<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- -------------
Commission File Number 0-9160
INTEK DIVERSIFIED CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2450145
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
970 West 190th Street, Suite 720
Torrance, California 90502
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (310) 366-7335
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ ------
The number of shares outstanding of each of the issuer's classes of Common
Stock, $0.01 par value, as of May 13, 1996, is 11,105,278 shares.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEK DIVERSIFIED CORPORATION
(Roamer One, Inc. Prior to September 23, 1994 Reverse Merger)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Thousands, except share and per share amounts)
For the three month period ended March 31, 1996 and 1995, and for the period
from inception(February 4, 1994) through March 31, 1996
<TABLE>
<CAPTION>
Inception
Three Months Ended (February 4, 1994)
March 31 Through Mar 31,
------------------------- ------------------
1996 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 496 $ 307 $ 4,372
Cost of goods sold 445 278 3,991
----------- ---------- ----------
Gross profit 51 29 381
Operating expenses:
Site 370 78 925
Selling 117 5 300
General administrative 508 692 4,230
----------- ---------- ----------
Operating loss (944) (746) (5,074)
Other income (expense):
(Loss) gain on sale of
assets held for sale (126) 1,340 1,077
Interest (20) (74) (270)
Financing costs (79) -- (714)
Other 12 6 48
----------- ---------- ----------
Net profit (loss) $ (1,157) $ 526 $ (4,933)
----------- ---------- ----------
----------- ---------- ----------
Net loss per share $ (0.11) $ 0.06 $ (0.65)
----------- ---------- ----------
----------- ---------- ----------
Weighted average number
of shares outstanding 10,874,982 8,917,249 7,641,532
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
2
<PAGE>
INTEK DIVERSIFIED CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(Thousands)
ASSETS
March 31, 1996 (Unaudited) and December 31, 1995
<TABLE>
<CAPTION>
UNAUDITED
March 31 December 31
1996 1995
--------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,513 $ 678
Accounts receivable, net
of allowance for
doubtful accounts of $61
in 1996 and $60 in 1995 884 1,199
Note receivable, current
portion 56 54
Inventories of equipment 1,102 1,248
Prepaid expenses and
other current assets 545 77
Assets held for sale 1,555 1,555
------- -------
Total current assets 5,655 4,811
------- -------
PROPERTY AND EQUIPMENT, AT COST 7,712 7,535
Less-accumulated depreciation (49) (37)
------- -------
7,663 7,498
------- -------
NOTE RECEIVABLE 85 100
------- -------
INVESTMENT IN JOINT VENTURE
AND OTHER ASSETS 125 125
------- -------
TOTAL ASSETS $13,528 $12,534
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
3
<PAGE>
INTEK DIVERSIFIED CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 1996 (Unaudited) and December 31, 1995
<TABLE>
<CAPTION>
UNAUDITED
March 31 December 31
1996 1995
--------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 601 $ 301
Accrued liabilities 468 870
Related party payable 473 2,452
Notes payable 2,500 --
Licensee deposits 419 344
------- -------
Total current liabilities 4,461 3,967
------- -------
DEFERRED INCOME TAXES 633 633
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value
Authorized - 20,000,000 shares
Issued - 11,475,860 in 1996,
11,086,215 in 1995 115 111
Capital in excess of par value 14,023 12,369
Treasury stock, at cost-465,582
shares in 1996 and 1995 (770) (770)
Deficit accumulated during the
development stage (4,934) (3,776)
------- -------
TOTAL SHAREHOLDERS' EQUITY 8,434 7,934
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $13,528 $12,534
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
4
<PAGE>
INTEK DIVERSIFIED CORPORATION
(Roamer One, Inc. Prior to September 23, 1994 Reverse Merger)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Thousands)
For the three month period ended March 31, 1996 and 1995, and for the period
from inception(February 4, 1994) through March 31, 1996
<TABLE>
<CAPTION>
Inception
Three Months Ended (February 4, 1994)
March 31 Through March 31,
------------------------- ------------------
1996 1995 1996
----------- ---------- ------------------
<S> <C> <C> <C>
Cash Flows From
Operating Activities:
Net profit (loss) $ (1,157) $ 526 $(4,934)
-------- -------- -------
Adjustments to reconcile
net loss to net cash
used in operating activities:
Financing costs 75 -- 710
Management fees -- -- 425
Depreciation and amortization 12 33 74
Loss (gain) on sale of
assets held for sale -- (1,340) (1,203)
Changes in assets and
liabilities:
Decrease (increase) in:
Accounts receivable 315 122 (176)
Notes receivable 13 15 81
Inventories 146 (31) (1,102)
Prepaid expenses and
other current assets (93) 217 (53)
Increase (decrease) in:
Accounts payable 300 96 235
Licensee deposits 75 (3) 419
Accrued liabilities (402) 121 331
Deferred income taxes -- -- (90)
-------- -------- -------
Total Adjustments 441 (770) (349)
-------- -------- -------
Net cash used in operating
activities (716) (244) (5,283)
5
<PAGE>
Cash Flows From Investing
Activities:
Capital expenditures (177) (833) (3,712)
Equity acquired in reverse
merger -- -- 3,228
Net change in assets
acquired in reverse merger -- -- (3,739)
Proceeds, net of note receivable,
from sale of assets held
for sale -- 2,686 3,869
Investment in joint venture -- -- (125)
Change in working capital
of discontinued operations -- (113) (40)
-------- -------- -------
Net cash provided by (used in)
investing activities (177) 1,740 (519)
Cash Flows From Financing
Activities:
Issuance of common stock 1,207 -- 2,552
Loan proceeds 2,500 -- 5,000
Principal payments
on borrowings -- -- (1,392)
Related party borrowings (1,979) (1) 474
-------- -------- -------
Net cash provided by
financing activities 1,728 (1) 6,634
-------- -------- -------
Net increase (decrease)
in cash and cash equivalents 835 1,495 832
Cash and cash equivalents
at beginning of period 678 1,557 427
Cash and equivalents
acquired in reverse merger -- -- 254
-------- -------- -------
Cash and cash equivalents
at end of period $ 1,513 $ 3,052 $ 1,513
-------- -------- -------
-------- -------- -------
Supplemental disclosures of
cash flow information:
Cash paid for interest $ -- $ 75 $ 227
Cash paid for income taxes $ 7 $ 2 $ 12
Non-cash transactions (see Note 3a)
</TABLE>
The accompanying notes are an integral part of these consolidated statements
6
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(1) PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by INTEK Diversified Corporation (the "Company" or "INTEK"),
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, and the Company believes that the disclosures are adequate
to not make the information presented misleading. These condensed consolidated
financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual
report on Form 10-K.
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary to a fair presentation of the condensed
consolidated financial statements for the interim periods presented taken as a
whole. These adjustments are of a normal and recurring nature. The results of
the interim periods are not necessarily indicative of results to be expected
for the entire year.
(2) BUSINESS AND SIGNIFICANT RISKS
a. DEVELOPMENT STAGE ENTERPRISE
INTEK Diversified Corporation ("INTEK" or the "Company") was incorporated
in 1969 and had been primarily engaged in the business of molding, fabricating
and selling plastic products through its wholly owned subsidiary, Olympic
Plastics Corporation ("Olympic Plastics").
On September 23, 1994, a newly formed, wholly-owned subsidiary of INTEK,
Romnet, Inc., a Delaware corporation, acquired all of the issued and outstanding
stock of Simrom, Inc. ("Simrom"), an Ohio corporation in exchange for 6,000,000
shares of INTEK common stock. Effective September 23, 1994, Simrom merged with
and into Romnet, Inc. (the "Merger"). After the merger of Simrom into Romnet,
Inc., the surviving corporation changed its name to Roamer One, Inc.
("Roamer One") and redirected the focus of the Company and its resources to
the development of the Roamer One business and the telecommunications industry
and to discontinue and divest the operations of Olympic Plastics. Since the
former shareholders of Roamer One retained more than a 50 percent controlling
interest in the surviving company (INTEK), the business combination was
treated as a reverse merger for accounting purposes. Roamer One s principal
assets were certain rights relating to licenses granted by the FCC for the
220 MHz to 222 MHz ("220 MHz") narrowband spectrum. Pursuant to the Merger,
Roamer One s net deficit equity of $338,637 was transferred to INTEK.
Pro forma combined operating results of the merged companies are not
presented since INTEK's former business is treated as if it were a divested
operation.
7
<PAGE>
Through its wholly-owned subsidiary, Roamer One, the Company is now a
development stage enterprise and is constructing, and plans to operate, a
Specialized Mobile Radio ("SMR") network in the United States utilizing certain
rights and benefits afforded it by licensees in the newly allocated 220 MHz
spectrum. Roamer One's business has been conducted by the Company since
September 23, 1994 when the Merger became effective.
Contracts between Roamer One and certain holders of 220 MHz licensees have
been classified by Roamer One as either: Category I, Category II, or
Category III Agreements. Under the Category I Agreements, each of the
licensees (which are, in some instances, directors of the Company) have
entered into an "Exclusive Management Agreement and Right of First Refusal"
(the "Management Agreement"). The Management Agreement permits Roamer One to
retain 100% of the subscriber revenues until such time as $200,000 is earned
from system operation, after which time the licensee receives 10% of the
gross subscriber revenues. Each licensee under a Category I Agreement also
has entered into an Option to Purchase Agreement (the "Option Agreement")
providing Roamer One with the exclusive right to purchase the constructed
220 MHz SMR system, together with the 220 MHz license. Under the Option
Agreement, Roamer One is required to fund all capital costs and operating
expenses. The purchase under the Option Agreement may be exercised by Roamer
One at any time after construction by Roamer One of the 220 MHz SMR system
is completed.
Under Category II Agreements, each of the licensees has entered into a
Management Agreement which permits Roamer One to earn and retain a percentage of
the gross subscriber revenues. Each of the licensees also has entered into an
Option Agreement. However, the option may be exercised only after a prescribed
period of operation. Roamer One is required to finance the building of the
220 MHz SMR system and contribute operating capital until such time as the
system is profitable. The purchase price of the 220 MHz SMR system, together
with the 220 MHz license, is computed using a multiple of earnings at the
time of purchase.
Under the Category III Agreements, each of the licensees has entered into a
management agreement providing that Roamer One will manage the 220 MHz SMR
system for a fee based upon a percentage of subscriber revenues earned from
system operation. Under a Category III Agreement, Roamer One has no option
to purchase such 220 MHz SMR system but does have a right of first refusal
to purchase the system in the event an acceptable offer to buy such system is
submitted to the licensee by a third party. The licensees under Category III
Agreements are obligated to provide the funds for the system construction
and operating costs.
While 170 systems (for which the Company has management agreements for
161 of such constructed systems) have been constructed by Roamer One as of
March 31, 1996, the number of subscribers to the service is insignificant
and the Company's proposed marketing strategy has just begun to be
implemented. The focus of the Company has been directed to the construction
of as many systems as possible by the Federal Communication Commission's
(the "FCC") deadline date. On January 26, 1996, the FCC adopted a Second
Report and Order in PR Docket No. 89-552 and GN Docket No. 93-252 that
extended the construction deadline to March 11, 1996 for all non-nationwide
220 MHz licenses that elect to construct their base station at their currently
authorized location, and to August 15, 1996 for all licensees granted
authority to modify their licenses to relocate their base stations. The FCC
granted licensees until May 1, 1996 to submit applications for permanent
8
<PAGE>
modifications to site locations. Systems that have been completed are being
used for testing of the Company's billing system software, signal coverage,
and system performance. Subscriber loading began in selected markets during
the first quarter of 1996. No assurances can be made that Roamer One will
ultimately complete all of the sites which are currently subject to its
management agreements or that it will obtain subscribers for completed sites.
In particular, certain vendors who will supply equipment needed to construct
these systems may not be able to supply the equipment in time to allow the
completed construction of all systems prior to August 15, 1996.
In addition, Roamer One must raise a significant amount of capital to
complete and operate the systems it must finance. No significant revenues are
expected to be generated from the operation of these systems prior to the third
quarter of 1996.
b. LICENSEE UNDER FCC AUTHORITY
The construction, licensing, operation, sale, management, ownership, and
acquisition of 220 MHz licenses are regulated by the FCC. The Company's actions
with respect to 220 MHz systems which it owns or manages may be delayed by
the time required to obtain FCC approval or consent for certain actions, or
such approval or consent may be denied or withheld. FCC requirements also may
impose certain costs or requirements upon the Company which it would not bear
in the absence of regulation.
Because the Company's business is regulated by the FCC, its business
affairs (and those of its actual and potential competitors) are always
subject to changes in FCC rules and policies. Such changes, which generally
follow extensive FCC consideration, can increase the level of competition,
the cost of regulatory compliance, the methods in which the Company manages
its systems, the difficulty in obtaining or keeping licenses, standards for
products and services or other facets of the Company's regulatory environment.
Further, each FCC proceeding which might affect the Company is subject to
reconsideration, appellate review, and FCC modification from time-to-time.
To the extent that the Company or the licensee does not construct or
operate any 220 MHz system in compliance with applicable FCC requirements,
the Company or the licensee of such system could be subject to increased
regulatory requirements, formal or informal FCC investigations, loss or
cancellation of licenses which it may in the future acquire, imposition of
monetary forfeitures, or disqualification from holding further FCC licenses.
