<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2000
REGISTRATION NO. 333-31428
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
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 3812 95-3814301
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFIED CODE NUMBER) IDENTIFICATION NO.)
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9404 CHESAPEAKE DRIVE, SAN DIEGO, CALIFORNIA 92123, (858) 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, (858) 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 DOUGLAS J. REIN
PAUL H. GREINER JEFFREY T. BAGLIO
CHRISTINA L. VAIL CHRISTOPHER M. SMITH
HELLER EHRMAN WHITE & MCAULIFFE LLP GRAY CARY WARE & FREIDENRICH LLP
601 SOUTH FIGUEROA STREET 4365 EXECUTIVE DRIVE, SUITE 1600
LOS ANGELES, CALIFORNIA 90017-5758 SAN DIEGO, CALIFORNIA 92121-2189
(213) 689-0200 (858) 677-1400
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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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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The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell securities and we are not soliciting offers to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 20, 2000
PROSPECTUS
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3,750,000 SHARES
[REMEC LOGO]
COMMON STOCK
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Of the 3,750,000 shares of common stock offered, we are offering 3,500,000
shares and one selling shareholder is offering 250,000 shares. We will not
receive any of the proceeds from the shares sold by the selling shareholder.
Our common stock is traded on the Nasdaq National Market under the symbol
"REMC." On March 16, 2000, the last reported sale price for our common stock on
the Nasdaq National Market was $40.875 per share.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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PER SHARE TOTAL
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Public Offering Price.......................... $ $
Underwriting Discount.......................... $ $
Proceeds, before expenses, to REMEC............ $ $
Proceeds to Selling Shareholder................ $ $
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The underwriters may also purchase up to an additional 562,500 shares from
the additional selling shareholders identified in this prospectus at the public
offering price, less the underwriting discount, within 30 days from the date of
this prospectus, to cover over-allotments. If the over-allotment option is
exercised, we will not receive any of the proceeds from the shares sold by the
selling shareholders.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this prospectus
is truthful or complete. It is illegal for any person to tell you otherwise.
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NEEDHAM & COMPANY, INC.
CIBC WORLD MARKETS
DAIN RAUSCHER WESSELS
A.G. EDWARDS & SONS, INC.
The date of this prospectus is , 2000
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 14
Use of Proceeds............................................. 14
Price Range of Common Stock................................. 15
Capitalization.............................................. 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 22
Management.................................................. 34
Principal and Selling Shareholders.......................... 38
Underwriting................................................ 40
Legal Matters............................................... 42
Experts..................................................... 42
Where You Can Find More Information......................... 42
</TABLE>
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In this prospectus, "REMEC," "we," "us" and "our" refer to REMEC, Inc. and
our subsidiaries, on a consolidated basis. "REMEC," "REMEC Microwave," "REMEC
Wireless," "Humphrey," "REMEC Magnum," "REMEC Veritek," "REMEC CSH," "REMEC
Q-bit," "REMEC Canada," "REMEC Nanowave," "REMEC WACOM," "REMEC Europe" and
"Airtech" are trademarks of REMEC. All other trademarks appearing in this
prospectus are the property of their respective owners.
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and the other information, financial statements and notes thereto
appearing elsewhere in this prospectus. Except as otherwise indicated, the
information in this prospectus assumes the underwriters do not exercise their
over-allotment option and assumes any outstanding options to purchase shares of
common stock have not been exercised.
REMEC
We are a leading designer and manufacturer of high frequency subsystems
used in the transmission of voice, video and data traffic over wireless
communications networks. Our products are designed to improve the capacity,
efficiency, quality and reliability of wireless communications infrastructure
equipment. We also develop and manufacture highly sophisticated wireless
communications equipment used in the defense industry, including communications
equipment integrated into tactical aircraft, satellites, missile systems and
smart weapons.
We manufacture products that operate at the full range of frequencies
currently used in the transmission of wireless communications traffic, including
at radio frequencies, or RF, microwave frequencies and millimeter wave
frequencies. By offering products that cover the entire frequency spectrum for
wireless communications, we are able to address opportunities in the worldwide
mobile wireless communications market as well as the global fixed access
broadband wireless market.
In the mobile wireless communications market, we design and produce
subsystems used in base stations for analog cellular and digital cellular
systems, including personal communications systems, or PCS, and emerging third
generation, or 3G, networks. In the fixed access broadband market, we develop
and manufacture products for point-to-point, point-to-multipoint and
satellite-to-multipoint systems. Our point-to-multipoint products are designed
to be integrated into various broadband distribution systems, including local
multipoint distribution systems, or LMDS, and multichannel multipoint
distribution systems, or MMDS. Fixed access broadband wireless systems can
complement or provide cost effective alternatives to copper wire, cable and
fiber optic-based communications networks.
Demand for wireless infrastructure equipment is increasing due to a number
of factors, including the deregulation of the telecommunications industry,
advances in wireless communications technology and business and residential
demand for wireless services such as digital cellular, Internet access, two-way
paging and specialized mobile radio services. With industry estimates of 975
million cellular/ PCS subscribers worldwide by 2003 and 502 million Internet
users worldwide by 2003, we anticipate that there will be strong demand for
services by communications networks with the capacity to provide high speed
Internet access for mobile wireless products. In addition to mobile
applications, Internet use and corporate data applications are also expected to
increase the demand for fixed access broadband wireless networks.
We market our wireless products primarily to original equipment
manufacturers, or OEMs, such as Motorola, Inc., Digital Microwave Corporation,
Nokia Corp., Alcatel Network Systems, P-COM, Inc., STM Wireless, Inc., Lucent
Technologies Inc., Nortel Networks Corporation and SpectraPoint Wireless LLC. By
outsourcing subsystems to us, OEMs are able to accelerate their time to market
in a cost effective manner and to leverage their core competencies of full
system design and integration.
We have augmented our existing technology base by acquiring specialized
technology companies that complement our product offerings and market
strategies. Over the last three years, we acquired eight companies, including
our most recent acquisition in April 1999 of Airtech plc, a United Kingdom-based
manufacturer of mobile wireless products with sales offices in Malaysia and
China. In acquiring Airtech, we were able to establish operations from which we
can more directly address the European and Asian wireless infrastructure
markets.
1
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Our objective is to build on the strength of our core technological
competencies to be the supplier of choice of OEMs in the wireless infrastructure
equipment industry and prime contractors in the defense electronics industry.
Our strategy to accomplish this objective is to:
- leverage our technology leadership;
- continue to develop strong strategic alliances with customers;
- supply integrated microwave subsystems to OEMs' worldwide operations and
expand our international presence;
- supply niche products directly to network service providers;
- enhance our high volume manufacturing capability; and
- pursue strategic acquisitions.
Our principal executive offices are located at 9404 Chesapeake Drive, San
Diego, California 92123, and our telephone number is (858) 560-1301. Our website
address is http://www.remec.com. The information on our website is not
incorporated by reference into this prospectus.
THE OFFERING
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Common stock offered by REMEC.............................. 3,500,000 shares
Common stock offered by the selling shareholder............ 250,000 shares
Common stock to be outstanding after the offering.......... 28,930,458 shares
Use of proceeds............................................ Working capital for expansion of
production capacity, marketing
activities and research and development
and for other general corporate
purposes.
Nasdaq National Market symbol.............................. REMC
</TABLE>
The number of shares offered by the selling shareholder does not include
shares to be sold by other selling shareholders if the underwriters'
over-allotment option is exercised. The number of shares to be outstanding
immediately after this offering is based on the number of shares outstanding as
of January 31, 2000. This number does not include 3,036,409 shares of common
stock issuable upon the exercise of outstanding options at a weighted average
price of $15.40 per share, of which options to purchase 1,152,230 shares are
currently exercisable.
2
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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FISCAL YEARS ENDED JANUARY 31,
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1996 1997 1998 1999 2000
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales.............................................. $97,700 $131,643 $191,008 $179,215 $189,189
Gross profit........................................... 28,924 36,284 58,659 41,772 45,609
Income (loss) from operations.......................... 6,058 6,622 18,493 (5,966) (9,704)
Income (loss) applicable to common stock............... 3,224 2,729 14,754 (4,831) (6,675)
Earnings (loss) per common share:
Basic................................................ $ 0.23 $ 0.15 $ 0.65 $ (0.20) $ (0.27)
Diluted.............................................. $ 0.23 $ 0.15 $ 0.64 $ (0.20) $ (0.27)
Shares used in per share calculations:
Basic................................................ 13,819 17,633 22,535 24,722 25,147
Diluted.............................................. 13,936 17,944 23,228 24,722 25,147
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AT JANUARY 31, 2000
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ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 34,836 $170,345
Working capital............................................. 95,610 231,120
Total assets................................................ 223,929 359,438
Long-term debt.............................................. 5,049 5,049
Total shareholders' equity.................................. 187,892 323,402
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Statements of operations data and balance sheet data set forth in the table
above include data of: Airtech plc acquired in April 1999; Q-bit Corporation
acquired in October 1997; C&S Hybrid, Inc. acquired in June 1997; Radian
Technology, Inc. acquired in February 1997; and Magnum Microwave Corporation
acquired in August 1996. These acquisitions were accounted for as pooling of
interests. In addition, we acquired Wacom Products, Inc. in March 1999,
Smartwaves International in February 1999, Nanowave Technologies Inc. in October
1997 and Verified Technical Corporation in March 1997, each of which was
accounted for as a purchase.
In the statements of operations data listed in the table above, we have
presented income or loss applicable to common stock to account for dividends on
preferred stock. Prior to completion of our initial public offering in 1996, we
had accrued dividends on outstanding preferred stock of $80,000 which were paid
upon completion of our initial public offering. Prior to completion of Airtech's
initial public offering in 1997 and our acquisition of Airtech, Airtech had
accrued dividends on outstanding preferred stock of $128,000, which were paid
when Airtech completed its initial public offering.
The balance sheet data under the as adjusted column at January 31, 2000 set
forth in the table above reflects the sale by us of 3,500,000 shares of our
common stock in this offering at an assumed offering price of $40.875 per share.
3
<PAGE> 7
RISK FACTORS
You should carefully consider the following risks before making an
investment decision in our common stock. The risks described below are not the
only ones that we face. Additional risks and uncertainties not presently known
to us or that are currently deemed immaterial may also impair our business
operations. Our business, operating results or financial condition could be
materially adversely affected by, and the trading price of our common stock
could decline due to, any of these risks, and you may lose all or part of your
investment. You should refer to the other information included in this
prospectus and the other information, our financial statements and the related
notes incorporated by reference into this prospectus before you decide to
purchase shares of our common stock.
This prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements of our plans, objectives, expectations and
intentions. Our actual results could differ materially from those anticipated in
the forward-looking statements for many reasons, including the factors described
below and elsewhere in this prospectus. You should not place undue reliance on
these forward-looking statements.
OUR EFFORTS TO EXPAND OUR COMMERCIAL BUSINESS MAY CAUSE OUR REVENUE TO FLUCTUATE
Historically, our business focused almost exclusively on making wireless
communications and other tactical weapon system products for the U.S. defense
industry. In recent years, we have increased our business in the commercial
wireless communications market. We believe that our future growth depends on our
continued success in the commercial market. The commercial market for our
products could fail to grow or could grow more slowly than anticipated.
Some segments of the commercial markets in which we sell products have only
recently begun to develop. For example, the point-to-multipoint wireless
communications equipment market has just begun to emerge in the last year.
Because these segments are relatively new, it is difficult to predict the rate
at which these segments will grow, if at all. Existing or potential applications
for our products may fail to develop or may erode for many different reasons.
These reasons include, but are not limited to:
- insufficient economic growth to support expensive infrastructure
equipment;
- insufficient consumer demand for wireless products or services because of
pricing or otherwise; and
- real or perceived security risks associated with wireless communications,
such as privacy of data and eavesdropping.
COMPETITION IN THE COMMUNICATIONS INDUSTRY MAY INCREASE THE TECHNOLOGICAL
OBSOLESCENCE OF OUR PRODUCTS AND REDUCE OUR PRODUCT PRICES, MARGINS AND REVENUES
The markets for our communications products are extremely competitive and
are characterized by rapid technological change. Specifically, new products are
generally developed quickly and industry standards are constantly evolving.
Thus, our products can become obsolete over a short period of time. In addition,
price competition is intense and the market prices and margins of products
frequently decline after competitors begin making similar products. We believe
that to remain competitive in the future we will need to invest significant
financial resources in research and development.
4
<PAGE> 8
Some of our current and potential competitors have substantially greater
technical, financial, marketing, distribution and other resources than we have.
They also may have greater name recognition and market acceptance of their
products and technologies. Our competitors, or the competitors of our customers,
may develop new technologies, enhancements to existing products or new products
that offer superior price or performance features. These new products or
technologies could render obsolete our products or the systems of our customers
into which our products are integrated.
CUSTOMER ORDER ESTIMATES MAY NOT NECESSARILY INDICATE FUTURE SALES
Some of our customers have provided us with estimates of their requirements
for our products over a period of time. We make a number of management decisions
based on these customer estimates, including our purchase of materials, hiring
of personnel and other matters that may increase our production capabilities and
costs. If a customer reduces its orders from prior estimates after we have
increased our production capabilities and costs, this reduction may decrease our
revenue and we may not be able to reduce our costs to account for this reduction
in customer orders.
WE MAY ENCOUNTER DIFFICULTIES IN EFFECTIVELY INTEGRATING ACQUIRED BUSINESSES
As part of our business strategy, we intend to augment our technology base
by acquiring specialized technology firms. Over the last several years we have
acquired a number of companies and have had some difficulties integrating those
companies into our business. These and any future acquisitions we make will be
accompanied by the risks commonly encountered in acquisitions of companies which
include, among other things:
- potential exposure to unknown liabilities of acquired companies;
- higher than anticipated acquisition costs and expenses;
- difficulty and expense of assimilating the operations and personnel of
the companies, especially if the acquired operations are geographically
distant;
- potential disruption of our ongoing business and diversion of management
time and attention;
- failure to maximize our financial and strategic position by the
successful incorporation of acquired technology;
- difficulties in adopting and maintaining uniform standards, controls,
procedures and policies;
- loss of key employees and customers as a result of changes in management;
and
- possible dilution to our shareholders.
We may not be successful in overcoming these risks or any other problems
encountered in connection with any of our acquisitions.
OUR STRATEGIC ACQUISITIONS MAY ADVERSELY AFFECT OUR PROFITABILITY
We may make a strategic acquisition knowing that the transaction may
adversely affect our short-term profitability. A company that is an acquisition
candidate may be experiencing operating losses. We may believe that the
strategic opportunity of acquiring such a company outweighs the operating losses
the candidate is experiencing and that we expect to experience before being able
to return the acquisition candidate to profitability. The completion of such an
acquisition in the future would negatively affect our profitability and may
cause a decline in our stock price.
5
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WE MAY NOT BE SUCCESSFUL IN ESTABLISHING THE MANUFACTURING CAPACITY NECESSARY TO
MEET ANTICIPATED GROWTH OF OUR COMMERCIAL BUSINESS
The commercial wireless business generally requires the ability to produce
a high volume of products in a short time relative to products that we produce
for the defense electronics industry. As a result of expected growth in our
commercial wireless business, we are significantly increasing our manufacturing
capacity. Higher volume manufacturing generally requires greater automation in
order to be cost effective. We may not be able to automate sufficiently in order
to fulfill high volume production orders in a cost effective manner. If we can
not successfully manufacture our products in the future at volumes, yields or
cost levels necessary to meet our customers' needs, we may lose customers and
our sales will suffer. In addition, we can give no assurance that we will obtain
a sufficient amount of high volume orders to absorb the capital costs incurred
in increasing our automation.
In 1997, we acquired a manufacturing facility in Costa Rica through the
acquisition of Q-bit. The Costa Rica facility currently manufactures a wide
range of our microwave and RF products, and we intend to expand the number and
increase the volume of products manufactured in Costa Rica. There are several
risks inherent in the transfer of the manufacturing process from one facility to
another, including unexpected costs and risks related to technology transfer and
the ramp-up process in the new facility. Our failure to successfully transition
manufacturing to our Costa Rican facility in a cost effective manner may result
in increased product costs or delays.
OUR PRODUCTS MAY CONTAIN UNDETECTED OR UNRESOLVED DEFECTS WHEN SOLD OR MAY NOT
MEET OUR CUSTOMERS' PERFORMANCE CRITERIA
Our standard product warranties run between 12 months and three years. If
our products fail to perform as warranted and we do not resolve product quality
or performance issues in a timely manner, we may lose sales or be forced to pay
resulting damages. There is a risk that for unforeseen reasons we may be
required to repair or replace a substantial number of products in use or to
reimburse customers for products that fail to work or meet strict performance
criteria. In addition, because our products are sold and marketed in different
countries, our products must function in and meet the requirements of many
different communications environments and be compatible with various
communications systems and products. Any failure on our part to meet the
requirements of our customers' performance requirements could have a negative
impact on our sales.
Further, there is a risk that our customers may uncover latent design
defects in our products which were not apparent at the time the product was
sold. This type of defect may be discovered after the warranty period has
expired. A performance failure due to a design defect may cause loss of
customers, damage to our reputation for delivering high quality products, delay
in or loss of market acceptance, additional warranty expense or product recall.
OUR EXPANSION OF PRODUCT LINES AND CUSTOMER BASE COULD CAUSE PROBLEMS IN OUR
MANAGEMENT OF GROWTH
Our business has grown in size and complexity, and we have significantly
expanded our product lines and customer base. This growth and expansion has
placed significant demands on our management and operations, and we expect that
these demands will continue. Our ability to compete effectively and to manage
future growth will depend on our ability to implement and improve operating and
financial systems on a timely basis. We may not be able to manage our future
growth effectively.
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OUR PRODUCTION SCHEDULES AND MANUFACTURING PROCESSES MAY CAUSE FLUCTUATIONS IN
QUARTERLY RESULTS
Our quarterly results have varied significantly in the past and are likely
to continue to vary significantly, due to a number of factors, including the
following:
- timing, cancellation or rescheduling of customer estimates for product,
customer orders and shipments;
- pricing and mix of products sold;
- introduction of new products;
- our ability to obtain components and subassemblies from contract
manufacturers and suppliers; and
- variations in manufacturing efficiencies.
Any one of these factors could substantially affect our results of operations
for any particular fiscal quarter.
OUR DEPENDENCE ON A SMALL NUMBER OF CUSTOMERS COULD RESULT IN A DECREASE IN OUR
REVENUES
We derive significant revenues from a limited group of customers. For the
fiscal year ended January 31, 2000, our top ten customers comprised
approximately 60% of revenues, with no customer accounting for more than 10% of
total fiscal 2000 revenues other than the combined sales to Motorola, Inc. and
General Instrument which Motorola acquired in January 2000. The combined sales
to Motorola and General Instrument in fiscal 2000 accounted for 15.6% of fiscal
2000 revenues. In addition, in December 1999, we entered into a strategic supply
agreement with SpectraPoint Wireless LLC which we anticipate will provide a
significant portion of our revenues in the near future. We anticipate that we
will continue to derive significant revenues from sales to a relatively small
group of customers. If any of these customers cancels, reduces or delays orders
or product estimates given to us or shipments on account of their manufacturing
or supply difficulties, financial difficulties or reduction in demand for their
systems and products or otherwise, our revenues would be significantly reduced.
WE DEPEND ON COMMERCIAL OEMS AND DEFENSE PRIME CONTRACTORS TO OUTSOURCE PRODUCTS
WE PRODUCE AND WE ARE VULNERABLE IF THEY SHIFT TOWARDS RELYING EXCLUSIVELY ON
THEIR OWN IN-HOUSE CAPABILITIES
Currently, our primary competitors are the captive manufacturing operations
of our commercial customers that are large wireless infrastructure OEMs and
defense prime contractors. We believe that our future success depends largely
upon the extent to which the OEMs and defense prime contractors elect to
purchase integrated components and subsystems from outside sources such as us.
OEMs and defense prime contractors could develop greater internal capabilities
and manufacture these products exclusively in-house, rather than outsourcing
them, which would have a negative impact on our sales.
INTENSE COMPETITION AMONG TECHNOLOGY COMPANIES FOR EXPERIENCED ENGINEERS AND
OTHER PERSONNEL MAY AFFECT OUR ABILITY TO SUSTAIN OUR GROWTH EXPECTATIONS
We depend on attracting and retaining competent personnel in all areas of
our business, including management, engineering, manufacturing, quality
assurance, marketing and support. In particular, our development efforts depend
on hiring and retaining qualified engineers. We believe that engineers,
including highly skilled microwave engineers with the skills necessary to
develop products for wireless communications are in high demand. We may not be
able to hire and retain these personnel at compensation levels consistent with
our existing compensation and salary structure. If we are unable to hire a
sufficient number of engineering personnel, we may be unable to support the
growth of our business, and as a result, our sales may suffer.
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CUSTOMER PRESSURE TO REDUCE PRICES AND LONG-TERM SUPPLY ARRANGEMENTS MAY CAUSE
REDUCTIONS IN REVENUES OR PROFIT MARGINS
Many of our customers are under pressure to reduce price, and, therefore,
we expect to continue to experience pressure from our customers to reduce the
prices of our products. Our customers frequently negotiate supply arrangements
with us well in advance of delivery dates, requiring us to commit to price
reductions before we can determine whether we can achieve the product's assumed
cost reductions. To offset declining average sales prices, we believe that we
must reduce our manufacturing costs and obtain higher volume orders for
products. If we are unable to offset declining average selling prices, our gross
profit margins will decline.
THE FAILURE OF OUR CUSTOMERS TO SELL WIRELESS COMMUNICATIONS NETWORK SOLUTIONS
THAT INCLUDE OUR SUBSYSTEMS AND INTEGRATED COMPONENTS WOULD HARM OUR SALES
In general, our integrated components and subsystems must be custom
designed for use in our customers' products. As a result, we sell our products
to a relatively small group of customers, and our products must be specifically
engineered for each customer. While we select our customers based on our
assessment of their ability to succeed in the marketplace, we can not be sure of
their success. If our customers are not successful, the length of time required
to reengineer our product for another customer may delay our sales or prohibit
us from getting our product to the marketplace in a timely manner or at all.
