weighted average number of shares
used for basic earnings/(loss)
per share........................ 45,547,830 45,547,830 45,547,830
Weighted average number of shares
used for fully diluted earnings
per share calculation............ N/A 49,954,184 49,985,807
</TABLE>
All of the above results derive from continuing operations and there were no
acquisitions or disposals in any of the periods covered.
There were no exceptional costs reported in the six month period ended 30 June
1997.
III-19
<PAGE> 100
AIRTECH PLC
UNAUDITED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED AUDITED
30 JUNE 30 JUNE 31 DECEMBER
1998 1997 1997
--------- --------- -----------
L000'S L000'S L000'S
<S> <C> <C> <C>
FIXED ASSETS
Tangible fixed assets..................................... 1,489 1,361 1,686
CURRENT ASSETS
Stocks.................................................... 2,945 3,769 3,864
Debtors................................................... 4,402 7,084 6,013
Cash at bank and in hand.................................. 1,068 3,405 3,670
------ ------ ------
8,415 14,258 13,547
CREDITORS:
amounts falling due within one year....................... (3,703) (4,641) (4,314)
------ ------ ------
Net current assets........................................ 4,712 9,617 9,233
------ ------ ------
Total assets less current liabilities........... 6,201 10,978 10,919
CREDITORS:
amounts falling due after more than one year.............. (119) (207) (285)
PROVISIONS FOR LIABILITIES AND CHARGES.................... (2,335) (37) (102)
------ ------ ------
Net assets................................................ 3,747 10,734 10,532
====== ====== ======
CAPITAL AND RESERVES
Called up share capital................................... 2,277 2,277 2,277
Share premium account..................................... 9,946 9,936 9,946
Other reserves............................................ (1,189) (1,189) (1,189)
Profit and loss account................................... (7,287) (290) (502)
------ ------ ------
Equity shareholders' funds................................ 3,747 10,734 10,532
====== ====== ======
</TABLE>
CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
SIX MONTHS SIX MONTHS AUDITED
ENDED ENDED YEAR ENDED
30 JUNE 30 JUNE 31 DECEMBER
1998 1997 1997
---------- ---------- -----------
L000'S L000'S L000'S
<S> <C> <C> <C>
Net cash outflow from operating activities............... (2,588) (3,527) (1,414)
Returns on investments and servicing of finance.......... (21) 69 21
Capital expenditure and financial investment............. (91) (200) (480)
------ ------ ------
Cash outflow before management of liquid reserves and
financing.............................................. (2,700) (3,658) (1,873)
Financing................................................ (273) (220) (400)
------ ------ ------
Decrease in cash in the period........................... (2,973) (3,878) (2,273)
====== ====== ======
</TABLE>
III-20
<PAGE> 101
AIRTECH PLC
UNAUDITED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
SIX MONTHS SIX MONTHS AUDITED
ENDED ENDED YEAR ENDED
30 JUNE 30 JUNE 31 DECEMBER
1998 1997 1997
---------- ---------- -----------
L000'S L000'S L000'S
<S> <C> <C> <C>
Profit/(loss) for the period............................. (6,755) 305 105
Gain/(loss) on foreign currency translation of subsidiary
undertaking............................................ (30) 76 64
------ --- ---
Total recognised gains/(losses) in the
period....................................... (6,785) 381 169
====== === ===
</TABLE>
III-21
<PAGE> 102
AIRTECH PLC
NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS TO 30 JUNE 1998
1. BASIS OF PREPARATION
The unaudited consolidated financial statements have been prepared using
accounting policies consistent with those adopted by the Group in its financial
statements for the year ended 31st December 1997. In the opinion of the
Directors, the unaudited consolidated financial statements contain all
adjustments necessary to present fairly the financial position, results of
operations, and cash flows for the periods presented. The Directors are not
aware of any material modifications that should be made to the unaudited
consolidated financial statements as presented.
2. EARNINGS/(LOSS) PER SHARE
The earnings/(loss) per share figures are based on the profit/(loss) on ordinary
activities after taxation which is attributable to ordinary shareholders and on
the weighted average number of shares in issue. They are calculated in
accordance with Financial Reporting Standard number 3. The fully diluted figures
for the period to 30th June 1998 have not been disclosed as the basic earnings
per share figure is negative.
3. COMPARATIVE FIGURES
The comparative figures for the year to 31st December 1997 do not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
Statutory accounts for that year received an unqualified audit report and have
been delivered to the Registrar of Companies.
4. RECONCILIATION OF OPERATING PROFIT/(LOSS) TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
SIX MONTHS SIX MONTHS AUDITED
ENDED ENDED YEAR ENDED
30 JUNE 30 JUNE 31 DECEMBER
1998 1997 1997
---------- ---------- -----------
L000'S L000'S L000'S
<S> <C> <C> <C>
Operating profit/(loss).......................... (6,734) 236 229
Depreciation charges............................. 286 182 417
Profit/(loss) on sale of tangible fixed assets... -- (4) (3)
(Increase)/decrease in stocks.................... 909 (209) (316)
(Increase)/decrease in debtors................... 1,596 (3,867) (2,812)
Increase/(decrease) in creditors and
provisions..................................... 1,356 135 1,071
------ ------ ------
Net cash outflow from operating activities....... (2,588) (3,527) (1,414)
====== ====== ======
</TABLE>
III-22
<PAGE> 103
AIRTECH PLC
NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX MONTHS TO 30 JUNE 1998
5. SEGMENTAL INFORMATION
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
SIX MONTHS SIX MONTHS AUDITED
ENDED ENDED YEAR ENDED
30 JUNE 30 JUNE 31 DECEMBER
1998 1997 1997
---------- ---------- -----------
L000'S L000'S L000'S
<S> <C> <C> <C>
Turnover by destination
Europe............................................. 4,291 5,859 10,989
United States...................................... 1,192 4,751 9,716
Other.............................................. 330 -- 610
------ ------ ------
5,813 10,610 21,315
------ ------ ------
Turnover by source
Europe............................................. 4,621 5,859 11,599
United States...................................... 1,192 4,751 9,716
------ ------ ------
5,813 10,610 21,315
------ ------ ------
Operating profit/(loss)
Europe............................................. (5,993) 246 288
United States...................................... (741) (10) (59)
------ ------ ------
(6,734) 236 229
------ ------ ------
Net assets/(liabilities)
Europe............................................. 4,629 10,813 10,678
United States...................................... (882) (79) (146)
------ ------ ------
3,747 10,734 10,532
------ ------ ------
</TABLE>
6. EXCEPTIONAL CHARGES
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
SIX MONTHS SIX MONTHS AUDITED
ENDED ENDED YEAR ENDED
30 JUNE 30 JUNE 31 DECEMBER
1998 1997 1997
---------- ---------- -----------
L000'S L000'S L000'S
<S> <C> <C> <C>
Costs of upgrade programme....................... 3,812 -- --
Relocation costs................................. 350 -- --
Stock exchange listing costs..................... -- -- 455
----- --- ---
4,162 -- 455
===== === ===
</TABLE>
COSTS OF UPGRADE PROGRAMME
All costs associated with the G2/G3 upgrade programme in the first half have
been taken as an exceptional charge. Now that the Group can, with reasonable
clarity, identify the total final cost of the programme full provision has been
made. The exceptional charge includes a provision of (LOGO)2,000,000 in respect
of all known future upgrade costs.
RELOCATION COSTS
At the end of July 1998 the Group began to relocate its UK operations from the
three sites on which it had been operating to a single, purpose built site in
Aylesbury. Given that the Group contracted to do this during the first half of
the year, all associated costs have been provided for.
III-23
<PAGE> 104
APPENDIX IV
ADDITIONAL INFORMATION
1. RESPONSIBILITY
(a) The directors of Airtech, whose names are set out in paragraph
2(b) below, accept responsibility for the information contained in
this document relating to Airtech and its subsidiaries, themselves
and their immediate families. The directors of REMEC, whose names
appear in paragraph 2(a) below, accept responsibility for all the
other information contained in this document. To the best of the
knowledge and belief of the directors of REMEC and the directors
of Airtech (who have taken all reasonable care to ensure that such
is the case) the information contained herein for which they are
respectively responsible is in accordance with the facts and does
not omit anything likely to affect the import of such information.
(b) The statements set out in paragraphs (a) above are included solely
to comply with the requirements of Rule 19.2 of the City Code and
shall not be deemed to establish or expand any liability under the
Securities Act.
2. DIRECTORS
(a) The directors of REMEC are as follows:
(i) Ronald E Ragland -- Chairman and Chief Executive Officer;
(ii) Errol Ekaireb -- President and Chief Operating Officer;
(iii) Jack A. Giles -- Executive Vice President;
(iv) Joseph T. Lee -- Executive Vice President;
(v) Denny Morgan -- Senior Vice President;
(vi) Thomas A. Corcoran -- Non-Executive Director;
(vii) William H. Gibbs, Non-Executive Director;
(viii) Andre R. Horn -- Non-Executive Director; and
(ix) Dr. Jeffrey M. Nash, Non-Executive Director.
The executive offices of REMEC are located at 9404 Chesapeake Drive, San
Diego, California 92123, USA
(b) The directors of Airtech are as follows:
(i) Nicholas John Stephen Randall (Executive Chairman);
(ii) Barry James Mulady (Chief Executive Officer);
(iii) David Stephen Haggett (Non Executive Director);
(iv) Roger Anthony Frederick Heath (Non Executive Director);
(v) Gene Felda Hardymon (Non Executive Director); and
(vi) Matthew James White (Finance Director).
The registered office of Airtech, which is also the business address of
its directors, is Coldharbour Way, Aylesbury, Bucks, HP19 3SU, United
Kingdom.
IV-1
<PAGE> 105
3. DISCLOSURE OF INTERESTS AND DEALINGS
In this document "disclosure period" means the period commencing on 12
January 1998 (being the date 12 months prior to the announcement by
Airtech that it had received an approach which might lead to an Offer)
and ending on March 1999 (being the latest practicable date prior to
the posting of this document).
(a) SHAREHOLDINGS AND DEALINGS IN REMEC SHARES
(i) As of March 1999 (the latest practicable date prior to the
posting of this document), the beneficial interests of the
directors of REMEC and their immediate families and connected
persons in the common stock of REMEC were as follows:
<TABLE>
<CAPTION>
OFFEROR SHARES
DIRECTOR REMEC SHARES UNDER OPTION
-------- ------------ --------------
<S> <C> <C>
Ronald E. Ragland................................ 842,619 305,400
Errol Ekaireb.................................... 117,827 155,000
Jack A. Giles.................................... 210,369 98,000
Joseph T. Lee.................................... 395,297 100,000
Denny Morgan..................................... 308,203 51,000
Thomas A. Corcoran............................... 8,250 25,500
William R. Gibbs................................. 0 25,500
Andre R. Horn.................................... 10,006 15,750
Jeffrey M. Nash.................................. 31,956 15,750
</TABLE>
(ii) During the disclosure period, REMEC completed a public offering
of newly issued REMEC Common Stock at a price to the public of
$25.15, and certain directors of REMEC also participated in this
offering by selling shares of REMEC Common Stock owned by them.
The dealings for value in REMEC Common Stock in which the
directors of REMEC were interested during the disclosure period
(all of which were sold in the above-described public offering)
were as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
REMEC PRICE
DATE PARTY TRANSACTION COMMON STOCK PER SHARE
------- ------------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
24/2/98 Ronald E. Ragland Sale 292,180 $25.15
24/2/98 Errol Ekaireb Sale 41,293 $25.15
24/2/98 Errol Ekaireb Sale 2,000 $25.15
24/2/98 Jack A. Giles Sale 66,063 $25.15
24/2/98 Joseph T. Lee Sale 139,877 $25.15
24/2/98 Denny Morgan Sale 56,212 $25.15
24/2/98 Andre Horn Sale 5,000 $25.15
24/2/98 Jeffrey Nash Sale 12,594 $25.15
</TABLE>
IV-2
<PAGE> 106
(B) SHAREHOLDINGS AND DEALINGS IN AIRTECH SHARES
(i) Irrevocable undertakings to accept the Offer have been received
as follows, representing in each case the entire holding of Airtech
Shares of the relevant person:
<TABLE>
<CAPTION>
NUMBER OF
AIRTECH SHARES
NAME IRREVOCABLY COMMITTED
---- ---------------------
<S> <C>
N.J.S. Randall.............................................. 13,146,824
Morgan Grenfell Trustee Services (CI) Limited............... 2,755,261
Morgan Nominees (CI) Limited................................ 2,200,000
N.J.S. Randall and A.R. Randall............................. 2,000,000
D.S. Haggett................................................ 232,802
Bessemer Venture Partners III LP............................ 1,470,588
Bessec Ventures IV LP....................................... 655,625
Bessemer Venture Partners IV LP............................. 655,624
G.F. Hardymon............................................... 70,000
Bessemer Venture Investors LP............................... 168,150
BVP IV Special Situations LP................................ 62,844
B.J. Mulady................................................. 264,710
</TABLE>
(ii) During the disclosure period the persons referred to in paragraph
(i) above have dealt for value in Airtech shares as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE
DATE PARTY TRANSACTION AIRTECH SHARES PER SHARE
---- ----------------------------------- ----------- -------------- ---------
<S> <C> <C> <C> <C>
Morgan Nominees (CI) Limited
29/7/98 Purchase 2,200,000 48p
</TABLE>
(iii) The interests, all of which are beneficial unless indicated
below, of the directors of Airtech and their immediate families and
connected persons (within the meaning of section 346 of the
Companies Act) in the share capital of Airtech (as shown in the
register required to be kept under section 325 of the Companies Act
or which have been notified to Airtech pursuant to sections 324 or
328 of the Companies Act) at March 1999 were as follows:
<TABLE>
<CAPTION>
AIRTECH
AIRTECH SHARES
DIRECTOR SHARES UNDER OPTION
-------- -------------- --------------
<S> <C> <C>
N.J.S. Randall...................................... 15,346,824 15,000
D.S. Haggett........................................ 232,802 nil
G.F. Hardymon....................................... 70,000 nil
B.J. Mulady......................................... 264,710 1,366,434
R.A.F. Heath........................................ nil nil
M.J. White.......................................... nil 250,000
</TABLE>
Note: Of N.J.S. Randall's beneficial interest, 2,200,000 Airtech
Shares are held by Morgan Nominees (CI) Limited as trustee of
a trust of which N.J.S. Randall is a beneficiary. In
addition, N.J.S. Randall has a non-beneficial interest in
2,000,000 shares held by him and Mrs. A.R. Randall as
trustees of a trust of which he is not a beneficiary.
