-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SC/+u/ZUS05vzDzUnzqPFs1QVazmewwYkIRC/tdQ5K8STQ+lepxwjsOD1Wm93xEO yvKU7yisCo6pwYmaz08XEw== 0000892569-00-000303.txt : 20000321 0000892569-00-000303.hdr.sgml : 20000321 ACCESSION NUMBER: 0000892569-00-000303 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20000320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REMEC INC CENTRAL INDEX KEY: 0000769874 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 953814301 STATE OF INCORPORATION: CA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-31428 FILM NUMBER: 573361 BUSINESS ADDRESS: STREET 1: 9404 CHESAPEAKE DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92123 BUSINESS PHONE: 6195601301 S-3/A 1 AMENDMENT NO.1 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2000 REGISTRATION NO. 333-31428 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ REMEC, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 3812 95-3814301 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFIED CODE NUMBER) IDENTIFICATION NO.)
9404 CHESAPEAKE DRIVE, SAN DIEGO, CALIFORNIA 92123, (858) 560-1301 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) RONALD E. RAGLAND, CHAIRMAN AND CHIEF EXECUTIVE OFFICER 9404 CHESAPEAKE DRIVE, SAN DIEGO, CALIFORNIA 92123, (858) 560-1301 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: VICTOR A. HEBERT DOUGLAS J. REIN PAUL H. GREINER JEFFREY T. BAGLIO CHRISTINA L. VAIL CHRISTOPHER M. SMITH HELLER EHRMAN WHITE & MCAULIFFE LLP GRAY CARY WARE & FREIDENRICH LLP 601 SOUTH FIGUEROA STREET 4365 EXECUTIVE DRIVE, SUITE 1600 LOS ANGELES, CALIFORNIA 90017-5758 SAN DIEGO, CALIFORNIA 92121-2189 (213) 689-0200 (858) 677-1400
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED MARCH 20, 2000 PROSPECTUS - ---------------- 3,750,000 SHARES [REMEC LOGO] COMMON STOCK ------------------------- Of the 3,750,000 shares of common stock offered, we are offering 3,500,000 shares and one selling shareholder is offering 250,000 shares. We will not receive any of the proceeds from the shares sold by the selling shareholder. Our common stock is traded on the Nasdaq National Market under the symbol "REMC." On March 16, 2000, the last reported sale price for our common stock on the Nasdaq National Market was $40.875 per share. ------------------------- INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 4. -------------------------
- ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- PER SHARE TOTAL - ---------------------------------------------------------------------------------------------------- Public Offering Price.......................... $ $ Underwriting Discount.......................... $ $ Proceeds, before expenses, to REMEC............ $ $ Proceeds to Selling Shareholder................ $ $ - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
The underwriters may also purchase up to an additional 562,500 shares from the additional selling shareholders identified in this prospectus at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus, to cover over-allotments. If the over-allotment option is exercised, we will not receive any of the proceeds from the shares sold by the selling shareholders. The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. It is illegal for any person to tell you otherwise. ------------------------- NEEDHAM & COMPANY, INC. CIBC WORLD MARKETS DAIN RAUSCHER WESSELS A.G. EDWARDS & SONS, INC. The date of this prospectus is , 2000 3 TABLE OF CONTENTS
PAGE ---- Prospectus Summary.......................................... 1 Risk Factors................................................ 4 Forward-Looking Statements.................................. 14 Use of Proceeds............................................. 14 Price Range of Common Stock................................. 15 Capitalization.............................................. 16 Selected Consolidated Financial Data........................ 17 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 18 Business.................................................... 22 Management.................................................. 34 Principal and Selling Shareholders.......................... 38 Underwriting................................................ 40 Legal Matters............................................... 42 Experts..................................................... 42 Where You Can Find More Information......................... 42
------------------------ In this prospectus, "REMEC," "we," "us" and "our" refer to REMEC, Inc. and our subsidiaries, on a consolidated basis. "REMEC," "REMEC Microwave," "REMEC Wireless," "Humphrey," "REMEC Magnum," "REMEC Veritek," "REMEC CSH," "REMEC Q-bit," "REMEC Canada," "REMEC Nanowave," "REMEC WACOM," "REMEC Europe" and "Airtech" are trademarks of REMEC. All other trademarks appearing in this prospectus are the property of their respective owners. You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 4 PROSPECTUS SUMMARY You should read the following summary together with the more detailed information and the other information, financial statements and notes thereto appearing elsewhere in this prospectus. Except as otherwise indicated, the information in this prospectus assumes the underwriters do not exercise their over-allotment option and assumes any outstanding options to purchase shares of common stock have not been exercised. REMEC We are a leading designer and manufacturer of high frequency subsystems used in the transmission of voice, video and data traffic over wireless communications networks. Our products are designed to improve the capacity, efficiency, quality and reliability of wireless communications infrastructure equipment. We also develop and manufacture highly sophisticated wireless communications equipment used in the defense industry, including communications equipment integrated into tactical aircraft, satellites, missile systems and smart weapons. We manufacture products that operate at the full range of frequencies currently used in the transmission of wireless communications traffic, including at radio frequencies, or RF, microwave frequencies and millimeter wave frequencies. By offering products that cover the entire frequency spectrum for wireless communications, we are able to address opportunities in the worldwide mobile wireless communications market as well as the global fixed access broadband wireless market. In the mobile wireless communications market, we design and produce subsystems used in base stations for analog cellular and digital cellular systems, including personal communications systems, or PCS, and emerging third generation, or 3G, networks. In the fixed access broadband market, we develop and manufacture products for point-to-point, point-to-multipoint and satellite-to-multipoint systems. Our point-to-multipoint products are designed to be integrated into various broadband distribution systems, including local multipoint distribution systems, or LMDS, and multichannel multipoint distribution systems, or MMDS. Fixed access broadband wireless systems can complement or provide cost effective alternatives to copper wire, cable and fiber optic-based communications networks. Demand for wireless infrastructure equipment is increasing due to a number of factors, including the deregulation of the telecommunications industry, advances in wireless communications technology and business and residential demand for wireless services such as digital cellular, Internet access, two-way paging and specialized mobile radio services. With industry estimates of 975 million cellular/ PCS subscribers worldwide by 2003 and 502 million Internet users worldwide by 2003, we anticipate that there will be strong demand for services by communications networks with the capacity to provide high speed Internet access for mobile wireless products. In addition to mobile applications, Internet use and corporate data applications are also expected to increase the demand for fixed access broadband wireless networks. We market our wireless products primarily to original equipment manufacturers, or OEMs, such as Motorola, Inc., Digital Microwave Corporation, Nokia Corp., Alcatel Network Systems, P-COM, Inc., STM Wireless, Inc., Lucent Technologies Inc., Nortel Networks Corporation and SpectraPoint Wireless LLC. By outsourcing subsystems to us, OEMs are able to accelerate their time to market in a cost effective manner and to leverage their core competencies of full system design and integration. We have augmented our existing technology base by acquiring specialized technology companies that complement our product offerings and market strategies. Over the last three years, we acquired eight companies, including our most recent acquisition in April 1999 of Airtech plc, a United Kingdom-based manufacturer of mobile wireless products with sales offices in Malaysia and China. In acquiring Airtech, we were able to establish operations from which we can more directly address the European and Asian wireless infrastructure markets. 1 5 Our objective is to build on the strength of our core technological competencies to be the supplier of choice of OEMs in the wireless infrastructure equipment industry and prime contractors in the defense electronics industry. Our strategy to accomplish this objective is to: - leverage our technology leadership; - continue to develop strong strategic alliances with customers; - supply integrated microwave subsystems to OEMs' worldwide operations and expand our international presence; - supply niche products directly to network service providers; - enhance our high volume manufacturing capability; and - pursue strategic acquisitions. Our principal executive offices are located at 9404 Chesapeake Drive, San Diego, California 92123, and our telephone number is (858) 560-1301. Our website address is http://www.remec.com. The information on our website is not incorporated by reference into this prospectus. THE OFFERING Common stock offered by REMEC.............................. 3,500,000 shares Common stock offered by the selling shareholder............ 250,000 shares Common stock to be outstanding after the offering.......... 28,930,458 shares Use of proceeds............................................ Working capital for expansion of production capacity, marketing activities and research and development and for other general corporate purposes. Nasdaq National Market symbol.............................. REMC
The number of shares offered by the selling shareholder does not include shares to be sold by other selling shareholders if the underwriters' over-allotment option is exercised. The number of shares to be outstanding immediately after this offering is based on the number of shares outstanding as of January 31, 2000. This number does not include 3,036,409 shares of common stock issuable upon the exercise of outstanding options at a weighted average price of $15.40 per share, of which options to purchase 1,152,230 shares are currently exercisable. 2 6 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEARS ENDED JANUARY 31, --------------------------------------------------- 1996 1997 1998 1999 2000 ------- -------- -------- -------- -------- CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Net sales.............................................. $97,700 $131,643 $191,008 $179,215 $189,189 Gross profit........................................... 28,924 36,284 58,659 41,772 45,609 Income (loss) from operations.......................... 6,058 6,622 18,493 (5,966) (9,704) Income (loss) applicable to common stock............... 3,224 2,729 14,754 (4,831) (6,675) Earnings (loss) per common share: Basic................................................ $ 0.23 $ 0.15 $ 0.65 $ (0.20) $ (0.27) Diluted.............................................. $ 0.23 $ 0.15 $ 0.64 $ (0.20) $ (0.27) Shares used in per share calculations: Basic................................................ 13,819 17,633 22,535 24,722 25,147 Diluted.............................................. 13,936 17,944 23,228 24,722 25,147
AT JANUARY 31, 2000 ------------------------- ACTUAL AS ADJUSTED ----------- ----------- CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... $ 34,836 $170,345 Working capital............................................. 95,610 231,120 Total assets................................................ 223,929 359,438 Long-term debt.............................................. 5,049 5,049 Total shareholders' equity.................................. 187,892 323,402
Statements of operations data and balance sheet data set forth in the table above include data of: Airtech plc acquired in April 1999; Q-bit Corporation acquired in October 1997; C&S Hybrid, Inc. acquired in June 1997; Radian Technology, Inc. acquired in February 1997; and Magnum Microwave Corporation acquired in August 1996. These acquisitions were accounted for as pooling of interests. In addition, we acquired Wacom Products, Inc. in March 1999, Smartwaves International in February 1999, Nanowave Technologies Inc. in October 1997 and Verified Technical Corporation in March 1997, each of which was accounted for as a purchase. In the statements of operations data listed in the table above, we have presented income or loss applicable to common stock to account for dividends on preferred stock. Prior to completion of our initial public offering in 1996, we had accrued dividends on outstanding preferred stock of $80,000 which were paid upon completion of our initial public offering. Prior to completion of Airtech's initial public offering in 1997 and our acquisition of Airtech, Airtech had accrued dividends on outstanding preferred stock of $128,000, which were paid when Airtech completed its initial public offering. The balance sheet data under the as adjusted column at January 31, 2000 set forth in the table above reflects the sale by us of 3,500,000 shares of our common stock in this offering at an assumed offering price of $40.875 per share. 3 7 RISK FACTORS You should carefully consider the following risks before making an investment decision in our common stock. The risks described below are not the only ones that we face. Additional risks and uncertainties not presently known to us or that are currently deemed immaterial may also impair our business operations. Our business, operating results or financial condition could be materially adversely affected by, and the trading price of our common stock could decline due to, any of these risks, and you may lose all or part of your investment. You should refer to the other information included in this prospectus and the other information, our financial statements and the related notes incorporated by reference into this prospectus before you decide to purchase shares of our common stock. This prospectus contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the factors described below and elsewhere in this prospectus. You should not place undue reliance on these forward-looking statements. OUR EFFORTS TO EXPAND OUR COMMERCIAL BUSINESS MAY CAUSE OUR REVENUE TO FLUCTUATE Historically, our business focused almost exclusively on making wireless communications and other tactical weapon system products for the U.S. defense industry. In recent years, we have increased our business in the commercial wireless communications market. We believe that our future growth depends on our continued success in the commercial market. The commercial market for our products could fail to grow or could grow more slowly than anticipated. Some segments of the commercial markets in which we sell products have only recently begun to develop. For example, the point-to-multipoint wireless communications equipment market has just begun to emerge in the last year. Because these segments are relatively new, it is difficult to predict the rate at which these segments will grow, if at all. Existing or potential applications for our products may fail to develop or may erode for many different reasons. These reasons include, but are not limited to: - insufficient economic growth to support expensive infrastructure equipment; - insufficient consumer demand for wireless products or services because of pricing or otherwise; and - real or perceived security risks associated with wireless communications, such as privacy of data and eavesdropping. COMPETITION IN THE COMMUNICATIONS INDUSTRY MAY INCREASE THE TECHNOLOGICAL OBSOLESCENCE OF OUR PRODUCTS AND REDUCE OUR PRODUCT PRICES, MARGINS AND REVENUES The markets for our communications products are extremely competitive and are characterized by rapid technological change. Specifically, new products are generally developed quickly and industry standards are constantly evolving. Thus, our products can become obsolete over a short period of time. In addition, price competition is intense and the market prices and margins of products frequently decline after competitors begin making similar products. We believe that to remain competitive in the future we will need to invest significant financial resources in research and development. 4 8 Some of our current and potential competitors have substantially greater technical, financial, marketing, distribution and other resources than we have. They also may have greater name recognition and market acceptance of their products and technologies. Our competitors, or the competitors of our customers, may develop new technologies, enhancements to existing products or new products that offer superior price or performance features. These new products or technologies could render obsolete our products or the systems of our customers into which our products are integrated. CUSTOMER ORDER ESTIMATES MAY NOT NECESSARILY INDICATE FUTURE SALES Some of our customers have provided us with estimates of their requirements for our products over a period of time. We make a number of management decisions based on these customer estimates, including our purchase of materials, hiring of personnel and other matters that may increase our production capabilities and costs. If a customer reduces its orders from prior estimates after we have increased our production capabilities and costs, this reduction may decrease our revenue and we may not be able to reduce our costs to account for this reduction in customer orders. WE MAY ENCOUNTER DIFFICULTIES IN EFFECTIVELY INTEGRATING ACQUIRED BUSINESSES As part of our business strategy, we intend to augment our technology base by acquiring specialized technology firms. Over the last several years we have acquired a number of companies and have had some difficulties integrating those companies into our business. These and any future acquisitions we make will be accompanied by the risks commonly encountered in acquisitions of companies which include, among other things: - potential exposure to unknown liabilities of acquired companies; - higher than anticipated acquisition costs and expenses; - difficulty and expense of assimilating the operations and personnel of the companies, especially if the acquired operations are geographically distant; - potential disruption of our ongoing business and diversion of management time and attention; - failure to maximize our financial and strategic position by the successful incorporation of acquired technology; - difficulties in adopting and maintaining uniform standards, controls, procedures and policies; - loss of key employees and customers as a result of changes in management; and - possible dilution to our shareholders. We may not be successful in overcoming these risks or any other problems encountered in connection with any of our acquisitions. OUR STRATEGIC ACQUISITIONS MAY ADVERSELY AFFECT OUR PROFITABILITY We may make a strategic acquisition knowing that the transaction may adversely affect our short-term profitability. A company that is an acquisition candidate may be experiencing operating losses. We may believe that the strategic opportunity of acquiring such a company outweighs the operating losses the candidate is experiencing and that we expect to experience before being able to return the acquisition candidate to profitability. The completion of such an acquisition in the future would negatively affect our profitability and may cause a decline in our stock price. 5 9 WE MAY NOT BE SUCCESSFUL IN ESTABLISHING THE MANUFACTURING CAPACITY NECESSARY TO MEET ANTICIPATED GROWTH OF OUR COMMERCIAL BUSINESS The commercial wireless business generally requires the ability to produce a high volume of products in a short time relative to products that we produce for the defense electronics industry. As a result of expected growth in our commercial wireless business, we are significantly increasing our manufacturing capacity. Higher volume manufacturing generally requires greater automation in order to be cost effective. We may not be able to automate sufficiently in order to fulfill high volume production orders in a cost effective manner. If we can not successfully manufacture our products in the future at volumes, yields or cost levels necessary to meet our customers' needs, we may lose customers and our sales will suffer. In addition, we can give no assurance that we will obtain a sufficient amount of high volume orders to absorb the capital costs incurred in increasing our automation. In 1997, we acquired a manufacturing facility in Costa Rica through the acquisition of Q-bit. The Costa Rica facility currently manufactures a wide range of our microwave and RF products, and we intend to expand the number and increase the volume of products manufactured in Costa Rica. There are several risks inherent in the transfer of the manufacturing process from one facility to another, including unexpected costs and risks related to technology transfer and the ramp-up process in the new facility. Our failure to successfully transition manufacturing to our Costa Rican facility in a cost effective manner may result in increased product costs or delays. OUR PRODUCTS MAY CONTAIN UNDETECTED OR UNRESOLVED DEFECTS WHEN SOLD OR MAY NOT MEET OUR CUSTOMERS' PERFORMANCE CRITERIA Our standard product warranties run between 12 months and three years. If our products fail to perform as warranted and we do not resolve product quality or performance issues in a timely manner, we may lose sales or be forced to pay resulting damages. There is a risk that for unforeseen reasons we may be required to repair or replace a substantial number of products in use or to reimburse customers for products that fail to work or meet strict performance criteria. In addition, because our products are sold and marketed in different countries, our products must function in and meet the requirements of many different communications environments and be compatible with various communications systems and products. Any failure on our part to meet the requirements of our customers' performance requirements could have a negative impact on our sales. Further, there is a risk that our customers may uncover latent design defects in our products which were not apparent at the time the product was sold. This type of defect may be discovered after the warranty period has expired. A performance failure due to a design defect may cause loss of customers, damage to our reputation for delivering high quality products, delay in or loss of market acceptance, additional warranty expense or product recall. OUR EXPANSION OF PRODUCT LINES AND CUSTOMER BASE COULD CAUSE PROBLEMS IN OUR MANAGEMENT OF GROWTH Our business has grown in size and complexity, and we have significantly expanded our product lines and customer base. This growth and expansion has placed significant demands on our management and operations, and we expect that these demands will continue. Our ability to compete effectively and to manage future growth will depend on our ability to implement and improve operating and financial systems on a timely basis. We may not be able to manage our future growth effectively. 6 10 OUR PRODUCTION SCHEDULES AND MANUFACTURING PROCESSES MAY CAUSE FLUCTUATIONS IN QUARTERLY RESULTS Our quarterly results have varied significantly in the past and are likely to continue to vary significantly, due to a number of factors, including the following: - timing, cancellation or rescheduling of customer estimates for product, customer orders and shipments; - pricing and mix of products sold; - introduction of new products; - our ability to obtain components and subassemblies from contract manufacturers and suppliers; and - variations in manufacturing efficiencies. Any one of these factors could substantially affect our results of operations for any particular fiscal quarter. OUR DEPENDENCE ON A SMALL NUMBER OF CUSTOMERS COULD RESULT IN A DECREASE IN OUR REVENUES We derive significant revenues from a limited group of customers. For the fiscal year ended January 31, 2000, our top ten customers comprised approximately 60% of revenues, with no customer accounting for more than 10% of total fiscal 2000 revenues other than the combined sales to Motorola, Inc. and General Instrument which Motorola acquired in January 2000. The combined sales to Motorola and General Instrument in fiscal 2000 accounted for 15.6% of fiscal 2000 revenues. In addition, in December 1999, we entered into a strategic supply agreement with SpectraPoint Wireless LLC which we anticipate will provide a significant portion of our revenues in the near future. We anticipate that we will continue to derive significant revenues from sales to a relatively small group of customers. If any of these customers cancels, reduces or delays orders or product estimates given to us or shipments on account of their manufacturing or supply difficulties, financial difficulties or reduction in demand for their systems and products or otherwise, our revenues would be significantly reduced. WE DEPEND ON COMMERCIAL OEMS AND DEFENSE PRIME CONTRACTORS TO OUTSOURCE PRODUCTS WE PRODUCE AND WE ARE VULNERABLE IF THEY SHIFT TOWARDS RELYING EXCLUSIVELY ON THEIR OWN IN-HOUSE CAPABILITIES Currently, our primary competitors are the captive manufacturing operations of our commercial customers that are large wireless infrastructure OEMs and defense prime contractors. We believe that our future success depends largely upon the extent to which the OEMs and defense prime contractors elect to purchase integrated components and subsystems from outside sources such as us. OEMs and defense prime contractors could develop greater internal capabilities and manufacture these products exclusively in-house, rather than outsourcing them, which would have a negative impact on our sales. INTENSE COMPETITION AMONG TECHNOLOGY COMPANIES FOR EXPERIENCED ENGINEERS AND OTHER PERSONNEL MAY AFFECT OUR ABILITY TO SUSTAIN OUR GROWTH EXPECTATIONS We depend on attracting and retaining competent personnel in all areas of our business, including management, engineering, manufacturing, quality assurance, marketing and support. In particular, our development efforts depend on hiring and retaining qualified engineers. We believe that engineers, including highly skilled microwave engineers with the skills necessary to develop products for wireless communications are in high demand. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. If we are unable to hire a sufficient number of engineering personnel, we may be unable to support the growth of our business, and as a result, our sales may suffer. 