OUR EXCLUSIVE ARRANGEMENTS WITH SOME CUSTOMERS MAY LIMIT OUR PURSUIT OF MARKET
OPPORTUNITIES AND MAY RESULT IN LOSS OF REVENUES
We have granted some of our customers exclusivity on specific products,
which means that we are only permitted to sell those specially engineered
products to them. We expect that in some cases our existing customers and new
customers may require us to give them exclusivity on new products that we make
for them. By entering into exclusive arrangements, we may forego opportunities
to supply these products to other companies. In addition, if we enter into
exclusive relationships with customers who prove to be unsuccessful, our
revenues will be negatively affected. We may not be able to establish business
relationships with, or negotiate acceptable arrangements with, significant
customers in the future. Also, our current or future arrangements with
significant customers may not continue or be successful.
OUR DEPENDENCE ON SUPPLIERS AND CONTRACT MANUFACTURERS MAY DECREASE OUR
TIMELINESS OF PRODUCT DELIVERY TO CUSTOMERS WHICH MAY RESULT IN LOST REVENUES
We rely on contract manufacturers and suppliers, in some cases sole
suppliers or limited groups of suppliers, to provide us with services and
materials necessary for the manufacture of our products. As a result of a
worldwide demand for and shortage of components, some suppliers have begun to
limit the number of components that we may purchase. These components include
chip components and other products necessary for the production of our products.
If we are not able to obtain sufficient allocations of these components, our
production and shipment of product will be delayed, we may lose customers and
our profitability will be affected.
Other risks relating to our reliance on contract manufacturers and on sole
suppliers include 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
us to seek alternative contract manufacturers or suppliers, could adversely
affect our ability to deliver products to our customers. In addition, if costs
for our contract manufacturers or suppliers increase, we may suffer losses if we
are unable to recover such cost increases under fixed price production
commitments to our customers.
8
<PAGE> 12
OUR CONTINUED EFFORTS TO SERVICE THE DEFENSE MARKET MAY LIMIT OUR GROWTH IN
REVENUES
We make a substantial portion of our sales to the U.S. defense market. As a
result, lower defense spending by the U.S. government could materially reduce
our revenues. Lower defense spending by the U.S. government might occur because
of defense budget cuts, general budget cuts or other causes. The U.S. recently
has reduced its defense budget and may further reduce it.
In addition, the U.S. has reduced the number of newly initiated defense
industry production programs. In the existing defense programs in which we
participate, pricing pressure continues to be exerted on follow-on orders.
We expect to continue to derive a substantial portion of our revenues from
defense programs and to develop microwave products for defense applications. If
a significant defense program or contract ends, and we fail to replace sales
from that program or contract, our revenues will decline. In addition, a large
portion of our expenses are fixed and difficult to reduce, thus magnifying the
negative effect of any shortfall in revenue.
OUR DEFENSE DEVELOPMENT CONTRACTS COULD CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE
Because of the decline in the number of defense industry production
programs, we have entered into more defense industry development contracts as a
source of defense revenues. Development contracts are contracts for the
development of products, rather than the production of products and they tend to
be fixed price contracts that generally result in lower gross profit margins
than production contracts. As a result, our increased reliance on development
contracts has led to increased quarterly fluctuations in sales and gross profit
margins. Accordingly, our comparative performance from one fiscal quarter to the
next is not necessarily an accurate indicator of our future performance.
FIXED-PRICE CONTRACTS MAY INCREASE RISKS OF COST OVERRUNS AND PRODUCT
NON-PERFORMANCE
Our customers establish demanding specifications for product performance,
reliability and cost. Most of our customer contracts are firm fixed price
contracts. Firm fixed price contracts provide for a predetermined fixed price
for the products we make, regardless of the costs we incur. We have made pricing
commitments to customers based upon our expectation that we will achieve more
cost effective product designs and automate more of our manufacturing
operations.
Manufacture of our products is an extremely complex process. We face risks
of cost overruns or order cancellations if we fail 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 labor, or other factors. We may have cost overruns or
problems with the performance or reliability of our products in the future.
SOME OF OUR DEVELOPMENT ARRANGEMENTS WITH CUSTOMERS MAY LEAD TO LOSS OF
INVESTMENT IN DESIGN AND ENGINEERING
We often make significant investments in the design and engineering of new
products for customers without any commitment by the customer for the future
purchase of the products. If we do not receive initial or follow-on orders for
products we design, our profitability will be affected because those costs would
not be offset by additional revenues.
9
<PAGE> 13
WE DEPEND ON THE CONTINUED CONTRIBUTIONS OF OUR EXECUTIVE OFFICERS AND OTHER KEY
MANAGEMENT, EACH OF WHOM WOULD BE DIFFICULT TO REPLACE
We do not have employment or non-competition agreements with our key
executive officers, except for Tao Chow (Senior Vice President), James Mongillo
(Executive Vice President), Justin Miller (Vice President) and Nicholas Randall
(Executive Vice President). We also do not have "key man" life insurance on our
key executive officers. The loss of any of our executive officers or other key
management would disrupt our operations and divert the time and attention of our
remaining officers.
ENVIRONMENTAL REGULATIONS AND HEALTH RISKS MAY INCREASE OUR OPERATION COSTS OR
DECREASE OUR SALES
We are subject to a variety of environmental regulations by local, state,
federal and foreign governments. These regulations govern the storage,
discharge, handling, emission, generation, manufacture and disposal of toxic or
other hazardous substances used to manufacture our products. If we fail to
comply with current or future regulations, the following adverse effects could
occur:
- we could be forced to alter manufacturing processes;
- we could be fined substantial amounts;
- our production could be suspended; or
- we could be forced to cease operations.
News reports have asserted that power levels associated with handheld
cellular telephones and related infrastructure equipment may pose certain health
risks. If wireless communications equipment (or other devices that incorporate
our products) were determined or perceived to create a significant health risk,
the market for our products could be significantly impacted. Moreover, if such a
health risk were determined or perceived to exist, we might be named as a
defendant in product liability lawsuits commenced by governments, businesses or
individuals alleging that our products were harmful. We would be required to
defend such lawsuits, and we might be held liable.
NEW GOVERNMENT REGULATIONS COULD INTERFERE WITH OUR BUSINESS GROWTH
Our products are incorporated into wireless communications systems that are
regulated domestically by the FCC and internationally by other government
agencies. Typically, the equipment operators and not REMEC are responsible for
compliance with these regulations. However, regulatory changes, including
changes in the allocation of available frequency spectrum, could negatively
affect our business by restricting development efforts by our customers, making
our current products obsolete or increasing the opportunity for additional
competition. Our sales will be adversely affected if our manufactured products
fail to comply with all applicable domestic and international regulations.
The delays inherent in the governmental approval process have in the past
caused, and may in the future cause, cancellation, postponement or rescheduling
of the installation of communications systems by our customers. This in turn may
have a negative impact on the sale of our products to these customers. In
addition, the increasing demand for wireless communications 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.
10
<PAGE> 14
IF WE ARE AUDITED BY U.S. GOVERNMENT AGENCIES, WE COULD INCUR SIGNIFICANT
EXPENSES AND EXPERIENCE DISRUPTION OF OUR BUSINESS
Because of our participation in the defense industry, we are subject to
audit from time to time for our compliance with government regulations by
various agencies, including the following:
- the Defense Contract Audit Agency;
- the Defense Security Service;
- the Office of Federal Contract Compliance Programs; and
- the Defense Supply Center Columbus.
These and other governmental agencies may also from time to time conduct
inquiries or investigations that cover a broad range of our activities.
Responding to governmental audits, inquiries or investigations may involve
significant expense and divert management attention. Also, an adverse finding in
any such audit, inquiry or investigation could involve penalties.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY
The market price of our 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 us, our 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 our common stock has been highly volatile and may continue to be highly
volatile.
WE ARE CURRENTLY INVOLVED IN SECURITIES CLASS ACTION LITIGATION
In April 1999, a securities class action suit was brought against us
alleging violations of the Securities Exchange Act of 1934. We believe that the
lawsuit is without merit, and we have been defending against it vigorously
through a motion to dismiss and otherwise. However, if the plaintiffs are
successful in pursuing their claims against us and our officers and directors,
such a result could have a significant negative effect on our business and
financial condition. In addition, we may be the target of similar litigation in
the future. Securities litigation could result in substantial costs and divert
management's attention and resources, and could seriously affect our business.
11
<PAGE> 15
LACK OF PATENT PROTECTION ON OUR PRODUCTS AND TECHNOLOGY MAY ALLOW COMPETITORS
TO DEVELOP SIMILAR PROPRIETARY PRODUCTS OR TECHNOLOGY
We do not presently hold any patents on our significant products. In order
to protect our intellectual property rights, we rely on a combination of trade
secrets, copyrights and trademarks and employee and third party nondisclosure
agreements. We also limit access to and distribution of proprietary information.
The steps that we have taken to protect our intellectual property rights may not
be adequate to prevent misappropriation of our technology or to preclude
competitors from independently developing similar technology.
IF INFRINGEMENT CLAIMS ARE BROUGHT AGAINST US IN THE FUTURE, WE COULD BE
REQUIRED TO PAY SUBSTANTIAL ROYALTIES AND OTHER COSTS
If a third party was successful in a claim that one of our products
infringed the third party's proprietary rights, we might have to pay substantial
royalties or damages or remove that product from the marketplace. We might also
have to expend substantial financial and engineering resources in order to
modify the product so that it would no longer infringe on those proprietary
rights. As to some of our products, we have agreed to indemnify our customers
against possible claims by third parties that the products infringe their
intellectual property rights. In the future, third parties may assert
infringement claims against us or with respect to our products. Asserting our
rights or defending against third party claims could involve substantial costs
and diversion of resources.
OUR SUCCESS IN PURSUING SALES IN INTERNATIONAL MARKETS MAY BE LIMITED BY RISKS
RELATED TO INTERNATIONAL TRADE AND MARKETING.
For the fiscal year ended January 31, 2000, approximately 18% of our
revenue was derived from sales to customers residing outside the U.S. In
addition, some of our U.S.-based customers which integrate our subsystems into
their products may sell into these international markets. Adverse international
economic conditions or developments, including economic instability in Asia in
the past, has and could in the future negatively affect our direct sales and
sales by our customers into these regions which would impact our revenues.
In addition to the uncertainty as to our ability to maintain and expand our
international presence, there are certain risks inherent in foreign operations,
including:
- delays in or prohibitions on exporting products resulting from export
restrictions for certain products and technologies;
- fluctuations in foreign currencies and the U.S. dollar;
- loss of revenue, property and equipment from expropriation,
nationalization, war, insurrection, terrorism and other political risks;
- overlap of different tax structures;
- seasonal reductions in business activity; and
- risks of increases in taxes and other government fees.
In addition, foreign laws treat the protection of proprietary rights differently
from laws in the United States and may not protect our proprietary rights to the
same extent as U.S. laws.
12
<PAGE> 16
OUR INCREASED INTERNATIONAL MARKET PRESENCE MAY INCREASE MARKETING AND SALES
COSTS OF DELIVERING PRODUCTS IN FOREIGN COUNTRIES
We seek to expand our presence in international wireless communications and
related markets by entering into partnerships or alliances with OEMs and service
providers in those countries and acquiring complementary international business.
We have had limited experience in partnering with international entities and
managing international operations. The success of our ability to increase our
international market presence is dependent on a number of factors, including the
success of our domestic operations, level of funding, stability of our stock
price, ability to produce competitive international products, attraction and
retention of key employees at our international locations and our execution of
strategic objectives.
WE ARE SIGNIFICANTLY CONTROLLED BY OUR MANAGEMENT
Our executive officers comprise five of the ten members of the Board of
Directors. As a result, our management has the ability to exercise influence
over our significant matters. This high level of influence may have a
significant effect in delaying, deferring or preventing a change in control of
REMEC.
MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF PROCEEDS OF THE OFFERING
Our management will have significant flexibility in applying the net
proceeds of this offering. You will be relying on the judgment of our management
regarding application of the proceeds.
13
<PAGE> 17
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements. These statements can be identified by the use of forward-looking
terms such as "may," "will," "expect," "anticipate," "estimate," "continue" or
other similar words. These statements discuss future expectations, projections
of results of operations or of financial condition or state other "forward-
looking" information. When considering these forward-looking statements, you
should keep in mind the risk factors and other cautionary statements in this
prospectus. The risk factors noted under the heading "Risk Factors" and other
factors noted throughout this prospectus could cause our actual results to
differ materially from those contained in any forward-looking statement.
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the 3,500,000 shares of
our common stock being offered by this prospectus will be approximately $135.5
million, assuming a public offering price of $40.875 per share, and after
deducting the underwriting discount and estimated offering expenses payable by
us.
We plan to use the proceeds of the offering to fund working capital,
including capital expenditures to increase production capacity, expansion of
marketing and research development. We may use a portion of the proceeds to
acquire technologies, products or businesses that complement our current
business, as such opportunities may arise. Although we do consider acquisitions
from time to time as a part of our normal business operations and planning, we
have no present commitments or agreements with respect to any acquisitions.
We currently have no other specific plans for any significant portion of
the proceeds. Accordingly, our management will have broad discretion in the
application of the net proceeds.
Pending their use, the proceeds will be invested in short term, U.S.
government or investment grade interest bearing securities. We will not receive
any of the proceeds from the sale of common stock by the selling shareholders.
We will not receive any of the proceeds from the shares sold by the selling
shareholder. We have agreed to pay the expenses, other than the underwriting
discounts, relating to the sale of these shares.
14
<PAGE> 18
PRICE RANGE OF COMMON STOCK
Our common stock has been traded on the Nasdaq National Market since
February 1, 1996 under the symbol "REMC." The following table sets forth the
range of high and low closing sale prices of our common stock as reported on the
Nasdaq National Market for the quarterly periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1999
First Quarter............................................. $29.000 $24.875
Second Quarter............................................ 25.125 7.625
Third Quarter............................................. 10.625 7.313
Fourth Quarter............................................ 21.938 11.469
FISCAL 2000
First Quarter............................................. $20.875 $11.063
Second Quarter............................................ 17.688 12.188
Third Quarter............................................. 15.000 10.438
Fourth Quarter............................................ 25.500 9.500
FISCAL 2001
First Quarter (through March 16, 2000).................... $54.000 $20.250
</TABLE>
On March 16, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $40.875 per share. As of January 31, 2000, there were
approximately 1,408 holders of record of our common stock.
15
<PAGE> 19
CAPITALIZATION
The following table sets forth our capitalization as of January 31, 2000
and as adjusted to reflect the sale of 3,500,000 shares of our common stock
offered by this prospectus at an assumed offering price of $40.875 per share,
after deducting underwriting discounts and offering expenses payable by us.
<TABLE>
<CAPTION>
AT JANUARY 31, 2000
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt........................................... $ 5,049 $ 5,049
Shareholders' equity(1)..................................
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued and outstanding............. -- --
Common stock, $.01 par value; 70,000,000 shares
authorized; 25,430,458 shares issued and
outstanding, actual; 28,930,458 shares issued and
outstanding, as adjusted............................ 254 289
Additional paid-in capital............................. 170,133 305,608
Accumulated other comprehensive income................. 65 65
Retained earnings...................................... 17,440 17,440
-------- --------
Total shareholders' equity.......................... 187,892 323,402
-------- --------
Total capitalization.............................. $192,941 $328,451
======== ========
</TABLE>
- -------------------------
The table above excludes 3,036,409 shares of our common stock issuable upon
exercise of options outstanding as of January 31, 2000, which have a weighted
average exercise price of $15.40 per share. Also, the table above excludes
2,654,109 additional shares reserved for issuance under our Equity Incentive
Plan, 1996 Nonemployee Directors Stock Option Plan and Employee Stock Purchase
Plan.
16
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus and
our consolidated financial statements and related notes incorporated by
reference into this prospectus. The selected consolidated financial data set
forth below with respect to statements of operations for each of the fiscal
years in the three year period ended January 31, 2000 and with respect to the
balance sheets at January 31, 1999 and 2000, are derived from the audited
consolidated financial statements incorporated by reference into this prospectus
and the data below are qualified by reference to those consolidated financial
statements and related notes. The consolidated statement of operations data for
the fiscal years ended January 31, 1996 and 1997 and the consolidated balance
sheet data at January 31, 1996, 1997 and 1998 are derived from audited
consolidated financial statements not incorporated by reference into this
prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY 31,
-------------------------------------------------------
1996 1997 1998 1999 2000
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales................................................. $97,700 $131,643 $191,008 $179,215 $189,189
Cost of sales............................................. 68,776 95,359 132,349 137,443 143,580
------- -------- -------- -------- --------
Gross profit............................................ 28,924 36,284 58,659 41,772 45,609
Operating expenses:
Selling, general and administrative..................... 18,159 23,313 31,210 36,835 38,189
Research and development................................ 4,707 6,349 7,887 10,903 13,994
Transaction costs....................................... -- -- 1,069 -- 3,130
------- -------- -------- -------- --------
Total operating expenses.............................. 22,866 29,662 40,166 47,738 55,313
------- -------- -------- -------- --------
Income (loss) from operations............................. 6,058 6,622 18,493 (5,966) (9,704)
Gain on sale of subsidiary................................ -- -- 2,833 -- --
Interest income (loss) and other, net..................... (426) 15 2,314 3,008 2,601
------- -------- -------- -------- --------
Income (loss) before provision for income taxes......... 5,632 6,637 23,640 (2,958) (7,103)
Provision (credit) for income taxes....................... 2,328 3,780 8,886 1,873 (428)
------- -------- -------- -------- --------
Net income (loss)......................................... 3,304 2,857 14,754 (4,831) (6,675)
Dividend accrued on preferred stock....................... (80) (128) -- -- --
------- -------- -------- -------- --------
Income (loss) applicable to common stock.................. $ 3,224 $ 2,729 $ 14,754 $ (4,831) $ (6,675)
======= ======== ======== ======== ========
Earnings (loss) per common share:
Basic................................................... $ 0.23 $ 0.15 $ 0.65 $ (0.20) $ (0.27)
Diluted................................................. $ 0.23 $ 0.15 $ 0.64 $ (0.20) $ (0.27)
Shares used in per share calculations:
Basic................................................... 13,819 17,633 22,535 24,722 25,147
Diluted................................................. 13,936 17,944 23,228 24,722 25,147
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 31, 2000
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 34,836 $170,345
Working capital............................................. 95,610 231,120
Total assets................................................ 223,929 359,438
Long-term debt.............................................. 5,049 5,049
Total shareholders' equity.................................. 187,892 323,402
</TABLE>
- -------------------------
We acquired Airtech in April 1999, Q-bit in October 1997, C&S Hybrid in
June 1997, Radian in February 1997 and Magnum in August 1996, each of which was
accounted for as a pooling of interests and, accordingly, all financial amounts
contained in the above table have been restated to include the financial results
and data of Airtech, Q-bit, C&S Hybrid, Radian and Magnum for all periods
presented. We acquired Wacom Products, Inc. in March 1999, Smartwaves
International in February 1999, Nanowave Technologies Inc. in October 1997 and
Verified Technical Corporation in March 1997, each of which was accounted for as
a purchase.
The balance sheet data under the as adjusted column as of January 31, 2000
set forth in the table above reflects the sale by us of 3,500,000 shares of our
common stock offered by this prospectus at an assumed offering price of $40.875
per share.
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We commenced operations in 1983 and have become a leader in the design and
manufacture of subsystems and integrated components used in the wireless
communications industry and the defense industry. Our consolidated results of
operations include the operations of: REMEC Microwave, Inc., or Microwave; REMEC
Wireless, Inc., or Wireless; Humphrey, Inc., or Humphrey; REMEC Magnum, Inc., or
Magnum; REMEC Veritek, Inc., or Veritek; REMEC CSH, Inc., or CSH; REMEC Q-bit,
Inc., or Q-bit; REMEC Nanowave, Inc., or Nanowave; REMEC WACOM L.P., or WACOM;
REMEC Airtech Ltd., or Airtech; and REMEC Inc., S.A., or REMEC Costa Rica. Our
consolidated results of operations also include the operations of RF
Microsystems, or RFM, for the period from April 30, 1996 to August 26, 1997.
Our research and development efforts for customers in the defense industry
are conducted in direct response to the unique requirements of a customer's
order and, accordingly, expenditures related to such efforts are included in
cost of sales and the related funding is included in net sales. As a result,
historical funded research and development expenses incurred by us have been
minimal. As our commercial business has expanded, research and development
expenses have generally increased in amount and as a percentage of sales. We
expect this trend to continue, although research and development expenses may
fluctuate on a quarterly basis both in amount and as a percentage of sales.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total net sales, certain
consolidated statements of income data for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
JANUARY 31,
-----------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 69.3 76.7 75.9
----- ----- -----
Gross profit.............................................. 30.7 23.3 24.1
Operating expenses:
Selling, general and administrative....................... 16.3 20.6 20.1
Research and development.................................. 4.1 6.1 7.4
Transaction costs......................................... 0.6 -- 1.7
----- ----- -----
Total operating expenses............................... 21.0 26.7 29.2
----- ----- -----
Income (loss) from operations............................... 9.7 (3.4) (5.1)
Gain on sale of subsidiary.................................. 1.5 -- --
Interest income and other, net.............................. 1.2 1.7 1.4
----- ----- -----
Income (loss) before income taxes........................... 12.4 (1.7) (3.7)
Provision for income taxes.................................. 4.7 1.0 (0.2)
----- ----- -----
Net income (loss)........................................... 7.7% (2.7)% (3.5)%
===== ===== =====
</TABLE>
18
<PAGE> 22
FISCAL YEAR ENDED JANUARY 31, 2000 VS. FISCAL YEAR ENDED JANUARY 31, 1999
NET SALES. Net sales increased 5.6% from $179.2 million during fiscal 1999
to $189.2 million during fiscal 2000. The increase in sales was primarily
attributable to the increased demand from REMEC's commercial customers,
including approximately $3.8 million of revenue generated by customers of WACOM,
which was acquired during fiscal 2000.