(iv) The options granted to the Directors under the terms of the
Airtech Share Option Schemes are exercisable at the prices shown
below between the stated dates in normal circumstances.
IV-3
<PAGE> 107
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXERCISE
DIRECTOR AIRTECH SHARES PRICE PERIOD
-------- -------------- -------- --------------------
<S> <C> <C> <C>
B.J. Mulady....................... 1,366,434 68p 29/9/99 to 26/9/01
M. J. White....................... 150,000 20p 5/11/01 to 3/11/08
100,000 20p 5/11/01 to 3/11/05
N. J. S. Randall.................. 15,000 60p 30/11/99 to 30/5/00
</TABLE>
(C) GENERAL
(i) Save as disclosed in this paragraph 3, neither REMEC, nor any of
the directors of REMEC, nor any member of their immediate
families, nor any person acting in concert with REMEC, nor any
person who has irrevocably undertaken to accept the Offer nor any
person with whom REMEC or any person acting in concert with REMEC
has an arrangement of the kind referred to in (iii) below owned
or controlled or (in the case of directors of REMEC and their
immediate families) was interested in any relevant securities on
March, 1999 [latest date prior to issue of this document]
nor has any such person dealt for value therein during the
disclosure period.
(ii) Save as disclosed in this paragraph 3, none of the directors of
the Airtech nor any member of their immediate families was
interested in any relevant securities on March, 1999 nor has
any such person dealt for value therein during the disclosure
period and neither the Airtech nor any bank, stockbroker,
financial or other professional adviser (other than an exempt
market-maker) to Airtech (nor any person controlling, controlled
by, or under the same control as such bank, stockbroker,
financial or other professional adviser) nor any subsidiary of
Airtech nor any pension fund of Airtech or of any of its
subsidiaries, nor any person whose investments are managed on a
discretionary basis by a fund manager (other than an exempt fund
manager) which is controlled by, controls or is under the same
control as Airtech or any bank, stockbroker, financial or other
professional adviser, to Airtech, owned or controlled any
relevant securities on March 1999 nor has any such person
dealt for value therein between 12 January 1999 and March
1999.
(iii) Neither REMEC nor any of its associates nor any person acting in
concert with REMEC nor Airtech nor any of its associates has any
arrangement in relation to relevant securities. For these
purposes "arrangement" includes any indemnity or option
arrangements and any agreement or understanding, formal or
informal, of whatever nature, relating to relevant securities
which may be an inducement to deal or refrain from dealing.
(iv) References in this paragraph 3 to:
(a) an "associate" are to:
(1) subsidiaries and associated companies of REMEC or Airtech and
companies of which any such subsidiaries or associated companies
are associated companies;
(2) banks, financial and other professional advisers (including
stockbrokers) to REMEC or Airtech or a company covered in (1)
above, including persons controlling, controlled by or under the
same control as such banks, financial or other professional
advisers;
(3) the directors of REMEC and Airtech and the directors of any
company covered in (1) above (together in each case with their
close relatives and related trusts);
(4) the pension funds of REMEC or Airtech or a company covered in (1)
above; and
(5) (in relation to REMEC) an investment company, unit trust or other
person whose investments an associate (as otherwise defined in
this paragraph (iv)(a)) manages on a discretionary basis, in
respect of the relevant investment accounts;
(b) a "bank" do not apply to a bank whose sole relationship with REMEC or
the Airtech or a company covered in paragraph (a)(1) above is the
provision of normal commercial banking services or such activities in
connection with the Offer as handling acceptances and other
registration work; and
(c) "relevant securities" mean existing shares of REMEC common stock and
Airtech Shares and securities convertible into, rights to subscribe
for, options (including traded options) in respect thereof and
derivatives referenced thereto.
IV-4
<PAGE> 108
(v) For the purposes of this paragraph 3 ownership or control of 20
per cent. or more of the equity share capital of a company is
regarded as the test of associated company status and "control"
means a holding, or aggregate holdings, of shares carrying 30 per
cent. or more of the voting rights attributable to the share
capital of a company which are currently exercisable at a general
meeting, irrespective of whether the holding or aggregate holding
gives de facto control.
4. MARKET QUOTATIONS
The following table shows the middle market quotations for REMEC shares
and for Airtech shares, as derived from the Nasdaq National Market and
the SEDOL, in each case on the first dealing day that both the Nasdaq
National Market and the London Stock Exchange were open for business in
each month from August 1998 to February 1999 inclusive, on 11 January
1999 (being the last dealing day prior to the announcement by Airtech
that it had received an approach which might lead to an Offer), on 25
February 1999 (being the last dealing day prior to the announcement of
the Offer) and on March, 1999 (being the last available date prior
to the posting of this document):
<TABLE>
<CAPTION>
MIDDLE MARKET QUOTATION
-----------------------------------
REMEC SHARES OF
DATE COMMON STOCK AIRTECH SHARES
- ---- --------------- --------------
(IN DOLLARS) (IN PENCE)
<S> <C> <C>
3 August 1998............................... 7 3/4 50.0
1 September 1998............................ 8 1/4 29.5
1 October 1998.............................. 7 11/16 15.0
2 November 1998............................. 11 15/32 20.5
1 December 1998............................. 13 7/8 19.5
4 January 1999.............................. 17 5/8 18.0
11 January 1999............................. 20 1/8 27.5
1 February 1999............................. 20 1/16 38.0
25 February 1999............................ 17 13/16 34.0
March 1999................................
</TABLE>
5. SERVICE AGREEMENTS
(a) There are no service agreements in force between any of the
directors of Airtech or any of its subsidiaries which do not
expire, or cannot be terminated by Airtech or its relevant
subsidiary within the next 12 months.
(b) REMEC and Mr Nick Randall, Chairman of Airtech, will enter into a
service agreement for a period of two years at an annual base
salary of $200,000 plus other benefits as described therein.
Pursuant to the agreement, Mr Randall will continue to serve as
Chairman of Airtech and as an Executive Vice President of REMEC.
Mr Randall will also receive an option to purchase 40,000 shares
of REMEC Common Stock at an exercise price equal to the closing
sales price of REMEC Common Stock as quoted on the Nasdaq National
Market on the date the agreement is entered into between the
parties. The agreement is terminable by either party upon twelve
months notice to the other party. The service agreement also
includes provisions requiring Mr Randall to not compete with REMEC
during the term of the agreement and for twelve months thereafter.
6. MATERIAL CONTRACTS
(a) The following material contracts (not being contracts entered into
in the ordinary course of business) have been entered into by
REMEC since 12 January 1997 (being the date two years before the
announcement by Airtech that it had received an approach which
might lead to an Offer) and are or may be material:
(i) Agreement and Plan of Reorganization and Merger dated as of
February 24, 1997 among REMEC, RTI Acquisition Corporation
and Radian Technology, Inc. (REMEC issued 950,024 shares of
its common stock in exchange for all of outstanding common
stock of Radian);
IV-5
<PAGE> 109
(ii) Agreement and Plan of Reorganization and Merger dated as of
April 10, 1997 among REMEC, C&S Acquisition Corporation and
C&S Hybrid, Inc. (REMEC issued 1,240,000 shares of its
common stock in exchange for all of outstanding common stock
of C&S Hybrid);
(iii) Agreement and Plan of Reorganization and Merger dated as of
October 24, 1997 by and among REMEC, RQB Acquisition
Corporation and Q-bit Corporation (REMEC issued 1,047,482
shares of its common stock in exchange for all of
outstanding common stock of Q-bit);
(iv) Stock Purchase Agreement dated as of September 30, 1997
among Justin Miller, Ph.D., RoyNat, Inc., REMEC Canada ULC
and REMEC (REMEC acquired all of the outstanding common
stock of Nanowave Technologies Inc. from Mr. Justin Miller
for $4.025 million in cash and 182,183 Dividend Access
shares with a fair market value of $4.646 million which was
equal to the fair value of an equivalent number of shares of
common stock of REMEC);
(v) Asset Purchase Agreement dated as of August 26, 1997 by and
among ACS Inc. and REMEC (REMEC sold its subsidiary RF
Microsystems, Inc. to ACS Inc. for $5.0 million in cash); and
(vi) Agreement and Plan of Reorganization and Merger dated as of
March 31, 1997 by and among REMEC and Verified Technical
Corporation, Inc. ("Veritek") (REMEC paid cash of $1 million
and issued 138,000 shares of its common stock for all
outstanding common stock of Veritek).
(b) Save for the back-up agreement described in sub-paragraph (c)
below, no contracts (not being contracts entered into in the
ordinary course of business) have been entered into by Airtech
since 12 January 1997 (being the date two years before the
announcement by Airtech that it had received an approach which
might lead to an Offer) which are or may be material.
(c) Pursuant to an agreement dated 25 February 1999 between REMEC and
Airtech, REMEC has conditionally agreed to subscribe for
11,200,000 Airtech shares at a price of 40 pence per Airtech
Share, in the event the acquisition of Airtech may not be
accounted for as a pooling of interests under US GAAP. This
agreement is conditional, inter alia, on (i) the approval of
Airtech Shareholders; (ii) the London Stock Exchange agreeing to
admit such shares to listing; (iii) there being no material
adverse change in the financial or trading position or prospects
of the Airtech Group; and (iv) there being no material change of
control of Airtech. REMEC will not be obliged to make such
subscription if (A) any matter disclosed by Airtech to Ernst &
Young was untrue, inaccurate or misleading; or (B) the
subscription is not completed within 60 days of the Offer lapsing.
REMEC and Airtech have each undertaken to enter into mutually
acceptable sales and marketing agreements.
7. APPRAISAL
Neither REMEC nor any affiliate has had any material relationship with
either Mr. P. J. Memmoth FRICS or Haslams, chartered surveyors.
8. THE COMPULSORY ACQUISITION
If, on or before the expiration of four months from the date of posting
of this document, REMEC has as a result of acceptances of the Offer, or,
subject to certain conditions, acquired or contracted to acquire, at
least 90 per cent. in value of the Airtech Shares to which the Offer
relates then (i) REMEC will be entitled, and intends, to acquire
compulsorily the remainder of the outstanding Airtech Shares in
accordance with sections 428-430F of the Companies Act, and (ii) in such
circumstances a holder of Airtech Shares may require REMEC to purchase
his Airtech Shares in accordance with the procedures and time limits
described in section 430A of the Companies Act. A copy of sections
428-430F of the Companies Act is set out in Appendix VII to this
document.
9. US STATE BLUE SKY LAWS
The Offer is being made to all Airtech Shareholders; provided, however,
that Airtech Shareholders in any jurisdiction in the US in which the
making of the Offer or the acceptance thereof would not be in compliance
with the laws of such jurisdiction should not accept or purport to
accept the Offer.
IV-6
<PAGE> 110
REMEC is not presently aware of any jurisdiction in the US that
prohibits the making of the Offer. REMEC will take all necessary or
appropriate action for the purpose of making the Offer available to all
Airtech Shareholders in any jurisdiction in the US. In any jurisdiction
the securities laws or Blue Sky Laws of which require the Offer to be
made by a registered broker or dealer, the Offer is being made on behalf
of REMEC by one or more registered brokers or dealers that are licensed
under the laws of such jurisdiction.
10. LEGAL MATTERS
Certain legal matters with respect to the validity of the REMEC Common
Stock registered hereby and with respect to certain US federal income
tax consequences discussed under "Taxation" in the letter from Quartz
Capital are being passed upon by Heller Ehrman White & McAuliffe, Los
Angeles. Certain matters with respect to UK tax consequences discussed
under "Taxation" in the letter from Quartz Capital have been reviewed by
Ashurst Morris Crisp, London.
11. EXPERTS
The consolidated financial statements of REMEC at 31 January 1998 and
1997 and for each of the three years in the period ended 31 January 1998
included in Appendix II to this document have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
which as to the years 1997 and 1996 is 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 included herein in reliance upon such reports given upon
the authority of such firms as experts in accounting and auditing.
The financial statements of Airtech as of and for the year ended 31
December 1997 included in this document have been audited by Arthur
Andersen, chartered accountants, and the financial statements of Airtech
as of 31 December 1996 and for the two years ended 31 December 1996
included in this document have been audited by Binder Hamlyn, chartered
accountants, as indicated in their reports with respect thereto and are
included herein in reliance upon the authority of said firm as experts
in giving said reports.
