European microsystem supplier MEMSCAP has entered into definitive agreement to acquire GalayOr and to concurrently increase its share capital by cash from financial investors.

European microsystem supplier MEMSCAP has entered into definitive agreement to acquire GalayOr and to concurrently increase its share capital by cash from financial investors.

GalayOr ("Light Wave" in Hebrew) was founded in 2000 following four years of research at Tel Aviv University, Israel. The 16-people company is engaged in the development and fabrication of low cost mass producible and dynamically configurable all-silicon integrated components for optical communications vendors and optical interconnects. GalayOr has joint development agreements with JDS Uniphase and Analog Devices.

GalayOr and MEMSCAP previously entered into a partnership agreement to bring to market a new generation of optical products, starting from an integrated closed loop digital variable optical attenuator (VOA).

"After a year of diversification, 2003 is the year of rationalization, of reinforcement of the company financial fundamentals and focus on its high growth core businesses," says Jean Michel Karam, president and CEO of MEMSCAP.

MEMSCAP will acquire GalayOr by initially issuing 19.3mn shares to GalayOr shareholders, upon closing of the transaction. In addition, MEMSCAP may be required to issue up to 11.6mn additional shares from earn-out considerations contingent on GalayOr achieving certain revenue targets over a three year period after closing.

Following the acquisition, Uri Geiger, CEO of GalayOr, will become the president and general manager of the MEMSCAP Optical business unit. The acquisition is subject to customary approvals and review including the approval of MEMSCAP shareholders, review of the transaction by an independent appraiser (commissaire aux apports) and approval of the stock market regulatory authorities.

Concurrently with the acquisition, MEMSCAP entered into an agreement with investors to fund MEMSCAP by a minimum of $3.5mn by increasing its share capital in cash. The number of issued shares will be calculated based on the 90 trading day average price prior to the date of closing. Investors have further committed, subject to certain conditions, to participate on a short-term basis to an additional $1.5mn capital increase.

At this stage, investment contributions come mainly from SPEF Venture, Evergreen Partners, Platinum Neuron Ventures, STI Ventures, ETF, Innovacom and Jean Michel Karam.

MEMSCAP also reports on its first half performance - EUR3.8mn revenues, compared with EUR2.5mn in H1 2002. Net losses were EUR13.9mn in H1 2003 (EUR10.3mn in H1 2002).

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