GROSS PROFIT. Gross profit increased 9.2% from $41.8 million in fiscal 1999
to $45.6 million in fiscal 2000. Despite charges to operations during fiscal
2000 of approximately $7.35 million associated with inventory obsolescence,
anticipated product warranty costs and write-downs of certain fixed assets,
gross margins as a percentage of net sales increased from 23.3% in fiscal 1999
to 24.1% in fiscal 2000. In fiscal 1999, gross margins were adversely affected
by costs associated with Airtech's MHA warranty upgrade program. The improvement
in gross margins during fiscal 2000 is primarily attributable to the absence of
such costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, or SG&A, increased 3.7% from $36.8 million in fiscal
1999 to $38.2 million in fiscal 2000. The increase in SG&A was primarily
attributable to costs incurred at WACOM, which was acquired during fiscal 2000.
As a percentage of net sales, SG&A expenses decreased from 20.6% in fiscal 1999
to 20.1% in fiscal 2000 due to the increase in sales.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 28.3% from $10.9 million in fiscal 1999 to $14.0 million in fiscal
2000, and as a percentage of net sales, increased from 6.1% in fiscal 1999 to
7.4% in fiscal 2000. These expenditures are almost entirely attributable to the
wireless communications business and reflect increased activity associated with
new product development.
TRANSACTION COSTS. REMEC's results of operations for fiscal 2000 include
$3.1 million of transaction costs associated with REMEC's acquisition of Airtech
and the terminated acquisition of STM Wireless, Inc. There were no similar costs
in the comparable prior year period.
INTEREST INCOME AND OTHER, NET. Interest income and other, net decreased
13.5% from $3.0 million in fiscal 1999 to $2.6 million in fiscal 2000. The
decrease in interest income was due to a decrease in the amount of cash
available for investing as a result of significant capital expenditures
associated with the expansion of REMEC's wireless communications business and
the cash paid for the acquisitions of Smartwaves International and Wacom
Products, Inc.
PROVISION (CREDIT) FOR INCOME TAXES. Income tax expense decreased 121.1%
from $1.9 million in fiscal year 1999 to a credit for income taxes of $.4
million in fiscal 2000. The decrease in income tax expense reflects the tax
benefit of $1.0 million related to research and experimentation tax credits, the
benefit of tax credits for certain capital expenditures, the effect of tax
exempt interest income and a decrease in domestic income before taxes of $11.3
million.
FISCAL YEAR ENDED JANUARY 31, 1999 VS. FISCAL YEAR ENDED JANUARY 31, 1998
NET SALES. Net sales decreased 6.2% from $191.0 million during fiscal 1998
to $179.2 million during fiscal 1999. The decrease in sales was primarily
attributable to the decreased revenues from our Airtech subsidiary, which was
acquired in April 1999 in a transaction accounted for as a pooling of interests.
The decline in Airtech's sales was attributable to delays in new PCS mobile
infrastructure "roll-outs" in the United States, delays to one customer's new
product program, financial instability in the Far East that impacted mobile
infrastructure projects in the region and customers delaying orders pending
availability of Airtech's next generation production, the G3 MHA.
GROSS PROFIT. Gross profit decreased 28.8% from $58.7 million in fiscal
1998 to $41.8 million in fiscal 1999. As a percentage of net sales, gross profit
decreased from 30.7% in fiscal 1998 to 23.3% in fiscal 1999. The fluctuations in
gross margins are primarily attributable to costs associated with
19
<PAGE> 23
Airtech's MHA warranty upgrade program, changes in the mix of products sold and
reduced production volume at certain of our subsidiaries.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased
18.0% from $31.2 million in fiscal 1998 to $36.8 million in fiscal 1999. The
increase in SG&A was primarily attributable to inclusion of a full year of SG&A
expenses from our Veritek subsidiary, which was acquired in March 1999, and our
Nanowave subsidiary, which was acquired in October 1997, both in transactions
accounted for as purchases. Therefore, a full year's operations is not included
in the fiscal 1998 results of operations for Veritek and Nanowave. In addition,
the increase in SG&A was also due to increased administrative expenses related
to Airtech's continued development of its international sales infrastructure in
the Far East and accounting and legal expenses associated with an income tax
credit study completed during fiscal 1999. As a percentage of net sales, SG&A
expenses increased from 16.3% in fiscal 1998 to 20.6% in fiscal 1999, due to the
factors discussed above.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 38.2% from $7.9 million in fiscal 1998 to $10.9 million in fiscal
1999, and as a percentage of net sales, research and development expenses
increased from 4.1% in fiscal 1998 to 6.1% in fiscal 1999. These expenditures
are almost entirely attributable to the commercial wireless communications
business and reflect an increase in activity associated with product
development.
TRANSACTION COSTS. Our results of operations for fiscal 1998 include $1.1
million of transaction costs associated with our acquisitions of Radian
Technology, Inc., C&S Hybrid, Inc. and Q-bit Corporation. There were no similar
costs in fiscal 1999.
GAIN ON SALE OF SUBSIDIARY. Our results of operations for fiscal 1998
include the gain from the sale of RFM. There was no similar gain in fiscal 1999.
INTEREST INCOME AND OTHER, NET. Interest income and other, net increased
from $2.3 million in fiscal 1998 to $3.0 million in fiscal 1999. This increase
was due to the increased level of cash available for investment as a result of
the funds generated from our follow-on public offering, which was completed in
March 1998.
PROVISION FOR INCOME TAXES. Income tax expense decreased 78.9% from $8.9
million in fiscal 1998 to $1.9 million in fiscal 1999. The decrease in income
tax expense reflects the tax benefit of $2.0 million related to the recognition
of research and experimentation tax credits pertaining to previously filed
income tax returns, the benefit of tax credits for certain capital expenditures,
the effect of tax exempt interest income and a decrease in domestic income
before taxes of $12.1 million.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2000, we had $95.6 million of working capital which included
cash and cash equivalents totaling $34.8 million. We also have a $9.0 million
revolving working capital line of credit with a bank. The borrowing rate under
this credit facility is based on a fixed spread over the London Interbank
Offered Rate, or LIBOR. The revolving working capital line of credit terminates
on July 3, 2000. As of January 31, 2000, there were no borrowings under this
credit facility. In February 2000, we amended leasing arrangements relating to
some of our facilities by pledging $17.0 million in cash as collateral for the
remaining lease payments on these facilities. At January 31, 2000, our Airtech
subsidiary had borrowings of $5.3 million under a long term credit facility.
This obligation was repaid in February 2000.
During fiscal 2000, the cash flows from non-cash expenses (primarily
depreciation and amortization) were offset by our operating loss and the
increase in inventories and trade accounts receivable. Receivables increased
during this period due to the increase in sales and an increase in the length of
time that customers were taking to pay invoices. Inventories increased due to
the need to support anticipated sales growth.
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During fiscal 2000, $55.9 million was used in investing activities
primarily in connection with: $23.2 million incurred in capital expenditures;
$5.8 million, net of cash acquired, paid to acquire Wacom Products and the
assets of Smartwaves International; an increase in restricted cash of $17.0
million; and a $9.8 million increase in other assets, primarily consisting of a
$4.6 million investment in an unconsolidated company and a $5.0 million loan to
this same company. The bulk of the capital expenditures were associated with the
expansion of our wireless communications business. The above expenditures were
financed primarily by cash on hand. Our future capital expenditures may continue
to be significant as a result of wireless communications expansion requirements.
Financing activities generated approximately $7.9 million during fiscal
2000, principally as a result of the proceeds borrowed under a mortgage
obligation at our Airtech subsidiary, net of repayments, and net proceeds of
$3.3 million generated by the issuance of shares in connection with our Employee
Stock Purchase Plan and from stock option exercises.
Our future capital requirements will depend upon many factors, including
the nature and timing of orders by OEM customers, the progress of our research
and development efforts, expansion of our marketing and sales efforts, and the
status of competitive products. We believe that available capital resources will
be adequate to fund our operations for at least the twelve-month period ending
January 31, 2001.
YEAR 2000
In prior years, we discussed the nature and progress of our plans to become
year 2000 ready. In late 1999, we completed our remediation and testing of
systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems, and we believe those systems
successfully responded to the year 2000 date change. We are not aware of any
material problems resulting from year 2000 issues, either with our products, our
internal systems or the products and services of third parties. We will continue
to monitor our mission critical computer applications and those of our suppliers
and vendors throughout the year 2000 to ensure that any latent year 2000 matters
that may arise are addressed promptly.
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BUSINESS
INTRODUCTION
We are a leading designer and manufacturer of high frequency subsystems
used in the transmission of voice, video and data traffic over wireless
communications networks. Our products are designed to improve the capacity,
efficiency, quality and reliability of wireless communications infrastructure
equipment. We also develop and manufacture highly sophisticated wireless
communications equipment used in the defense industry, including communications
equipment integrated into tactical aircraft, satellites, missile systems and
smart weapons. We manufacture products that operate at the full range of
frequencies currently used in wireless communications transmission, including at
radio frequencies, or RF, microwave frequencies and millimeter wave frequencies.
By offering products that cover the entire frequency spectrum for wireless
communications, we are able to address opportunities in the worldwide mobile
wireless communications market as well as the global fixed access broadband
wireless market.
INDUSTRY BACKGROUND
DEREGULATION OF THE TELECOMMUNICATIONS INDUSTRY FOSTERS COMPETITION BY
SERVICE PROVIDERS. Global telecommunications deregulation is fostering
significant competition among providers of advanced communications services. In
the U.S., regional Bell operating companies, such as Ameritech, Bell Atlantic,
BellSouth, GTE, Pacific Bell, SBC Communications and US West, until recently
were the exclusive owners and operators of the copper wire connections between
network backbones and their subscribers, commonly known as the "last mile." The
federal Telecommunications Act of 1996 intensified the competitive environment
in the U.S. by requiring these telephone companies to provide access to portions
of their networks, including the last mile, to competing service providers.
Similar to the U.S., other countries have begun to privatize state-owned
telecommunications companies to encourage competition among communications
service providers. These events have been significant factors in creating
worldwide competition in the communications services industry. To compete in
this environment, many network service providers seek to differentiate
themselves and increase market share by offering integrated voice, video and
data services, which require broadband access and deployment of additional
communications infrastructure equipment.
DEMAND FOR HIGH SPEED INTERNET ACCESS AND OTHER DATA SERVICES INCREASES THE
NEED FOR BROADBAND ACCESS. Consumers around the world are using the Internet
for an ever increasing range of purposes, including email, high quality audio,
streaming video and other multimedia services. Businesses are also using the
Internet to enhance their reach to both residential and business consumers with
applications such as electronic commerce, global marketing, customer support,
web hosting, order fulfillment and supply management. The Internet also permits
access to corporate data networks, including intranets and extranets,
facilitating communication among corporate sites or with telecommuters or
traveling employees. This increased usage requires an expanded capacity for the
quick and reliable transmission of voice, video and data, which can be
accomplished through broadband access.
INCREASED DEMAND FOR MOBILE WIRELESS SERVICES NECESSITATES EXPANSION OF
WIRELESS INFRASTRUCTURE. Wireless network service providers to date have
focused primarily on satisfying the increasing demand for wireless telephony and
paging services through the transmission of voice and low speed data signals
over analog cellular systems and digital personal communication systems, or PCS.
It is estimated that the number of global cellular/PCS subscribers will grow
from 308 million in 1998 to 975 million by 2003. Since each cellular or PCS base
station has a finite capacity, the demand created by increased subscribers will
require a substantial increase in capital investment in wireless communications
infrastructure equipment. It is estimated that wireless base stations, cell site
equipment and switch equipment sales will grow from $35.1 billion in 1998 to
$75.2 billion in 2003.
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ADVANCES IN MOBILE WIRELESS COMMUNICATIONS NETWORK TECHNOLOGY WILL REQUIRE
ADDITIONAL WIRELESS INFRASTRUCTURE EQUIPMENT. The capacity and quality of
domestic and international mobile wireless communications networks have evolved
with advances in technology. In response to capacity and level of service
demands, service providers are expanding their current infrastructure and also
are implementing new wireless technologies, such as third generation, or 3G,
networks. The level of technology advancement used in wireless mobile networks
is generally grouped into the following three categories:
- First generation, or 1G, networks. These mobile networks feature analog
technology that provides voice and low speed data services.
- Second generation, or 2G, networks. Second generation cellular networks
feature digital technology, including PCS. Digital technology provides
network service providers and subscribers with advantages over analog
technology, including increased system capacity, secure voice
communications, short messaging service and other enhanced services. This
technology can be implemented with new infrastructure or as an expansion
of existing 1G networks.
- Third generation, or 3G, networks. Third generation cellular networks
feature increased capacity and data speeds that permit wireless
transmission of integrated voice, video and data traffic. This technology
can be implemented with new infrastructure or also as an equipment
overlay to existing 2G networks. Network services providers are
anticipated to begin to upgrade their networks to 3G levels over the next
few years as regulatory agencies around the world begin to license the
frequency band for this digital technology. Licenses to use this
frequency band have been recently awarded in Japan and are expected to be
awarded in Europe in 2000, with the U.S. following over the next several
years.
COPPER WIRE, CABLE AND FIBER OPTIC BROADBAND ACCESS IS COSTLY TO DEPLOY AND
HAS OTHER LIMITATIONS. Applications requiring high capacity data transmission or
high speed Internet access traditionally have been satisfied through deployment
of broadband last mile connections consisting of enhanced copper wire called
digital subscriber lines, or DSL, coaxial cable and fiber optic cable, each of
which are described below:
- Digital subscriber line. DSL has a data transmission rate of up to 1.5
Mbps. While the necessary copper infrastructure for DSL is already in
place through existing telephone copper wires, transmission rates and
availability are limited by the quality of the subscriber's existing
copper wire infrastructure and distance from the telephone company
switch.
- Coaxial cable. Cable has a data transmission rate of up to 27 Mbps. As
with DSL, the necessary cable infrastructure for residential use is
already in place. However, existing cable networks must be upgraded to
provide for two-way data transmission, and many businesses are not
currently wired for cable.
- Fiber optic cable. Fiber optic networks have data transmission rates of
up to 10 billion bits per second, or 10 Gbps, the fastest rate of any
current broadband access solution. However, fiber optic cable is very
expensive to deploy and may exceed the data transmission needs of many
subscribers.
Currently, to add capacity, these land line networks require right of way
access and a labor intensive process of physically laying wires or cables in
order to connect consumers to the network backbone. As a result of the
difficulties in deploying additional wires or cables, increased demand for
communication access may create a "last mile bottleneck" between subscribers and
the backbone of these land line networks.
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FIXED ACCESS BROADBAND WIRELESS TECHNOLOGY IS EMERGING AS A COST EFFECTIVE
ALTERNATIVE TO BROADBAND LAND LINE TRANSMISSION. New fixed access broadband
wireless technology can provide quality of service comparable to the best land
line network alternatives at speeds that are significantly faster than
conventional copper wire-based networks. Fixed access broadband wireless
technology is designed to be integrated with the existing network backbone to
address the last mile bottleneck problem. In addition, certain types of fixed
access broadband wireless technology provide an alternative for selective
network backbone applications. Broadband wireless systems include point-to-
point, point-to-multipoint and satellite-to-multipoint broadband technologies,
which are illustrated and described below:
[BROADBAND WIRELESS DIAGRAM]
- Point-to-point wireless. Point-to-point wireless systems generally have
data transmission rates of up to 155 Mbps. While point-to-point systems
have traditionally been deployed for high capacity trunking applications
between two wireless telephony networks, recently they have been used to
interconnect digital cellular networks. Point-to-point wireless networks
can also provide a last mile connection for large communications end
users, such as large office buildings, hospitals and universities.
- Point-to-multipoint wireless. Point-to-multipoint wireless systems
generally have data transmission rates of up to 500 Mbps.
Point-to-multipoint wireless systems use a single central hub radio to
serve multiple end users. Point-to-multipoint wireless systems have
additional advantages over point-to-point wireless systems. These include
reduced equipment costs as the addition of new customers requires only
new customer premises equipment, as well as allocation of bandwidth based
on demand, so customers only pay for what they use. As a result,
point-to-multipoint systems can provide cost effective last mile access
to customers that do not have as much traffic as point-to-point
customers.
- Satellite-to-multipoint wireless. The current generation of
satellite-based multipoint systems are implemented with networks using
very small aperture terminals, or VSATs. These networks are deployed for
a wide range of business data applications such as point-of-sale
transactions and inventory management. Recently, VSAT networks have been
adapted for cost effective use in rural telephony applications, primarily
in countries that do not have fully developed land line telephone
networks. Recent advances in satellite digital processing and component
and device technology, based on a newly licensed frequency spectrum
called the Ka band, are being used in the development of broadband
satellite networks such as Teledesic and Hughes Spaceway. These next
generation satellite networks are designed to provide broadband access to
residential and business users for applications such as high speed
Internet access, videoconferencing and other data rich applications.
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FREQUENCY ALLOCATIONS BY THE FCC AND INTERNATIONAL AGENCIES MAY LEAD TO
WIRELESS INFRASTRUCTURE EXPANSION. In response to the increasing demand for
wireless communications services, regulatory bodies like the FCC and other
international agencies continue to allocate new frequency spectrum. For example,
the FCC has recently licensed several frequency bands, including bands for local
multipoint distribution systems, or LMDS, and multichannel multipoint
distribution systems, or MMDS, for two-way broadband wireless data services. The
FCC has also adopted orders to allocate additional spectrum through auctions
during 2000 which can be used by high speed data transmission service providers.
It is anticipated that these frequencies could be used to deliver fixed wireless
Internet access to business and residential customers. To take advantage of
these licenses, network operators must deploy new infrastructures specific to
the licensed frequency band. Each frequency band requires unique transmission
equipment designed to work with the technical requirements of the particular
band. Thus, as additional frequencies are allocated by regulatory agencies
around the world, wireless infrastructure equipment must be deployed to
commercialize these licenses.
WIRELESS INFRASTRUCTURE OEMS RELY ON SUBSYSTEM PROVIDERS. In order to meet
the demand for mobile wireless and fixed access broadband wireless services,
service providers are turning to systems integrators or OEMs to build out
infrastructure quickly, efficiently and in accordance with exacting performance
specifications. In addition, OEMs are looking to outsource the design and
manufacture of highly integrated, reliable subsystems in a cost effective
manner. This permits OEMs to accelerate their time to market and allows them to
leverage their core competencies of full system design and integration. By
outsourcing subsystems, OEMs promote competition among developers and
manufacturers, which leads to technological innovations in wireless
infrastructure equipment. Concurrently, OEMs are seeking to select a core group
of subsystem and component providers in order to reduce the supply and
management risks associated with the currently fragmented supplier base.
THE REMEC SOLUTION
We are a leading designer and manufacturer of high frequency subsystems and
integrated components used in the transmission of voice, video and data traffic
over wireless communications networks and in defense applications. We market our
products to OEMs of wireless communications networks and network services
providers as well as to prime contractors in the defense industry.
We believe that our core competencies enable us to effectively address the
existing and emerging opportunities in the wireless communications
infrastructure equipment and defense markets. These core competencies include
the following:
INTEGRATION EXPERTISE. We design high performance subsystems over a broad
range of RF, microwave and millimeter frequencies, which require sophisticated
component integration. By effectively integrating a number of required microwave
functions into a single package, we are able to:
- improve performance and reduce cost through reduction in product size and
parts count;
- enhance performance through optimal partitioning and implementation of
functional elements; and
- reduce cost by minimizing "over engineering" through avoiding the use of
higher performance, more costly components than are necessary in order to
compensate for performance degradation resulting from inefficiencies due
to combining stand alone components that are not designed to be
integrated into one system.
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CONCURRENT ENGINEERING. We streamline and optimize the product development
cycle by employing "concurrent engineering," which includes the following
elements:
- joint participation with our customers at the conceptual design stage,
allowing us to suggest an architecture/design that reduces cost and
increases performance at the integrated subsystem level;
- participation by our suppliers in the design process, thereby optimizing
material and device selections; and
- consideration of manufacturing constraints and limitations while
developing a product design in order to expedite the implementation of
the manufacturing process.
VERTICAL INTEGRATION OF DESIGN AND MANUFACTURING. Vertical integration of
design and manufacturing reduces product time to market and unit costs. With
vertical integration, we retain control of each step of the design and
manufacturing process while minimizing the use of outside sources and
subcontractors for key manufacturing processes and services. This vertical
integration also improves quality control, reliability and our ability to
implement volume production. We have enhanced our vertical integration
capability with recent acquisitions. These acquisitions include a surface mount
board assembly manufacturer, as well as several microwave component companies
that provide key functional capabilities to be used in the design of our
integrated subsystems.
BROAD FREQUENCY RANGE. Our technologies support the range of frequencies
utilized for mobile wireless and broadband wireless applications. Our microwave
technology expertise covers the full range of the frequency spectrum used for
existing wireless communications. Many of our subsystem competitors only address
select frequency bands in the subsystems they design, which makes them
vulnerable to technological advances in products that use frequency bands they
do not address. By being able to design and manufacture products across the
breadth of the wireless communications market, we can better address our
customers' needs and capitalize on our overall design and manufacturing
capabilities.
STRATEGY
Our objective is to build on the strength of our core competencies to be
the supplier of choice of OEMs in the wireless infrastructure equipment industry
and prime contractors in the defense electronics industry. Our strategy includes
the following key elements:
LEVERAGE TECHNOLOGY LEADERSHIP. Through seventeen years of leadership in
high frequency applications in the defense and commercial industries, we believe
that we have one of the most advanced portfolios of products encompassing RF,
microwave and millimeter wave technologies. The skills that we developed in the
defense industry and honed in the commercial wireless market have enabled us to
develop solutions to achieve substantial reductions in the size and cost of
wireless infrastructure equipment. We intend to continue to integrate additional
functions into smaller packaging with fewer parts while meeting the reliability
and performance specifications of next generation wireless infrastructure
equipment.
CONTINUE TO DEVELOP STRONG STRATEGIC ALLIANCES WITH CUSTOMERS. By forming
lasting customer relationships through working closely with customers, we are
better able to develop insight into their system requirements and to design
specific products that meet their needs. We intend to continue to expand our key
customer alliances with leading infrastructure OEMs, such as Motorola, Digital
Microwave and Nokia, as well as working with emerging wireless equipment
suppliers, such as SpectraPoint. In addition, we intend to expand our
participation in significant defense programs with key prime contractors, such
as Raytheon, Northrop Grumman and Lockheed Martin. We will concentrate our
efforts on the commercial customers we believe will be the most successful in
selling their systems to service providers that require high volume production.
