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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) MARCH 2, 1998
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SRS LABS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-21123 33-0714264
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2909 DAIMLER STREET, SANTA ANA, CALIFORNIA 92705
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 442-1070
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
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SRS LABS, INC.
FORM 8-K
INDEX
INFORMATION INCLUDED IN THE REPORT PAGE
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Item 2. Acquisition or Disposition of Assets . . . . . . . . . 3
Item 7. Financial Statements and Exhibits. . . . . . . . . . . 5
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to a Stock Purchase Agreement dated as of February 24, 1998
(the "Valence Agreement") by and among SRS Labs, Inc. (the "Company"), Valence
Technology Inc. ("Valence"), Thomrose Holdings (BVI) Limited ("Thomrose"), Cape
Spencer International Limited ("Cape"), Rayfa (BVI) Limited ("Rayfa"), and Anki
(BVI) Limited ("Anki"), the Company acquired 45% of the outstanding shares of
capital stock of Valence, a British Virgin Islands company, with its principal
executive offices in Hong Kong and principal business operations in Hong Kong
and China (the "Valence Transaction"). Thomrose, Cape, Rayfa and Anki are
collectively referred to herein as the "Selling Shareholders." The aggregate
purchase price paid by the Company to the Selling Shareholders was
U.S.$13,500,000, payable U.S. $1,394,222.40 in cash and 1,680,611 shares of the
Company's common stock, par value U.S. $.001 per share, valued at U.S.
$12,105,777.60 (the "SRS Shares"). The value of the SRS Shares was computed
pursuant to a formula set forth in the Valence Agreement. The SRS Shares were
issued in reliance on the exemption from registration afforded by Section 4(2)
under the Securities Act of 1933, as amended ("Section 4(2)"). The transaction
closed in Hong Kong on March 3, 1998, March 2, 1998, California time (the
"Closing").
Under the terms of the Valence Agreement and the Escrow Agreement dated
as of March 2, 1998, by and among the Company, Thomrose, Rayfa, Cape and Harris
Trust Company of California, an aggregate of 1,176,427 of the SRS Shares will be
held in escrow for one year from the date of the Escrow Agreement for the
purpose of indemnifying the Company against certain liabilities, if necessary.
In connection with the consummation of the transactions contemplated by
the Valence Agreement, the Company issued to Thomrose, Rayfa and Cape at the
Closing an additional 68,750, 37,500 and 18,750 shares of the Company's common
stock, respectively (collectively, the "SRS Non-Compete Shares"), in
consideration for (a) such companies and their sole shareholder entering into
noncompetition agreements with the Company and Valence or one of Valence's
subsidiaries and (b) such companies paying to the Company the par value for such
shares. The SRS Non-Compete Shares also were issued in reliance on the exemption
from registration afforded by Section 4(2).
Pursuant to the terms of the Valence Agreement and a Registration
Rights Agreement dated as of March 2, 1998, by and among the Company, Thomrose,
Rayfa and Cape, the Company granted to Thomrose, Rayfa and Cape certain
registration rights relating to the SRS shares and the SRS Non-Compete Shares.
In a separate, but related transaction, the Company acquired from North
22 Capital Partners 2, Inc., a British Virgin Islands company ("North 22"), the
remaining 55% of the outstanding shares of capital stock of Valence for U.S.
$6,000,000 pursuant to a Stock Purchase Agreement (the "North 22 Agreement")
dated as of February 24, 1998 by and between the Company and North 22 (the
"North 22 Transaction"). The North 22 Transaction closed simultaneously with the
Valence Transaction. Both the North 22 Transaction and the Valence Transaction
are being accounted for as purchase transactions.
Valence is a holding company comprised of four directly wholly-owned
Hong Kong Subsidiaries, Valence Semiconductor Design Limited ("VSD"), ASP
Microelectronics Limited
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("ASP"), LEC Electronics Components Limited ("LEC") and VSD Electronics Limited.
In turn, ASP is the sole beneficial shareholder of LEC Microelectronics Limited,
a Hong Kong company, and LEC is the sole beneficial shareholder of LEC
Electronics Limited, a Hong Kong company, and VSD Electronics (Hui Yang) Ltd., a
foreign enterprise established under the laws of the People's Republic of China.
Valence and its subsidiaries are collectively referred to herein as the "Valence
Group."
The Valence Group is engaged in two primary areas of business: the
design, manufacture and marketing of ASIC (application-specific integrated
circuit) products; and the design, manufacture and marketing of consumer
electronics products. In this latter area of business, the Valence Group also
manufactures and sells its own Valence brand product line of high-end VCD (video
compact disc) players, amplifiers and electronic games. Valence is operating as
a wholly-owned subsidiary of the Company. The Company intends to continue the
business of the Valence Group. It intends to utilize the plant, equipment and
other physical property acquired as a result of the Company's acquisition of
100% of the outstanding capital stock of Valence.