12. OTHER INFORMATION
(a) The expenses of, and incidental to, the preparation and
circulation of the Offer will be paid by REMEC. If the Offer does
not become unconditional or is withdrawn each of Airtech and REMEC
will pay its own business and legal expenses incurred relating to
the Offer.
(b) No proposal exists in connection with the Offer whereby any
payment or other benefit shall be made or given to any director of
Airtech as compensation for loss of office or as consideration for
or in connection with his loss of office.
(c) Save as disclosed herein, no agreement, arrangement or
understanding exists between REMEC or any party acting in concert
with REMEC and any of the directors, or recent directors,
shareholders or recent shareholders of Airtech having any
connection with or dependence on the Offer.
(d) There is no agreement, arrangement or understanding whereby the
beneficial ownership of any of the Airtech shares acquired by
REMEC in pursuance of the Offer will be transferred to any other
person, save that REMEC reserves the right to transfer any such
shares to any of its subsidiaries.
(e) Quartz Capital is satisfied that REMEC has the necessary financial
resources for it to implement the Offer in full.
(f) REMEC does not intend that the payment of interest on, repayment
of or security for any liability (contingent or otherwise) will
depend to any significant extent on the business of the Airtech.
(g) The emoluments of the current directors of REMEC will not be
affected by the acquisition of Airtech or by any other associated
transaction.
(h) Albert E Sharp has given and has not withdrawn its written consent
to the issue of this document with the inclusion herein of the
references to its name and its recommendations in the form and
context in which they appear.
IV-7
<PAGE> 111
(i) Haslams chartered surveyors have given and have not withdrawn
their written consent to the issue of this document with the
inclusion herein of the references to its name and its report in
the form and context in which they appear.
13. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection
during normal business hours on any weekday (Saturdays and public
holidays excepted) at the offices of Ashurst Morris Crisp, Broadwalk
House, 5 Appold Street, London EC2A 2HA throughout the period during
which the Offer remains open for acceptance:
(a) the Amended and Restated Articles of Incorporation and Bylaws of
REMEC;
(b) the Memorandum and Articles of Association of Airtech;
(c) the Annual Report on Form 10-K of REMEC as of 31 January 1998 and
1997 and the three years in the period ended 31 January 1998;
(d) the Quarterly Reports on Forms 10-Q of REMEC in respect of the
quarters ended 30 April 1998, 31 July 1998 and 31 October 1998;
(e) the Definitive Proxy Statement of REMEC in connection with REMEC's
1998 Annual Meeting of Shareholders;
(f) the audited consolidated accounts of Airtech for the year ended
31 December, 1997 and the interim results for the six months
ended 30 June 1998;
(g) the rules of the Airtech Share Option Schemes;
(h) the contracts referred to in paragraph 6 above;
(i) the Affiliate Agreements referred to on page of this
document;
(j) the letters of consent referred to in paragraph 12 above;
(k) the irrevocable undertakings to accept the Offer referred to in
paragraph 3 above; and
(l) this Document and the Forms of Acceptance.
IV-8
<PAGE> 112
APPENDIX V
DESCRIPTION OF REMEC CAPITAL STOCK AND
CHANGES IN THE RIGHTS OF AIRTECH SHAREHOLDERS
1. DESCRIPTION OF THE CAPITAL STOCK OF REMEC
1.1 REMEC COMMON STOCK
As of March 1999, 23,194,171 shares of REMEC Common Stock
were outstanding, out of a total authorised share capital of 70,000,000
shares of REMEC Common Stock. All outstanding shares of REMEC Common
Stock are fully paid and non-assessable.
1.2 AUTHORISED BUT UNISSUED PREFERRED STOCK
The REMEC Board of Directors has the authority, without further action
by the REMEC Stockholders, to issue up to 5,000,000 million shares of
preferred stock, par value $.01, in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences, and the number of shares constituting any
series or the designation of such series. Issuance of REMEC preferred
stock while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes could make it more difficult
for a third party to acquire a majority of the outstanding voting stock
of REMEC. There are currently no shares of preferred stock issued or
outstanding.
2. DESCRIPTION OF REMEC COMMON STOCK
The following is a brief description of certain rights of holders of
REMEC Common Stock. For a complete understanding of these rights,
stockholders are referred to the laws and applicable regulations and
listing requirements of the State of California, United States, the
Nasdaq National Market and the constitutional documents of REMEC.
2.1 GENERAL
REMEC is incorporated in the State of California, United States and
operates in accordance with the Californian General Corporation Law (the
"CGCL"). The rights of REMEC Stockholders are determined by the CGCL,
the securities and other legislation of the United States, REMEC's
Amended and Restated Articles of Incorporation and REMEC's By-Laws, as
amended. REMEC Common Stock is traded on the Nasdaq National Market.
2.2 CERTIFICATES
REMEC Common Stock is issued in registered form. Every holder of REMEC
Common Stock is entitled to a share certificate.
2.3 DIVIDENDS
Subject to preferences applicable to any outstanding REMEC preferred
stock, holders of REMEC Common Stock are entitled to receive rateably
such dividends as may be declared by the REMEC Board of Directors out of
funds legally available for this purpose.
2.4 MEETINGS
Annual meetings of the REMEC Stockholders are held on the date
designated by the REMEC Board of Directors. Written notice must be
mailed to each stockholder entitled to vote not less than ten nor more
than sixty days before the date of the meeting. The presence of person
or by proxy of the holders of record of a majority of the issued and
outstanding shares of REMEC entitled to vote at such meeting constitutes
a quorum for the transaction of business at meetings of the
stockholders. Special meetings of the stockholders my be called for any
purpose by the Board of Directors, the Chairman of the Board or the
President and shall be called by the Chairman of the Board, the
President or the Secretary upon the written request of shareholders
entitled to cast not less than 10 per cent of the votes at the meeting
or by such other persons as may be posted in the REMEC Article or
By-laws.
V-1
<PAGE> 113
2.5 VOTING RIGHTS
The holders of REMEC Common Stock are entitled to one vote for each
share held of record. Stockholders may vote by proxy.
2.6 LIQUIDATION, DISSOLUTION OR WINDING UP
In the event of a liquidation, dissolution or winding up of REMEC, after
payment shall have been made to holders or preferred stock of the full
amounts to which they shall be entitled, the holders of REMEC Common
Stock are entitled, to the exclusion of the holders of preferred stock,
to share rateably according to the number of shares held by them in all
remaining assets available for distribution to the REMEC stockholders.
2.7 TRANSFERS
The REMEC By-Laws do not allow the Board of Directors to refuse to
register transfers of shares.
2.8 OTHER RIGHTS
Holders of REMEC Common Stock have no pre-emption, redemption,
conversion or other subscription rights.
3. DIFFERENCES BETWEEN REMEC COMMON STOCK AND AIRTECH SHARES
There are a number of differences between the rights attaching to REMEC
Common Stock, as detailed above, and those attaching to Airtech Shares.
Certain rights attaching to Airtech Shares, where those differences
exist, are identified below. Such differences may arise from the
differences between the legislation governing Airtech and REMEC as well
as between the constitutional documents of the two companies. The
following is not a complete description of the differences between the
rights associated with Airtech Shares compared to REMEC Common Stock.
For a complete understanding of such differences, Stockholders are
referred to the laws and applicable regulations of England and the State
of California, United States, the rules of the London Stock Exchange,
the Nasdaq National Market and the constitutional documents of both
Airtech and REMEC.
3.1 GENERAL
Airtech is incorporated in England and operates in accordance with the
Companies Act. Rules and regulations governing trading of Airtech Shares
differ from those relating to REMEC.
3.2 DIVIDENDS
Pursuant to Airtech's Articles of Association and subject to the
restrictions of English law, dividends may be declared by the Airtech
Board, or by Airtech on the recommendation of the Airtech Board, by
ordinary resolution in an amount not to exceed that recommended by the
Airtech Board.
3.3 MEETINGS
The holders of not less than one tenth of the paid up voting capital of
Airtech have the right to requisition general meetings of shareholders.
3.4 REGISTRATION OF SHARE TRANSFERS
The Airtech Articles of Association allow the Airtech Board, in its
absolute discretion, and without giving any reason for doing to refuse
to register certain transfers of shares, being shares which are not
fully paid up, or being shares, whether fully paid or not which are in
favour of more than four joint transferees.
V-2
<PAGE> 114
APPENDIX VI
VALUATION OF NEW AIRTECH FACTORY
[LOGO OF HASLAMS CHARTERED SURVEYORS]
March 1999
<TABLE>
<S> <C> <C>
The Directors Albert E Sharp Securities 156 Friar Street Reading
Airtech plc 105-108 Old Broad Street Berkshire RG1 1HH
Coldharbour Way London
Bucks EC2N 1ET
HP19 3SU
</TABLE>
Dear Sir:
RE: PREMISES: AIRTECH PREMISES, SMEATON CLOSE, COLDHARBOUR FARM INDUSTRIAL
ESTATE, AYLESBURY, BUCKINGHAMSHIRE HP19 3SU (the "Property")
INSTRUCTION
In accordance with your instructions to advise you as external valuers in
relation to the proposed disposal of the Property to Remec Incorporated
("Remec") in connection with a recommended share for share offer by Remec for
Airtech Plc ("Airtech"), we have valued the Property.
This valuation has been prepared for the purposes of the Offer Document prepared
by Remec and Airtech in connection with the proposed disposal of the Property by
Air Group Limited ("Air Group") to Remec.
The valuation has been prepared in accordance with the RICS Appraisal and
Valuation Manual and specifically Practice Statement 14 relating to valuations
under the City Code on Take-Overs and Mergers. We confirm that Haslams meet the
requirements of Rule 29 of the City Code on Take-Overs and Mergers, and that we
are independent valuers as defined in the Royal Institution of Chartered
Surveyors Practice Statement No. 8.
The Property is more fully described in the attached schedule.
1. OPEN MARKET VALUE
1.1 Open Market Value is defined as being the best price at which the
sale of an interest in the property would have been completed
unconditionally for cash consideration on the date of valuation
assuming:
1.1.1 a willing seller;
1.1.2 that, prior to the date of valuation, there had been a
reasonable period (having regard to the nature of the
property and the state of the market) for the proper
marketing of the interest, for the agreement of the price and
terms and for the completion of the sale;
1.1.3 that the state of the market level of values and other
circumstances were, on any earlier assumed date of exchange
of contracts, the same as on the date of valuation;
1.1.4 That no account is taken of any additional bid by a
prospective purchaser with a special interest; and
1.1.5 that both parties to the transaction had acted
knowledgeably, prudently and without compulsion.
1.2 VALUATION ASSUMPTIONS
1.2.1 In respect of the Property we have also made the following
assumptions:
1.2.1.1 that a prospective purchaser were to acquire at arms length
the whole site.
1.2.1.2 that the draft sub-lease of the Airtech factory premises
had been completed and that the tenant was Remec. We have
assumed that Remec is a first class US covenant for these
purposes.
VI-1
<PAGE> 115
1.2.1.3 that the adjoining land is capable of being disposed of on
the basis of prudent lotting.
1.3 GENERAL ASSUMPTIONS
1.3.1 Your attention is also drawn to the following general
assumptions.
1.3.1.1 that Airtech has disclosed all relevant matters;
1.3.1.2 we have disregarded any value attributable to the business,
goodwill, trade fixtures and fittings, chattels, stock,
plant or machinery or other loose or moveable items not
normally considered part of the legal title;
1.3.1.3 the valuation specifically includes any value attributable
to the space heating system, hot water system, specialist
plant and machinery, air conditioning or permanent fixtures
such as (fixtures) and it is assumed such items will be
transferred with the legal title on completion;
1.3.1.4 our valuation disregards any liability to Value Added Tax.
All values expressed in this report are deemed to be
exclusive of VAT; and
1.3.1.5 no allowances have been made for any expenses of
realization nor for taxation which might arise in the event
of a disposal. Acquisition costs have not been included in
our valuation.
2. SOURCES OF INFORMATION
2.1 We have inspected the interior and exterior of the Property on
15th December 1998 but our inspection was for valuation purposes
only and we have not carried out a structural survey nor did we
undertake a measurement survey. Gross internal floor areas have
been extracted from plans prepared by Airtech's architects.
2.2 We have not taken into account in our valuation report the
valuation of the specialized fixtures and fittings installed by
Airtech nor have we taken into account the value of Airtech's
improvements, primarily high quality partitioning. We have assumed
that the passenger lift and air conditioning unit are landlord's
fixtures and have disregarded the more specialized plant and
machinery, for example air extraction plant.
2.3 We have assumed for the purposes of this valuation report that
the appropriate indemnities and warranties have been obtained from
the design and build construction team responsible for building the
Airtech factory.
2.4 We have not been supplied with a solicitor's report on title or
copies of the title deeds, although we have been supplied with
information by Airtech, Air Group and Air Group's solicitors. We
have been advised that the property interest is long leasehold and
that the head groundlease is for a term of 150 years subject to a
peppercorn ground rental.
2.5 We have been informed and have assumed for the purposes of this
valuation that there is good long leasehold title without any
unusual restrictive or positive covenants or any encumbrances or
other title factors likely to adversely or beneficially affect
current or future occupation or development.
