UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 20, 1999
RACOM SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 000-21907 84-1182875
- -------------------------------- ----------------------- -----------------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification
incorporation) Number
</TABLE>
16 W. 32nd Street, Suite 801, New York, NY 10001
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 643-2080
6080 Greenwood Plaza Blvd., Greenwood Village, Colorado 80111
-------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 1. Changes in Control of the Registrant
Prior to the acquisition described below and after the July 12, 1999
reverse split, GEM Singapore PTE Ltd. ("GEM") and Turbo International LTD.
("Turbo") each beneficially owned 566,666 shares of the Company's common stock,
representing, in the aggregate, approximately 85% of the Company's total issued
and outstanding common stock. No other shareholder owned greater than 10% of the
Company's total issued and outstanding shares of common stock.
On July 20, 1999, RACOM SYSTEMS, INC. (the "Company") acquired
approximately 99.6% (4,958,000 shares) of the issued and outstanding capital
stock of NewState Capital Co., Ltd. ("NewState Capital"), a Korean corporation
which was formerly a subsidiary of NewState Capital Corp., a New York
corporation ("NewState"), in exchange for issuing 8,000,000 shares of its common
stock, representing approximately 80% of its total issued and outstanding shares
of common stock, to NewState. The Company also assumed a $5,000,000 liability of
NewState to a bank. The terms and conditions of the acquisition are more fully
set forth in the Agreement and Plan of Reorganization, dated as of July 14, 1999
(the "Acquisition Agreement"), by and among the Company, NewState, NewState
Capital and Subsidiary, which is annexed hereto as Exhibit "A". As a result of
the Acquisition Agreement, (i) NewState Capital has become a subsidiary of NSK
Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of the
Company, (ii) several new investors, affiliated with GEM and Turbo acquired
667,000 shares of Racom for $1,000,000 ($1.50 per share) pursuant to the terms
and conditions of the Common Stock Purchase Agreement dated July 14, 1999 by and
among the Company, Ocean Strategic Holdings Limited ("Ocean") and Zebra
Strategic Holdings Limited ("Zebra") and attached as Exhibit "B", and (iii)
NewState owns 80% of the stock in the Company. Accordingly, following the
consummation of the Acquisition, NewState controls the Company. NewState, which
will be dissolved immediately, is owned by Mr. Ernest Kim, his wife and three
prior children. Mr. Kim is now the Chairman, President and Chief Executive
Officer of the Company. A press release announcing the consummation of the
transactions contemplated by the Acquisition Agreement is also attached as
Exhibit "C".
Prior to the Acquisition, the Company's Board of Directors (the
"Board") was comprised of the following five (5) members including Edward Tobin.
At the time of the acquisition, the Board received the resignations tendered by
all the directors other than Mr. Tobin and filled the four vacancies then
existing by appointing Ernest B. Kim, Sun W. Young, Jin K. Kim and Benjamin
Chang to the Board, each to serve as a director of the Company until his
successor is duly elected and qualified. Immediately thereafter, the Board
elected Ernest Kim as Chairman, Chief Executive Officer and President, Alexander
T. Shang as Chief Financial Officer and Treasurer, Jin K. Kim as Vice President
and Sun W. Young as Secretary of both the Company and Subsidiary.
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 20, 1999, the Company acquired 99.6% of the issued and
outstanding shares of NewState Capital in exchange for the issuance to NewState
of 8,000,000 shares of the Company's common stock. Also, a new subsidiary of the
Company, NSK Holdings, Inc. assumed the obligations of a promissory note (the
"Note") executed by NewState Capital, as borrower, in favor of a bank, as
lender, dated December 28, 1998, in the original principal sum of $5 million, at
a rate of interest of 12% per annum. The principal and interest on the Note were
to be repaid in one installment on or before March 28, 1999 which date was
extended by the bank to June 28, 1999. The Note matured prior to the
consummation of the Acquisition, and the bank has not granted an extension and
the principal balance of $5 million, plus accrued interest, remains due to the
bank.
NewState Capital is a Korean specialty-finance company. NewState
Capital's principal office is located in Yuksam-Dong, Kangman, the financial
district of Seoul, and it maintains retail branch offices in Dae-Gu and
Chang-Won, Jinju and Pusar. NewState Capital employs approximately 62 persons in
its five offices.
NewState Capital primarily offers residential mortgage loans to
consumers. As of March 31, 1999, NewState Capital had approximately $142.6
million (U.S.) in total assets, $14.4 million in stockholders' equity and
approximately $83 million in outstanding mortgage loans and $95 million in total
loans. NewState Capital lost a total of $6.1 million for the year ended March
31, 1999. NewState Capital intends to further expand its sales network to cover
the major cities in Korea after the consummation of the acquisition.
NewState Capital is currently in the process of adopting United States
underwriting and loan services standards, converting its servicing software to
meet United States servicing guidelines, and instituting improved customer
services and a faster and easier to use loan processing system in order to meet
the increased demand for mortgages.
The Company's management believes that NewState Capital can capitalize
on the recent passage of Korea's asset-backed securities issuance law, which
management anticipates will provide easier access to funds, and Korea's
deregulation of mortgage loan size, which management believes will result in a
rapid increase in the overall size of the Korean mortgage market.
NewState Capital's predecessor is Dongsuh Finance Co., Ltd. ("Dongsuh
Finance"), a former subsidiary of Dongsuh Securities Co. ("Dongsuh Securities").
In December 1998, Dongsuh Securities sold Dongsuh Finance to NewState, and
immediately thereafter, Dongsuh Finance changed its name to NewState Capital. On
March 12, 1999, NewState Capital acquired all of the capital stock of Youngnam
Housing Finance Co., Ltd., another Korean specialty-finance company.
Following the consummation of the Acquisition, the Company intends to
change its name to NewState Holdings, Inc., trade on the NASDAQ Over-the-Counter
Bulletin Board under the symbol "NSKH" and operate as a specialty-finance
company in Korea. The Company's new address will be 16 W. 32nd Street, Suite
801, New York, NY 10001 and its new telephone number will be (212) 643-2080. A
press release regarding the Acquisition is attached as Exhibit
ITEM 5. OTHER EVENTS
On July 6, 1999, the Company received from Ramtron International
Corporation ("Ramtron") a formal notice of termination of the agreement by and
among the Company, Ramtron and Intag International Limited ("Intag"), dated
April 15, 1997 and amended as of December 11, 1998 (the "Tripartite Agreement"),
pursuant to Section 8.3 of the Tripartite Agreement. Ramtron terminated the
Tripartite Agreement based on its contention that while the Company had the
right to sublicense Ramtron's technology directly to Fujitsu, the Company
violated the terms of the Tripartite Agreement by sublicensing the technology to
the Company's affiliate, Racom Japan, which then sublicensed it to Fujitsu.
Under the Tripartite Agreement, the Company retained the rights to
sublicense Ramtron's ferroelectric technology for use in ferroelectric RFID
products to no more than five (5) parties, pursuant to Ramtron's approval. As of
December 31, 1998, the Company had sublicensed the technology to three
companies. Ramtron had agreed to coordinate its own licensing of FRAM
technology, including the licensing of FRAM technology for use in RFID
applications with the Company, until such time as the Company completed its five
sublicensing agreements. The parties to the Tripartite Agreement also agreed to
share, with certain limitations, future licensing and royalty revenues
associated with such ferroelectric licensing activities.
In addition, Ramtron granted the Company the right to purchase
certain agreed upon percentages of its FRAM product manufacturing capacity. As
of December 31, 1998, the Company had not received or paid any royalties under
the Tripartite Agreement, as there were no sales of product through December 31,
1998. The Tripartite Agreement was to remain effective until the expiration of
the last of Ramtron's patents. For the years ended December 31, 1998 and 1997,
the Company made purchases from Ramtron of approximately $72,000 and $34,000,
respectively.
On December 11, 1998, the Company, Ramtron and Intag signed an
amendment to the Tripartite Agreement, whereby, the Company reconveyed to
Ramtron its rights to sublicense the ferroelectric technology to two additional
sublicensees. In consideration for this and other amendments, Ramtron paid the
Company $350,000, which was recorded as an increase in the Company's paid-in
capital. In the event that Ramtron had sold the remaining two sublicenses, the
Company would have received 50% of the license fees paid to Ramtron, less
$350,000.
The Company has also assigned to another new subsidiary all of the
assets owned by the Company prior to July 14, 1999 in return for the assumption
by such subsidiary of the liabilities of such subsidiary.
ITEM 7. Financial Statement and Exhibits
(a) Financial Statements
It is impracticable to provide the required financial statements
concurrently with the filing of this report. The Company expects to
file the required financial statements as soon as practicable, but in
no event later than sixty (60) days after the due date of this Current
Report on Form 8-K.
(b) Pro-Forma Financial Information
It is impracticable to provide the required pro-forma financial
information concurrently with the filing of this report. The Company
expects to file the required pro-forma financial information as soon as
practicable, but in no event later than sixty (60) days after the due
date of this Current Report on Form 8-K.
(c) Exhibits:
Exhibit No. Title
99.1 Agreement and Plan of
Reorganization, dated as of July
14, 1999, by and among the
Company, NewState, NewState
Capital and NSK Holdings, Inc.
99.2 Common Stock Purchase agreement,
dated as of July 20, 1999,
by and among the Company, Ocean
and Zebra
99.3 Press Release dated July 20, 1999
Forward Looking Statements
Certain statements made in this Form 8-K by Racom / NewState Holdings, Inc. are
forward-looking in nature. Actual results may differ materially from those
projected in forward-looking statements. Racom / NewState Holdings, Inc.
believes the factors which may cause the actual results to differ and which
reflect the primary risk factors associated with its business include: the need
for obtaining substantial financing sources, assuring liquidity and maintaining
substantial equity; timely development of internal programs and procedures to
enable the securitization of mortgages; the acceptance of mortgage-backed
securities in Korea; the successful integration of acquisitions; the ability to
attract and retain high quality employees; change in overall economy of Korea
and Asia; the number and size of competitors in its markets; change in
technology; and changes in law and regulatory policies. Racom / NewState
Holdings, Inc. does not undertake to update any forward-looking statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RACOM SYSTEMS, INC.
ALEXANDER SHANG
By:-------------------------------------
Alexander Shang, Treasurer
and Chief Financial Officer
Date: July 21, 1999
AGREEMENT AND PLAN OF REORGANIZATION
among
RACOM SYSTEMS, INC.,
NSK HOLDINGS, INC.