Such risks could arise from the Company's failure to meet FCC construction
deadlines, the licensee's failure to maintain ultimate control over its system,
or the level and type of alien ownership and control in either the Company
or licensee.
The FCC requires that licensees maintain de jure and de facto control of
their radio systems at all times. This requirement is applicable to the
220 MHz licenses which the Company seeks to operate as a result of management
agreements entered into between the Company and various licensees. A failure
to maintain control can result in an FCC investigation or hearing, imposition
of monetary forfeitures, or revocation of a license. Although management
agreements are common in the SMR industry, the FCC has not issued any
guidelines specifically applicable to 220 MHz management agreements and has
not considered or passed on the compliance of the Company's management
agreements with general FCC guidelines or policies. No assurance can be given
that the Company's management agreements or course of conduct in acquiring
9
<PAGE>
rights to the 220 MHz systems will be found to comply with
such FCC requirements.
c. SITE CONSTRUCTION DEADLINE
If the systems for the licenses that are subject to the Company's purchase
option and management agreements are not constructed within the period
required by the FCC, such licenses revert to the FCC. The construction
deadline as set by the FCC of December 31, 1995 was amended in late 1995 to
February 2, 1996. On January 26, 1996, the FCC adopted a Second Report and
Order in PR Docket No. 89-552 and GN Docket No. 93-252 that extended the
construction deadline to March 11, 1996 for all non-nationwide 220 MHz
licenses that elect to construct their base station at their currently
authorized location, and to August 15, 1996 for all licensees granted
authority to modify their licenses to relocate their base stations. There is
currently a case pending before the U.S. Court of Appeals, D.C. Circuit, filed
by another 220 MHz service provider, which challenges the FCC's denial of its
request to provide multiple-market service on a single system, and a request
for an extension of its construction deadline. There is no assurance that this
appeal, if successful, will impact the deadline for construction previously
announced by the FCC for licenses in which the Company has an interest.
The Company has management agreements for 439 licenses. Of the 170 systems
it has constructed as of March 31, 1996, the Company has management agreements
for 161 systems. The remaining 9 systems were constructed for, and sold to,
Voice Data Communications ("VDC"), an Ohio corporation pursuant to a supply
agreement with the Company. The Company has not entered into management
agreements for these systems at this time. No assurance can be made that the
Company will enter into such management agreements. The Company also has
management agreements for 28 systems that were constructed by third parties.
Of the 161 systems constructed by the Company for which it has management
agreements, 50 licenses are subject to approval by the FCC for modification
to the site locations. In the absence of such approval, the Company would
lose all rights and privileges afforded under the contracts.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. CASH FLOW STATEMENT
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
The following summarizes the supplemental disclosure of non-cash
investing and financing activities:
During 1995, the Company exchanged 162,000 shares of its common stock for
certain loan extension fees valued at $635,000 (equating to $3.92 per share) and
937,042 shares of its common stock for equipment purchased from Securicor valued
at $4,000,000 (equating to $4.27 per share). The values attributed to the common
stock were the approximate fair market values on the dates of issuance.
On September 23, 1994, the Company exchanged 6,000,000 shares of its common
stock for 100 percent of the common stock of Simrom, Inc., in the Merger
which was accounted for as a reverse merger (See Note 1). Accordingly,
10
<PAGE>
the assets and liabilities of INTEK at September 23, 1994 are assumed to have
been acquired by Roamer One.
On November 22, 1994, the Company issued 100,000 shares of its common stock
in exchange for certain management services valued at $425,000 (equating to
$4.25 per share), which was the approximate fair market value at the date of
issuance.
In November, 1994, the Company obtained a $2,500,000 loan from Quest
Capital Corporation ("Quest"), formerly known as Noramco Mining Corporation,
to fund the initial costs of implementing Roamer One's construction program.
During the second quarter of 1995, the Company reduced the principal balance
to $1,600,000 and on December 29, 1995 the Company issued 336,842 shares
(at a value of $4.75 per share) of INTEK common stock to Quest as payment
in full of the principal then due.
On February 29, 1996, the Company raised $2,500,000 through the issuance of
a Senior Secured Debenture to MeesPierson ICS Limited, a UK limited liability
company. INTEK also issued 50,000 shares of its common stock under
Regulation S of the Securities Act of 1933, as amended (the "Securities Act"),
to MeesPierson as a closing fee for its investment banking services.
See Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations For the Three Month Period Ended March 31, 1995 and
For the Three Month Period Ended March 31, 1996 -- Liquidity and
Capital Resources.
b. REVENUE RECOGNITION
Revenue is recognized for sales of equipment when delivered. Subscriber
revenue derived from Category I and Category II agreements is recognized at the
time subscribers are billed as a percentage of subscriber billings per the terms
of the management agreements. Management fees related to Category III agreements
are recognized at the time subscribers are billed based upon a percentage of
subscriber revenues per the terms of the management agreements.
c. CONCENTRATIONS OF RISK
Accounts receivable are unsecured and the Company is at risk to the extent
such amounts become uncollectible. As of March 31, 1996, VDC comprised 89% of
the Company's accounts receivable.
The Company's equipment sales are to customers located primarily in the
United States. During the three months ended March 31, 1996, the Company had
sales to one customer (discussed above) which represented approximately 99%
of sales. During the three months ended March 31, 1995, the same customer
represented 100% of sales.
The Company purchases a significant portion of its equipment from suppliers
located outside the United States. The Company believes that if these foreign
suppliers were no longer available, it would be able to obtain the equipment
from existing suppliers located within the United States. The Company believes
this would not have a severe impact on its financial position or results
of operations.
11
<PAGE>
(4) INVENTORIES
Inventories at March 31, 1996 and December 31, 1995 consist of the
following (in thousands):
1996 1995
-------- --------
Site installations $ 529 $ 549
Mobile radios 573 699
-------- --------
$ 1,102 $ 1,248
-------- --------
-------- --------
(5) PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1996 and December 31, 1995 consist
of the following (in thousands):
1996 1995
-------- --------
Site equipment $ 7,449 $ 7,283
Furniture and fixtures 73 73
Computers 190 179
-------- --------
Total property and equipment, at cost 7,712 7,535
Less accumulated depreciation (49) (37)
-------- --------
Net property and equipment $ 7,663 $ 7,498
-------- --------
-------- --------
(6) DIRECTOR COMPENSATION
Members of the Board of Directors are compensated for services at the
rate of $4,000 per year plus $500 per meeting to a maximum of $10,000 per
director. For the three months ended March 31, 1996, the Company paid
Directors fees of $15,500 that were accrued as of December 31, 1995 and has
accrued $18,000 for unpaid directors fees. For the three months ended
March 31, 1995, the Company did not accrue for, nor did it pay, Directors fees.
(7) STOCK OPTION PLAN
A summary of the Company's Stock Option Plans as of March 31, 1996 is as
follows:
OPTION PRICE
1988 Plan SHARES PER SHARE
--------- -------- ---------
Shares granted:
January 1, 1987 155,000 $ 1.750
Shares terminated (97,500) 1.750
Shares exercised in 1995 (57,500)
-------
Shares under option 0
-------
12
<PAGE>
1994 Stock Option Plan
----------------------
Shares granted:
September 23, 1994 50,000 $ 2.750
September 23, 1994 330,000 3.750
December 20, 1995 72,000 5.875
Shares exercised in 1995 (40,000)
Shares exercised in 1996 (102,000)
-------
Shares under option 310,000
-------
1994 Directors' Stock Option Plan
---------------------------------
Shares granted:
September 23, 1994 120,000 $ 3.75
-------
Total shares under option 430,000
-------
-------
As of March 31, 1996, options available for future grant were as follows:
1988 Plan 442,500
1994 Stock Option Plan 148,000
1994 Directors Plan 180,000
-------
770,500
-------
-------
(8) Related Party Transactions
Pursuant to a management agreement dated September 23, 1994, the Company
paid an annual management fee of $200,000 to Peter Paul Corporation, Inc., an
affiliate of Anglo York Industries, Inc., a stockholder of the Company.
Peter Paul Corporation, Inc., made the services of Mr. Vincent Paul, Vice
Chairman of the Board of Directors, available to the Company without
additional compensation. The management agreement terminated on
January 31, 1996 upon the death of Mr. Paul. For the three months ended
March 31, 1996 and 1995, the Company paid management fees of $16,667 and
$50,000 respectively to Peter Paul Corporation, Inc.
For both the three months ended March 31, 1996 and 1995, the Company
incurred and paid $30,000 to Roamer One Holdings, Inc. ("ROH"), a stockholder
of the Company and a company controlled by Nicholas R. Wilson, Chairman of the
Board of the Company for the services of Mr. Nicholas Wilson. During the
three months ended March 31, 1995, the Company also paid $30,000 to ROH
that had been accrued as of December 31, 1994.
For both the three months ended March 31, 1996 and 1995, the Company
incurred and paid $30,000 to SCL, a stockholder of the Company, for
management services. During the three months ended March 31, 1995, the
Company also paid $30,000 to SCL that had been accrued as of December 31, 1994.
For the three months ended March 31, 1996, the Company incurred and paid
$24,000 to Simmonds Mercantile and Management Inc., a company controlled by SCL,
for consulting services.
13
<PAGE>
Pursuant to a Financing Agreement and related agreements between the
Company, Roamer One, SCL and Securicor LMT, an affiliate of Securicor
International Limited,a stockholder of the Company, prior to 1996, Securicor
had delivered approximately $4,000,000 worth of base station equipment and
mobile radios in exchange for 937,042 shares of the Company's common stock
to Securicor LMT. Pursuant to the Financing Agreement, such shares were
issued at a share price of $4.26875. The financing agreement calls for Roamer
One to purchase a total of approximately $7.9 Million in equipment. As of
March 31, 1996, Roamer One had purchased $5.4 million. On May 7, 1996,
the Company wired approximately $2 million to Securicor LMT for purchases
of additional repeater systems for installation prior to August 15, 1996 and
for mobile radios to be used on the systems.
The Company and SCL have an arrangement whereby Roamer One, Inc. purchases
equipment and installation services from SCL. During the three months ended
March 31, 1996, Roamer One, Inc. purchased $422,121 of radio equipment and
installation services from SCL. Previous accounts payable for equipment
totaled $2,421,587. Roamer One made cash payments to SCL totaling $2,402,570
leaving a balance of $441,138 as of March 31, 1996.
Kohrman Jackson & Krantz, a Cleveland, Ohio, law firm of which Steven L.
Wasserman is a partner, performs legal services for the Company and its
subsidiaries. Mr. Wasserman is a member of the Company's Board of Directors. The
law firm received fees of $33,877 during the first three months of 1996 and
$10,000 during the first three months of 1995 from INTEK.
On February 29, 1996, the Company borrowed $2,500,000 from MeesPierson ICS,
Ltd. The loan is due in six months and bears interest at a rate based on the
Bank of America Prime Rate. The loan is secured by the land and building
owned by Olympic Plastics (the "Property") and by the equipment related to
15 Category I licenses. A closing fee was paid to MeesPierson ICS, Ltd of
50,000 shares of the Company's common stock issued under Regulation S of the
Securities Act of 1933 as amended. An agency fee of $25,000 cash was paid to
Octagon Capital Corp. At December 31, 1995, Octagon Investments, Ltd had
beneficial interest in 8% of the Company's outstanding common
stock and stock options.
The Company believes that the terms of the transactions and the agreements
described above are on terms at least as favorable as those which it could
otherwise have obtained from unrelated parties. On-going and future transactions
with related parties will be (1) on terms at least as favorable as those which
the Company would be able to obtain from unrelated parties; (2) for bona fide
business purposes; and (3) approved by a majority of the disinterested and
non-employee directors.
(9) INVESTMENT IN JOINT VENTURE
In May 1995, INTEK contributed $125,000 for an ownership interest in
Ventel, Inc., a publicly traded company in Canada. Ventel was formed for the
purpose of providing financing to various 220 MHz SMR management companies
in the United States. SCL is also an investor in Ventel. INTEK and SCL
entered into separate management services agreements with Ventel to provide
certain management services and technical expertise for the development and
implementation of Ventel's ongoing business strategy. Nicholas Wilson and
John Simmonds, directors of the Company, are directors of Ventel and
John Simmonds
14
<PAGE>
is President of Ventel. To date, INTEK has received 100,000 shares of the
common stock of Ventel which represents 0.4% of the outstanding shares at
March 31, 1996.
(10) COMMITMENTS
As of March 31, 1996, Roamer One had negotiated 178 site leases to permit
installation, operation, and maintenance of transmission/reception equipment
facilities in connection with the 220 MHz SMR systems. These leases generally
have a five-year term, with three consecutive five-year extension periods upon
the mutual agreement of the parties. As of March 31, 1996, Roamer One has
entered into 74 site leases relating to Category I Licensees; 30 site leases
relating to Category II Licensees; and arranged for its Category III licensees
to enter into 74 site leases. As of March 31, 1996, Roamer One had paid
$446,263, before reimbursements, in site lease fees pertaining to 1996.