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SUPPLY INTEGRATED MICROWAVE SUBSYSTEMS TO OEMS' WORLDWIDE OPERATIONS AND
EXPAND OUR INTERNATIONAL PRESENCE. Historically, we have been primarily a
supplier to the domestic operations of OEMs. Some of these and other OEMs also
have a significant global presence, including operations in Europe and Asia.
There is an opportunity to become the supplier for these OEMs in all of their
global markets. We believe that we are one of only a few microwave subsystem
companies that have the breadth of expertise in wireless communications
technology necessary to service these OEMs' worldwide operations. In addition to
servicing OEMs' worldwide operations, with our acquisition of United
Kingdom-based Airtech, we intend to increase our operations in Europe, initially
focusing on the mobile wireless market. We also intend to expand our existing
sales offices in Kuala Lumpur, Malaysia and Beijing, China to increase our sales
and distribution capabilities in Asia. Additional international activities may
include entering into strategic partner relationships with local marketing or
manufacturing companies in Asia.
SUPPLY NICHE PRODUCTS DIRECTLY TO NETWORK SERVICE PROVIDERS. We intend to
expand our marketing efforts to sell certain niche mobile wireless products
directly to network service providers. Although we do not intend to enter into
direct competition with our OEM customers, there are several niche microwave
transmission products that are not being marketed aggressively by OEMs,
including base station tower top products and mobile wireless coverage
enhancement products. We intend to expand our efforts to market these products
to network service providers when we can do so without competing directly with
our OEM customers.
ENHANCE HIGH VOLUME MANUFACTURING CAPABILITY. We intend to continue to
implement process manufacturing automation and believe that our ability to
develop a high level of automated product alignment and test capability will
help us to further improve our cost effectiveness and time to market. We also
intend to expand our foreign manufacturing operations, particularly in Costa
Rica, when appropriate, in order to lower our costs or to access an available
workforce. In addition, we intend to offer our manufacturing services to OEMs
and subsystem and component developers or manufacturers who need high volume
manufacturing of their own products either because of capacity constraints or
lack of manufacturing expertise.
PURSUE STRATEGIC ACQUISITIONS. We intend to continue to augment our
existing technology base by acquiring specialized technology companies that
complement our product offerings and market strategies. We believe that
expansion of our core competencies through the acquisition of such specialized
technology companies, when combined with our technological and manufacturing
skills, will allow us to achieve improved levels of integration.
PRODUCTS
Virtually every wireless system contains a microwave transport subsystem
that performs the function of transforming modulated voice, data or video from
an intermediate frequency, or IF, signal into a microwave frequency signal for
transmitting or converting an incoming signal from microwave frequencies back
into an IF modulated voice, data or video signal. A microwave transport
subsystems may consist of a completely integrated unit or of several
interconnected modules and single function components.
MOBILE WIRELESS PRODUCTS. In this market, we sell multi-function microwave
modules, including delay filter assemblies, filter/low noise amplifier
assemblies and filter panel assemblies. We also supply components, including
filters, amplifiers, voltage controlled oscillators, or VCOs, and mixers that
are used by OEMs in base station infrastructure equipment. In addition, we also
sell directly to service providers complete microwave subsystems for network
coverage enhancement applications, including tower mounted amplifiers and tower
mounted boosters. These products eliminate the cables between the radio at the
bottom of the base station and the antenna at the top of the base station by
filtering and amplifying the transmit/receive signals at the base station tower
top. These tower top
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base stations may extend coverage by up to 30% to 40%. As fully integrated
microwave "front ends," these products provide the circuitry of the radio that
enables signals to be transmitted and received at microwave frequencies and that
can be used as the front end of low power transceiver units. Active antenna and
remote RF head products that allow IF, RF, microwave or fiber optic backhaul are
currently being developed to provide levels of integration similar to that of
the fixed wireless access and broadband satellite access products. To address
the niche but high growth in-building coverage market, we have also developed
in-building coverage products, including repeaters, bi-directional amplifiers,
multicarrier combiners/amplifiers and fiber optic distribution modules. Our
selling prices for mobile wireless subsystems and components range from
approximately $20 to $3,500.
POINT-TO-POINT BROADBAND WIRELESS PRODUCTS. We develop and supply high
(OC-3) and medium (T1 to 8T1) capacity point-to-point wireless transport
equipment deployed by network operators for backhaul of a variety of
communications traffic. Our products are utilized in systems that provide a cost
effective approach to data transport where land line access to T1 lines or fiber
optic cable is not deployed or otherwise unavailable. For this market, we
manufacture microwave transport subsystems, including radios, outdoor units, or
ODUs, as well as individual microwave modules, including antennas, diplexers,
transceivers, synthesizers and power supplies, that provide microwave transport
functionality. As the market has become more horizontally segmented, there has
been a significant trend towards outsourcing the entire ODU, which allows our
OEM customers to focus on system engineering and network software. Using our
broad microwave engineering capabilities, we have been able to supply complete
microwave transport subsystems, which aids our customers in achieving their cost
reduction and time to market objectives. Our selling prices for point-to-point
broadband wireless subsystems and components range from approximately $80 to
$10,000.
POINT-TO-MULTIPOINT BROADBAND WIRELESS PRODUCTS. For this market, we
manufacture microwave transport subsystems, such as radios, customer premise
equipment and coverage enhancement products, as well as the individual microwave
modules that provide the microwave transport functionality. These modules
include antennas, diplexers, transceivers, synthesizers and power supplies.
Network systems integrators in this market typically outsource the entire radio
and, in many cases, the entire customer premises equipment. This outsourcing
allows these integrators to focus on their core competencies of system
engineering and network architecture. Our network service provider customers in
this market typically require specialized solutions to network-wide functional
needs. An example is our coverage enhancement product used in LMDS to solve
line-of-sight obstructions between base stations and potential customer sites,
which frequently impair transmission performance of our customers' LMDS
networks. Our selling prices for point-to-point multipoint subsystems and
components range from approximately $300 to $5,000.
SATELLITE-TO-MULTIPOINT BROADBAND PRODUCTS. Like the point-to-point and
point-to-multipoint markets, we have focused our VSAT and broadband satellite
business on ODU and customer premises equipment. We also provide microwave
modules such as power amplifiers to ODU integrators. Our satellite-to-multipoint
subsystems and components sell for less than $1,000.
DEFENSE PRODUCTS. We focus our efforts in the defense electronics industry
on providing communication systems, subsystems and integrated components to
defense programs which we believe have the highest probability of follow-on
production. Our products are integrated into various defense tactical aircraft,
satellites, missile systems and smart weapons comprise the majority of the
platforms of our customers. The systems, subsystems and integrated components
are comprised of specialized combinations of components that perform a variety
of microwave functions, including filters, couplers, power dividers, switches,
amplifiers, VCOs, mixers and multipliers, among others. Defense industry
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programs for which we provide communication systems, subsystems and integrated
components include the following:
- the F-22 Stealth Tactical Fighter Aircraft program for the U.S. Air
Force;
- the Integrated Defensive Electronic Countermeasure System (IDECM) for the
U.S. Navy;
- the Advanced Medium Range Air to Air Missile (AMRAAM) program for the
U.S. Air Force;
- the Longbow Missile and Radar programs for the U.S. Army; and
- the Standard Missile for the U.S. Navy.
Our selling prices for defense subsystems and components range from
approximately $100 to $200,000.
CUSTOMERS
We sell our commercial wireless communications products primarily to OEMs,
that in turn integrate our products into wireless infrastructure equipment
solutions sold to network service providers. In addition, we also sell certain
niche products directly to network service providers. Our customers for
commercial wireless subsystems include the following:
- Motorola
- General Instrument
- Alcatel
- P-COM
- SpectraPoint
- - Digital Microwave
- - Nokia
- - Lucent Technologies
- - STM Wireless
- - Nortel Networks
We also sell our wireless communications equipment to the major U.S.
defense prime contractors for integration into larger systems. Our customers for
defense communications equipment include the following:
- Raytheon
- ITT Industries
- TRW
- - Northrop Grumman
- - Lockheed Martin
- - Boeing
SALES AND MARKETING
We use a team-based sales approach to facilitate close management of
relationships at multiple levels of a customer's organization, including
management, engineering and purchasing personnel. Our integrated sales approach
involves a team consisting of a senior executive, a business development
specialist, members of our engineering department and, occasionally, a local
technical sales representative. In particular, the use of experienced
engineering personnel as part of the sales effort enables close technical
collaboration with the customer during the design and qualification phase of new
communications equipment which, we believe, is critical to the integration of
our products into our customers' equipment. Our executive officers are also
involved in all aspects of our relationships with our major customers and work
closely with their senior management. To identify sales opportunities, we
primarily utilize a direct sales force that is supplemented by a group of
manufacturer sales representatives.
We are rapidly expanding our international sales presence with direct sales
offices in Europe and Asia. Sales to customers residing outside of the U.S.
represented 15%, 13% and 18% of net sales in fiscal years ended January 31,
1998, 1999 and 2000, respectively. Our international sales do not include
products sold to foreign end users by our domestic customers.
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PRODUCT AND MANUFACTURING GROUPS
Our business is divided among three major product-based groups, the
Broadband Wireless Group, the Integrated RF Solutions Group and the Defense
Products Group, as well as a fourth group named the Manufacturing Group. The
Broadband Wireless Group develops and manufactures fixed access wireless
communications infrastructure equipment integrated into wireless networks for
high speed voice, video, data and internet services. These services may be
offered by communications services providers to business and residential
customers through various distribution systems, including local multipoint
distribution systems, or LMDS, multichannel multipoint distribution systems, or
MMDS, and satellite systems. Subsidiaries within this group include REMEC
Magnum, REMEC Wireless, REMEC Nanowave and REMEC CSH. The products produced by
members of this group include high capacity point-to-point and
point-to-multipoint radios, system enhancing microwave repeaters and low cost
satellite ground systems.
The Integrated RF Solutions Group develops and manufactures highly
integrated RF products that improve the performance and cost effectiveness of
mobile wireless communications infrastructure equipment. The subsidiaries within
this group include REMEC Airtech, REMEC Wacom and REMEC Q-bit. The products
produced by this group are provided to worldwide OEMs and service providers and
include masthead amplifiers, boosters, high power and low noise amplifiers, as
well as integrated filtering and combining systems.
The Defense Products Group provides a broad spectrum of RF, microwave and
guidance products for systems integrated by prime contractors in military and
space applications. This group currently consists of REMEC Microwave and
Humphrey, with defense products also being produced by REMEC Magnum, REMEC
Nanowave and REMEC Q-bit. The Defense Group products range from critical
components and integrated modules to advanced integrated microwave assemblies
for radar, missiles, electronic warfare and communication/navigation systems.
The Manufacturing Group provides high volume production of microwave
products, including test and critical hybrid circuits, to the other product
groups. Subsidiaries or divisions within this group include REMEC Veritek, a
microwave adept automated surface mount assembly facility, REMEC Metal
Fabrication Center, a sophisticated metal fabrication design and volume
production facility, and REMEC Costa Rica and an affiliated maquiladora
operation in Mexico, both of which have high volume manufacturing facilities.
Members of the product groups also have manufacturing facilities.
MANUFACTURING
With the precise specifications required by our customers, we believe that
process expertise and discipline are key elements of successful high volume
production of wireless subsystems. We assemble, test, package and ship products
at our manufacturing facilities located in the following cities:
- San Diego, Poway, Escondido, San Jose, Santa Clara and Milpitas,
California;
- West Palm Bay, Florida;
- Waco, Texas;
- Toronto, Canada;
- San Jose, Costa Rica;
- Tijuana, Mexico; and
- Aylesbury, United Kingdom.
Since inception, we have been manufacturing products for defense programs
in compliance with the stringent MIL-Q-9858 specifications. We received ISO-9001
certification from the Defense Electronics Supply Center for our facilities at
Microwave. Other REMEC facilities that are ISO-9001 qualified include Wireless,
Humphrey, Q-bit, and Airtech. In addition, facilities at Veritek and REMEC Costa
Rica facilities are ISO-9002 qualified. ISO-9001 and ISO-9002 are standards
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<PAGE> 34
established by the International Organization for Standardization that provide a
methodology by which manufacturers can obtain quality certification. To assure
the highest product quality and reliability and to maximize control over the
complete manufacturing cycle and costs, we seek to achieve vertical integration
in the manufacturing process wherever appropriate.
Historically, the volume of our production requirements in the defense
markets was not sufficient to justify the widespread implementation of automated
manufacturing processes. As a result of expected growth in our commercial
wireless business, we are significantly increasing our manufacturing capacity.
Accordingly, we have introduced automated manufacturing techniques for product
assembly and testing and anticipate significant capital expenditures for this
purpose in the future.
We attempt to utilize standard parts and components that are available from
multiple vendors. However, certain components used in our products are currently
available only from single sources, and other components are available from only
a limited number of sources. Despite the risks associated with purchasing
components from single sources or from a limited number of sources, we have made
the strategic decision to select single source or limited source suppliers in
order to obtain lower pricing, receive more timely delivery and maintain quality
control. In 1997, we acquired Veritek which provides surface mount capabilities
and expertise. We also rely on contract manufacturers for circuit board
assembly. We generally order components and circuit boards from our suppliers
and contract manufacturers by purchase order on an as needed basis.
COMPETITION
The markets for our products are extremely competitive and are
characterized by rapid technological change, new product development, product
obsolescence and evolving industry standards. In addition, price competition is
intense, and the market prices and margins of our products may decline if
competitors begin making similar products. We face some competition from
component manufacturers who have integration capabilities, but we believe that
our primary competition is from the captive manufacturing operations of large
wireless communications OEMs, including all of the major telecommunications
equipment providers, and defense prime contractors. We believe that our future
success depends largely upon the extent to which these OEMs and defense prime
contractors elect to purchase subsystems and integrated components from outside
sources such as us. OEMs and defense prime contractors could develop greater
internal capabilities and manufacture these products exclusively in-house,
rather than outsourcing them, which would have a negative impact on our sales.
RESEARCH AND DEVELOPMENT
Our core competencies, including our emphasis on concurrent engineering,
rely heavily on our research and development capabilities. These capabilities,
including our breadth of engineering skills, have allowed us to develop products
that operate at the full range of existing frequencies used in commercial
wireless communications. Research and development expenses for the fiscal years
ended January 31, 1998, 1999 and 2000 were approximately $7.9 million, $10.9
million and $14.0 million, respectively. We expect that as our commercial
business expands, research and development expenses will increase in amount and
as a percentage of sales. Our research and development efforts in the defense
industry are conducted in direct response to the unique requirements of a
customer's order and, accordingly, are included in cost of sales and the related
funding in net sales. We believe that to remain competitive in the future we
will need to invest significant financial resources in research and development.
GOVERNMENT REGULATIONS
Our products are incorporated into commercial wireless communications
systems that are subject to regulation domestically by the FCC and
internationally by other government agencies. Although typically the equipment
operators and not us are responsible for compliance with these regulations,
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<PAGE> 35
regulatory changes, including changes in the allocation of available frequency
spectrum, could negatively affect our business by restricting development
efforts by our customers, making current products obsolete or increasing the
opportunity for additional competition. In addition, the increasing demand for
wireless telecommunications has exerted pressure on regulatory bodies worldwide
to adopt new standards for these products, generally following extensive
investigation of and deliberation over competing technologies. The delays
inherent in this governmental approval process have in the past caused and may
in the future cause the cancellation, postponement or rescheduling of the
installation of communications systems by our customers.
We are also subject to a variety of local, state, federal and foreign
governmental regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic or other hazardous substances used
to manufacture our products. The failure to comply with current or future
regulations could result in the imposition of substantial fines on us,
suspension of production, alteration of our manufacturing processes or cessation
of operations.
Because of our participation in the defense industry, we are subject to
audit from time to time for our compliance with government regulations by
various agencies, including the Defense Contract Audit Agency, the Defense
Investigative Service, the Office of Federal Control Compliance Programs and the
Office of Defense Supply Center. These and other governmental agencies may also,
from time to time, conduct inquiries or investigations that may cover a broad
range of our business activity. Responding to any governmental audits, inquiries
or investigations may involve significant expense and divert management
attention. Also, an adverse finding in any such audit, inquiry or investigation
could involve penalties.
We believe that we operate our business in material compliance with
applicable government regulations.
INTELLECTUAL PROPERTY
We do not presently hold any patents on our significant products. In order
to protect our intellectual property rights, we rely on a combination of trade
secrets, copyrights and trademarks and employee and third party nondisclosure
agreements. We also limit access to and distribution of proprietary information.
The steps that we have taken to protect our intellectual property rights may not
be adequate to prevent misappropriation of our technology or to preclude
competitors from independently developing similar technology. Furthermore, in
the future, third parties may assert infringement claims against us or with
respect to our products. As to some of our products, we have agreed to indemnify
our customers against possible claims by third parties that the products
infringe their intellectual property rights. Asserting our rights or defending
against third party claims could involve substantial costs and diversion of
resources. If a third party was successful in a claim that one of our products
infringed the third party's proprietary rights, we may have to pay substantial
royalties or damages or remove that product from the marketplace. We might also
have to expend substantial financial and engineering resources in order to
modify the product so that it would no longer infringe on those proprietary
rights.
LITIGATION
On April 19, 1999, a class action lawsuit was filed against us, some of our
officers and directors and the investment banking firms who served as the
representatives of the underwriters of our public offering completed in February
1998. The three investment banking firms named in that lawsuit are
representatives of the underwriters of this offering. The lawsuit was filed by
the law firm Milberg Weiss Bershad Hynes and Lerach and its colleagues in the
United States District Court for the Southern District of California as counsel
for Charles Vezzetti and all others similarly situated. The lawsuit alleges
violations of the Securities Exchange Act of 1934 by us and the other defendants
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<PAGE> 36
between December 1, 1997 and June 12, 1998. Specifically, the complaint alleges
that we made falsely positive statements which artificially inflated the price
of our stock prior to a secondary offering completed in February 1998 in which
REMEC and some of our officers and directors sold stock, and that our stock
price fell on a series of adverse disclosures in late May and early June 1998.
The complaint in the lawsuit does not specify an amount of claimed damages.
Since the lawsuit was filed, the underwriters have been dismissed without
prejudice.
We believe that the lawsuit is without merit, and we have been defending
against it vigorously through a motion to dismiss and otherwise. In addition, we
believe the ultimate resolution will not have a material adverse impact on our
business or financial condition. However, if the plaintiffs are successful in
pursuing their claims against us and our officers and directors, such a result
could have a significant negative impact on our business and financial
condition.
EMPLOYEES
As of January 31, 2000, we had a total of 2,388 employees, including 1,622
in manufacturing and operations, 305 in research, development and engineering,
140 in quality assurance, 59 in sales and marketing and 262 in administration
and material procurement. We believe our future performance will depend in large
part on our ability to attract and retain highly skilled employees. None of our
employees is represented by a labor union, and we have not experienced any work
stoppage. We consider our employee relations to be good.
FACILITIES
Our principal administrative, engineering and manufacturing facilities are
located in ten buildings aggregating approximately 262,000 square feet in the
Southern California area. Our Southern California operations consist of five
facilities owned by us and five leased facilities located in San Diego,
Escondido and Poway, California. The leases of these facilities expire on
various dates beginning in June 2000 through February 2010. Our Northern
California operations are located in four leased buildings aggregating
approximately 80,000 square feet in San Jose, Milpitas, Burlingame and Santa
Clara, California. These leases expire on various dates between in November 2000
and October 2004. Q-bit owns a 51,000 square foot building located in West Palm
Bay, Florida. REMEC S.A. owns a 50,000 square foot building located in San Jose,
Costa Rica. Nanowave leases approximately 25,000 square feet in three buildings
located in Toronto, Canada, under leases that expire in September 2001. WACOM
owns a 31,000 square foot building located in Waco, Texas. Airtech owns a 33,000
square foot building located in Aylesbury, England. We believe that our existing
facilities are adequate to meet our current needs and that suitable additional
or alternative space will be available on commercially reasonable terms as
needed.
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<PAGE> 37
MANAGEMENT
OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages as of January 31,
2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ronald E. Ragland(1).... 58 Chairman of the Board and Chief Executive Officer
Errol Ekaireb........... 61 President, Chief Operating Officer and Director
Jack A. Giles........... 57 Executive Vice President, President Defense Group and
REMEC Microwave and Director
Joseph T. Lee........... 45 Executive Vice President, Chief Strategic Officer and
Director
James Mongillo.......... 61 Executive Vice President and President Broadband Wireless
Group and REMEC Magnum
Nicholas J.S. Randall... 48 Executive Vice President, President Integrated RF Solutions
Group and Executive Chairman REMEC Europe plc and REMEC
Airtech Ltd.
Denny E. Morgan......... 46 Senior Vice President, Chief Engineer and Director
Tao Chow................ 48 Senior Vice President and President REMEC CSH
Michael D. McDonald..... 46 Senior Vice President, Chief Financial Officer and Secretary
H. Clark Hickock........ 44 Senior Vice President, Business Operations
Jon E. Opalski.......... 37 Senior Vice President, General Manager Integrated RF
Solutions Group and Managing Director REMEC Airtech
Jerry B. Collum......... 62 Senior Vice President and President Metal Fab Center
Justin Miller........... 50 Vice President and President REMEC Canada and REMEC Nanowave
Thomas A. 55 Director
Corcoran(1)(2)........
Mark D. Dankberg(3)..... 44 Director
William H. 56 Director
Gibbs(1)(2)...........
Andre R. Horn(3)........ 71 Director
Jeffrey M. Nash(2)(3)... 52 Director
</TABLE>
- -------------------------
(1) Member of the Nominating Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
RONALD E. RAGLAND was a founder of REMEC and has served as our Chairman of
the Board and Chief Executive Officer since January 1983. Prior to founding
REMEC, he was General Manager of KW Engineering and held program management
positions with Ford Aerospace Communications Corp., E-Systems, Inc. and United
Telecommunications, Inc. Mr. Ragland was a Captain in the United States Army and
holds a B.S.E.E. degree from Missouri University at Rolla and an M.S.E.E. degree
from St. Louis University.