7 11 CUSTOMER PRESSURE TO REDUCE PRICES AND LONG-TERM SUPPLY ARRANGEMENTS MAY CAUSE REDUCTIONS IN REVENUES OR PROFIT MARGINS Many of our customers are under pressure to reduce price, and, therefore, we expect to continue to experience pressure from our customers to reduce the prices of our products. Our customers frequently negotiate supply arrangements with us well in advance of delivery dates, requiring us to commit to price reductions before we can determine whether we can achieve the product's assumed cost reductions. To offset declining average sales prices, we believe that we must reduce our manufacturing costs and obtain higher volume orders for products. If we are unable to offset declining average selling prices, our gross profit margins will decline. THE FAILURE OF OUR CUSTOMERS TO SELL WIRELESS COMMUNICATIONS NETWORK SOLUTIONS THAT INCLUDE OUR SUBSYSTEMS AND INTEGRATED COMPONENTS WOULD HARM OUR SALES In general, our integrated components and subsystems must be custom designed for use in our customers' products. As a result, we sell our products to a relatively small group of customers, and our products must be specifically engineered for each customer. While we select our customers based on our assessment of their ability to succeed in the marketplace, we can not be sure of their success. If our customers are not successful, the length of time required to reengineer our product for another customer may delay our sales or prohibit us from getting our product to the marketplace in a timely manner or at all. OUR EXCLUSIVE ARRANGEMENTS WITH SOME CUSTOMERS MAY LIMIT OUR PURSUIT OF MARKET OPPORTUNITIES AND MAY RESULT IN LOSS OF REVENUES We have granted some of our customers exclusivity on specific products, which means that we are only permitted to sell those specially engineered products to them. We expect that in some cases our existing customers and new customers may require us to give them exclusivity on new products that we make for them. By entering into exclusive arrangements, we may forego opportunities to supply these products to other companies. In addition, if we enter into exclusive relationships with customers who prove to be unsuccessful, our revenues will be negatively affected. We may not be able to establish business relationships with, or negotiate acceptable arrangements with, significant customers in the future. Also, our current or future arrangements with significant customers may not continue or be successful. OUR DEPENDENCE ON SUPPLIERS AND CONTRACT MANUFACTURERS MAY DECREASE OUR TIMELINESS OF PRODUCT DELIVERY TO CUSTOMERS WHICH MAY RESULT IN LOST REVENUES We rely on contract manufacturers and suppliers, in some cases sole suppliers or limited groups of suppliers, to provide us with services and materials necessary for the manufacture of our products. As a result of a worldwide demand for and shortage of components, some suppliers have begun to limit the number of components that we may purchase. These components include chip components and other products necessary for the production of our products. If we are not able to obtain sufficient allocations of these components, our production and shipment of product will be delayed, we may lose customers and our profitability will be affected. Other risks relating to our reliance on contract manufacturers and on sole suppliers include reduced control over productions costs, delivery schedules, reliability and quality of materials. Any inability to obtain timely deliveries of acceptable quality materials, or any other circumstances that would require us to seek alternative contract manufacturers or suppliers, could adversely affect our ability to deliver products to our customers. In addition, if costs for our contract manufacturers or suppliers increase, we may suffer losses if we are unable to recover such cost increases under fixed price production commitments to our customers. 8 12 OUR CONTINUED EFFORTS TO SERVICE THE DEFENSE MARKET MAY LIMIT OUR GROWTH IN REVENUES We make a substantial portion of our sales to the U.S. defense market. As a result, lower defense spending by the U.S. government could materially reduce our revenues. Lower defense spending by the U.S. government might occur because of defense budget cuts, general budget cuts or other causes. The U.S. recently has reduced its defense budget and may further reduce it. In addition, the U.S. has reduced the number of newly initiated defense industry production programs. In the existing defense programs in which we participate, pricing pressure continues to be exerted on follow-on orders. We expect to continue to derive a substantial portion of our revenues from defense programs and to develop microwave products for defense applications. If a significant defense program or contract ends, and we fail to replace sales from that program or contract, our revenues will decline. In addition, a large portion of our expenses are fixed and difficult to reduce, thus magnifying the negative effect of any shortfall in revenue. OUR DEFENSE DEVELOPMENT CONTRACTS COULD CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE Because of the decline in the number of defense industry production programs, we have entered into more defense industry development contracts as a source of defense revenues. Development contracts are contracts for the development of products, rather than the production of products and they tend to be fixed price contracts that generally result in lower gross profit margins than production contracts. As a result, our increased reliance on development contracts has led to increased quarterly fluctuations in sales and gross profit margins. Accordingly, our comparative performance from one fiscal quarter to the next is not necessarily an accurate indicator of our future performance. FIXED-PRICE CONTRACTS MAY INCREASE RISKS OF COST OVERRUNS AND PRODUCT NON-PERFORMANCE Our customers establish demanding specifications for product performance, reliability and cost. Most of our customer contracts are firm fixed price contracts. Firm fixed price contracts provide for a predetermined fixed price for the products we make, regardless of the costs we incur. We have made pricing commitments to customers based upon our expectation that we will achieve more cost effective product designs and automate more of our manufacturing operations. Manufacture of our products is an extremely complex process. We face risks of cost overruns or order cancellations if we fail to achieve forecasted product design and manufacturing efficiencies or if products cost more to produce than expected. The expense of producing products can rise due to increased cost of materials, components or labor, or other factors. We may have cost overruns or problems with the performance or reliability of our products in the future. SOME OF OUR DEVELOPMENT ARRANGEMENTS WITH CUSTOMERS MAY LEAD TO LOSS OF INVESTMENT IN DESIGN AND ENGINEERING We often make significant investments in the design and engineering of new products for customers without any commitment by the customer for the future purchase of the products. If we do not receive initial or follow-on orders for products we design, our profitability will be affected because those costs would not be offset by additional revenues. 9 13 WE DEPEND ON THE CONTINUED CONTRIBUTIONS OF OUR EXECUTIVE OFFICERS AND OTHER KEY MANAGEMENT, EACH OF WHOM WOULD BE DIFFICULT TO REPLACE We do not have employment or non-competition agreements with our key executive officers, except for Tao Chow (Senior Vice President), James Mongillo (Executive Vice President), Justin Miller (Vice President) and Nicholas Randall (Executive Vice President). We also do not have "key man" life insurance on our key executive officers. The loss of any of our executive officers or other key management would disrupt our operations and divert the time and attention of our remaining officers. ENVIRONMENTAL REGULATIONS AND HEALTH RISKS MAY INCREASE OUR OPERATION COSTS OR DECREASE OUR SALES We are subject to a variety of environmental regulations by local, state, federal and foreign governments. These regulations govern the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture our products. If we fail to comply with current or future regulations, the following adverse effects could occur: - we could be forced to alter manufacturing processes; - we could be fined substantial amounts; - our production could be suspended; or - we could be forced to cease operations. News reports have asserted that power levels associated with handheld cellular telephones and related infrastructure equipment may pose certain health risks. If wireless communications equipment (or other devices that incorporate our products) were determined or perceived to create a significant health risk, the market for our products could be significantly impacted. Moreover, if such a health risk were determined or perceived to exist, we might be named as a defendant in product liability lawsuits commenced by governments, businesses or individuals alleging that our products were harmful. We would be required to defend such lawsuits, and we might be held liable. NEW GOVERNMENT REGULATIONS COULD INTERFERE WITH OUR BUSINESS GROWTH Our products are incorporated into wireless communications systems that are regulated domestically by the FCC and internationally by other government agencies. Typically, the equipment operators and not REMEC are responsible for compliance with these regulations. However, regulatory changes, including changes in the allocation of available frequency spectrum, could negatively affect our business by restricting development efforts by our customers, making our current products obsolete or increasing the opportunity for additional competition. Our sales will be adversely affected if our manufactured products fail to comply with all applicable domestic and international regulations. The delays inherent in the governmental approval process have in the past caused, and may in the future cause, cancellation, postponement or rescheduling of the installation of communications systems by our customers. This in turn may have a negative impact on the sale of our products to these customers. In addition, the increasing demand for wireless communications has exerted pressure on regulatory bodies world-wide to adopt new standards for such products. The approval of new standards generally follows extensive investigation of and deliberation over competing technologies. 10 14 IF WE ARE AUDITED BY U.S. GOVERNMENT AGENCIES, WE COULD INCUR SIGNIFICANT EXPENSES AND EXPERIENCE DISRUPTION OF OUR BUSINESS Because of our participation in the defense industry, we are subject to audit from time to time for our compliance with government regulations by various agencies, including the following: - the Defense Contract Audit Agency; - the Defense Security Service; - the Office of Federal Contract Compliance Programs; and - the Defense Supply Center Columbus. These and other governmental agencies may also from time to time conduct inquiries or investigations that cover a broad range of our activities. Responding to governmental audits, inquiries or investigations may involve significant expense and divert management attention. Also, an adverse finding in any such audit, inquiry or investigation could involve penalties. OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY The market price of our common stock, like the stock prices of many companies in the telecommunications industry, is subject to wide fluctuations in response to a variety of factors, including: - actual or anticipated operating results; - announcements of technological innovations; - announcements of new products or new contracts by us, our competitors or customers; - government regulatory action; - developments with respect to wireless telecommunications; and - general market conditions and other factors. In addition, the stock market has from time to time experienced significant price and volume fluctuations. These fluctuations have particularly affected the market prices for the stocks of technology companies and have often been unrelated to the operating performance of particular companies. The market price of our common stock has been highly volatile and may continue to be highly volatile. WE ARE CURRENTLY INVOLVED IN SECURITIES CLASS ACTION LITIGATION In April 1999, a securities class action suit was brought against us alleging violations of the Securities Exchange Act of 1934. We believe that the lawsuit is without merit, and we have been defending against it vigorously through a motion to dismiss and otherwise. However, if the plaintiffs are successful in pursuing their claims against us and our officers and directors, such a result could have a significant negative effect on our business and financial condition. In addition, we may be the target of similar litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources, and could seriously affect our business. 11 15 LACK OF PATENT PROTECTION ON OUR PRODUCTS AND TECHNOLOGY MAY ALLOW COMPETITORS TO DEVELOP SIMILAR PROPRIETARY PRODUCTS OR TECHNOLOGY We do not presently hold any patents on our significant products. In order to protect our intellectual property rights, we rely on a combination of trade secrets, copyrights and trademarks and employee and third party nondisclosure agreements. We also limit access to and distribution of proprietary information. The steps that we have taken to protect our intellectual property rights may not be adequate to prevent misappropriation of our technology or to preclude competitors from independently developing similar technology. IF INFRINGEMENT CLAIMS ARE BROUGHT AGAINST US IN THE FUTURE, WE COULD BE REQUIRED TO PAY SUBSTANTIAL ROYALTIES AND OTHER COSTS If a third party was successful in a claim that one of our products infringed the third party's proprietary rights, we might have to pay substantial royalties or damages or remove that product from the marketplace. We might also have to expend substantial financial and engineering resources in order to modify the product so that it would no longer infringe on those proprietary rights. As to some of our products, we have agreed to indemnify our customers against possible claims by third parties that the products infringe their intellectual property rights. In the future, third parties may assert infringement claims against us or with respect to our products. Asserting our rights or defending against third party claims could involve substantial costs and diversion of resources. OUR SUCCESS IN PURSUING SALES IN INTERNATIONAL MARKETS MAY BE LIMITED BY RISKS RELATED TO INTERNATIONAL TRADE AND MARKETING. For the fiscal year ended January 31, 2000, approximately 18% of our revenue was derived from sales to customers residing outside the U.S. In addition, some of our U.S.-based customers which integrate our subsystems into their products may sell into these international markets. Adverse international economic conditions or developments, including economic instability in Asia in the past, has and could in the future negatively affect our direct sales and sales by our customers into these regions which would impact our revenues. In addition to the uncertainty as to our ability to maintain and expand our international presence, there are certain risks inherent in foreign operations, including: - delays in or prohibitions on exporting products resulting from export restrictions for certain products and technologies; - fluctuations in foreign currencies and the U.S. dollar; - loss of revenue, property and equipment from expropriation, nationalization, war, insurrection, terrorism and other political risks; - overlap of different tax structures; - seasonal reductions in business activity; and - risks of increases in taxes and other government fees. In addition, foreign laws treat the protection of proprietary rights differently from laws in the United States and may not protect our proprietary rights to the same extent as U.S. laws. 12 16 OUR INCREASED INTERNATIONAL MARKET PRESENCE MAY INCREASE MARKETING AND SALES COSTS OF DELIVERING PRODUCTS IN FOREIGN COUNTRIES We seek to expand our presence in international wireless communications and related markets by entering into partnerships or alliances with OEMs and service providers in those countries and acquiring complementary international business. We have had limited experience in partnering with international entities and managing international operations. The success of our ability to increase our international market presence is dependent on a number of factors, including the success of our domestic operations, level of funding, stability of our stock price, ability to produce competitive international products, attraction and retention of key employees at our international locations and our execution of strategic objectives. WE ARE SIGNIFICANTLY CONTROLLED BY OUR MANAGEMENT Our executive officers comprise five of the ten members of the Board of Directors. As a result, our management has the ability to exercise influence over our significant matters. This high level of influence may have a significant effect in delaying, deferring or preventing a change in control of REMEC. MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF PROCEEDS OF THE OFFERING Our management will have significant flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our management regarding application of the proceeds. 13 17 FORWARD-LOOKING STATEMENTS Some of the information in this prospectus contains forward-looking statements. These statements can be identified by the use of forward-looking terms such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. These statements discuss future expectations, projections of results of operations or of financial condition or state other "forward- looking" information. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. The risk factors noted under the heading "Risk Factors" and other factors noted throughout this prospectus could cause our actual results to differ materially from those contained in any forward-looking statement. USE OF PROCEEDS We estimate the net proceeds to us from the sale of the 3,500,000 shares of our common stock being offered by this prospectus will be approximately $135.5 million, assuming a public offering price of $40.875 per share, and after deducting the underwriting discount and estimated offering expenses payable by us. We plan to use the proceeds of the offering to fund working capital, including capital expenditures to increase production capacity, expansion of marketing and research development. We may use a portion of the proceeds to acquire technologies, products or businesses that complement our current business, as such opportunities may arise. Although we do consider acquisitions from time to time as a part of our normal business operations and planning, we have no present commitments or agreements with respect to any acquisitions. We currently have no other specific plans for any significant portion of the proceeds. Accordingly, our management will have broad discretion in the application of the net proceeds. Pending their use, the proceeds will be invested in short term, U.S. government or investment grade interest bearing securities. We will not receive any of the proceeds from the sale of common stock by the selling shareholders. We will not receive any of the proceeds from the shares sold by the selling shareholder. We have agreed to pay the expenses, other than the underwriting discounts, relating to the sale of these shares. 14 18 PRICE RANGE OF COMMON STOCK Our common stock has been traded on the Nasdaq National Market since February 1, 1996 under the symbol "REMC." The following table sets forth the range of high and low closing sale prices of our common stock as reported on the Nasdaq National Market for the quarterly periods indicated.
HIGH LOW ------- ------- FISCAL 1999 First Quarter............................................. $29.000 $24.875 Second Quarter............................................ 25.125 7.625 Third Quarter............................................. 10.625 7.313 Fourth Quarter............................................ 21.938 11.469 FISCAL 2000 First Quarter............................................. $20.875 $11.063 Second Quarter............................................ 17.688 12.188 Third Quarter............................................. 15.000 10.438 Fourth Quarter............................................ 25.500 9.500 FISCAL 2001 First Quarter (through March 16, 2000).................... $54.000 $20.250
On March 16, 2000, the last reported sale price of our common stock on the Nasdaq National Market was $40.875 per share. As of January 31, 2000, there were approximately 1,408 holders of record of our common stock. 15 19 CAPITALIZATION The following table sets forth our capitalization as of January 31, 2000 and as adjusted to reflect the sale of 3,500,000 shares of our common stock offered by this prospectus at an assumed offering price of $40.875 per share, after deducting underwriting discounts and offering expenses payable by us.
AT JANUARY 31, 2000 ----------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Long-term debt........................................... $ 5,049 $ 5,049 Shareholders' equity(1).................................. Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued and outstanding............. -- -- Common stock, $.01 par value; 70,000,000 shares authorized; 25,430,458 shares issued and outstanding, actual; 28,930,458 shares issued and outstanding, as adjusted............................ 254 289 Additional paid-in capital............................. 170,133 305,608 Accumulated other comprehensive income................. 65 65 Retained earnings...................................... 17,440 17,440 -------- -------- Total shareholders' equity.......................... 187,892 323,402 -------- -------- Total capitalization.............................. $192,941 $328,451 ======== ========
- ------------------------- The table above excludes 3,036,409 shares of our common stock issuable upon exercise of options outstanding as of January 31, 2000, which have a weighted average exercise price of $15.40 per share. Also, the table above excludes 2,654,109 additional shares reserved for issuance under our Equity Incentive Plan, 1996 Nonemployee Directors Stock Option Plan and Employee Stock Purchase Plan. 16 20 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus and our consolidated financial statements and related notes incorporated by reference into this prospectus. The selected consolidated financial data set forth below with respect to statements of operations for each of the fiscal years in the three year period ended January 31, 2000 and with respect to the balance sheets at January 31, 1999 and 2000, are derived from the audited consolidated financial statements incorporated by reference into this prospectus and the data below are qualified by reference to those consolidated financial statements and related notes. The consolidated statement of operations data for the fiscal years ended January 31, 1996 and 1997 and the consolidated balance sheet data at January 31, 1996, 1997 and 1998 are derived from audited consolidated financial statements not incorporated by reference into this prospectus.
FISCAL YEARS ENDED JANUARY 31, ------------------------------------------------------- 1996 1997 1998 1999 2000 ------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Net sales................................................. $97,700 $131,643 $191,008 $179,215 $189,189 Cost of sales............................................. 68,776 95,359 132,349 137,443 143,580 ------- -------- -------- -------- -------- Gross profit............................................ 28,924 36,284 58,659 41,772 45,609 Operating expenses: Selling, general and administrative..................... 18,159 23,313 31,210 36,835 38,189 Research and development................................ 4,707 6,349 7,887 10,903 13,994 Transaction costs....................................... -- -- 1,069 -- 3,130 ------- -------- -------- -------- -------- Total operating expenses.............................. 22,866 29,662 40,166 47,738 55,313 ------- -------- -------- -------- -------- Income (loss) from operations............................. 6,058 6,622 18,493 (5,966) (9,704) Gain on sale of subsidiary................................ -- -- 2,833 -- -- Interest income (loss) and other, net..................... (426) 15 2,314 3,008 2,601 ------- -------- -------- -------- -------- Income (loss) before provision for income taxes......... 5,632 6,637 23,640 (2,958) (7,103) Provision (credit) for income taxes....................... 2,328 3,780 8,886 1,873 (428) ------- -------- -------- -------- -------- Net income (loss)......................................... 3,304 2,857 14,754 (4,831) (6,675) Dividend accrued on preferred stock....................... (80) (128) -- -- -- ------- -------- -------- -------- -------- Income (loss) applicable to common stock.................. $ 3,224 $ 2,729 $ 14,754 $ (4,831) $ (6,675) ======= ======== ======== ======== ======== Earnings (loss) per common share: Basic................................................... $ 0.23 $ 0.15 $ 0.65 $ (0.20) $ (0.27) Diluted................................................. $ 0.23 $ 0.15 $ 0.64 $ (0.20) $ (0.27) Shares used in per share calculations: Basic................................................... 13,819 17,633 22,535 24,722 25,147 Diluted................................................. 13,936 17,944 23,228 24,722 25,147
AT JANUARY 31, 2000 -------------------------- ACTUAL AS ADJUSTED ----------- ----------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... $ 34,836 $170,345 Working capital............................................. 95,610 231,120 Total assets................................................ 223,929 359,438 Long-term debt.............................................. 5,049 5,049 Total shareholders' equity.................................. 187,892 323,402
- ------------------------- We acquired Airtech in April 1999, Q-bit in October 1997, C&S Hybrid in June 1997, Radian in February 1997 and Magnum in August 1996, each of which was accounted for as a pooling of interests and, accordingly, all financial amounts contained in the above table have been restated to include the financial results and data of Airtech, Q-bit, C&S Hybrid, Radian and Magnum for all periods presented. We acquired Wacom Products, Inc. in March 1999, Smartwaves International in February 1999, Nanowave Technologies Inc. in October 1997 and Verified Technical Corporation in March 1997, each of which was accounted for as a purchase. The balance sheet data under the as adjusted column as of January 31, 2000 set forth in the table above reflects the sale by us of 3,500,000 shares of our common stock offered by this prospectus at an assumed offering price of $40.875 per share. 17 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We commenced operations in 1983 and have become a leader in the design and manufacture of subsystems and integrated components used in the wireless communications industry and the defense industry. Our consolidated results of operations include the operations of: REMEC Microwave, Inc., or Microwave; REMEC Wireless, Inc., or Wireless; Humphrey, Inc., or Humphrey; REMEC Magnum, Inc., or Magnum; REMEC Veritek, Inc., or Veritek; REMEC CSH, Inc., or CSH; REMEC Q-bit, Inc., or Q-bit; REMEC Nanowave, Inc., or Nanowave; REMEC WACOM L.P., or WACOM; REMEC Airtech Ltd., or Airtech; and REMEC Inc., S.A., or REMEC Costa Rica. Our consolidated results of operations also include the operations of RF Microsystems, or RFM, for the period from April 30, 1996 to August 26, 1997. Our research and development efforts for customers in the defense industry are conducted in direct response to the unique requirements of a customer's order and, accordingly, expenditures related to such efforts are included in cost of sales and the related funding is included in net sales. As a result, historical funded research and development expenses incurred by us have been minimal. As our commercial business has expanded, research and development expenses have generally increased in amount and as a percentage of sales. We expect this trend to continue, although research and development expenses may fluctuate on a quarterly basis both in amount and as a percentage of sales. RESULTS OF OPERATIONS The following table sets forth, as a percentage of total net sales, certain consolidated statements of income data for the periods indicated.