As of March 31, 1996, total future minimum lease payments for the Category I
and Category II site leases, which are contractual obligations of Roamer One,
are as follows:
1996 $626,377
1997 797,938
1998 711,873
1999 668,716
2000 336,428
Thereafter --
----------
$3,141,332
----------
----------
(11) MAJOR CUSTOMERS
Roamer One has commenced construction and management of 220 MHz Specialized
Mobile Radio systems pursuant to Management Agreements. Of these agreements, 257
obligate the licensee to provide the funds for system construction and operating
costs. During the first three months of 1996 and 1995, billing for site
equipment, construction and installation accounted for 100% of consolidated
net sales. As of March 31, 1996, a total of 70 systems had been completely
constructed for one customer, VDC. During the first three months of 1996, a
total of 19 systems had been delivered and invoiced to VDC at a gross profit
of $52,000.
(12) ASSETS HELD FOR SALE
As of March 31, 1996, the Company completed four sales totaling
$4,022,407 for equipment and inventory owned by Olympic Plastics. The Company
received cash of $3,618,654 and a note in the remaining principal amount of
$140,753 bearing interest at the rate of ten percent (10%) per annum with
monthly principal and interest payments and a maturity date of July, 1998.
On March 22, 1996, the Company entered into a Purchase Agreement and escrow was
opened for sale of the Property. The sale price is $2,200,000 and the
Property has a book value of $1,555,000. The Property is encumbered by a
deed of trust in favor of MeesPierson ICS Limited in the amount of $2,500,000.
15
<PAGE>
Escrow is scheduled to close on or before June 4, 1996, subject to the buyer's
ability to obtain financing, and the results of updated appraisal, and
environmental reports.
(13) SALE OF SECURITIES
On December 4, 1995, the Company sold 170,000 shares and a warrant of the
Company's common stock outside the United States under Regulation S of the
Securities Act of 1933, as amended. The sale generated $1,020,000.
The warrant was exercised on February 29, 1996 for 36,645 shares at a price
of $0.01 per share.
On January 12, 1996, the Company sold 201,000 shares of the Company's
common stock outside the United States under Regulation S of the Securities
Act. The sale generated $849,342.
On February 29, 1996, the Company raised $2,500,000 through the issuance of
a Senior Secured Debenture (the "Debenture") to MeesPierson ICS Limited, a UK
limited liability company ("MeesPierson"). INTEK also issued 50,000 shares
of its common stock under Regulation S of the Securities Act of 1933, as
amended to MeesPierson as a closing fee for its investment banking services
and paid an agent fee of $25,000 to Octagon Capital Canada Corporation
("Octagon"). The Debenture matures six months from the date of issuance and
bears interest at a rate based on the Bank of America Prime Rate. The
Debenture is secured by a lien on the Property and the equipment related to
15 Category I licenses.
(14) PROPOSED MERGER
On March 7, 1996, INTEK, SCL and Securicor Group plc ("Securicor")
signed a Letter of Intent to combine certain of their wireless communication
businesses and related technology (the "Combination"). The Combination will
combine INTEK's Roamer One air time services business with the United States
land mobile radio business of Midland International Corporation, a
wholly-owned subsidiary of SCL ("Midland"), and the narrowband wireless
technology and manufacturing operations of Securicor Radiocoms Limited
("SRL"), a wholly-owned subsidiary of Securicor. If the proposed Combination
is consummated, INTEK will become an integrated wireless company providing
air time services, product distribution and manufacturing for the Land Mobile
Radio market. The proposed Combination is subject to the satisfactory
completion of due diligence reviews by the parties, the negotiation and
execution of definitive documents and other customary closing conditions,
including the receipt of regulatory and third party approvals and consents
and the approval of INTEK's stockholders. The parties expect the Combination
to close during the third quarter of 1996. The proposed Combination replaces
the previously announced acquisition of Midland by INTEK.
Under the terms of the Letter of Intent, INTEK will purchase a license
from Midland for the use of the Midland trademark in the United States for
the Land Mobile Radio market (the "Midland License") in exchange for
approximately 2,500,000 shares of INTEK common stock. In addition, INTEK will
purchase for cash from Midland certain assets which are used in the Midland
business. SCL will retain the international operations of Midland and its
operations as a systems integrator for wide area communications networks. SCL
may provide
16
<PAGE>
certain management services to INTEK for the support of the Midland two-way
radio business in the United States. The Letter of Intent also provides that
INTEK will acquire all of the shares of SRL in exchange for approximately
2,500,000 shares of INTEK common stock. The SRL business includes the Linear
Modulation radio technology, a manufacturing facility in Bath, England, a
network of wireless dealers and resellers in the United Kingdom, a Specialized
Mobile Radio network in England, a wireless systems integration business, and
all of Securicor s convertible preferred shares in E.F. Johnson, a manufacturer
of wireless communications equipment located in Waseca, Minnesota. INTEK has
retained the investment banking firm FAHNESTOCK & Co., Inc. to provide
financial advisory services to INTEK including an opinion as to the fairness,
from a financial point of view, to the stockholders of INTEK of the terms of
the proposed transactions. FAHNESTOCK & Co. will be paid a cash fee for its
services.
(15) SUBSEQUENT EVENTS
On April 26, 1996, the Company sold a series of 6.5% Notes (with attached
warrants)(the "Notes") to qualified off-shore purchasers through Global Emerging
Markets/Northeast Securities, Inc. pursuant to Regulation S under the Securities
Act. Net proceeds to the Company, after fees and brokerage commissions, were
$4,750,000. The Notes mature on April 25, 1999 and bear interest at the rate of
6.5% per annum. All accrued interest is due and payable at the time the Notes
mature or upon exercise of the warrants. The warrants (pursuant to which the
principal amounts of the Notes will be converted into shares of common stock of
the Company) become exercisable on July 26, 1996. The warrants are exercisable
at discounts (ranging from 0%-25%) from the market price of INTEK's common stock
on the exercise date.
In anticipation of the acquisition of the Midland License, INTEK formed
a wholly-owned subsidiary, Midland USA, Inc. On May 3, 1996, INTEK arranged
for wire transfers and letters of credit in the aggregate amount of
approximately $1,500,000 to key vendors of Midland. These arrangements were
conditioned upon an indemnification agreement by SCL whereby SCL will
indemnify Midland USA, Inc. from any losses arising from any payment made by
the Company. Such indemnity terminates upon the effective date of the
proposed Combination.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND FOR THE THREE
MONTH PERIOD ENDED THROUGH MARCH 31, 1995
The following discussion and analysis sets forth certain factors which produced
changes in the Company's results of operations during the three months ended
March 31, 1996 and as compared with the same period in 1995 as indicated in the
Company's consolidated financial statements in accordance with reverse merger
accounting treatment.
1996 RESULTS OF OPERATIONS
NET SALES. As of March 31, 1996, the Company completed construction of
100 systems subject to Option Agreements, 61 systems subject to Management
Agreements and 9 systems pursuant to a supply agreement for a total of 170
systems. This is an increase of 148 systems over the 22 systems that were
constructed as of March 31, 1995. During the three months ended March 31,
1996, billings to licensees for site equipment, construction and installation
resulted in equipment sales of $354,000 and sales of mobile radios to
distributors of $142,000 for a total of $496,000. Site equipment sales for
the three months ended March 31, 1995 were $307,000 and there were no sales
of mobile radios.
COST OF GOODS. Cost of goods sold as a percentage of net equipment sales
was 89.7% for the first quarter of 1996, which is an improvement compared to
90.5% for the same quarter of 1995.
SITE EXPENSES. Site expenses are primarily tower lease, telephone (for
modem access), and insurance. For the first quarter of 1996, site expenses were
$370,000, up from $78,000 in 1995. The increased expenses were required to
support the additional 148 systems that were constructed after March 31, 1995.
SELLING EXPENSES. Selling expenses are primarily salaries, travel and
preparation of promotional material. The selling expenses for the first
quarter of 1996 were $117,000, an increase of $112,000 over the same period
last year due to the creation of a sales organization and the addition of
sales staff.
GENERAL ADMINISTRATIVE EXPENSES. General administrative expenses are
primarily salaries, consulting and management fees, legal and audit and merger
expenses to support the management of the systems, together with the efforts to
raise capital. These expenses were $508,000 during the first three months of
1996, a decrease of $184,000 compared to the first quarter of 1995. The
decrease was due to a reduction in consulting fees and credits on insurance
premiums realized in 1996 upon review by the insurance companies of 1995
activity.
OPERATING PROFIT (LOSS). For the three months ended March 31, 1996, the
operating loss was $944,000, up from $746,000 for the same period in 1995.
This was due to the cost of the infrastructure to manage the licenses and sell
services to subscribers.
GAIN ON SALE OF ASSETS HELD FOR SALE. During the three months ended
March 31, 1996, the Company incurred a cost of $126,000 to clean up the
Olympic Plastics building in preparation for its sale. During the three months
18
<PAGE>
ended March 31, 1995, the Company realized a gain of $1,340,000 from the sale
of the productive equipment and remaining inventory of Olympic Plastics.
INTEREST EXPENSE. Interest expense, included in other income (expense),
was $20,000 for the first quarter of 1996, down from $74,000 during the first
quarter of 1995. 1996 interest expense was accrued on the MeesPierson
Debenture. 1995 interest expense related primarily to the short-term
promissory note from Quest Capital. The 1996 financing cost was a closing
fee of 50,000 shares of common stock and an agent fee of $25,000 in cash
related to the MeesPierson debenture. The cost is being amortized over the
term of the debenture.
NET LOSS. The net loss was $1,157,000 for the first three months of 1996,
compared to a profit of $526,000 for the same period in 1995. Excluding the gain
on sale of assets of $1,340,000 the loss for 1995 would have been $814,000.
1995 RESULTS OF OPERATIONS
NET SALES. As of March 31, 1995, the Company completed construction of 22
systems pursuant to its Management Agreements. During the three months ended
March 31, 1995, billing to licensees for site equipment, construction and
installation resulted in equipment sales of $307,000.
COST OF GOODS. Cost of goods sold as a percentage of net equipment sales
was 90.5% in 1995.
SITE EXPENSES. Site expenses are primarily tower lease, telephone (for
modem access), and insurance. For the first quarter of 1995, site expenses were
$78,000.
SELLING EXPENSES. Selling expenses of $5,000 for the first quarter of 1995
were for advertising and promotion.
GENERAL ADMINISTRATIVE EXPENSES. General administrative expenses are
primarily salaries, consulting and management fees, legal and audit and merger
expenses. General administrative expenses for the first quarter of 1995 were
$692,000.
INTEREST EXPENSE. Interest expense, included in other income (expense),
was $74,000 in 1995.
OPERATING PROFIT (LOSS). Net loss from continuing operations in 1995 was
$814,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of cash is selling shares of its Common
Stock, borrowing against the Company's assets, selling the assets relating to
the Plastics Business and obtaining vendor financing. In the first quarter of
1996, the Company used $716,000 in cash for operating activities to pay
employees, vendors, site expenses and $177,000 for capital expenditures.
Through its financing activities, the Company raised approximately $3,707,000
in gross proceeds from which $1,979,000 was used to repay related party
borrowings. Cash for the quarter increased $835,000 over the year-end
balance. Subsequent to the end of the quarter, INTEK arranged for wire
transfers and letters of credit in the aggregate amount of $1,500,000 to key
vendors of Midland. See Item 1 -- Footnote 15 "Subsequent Events." Subsequent
to the end of the quarter, the Company paid $2,051,000 to Securicor as
deposits for equipment that has been ordered pursuant to a supply agreement
with Securicor related to the buildout of the Roamer One Network of 220 MHz
systems. See Item 1 -- Footnote 8 "Related Party Transactions."
Additional capital may be required to complete the build-out of the
Roamer One Network of 220 MHz SMR systems and to fund the administrative costs
of the Company prior to its generation of recurrent revenues on a
19
<PAGE>
consistent basis. The Company has invested the majority of its capital in the
equipment necessary to build out those sites for which it holds an option to
purchase.
BORROWINGS. In November, 1994, the Company borrowed from Quest Capital
Corporation ("Quest"), formerly known as Noramco Mining Corporation, $2,500,000
(the "Loan") bearing interest at the rate of twelve percent (12%) per annum. The
Loan was originally due in installments of $1,000,000 on December 30, 1994 and
$1,500,000 on March 31, 1995. Quest agreed to extend the term of the Loan
until the earlier of December 15, 1995, the sale of the Property or the
closing of any equity financing by INTEK, in exchange for 162,000 shares of
Common Stock of INTEK. The cost of $635,000 for the shares was amortized over
the 1995 extension period. On December 29, 1995, Quest agreed to convert the
Loan, through an offering pursuant to Regulation S under the Securities Act,
into 336,842 shares of Common Stock of INTEK and to release its liens in the
collateral and guarantees.
On February 29, 1996, the Company raised $2,500,000 through the issuance
of a Debenture to MeesPierson. INTEK also issued 50,000 shares of its Common
Stock under Regulation S of the Securities Act to MeesPierson as a closing fee
for its investment banking services and paid an agent fee of $25,000 to
Octagon. See "Certain Relationships and Related Transactions." The
Debenture matures six months from the date of issuance and bears interest
at a rate based on the Bank of America Prime Rate. The Debenture is secured
by liens on the Property and the equipment related to 15 Category I licenses.
On April 26, 1996, the Company raised $5,000,000 through the issuance of
subordinated notes and warrants to qualified purchasers through Global Emerging
Markets, LTD pursuant to Regulation S under the Securities Act of 1933, as
amended. Net proceeds to the Company, after fees and broker commissions,
were $4,750,000. The subordinated promissory notes mature on April 25, 1999
and bear interest at the rate of 6.5% per annum. All accrued interest is
payable at the time of maturity or upon exercise of the warrants. Warrants
are exerciseable for shares of common stock commencing the 90th day after
their issuance. The Warrants have an exercise price that is based on a formula.