NEWSTATE CAPITAL CORP.
and
NEWSTATE CAPITAL CO., LTD
As Of July 14, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
RECITALS ...............................................................................1
ARTICLE I...............................................................................2
SECTION 1.1 The Transactions.............................................2
SECTION 1.2 The Closing: Issuance of Shares..............................2
SECTION 1.3 Consummation of Transaction; distribution of Racom Assets....5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF RACOM........................................6
SECTION 2.1 Organization of Racom........................................6
SECTION 2.2 Capitalization of Racom......................................6
SECTION 2.3 Charter Documents............................................6
SECTION 2.4 Corporate Documents..........................................6
SECTION 2.5 Required Authorizations......................................7
SECTION 2.6 Compliance with Law and Government Regulations...............7
SECTION 2.7 Litigation...................................................7
SECTION 2.8 Authority....................................................7
SECTION 2.9 Full Disclosure..............................................7
ARTICLE III
COVENANTS OF RACOM AND SUBSIDIARY .............................................8
SECTION 3.1 Conduct Prior to the Closing.................................8
SECTION 3.2 Affirmative Covenants........................................8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWSTATE ....................................9
SECTION 4.1 Organization of NewState.....................................9
SECTION 4.2 Capitalization of NewState...................................9
SECTION 4.3 Charter Documents............................................9
SECTION 4.4 Required Authorizations......................................9
SECTION 4.5 Compliance with Law and Government Regulations...............9
SECTION 4.6 Litigation...................................................9
SECTION 4.7 Governmental Consent.........................................9
SECTION 4.8 Authority...................................................10
SECTION 4.9 Ownership of NewState Capital Shares........................10
SECTION 4.10 Investment Purpose..........................................10
SECTION 4.11 Full Disclosure.............................................10
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEWSTATE CAPITAL............................11
SECTION 5.1 Organization of NewState Capital............................11
SECTION 5.2 Capitalization of NewState Capital..........................11
SECTION 5.3 Charter Documents...........................................11
SECTION 5.4 Tax Returns and Payments....................................11
SECTION 5.5 Required Authorizations.....................................11
SECTION 5.6 Compliance with Law and Government Regulations..............11
SECTION 5.7 Litigation..................................................12
SECTION 5.8 Patents, Trade Names and Rights.............................12
SECTION 5.9 Governmental Consent........................................12
SECTION 5.10 Ownership of NewState Capital Shares........................12
SECTION 5.11 Full Disclosure.............................................12
ARTICLE VI
COVENANTS OF NEWSTATE AND NEWSTATE CAPITAL....................................13
SECTION 6.1 Conduct Prior to the Closing................................13
SECTION 6.2 Affirmative Covenants............................................13
ARTICLE VII
ADDITIONAL AGREEMENTS.........................................................14
SECTION 7.1 Expenses....................................................14
SECTION 7.2. Brokers and Finders.........................................14
SECTION 7.3 Necessary Actions...........................................14
SECTION 7.4 Confidentiality.............................................14
SECTION 7.5 Liquidation and Dissolution of NewState.....................14
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE PARTIES......................................14
SECTION 8.1 Legal Action................................................14
SECTION 8.2 Absence of Termination......................................15
SECTION 8.3 Required Approvals..........................................15
SECTION 8.4 "Blue Sky" Compliance.......................................15
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF RACOM AND SUBSIDIARY...................15
SECTION 9.1 Representations and Warranties True at Closing..............15
SECTION 9.2 Performance.................................................15
SECTION 9.3 Authority...................................................15
SECTION 9.4 Absence of Certain Changes or Events........................15
ARTICLE X
CONDITIONS PRECEDENT OF NEWSTATE .............................................16
SECTION 10.1 Representations and Warranties True at Closing..............16
SECTION 10.2 Performance.................................................16
SECTION 10.3 Authority...................................................16
SECTION 10.4 Absence of Certain Changes or Events........................16
ARTICLE XI
TERMINATION...................................................................17
SECTION 11.1 Termination.................................................17
SECTION 11.2 Effect of Termination.......................................17
ARTICLE XII
MISCELLANEOUS.................................................................18
SECTION 12.1 Cost and Expenses...........................................18
SECTION 12.2 Extension of Time: Waivers..................................18
SECTION 12.3 Notices.....................................................18
SECTION 12.4 Parties in Interest.........................................19
SECTION 12.5 Counterparts................................................19
SECTION 12.6 Severability................................................19
SECTION 12.7 Headings....................................................19
SECTION 12.8 Survival of Representations and Warranties..................19
SECTION 12.9 Assignability...............................................19
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (hereinafter referred to as
the "Agreement") is made and entered into as of the 14th day of July 1999 by and
among RACOM CORPORATION, a Delaware corporation (hereinafter referred to as
"Racom"), NSK HOLDINGS, INC., a Delaware corporation and a wholly-owned
subsidiary of Racom (hereinafter referred to as "Subsidiary"), NEWSTATE CAPITAL
CORP., a New York corporation (hereinafter referred to as "NewState") and
NEWSTATE CAPITAL CO., LTD, a company organized under the laws of Korea
(hereinafter referred to as "NewState Capital").
RECITALS
WHEREAS, Racom desires to issue and NewState desires to acquire eighty
(80%) percent of the issued and outstanding shares of the common stock, par
value $.01, of Racom (the "Racom Shares") pursuant to the terms and conditions
as set forth herein;
WHEREAS, NewState desires to transfer and Racom and Subsidiary desire
that Subsidiary acquire all of NewState's right, title and interest in
NewState's sole asset, an ownership interest in 99.6% of the capital shares (the
"NewState Capital Shares") of NewState Capital pursuant to the terms and
conditions as set forth herein; and
WHEREAS, NewState desires to assign and Racom and Subsidiary desire
that Subsidiary assume NewState's rights and obligations under that certain
promissory note dated December 28, 1998 made by NewState to the order of Korea
Exchange Bank, Broadway Branch, (the "Korea Bank") in the principal amount of
$5,000,000 (the "Korean Bank Note");
WHEREAS, NewState desires as an integral part of the transaction, to
distribute the Racom Shares to its shareholders in exchange for their NewState
shares in complete liquidation of NewState and to dissolve; and
WHEREAS, all of the foregoing shall be in a transaction which shall
qualify as a tax-free acquisition reorganization under Section 368 (a)(1)(C) of
the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the premises and mutual
representations, warranties and covenants herein contained, the parties hereby
agree as follows:
<PAGE>
ARTICLE I
SECTION 1.1 The Transactions. The parties to this Agreement agree as
follows:
(a) Racom shall issue to NewState stock certificates representing eight
million (8,000,000) Racom Shares, free and clear of all claims and encumbrances,
resulting in NewState owning eighty (80%) percent of the issued and outstanding
shares of Racom.
(b) NewState shall transfer and assign and Subsidiary shall acquire all
of NewState's right, title and interest in 99.6% of the NewState Capital Shares,
which NewState owns with no restrictions on transfer and free and clear of all
claims and encumbrances, resulting in NewState Capital being a subsidiary of the
Subsidiary.
(c) Subsidiary shall assume the Korean Bank Note by executing the
Assumption Agreement annexed hereto as Exhibit 1.1(c). The parties hereto
acknowledge that the Korean Bank Note is currently overdue and has not been
extended.
(d) As a condition to closing, certain investors (the "Investors") will
have together paid an aggregate of $1,000,000 in cash to Racom in exchange for
certificates representing 667,000 Racom Shares pursuant to a Common Stock
Purchase Agreement, dated the date hereof representing, an aggregate of
approximately eighteen percent (18%) of Racom Shares.
(e) As a condition to closing, NewState and NewState Capital shall
deliver to Racom and Subsidiary, an opinion of Korean counsel, which opinion and
counsel shall be acceptable to counsel for Racom and Subsidiary that: (i) the
consummation of the transactions contemplated by this Agreement are authorized
pursuant to the laws of the Country of Korea; and (ii) there are no restrictions
on the subsequent transfer of the NewState Capital Shares.
(f) Immediately after closing the transactions contemplated by the
terms of this Agreement, Racom shall transfer all of its assets existing on the
date hereof to Racom Systems, Inc., a Colorado corporation and wholly owned
subsidiary of Racom ("Racom II") in return for Racom II assuming all of the
liabilities, known or unknown, contingent or otherwise, of Racom incurred or
related to events prior to the date hereof. Racom shall spin off the shares of
Racom II to the Shareholders of Racom, as soon as practicable after the Closing
(as hereinafter defined in Section 1.2(b) of this Agreement).
SECTION 1.2 The Closing: Issuance of Shares.
(a) Closing Date: The Closing Date shall be ten business days after the
date on which the shareholders of Racom approve that certain stock split
referenced in the Racom Proxy Statement dated July 1, 1999 or such earlier time
as shall be agreed by Racom and NewState.
<PAGE>
(b) Issuance and Delivery of Racom Shares:
(i) Upon the closing of the transactions contemplated
by this Agreement (the "Closing"), Racom shall
issue and deliver to NewState or the stockholders
of NewState, if NewState has or is about to be
dissolved, stock certificates representing an
aggregate of eight million (8,000,000) Racom
Shares free and clear of all claims and
encumbrances;.
(ii) The Racom Shares to be issued hereunder shall be
authorized but previously unissued shares of
Racom common stock.
(iii) All of the Racom Shares to be issued hereunder
are deemed "restricted securities" as defined by
Rule 144 of the Securities Act of 1933, as
amended (the "Securities Act"), and the recipient
shall represent that they are acquiring the Racom
Shares for investment purposes only and without
the intent to make a further distribution of the
Racom Shares. All Racom Shares to be issued under
the terms of this Agreement shall be issued
pursuant to an exemption from the registration
requirements of the Securities Act, under Section
4(2) of the Securities Act and the rules and
regulations promulgated thereunder. Certificates
representing the restricted Racom Shares to be
issued hereunder shall bear the following, or
similar legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE REGISTRATION PROVISIONS OF
SUCH ACT OR PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION PROVISIONS, THE AVAILABILITY OF
WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF
THE COMPANY.
(iv) Racom agrees that notwithstanding any
restrictions, but for such restrictions as set
forth in Section 1.2(b)(iii), the shares issued
to NewState may be reissued to the shareholders
of NewState in connection with the liquidation of
NewState.
(c) Transfer and Delivery of the NewState Capital Shares.
(i) Upon the Closing, NewState shall transfer and
deliver stock certificates registered in the name
of Subsidiary representing an aggregate of Four
Million Nine Hundred Fifty Eight Thousand
(4,958,000) NewState
<PAGE>
Capital Shares, with no restrictions on transfer
and being free and clear
of all claims and encumbrances;
(d) Assumption of Korea Bank Note. Upon the Closing, Subsidiary shall
execute an assumption of the Korea Bank Note.
(e) Registration Rights.
