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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
INTEK DIVERSIFIED CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, $0.01 par value
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
25,000,000 shares of Common Stock
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
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INTEK DIVERSIFIED CORPORATION
970 WEST 190TH STREET, SUITE 720
TORRANCE, CALIFORNIA 90502
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 3, 1996
------------------------
TO THE STOCKHOLDERS OF INTEK DIVERSIFIED CORPORATION:
NOTICE IS HEREBY GIVEN that an annual meeting ("Annual Meeting") of the
stockholders of INTEK Diversified Corporation, a Delaware corporation (the
"Company"), will be held on December 3, 1996 at the offices of Weil, Gotshal &
Manges LLP, 767 Fifth Avenue, 30th Floor, New York, New York 10153, beginning at
11:00 a.m., local time, for the following purposes:
1. To elect directors to serve for a term of one year.
2. To approve an amendment ("Amendment") to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares
of the Company's common stock $0.01 par value (the "Company Common
Stock") from 20,000,000 shares to 60,000,000 shares.
3. To approve and adopt the Stock Purchase Agreement dated as of June 18,
1996, as amended by Amendment No. 1 to the Stock Purchase Agreement,
dated as of September 19, 1996 (together, the "Stock Purchase Agreement")
between the Company and Securicor Communications Limited ("Securicor
Communications") pursuant to which the Company will acquire all of the
issued and outstanding common stock ("Radiocoms Stock") of Securicor
Radiocoms Limited ("Radiocoms") from Securicor Communications in exchange
for the issuance of 25,000,000 shares of Company Common Stock (the
"Securicor Transaction").
4. To approve the appointment of Arthur Andersen LLP as independent
accountants for the Company in the fiscal year ending December 31, 1996.
5. To transact such other business as may properly come before the Annual
Meeting and any adjournment or adjournments thereof.
These items of business are more fully described in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed the close of business on October 29, 1996
as the record date (the "Record Date") for determination of stockholders
entitled to notice of, and the right to vote at, the Annual Meeting or any
adjournment thereof.
By Order of the Board of Directors
[SIG]
STEVEN L. WASSERMAN, SECRETARY
Torrance, California
November 8, 1996
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. THE ENCLOSED
PROXY IS SOLICITED BY THE COMPANY'S BOARD OF DIRECTORS. ANY STOCKHOLDER GIVING A
PROXY MAY REVOKE IT PRIOR TO THE TIME IT IS VOTED BY NOTIFYING THE SECRETARY OF
THE COMPANY IN WRITING OF REVOCATION OF SUCH PROXY, BY FILING A DULY EXECUTED
PROXY BEARING A LATER DATE, OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE>
INTEK DIVERSIFIED CORPORATION
970 WEST 190TH STREET, SUITE 720
TORRANCE, CALIFORNIA 90502
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS OF
INTEK DIVERSIFIED CORPORATION
TO BE HELD DECEMBER 3, 1996
------------------------
This Proxy Statement constitutes the Proxy Statement of INTEK Diversified
Corporation ("INTEK" or the "Company") to be used in connection with the
solicitation of proxies by the Board of Directors of INTEK for the annual
meeting of stockholders of the Company to be held on December 3, 1996, and any
adjournment or adjournments thereof (the "Annual Meeting"). The Annual Meeting
will be held at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue,
30th Floor, New York, New York 10153, beginning at 11:00 a.m., local time.
As more fully described below, the principal business to be addressed at the
Annual Meeting is:
1. To elect directors to serve for a term of one year.
2. To approve an amendment ("Amendment") to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares
of the Company's common stock $0.01 par value (the "Company Common
Stock") from 20,000,000 shares to 60,000,000 shares.
3. To approve and adopt the Stock Purchase Agreement dated as of June 18,
1996, as amended by Amendment No. 1 to the Stock Purchase Agreement,
dated as of September 19, 1996 (together, the "Stock Purchase Agreement")
between the Company and Securicor Communications Limited ("Securicor
Communications") pursuant to which the Company will acquire all of the
issued and outstanding common stock ("Radiocoms Stock") of Securicor
Radiocoms Limited ("Radiocoms") from Securicor Communications in exchange
for the issuance of 25,000,000 shares of Company Common Stock (the
"Securicor Transaction").
4. To approve the appointment of Arthur Andersen LLP as independent
accountants for the Company in the fiscal year ending December 31, 1996.
5. To transact such other business as may properly come before the Annual
Meeting and any adjournment or adjournments thereof.
This Proxy Statement and the Notice and Proxy are being sent to stockholders
beginning on or about November 8, 1996.
SEE "RISK FACTORS" BEGINNING ON PAGE 44 OF THE PROXY STATEMENT FOR A
DISCUSSION OF CERTAIN CONSIDERATIONS WHICH SHOULD BE CONSIDERED BY THE
STOCKHOLDERS OF INTEK WITH RESPECT TO THE PROPOSALS.
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TABLE OF CONTENTS
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Available Information..................................................... v
Glossary.................................................................. vi
SUMMARY................................................................... 1
The Annual Meeting...................................................... 1
Summary of Certain Information.......................................... 2
SELECTED FINANCIAL INFORMATION............................................ 13
Radiocoms Business...................................................... 15
SUMMARY OF UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.... 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 32
INTEK................................................................... 32
Liquidity and Capital Resources....................................... 34
NEW INTEK............................................................... 37
RADIOCOMS............................................................... 39
RISK FACTORS.............................................................. 44
NEW INTEK............................................................... 44
Change of Control....................................................... 44
Capital Needs........................................................... 44
History of Operating Losses............................................. 44
Integration............................................................. 44
Competition............................................................. 45
Management.............................................................. 45
Foreign Stock Ownership................................................. 45
Regulation by the FCC................................................... 46
Dilution................................................................ 46
Contract Bonding Requirements........................................... 46
Currency Risk........................................................... 46
RADIOCOMS............................................................... 46
Emerging Technology and Market; Risk of Uncertain Market Acceptance..... 46
Dependence on a Single Facility......................................... 47
Dependence on Patents and Proprietary Technology........................ 47
Regulation.............................................................. 48
Reliance on One Principal Supplier of Equipment......................... 48
Customer Risk........................................................... 48
Intercompany Sales...................................................... 48
Product Liability; Warranty Liability; Industry Risk.................... 48
THE SECURICOR TRANSACTION................................................. 49
Background; Reasons for the Securicor Transaction....................... 49
Opinion of Fahnestock & Co. Inc......................................... 52
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Publicly Traded Company Financial Analysis.............................. 53
Transaction Analysis.................................................... 54
Stock Trading History................................................... 54
Discounted Cash Flow Analysis........................................... 54
Contribution Analysis................................................... 55
Other Considerations.................................................... 55
Summary................................................................. 56
United States Federal Income Tax Consequences to INTEK.................. 57
Accounting Treatment; Dilution.......................................... 58
Regulatory Approvals.................................................... 58
Terms of the Stock Purchase Agreement and Securicor Transaction......... 58
General............................................................... 59
Sale and Purchase of Shares; Purchase Price........................... 59
Conditions to the Closing; Amendment, Waiver and Termination.......... 59
Fees and Expenses; Expense Reimbursement.............................. 62
Certain Covenants..................................................... 62
Indemnification....................................................... 67
EFJ..................................................................... 69
Terms of the Preferred Shares........................................... 71
Terms of the Warrants................................................... 72
Terms of the Voting Agreement........................................... 72
Terms of the Delayed Drawdown Senior Subordinated Loan.................. 73
Terms of the Support Services Agreement................................. 74
Terms of the Registration Rights Agreement.............................. 74
Terms of the Escrow Agreement........................................... 75
GENERAL INFORMATION....................................................... 76
Revocability of Proxies................................................. 76
Persons Making the Solicitation......................................... 76
Voting Rights........................................................... 76
PROPOSALS................................................................. 77
Proposal 1: Nomination and Election of Directors........................ 77
Vote Required for Approval............................................ 79
Recommendation of the Board of Directors.............................. 79
Proposal 2: Approval of Amendment to INTEK's Restated Certificate of
Incorporation.......................................................... 79