EQUITY SALES. On June 30, 1995, the Company issued 947,042 shares of
Common Stock of INTEK to Securicor LMT in payment of invoices then outstanding
totaling $4,000,000. The shares were issued pursuant to the Financing Agreement
entered into between the companies on April 20, 1995.
On December 4, 1995, the Company sold 170,000 shares of the Company's
Common Stock and a warrant to acquire additional shares of Common Stock of INTEK
under Regulation S of the Securities Act. The sale generated $1,020,000 at a
discounted rate. On February 29, the warrant was exercised for 36,645 shares of
Common Stock of INTEK at $0.01 per share.
On January 12, 1996, the Company sold 201,000 shares of the Company's
Common Stock pursuant to an offering under Regulation S of the
20
<PAGE>
Securities Act. The sale generated $849,342 net of fees and broker commissions.
SALES OF ASSETS. The Company is pursuing the sale of the Property. The
sale price is $2,200,000. The Property has a net book value of $1,555,000. On
March 22, 1996, the Company executed the Property Purchase Agreement for the
sale of the Property and escrow was opened. If the Company is successful in
selling the Property (which Property is encumbered by a lien in favor of
MeesPierson in the amount of $2,500,000), the Debenture to MeesPierson will
be repaid, in part, with all the proceeds of such sale. While the Property
Purchase Agreement contemplates the closing on the sale to occur on or before
June 4, 1996, a number of conditions exist, such as the buyer's obtaining
financing, an updated appraisal and a satisfactory environmental report,
no assurance can be made that the conditions will be satisfied and the
Property sold in the near term.
During the first half of 1995, the Company entered into agreements to
sell the machinery, equipment and inventory of the Plastics Business to four
separate buyers. As of December 31, 1995, the Company completed four sales
totaling $4,022,407 for equipment and inventory. The Company received cash of
$3,868,560 and a note in the remaining principal amount of $153,847 bearing
interest at the rate of ten percent (10%) per annum with monthly principal
and interest payments and a maturity date of July, 1998. The first three
payments under this note were interest only. Of the proceeds from these sales,
$263,000 was applied against a note payable secured by Olympic's assets,
$900,000 was repaid to Quest under the Loan and the remainder was used
for working capital.
VENDOR FINANCING. The Company also is pursuing vendor financing for
equipment purchases for the build-out of the systems for the Roamer Network.
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings. None
Item 2. Changes In Securities. None
Item 3. Defaults Upon Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information. None
Item 6. Exhibits and Reports on FORM 8-K.
a. Exhibits
10.1 Form of Note and Purchase Agreement
10.2 Form of 6.5% Note
10.3 Form of Offshore Warrant
27 Financial Data Schedule.
b. Reports on Form 8-K
21
<PAGE>
The Registrant filed a report on Form 8-K on January 11, 1996 relating
to the sale of 201,000 shares of its Common Stock to five corporations and
one individual at purchase price of $4.25 per share net to the Company.
The report was filed pursuant to Item 5 of Form 8-K.
The Registrant filed a report on Form 8-K on February 8, 1996 extending
the closing date to January 31, 1996 for the acquisition of the wireless
communications business of SCL by the Company. The report was filed pursuant
to Item 5 of Form 8-K.
The Registrant filed a report on Form 8-K on March 8, 1996, announcing the
signing of the letter intent between INTEK, SCL, and Securicor to combine
certain of their wireless communication businesses and related technology. The
report also announced that INTEK had raised $2,500,000 through the issuance of
a Debenture to MeesPierson. The report was filed pursuant to Item 5 of
Form 8-K.
22
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
March 31, 1996
SIGNATURE
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.
DATED: May 15, 1995
INTEK DIVERSIFIED CORPORATION
By: /s/ Peter A. Heinke
---------------------------------------
Peter A. Heinke
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Chief
Accounting Officer)
23
<PAGE>
NOTE AND WARRANT
PURCHASE AGREEMENT
THIS NOTE AND WARRANT PURCHASE AGREEMENT ("Agreement") is made as of
this 15th day of April, 1996, by and between
____________________________________________, a(n) ________________________
(the "Purchaser"), and INTEK DIVERSIFIED CORPORATION, a Delaware corporation
(the "Company").
WHEREAS, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to acquire one of __________ 6.5% Notes, due April 15, 1999
(collectively, the "Notes"), issued by the Company in the aggregate principal
amount of U.S. $6,000,000 (the 6.5% Note to be issued to the Purchaser
hereunder being hereinafter referred to as the "Note"), outside of the
"United States" (as that term is defined in Regulation S ("Regulation S")
under the U.S. Securities Act of 1933, as amended (the "Securities Act"));
WHEREAS, nondetachable Offshore Warrants (the "Warrants") to purchase
shares of the Common Stock, par value U.S. $0.01 per share ("Common Stock"),
of the Company are attached to the Notes (the Offshore Warrant to be issued
to the Purchaser hereunder being hereinafter referred to as the "Warrant" and
the shares of Common Stock for which said Warrant may be exercised being
hereinafter referred to as the "Warrant Shares"); and
WHEREAS, pursuant to the terms of the Note, the exercise in full of the
Warrant in accordance with its terms and issuance of all of the Warrant
Shares shall constitute payment in full of the outstanding principal amount
of the Note;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained and of other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTE AND WARRANT
1.1 PURCHASE AND SALE. Subject to the terms and conditions set
forth herein, the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase, (i) the Note in the principal amount of U.S.
$_______________, which shall be in the form set forth as Exhibit A, and (ii)
the Warrant, which shall be in the form set forth as Annex A to the Note.
1.2 PURCHASE PRICE. The aggregate purchase price (the "Purchase
Price") to be paid by the Purchaser for the Note and Warrant shall be U.S.
$_______________.
1.3 CLOSING. The closing of the purchase and sale of the Note and
Warrant (the "Closing") shall take place at the offices of Robinson Silverman
Pearce Aronsohn & Berman LLP (the "Escrow Agent"), 1290 Avenue of the
Americas, New York, New York 10104, immediately following the execution
hereof. The date of this Agreement is sometimes hereinafter referred to as
the "Closing Date."
1.4 DELIVERIES BY THE PURCHASER AT CLOSING. At the Closing, the
Purchaser shall deliver to the Company the Purchase Price as determined
pursuant to this Article I, less the amount payable to GEM/NES (as defined in
- 1 -
Section 5.1 below) as set forth in Section 5.1, in United States dollars in
immediately available funds by wire transfer to an account designated in
writing by the Company at least two (2) business days prior to the Closing
Date.
1.5 DELIVERIES BY THE COMPANY AT CLOSING. At the Closing, the
Company shall deliver to the Purchaser (i) the Note and Warrant, each in form
reasonably acceptable to the Purchaser and the Escrow Agent and registered in
the name designated in writing by the Purchaser at least two (2) business
days prior to the Closing Date, and (ii) the opinion of Kohrman Jackson &
Krantz P.L.L., which shall be in the form set forth as Exhibit B.
1.6 LEGEND ON NOTE, WARRANT AND WARRANT SHARES. Assuming that
there are no changes in the material facts set forth in Section 2.2 or in
applicable law that would require such a legend, (i) after the expiration of
the period commencing on the date hereof and ending ninety (90) days
thereafter (the "Restricted Period"), no legend on the Note and Warrant shall
be required and (ii) the Warrant Shares for which the Warrant is exercised
shall not bear any legend.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than
as set forth in the 1995 Annual Report (as defined in Section 2.1(g) below)
(each a "Subsidiary" and, collectively, the "Subsidiaries"). Each of the
Subsidiaries is a corporation, duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with
the full corporate power and authority to own and use its properties and
assets and to carry on its business as currently conducted, except where the
failure to be in good standing would not, individually or in the aggregate,
have a material adverse effect on the results of operations, assets or
financial condition of the Company and the Subsidiaries, taken as a whole (a
"Material Adverse Effect"). Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to
be so qualified or in good standing, as the case may be, would not,
individually or in the aggregate, have a Material Adverse Effect.
(b) AUTHORIZATION; ENFORCEABILITY. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated hereby and by the Note and Warrant and otherwise to
carry out its obligations hereunder and thereunder. The execution and
delivery of this Agreement and the Note and Warrant by the Company and the
consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of the Company.
This Agreement and the Note and Warrant have been duly executed and delivered
by the Company and constitute valid and binding obligations of the Company
- 2 -
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy, insol
vency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
(c) CAPITALIZATION. The authorized, issued and
outstanding capital stock of the Company is as set forth in Schedule 2.1(c).
The Company owns all of the issued and outstanding shares of capital stock of
its Subsidiaries. No shares of Common Stock are entitled to preemptive or
similar rights. Except as disclosed in Schedule 2.1(c), there are no
outstanding options to purchase any shares of Common Stock. Except (i) as
disclosed in the 1995 Annual Report, (ii) for the options disclosed in
Schedule 2.1(c), and (iii) as a result of the purchase and sale hereunder and
under any other Note and Warrant Purchase Agreement executed by the Company
with respect to its 6.5% Notes on the date hereof, there are no warrants,
script, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into
or exchangeable for, or giving any person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings
or arrangements by which the Company or any Subsidiary is or may become bound
to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. Neither the Company
nor any Subsidiary is in violation of any of the provisions of its respective
certificate of incorporation, bylaws or other charter documents. No class of
capital stock of the Company is senior in right of payment to the Note.
(d) ISSUANCE OF NOTE, WARRANT AND WARRANT SHARES. The
Note and Warrant have been duly and validly authorized for issuance, offer and
sale pursuant to this Agreement and, when issued and delivered as provided
hereunder against payment in accordance with the terms hereof and thereof,
shall be valid and binding obligations of the Company enforceable in
accordance with their respective terms. The Company has and at all times
while the Note and Warrant are outstanding will maintain an adequate reserve
of shares of Common Stock to enable it to perform its obligations under this
Agreement and the Note and Warrant. When issued in accordance with the terms
hereof and of the Warrant, the Warrant Shares for which the Warrant is
exercisable will be duly authorized, validly issued, fully paid and
nonassessable.
(e) NO CONFLICTS. The execution, delivery and performance
of this Agreement and the Note and Warrant by the Company and the consummation
by the Company of the transactions contemplated hereby and thereby do not and
will not (i) violate any provision of its certificate of incorporation or
bylaws or, (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, or to
the knowledge of the Company result in a violation of any U.S. law, rule,
regulation, order, judgment, injunction, decree or other restriction of
any U.S. court or governmental authority to which the Company is subject
(including U.S. federal and state securities laws and regulations), or by
which any property or asset of the Company is bound or affected, except in
the case of each of clause (i) and (ii), such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. The business
of the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for such
- 3 -
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.
(f) CONSENTS AND APPROVALS. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order
of, or make any filing or registration with, any U.S. court or other U.S.
federal, state, local or other U.S. governmental authority or other person in
connection with the execution, delivery and performance by the Company of
this Agreement and the Note and Warrant, other than, in all cases, where the
failure to obtain such consent, waiver, authorization or order, or to give or
make such notice or filing, would not materially impair or delay the ability
of the Company, upon exercise of the Warrant, to deliver the Warrant Shares
to the Purchaser, free and clear of all liens and encumbrances of any nature
whatsoever.
(g) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company is
a "reporting issuer" as defined in Rule 902 of Regulation S ("Regulation S")
promulgated under the U.S. Securities Act of 1933, as amended (the
"Securities Act"). The Common Stock is registered pursuant to Section 12(b)
or 12(g) of the U.S. Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Company has duly filed its Annual Report on Form 10-
K for the fiscal year ended December 31, 1995 (the "1995 Annual Report") and
all other reports, schedules, forms, statements and other documents required
to be filed by it with the U.S. Securities and Exchange Commission (the
"SEC") pursuant to the reporting requirements of Section 13(a) and 15(d) of
the Exchange Act during the twelve (12) month period preceding the date of
this Agreement (said 1995 Annual Report and other documents being
collectively referred to herein as the "SEC Documents"). The Company has
delivered to the Purchaser a true and complete copy of the 1995 Annual
Report, in the form filed with the SEC (other than documents incorporated by
reference therein but not filed therewith). The Company has not provided any
material non-public information to the Purchaser. As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder and, when filed, did not contain any 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, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the 1995 Annual Report comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved, except as may be otherwise indicated in such financial statements
or the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal year-end audit adjustments.
Since the date of the financial statements included in the 1995 Annual
Report, there has been no event, occurrence or development that has had or
that could reasonably be expected to have a Material Adverse Effect that is
not disclosed therein.
The Purchaser acknowledges and agrees that the Company makes no
representation or warranty with respect to the transactions contemplated
hereby other than those specifically set forth in Article II and Article III
herein.
- 4 -
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser hereby makes the following representations and warranties to the
Company as of the Closing Date:
(a) ORGANIZATION; AUTHORIZATION; ENFORCEABILITY.