At any time commencing after the Closing, NewState or the
shareholders of NewState if NewState has or is about to be dissolved, shall have
the right, exercisable by written notice to Racom (the "Demand Registration
Request"), to have Racom prepare and file with the Commission, on one occasion,
at the sole expense of Racom, in respect of all the Shares of Common Stock
purchased under this Agreement (the "Registrable Securities"), a Registration
Statement so as to permit a public offering and sale of the Registrable
Securities. Upon such demand, Racom shall prepare and file with the Commission a
"Shelf" Registration Statement covering the resale of all Registrable Securities
for an offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement shall be on Form S-1 or another appropriate form
permitting registration of Registrable Securities for resale by the Holders in
the manner or manners designated by them (including, without limitation, public
or private sales and one or more Underwritten Offerings). The Company shall (i)
not permit any securities other than the Registrable Securities to be included
in the Registration Statement other than the shares of common stock of Racom
purchased by GEM Singapore Pte Limited ("GEM") and Turbo International, Ltd.
("Turbo") pursuant to a Stock Purchase Agreement by and among Racom, GEM and
Turbo dated June 8, 1999 and the Racom Shares purchased by the Investors
pursuant to Section 1.1(d) of this Agreement and (ii) use its best efforts to
cause the Registration Statement to be declared effective under the Securities
Act as promptly as practicable after the filing thereof, but in any event prior
to 120 days after the filing of such Registration Statement, and to keep such
Registration Statement continuously effective under the Securities Act until the
date which is five years after the date of this Agreement or such earlier date
when all Registrable Securities covered by such Registration Statement have been
sold or may be sold pursuant to Rule 144 as determined by the counsel to Racom
pursuant to a written opinion letter, addressed to the Holders, to such effect
(the "Effectiveness Period"); provided, however, that Racom shall not be deemed
to have used its best efforts to keep the Registration Statement effective
during the Effectiveness Period if it voluntarily takes any action that would
result in the Holders not being able to sell the Registrable Securities covered
by such Registration Statement during the Effectiveness Period, unless such
action is required under applicable law or Racom has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
The parties agree that NewState or the shareholders of NewState if
NewState has or is about to be dissolved, GEM, Turbo and the Investors shall
have equal demand and piggy-back registration rights respecting the Racom
Shares.
<PAGE>
1. If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to a Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such offering exceeds the amount of Registrable Securities which can
be sold in such offering, there shall be included in such Underwritten Offering
the amount of such Registrable Securities which in the opinion of such managing
underwriters can be sold, and such amount shall be allocated pro rata among the
Holders proposing to sell Registrable Securities in such Underwritten Offering.
2. If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority of the Registrable Securities included in such offering and the
Company shall be advised in advance of the identity of any underwriter and the
general terms of the proposed offering. No Holder may participate in any
Underwritten Offering hereunder unless such Person (i) agrees to sell its
Registrable Securities on the basis provided in any underwriting agreements
approved by the Persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
arrangements.
(f) Resignation and Appointment of Directors and Officers. Upon the
Closing, all of the present directors of Racom shall resign except for Edward
Tobin and the four (4) replacement directors shall be appointed by Edward Tobin
who shall be Ernest B. Kim, Sun W. Young, Jin K. Kim and Benjamin Chang. Upon
the Closing, Edward Tobin and the newly elected directors of Racom shall appoint
Ernest Kim as chairman, Chief Executive Officer and President, Alexander T.
Shang as Chief Financial Officer and Treasurer, Jin K. Kim as vice president,
and Sun W. Young as secretary of both Racom and Subsidiary. Racom's Board of
Directors shall also have created an Executive Committee consisting of Ernest B.
Kim and two (2) other directors selected by him who shall also serve as the
directors of Subsidiary.
(g) Officers' Certificates.
(i) Upon the Closing, Racom and Subsidiary shall each
deliver to NewState an Officer's Certificate as
described in Sections 9.1 and 9.2 hereof, dated
the Closing Date, that all representations,
warranties, covenants and conditions set forth
herein by Racom are true and correct as of, or
have been fully performed and complied with by,
the Closing Date; and
(ii) Upon the Closing, NewState and NewState Capital
shall each deliver to Racom an Officer's
Certificate as described in Section 10.1 and 10.2
hereof, dated the Closing Date, that all
representations, warranties, covenants and
conditions set forth herein by NewState and
NewState
<PAGE>
Capital are true and correct as of, or have been,
or will be fully performed and complied with by
the Closing Date;
SECTION 1.3. Consummation of Transaction; Distribution of Racom Assets.
If at the time of the Closing, no condition exists which would permit any of the
parties to terminate this Agreement, or a condition then exists and the party
entitled to terminate because of that condition elects not to do so, then the
transactions herein contemplated shall be consummated upon such date.
Immediately after closing the transactions contemplated by the terms of this
Agreement, Racom shall transfer all of its assets existing on the date hereof to
Racom System, Inc., a Colorado corporation and wholly owned subsidiary of Racom
("Racom II") in return for Racom II assuming all of the liabilities, known or
unknown, contingent or otherwise, of Racom incurred or related to events prior
to the date hereof. Racom shall spin off the shares of Racom II to the
Shareholders of Racom, as soon as practicable after the Closing (as hereinafter
defined in Section 1.2(b) of this Agreement).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF RACOM
Racom hereby represents, warrants and agrees that:
SECTION 2.1 Organization of Racom. Racom is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, is duly qualified and in good standing as a foreign corporation in
every jurisdiction in which such qualification is necessary, and has the
corporate power and authority to own its properties and assets and to transact
the business in which it is engaged. With the exception of Subsidiary and Racom
II, there are no corporations or other entities with respect to which (i) Racom
owns any of the outstanding stock or other interests, or (ii) Racom may be
deemed to be in control because of factors or relationships other than the
quantity of stock or other interests owned. Racom has all requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement is the legal, valid and binding
obligation of Racom, enforceable against Racom in accordance with its respective
terms except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally.
SECTION 2.2 Capitalization of Racom. The authorized capital stock of
Racom consists of 40,000,000 share of common stock, par value $0.01 per share,
of which only 1,332,482 shares are issued and outstanding as of the date hereof
(subject to adjustments due to the 15:1 reverse stock split effective July 12,
1999). All shares of Racom common stock currently issued and outstanding have
been duly authorized and validly issued and are fully paid and non-assessable,
and have been issued in compliance with any and all applicable federal and state
laws or pursuant to appropriate exemptions therefrom. Except as set forth in
Exhibit 2.2, there are no options, warrants, rights, calls, commitments or
agreements of any character obligating Racom to issue any shares of its capital
stock or any security representing the right to purchase or otherwise receive
any such stock. Shares of Racom common stock to be issued pursuant to this
Agreement, when so issued, will be duly
<PAGE>
authorized, validly issued, fully paid and non-assessable, and will be issued in
compliance with any and all applicable federal and state laws or pursuant to
appropriate exemptions therefrom.
SECTION 2.3 Charter Documents. Certified copies of the Racom and
Subsidiary Articles of Incorporation and By-Laws, as amended to date, have been
or will be provided to NewState and the Shareholders of NewState prior to the
Closing.
SECTION 2.4 Corporate Documents. The Racom and Subsidiary shareholders'
list and corporate minute books are complete and accurate as of the date hereof
and the corporate minute books contain the recorded minutes of all corporate
meetings of shareholders and directors.
SECTION 2.5 Required Authorizations. There have been or will be timely
filed, given, obtained or taken, all applications, notices, consents, approvals,
orders, registrations, qualifications waivers or other actions of any kind
required by virtue of execution and delivery of this Agreement by Racom or the
consummation by it of the transactions contemplated hereby. Prior to the
Closing, the directors and a majority of the shareholders of Racom and
Subsidiary shall have approved this Agreement and the transactions contemplated
hereunder, exempt the transactions from any Delaware takeover stature, if
applicable, and appropriate corporate filings shall have been made.
SECTION 2.6 Compliance with Law and Government Regulations. Racom is in
compliance with and is not in violation of, applicable federal, state, local or
foreign statutes, laws and regulations (including without limitation, any
applicable building, zoning or other law, ordinance or regulation) affecting its
properties or the operation of its business. Racom is not subject to any order,
decree, judgment or other sanction of any court, administrative agency or other
tribunal.
SECTION 2.7 Litigation. There is no litigation, arbitration, proceeding
or investigation pending or threatened to which Racom or Subsidiary is a party
or which may result in any material change in the business of condition,
financial or otherwise, of Racom or in any of its properties or assets, or which
might result in any liability on the part of Racom or Subsidiary, or which
questions the validity of this Agreement or of any action taken or to be taken
pursuant to or in connection with the provisions of this Agreement, and to the
best knowledge of Racom, there is no basis for any such litigation, arbitration,
proceeding or investigation.
SECTION 2.8 Authority. Racom, Subsidiary and their respective directors
will, prior to the Closing, approve this Agreement and the transactions
contemplated hereby and will duly authorize the execution and delivery hereof.
Racom and Subsidiary have full power, authority and legal right to enter into
this Agreement and to consummate the transactions contemplated hereby, and all
corporate action necessary to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby has been
duly and validly taken. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by Racom
with the provisions hereof will not (a) conflict with or result in a breach of
any provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
creation of any lien, security interest,
<PAGE>
charge or encumbrance upon any of the properties or assets of Racom under, any
of the terms, conditions or provisions of the Articles of Incorporation or
By-Laws of Racom, or any note, bond, mortgage, indenture, license, lease,
agreement or any instrument or obligation to which Racom is a party or by which
it is bound; or (b) violate any order, writ injunction, decree, statute, rule or
regulation applicable to Racom or any of its properties or assets.
SECTION 2.9 Full Disclosure. None of the representations and warranties
made by Racom herein, or in any exhibit, certificate or memorandum furnished or
to be furnished by Racom, on its behalf pursuant hereto, contains or will
contain any untrue statement of material fact, or omits any material fact, the
omission of which would be misleading.
ARTICLE III
COVENANTS OF RACOM AND SUBSIDIARY
SECTION 3.1 Conduct Prior to the Closing.
Between the date hereof and the Closing:
(a) Racom and Subsidiary will comply with all requirements which
federal or state law may impose on it with respect to this Agreement and the
transactions contemplated hereby, and will promptly cooperate with and furnish
written information to NewState in connection with any such requirements imposed
upon the parties hereto in connection therewith;
(b) Racom shall grant to NewState and its counsel, accountants and
other representatives, full access during normal business hours during the
period to the Closing to all of its respective properties, books, contracts,
commitments and records and, during such period, furnish promptly to NewState
and such representatives all information relating to Racom and Subsidiary as
NewState may reasonably request, and shall extend to NewState the opportunity to
meet with Racom's accountants and attorneys to discuss the financial condition
of Racom and Subsidiary; and
(c) Except for the transactions contemplated by this Agreement, Racom
and Subsidiary will conduct its business in the normal course, and shall not
sell or issue any Racom Shares to any person (except as contemplated hereby) or
sell, pledge or assign any of its assets without the prior written consent of
NewState.