FISCAL YEARS ENDED JANUARY 31, ----------------------- 1998 1999 2000 ----- ----- ----- Net sales................................................... 100.0% 100.0% 100.0% Cost of sales............................................... 69.3 76.7 75.9 ----- ----- ----- Gross profit.............................................. 30.7 23.3 24.1 Operating expenses: Selling, general and administrative....................... 16.3 20.6 20.1 Research and development.................................. 4.1 6.1 7.4 Transaction costs......................................... 0.6 -- 1.7 ----- ----- ----- Total operating expenses............................... 21.0 26.7 29.2 ----- ----- ----- Income (loss) from operations............................... 9.7 (3.4) (5.1) Gain on sale of subsidiary.................................. 1.5 -- -- Interest income and other, net.............................. 1.2 1.7 1.4 ----- ----- ----- Income (loss) before income taxes........................... 12.4 (1.7) (3.7) Provision for income taxes.................................. 4.7 1.0 (0.2) ----- ----- ----- Net income (loss)........................................... 7.7% (2.7)% (3.5)% ===== ===== =====
18 22 FISCAL YEAR ENDED JANUARY 31, 2000 VS. FISCAL YEAR ENDED JANUARY 31, 1999 NET SALES. Net sales increased 5.6% from $179.2 million during fiscal 1999 to $189.2 million during fiscal 2000. The increase in sales was primarily attributable to the increased demand from REMEC's commercial customers, including approximately $3.8 million of revenue generated by customers of WACOM, which was acquired during fiscal 2000. GROSS PROFIT. Gross profit increased 9.2% from $41.8 million in fiscal 1999 to $45.6 million in fiscal 2000. Despite charges to operations during fiscal 2000 of approximately $7.35 million associated with inventory obsolescence, anticipated product warranty costs and write-downs of certain fixed assets, gross margins as a percentage of net sales increased from 23.3% in fiscal 1999 to 24.1% in fiscal 2000. In fiscal 1999, gross margins were adversely affected by costs associated with Airtech's MHA warranty upgrade program. The improvement in gross margins during fiscal 2000 is primarily attributable to the absence of such costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses, or SG&A, increased 3.7% from $36.8 million in fiscal 1999 to $38.2 million in fiscal 2000. The increase in SG&A was primarily attributable to costs incurred at WACOM, which was acquired during fiscal 2000. As a percentage of net sales, SG&A expenses decreased from 20.6% in fiscal 1999 to 20.1% in fiscal 2000 due to the increase in sales. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased 28.3% from $10.9 million in fiscal 1999 to $14.0 million in fiscal 2000, and as a percentage of net sales, increased from 6.1% in fiscal 1999 to 7.4% in fiscal 2000. These expenditures are almost entirely attributable to the wireless communications business and reflect increased activity associated with new product development. TRANSACTION COSTS. REMEC's results of operations for fiscal 2000 include $3.1 million of transaction costs associated with REMEC's acquisition of Airtech and the terminated acquisition of STM Wireless, Inc. There were no similar costs in the comparable prior year period. INTEREST INCOME AND OTHER, NET. Interest income and other, net decreased 13.5% from $3.0 million in fiscal 1999 to $2.6 million in fiscal 2000. The decrease in interest income was due to a decrease in the amount of cash available for investing as a result of significant capital expenditures associated with the expansion of REMEC's wireless communications business and the cash paid for the acquisitions of Smartwaves International and Wacom Products, Inc. PROVISION (CREDIT) FOR INCOME TAXES. Income tax expense decreased 121.1% from $1.9 million in fiscal year 1999 to a credit for income taxes of $.4 million in fiscal 2000. The decrease in income tax expense reflects the tax benefit of $1.0 million related to research and experimentation tax credits, the benefit of tax credits for certain capital expenditures, the effect of tax exempt interest income and a decrease in domestic income before taxes of $11.3 million. FISCAL YEAR ENDED JANUARY 31, 1999 VS. FISCAL YEAR ENDED JANUARY 31, 1998 NET SALES. Net sales decreased 6.2% from $191.0 million during fiscal 1998 to $179.2 million during fiscal 1999. The decrease in sales was primarily attributable to the decreased revenues from our Airtech subsidiary, which was acquired in April 1999 in a transaction accounted for as a pooling of interests. The decline in Airtech's sales was attributable to delays in new PCS mobile infrastructure "roll-outs" in the United States, delays to one customer's new product program, financial instability in the Far East that impacted mobile infrastructure projects in the region and customers delaying orders pending availability of Airtech's next generation production, the G3 MHA. GROSS PROFIT. Gross profit decreased 28.8% from $58.7 million in fiscal 1998 to $41.8 million in fiscal 1999. As a percentage of net sales, gross profit decreased from 30.7% in fiscal 1998 to 23.3% in fiscal 1999. The fluctuations in gross margins are primarily attributable to costs associated with 19 23 Airtech's MHA warranty upgrade program, changes in the mix of products sold and reduced production volume at certain of our subsidiaries. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased 18.0% from $31.2 million in fiscal 1998 to $36.8 million in fiscal 1999. The increase in SG&A was primarily attributable to inclusion of a full year of SG&A expenses from our Veritek subsidiary, which was acquired in March 1999, and our Nanowave subsidiary, which was acquired in October 1997, both in transactions accounted for as purchases. Therefore, a full year's operations is not included in the fiscal 1998 results of operations for Veritek and Nanowave. In addition, the increase in SG&A was also due to increased administrative expenses related to Airtech's continued development of its international sales infrastructure in the Far East and accounting and legal expenses associated with an income tax credit study completed during fiscal 1999. As a percentage of net sales, SG&A expenses increased from 16.3% in fiscal 1998 to 20.6% in fiscal 1999, due to the factors discussed above. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased 38.2% from $7.9 million in fiscal 1998 to $10.9 million in fiscal 1999, and as a percentage of net sales, research and development expenses increased from 4.1% in fiscal 1998 to 6.1% in fiscal 1999. These expenditures are almost entirely attributable to the commercial wireless communications business and reflect an increase in activity associated with product development. TRANSACTION COSTS. Our results of operations for fiscal 1998 include $1.1 million of transaction costs associated with our acquisitions of Radian Technology, Inc., C&S Hybrid, Inc. and Q-bit Corporation. There were no similar costs in fiscal 1999. GAIN ON SALE OF SUBSIDIARY. Our results of operations for fiscal 1998 include the gain from the sale of RFM. There was no similar gain in fiscal 1999. INTEREST INCOME AND OTHER, NET. Interest income and other, net increased from $2.3 million in fiscal 1998 to $3.0 million in fiscal 1999. This increase was due to the increased level of cash available for investment as a result of the funds generated from our follow-on public offering, which was completed in March 1998. PROVISION FOR INCOME TAXES. Income tax expense decreased 78.9% from $8.9 million in fiscal 1998 to $1.9 million in fiscal 1999. The decrease in income tax expense reflects the tax benefit of $2.0 million related to the recognition of research and experimentation tax credits pertaining to previously filed income tax returns, the benefit of tax credits for certain capital expenditures, the effect of tax exempt interest income and a decrease in domestic income before taxes of $12.1 million. LIQUIDITY AND CAPITAL RESOURCES At January 31, 2000, we had $95.6 million of working capital which included cash and cash equivalents totaling $34.8 million. We also have a $9.0 million revolving working capital line of credit with a bank. The borrowing rate under this credit facility is based on a fixed spread over the London Interbank Offered Rate, or LIBOR. The revolving working capital line of credit terminates on July 3, 2000. As of January 31, 2000, there were no borrowings under this credit facility. In February 2000, we amended leasing arrangements relating to some of our facilities by pledging $17.0 million in cash as collateral for the remaining lease payments on these facilities. At January 31, 2000, our Airtech subsidiary had borrowings of $5.3 million under a long term credit facility. This obligation was repaid in February 2000. During fiscal 2000, the cash flows from non-cash expenses (primarily depreciation and amortization) were offset by our operating loss and the increase in inventories and trade accounts receivable. Receivables increased during this period due to the increase in sales and an increase in the length of time that customers were taking to pay invoices. Inventories increased due to the need to support anticipated sales growth. 20 24 During fiscal 2000, $55.9 million was used in investing activities primarily in connection with: $23.2 million incurred in capital expenditures; $5.8 million, net of cash acquired, paid to acquire Wacom Products and the assets of Smartwaves International; an increase in restricted cash of $17.0 million; and a $9.8 million increase in other assets, primarily consisting of a $4.6 million investment in an unconsolidated company and a $5.0 million loan to this same company. The bulk of the capital expenditures were associated with the expansion of our wireless communications business. The above expenditures were financed primarily by cash on hand. Our future capital expenditures may continue to be significant as a result of wireless communications expansion requirements. Financing activities generated approximately $7.9 million during fiscal 2000, principally as a result of the proceeds borrowed under a mortgage obligation at our Airtech subsidiary, net of repayments, and net proceeds of $3.3 million generated by the issuance of shares in connection with our Employee Stock Purchase Plan and from stock option exercises. Our future capital requirements will depend upon many factors, including the nature and timing of orders by OEM customers, the progress of our research and development efforts, expansion of our marketing and sales efforts, and the status of competitive products. We believe that available capital resources will be adequate to fund our operations for at least the twelve-month period ending January 31, 2001. YEAR 2000 In prior years, we discussed the nature and progress of our plans to become year 2000 ready. In late 1999, we completed our remediation and testing of systems. As a result of those planning and implementation efforts, we experienced no significant disruptions in mission critical information technology and non-information technology systems, and we believe those systems successfully responded to the year 2000 date change. We are not aware of any material problems resulting from year 2000 issues, either with our products, our internal systems or the products and services of third parties. We will continue to monitor our mission critical computer applications and those of our suppliers and vendors throughout the year 2000 to ensure that any latent year 2000 matters that may arise are addressed promptly. 21 25 BUSINESS INTRODUCTION We are a leading designer and manufacturer of high frequency subsystems used in the transmission of voice, video and data traffic over wireless communications networks. Our products are designed to improve the capacity, efficiency, quality and reliability of wireless communications infrastructure equipment. We also develop and manufacture highly sophisticated wireless communications equipment used in the defense industry, including communications equipment integrated into tactical aircraft, satellites, missile systems and smart weapons. We manufacture products that operate at the full range of frequencies currently used in wireless communications transmission, including at radio frequencies, or RF, microwave frequencies and millimeter wave frequencies. By offering products that cover the entire frequency spectrum for wireless communications, we are able to address opportunities in the worldwide mobile wireless communications market as well as the global fixed access broadband wireless market. INDUSTRY BACKGROUND DEREGULATION OF THE TELECOMMUNICATIONS INDUSTRY FOSTERS COMPETITION BY SERVICE PROVIDERS. Global telecommunications deregulation is fostering significant competition among providers of advanced communications services. In the U.S., regional Bell operating companies, such as Ameritech, Bell Atlantic, BellSouth, GTE, Pacific Bell, SBC Communications and US West, until recently were the exclusive owners and operators of the copper wire connections between network backbones and their subscribers, commonly known as the "last mile." The federal Telecommunications Act of 1996 intensified the competitive environment in the U.S. by requiring these telephone companies to provide access to portions of their networks, including the last mile, to competing service providers. Similar to the U.S., other countries have begun to privatize state-owned telecommunications companies to encourage competition among communications service providers. These events have been significant factors in creating worldwide competition in the communications services industry. To compete in this environment, many network service providers seek to differentiate themselves and increase market share by offering integrated voice, video and data services, which require broadband access and deployment of additional communications infrastructure equipment. DEMAND FOR HIGH SPEED INTERNET ACCESS AND OTHER DATA SERVICES INCREASES THE NEED FOR BROADBAND ACCESS. Consumers around the world are using the Internet for an ever increasing range of purposes, including email, high quality audio, streaming video and other multimedia services. Businesses are also using the Internet to enhance their reach to both residential and business consumers with applications such as electronic commerce, global marketing, customer support, web hosting, order fulfillment and supply management. The Internet also permits access to corporate data networks, including intranets and extranets, facilitating communication among corporate sites or with telecommuters or traveling employees. This increased usage requires an expanded capacity for the quick and reliable transmission of voice, video and data, which can be accomplished through broadband access. INCREASED DEMAND FOR MOBILE WIRELESS SERVICES NECESSITATES EXPANSION OF WIRELESS INFRASTRUCTURE. Wireless network service providers to date have focused primarily on satisfying the increasing demand for wireless telephony and paging services through the transmission of voice and low speed data signals over analog cellular systems and digital personal communication systems, or PCS. It is estimated that the number of global cellular/PCS subscribers will grow from 308 million in 1998 to 975 million by 2003. Since each cellular or PCS base station has a finite capacity, the demand created by increased subscribers will require a substantial increase in capital investment in wireless communications infrastructure equipment. It is estimated that wireless base stations, cell site equipment and switch equipment sales will grow from $35.1 billion in 1998 to $75.2 billion in 2003. 22 26 ADVANCES IN MOBILE WIRELESS COMMUNICATIONS NETWORK TECHNOLOGY WILL REQUIRE ADDITIONAL WIRELESS INFRASTRUCTURE EQUIPMENT. The capacity and quality of domestic and international mobile wireless communications networks have evolved with advances in technology. In response to capacity and level of service demands, service providers are expanding their current infrastructure and also are implementing new wireless technologies, such as third generation, or 3G, networks. The level of technology advancement used in wireless mobile networks is generally grouped into the following three categories: - First generation, or 1G, networks. These mobile networks feature analog technology that provides voice and low speed data services. - Second generation, or 2G, networks. Second generation cellular networks feature digital technology, including PCS. Digital technology provides network service providers and subscribers with advantages over analog technology, including increased system capacity, secure voice communications, short messaging service and other enhanced services. This technology can be implemented with new infrastructure or as an expansion of existing 1G networks. - Third generation, or 3G, networks. Third generation cellular networks feature increased capacity and data speeds that permit wireless transmission of integrated voice, video and data traffic. This technology can be implemented with new infrastructure or also as an equipment overlay to existing 2G networks. Network services providers are anticipated to begin to upgrade their networks to 3G levels over the next few years as regulatory agencies around the world begin to license the frequency band for this digital technology. Licenses to use this frequency band have been recently awarded in Japan and are expected to be awarded in Europe in 2000, with the U.S. following over the next several years. COPPER WIRE, CABLE AND FIBER OPTIC BROADBAND ACCESS IS COSTLY TO DEPLOY AND HAS OTHER LIMITATIONS. Applications requiring high capacity data transmission or high speed Internet access traditionally have been satisfied through deployment of broadband last mile connections consisting of enhanced copper wire called digital subscriber lines, or DSL, coaxial cable and fiber optic cable, each of which are described below: - Digital subscriber line. DSL has a data transmission rate of up to 1.5 Mbps. While the necessary copper infrastructure for DSL is already in place through existing telephone copper wires, transmission rates and availability are limited by the quality of the subscriber's existing copper wire infrastructure and distance from the telephone company switch. - Coaxial cable. Cable has a data transmission rate of up to 27 Mbps. As with DSL, the necessary cable infrastructure for residential use is already in place. However, existing cable networks must be upgraded to provide for two-way data transmission, and many businesses are not currently wired for cable. - Fiber optic cable. Fiber optic networks have data transmission rates of up to 10 billion bits per second, or 10 Gbps, the fastest rate of any current broadband access solution. However, fiber optic cable is very expensive to deploy and may exceed the data transmission needs of many subscribers. Currently, to add capacity, these land line networks require right of way access and a labor intensive process of physically laying wires or cables in order to connect consumers to the network backbone. As a result of the difficulties in deploying additional wires or cables, increased demand for communication access may create a "last mile bottleneck" between subscribers and the backbone of these land line networks. 23 27 FIXED ACCESS BROADBAND WIRELESS TECHNOLOGY IS EMERGING AS A COST EFFECTIVE ALTERNATIVE TO BROADBAND LAND LINE TRANSMISSION. New fixed access broadband wireless technology can provide quality of service comparable to the best land line network alternatives at speeds that are significantly faster than conventional copper wire-based networks. Fixed access broadband wireless technology is designed to be integrated with the existing network backbone to address the last mile bottleneck problem. In addition, certain types of fixed access broadband wireless technology provide an alternative for selective network backbone applications. Broadband wireless systems include point-to- point, point-to-multipoint and satellite-to-multipoint broadband technologies, which are illustrated and described below: [BROADBAND WIRELESS DIAGRAM] - Point-to-point wireless. Point-to-point wireless systems generally have data transmission rates of up to 155 Mbps. While point-to-point systems have traditionally been deployed for high capacity trunking applications between two wireless telephony networks, recently they have been used to interconnect digital cellular networks. Point-to-point wireless networks can also provide a last mile connection for large communications end users, such as large office buildings, hospitals and universities. - Point-to-multipoint wireless. Point-to-multipoint wireless systems generally have data transmission rates of up to 500 Mbps. Point-to-multipoint wireless systems use a single central hub radio to serve multiple end users. Point-to-multipoint wireless systems have additional advantages over point-to-point wireless systems. These include reduced equipment costs as the addition of new customers requires only new customer premises equipment, as well as allocation of bandwidth based on demand, so customers only pay for what they use. As a result, point-to-multipoint systems can provide cost effective last mile access to customers that do not have as much traffic as point-to-point customers. - Satellite-to-multipoint wireless. The current generation of satellite-based multipoint systems are implemented with networks using very small aperture terminals, or VSATs. These networks are deployed for a wide range of business data applications such as point-of-sale transactions and inventory management. Recently, VSAT networks have been adapted for cost effective use in rural telephony applications, primarily in countries that do not have fully developed land line telephone networks. Recent advances in satellite digital processing and component and device technology, based on a newly licensed frequency spectrum called the Ka band, are being used in the development of broadband satellite networks such as Teledesic and Hughes Spaceway. These next generation satellite networks are designed to provide broadband access to residential and business users for applications such as high speed Internet access, videoconferencing and other data rich applications. 24 28 FREQUENCY ALLOCATIONS BY THE FCC AND INTERNATIONAL AGENCIES MAY LEAD TO WIRELESS INFRASTRUCTURE EXPANSION. In response to the increasing demand for wireless communications services, regulatory bodies like the FCC and other international agencies continue to allocate new frequency spectrum. For example, the FCC has recently licensed several frequency bands, including bands for local multipoint distribution systems, or LMDS, and multichannel multipoint distribution systems, or MMDS, for two-way broadband wireless data services. The FCC has also adopted orders to allocate additional spectrum through auctions during 2000 which can be used by high speed data transmission service providers. It is anticipated that these frequencies could be used to deliver fixed wireless Internet access to business and residential customers. To take advantage of these licenses, network operators must deploy new infrastructures specific to the licensed frequency band. Each frequency band requires unique transmission equipment designed to work with the technical requirements of the particular band. Thus, as additional frequencies are allocated by regulatory agencies around the world, wireless infrastructure equipment must be deployed to commercialize these licenses. WIRELESS INFRASTRUCTURE OEMS RELY ON SUBSYSTEM PROVIDERS. In order to meet the demand for mobile wireless and fixed access broadband wireless services, service providers are turning to systems integrators or OEMs to build out infrastructure quickly, efficiently and in accordance with exacting performance specifications. In addition, OEMs are looking to outsource the design and manufacture of highly integrated, reliable subsystems in a cost effective manner. This permits OEMs to accelerate their time to market and allows them to leverage their core competencies of full system design and integration. By outsourcing subsystems, OEMs promote competition among developers and manufacturers, which leads to technological innovations in wireless infrastructure equipment. Concurrently, OEMs are seeking to select a core group of subsystem and component providers in order to reduce the supply and management risks associated with the currently fragmented supplier base. THE REMEC SOLUTION We are a leading designer and manufacturer of high frequency subsystems and integrated components used in the transmission of voice, video and data traffic over wireless communications networks and in defense applications. We market our products to OEMs of wireless communications networks and network services providers as well as to prime contractors in the defense industry. We believe that our core competencies enable us to effectively address the existing and emerging opportunities in the wireless communications infrastructure equipment and defense markets. These core competencies include the following: INTEGRATION EXPERTISE. We design high performance subsystems over a broad range of RF, microwave and millimeter frequencies, which require sophisticated component integration. By effectively integrating a number of required microwave functions into a single package, we are able to: - improve performance and reduce cost through reduction in product size and parts count; - enhance performance through optimal partitioning and implementation of functional elements; and - reduce cost by minimizing "over engineering" through avoiding the use of higher performance, more costly components than are necessary in order to compensate for performance degradation resulting from inefficiencies due to combining stand alone components that are not designed to be integrated into one system. 25 29 CONCURRENT ENGINEERING. We streamline and optimize the product development cycle by employing "concurrent engineering," which includes the following elements: - joint participation with our customers at the conceptual design stage, allowing us to suggest an architecture/design that reduces cost and increases performance at the integrated subsystem level; - participation by our suppliers in the design process, thereby optimizing material and device selections; and - consideration of manufacturing constraints and limitations while developing a product design in order to expedite the implementation of the manufacturing process. VERTICAL INTEGRATION OF DESIGN AND MANUFACTURING. Vertical integration of design and manufacturing reduces product time to market and unit costs. With vertical integration, we retain control of each step of the design and manufacturing process while minimizing the use of outside sources and subcontractors for key manufacturing processes and services. This vertical integration also improves quality control, reliability and our ability to implement volume production. We have enhanced our vertical integration capability with recent acquisitions. These acquisitions include a surface mount board assembly manufacturer, as well as several microwave component companies that provide key functional capabilities to be used in the design of our integrated subsystems. BROAD FREQUENCY RANGE. Our technologies support the range of frequencies utilized for mobile wireless and broadband wireless applications. Our microwave technology expertise covers the full range of the frequency spectrum used for existing wireless communications. Many of our subsystem competitors only address select frequency bands in the subsystems they design, which makes them vulnerable to technological advances in products that use frequency bands they do not address. By being able to design and manufacture products across the breadth of the wireless communications market, we can better address our customers' needs and capitalize on our overall design and manufacturing capabilities. STRATEGY Our objective is to build on the strength of our core competencies to be the supplier of choice of OEMs in the wireless infrastructure equipment industry and prime contractors in the defense electronics industry. Our strategy includes the following key elements: LEVERAGE TECHNOLOGY LEADERSHIP. Through seventeen years of leadership in high frequency applications in the defense and commercial industries, we believe that we have one of the most advanced portfolios of products encompassing RF, microwave and millimeter wave technologies. The skills that we developed in the defense industry and honed in the commercial wireless market have enabled us to develop solutions to achieve substantial reductions in the size and cost of wireless infrastructure equipment. We intend to continue to integrate additional functions into smaller packaging with fewer parts while meeting the reliability and performance specifications of next generation wireless infrastructure equipment. CONTINUE TO DEVELOP STRONG STRATEGIC ALLIANCES WITH CUSTOMERS. By forming lasting customer relationships through working closely with customers, we are better able to develop insight into their system requirements and to design specific products that meet their needs. We intend to continue to expand our key customer alliances with leading infrastructure OEMs, such as Motorola, Digital Microwave and Nokia, as well as working with emerging wireless equipment suppliers, such as SpectraPoint. In addition, we intend to expand our participation in significant defense programs with key prime contractors, such as Raytheon, Northrop Grumman and Lockheed Martin. We will concentrate our efforts on the commercial customers we believe will be the most successful in selling their systems to service providers that require high volume production. 