ERROL EKAIREB has served as President and Chief Operating Officer of REMEC
since 1990 and as a director since 1985. Mr. Ekaireb served as Vice President of
REMEC from 1984 to 1987 and as Executive Vice President and Chief Operating
Officer from 1987 to 1990. Prior to joining us, he spent 23 years with Ford
Aerospace Communications Corp. Mr. Ekaireb holds B.S.E.E. and B.S.M.E. degrees
from West Coast University and has completed the University of California, Los
Angeles Executive Program.
JACK A. GILES joined REMEC in 1984. He was elected as a director in 1984,
Vice President in 1985, Executive Vice President in 1987, President of REMEC
Microwave in 1994 and President Defense Group in 1999. Prior to joining us, he
spent approximately 19 years with Texas Instruments in program management and
marketing. Mr. Giles holds a B.S.M.E. degree from the University of Arkansas and
is a graduate of Defense Systems Management College.
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<PAGE> 38
JOSEPH T. LEE has been a director and Executive Vice President of REMEC
since the completion of our acquisition of Magnum in September 1996. He served
as President of our Northern California Operations from December 1997 until he
was elected Chief Strategic Officer in September, 1999. Prior to our acquisition
of Magnum, he was Chairman of the Board, President and Chief Executive Officer
of Magnum. Mr. Lee holds a B.S.E.E. degree from the University of Michigan and
M.S.E.E. and ENGINEER degrees from Stanford University.
JAMES MONGILLO joined REMEC as a Senior Vice President in February 1997,
following the completion of our acquisition of Radian Technology. In June 1999,
Mr. Mongillo was elected Executive Vice President and named President of the
REMEC Wireless Broadband Group. Mr. Mongillo also serves as President of REMEC
Magnum. Prior to the acquisition of Radian Technology, he was the Chairman of
the Board, President and Chief Executive Officer of Radian. Mr. Mongillo holds a
B.S.E.E. degree from Brown University.
NICHOLAS J.S. RANDALL joined REMEC as Executive Vice President, President
Integrated RF Solutions Group and Executive Chairman of REMEC Europe plc and
REMEC Airtech Ltd. in April 1999, following the completion of our acquisition of
Airtech. Prior to the acquisition, Mr. Randall served as Executive Chairman of
Airtech from the time he purchased the original Airtech business in 1998. From
1980 to 1988, he served as Managing Director of Oxford Technology Ltd., a start
up operation within Oxford Instruments Group. From 1977 to 1980, he was an
Operations Director for EMI Medical, Inc., and prior to that he worked for
Perkins Elmer, Inc. for ten years. Mr. Randall holds a Higher National Diploma
in mechanical engineering from High Wycombe College in England and an M.B.A.
from the University of Connecticut.
DENNY E. MORGAN was a founder of REMEC and has served as Senior Vice
President, Chief Engineer and a director of REMEC since January 1983. Prior to
joining us, he worked with KW Engineering, Micromega, General Dynamics
Corporation and Pacific Aerosystems, Inc. Mr. Morgan holds a B.S.E.E. degree
from the Massachusetts Institute of Technology and was the Four Year
Chancellor's Intern Fellowship Recipient at the University of California, Los
Angeles.
TAO CHOW has served as the President and a director of REMEC CSH and Senior
Vice President of REMEC since the completion of our acquisition of C&S Hybrid in
July 1997. Mr. Chow was a founder of C&S Hybrid and served as its President and
as a director from September 1984 until its acquisition by us. Mr. Chow has also
served as a director and the President and Chief Financial officer of Custom
Micro Machining, Inc. since 1990, and as a director of Applied Thin-Film
Products since April 1995. Mr. Chow holds a B.S.E.E. degree from National
Chiao-Tung University in Taiwan and a M.S.E.E. degree from the University of
California, Los Angeles.
MICHAEL D. MCDONALD was appointed Senior Vice President, Chief Financial
Officer and Secretary in December 1997. Prior to our acquisition of Magnum, he
had been Vice President and Chief Financial Officer of Magnum. Prior to joining
Magnum in 1984, he worked at Watkins-Johnson Company. Mr. McDonald holds a B.S.
degree from the University of San Francisco and an M.B.A. degree from California
Polytechnic State University at San Luis Obispo.
H. CLARK HICKOCK has served as Senior Vice President, Business Operations
since 1998 and Vice President, Business Operations since 1994. Mr. Hickock is
also currently serving as Acting Vice President, Human Resources. Prior to
joining REMEC, he was with E-Systems Garland Division for 16 years. Mr. Hickock
holds a B.A. in Economics and Finance from the University of Texas.
JON E. OPALSKI has served in a variety of positions with REMEC since 1984.
He was elected Senior Vice President, General Manager Integrated RF Solutions
Group and Managing Director, REMEC Airtech in August 1999, and prior to that Mr.
Opalski served as Senior Vice President, Marketing and Strategic Planning and
President, General Manager, REMEC Wireless. He holds a B.S.E.E. from
Massachusetts Institute of Technology.
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<PAGE> 39
JERRY B. COLLUM has served in a variety of positions with REMEC since July
1984. He was elected Senior Vice President and President, Metal Fab Center in
December 1999, and prior to that he served as Vice President and General Manager
Operations Support Division. From February 1968 to July 1984, Mr. Collum was
employed by Texas Instruments. Mr. Collum holds a B.S. in mechanical engineering
from Lamar University.
JUSTIN MILLER has served as President and director of REMEC Nanowave and
REMEC Canada and Vice President of REMEC since October 1997. Prior to our
Nanowave acquisition, he was a founder of Nanowave and served as its President
and a director since 1992. Prior to that, he served as Vice
President - Engineering of Microwave Technologies, a division of Lucas
Industries plc. Dr. Miller holds a Ph.D. from the University of Warwick.
THOMAS A. CORCORAN was elected a director of REMEC in May 1996. Mr.
Corcoran has been the President and Chief Executive Officer of Allegheny
Technologies Incorporated since October 1999. Prior to that, Mr. Corcoran was a
Vice President and the President and Chief Operating Officer of the Space and
Strategic Missiles sector of Lockheed Martin Corporation from October 1998 to
September 1999. From March 1995 to September 1998, he was the President and
Chief Operating Officer of the Electronics sector of Lockheed Martin. From 1993
to 1995 Mr. Corcoran was President of the Electronics Group of Martin Marietta
Corporation, and from 1983 to 1993 he held various management positions with the
Aerospace segment of General Electric Company. Mr. Corcoran is Chairman of the
Board of Teledyne Technologies, Inc., and a director of Allegheny Technologies
and L-3 Communications Holdings, Inc. Mr. Corcoran is a member of the Board of
Trustees of Worcester Polytechnic Institute, the Board of Trustees of Stevens
Institute of Technology and the Board of Governors of the Electronic Industries
Association.
MARK D. DANKBERG joined REMEC as a director in September, 1999. Mr.
Dankberg was a founder of, and has served as Chairman of the Board, President
and Chief Executive Officer of ViaSat, Inc. since its inception in May 1986. Mr.
Dankberg also serves as a director of Connected Systems, a privately held
company that develops and manufacturers digital voice messaging systems. Prior
to founding ViaSat, he was Assistant Vice President of M/A-COM Linkabit, a
manufacturer of satellite telecommunications equipment, from 1979 to 1986 and
Communications Engineer for Rockwell International from 1977 to 1979. Mr.
Dankberg holds B.S.E.E. and M.E.E. degrees from Rice University.
WILLIAM H. GIBBS was elected a director of REMEC in May 1996. Mr. Gibbs was
the President and Chief Executive Office of DH Technology, Inc. from November
1985 to January 1998 and was Chairman Board of Directors of DH Technology, Inc.
from March 1987 through October 1997. From August 1983 to November 1985, he held
various positions, including those of President and Chief Operating Officer,
with Computer and Communications Technology, a supplier of rigid disc magnetic
recording heads to the peripheral equipment segment of the computer industry.
ANDRE R. HORN has been a director of REMEC since 1988. Mr. Horn is the
retired Chairman of the Board of Joy Manufacturing Company. From 1985 to 1991,
Mr. Horn served as the Chairman of the Board of Needham & Company, Inc., which
is serving as one of the representatives of the underwriters in the offering
made by this prospectus. He currently holds the honorary position of Chairman
Emeritus of Needham & Company, Inc. Mr. Horn is a director of Western Digital
Corporation, a computer equipment manufacturer, and Varco International, Inc., a
manufacturer of petroleum industry equipment.
JEFFREY M. NASH has been a director of REMEC since 1988. From 1995 to 1998,
he was the President, Chief Executive Officer and a Director of TransTech
Information Management Systems, Inc. Since 1994, Dr. Nash has been Chairman,
Chief Executive Officer and President of Digital Perceptions, Inc., and, from
1989 to 1994, he was the Chief Executive Officer and President of Visqus as well
as Conner Technology, Inc., both subsidiaries of Conner Peripherals, Inc. Dr.
Nash is currently a director of ViaSat, Inc., a manufacturer of satellite
communication equipment, and several private companies, including Prisa
Networks, Orincon Corporation, StoragePont.Com and Tiernan Communications Inc.
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<PAGE> 40
BOARD ELECTION AND COMMITTEES
Members of our Board of Directors are each elected for one year terms at
the annual shareholders meeting. Officers are elected at the first Board of
Directors meeting following the shareholders meeting at which directors are
elected and serve at the discretion of the Board of Directors.
The Board of Directors has a standing Compensation Committee, Audit
Committee and Nominating Committee. The Compensation Committee provides
recommendations to the Board concerning salaries and incentive compensation for
our officers and approves equity grants to our officers. The Audit Committee
recommends our independent auditors and reviews the results of and scope of
audits and other accounting-related services provided by our auditors. The
Nominating Committee reviews potential candidates for service on the Board.
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<PAGE> 41
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of January 31, 2000 and as adjusted to reflect
the sale of the shares offered by this prospectus, by: (i) each of our directors
and each named executive officer listed in the compensation section of our proxy
statement; (ii) all directors and executive officers as a group; (iii) each
person who is known by us to own beneficially more than 5% of our common stock;
and (iv) the selling shareholders.
The percentage of ownership prior to offering for each shareholder is based
on 25,430,458 shares of common stock outstanding as of January 31, 2000,
together with applicable options for such shareholders. Applicable percentage of
ownership after offering for each shareholder is based on 28,930,458 shares of
common stock, including shares sold in this offering and assuming exercise of
the underwriter's over-allotment option, together with applicable options for
such shareholders. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission, and includes voting and
investment power with respect to the shares. Shares of common stock subject to
outstanding options are deemed outstanding for computing the percentage of
ownership of the person holding such options, but are not deemed outstanding for
computing the percentage ownership of any other person. Except pursuant to
applicable community property laws or as indicated in the footnotes to the
table, to our knowledge, each shareholder identified in the table possesses sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by the shareholder.
The shares offered by each selling shareholder other than Mr. Lee will only
be offered if the underwriters exercise the over-allotment option. The number of
shares to be sold by each selling shareholder other than Mr. Lee assumes that
the underwriters exercise the over-allotment in full. If the underwriters do not
exercise the over-allotment option in full, the number of shares to be sold by
each selling shareholder other than Mr. Lee will be cut back proportionately
based on the aggregate number of shares proposed to be sold by the shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AFTER
SHARES BENEFICIALLY OFFERING ASSUMING
OWNED PRIOR TO EXERCISE OF THE OVER-
OFFERING ALLOTMENT OPTION
------------------- NUMBER OF ---------------------
NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
--------- ------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
State of Wisconsin Investment Board(1)........... 1,992,000 7.83% -- 1,992,000 6.76%
Ronald E. Ragland(2)............................. 1,037,544 4.05 163,144 874,400 3.00
Tao Chow(3)...................................... 649,410 2.55 102,113 547,297 1.89
Nicholas J.S. Randall............................ 489,061 1.92 76,900 412,161 1.42
Joseph T. Lee(4)................................. 404,547 1.59 250,000 154,547 *
Denny E. Morgan(5)............................... 351,968 1.38 35,000 316,968 1.09
Jack A. Giles(6)................................. 252,121 * 39,644 212,477 *
Jerry B. Collum(7)............................... 210,132 * 33,041 177,091 *
James Mongillo(8)................................ 202,031 * 31,767 170,264 *
Errol Ekaireb(9)................................. 185,550 * 29,176 156,374 *
Justin Miller(10)................................ 167,825 * -- 167,825 *
Jon E. Opalski(11)............................... 102,541 * 16,124 86,417 *
Michael D. McDonald(12).......................... 85,050 * -- 85,050 *
H. Clark Hickock(13)............................. 47,402 * 7,454 39,948 *
Jeffrey M. Nash(14).............................. 46,536 * 7,317 39,948 *
Thomas A. Corcoran(15)........................... 32,580 * 5,123 27,457 *
William H. Gibbs(16)............................. 29,330 * -- 29,330 *
Andre R. Horn(17)................................ 24,586 * 3,866 20,720 *
Mark D. Dankberg(18)............................. 2,589 * -- 2,589 *
All directors and executive officers as a group
(18 persons)(19)............................... 4,320,964 16.57 800,669 3,520,295 11.90
Keith Butler(20)................................. 36,149 * 5,684 30,465 *
Harold Kries(21)................................. 29,611 * 2,200 27,411 *
David Schmitz(22)................................ 25,103 * 3,947 21,156 *
</TABLE>
- -------------------------
* Less than one percent of the outstanding shares of common stock.
Footnotes continue on following page.
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<PAGE> 42
(1) Based on a Schedule 13G filed with the SEC on February 2, 2000. This
shareholder's address is 121 East Wilson Street, Madison, Wisconsin 53707.
(2) Includes 23,400 shares held by Mr. Ragland's minor children, 3,750 shares
held by Mr. Ragland's spouse and 197,400 shares issuable upon exercise of
outstanding options that are exercisable on or before April 1, 2000.
(3) Includes 616,560 shares held in the Tao Chow & Ying Chow Trust and the Chow
Charitable Trust and 32,850 shares issuable upon exercise of outstanding
options that are exercisable on or before April 1, 2000.
(4) Includes 69,250 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000.
(5) Includes 42,000 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000. All other shares beneficially
owned by Mr. Morgan are held in the Morgan Family Trust, of which Mr.
Morgan and his spouse act as co-trustees.
(6) Includes 11,625 shares held by Mr. Giles' spouse and 28,750 shares issuable
upon exercise of outstanding options that are exercisable on or before
April 1, 2000.
(7) Includes 19,862 shares held by Mr. Collum's spouse and 18,120 shares
issuable upon exercise of outstanding options that are exercisable on or
before April 1, 2000.
(8) Includes 11,850 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000. All other shares beneficially
owned by Mr. Mongillo are held in the Mongillo Family Trust.
(9) Includes 10,000 shares held by Mr. Ekaireb's spouse and 68,500 shares
issuable upon exercise of outstanding options that are exercisable on or
before April 1, 2000.
(10) Includes 137,183 shares issuable upon conversion of dividend access shares
of REMEC Canada, our subsidiary and 28,560 shares issuable upon exercise of
outstanding options that are exercisable on or before April 1, 2000.
(11) Includes 2,511 shares held by Mr. Opalski's spouse and 29,875 shares
issuable upon exercise of outstanding options that are exercisable on or
before April 1, 2000.
(12) Includes 20,010 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000.
(13) Includes 19,875 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000.
(14) Includes 31,956 shares held in the Jeffrey A. Nash and Kathleen A. Nash
Declaration of Trust and 14,580 shares issuable upon exercise of
outstanding options that are exercisable on or before April 1, 2000.
(15) Includes 24,330 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000.
(16) Includes 24,330 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000.
(17) Includes 14,580 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000.
(18) Includes 2,589 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000.
(19) Includes 647,449 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000.
(20) Includes 8,670 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000; Keith Butler is President of
REMEC Veritek, Inc.
(21) Includes 11,650 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000; Harold Kries is President of
Humphrey, Inc.
(22) Includes 12,250 shares issuable upon exercise of outstanding options that
are exercisable on or before April 1, 2000; David Schmitz is President of
REMEC Q-bit, Inc.
39
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, for whom Needham & Company, Inc., CIBC World Markets
Corp., Dain Rauscher Incorporated and A.G. Edwards & Sons, Inc. are acting as
representatives, have severally agreed to purchase an aggregate of 3,750,000
shares of common stock from us and the selling shareholder at the public
offering price less the underwriting discount set forth on the cover page of
this prospectus, in the amounts set forth opposite their names below. We are
selling 3,500,000 shares and the selling shareholder is selling 250,000 shares.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Needham & Company, Inc................................
CIBC World Markets Corp...............................
Dain Rauscher Incorporated............................
A.G. Edwards & Sons, Inc. ............................
---------
Total............................................ 3,750,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
underwriters are subject to specified conditions precedent and that the
underwriters will purchase all shares of common stock offered by this prospectus
if any of those shares are purchased.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to various securities
dealers at a price less a concession of not more than $ per share. The
underwriters may allow, and those dealers may reallow, a concession of not more
than $ per share to various other dealers. After the shares of common stock
are released for sale to the public, the offering price and other selling terms
may from time to time be varied by the underwriters. No change in those terms
shall change the amount of the proceeds we will receive, as set forth on the
cover page of this prospectus. The common stock is listed on the Nasdaq National
Market.
The selling shareholders have granted to the underwriters an option,
exercisable within 30 days after the date of this prospectus, to purchase up to
562,500 additional shares of common stock at the public offering price less the
underwriting discount set forth on the cover page of this prospectus. The
underwriters may exercise the option solely to cover over-allotments, if any,
made in connection with the sale of common stock offered by this prospectus. To
the extent that the underwriters exercise the over-allotment option, each
underwriter will be committed, subject to specified conditions, to purchase a
number of additional shares of common stock which is proportionate to that
underwriter's initial commitment as set forth in the table above.
Our executive officers and directors have agreed that, during the period
beginning from the date of this prospectus and continuing to and including the
date 90 days after the date of this prospectus, without the prior written
consent of Needham & Company, Inc., they will not sell, contract to sell, or
otherwise dispose of any shares of common stock, options to acquire common stock
or securities exchangeable for or convertible into common stock, except for the
shares of common stock offered in connection with this offering. We have agreed,
with certain limited exceptions, not to offer, sell, contract to sell, grant any
option to purchase, transfer or otherwise dispose of, any shares of common stock
for a period of 90 days after the date of this prospectus.
40
<PAGE> 44
The representatives have informed us that they do not expect sales to
accounts over which the underwriters exercise discretionary authority to exceed
5% of the total number of shares of common stock offered by them.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments that the underwriters may be required to make in respect thereof.
In connection with the offering, various underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the common stock.
Those transactions may include stabilization transactions effected in accordance
with the Securities Exchange Act of 1934 pursuant to which such persons may bid
for or purchase common stock for the purpose of stabilizing its market price.
The underwriters also may create a short position for the account of the
underwriters by selling more common stock in connection with the offering than
they are committed to purchase from us, and in such case may purchase common
stock in the open market following completion of the offering to cover all or a
portion of those shares of common stock or may exercise the underwriters'
over-allotment option referred to above. In addition, the representatives, on
behalf of the underwriters, may impose "penalty bids" under the contractual
arrangements with the underwriters whereby the representatives may reclaim from
an underwriter (or dealer participating in the offering), for the account of
other underwriters, the selling concession with respect to common stock that is
distributed in the offering but subsequently purchased for the account of the
underwriters in stabilization or syndicate covering transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the common
stock at a level above that which might otherwise prevail in the open market.
None of the transactions described in this paragraph is required, and if they
are undertaken, they may be discontinued at any time.
The following table summarizes the compensation we and the selling
shareholders will pay to the underwriters:
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions we will
pay............................................ $ $ $
Underwriting discounts and commissions the
selling shareholders will pay..................
</TABLE>
Underwriting discounts and commissions are calculated on a percentage basis
of the offering price equal to %. Expenses of the offering, exclusive of
underwriting discounts and commissions, include the SEC filing fee, the NASD
filing fee, the Nasdaq National Market application fee, printing expenses, legal
fees and expenses, accounting fees and expenses, blue sky fees and expenses,
transfer agent and register fees and other miscellaneous fees. We will pay all
of the expenses of the offering, estimated to be $400,000, other than
underwriting discounts and commissions to be paid by the selling shareholders
with respect to the shares sold by them.
41
<PAGE> 45
LEGAL MATTERS
The validity of our common stock offered by this prospectus will be passed
upon for us by Heller Ehrman White & McAuliffe LLP, Los Angeles, California.
Certain legal matters relating to the offering will be passed upon for the
underwriters by Gray Cary Ware & Freidenrich LLP, San Diego, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule for the years ended January 31, 2000, 1999 and
1998, included in our Annual Report on Form 10-K which is incorporated by
reference in reliance on Ernst & Young LLP's report (which, as to the years
ended January 31, 1999 and 1998, is based in part on the report of Arthur
Andersen, independent auditors, given on their authority as experts in
accounting and auditing).
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. Our filings are
available to the public over the Internet at the SEC's web site at
"http://www.sec.gov." You can read and copy any document that we file with the
SEC at the following SEC public reference facilities:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661
</TABLE>
You can also obtain copies of the documents at prescribed rates by writing
to the SEC's Public Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call 1-800-SEC-0330 for further information on the operation
of the SEC's public reference facilities. You also can inspect copies of our
filings at The Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C.
20006.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with the SEC. This means that we can disclose important
information to you by referring you to those documents. Information incorporated
by reference is part of this prospectus. Information that we later file with the
SEC will automatically update and supersede this information.
We incorporate by reference our Annual Report on Form 10-K for the year
ended January 31, 2000, the description of our common stock contained in our
Registration Statement on Form 8-A, filed with the Commission on December 13,
1995 and any future filings made with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 until this offering is completed.
You may request a copy of these filings, at no cost, by contacting us in
writing or by telephone or email at the following address:
REMEC, Inc.
9404 Chesapeake Drive
San Diego, California 92123
(858) 560-1301
email: [email protected]
This prospectus is part of a registration statement that we filed with the
SEC. This prospectus does not contain all of the information included in the
registration statement. We have omitted certain parts of the registration
statement in accordance with the rules and regulations of the SEC. For further
information, we refer you to the registration statement, including its exhibits
and schedules.
42
<PAGE> 46
REMEC LOGO
<PAGE> 47
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
REMEC will pay all expenses incident to the offering and sale to the public
of the shares being registered other than any commissions and discounts of
underwriters, dealers or agents and any transfer taxes. Such expenses are set
forth in the following table. All of the amounts shown are estimates except the
SEC Registration Fee, the NASD Filing Fee and the Nasdaq National Market
Additional Listing Fee.