2.6 The sub-lease of the factory premises to Airtech has not yet been
completed. We have been supplied with a copy of the latest draft
dated 21st August 1998 and have assumed for the purposes of this
Valuation report that the completed lease will be in identical
format. We have valued the Airtech premises as an investment on the
basis that the draft sub-lease has been completed in the same
format as the draft and on the basis that the tenant was Remec.
2.7 We understand that there are no highway proposals in the vicinity
likely to adversely or beneficially affect the Property in the
foreseeable future.
2.8 We have not attended the offices of the local Planning Authority
in order to inspect the Planning Register but we have seen the
planning consent from Aylesbury Vale District Council dated 10th
November 1997 confirming that the site can be utilized for B2
industrial use (B1(c) light industrial and B2 general industrial).
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<PAGE> 116
2.9 We have not seen anything in the course of our inspection that
would lead us to believe that the property is contaminated.
Accordingly, this valuation report is based upon the assumption
that there is no material contamination.
2.10 If any of the information on which the valuation is based is
subsequently found to be incorrect then the valuation may also be
incorrect and should be reconsidered.
3. OPINION OF VALUE
3.1 Subject to the above, we are of the opinion that the current Open
Market Value of the long leasehold investment property comprising
the Airtech offices, production and warehouse accommodation,
subject to the assumptions detailed above and assuming that the
sub-lease is completed on the basis of the terms detailed in the
attached schedule with the benefit of the Remec covenant is
L3,250,000 (three million two hundred and fifty thousand pounds).
3.2 We are of the opinion that the Open Market Value of the 1.75 acre
plot of land adjoining the Airtech premises is L550,000 (five
hundred and fifty thousand pounds).
This report is for the use only of the parties to whom it is addressed and the
Company's shareholders for the specific purposes set out herein and no
responsibility is accepted to any other party or the whole or part of its
contents.
Yours faithfully
/s/ P.J. MEMMOTT FRICS
P.J. Memmott FRICS
PARTNER
For and Behalf of
HASLAMS
Chartered Surveyors
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SCHEDULE 1
AIRTECH PLC PREMISES
SMEATON CLOSE, COLDHARBOUR FARM INDUSTRIAL ESTATE, AYLESBURY BECKS, HP19 3SU
<TABLE>
<CAPTION>
ESTIMATED OPEN
ANNUAL RENT MARKET
PROPERTY DESCRIPTION, AGE AND TENURE TERMS OF TENANCY RECEIVABLE VALUE
- -------- --------------------------- ---------------- ----------- ------
<S> <C> <C> <C> <C>
Airtech Plc Smeaton Offices, production and We have assumed a lease to L250,000 open L3,250,000
Close, Coldharbour Farm warehouse accommodation. The Remec at an initial rent of market value
Industrial Estate, accommodation extends to L250,000 per annum exclusive
Aylesbury, Bucks approximately 3,095 square of VAT on a 20 year full
meters 33.386 sq ft with on repairing and insuring
site car parking for 146 lease. The rent review
cars. The Coldharbour Farm clauses are upward only with
Industrial Estate is a 5 yearly rent reviews. The
greenfield redevelopment review clause stipulates
site adjacent to the Brunel that on the occasion of the
Park development close to first rent review the rent
the Aylesbury town centre. will be revised to L279,300
The development benefits or to a higher figure.
from excellent road
communications to Oxford via
the A418 and Bicester via
the A41. The building was
constructed in 1998 and
occupies a site of
approximately 2.5 acres.
Long leasehold for a period
of 150 years at a peppercorn
rent.
Land adjoining the above A long leasehold site None L550,000
comprising approximately
1.75 acres adjoining the
Airtech premises held for a
period of 150 years at a
peppercorn rent.
</TABLE>
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APPENDIX VII
CERTAIN PROVISIONS OF THE COMPANIES ACT
Set out below is an extract from the Companies Act:
"PART XIIIA
TAKEOVER OFFERS
428 TAKEOVER OFFERS
1. In this Part of this Act "takeover offer" means an offer to acquire
all the shares, or all the shares of any class or classes, in a
company (other than shares which at the date of the offer are already
held by the offeror), being an offer on terms which are the same in
relation to all the shares to which the offer relates or, where those
shares include shares of different classes, in relation to all the
shares of each class.
2. In subsection (1) "shares" means shares which have been allotted on
the date of the offer but a takeover offer may include among the
shares to which it relates all or any shares that are subsequently
allotted before a date specified in or determined in accordance with
the terms of the offer.
3. The terms offered in relation to any shares shall for the purposes of
this section be treated as being the same in relation to all the
shares or, as the case may be, all the shares of a class to which the
offer relates notwithstanding any variation permitted by subsection
(4).
4. A variation is permitted by this clause where:-
a. the law of a country or territory outside the United Kingdom
precludes an offer of consideration in the form or any of the
forms specified in the terms in question or precludes it except
after compliance by the offeror with conditions with which he is
unable to comply or which he regards as unduly onerous; and
b. the variation is such that the persons to whom an offer of
consideration in that form is precluded are able to receive
consideration otherwise than in that form but of substantially
equivalent value.
5. The reference in subsection (1) to shares already held by the offeror
includes a reference to shares which he has contracted to acquire but
that shall not be construed as including shares which are the subject
of a contract binding the holder to accept the offer when it is made,
being a contract entered into by the holder either for no
consideration and under seal or for no consideration other than a
promise by the offeror to make the offer.
6. In the application of subsection (5) to Scotland, the words "and under
seal' shall be omitted.
7. Where the terms of an offer make provision for their revision and for
acceptances on the previous terms to be treated as acceptances on the
revised terms, the revision shall not be regarded for the purposes of
this Part of this Act as the making of a fresh offer and references in
this Part of this Act to the date of the offer shall accordingly be
construed as references to the date on which the original offer was
made.
8. In this Part of this Act the "offeror" means, subject to section 430D,
the person making a takeover offer and the "company" means the company
whose shares are the subject of the offer.
429 RIGHT OF OFFEROR TO BUY OUT MINORITY SHAREHOLDERS
1. If, in a case in which a takeover offer does not relate to shares of
different classes, the offeror has by virtue of acceptance of the
offer acquired or contracted to acquire not less than nine-tenths in
value of the shares to which the offer relates he may give notice to
the holder of any shares to which the offer relates which the offeror
has not acquired or contracted to acquire that he desires to acquire
those shares.
2. If, in a case in which a takeover offer relates to shares of different
classes, the offeror has by virtue of acceptances of the offer
acquired or contracted to acquire not less than nine-tenths in value
of the shares of any class to which the offer relates, he may give
notice to the holder of any shares of that class which the offeror has
not acquired or contracted to acquire that he desires to acquire those
shares.
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3. No notice shall be given under subsection (1) or (2) unless the
offeror has acquired or contracted to acquire the shares necessary to
satisfy the minimum specified in that clause before the end of the
period of four months beginning with the date of the offer; and no
such notice shall be given after the end of the period of two months
beginning with the date on which he has acquired or contracted to
acquire shares which satisfy that minimum.
4. Any notice under this section shall be given in the prescribed manner;
and when the offeror gives the first notice in relation to an offer he
shall send a copy of it to the company together with a statutory
declaration by him in the prescribed form stating that the conditions
for the giving of the notice are satisfied.
5. Where the offeror is a company (whether or not a company within the
meaning of this Act) the statutory declaration shall be signed by a
director.
6. Any person who fails to send a copy of a notice or statutory
declaration as required by subsection (4) or makes such a declaration
for the purposes of that clause knowing it to be false or without
having reasonable grounds for believing it to be true shall be liable
to imprisonment or a fine, or both, and for continued failure to send
the copy or declaration, to a daily default fine.
7. If any person is charged with an offence for failing to send a copy of
a notice as required by subsection (4) it is a defence for him to
prove that he took reasonable steps for securing compliance with that
clause.
8. When during the period within which a takeover offer can be accepted
the offeror acquires or contracts to acquire any of the shares to
which the offer relates but otherwise than by virtue of acceptances of
the offer, then, if:-
(a) the value of the consideration for which they are acquired or
contracted to be acquired (the "acquisition consideration") does
not at that time exceed the value of the consideration specified
in the terms of the offer; or
(b) those terms are subsequently revised so that when the revision is
announced the value of the acquisition consideration, at the time
mentioned in paragraph (a) above, no longer exceeds the value of
the consideration specified in those terms,
the offeror shall be treated for the purposes of this section as having
acquired or contracted to acquire those shares by virtue of acceptances
of the offer; but in any other case those shares shall be treated as
excluded from those to which the offer relates.
430 EFFECT OF NOTICE UNDER SECTION 429
1. The following provisions shall, subject to section 430C, have effect
where a notice is given in respect of any shares under section 429.
2. The offeror shall be entitled and bound to acquire those shares on the
terms of the offer.
3. Where the terms of an offer are such as to give the holder of any
shares a choice of consideration the notice shall give particulars of
the choice and state:
(a) that the holder of the shares may within six weeks from the date
of the notice indicate his choice by a written communication sent
to the offeror at an address specified in the notice; and
(b) which consideration specified in the offer is to be taken as
applying in default of his indicating a choice as aforesaid;
and the terms of the offer mentioned in subsection 2 shall be determined
accordingly.
4. Subsection (3) applies whether or not any time-limit or the other
conditions applicable to the choice under the terms of the offer can
still be complied with; and if the consideration chosen by the holders
of the shares:
(a) is not cash and the offeror is no longer able to provide it; or
(b) was to have been provided by a third party who is no longer bound
or able to provide it,
the consideration shall be taken to consist of an amount of cash payable
by the offeror which at the date of the notice is equivalent to the
chosen consideration.
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5. At the end of six weeks from the date of the notice the offeror shall
forthwith:
(a) send a copy of the notice to the company; and
(b) pay or transfer to the company the consideration for the shares to
which the notice relates.
6. If the shares to which the notice relates are registered, the copy of
the notice sent to the company under subsection (5)(a) shall be
accompanied by an instrument of transfer executed on behalf of the
shareholder by a person appointed by the offeror; and on receipt of
that instrument the company shall register the offeror as the holder
of those shares.
7. If the shares to which the notice relates are transferable by the
delivery of warrants or other instruments, the copy of the notice sent
to the company under subsection (5)(a) shall be accompanied by a
statement to that effect; and the company shall on receipt of the
statement issue the offeror with warrants or other instruments in
respect of the shares and those already in issue in respect of the
shares shall become void.
8. Where the consideration referred to in paragraph (b) of subsection (5)
consists of shares or securities to be allotted by the offeror the
reference in that clause to the transfer of the consideration shall be
construed as a reference to the allotment of the shares or securities
to the company.
9. Any sum received by a company under paragraph (b) of subsection (5)
and any other consideration received under that clause shall be held
by the company on trust for the person entitled to the shares in
respect of which the sum or other consideration was received.
10. Any sum received by a company under paragraph (b) of subsection (5),
and any dividend or other sum accruing from any other consideration
received by a company under that clause, shall be paid into a separate
bank account, being an account the balance on which bears interest at
an appropriate rate and can be withdrawn by such notice (if any) as is
appropriate.
11. Where after reasonable enquiry made at such intervals as are reasonable
the person entitled to any consideration held on trust by virtue of
subsection (9) cannot be found and twelve years have elapsed since the
consideration was received or the company is wound up the consideration
(together with any interest, dividend or other benefit that has accrued
from it) shall be paid into court.
12. In relation to a company registered in Scotland, subsections (13) and
(14) shall apply in place of subsection (11).
13. Where after reasonable enquiry made at such intervals as are reasonable
the person entitled to any consideration held on trust by virtue of
subsection (9) cannot be found and twelve years have elapsed since the
consideration was received or the company is wound up:-
(a) the trust shall terminate;
(b) the company or, as the case may be, the liquidator shall sell any
consideration other than cash and any benefit other than cash that
has accrued from the consideration; and
a sum representing:-
(i) the consideration so far as it is cash;
(ii) the proceeds of any sale under paragraph (b) above; and
(iii) any interest, dividend or other benefit that has accrued
from the consideration,
shall be deposited in the name of the Accountant of Court in a bank
account such as is referred to in subsection (10) and the receipt for
the deposit shall be transmitted to the Accountant of Court.
14. Section 58 of the Bankruptcy (Scotland) Act 1985 (so far as consistent
with this Act) shall apply with any necessary modifications to sums
deposited under subsection (13) as that clause applies to sums
deposited under section 57(1) of that Act.
15. The expenses of any such enquiry as is mentioned in subsection (11) or
(13) may be defrayed out of the money or other property held on trust
for the person or persons to whom the enquiry relates.
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<PAGE> 121
430A RIGHT OF MINORITY SHAREHOLDER TO BE BOUGHT OUT BY OFFEROR
1. If a takeover offer relates to all the shares in a company and at any
time before the end of the period within which the offer can be
accepted:-
(a) the offeror has by virtue of acceptances of the offer acquired or
contracted to acquire some (but not all) of the shares to which
the offer relates; and
(b) those shares, with or without any other shares in the company
which he has acquired or contracted to acquire, amount to not less
than nine-tenths in value of all the shares in the company, the
holder of any shares to which the offer relates who has not
accepted the offer may by a written communication addressed to the
offeror require him to acquire those shares.