(d) Racom will not declare any dividends or distributions with respect
to its capital stock or amend its organization documentation, without the prior
written consent of NewState, except as provided herein.
(e) Except within the regular course of business, Racom will not incur
any indebtedness for money borrowed or issue any debt securities, or incur or
suffer to be incurred any liability or obligation of any nature whatsoever, or
cause or permit any lien, encumbrance or security interest
<PAGE>
to be created or arise on or in any of its properties or assets, without the
prior written consent of NewState;
SECTION 3.2 Affirmative Covenants. Prior to Closing, Racom
will do the following:
(a) Use its best efforts to accomplish all actions necessary to
consummate this Agreement, including satisfaction of all conditions contained in
this Agreement;
(b) Reserve, and promptly after the Closing, issue and deliver to the
Shareholders the Racom Shares;
(c) Take all other necessary corporate actions to accomplish those
items set forth in Section 1.2 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWSTATE
NewState hereby represents, warrants and agrees that:
SECTION 4.1 Organization of NewState. NewState is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York, is duly qualified and in good standing in every jurisdiction in which
such qualification is necessary. Other than NewState Capital, there are no
corporations or other entities with respect to which (i) NewState owns any of
the outstanding stock or other interests, or (ii) NewState may be deemed to be
in control because of factors or relationships other than the quantity of stock
or other interests owned in such entity. NewState has all requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
SECTION 4.2 Capitalization of NewState. The authorized capital stock of
NewState consists of two hundred (200) shares of common stock, no par value,
which has been issued to five (5) shareholders (the "NewState Stock"). The
NewState Stock has been duly authorized and validly issued and is fully paid and
non-assessable, and has been issued in compliance with any and all applicable
federal and state laws or pursuant to appropriate exemptions therefrom.
SECTION 4.3 Charter Documents. Complete and correct copies of the
Certificate of Incorporation and By-Laws of NewState and all amendments thereto,
have been or will be delivered to Racom prior to the Closing.
SECTION 4.4 Required Authorizations. There have been or will be timely
filed, given, obtained or taken, all applications, notices, consents, approvals,
orders, registrations, qualifications
<PAGE>
waivers or other actions of any kind required by virtue of execution and
delivery of this Agreement by NewState or the consummation by it of the
transactions contemplated hereby.
SECTION 4.5 Compliance with Law and Government Regulations. NewState is
in compliance with all applicable statutes, regulations, decrees, orders,
restrictions, guidelines and standard affecting its properties and operations,
imposed by the United States of America or any state to which NewState is
subject.
SECTION 4.6 Litigation. There is no litigation, arbitration, proceeding
or investigation pending or threatened to which NewState is a party or which may
result in any material change in the business of condition, financial or
otherwise, of NewState or in any of its properties or assets, or which might
result in any liability on the part of NewState, or which questions the validity
of this Agreement or of any action taken or to be taken pursuant to or in
connection with the provisions of this Agreement, and to the best knowledge of
NewState, there is no basis for any such litigation, arbitration, proceeding or
investigation.
SECTION 4.7 Governmental Consent. No consent, approval, authorization
or order of, or registration, qualification, designation, declaration or filing
with, any governmental authority on the part of NewState is required in
connection with the execution and delivery of this Agreement or the carrying out
of any transactions contemplated.
SECTION 4.8 Authority. NewState and its shareholders representing no
less than one hundred percent (100%) of the issued and outstanding shares of
NewState capital stock of record, have approved this Agreement and duly
authorized the execution hereof. NewState has full power, authority and legal
right to enter into this Agreement on behalf of NewState and its shareholders
and to consummate the transactions contemplated hereby, and all corporate action
necessary to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby has been duly and validly
taken. The execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby and compliance by NewState with the provisions
hereof will not (a) conflict with or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
NewState under, any of the terms, conditions or provisions of the Articles of
Incorporation or By-Laws of NewState, or any note, bond, mortgage, indenture,
license, agreement or any instrument or obligation to which NewState is a party
or by which it is bound; or (b) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to NewState or any of its properties or
assets; provided however, the parties' acknowledge that the Korean Bank Note is
overdue, has not been extended, and may not by its terms be assigned.
SECTION 4.9 Ownership of NewState Capital Shares. NewState is the owner
of 99.6% of the NewState Capital Shares currently issued and outstanding and
such shares are to be transferred to Subsidiary under this Agreement, has full
power and authority to transfer the NewState Capital Shares to Subsidiary
hereunder, and that such shares are free and clear of any liens, charges,
<PAGE>
mortgages, pledges or encumbrances and that such shares are not subject to any
claims as to the ownership thereof, or any rights, powers or interest therein,
by any third party.
SECTION 4.10 Investment Purpose. NewState is acquiring the Racom Shares
for investment purposes only and acknowledges that the Racom Shares issued
hereunder are "restricted securities" and may not be sold, traded or otherwise
transferred without registration under the Securities Act or exemption
therefrom, except to the shareholders of NewState in connection with the
liquidation of NewState.
SECTION 4.11 Full Disclosure. None of the representations and
warranties made by the Shareholders or in any exhibit, certificate or memorandum
furnished or to be furnished by, their behalf pursuant hereto, contains or will
contain any untrue statement of material fact, or omits any material fact, the
omission of which would be misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEWSTATE CAPITAL
NewState Capital hereby represents, warrants and agrees that:
SECTION 5.1 Organization of NewState Capital. NewState Capital is a
company duly organized, validly existing and in good standing under the laws of
the Country of Korea. There are no corporations or other entities with respect
to which (i) NewState Capital owns any of the outstanding stock or other
interests, or (ii) NewState Capital may be deemed to be in control because of
factors or relationships other than the quantity of stock or other interests
owned in such entity except for the 4,000,000 shares that NewState Capital owns
in Yongman General Finance Co., Ltd. a Korean corporation. NewState has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby.
SECTION 5.2 Capitalization of NewState Capital. The authorized capital
stock of NewState Capital consists of sixteen million (16,000,000) shares of
stock, par value Won 5,000 per share which has been issued, as disclosed in
Section 5.10 herein. The NewState Shares has been duly authorized and validly
issued and are fully paid and non-assessable, and has been issued in compliance
with any and all applicable laws or pursuant to appropriate exemptions
therefrom.
SECTION 5.3 Charter Documents. Translated, complete and correct copies
of the organizational documentation and of NewState Capital and all amendments
thereto, have been delivered to Racom.
SECTION 5.4 Tax Returns and Payments. All of NewState Capital's tax
returns (federal, state, city, county or foreign) which are required by law to
be filed on or before the date of this Agreement, have been duly filed or
extended with the appropriate governmental authority. NewState
<PAGE>
Capital has paid all taxes to be due on said returns, any assessments made
against NewState Capital and all other taxes, fees and similar charges imposed
on NewState Capital by any governmental authority (other than those, the amount
or validity of which is being contested in good faith by appropriate
proceedings). No tax liens have been filed and no claims are being assessed with
respect to any such taxes, fees or other similar charges.
SECTION 5.5 Required Authorizations. There have been or will be timely
filed, given, obtained or taken, all applications, notices, consents, approvals,
orders, registrations, qualifications waivers or other actions of any kind
required by virtue of the execution and delivery of this Agreement or the
consummation by it of the transactions contemplated hereby.
SECTION 5.6 Compliance with Law and Government Regulations. NewState
Capital is in compliance with all applicable statutes, regulations, decrees,
orders, restrictions, guidelines and standard affecting its properties and
operations, imposed by the United States of America or any government to which
NewState Capital is subject.
SECTION 5.7 Litigation. There is no litigation, arbitration, proceeding
or investigation pending or threatened to which NewState Capital is a party or
which may result in any material change in the business of condition, financial
or otherwise, of NewState Capital or in any of its properties or assets, or
which might result in any liability on the part of NewState Capital, or which
questions the validity of this Agreement or of any action taken or to be taken
pursuant to or in connection with the provisions of this Agreement, and to the
best knowledge of NewState Capital, there is no basis for any such litigation,
arbitration, proceeding or investigation.
SECTION 5.8 Patents, Trade Names and Rights. Exhibit 5.8 annexed hereto
and by this reference is made a part hereof, contains a complete list of all
patents, trademarks, service marks, trade marks, service mark, trademark and
service mark registrations, applications and licenses with respect the forgoing
owned or held by NewState Capital. NewState Capital has no knowledge of any
facts and nothing has come to its attention that would lead it to believe that
it has infringed or misappropriated or is infringing upon any trademark,
copyright, patent or other similar right of any person. No claim relating
thereto is pending or to the knowledge of NewState Capital is threatened.
SECTION 5.9 Governmental Consent. No consent, approval, authorization
or order of, or registration, qualification, designation, declaration or filing
with, any governmental authority on the part of NewState Capital is required in
connection with the execution and delivery of this Agreement or the consummation
of any transactions contemplated hereby.
SECTION 5.10 Ownership of NewState Capital Shares. NewState Capital
represents and warrants that it has only 4,978,000 shares of stock issued and
outstanding which are issued to two (2) shareholders as follows:
NewState Capital Corp. 99.6%
The Estate of Kim Dae Jung 0.4%
<PAGE>
NewState Capital further represents and warrants that there are no restrictions
on transfer of the NewState Capital Shares imposed by NewState Capital,
contractual restriction or law.
SECTION 5.11 Full Disclosure. None of the representations and
warranties made by the NewState Capital or in any exhibit, certificate or
memorandum furnished or to be furnished by, or on their behalf pursuant hereto,
contains or will contain any untrue statement of material fact, or omits any
material fact, the omission of which would be misleading.
ARTICLE VI
COVENANTS OF NEWSTATE AND NEWSTATE CAPITAL
SECTION 6.1 Conduct Prior to the Closing.
Between the date hereof and the Closing:
(a) NewState and NewState Capital will conduct their businesses in the
ordinary course.;
(b) NewState Capital will not declare any dividends or distributions
with respect to its capital stock or amend its organization documentation,
without the prior written consent of Racom;
(c) Except within the regular course of business, NewState and NewState
Capital will not incur any indebtedness for money borrowed or issue any debt
securities, or incur or suffer to be incurred any liability or obligation of any
nature whatsoever, or cause or permit any lien, encumbrance or security interest
to be created or arise on or in any of its properties or assets, without the
prior written consent of Racom;
(d) NewState and NewState Capital will comply with all requirements
which foreign, federal or state law may impose on it with respect to this
Agreement and the transactions contemplated hereby, and will promptly cooperate
with and furnish written information to NewState Capital in connection with any
such requirements imposed upon the parties hereto in connection therewith;
(e) NewState and NewState Capital shall grant to Racom and its counsel,
accountants and other representatives, full access during normal business hours
during the period to the Closing to all its respective properties, books,
contracts, commitments and records and, during such period, furnish promptly to
Racom and such representatives all information relating to NewState as Racom may
reasonably request, and shall extend to Racom the opportunity to meet with
NewState's and NewState Capital's accountants and attorneys to discuss the
financial condition of NewState Capital.