General............................................................... 79
Rights of Current Stockholders........................................ 79
Vote Required for Approval............................................ 80
Recommendation of the Board of Directors.............................. 80
Proposal 3: Approval of the Securicor Transaction, Issuance of Common
Stock and the Stock Purchase Agreement................................. 80
General............................................................... 80
Vote Required for Approval............................................ 80
Dissenters Appraisal Rights........................................... 80
Reasons for Seeking Stockholder Approval.............................. 80
Recommendation of the Board of Directors.............................. 80
</TABLE>
ii
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Proposal 4: Approval of Independent Accountants......................... 80
General............................................................... 80
Vote Required for Approval............................................ 81
Recommendation of the Board of Directors.............................. 81
THE RADIOCOMS BUSINESS.................................................... 82
Overview................................................................ 82
History of Radiocoms.................................................... 82
Business of Radiocoms................................................... 83
Strategic Systems Unit.................................................. 83
Equipment and Services Unit............................................. 84
Technology Unit......................................................... 84
Manufacturing Unit...................................................... 85
Linear Modulation....................................................... 85
Technology.............................................................. 85
Licenses and Patents.................................................... 86
Applications of LM Technology........................................... 86
Marketing............................................................... 87
Proprietary LM Products................................................. 87
Competition............................................................. 87
Employees............................................................... 88
Properties.............................................................. 88
Regulation.............................................................. 89
General................................................................. 89
Legal Proceedings....................................................... 90
THE COMPANY............................................................... 91
Roamer One, Inc......................................................... 91
Olympic................................................................. 95
IMCX Corporation........................................................ 96
Midland USA, Inc........................................................ 96
Products................................................................ 96
Competition............................................................. 96
Employees............................................................... 97
Properties.............................................................. 97
Regulation.............................................................. 97
Legal Proceedings....................................................... 101
Exchange Listing, Market Prices and Dividends on the Company's Common
Stock.................................................................. 101
NEW INTEK................................................................. 102
Business Strategy....................................................... 102
DIRECTORS AND EXECUTIVE OFFICERS OF INTEK................................. 103
Executive Compensation.................................................. 104
Incentive Stock Option Plans............................................ 105
1988 Plan............................................................... 105
1994 Plan............................................................... 105
1994 Directors Plan..................................................... 106
</TABLE>
iii
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Options in the Last Fiscal Year......................................... 106
SEP-IRA Plan............................................................ 106
Employment Agreements and Consulting Agreements......................... 106
Director Compensation................................................... 106
Elimination of Directors' Liability; Indemnification; Insurance......... 107
Compliance with Section 16(a) of the Exchange Act....................... 107
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions................................................. 108
Security Ownership of Certain Beneficial Owners and Management.......... 108
Certain Relationships and Related Transactions.......................... 111
Meetings of the Board of Directors and Committees....................... 113
Board Report on Executive Compensation.................................. 113
Performance Graph....................................................... 113
ACCOUNTANTS............................................................... 114
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS............................ 115
OTHER MATTERS............................................................. 115
INDEX TO FINANCIAL STATEMENTS............................................. F-1
APPENDICES
APPENDIX I -- Opinion of Fahnestock & Co. Inc.
APPENDIX II -- Stock Purchase Agreement dated as of June 18, 1996, and
Amendment No. 1 to the Stock Purchase Agreement dated
as of September 19, 1996, between the Company and
Securicor Communications.
</TABLE>
iv
<PAGE>
AVAILABLE INFORMATION
All documents filed by the Company with the Securities and Exchange
Commission (the "Commission") pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") can be
inspected and copies made at the public reference facilities of the Commission,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and its regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048
and 500 West Madison Street, Chicago, Illinois 60661; and copies of such
materials can be obtained from the public reference section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, such material can be inspected at the offices of the National
Association of Securities Dealers, Inc. at 9513 Key West Avenue, Rockville,
Maryland 20850.
v
<PAGE>
GLOSSARY
"ACQUIRED ASSETS" shall mean (a) the Trademark and the goodwill of the U.S.
LMR Distribution Business associated with the Trademark; (b) all accounts
receivable arising on or after August 1, 1996 in the conduct of the U.S. LMR
Distribution Business, that have not been collected as of September 20, 1996;
(c) an assignment of all of MIC's right, title and interest in and to all of
MIC's contracts, agreements, commitments or undertakings which relate
principally to, or are necessary to the conduct of, the U.S. LMR Distribution
Business, including, but not limited to, written or oral supply agreements under
which MIC is the purchaser, quotations, dealer and distributor relationships,
customer supply and support obligations and backlog orders; (d) to the extent
such information relates to the U.S. LMR Distribution Business, all customer
lists, the sales history, warranty claims, records, manuals, non-proprietary
books and records, and credit information with respect to customers of the U.S.
LMR Distribution Business; (e) certain other inventory, fixed assets, rights and
property related to the U.S. LMR Distribution Business, and all of MIC's right,
title and interest in and to the invention described in U.S. Patent #4,718,586
(Swivel Fastening Device); (f) all of MIC's leasehold and other interests in the
real property leases; (g) all U.S. telephone numbers used by MIC for the U.S.
LMR Distribution Business and keys for all Acquired Assets where such exist; (h)
all of MIC's rights under or pursuant to all warranties, representations,
indemnities and guarantees made by suppliers, manufacturers and contractors in
connection with the Acquired Assets; (i) all deferred and prepaid charges, sums,
and fees of MIC which relate solely to the Acquired Assets and/or the operation
of the U.S. LMR Distribution Business; and (j) all permits or authorizations
issued by Governmental Entities held or used by MIC solely in connection with
the operation of the U.S. LMR Distribution Business (to the extent transfer
thereof is permitted by applicable law), including, without limitation, all FCC
Title III radio licensees and grantee codes, type acceptances, certifications or
other equipment authorizations used by MIC exclusively in connection with the
U.S. LMR Distribution Business; and (k) as of October 16, 1996, all of MIC's
right, title and interest in and to the P.O. Boxes and the Distribution Account,
as both terms are defined in the Amended Sale and License Agreement.
"AMENDED SALE AND LICENSE AGREEMENT" shall mean the Amended and Restated
Sale of Assets and Trademark Agreement dated as of September 19, 1996, and
effective as of June 18, 1996, among the Company, SCL and MIC.
"AMENDMENT" shall mean the amendment to INTEK's Restated Certificate of
Incorporation to increase the number of authorized shares of Company Common
Stock from 20,000,000 to 60,000,000.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" means the Assignment and Assumption
Agreement dated as of September 1, 1996, by and between INTEK Diversified
Corporation and Midland USA, Inc.
"CLOSING" shall mean the consummation of the Securicor Transaction.
"CLOSING DATE" shall mean the date upon which the Closing shall occur.
"COMPANY COMMON STOCK" shall mean the common stock, par value $0.01 per
share, of the Company.
"COMMUNICATIONS ACT" shall mean the Communications Act of 1934, as amended.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"DEFERRED SHARES" means 100,000 deferred shares, L1.00 par value per share,
of Radiocoms.
"DELAYED DRAWDOWN SENIOR SUBORDINATED LOAN" shall mean the $15,000,000 line
of credit commitment by Securicor Communications to INTEK to be available
pursuant to the terms and conditions of an agreement to be entered into by INTEK
and Securicor Communications and guaranteed by Security Services plc. See "THE
TRANSACTIONS--Terms of the Delayed Drawdown Senior Subordinated Loan."
"DELAYED DRAWDOWN SENIOR SUBORDINATED NOTE" shall mean the Delayed Drawdown
Senior Subordinated Note payable to Securicor Communications issued by INTEK,
evidencing the obligations under the Delayed Drawdown Senior Subordinated Loan
in an amount up to $15,000,000.