2. If a takeover offer relates to shares of any class or classes and at
any time before the end of the period within which the offer can be
accepted:
(a) the offeror has by virtue of acceptances of the offer acquired or
contracted to acquire some (but not all) of the shares of any
class to which the offer relates; and
(b) those shares, with or without any other shares of that class which
he has acquired or contracted to acquire, amount to not less than
nine-tenths in value of all the shares of that class,
the holder of any shares of that class who has not accepted the offer
may by a written communication addressed to the offeror require him to
acquire those shares.
3. Within one month of the time specified in subsection (1) or, as the
case may be, subsection (2) the offeror shall give any shareholder who
has not accepted the offer notice in the prescribed manner of the
rights that are exercisable by him under that clause; and if the
notice is given before the end of the period mentioned in that clause
it shall state that the offer is still open for acceptance.
4. A notice under subsection (3) may specify a period for the exercise of
the rights conferred by this section and in that event the rights
shall not be exercisable after the end of that period; but no such
period shall end less than three months after the end of the period
within which the offer can be accepted.
5. Subsection (3) does not apply if the offeror has given the shareholder
a notice in respect of the shares in question under section 429.
6. If the offeror fails to comply with subsection (3) he and, if the
offeror is a company, every officer of the company who is in default
or to whose neglect the failure is attributable, shall be liable to a
fine and for continued contravention, to a daily default fine.
7. If an offeror other than a company is charged with an offence for
failing to comply with subsection (3) it is a defence for him to prove
that he took all reasonable steps for securing compliance with that
subsection.
430B EFFECT OF REQUIREMENT UNDER SECTION 430A
1. The following provision shall, subject to section 430C, have effect
where a shareholder exercises his rights in respect of any shares
under section 430A.
2. The offeror shall be entitled and bound to acquire those shares on the
terms of the offer or on such other terms as may be agreed.
3. Where the terms of an offer are such as to give the holder of shares a
choice of consideration the holder of the shares may indicate his
choice when requiring the offeror to acquire them and the notice given
to the holder under section 430A(3):
(a) shall give particulars of the choice and of the rights conferred
by this subsection; and
(b) may state which consideration specified in the offer is to be
taken as applying in default of his indicating a choice;
and the terms of the offer mentioned in subsection (2) shall be
determined accordingly.
VII-4
<PAGE> 122
4. Subsection (3) applies whether or not any time-limit or other
conditions applicable to the choice under the terms of the offer can
still be complied with; and if the consideration chosen by the holder
of the shares:
(a) is not cash and the offeror is no longer able to provide it; or
(b) was to have been provided by a third party who is no longer bound
or able to provide it;
the consideration shall be taken to consist of an amount of cash payable
by the offeror which at the date when the holder of the shares requires
the offeror to acquire them is equivalent to the chosen consideration.
430C APPLICATIONS TO THE COURT
1. Where a notice is given under section 429 to the holder of any shares
the court may, on an application made by him within six weeks from the
date on which the notice was given:
(a) order that the offeror shall not be entitled and bound to acquire
the shares; or
(b) specify terms of acquisition different from those of the offer.
2. If an application to the court under subsection (1) is pending at the
end of the period mentioned in subsection (5) of section 430 that
clause shall not have effect until the application has been disposed
of.
3. Where the holder of any shares exercises his rights under section 430A
the court may, on an application made by him or the offeror, order
that the terms on which the offeror is entitled and bound to acquire
the shares shall be such as the court thinks fit.
4. No order for costs or expenses shall be made against a shareholder
making an application under subsection (1) or (3) unless the court
considers:
(a) that the application was unnecessary, improper or vexatious; or
(b) that there has been unreasonable delay in making the application
or unreasonable conduct on his part in conducting the proceedings
on the application.
5. Where a takeover offer has not been accepted to the extent necessary
for entitling the offeror to give notices under subsection (1) or (2)
of section 429 the court may, on the application of the offeror, make
an order authorising him to give notices under that subsection if
satisfied:
(a) that the offeror has after reasonable enquiry been unable to trace
one or more of the persons holding shares to which the offer
relates;
(b) that the shares which the offeror has acquired or contracted to
acquire by virtue of acceptances of the offer, together with the
shares held by the person or persons mentioned in paragraph (a),
amount to not less than the minimum specified in that subsection;
and
(c) that the consideration offered is fair and reasonable;
but the court shall not make an order under this subsection unless it
considers that it is just and equitable to do so having regard, in
particular, to the number of shareholders who have been traced but who
have not accepted the offer.
430D JOINT OFFERS
1. A takeover offer may be made by two or more persons jointly and in
that event this Part of this Act has effect with the following
modifications.
2. The conditions for the exercise of the rights conferred by sections
429 and 430A shall be satisfied by the joint offerors acquiring or
contracting to acquire the necessary shares jointly (as respects
acquisitions by virtue of acceptances of the offer) and either jointly
or separately (in other cases); and, subject to the following
provisions, the rights and obligations of the offeror under those
sections and sections 430 and 430B shall be respectively joint rights
and joint and several obligations of the joint offerors.
3. It shall be a sufficient compliance with any provision of those
sections requiring or authorising a notice or other document to be
given or sent by or to the joint offerors that it is given or sent by
or to
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<PAGE> 123
any of them; but the statutory declaration required by section 429(4)
shall be made by all of them and, in the case of a joint offeror being a
company, signed by a director of that company.
4. In sections 428, 430(8) and 430E references to the offeror shall be
construed as references to the joint offerors or any of them.
5. In sections 430(6) and (7) references to the offeror shall be
construed as references to the joint offerors or such of them as they
may determine.
6. In sections 430(4)(a) and 430B(4)(a) references to the offeror being
no longer able to provide the relevant consideration shall be
construed as references to none of the joint offerors being able to do
so.
6.1 In section 430C references to the offeror shall be construed as
references to the joint offerors except that any application under
subsection (3) or (5) may be made by any of them and the reference in
subsection (5)(a) to the offeror having been unable to trace one or
more of the persons holding shares shall be construed as a
reference to none of the offerors having been able to do so.
430E ASSOCIATES
1. The requirement in section 428(1) that a takeover offer must extend to
all the shares, or all the shares of any class or classes, in a
company shall be regarded as satisfied notwithstanding that the offer
does not extend to shares which associates of the offeror hold or have
contracted to acquire; but, subject to subsection (2), shares which
any such associate holds or has contracted to acquire, whether at the
time when the offer is made or subsequently, shall be disregarded for
the purposes of any reference in this Part of this Act to the shares
to which a takeover offer relates.
2. Where during the period within which a takeover offer can be accepted
any associate of the offeror acquires or contracts to acquire any of
the shares to which the offer relates, then, if the condition
specified in subsection 8(a) or (b) of section 429 is satisfied as
respects those shares they shall be treated for the purposes of that
section as shares to which the offer relates.
3. In section 430(A)(1)(b) and (2)(b) the reference to shares which the
offeror has acquired or contracted to acquire shall include a
reference to shares which any associate of his has acquired or
contracted to acquire.
4. In this clause "associate", in relation to an offeror, means:
(a) a nominee of the offeror;
(b) a holding company, subsidiary or fellow subsidiary of the offeror
or a nominee of such holding company, subsidiary or fellow
subsidiary;
(c) a body corporate in which the offeror is substantially interested;
or
(d) any person who is, or is a nominee of, a party to an agreement
with the offeror for the acquisition of, or of an interest in, the
shares which are the subject of the takeover offer, being an
agreement which includes provisions imposing obligations or
restrictions such as are mentioned in section 204(2)(a).
5. For the purposes of subsection (4)(b) a company is a fellow subsidiary
of another body corporate if both are subsidiaries of the same body
corporate but neither is a subsidiary of the other.
6. For the purposes of subsection (4) an offeror has a substantial
interest in a body corporate if:
(a) that body or its directors are accustomed to act in accordance
with his directions or instructions; or
(b) he is entitled to exercise or control the exercise of one-third or
more of the voting power at general meetings of that body.
7. Subsections (5) and (6) of section 204 shall apply to subsection
(4)(d) above as they apply to that section and subsections (3) and (4)
of section 203 shall apply for the purposes of subsection (6) above as
they apply for the purposes of subsection (2)(b) of that section.
8. Where the offeror is an individual his associates shall also include
his spouse and any minor child or step-child of his.
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<PAGE> 124
430F CONVERTIBLE SECURITIES
1. For the purposes of this Part of this Act securities of a company
shall be treated as shares in the company if they are convertible into
or entitle the holder to subscribe for such shares; and references to
the holder of shares or a shareholder shall be construed accordingly.
2. Subsection (1) shall not be construed as requiring any securities to
be treated:
(a) as shares of the same class as those into which they are
convertible or for which the holder is entitled to subscribe; or
(b) as shares of the same class as other securities by reason only
that the shares into which they are convertible or for which the
holder is entitled to subscribe are of the same class."
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APPENDIX VIII
DEFINITIONS
In this Offer Document and the accompanying Form of Acceptance the following
definitions apply, unless the current context requires otherwise:
"Affiliate" when used in relation to a specified person, a
person that directly or indirectly through one or
more intermediaries, controls, or is controlled by,
or is under common control with such specified
person
"Affiliate Agreements" agreements between REMEC and the Affiliates, inter
alia, restricting the ability of the Affiliates to
deal in Airtech Shares or REMEC Common Stock
"Airtech" Airtech plc
"Airtech Group" Airtech and its subsidiaries
"Airtech Shares" existing issued and fully paid ordinary shares of
5p each in Airtech and any further such shares
which are unconditionally allotted or issued before
the date on which the Offer closes (or such earlier
date as REMEC may, subject to the City Code,
determine)
"Airtech Shareholders" holders of Airtech Shares
"Airtech Share Option
Schemes" the Airtech Executive Share Option Scheme, the
Airtech Savings-Related Share Option Scheme, the
Airtech Unapproved Share Option Scheme and the
individual share option agreements with Mr Howard
Barrow and Mr Barry Mulady
"Board" or "Directors" or
"Board of Directors" the board of directors of Airtech or REMEC, as the
case may be
"certificate" or "in
certificated form" a share or other security which is not in
uncertificated form.
"City Code" or "Code" The City Code on Takeovers and Mergers of the
United Kingdom
"Companies Act" Companies Act 1985 of Great Britain, as amended
"Compulsory Acquisition" compulsory acquisition by REMEC, pursuant to
sections 428 to 430F in each case inclusive of the
Companies Act on the same terms as the Offer, of
all outstanding Airtech Shares to which the Offer
relates
"CREST" the relevant system (as defined in the Regulations)
in respect of which CRESTCo is the Operator (as
defined in the Regulations)
"CRESTCo" CRESTCo Limited
"CREST member" a person who has been admitted by CRESTCo as a
system-member (as defined in the Regulations)
"CREST participant" a person who is, in relation to CREST, a
system-participant (as defined in the Regulations)
"CREST sponsor" a CREST participant admitted to CREST as a CREST
sponsor
"CREST sponsored member" a CREST member admitted to CREST as a sponsored
member
"Dollars" or "$" US Dollars
"Enlarged REMEC Group" the REMEC Group following the acquisition of
Airtech pursuant to the Offer
"Exchange Act" United States Securities Exchange Act of 1934, as
amended, and the rules thereunder
"Form of Acceptance" the form of acceptance and authority relating to
the Offer
VIII-1
<PAGE> 126
"Illustrative Exchange
Rate" L1 : $ , being the mid-point of the closing
spread of the dollar to sterling spot rate, as
shown in the Financial Times (UK edition) on
March 1999 being the latest practicable date prior
to the posting of this document
"Inland Revenue" the UK Inland Revenue
"IRS" the US Internal Revenue Service
"IRC" the United States Internal Revenue Code of 1986, as
amended
"London Stock Exchange" London Stock Exchange Limited
"Member account ID" the identification code or number attached to any
member account in CREST
"Nasdaq National Market" the Nasdaq National Market tier of the Nasdaq Stock
Market affiliated with the United States National
Association of Securities Dealers, Inc.
"Needham" Needham & Company, Inc.
"New Airtech Factory" a leasehold interest in (i) land and buildings
known as the Airtech premises and (ii) an adjacent
parcel of land situated at Smeaton Close,
Coldharbour Farm Industrial Estate, Aylesbury,
Bucks HP19 3S4 to be granted pursuant to the terms
of two separate leases with the approximate area of
the buildings being 33,000 sq. ft. of factory and
office space and the approximate area of the
adjacent parcel of land being 1.75 acres
"New REMEC Common Stock" REMEC Common Stock to be issued pursuant to the
Offer
"Offer" the recommended offer made by Quartz Capital on
behalf of REMEC to acquire all the Airtech Shares
on the terms and subject to the conditions set out
in this document including, where the context so
requires, any subsequent revision, variation,
extension or renewal thereof
"Panel" The Panel on Takeover and Mergers of the United
Kingdom
"participant ID" the identification code or membership number used
in CREST to identify a particular CREST member or
other CREST participant
"pounds" or "pounds
sterling"
or 'L" UK pounds sterling
"Quartz Capital" Quartz Capital Partners Limited
"Registration Statement" the Registration Statement on Form S-4 relating to
the Offer to be filed by REMEC with the SEC under
the Securities Act
"Regulations" The Uncertificated Securities Regulations 1995 (SI
1995 No. 95/3272) of the United Kingdom
"REMEC" or the "Company" REMEC, Inc.