SECTION 6.2 Affirmative Covenants. Prior to Closing, NewState and
NewState Capital will do the following:
<PAGE>
(a) NewState and NewState Capital shall use its best efforts to
accomplish all actions necessary to consummate this Agreement, including
satisfaction of all conditions contained in this Agreement; and
(b) Promptly notify Racom in writing of any material adverse change in
the financial condition, business, operations or key personnel of NewState
and/or NewState Capital, any threatened material litigation or investigation,
any breach of its representations or warranties contained herein, and any
material contract, agreement, license or other agreement which, if in effect on
the date of this Agreement, should have been included in this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Expenses. Whether or not the transactions contemplated in
this Agreement are consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense or as otherwise agreed to herein.
SECTION 7.2. Brokers and Finders. Each of the parties hereto
represents, as to itself, that no agent, broker, investment banker or firm or
person is or will be entitled to any broker's or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement.
SECTION 7.3 Necessary Actions. Subject to the terms and conditions
herein provided, each of the parties hereto agree to use all reasonable efforts
to take, or cause to be taken, all action, and to do or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In the event at any time after the Closing, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and/or
directors of Racom or NewState, as the case may be, shall take all such
necessary action.
SECTION 7.4 Confidentiality. All parties hereto agree to keep
confidential this Agreement and all information and documents relating to this
Agreement until such time as the Agreement and the transactions contemplated
hereunder are made public by means of an appropriate press release or by any
other means reasonably assured to make such information publicly available.
SECTION 7.5 Liquidation and Dissolution of NewState. Immediately after
Closing, NewState shall not engage in any business and shall, as soon as
practicable after Closing, distribute the Racom Shares, pro rata, to its
shareholders and shall dissolve.
<PAGE>
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE PARTIES
The obligations of the parties under this Agreement are subject to the
fulfillment and satisfaction of each of the following conditions:
SECTION 8.1 Legal Action. No preliminary or permanent injunction or
other order by any federal or state court which prevents the consummation of
this Agreement or any of the transactions contemplated by this Agreement shall
have been issued and remain in effect.
SECTION 8.2 Absence of Termination. The obligations to consummate the
transactions contemplated hereby shall not have been canceled pursuant to
Article X hereof.
SECTION 8.3 Required Approvals. Racom, Subsidiary, NewState and
NewState Capital shall have received all such approvals, consents,
authorizations or modifications as may be required to permit the performance by
Racom, Subsidiary, NewState and NewState Capital of the respective obligations
under this Agreement, and the consummation of the transactions herein
contemplated, whether from governmental authorities or other persons, and Racom,
Subsidiary, NewState and NewState Capital shall each have received any and all
permits and approvals from any regulatory authority having jurisdiction required
for the lawful consummation of this Agreement.
SECTION 8.4 "Blue Sky" Compliance. There shall have been obtained any
and all permits, approvals and consents of the appropriate state securities
commissions of any jurisdictions, and of any other governmental body or agency,
which counsel for Racom may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement may be in
compliance with all applicable laws.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF RACOM AND SUBSIDIARY
All obligations of Racom under this Agreement are subject to the
fulfillment and satisfaction by NewState and NewState Capital prior to or at the
time of Closing, of each of the following conditions, any one or more of which
may be waived by Racom.
SECTION 9.1 Representations and Warranties True at Closing. All
representations and warranties of NewState and NewState Capital contained in
this Agreement will be true and correct at and as of the time of the Closing,
and NewState and NewState Capital shall have delivered to Racom certificates,
dated the date of the Closing, to such effect and in the form and substance
satisfactory to Racom, and signed by its respective presidents and secretaries.
<PAGE>
SECTION 9.2 Performance. The obligations of NewState and New State
Capital to be performed on or before the Closing pursuant to the terms of this
Agreement shall be duly performed at such time and NewState Capital shall have
delivered to Racom a certificate, dated the date of the Closing, to such effect
and in form and substance satisfactory to Racom.
SECTION 9.3 Authority. All action required to be taken by, or on the
part of NewState and its shareholders and NewState Capital to authorize the
execution, delivery and performance of this Agreement by NewState and NewState
Capital and the consummation of the transactions contemplated hereby, shall have
been duly and validly taken.
SECTION 9.4 Absence of Certain Changes or Events. There shall not have
occurred, since the date hereof, any adverse change in the business, condition
(financial or otherwise), assets or liabilities of NewState or NewState Capital
any event or condition of any character adversely affecting NewState or NewState
Capital, and it shall have delivered to Racom, certificates, dated the date of
the Closing, to such effect and in form and substance satisfactory to Racom.
ARTICLE X
CONDITIONS PRECEDENT OF NEWSTATE
All obligations of NewState under this Agreement are subject to the
fulfillment and satisfaction by Racom prior to or at the time of Closing, of
each of the following conditions, any one or more of which may be waived by
NewState.
SECTION 10.1 Representations and Warranties True at Closing. All
representations and warranties of Racom contained in this Agreement will be true
and correct at and as of the time of the Closing, and Racom shall have delivered
to NewState certificates, dated the date of the Closing, to such effect and in
the form and substance satisfactory to NewState, and signed, in the case of
Racom, by its president and secretary.
SECTION 10.2 Performance. The obligations of Racom to be performed on
or before the Closing pursuant to the terms of this Agreement shall have been
duly performed at such time, and Racom shall have delivered to NewState a
certificate, dated the date of the Closing, to such effect and in form and
substance satisfactory to NewState, and signed in the case of Racom, by its
president and secretary.
SECTION 10.3 Authority. All action required to be taken by, or on the
part of Racom and its shareholders to authorize the execution, delivery and
performance of this Agreement by Racom and the consummation of the transactions
contemplated hereby, shall have been duly and validly taken.
<PAGE>
SECTION 10.4 Absence of Certain Changes or Events. There shall not have
occurred, since the date hereof, any adverse change in the business, condition
(financial or otherwise), assets or liabilities of Racom or any event or
condition of any character adversely affecting Racom, and it shall have
delivered to NewState, certificates, dated the date of the Closing, to such
effect and in form and substance satisfactory to NewState and signed, in the
case of Racom, by its president and secretary.
ARTICLE XI
TERMINATION
SECTION 11.1 Termination. Notwithstanding anything herein or elsewhere
to the contrary, this Agreement may be terminated:
(a) By mutual agreement of the parties hereto at any time;
(b) By the Board of Directors of Racom at any time prior to the
Closing, if:
(i) a condition to performance by Racom under
this Agreement or a covenant of NewState or NewState Capital
contained herein shall not be fulfilled on or before the time
of the Closing or at such other time and date specified for
the fulfillment for such covenant or condition; or
(ii) a material default or breach of this
Agreement shall be made by NewState or NewState Capital; or
(c) By the Board of Directors of NewState or NewState Capital at any
time prior to the Closing, if:
(i) a condition to NewState's performance under
this Agreement or a covenant of Racom or Subsidiary contained
herein shall not be fulfilled on or before the time of the
Closing or at such other time and date specified for the
fulfillment for such covenant or condition; or
(ii) a material default or breach of this
Agreement shall be made by Racom or Subsidiary.
SECTION 11.2 Effect of Termination. If this Agreement is terminated,
this Agreement, except as to Section 12.1 and Section 12.2, shall no longer be
of any force or effect and there shall be no liability on the party of any party
or its respective directors, officers or stockholders; provided however, that in
the case of a termination without cause by a party or a termination pursuant to
Section 11.1 (b)(i) or 11.1(c)(i) hereof because of a prior material default
under or a material breach
<PAGE>
of this Agreement by another party, the damages which the aggrieved party or
parties may recover from the defaulting party or parties shall in no event
exceed the amount of out-of-pocket costs and expenses incurred by such
aggravated party or parties in connection with this Agreement, and no party to
this Agreement shall be entitled to any injunctive relief.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Cost and Expenses. All costs and expenses incurred in
connection with this Agreement will be paid by the party incurring such
expenses. In the event of any termination of this Agreement pursuant to Section
11.1, subject to the provisions of Section 11.2, Racom, Subsidiary, NewState,
and NewState Capital will each bear their own respective expenses.
SECTION 12.2 Extension of Time: Waivers.
At any time prior to the Closing date:
(a) Racom and Subsidiary may (i) extend the time for the performance of
any of the obligations or other acts of NewState or NewState Capital, (ii) waive
any inaccuracies in the representations and warranties of NewState and NewState
Capital contained herein or in any documents delivered pursuant hereto by
NewState or NewState Capital, (iii) waive compliance with any of the agreements
or conditions contained herein to be performed by NewState or NewState Capital.
Any agreement on the part of Racom and Subsidiary to any such extension or
waiver shall be valid only if set forth in an instrument, in writing, signed on
behalf of Racom and Subsidiary.
(b) NewState and NewState Capital may (i) extend the time for the
performance of any of the obligations or other acts of Racom or Subsidiary, (ii)
waive any inaccuracies in the representations and warranties of Racom or
Subsidiary contained herein or in any documents delivered pursuant hereto by
Racom and (iii) waive compliance with any of the agreements or conditions
contained herein to be performed by Racom or Subsidiary. Any agreement on the
party of NewState and NewState Capital to any such extension or waiver shall be
valid only if set forth in an instrument, in writing, signed on behalf of
NewState and NewState Capital.
SECTION 12.3 Notices. Any notice to any party hereto pursuant to this
Agreement shall be in writing and given by Certified or Registered Mail or by
facsimile, addressed as follows:
NewState
16 West 32nd Street, Suite 801
New York, New York 10001
NewState Capital
16 West 32nd Street, Suite 801
New York, New York 10001
<PAGE>
with a copy to:
Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
Attn: Ronald H. Janis, Esq.
Racom Corporation & NSK Holdings, Inc.
c/o Kaplan & Gottbetter & Levenson, LLP
630 Third Avenue, 5th Floor
New York, NY 10017-6705
with a copy to:
Kaplan & Gottbetter & Levenson, LLP
630 Third Avenue, 5th Floor
New York, NY 10017-6705
Additional notices are to be given as to each party, at such other
address as should be designated in writing complying as to delivery with the
terms of this Section 12.3. All such notices shall be effective when sent,
addressed as aforesaid.
SECTION 12.4 Parties in Interest. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and the respective successors
and assigns. Nothing in this Agreement is intended to confer, expressly or by
implication, upon any other person any rights or remedies under or by reason of
this Agreement.