26 30 SUPPLY INTEGRATED MICROWAVE SUBSYSTEMS TO OEMS' WORLDWIDE OPERATIONS AND EXPAND OUR INTERNATIONAL PRESENCE. Historically, we have been primarily a supplier to the domestic operations of OEMs. Some of these and other OEMs also have a significant global presence, including operations in Europe and Asia. There is an opportunity to become the supplier for these OEMs in all of their global markets. We believe that we are one of only a few microwave subsystem companies that have the breadth of expertise in wireless communications technology necessary to service these OEMs' worldwide operations. In addition to servicing OEMs' worldwide operations, with our acquisition of United Kingdom-based Airtech, we intend to increase our operations in Europe, initially focusing on the mobile wireless market. We also intend to expand our existing sales offices in Kuala Lumpur, Malaysia and Beijing, China to increase our sales and distribution capabilities in Asia. Additional international activities may include entering into strategic partner relationships with local marketing or manufacturing companies in Asia. SUPPLY NICHE PRODUCTS DIRECTLY TO NETWORK SERVICE PROVIDERS. We intend to expand our marketing efforts to sell certain niche mobile wireless products directly to network service providers. Although we do not intend to enter into direct competition with our OEM customers, there are several niche microwave transmission products that are not being marketed aggressively by OEMs, including base station tower top products and mobile wireless coverage enhancement products. We intend to expand our efforts to market these products to network service providers when we can do so without competing directly with our OEM customers. ENHANCE HIGH VOLUME MANUFACTURING CAPABILITY. We intend to continue to implement process manufacturing automation and believe that our ability to develop a high level of automated product alignment and test capability will help us to further improve our cost effectiveness and time to market. We also intend to expand our foreign manufacturing operations, particularly in Costa Rica, when appropriate, in order to lower our costs or to access an available workforce. In addition, we intend to offer our manufacturing services to OEMs and subsystem and component developers or manufacturers who need high volume manufacturing of their own products either because of capacity constraints or lack of manufacturing expertise. PURSUE STRATEGIC ACQUISITIONS. We intend to continue to augment our existing technology base by acquiring specialized technology companies that complement our product offerings and market strategies. We believe that expansion of our core competencies through the acquisition of such specialized technology companies, when combined with our technological and manufacturing skills, will allow us to achieve improved levels of integration. PRODUCTS Virtually every wireless system contains a microwave transport subsystem that performs the function of transforming modulated voice, data or video from an intermediate frequency, or IF, signal into a microwave frequency signal for transmitting or converting an incoming signal from microwave frequencies back into an IF modulated voice, data or video signal. A microwave transport subsystems may consist of a completely integrated unit or of several interconnected modules and single function components. MOBILE WIRELESS PRODUCTS. In this market, we sell multi-function microwave modules, including delay filter assemblies, filter/low noise amplifier assemblies and filter panel assemblies. We also supply components, including filters, amplifiers, voltage controlled oscillators, or VCOs, and mixers that are used by OEMs in base station infrastructure equipment. In addition, we also sell directly to service providers complete microwave subsystems for network coverage enhancement applications, including tower mounted amplifiers and tower mounted boosters. These products eliminate the cables between the radio at the bottom of the base station and the antenna at the top of the base station by filtering and amplifying the transmit/receive signals at the base station tower top. These tower top 27 31 base stations may extend coverage by up to 30% to 40%. As fully integrated microwave "front ends," these products provide the circuitry of the radio that enables signals to be transmitted and received at microwave frequencies and that can be used as the front end of low power transceiver units. Active antenna and remote RF head products that allow IF, RF, microwave or fiber optic backhaul are currently being developed to provide levels of integration similar to that of the fixed wireless access and broadband satellite access products. To address the niche but high growth in-building coverage market, we have also developed in-building coverage products, including repeaters, bi-directional amplifiers, multicarrier combiners/amplifiers and fiber optic distribution modules. Our selling prices for mobile wireless subsystems and components range from approximately $20 to $3,500. POINT-TO-POINT BROADBAND WIRELESS PRODUCTS. We develop and supply high (OC-3) and medium (T1 to 8T1) capacity point-to-point wireless transport equipment deployed by network operators for backhaul of a variety of communications traffic. Our products are utilized in systems that provide a cost effective approach to data transport where land line access to T1 lines or fiber optic cable is not deployed or otherwise unavailable. For this market, we manufacture microwave transport subsystems, including radios, outdoor units, or ODUs, as well as individual microwave modules, including antennas, diplexers, transceivers, synthesizers and power supplies, that provide microwave transport functionality. As the market has become more horizontally segmented, there has been a significant trend towards outsourcing the entire ODU, which allows our OEM customers to focus on system engineering and network software. Using our broad microwave engineering capabilities, we have been able to supply complete microwave transport subsystems, which aids our customers in achieving their cost reduction and time to market objectives. Our selling prices for point-to-point broadband wireless subsystems and components range from approximately $80 to $10,000. POINT-TO-MULTIPOINT BROADBAND WIRELESS PRODUCTS. For this market, we manufacture microwave transport subsystems, such as radios, customer premise equipment and coverage enhancement products, as well as the individual microwave modules that provide the microwave transport functionality. These modules include antennas, diplexers, transceivers, synthesizers and power supplies. Network systems integrators in this market typically outsource the entire radio and, in many cases, the entire customer premises equipment. This outsourcing allows these integrators to focus on their core competencies of system engineering and network architecture. Our network service provider customers in this market typically require specialized solutions to network-wide functional needs. An example is our coverage enhancement product used in LMDS to solve line-of-sight obstructions between base stations and potential customer sites, which frequently impair transmission performance of our customers' LMDS networks. Our selling prices for point-to-point multipoint subsystems and components range from approximately $300 to $5,000. SATELLITE-TO-MULTIPOINT BROADBAND PRODUCTS. Like the point-to-point and point-to-multipoint markets, we have focused our VSAT and broadband satellite business on ODU and customer premises equipment. We also provide microwave modules such as power amplifiers to ODU integrators. Our satellite-to-multipoint subsystems and components sell for less than $1,000. DEFENSE PRODUCTS. We focus our efforts in the defense electronics industry on providing communication systems, subsystems and integrated components to defense programs which we believe have the highest probability of follow-on production. Our products are integrated into various defense tactical aircraft, satellites, missile systems and smart weapons comprise the majority of the platforms of our customers. The systems, subsystems and integrated components are comprised of specialized combinations of components that perform a variety of microwave functions, including filters, couplers, power dividers, switches, amplifiers, VCOs, mixers and multipliers, among others. Defense industry 28 32 programs for which we provide communication systems, subsystems and integrated components include the following: - the F-22 Stealth Tactical Fighter Aircraft program for the U.S. Air Force; - the Integrated Defensive Electronic Countermeasure System (IDECM) for the U.S. Navy; - the Advanced Medium Range Air to Air Missile (AMRAAM) program for the U.S. Air Force; - the Longbow Missile and Radar programs for the U.S. Army; and - the Standard Missile for the U.S. Navy. Our selling prices for defense subsystems and components range from approximately $100 to $200,000. CUSTOMERS We sell our commercial wireless communications products primarily to OEMs, that in turn integrate our products into wireless infrastructure equipment solutions sold to network service providers. In addition, we also sell certain niche products directly to network service providers. Our customers for commercial wireless subsystems include the following: - Motorola - General Instrument - Alcatel - P-COM - SpectraPoint - - Digital Microwave - - Nokia - - Lucent Technologies - - STM Wireless - - Nortel Networks We also sell our wireless communications equipment to the major U.S. defense prime contractors for integration into larger systems. Our customers for defense communications equipment include the following: - Raytheon - ITT Industries - TRW - - Northrop Grumman - - Lockheed Martin - - Boeing SALES AND MARKETING We use a team-based sales approach to facilitate close management of relationships at multiple levels of a customer's organization, including management, engineering and purchasing personnel. Our integrated sales approach involves a team consisting of a senior executive, a business development specialist, members of our engineering department and, occasionally, a local technical sales representative. In particular, the use of experienced engineering personnel as part of the sales effort enables close technical collaboration with the customer during the design and qualification phase of new communications equipment which, we believe, is critical to the integration of our products into our customers' equipment. Our executive officers are also involved in all aspects of our relationships with our major customers and work closely with their senior management. To identify sales opportunities, we primarily utilize a direct sales force that is supplemented by a group of manufacturer sales representatives. We are rapidly expanding our international sales presence with direct sales offices in Europe and Asia. Sales to customers residing outside of the U.S. represented 15%, 13% and 18% of net sales in fiscal years ended January 31, 1998, 1999 and 2000, respectively. Our international sales do not include products sold to foreign end users by our domestic customers. 29 33 PRODUCT AND MANUFACTURING GROUPS Our business is divided among three major product-based groups, the Broadband Wireless Group, the Integrated RF Solutions Group and the Defense Products Group, as well as a fourth group named the Manufacturing Group. The Broadband Wireless Group develops and manufactures fixed access wireless communications infrastructure equipment integrated into wireless networks for high speed voice, video, data and internet services. These services may be offered by communications services providers to business and residential customers through various distribution systems, including local multipoint distribution systems, or LMDS, multichannel multipoint distribution systems, or MMDS, and satellite systems. Subsidiaries within this group include REMEC Magnum, REMEC Wireless, REMEC Nanowave and REMEC CSH. The products produced by members of this group include high capacity point-to-point and point-to-multipoint radios, system enhancing microwave repeaters and low cost satellite ground systems. The Integrated RF Solutions Group develops and manufactures highly integrated RF products that improve the performance and cost effectiveness of mobile wireless communications infrastructure equipment. The subsidiaries within this group include REMEC Airtech, REMEC Wacom and REMEC Q-bit. The products produced by this group are provided to worldwide OEMs and service providers and include masthead amplifiers, boosters, high power and low noise amplifiers, as well as integrated filtering and combining systems. The Defense Products Group provides a broad spectrum of RF, microwave and guidance products for systems integrated by prime contractors in military and space applications. This group currently consists of REMEC Microwave and Humphrey, with defense products also being produced by REMEC Magnum, REMEC Nanowave and REMEC Q-bit. The Defense Group products range from critical components and integrated modules to advanced integrated microwave assemblies for radar, missiles, electronic warfare and communication/navigation systems. The Manufacturing Group provides high volume production of microwave products, including test and critical hybrid circuits, to the other product groups. Subsidiaries or divisions within this group include REMEC Veritek, a microwave adept automated surface mount assembly facility, REMEC Metal Fabrication Center, a sophisticated metal fabrication design and volume production facility, and REMEC Costa Rica and an affiliated maquiladora operation in Mexico, both of which have high volume manufacturing facilities. Members of the product groups also have manufacturing facilities. MANUFACTURING With the precise specifications required by our customers, we believe that process expertise and discipline are key elements of successful high volume production of wireless subsystems. We assemble, test, package and ship products at our manufacturing facilities located in the following cities: - San Diego, Poway, Escondido, San Jose, Santa Clara and Milpitas, California; - West Palm Bay, Florida; - Waco, Texas; - Toronto, Canada; - San Jose, Costa Rica; - Tijuana, Mexico; and - Aylesbury, United Kingdom. Since inception, we have been manufacturing products for defense programs in compliance with the stringent MIL-Q-9858 specifications. We received ISO-9001 certification from the Defense Electronics Supply Center for our facilities at Microwave. Other REMEC facilities that are ISO-9001 qualified include Wireless, Humphrey, Q-bit, and Airtech. In addition, facilities at Veritek and REMEC Costa Rica facilities are ISO-9002 qualified. ISO-9001 and ISO-9002 are standards 30 34 established by the International Organization for Standardization that provide a methodology by which manufacturers can obtain quality certification. To assure the highest product quality and reliability and to maximize control over the complete manufacturing cycle and costs, we seek to achieve vertical integration in the manufacturing process wherever appropriate. Historically, the volume of our production requirements in the defense markets was not sufficient to justify the widespread implementation of automated manufacturing processes. As a result of expected growth in our commercial wireless business, we are significantly increasing our manufacturing capacity. Accordingly, we have introduced automated manufacturing techniques for product assembly and testing and anticipate significant capital expenditures for this purpose in the future. We attempt to utilize standard parts and components that are available from multiple vendors. However, certain components used in our products are currently available only from single sources, and other components are available from only a limited number of sources. Despite the risks associated with purchasing components from single sources or from a limited number of sources, we have made the strategic decision to select single source or limited source suppliers in order to obtain lower pricing, receive more timely delivery and maintain quality control. In 1997, we acquired Veritek which provides surface mount capabilities and expertise. We also rely on contract manufacturers for circuit board assembly. We generally order components and circuit boards from our suppliers and contract manufacturers by purchase order on an as needed basis. COMPETITION The markets for our products are extremely competitive and are characterized by rapid technological change, new product development, product obsolescence and evolving industry standards. In addition, price competition is intense, and the market prices and margins of our products may decline if competitors begin making similar products. We face some competition from component manufacturers who have integration capabilities, but we believe that our primary competition is from the captive manufacturing operations of large wireless communications OEMs, including all of the major telecommunications equipment providers, and defense prime contractors. We believe that our future success depends largely upon the extent to which these OEMs and defense prime contractors elect to purchase subsystems and integrated components from outside sources such as us. OEMs and defense prime contractors could develop greater internal capabilities and manufacture these products exclusively in-house, rather than outsourcing them, which would have a negative impact on our sales. RESEARCH AND DEVELOPMENT Our core competencies, including our emphasis on concurrent engineering, rely heavily on our research and development capabilities. These capabilities, including our breadth of engineering skills, have allowed us to develop products that operate at the full range of existing frequencies used in commercial wireless communications. Research and development expenses for the fiscal years ended January 31, 1998, 1999 and 2000 were approximately $7.9 million, $10.9 million and $14.0 million, respectively. We expect that as our commercial business expands, research and development expenses will increase in amount and as a percentage of sales. Our research and development efforts in the defense industry are conducted in direct response to the unique requirements of a customer's order and, accordingly, are included in cost of sales and the related funding in net sales. We believe that to remain competitive in the future we will need to invest significant financial resources in research and development. GOVERNMENT REGULATIONS Our products are incorporated into commercial wireless communications systems that are subject to regulation domestically by the FCC and internationally by other government agencies. Although typically the equipment operators and not us are responsible for compliance with these regulations, 31 35 regulatory changes, including changes in the allocation of available frequency spectrum, could negatively affect our business by restricting development efforts by our customers, making current products obsolete or increasing the opportunity for additional competition. In addition, the increasing demand for wireless telecommunications has exerted pressure on regulatory bodies worldwide to adopt new standards for these products, generally following extensive investigation of and deliberation over competing technologies. The delays inherent in this governmental approval process have in the past caused and may in the future cause the cancellation, postponement or rescheduling of the installation of communications systems by our customers. We are also subject to a variety of local, state, federal and foreign governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture our products. The failure to comply with current or future regulations could result in the imposition of substantial fines on us, suspension of production, alteration of our manufacturing processes or cessation of operations. Because of our participation in the defense industry, we are subject to audit from time to time for our compliance with government regulations by various agencies, including the Defense Contract Audit Agency, the Defense Investigative Service, the Office of Federal Control Compliance Programs and the Office of Defense Supply Center. These and other governmental agencies may also, from time to time, conduct inquiries or investigations that may cover a broad range of our business activity. Responding to any governmental audits, inquiries or investigations may involve significant expense and divert management attention. Also, an adverse finding in any such audit, inquiry or investigation could involve penalties. We believe that we operate our business in material compliance with applicable government regulations. INTELLECTUAL PROPERTY We do not presently hold any patents on our significant products. In order to protect our intellectual property rights, we rely on a combination of trade secrets, copyrights and trademarks and employee and third party nondisclosure agreements. We also limit access to and distribution of proprietary information. The steps that we have taken to protect our intellectual property rights may not be adequate to prevent misappropriation of our technology or to preclude competitors from independently developing similar technology. Furthermore, in the future, third parties may assert infringement claims against us or with respect to our products. As to some of our products, we have agreed to indemnify our customers against possible claims by third parties that the products infringe their intellectual property rights. Asserting our rights or defending against third party claims could involve substantial costs and diversion of resources. If a third party was successful in a claim that one of our products infringed the third party's proprietary rights, we may have to pay substantial royalties or damages or remove that product from the marketplace. We might also have to expend substantial financial and engineering resources in order to modify the product so that it would no longer infringe on those proprietary rights. LITIGATION On April 19, 1999, a class action lawsuit was filed against us, some of our officers and directors and the investment banking firms who served as the representatives of the underwriters of our public offering completed in February 1998. The three investment banking firms named in that lawsuit are representatives of the underwriters of this offering. The lawsuit was filed by the law firm Milberg Weiss Bershad Hynes and Lerach and its colleagues in the United States District Court for the Southern District of California as counsel for Charles Vezzetti and all others similarly situated. The lawsuit alleges violations of the Securities Exchange Act of 1934 by us and the other defendants 32 36 between December 1, 1997 and June 12, 1998. Specifically, the complaint alleges that we made falsely positive statements which artificially inflated the price of our stock prior to a secondary offering completed in February 1998 in which REMEC and some of our officers and directors sold stock, and that our stock price fell on a series of adverse disclosures in late May and early June 1998. The complaint in the lawsuit does not specify an amount of claimed damages. Since the lawsuit was filed, the underwriters have been dismissed without prejudice. We believe that the lawsuit is without merit, and we have been defending against it vigorously through a motion to dismiss and otherwise. In addition, we believe the ultimate resolution will not have a material adverse impact on our business or financial condition. However, if the plaintiffs are successful in pursuing their claims against us and our officers and directors, such a result could have a significant negative impact on our business and financial condition. EMPLOYEES As of January 31, 2000, we had a total of 2,388 employees, including 1,622 in manufacturing and operations, 305 in research, development and engineering, 140 in quality assurance, 59 in sales and marketing and 262 in administration and material procurement. We believe our future performance will depend in large part on our ability to attract and retain highly skilled employees. None of our employees is represented by a labor union, and we have not experienced any work stoppage. We consider our employee relations to be good. FACILITIES Our principal administrative, engineering and manufacturing facilities are located in ten buildings aggregating approximately 262,000 square feet in the Southern California area. Our Southern California operations consist of five facilities owned by us and five leased facilities located in San Diego, Escondido and Poway, California. The leases of these facilities expire on various dates beginning in June 2000 through February 2010. Our Northern California operations are located in four leased buildings aggregating approximately 80,000 square feet in San Jose, Milpitas, Burlingame and Santa Clara, California. These leases expire on various dates between in November 2000 and October 2004. Q-bit owns a 51,000 square foot building located in West Palm Bay, Florida. REMEC S.A. owns a 50,000 square foot building located in San Jose, Costa Rica. Nanowave leases approximately 25,000 square feet in three buildings located in Toronto, Canada, under leases that expire in September 2001. WACOM owns a 31,000 square foot building located in Waco, Texas. Airtech owns a 33,000 square foot building located in Aylesbury, England. We believe that our existing facilities are adequate to meet our current needs and that suitable additional or alternative space will be available on commercially reasonable terms as needed. 33 37 MANAGEMENT OFFICERS AND DIRECTORS Our executive officers and directors, and their ages as of January 31, 2000, are as follows:
NAME AGE POSITION - ---- --- -------- Ronald E. Ragland(1).... 58 Chairman of the Board and Chief Executive Officer Errol Ekaireb........... 61 President, Chief Operating Officer and Director Jack A. Giles........... 57 Executive Vice President, President Defense Group and REMEC Microwave and Director Joseph T. Lee........... 45 Executive Vice President, Chief Strategic Officer and Director James Mongillo.......... 61 Executive Vice President and President Broadband Wireless Group and REMEC Magnum Nicholas J.S. Randall... 48 Executive Vice President, President Integrated RF Solutions Group and Executive Chairman REMEC Europe plc and REMEC Airtech Ltd. Denny E. Morgan......... 46 Senior Vice President, Chief Engineer and Director Tao Chow................ 48 Senior Vice President and President REMEC CSH Michael D. McDonald..... 46 Senior Vice President, Chief Financial Officer and Secretary H. Clark Hickock........ 44 Senior Vice President, Business Operations Jon E. Opalski.......... 37 Senior Vice President, General Manager Integrated RF Solutions Group and Managing Director REMEC Airtech Jerry B. Collum......... 62 Senior Vice President and President Metal Fab Center Justin Miller........... 50 Vice President and President REMEC Canada and REMEC Nanowave Thomas A. 55 Director Corcoran(1)(2)........ Mark D. Dankberg(3)..... 44 Director William H. 56 Director Gibbs(1)(2)........... Andre R. Horn(3)........ 71 Director Jeffrey M. Nash(2)(3)... 52 Director