"REMEC Common Stock" $0.01 par value common stock of REMEC
"REMEC Group" REMEC and its affiliates
"REMEC Stockholders" holders of REMEC Common Stock
"SEC" United States Securities and Exchange Commission
"Securities Act" US Securities Act of 1933, as amended, and the
rules thereunder
"SEDOL" London Stock Exchange Daily Official List
"Trading Day" any day in which the Nasdaq National Market is open
for trading in REMEC Common Stock
VIII-2
<PAGE> 127
"TFE instruction" a Transfer from Escrow instruction (as defined by
the CREST Manual issued by CRESTCo)
"TTE instruction" a Transfer to Escrow instruction (as defined by the
CREST Manual issued by CRESTCo)
"Treaty" the UK- US Income Tax Treaty, as amended by
Protocols
"Uncertificated" or "in
uncertificated form" recorded on the relevant register of the share or
security concerned as being held in uncertificated
form in CREST, and title to which, by virtue of the
Regulations, may be transferred by means of CREST
"UK GAAP" UK generally accepted accounting principles
"UK Resident" a person who is resident in the UK for tax purposes
and, in the case of UK taxation of capital gains, a
person who is ordinarily resident in the UK for tax
purposes
"United Kingdom" or "UK" United Kingdom of Great Britain and Northern
Ireland
"United States" or "US" United States of America, its territories and
possessions, any State of the United States and the
District of Columbia
"US Business Day" any day other than Saturday, Sunday or a federal
holiday in the US
"US GAAP" US generally accepted accounting principles
"US Resident" a person that is subject to US federal income
taxation regardless of source
VIII-3
<PAGE> 128
AIRTECH PLC
NOTICE OF EXTRAORDINARY GENERAL MEETING
Notice is hereby given that an extraordinary general meeting of Airtech plc (the
"Company") will be held at the Company's offices in Coldharbour Way, Aylesbury,
Buckinghamshire HP19 3SU on , 1999 at a.m./p.m., for the purpose
of considering and, if thought fit, passing the following resolution which will
be proposed as an ordinary resolution:
ORDINARY RESOLUTION
That the arrangements conditionally entered into between REMEC Inc. and
The Air Group Limited details of which are set out in the offer document
dated , 1999 addressed to the shareholders of the Company of
which this notice forms a part be and they are hereby approved.
Dated: 1999
BY ORDER OF THE BOARD
Matthew White
Secretary
Registered Office: Coldharbour Way, Aylesbury, Buckinghamshire HP19 3SU
NOTES:
Proxies
1. A member entitled to attend and vote may appoint a proxy or proxies who
need not be a member of the Company to attend (and on a poll to vote)
instead of him or her. Forms of proxy must be returned so as to be received
by the Company's registrars, Independent Registrar Group PLC, Balfour
House, 390-398 High Road, Ilford, Essex IG1 1NG, not later than 48 hours
before the time of the meeting. Completion of a form of proxy will not
preclude a member attending and voting in person at the meeting.
Panel of Takeovers and Mergers
2. The Panel on Takeovers and Mergers has determined that N.J.S. Randall and
certain persons associated with him shall not be entitled to vote on the
above resolution.
Right to attend and vote
3. Pursuant to regulation 34 of the Uncertificated Securities Regulations
1995, the Company specifies that in order to have the right to attend and
vote at the meeting (and also for the purpose of calculating how many votes
a person entitled to attend and vote may cast), a person must be entered on
the register of holders of the ordinary shares of the Company by no later
than 6 p.m. on [being 2 business days before the time fixed for the
meeting]. Changes to entries on the register after this time shall be
disregarded in determining the rights of any person to attend or vote at
the meeting.
(Registered in England and Wales No: 3193039)
<PAGE> 129
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
105. ITEM 20. 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 of 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.
106. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS NO. DESCRIPTION
- ------------ -----------
<C> <S>
2.1 Conditions and Further Terms of the Offer (contained in
APPENDIX I)
2.2 Form of Acceptance
2.3 Conditional Commitment Letter for Purchase of Airtech Common
Stock between REMEC and Airtech, dated 25 February, 1999
3.1(1) Amended and Restated Articles of Incorporation
3.2(1) By-Laws, as amended
5.1 Opinion of Heller Ehrman White & McAuliffe as to the
validity of the issuance of the shares of Remec Common Stock
to be issued in the Offer
8.1 Opinion of Heller Ehrman White & McAuliffe as to the US tax
consequences of the Offer
23.1 Consent of Heller Ehrman White & McAuliffe (contained in
opinions filed as Exhibits 5.1 and 8.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Ireland San Filippo LLP, Independent Public
Accountants
23.4 Consent of Bray, Beck & Koetter, Independent Auditors
23.5 Consent of Arthur Andersen, Independent Auditors
23.6 Consent of Binder Hamlyn, Independent Auditors
24.1 Power of Attorney (included on the signature page)
</TABLE>
- ---------------
NOTES REGARDING EXHIBITS INCORPORATED BY REFERENCE
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Registration Statement filed on Form S-1 (No. 333-80381)
filed on February 1, 1996 and incorporated herein by reference.
(B) FINANCIAL STATEMENT SCHEDULES.
None
(C) APPRAISALS.
The appraisal on the property to be purchased by Remec from a company owned and
controlled by Mr Nick Randall, Chairman of Airtech, is included in Appendix VI
and described in paragraph 7 of Appendix V to the Offer Document.
Part II-1
<PAGE> 130
107. ITEM 23. UNDERTAKINGS
(a) Item 512 undertakings.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(g)(1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through the use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) the Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(i) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) of the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
(b) Required undertaking.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) Required undertaking.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired therein, that was not the subject of and included in the
registration statement when it became effective.
Part II-2
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Diego, California on March 8, 1999.
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 file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-of-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 each said
attorneys-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-4 has been signed by the following persons in the capacities
and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ RONALD E. RAGLAND Chairman of the Board and Chief March 8, 1999
- --------------------------------------------- Executive Officer (Principal Executive
Ronald E. Ragland Officer)
/s/ ERROL EKAIREB President, Chief Operating Officer and March 8, 1999
- --------------------------------------------- Director
Errol Ekaireb
/s/ JACK A. GILES Executive Vice President, President of March 8, 1999
- --------------------------------------------- REMEC Microwave, Inc. and Director
Jack A. Giles
/s/ DENNY MORGAN Senior Vice President, Chief Engineer March 8, 1999
- --------------------------------------------- and Director
Denny Morgan
/s/ JOSEPH T. LEE Executive Vice President and Director March 8, 1999
- ---------------------------------------------
Joseph T. Lee
/s/ MICHAEL D. MCDONALD Senior Vice President, Chief Financial March 8, 1999
- --------------------------------------------- Officer and Secretary (Principal
Michael D. McDonald Financial and Accounting Officer)
/s/ ANDRE R. HORN Director March 8, 1999
- ---------------------------------------------
Andre R. Horn
/s/ JEFFREY M. NASH Director March 8, 1999
- ---------------------------------------------
Jeffrey M. Nash
/s/ THOMAS A. CORCORAN Director March 8, 1999
- ---------------------------------------------
Thomas A. Corcoran
/s/ WILLIAM H. GIBBS Director March 8, 1999
- ---------------------------------------------
William H. Gibbs
</TABLE>
Part II-3
<PAGE> 132
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGES
- ----------- ----------- --------------
<C> <S> <C>
2.1 Conditions and Further Terms of the Offer (contained in
APPENDIX I)
2.2 Form of Acceptance
2.3 Conditional Commitment Letter for Purchase of Airtech common
stock between REMEC and Airtech, dated February 25, 1999.
3.1(1) Amended and Restated Articles of Incorporation
3.2(1) By-Laws, as amended
5.1 Opinion of Heller Ehrman White & McAuliffe as to the
validity of the issuance of the shares of Remec Common Stock
to be issued in the Offer
8.1 Opinion of Heller Ehrman White & McAuliffe as to the US tax
consequences of the Offer
23.1 Consent of Heller Ehrman White & McAuliffe (contained in
opinions filed as Exhibits 5.1 and 8.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Ireland San Filippo LLP, Independent Public
Accountants
23.4 Consent of Bray, Beck & Koetter, Independent Auditors
23.5 Consent of Arthur Andersen, Independent Auditors
23.6 Consent of Binder Hamlyn, Independent Auditors
24.1 Power of Attorney (included on the signature page)
</TABLE>
- ---------------
NOTES REGARDING EXHIBITS INCORPORATED BY REFERENCE
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Registration Statement filed on Form S-1 (No. 333-80381)
filed on February 1, 1996 and incorporated herein by reference.
Part II-4
<PAGE> 1
EXHIBIT 2.2
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you
are in any doubt about the Offer or the action you should take, you are
recommended to seek your own personal financial advice immediately from an
appropriately authorised independent financial adviser, or, if you are in the
United Kingdom, an independent professional adviser authorised under the
Financial Services Act 1986.
Terms used in this Form of Acceptance (the "Form") shall bear the same
meaning as in the Offer Document. This Form should be read in conjunction with
the Offer Document. The provisions of Part B of Appendix I to the Offer Document
are deemed to be incorporated in and form part of this Form and should be read
carefully by each holder of Airtech Shares.
IF YOU ARE A CREST SPONSORED MEMBER, YOU SHOULD REFER TO YOUR CREST
SPONSOR BEFORE COMPLETING THIS FORM.
If you have sold or otherwise transferred all your Airtech Shares, please
pass this Form and the accompanying Offer Document dated *, 1999(the "Offer
Document"), as soon as possible to the purchaser or transferee, or to the
stockbroker, bank or other agent through whom the sale or transfer was effected,
for delivery to the purchaser or transferee. However, the Offer is not being
made directly or indirectly in Canada, Australia or Japan and such documents
should not be distributed, forwarded or transmitted into or from Canada,
Australia or Japan by any means whatsoever including without limitation mail,
facsimile, transmission, telex or telephone. No Form which is received in any
envelope postmarked, or which appears to REMEC or its agents to have been sent
from Canada, Australia or Japan will be treated as valid.
Quartz Capital Partners Limited, which is regulated in the United Kingdom
by The Securities and Futures Authority Limited and Needham & Company, Inc. are
acting exclusively for REMEC and no one else in connection with the Offer and
will not be responsible to anyone other than REMEC for providing the protections
afforded to customers of Quartz Capital and Needham in relation to the Offer nor
for giving advice in relation to the offer. The provisions of this paragraph are
not intended to disclaim any liability of Quartz Capital and Needham under U.S.
securities laws.
[Application will be made for the New REMEC Common Stock to be quoted on
Nasdaq, under the symbol "REMC". It is expected that the listings will become
effective and that dealings, for normal settlement, will commence on Nasdaq in
the New REMEC Common Stock on the first trading day following the day on which
the Offer becomes or is declared unconditional in all respects (except only, for
the quotation of such shares on Nasdaq becoming effective).]
- --------------------------------------------------------------------------------
FORM OF ACCEPTANCE AND AUTHORITY
IN RESPECT OF THE RECOMMENDED OFFER BY
QUARTZ CAPITAL PARTNERS LIMITED
ON BEHALF OF
REMEC, INC.
for
ALL OF THE ISSUED SHARE CAPITAL OF
AIRTECH PLC
PROCEDURE FOR ACCEPTANCE
- - To accept the Offer, you must complete and sign this Form on page 3 by
following the instructions set out on pages 2 and 4.
- - All holders of Airtech Shares who are individuals must sign in the presence
of a witness, who must also sign where indicated. If you hold Airtech
Shares jointly with others, you must arrange for all joint holders to sign
this Form.
- - The duly completed and signed Form, accompanied by your share
certificate(s) and/or other document(s) of title for Airtech Shares, should
be sent by hand (during normal business hours) or by post to New Issues
Department, IRG plc, Balfour House, 390-398 High Road, Ilford, Essex IG1
1NG but in any event so as to be received not later than 3.00 pm (London
time), on *, 1999.
- - If your Airtech Shares are in uncertificated form (i.e. in CREST), you
should return this Form and take the action set out in paragraph 14(d) of
the letter from Quartz Capital contained in the Offer Document to transfer
your Airtech Shares to an escrow balance. For this purpose, the participant
ID of IRG plc, which will act as the escrow agent for the purposes of the
Offer, is *, the member account ID of the escrow agent is * and the Form of
Acceptance Reference Number of this Form (for insertion in the first eight
characters of the shared note field on this transfer to escrow ("TTE")
instruction) is shown on page 3 next to Box 4 of this Form. You should
ensure that the TTE settles not later than 3.00 pm on *, 1999.
- - If you hold Airtech Shares in both certificated and uncertificated form,
you should complete a separate Form for each holding. Similarly, you should
complete separate Forms for Airtech Shares held in uncertificated form but
under a different member account ID, and separate Forms for Airtech Shares
held in certificated form but under a different designation. You can obtain
further Forms by contacting IRG plc on 0181-639-2000.
- - If your Airtech Shares are in certificated form and your share
certificate(s) and/or other document(s) of title is/are not readily
available (but is/are held by your bank, stockbroker or other agent) or
is/are lost, this Form should nevertheless be completed, signed and
returned as stated above so as to be received not later than 3.00 pm
(London time), on *, 1999, together with any share certificate(s) and/or
other document(s) of title, that you may have available, accompanied by a
letter stating that the balance will follow, or that you will obtain a
letter of indemnity in respect of lost share certificates and/or other
documents of title, and the share certificate(s), letter of indemnity
and/or other document(s) of title should be lodged as soon as possible
thereafter with IRG plc at the address, and in the manner, set out above.