SECTION 12.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and together shall
constitute one documents. The delivery by facsimile of an executed counterpart
of this Agreement shall be deemed to be an original and shall have the full
force and effect of an original executed copy.
SECTION 12.6 Severability. The parties hereto agree and affirm that
none of the provisions herein is dependent upon the validity of any other
provision, and if any part of this Agreement is deemed to be unenforceable, the
remainder of the Agreement shall remain in full force and effect.
SECTION 12.7 Headings. The "Article" and "Section" headings are
provided herein for convenience of reference only and do not constitute a part
of this Agreement.
SECTION 12.8 Survival of Representations and Warranties. All terms,
conditions, representations and warranties set forth in this Agreement or in any
instrument, certificate, opinion, or other writing providing for in it, shall
survive the Closing and the delivery of the Racom Shares
<PAGE>
issued hereunder at the Closing, for a period of one year from the Closing
regardless of any investigation made by or on behalf of any of the parties
hereto.
SECTION 12.9 Assignability. This Agreement shall not be assigned by any
of the parties hereto without the prior written consent of the other parties.
SECTION 12.10 Applicable Law. This Agreement shall be governed by and
constituted in accordance with the laws of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in a manner legally binding upon them on July 20, 1999.
RACOM SYSTEMS, INC. Attest:
- ----------------------------------- ---------------------------------------
By:
Its: Secretary
NSK HOLDINGS, INC. Attest:
- ----------------------------------- ---------------------------------------
By:
Its: Secretary
NEWSTATE CAPITAL CORP. Attest:
- ----------------------------------- ---------------------------------------
By:
Its: Secretary
NEWSTATE CAPITAL CO. LTD. Attest:
- ----------------------------------- ---------------------------------------
By:
Its: Secretary
COMMON STOCK PURCHASE AGREEMENT
By and Among
OCEAN STRATEGIC HOLDINGS LIMITED
ZEBRA STRATEGIC HOLDINGS LIMITED
(the "Purchasers")
and
RACOM SYSTEMS, INC.
--------------------------------------------
Dated as of July 20, 1999
--------------------------------------------
- --------------------------------------------------------------------------------
-----------
initial
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
Article I Certain Definitions.................................................... 1
Article II Purchase of Common Stock............................................... 3
Article III Representations and Warranties......................................... 3
Article IV Other Agreements of the Parties........................................ 8
Article V Conditions Precedent to Closing........................................ 10
Article VI Termination............................................................ 12
Article VII Legal Fees............................................................. 13
Article VIII Miscellaneous.......................................................... 13
Schedule 1 List of Purchasers
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(f) Required Consents and Approvals
Schedule 3.1(g) Litigation
Schedule A List of Creditors
-----------
initial
</TABLE>
<PAGE>
COMMON STOCK PURCHASE AGREEMENT, dated as of July 20, 1999
(this "Agreement"), by and among Racom Systems, Inc., a Delaware corporation
(the "Company"), and the purchasers listed on Schedule 1 attached hereto (each
individually, the "Purchaser" and collectively, the "Purchasers").
WHEREAS, the Company desires to issue and sell to the
Purchasers and the Purchasers desire to acquire an aggregate of Six Hundred
Sixty Seven Thousand (667,000) (the "Shares") of the authorized but unissued
common stock, $.01 par value per share (the "Common Stock") of the Company.
WHEREAS, the entering into this Agreement is a condition to
closing the Agreement and Plan of Reorganization dated as of July 14, 1999 among
the Company, NewState Capital Corp., NewState Capital Co., Inc. and NSK
Holdings, Inc.
IN CONSIDERATION of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. As used in this Agreement, and unless
the context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" means, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities by contract or
otherwise.
"Business Day" means any day except Saturday, Sunday and any
day which is a legal holiday or a day on which banking institutions in the state
of New York are authorized or required by law or other government actions to
close, between the hours of 9:30 a.m. and 6:00 p.m. New York Time.
"Closing" shall have the meaning set forth in Section 2.1(b).
"Closing Date" shall mean the date of Closing, as set forth in
Section 2.1(b).
-----------
initial
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder as in effect on the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value
$.01 per share.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, encumbrance, charge or security interest of any kind in or on such asset
or the revenues or income thereon or therefrom.
"Material" shall mean having a financial consequence in excess
of $100,000.
"Material Adverse Effect" shall have the meaning set forth in
Section 3.1(a).
"NASD" means the National Association of Securities Dealers,
Inc.
"Per Share Consideration" shall have the meaning set forth in
Section 2.1(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Purchase Price" shall have the meaning set forth in Section
2.1(a).
"Required Approvals" shall have the meaning set forth in
Section 3.1(f).
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" shall have the meaning set forth in Section
3.1(a).
-----------
initial
<PAGE>
ARTICLE II
PURCHASE OF COMMON STOCK
Section 2.1. Purchase of Common Stock; Closing
(a) Subject to the terms and conditions herein set forth, the
Company shall issue and sell to the Purchasers, and the Purchasers shall
purchase from the Company on the Closing Date the number of Shares of Common
Stock listed opposite the Purchasers' names on Schedule 1, at a price per Share
of US$.01 (the "Per Share Consideration"). The Per Share Consideration
multiplied by the number of Shares to be purchased by the Purchasers hereunder
is hereinafter referred to as the "Purchase Price." The total number of Shares
to be purchased by the Purchasers is Six Hundred Sixty Seven Thousand (667,000)
and the total Purchase Price shall be $1,000,000.
(b) The closing of the purchase and sale of the Shares of
Common Stock (the "Closing") shall take place at the offices of the escrow agent
(the "Escrow Agent"), immediately upon the Escrow Agent's receipt of the
Purchase Price and the receipt by the Escrow Agent of certificates for the
Shares of Common Stock registered in the names of the Purchasers. The date of
the Closing is hereinafter referred to as the "Closing Date".
(c) At the Closing, (i) the Company shall deliver to the
Escrow Agent (A) certificates registered in the names of the Purchasers and in
the amounts set forth in Schedule I (the "Certificates") and (B) all documents,
instruments and writings required to have been delivered at or prior to Closing
by the Company pursuant to this Agreement, and (ii) the Purchasers shall deliver
to the Escrow Agent (A) the Purchase Price as determined pursuant to this
Article I in United States dollars in immediately available funds and (B) all
documents, instruments and writings required to have been delivered at or prior
to Closing by the Purchaser pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than as
set forth in Schedule 3.1(a) (collectively, the "Subsidiaries"). Each of the
Subsidiaries is a
-----------
initial
<PAGE>
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the full corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
(a) the results of operations, assets, prospects, or financial condition of the
Company and the Subsidiaries, or (b) the Purchaser's rights under this Agreement
(a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company and each of the Subsidiaries is set forth in
Schedule 3.1(c). No shares of Common Stock are entitled to preemptive or similar
rights. Except as specifically disclosed in Schedule 3.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, securities, rights or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective certificate of incorporation, bylaws or other charter
documents.
(d) Issuance of the Common Stock. The Shares of Common Stock
have been duly and validly authorized for issuance, offer and sale pursuant to
this Agreement and, when issued and delivered as provided hereunder against
payment in accordance with the terms hereof, shall be valid and binding
obligations of the Company enforceable in accordance with their terms. When
issued in accordance with the terms hereof, the Shares of Common Stock will be
duly authorized, validly issued, fully paid and nonassessable.
-----------
initial
<PAGE>
(e) No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of its certificate of incorporation or bylaws or
(ii) subject to obtaining the consents referred to in Section 3.1(f), conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, or (iii) to the knowledge of the
Company result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including Federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, do not have a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth
in Schedule 3.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of this Agreement, other than the making
of the applicable blue-sky filings under state securities laws, and other than,
in all cases, where the failure to obtain such consent, waiver, authorization or
order, or to give or make such notice or filing, would not materially impair or
delay the ability of the Company to effect the Closing and deliver to the
Purchaser the Shares of Common Stock free and clear of all Liens (collectively,
the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in Schedule 3.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries or any of their
respective properties before or by any court, governmental or administrative
agency or regulatory authority (Federal, State, county, local or foreign) which
(i) relates to or challenges the legality, validity or enforceability of this
Agreement or the Shares of Common Stock (ii) could, individually or in the
aggregate, have a Material Adverse Effect or (iii) could, individually or in the
aggregate, materially impair the ability of the Company to perform fully on a
timely basis its obligations under this Agreement.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound, except such conflicts or defaults
as do not have a Material Adverse Effect, (ii) is in violation of any order of
any court, arbitrator or governmental body, except for such violations as do not
have a Material Adverse Effect, or (iii) is in violation of any statute, rule or
regulation of any governmental authority which could
-----------
initial
<PAGE>
(individually or in the aggregate) (x) adversely affect the legality, validity
or enforceability of this Agreement, (y) have a Material Adverse Effect or (z)
adversely impair the Company's ability or obligation to perform fully on a
timely basis its obligations under this Agreement.
(i) Certain Fees. No fees or commission will be payable by the
Company to any investment banker or bank with respect to the consummation of the
transactions contemplated hereby.
(j) Non-Registered Offering. Neither the Company nor any
Person acting on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of the Company under
circumstances which would require the integration of such offering with the
offering of the Shares of Common Stock under the Securities Act) which might
subject the offering, issuance or sale of the Shares of Common Stock to the
registration requirements of Section 5 of the Securities Act.
(k) Reporting Company; Eligibility to use Exemption under
Section 4(2). The Company is subject to the reporting requirements of Section 13
or Section 15(d) of the Exchange Act. The Company is eligible to issue
securities exempt from registration pursuant to Section 4(2) of the Securities
Act.
Section 3.2. Representations and Warranties of the Purchasers. The
Purchasers hereby represents and warrants to the Company as follows:
(a) Organization; Authority. Each of the Purchasers is a
corporation duly and validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each of the Purchasers has the requisite
power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder and
thereunder. The purchase of the Shares of Common Stock by the Purchasers
hereunder has been duly authorized by all necessary action on the part of each
of the Purchasers. Each of this Agreement has been duly executed and delivered
by the Purchasers or on its behalf and constitutes the valid and legally binding
obligation of the Purchasers, enforceable against the Purchasers in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
(b) Investment Intent. The Purchasers are acquiring the Shares
of Common Stock for their own account for investment purposes only and not with
a view to or for distributing or reselling such Shares or any part thereof or
interest therein, without prejudice, however, to the Purchaser's right, subject
to the provisions of this Agreement, at all times to sell or otherwise dispose
of all or any part of such Shares in compliance with applicable federal and
State securities laws.