"EFJ" shall mean The E.F. Johnson Company, a Minnesota corporation and the
issuer of the EFJ Securities.
vi
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"EFJ SECURITIES" shall mean the EFJ Shares and the EFJ Warrant.
"EFJ SHARES" shall mean 925,850 shares EFJ's Series I Class B Preferred
Stock, $0.01 par value per share.
"EFJ WARRANT" shall mean a warrant providing for the purchase of up to
291,790 shares of EFJ's common stock, $0.01 par value per share.
"ESCROW AGENT" means American Stock Transfer & Trust Company, as escrow
agent, pursuant to the terms of the Escrow Agreement.
"ESCROW AGREEMENT" shall mean the Escrow Agreement dated as of September 19,
1996, among INTEK, MIC and American Stock Transfer & Trust Company.
"ESCROW SHARES" shall mean the 2.35 million shares of Company Common Stock
held with American Stock Transfer & Trust Company pursuant to the terms and
conditions of the Escrow Agreement.
"FCC" shall mean the U.S. Federal Communications Commission.
"HITACHI" means Hitachi Denshi, Ltd., a corporation formed under the laws of
Japan.
"HITACHI SUPPLY AGREEMENT" means the Supply Agreement dated May 12, 1994,
between MIC and Hitachi, whereby Hitachi agreed to manufacture and sell to MIC
certain mobile radios ("Hitachi Products") and granted MIC an exclusive right to
sell Hitachi Products in a certain territory.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended, and the rules and regulations thereunder.
"INTEK" or the "Company" shall mean INTEK Diversified Corporation, a
Delaware corporation.
"INTEK WARRANTS" shall mean the warrants to be issued to Securicor
Communications for 1% of Company Common Stock, on a fully diluted basis, at the
Closing which shall have an exercise price of $13.00.
"INTERIM LOAN" shall mean a limited use $15,000,000 line of credit
commitment by Securicor Communications to Midland USA to be available for
funding the U.S. LMR Distribution Business pursuant to the terms and conditions
of the Loan Agreement secured by the assets of Midland USA pursuant to the
Security Agreement and guaranteed by INTEK with recourse only to the stock of
Midland USA pursuant to the Pledge Agreement.
"INTERIM NOTE" shall mean the Revolving Credit Note dated September 19,
1996, payable to Securicor Communications issued by Midland USA, evidencing the
obligations under the Interim Loan in an amount up to $15,000,000.
"LICENSE" shall mean the paid-up perpetual exclusive license granted by
Midland USA to MIC pursuant to the Sale and License Agreement to use the
Trademark on Licensed Products.
"LICENSE AGREEMENT" shall mean the License Agreement dated as of September
19, 1996, by and between Midland USA, INTEK and MIC.
"LICENSED PRODUCTS" shall mean (i) all consumer wireless products and
consumer electronic products consisting of consumer communications equipment,
consumer automotive equipment, consumer marine equipment, consumer amateur radio
products and consumer audio products and/or video home entertainment equipment,
which are being sold at any time in department stores and/or electronic
specialty stores, including, but not limited to, citizen band radios, GMRS
radios, marine radios, scanners, intercoms, radio recorders, car radios,
itinerant radios, consumer GPS marine products, satellite receivers, video
cassette recorders, video cameras, stereophonic and high fidelity components
and/or systems, compact disc players, laser disc players, cordless telephones,
consumer paging products, telephones with video, and other telephones and
antennas and other accessories for the foregoing, (ii) Midland model products
No. 70-1336, 70-1526, 70-9020 and 70-9405, (iii) any subsequent upgrades,
enhancements, modifications or improvements of the products described in
subsections (i) and (ii) above, and (iv) any other products that are not LMR
Products. "Licensed Products" specifically does not include cellular telephones,
personal communications
vii
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systems (PCS) telephones, commercial and two-way paging products, commercial
wireless satellite antennas, LMR antenna products, all other electronic or
communications equipment for use in the professional and commercial market and
antennas and other accessories for the foregoing.
"LM" shall mean linear modulation.
"LMR" shall mean land mobile radio.
"LMR PRODUCTS" shall mean any existing and future LMR products for use in
the professional or commercial markets including certain antennas identified in
the Amended Sale and License Agreement but excluding Midland Consumer Products
and the Midland Excluded Products.
"LMT" shall mean Linear Modulation Technology Limited, a wholly owned
indirect subsidiary of Securicor which was formed in 1990 and ultimately
combined with Radiocoms.
"LOAN AGREEMENT" shall mean the Loan Agreement dated as of September 19,
1996, between Midland USA and Securicor Communications.
"MERGER" shall mean the business combination involving the merger of Simrom
into a newly formed subsidiary of INTEK effected September 23, 1994.
"MIC" shall mean Midland International Corporation, a Delaware corporation
and a wholly owned subsidiary of SCLI, and an indirect subsidiary of SCL.
"MIDLAND CONSUMER PRODUCTS" shall mean wireless products and consumer
electronic products consisting of consumer communications equipment, consumer
automotive equipment, consumer marine equipment, consumer amateur radio products
and consumer audio products or video home entertainment equipment, which are
sold at any time in department stores or in electronic specialty stores, but
excluding cellular telephones, personal communications systems telephones,
commercial and two-way paging products, commercial wireless satellite antennas,
LMR antenna products, all other electronic or communications equipment for use
in the professional and commercial market and antennas and other accessories for
the foregoing.
"MIDLAND EXCLUDED PRODUCTS" shall mean the Midland 70-1336, 70-1526, 70-9020
and 70-9405 products and any upgrades, enhancements, modifications or
improvements with respect to such products.
"MIDLAND TRANSACTION" shall mean the transaction consummated September 20,
1996 (effective as of August 1, 1996) pursuant to the Amended Sale and License
Agreement whereby the Company, through Midland USA, acquired the Acquired Assets
and assumed certain liabilities from MIC relating to the U.S. LMR Distribution
Business in exchange for up to 2,500,000 shares of Company Common Stock and
purchased inventory and fixed assets in consideration of $3,417,246.
"MIDLAND USA" shall mean Midland USA, Inc., a Delaware corporation and a
wholly owned subsidiary of INTEK.
"NEW INTEK" shall mean the Company after the consummation of the
Transactions.
"OLYMPIC" shall mean Olympic Plastics Company, Inc., a California
corporation and a wholly owned subsidiary of the Company.
"OPTION EXERCISE DATE" shall mean the thirty (30) day period following the
effective date of the termination of the Securicor Agreement by INTEK or
Securicor Communications.
"PLASTICS BUSINESS" shall mean the business formerly conducted by Olympic of
fabricating and selling plastic products (primarily from injection and
compression molding of various plastic resins) to customers in the electronics,
aerospace and commercial aircraft markets.
"PLEDGE AGREEMENT" shall mean the Non-Recourse Guaranty and Pledge Agreement
dated September 19, 1996 between INTEK and Securior Communications pursuant to
which INTEK has guaranteed the obligations under the Interim Loan with recourse
only to the stock of Midland USA.
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"PREFERRED SHARES" shall mean 20,000 redeemable preference shares, $1,000
par value per share, of Radiocoms.
"RADIOCOMS" shall mean Securicor Radiocoms Limited, a corporation formed
under the laws of England and Wales, and a wholly owned subsidiary of Securicor
Communications.
"RADIOCOMS BUSINESS" shall mean all operations, assets, rights and
liabilities of Radiocoms and its subsidiaries whatsoever and all operations,
assets, rights, or liabilities of other affiliates of Securicor Communications
which are related directly and principally to the business of manufacturing and
selling LMR equipment, other than Dopra Systems Integration, Ltd. ("Dopra"),
Securicor Cellular Services, Ltd. ("Cellular"), Securicor Datatrak, Ltd.
("Datatrak") and Securicor TrakBak, Ltd. ("TrakBak").
"RADIOCOMS STOCK" shall mean the issued and outstanding common stock of
Radiocoms.