The Purchaser is an entity duly organized and validly existing and in good
standing under the laws of its jurisdiction of organization. The Purchaser has
the requisite power and authority to enter into and to consummate the
transactions contemplated hereby and otherwise to carry out its obligations
hereunder. The execution and delivery of this Agreement by the Purchaser and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Purchaser. This
Agreement has been duly executed and delivered by the Purchaser and
constitutes a valid and binding obligation of the Purchaser enforceable
against the Purchaser in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(b) CONSENTS AND AUTHORIZATIONS. The Purchaser is not
required to obtain any consent, waiver, authorization or order of, or make any
filing, notice or registration with, any court or governmental authority or
other person in connection with the execution, delivery and performance by the
Purchaser of this Agreement or the exercise by the Purchaser of the Warrant.
(c) NON-U.S. OWNERSHIP. The Purchaser is not a "U.S.
Person" (as defined in Rule 902 of Regulation S), is not an affiliate of the
Company and is not acquiring the Note, Warrant or Warrant Shares for the account
or benefit of any U.S. Person. Neither the sale of the Note, Warrant or Warrant
Shares has been prearranged with any U.S. Person or person present in the
"United States" (as defined in Rule 902 of Regulation S). At the time of
execution of this Agreement and any offer to purchase hereunder, the
Purchaser was physically outside the United States.
(d) INVESTMENT REPRESENTATIONS. The Purchaser
understands that its investment in the Note, Warrant and Warrant Shares involves
a high degree of risk. The Purchaser either alone or with its representatives
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investments contemplated by
this Agreement. The Purchaser is purchasing the Note, Warrant and Warrant
Shares for investment purposes and not with a view towards distribution. The
Purchaser has no present intention to sell the Note, Warrant or Warrant
Shares and the Purchaser has no present arrangement at any time to sell the
Note, Warrant or Warrant Shares to or through any person or entity.
(e) ACCESS TO INFORMATION; RELIANCE. The Purchaser and
its representatives have been afforded the opportunity to review, and the
Company has provided the Purchaser and its representatives with access to, or
copies of, the 1995 Annual Report, and to ask such questions and receive such
answers, as the Purchaser deemed necessary to make an informed investment
decision. Notwithstanding anything herein to the contrary, the Purchaser
acknowledges that it has relied solely on the representations and warranties
of the Company set forth in Article II and Article III, the 1995 Annual
Report and such other information, if any, as has been specifically provided
to it by the Company in evaluating the merits and risks of the investments
contemplated by this Agreement.
- 5 -
(f) NO PUT OPTION OR SHORT POSITION. The Purchaser
covenants that neither it nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter, during the Restricted
Period, into any put option, short position or other similar instrument or
position with respect to the Warrant, Warrant Shares or securities of the same
class as the Warrant or Warrant Shares and neither Purchaser nor any of its
affiliates nor any person acting on its or their behalf will use at any time the
Warrant or Warrant Shares acquired pursuant to this Agreement or upon
exercise of the Warrant to settle any put option, short position or other
similar instrument or position that may have been entered into prior to the
execution of this Agreement.
(g) RELIANCE ON REPRESENTATIONS OF THE PURCHASER. The
Purchaser understands that the Note and Warrant are being offered and sold, and
the Warrant Shares are being offered, to it in reliance on specific exemptions
from the registration requirements of the U.S. securities laws and that the
Company is relying on the truth and accuracy of, and the Purchaser's
compliance with, its representations, warranties and agreements set forth
herein in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Note, Warrant and Warrant Shares.
The Company acknowledges and agrees that the Purchaser makes no
representation or warranty with respect to the transactions contemplated
hereby other than those specifically set forth in Article II and Article III
herein.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 REGULATION S.
(a) The Company shall take all necessary corporate action
as may be required by applicable law, rule or regulation for the issuance of the
Note and Warrant to the Purchaser at the Closing in accordance with this
Agreement and the Note and Warrant. None of the Company, any Subsidiary or
affiliates or any person acting on their behalf has engaged or will engage in
any "directed selling efforts" with respect to the Note, Warrant or Warrant
Shares and the Company, the Subsidiaries, their respective affiliates and all
persons acting on their behalf have complied and will comply with the
"offering restrictions" requirements of Regulation S, including without
limitation the restrictions set forth in Rule 903(c)(2) of Regulation S, in
connection with the offering of the Note, Warrant and Warrant Shares. The
Company has not and will not take any action directly or indirectly that
would cause the offer and sale of the Note, Warrant and Warrant Shares to
fail to be exempt from the registration requirements of the Securities Act.
(b) The Purchaser understands, acknowledges and agrees
that:
(i) the Note, Warrant and Warrant Shares have
not been and will not be registered under the Securities Act and are being
offered and sold pursuant to an exemption from registration contained in the
Securities Act;
(ii) it is purchasing the Note, Warrant and
Warrant Shares for its own account and does not intend to be a "distributor" of
the Note, Warrant or Warrant Shares, but if it acts as such it will act in
- 6 -
compliance with (A) all applicable requirements of the Securities Act
(including, without limitation, Regulation S) and (B) all other applicable law,
except where the failure to act in compliance with such other applicable law
would not, individually or in the aggregate, have a material adverse effect on
the results of operations, assets or financial condition of the Purchaser;
(iii) it will not, during the Restricted Period,
sell or offer to sell the Note, Warrant or Warrant Shares in the "United States"
or to any "U.S. Person" or for the account and benefit of any "U.S. Person"
except (A) in accordance with Rule 903 or 904 of Regulation S or (B) pursuant
to an available exemption from the registration requirements of the
Securities Act (provided that an opinion of counsel has been rendered to the
Company, in form and substance reasonably satisfactory to the Company and its
counsel, that such an exemption is available), in each case in accordance
with applicable law;
(iv) neither the Purchaser, its affiliates nor
any person acting on their behalf has engaged or will engage in "directed
selling efforts" with respect to the Note, Warrant and Warrant Shares and that
each of them has complied and will comply with the "offering restrictions"
requirements and any other requirements of Regulation S;
(v) no offer of the Note, Warrant or Warrant
Shares was made to the Purchaser in the "United States;" and
(vi) the transactions contemplated by this
Agreement are not, to the Purchaser's knowledge, part of a plan or scheme to
evade the registration provisions of the Securities Act.
(c) Any words or phrases in quotation marks used in this
Section 3.1 have the meanings assigned to them in Rule 902 promulgated under
Regulation S.
3.2 ISSUANCE OF SECURITIES. Excluding any issuances to Simmonds
Capital Limited or Securicor Limited P.L.C. as disclosed on pages 18-19 and
32 of, and in Note 16 of the Notes to the Consolidated Financial Statement
in, the 1995 Annual Report, for a period commencing on the Closing Date and
expiring one hundred twenty (120) days after the Closing Date, the Company
will not enter into any agreement to, without the consent of the holders of
a majority in principal amount of the Note, Warrant and Warrant Shares then
outstanding, sell equity or equity-equivalent securities pursuant to
Regulation S or in any private placement other than to any purchaser of Notes
or through GEM/NES, except (A) the granting of options to employees, officers
and directors under, and the issuance of shares upon exercise of options
granted under, any stock option plan heretofore or hereinafter adopted by the
Company; (B) shares issued upon exercise of currently outstanding warrants;
(C) shares issued upon exercise of the Warrants in accordance with their
terms; and (D) additional Notes or Warrants of the same class as the Notes or
Warrants.
3.3 PURCHASER'S RIGHTS IF REGULATION S IS AMENDED. If, at any
time on or after the Closing Date but before the exercise in full of the
Warrant, (i) the Purchaser shall notify the Company in writing that Regulation S
has been amended or interpreted in a manner so as to adversely affect the
marketability of the Note or Warrant or (ii) the Company shall notify the
Purchaser in writing that the Company has determined that such amendment or
interpretation prohibits the Company from issuing certificates representing
the Warrant Shares upon exercise of the Warrant that do not bear a
- 7 -
restrictive legend and that are not subject to any stop transfer order, then,
at the Company's option, exercisable in writing within ten (10) days after
such notice is given by the Purchaser to the Company or by the Company to the
Purchaser, the Company shall as promptly as practicable but in any event
within thirty (30) days thereafter pay the unpaid principal and interest due
under the Note, at an aggregate purchase price equal to the product of (i)
the "Exercise Price" (as defined in the Warrant) as of the "Business Day" (as
defined in the Warrant) immediately preceding the day of such purchase, times
(ii) the number of Warrant Shares for which the Warrant is then exercisable.
3.4 PURCHASER'S RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED.
If, at any time on or after the Closing Date but before the exercise in full of
the Warrant, trading in the shares of the Common Stock is suspended on the
principal market or exchange for such shares (other than as a result of the
suspension of trading in securities on such market or exchange generally),
then at Purchaser's option, exercisable by written notice to the Company, the
Company shall pay the unpaid principal and interest due under the Note, at an
aggregate purchase price equal to the product of the Exercise Price as of the
Business Day immediately preceding the day of such notice times the number of
Warrant Shares for which the Warrant is then exercisable.
3.5 NOTICE OF CERTAIN REGULATION S AMENDMENTS. Each party shall
immediately notify the other upon making any determination pursuant to
Section 3.3 hereof that Regulation S has been amended or interpreted in a
manner so as to prohibit the Company from issuing certificates representing
the Warrant Shares upon exercise of the Warrant that do not bear a
restrictive legend and that are not subject to any stop transfer order.
3.6 LISTING OF WARRANT SHARES. The Company shall take all steps
necessary to cause the Warrant Shares to be approved for listing in the
NASDAQ Small Cap on or prior to the first day that the Warrant becomes
exercisable into Warrant Shares, and shall provide to the Purchaser evidence
of such listing.
3.7 PUT RIGHTS UPON CERTAIN DEFAULTS. If, at any time on or after
Closing Date but before the exercise in full of the Warrant, (i) the Company
shall default under or violate Section 3.2, 3.3, 3.4 or 3.6, or (ii) the
Company shall fail to file timely any reports required to be filed by it
under Section 13 of the Exchange Act, then in any such case, if such default,
violation or failure shall continue for a period of ten (10) Business Days
after receipt of written notice thereof from the Purchaser, the Company
shall, at the demand of the Purchaser, pay the unpaid principal and interest
due under the Note at an aggregate price equal to (x) the product of the
Exercise Price as of the Business Day immediately preceding the date of such
demand times the number of Warrant Shares for which the Warrant is then
exercisable, plus (y) interest (to the extent that such interest is permitted
by applicable law, including any usury laws) on such amount accruing from the
tenth Business Day to the thirtieth day after receipt of such notice at the
rate of 12% per annum, from the thirty-first to the sixtieth day thereafter
at 16% per annum and from the sixtieth day thereafter until paid at the rate
of 20% per annum.
3.8 PROCEDURES FOR EXERCISE OF WARRANT. The Warrant sets forth
the procedures with respect to the exercise of the Warrant, including the forms
of notice to be provided upon such exercise, instructions as to the
procedures for such exercise and such other information and instructions as
- 8 -
may be reasonably necessary to enable the Purchaser to exercise the Warrant
in accordance with its terms.
3.9 NOTICE OF BREACHES. Each of the Company and the Purchaser
shall give prompt written notice to the other of any breach of any representa-
tion, warranty or other agreement contained in this Agreement, as well as any
events or occurrences arising after the date hereof and prior to the exercise
in full of the Warrant that would reasonably be likely to cause (i) any
representation or warranty contained herein to be incorrect as of the Closing
Date or (ii) any other agreement of such party contained herein to be
breached. However, no disclosure by either party pursuant to this Section
3.9 shall be deemed to cure any breach of any representation, warranty or
other agreement contained herein.
ARTICLE IV
INDEMNIFICATION
4.1 INDEMNIFICATION OF THE PURCHASER. In the event that the
Purchaser becomes involved in any capacity in any action, proceeding or
investigation (collectively, "Action") in connection with any matter referred to
in or relating to this Agreement, the Note or the Warrant (except as otherwise
specifically provided in Section 4.3), the Company agrees (i) to reimburse
the Purchaser for its reasonable legal and other expenses (including the cost
of any investigation and preparation) incurred in connection therewith, as
such expenses are incurred, and (ii) to indemnify and hold the Purchaser
harmless from and against all losses, claims, damages, liabilities, taxes,
costs and expenses, including, without limitation, fines, penalties, court
costs and reasonable attorneys' fees (collectively, "Loss"), that the
Purchaser may suffer or incur in connection with such Action; provided,
however, that, in each case under clause (i) and (ii) above, in no event
shall the Company be liable for any Loss that shall be finally judicially
determined to have arisen primarily out of the gross negligence, recklessness
or bad faith of the Purchaser.
4.2 INDEMNIFICATION OF THE COMPANY. In the event that any of the
representations or warranties of the Purchaser set forth in this Agreement
are not true or correct as of the Closing or that the Purchaser breaches any
of its agreements set forth in this Agreement (except as otherwise
specifically provided in Section 4.3), the Purchaser agrees (i) to reimburse
the Company for its reasonable legal and other expenses (including the cost
of any investigation and preparation) incurred in connection therewith, as
such expenses are incurred, and (ii) to indemnify and hold the Company
harmless from and against all Loss that the Company may suffer or incur in
connection therewith.