In connection with the acquisition of all of the outstanding shares of
capital stock of Valence, Thomas Wah Tong Wan, the Chief Executive Officer of
Valence, became a Class I Director of the Company for a term expiring at the
Annual Meeting of the Company's stockholders to be held in the year 2000. Mr.
Wan also was elected as a Vice President of the Company and retained his
position as Chief Executive Officer of Valence. Mr. Wan, together with the
Valence Group's two other principal executive officers, signed (a) employment
agreements and (b) noncompetition agreements (referenced above), with the
Company.
As part of its obligations under the North 22 Agreement, the Company
provided Valence with U.S. $7,000,000 on March 6, 1998 to enable Valence to pay
certain indebtedness owned to North 22 or its affiliates on the date of Closing.
The Company also expects to provide to, or guarantee the obligations of, the
Valence Group up to an additional U.S. $13,000,000 to fund working capital
requirements and repay certain indebtedness.
The source of funds used by the Company to fund the cash portion of the
Valence Transaction (including the above-referenced funds provided or to be
provided to and/or guarantees to be made by the Company to the Valence Group)
and the North 22 Transaction was general working capital raised by the Company
in connection with its initial public offering which was completed in August
1996 and funds drawn from the Company's $10 million credit facility with Bank of
America NT&SA.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Pursuant to Instruction (a)(4) to Item 7 of Form 8-K, the
financial information required by Item 7(a) will be filed by
Amendment no later than May 18, 1998.
(b) Pro Forma Financial Statements.
Pursuant to Instruction (a)(4) to Item 7 of Form 8-K, the
financial information required by Item 7(b) will be filed by
Amendment no later than May 18, 1998.
(c) Exhibits.
2.1 Stock Purchase Agreement dated as of February 24, 1998, by
and among SRS Labs, Inc., Valence Technology Inc., and
Thomrose Holdings (BVI) Limited, Cape Spencer
International Limited, Rayfa (BVI) Limited, and Anki (BVI)
Limited.
2.2 Stock Purchase Agreement dated as of February 24, 1998, by
and between SRS Labs, Inc. and North 22 Capital Partners 2
Inc.
2.3 Registration Rights Agreement dated as of March 2, 1998 by
and among SRS Labs, Inc., Thomrose Holdings (BVI) Limited,
Cape Spencer International Limited and Rayfa (BVI)
Limited.
2.4 Escrow Agreement dated as of March 2, 1998 by and among
SRS Labs, Inc., Thomrose Holdings (BVI) Limited, Cape
Spencer International Limited, Rayfa (BVI) Limited, Thomas
Wah Tong Wan, as the Shareholders' Representative and
Harris Trust Company of California.
2.5 Noncompetition Agreement dated as of March 2, 1998 by and
among SRS Labs, Inc., Valence Technology Inc., Thomrose
Holdings (BVI) Limited and Thomas Wah Tong Wan.
2.6 Noncompetition Agreement dated as of March 2, 1998 by and
among SRS Labs Inc., Valence Technology Inc., Cape Spencer
International Limited and Wong Yin Bun.
2.7 Noncompetition Agreement dated as of March 2, 1998 by and
among SRS Labs, Inc., Valence Technology Inc., Rayfa (BVI)
Limited and Choi Yat Ming.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SRS LABS, INC.,
a Delaware corporation
(Registrant)
Date: March 12, 1998 By: /s/ THOMAS C.K. YUEN
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Thomas C. K. Yuen
Chairman of the Board and
Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
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2.1 Stock Purchase Agreement dated as of February 24, 1998, by and
among SRS Labs, Inc., Valence Technology Inc., and Thomrose
Holdings (BVI) Limited, Cape Spencer International Limited, Rayfa
(BVI) Limited, and Anki (BVI) Limited.
2.2 Stock Purchase Agreement dated as of February 24, 1998, by and
between SRS Labs, Inc. and North 22 Capital Partners 2 Inc.
2.3 Registration Rights Agreement dated as of March 2, 1998 by and
among SRS Labs, Inc., Thomrose Holdings (BVI) Limited, Cape
Spencer International Limited and Rayfa (BVI) Limited.
2.4 Escrow Agreement dated as of March 2, 1998 by and among SRS Labs,
Inc., Thomrose Holdings (BVI) Limited, Cape Spencer International
Limited, Rayfa (BVI) Limited, Thomas Wah Tong Wan, as the
Shareholders' Representative and Harris Trust Company of
California.
2.5 Noncompetition Agreement dated as of March 2, 1998 by and among
SRS Labs, Inc., Valance Technology Inc., Thomrose Holdings (BVI)
Limited and Thomas Wah Tong Wan.
2.6 Noncompetition Agreement dated as of March 2, 1998 by and among
SRS Labs Inc., Valence Technology Inc., Cape Spencer
International Limited and Wong Yin Bun.
2.7 Noncompetition Agreement dated as of March 2, 1998 by and among
SRS Labs, Inc., Valence Technology Inc., Rayfa (BVI) Limited and
Choi Yat Ming.