-----------
initial
<PAGE>
(c) Purchasers' Status. At the time the Purchasers were
offered the Shares, each was, and at the date hereof, each is, and at the
Closing Date, each will be, an "accredited investor" as defined in Rule 501(a)
under the Securities Act, in that it is a broker-dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934, as amended. The Purchasers
are purchasing the Shares for its own account.
(d) Experience of Purchasers. The Purchasers, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares, and has so
evaluated the merits and risks of such investment.
(e) Ability of Purchasers to Bear Risk of Investment. The
Purchasers are able to bear the economic risk of an investment in the Shares
and, at the present time, are able to afford a complete loss of such investment.
(f) Prohibited Transactions. The Shares to be purchased by the
Purchasers are not being acquired, directly or indirectly, with the assets of
any "employee benefit plan", within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
(g) Access to Information. The Purchasers acknowledges that
they have been afforded (i) the opportunity to ask such questions as it has
deemed necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Shares and the merits
and risks of investing in the Shares; (ii) access to information about the
Company and the Company's financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment in the Common Stock; and (iii) the opportunity to obtain such
additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the Shares.
(h) Reliance. The Purchasers understand and acknowledge that
(i) the Shares are being offered and sold, to them without registration under
the Securities Act in a transaction that is exempt from the registration
provisions of the Securities Act, (ii) the availability of such exemption,
depends in part on, and that the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and the Purchaser hereby consents
to such reliance, and (iii) that the certificates representing the Shares will
bear the appropriate legend stating the restrictions on the resale and transfer
of the Shares.
The Company acknowledges and agrees that the Purchasers make
no representation or warranty with respect to the transactions contemplated
hereby other than those specifically set forth in Article III herein.
-----------
initial
<PAGE>
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
Section 4.1. Manner of Offering. The Shares of Common Stock are being
issued pursuant to Section 4(2) of the Securities Act. The Shares will not be
exempt from restrictions on transfer, and will carry a restrictive legend with
respect to the resale and transfer of the Shares.
Section 4.2. Furnishing of Information. As long as the Purchasers owns
Shares, the Company will promptly furnish to it all annual and quarterly reports
comparable to those required by Section 13(a) or 15(d) of the Exchange Act.
Section 4.3. Notice of Certain Events. The Company shall (i) advise the
Purchasers promptly after obtaining knowledge thereof, and, if requested by the
Purchasers, confirm such advice in writing, of (A) the issuance by any state
securities commission of any stop order suspending the qualification or
exemption from qualification of the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by any state
securities commission or other regulatory authority, or (B) any event that makes
any statement of a material fact made by the Company in Section III untrue or
that requires the making of any additions to or changes in the Company's
representations or warranties in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading, (ii) use
its best efforts to prevent the issuance of any stop order or order suspending
the qualification or exemption from qualification of the Common Stock under any
state securities or Blue Sky laws, and (iii) if at any time any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Common Stock under any such
laws, use its best efforts to obtain the withdrawal or lifting of such order at
the earliest possible time.
Section 4.4. Blue Sky Laws. The Company shall cooperate with the
Purchasers in connection with the qualification of the Shares under the
securities or Blue Sky laws of such jurisdictions as the Purchasers may request
and to continue such qualification at all times through the fifth anniversary of
the Closing Date; provided, however, that neither the Company nor its
Subsidiaries shall be required in connection therewith to qualify as a foreign
corporation where they are not now so qualified. The Company agrees that it will
execute all necessary documents and pay all necessary state filing or notice
fees to enable the Company to sell the Shares to the Purchasers.
Section 4.5 Integration. The Company shall not and shall use its best
efforts to ensure that no Affiliate shall sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of the
Shares in a manner that would require the registration under the Securities Act
of the sale of the Shares to the Purchasers.
-----------
initial
<PAGE>
. Section 4.6 Solicitation Materials. The Company shall not (i) distribute any
offering materials in connection with the offering and sale of the Shares other
than the information previously supplied to the Purchasers or (ii) solicit any
offer to buy or sell the Shares by means of any form of general solicitation or
advertising.
Section 4.7. Prohibition on Certain Actions. From the date hereof
through the Closing Date, the Company shall not and shall cause the Subsidiaries
not to, without the consent of the Purchasers, (i) amend its Certificate of
Incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Purchasers; (ii) split, combine or reclassify its outstanding
capital stock; (iii) declare, authorize, set aside or pay any dividend or other
distribution with respect to the Common Stock; (iv) redeem, repurchase or offer
to repurchase or otherwise acquire shares of its Common Stock; or (v) enter into
any agreement with respect to any of the foregoing.
Section 4.8. Listing of Shares. The Company shall use its best efforts
to maintain the quote for its common stock on the NASD OTC Electronic Bulletin
Board (or listing on a national securities exchange or market on which the
Common Stock is listed).
Section 4.9 Demand Registration
At any time commencing after the Closing Date, the Purchasers
shall have the right, exercisable by written notice to the Company (the "Demand
Registration Request"), to have the Company prepare and file with the
Commission, on one occasion, at the sole expense of the Company, in respect of
all the Shares of Common Stock purchased under this Agreement (the "Registrable
Securities"), a Registration Statement so as to permit a public offering and
sale of the Registrable Securities. Upon such demand, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering the
resale of all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form S-1 or
another appropriate form permitting registration of Registrable Securities for
resale by the Holders in the manner or manners designated by them (including,
without limitation, public or private sales and one or more Underwritten
Offerings). The Company shall (i) not permit any securities other than the
Registrable Securities to be included in the Registration Statement, except
those shares of common stock owned by NewState Capital Corp. ("NewState") or the
shareholders of NewState is NewState has or is about to be dissolved, GEM
Singapore Pte Limited and Turbo International, Ltd. and (ii) use its best
efforts to cause the Registration Statement to be declared effective under the
Securities Act as promptly as practicable after the filing thereof, but in any
event prior 120 days after the filing of such Registration Statement, and to
keep such Registration Statement continuously effective under the Securities Act
until the date which is five years after the date of this Agreement or such
earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold pursuant to Rule 144 as determined by
the counsel to the Company pursuant to a written opinion letter, addressed to
the Holders, to such effect (the "Effectiveness Period"); provided, however,
that the Company shall not be deemed to have used its best efforts to keep the
Registration Statement effective during the Effectiveness Period if it
-----------
initial
<PAGE>
voluntarily takes any action that would result in the Holders not being able to
sell the Registrable Securities covered by such Registration Statement during
the Effectiveness Period, unless such action is required under applicable law or
the Company has filed a post-effective amendment to the Registration Statement
and the Commission has not declared it effective.
a. If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to a Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such offering exceeds the amount of Registrable Securities which can
be sold in such offering, there shall be included in such Underwritten Offering
the amount of such Registrable Securities which in the opinion of such managing
underwriters can be sold, and such amount shall be allocated pro rata among the
Holders proposing to sell Registrable Securities in such Underwritten Offering.
b. If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority of the Registrable Securities included in such offering and the
Company shall be advised in advance of the identity of any underwriter and the
general terms of the proposed offering. No Holder may participate in any
Underwritten Offering hereunder unless such Person (i) agrees to sell its
Registrable Securities on the basis provided in any underwriting agreements
approved by the Persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
arrangements.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.1. Conditions Precedent to Obligations of the Purchasers. The
obligation of the Purchasers to purchase the Shares is subject to the
satisfaction or waiver by the Purchasers, at or prior to the Closing, of each of
the following conditions:
(a) Legal Opinion. The Purchasers shall have received the
legal opinion, addressed to it and dated the Closing Date of the Counsel for the
Company. Such legal opinion shall address the Company's authority to enter into
this Agreement and the availability of Section 4(2)to the offer and sale of the
Shares;
(b) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company contained herein shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time
-----------
initial
<PAGE>
(except that representations and warranties that are made as of a specific date
need be true in all material respects only as of such date);
(c) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing;
(d) No Material Adverse Effect. There has been no event which
had a Material Adverse Effect on the Company which has not been disclosed to the
Purchasers;
(e) No Prohibitions. The purchase of and payment for the
Shares hereunder (i) shall not be prohibited or enjoined (temporarily or
permanently) by any applicable law or governmental regulation and (ii) shall not
subject the Purchasers to any penalty, or in its reasonable judgment, other
onerous condition under or pursuant to any applicable law or governmental
regulation that would materially reduce the benefits to the Purchaser of the
purchase of the Shares (provided, however, that such regulation, law or onerous
condition was not in effect in such form at the date of this Agreement);
(f) Company Certificates. The Purchasers shall have received a
certificate, dated the Closing Date, signed by the Secretary or an Assistant
Secretary of the Company and certifying (i) that attached thereto is a true,
correct and complete copy of (A) the Company's Certificate of Incorporation, as
amended to the date thereof, (B) the Company's By-Laws, as amended to the date
thereof, (C) resolutions duly adopted by the Board of Directors of the Company
authorizing the execution and delivery of this Agreement, the issuance and sale
of the Shares and (D) a certificate of good standing from the Secretary of State
of Delaware and (ii) the incumbency of officers executing this Agreement;
(g) No Suspensions of Trading in Common Stock. Trading in the
Common Stock shall not have been suspended by the Commission or the NASD or
other exchange or market on which the Common Stock is listed or quoted (except
for any suspension of trading of limited duration solely to permit dissemination
of material information regarding the Company);
(h) Required Approvals. All Required Approvals shall have been
obtained;
(i) Delivery of Instructions. The Company shall have delivered
to the Transfer Agent the necessary instructions and authorizations to cause the
issuance of certificates for the Shares to be issued to and registered in the
names of to the Purchasers; and
Section 5.2. Conditions Precedent to Obligations of the Company. The
obligation of the Company to issue and sell the Shares of Common Stock hereunder
is subject to the satisfaction or waiver by the Company, at or to the Closing,
of each of the following conditions:
-----------
initial
<PAGE>
(a) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of the Purchasers shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date);
(b) Performance by the Purchasers. The Purchasers shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by it at or prior to the Closing; and
(c) No Prohibitions. The sale of the Shares of Common Stock
hereunder (i) shall not be prohibited or enjoined (temporarily or permanently)
by any applicable law or governmental regulation and (ii) shall not subject the
Company to any penalty, or in its reasonable judgment, any other onerous
condition under or pursuant to any applicable law or governmental regulation
that would materially reduce the benefits to the Company of the sale of Shares
to the Purchasers (provided, however, that such regulation, law or onerous
condition was not in effect in such form at the date of this Agreement).
ARTICLE VI
TERMINATION
Section 6.1. Termination by Mutual Consent. This Agreement may be
terminated at any time prior to Closing by the mutual consent of the Company and
the Purchasers.