"RECORD DATE" shall mean October 29, 1996.
"REPAYMENT DATE" shall mean the first to occur of the following: (i) the
date (the "Specified Repayment Date") 30 days after the Termination Date,
provided that if the meeting of the INTEK Stockholders to consider the Securicor
Transaction is held after October 31, 1996 but before November 30, 1996 then the
Specified Repayment Date shall be extended by such number of days between
October 31, 1996 and the date of such meeting (up to a maximum of 30 days) and
(ii) the date on which the Securicor Transaction is consummated.
"ROAMER ONE" shall mean Roamer One, Inc., a Delaware corporation, and a
wholly owned subsidiary of INTEK.
"ROAMER ONE HOLDINGS" shall mean Roamer One Holdings, Inc., a Delaware
corporation, owned primarily by certain officers and directors of INTEK.
"SALE AND LICENSE AGREEMENT" shall mean Sale of Assets and Trademark License
Agreement dated as of June 18, 1996 among the Company, SCL and MIC.
"SCL" shall mean Simmonds Capital Limited, an Ontario corporation.
"SCLI" shall mean SCL, Inc., a Delaware corporation, and a wholly owned
subsidiary of SCL.
"SECURICOR COMMUNICATIONS" shall mean Securicor Communications Limited, a
corporation organized under the laws of England and Wales, a wholly owned
subsidiary of Security Services plc and an indirect, wholly owned subsidiary of
Securicor.
"SECURICOR" shall mean Securicor plc, a corporation organized under the laws
of England and Wales.
"SECURICOR INTERNATIONAL LIMITED" shall mean a corporation organized under
the laws of England and Wales, a wholly owned indirect subsidiary of Securicor.
"SECURICOR TRANSACTION" shall mean the transactions contemplated by the
Stock Purchase Agreement pursuant to which the Company is acquiring the
Radiocoms Stock in exchange for the issuance of 25,000,000 of Company Common
Stock and, including, without limitation, the issuance of the INTEK Warrants to
Securicor Communications.
"SECURITY AGREEMENT" shall mean the Security Agreement dated September 19,
1996 by Midland USA in favor of Securicor Communications.
"SECURITY SERVICES PLC" shall mean Security Services plc, a wholly owned
subsidiary of Securicor.
"SIMROM" shall mean Simrom, Inc., an Ohio corporation, which was jointly
owned by Roamer One Holdings and SCL.
"SMR" shall mean specialized mobile radio.
"220 MHZ" shall mean the 220 megahertz to 222 megahertz narrowband spectrum.
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"220 MHZ SMR SYSTEMS" shall mean the 220 MHz SMR systems in the U.S.
utilizing licenses granted by the FCC for the 220 MHz.
"STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement dated as
of June 18, 1996 as amended by Amendment No. 1 to the Stock Purchase Agreement
dated as of September 19, 1996, between the Company and Securicor
Communications.
"TERMINATION DATE" shall mean the first to occur of the following: (i) the
date on which the Stock Purchase Agreement is terminated pursuant to Section 3.2
thereof or (ii) December 31, 1996.
"TRADEMARK" shall mean (i) the trademark "Midland" Reg. No. 927193, serial
No. 72-277,496, first registered on January 18, 1972 and renewed on December 13,
1991, (ii) the trademark "Midland" Reg. No. 895483, serial No. 72-156,089, first
registered on July 28, 1970 and renewed on December 18, 1990, (iii) the trade
name "Midland" and similar variations thereof, and (iv) all registrations,
applications and renewals thereof, in the U.S., and all logos, whether or not
registered, used in the U.S., in connection therewith, used exclusively in
connection with the LMR Products. The term "Trademark" expressly does not
include any use of the word "Midland" in any combination including the word
"Consumer."
"TRANSACTIONS" shall mean the Securicor Transaction and the Midland
Transaction.
"U.K." shall mean the United Kingdom.
"U.S." shall mean the United States, its territories and possessions.
"U.S. LMR DISTRIBUTION BUSINESS" shall mean the business conducted by
Midland USA involving the sale and distribution in the U.S. of LMR Products
bearing the Trademark, which business was formerly conducted by MIC prior to the
consummation of the Midland Transaction.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT AND THE APPENDICES HERETO. STOCKHOLDERS OF THE COMPANY ARE URGED TO
READ THIS PROXY STATEMENT AND THE APPENDICES HERETO BEFORE VOTING ON THE MATTERS
DISCUSSED HEREIN. THIS PROXY STATEMENT INCLUDES FORWARD LOOKING STATEMENTS
CONCERNING THE COMPANY, RADIOCOMS AND NEW INTEK, AND THEIR RESPECTIVE
SUBSIDIARIES, THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE
DISCUSSED UNDER "RISK FACTORS." THE FORWARD LOOKING STATEMENTS ARE MADE PURSUANT
TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 (THE "REFORM ACT"). SEE "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
THE ANNUAL MEETING
The Annual Meeting will be held on December 3, 1996, at 11:00 a.m., local
time, at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, 30th
Floor, New York, New York 10153. At the Annual Meeting, including any
adjournments thereof, the stockholders of the Company will consider and vote on
the following proposals: (1) to elect directors to serve for a term of one year;
(2) to approve an amendment ("Amendment") to the Company's Restated Certificate
of Incorporation to increase the number of authorized shares of Company Common
Stock from 20,000,000 shares to 60,000,000 shares; (3) to approve and adopt the
Stock Purchase Agreement between the Company and Securicor Communications
pursuant to which the Company will acquire the Radiocoms Stock from Securicor
Communications in exchange for the issuance of 25,000,000 shares of Company
Common Stock; (4) to approve the appointment of Arthur Andersen LLP as
independent accountants for the Company for the fiscal year ending December 31,
1996; and (5) to transact such other business as may properly come before the
Annual Meeting and any adjournments thereof. See "GENERAL INFORMATION."
The close of business on October 29, 1996, has been fixed as the record date
for the determination of the stockholders of the Company (the "Stockholders")
entitled to notice of and to vote at the Annual Meeting (the "Record Date").
Holders of Company Common Stock are entitled to one vote for each share of
Company Common Stock held by them. The holders of a majority of the outstanding
shares of Company Common Stock, present either in person or by properly executed
proxies, shall constitute a quorum at the Annual Meeting.
The affirmative vote of the holders of a plurality of the votes of the
shares present in person or represented by proxy at the Annual Meeting is
required for the election of directors. The affirmative vote of a majority of
shares present or represented by proxy at the Annual Meeting and entitled to
vote thereon is required for the approval of each of the Amendment and the Stock
Purchase Agreement; provided, however, the shares of Company Common Stock held
by Stockholders who are parties to the Voting Agreement (defined below) all will
be voted in a manner consistent with the vote of a majority of the Stockholders
(for or against) who are not parties to the Voting Agreement, but excluding
abstentions and broker non-votes (defined herein) and the shares of Company
Common Stock held pursuant to the Escrow Agreement and issued pursuant to the
consummation of the Midland Transaction will be voted in proportion to the votes
of the Stockholders (for or against) who are not parties to the Voting
Agreement, but excluding abstentions and broker non-votes. See "THE SECURICOR
TRANSACTION -- Terms of the Voting Agreement." The approval of the independent
accountants submitted for Stockholder approval at the Annual Meeting will be
decided by the affirmative vote of a majority of shares present in person or
represented by proxy and entitled to vote on such matter. Shares represented by
proxies that reflect abstentions or "broker non-votes" (I.E., shares held by a
broker or nominee which are represented at the Annual Meeting, but with respect
to which such broker or nominee is not empowered to vote on a particular
proposal) will be counted for the purpose of determining a quorum and therefore
(i) each will have the effect of a vote "against" Proposal 2, (ii) abstentions
will have the effect of a vote "against" each of Proposals 3 and 4 and (iii)
neither will have any effect on Proposal 1.