- ------------------------- (1) Member of the Nominating Committee (2) Member of the Compensation Committee (3) Member of the Audit Committee RONALD E. RAGLAND was a founder of REMEC and has served as our Chairman of the Board and Chief Executive Officer since January 1983. Prior to founding REMEC, he was General Manager of KW Engineering and held program management positions with Ford Aerospace Communications Corp., E-Systems, Inc. and United Telecommunications, Inc. Mr. Ragland was a Captain in the United States Army and holds a B.S.E.E. degree from Missouri University at Rolla and an M.S.E.E. degree from St. Louis University. ERROL EKAIREB has served as President and Chief Operating Officer of REMEC since 1990 and as a director since 1985. Mr. Ekaireb served as Vice President of REMEC from 1984 to 1987 and as Executive Vice President and Chief Operating Officer from 1987 to 1990. Prior to joining us, he spent 23 years with Ford Aerospace Communications Corp. Mr. Ekaireb holds B.S.E.E. and B.S.M.E. degrees from West Coast University and has completed the University of California, Los Angeles Executive Program. JACK A. GILES joined REMEC in 1984. He was elected as a director in 1984, Vice President in 1985, Executive Vice President in 1987, President of REMEC Microwave in 1994 and President Defense Group in 1999. Prior to joining us, he spent approximately 19 years with Texas Instruments in program management and marketing. Mr. Giles holds a B.S.M.E. degree from the University of Arkansas and is a graduate of Defense Systems Management College. 34 38 JOSEPH T. LEE has been a director and Executive Vice President of REMEC since the completion of our acquisition of Magnum in September 1996. He served as President of our Northern California Operations from December 1997 until he was elected Chief Strategic Officer in September, 1999. Prior to our acquisition of Magnum, he was Chairman of the Board, President and Chief Executive Officer of Magnum. Mr. Lee holds a B.S.E.E. degree from the University of Michigan and M.S.E.E. and ENGINEER degrees from Stanford University. JAMES MONGILLO joined REMEC as a Senior Vice President in February 1997, following the completion of our acquisition of Radian Technology. In June 1999, Mr. Mongillo was elected Executive Vice President and named President of the REMEC Wireless Broadband Group. Mr. Mongillo also serves as President of REMEC Magnum. Prior to the acquisition of Radian Technology, he was the Chairman of the Board, President and Chief Executive Officer of Radian. Mr. Mongillo holds a B.S.E.E. degree from Brown University. NICHOLAS J.S. RANDALL joined REMEC as Executive Vice President, President Integrated RF Solutions Group and Executive Chairman of REMEC Europe plc and REMEC Airtech Ltd. in April 1999, following the completion of our acquisition of Airtech. Prior to the acquisition, Mr. Randall served as Executive Chairman of Airtech from the time he purchased the original Airtech business in 1998. From 1980 to 1988, he served as Managing Director of Oxford Technology Ltd., a start up operation within Oxford Instruments Group. From 1977 to 1980, he was an Operations Director for EMI Medical, Inc., and prior to that he worked for Perkins Elmer, Inc. for ten years. Mr. Randall holds a Higher National Diploma in mechanical engineering from High Wycombe College in England and an M.B.A. from the University of Connecticut. DENNY E. MORGAN was a founder of REMEC and has served as Senior Vice President, Chief Engineer and a director of REMEC since January 1983. Prior to joining us, he worked with KW Engineering, Micromega, General Dynamics Corporation and Pacific Aerosystems, Inc. Mr. Morgan holds a B.S.E.E. degree from the Massachusetts Institute of Technology and was the Four Year Chancellor's Intern Fellowship Recipient at the University of California, Los Angeles. TAO CHOW has served as the President and a director of REMEC CSH and Senior Vice President of REMEC since the completion of our acquisition of C&S Hybrid in July 1997. Mr. Chow was a founder of C&S Hybrid and served as its President and as a director from September 1984 until its acquisition by us. Mr. Chow has also served as a director and the President and Chief Financial officer of Custom Micro Machining, Inc. since 1990, and as a director of Applied Thin-Film Products since April 1995. Mr. Chow holds a B.S.E.E. degree from National Chiao-Tung University in Taiwan and a M.S.E.E. degree from the University of California, Los Angeles. MICHAEL D. MCDONALD was appointed Senior Vice President, Chief Financial Officer and Secretary in December 1997. Prior to our acquisition of Magnum, he had been Vice President and Chief Financial Officer of Magnum. Prior to joining Magnum in 1984, he worked at Watkins-Johnson Company. Mr. McDonald holds a B.S. degree from the University of San Francisco and an M.B.A. degree from California Polytechnic State University at San Luis Obispo. H. CLARK HICKOCK has served as Senior Vice President, Business Operations since 1998 and Vice President, Business Operations since 1994. Mr. Hickock is also currently serving as Acting Vice President, Human Resources. Prior to joining REMEC, he was with E-Systems Garland Division for 16 years. Mr. Hickock holds a B.A. in Economics and Finance from the University of Texas. JON E. OPALSKI has served in a variety of positions with REMEC since 1984. He was elected Senior Vice President, General Manager Integrated RF Solutions Group and Managing Director, REMEC Airtech in August 1999, and prior to that Mr. Opalski served as Senior Vice President, Marketing and Strategic Planning and President, General Manager, REMEC Wireless. He holds a B.S.E.E. from Massachusetts Institute of Technology. 35 39 JERRY B. COLLUM has served in a variety of positions with REMEC since July 1984. He was elected Senior Vice President and President, Metal Fab Center in December 1999, and prior to that he served as Vice President and General Manager Operations Support Division. From February 1968 to July 1984, Mr. Collum was employed by Texas Instruments. Mr. Collum holds a B.S. in mechanical engineering from Lamar University. JUSTIN MILLER has served as President and director of REMEC Nanowave and REMEC Canada and Vice President of REMEC since October 1997. Prior to our Nanowave acquisition, he was a founder of Nanowave and served as its President and a director since 1992. Prior to that, he served as Vice President - Engineering of Microwave Technologies, a division of Lucas Industries plc. Dr. Miller holds a Ph.D. from the University of Warwick. THOMAS A. CORCORAN was elected a director of REMEC in May 1996. Mr. Corcoran has been the President and Chief Executive Officer of Allegheny Technologies Incorporated since October 1999. Prior to that, Mr. Corcoran was a Vice President and the President and Chief Operating Officer of the Space and Strategic Missiles sector of Lockheed Martin Corporation from October 1998 to September 1999. From March 1995 to September 1998, he was the President and Chief Operating Officer of the Electronics sector of Lockheed Martin. From 1993 to 1995 Mr. Corcoran was President of the Electronics Group of Martin Marietta Corporation, and from 1983 to 1993 he held various management positions with the Aerospace segment of General Electric Company. Mr. Corcoran is Chairman of the Board of Teledyne Technologies, Inc., and a director of Allegheny Technologies and L-3 Communications Holdings, Inc. Mr. Corcoran is a member of the Board of Trustees of Worcester Polytechnic Institute, the Board of Trustees of Stevens Institute of Technology and the Board of Governors of the Electronic Industries Association. MARK D. DANKBERG joined REMEC as a director in September, 1999. Mr. Dankberg was a founder of, and has served as Chairman of the Board, President and Chief Executive Officer of ViaSat, Inc. since its inception in May 1986. Mr. Dankberg also serves as a director of Connected Systems, a privately held company that develops and manufacturers digital voice messaging systems. Prior to founding ViaSat, he was Assistant Vice President of M/A-COM Linkabit, a manufacturer of satellite telecommunications equipment, from 1979 to 1986 and Communications Engineer for Rockwell International from 1977 to 1979. Mr. Dankberg holds B.S.E.E. and M.E.E. degrees from Rice University. WILLIAM H. GIBBS was elected a director of REMEC in May 1996. Mr. Gibbs was the President and Chief Executive Office of DH Technology, Inc. from November 1985 to January 1998 and was Chairman Board of Directors of DH Technology, Inc. from March 1987 through October 1997. From August 1983 to November 1985, he held various positions, including those of President and Chief Operating Officer, with Computer and Communications Technology, a supplier of rigid disc magnetic recording heads to the peripheral equipment segment of the computer industry. ANDRE R. HORN has been a director of REMEC since 1988. Mr. Horn is the retired Chairman of the Board of Joy Manufacturing Company. From 1985 to 1991, Mr. Horn served as the Chairman of the Board of Needham & Company, Inc., which is serving as one of the representatives of the underwriters in the offering made by this prospectus. He currently holds the honorary position of Chairman Emeritus of Needham & Company, Inc. Mr. Horn is a director of Western Digital Corporation, a computer equipment manufacturer, and Varco International, Inc., a manufacturer of petroleum industry equipment. JEFFREY M. NASH has been a director of REMEC since 1988. From 1995 to 1998, he was the President, Chief Executive Officer and a Director of TransTech Information Management Systems, Inc. Since 1994, Dr. Nash has been Chairman, Chief Executive Officer and President of Digital Perceptions, Inc., and, from 1989 to 1994, he was the Chief Executive Officer and President of Visqus as well as Conner Technology, Inc., both subsidiaries of Conner Peripherals, Inc. Dr. Nash is currently a director of ViaSat, Inc., a manufacturer of satellite communication equipment, and several private companies, including Prisa Networks, Orincon Corporation, StoragePont.Com and Tiernan Communications Inc. 36 40 BOARD ELECTION AND COMMITTEES Members of our Board of Directors are each elected for one year terms at the annual shareholders meeting. Officers are elected at the first Board of Directors meeting following the shareholders meeting at which directors are elected and serve at the discretion of the Board of Directors. The Board of Directors has a standing Compensation Committee, Audit Committee and Nominating Committee. The Compensation Committee provides recommendations to the Board concerning salaries and incentive compensation for our officers and approves equity grants to our officers. The Audit Committee recommends our independent auditors and reviews the results of and scope of audits and other accounting-related services provided by our auditors. The Nominating Committee reviews potential candidates for service on the Board. 37 41 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of our common stock as of January 31, 2000 and as adjusted to reflect the sale of the shares offered by this prospectus, by: (i) each of our directors and each named executive officer listed in the compensation section of our proxy statement; (ii) all directors and executive officers as a group; (iii) each person who is known by us to own beneficially more than 5% of our common stock; and (iv) the selling shareholders. The percentage of ownership prior to offering for each shareholder is based on 25,430,458 shares of common stock outstanding as of January 31, 2000, together with applicable options for such shareholders. Applicable percentage of ownership after offering for each shareholder is based on 28,930,458 shares of common stock, including shares sold in this offering and assuming exercise of the underwriter's over-allotment option, together with applicable options for such shareholders. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and includes voting and investment power with respect to the shares. Shares of common stock subject to outstanding options are deemed outstanding for computing the percentage of ownership of the person holding such options, but are not deemed outstanding for computing the percentage ownership of any other person. Except pursuant to applicable community property laws or as indicated in the footnotes to the table, to our knowledge, each shareholder identified in the table possesses sole voting and investment power with respect to all shares of common stock shown as beneficially owned by the shareholder. The shares offered by each selling shareholder other than Mr. Lee will only be offered if the underwriters exercise the over-allotment option. The number of shares to be sold by each selling shareholder other than Mr. Lee assumes that the underwriters exercise the over-allotment in full. If the underwriters do not exercise the over-allotment option in full, the number of shares to be sold by each selling shareholder other than Mr. Lee will be cut back proportionately based on the aggregate number of shares proposed to be sold by the shareholder.
SHARES BENEFICIALLY OWNED AFTER SHARES BENEFICIALLY OFFERING ASSUMING OWNED PRIOR TO EXERCISE OF THE OVER- OFFERING ALLOTMENT OPTION ------------------- NUMBER OF --------------------- NUMBER PERCENT SHARES OFFERED NUMBER PERCENT --------- ------- -------------- ---------- -------- State of Wisconsin Investment Board(1)........... 1,992,000 7.83% -- 1,992,000 6.76% Ronald E. Ragland(2)............................. 1,037,544 4.05 163,144 874,400 3.00 Tao Chow(3)...................................... 649,410 2.55 102,113 547,297 1.89 Nicholas J.S. Randall............................ 489,061 1.92 76,900 412,161 1.42 Joseph T. Lee(4)................................. 404,547 1.59 250,000 154,547 * Denny E. Morgan(5)............................... 351,968 1.38 35,000 316,968 1.09 Jack A. Giles(6)................................. 252,121 * 39,644 212,477 * Jerry B. Collum(7)............................... 210,132 * 33,041 177,091 * James Mongillo(8)................................ 202,031 * 31,767 170,264 * Errol Ekaireb(9)................................. 185,550 * 29,176 156,374 * Justin Miller(10)................................ 167,825 * -- 167,825 * Jon E. Opalski(11)............................... 102,541 * 16,124 86,417 * Michael D. McDonald(12).......................... 85,050 * -- 85,050 * H. Clark Hickock(13)............................. 47,402 * 7,454 39,948 * Jeffrey M. Nash(14).............................. 46,536 * 7,317 39,948 * Thomas A. Corcoran(15)........................... 32,580 * 5,123 27,457 * William H. Gibbs(16)............................. 29,330 * -- 29,330 * Andre R. Horn(17)................................ 24,586 * 3,866 20,720 * Mark D. Dankberg(18)............................. 2,589 * -- 2,589 * All directors and executive officers as a group (18 persons)(19)............................... 4,320,964 16.57 800,669 3,520,295 11.90 Keith Butler(20)................................. 36,149 * 5,684 30,465 * Harold Kries(21)................................. 29,611 * 2,200 27,411 * David Schmitz(22)................................ 25,103 * 3,947 21,156 *
- ------------------------- * Less than one percent of the outstanding shares of common stock. Footnotes continue on following page. 38 42 (1) Based on a Schedule 13G filed with the SEC on February 2, 2000. This shareholder's address is 121 East Wilson Street, Madison, Wisconsin 53707. (2) Includes 23,400 shares held by Mr. Ragland's minor children, 3,750 shares held by Mr. Ragland's spouse and 197,400 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (3) Includes 616,560 shares held in the Tao Chow & Ying Chow Trust and the Chow Charitable Trust and 32,850 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (4) Includes 69,250 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (5) Includes 42,000 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. All other shares beneficially owned by Mr. Morgan are held in the Morgan Family Trust, of which Mr. Morgan and his spouse act as co-trustees. (6) Includes 11,625 shares held by Mr. Giles' spouse and 28,750 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (7) Includes 19,862 shares held by Mr. Collum's spouse and 18,120 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (8) Includes 11,850 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. All other shares beneficially owned by Mr. Mongillo are held in the Mongillo Family Trust. (9) Includes 10,000 shares held by Mr. Ekaireb's spouse and 68,500 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (10) Includes 137,183 shares issuable upon conversion of dividend access shares of REMEC Canada, our subsidiary and 28,560 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (11) Includes 2,511 shares held by Mr. Opalski's spouse and 29,875 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (12) Includes 20,010 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (13) Includes 19,875 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (14) Includes 31,956 shares held in the Jeffrey A. Nash and Kathleen A. Nash Declaration of Trust and 14,580 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (15) Includes 24,330 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (16) Includes 24,330 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (17) Includes 14,580 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (18) Includes 2,589 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (19) Includes 647,449 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000. (20) Includes 8,670 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000; Keith Butler is President of REMEC Veritek, Inc. (21) Includes 11,650 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000; Harold Kries is President of Humphrey, Inc. (22) Includes 12,250 shares issuable upon exercise of outstanding options that are exercisable on or before April 1, 2000; David Schmitz is President of REMEC Q-bit, Inc. 39 43 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the underwriters named below, for whom Needham & Company, Inc., CIBC World Markets Corp., Dain Rauscher Incorporated and A.G. Edwards & Sons, Inc. are acting as representatives, have severally agreed to purchase an aggregate of 3,750,000 shares of common stock from us and the selling shareholder at the public offering price less the underwriting discount set forth on the cover page of this prospectus, in the amounts set forth opposite their names below. We are selling 3,500,000 shares and the selling shareholder is selling 250,000 shares.
NAME NUMBER OF SHARES - ---- ---------------- Needham & Company, Inc................................ CIBC World Markets Corp............................... Dain Rauscher Incorporated............................ A.G. Edwards & Sons, Inc. ............................ --------- Total............................................ 3,750,000 =========
The Underwriting Agreement provides that the obligations of the underwriters are subject to specified conditions precedent and that the underwriters will purchase all shares of common stock offered by this prospectus if any of those shares are purchased. The representatives have advised us that the underwriters propose to offer the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus, and to various securities dealers at a price less a concession of not more than $ per share. The underwriters may allow, and those dealers may reallow, a concession of not more than $ per share to various other dealers. After the shares of common stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the underwriters. No change in those terms shall change the amount of the proceeds we will receive, as set forth on the cover page of this prospectus. The common stock is listed on the Nasdaq National Market. The selling shareholders have granted to the underwriters an option, exercisable within 30 days after the date of this prospectus, to purchase up to 562,500 additional shares of common stock at the public offering price less the underwriting discount set forth on the cover page of this prospectus. The underwriters may exercise the option solely to cover over-allotments, if any, made in connection with the sale of common stock offered by this prospectus. To the extent that the underwriters exercise the over-allotment option, each underwriter will be committed, subject to specified conditions, to purchase a number of additional shares of common stock which is proportionate to that underwriter's initial commitment as set forth in the table above. Our executive officers and directors have agreed that, during the period beginning from the date of this prospectus and continuing to and including the date 90 days after the date of this prospectus, without the prior written consent of Needham & Company, Inc., they will not sell, contract to sell, or otherwise dispose of any shares of common stock, options to acquire common stock or securities exchangeable for or convertible into common stock, except for the shares of common stock offered in connection with this offering. We have agreed, with certain limited exceptions, not to offer, sell, contract to sell, grant any option to purchase, transfer or otherwise dispose of, any shares of common stock for a period of 90 days after the date of this prospectus. 40 44 The representatives have informed us that they do not expect sales to accounts over which the underwriters exercise discretionary authority to exceed 5% of the total number of shares of common stock offered by them. We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments that the underwriters may be required to make in respect thereof. In connection with the offering, various underwriters and selling group members and their respective affiliates may engage in transactions that stabilize, maintain or otherwise affect the market price of the common stock. Those transactions may include stabilization transactions effected in accordance with the Securities Exchange Act of 1934 pursuant to which such persons may bid for or purchase common stock for the purpose of stabilizing its market price. The underwriters also may create a short position for the account of the underwriters by selling more common stock in connection with the offering than they are committed to purchase from us, and in such case may purchase common stock in the open market following completion of the offering to cover all or a portion of those shares of common stock or may exercise the underwriters' over-allotment option referred to above. In addition, the representatives, on behalf of the underwriters, may impose "penalty bids" under the contractual arrangements with the underwriters whereby the representatives may reclaim from an underwriter (or dealer participating in the offering), for the account of other underwriters, the selling concession with respect to common stock that is distributed in the offering but subsequently purchased for the account of the underwriters in stabilization or syndicate covering transactions or otherwise. Any of these activities may stabilize or maintain the market price of the common stock at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph is required, and if they are undertaken, they may be discontinued at any time. The following table summarizes the compensation we and the selling shareholders will pay to the underwriters:
TOTAL WITHOUT TOTAL WITH PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT --------- -------------- -------------- Underwriting discounts and commissions we will pay............................................ $ $ $ Underwriting discounts and commissions the selling shareholders will pay..................
Underwriting discounts and commissions are calculated on a percentage basis of the offering price equal to %. Expenses of the offering, exclusive of underwriting discounts and commissions, include the SEC filing fee, the NASD filing fee, the Nasdaq National Market application fee, printing expenses, legal fees and expenses, accounting fees and expenses, blue sky fees and expenses, transfer agent and register fees and other miscellaneous fees. We will pay all of the expenses of the offering, estimated to be $400,000, other than underwriting discounts and commissions to be paid by the selling shareholders with respect to the shares sold by them. 41 45 LEGAL MATTERS The validity of our common stock offered by this prospectus will be passed upon for us by Heller Ehrman White & McAuliffe LLP, Los Angeles, California. Certain legal matters relating to the offering will be passed upon for the underwriters by Gray Cary Ware & Freidenrich LLP, San Diego, California. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements and schedule for the years ended January 31, 2000, 1999 and 1998, included in our Annual Report on Form 10-K which is incorporated by reference in reliance on Ernst & Young LLP's report (which, as to the years ended January 31, 1999 and 1998, is based in part on the report of Arthur Andersen, independent auditors, given on their authority as experts in accounting and auditing). WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. Our filings are available to the public over the Internet at the SEC's web site at "http://www.sec.gov." You can read and copy any document that we file with the SEC at the following SEC public reference facilities: Public Reference Room New York Regional Office Chicago Regional Office 450 Fifth Street, N.W. 7 World Trade Center Citicorp Center Room 1024 Suite 1300 500 West Madison Street Washington, D.C. 20549 New York, NY 10048 Suite 1400 Chicago, IL 60661
You can also obtain copies of the documents at prescribed rates by writing to the SEC's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call 1-800-SEC-0330 for further information on the operation of the SEC's public reference facilities. You also can inspect copies of our filings at The Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C. 20006. The SEC allows us to "incorporate by reference" into this prospectus the information we file with the SEC. This means that we can disclose important information to you by referring you to those documents. Information incorporated by reference is part of this prospectus. Information that we later file with the SEC will automatically update and supersede this information. We incorporate by reference our Annual Report on Form 10-K for the year ended January 31, 2000, the description of our common stock contained in our Registration Statement on Form 8-A, filed with the Commission on December 13, 1995 and any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this offering is completed. You may request a copy of these filings, at no cost, by contacting us in writing or by telephone or email at the following address: REMEC, Inc. 9404 Chesapeake Drive San Diego, California 92123 (858) 560-1301 email: marketing@remec.com This prospectus is part of a registration statement that we filed with the SEC. This prospectus does not contain all of the information included in the registration statement. We have omitted certain parts of the registration statement in accordance with the rules and regulations of the SEC. For further information, we refer you to the registration statement, including its exhibits and schedules. 42 46 REMEC LOGO 47 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. REMEC will pay all expenses incident to the offering and sale to the public of the shares being registered other than any commissions and discounts of underwriters, dealers or agents and any transfer taxes. Such expenses are set forth in the following table. All of the amounts shown are estimates except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq National Market Additional Listing Fee.
REMEC -------- SEC registration fee........................................ $ 36,933 NASD filing fee............................................. 14,490 Nasdaq National Market Additional Listing fee............... 17,500 Blue Sky qualification fees and expenses.................... 8,000 Transfer Agent and Registrar fees........................... 5,000 Printing and Engraving...................................... 90,000 Legal fees and expenses..................................... 150,000 Accounting fees and expenses................................ 50,000 Miscellaneous expenses...................................... 28,077 -------- Total............................................. $400,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The registrant has the power to indemnify its officers and directors against liability for certain acts pursuant to Section 317 of the General Corporation Law of California. Article Fifth of the registrant's Amended and Restated Articles of Incorporation provides as follows: "Fifth: This Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to this Corporation and its shareholders through bylaw provisions, or through agreements with the agents, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the Code." In addition, Article V of the registrant's Bylaws provides that the registrant shall indemnify its directors and executive officers to the fullest extent not prohibited by California General Corporation Law and provides for the advancement of expenses upon a receipt of an undertaking to repay such amounts if the person is determined ultimately not to be entitled to indemnification. The registrant has entered into Indemnification Agreements with its officers and directors. II-1 48 ITEM 16. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 Form of Underwriting Agreement. 5.1 Opinion of Heller Ehrman White & McAuliffe LLP. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2 Consent of Arthur Andersen, Independent Auditors. 23.6 Consent of Counsel (included in Exhibit 5.1). 24.1 Power of Attorney (included on page II-4 of initial filing of this Registration Statement).