- - Your acceptance of the Offer is on the terms and subject to the conditions
contained in the Offer Document and in this Form.
- - If you have any questions as to how to complete this Form, please contact
IRG plc at 0181-639-2000.
<PAGE> 2
PLEASE COMPLETE THIS FORM
THE PROVISIONS OF PART B OF APPENDIX I TO THE OFFER DOCUMENT ARE
INCORPORATED INTO AND FORM PART OF THIS FORM
- --------------------------------------------------------------------------------
THE OFFER
1 To accept the Offer, insert in Box [1] the total number of Airtech Shares
for which you wish to accept the Offer. You must also sign Box [2] in
accordance with the instructions set out below, which will constitute your
acceptance of the Offer, and complete Box [3] and, if appropriate Box [4],
Box [5] and/or Box [6]. If no number or a number greater than your
registered holding of Airtech Shares is written in Box [1] and you have
signed Box [2], you will be deemed to have accepted the Offer in respect of
your entire registered holding of Airtech Shares.
Complete here -
- --------------------------------------------------------------------------------
SIGNATURES
2 To accept the Offer you must complete Box [2] and, in the case of a joint
holding, arrange for ALL joint holders to do likewise.
All registered holders, including joint holders, who are individuals must
sign Box [2] in the presence of a witness who must also sign Box [2] where
indicated. If these instructions are not followed, the Form will be
invalid. The witness must be over 18 years of age and should not be another
joint holder signing the Form. The same witness may witness the signature
of each joint holder. The witness should also print his/her name where
indicated.
A corporation may execute this Form under its common seal, the seal being
affixed and witnessed in accordance with its articles of association or
other regulations. Alternatively, a company to which s.36A of the Companies
Act 1985 applies may execute this Form as a deed by a director and the
company secretary or by two directors of the company signing the Form and
inserting the name of the company above their signatures. Each such person
signing the Form for a company should state the office which he/she holds.
If the Form is not signed by the registered holder(s), insert the name(s)
and capacity (e.g. attorney or executor(s)) of the person(s) signing the
Form. You should also deliver evidence of your authority in accordance with
the notes on page 4.
Please note that if you sign Box [2] but do not put "Yes" in Box [5], you
will be deemed to have given the representations and warranties set out in
paragraph 7(c) of Part B of Appendix I to the Offer Document.
Complete here -
- --------------------------------------------------------------------------------
NAME(S) AND ADDRESS
3 Complete Box [3] with the full name and address of the sole or first-named
registered holder together with the names of all other joint holders (if
any) in BLOCK CAPITALS. Unless you complete Box [5], this is the address to
which your consideration and/or other documents will be sent provided the
address inserted in Box [3] is not in Canada, Australia or Japan.
Complete here -
- --------------------------------------------------------------------------------
PARTICIPANT ID AND MEMBER ACCOUNT ID
4 If your Airtech Shares are in CREST, you must insert in Box [4] the
participant ID and the member account ID under which such Shares are held
by you in CREST.
You must also transfer (or procure the transfer of) the Airtech Shares
concerned to an escrow balance, specifying in the TTE instruction the
participant ID and member account ID inserted in Box [4] and the Form of
Acceptance Reference Number of this Form together with the other
information specified in paragraph 14(d) of the letter from Quartz Capital
contained in the Offer Document. The Form of Acceptance Reference Number
appears on page 3 next to Box [4] of this Form.
Complete here -
- --------------------------------------------------------------------------------
OVERSEAS PERSONS
5 If you are unable to give the warranty required by paragraph 7(c) of Part B
of Appendix I to the Offer Document, you must put "Yes" in Box [5]. If you
do not put "Yes" in Box [5] you will be deemed to have given such warranty.
Complete here -
- --------------------------------------------------------------------------------
ALTERNATE ADDRESS
6 If you wish the documents of title relating to your New REMEC Common Stock
and/or other documents to be sent to someone (who must be outside Canada,
Australia or Japan) other than the sole or first-named registered holder at
the address set out in Box [3] (e.g. your bank manager or stockbroker) you
should complete Box [6]. Box [6] must be completed with an address outside
Canada, Australia or Japan by holders with registered addresses in Canada,
Australia or Japan who have completed Box [3] with an address in Canada,
Australia or Japan.
Complete here -
- --------------------------------------------------------------------------------
<PAGE> 3
- --------------------------------------------------------------------------------
Box [1]
To accept the Offer
1 Complete Box [1] and Box [3] (and, if appropriate, Box [4], Box [5], and/or
Box [6]) and sign Box [2] in the presence of a witness.
------------------------------------------------------------------------
Number of Airtech Shares in respect of which you are accepting the Offer
- --------------------------------------------------------------------------------
Box [2]
Sign here to accept the Offer
2 EXECUTION BY INDIVIDUALS
<TABLE>
<CAPTION>
Signed and delivered as a deed by: Witnessed by:
<S> <C>
1.................................................... 1. Name
Signature
Address
2.................................................. 2. Name
Signature
Address
3.................................................. 3. Name
Signature
Address
4.................................................. 4. Name
Signature
Address
</TABLE>
NOTE: THE SIGNATURE OF EACH REGISTERED HOLDER SHOULD BE WITNESSED. IN THE
CASE OF JOINT HOLDERS, ALL MUST SIGN.
EXECUTION BY A COMPANY
Executed and delivered as a deed under the seal of the company named below
OR Executed and delivered as a deed by the company named below.
<TABLE>
<S> <C>
Name of Company in the presence of/acting by
--------------------------------------------
Name of Director Signature
----------------------------------------
--------------------------------------------
Name of Director/Company Secretary Signature
----------------------------------------
(Affix Company Seal if appropriate)
</TABLE>
- --------------------------------------------------------------------------------
Box [3]
Full name(s) and address(es)
3
<TABLE>
<CAPTION>
First-named registered holder Second-named registered holder
1. Forename(s) 2. Forename(s)
(Mr./Mrs./Miss/Title) (Mr./Mrs./Miss/Title)
<S> <C>
Surname Surname
---------------------------- ---------------------------------
Third-named registered holder
Address 3. Forename(s)
--------------------------------- --------------------------
(Mr./Mrs./Miss/Title)
-----------------------------------
Surname
----------------------------------- ---------------------------------
Fourth-named registered holder
4. Forename(s)
--------------------------
Postcode (Mr./Mrs./Miss/Title)
---------------------------
Surname
---------------------------------
In case of query, please state your daytime telephone number(s)
---------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Box [4]
Participant ID and Member Account ID
4 Complete this Box only if your Airtech Shares are in CREST
<TABLE>
<S> <C>
Participant ID
The Form of Acceptance Reference Number of this Form is: -----------------
Member account ID
--------------
</TABLE>
- --------------------------------------------------------------------------------
Box [5]
<TABLE>
<S> <C>
5 Please put "Yes" in Box [5] if you are unable to give the warranty relating
to overseas shareholders in paragraph 7(c) of Part B of Appendix I to the
OfferDocument.
</TABLE>
- --------------------------------------------------------------------------------
Box [6]
<TABLE>
<S> <C>
6 Address outside Canada, Australia or Japan to which consideration
and/or other document(s) is/are to be sent if not that set out
under "First-named registered holder" in Box [3] above. Name
-----------------------
Address
--------------------
---------------------------
---------------------------
Postcode
-------------------
</TABLE>
<PAGE> 4
FURTHER NOTES REGARDING THE COMPLETION AND LODGING OF THIS FORM
In order to be effective, this Form must, except as mentioned below, be
signed personally (or under a power of attorney, the original or certified copy
of which must be lodged with this Form) as a deed by the registered holder or,
in the case of a joint holder, by ALL the joint holders and each individual
signature must be independently witnessed. A corporation may execute this Form
under its common seal, the seal being affixed and witnessed in accordance with
its articles of association or other regulations. Alternatively, a company to
which section 36A of the Companies Act 1985 applies may execute this form by a
director and the company secretary or by two directors signing the form and
inserting the name of the company above their signatures. Each person signing
this Form for a company should state the office which he/she holds.
In order to avoid inconvenience to yourself and delay in the processing of
your Form, the following points may assist you:
1. If the sole holder has died.
If grant of probate or letters of administration has/have been
registered with Airtech (or its registrars, IRG plc), this Form
must be signed by the personal representative(s) of the deceased
and returned with the share certificate(s) and/or other
document(s) of title either by post or by hand (during normal
business hours) to New Issues Department, IRG plc, Balfour House,
390-398 High Road, Ilford, Essex IG1 1NG. If grant of probate or
letters of administration has not/have not been registered with
Airtech (or its registrars, IRG plc), the personal
representatives or the prospective personal representatives or
executors should sign this Form and forward it with the share
certificate(s) and/or other document(s) of title to IRG plc at
the above address. However, grant of probate or letters of
administration must be lodged with IRG plc at the address set out
above before the consideration due can be forwarded to the
personal representatives or executors. All signatures must be
witnessed.
2. If one of the joint-registered holders has died.
This Form must be signed by all surviving holders in the presence
of a witness and lodged with IRG plc in the manner set out above
with the share certificate(s) (and/or other document(s) of title)
and accompanied by the death certificate. Grant of probate or
letters of administration in respect of the deceased holder must
also be lodged with IRG plc in the manner set out above before
the consideration due can be despatched.
3. If your Airtech Shares are in certificated form and the share
certificate(s) is/are held by your bank, stockbroker or some
other agent.
If your share certificate(s) and/or other document(s) of title
is/are not readily available (but is/are held by your bank,
stockbroker or other agent), the completed Form should be lodged
with IRG plc in the manner set out above together with a note
saying e.g. "share certificates to follow" and you should arrange
for the share certificate(s) and/or other document(s) of title to
be forwarded to IRG plc by your bank, stockbroker or other agent
as soon as possible thereafter.
4. If your Airtech Shares are in certificated form and the share
certificate(s) and/or other document(s) of title have been lost.
The completed Form, and any share certificate(s) which you may
have available, should be lodged with IRG plc in the manner set
out above accompanied by a letter stating that you have lost one
or more of your share certificates. At the same time, you should
write to Matthew White, Company Secretary of Airtech (telephone
01296 319 319), requesting that a letter of indemnity for the
lost share certificates be sent to you which, when completed in
accordance with the instructions given, should be returned by
post or by hand (during normal hours) to IRG plc.
5. If your Airtech Shares are in CREST.
You should take the action set out in paragraph 14(d) of the
letter from Quartz Capital contained in the Offer Document to
transfer your Airtech Shares to an escrow balance. You are
reminded to keep a record of the Form of Acceptance Reference
Number (which appears on page 3 next to Box 4 of this Form)
so that such number can be inserted in the TTE instruction.
If you are a CREST sponsored member, you should refer to your
CREST sponsor before completing this Form, as only your
CREST sponsor will be able to send the necessary TTE instruction
to CRESTCo.
6. If this Form has been signed under power of attorney.
The completed Form together with the share certificate(s) and/or
other document(s) of title should be lodged with IRG plc in the
manner set out above accompanied by the original power of
attorney (or a copy thereof duly certified in accordance with the
Powers of Attorney Act 1971). The power of attorney will be noted
by IRG plc and returned as directed.
7. If your name or other particulars are shown incorrectly on the
share certificate e.g.
<TABLE>
<S> <C>
Name on the share certificate(s) . . . . . . . . . . . . Richard Allen
Correct Name . . . . . . . . . . . . . . . . . . . . . . Richard Allan
</TABLE>
The Form should be completed in your correct name and lodged with
IRG plc in the manner set out above with your share
certificate(s) and accompanied by a letter from your bank,
stockbroker or solicitor confirming that the person in whose name
Airtech Shares are registered is one and the same as the person
who has signed the Form. If an incorrect address is shown, the
correct address should be written on this Form. If you have
changed your name, lodge your marriage certificate or deed poll
or, in the case of a company, a copy of the certificate of
incorporation or change of name with this Form for noting.
8. If a holder is away from home (e.g. abroad or on holiday).
Send this Form by the quickest means (e.g. air mail) to the
holder for execution (provided that such documents may not be
forwarded or transmitted, by any means, in or into Canada,
Australia or Japan) or, if he/she has executed a power of
attorney, the attorney should sign the Form and the original
power of attorney (or a copy thereof duly certified in accordance
with the Powers of Attorney Act 1971) must be lodged with this
Form for noting (see 6 above). No other signatures are
acceptable.
9. If you have sold all, or wish to sell part of, your holding of
Airtech Shares.
You should at once hand this Form together with the accompanying
Offer Document to the bank, stockbroker or other agent through
whom you made the sale for onward transmission to the purchaser
or transferee. However, such documents may not be forwarded or
transmitted, by any means, in or into Canada, Australia or Japan.
If your Airtech Shares are in certificated form and you wish to
sell part of your holding of Airtech Shares and also wish to
accept the Offer in respect of the balance and are unable to
obtain the balance certificate, you should ensure that the
stockbroker, bank or other agent through whom you make the sale
obtains the appropriate endorsement or certification signed on
behalf of Airtech by Matthew White, Company Secretary of Airtech
(telephone 01296 319 319), in respect of the balance of your
holding of Airtech Shares.
10. Payment of consideration.
The documents of title relating to the New REMEC Common Stock due
to you under the Offer cannot be sent to you until all relevant
documents have been properly completed and lodged with IRG plc
and in the manner set out above as soon as possible and in any
event so as to be received no later than 3.00 pm on * 1999.