<TABLE>
<CAPTION>
REMEC
--------
<S> <C>
SEC registration fee........................................ $ 36,933
NASD filing fee............................................. 14,490
Nasdaq National Market Additional Listing fee............... 17,500
Blue Sky qualification fees and expenses.................... 8,000
Transfer Agent and Registrar fees........................... 5,000
Printing and Engraving...................................... 90,000
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 50,000
Miscellaneous expenses...................................... 28,077
--------
Total............................................. $400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant has the power to indemnify its officers and directors
against liability for certain acts pursuant to Section 317 of the General
Corporation Law of California. Article Fifth of the registrant's Amended and
Restated Articles of Incorporation provides as follows:
"Fifth: This Corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) for
breach of duty to this Corporation and its shareholders through bylaw
provisions, or through agreements with the agents, or otherwise, in excess
of the indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject to the limits on such excess indemnification set
forth in Section 204 of the Code."
In addition, Article V of the registrant's Bylaws provides that the
registrant shall indemnify its directors and executive officers to the fullest
extent not prohibited by California General Corporation Law and provides for the
advancement of expenses upon a receipt of an undertaking to repay such amounts
if the person is determined ultimately not to be entitled to indemnification.
The registrant has entered into Indemnification Agreements with its
officers and directors.
II-1
<PAGE> 48
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
5.1 Opinion of Heller Ehrman White & McAuliffe LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Arthur Andersen, Independent Auditors.
23.6 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4 of initial filing
of this Registration Statement).
</TABLE>
ITEM 17. UNDERTAKINGS.
A. FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
C. UNDERTAKING IN RESPECT OF RULE 430A.
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)
under the 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.
II-2
<PAGE> 49
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, REMEC, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on March 17, 2000.
REMEC, INC.
By: /s/ RONALD E. RAGLAND
------------------------------------
Ronald E. Ragland
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<C> <S> <C>
/s/ RONALD E. RAGLAND Chairman of the Board and March 17, 2000
- --------------------------------------------------- Chief Executive Officer
Ronald E. Ragland (Principal Executive
Officer)
* President, Chief Operating March 17, 2000
- --------------------------------------------------- Officer and Director
Errol Ekaireb
* Executive Vice President, March 17, 2000
- --------------------------------------------------- President of REMEC
Jack A. Giles Microwave, Inc. and
Director
* Senior Vice President, Chief March 17, 2000
- --------------------------------------------------- Engineer and Director
Denny Morgan
* Executive Vice President and March 17, 2000
- --------------------------------------------------- Director
Joseph T. Lee
/s/ MICHAEL MCDONALD Senior Vice President, Chief March 17, 2000
- --------------------------------------------------- Financial Officer and
Michael McDonald Secretary (Principal
Financial and Accounting
Officer)
* Director March 17, 2000
- ---------------------------------------------------
Mark D. Dankberg
</TABLE>
II-3
<PAGE> 50
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<C> <S> <C>
* Director March 17, 2000
- ---------------------------------------------------
Thomas A. Corcoran
* Director March 17, 2000
- ---------------------------------------------------
William H. Gibbs
* Director March 17, 2000
- ---------------------------------------------------
Andre R. Horn
* Director March 17, 2000
- ---------------------------------------------------
Jeffrey M. Nash
* By: /s/ RONALD E. RAGLAND
---------------------------------------------
Ronald E. Ragland
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
5.1 Opinion of Heller Ehrman White & McAuliffe LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Arthur Andersen, Independent Auditors.
23.6 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4 of initial filing
of this Registration Statement).
</TABLE>
<PAGE> 1
EXHIBIT 1.1
3,750,000 Shares*
REMEC, Inc.
Common Stock
UNDERWRITING AGREEMENT
March ______, 2000
NEEDHAM & COMPANY, INC.
CIBC World Markets Corp.
Dain Rauschler Incorporated
A.G. Edwards & Sons, Inc.
As Representatives of the several Underwriters
c/o Needham & Company, Inc.
445 Park Avenue
New York, New York 10022
Ladies and Gentlemen:
REMEC, Inc., a California corporation (the "Company"), proposes to issue and
sell 3,500,000 shares (the "Company Firm Shares") of the Company's Common Stock,
$.0.01 par value per share (the "Common Stock"), and one of the shareholders of
the Company named in Schedule II hereto (the "Selling Shareholders") propose to
sell an aggregate of 250,000 shares (the "Selling Shareholder Firm Shares") of
Common Stock, in each case to you and to the several other Underwriters named in
Schedule I hereto (collectively, the "Underwriters"), for whom you are acting as
representatives (the "Representatives"). The remaining Selling Shareholders have
agreed to grant to you and the other Underwriters an option (the "Option") to
purchase up to an additional 562,500 shares of Common Stock, on the terms and
for the purposes set forth in Section 1(b) (the "Option Shares"). The Company
Firm Shares and the Selling Shareholder Firm Shares are referred to collectively
herein as the "Firm Shares," and the Firm Shares and the Option Shares are
referred to collectively herein as the "Shares."
The Company and each of the Selling Shareholders confirm as follows
their respective agreements with the Representatives and the several other
Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties and
agreements of the Company and the Selling Shareholders herein contained and
subject to all the terms and conditions of this Agreement, (i) the Company
agrees to issue and sell the Company Firm Shares to the several Underwriters,
(ii) the Selling Shareholder agrees to sell to the several Underwriters the
number of Selling Shareholder Firm Shares set forth opposite that Selling
Shareholders's name on Schedule II hereto and (iii) each of the Underwriters,
severally and not jointly, agrees to purchase from the Company and the Selling
Shareholders the respective number of Firm Shares set forth opposite that
Underwriter's name in Schedule I hereto, at the purchase price of $____ for each
Firm Share. The number of Firm Shares to be purchased by each Underwriter from
the Company and the Selling Shareholder shall be as nearly as practicable in the
same proportion to the total number of Firm Shares being sold by the Company and
the Selling Shareholder as the number of Firm Shares being purchased by each
Underwriter bears to the total number of Firm Shares to be sold hereunder.
- --------
* Plus an option to purchase up to an additional 562,500 shares to cover
over-allotments.
<PAGE> 2
(b) Subject to all the terms and conditions of this Agreement,
the Selling Shareholders grant the Option to the several Underwriters to
purchase, severally and not jointly, up to the maximum number of Option Shares
set forth in Schedule II hereto at the same price per share as the Underwriters
shall pay for the Firm Shares. The Option may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters and may be
exercised in whole or in part at any time (but not more than once) on or before
the 30th day after the date of this Agreement upon written or telegraphic notice
(the "Option Shares Notice") by the Representatives to the Selling Shareholders
no later than 12:00 noon, New York City time, at least two and no more than five
business days before the date specified for closing in the Option Shares Notice
(the "Option Closing Date"), setting forth the aggregate number of Option Shares
to be purchased and the time and date for such purchase. On the Option Closing
Date, the Selling Shareholders will sell to the Underwriters the number of
Option Shares set forth in the Option Shares Notice, and each Underwriter will
purchase such percentage of the Option Shares as is equal to the percentage of
Firm Shares that such Underwriter is purchasing, as adjusted by the
Representatives in such manner as they deem advisable to avoid fractional
shares.
2. Delivery and Payment. Delivery of the Firm Shares shall be made
to the Representatives for the accounts of the Underwriters against payment of
the purchase price by certified or official bank checks or by wire transfers
payable in same-day funds to the order of the Company for the Company Firm
Shares to be sold by it and to ChaseMellon Shareholder Services LLC, as
custodian for the Selling Shareholder (the "Custodian") for the Selling
Shareholder Firm Shares to be sold by the Selling Shareholder at the office of
Needham & Company, Inc., 445 Park Avenue, New York, New York 10022, at 10:00
a.m., New York City time, on the third (or, if the purchase price set forth in
Section 1(b) hereof is determined after 4:30 p.m., Washington D.C. time, the
fourth) business day following the commencement of the offering contemplated by
this Agreement, or at such time on such other date, not later than seven
business days after the date of this Agreement, as may be agreed upon by the
Company and the Representatives (such date is hereinafter referred to as the
"Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and shall
be registered in such names and in such denominations as the Representatives
shall request at least two business days prior to the Closing Date or the Option
Closing Date, as the case may be, by written notice to the Company. For the
purpose of expediting the checking and packaging of certificates for the Shares,
the Company agrees to make such certificates available for inspection at least
24 hours prior to the Closing Date or the Option Closing Date, as the case may
be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company and
the Selling Shareholders to the respective Underwriters shall be borne by the
Company. The Company and the Selling Shareholders will pay and save each
Underwriter and any subsequent holder of the Shares harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
Federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or sale to
such Underwriter of the Shares.
3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
(a) The Company meets the requirements for use of Form S-3
relating to the Shares, including a preliminary prospectus and such amendments
to such registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The term "preliminary prospectus" as used herein means a preliminary
prospectus, including the documents incorporated by reference therein, as
contemplated by Rule 430 or Rule 430A of the Rules and Regulations included at
any time as part of the registration statement. Copies of such registration
statement and amendments and of each related preliminary prospectus have been
delivered to the Representatives. If such registration statement has not become
effective, a further amendment to such registration statement, including a form
of final prospectus, necessary to permit such registration statement to become
effective will be filed promptly by the Company with the
2
<PAGE> 3
Commission. If such registration statement has become effective, a final
prospectus containing information permitted to be omitted at the time of
effectiveness by Rule 430A of the Rules and Regulations will be filed promptly
by the Company with the Commission in accordance with Rule 424(b) of the Rules
and Regulations. The term "Registration Statement" means the registration
statement as amended at the time it becomes or became effective (the "Effective
Date"), including all documents incorporated by reference therein, financial
statements and all exhibits and any information deemed to be included by Rule
430A and includes any registration statement relating to the offering
contemplated by this Agreement and filed pursuant to Rule 462(b) of the Rules
and Regulations. The term "Prospectus" means the prospectus, including the
documents incorporated by reference therein, as first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, if no such filing is
required, the form of final prospectus, including the documents incorporated by
reference therein, included in the Registration Statement at the Effective Date.
Any reference herein to the terms "amend," "amendment" or "supplement" with
respect to the Registration Statement, any preliminary prospectus or the
Prospectus shall be deemed to refer to and include the filing of any document
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") after
the Effective Date, the date of any preliminary prospectus or the date of the
Prospectus, as the case may be, and deemed to be incorporated therein by
reference.
(b) To the Company's knowledge after reasonable inquiry no order
preventing or suspending the use of any preliminary prospectus has been issued
by the Commission. On the Effective Date, the date the Prospectus is first filed
with the Commission pursuant to Rule 424(b) (if required), at all times
subsequent to and including the Closing Date and, if later, the Option Closing
Date and when any post-effective amendment to the Registration Statement becomes
effective or any amendment or supplement to the Prospectus is filed with the
Commission, the Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
or supplement thereto), including the financial statements included in the
Prospectus, did and will comply with all applicable provisions of the Act, the
Exchange Act, the rules and regulations under the Exchange Act (the "Exchange
Act Rules and Regulations"), and the Rules and Regulations and will contain all
statements required to be stated therein in accordance with the Act, the
Exchange Act, the Exchange Act Rules and Regulations, and the Rules and
Regulations. On the Effective Date and when any post-effective amendment to the
Registration Statement becomes effective, no part of the Registration Statement,
the Prospectus or any such amendment or supplement did or will contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. At the Effective Date, the date the Prospectus or any amendment or
supplement to the Prospectus is filed with the Commission and at the Closing
Date and, if later, the Option Closing Date, the Prospectus did not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing representations and
warranties in this Section 3(b) do not apply to any statements or omissions made
in reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives specifically for
inclusion in the Registration Statement or Prospectus or any amendment or
supplement thereto. The Company acknowledges that the statements set forth under
the heading "Underwriting" in the Prospectus constitute the only information
relating to any Underwriter furnished in writing to the Company by the
Representatives specifically for inclusion in the Registration Statement.
(c) The documents that are incorporated by reference in the
preliminary prospectus and the Prospectus or from which information is so
incorporated by reference, when they became or become effective or were or are
filed with the Commission, as the case may be, complied or will comply in all
material respects with the requirements of the Act or the Exchange Act, as
applicable, and the Rules and Regulations or the Exchange Act Rules and
Regulations, as applicable; and any documents so filed and incorporated by
reference subsequent to the Effective Date shall, when they are filed with the
Commission, comply in all material respects with the requirements of the Act or
the Exchange Act, as applicable, and the Rules and Regulations or the Exchange
Act Rules and Regulations, as applicable.
(d) The Company does not own, and at the Closing Date and, if
later, the Option Closing Date, will not own, directly or indirectly, any shares
of stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any corporation, firm, partnership, joint venture,
association or other entity, other than the subsidiaries listed on schedule III
to this agreement (the "Subsidiaries"). The Company and each of its Subsidiaries
is, and at the Closing Date and, if later, the Option Closing Date, will be, a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. The Company
3
<PAGE> 4
and each of its Subsidiaries has, and at the Closing Date and, if later, the
Option Closing Date, will have, full power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased by it
and to conduct its business as described in the Registration Statement and the
Prospectus. The Company and each of its Subsidiaries is, and at the Closing Date
and, if later, the Option Closing Date, will be, duly licensed or qualified to
do business and in good standing as a foreign corporation in all jurisdictions
in which the nature of the activities conducted by it or the character of the
assets owned or leased by it makes such license or qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not materially and adversely affect the Company or its business,
properties, business prospects, condition (financial or other) or results of
operations. All of the outstanding shares of capital stock of each Subsidiary
have been duly authorized and validly issued and are fully paid and
nonassessable, and owned by the Company free and clear of all claims, liens,
charges and encumbrances; there are no securities outstanding that are
convertible into or exercisable or exchangeable for capital stock of any
Subsidiary. The Company is not, and at the Closing Date and, if later, the
Option Closing Date, will not be, engaged in any discussions or a party to any
agreement or understanding, written or oral, regarding the acquisition of an
interest in any corporation, firm, partnership, joint venture, association or
other entity where such discussions, agreements or understandings would require
amendment to the Registration Statement pursuant to applicable securities laws.
Complete and correct copies of the certificate of incorporation and of the
by-laws of the Company and each of its Subsidiaries and all amendments thereto
have been delivered to the Representatives, and no changes therein will be made
subsequent to the date hereof and prior to the Closing Date or, if later, the
Option Closing Date.
(e) All of the outstanding shares of capital stock of the Company
(including the Selling Shareholder Firm Shares and the Option Shares to be sold
by the Selling Shareholder under this Agreement) have been duly authorized,
validly issued and are fully paid and nonassessable and were issued in
compliance with all applicable state and federal securities laws; the Company
Firm Shares have been duly authorized and when issued and paid for as
contemplated herein will be validly issued, fully paid and nonassessable; no
preemptive or similar rights exist with respect to any of the Shares or the
issue and sale thereof. Except as set forth in the Prospectus, the Company does
not have outstanding, and at the Closing Date and, if later, the Option Closing
Date, will not have outstanding, any options to purchase, or any rights or
warrants to subscribe for, or any securities or obligations convertible into, or
any contracts or commitments to issue or sell, any shares of capital stock, or
any such warrants, convertible securities or obligations. No further approval or
authority of shareholders or the Board of Directors of the Company will be
required for the transfer and sale of the Selling Shareholder Shares or the
issuance and sale of the Company Firm Shares as contemplated herein.
(f) The financial statements and schedules included or
incorporated by reference in the Registration Statement or the Prospectus
present fairly the financial condition of the Company and its consolidated
Subsidiaries as of the respective dates thereof and the results of operations
and cash flows of the Company and its consolidated Subsidiaries for the
respective periods covered thereby, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the entire period
involved, except as otherwise disclosed in the Prospectus. No other financial
statements or schedules of the Company are required by the Act, the Exchange
Act, the Exchange Act Rules and Regulations or the Rules and Regulations to be
included in the Registration Statement or the Prospectus. Ernst & Young LLP (the
"Accountants"), who have reported on such financial statements and schedules,
are independent accountants with respect to the Company as required by the Act
and the Rules and Regulations. The summary consolidated financial and
statistical data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with the
financial statements presented therein.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the Closing
Date and, if later, the Option Closing Date, except as set forth in or
contemplated by the Registration Statement and the Prospectus, (i) there has not
been and will not have been any change in the capitalization of the Company
(other than in connection with the exercise of options to purchase the Company's
Common Stock granted pursuant to the Company's stock option plans from the
shares reserved therefor as described in the Registration Statement), or any
material adverse change in the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company or
any of its Subsidiaries, arising for any reason whatsoever, (ii) neither the
Company nor any of its Subsidiaries has incurred nor will it any of them incur,
except in the ordinary course of business as described in the Prospectus, any
material liabilities or obligations, direct or contingent, nor has the Company
or any of its Subsidiaries entered into nor will it
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<PAGE> 5
enter into, except in the ordinary course of business as described in the
Prospectus, any material transactions other than pursuant to this Agreement and
the transactions referred to herein and (iii) the Company has not and will not
have paid or declared any dividends or other distributions of any kind on any
class of its capital stock.
(h) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its business in
a manner that would cause it to become, an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
(i) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company, and its
Subsidiaries or any of their officers in their capacity as such, nor any basis
therefor, before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding might materially and adversely affect
the Company, any of its Subsidiaries or the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company or any of its Subsidiaries.
(j) The Company and each Subsidiary has, and at the Closing Date
and, if later, the Option Closing Date, will have, performed all the obligations
required to be performed by it, and is not, and at the Closing Date, and, if
later, the Option Closing Date, will not be, in default, under any contract or
other instrument to which it is a party or by which its property is bound or
affected, which default might reasonably be expected to materially and adversely
affect the Company or the business, properties, business prospects, condition
(financial or other) or results of operations of the Company or any of its
Subsidiaries considered as a whole. To the knowledge of the Company, no other
party under any contract or other instrument to which it or any of its
Subsidiaries is a party is in default in any respect thereunder, which default
might reasonably be expected to materially and adversely affect the Company, any
of its Subsidiaries considered as a whole, or the business, properties, business
prospects, condition (financial or other) or results of operations of the
Company or any of its Subsidiaries considered as a whole. Neither the Company
nor any of its Subsidiaries is, and at the Closing Date and, if later, the
Option Closing Date, will be, in violation of any provision of its certificate
or articles of organization or by-laws or other organizational documents.
(k) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is required
for the consummation by the Company of the transactions on its part contemplated
herein, except such as have been obtained under the Act or the Rules and
Regulations and such as may be required under state securities or Blue Sky laws
or the by-laws and rules of the National Association of Securities Dealers, Inc.
(the "NASD") in connection with the purchase and distribution by the
Underwriters of the Shares.
(l) The Company has full corporate power and authority to enter
into this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with the terms hereof
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting the enforcement of
creditors' rights, and general principles of equity. The performance of this
Agreement and the consummation of the transactions contemplated hereby will not
result in the creation or imposition of any lien, charge or encumbrance upon any
of the assets of the Company pursuant to the terms or provisions of, or result
in a breach or violation of any of the terms or provisions of, or constitute a
default under, or give any party a right to terminate any of its obligations
under, or result in the acceleration of any obligation under, the certificate or
articles of incorporation or by-laws of the Company or any of its Subsidiaries,
any indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company, any of its Subsidiaries or any
of their properties is bound or affected, or violate or conflict with any
judgment, ruling, decree, order, statute, rule or regulation of any court or
other governmental agency or body applicable to the business or properties of
the Company or any of its Subsidiaries considered as a whole.
(m) The Company or one of its Subsidiaries has good and
marketable title to all properties and assets described in the Prospectus as
owned by them, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Prospectus or are not material
to the business of the Company or its
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<PAGE> 6
Subsidiaries. The Company or its Subsidiaries has valid, subsisting and
enforceable leases for the properties described in the Prospectus as leased by
them. The Company or one of its Subsidiaries owns or leases all such properties
as are necessary to its operations as now conducted or as proposed to be
conducted, except where the failure to so own or lease would not materially and
adversely affect the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company or its
Subsidiaries considered as a whole.
(n) There is no document or contract of a character required to
be described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company is a party have been duly
authorized, executed and delivered by the Company or such Subsidiary, constitute
valid and binding agreements of the Company or such Subsidiary and are
enforceable against and by the Company or such Subsidiary in accordance with the
terms thereof except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditors' rights, and general principles of equity.
(o) No statement, representation, warranty or covenant made by
the Company in this Agreement or made in any certificate or document required by
Section 6 of this Agreement to be delivered to the Representatives was or will
be, when made, inaccurate, untrue or incorrect in any material respect.
(p) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action designed, or
which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.
(q) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement, which rights have not been waived by the holder thereof
as of the date hereof.
(r) The Company has filed a registration statement pursuant to
Section 12(g) of the Exchange Act of 1934, as amended (the "Exchange Act"), to
register the Common Stock, has filed an application to list the Shares to be
sold by the Company hereunder on the Nasdaq National Market ("NNM"), and has
received notification that the listing has been approved, subject to notice of
issuance of such Shares. The Shares to be sold by the Selling Shareholder
hereunder are listed on the NNM.
(s) Except as disclosed in or specifically contemplated by the
Prospectus, (i) the Company and its Subsidiaries have sufficient trademarks,
trade names, patent rights, mask works, copyrights, licenses, approvals and
governmental authorizations to conduct their businesses as now conducted, (ii)
the Company has no knowledge of any infringement by it or any of its
Subsidiaries of trademarks, trade name rights, patent rights, mask work rights,
copyrights, licenses, trade secrets or other similar rights of others, where
such infringement could have a material and adverse effect on the Company, any
of its Subsidiaries or the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company or any of its
Subsidiaries and (iii) there is no claim being made against the Company or any
of its Subsidiaries, or to the best of the Company's knowledge, any employee of
the Company or any of its Subsidiaries, regarding trademark, trade name, patent,
mask work, copyright, license, trade secret or other infringement which could
have a material and adverse effect on the Company, any of its Subsidiaries or
the business, properties, business prospects, condition (financial or otherwise)
or results of operations of the Company or any of its Subsidiaries considered as
a whole.