ITEM 17. UNDERTAKINGS. A. FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. B. UNDERTAKING IN RESPECT OF INDEMNIFICATION. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. C. UNDERTAKING IN RESPECT OF RULE 430A. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 49 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, REMEC, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on March 17, 2000. REMEC, INC. By: /s/ RONALD E. RAGLAND ------------------------------------ Ronald E. Ragland Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE - --------- -------- ---- /s/ RONALD E. RAGLAND Chairman of the Board and March 17, 2000 - --------------------------------------------------- Chief Executive Officer Ronald E. Ragland (Principal Executive Officer) * President, Chief Operating March 17, 2000 - --------------------------------------------------- Officer and Director Errol Ekaireb * Executive Vice President, March 17, 2000 - --------------------------------------------------- President of REMEC Jack A. Giles Microwave, Inc. and Director * Senior Vice President, Chief March 17, 2000 - --------------------------------------------------- Engineer and Director Denny Morgan * Executive Vice President and March 17, 2000 - --------------------------------------------------- Director Joseph T. Lee /s/ MICHAEL MCDONALD Senior Vice President, Chief March 17, 2000 - --------------------------------------------------- Financial Officer and Michael McDonald Secretary (Principal Financial and Accounting Officer) * Director March 17, 2000 - --------------------------------------------------- Mark D. Dankberg
II-3 50
SIGNATURE CAPACITY DATE - --------- -------- ---- * Director March 17, 2000 - --------------------------------------------------- Thomas A. Corcoran * Director March 17, 2000 - --------------------------------------------------- William H. Gibbs * Director March 17, 2000 - --------------------------------------------------- Andre R. Horn * Director March 17, 2000 - --------------------------------------------------- Jeffrey M. Nash * By: /s/ RONALD E. RAGLAND --------------------------------------------- Ronald E. Ragland Attorney-in-Fact
II-4 51 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 Form of Underwriting Agreement. 5.1 Opinion of Heller Ehrman White & McAuliffe LLP. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2 Consent of Arthur Andersen, Independent Auditors. 23.6 Consent of Counsel (included in Exhibit 5.1). 24.1 Power of Attorney (included on page II-4 of initial filing of this Registration Statement).
EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 3,750,000 Shares* REMEC, Inc. Common Stock UNDERWRITING AGREEMENT March ______, 2000 NEEDHAM & COMPANY, INC. CIBC World Markets Corp. Dain Rauschler Incorporated A.G. Edwards & Sons, Inc. As Representatives of the several Underwriters c/o Needham & Company, Inc. 445 Park Avenue New York, New York 10022 Ladies and Gentlemen: REMEC, Inc., a California corporation (the "Company"), proposes to issue and sell 3,500,000 shares (the "Company Firm Shares") of the Company's Common Stock, $.0.01 par value per share (the "Common Stock"), and one of the shareholders of the Company named in Schedule II hereto (the "Selling Shareholders") propose to sell an aggregate of 250,000 shares (the "Selling Shareholder Firm Shares") of Common Stock, in each case to you and to the several other Underwriters named in Schedule I hereto (collectively, the "Underwriters"), for whom you are acting as representatives (the "Representatives"). The remaining Selling Shareholders have agreed to grant to you and the other Underwriters an option (the "Option") to purchase up to an additional 562,500 shares of Common Stock, on the terms and for the purposes set forth in Section 1(b) (the "Option Shares"). The Company Firm Shares and the Selling Shareholder Firm Shares are referred to collectively herein as the "Firm Shares," and the Firm Shares and the Option Shares are referred to collectively herein as the "Shares." The Company and each of the Selling Shareholders confirm as follows their respective agreements with the Representatives and the several other Underwriters. 1. Agreement to Sell and Purchase. (a) On the basis of the representations, warranties and agreements of the Company and the Selling Shareholders herein contained and subject to all the terms and conditions of this Agreement, (i) the Company agrees to issue and sell the Company Firm Shares to the several Underwriters, (ii) the Selling Shareholder agrees to sell to the several Underwriters the number of Selling Shareholder Firm Shares set forth opposite that Selling Shareholders's name on Schedule II hereto and (iii) each of the Underwriters, severally and not jointly, agrees to purchase from the Company and the Selling Shareholders the respective number of Firm Shares set forth opposite that Underwriter's name in Schedule I hereto, at the purchase price of $____ for each Firm Share. The number of Firm Shares to be purchased by each Underwriter from the Company and the Selling Shareholder shall be as nearly as practicable in the same proportion to the total number of Firm Shares being sold by the Company and the Selling Shareholder as the number of Firm Shares being purchased by each Underwriter bears to the total number of Firm Shares to be sold hereunder. - -------- * Plus an option to purchase up to an additional 562,500 shares to cover over-allotments. 2 (b) Subject to all the terms and conditions of this Agreement, the Selling Shareholders grant the Option to the several Underwriters to purchase, severally and not jointly, up to the maximum number of Option Shares set forth in Schedule II hereto at the same price per share as the Underwriters shall pay for the Firm Shares. The Option may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters and may be exercised in whole or in part at any time (but not more than once) on or before the 30th day after the date of this Agreement upon written or telegraphic notice (the "Option Shares Notice") by the Representatives to the Selling Shareholders no later than 12:00 noon, New York City time, at least two and no more than five business days before the date specified for closing in the Option Shares Notice (the "Option Closing Date"), setting forth the aggregate number of Option Shares to be purchased and the time and date for such purchase. On the Option Closing Date, the Selling Shareholders will sell to the Underwriters the number of Option Shares set forth in the Option Shares Notice, and each Underwriter will purchase such percentage of the Option Shares as is equal to the percentage of Firm Shares that such Underwriter is purchasing, as adjusted by the Representatives in such manner as they deem advisable to avoid fractional shares. 2. Delivery and Payment. Delivery of the Firm Shares shall be made to the Representatives for the accounts of the Underwriters against payment of the purchase price by certified or official bank checks or by wire transfers payable in same-day funds to the order of the Company for the Company Firm Shares to be sold by it and to ChaseMellon Shareholder Services LLC, as custodian for the Selling Shareholder (the "Custodian") for the Selling Shareholder Firm Shares to be sold by the Selling Shareholder at the office of Needham & Company, Inc., 445 Park Avenue, New York, New York 10022, at 10:00 a.m., New York City time, on the third (or, if the purchase price set forth in Section 1(b) hereof is determined after 4:30 p.m., Washington D.C. time, the fourth) business day following the commencement of the offering contemplated by this Agreement, or at such time on such other date, not later than seven business days after the date of this Agreement, as may be agreed upon by the Company and the Representatives (such date is hereinafter referred to as the "Closing Date"). To the extent the Option is exercised, delivery of the Option Shares against payment by the Underwriters (in the manner specified above) will take place at the offices specified above for the Closing Date at the time and date (which may be the Closing Date) specified in the Option Shares Notice. Certificates evidencing the Shares shall be in definitive form and shall be registered in such names and in such denominations as the Representatives shall request at least two business days prior to the Closing Date or the Option Closing Date, as the case may be, by written notice to the Company. For the purpose of expediting the checking and packaging of certificates for the Shares, the Company agrees to make such certificates available for inspection at least 24 hours prior to the Closing Date or the Option Closing Date, as the case may be. The cost of original issue tax stamps, if any, in connection with the issuance and delivery of the Firm Shares and Option Shares by the Company and the Selling Shareholders to the respective Underwriters shall be borne by the Company. The Company and the Selling Shareholders will pay and save each Underwriter and any subsequent holder of the Shares harmless from any and all liabilities with respect to or resulting from any failure or delay in paying Federal and state stamp and other transfer taxes, if any, which may be payable or determined to be payable in connection with the original issuance or sale to such Underwriter of the Shares. 3. Representations and Warranties of the Company. The Company represents, warrants and covenants to each Underwriter that: (a) The Company meets the requirements for use of Form S-3 relating to the Shares, including a preliminary prospectus and such amendments to such registration statement as may have been required to the date of this Agreement, has been prepared by the Company under the provisions of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (collectively referred to as the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, and has been filed with the Commission. The term "preliminary prospectus" as used herein means a preliminary prospectus, including the documents incorporated by reference therein, as contemplated by Rule 430 or Rule 430A of the Rules and Regulations included at any time as part of the registration statement. Copies of such registration statement and amendments and of each related preliminary prospectus have been delivered to the Representatives. If such registration statement has not become effective, a further amendment to such registration statement, including a form of final prospectus, necessary to permit such registration statement to become effective will be filed promptly by the Company with the 2 3 Commission. If such registration statement has become effective, a final prospectus containing information permitted to be omitted at the time of effectiveness by Rule 430A of the Rules and Regulations will be filed promptly by the Company with the Commission in accordance with Rule 424(b) of the Rules and Regulations. The term "Registration Statement" means the registration statement as amended at the time it becomes or became effective (the "Effective Date"), including all documents incorporated by reference therein, financial statements and all exhibits and any information deemed to be included by Rule 430A and includes any registration statement relating to the offering contemplated by this Agreement and filed pursuant to Rule 462(b) of the Rules and Regulations. The term "Prospectus" means the prospectus, including the documents incorporated by reference therein, as first filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no such filing is required, the form of final prospectus, including the documents incorporated by reference therein, included in the Registration Statement at the Effective Date. Any reference herein to the terms "amend," "amendment" or "supplement" with respect to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include the filing of any document under the Securities Exchange Act of 1934, as amended (the "Exchange Act") after the Effective Date, the date of any preliminary prospectus or the date of the Prospectus, as the case may be, and deemed to be incorporated therein by reference. (b) To the Company's knowledge after reasonable inquiry no order preventing or suspending the use of any preliminary prospectus has been issued by the Commission. On the Effective Date, the date the Prospectus is first filed with the Commission pursuant to Rule 424(b) (if required), at all times subsequent to and including the Closing Date and, if later, the Option Closing Date and when any post-effective amendment to the Registration Statement becomes effective or any amendment or supplement to the Prospectus is filed with the Commission, the Registration Statement and the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment or supplement thereto), including the financial statements included in the Prospectus, did and will comply with all applicable provisions of the Act, the Exchange Act, the rules and regulations under the Exchange Act (the "Exchange Act Rules and Regulations"), and the Rules and Regulations and will contain all statements required to be stated therein in accordance with the Act, the Exchange Act, the Exchange Act Rules and Regulations, and the Rules and Regulations. On the Effective Date and when any post-effective amendment to the Registration Statement becomes effective, no part of the Registration Statement, the Prospectus or any such amendment or supplement did or will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. At the Effective Date, the date the Prospectus or any amendment or supplement to the Prospectus is filed with the Commission and at the Closing Date and, if later, the Option Closing Date, the Prospectus did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing representations and warranties in this Section 3(b) do not apply to any statements or omissions made in reliance on and in conformity with information relating to any Underwriter furnished in writing to the Company by the Representatives specifically for inclusion in the Registration Statement or Prospectus or any amendment or supplement thereto. The Company acknowledges that the statements set forth under the heading "Underwriting" in the Prospectus constitute the only information relating to any Underwriter furnished in writing to the Company by the Representatives specifically for inclusion in the Registration Statement. (c) The documents that are incorporated by reference in the preliminary prospectus and the Prospectus or from which information is so incorporated by reference, when they became or become effective or were or are filed with the Commission, as the case may be, complied or will comply in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the Rules and Regulations or the Exchange Act Rules and Regulations, as applicable; and any documents so filed and incorporated by reference subsequent to the Effective Date shall, when they are filed with the Commission, comply in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the Rules and Regulations or the Exchange Act Rules and Regulations, as applicable. (d) The Company does not own, and at the Closing Date and, if later, the Option Closing Date, will not own, directly or indirectly, any shares of stock or any other equity or long-term debt securities of any corporation or have any equity interest in any corporation, firm, partnership, joint venture, association or other entity, other than the subsidiaries listed on schedule III to this agreement (the "Subsidiaries"). The Company and each of its Subsidiaries is, and at the Closing Date and, if later, the Option Closing Date, will be, a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company 3 4 and each of its Subsidiaries has, and at the Closing Date and, if later, the Option Closing Date, will have, full power and authority to conduct all the activities conducted by it, to own or lease all the assets owned or leased by it and to conduct its business as described in the Registration Statement and the Prospectus. The Company and each of its Subsidiaries is, and at the Closing Date and, if later, the Option Closing Date, will be, duly licensed or qualified to do business and in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted by it or the character of the assets owned or leased by it makes such license or qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not materially and adversely affect the Company or its business, properties, business prospects, condition (financial or other) or results of operations. All of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable, and owned by the Company free and clear of all claims, liens, charges and encumbrances; there are no securities outstanding that are convertible into or exercisable or exchangeable for capital stock of any Subsidiary. The Company is not, and at the Closing Date and, if later, the Option Closing Date, will not be, engaged in any discussions or a party to any agreement or understanding, written or oral, regarding the acquisition of an interest in any corporation, firm, partnership, joint venture, association or other entity where such discussions, agreements or understandings would require amendment to the Registration Statement pursuant to applicable securities laws. Complete and correct copies of the certificate of incorporation and of the by-laws of the Company and each of its Subsidiaries and all amendments thereto have been delivered to the Representatives, and no changes therein will be made subsequent to the date hereof and prior to the Closing Date or, if later, the Option Closing Date. (e) All of the outstanding shares of capital stock of the Company (including the Selling Shareholder Firm Shares and the Option Shares to be sold by the Selling Shareholder under this Agreement) have been duly authorized, validly issued and are fully paid and nonassessable and were issued in compliance with all applicable state and federal securities laws; the Company Firm Shares have been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully paid and nonassessable; no preemptive or similar rights exist with respect to any of the Shares or the issue and sale thereof. Except as set forth in the Prospectus, the Company does not have outstanding, and at the Closing Date and, if later, the Option Closing Date, will not have outstanding, any options to purchase, or any rights or warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell, any shares of capital stock, or any such warrants, convertible securities or obligations. No further approval or authority of shareholders or the Board of Directors of the Company will be required for the transfer and sale of the Selling Shareholder Shares or the issuance and sale of the Company Firm Shares as contemplated herein. (f) The financial statements and schedules included or incorporated by reference in the Registration Statement or the Prospectus present fairly the financial condition of the Company and its consolidated Subsidiaries as of the respective dates thereof and the results of operations and cash flows of the Company and its consolidated Subsidiaries for the respective periods covered thereby, all in conformity with generally accepted accounting principles applied on a consistent basis throughout the entire period involved, except as otherwise disclosed in the Prospectus. No other financial statements or schedules of the Company are required by the Act, the Exchange Act, the Exchange Act Rules and Regulations or the Rules and Regulations to be included in the Registration Statement or the Prospectus. Ernst & Young LLP (the "Accountants"), who have reported on such financial statements and schedules, are independent accountants with respect to the Company as required by the Act and the Rules and Regulations. The summary consolidated financial and statistical data included in the Registration Statement present fairly the information shown therein and have been compiled on a basis consistent with the financial statements presented therein. (g) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus and prior to the Closing Date and, if later, the Option Closing Date, except as set forth in or contemplated by the Registration Statement and the Prospectus, (i) there has not been and will not have been any change in the capitalization of the Company (other than in connection with the exercise of options to purchase the Company's Common Stock granted pursuant to the Company's stock option plans from the shares reserved therefor as described in the Registration Statement), or any material adverse change in the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries, arising for any reason whatsoever, (ii) neither the Company nor any of its Subsidiaries has incurred nor will it any of them incur, except in the ordinary course of business as described in the Prospectus, any material liabilities or obligations, direct or contingent, nor has the Company or any of its Subsidiaries entered into nor will it 4 5 enter into, except in the ordinary course of business as described in the Prospectus, any material transactions other than pursuant to this Agreement and the transactions referred to herein and (iii) the Company has not and will not have paid or declared any dividends or other distributions of any kind on any class of its capital stock. (h) The Company is not, will not become as a result of the transactions contemplated hereby, and does not intend to conduct its business in a manner that would cause it to become, an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. (i) Except as set forth in the Registration Statement and the Prospectus, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company, and its Subsidiaries or any of their officers in their capacity as such, nor any basis therefor, before or by any Federal or state court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, wherein an unfavorable ruling, decision or finding might materially and adversely affect the Company, any of its Subsidiaries or the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries. (j) The Company and each Subsidiary has, and at the Closing Date and, if later, the Option Closing Date, will have, performed all the obligations required to be performed by it, and is not, and at the Closing Date, and, if later, the Option Closing Date, will not be, in default, under any contract or other instrument to which it is a party or by which its property is bound or affected, which default might reasonably be expected to materially and adversely affect the Company or the business, properties, business prospects, condition (financial or other) or results of operations of the Company or any of its Subsidiaries considered as a whole. To the knowledge of the Company, no other party under any contract or other instrument to which it or any of its Subsidiaries is a party is in default in any respect thereunder, which default might reasonably be expected to materially and adversely affect the Company, any of its Subsidiaries considered as a whole, or the business, properties, business prospects, condition (financial or other) or results of operations of the Company or any of its Subsidiaries considered as a whole. Neither the Company nor any of its Subsidiaries is, and at the Closing Date and, if later, the Option Closing Date, will be, in violation of any provision of its certificate or articles of organization or by-laws or other organizational documents. (k) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required for the consummation by the Company of the transactions on its part contemplated herein, except such as have been obtained under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the by-laws and rules of the National Association of Securities Dealers, Inc. (the "NASD") in connection with the purchase and distribution by the Underwriters of the Shares. (l) The Company has full corporate power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with the terms hereof except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the enforcement of creditors' rights, and general principles of equity. The performance of this Agreement and the consummation of the transactions contemplated hereby will not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company pursuant to the terms or provisions of, or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give any party a right to terminate any of its obligations under, or result in the acceleration of any obligation under, the certificate or articles of incorporation or by-laws of the Company or any of its Subsidiaries, any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company, any of its Subsidiaries or any of their properties is bound or affected, or violate or conflict with any judgment, ruling, decree, order, statute, rule or regulation of any court or other governmental agency or body applicable to the business or properties of the Company or any of its Subsidiaries considered as a whole. (m) The Company or one of its Subsidiaries has good and marketable title to all properties and assets described in the Prospectus as owned by them, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Prospectus or are not material to the business of the Company or its 5 6 Subsidiaries. The Company or its Subsidiaries has valid, subsisting and enforceable leases for the properties described in the Prospectus as leased by them. The Company or one of its Subsidiaries owns or leases all such properties as are necessary to its operations as now conducted or as proposed to be conducted, except where the failure to so own or lease would not materially and adversely affect the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or its Subsidiaries considered as a whole. (n) There is no document or contract of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. All such contracts to which the Company is a party have been duly authorized, executed and delivered by the Company or such Subsidiary, constitute valid and binding agreements of the Company or such Subsidiary and are enforceable against and by the Company or such Subsidiary in accordance with the terms thereof except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the enforcement of creditors' rights, and general principles of equity. (o) No statement, representation, warranty or covenant made by the Company in this Agreement or made in any certificate or document required by Section 6 of this Agreement to be delivered to the Representatives was or will be, when made, inaccurate, untrue or incorrect in any material respect. (p) Neither the Company nor any of its directors, officers or controlling persons has taken, directly or indirectly, any action designed, or which might reasonably be expected, to cause or result, under the Act or otherwise, in, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (q) No holder of securities of the Company has rights to the registration of any securities of the Company because of the filing of the Registration Statement, which rights have not been waived by the holder thereof as of the date hereof. (r) The Company has filed a registration statement pursuant to Section 12(g) of the Exchange Act of 1934, as amended (the "Exchange Act"), to register the Common Stock, has filed an application to list the Shares to be sold by the Company hereunder on the Nasdaq National Market ("NNM"), and has received notification that the listing has been approved, subject to notice of issuance of such Shares. The Shares to be sold by the Selling Shareholder hereunder are listed on the NNM. (s) Except as disclosed in or specifically contemplated by the Prospectus, (i) the Company and its Subsidiaries have sufficient trademarks, trade names, patent rights, mask works, copyrights, licenses, approvals and governmental authorizations to conduct their businesses as now conducted, (ii) the Company has no knowledge of any infringement by it or any of its Subsidiaries of trademarks, trade name rights, patent rights, mask work rights, copyrights, licenses, trade secrets or other similar rights of others, where such infringement could have a material and adverse effect on the Company, any of its Subsidiaries or the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries and (iii) there is no claim being made against the Company or any of its Subsidiaries, or to the best of the Company's knowledge, any employee of the Company or any of its Subsidiaries, regarding trademark, trade name, patent, mask work, copyright, license, trade secret or other infringement which could have a material and adverse effect on the Company, any of its Subsidiaries or the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries considered as a whole. (t) The Company and each of its Subsidiaries has filed all federal, state, local and foreign income tax returns which have been required to be filed and has paid all taxes and assessments received by it to the extent that such taxes or assessments have become due. Neither the Company nor any of its Subsidiaries has any tax deficiency which has been or, to the best knowledge of the Company, might be asserted or threatened against it which could have a material and adverse effect on the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or its Subsidiaries considered as a whole. (u) The pro forma financial information set forth in the Registration Statement reflects, subject to the limitations set forth in the Registration Statement as to such pro forma financial information, the results of operations of the Company and its consolidated Subsidiaries purported to be shown thereby for the periods 6 7 indicated and conforms to the requirements of Regulation S-X of the Rules and Regulations and management of the Company believes (i) the assumptions underlying the pro forma adjustments are reasonable, (ii) that such adjustments have been properly applied to the historical amounts in the compilation of such statements, and (iii) that such statements present fairly, with respect to the Company and its consolidated Subsidiaries, the pro forma financial position and results of operations and the other information purported to be shown therein at the respective dates or for the respective periods therein specified. (v) The Company or its Subsidiaries owns or possesses all authorizations, approvals, orders, licenses, registrations, other certificates and permits of and from all governmental regulatory officials and bodies, necessary to conduct their respective businesses as contemplated in the Prospectus, except where the failure to own or possess all such authorizations, approvals, orders, licenses, registrations, other certificates and permits would not materially and adversely affect the Company, any of its Subsidiaries or the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries considered as a whole. There is no proceeding pending or threatened (or any basis therefor known to the Company) which may cause any such authorization, approval, order, license, registration, certificate or permit to be revoked, withdrawn, cancelled, suspended or not renewed; and the Company and each of its Subsidiaries is conducting its business in compliance with all laws, rules and regulations applicable thereto (including, without limitation, all applicable federal, state and local environmental laws and regulations) except where such noncompliance would not materially and adversely affect the Company, any of its Subsidiaries or the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries considered as a whole. (w) The Company and each of its Subsidiaries maintains insurance of the types and in the amounts generally deemed adequate for its business, including, but not limited to, insurance covering real and personal property owned or leased by the Company and its Subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. (x) Neither the Company nor any of its Subsidiaries has nor, to the best of the Company's knowledge, any of its or their respective employees or agents at any time during the last five years (i) made any unlawful contribution to any candidate for foreign office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. 