Section 6.2. Termination by the Company or the Purchaser. This
Agreement may be terminated prior to Closing by either the Company or the
Purchasers, by giving written notice of such termination to the other party, if:
(a) the Closing shall not have occurred by July 31, 1999;
provided that the terminating party is not then in material breach of its
obligations under this Agreement in any manner that shall have caused the
failure referred to in this paragraph (a);
(b) there shall be in effect any statute, rule, law or
regulation that prohibits the consummation of the Closing or if the consummation
of the Closing would violate any non-appealable final judgment, order, decree,
ruling or injunction of any court of or governmental authority having competent
jurisdiction; or
Section 6.3. Termination by the Company. This Agreement may be
terminated prior to Closing by the Company, by giving written notice of such
termination to the Purchasers, if the Purchasers have materially breached any
representation, warranty, covenant or agreement contained
-----------
initial
<PAGE>
in this Agreement and such breach is not cured within five business days
following receipt by the Purchasers of notice of such breach.
Section 6.4. Termination by the Purchasers. This Agreement may be
terminated prior to Closing by the Purchasers, by giving written notice of such
termination to the Company, if:
(a) the Company has breached any representation, warranty,
covenant or agreement contained in this Agreement and such breach is not cured
within five business days following receipt by the Company of notice of such
breach;
(b) there has occurred an event which could reasonably be
expected to have a Material Adverse Effect and which is not disclosed in this
Agreement; or
(c) trading in the Common Stock has been suspended by the
Commission or the NASD or other exchange or market on which the Common Stock is
listed or quoted (except for any suspension of trading of limited duration
solely to permit dissemination of material information regarding the Company).
ARTICLE VII
LEGAL FEES
In the event any Party commences a legal action to enforce its rights
under this Agreement, the non-prevailing party shall pay all reasonable costs
and expenses (including reasonable attorney's fees) incurred in enforcing such
rights.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Fees and Expenses. Except as set forth above, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares pursuant hereto. The Purchaser shall be
responsible for its own tax liability that may arise as a result of the
investment hereunder or the transactions contemplated by this Agreement. Whether
or not the transactions contemplated by this Agreement are consummated or this
Agreement is terminated, the Company shall pay (i) all costs, expenses, fees and
all taxes incident to and in connection with: (A) all preliminary and final Blue
Sky memoranda and all other agreements, memoranda, correspondence and other
documents prepared and delivered in connection
-----------
initial
<PAGE>
herewith (B) the issuance and delivery of the Shares, (C) the qualification of
the Shares for offer and sale under the securities or Blue Sky laws of the
several states (including, without limitation, the fees and disbursements of the
Purchasers' counsel relating to such registration or qualification), and (D) the
preparation of certificates for the Shares (including, without limitation,
printing and engraving thereof), (ii) all fees and expenses of the counsel and
accountants of the Company and (iii) all expenses and listing fees on Securities
Exchanges, if any.
Section 8.2. Entire Agreement; Amendments. This Agreement, together
with the Schedules hereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters.
Section 8.3. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been made upon facsimile (with transmission confirmation report) at the number
designated below (if delivered on a Business Day during normal business hours
where such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day during normal business hours
where such notice is to be received) whichever shall first occur. The addresses
for such communications shall be:
If to the Company: Ernest B. Kim
President and Chief Executive Officer
Racom Systems, Inc.
16 West 32nd Street, Suite 801
New York, New York 10001
With copies to: Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
Attn: Ronald H. Janis, Esq.
Tel: (973) 966-6300
Fax: (973) 966-1550
If to the Purchasers:
See Schedule 1 - Schedule of Purchasers (attached hereto)
With copies to: Adam S. Gottbetter, Esq.
Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, NY 10017
Tel: 212-983-0532
Fax: 212-983-9210
-----------
initial
<PAGE>
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
Section 8.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser, or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
Section 8.5. Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 8.6. Successors and Assigns. This Agreement may not be assigned
by ant party without the prior written consent of all the parties hereto. This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The assignment by a party of this
Agreement or any rights hereunder shall not affect the obligations of such party
under this Agreement.
Section 8.7. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 8.8. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Any action to
enforce the terms of this Agreement or any of its exhibits shall be exclusively
brought in the state and/or federal courts in the State and County of New York.
Section 8.9. Survival. The representations and warranties of the
Company and the Purchaser contained in Article III and the agreements and
covenants of the parties contained in Article IV and this Article VIII shall
survive the Closing (or any earlier termination of this Agreement).
Section 8.10. Counterpart Signatures. This Agreement may be executed in
two or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature page were an original thereof.
Section 8.11. Publicity. The Company and the Purchasers shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions
<PAGE>
contemplated hereby and neither party shall issue any such press release or
otherwise make any such public statement without the prior written consent of
the other, which consent shall not be unreasonably withheld or delayed.
Section 8.12. Severability. In case any one or more of the provisions
of this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
Section 8.13. Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, the
Purchasers will be entitled to specific performance of the obligations of the
Company under this Agreement and the Company will be entitled to specific
performance of the obligations of the Purchasers hereunder with respect to the
subsequent transfer of Shares. Each of the Company and the Purchasers agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of any breach of its obligations described in the foregoing sentence
and hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
The remainder of this page intentionally left blank
-----------
initial
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first indicated above.
Company:
RACOM SYSTEM, INC.
By:----------------------------------------------------
Name: Ernest B. Kim
Title: President & Chief Executive Officer
Purchasers:
OCEAN STRATEGIC HOLDINGS LTD.
By:----------------------------------------------------
Name:
Title:
ZEBRA STRATEGIC HOLDINGS LIMITED
By:----------------------------------------------------
Name:
Title:
-----------
initial
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Purchaser
Name & Address Amount of Investment Number
of Shares
<S> <C> <C>
Ocean Strategic Holdings Limited 950,000 633,650
P. O. Box 860
11 Bath Street
St. Helier, Jersey
Channel Islands
Zebra Strategic Holdings Limited 50,000 33,350
P. O. Box 860
11 Bath Street
St. Helier, Jersey
Channel Islands
</TABLE>
RACOM SYSTEMS, INC.
16 West 32nd Street, Suite 801, New York, NY 10001
RACOM SYSTEMS ACQUIRES NEWSTATE CAPITAL CO., LTD.
For Immediate Release July 20, 1999
Racom Systems, Inc. (NASDAQ-OTC BB: RCOMD) announced the acquisition of NewState
Capital Co., Ltd., a provider of residential mortgage financing in Korea.
NewState Capital is headquartered in Seoul, with offices in Taegu, Changwon,
Jinju, and Pusan, and employs 62 persons. The company has approximately 4,500
mortgage loans outstanding, aggregating nearly KW 100 billion (US$83 million).
According to the Korea Housing & Commercial Bank, one of the primary issuers of
residential mortgages, the total residential mortgage loan market in Korea is
estimated to be KW 54 trillion (US$45 billion) in 1999.
Racom management believes the Korean residential mortgage business provides
exciting opportunities because of the recent deregulation in the mortgage
lending industry and the significant lowering of interest rates in Korea.
Mortgage interest rates have fallen from a high of 24 percent in 1998 to an
average of 11 percent presently, with mortgage originations estimated to
increase by 25% over the next year. NewState intends to capitalize on this
opportunity by offering quick loan application and approval process, on-line
loan application and servicing, convenient branch offices in major cities,
hiring and training mortgage salespersons, and embarking on advertising and
other marketing campaigns.
Racom has acquired NewState Capital through the issuance of 8 million new common
shares, the result of which control of Racom will be assumed by the former
shareholders of NewState Capital, primarily Mr. Ernest B. Kim, its chairman, and
members of his family. In exchange, Racom acquired 99.6% of NewState Capital.
Racom also assumed the repayment of a past-due $5 million bank loan owed by
NewState Capital. Simultaneous with the acquisition $1 million was invested in
Racom by certain investors for 667,000 newly-issued common shares. All former
directors of Racom, with the exception of Edward Tobin, have resigned. Mr.
Ernest Kim, Mr. Jin Kim, Mr. Sun Young, Esq., and Mr. Ben Chang have been
elected directors of Racom. Mr. Ernest Kim also assumes the positions of
chairman and chief executive officer of Racom.
NewState Capital is the successor company to Dongsuh Finance Co., Ltd., a Korean
mortgage and installment financing company headquartered in Seoul, Korea. Donguh
Finance was founded in 1994 by Dongsuh Horizon Securities Co. and acquired by
NewState Capital in December 1998. In March 1999, NewState Capital acquired 100%
of Youngnam General Finance Co., a mortgage finance company headquartered in
Taegu, Korea. As of March 31, 1999, NewState Capital has KW 174.7 billion
(US$143 million) in assets and KW 157 billion (US$128 million) in liabilities.
For the year ended March 31, 1999, NewState lost $6.1 million after tax. This
loss takes into account $1.4 million provision for loan losses, primary
corporate loans made by Dongsuh Finance, and $3.8 million provision for taxes.
As a result of the high interest rate environment and corporate bankruptcies
brought about by the Asian financial crisis during 1997-98, all ten specialized
financing companies in Korea have either suspended regular business or closed.
In addition to the acquisition of Dongsuh Finance and Youngnam General Finance,
NewState Capital plans to continue acquiring failed or suspended specialized
financing companies which have substantial residential mortgage portfolios.
In December 1998, the Korean government passed a law permitting the issuance of
asset-backed securities. As soon as market acceptance of asset-backed securities
are in place, NewState Capital intends to repackage its mortgage portfolio into
mortgage-backed securities and sell the securities to institutional and retail
investors in Korea. NewState Capital expects to generate revenues primarily from
loan origination fees, loan servicing fees, and the interest differential
between the underlying mortgages and the mortgage-back securities.
As part of the transaction, and subject to shareholder approval, Racom Systems
will change its corporate name to NewState Holdings, Inc. NewState Holdings will
be headquartered in New York City.
Certain statements made in this release by Racom / NewState Holdings, Inc. are
forward-looking in nature. Actual results may differ materially from those
projected in forward-looking statements. Racom / NewState Holdings, Inc.
believes the factors which may cause the actual results to differ and which
reflect the primary risk factors associated with its business include: the need
for obtaining substantial financing sources, assuring liquidity and maintaining
substantial equity; timely development of internal programs and procedures to
enable the securitization of mortgages; the acceptance of mortgage-backed
securities in Korea; the successful integration of acquisitions; the ability to
attract and retain high quality employees; change in overall economy of Korea
and Asia; the number and size of competitors in its markets; change in
technology; and changes in law and regulatory policies. Racom / NewState
Holdings, Inc. does not undertake to update any forward-looking statement. Racom
/ NewState Holdings, Inc. believes that all information in this release has been
obtained from sources considered reliable, but cannot guarantee that the
statements presented herein are accurate or complete.
CONTACT:
Alexander Shang
Chief Financial Officer
Racom Systems, Inc.
212-582-3400