4.3 PROCEDURES. Promptly after receipt of an indemnified party
under this Article IV of notice of the commencement of any Action, such
indemnified party shall notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve the indemnifying party from any liability which it may have pursuant
to this Article IV unless, due to the failure to be so notified, the
indemnifying party is unable to contest the Loss indemnified against, and
such omission shall in no event relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
this Article IV. In case any such Action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
- 9 -
commencement hereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it may elect by written notice delivered to
such indemnified party promptly after receiving the aforesaid notice from
such indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, which consent shall not be unreasonably
withheld, be counsel to the indemnifying party); provided, however, that if
the defendants in any such Action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assert such legal defenses and otherwise to
participate in the defense of such Action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to assume the defense of such Action and
approval by the indemnified party of counsel, the indemnifying party will not
be liable to such indemnified party under this Article IV for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in connection with the assertion of legal defenses in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel for each indemnified party), (ii)
the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the Action or (iii)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party; provided further,
however, that, if clause (i) or (iii) is applicable, such liability shall be
only in respect of the counsel referred to in such clauses (i) or (iii). No
indemnifying party shall consent to entry of any judgment or enter into any
settlement without the consent of the indemnified party which does not
include as an unconditional term thereof the giving of the claimant or
plaintiff to such indemnified party of a release from all liability in
respect to such claim or litigation. No indemnifying party shall be subject
to any liability for any settlement made without its consent, which consent
shall not be unreasonably withheld.
4.4 RIGHT OF CONTRIBUTION OF THE PURCHASER. If indemnification
for a Loss under this Article IV is not available to the Purchaser for any
reason (except solely if such Loss arose solely out of the gross negligence,
recklessness or bad faith of the Purchaser), then the Company shall
contribute to the Loss in such amount as would place the Purchaser in as
nearly the same economic position as it would have enjoyed had such
indemnification been available.
4.5 REMEDY NOT EXCLUSIVE. The remedy provided for in this Article
IV shall be in addition to, and not in limitation of, any other remedies
available to the parties at common law or otherwise.
4.6 APPLICABILITY OF ARTICLE. The expense reimbursement,
indemnification and contribution rights conferred by this Article IV shall
inure to the benefit of the officers, directors, employees, agents and
controlling persons of each party.
- 10 -
ARTICLE V
MISCELLANEOUS
5.1 FEES AND EXPENSES. Each party shall pay the fees and expenses
of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. At the Closing, the
Company will pay to Global Emerging Markets North America/Northeast
Securities, Inc. ("GEM/NES") a placement fee equal to five percent (5%) of
the gross proceeds in accordance with the engagement letter between the
Company and GEM/NES dated March 21, 1996 (the "Engagement Letter"). The
Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Note, Warrant and Warrant Shares pursuant hereto.
The Purchaser shall be responsible for the Purchaser's own tax liability that
may arise as a result of the investment hereunder or the transactions
contemplated by this Agreement.
5.2 DELIVERY OF FORM W-8. The Purchaser shall promptly deliver,
and will cause each transferee of the Note to deliver, to the Company a
completed and executed Form W-8.
5.3 SURVIVAL. The agreements and covenants contained in Article
III, Article IV and this Article V shall survive the termination of this Agree-
ment and the issuance of the Note, Warrant and Warrant Shares. The
representations and warranties of the Company and the Purchaser contained in
Article II shall survive for a period of one year after the Closing.
5.4 PUBLICITY. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and neither party shall
issue any such press release or otherwise make any such public statement
without the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed.
5.5 NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (i) upon hand delivery (receipt acknowledged) or delivery by
telecopy or facsimile (with transmission confirmation report) at the address
or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first Business
Day following such delivery (if delivered other than on a Business Day during
normal business hours where such notice is to be received) or (ii) on the
fifth Business Day following the date of mailing, fully prepaid, addressed to
such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses and facsimile numbers for such communications shall be:
If to the Company: INTEK Diversified Corporation
970 West 190th Street, Suite 720
Torrance, California 90502
Facsimile No.: (310) 366-7712
Attention: David Neibert
- 11 -
With a copy to: INTEK Diversified Corporation
c/o Simmonds Capital Limited
5355 Yonge Street, Suite 1050
Willowdale, Ontario M2N 6P4
Canada
Facsimile No.: (416) 221-3800
Attention: John G. Simmonds
and
Kohrman Jackson & Krantz P.L.L.
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
United States of America
Facsimile No.: (216) 621-6536
Attention: Steven L. Wasserman, Esq.
If to the Purchaser: _____________________________________
_____________________________________
_____________________________________
_____________________________________
Facsimile No.:_______________________
Attn:________________________________
With a copy to: Global Emerging Markets/Northeast
Securities, Inc.
712 Fifth Avenue, 8th Floor
New York, New York 10019
United States of America
Facsimile No.: (212) 265-4035
Attention: Matthew C. Brown
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
5.6 AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Purchaser, or, in the case of a waiver, by
the party against whom enforcement of any such waiver is sought. No waiver
of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any
manner impair the exercise of any such right accruing to it thereafter.
5.7 HEADINGS. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
5.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. Neither the Company nor the Purchaser may assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
other, which consent shall not be unreasonably withheld or delayed. The
assignment by a party of this Agreement or any rights hereunder shall not
affect the obligations of such party under this Agreement.
- 12 -
5.9 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
5.10 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware without regard to the principles of conflicts of law thereof.
5.11 SEVERABILITY. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be
a commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Agreement.
5.12 ENTIRE AGREEMENT. This Agreement, together with the Exhibits
and Schedules hereto, the Note, the Warrant and that certain Escrow Agreement by
and among the Company, the Purchaser and the Escrow Agent of even date
herewith contain the entire understanding of the parties with respect to the
subject matter hereof and thereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters.
5.13 COUNTERPART SIGNATURES. This Agreement may be executed in two
or more counterparts, all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, the party using such means
of delivery shall cause the originally executed signature page to be
delivered to the other party within two (2) Business Days of the execution
and delivery hereof.
- 13 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first
indicated above.
"Seller"
INTEK DIVERSIFIED CORPORATION
By:_________________________________
Name: _____________________________
Title: ____________________________
"Purchaser"
____________________________________
Legal Name of Purchaser
By:_________________________________
Name: _____________________________
Title: ____________________________
- 14 -
SCHEDULE 2.1(c)
CAPITALIZATION
1. The authorized Common Stock consists of 20,000,000 shares.
2. The number of shares of Common Stock outstanding as of April 3, 1996 is
set forth on the attached list.
3. The options to purchase Common Stock outstanding as of April 3, 1996
are set forth on the attached list.
<PAGE>
EXHIBIT A
NEITHER THIS 6.5% NOTE ("NOTE") NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THE ATTACHED OFFSHORE WARRANT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THIS NOTE AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THE ATTACHED OFFSHORE WARRANT MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED TO ANY U.S. PERSON (AS DEFINED IN
REGULATION S UNDER THE SECURITIES ACT) UNLESS REGISTERED UNDER
THE SECURITIES ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
PAYMENT OF THE OUTSTANDING PRINCIPAL BALANCE OF THIS NOTE SHALL
BE MADE ONLY BY THE PROPORTIONATE EXERCISE OF THE ATTACHED
OFFSHORE WARRANT FOR THE PURCHASE OF COMMON STOCK.
INTEK DIVERSIFIED CORPORATION
6.5% NOTE
No. ______ U.S. $_______________
Due April 15, 1999
THIS 6.5% NOTE ("Note") is one of __________ duly authorized
notes of INTEK Diversified Corporation, a Delaware corporation
having a principal place of business at 970 West 190th Street,
Suite 720, Torrance, California 90502, United States (the
"Company"), designated as its 6.5% Notes (collectively, the
"Notes"), in an aggregate principal amount of U.S. $6,000,000.00.
FOR VALUE RECEIVED, the Company promises to pay to
___________________________________________________________, or its
registered assigns (the "Holder"), on April 15, 1999 (the "Maturity
Date"), the lesser of (i) _______________________________ United
States Dollars (U.S. $_______________) and (ii) the difference
between (x) _______________________________ United States Dollars
(U.S. $_______________) and (y) the dollar amount for which the
nondetachable Offshore Warrant to purchase shares of Common Stock,
par value U.S. $0.01 per share, of the Company ("Common Stock")
that is attached hereto as Annex A (the "Warrant") is exercised in
accordance with its terms, and to pay interest to the Holder on the
unpaid principal balance hereof from time to time outstanding at
the rate of 6.5% per annum. This Note may not be pre-paid by the
Company.
This Note is subject to the following provisions:
Section 1. PAYMENT TERMS.
(a) Except as otherwise specifically provided herein and
in Sections 3.3, 3.4 and 3.7 of the Note and Warrant Purchase
Agreement, dated as of April 15, 1996, as amended from time to
time, executed by the original Holder (the "Purchase Agreement,"
the terms and conditions of which are incorporated herein by
reference), the principal amount of this Note shall be paid,
discharged and satisfied only if and to the extent that the Warrant
is exercised in accordance with its terms and shall not be payable
in cash or any other consideration.
(b) Interest on the unpaid principal balance of this
Note from time to time outstanding shall accrue daily commencing on
the date of first issuance of this Note regardless of the number of
transfers hereof until payment in full of the principal sum,
together with all accrued and unpaid interest, has been made or
duly provided for. Interest shall be calculated on the basis of a
360-day year. Interest due and payable hereunder will be paid in
cash to the person in whose name this Note is registered on the
records of the Company regarding registration and transfers of the
Notes (the "Note Register") on the earlier to occur of (i) the
Maturity Date (or, if the Maturity Date is not a business day, on
the first business day prior to the Maturity Date) or (ii) the date
that the Warrant is fully exercised; provided, however, that the
Company's obligation to a transferee of this Note arises only if
such transfer, sale or other disposition is made in accordance with
the terms and conditions hereof and of the Purchase Agreement. All
accrued and unpaid interest shall bear interest (to the extent that
such interest is permitted by applicable law, including any usury
laws) accruing from the Maturity Date or earlier date on which this
Note is payable pursuant to the Purchase Agreement to the thirtieth
day thereafter at the rate of 12% per annum, from the thirty-first
to the sixtieth day thereafter at 16% per annum and from the
sixtieth day thereafter until paid at the rate of 20% per annum.
Interest on this Note is payable in such coin or currency of the
United States of America as at the time of payment is legal tender
for payment of public and private debts, at the address of the
Holder last appearing on the Note Register.
(c) The Holder shall be responsible for the Holder's own
tax liability that may arise as a result of holding, transferring
or receiving payment under this Note. The Holder and each
permitted transferee of this Note shall promptly deliver to the
Company a completed and executed Form W-8.
Section 2. EVENTS OF DEFAULT. The term "Event of
Default," wherever used herein, means any one of the following
events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
(a) any default by the Company in the payment of the
principal of or interest on this Note as and when
the same shall become due and payable either at the
Maturity Date, by acceleration or otherwise;
(b) the Company shall fail to observe or perform any
other material covenant, agreement or warranty
contained in, or otherwise commit any material
breach of, this Note, and such failure or breach
shall not have been remedied within thirty (30)
days after the date on which written notice of such
failure or breach shall have been given to the
Company;
(c) the occurrence of any material breach or default by
the Company under the Purchase Agreement, and such
breach or default shall not have been remedied
within the applicable grace period, if any,
provided thereunder;
(d) the Company or any of its subsidiaries shall
commence a voluntary case under the United States
Bankruptcy Code as now or hereafter in effect or
any successor thereto (the "Bankruptcy Code"); or
an involuntary case is commenced against the
Company under the Bankruptcy Code and the petition
is not controverted within thirty days, or is not
dismissed within sixty (60) days, after
commencement of the case; or a "custodian" (as
defined in the Bankruptcy Code) is appointed for,
or takes charge of, all or any substantial part of
the property of the Company or the Company
commences any other proceeding under any
reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the
Company or there is commenced against the Company
any such proceeding which remains undismissed for a
period of sixty (60) days; or the Company is
adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or
proceeding is entered; or the Company suffers any
appointment of any custodian or the like for it or
any substantial part of its property which
continues undischarged or unstayed for a period of
sixty (60) days; or the Company makes a general
assignment for the benefit of creditors; or the
Company shall fail to pay its debts generally as
they become due; or the Company shall call a
meeting of its creditors with a view to arranging a
composition or adjustment of its debts;
(e) the Company shall have its Common Stock delisted
from the NASDAQ Small Cap or other national
securities exchange or market on which such Common
Stock is listed for trading or suspended from
trading thereon; or
(f) the Company shall be a party to any merger or
consolidation or shall dispose of all or
substantially all of its assets in one or more
transactions, or shall redeem more than a de
minimis amount of its outstanding shares of Common
Stock, in each case other than as provided in the
Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
If any Event of Default occurs and is continuing, and in every such
case, then so long as such Event of Default shall then be
continuing the Holder may, by notice to the Company, declare the
full principal amount of this Note, together with all accrued but
unpaid interest to the date of acceleration, to be, whereupon the same shall
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are waived by the Company, notwithstand-
ing anything herein contained to the contrary, and the Holder may immediately
and without expiration of any grace period enforce any and all of its rights and
remedies hereunder and all other remedies available to it under applicable law.
Any such notice of declaration shall be accompanied by a completed and executed
Holder Exercise Notice (as defined in the Warrant). Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section 3. NATURE OF OBLIGATION. Except as expressly provided
herein, no provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Note at the time, place, and rate, and in the manner,
herein prescribed. This Note is a direct obligation of the Company. This
Note ranks pari passu with all other Notes now or hereafter issued under the
terms set forth herein and in the Purchase Agreement.