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SUMMARY OF CERTAIN INFORMATION
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INTEK................................... INTEK is a development stage enterprise engaged in
developing, constructing and managing, through Roamer One,
220 MHz SMR Systems in the U.S. utilizing licenses granted
by the FCC for 220 MHz and, through Midland USA, a
distributor and value added reseller of LMR Products for the
professional LMR market. INTEK is quoted on the Nasdaq Small
Cap Stock Market (Symbol: IDCC). See "THE COMPANY --
Exchange Listing, Market Prices and Dividends on the
Company's Common Stock."
Securicor Radiocoms Limited............. Radiocoms is a wholly owned subsidiary of Securicor
Communications and an indirect, wholly owned subsidiary of
Security Services plc, itself a wholly owned subsidiary of
Securicor. Radiocoms designs, develops and manufactures a
range of LMR products using linear modulation technology.
Radiocoms also provides technical and project management
expertise for "turn key" custom engineered LMR communication
system solutions and sells, primarily in the U.K., mobile
communications systems and radio equipment for businesses,
using products purchased from established manufacturers. See
"THE RADIOCOMS BUSINESS." Securicor Communications is an
indirect, wholly owned subsidiary of Securicor. Securicor is
a multinational U.K. based company that provides a broad
range of security, distribution, communications and business
services.
Amendment to Certificate of
Incorporation........................... The Company has authorized under its Restated Certificate of
Incorporation 20,000,000 shares of Common Stock of which
14,735,850 shares of Common Stock are issued and outstanding
as of the Record Date. If approved by the Stockholders, the
Amendment will authorize an aggregate of 60,000,000 shares
of Common Stock. Unless approved by the Stockholders, the
Company will not have enough shares of Common Stock
authorized under its Restated Certificate of Incorporation
to consummate the Securicor Transaction. If the Amendment is
approved by the Stockholders and the Securicor Transaction
is consummated, there would be 18,174,907 shares of Company
Common Stock authorized but unissued (assuming no additional
shares of Company Common Stock have been issued from the
date hereof through such date).
Background of the Transactions.......... In September 1994, following the Merger, the Company decided
to refocus its business from the Plastics Business to an
enterprise developing, constructing and managing 220 MHz SMR
Systems in the U.S. At the time of the Merger, Roamer One
had a contract with SCL to provide assistance in developing
220 MHz SMR Systems and technical support with respect to
the operation of such systems.
On June 29, 1995, after months of discussions and
negotiations, the Company and SCL entered into an agreement
for the Company to acquire the wireless communications
business of SCL (the "Midland Purchase Agreement").
Following execution of the Midland Purchase Agreement, the
Company completed
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the purchase of approximately $8 million of radio equipment
from Securicor Communications and its affiliates pursuant to
the terms of an agreement which had been entered into in
April 1995 and which permitted the Company to acquire up to
$4 million of such equipment in exchange for Company Common
Stock in the event the Midland Purchase Agreement was
executed.
During the period between November 1995 and January 1996,
certain amendments were made to the Midland Purchase
Agreement to take into account the deteriorating financial
performance of the wireless communications business of SCL
and to extend the date for consummation of the transaction.
During this same period, John Simmonds, Chairman of the
Board of SCL and a director and the Chief Executive Officer
of the Company, had several conversations with Dr. Edmund
Hough, Chairman of the Board of Securicor Communications,
concerning strategies for the deployment of narrow band
equipment in the U.S., the complementary nature of the
business of the Company, MIC and Radiocoms and the possible
benefits which could be realized from a combination of the
three businesses.
By January 1996 the transaction contemplated by the Midland
Purchase Agreement still had not been consummated. In view
of the continued delays in consummating such transaction and
the adverse impact of such delays on the Company, MIC and
Radiocoms, Messrs. Simmonds, Hough and Nicholas Wilson,
Chairman of the Board of the Company, met on January 31,
1996 in London, England to discuss a possible combination of
the business of the Company, the Radiocoms Business and the
U.S. LMR Distribution Business. Subsequently, Messrs.
Simmonds, Hough and Wilson met on numerous occasions to
discuss the terms of a possible combination.
On March 8, 1996, the Board of Directors of the Company
considered a proposed letter of intent providing for the
Company to acquire from Securicor Communications the
Radiocoms Stock and to acquire from MIC the U.S. LMR
Distribution Business. On March 8, 1996, the Board of
Directors of the Company approved the letter of intent, and
the Midland Purchase Agreement, as amended, was terminated.
The Board of Directors of the Company authorized a special
committee of the Board of Directors of the Company (the
"Special Committee"), consisting of Nicholas Wilson, David
Neibert, Steven Wasserman and Christopher Branston, to
negotiate the terms of the definitive acquisition agreements
with each of Securicor Communications, SCL and MIC and to
select a financial advisor for the Company. A joint press
release announcing the proposed transactions was issued on
March 8, 1996.
The Special Committee retained Fahnestock & Co. Inc. to
advise it and the Board of Directors in connection with the
Transactions and to render an opinion as to the fairness of
the Transactions, from a financial point of view, to the
Company and its Stockholders.
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Between March 8, 1996 and June 18, 1996 representatives of
the Special Committee, the Company, SCL and Securicor
Communications conducted due diligence, met and had
telephone conversations on numerous occasions to negotiate
the final terms of the definitive purchase agreements.
On June 12, 1996, the Special Committee met to consider the
principal terms of the Transactions. Following presentations
from management of the Company and Fahnestock & Co. Inc.,
the Special Committee unanimously approved the principal
terms of the Transactions and unanimously resolved to
recommend to the full Board of Directors of the Company that
it approve the definitive purchase agreements.
On June 17 and 18, 1996, representatives of Securicor
Communications, INTEK and SCL met in London, England, to
finalize the definitive purchase agreements. The Stock
Purchase Agreement, Sale and License Agreement and related
agreements were executed on June 18, 1996.
Due to the desire of INTEK, Securicor and MIC to take
advantage of business opportunities relating to the U.S. LMR
Distribution Business and MIC's inability to make advance
product purchases prior to the expected consummation of the
Midland Transaction and the Securicor Transaction at such a
level as to take advantage of such business opportunities,
INTEK, SCL, and MIC agreed (with Securicor's consent) to
amend the Sale and License Agreement as set out in the
Amended Sale and License Agreement to provide for the
immediate acquisition by INTEK (through Midland USA) of the
U.S. LMR Distribution Business and in connection therewith
Securicor Communications agreed to extend the Interim Loan
to Midland USA. The parties also agreed that the terms of
the purchase would consist of certain inventory and other
assets sold at the consummation of the Midland Transaction
for cash and that a significant portion of the shares being
issued as consideration would be put into escrow to be
released pending certain events, including consummation of
the Securicor Transaction.
On September 12, 1996, Fahnestock & Co. Inc. delivered its
written opinion to the Board of Directors as to the fairness
of the Transactions, from a financial point of view, to the
Company and its Stockholders. On September 12, 1996, the
Board of Directors of the Company (with the directors
related to SCL abstaining with respect to the Midland
Transaction) approved the Stock Purchase Agreement, as
amended, the Amended Sale and License Agreement and related
documents, the Pledge Agreement and the Board of Directors
of Midland USA approved the Interim Loan and the related
documents. See "THE SECURICOR TRANSACTION -- Background;
Reasons for the Securicor Transaction."