Notwithstanding that no share certificate(s) and/or other
document(s) of title is/are delivered with this Form, the Form,
if otherwise valid, accompanied by an appropriate endorsement of
certification to the effect that Airtech Shares referred to
therein are available for acceptance and signed on behalf of
Airtech by Matthew White, Company Secretary of Airtech (telephone
01296 319 319), will be treated as valid for all purposes.
<PAGE> 1
EXHIBIT 2.3
From: Remec, Inc. ("REMEC")
9404 Chesapeake Drive
San Diego
California
92123 USA
To: Airtech Plc ("AIRTEC")
Gatehouse Close
Gatehouse Industrial Estate
Aylesbury
Bucks HP19 3DE
Date: 25 February 1999
Dear Sirs
We refer to our recent discussions and our intention, subject to the
satisfaction of certain conditions, to make a recommended offer for the entire
share capital, issued and to be issued, of Airtech (the "Offer").
You have requested us to set out in writing our conditional commitment to
subscribe for shares in Airtech in the event that the Offer fails to become
wholly unconditional for reasons relating to the non-availability of pooling of
interests accounting treatment for a combination of Airtech and Remec. On the
basis of the irrevocable commitments to accept the Offer which certain
shareholders have agreed to give to Remec, Remec undertakes as follows:-
(a) in the event that the Offer is made and fails to become or be declared
wholly unconditional by reason of the non satisfaction of condition (d) as
set out in the draft announcement annexed hereto (the "CONDITION"), (and
not, for the avoidance of doubt, for any other reason) Remec will
subscribe (the "SUBSCRIPTION") for 11,200,000 ordinary shares of 5p in the
capital of Airtech at a price per Airtech share of 40 pence. Such shares
shall rank pari passu in all respects with the existing issued share
capital of Airtech. The Subscription shall be made within 28 days of the
satisfaction of the conditions precedent set out in this letter.
(b) Remec shall have the right at all times following the Subscription to
appoint one of seven or fewer or two of eight or more directors of Airtech;
(c) Remec shall have no obligation to make the Subscription in the event that
the Condition is not fulfilled by reason of:
(i) any matter which has been disclosed by or on behalf of Airtech to
Ernst & Young and which disclosure was untrue, inaccurate or
misleading; or
(ii) any arrangement being put in place by N Randall or any company
controlled by him in relation to the New Airtech Property (as defined
in the draft Press Announcement
<PAGE> 2
annexed hereto) which would affect the consideration payable
by Remec for the New Airtech Property (other than a mortgage
not exceeding 90% of the value of such property to be put in
place prior to the making of the Offer in form acceptable to
Remec).
(d) the Subscription shall be conditional upon:
(i) irrevocable undertakings to accept the Offer being received by
Remec in respect of, in aggregate, 23,682,428 Airtech shares,
in a form acceptable to Remec and such undertakings having
been complied with in full in accordance with their terms;
(ii) affiliate agreements being received by Remec from the persons
set out in the Appendix hereto in a form reasonably acceptable
to Remec and such agreements having been complied with in full
in accordance with their terms;
(iii) the approval in general meeting of Airtech shareholders being
given to the Subscription and all matters ancillary thereto or
necessary therefor;
(iv) no shares or rights over shares having been issued by Airtech
or any of its subsidiaries after the date hereof without the
prior written consent of Remec;
(v) the London Stock Exchange agreeing to admit such shares to
listing and listing becoming effective subject only to
allotment;
(vi) there being no material adverse change in the financial or
trading position or prospects of Airtech and its subsidiaries
since 31 December 1997, save as disclosed in writing to Remec
prior to the date hereof; and
(vii) there being no material change in control of Airtech.
Each of the parties undertakes to use its best endeavours to enter into
mutually acceptable agreements in relation to those aspects of their ongoing
sales and marketing business relationship referred to in the document in the
agreed form headed "Sales & Marketing Collaboration", contemporaneously with
the Offer being declared unconditional.
By agreeing to the terms of this letter, Airtech undertakes to its best
endeavours to procure the satisfaction of the conditions to the Offer and, in
the event of the Offer failing to become or be declared unconditional as set
out in paragraph (a) above, the conditions set out in paragraph (d) above.
Remec's obligations under this letter shall cease and be of no effect in the
event that the Subscription is not completed within 60 days of the Offer
lapsing.
This letter shall be governed by English law and the parties hereby submit to
the non-exclusive jurisdiction of the High Court of England and Wales in
relation to any dispute arising out of this letter.
<PAGE> 3
If you are in agreement with the full terms of this letter please indicate your
agreement by executing and returning a copy of this letter. On execution by
both parties this letter shall have effect as a deed.
Executed and delivered as a deed by )
REMEC, INC. )
acting by: )
Executed and delivered as a deed by )
AIRTECH PLC )
acting by two of its directors/ )
one of its directors and its secretary )
<PAGE> 1
[Heller Ehrman Letterhead]
Exhibit 5.1
March 8, 1999
REMEC, Inc.
9404 Chesapeake Drive
San Diego, California 92123
Registration Statement on Form S-4
----------------------------------
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-4
anticipated to be filed with the Securities and Exchange Commission (the "SEC")
on or about March 1, 1999 (the "Registration Statement"), for the purpose of
registering under the Securities Act of 1933, as amended, 2,197,359 shares (the
"Shares") of the Company's Common Stock, $0.01 par value per share (the "Common
Stock").
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 16, 1999,
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
<PAGE> 2
HELLER EHRMAN WHITE & McAULIFFE
ATTORNEYS
REMEC, Inc.
March 8, 1999
Page 2
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 the Shares will be 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 will have
been received when the Shares are issued. Our opinion expressed below also
assumes that the Registration Statement is effective at the time the Shares are
sold.
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 Shares, when issued by the Company as described in the
Registration Statement, will be legally issued, fully paid and nonassessable.
This opinion is rendered to you in connection with the Registration
Statement. 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 amendment thereto.
Very truly yours,
/s/ HELLER EHRMAN WHITE & McAULIFFE
<PAGE> 1
[Heller Ehrman Letterhead]
Exhibit 8.1
March 8, 1999
REMEC, Inc.
9404 Chesapeake Drive
San Diego, California 92123
Ladies and Gentlemen:
You have requested our opinion regarding certain United States federal
income tax consequences of the proposed acquisition (the "Acquisition") of
Airtech plc, a U.K. corporation ("Target"), by REMEC, Inc., a California
corporation ("REMEC"). Except as otherwise provided, capitalized terms used but
not defined herein shall have the meanings set forth in the Recommended Offer by
Quartz Capital Partners Limited on behalf of REMEC, Inc. for Airtech plc,
including the appendices thereto (the "Offer Document"), that is included in the
Registration Statement (Form S-4) filed by REMEC with the Securities and
Exchange Commission on the date first set forth above (the "Registration
Statement"). Unless otherwise indicated, all "Section" references are to the
Internal Revenue Code of 1986, as amended (the "Code").
We have acted as United States counsel to REMEC in connection with the
Acquisition. As such, and for the purpose of rendering this opinion, we have
examined, and are relying upon (without any independent investigation or review
thereof) the truth and accuracy at all relevant times of, the statements,
covenants, representations, and warranties contained in the following documents
(including all exhibits and schedules attached thereto):
(a) the Offer Document;
(b) the Registration Statement;
(c) those tax representation letters delivered to us by REMEC and Target
regarding the Acquisition and the tax representation letter delivered to us by
Mr. Nicholas Randall (the "Tax Representation Letters"); and
(d) such other instruments and documents related to the formation,
organization, and operation of REMEC and Target and related to the consummation
of the Acquisition and the other transactions contemplated by the Offer
Document as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(i) Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and all such documents have been (or will be by the time when the
Offer becomes or is declared unconditional in all respects) duly and validly
executed and delivered where due execution and delivery are a prerequisite to
the effectiveness
<PAGE> 2
REMEC, Inc. HELLER EHRMAN WHITE & McAULIFFE
Page 2 ATTORNEYS
thereof;
(ii) All representations, warranties, and statements made or agreed to by
REMEC and Target, their managements, employees, officers, directors, and
stockholders in connection with the Acquisition, including, but not limited to,
those set forth in the Offer Document and the Registration Statement (including
the exhibits to each) and the Tax Representation Letters, are true and accurate
at all relevant times;
(iii) All covenants contained in the Offer Document and the Registration
Statement (including the exhibits to each) and the Tax Representation Letters
will be performed without waiver or breach of any material provision thereof;
(iv) The Acquisition will be reported by REMEC and Target on their
respective U.S. federal or U.K. income tax returns, as appropriate, in a manner
consistent with the opinion set forth below; and
(v) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, and assumptions set forth herein, we have reviewed
the discussion entitled "Taxation" contained in the Offer Document, excluding
the two subsections therein entitled "UK Taxation" (the "US Taxation
Discussion"), and, insofar as it relates to statements of law and legal
conclusions, the US Taxation Discussion is correct in all material respects.
This opinion is limited to the federal income tax consequences of the
Acquisition and does not address the various state or local tax consequences
that may result from the Acquisition or the other transactions contemplated by
the Offer Document. In addition, no opinion is expressed as to any federal
income tax consequence of the Acquisition or the other transactions
contemplated by the Offer Document except as specifically set forth herein, and
this opinion may not be relied upon except with respect to the consequences
specifically discussed herein. No opinion is expressed as to the federal
income tax treatment that may be relevant to a particular investor in light of
personal circumstances or to certain types of investors subject to special
treatment under the federal income tax laws (for example, life insurance
companies, dealers in securities, financial institutions, tax-exempt entities,
persons who have acquired or acquire Airtech Shares pursuant to the exercise of
options under the Airtech Share Option Schemes or otherwise (or otherwise as
compensation), persons whose REMEC Common Stock will form part of the business
property of a permanent establishment of an enterprise in the US within the
meaning of Article 7(1) of the UK-US estate tax treaty presently in force,
persons who are US Residents and UK Residents, certain US nonresident alien
individuals who were US citizens or US lawful permanent residents within the
past ten years, and US Residents whose functional currency is not the US
dollar). To the extent that any of the representations, warranties,
statements, and assumptions material to our opinion and upon which we have
relied is not accurate and complete in all material respects at all relevant
times, our opinion could be adversely affected and should not be relied upon.
This opinion is not binding on the Internal Revenue Service or any court
of law, administrative agency or other governmental body and represents only
our judgment as to the likely outcome if the federal income tax consequences
discussed in the US Taxation Discussion were properly presented to a court of
competent jurisdiction. Our conclusions are based on the Code, existing
judicial decisions, administrative regulations, and published rulings. No
assurance can be given that future legislative, judicial, or administrative
changes or interpretations will not adversely affect the accuracy of our
conclusions. Nevertheless, by rendering this opinion, we undertake no
responsibility to advise you of any
<PAGE> 3
REMEC, Inc. HELLER EHRMAN WHITE & McAULIFFE
Page 3 ATTORNEYS
new developments in the application or interpretation of the federal income tax
laws.
This opinion is being delivered solely in connection with the Offer
Document and the Registration Statement. It is intended for the benefit of
REMEC and may not be relied upon or utilized for any other purpose or by any
other person and may not be made available to any other person without our
prior written consent.
We consent to the reference to our firm under the caption "Taxation" in
the Offer Document. We consent to the reference to our firm under the caption
in the Registration Statement and to the reproduction and filing of this
opinion as an exhibit to the Registration Statement. In giving this consent,
however, we do not admit that we are in the category of persons whose consent
is required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ HELLER EHRMAN WHITE & McAULIFFE
<PAGE> 1
Exhibit 23.2
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-4) and related Prospectus of REMEC, Inc. for the
registration of 2,197,359 shares of its common stock and to the inclusion
therein of our report dated February 27, 1998, with respect to the consolidated
financial statements of REMEC, Inc. included in its Annual Report (Form 10-K)
for the year ended January 31, 1998, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
/s/ Ernst & Young
San Diego, California
March 1, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 6, 1997, with respect to the financial
statements of Radian Technology, Inc. as of December 31, 1996, and for the three
years then ended, into this Registration Statement on Form S-4 of REMEC, Inc.
dated March 2, 1999.
/s/ IRELAND SAN FILIPPO, LLP
IRELAND SAN FILIPPO, LLP
March 2, 1999
<PAGE> 1
EXHIBIT 23.4
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-4) and
related Prospectus of REMEC, Inc. for the registration of 2,197,359 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 for the two years ended December 31, 1996.
/s/ BRAY, BECK & KOETTER
Melbourne, Florida
March 2, 1999
<PAGE> 1
EXHIBIT 23.5
[ARTHUR ANDERSEN LETTERHEAD]
CONSENT OF ARTHUR ANDERSEN, INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the use of our reports relating
to the consolidated financial statements of Airtech PLC and to all references
to our firm included in or made a part of this registration statement.
/s/ ARTHUR ANDERSEN 8 March 1999
- ----------------------
Arthur Andersen
Chartered Accountants
St Albans, England
<PAGE> 1
EXHIBIT 23.6
[BINDER HAMLYN LETTERHEAD]
CONSENT OF BINDER HAMLYN, INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the use of our report relating to
the consolidated financial statements of Airtech PLC and to all references to
our firm included in or made a part of this registration statement.
/s/ BINDER HAMLYN 8 March 1999
- ----------------------------
Binder Hamlyn
Chartered Accountants
London, England