(t) The Company and each of its Subsidiaries has filed all
federal, state, local and foreign income tax returns which have been required to
be filed and has paid all taxes and assessments received by it to the extent
that such taxes or assessments have become due. Neither the Company nor any of
its Subsidiaries has any tax deficiency which has been or, to the best knowledge
of the Company, might be asserted or threatened against it which could have a
material and adverse effect on the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company or
its Subsidiaries considered as a whole.
(u) The pro forma financial information set forth in the
Registration Statement reflects, subject to the limitations set forth in the
Registration Statement as to such pro forma financial information, the results
of operations of the Company and its consolidated Subsidiaries purported to be
shown thereby for the periods
6
<PAGE> 7
indicated and conforms to the requirements of Regulation S-X of the Rules and
Regulations and management of the Company believes (i) the assumptions
underlying the pro forma adjustments are reasonable, (ii) that such adjustments
have been properly applied to the historical amounts in the compilation of such
statements, and (iii) that such statements present fairly, with respect to the
Company and its consolidated Subsidiaries, the pro forma financial position and
results of operations and the other information purported to be shown therein at
the respective dates or for the respective periods therein specified.
(v) The Company or its Subsidiaries owns or possesses all
authorizations, approvals, orders, licenses, registrations, other certificates
and permits of and from all governmental regulatory officials and bodies,
necessary to conduct their respective businesses as contemplated in the
Prospectus, except where the failure to own or possess all such authorizations,
approvals, orders, licenses, registrations, other certificates and permits would
not materially and adversely affect the Company, any of its Subsidiaries or the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company or any of its Subsidiaries considered as a
whole. There is no proceeding pending or threatened (or any basis therefor known
to the Company) which may cause any such authorization, approval, order,
license, registration, certificate or permit to be revoked, withdrawn,
cancelled, suspended or not renewed; and the Company and each of its
Subsidiaries is conducting its business in compliance with all laws, rules and
regulations applicable thereto (including, without limitation, all applicable
federal, state and local environmental laws and regulations) except where such
noncompliance would not materially and adversely affect the Company, any of its
Subsidiaries or the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company or any of its
Subsidiaries considered as a whole.
(w) The Company and each of its Subsidiaries maintains insurance
of the types and in the amounts generally deemed adequate for its business,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company and its Subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
(x) Neither the Company nor any of its Subsidiaries has nor, to
the best of the Company's knowledge, any of its or their respective employees or
agents at any time during the last five years (i) made any unlawful contribution
to any candidate for foreign office, or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any federal or
state governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof.
4. Representations, Warranties and Covenants of the Selling
Shareholders. Each Selling Shareholder, severally and not jointly, represents,
warrants and covenants to each Underwriter that:
(a) All consents, approvals, authorizations and orders necessary
for the execution and delivery by such Selling Shareholder of this Agreement and
the Power-of-Attorney and Custody Agreement (hereinafter referred to as a
"Shareholders' Agreement") hereinafter referred to, and for the sale and
delivery of the Selling Shareholder Shares to be sold by such Selling
Shareholder hereunder, have been obtained; and such Selling Shareholder has full
right, power and authority to enter into this Agreement and the Stockholders'
Agreement, to make the representations, warranties and agreements hereunder and
thereunder, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Shareholder hereunder.
(b) Certificates in negotiable form representing all of the
Selling Shareholder Shares to be sold by such Selling Shareholder have been
placed in custody under the Stockholders' Agreement, in the form heretofore
furnished to you, duly executed and delivered by such Selling Shareholder to the
Custodian, and such Selling Shareholder has duly executed and delivered a
power-of-attorney, in the form heretofore furnished to you and included in the
Stockholders' Agreement (the "Power-of-Attorney"), appointing Ronald Ragland,
Errol Ekaireb and Michael McDonald as such Selling Shareholder's
attorneys-in-fact (the "Attorneys-in-Fact") with authority to execute and
deliver this Agreement on behalf of such Selling Shareholder, to determine
(subject to the provisions of the Shareholders' Agreement) the purchase price to
be paid by the Underwriters to the Selling Shareholders as provided in Section 2
hereof, to authorize the delivery of the Selling Shareholder Shares to be sold
by such Selling Shareholder hereunder and otherwise to act on behalf of such
Selling Shareholder in connection with the transactions contemplated by this
Agreement and the Stockholders' Agreement.
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<PAGE> 8
(c) Such Selling Shareholder specifically agrees that the Selling
Shareholder Shares represented by the certificates held in custody for such
Selling Shareholder under the Stockholders' Agreement are for the benefit of and
coupled with and subject to the interests of the Underwriters, the Custodian,
the Attorneys-in-Fact, each other Selling Shareholder and the Company, that the
arrangements made by such Selling Shareholder for such custody, and the
appointment by such Selling Shareholder of the Attorneys-in-Fact by the
Power-of-Attorney, are to that extent irrevocable, and that the obligations of
such Selling Shareholder hereunder shall not be terminated by operation of law,
whether by the death, disability, incapacity, liquidation or dissolution of any
Selling Shareholder or by the occurrence of any other event. If any individual
Selling Shareholder or any executor or trustee for a Selling Shareholder should
die or become incapacitated, or if any Selling Shareholder that is an estate or
trust should be terminated, or if any Selling Shareholder that is a partnership
or corporation should be dissolved, or if any other such event should occur,
before the delivery of the Selling Shareholder Firm Shares hereunder,
certificates representing the Selling Shareholder Firm Shares shall be delivered
by or on behalf of the Selling Shareholders in accordance with the terms and
conditions of this Agreement and of the Stockholders' Agreement, and actions
taken by the Attorneys-in-Fact pursuant to the Powers-of-Attorney shall be as
valid as if such death, incapacity, termination, dissolution or other event had
not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact,
or any of them, shall have received notice of such death, incapacity,
termination, dissolution or other event.
(d) This Agreement and the Stockholders' Agreement have each been
duly authorized, executed and delivered by such Selling Shareholder and each
such document constitutes a valid and binding obligation of such Selling
Shareholder, enforceable in accordance with its terms except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting the enforcement of creditors' rights, and general
principles of equity.
(e) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is required
in connection with the sale of the Selling Shareholder Shares by such Selling
Shareholder or the consummation by such Selling Shareholder of the transactions
on its part contemplated by this Agreement and the Stockholders' Agreement,
except such as have been obtained under the Act or the Rules and Regulations and
such as may be required under state securities or Blue Sky laws or the by-laws
and rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Shares to be sold by such Selling Shareholder.
(f) The sale of the Selling Shareholder Shares to be sold by such
Selling Shareholder hereunder and the performance by such Selling Shareholder of
this Agreement and the Stockholders' Agreement and the consummation of the
transactions contemplated hereby and thereby will not result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of such
Selling Shareholder pursuant to the terms or provisions of, or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, or give any party a right to terminate any of its obligations
under, or result in the acceleration of any obligation under, any indenture,
mortgage, deed of trust, voting trust agreement, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness, lease, contract or
other agreement or instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder or any of its properties is bound or affected, or
violate or conflict with any judgment, ruling, decree, order, statute, rule or
regulation of any court or other governmental agency or body applicable to such
Selling Shareholder or, if such Selling Shareholder is a corporation,
partnership or other entity, the organizational documents of such Selling
Shareholder.
(g) Such Selling Shareholder has, and at the Closing Date and, if
later, the Option Closing Date, will have, good and marketable title to the
Selling Shareholder Shares to be sold by such Selling Shareholder hereunder,
free and clear of all liens, encumbrances, equities or claims whatsoever; and,
upon delivery of such Selling Shareholder Shares and payment therefor pursuant
hereto, good and marketable title to such Selling Shareholder Firm Shares, free
and clear of all liens, encumbrances, equities or claims whatsoever, will be
delivered to the Underwriters.
(h) On the Closing Date or, if later, the Option Closing Date,
all stock transfer or other taxes (other than income taxes) that are required to
be paid in connection with the sale and transfer of the Shares to be sold by
such Selling Shareholder to the several Underwriters hereunder will be have been
fully paid or provided for by such Selling Shareholder and all laws imposing
such taxes will have been fully complied with.
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<PAGE> 9
(i) Other than as permitted by the Act and the Rules and
Regulations, such Selling Shareholder has not distributed and will not
distribute any preliminary prospectus, the Prospectus or any other offering
material in connection with the offering and sale of the Shares. Such Selling
Shareholder has not taken and will not at any time take, directly or indirectly,
any action designed, or which might reasonably be expected, to cause or result
in, or which will constitute, stabilization of the price of shares of Common
Stock to facilitate the sale or resale of any of the Shares.
(j) All information with respect to such Selling Shareholder
contained in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendment or supplement thereto complied or will comply in all
material respects with all applicable requirements of the Act and the Rules and
Regulations and does not and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(k) Such Selling Shareholder has no knowledge of any material
fact or condition not set forth in the Registration Statement or the Prospectus
that has adversely affected, or may adversely affect, the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company and its Subsidiaries considered as a whole, and the sale of the
Shares proposed to be sold by such Selling Shareholder is not prompted by any
such knowledge.
(l) Such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in Section 3 hereof are
not true and correct.
(m) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 with respect to the transactions herein contemplated, such Selling
Shareholder agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
5. Agreements of the Company. The Company covenants and agrees
with the several Underwriters as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective, and will notify the Representatives
promptly, and will confirm such advice in writing, (i) when the Registration
Statement has become effective and when any post-effective amendment thereto
becomes effective, (ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose or the threat thereof, (iv) of the happening of
any event during the period mentioned in the second sentence of Section 5(e)
that in the judgment of the Company makes any statement made in the Registration
Statement or the Prospectus untrue or that requires the making of any changes in
the Registration Statement or the Prospectus in order to make the statements
therein, in the light of the circumstances in which they are made, not
misleading and (v) of receipt by the Company or any representative or attorney
of the Company of any other communication from the Commission relating to the
Company, the Registration Statement, any preliminary prospectus or the
Prospectus. If at any time the Commission shall issue any order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible moment. If the Company has omitted any information from the
Registration Statement pursuant to Rule 430A of the Rules and Regulations, the
Company will comply with the provisions of and make all requisite filings with
the Commission pursuant to said Rule 430A and notify the Representatives
promptly of all such filings.
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<PAGE> 10
(c) The Company will furnish to each Representative, without
charge, one signed copy of each of the Registration Statement and of any
post-effective amendment thereto, including financial statements and schedules,
and all exhibits thereto and will furnish to the Representatives, without
charge, for transmittal to each of the other Underwriters, a copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules but without exhibits.
(d) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time, the
Company will deliver to each of the Underwriters, without charge, as many copies
of the Prospectus or any amendment or supplement thereto as the Representatives
may reasonably request. The Company consents to the use of the Prospectus or any
amendment or supplement thereto by the several Underwriters and by all dealers
to whom the Shares may be sold, both in connection with the offering or sale of
the Shares and for any period of time thereafter during which the Prospectus is
required by law to be delivered in connection therewith. If during such period
of time any event shall occur which in the judgment of the Company or counsel to
the Underwriters should be set forth in the Prospectus in order to make any
statement therein, in the light of the circumstances under which it was made,
not misleading, or if it is necessary to supplement or amend the Prospectus to
comply with law, the Company will forthwith prepare and duly file with the
Commission an appropriate supplement or amendment thereto, and will deliver to
each of the Underwriters, without charge, such number of copies of such
supplement or amendment to the Prospectus as the Representatives may reasonably
request.
(f) Prior to any public offering of the Shares, the Company will
cooperate with the Representatives and counsel to the Underwriters in connection
with the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the Representatives may
request; provided, that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject.
(g) The Company will, so long as required under the Rules and
Regulations, furnish to its shareholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flow of the Company and its consolidated
Subsidiaries, if any, certified by independent public accountants) and, as soon
as practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of the
Registration Statement), consolidated summary financial information of the
Company and its Subsidiaries, if any, for such quarter in reasonable detail.
(h) During the period of five years commencing on the Effective
Date, the Company will furnish to the Representatives and each other Underwriter
who may so request copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representatives and each other Underwriter who may so request a copy of each
annual or other report it shall be required to file with the Commission.
(i) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last day
of the fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for a period of 12 months ended commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
(j) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company and,
unless otherwise paid by the Company, the Selling Shareholders will pay or
reimburse if paid by the Representatives, in such proportions as they may agree
upon themselves, all costs and expenses incident to the performance of the
obligations of the Company and the Selling Shareholders under this Agreement and
in connection with the transactions contemplated hereby, including but not
limited to costs and expenses of or relating to (i) the preparation, printing
and filing of the Registration Statement and exhibits to it, each preliminary
prospectus, Prospectus and any amendment or supplement to the Registration
Statement or Prospectus,
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(ii) the preparation and delivery of certificates representing the Shares, (iii)
the printing of this Agreement, the Agreement Among Underwriters, any Selected
Dealer Agreements, any Underwriters' Questionnaires, the Stockholders'
Agreements, any Underwriters' Powers of Attorney, and any invitation letters to
prospective Underwriters, (iv) furnishing (including costs of shipping and
mailing) such copies of the Registration Statement, the Prospectus and any
preliminary prospectus, and all amendments and supplements thereto, as may be
requested for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold, (v) the listing of the
Shares on the NNM, (vi) any filings required to be made by the Underwriters with
the NASD, and the fees, disbursements and other charges of counsel for the
Underwriters in connection therewith, (vii) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 5(f), including the fees,
disbursements and other charges of counsel to the Underwriters in connection
therewith, and the preparation and printing of preliminary, supplemental and
final Blue Sky memoranda, (viii) fees, disbursements and other charges of
counsel to the Company (but not those of counsel for the Underwriters, except as
otherwise provided herein) and (ix) the transfer agent for the Shares. The
Underwriters may deem the Company to be the primary obligor with respect to all
costs, fees and expenses to be paid by the Company and by the Selling
Shareholders. The Selling Shareholders will pay (directly or by reimbursement)
all fees and expenses incident to the performance of their obligations under
this Agreement that are not otherwise specifically provided for herein,
including but not limited to any fees and expenses of counsel for such Selling
Shareholders, any fees and expenses of the Attorneys-in-Fact and the Custodian,
and all expenses and taxes incident to the sale and delivery of the Shares to be
sold by such Selling Shareholders to the Underwriters hereunder.
(k) The Company will not at any time, directly or indirectly,
take any action designed or which might reasonably be expected to cause or
result in, or which will constitute, stabilization of the price of the shares of
Common Stock to facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the offering and
sale of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds"
(m) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the Prospectus,
without the prior written consent of Needham & Company, Inc., the Company will
not offer, sell, contract to sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities of the Company or any other
securities convertible into or exchangeable with its Common Stock or other
equity security (other than pursuant to employee stock benefit plans or the
conversion of convertible securities or the exercise of warrants outstanding on
the date of this Agreement).
(n) The Company will cause each of its officers, directors and
certain shareholders designated by the Representatives to, enter into lock-up
agreements with the Representatives to the effect that they will not, without
the prior written consent of Needham & Company, Inc., sell, contract to sell or
otherwise dispose of any shares of Common Stock or rights to acquire such shares
according to the terms set forth in Schedule IV hereto.
6. Conditions of the Obligations of the Underwriters. The
obligations of each Underwriter hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement has become
effective shall be received by the Representatives not later than 5:00 p.m., New
York City time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by the Representatives and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the Commission
or such authorities and (iv) after the date hereof no amendment or supplement to
the Registration Statement or the Prospectus shall have been filed unless a
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<PAGE> 12
copy thereof was first submitted to the Representatives and the Representatives
do not object thereto in good faith, and the Representatives shall have received
certificates, dated the Closing Date and, if later, the Option Closing Date and
signed by the Chief Executive Officer and the Chief Financial Officer of the
Company (who may, as to proceedings threatened, rely upon the best of their
information and belief), to the effect of clauses (i), (ii) and (iii) of this
paragraph.
(c) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, (i) there shall not have been
a material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company or any of its Subsidiaries considered as a whole,
whether or not arising from transactions in the ordinary course of business, in
each case other than as described in or contemplated by the Registration
Statement and the Prospectus, and (ii) the Company shall not have sustained any
material loss or interference with its business or properties from fire,
explosion, flood or other casualty, whether or not covered by insurance, or from
any labor dispute or any court or legislative or other governmental action,
order or decree, which is not described in the Registration Statement and the
Prospectus, if in the judgment of the Representatives any such development makes
it impracticable or inadvisable to consummate the sale and delivery of the
Shares by the Underwriters at the public offering price.
(d) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company, any of its
Subsidiaries, or any of their officers or directors in their capacities as such,
before or by any Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding an unfavorable ruling, decision or finding would, in
the judgment of the Representatives, materially and adversely affect the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company or any of its Subsidiaries considered as a
whole.
(e) Each of the representations and warranties of the Company and
the Selling Shareholders contained herein shall be true and correct in all
material respects at the Closing Date and, with respect to the Option Shares, at
the Option Closing Date, and all covenants and agreements contained herein to be
performed on the part of the Company or the Selling Shareholders and all
conditions contained herein to be fulfilled or complied with by the Company or
the Selling Shareholders at or prior to the Closing Date and, with respect to
the Option Shares, at or prior to the Option Closing Date, shall have been duly
performed, fulfilled or complied with in all material respects.
(f) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to the Representatives and counsel for the
Underwriters from Heller Ehrman White & McAliffe LLP, counsel to the Company and
the Selling Shareholders, with respect to the following matters.
(i) Each of the Company and its operating Subsidiaries is a
corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation;
has full corporate power and authority to conduct all the
activities conducted by it, to own all the assets owed by it and
to conduct its business as described in the Registration
Statement and Prospectus.
(ii) All of the outstanding shares of capital stock of the
Company (including the Selling Shareholder Shares) have been
duly authorized, validly issued and are fully paid and
nonassessable, to such counsel's knowledge, were issued pursuant
to exemptions from the registration and qualification
requirements of federal and applicable state securities laws,
and to such counsel's knowledge were not issued in violation of
or subject to any preemptive or similar rights;
(iii) The specimen certificate evidencing the Common Stock
filed as an exhibit to the Company's Registration Statement on
Form S-1 is in due and proper form under California law, the
Shares to be sold by the Company hereunder have been duly
authorized and, when issued and paid for as contemplated by this
Agreement, will be validly issued, fully paid and nonassessable;
and to such counsel's knowledge no
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<PAGE> 13
preemptive or similar rights exist with respect to any of the
Shares or the issue and sale thereof.
(iv) All of the outstanding shares of capital stock of each
operating Subsidiary has been duly authorized and validly issued
and are fully paid and nonassessable, and owned by the Company.
(v) To such counsel's knowledge, except as disclosed in or
specifically contemplated by the Prospectus, there are no
outstanding options, warrants of other rights calling for the
issuance of, and no commitments, plans or arrangements to issue,
any shares of capital stock of the Company or any security
convertible into or exchangeable or exercisable for capital
stock of the Company.
(vi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened to which the
Company or any of its Subsidiaries is a party or to which any of
their respective properties is subject that are required to be
described in the Registration Statement or the Prospectus but
are not so described.
(vii) No consent, approval, authorization or order of, or
any filing or declaration with, any court or governmental agency
or body is required for the consummation by the Company of the
transactions on its part contemplated under this Agreement,
except such as have been obtained or made under the Act or the
Rules and Regulations and such as may be required under state
securities or Blue Sky laws or the by-laws and rules of the NASD
in connection with the purchase and distribution by the
Underwriters of the Shares.
(viii) The Company has full corporate power and authority to
enter into this Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(ix) The execution and delivery of this Agreement, the
compliance by the Company with all of the terms hereof and the
consummation of the transactions contemplated hereby does not
contravene any provision of applicable law or the Articles of
Incorporation or Bylaws of the Company, and to the best of such
counsel's knowledge will not result in the creation or
imposition of any lien, charge or encumbrance upon any of the
assets of the Company pursuant to the terms and provisions of,
result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or give any party
a right to terminate any of its obligations under, or result in
the acceleration of any obligation under, any indenture,
mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument
known to such counsel to which the Company is a party or by
which the Company or any of its properties is bound or affected,
or violate or conflict with (i) any judgment, ruling, decree or
order known to such counsel or (ii) any statute, rule or
regulation of any court or other governmental agency or body,
applicable to the business or properties of the Company.
(x) To such counsel's knowledge, there is no document or
contract of a character required to be described in the
Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or
filed or incorporated by reference as required, and each
description of such contracts and documents that is contained in
the Registration Statement and Prospectus fairly presents in all
material respects the information required under the Act and the
Rules and Regulations.
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<PAGE> 14
(xi) The Selling Shareholder Shares are duly listed on the
NNM and the Company Firm Shares have been duly authorized for
listing on the NNM, subject to notice of issuance.
(xii) To such counsel's knowledge, no holder of securities
of the Company has rights, which have not been waived or
satisfied, to require the register with the Commission shares of
Common Stock or other securities, as part of the offering
contemplated hereby.
(xiii) The Registration Statement has become effective under
the Act, and to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceeding for that purpose has been
instituted or is pending, threatened or contemplated.
(xiv) The Registration Statement and the Prospectus comply
as to form in all material respects with the requirement of the
Act and the Rules and Regulations (other than the financial
statements, schedules and other financial data contained or
incorporated by reference in the Registration Statement or the
Prospectus, as to which such counsel need express no opinion).
(xv) This Agreement and the Stockholders' Agreement have
each been duly executed and delivered by or on behalf of each
Selling Shareholder; the Shareholders' Agreement constitutes a
valid and binding agreement of such Selling Shareholder in
accordance with its terms, except as enforceability may be
limited by the application of bankruptcy, insolvency or other
laws affecting creditors' rights generally or by general
principles of equity; the performance by such Selling
Shareholder of this Agreement and the Shareholders' Agreement
and the consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation of any of the
terms or provisions of, or constitute a default under, or give
any party a right to terminate any of its obligations under, or
result in the acceleration of any obligation under any
indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument
to which such Selling Shareholder is a party or by which such
Selling Shareholder or any of its properties is bound or
affected, or violate or conflict with any judgment, ruling,
decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to such Selling
Shareholder or, if such Selling Shareholder is a corporation,
partnership or other entity, the organizational documents of
such Selling Shareholder.