On September 20, 1996, the Company and MIC and SCL entered
into the Amended Sale and License Agreement and
simultaneously therewith, the Company, through Midland USA,
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acquired the U.S. LMR Distribution Business. The purchase
price for the Acquired Assets included up to 2.5 million
shares of Company Common Stock, cash consideration and the
assumption of certain liabilities. MIC received 150,000
shares of Company Common Stock and INTEK issued 2,350,000
shares of Company Common Stock to the Escrow Agent and
deposited the shares into escrow pursuant to the terms of
the Amended Sale and License Agreement and the Escrow
Agreement. Until the consummation of the Securicor
Transaction, MIC will not have title to, or voting rights
with respect to, or any right to encumber any of the Escrow
Shares. The Escrow Shares will be released to MIC upon
consummation of the Securicor Transaction, or if Securicor
and INTEK, or their respective affiliates, enter into one or
more transactions within six months of the termination of
the Stock Purchase Agreement, which, in the aggregate,
convey majority control of INTEK to Securicor
Communications, or its affiliates, upon the closing of such
transactions. The number of Escrow Shares released to MIC is
subject to pricing adjustments of a maximum of (a) a
reduction of up to 155,000 shares as an offset against any
losses incurred in the operation of the U.S. LMR
Distribution Business from August 1, 1996 through the
Closing; and (b) by 500,000 shares which will remain in
escrow after title and voting rights have been conveyed to
MIC to provide a mechanism for indemnifying the Company
against actual out-of-pocket loss, cost, liability or
expense incurred by the Company, and aggregating more than
$50,000, in connection with the termination by Hitachi of
the Hitachi Supply Agreement without the consent of the
Company prior to May 12, 1997. Securicor Communications
provided $4,274,775 of funding to Midland USA under the
Interim Loan in connection with the consummation of the
Midland Transaction. INTEK has granted MIC an option to
acquire the U.S. LMR Distribution Business, if the Securicor
Transaction is not consummated, through the acquisition of
the outstanding stock of Midland USA, in exchange for
payment of all obligations outstanding under the Interim
Loan and 150,000 shares of Company Common Stock. If MIC does
not exercise such option, Midland USA has a certain period
of time to repay its obligations outstanding under the
Interim Loan, after which time, if full repayment has not
been made, Securicor may foreclose upon all of the assets of
Midland USA and the stock of Midland USA held by INTEK. See
"THE SECURICOR TRANSACTION -- Terms of the Escrow
Agreement."
Stock Purchase Agreement................ The Stock Purchase Agreement provides for the acquisition by
the Company of the Radiocoms Stock. Upon the consummation of
the Securicor Transaction, the Company will acquire from
Securicor Communications the Radiocoms Business. See "THE
SECURICOR TRANSACTION -- Terms of the Stock Purchase
Agreement and Securicor Transaction." The Company also will
acquire indirect ownership of certain EFJ Securities which
are held by Radiocoms. See "THE SECURICOR TRANSACTION --
Terms of the Stock Purchase Agreement
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and Securicor Transaction -- EFJ." The Company will not
acquire the Preferred Shares of Radiocoms which will be held
by Securicor Communications. The Preferred Shares will be
issued by Radiocoms to Securicor Communications prior to the
consummation of the Securicor Transaction in satisfaction of
certain intercompany indebtedness and may in certain
circumstances be canceled against the delivery to Securicor
Communications of all or a portion of the EFJ Shares. The
Company will issue to Securicor Communications 25,000,000
shares of Company Common Stock in exchange for the Radiocoms
Stock. See "THE SECURICOR TRANSACTION -- Terms of the Stock
Purchase Agreement and Securicor Transaction." In addition,
the Company will issue to Securicor Communications the INTEK
Warrants. See "THE SECURICOR TRANSACTION -- Terms of the
Warrants."
Securicor Communications (in addition to SCL) will obtain
certain registration rights with respect to its shares of
Common Stock as set forth in the Registration Rights
Agreement. See "THE SECURICOR TRANSACTION -- Terms of the
Registration Rights Agreement."
Conditions to Closing under the Stock
Purchase Agreement...................... The obligations of Securicor Communications under the Stock
Purchase Agreement are conditioned on the approval by the
Company's Stockholders of the Amendment and the Stock
Purchase Agreement and certain other conditions, including
the receipt of regulatory and third party approvals and
consents.
Voting Agreement; Escrow
Agreement............................... In connection with the execution and delivery of the Stock
Purchase Agreement, SCL, Roamer One Holdings, Securicor
Communications and Securicor International Limited entered
into a voting agreement, which Voting Agreement was
subsequently amended pursuant to the First Amendment to the
Voting Agreement (together, the "Voting Agreement").
Pursuant to the terms of the Voting Agreement, each of the
parties executed and delivered to the Company a limited
proxy directing the Company to vote the shares of Common
Stock owned by such parties as of the date of the Annual
Meeting in a manner consistent with the vote (for or
against) of a majority of the shares of Company Common Stock
not owned by such parties and voted at the Annual Meeting on
resolutions to approve the Stock Purchase Agreement and to
amend the Company's Restated Certificate of Incorporation.
In addition, each party to the Voting Agreement has agreed
that, following consummation of the Securicor Transaction,
it will vote its shares of Common Stock for a two year
period thereafter in favor of a designee of Roamer One
Holdings (reasonably acceptable to the Company and Securicor
Communications) to the Company's Board of Directors. Each
such proxy is irrevocable until the earlier of (i)
termination of the Stock Agreement, (ii) mutual agreement of
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each of the parties to the Voting Agreement, as amended, or
(iii) December 31, 1996. See "GENERAL INFORMATION -- Voting
Rights."
In connection with the consummation of the transactions
contemplated by the Amended Sale and License Agreement,
INTEK, MIC and the Escrow Agent entered into the Escrow
Agreement. Under the terms of the Escrow Agreement the
Escrow Shares will be voted by the Escrow Agent with respect
to the Securicor Transaction and the Amendment in proportion
to the votes of the Stockholders (for or against) who are
not parties to the Voting Agreement (I.E. SCL, Roamer One
Holdings, Securicor Communications and Securicor
International Limited), but excluding abstentions and broker
non-votes. See "GENERAL INFORMATION -- Voting Rights."
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Recommendation of the Company's Board of
Directors of the Securicor Transaction;
Company's Reasons for the Securicor
Transaction............................. The Company's Board of Directors recommends approval of
the Securicor Transaction. In approving the Securicor
Transaction, the Board of Directors consulted with its
financial advisor and management, and considered such
factors as they deemed appropriate, including, without
limitation, the following factors:
(i) The belief by the Board of Directors and INTEK's
management that the Radicoms Business of designing
and manufacturing radio and related equipment
complements its newly acquired U.S. LMR Distribution
Business.
(ii) The belief by the Board of Directors and INTEK's
management that it is advantageous to, (a) have a
direct interest in the technology used in the LMR
Products that INTEK sells and distributes, (b)
control the sale and distribution of subscriber
equipment, (c) control the design, acquisition and
installation of base station radio equipment, and
(d) manage the spectrum on which the subscriber
equipment is to be activated.
(iii) The belief by the Board of Directors and INTEK's
management that a presence in more segments of the
LMR Product and service markets (other than solely
as a seller of air time) in the U.S. and worldwide
will enable INTEK to respond more effectively and
quickly to changes in the 220MHz SMR market.
(iv) The belief by the Board of Directors and INTEK's
management that a more diversified business with a
larger assets base will provide INTEK with access to
a broader range of potential sources of capital.
(v) The belief by the Board of Directors and INTEK's
management that it is desirable to eliminate the
risk of losing Radiocoms as its sole supplier of
equipment and to obtain greater control over its
supply of equipment.
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(vi) INTEK's need for capital over the near term and
Securicor Communication's willingness to provide the
Delayed Drawdown Subordinated Loan, and the Interim
Loan, on terms favorable to INTEK.
(vii) INTEK's ability to consummate the Securicor
Transaction utilizing its Company Common Stock as
payment for the Radiocom's Stock.
(viii) INTEK's analysis of information with respect to the
financial condition, business, operations and
prospects of both INTEK and Radiocoms on both a
historical and prospective basis, including certain
information reflecting the two companies on a pro
forma combined basis.
(ix) INTEK's analysis of the potential synergies expected
to be realized by the combined operations of INTEK
and Radiocoms.
(x) The written opinion of Fahnestock.
(xi) The information contained in the risk factors
described, and the other information set forth, in
this Proxy Statement.