Section 4. TRANSFER RESTRICTIONS. This Note and the Warrant have
been issued subject to certain investment representations of the original
Holder set forth in the Purchase Agreement and may be transferred only if
such transfer is, in the reasonable opinion of the Company, in compliance
with or exempt from the registration requirements of the Securities Act,
including Regulation S promulgated thereunder, and the terms and conditions
set forth in the Purchase Agreement. This Note may not be transferred
separately from the Warrant. Prior to due presentment to the Company for
transfer of this Note and the Warrant, the Company and any agent of the
Company may treat the person in whose name this Note and the Warrant are duly
registered on the Note Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, and neither
the Company nor any such agent shall be affected by notice to the contrary.
This Note and the Warrant shall be transferable or assignable only through an
appropriate entry in the Note Register.
Section 5. REPLACEMENT. If this Note shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Note, in lieu of or in
substitution for a lost, stolen or destroyed Note, a new Note for the
principal amount of this Note so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Note, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 6. RIGHTS OF HOLDER. This Note shall not entitle the
Holder to any of the rights of a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other distributions,
or to receive any notice of, or to attend, meetings of stockholders or any
other proceedings of the Company, unless and to the extent that shares of
Common Stock are issued to the Holder upon exercise of the Warrant in
accordance with the terms thereof.
Section 7. CANCELLATION. Upon the exercise in full of the Warrant
and the payment in full of all accrued and unpaid interest and any other
amounts due hereunder, the Holder shall return this Note to the Company for
cancellation.
Section 8. NOTICES. All notices or other communications hereunder
shall be given, and shall be deemed duly given and received if given, by
facsimile or by mail, postage prepaid: (i) if to the Company, addressed as
follows: INTEK Diversified Corporation, 970 West 190th Street, Suite 720,
Torrance, California 90502, Attention: David Neibert, or to facsimile no.
(310) 366-7712, with a copy to INTEK Diversified Corporation, c/o Simmonds
Capital Limited, 5355 Yonge Street, Suite 1050, Willowdale, Ontario M2N 6P4,
Canada, Attention: John G. Simmonds, or to facsimile no. (416) 221-3800; or
(ii) if to the Holder, addressed to the Holder at the facsimile telephone
number and address of the Holder appearing on the Note Register or such other
address or facsimile number as the Holder may provide to the Company in
accordance with this Section. Any such notice shall be deemed given and
effective upon the earliest to occur of (i) receipt of such facsimile at the
facsimile telephone number specified in this Section, (ii) five (5) business
days after deposit in the United States mails or (iii) upon actual receipt by
the party to whom such notice is required to be given.
Section 9. LEGEND ON NOTE AND WARRANT. Assuming that there are no
changes in the material facts set forth in Section 2.2 of the Purchase
Agreement or in applicable law that would require such a legend, after the
expiration of the period commencing on the date hereof and ending ninety (90)
days thereafter, no legend on the Note and Warrant shall be required.
Section 10. WAIVER. Any waiver by the Company or the Holder of a
breach of any provision of this Note shall not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of any
other provision of this Note. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Note on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Note. Any waiver must be in writing.
Section 11. SEVERABILITY. If any provision of this Note is
invalid, illegal or unenforceable, the balance of this Note shall remain in
effect, and if any provision is inapplicable to any person or circumstance, it
shall nevertheless remain applicable to all other persons and circumstances.
Section 12. GOVERNING LAW. This Note shall be governed by and
construed in accordance with the laws of the State of Delaware, without
giving effect to conflicts of laws thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized as of April 15, 1996.
INTEK DIVERSIFIED CORPORATION
Attest: ________________________ By:_________________________________
Name:_______________________________
Title:______________________________
<PAGE>
ANNEX A
NEITHER THIS OFFSHORE WARRANT ("WARRANT") NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THIS WARRANT MAY NOT BE EXERCISED
BY OR ON BEHALF OF, AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED TO, ANY U.S. PERSON (AS
DEFINED IN REGULATION S UNDER THE SECURITIES ACT) UNLESS REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
THIS WARRANT MAY NOT BE DETACHED, TRANSFERRED OR EXERCISED SEPARATELY FROM
THE 6.5% NOTE TO WHICH THIS WARRANT IS ATTACHED.
PAYMENT OF THE EXERCISE PRICE FOR THE PURCHASE OF COMMON STOCK PURSUANT TO
THIS WARRANT SHALL BE MADE ONLY BY THE PROPORTIONATE REDUCTION OF THE
OUTSTANDING PRINCIPAL BALANCE OF THE 6.5% NOTE TO WHICH THIS WARRANT IS
ATTACHED.
OFFSHORE WARRANT
THIS OFFSHORE WARRANT ("Warrant"), dated as of the 15th day of April,
1996, is issued by INTEK DIVERSIFIED CORPORATION, a Delaware corporation (the
"Company"), to _______________________________________________, a(n)
_____________________________ (together with any other registered holder of
this Warrant, the "Holder").
WHEREAS, in that certain Note and Warrant Purchase Agreement, of even
date herewith, between the Company and the Holder (as amended from time to
time, the "Purchase Agreement," the terms and conditions of which are
incorporated herein by reference), the Company agreed to issue and sell to
the Holder, and the Holder agreed to acquire one of __________ 6.5% Notes,
due April 15, 1999 (collectively, the "Notes"), issued by the Company in the
aggregate principal amount of U.S. $6,000,000 (the 6.5% Note to which this
Warrant is attached being hereinafter referred to as the "Note"), outside of
the "United States" (as that term is defined in Regulation S ("Regulation S,"
capitalized terms used herein and not otherwise defined herein having the
meanings ascribed to them in Regulation S) under the U.S. Securities Act of
1933, as amended (the "Securities Act"));
WHEREAS, pursuant to the Purchase Agreement, the Company agreed to
issue and sell, and the Holder agreed to acquire, this nondetachable Warrant to
purchase the number of shares of the Common Stock, par value U.S. $0.01 per
share ("Common Stock"), of the Company determined by the formula set forth in
Section 1(a) hereof (the "Warrant Shares"); and
WHEREAS, pursuant to the terms of the Note, the exercise in full of the
Warrant in accordance with its terms and issuance of all of the Warrant
Shares shall constitute payment in full of all principal due under the Note;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained and of other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
- 1 -
1. EXERCISE OF THE WARRANT.
(a) NUMBER OF WARRANT SHARES OBTAINABLE. Subject to such
adjustment as may be required from time to time by Section 5 hereof, the
number of Warrant Shares that the Holder shall be entitled to receive upon
exercise of this Warrant shall be determined by dividing (i) the outstanding
principal balance of the Note by (ii) the applicable exercise price specified
in Schedule 1 attached hereto (the "Exercise Price"). Any exercise of this
Warrant shall be for a minimum aggregate Exercise Price of U.S. $100,000.
Notwithstanding anything herein to the contrary, payment of the aggregate
Exercise Price shall be made only by the proportionate reduction of the
outstanding principal balance of the Note.
THIS WARRANT MAY BE EXERCISED ONLY IF AND TO THE EXTENT THAT THE PRINCIPAL
AMOUNT OF THE NOTE TO WHICH THIS WARRANT IS ATTACHED IS PAID, AS PROVIDED IN
THIS SECTION 1(a).
(b) EXERCISE BY THE HOLDER. Upon the terms and subject
to the conditions set forth in this Warrant and the Purchase Agreement, the
Holder shall have the right, which may be exercised in whole or in part on or
after July 15, 1996 or, if such day is not a Business Day (as defined below), on
the next succeeding Business Day (the "Holder Exercise Date"), to receive
from the Company the number of fully paid and nonassessable Warrant Shares
that the Holder may at the time be entitled to receive on exercise of this
Warrant and the resulting proportionate payment, satisfaction and discharge
of the outstanding principal amount of the Note; provided that such exercise
does not cause a violation of any applicable law or regulation. For purposes
hereof, the term "Business Day" shall mean any day on which banks in New York
City are open for business.
The Holder shall effect exercises by surrendering the
Note, this Warrant and the form of exercise notice in the form attached hereto
as Exhibit A (collectively, the "Holder Exercise Notice"), in the manner set
forth in Section 8 hereof. Each Holder Exercise Notice shall specify the
aggregate Exercise Price by which the outstanding principal amount of the
Note shall be reduced and the date on which such exercise is to be effected
(the "Holder Exercise Date"). Subject to Section 1(d) hereof, each Holder
Exercise Notice, once given, shall be irrevocable. If less than the then
outstanding principal balance of the Note is being repaid by exercise of this
Warrant, then the Company shall promptly deliver to the Holder a new Note for
the remaining principal amount that has not been so repaid and a new Warrant
relating thereto.
(c) EXERCISE BY THE COMPANY. Upon the terms and subject
to the conditions set forth in this Warrant and the Purchase Agreement, the
Company shall have the right, which may be exercised in whole or in part on or
after April 15, 1997 or, if such day is not a Business Day, on the next
succeeding Business Day (the "Company Exercise Date"), to force the Holder to
exercise this Warrant and receive from the Company the number of fully paid and
nonassessable Warrant Shares which the Holder may at the time be entitled to
receive on exercise of the Warrant and the resulting proportionate payment,
satisfaction and discharge of the outstanding principal amount of the Note;
provided that such exercise does not cause a violation of any applicable law
or regulation.
The Company shall effect exercises by delivering to
the Holder a written notice in the form attached hereto as Exhibit B (the
"Company Exercise Notice"), which Company Exercise Notice, once given, shall be
- 2 -
irrevocable. Each Company Exercise Notice shall specify the aggregate
Exercise Price by which the principal amount of the Note shall be reduced and
the date on which such exercise is to be effected (the "Company Exercise
Date"). The Company shall give such Company Exercise Notice in accordance
with Section 8 hereof at least two (2) Business Days before the Company
Exercise Date; provided, however, that the Company may not deliver a Company
Exercise Notice within ten (10) days prior to issuing any press release or
other public statement relating to such exercise. Any such exercise shall be
effected on a pro rata basis among all holders of warrants issued under the
Purchase Agreement and any other Note and Warrant Purchase Agreements
executed by the Company with respect to its 6.5% Notes on the date hereof.
Upon the exercise of this Warrant pursuant to a Company Exercise Notice, the
Holder shall surrender the Note and this Warrant at the office of the
Company. If less than the then outstanding principal balance of the Note is
being repaid by exercise of this Warrant by the Company, then the Company
shall promptly deliver to the Holder a new Note for the remaining principal
amount that has not been so repaid and a new Warrant relating thereto.
Each Holder Exercise Notice and Company Exercise
Notice is sometimes referred to herein as an "Exercise Notice," and each Holder
Exercise Date and Company Exercise Date is sometimes referred to herein as an
"Exercise Date."
(d) DELIVERIES BY THE COMPANY. Not later than three (3)
Business Days after the receipt by the Company of the Exercise Notice, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those then
required by law), representing the number of Warrant Shares being acquired
upon the exercise of this Warrant and (ii) a new Note in a principal amount
equal to the difference between the outstanding principal amount of the Note
immediately prior to the Exercise Date and the aggregate Exercise Price
specified in the Exercise Notice; provided, however, that the Company shall
not be obligated to issue certificates evidencing the Warrant Shares issuable
upon exercise of this Warrant until the Note and this Warrant are delivered
to the Company. In the case of an exercise pursuant to a Holder Exercise
Notice, if such certificate or certificates are not delivered by the date
required under this Section 2(d), then the Holder shall be entitled by
written notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such exercise, in which
event the Company shall immediately return the Holder Exercise Notice.
(e) CANCELLATION; INSPECTION RIGHTS. When surrendered
upon exercise of this Warrant, the Note and this Warrant shall be cancelled and
disposed of by the Company in accordance with applicable law. The Company
shall keep copies of this Warrant and any notices given or received hereunder
available for inspection by the Holder during normal business hours at its
office.
(f) TRANSFER RESTRICTIONS. The Note and this Warrant
have been issued subject to certain investment representations of the original
Holder set forth in the Purchase Agreement and may be transferred only if such
transfer is, in the reasonable opinion of the Company, in compliance with or
exempt from the registration requirements of the Securities Act, including
Regulation S promulgated thereunder, and the terms and conditions set forth
in the Purchase Agreement. This Warrant may not be transferred separately
from the Note. Prior to due presentment to the Company for transfer of the
Note and this Warrant, the Company and any agent of the Company may treat the
person in whose name the Note and this Warrant are duly registered on the
- 3 -
records of the Company regarding registration and transfers of the Notes (the
"Note Register") as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, and neither the Company nor any
such agent shall be affected by notice to the contrary. The Note and this
Warrant shall be transferable or assignable only through an appropriate entry
in the Note Register.
(g) COVENANT OF THE HOLDER. The Holder and any subsequent
transferee pursuant to the terms of this Warrant covenant not to exercise
this Warrant except in compliance with the terms of this Warrant.
2. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares in a name other than that
of the Holder, and the Company shall not be required to issue or deliver the
certificates for Warrant Shares unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that
such tax has been paid. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Warrant
or receiving the Warrant Shares under this Warrant.
3. REPLACEMENT OF WARRANT. In case this Warrant shall be
mutilated, lost, stolen or destroyed, the Company may in its discretion issue in
exchange and substitution for and upon cancellation of such mutilated
Warrant, or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction of
such Warrant and indemnity, if requested, satisfactory to it. Applicants for
a substitute Warrant also shall comply with such other reasonable regulations
and pay such other reasonable charges as the Company may prescribe.