(xvi) No consent, approval, authorization or order of, or
any filing or declaration with, any court or governmental agency
or body is required for the consummation by the Selling
Shareholders of the transactions on their part contemplated by
this Agreement, except such as have been obtained or made under
the Act or the Rules and Regulations and such as may be required
under state securities or Blue Sky laws or the by-laws and rules
of the NASD in connection with the purchase and distribution by
the Underwriters of the Shares.
(xvii) Each Selling Shareholder has full legal right, power
and authority to enter into this Agreement and the Stockholders'
Agreement and to sell, assign, transfer and deliver the Shares
to be sold by such Selling Shareholder hereunder and, to such
counsel's knowledge, upon payment for such Shares and assuming
that the Underwriters are purchasing such Shares in good faith
and without notice of any other adverse claim within the meaning
of the Uniform Commercial Code, the Underwriters will have
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<PAGE> 15
acquired all rights of such Selling Shareholder in such Shares
free of any adverse claim, any lien in favor of the Company and
any restrictions on transfer imposed by the Company.
(xviii)Such counsel shall state separately and not part of
its opinion that such counsel has participated in the
preparation of the Registration Statement and Prospectus and has
no reason to believe that, as of the Effective Date the
Registration Statement, or any amendment or supplement thereto,
(other than the financial statements, schedules and other
financial data contained or incorporated by reference therein,
as to which such counsel need express no opinion) contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus, or
any amendment or supplement thereto, as of its date and the
Closing Date and, if later, the Option Closing Date, contained
or contains any untrue statement of a material fact or omitted
or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading (other than the financial
statements, schedules and other financial data contained or
incorporated by reference therein, as to which such counsel need
express no opinion).
In rendering its opinion, such counsel may rely upon opinions of other
counsel retained by the Selling Shareholders reasonably acceptable to the
Representatives and as to matters of fact on certificates of the Selling
Shareholders, officers of the Company and governmental officials and the
representations and warranties of the Company and the Selling Shareholders
contained in this Agreement and the Shareholders' Agreement, provided that the
opinion of counsel to the Company and Selling Shareholders shall state that they
are doing so, that they have no reason to believe that they and the Underwriters
are not entitled to rely on such opinions or certificates and that copies of
such opinions or certificates are to be attached to the opinion.
(g) The representatives shall have received an opinion, dated the
Closing Date and the Option Closing Date, from Gray Cary Ware & Freidenrich LLP,
counsel to the Underwriters, with respect to the Registration Statement, the
Prospectus and this Agreement, which opinion shall be satisfactory in all
respects to the Representatives.
(h) Concurrently with the execution and delivery of this Agreement, the
Accountants shall have furnished to the Representatives a letter, dated the date
of its delivery, addressed to the Representatives and in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants with respect to the Company and its Subsidiaries as required by the
Act and the Exchange Act and the Rules and Regulations and with respect to
certain financial and other statistical and numerical information contained or
incorporated by reference in the Registration Statement. At the Closing Date
and, as to the Option Shares, the Option Closing Date, the Accountants shall
have furnished to the Representatives a letter, dated the date of its delivery,
which shall confirm, on the basis of a review in accordance with the procedures
set forth in the letter from the Accountants, that nothing has come to their
attention during the period from the date of the letter referred to in the prior
sentence to a date (specified in the letter) not more than five days prior to
the Closing Date and the Option Closing Date, as the case may be, which would
require any change in their letter dated the date hereof if it were required to
be dated and delivered at the Closing Date and the Option Closing Date.
(i) Concurrently with the execution and delivery of this Agreement and
at the Closing Date and, as to the Option Shares, the Option Closing Date, there
shall be furnished to the Representatives a certificate, dated the date of its
delivery, signed by each of the Chief Executive Officer and the Chief Financial
Officer of the Company, in form and substance satisfactory to the
Representatives, to the effect that:
(i) Each signer of such certificate has carefully examined
the Registration Statement and the Prospectus and (A) as of the
date of such certificate, such documents are true and correct in
all material respects and do not omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, not untrue or misleading and (B) in the case
of the certificate delivered at the Closing Date and the Option
Closing Date, since the Effective Date no event has occurred as
a result of
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<PAGE> 16
which it is necessary to amend or supplement the Prospectus in
order to make the statements therein not untrue or misleading in
any material respect.
(ii) Each of the representations and warranties of the
Company contained in this Agreement were, when originally made,
and are, at the time such certificate is delivered, true and
correct in all material respects.
(iii) Each of the covenants required to be performed by the
Company herein on or prior to the date of such certificate has
been duly, timely and fully performed and each condition herein
required to be satisfied or fulfilled on or prior to the date of
such certificate has been duly, timely and fully satisfied or
fulfilled.
(j) Concurrently with the execution and delivery of this Agreement and
at the Closing Date and, as to the Option Shares, the Option Closing Date, there
shall be furnished to the Representatives a certificate, dated the date of its
delivery, signed by the Selling Shareholders (or the Attorneys-in-Fact on their
behalf), in form and substance satisfactory to the Representatives, to the
effect that the representations and warranties of the Selling Shareholders
contained herein are true and correct in all material respects on and as of the
date of such certificate as if made on and as of the date of such certificate,
and each of the covenants and conditions required herein to be performed or
complied with by the Selling Shareholders on or prior to the date of such
certificate has been duly, timely and fully performed or complied with.
(k) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 5(n).
(l) The Shares shall be qualified for sale in such jurisdictions as the
Representatives may reasonably request and each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
or the Option Closing Date.
(m) Prior to the Closing Date, the Shares shall have been duly
authorized for listing on the NNM upon official notice of issuance.
(n) The Company and the Selling Shareholders shall have furnished to the
Representatives such certificates, in addition to those specifically mentioned
herein, as the Representatives may have reasonably requested as to the accuracy
and completeness at the Closing Date and the Option Closing Date of any
statement in the Registration Statement or the Prospectus, as to the accuracy at
the Closing Date and the Option Closing Date of the representations and
warranties of the Company and the Selling Shareholders herein, as to the
performance by the Company and the Selling Shareholders of its and their
respective obligations hereunder, or as to the fulfillment of the conditions
concurrent and precedent to the obligations hereunder of the Representatives.
7. Indemnification.
(a) The Company and each of the Selling Shareholders, jointly and
severally, will indemnify and hold harmless each Underwriter, the directors,
officers, employees and agents of each Underwriter and each person, if any, who
controls each Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, from and against any and all losses, claims,
liabilities, expenses and damages (including any and all investigative, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim asserted), to
which they, or any of them, may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on (i) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus, or the omission or alleged omission to
state in such document a material fact required to be stated in it or necessary
to make the statements in it not misleading in the light of the circumstances in
which they were made, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any materials or information provided to investors
by, or with the approval of the Company in connection with the marketing or the
offering of the Shares (herein called
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<PAGE> 17
Marketing Materials), including any roadshow or investor presentations made to
investors by the Company (regardless of the medium by which such information is
transmitted, whether in person, telephonically, via facsimile or by other
electronic means) or the omission or alleged omission to state in the Marketing
Materials a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading or
(iii) arise out of or are based in whole or in part on any inaccuracy in the
representations and warranties of the Company or the Selling Shareholders
contained herein or any failure of the Company or the Selling Shareholders to
perform its or their obligations hereunder or under law in connection with the
transactions contemplated hereby; provided, however, that (i) the Company and
the Selling Shareholders will not be liable to the extent that such loss, claim,
liability, expense or damage arises from the sale of the Shares in the public
offering to any person by an Underwriter and is based on an untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company by the Representatives, on behalf of any Underwriter, expressly for
inclusion in the Registration Statement, the preliminary prospectus or the
Prospectus or any amendments or supplements to the Registration Statement or
Prospectus; (ii) the Company and the Selling Shareholders will not be liable to
any Underwriter, the directors, officers, employees or agents of such
Underwriter or any person controlling such Underwriter with respect to any loss,
claim, liability, expense, or damage arising out of or based on any untrue
statement or omission or alleged untrue statement or omission or alleged
omission to state a material fact in the preliminary prospectus which is
corrected in the Prospectus if the person asserting any such loss, claim,
liability, charge or damage purchased Shares from such Underwriter but was not
sent or given a copy of the Prospectus at or prior to the written confirmation
of the sale of such Shares to such person; and (iii) the liability of each
Selling Shareholder under this Section 7(a) shall not exceed the product of the
purchase price for each Share set forth in Section 1(a) hereof multiplied by the
number of Shares sold by such Selling Shareholder hereunder. The Company and the
Selling Shareholders acknowledge that the statements set forth under the heading
"Underwriting" in the preliminary prospectus and the Prospectus constitute the
only information relating to any Underwriter furnished in writing to the Company
by the Representatives on behalf of the Underwriters expressly for inclusion in
the Registration Statement, the preliminary prospectus or the Prospectus. This
indemnity agreement will be in addition to any liability that the Company and
the Selling Shareholders might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each
Selling Shareholder to the same extent as the foregoing indemnity from the
Company and each Selling Shareholder to each Underwriter, as set forth in
Section 7(a), but only insofar as losses, claims, liabilities, expenses or
damages arise out of or are based on any untrue statement or omission or alleged
untrue statement or omission made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representatives, on behalf of such Underwriter, expressly for use in the
Registration Statement, the preliminary prospectus or the Prospectus or any
amendments or supplements thereto. The Company and the Selling Shareholders
acknowledge that the statements set forth under the heading "Underwriting" in
the preliminary prospectus and the Prospectus constitute the only information
relating to any Underwriter furnished in writing to the Company by the
Representatives on behalf of the Underwriters expressly for inclusion in the
Registration Statement, the preliminary prospectus or the Prospectus. This
indemnity will be in addition to any liability that each Underwriter might
otherwise have.
(c) Any party that proposes to assert the right to be indemnified
under this Section 7 shall, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party in writing of the commencement of such action, enclosing with
such notice a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing provisions of this Section 7 unless,
and only to the extent that, such omission results in the loss of substantive
rights or defenses by the indemnifying party. If any such action is brought
against any indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly notified,
to assume the defense of the action, with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense, the indemnifying party will not be
liable to the indemnified party for any legal or other expenses except
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<PAGE> 18
as provided below and except for the reasonable costs of investigation
subsequently incurred by the indemnified party in connection with the defense.
The indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (i) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (ii)
the indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(iii) a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (iv) the indemnifying
party has not in fact employed counsel to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees, disbursements and other charges of more than one
separate firm admitted to practice in such jurisdiction at any one time for all
such indemnified party or parties. All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. Any indemnifying party will not be liable for any settlement of any
action or claim effected without its written consent (which consent will not be
unreasonably withheld).
(d) If the indemnification provided for in this Section 7 is
applicable in accordance with its terms but for any reason is held to be
unavailable to or insufficient to hold harmless an indemnified party under
paragraphs (a), (b) and (c) of this Section 7 in respect of any losses, claims,
liabilities, expenses and damages referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable (including any investigative, legal and
other expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company or the Selling Shareholders
from persons other than the Underwriters, such as persons who control the
Company within the meaning of the Act, officers of the Company who signed the
Registration Statement and directors of the Company, who also may be liable for
contribution) by such indemnified party as a result of such losses, claims,
liabilities, expenses and damages in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other hand. The
relative benefits received by the Company and the Selling Shareholders, on the
one hand, and the Underwriters, on the other hand, shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Shareholders bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. If, but only
if, the allocation provided by the foregoing sentence is not permitted by
applicable law, the allocation of contribution shall be made in such proportion
as is appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other hand, with
respect to the statements or omissions which resulted in such loss, claim,
liability, expense or damage, or action in respect thereof, as well as any other
relevant equitable considerations with respect to such offering. Such relative
fault shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company, the Selling Shareholders or
the Representatives on behalf of the Underwriters, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling Shareholders and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 7(d) were to be determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 7(d) shall be deemed to
include, for purposes of this Section 7(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7(d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts received by it and no person found guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 7(d) are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section 7(d), any
person who controls a party to this
18
<PAGE> 19
Agreement within the meaning of the Act will have the same rights to
contribution as that party, and each officer of the Company who signed the
Registration Statement will have the same rights to contribution as the Company,
subject in each case to the provisions hereof. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action
against any such party in respect of which a claim for contribution may be made
under this Section 7(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 7(d). No party will be liable for
contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company and the Selling
Shareholders contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any investigation made by or on behalf of the
Underwriters, (ii) acceptance of any of the Shares and payment therefor or (iii)
any termination of this Agreement.
8. Reimbursement of Certain Expenses. In addition to its other
obligations under Section 7(a) of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding brought by a third party
arising out of or based upon, in whole or in part, any statement or omission or
alleged statement or omission, or any inaccuracy in the representations and
warranties of the Company or the Selling Shareholder contained herein or failure
of the Company or the Selling Shareholders to perform its or their respective
obligations hereunder or under law, all as described in Section 7(a),
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the obligations under this Section 8 and the possibility that
such payment might later be held to be improper; provided, however, that, to the
extent any such payment is ultimately held to be improper, the persons receiving
such payments shall promptly refund them.
9. Termination. The obligations of the several Underwriters under
this Agreement may be terminated at any time on or prior to the Closing Date
(or, with respect to the Option Shares, on or prior to the Option Closing Date),
by notice to the Company and the Selling Shareholders from the Representatives,
without liability on the part of any Underwriter to the Company if, prior to
delivery and payment for the Firm Shares or Option Shares, as the case may be,
in the sole judgment of the Representatives, (i) trading in any of the equity
securities of the Company shall have been suspended by the Commission or by The
Nasdaq Stock Market, (ii) trading in securities generally on the Nasdaq Stock
Market shall have been suspended or limited or minimum or maximum prices shall
have been generally established on such exchange, or additional material
governmental restrictions, not in force on the date of this Agreement, shall
have been imposed upon trading in securities generally by such exchange, by
order of the Commission or any court or other governmental authority, or by The
Nasdaq Stock Market, (iii) a general banking moratorium shall have been declared
by either Federal or, New York State authorities or (iv) any material adverse
change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or other calamity or crisis shall have
occurred, the effect of which is such as to make it, in the sole judgment of the
Representatives, impracticable to proceed with completion of the public offering
or the delivery of and payment for the Shares.
If this Agreement is terminated pursuant to Section 10 hereof, neither
the Company nor any Selling Shareholder shall be under any liability to any
Underwriter except as provided in Sections 7 and 8 hereof; but, if for any other
reason the purchase of the Shares by the Underwriters is not consummated or if
for any reason the Company shall be unable to perform its obligations hereunder,
the Company and the Selling Shareholders will reimburse the several Underwriters
for all out-of-pocket expenses (including the fees, disbursements and other
charges of counsel to the Underwriters) incurred by them in connection with the
offering of the Shares.
10. Substitution of Underwriters. If any one or more of the
Underwriters shall fail or refuse to purchase any of the Firm Shares which it or
they have agreed to purchase hereunder, and the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is not more than one-tenth of the aggregate number of Firm Shares,
the other Underwriters shall be obligated, severally, to purchase the Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase, in the proportions which the number of Firm Shares which
they have respectively agreed to purchase pursuant to Section 1 bears to the
aggregate number of Firm Shares which all such non-defaulting Underwriters have
so agreed to purchase, or in such other proportions as the Representatives may
specify; provided that in no event shall the maximum number of Firm
19
<PAGE> 20
Shares which any Underwriter has become obligated to purchase pursuant to
Section 1 be increased pursuant to this Section 10 by more than one-ninth of
such number of Firm Shares without the prior written consent of such
Underwriter. If any Underwriter or Underwriters shall fail or refuse to purchase
any Firm Shares and the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase exceeds
one-tenth of the aggregate number of the Firm Shares and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Firm Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Shareholders for the purchase or sale of any Shares under
this Agreement. In any such case either the Representatives or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or in any other documents or arrangements may be
effected. Any action taken pursuant to this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
11. Miscellaneous. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company or the Selling Shareholders, at the
office of the Company, 9404 Chesapeake Drive, San Diego, CA 92123, Attention:
Chief Executive Officer, with a copy to Victor A. Hebert, Esq., Heller Ehrman
White & McAliffe, 601 South Figueroa Street, Los Angeles, CA 90017, or (b) if to
the Underwriters, to the Representatives at the offices of Needham & Company,
Inc., 445 Park Avenue, New York, New York 10022, Attention: Corporate Finance
Department, with a copy to Douglas Rein, Esq., Gray Cary Ware & Freidenrich LLP,
4365 Executive Drive, Suite 1600, San Diego, CA 92121. Any such notice shall be
effective only upon receipt. Any notice under such Section 9 or 10 may be made
by telex or telephone, but if so made shall be subsequently confirmed in
writing.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, the Selling Shareholders and the controlling
persons, directors and officers referred to in Section 7, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" as used
in this Agreement shall not include a purchaser, as such purchaser, of Shares
from any of the several Underwriters.
Any action required or permitted to be made by the Representatives under
this Agreement may be taken by them jointly or by Needham & Company, Inc.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California applicable to contracts made and to be
performed entirely within such State.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
20
<PAGE> 21
The Company and the Underwriters each hereby waive any right they may
have to a trial by jury in respect of any claim based upon or arising out of
this Agreement or the transactions contemplated hereby. Please confirm that the
foregoing correctly sets forth the agreement among the Company and the several
Underwriters.
Very truly yours,
REMEC, Inc.
By:
-------------------------------
Title:
SELLING SHAREHOLDERS
(named in Schedule II hereto)
By:
-------------------------------
Attorney-in-Fact
Confirmed as of the date first above mentioned:
NEEDHAM & COMPANY, INC.
CIBC World Markets Corp.
Dain Rauschler Incorporated
A.G. Edwards & Sons, Inc.
Acting on behalf of themselves
and as the Representatives of
the several Underwriters
named in Schedule I hereto.
By: NEEDHAM & COMPANY, INC.
By:
-------------------------------
Title:
21
<PAGE> 22
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriters to be Purchased
------------ ---------------
<S> <C>
Needham & Company, Inc.......................
CIBC World Markets Corp......................
Dain Rauschler Incorporated..................
A.G. Edwards & Sons, Inc.....................
Total.................................... 3,500,000
=========
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF HELLER EHRMAN WHITE & MCAULIFFE LLP]
March 17, 2000
21860-0016
REMEC, Inc.
9404 Chesapeake Drive
San Diego, California 92123
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to REMEC, Inc., a California corporation (the
"Company"), in connection with the Registration Statement on Form S-3 (File No.
333-31428) filed with the Securities and Exchange Commission on March 1, 2000
(the "Registration Statement"), for the purpose of registering under the
Securities Act of 1933, as amended, an aggregate of 4,312,500 shares of the
Company's $0.01 par value Common Stock (the "Shares"), of which up to 3,500,000
currently unissued shares are to be sold by the Company and up to 812,500
currently issued and outstanding shares held by certain shareholders (the
"Selling Shareholders") of the Company are to be sold by the Selling
Shareholders, of which up to 250,000 are to be sold in conjunction with the
Company's shares and up to an additional 562,500 may be sold if the underwriters
exercise their over-allotment option. The Shares are to be sold in connection
with the proposed public offering of the Shares pursuant to an Underwriting
Agreement (the "Underwriting Agreement") with respect to the Shares between the
Company and the Selling Shareholders, on the one hand, and Needham & Company,
Inc., CIBC World Markets Corp., Dain Rauscher Incorporated, and A.G. Edwards &
Sons, Inc., as Representatives of the several underwriters, on the other hand.
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 March 16,
2000, 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;
<PAGE> 2
REMEC, Inc. Heller Ehrman White & McAuliffe
March 17, 2000 ATTORNEYS
Page 2
(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 President and Secretary of the Company: (i)
certifying that copies of all records of proceedings and actions of
the Board of Directors of the Company, including any committee
thereof, relating to the issuance of the Shares and the proposed
resale of the Shares pursuant to the Registration Statement have
been provided to us; and (ii) certifying as to certain factual
matters;
(d) The Registration Statement;
(e) A letter from ChaseMellon, the Company's transfer agent, dated as
of March 16, 2000, confirming the number of shares of the Company's
Common Stock that were outstanding on March 15, 2000; and
(f) The current draft of the Underwriting Agreement.
This opinion is limited to the laws of the State of California, and we
disclaim any opinion as to the laws of any other jurisdiction. We further
disclaim any opinion as to any other statute, rule, regulation, ordinance, order
or other promulgation of any other jurisdiction or any regional or local
governmental body or as to any related judicial or administrative opinion. Our
opinion to the effect that all issued and outstanding Shares are fully paid and
nonassessable is based on the certification obtained from the Company identified
in item (c) above to the effect that the consideration for such Shares recited
in the Board of Directors' resolutions for such Shares has been received.
Based on the foregoing and our examination of such questions of law as
we have deemed necessary or appropriate for the purpose of this opinion, and
assuming that (i) the Registration Statement becomes and remains effective
during the period when the Shares are offered, issued and sold, (ii) the Shares
to be sold by the Company are issued, delivered, and paid for in accordance with
the terms of the Underwriting Agreement, (iii) the Shares to be sold by the
Selling Shareholders are delivered and paid for in accordance with the terms of
the Underwriting Agreement and (iv) all applicable securities laws are
<PAGE> 3
REMEC, Inc. Heller Ehrman White & McAuliffe
March 17, 2000 ATTORNEYS
Page 3
complied with, it is our opinion that the currently issued and outstanding
Shares covered by the Registration Statement are, and the currently unissued
Shares covered by the Registration Statement, when issued by the Company, 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 amendments
thereto.
Very truly yours,
/s/ Heller Ehrman White & McAuliffe LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of REMEC, Inc. for the
registration of shares of its common stock and to the incorporation by reference
therein of our report dated February 25, 2000, with respect to the consolidated
financial statements and schedule of REMEC, Inc. included in the Annual Report
on Form 10-K for the year ended January 31, 2000, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
San Diego, California
March 17, 2000
<PAGE> 1
EXHIBIT 23.2
[ARTHUR ANDERSEN LOGO]
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the reference to our firm in this
Registration Statement (Form S-3) and related Prospectus of REMEC, Inc. for the
registration of its common stock and to the incorporation by reference therein
of our report, dated 24 March 1999 with respect to the financial statements of
Airtech plc as of 31 December 1998 and 1997 and for the years then ended.
/s/ ARTHUR ANDERSEN
- ------------------------------
Arthur Andersen
Chartered Accountants
St Albans, England
17 March 2000