These factors were considered collectively by the Board of
Directors, without giving specific weight to any
particular factor.
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Opinion of Fahnestock & Co. Inc......... Fahnestock & Co. Inc. ("Fahnestock") acted as the financial
advisor to the Special Committee and the Board of Directors
of the Company in connection with the Transactions.
Fahnestock delivered to the Special Committee its oral
opinion on June 12, 1996 and delivered its written opinion
to the Board of Directors on September 12, 1996, to the
effect that, as of the date of such opinion and based upon
and subject to certain matters as stated therein, the
consideration paid in the aggregate under the Stock Purchase
Agreement and the Amended Sale and License Agreement by the
Company is fair, from a financial point of view, to the
Company and the Stockholders. Fahnestock's opinion addresses
both the Securicor and Midland Transactions together
inasmuch as consummation of the Securicor Transaction will
trigger the automatic payment of the Escrow Shares to MIC,
subject to the terms of the Escrow Agreement. See "THE
SECURICOR TRANSACTION -- Opinion of Fahnestock & Co."
Closing................................. The Closing contemplated by the Stock Purchase Agreement is
anticipated to occur as soon as practicable after the Annual
Meeting in the event the Stockholders approve the Amendment
and the Stock Purchase Agreement and certain other
conditions have been satisfied, including receipt of all
required regulatory approvals have been received.
Federal Income Tax Consequences......... No gain or loss will be recognized by INTEK with respect to
the authorization and issuance of 25,000,000 shares of
Company Common Stock (and the INTEK Warrants) to Securicor
Communications in exchange for the Radiocoms Stock, for U.S.
federal income tax purposes. Stockholders (other than
Securicor Communications and its affiliates, as to which no
view is
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expressed herein) of the Company should recognize no gain or
loss for U.S. federal income tax purposes as a result of the
Securicor Transaction. The consummation of the Securicor
Transaction will result in an "ownership change" of INTEK
within the meaning of Section 382 of the Code. As a result,
the utilization of INTEK's net operating loss carryforwards
will be limited for the tax periods following the Closing.
For a discussion of U.S. federal income tax consequences
relating to the Securicor Transaction, see "THE SECURICOR
TRANSACTION -- United States Federal Income Tax Consequences
to INTEK."
Regulatory Matters...................... Each of the Securicor Transaction and the payment of the
Escrow Shares (upon the consummation of the Securicor
Transaction) to MIC pursuant to the Escrow Agreement is
subject to the requirements of the HSR Act, which provides
that certain acquisition transactions may not be consummated
until certain information has been furnished to the
Antitrust Division of the Department of Justice (the
"Division") and the Federal Trade Commission (the "FTC") and
unless certain waiting period requirements have been met.
The Company anticipates that the Notification and Report
Forms required pursuant to the HSR Act will be filed by the
Company, SCL and Securicor in the near term. Satisfaction of
the waiting period requirement will not preclude the
Division, the FTC or any other party either before or after
the expiration of the waiting periods or the Closing from
challenging or seeking to delay or enjoin the Securicor
Transaction or the Midland Transaction or both on antitrust
or other grounds. There can be no assurances that such a
challenge, if made, would not be successful. See "THE
SECURICOR TRANSACTION -- Regulatory Approvals."
Post-Closing Control by Securicor
Communications.......................... Upon the consummation of the Securicor Transaction,
Securicor Communications will own or control the right to
vote, in the aggregate, a majority of Company Common Stock
and therefore will have the power to elect the entire Board
of Directors of the Company and to approve or disapprove
virtually any action, including any proposed adoption of an
amendment to the Company's Restated Certificate of
Incorporation and any proposed sale of all or substantially
all of the Company's assets or any merger transaction.
However, see "THE SECURICOR TRANSACTION -- Terms of the
Voting Agreement."
Management After the Closing............ Upon the consummation of the Securicor Transaction, Edmund
Hough, the Chief Executive Officer of the Communication
Division of Securicor, will act as Interim Chief Executive
Officer of New INTEK; Thomas Little, the Managing Director
of Radiocoms, will remain as the Managing Director of
Radiocoms; David Neibert, the Executive Vice President of
INTEK and President of Roamer One, will remain in those
positions; Gregg Marston, the Controller of INTEK, will act
as Interim Chief Financial Officer of New INTEK; and Howard
Parkinson, a former consultant to Securicor and MIC, will
continue to oversee the operations of the U.S. LMR
Distribution Business as a Vice President of Midland USA.
The position of Chief Financial Officer is expected to be
filled on a permanent basis as soon as possible after
consummation of the Securicor Transaction.
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Dilution................................ As of June 30, 1996, the tangible book value of the
Company's Common Stock was $7.7 million or $0.69 per share.
After the Midland Transaction, the Stockholders of the
Company suffered a decrease in tangible book value to $7.2
million or $0.64 per share (assuming only 150,000 shares of
Company Common Stock are paid to MIC) or $0.53 (assuming all
2.5 million shares of Company Common Stock are paid to MIC).
If the Securicor Transaction is approved, the Company's
tangible book value will increase to $23.5 million or $0.61
per share. There can be no assurance that the actual amount
of dilution at the consummation of the Securicor Transaction
will not be a greater amount. To the extent outstanding
options and additional options to purchase Company Common
Stock are exercised and granted, there may be further
dilution. See "THE SECURICOR TRANSACTION -- Accounting
Treatment; Dilution."
Interests of Certain Persons in the
Transactions............................ As of November 5, 1996, Securicor International Limited, an
affiliate of Securicor Communications and Securicor, owned,
directly or indirectly, 6.3% of the issued and outstanding
Company Common Stock. If the Securicor Transaction is
consummated (assuming the Company does not issue or redeem
any shares of Company Common Stock and that neither
Securicor nor any of its affiliates acquires or disposes of
any shares of Company Common Stock in the period prior to
the Closing), Securicor Communications would own, directly
or indirectly through its affiliates, a beneficial interest
in 25,937,042 shares (or approximately 63.7%) of the then
issued and outstanding Company Common Stock. See "DIRECTORS
AND EXECUTIVE OFFICERS OF INTEK -- Certain Relationships and
Related Transactions."
As of November 5, 1996, SCL beneficially owns, directly or
indirectly, approximately 18.1% of the issued and
outstanding Company Common Stock. If the Securicor
Transaction is consummated and all of the Escrow Shares are
delivered to MIC in accordance with the Escrow Agreement
(assuming that the Company does not issue or redeem any
shares of Company Common Stock and that SCL does not acquire
or dispose of its shares of Company Common Stock in the
period prior to the Closing), SCL would own, directly or
indirectly through MIC, a beneficial interest in 5,044,183
(or approximately 12.4%) shares of the then issued and
outstanding Company Common Stock. Certain members of the
Board of Directors of INTEK are affiliated with SCL. See
"DIRECTORS AND EXECUTIVE OFFICERS OF INTEK -- Certain
Relationships and Related Transactions."
On June 16, 1995, Roamer One Holdings entered into an option
agreement with SCL pursuant to which SCL paid Roamer One
Holdings $1,800,000 for an option to purchase up to
1,800,000 shares of Company Common Stock at a purchase price
of $1.50 per share. The option may be exercised in whole or
in part, for a period of five years. Roamer One Holdings is
a private company controlled by Nicholas R. Wilson, Chairman
of the Board of the Company. David Neibert and Steven
Wasserman, directors of the Company, are also officers,
directors and shareholders of
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Roamer One Holdings. As of November 5, 1996, SCL had
exercised options to acquire 1,200,000 shares of Company
Common Stock from Roamer One Holdings. See "DIRECTORS AND
EXECUTIVE OFFICERS OF INTEK -- Certain Relationships and
Related Transactions."
Accounting Treatment.................... The Securicor Transaction is expected to be accounted for as
a reverse acquisition since after the consummation of the
Securicor Transaction, Securicor Communications will hold a
majority of the issued and outstanding Company Common Stock.