4. Representations, Warranties and Covenants of the Selling Shareholders. Each Selling Shareholder, severally and not jointly, represents, warrants and covenants to each Underwriter that: (a) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Shareholder of this Agreement and the Power-of-Attorney and Custody Agreement (hereinafter referred to as a "Shareholders' Agreement") hereinafter referred to, and for the sale and delivery of the Selling Shareholder Shares to be sold by such Selling Shareholder hereunder, have been obtained; and such Selling Shareholder has full right, power and authority to enter into this Agreement and the Stockholders' Agreement, to make the representations, warranties and agreements hereunder and thereunder, and to sell, assign, transfer and deliver the Shares to be sold by such Selling Shareholder hereunder. (b) Certificates in negotiable form representing all of the Selling Shareholder Shares to be sold by such Selling Shareholder have been placed in custody under the Stockholders' Agreement, in the form heretofore furnished to you, duly executed and delivered by such Selling Shareholder to the Custodian, and such Selling Shareholder has duly executed and delivered a power-of-attorney, in the form heretofore furnished to you and included in the Stockholders' Agreement (the "Power-of-Attorney"), appointing Ronald Ragland, Errol Ekaireb and Michael McDonald as such Selling Shareholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to execute and deliver this Agreement on behalf of such Selling Shareholder, to determine (subject to the provisions of the Shareholders' Agreement) the purchase price to be paid by the Underwriters to the Selling Shareholders as provided in Section 2 hereof, to authorize the delivery of the Selling Shareholder Shares to be sold by such Selling Shareholder hereunder and otherwise to act on behalf of such Selling Shareholder in connection with the transactions contemplated by this Agreement and the Stockholders' Agreement. 7 8 (c) Such Selling Shareholder specifically agrees that the Selling Shareholder Shares represented by the certificates held in custody for such Selling Shareholder under the Stockholders' Agreement are for the benefit of and coupled with and subject to the interests of the Underwriters, the Custodian, the Attorneys-in-Fact, each other Selling Shareholder and the Company, that the arrangements made by such Selling Shareholder for such custody, and the appointment by such Selling Shareholder of the Attorneys-in-Fact by the Power-of-Attorney, are to that extent irrevocable, and that the obligations of such Selling Shareholder hereunder shall not be terminated by operation of law, whether by the death, disability, incapacity, liquidation or dissolution of any Selling Shareholder or by the occurrence of any other event. If any individual Selling Shareholder or any executor or trustee for a Selling Shareholder should die or become incapacitated, or if any Selling Shareholder that is an estate or trust should be terminated, or if any Selling Shareholder that is a partnership or corporation should be dissolved, or if any other such event should occur, before the delivery of the Selling Shareholder Firm Shares hereunder, certificates representing the Selling Shareholder Firm Shares shall be delivered by or on behalf of the Selling Shareholders in accordance with the terms and conditions of this Agreement and of the Stockholders' Agreement, and actions taken by the Attorneys-in-Fact pursuant to the Powers-of-Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event. (d) This Agreement and the Stockholders' Agreement have each been duly authorized, executed and delivered by such Selling Shareholder and each such document constitutes a valid and binding obligation of such Selling Shareholder, enforceable in accordance with its terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the enforcement of creditors' rights, and general principles of equity. (e) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required in connection with the sale of the Selling Shareholder Shares by such Selling Shareholder or the consummation by such Selling Shareholder of the transactions on its part contemplated by this Agreement and the Stockholders' Agreement, except such as have been obtained under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the by-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Shares to be sold by such Selling Shareholder. (f) The sale of the Selling Shareholder Shares to be sold by such Selling Shareholder hereunder and the performance by such Selling Shareholder of this Agreement and the Stockholders' Agreement and the consummation of the transactions contemplated hereby and thereby will not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of such Selling Shareholder pursuant to the terms or provisions of, or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give any party a right to terminate any of its obligations under, or result in the acceleration of any obligation under, any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract or other agreement or instrument to which such Selling Shareholder is a party or by which such Selling Shareholder or any of its properties is bound or affected, or violate or conflict with any judgment, ruling, decree, order, statute, rule or regulation of any court or other governmental agency or body applicable to such Selling Shareholder or, if such Selling Shareholder is a corporation, partnership or other entity, the organizational documents of such Selling Shareholder. (g) Such Selling Shareholder has, and at the Closing Date and, if later, the Option Closing Date, will have, good and marketable title to the Selling Shareholder Shares to be sold by such Selling Shareholder hereunder, free and clear of all liens, encumbrances, equities or claims whatsoever; and, upon delivery of such Selling Shareholder Shares and payment therefor pursuant hereto, good and marketable title to such Selling Shareholder Firm Shares, free and clear of all liens, encumbrances, equities or claims whatsoever, will be delivered to the Underwriters. (h) On the Closing Date or, if later, the Option Closing Date, all stock transfer or other taxes (other than income taxes) that are required to be paid in connection with the sale and transfer of the Shares to be sold by such Selling Shareholder to the several Underwriters hereunder will be have been fully paid or provided for by such Selling Shareholder and all laws imposing such taxes will have been fully complied with. 8 9 (i) Other than as permitted by the Act and the Rules and Regulations, such Selling Shareholder has not distributed and will not distribute any preliminary prospectus, the Prospectus or any other offering material in connection with the offering and sale of the Shares. Such Selling Shareholder has not taken and will not at any time take, directly or indirectly, any action designed, or which might reasonably be expected, to cause or result in, or which will constitute, stabilization of the price of shares of Common Stock to facilitate the sale or resale of any of the Shares. (j) All information with respect to such Selling Shareholder contained in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement thereto complied or will comply in all material respects with all applicable requirements of the Act and the Rules and Regulations and does not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (k) Such Selling Shareholder has no knowledge of any material fact or condition not set forth in the Registration Statement or the Prospectus that has adversely affected, or may adversely affect, the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries considered as a whole, and the sale of the Shares proposed to be sold by such Selling Shareholder is not prompted by any such knowledge. (l) Such Selling Shareholder has no reason to believe that the representations and warranties of the Company contained in Section 3 hereof are not true and correct. (m) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Shareholder agrees to deliver to you prior to or at the Closing Date a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). 5. Agreements of the Company. The Company covenants and agrees with the several Underwriters as follows: (a) The Company will not, either prior to the Effective Date or thereafter during such period as the Prospectus is required by law to be delivered in connection with sales of the Shares by an Underwriter or dealer, file any amendment or supplement to the Registration Statement or the Prospectus, unless a copy thereof shall first have been submitted to the Representatives within a reasonable period of time prior to the filing thereof and the Representatives shall not have objected thereto in good faith. (b) The Company will use its best efforts to cause the Registration Statement to become effective, and will notify the Representatives promptly, and will confirm such advice in writing, (i) when the Registration Statement has become effective and when any post-effective amendment thereto becomes effective, (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose or the threat thereof, (iv) of the happening of any event during the period mentioned in the second sentence of Section 5(e) that in the judgment of the Company makes any statement made in the Registration Statement or the Prospectus untrue or that requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein, in the light of the circumstances in which they are made, not misleading and (v) of receipt by the Company or any representative or attorney of the Company of any other communication from the Commission relating to the Company, the Registration Statement, any preliminary prospectus or the Prospectus. If at any time the Commission shall issue any order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible moment. If the Company has omitted any information from the Registration Statement pursuant to Rule 430A of the Rules and Regulations, the Company will comply with the provisions of and make all requisite filings with the Commission pursuant to said Rule 430A and notify the Representatives promptly of all such filings. 9 10 (c) The Company will furnish to each Representative, without charge, one signed copy of each of the Registration Statement and of any post-effective amendment thereto, including financial statements and schedules, and all exhibits thereto and will furnish to the Representatives, without charge, for transmittal to each of the other Underwriters, a copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules but without exhibits. (d) The Company will comply with all the provisions of any undertakings contained in the Registration Statement. (e) On the Effective Date, and thereafter from time to time, the Company will deliver to each of the Underwriters, without charge, as many copies of the Prospectus or any amendment or supplement thereto as the Representatives may reasonably request. The Company consents to the use of the Prospectus or any amendment or supplement thereto by the several Underwriters and by all dealers to whom the Shares may be sold, both in connection with the offering or sale of the Shares and for any period of time thereafter during which the Prospectus is required by law to be delivered in connection therewith. If during such period of time any event shall occur which in the judgment of the Company or counsel to the Underwriters should be set forth in the Prospectus in order to make any statement therein, in the light of the circumstances under which it was made, not misleading, or if it is necessary to supplement or amend the Prospectus to comply with law, the Company will forthwith prepare and duly file with the Commission an appropriate supplement or amendment thereto, and will deliver to each of the Underwriters, without charge, such number of copies of such supplement or amendment to the Prospectus as the Representatives may reasonably request. (f) Prior to any public offering of the Shares, the Company will cooperate with the Representatives and counsel to the Underwriters in connection with the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives may request; provided, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. (g) The Company will, so long as required under the Rules and Regulations, furnish to its shareholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flow of the Company and its consolidated Subsidiaries, if any, certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), consolidated summary financial information of the Company and its Subsidiaries, if any, for such quarter in reasonable detail. (h) During the period of five years commencing on the Effective Date, the Company will furnish to the Representatives and each other Underwriter who may so request copies of such financial statements and other periodic and special reports as the Company may from time to time distribute generally to the holders of any class of its capital stock, and will furnish to the Representatives and each other Underwriter who may so request a copy of each annual or other report it shall be required to file with the Commission. (i) The Company will make generally available to holders of its securities as soon as may be practicable but in no event later than the last day of the fifteenth full calendar month following the calendar quarter in which the Effective Date falls, an earnings statement (which need not be audited but shall be in reasonable detail) for a period of 12 months ended commencing after the Effective Date, and satisfying the provisions of Section 11(a) of the Act (including Rule 158 of the Rules and Regulations). (j) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company and, unless otherwise paid by the Company, the Selling Shareholders will pay or reimburse if paid by the Representatives, in such proportions as they may agree upon themselves, all costs and expenses incident to the performance of the obligations of the Company and the Selling Shareholders under this Agreement and in connection with the transactions contemplated hereby, including but not limited to costs and expenses of or relating to (i) the preparation, printing and filing of the Registration Statement and exhibits to it, each preliminary prospectus, Prospectus and any amendment or supplement to the Registration Statement or Prospectus, 10 11 (ii) the preparation and delivery of certificates representing the Shares, (iii) the printing of this Agreement, the Agreement Among Underwriters, any Selected Dealer Agreements, any Underwriters' Questionnaires, the Stockholders' Agreements, any Underwriters' Powers of Attorney, and any invitation letters to prospective Underwriters, (iv) furnishing (including costs of shipping and mailing) such copies of the Registration Statement, the Prospectus and any preliminary prospectus, and all amendments and supplements thereto, as may be requested for use in connection with the offering and sale of the Shares by the Underwriters or by dealers to whom Shares may be sold, (v) the listing of the Shares on the NNM, (vi) any filings required to be made by the Underwriters with the NASD, and the fees, disbursements and other charges of counsel for the Underwriters in connection therewith, (vii) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions designated pursuant to Section 5(f), including the fees, disbursements and other charges of counsel to the Underwriters in connection therewith, and the preparation and printing of preliminary, supplemental and final Blue Sky memoranda, (viii) fees, disbursements and other charges of counsel to the Company (but not those of counsel for the Underwriters, except as otherwise provided herein) and (ix) the transfer agent for the Shares. The Underwriters may deem the Company to be the primary obligor with respect to all costs, fees and expenses to be paid by the Company and by the Selling Shareholders. The Selling Shareholders will pay (directly or by reimbursement) all fees and expenses incident to the performance of their obligations under this Agreement that are not otherwise specifically provided for herein, including but not limited to any fees and expenses of counsel for such Selling Shareholders, any fees and expenses of the Attorneys-in-Fact and the Custodian, and all expenses and taxes incident to the sale and delivery of the Shares to be sold by such Selling Shareholders to the Underwriters hereunder. (k) The Company will not at any time, directly or indirectly, take any action designed or which might reasonably be expected to cause or result in, or which will constitute, stabilization of the price of the shares of Common Stock to facilitate the sale or resale of any of the Shares. (l) The Company will apply the net proceeds from the offering and sale of the Shares to be sold by the Company in the manner set forth in the Prospectus under "Use of Proceeds" (m) During the period beginning from the date hereof and continuing to and including the date 90 days after the date of the Prospectus, without the prior written consent of Needham & Company, Inc., the Company will not offer, sell, contract to sell, grant options to purchase or otherwise dispose of any of the Company's equity securities of the Company or any other securities convertible into or exchangeable with its Common Stock or other equity security (other than pursuant to employee stock benefit plans or the conversion of convertible securities or the exercise of warrants outstanding on the date of this Agreement). (n) The Company will cause each of its officers, directors and certain shareholders designated by the Representatives to, enter into lock-up agreements with the Representatives to the effect that they will not, without the prior written consent of Needham & Company, Inc., sell, contract to sell or otherwise dispose of any shares of Common Stock or rights to acquire such shares according to the terms set forth in Schedule IV hereto. 6. Conditions of the Obligations of the Underwriters. The obligations of each Underwriter hereunder are subject to the following conditions: (a) Notification that the Registration Statement has become effective shall be received by the Representatives not later than 5:00 p.m., New York City time, on the date of this Agreement or at such later date and time as shall be consented to in writing by the Representatives and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made. (b) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall be pending or threatened by the Commission, (ii) no order suspending the effectiveness of the Registration Statement or the qualification or registration of the Shares under the securities or Blue Sky laws of any jurisdiction shall be in effect and no proceeding for such purpose shall be pending before or threatened or contemplated by the Commission or the authorities of any such jurisdiction, (iii) any request for additional information on the part of the staff of the Commission or any such authorities shall have been complied with to the satisfaction of the staff of the Commission or such authorities and (iv) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have been filed unless a 11 12 copy thereof was first submitted to the Representatives and the Representatives do not object thereto in good faith, and the Representatives shall have received certificates, dated the Closing Date and, if later, the Option Closing Date and signed by the Chief Executive Officer and the Chief Financial Officer of the Company (who may, as to proceedings threatened, rely upon the best of their information and belief), to the effect of clauses (i), (ii) and (iii) of this paragraph. (c) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) there shall not have been a material adverse change in the general affairs, business, business prospects, properties, management, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries considered as a whole, whether or not arising from transactions in the ordinary course of business, in each case other than as described in or contemplated by the Registration Statement and the Prospectus, and (ii) the Company shall not have sustained any material loss or interference with its business or properties from fire, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree, which is not described in the Registration Statement and the Prospectus, if in the judgment of the Representatives any such development makes it impracticable or inadvisable to consummate the sale and delivery of the Shares by the Underwriters at the public offering price. (d) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall have been no litigation or other proceeding instituted against the Company, any of its Subsidiaries, or any of their officers or directors in their capacities as such, before or by any Federal, state or local court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, in which litigation or proceeding an unfavorable ruling, decision or finding would, in the judgment of the Representatives, materially and adversely affect the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries considered as a whole. (e) Each of the representations and warranties of the Company and the Selling Shareholders contained herein shall be true and correct in all material respects at the Closing Date and, with respect to the Option Shares, at the Option Closing Date, and all covenants and agreements contained herein to be performed on the part of the Company or the Selling Shareholders and all conditions contained herein to be fulfilled or complied with by the Company or the Selling Shareholders at or prior to the Closing Date and, with respect to the Option Shares, at or prior to the Option Closing Date, shall have been duly performed, fulfilled or complied with in all material respects. (f) The Representatives shall have received an opinion, dated the Closing Date and, with respect to the Option Shares, the Option Closing Date, satisfactory in form and substance to the Representatives and counsel for the Underwriters from Heller Ehrman White & McAliffe LLP, counsel to the Company and the Selling Shareholders, with respect to the following matters. (i) Each of the Company and its operating Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; has full corporate power and authority to conduct all the activities conducted by it, to own all the assets owed by it and to conduct its business as described in the Registration Statement and Prospectus. (ii) All of the outstanding shares of capital stock of the Company (including the Selling Shareholder Shares) have been duly authorized, validly issued and are fully paid and nonassessable, to such counsel's knowledge, were issued pursuant to exemptions from the registration and qualification requirements of federal and applicable state securities laws, and to such counsel's knowledge were not issued in violation of or subject to any preemptive or similar rights; (iii) The specimen certificate evidencing the Common Stock filed as an exhibit to the Company's Registration Statement on Form S-1 is in due and proper form under California law, the Shares to be sold by the Company hereunder have been duly authorized and, when issued and paid for as contemplated by this Agreement, will be validly issued, fully paid and nonassessable; and to such counsel's knowledge no 12 13 preemptive or similar rights exist with respect to any of the Shares or the issue and sale thereof. (iv) All of the outstanding shares of capital stock of each operating Subsidiary has been duly authorized and validly issued and are fully paid and nonassessable, and owned by the Company. (v) To such counsel's knowledge, except as disclosed in or specifically contemplated by the Prospectus, there are no outstanding options, warrants of other rights calling for the issuance of, and no commitments, plans or arrangements to issue, any shares of capital stock of the Company or any security convertible into or exchangeable or exercisable for capital stock of the Company. (vi) To such counsel's knowledge, there are no legal or governmental proceedings pending or threatened to which the Company or any of its Subsidiaries is a party or to which any of their respective properties is subject that are required to be described in the Registration Statement or the Prospectus but are not so described. (vii) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required for the consummation by the Company of the transactions on its part contemplated under this Agreement, except such as have been obtained or made under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the by-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Shares. (viii) The Company has full corporate power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by the Company. (ix) The execution and delivery of this Agreement, the compliance by the Company with all of the terms hereof and the consummation of the transactions contemplated hereby does not contravene any provision of applicable law or the Articles of Incorporation or Bylaws of the Company, and to the best of such counsel's knowledge will not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company pursuant to the terms and provisions of, result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give any party a right to terminate any of its obligations under, or result in the acceleration of any obligation under, any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract or other agreement or instrument known to such counsel to which the Company is a party or by which the Company or any of its properties is bound or affected, or violate or conflict with (i) any judgment, ruling, decree or order known to such counsel or (ii) any statute, rule or regulation of any court or other governmental agency or body, applicable to the business or properties of the Company. (x) To such counsel's knowledge, there is no document or contract of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed or incorporated by reference as required, and each description of such contracts and documents that is contained in the Registration Statement and Prospectus fairly presents in all material respects the information required under the Act and the Rules and Regulations. 