4. RESERVATION OF WARRANT SHARES. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued Common Stock or its authorized and issued
Common Stock held in its treasury, for the purpose of enabling it to satisfy
any obligation to issue Warrant Shares upon exercise of this Warrant, the
maximum number of Warrant Shares (as adjusted from time to time pursuant to
Section 5 hereof) which may then be deliverable upon the exercise of this
Warrant and all other outstanding warrants issued and sold pursuant to the
Purchase Agreement.
5. ADJUSTMENT TO THE NUMBER OF WARRANT SHARES ISSUABLE. The
number of Warrant Shares issuable upon the exercise of this Warrant is subject
to adjustment from time to time as set forth in this Section 5.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock payable in shares of its capital
stock (whether payable in shares of its Common Stock or of capital stock of
any class), (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, (iii) combine outstanding shares of Common Stock into a
smaller number of shares, or (iv) issue by reclassification of shares of
Common Stock any shares of capital stock of the Company, the Exercise Price
designated in Section 1(a) hereof shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding
- 4 -
before such event and of which the denominator shall be the number of shares
of Common Stock outstanding after such event. Any adjustment made pursuant
to this Section 5(a) shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date
in the case of a subdivision, combination or re-classification.
(b) If the Company, at any time while this Warrant is
outstanding, shall issue rights or warrants to all holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Exercise Price at the record date mentioned below, then
the Exercise Price designated in Section 1(a) hereof shall be multiplied by a
fraction, of which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Exercise Price. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Exercise Price designated in Section
1(a) hereof pursuant to this Section 5(b), if any such right or warrant shall
expire and shall not have been exercised, the Exercise Price designated in
Section 5(a) hereof shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Exercise Price
made pursuant to the provisions of this Section 5 after the issuance of such
rights or warrants) had the adjustment of the Exercise Price made upon the
issuance of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Section
5(b) hereof), then in each such case the Exercise Price for which the Warrant
Shares shall be purchased shall be determined by multiplying the Exercise
Price in effect immediately prior to the record date fixed for determination
of stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the Exercise Price determined as of the record date
mentioned above, and of which the numerator shall be the Exercise Price on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of
Directors of the Company (the "Board of Directors") in good faith; provided,
however that in the event of a distribution exceeding 10% of the net assets
of the Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm
that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority of the
principal amount of the Notes that are then outstanding; and further
provided, however, that the Company, after receipt of the determination by
- 5 -
such Appraiser shall have the right to select an additional Appraiser, in
which case the fair market value shall be equal to the average of the
determinations by each such Appraiser. In either case the adjustments shall
be described in a statement provided to the Holder and all other holders of
Notes of the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(d) In case of any reclassification of the Common Stock,
any consolidation or merger of the Company with or into another person, the sale
or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event
to receive such amount of securities or property as the shares of the Common
Stock into which this Warrant could have been converted immediately prior to
such reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled. The terms of any such consolidation,
merger, sale, transfer or share exchange shall include such terms so as to
continue to give to the Holder the right to receive the securities or
property set forth in this Section 5(d) upon any exercise following such
consolidation, merger, sale, transfer or share exchange. This provision
shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
(e) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of
any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company (other than a subdivision or
combination of the outstanding shares of
Common Stock), any consolidation or merger
to which the Company is a party, any sale or
transfer of all or substantially all
of the assets of the Company, or any
compulsory share exchange whereby the Common
Stock is converted into other securities,
cash or property; or
(v) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or
winding-up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained
for the purpose of exercise of this Warrant, and shall cause to be mailed to
- 6 -
the Holder in accordance with Section 8 hereof, at least thirty (30) days
prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distributions, redemption, rights
or warrants are to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up is expected to become effective, and
the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, share exchange, dissolution, liquidation or winding-up;
provided, however, that the failure to mail such notice or any defect therein
or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice.
(f) If at any time conditions shall arise by reason of
action taken by the Company which are not adequately covered by the other
provisions hereof and which might materially and adversely affect the rights of
the Holder (different than or distinguished from the effect generally on rights
of holders of any class of the Company's capital stock) or if at any time any
such conditions are expected to arise by reason of any action contemplated by
the Company, then the Company shall, at least thirty (30) days prior to the
effective date of such action, mail a written notice to the Holder briefly
describing the action contemplated and the material adverse effects of such
action on the rights of the Holder and an Appraiser selected by the holders
of majority in principal amount of the outstanding Notes shall give its
opinion as to the adjustment, if any (not inconsistent with the standards
established in this Section 5), of the Exercise Price (including, if
necessary, any adjustment as to the securities into which this Warrant may
thereafter be exercisable) and any distribution which is or would be required
to preserve without diluting the rights of the holders of the Notes;
provided, however, that the Company, after receipt of the determination by
such Appraiser, shall have the right to select an additional Appraiser, in
which case the adjustment shall be equal to the average of the adjustments
recommended by each such Appraiser. The Board of Directors shall make the
adjustment recommended forthwith upon the receipt of such opinion or opinions
or the taking of any such action contemplated, as the case may be; provided,
however, that no such adjustment of the Exercise Price shall be made which in
the opinion of the Appraiser(s) giving the aforesaid opinion or opinions
would result in an increase of the Exercise Price to more than the Exercise
Price then in effect.
(g) In any case in which this Section 5 shall require
that an adjustment be made effective as of a record date for a specified event,
the Company may elect to defer until the occurrence of such event (i) issuing to
the Holder, if this Warrant is exercised after such record date, the Warrant
Shares and other capital stock of the Company, if any, issuable upon such
exercise over and above the Warrant Shares and other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Exercise
Price prior to adjustment and (ii) paying to the Holder any amount in cash in
lieu of a fractional share pursuant to Section 6 hereof, provided, however,
that the Company shall deliver to the Holder a due bill or other appropriate
instrument evidencing the Holder's right to receive such additional Warrant
Shares, other capital stock and/or cash upon the occurrence of the event
requiring such adjustment.
- 7 -
(h) Any determination that the Company or the Board of
Directors must make pursuant to this Section 5 shall be conclusive if made in
good faith.
6. FRACTIONAL SHARES. The Company shall not be required to issue
fractional Warrant Shares on the exercise of this Warrant. The number of
full Warrant Shares which shall be issuable upon the exercise of this Warrant
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of this Warrant so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 6, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash
equal to the Exercise Price multiplied by such fraction.
7. WARRANT AGENT.
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company and the Holder
may appoint a new warrant agent. Such new warrant agent shall be a corporation
doing business under the laws of the United States or any state thereof, in
good standing and having a combined capital and surplus of not less than U.S.
$50,000,000. The combined capital and surplus of any such new warrant agent
shall be deemed to be the combined capital and surplus as set forth in the
most recent annual report of its condition published by such warrant agent
prior to its appointment; provided that such reports are published at least
annually pursuant to law or to the requirements of a federal or state
supervising or examining authority. After acceptance in writing of such
appointment by the new warrant agent, it shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally
named herein as the warrant agent, without any further assurance, conveyance,
act or deed; but if for any reason it shall be necessary or expedient to
execute and deliver any further assurance, conveyance, act or deed the same
shall be done at the expense of the Company and shall be legally and validly
executed and delivered by the Company.
(b) Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor
warrant agent under this Warrant without any further act; provided that such
corporation (i) would be eligible for appointment as successor to the warrant
agent under the provisions of this Section 7 or (ii) is a wholly-owned
subsidiary of the warrant agent. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by
first class mail, postage prepaid) to the Holder at the Holder's last address
as shown on the register maintained by the warrant agent pursuant to this
Warrant.
8. NOTICES. All notices or other communications hereunder shall
be given, and shall be deemed duly given and received if given, by facsimile and
by mail, postage prepaid: (i) if to the Company, addressed as follows:
INTEK Diversified Corporation, 970 West 190th Street, Suite 720, Torrance,
California 90502, Attention: David Neibert, or to facsimile no. (310) 366-
7712, with a copy to INTEK Diversified Corporation, c/o Simmonds Capital
Limited, 5355 Yonge Street, Suite 1050, Willowdale, Ontario M2N 6P4, Canada,
Attention: John G. Simmonds, or to facsimile no. (416) 221-3800; or (ii) if
to the Holder, addressed to the Holder at the facsimile telephone number and
address of the Holder appearing on the Note Register or such other address or
- 8 -
facsimile number as the Holder may provide to the Company in accordance with
this Section 8. Any such notice shall be deemed given and effective upon the
earliest to occur of (i) receipt of such facsimile at the facsimile telephone
number specified in this Section 8, (ii) five (5) Business Days after deposit
in the United States mails or (iii) upon actual receipt by the party to whom
such notice is required to be given.
9. LEGEND ON WARRANT AND WARRANT SHARES. Assuming that there are
no changes in the material facts set forth in Section 2.2 of the Purchase
Agreement or in applicable law that would require such a legend, (i) after
the expiration of the period commencing on the date hereof and ending
ninety (90) days thereafter, no legend on the Warrant shall be required and
(ii) the Warrant Shares for which the Warrant is exercised shall not bear any
legend.
10. MISCELLANEOUS.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
(b) Nothing in this Warrant shall be construed to give to
any person or corporation other than the Company, the Holder and any registered
holder of Warrant Shares any legal or equitable right, remedy or cause under
this Warrant; but this Warrant shall be for the sole and exclusive benefit of
the Company, the Holder and any other registered holder of Warrant Shares.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware without
regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall
not in any way be affecting or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be
a commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
INTEK DIVERSIFIED CORPORATION, in its corporate
capacity and in its capacity as the Warrant
Agent hereunder
By:__________________________________________
Name: ______________________________________
Title: _____________________________________
- 9 -
SCHEDULE 1
Exercise Prices
Attached.
EXHIBIT A
INTEK DIVERSIFIED CORPORATION
Notice of Exercise of Warrant
at the Election of the Holder
The undersigned hereby irrevocably elects to exercise the Offshore
Warrant ("Warrant") issued by INTEK Diversified Corporation (the "Company")
to the undersigned on April 15, 1996, into shares of Common Stock, par value
U.S. $0.01 per share ("Common Stock"), of the Company, according to the
conditions hereof, as of the date written below. All capitalized terms used
herein without definition shall have the meanings assigned to them in the
Warrant. If Warrant Shares are to be issued in the name of a person other
than the Holder, then the Holder shall pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
may be reasonably requested by the Company in accordance with the Warrant.
No fee will be charged to the Holder for any exercise, except for such
transfer taxes, if any.
If this Warrant is being exercised during the Restricted Period (as
that term is defined in the Note and Warrant Purchase Agreement, dated as of
April 15, 1996, by and among the Company and the Holder), then the Holder
represents that it is not a "U.S. Person" as defined in Rule 902 of
Regulation S under the Securities Act, and is not exercising the Warrant on
behalf of any U.S. Person and is located outside of the "United States" as
defined in Rule 902 of Regulation S. The Holder represents and warrants that
all offers and sales by the Holder of the Warrant Shares issuable to the
undersigned upon exercise of the Warrant shall be made in compliance with
Regulation S, pursuant to registration of the Common Stock under the
Securities Act or pursuant to an exemption from registration under the
Securities Act.
_____________________________________________________
Date to Effect Exercise
_____________________________________________________
Aggregate Exercise Price
_____________________________________________________
Number of Warrant Shares to be Issued
_____________________________________________________
Signature of the Holder
_____________________________________________________
Printed Name (exactly as it is to appear on the
Warrant Shares)
_____________________________________________________
Address of the Holder
EXHIBIT B
INTEK DIVERSIFIED CORPORATION
NOTICE OF EXERCISE OF WARRANT
AT THE ELECTION OF THE COMPANY
The undersigned, in the name and on behalf of INTEK Diversified
Corporation (the "Company"), hereby notifies the addressee hereof that the
Company hereby elects to exercise its right to force the exercise of the
Offshore Warrant ("Warrant") issued by the Company to
________________________________________________ on April 15, 1996, into
shares of Common Stock, par value U.S. $0.01 per share ("Common Stock"), of
the Company according to the conditions hereof, as of the date written below.
All capitalized terms used herein without definition shall have the meanings
assigned to them in the Warrant. No fee will be charged to the Holder for
the exercise hereunder, except for such transfer taxes, if any, which may be
incurred by the Company if Warrant Shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
_____________________________________________________
Name of the Holder
_____________________________________________________
Address of the Holder
_____________________________________________________
Date to Effect Exercise
_____________________________________________________
Aggregate Exercise Price
_____________________________________________________
Number of Warrant Shares to be Issued
_____________________________________________________
Signature of Representative of the Company
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1513000
<SECURITIES> 0
<RECEIVABLES> 945000
<ALLOWANCES> 61000
<INVENTORY> 1102000
<CURRENT-ASSETS> 5655000
<PP&E> 7712000
<DEPRECIATION> 49000
<TOTAL-ASSETS> 13528000
<CURRENT-LIABILITIES> 4461000
<BONDS> 0
0
0
<COMMON> 13368000
<OTHER-SE> (4,934,000)
<TOTAL-LIABILITY-AND-EQUITY> 13,528,000
<SALES> 496,000
<TOTAL-REVENUES> 496,000
<CGS> 445,000
<TOTAL-COSTS> 445,000
<OTHER-EXPENSES> 995,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,000
<INCOME-PRETAX> (1,157,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,157,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,157,000)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