13 14 (xi) The Selling Shareholder Shares are duly listed on the NNM and the Company Firm Shares have been duly authorized for listing on the NNM, subject to notice of issuance. (xii) To such counsel's knowledge, no holder of securities of the Company has rights, which have not been waived or satisfied, to require the register with the Commission shares of Common Stock or other securities, as part of the offering contemplated hereby. (xiii) The Registration Statement has become effective under the Act, and to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or is pending, threatened or contemplated. (xiv) The Registration Statement and the Prospectus comply as to form in all material respects with the requirement of the Act and the Rules and Regulations (other than the financial statements, schedules and other financial data contained or incorporated by reference in the Registration Statement or the Prospectus, as to which such counsel need express no opinion). (xv) This Agreement and the Stockholders' Agreement have each been duly executed and delivered by or on behalf of each Selling Shareholder; the Shareholders' Agreement constitutes a valid and binding agreement of such Selling Shareholder in accordance with its terms, except as enforceability may be limited by the application of bankruptcy, insolvency or other laws affecting creditors' rights generally or by general principles of equity; the performance by such Selling Shareholder of this Agreement and the Shareholders' Agreement and the consummation of the transactions contemplated hereby and thereby will not result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give any party a right to terminate any of its obligations under, or result in the acceleration of any obligation under any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract or other agreement or instrument to which such Selling Shareholder is a party or by which such Selling Shareholder or any of its properties is bound or affected, or violate or conflict with any judgment, ruling, decree, order, statute, rule or regulation of any court or other governmental agency or body applicable to such Selling Shareholder or, if such Selling Shareholder is a corporation, partnership or other entity, the organizational documents of such Selling Shareholder. (xvi) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required for the consummation by the Selling Shareholders of the transactions on their part contemplated by this Agreement, except such as have been obtained or made under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the by-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Shares. (xvii) Each Selling Shareholder has full legal right, power and authority to enter into this Agreement and the Stockholders' Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Shareholder hereunder and, to such counsel's knowledge, upon payment for such Shares and assuming that the Underwriters are purchasing such Shares in good faith and without notice of any other adverse claim within the meaning of the Uniform Commercial Code, the Underwriters will have 14 15 acquired all rights of such Selling Shareholder in such Shares free of any adverse claim, any lien in favor of the Company and any restrictions on transfer imposed by the Company. (xviii)Such counsel shall state separately and not part of its opinion that such counsel has participated in the preparation of the Registration Statement and Prospectus and has no reason to believe that, as of the Effective Date the Registration Statement, or any amendment or supplement thereto, (other than the financial statements, schedules and other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, or any amendment or supplement thereto, as of its date and the Closing Date and, if later, the Option Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (other than the financial statements, schedules and other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion). In rendering its opinion, such counsel may rely upon opinions of other counsel retained by the Selling Shareholders reasonably acceptable to the Representatives and as to matters of fact on certificates of the Selling Shareholders, officers of the Company and governmental officials and the representations and warranties of the Company and the Selling Shareholders contained in this Agreement and the Shareholders' Agreement, provided that the opinion of counsel to the Company and Selling Shareholders shall state that they are doing so, that they have no reason to believe that they and the Underwriters are not entitled to rely on such opinions or certificates and that copies of such opinions or certificates are to be attached to the opinion. (g) The representatives shall have received an opinion, dated the Closing Date and the Option Closing Date, from Gray Cary Ware & Freidenrich LLP, counsel to the Underwriters, with respect to the Registration Statement, the Prospectus and this Agreement, which opinion shall be satisfactory in all respects to the Representatives. (h) Concurrently with the execution and delivery of this Agreement, the Accountants shall have furnished to the Representatives a letter, dated the date of its delivery, addressed to the Representatives and in form and substance satisfactory to the Representatives, confirming that they are independent accountants with respect to the Company and its Subsidiaries as required by the Act and the Exchange Act and the Rules and Regulations and with respect to certain financial and other statistical and numerical information contained or incorporated by reference in the Registration Statement. At the Closing Date and, as to the Option Shares, the Option Closing Date, the Accountants shall have furnished to the Representatives a letter, dated the date of its delivery, which shall confirm, on the basis of a review in accordance with the procedures set forth in the letter from the Accountants, that nothing has come to their attention during the period from the date of the letter referred to in the prior sentence to a date (specified in the letter) not more than five days prior to the Closing Date and the Option Closing Date, as the case may be, which would require any change in their letter dated the date hereof if it were required to be dated and delivered at the Closing Date and the Option Closing Date. (i) Concurrently with the execution and delivery of this Agreement and at the Closing Date and, as to the Option Shares, the Option Closing Date, there shall be furnished to the Representatives a certificate, dated the date of its delivery, signed by each of the Chief Executive Officer and the Chief Financial Officer of the Company, in form and substance satisfactory to the Representatives, to the effect that: (i) Each signer of such certificate has carefully examined the Registration Statement and the Prospectus and (A) as of the date of such certificate, such documents are true and correct in all material respects and do not omit to state a material fact required to be stated therein or necessary in order to make the statements therein, not untrue or misleading and (B) in the case of the certificate delivered at the Closing Date and the Option Closing Date, since the Effective Date no event has occurred as a result of 15 16 which it is necessary to amend or supplement the Prospectus in order to make the statements therein not untrue or misleading in any material respect. (ii) Each of the representations and warranties of the Company contained in this Agreement were, when originally made, and are, at the time such certificate is delivered, true and correct in all material respects. (iii) Each of the covenants required to be performed by the Company herein on or prior to the date of such certificate has been duly, timely and fully performed and each condition herein required to be satisfied or fulfilled on or prior to the date of such certificate has been duly, timely and fully satisfied or fulfilled. (j) Concurrently with the execution and delivery of this Agreement and at the Closing Date and, as to the Option Shares, the Option Closing Date, there shall be furnished to the Representatives a certificate, dated the date of its delivery, signed by the Selling Shareholders (or the Attorneys-in-Fact on their behalf), in form and substance satisfactory to the Representatives, to the effect that the representations and warranties of the Selling Shareholders contained herein are true and correct in all material respects on and as of the date of such certificate as if made on and as of the date of such certificate, and each of the covenants and conditions required herein to be performed or complied with by the Selling Shareholders on or prior to the date of such certificate has been duly, timely and fully performed or complied with. (k) On or prior to the Closing Date, the Representatives shall have received the executed agreements referred to in Section 5(n). (l) The Shares shall be qualified for sale in such jurisdictions as the Representatives may reasonably request and each such qualification shall be in effect and not subject to any stop order or other proceeding on the Closing Date or the Option Closing Date. (m) Prior to the Closing Date, the Shares shall have been duly authorized for listing on the NNM upon official notice of issuance. (n) The Company and the Selling Shareholders shall have furnished to the Representatives such certificates, in addition to those specifically mentioned herein, as the Representatives may have reasonably requested as to the accuracy and completeness at the Closing Date and the Option Closing Date of any statement in the Registration Statement or the Prospectus, as to the accuracy at the Closing Date and the Option Closing Date of the representations and warranties of the Company and the Selling Shareholders herein, as to the performance by the Company and the Selling Shareholders of its and their respective obligations hereunder, or as to the fulfillment of the conditions concurrent and precedent to the obligations hereunder of the Representatives. 7. Indemnification. (a) The Company and each of the Selling Shareholders, jointly and severally, will indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person, if any, who controls each Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, liabilities, expenses and damages (including any and all investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), to which they, or any of them, may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on (i) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, the Registration Statement or the Prospectus or any amendment or supplement to the Registration Statement or the Prospectus, or the omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading in the light of the circumstances in which they were made, (ii) any untrue statement or alleged untrue statement of a material fact contained in any materials or information provided to investors by, or with the approval of the Company in connection with the marketing or the offering of the Shares (herein called 16 17 Marketing Materials), including any roadshow or investor presentations made to investors by the Company (regardless of the medium by which such information is transmitted, whether in person, telephonically, via facsimile or by other electronic means) or the omission or alleged omission to state in the Marketing Materials a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or (iii) arise out of or are based in whole or in part on any inaccuracy in the representations and warranties of the Company or the Selling Shareholders contained herein or any failure of the Company or the Selling Shareholders to perform its or their obligations hereunder or under law in connection with the transactions contemplated hereby; provided, however, that (i) the Company and the Selling Shareholders will not be liable to the extent that such loss, claim, liability, expense or damage arises from the sale of the Shares in the public offering to any person by an Underwriter and is based on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to any Underwriter furnished in writing to the Company by the Representatives, on behalf of any Underwriter, expressly for inclusion in the Registration Statement, the preliminary prospectus or the Prospectus or any amendments or supplements to the Registration Statement or Prospectus; (ii) the Company and the Selling Shareholders will not be liable to any Underwriter, the directors, officers, employees or agents of such Underwriter or any person controlling such Underwriter with respect to any loss, claim, liability, expense, or damage arising out of or based on any untrue statement or omission or alleged untrue statement or omission or alleged omission to state a material fact in the preliminary prospectus which is corrected in the Prospectus if the person asserting any such loss, claim, liability, charge or damage purchased Shares from such Underwriter but was not sent or given a copy of the Prospectus at or prior to the written confirmation of the sale of such Shares to such person; and (iii) the liability of each Selling Shareholder under this Section 7(a) shall not exceed the product of the purchase price for each Share set forth in Section 1(a) hereof multiplied by the number of Shares sold by such Selling Shareholder hereunder. The Company and the Selling Shareholders acknowledge that the statements set forth under the heading "Underwriting" in the preliminary prospectus and the Prospectus constitute the only information relating to any Underwriter furnished in writing to the Company by the Representatives on behalf of the Underwriters expressly for inclusion in the Registration Statement, the preliminary prospectus or the Prospectus. This indemnity agreement will be in addition to any liability that the Company and the Selling Shareholders might otherwise have. (b) Each Underwriter will indemnify and hold harmless the Company, each director of the Company, each officer of the Company who signs the Registration Statement, each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each Selling Shareholder to the same extent as the foregoing indemnity from the Company and each Selling Shareholder to each Underwriter, as set forth in Section 7(a), but only insofar as losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to any Underwriter furnished in writing to the Company by the Representatives, on behalf of such Underwriter, expressly for use in the Registration Statement, the preliminary prospectus or the Prospectus or any amendments or supplements thereto. The Company and the Selling Shareholders acknowledge that the statements set forth under the heading "Underwriting" in the preliminary prospectus and the Prospectus constitute the only information relating to any Underwriter furnished in writing to the Company by the Representatives on behalf of the Underwriters expressly for inclusion in the Registration Statement, the preliminary prospectus or the Prospectus. This indemnity will be in addition to any liability that each Underwriter might otherwise have. (c) Any party that proposes to assert the right to be indemnified under this Section 7 shall, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 7, notify each such indemnifying party in writing of the commencement of such action, enclosing with such notice a copy of all papers served, but the omission so to notify such indemnifying party will not relieve it from any liability that it may have to any indemnified party under the foregoing provisions of this Section 7 unless, and only to the extent that, such omission results in the loss of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except 17 18 as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (i) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (ii) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (iii) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (iv) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. Any indemnifying party will not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld). (d) If the indemnification provided for in this Section 7 is applicable in accordance with its terms but for any reason is held to be unavailable to or insufficient to hold harmless an indemnified party under paragraphs (a), (b) and (c) of this Section 7 in respect of any losses, claims, liabilities, expenses and damages referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company or the Selling Shareholders from persons other than the Underwriters, such as persons who control the Company within the meaning of the Act, officers of the Company who signed the Registration Statement and directors of the Company, who also may be liable for contribution) by such indemnified party as a result of such losses, claims, liabilities, expenses and damages in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Selling Shareholders, on the one hand, and the Underwriters, on the other hand. The relative benefits received by the Company and the Selling Shareholders, on the one hand, and the Underwriters, on the other hand, shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Shareholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company and the Selling Shareholders, on the one hand, and the Underwriters, on the other hand, with respect to the statements or omissions which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Selling Shareholders or the Representatives on behalf of the Underwriters, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Shareholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss claim, liability, expense or damage, or action in respect thereof, referred to above in this Section 7(d) shall be deemed to include, for purposes of this Section 7(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), no Underwriter shall be required to contribute any amount in excess of the underwriting discounts received by it and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute as provided in this Section 7(d) are several in proportion to their respective underwriting obligations and not joint. For purposes of this Section 7(d), any person who controls a party to this 18 19 Agreement within the meaning of the Act will have the same rights to contribution as that party, and each officer of the Company who signed the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against any such party in respect of which a claim for contribution may be made under this Section 7(d), will notify any such party or parties from whom contribution may be sought, but the omission so to notify will not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 7(d). No party will be liable for contribution with respect to any action or claim settled without its written consent (which consent will not be unreasonably withheld). (e) The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company and the Selling Shareholders contained in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of the Underwriters, (ii) acceptance of any of the Shares and payment therefor or (iii) any termination of this Agreement. 8. Reimbursement of Certain Expenses. In addition to its other obligations under Section 7(a) of this Agreement, the Company hereby agrees to reimburse on a quarterly basis the Underwriters for all reasonable legal and other expenses incurred in connection with investigating or defending any claim, action, investigation, inquiry or other proceeding brought by a third party arising out of or based upon, in whole or in part, any statement or omission or alleged statement or omission, or any inaccuracy in the representations and warranties of the Company or the Selling Shareholder contained herein or failure of the Company or the Selling Shareholders to perform its or their respective obligations hereunder or under law, all as described in Section 7(a), notwithstanding the absence of a judicial determination as to the propriety and enforceability of the obligations under this Section 8 and the possibility that such payment might later be held to be improper; provided, however, that, to the extent any such payment is ultimately held to be improper, the persons receiving such payments shall promptly refund them. 9. Termination. The obligations of the several Underwriters under this Agreement may be terminated at any time on or prior to the Closing Date (or, with respect to the Option Shares, on or prior to the Option Closing Date), by notice to the Company and the Selling Shareholders from the Representatives, without liability on the part of any Underwriter to the Company if, prior to delivery and payment for the Firm Shares or Option Shares, as the case may be, in the sole judgment of the Representatives, (i) trading in any of the equity securities of the Company shall have been suspended by the Commission or by The Nasdaq Stock Market, (ii) trading in securities generally on the Nasdaq Stock Market shall have been suspended or limited or minimum or maximum prices shall have been generally established on such exchange, or additional material governmental restrictions, not in force on the date of this Agreement, shall have been imposed upon trading in securities generally by such exchange, by order of the Commission or any court or other governmental authority, or by The Nasdaq Stock Market, (iii) a general banking moratorium shall have been declared by either Federal or, New York State authorities or (iv) any material adverse change in the financial or securities markets in the United States or in political, financial or economic conditions in the United States or any outbreak or material escalation of hostilities or other calamity or crisis shall have occurred, the effect of which is such as to make it, in the sole judgment of the Representatives, impracticable to proceed with completion of the public offering or the delivery of and payment for the Shares. If this Agreement is terminated pursuant to Section 10 hereof, neither the Company nor any Selling Shareholder shall be under any liability to any Underwriter except as provided in Sections 7 and 8 hereof; but, if for any other reason the purchase of the Shares by the Underwriters is not consummated or if for any reason the Company shall be unable to perform its obligations hereunder, the Company and the Selling Shareholders will reimburse the several Underwriters for all out-of-pocket expenses (including the fees, disbursements and other charges of counsel to the Underwriters) incurred by them in connection with the offering of the Shares. 10. Substitution of Underwriters. If any one or more of the Underwriters shall fail or refuse to purchase any of the Firm Shares which it or they have agreed to purchase hereunder, and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Firm Shares, the other Underwriters shall be obligated, severally, to purchase the Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase, in the proportions which the number of Firm Shares which they have respectively agreed to purchase pursuant to Section 1 bears to the aggregate number of Firm Shares which all such non-defaulting Underwriters have so agreed to purchase, or in such other proportions as the Representatives may specify; provided that in no event shall the maximum number of Firm 19 20 Shares which any Underwriter has become obligated to purchase pursuant to Section 1 be increased pursuant to this Section 10 by more than one-ninth of such number of Firm Shares without the prior written consent of such Underwriter. If any Underwriter or Underwriters shall fail or refuse to purchase any Firm Shares and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase exceeds one-tenth of the aggregate number of the Firm Shares and arrangements satisfactory to the Representatives and the Company for the purchase of such Firm Shares are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Shareholders for the purchase or sale of any Shares under this Agreement. In any such case either the Representatives or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or in any other documents or arrangements may be effected. Any action taken pursuant to this Section 10 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 11. Miscellaneous. Notice given pursuant to any of the provisions of this Agreement shall be in writing and, unless otherwise specified, shall be mailed or delivered (a) if to the Company or the Selling Shareholders, at the office of the Company, 9404 Chesapeake Drive, San Diego, CA 92123, Attention: Chief Executive Officer, with a copy to Victor A. Hebert, Esq., Heller Ehrman White & McAliffe, 601 South Figueroa Street, Los Angeles, CA 90017, or (b) if to the Underwriters, to the Representatives at the offices of Needham & Company, Inc., 445 Park Avenue, New York, New York 10022, Attention: Corporate Finance Department, with a copy to Douglas Rein, Esq., Gray Cary Ware & Freidenrich LLP, 4365 Executive Drive, Suite 1600, San Diego, CA 92121. Any such notice shall be effective only upon receipt. Any notice under such Section 9 or 10 may be made by telex or telephone, but if so made shall be subsequently confirmed in writing. This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, the Selling Shareholders and the controlling persons, directors and officers referred to in Section 7, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" as used in this Agreement shall not include a purchaser, as such purchaser, of Shares from any of the several Underwriters. Any action required or permitted to be made by the Representatives under this Agreement may be taken by them jointly or by Needham & Company, Inc. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed entirely within such State. This Agreement may be signed in two or more counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 20 21 The Company and the Underwriters each hereby waive any right they may have to a trial by jury in respect of any claim based upon or arising out of this Agreement or the transactions contemplated hereby. Please confirm that the foregoing correctly sets forth the agreement among the Company and the several Underwriters. Very truly yours, REMEC, Inc. By: ------------------------------- Title: SELLING SHAREHOLDERS (named in Schedule II hereto) By: ------------------------------- Attorney-in-Fact Confirmed as of the date first above mentioned: NEEDHAM & COMPANY, INC. CIBC World Markets Corp. Dain Rauschler Incorporated A.G. Edwards & Sons, Inc. Acting on behalf of themselves and as the Representatives of the several Underwriters named in Schedule I hereto. By: NEEDHAM & COMPANY, INC. By: ------------------------------- Title: 21 22 SCHEDULE I UNDERWRITERS
Number of Firm Shares Underwriters to be Purchased ------------ --------------- Needham & Company, Inc....................... CIBC World Markets Corp...................... Dain Rauschler Incorporated.................. A.G. Edwards & Sons, Inc..................... Total.................................... 3,500,000 =========
EX-5.1 3 OPINION OF HELLER EHRMAN WHITE & MCAULIFFE LLP 1 EXHIBIT 5.1 [LETTERHEAD OF HELLER EHRMAN WHITE & MCAULIFFE LLP] March 17, 2000 21860-0016 REMEC, Inc. 9404 Chesapeake Drive San Diego, California 92123 Registration Statement on Form S-3 Ladies and Gentlemen: We have acted as counsel to REMEC, Inc., a California corporation (the "Company"), in connection with the Registration Statement on Form S-3 (File No. 333-31428) filed with the Securities and Exchange Commission on March 1, 2000 (the "Registration Statement"), for the purpose of registering under the Securities Act of 1933, as amended, an aggregate of 4,312,500 shares of the Company's $0.01 par value Common Stock (the "Shares"), of which up to 3,500,000 currently unissued shares are to be sold by the Company and up to 812,500 currently issued and outstanding shares held by certain shareholders (the "Selling Shareholders") of the Company are to be sold by the Selling Shareholders, of which up to 250,000 are to be sold in conjunction with the Company's shares and up to an additional 562,500 may be sold if the underwriters exercise their over-allotment option. The Shares are to be sold in connection with the proposed public offering of the Shares pursuant to an Underwriting Agreement (the "Underwriting Agreement") with respect to the Shares between the Company and the Selling Shareholders, on the one hand, and Needham & Company, Inc., CIBC World Markets Corp., Dain Rauscher Incorporated, and A.G. Edwards & Sons, Inc., as Representatives of the several underwriters, on the other hand. In connection with this opinion, we have assumed the authenticity of all records, documents and instruments submitted to us as originals, the genuineness of all signatures, the legal capacity of natural persons and the conformity to the originals of all records, documents and instruments submitted to us as copies. We have based our opinion upon our review of the following records, documents, instruments and certificates: (a) The Restated Articles of Incorporation of the Company certified by the Secretary of State of the State of California as of March 16, 2000, and certified to us by an officer of the Company as being complete and in full force and effect as of the date of this opinion; 2 REMEC, Inc. Heller Ehrman White & McAuliffe March 17, 2000 ATTORNEYS Page 2 (b) The Bylaws of the Company certified to us by an officer of the Company as being complete and in full force and effect as of the date of this opinion; (c) A Certificate of the President and Secretary of the Company: (i) certifying that copies of all records of proceedings and actions of the Board of Directors of the Company, including any committee thereof, relating to the issuance of the Shares and the proposed resale of the Shares pursuant to the Registration Statement have been provided to us; and (ii) certifying as to certain factual matters; (d) The Registration Statement; (e) A letter from ChaseMellon, the Company's transfer agent, dated as of March 16, 2000, confirming the number of shares of the Company's Common Stock that were outstanding on March 15, 2000; and (f) The current draft of the Underwriting Agreement. This opinion is limited to the laws of the State of California, and we disclaim any opinion as to the laws of any other jurisdiction. We further disclaim any opinion as to any other statute, rule, regulation, ordinance, order or other promulgation of any other jurisdiction or any regional or local governmental body or as to any related judicial or administrative opinion. Our opinion to the effect that all issued and outstanding Shares are fully paid and nonassessable is based on the certification obtained from the Company identified in item (c) above to the effect that the consideration for such Shares recited in the Board of Directors' resolutions for such Shares has been received. Based on the foregoing and our examination of such questions of law as we have deemed necessary or appropriate for the purpose of this opinion, and assuming that (i) the Registration Statement becomes and remains effective during the period when the Shares are offered, issued and sold, (ii) the Shares to be sold by the Company are issued, delivered, and paid for in accordance with the terms of the Underwriting Agreement, (iii) the Shares to be sold by the Selling Shareholders are delivered and paid for in accordance with the terms of the Underwriting Agreement and (iv) all applicable securities laws are 3 REMEC, Inc. Heller Ehrman White & McAuliffe March 17, 2000 ATTORNEYS Page 3 complied with, it is our opinion that the currently issued and outstanding Shares covered by the Registration Statement are, and the currently unissued Shares covered by the Registration Statement, when issued by the Company, will be, legally issued, fully paid and nonassessable. This opinion is rendered to you in connection with the Registration Statement. We disclaim any obligation to advise you of any change of law that occurs, or any facts of which we become aware, after the date of this opinion. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. We also consent to the reference to our firm under the caption "Legal Matters" in the Registration Statement and any amendments thereto. Very truly yours, /s/ Heller Ehrman White & McAuliffe LLP EX-23.1 4 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and related Prospectus of REMEC, Inc. for the registration of shares of its common stock and to the incorporation by reference therein of our report dated February 25, 2000, with respect to the consolidated financial statements and schedule of REMEC, Inc. included in the Annual Report on Form 10-K for the year ended January 31, 2000, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP San Diego, California March 17, 2000 EX-23.2 5 CONSENT OF ARTHUR ANDERSEN, INDEPENDENT AUDITORS 1 EXHIBIT 23.2 [ARTHUR ANDERSEN LOGO] CONSENT OF INDEPENDENT AUDITORS As independent auditors, we hereby consent to the reference to our firm in this Registration Statement (Form S-3) and related Prospectus of REMEC, Inc. for the registration of its common stock and to the incorporation by reference therein of our report, dated 24 March 1999 with respect to the financial statements of Airtech plc as of 31 December 1998 and 1997 and for the years then ended. /s/ ARTHUR ANDERSEN - ------------------------------ Arthur Andersen Chartered Accountants St Albans, England 17 March 2000 -----END PRIVACY-ENHANCED MESSAGE-----