See "THE SECURICOR TRANSACTION -- Accounting Treatment;
Dilution."
Dissenter's Rights...................... Stockholders will not be entitled to statutory appraisal
rights under the Delaware General Corporation Law ("DGCL")
whether or not they vote in favor of the Securicor
Transaction.
Risk Factors............................ For a discussion of certain risk factors in connection with
the Securicor Transaction, see "RISK FACTORS."
Price Range of the Company Common
Stock................................... The latest reported sales price for the Company's Common
Stock on the Nasdaq Small Cap Stock Market at November 4,
1996 was $6 5/8. See "THE COMPANY -- Exchange Listing,
Market Prices and Dividends on the Company's Common Stock."
Recent Developments..................... On September 20, 1996, INTEK acquired the U.S. LMR
Distribution Business. Simultaneously therewith, pursuant to
an Assignment and Assumption Agreement entered into by INTEK
and Midland USA, Midland USA acquired right, title and
interest to the Acquired Assets comprising the U.S. LMR
Distribution Business and assumed the obligations relating
thereto. The purchase price for the Acquired Assets included
up to 2.5 million shares of Company Common Stock, cash
consideration in the amount of $3,417,246 and the assumption
of certain liabilities. At the closing of the Midland
Transaction, MIC was entitled to receive, and promptly
thereafter did receive, 150,000 shares of Company Common
Stock. Shortly after the Closing of the Midland Transaction,
2.35 million shares of Company Common Stock were issued to
the Escrow Agent pursuant to the Escrow Agreement. In the
event the Securicor Transaction is consummated, or if
Securicor Communications and INTEK, or their respective
affiliates, enter into one or more transactions within six
months of the termination of the Stock Purchase Agreement,
which, in the aggregate, convey majority control of INTEK to
Securicor Communications, upon the closing of such
transaction, MIC will be entitled to receive the Escrow
Shares, subject to pricing adjustments of a maximum of (a) a
reduction of up to 155,000 shares of Company Common Stock in
the event that the U.S. LMR Distribution Business
experiences losses between the period of August 1, 1996 and
the date the Securicor Transaction is consummated, and (b)
up to 500,000 shares which will remain in escrow after title
and voting rights have been conveyed to MIC to indemnify the
Company in the event that the Hitachi Supply Agreement is
terminated prior to, or the benefits thereof are not
otherwise provided to the Company through, May 12, 1997.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Pursuant to terms of Amended Sale and License Agreement, in
the event the Securicor Transaction is not consummated, MIC
has an option to acquire the U.S. LMR Distribution Business
by acquiring the stock of Midland USA in exchange for
payment of all obligations outstanding under the Interim
Loan and 150,000 shares of Company Common Stock. The option
may be exercised on or before the Option Exercise Date. In
the event such option is not exercised, Midland USA, under
the terms of the Loan Agreement, may retain ownership of the
U.S. LMR Distribution Business by the repayment on the
Repayment Date of all obligations outstanding under the
Interim Loan. In the event such repayment does not occur,
Securicor Communications may foreclose upon all of the
assets of Midland USA and the stock of Midland USA held by
INTEK. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- INTEK --
Liquidity and Capital Resources."
On November 1, 1996, INTEK entered into a Purchase and Sale
Agreement ("Krystal Agreement") with Krystal Systems, Inc.,
a Nevada corporation ("Krystal"), whereby (i) Krystal
ordered 16 base station 220 MHz repeater assemblies (at a
cost to Krystal of approximately $1 million) from Roamer One
which were manufactured by Radiocoms, (ii) Krystal agreed,
at its sole expense, to hire Roamer One to build out 16 base
stations and (iii) INTEK agreed to purchase 25 constructed
base stations (the "Krystal Systems"), subject to certain
conditions (including, without limitation, completion of due
diligence by INTEK, receipt of all necessary consents and
approvals of governmental bodies and receipt by INTEK, on or
before December 31, 1996, of $4,500,000 of proceeds from
sale of Company Common Stock) for a purchase price of
$180,000 for each Krystal System (the "Krystal
Transaction"). See "UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS and MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
INTEK -- Liquidity and Capital Resources."
</TABLE>
12
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information for the five years ended
December 31, 1995 is derived from the audited historical financial statements of
INTEK. The financial information for the six-month periods ended June 30, 1995
and 1996 is derived from unaudited financial statements of INTEK. The unaudited
INTEK financial statements include all adjustments, consisting of normal
recurring accruals, that INTEK considers necessary for a fair presentation of
the financial position and the results of operations for this period. Operating
results for the six months ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the entire year ending December 31, 1996.
The financial information set forth below should be read in conjunction with
INTEK's financial statements, related notes and other financial information
included herein.
On September 23, 1994, the Merger occurred with Simrom, whose principal
assets consisted of certain rights relating to licenses granted by the FCC for
the 220 MHz. Subsequent to the Merger, Simrom changed its name to Roamer One and
the Company decided to refocus its business from the Plastics Business, to a
development stage enterprise of developing, constructing and managing a 220 MHz
SMR Systems in the U.S. Roamer One has conducted business since the Merger. The
accompanying selected financial information presents all INTEK operations prior
to the Merger as discontinued operations.
13
<PAGE>
SELECTED FINANCIAL INFORMATION
INTEK DIVERSIFIED CORPORATION
A DEVELOPMENT STAGE ENTERPRISE
(U.S.$ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FROM
SIX MONTHS ENDED INCEPTION
YEAR ENDED DECEMBER 31, JUNE 30, TO JUNE 30,
----------------------------------------------------- ------------------------ ------------
1991 1992 1993 1994 1995 1995 1996 1996
--------- --------- --------- --------- --------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $ -- $ -- $ -- $ 329 $ 3,547 $ 1,520 $ 544 $ 4,420
Cost of sales.................... -- -- -- 292 3,254 1,399 591 4,137
--------- --------- --------- --------- --------- ----------- ----------- ------------
Gross profit................... -- -- -- 37 293 121 (47) 283
Operating expenses............... 472 459 448 943 3,518 1,595 2,309 6,769
--------- --------- --------- --------- --------- ----------- ----------- ------------
Operating loss................. (472) (459) (448) (906) (3,225) (1,474) (2,356) (6,486)
Other income (expense):
Gain (loss) on sale of assets
held for sale................. -- -- -- -- 1,204 1,152 (158) 1,045
Interest expense, net.......... (6) -- -- (33) (209) (114) (117) (367)
Financing costs................ -- -- -- -- (635) (533) (333) (968)
Other, net..................... -- -- 52 -- 28 6 12 48
--------- --------- --------- --------- --------- ----------- ----------- ------------
Loss from continuing operations
before income taxes........... (478) (459) (396) (939) (2,837) (963) (2,952) (6,728)
Income tax provision (benefit)... (267) (135) 8 -- -- -- -- --
--------- --------- --------- --------- --------- ----------- ----------- ------------
Loss from continuing
operations.................... (211) (324) (404) (939) (2,837) (963) (2,952) (6,728)
Discontinued operations:
Loss from discontinued
operations, net of income
taxes......................... (499) (183) (342) -- -- -- -- --
Gain on disposal of discontinued
operations, net of income
taxes........................... -- -- 10 -- -- -- -- --
--------- --------- --------- --------- --------- ----------- ----------- ------------
Net loss......................... (710) (507) (736) (939) (2,837) (963) (2,952) (6,728)
--------- --------- --------- --------- --------- ----------- ----------- ------------
--------- --------- --------- --------- --------- ----------- ----------- ------------
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
----------------------------------------------------- ------------------------ ------------
1991 1992 1993 1994 1995 1995 1996 1996
--------- --------- --------- --------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term
investments..................... $ 814 $ 371 $ 231 $ 1,557 $ 678 $ 1,169 $ 782 $ 782
Working capital.................. 5,664 5,079 4,182 2,610 844 3,781 4,476 4,476
Total assets..................... 6,399 5,549 4,716 8,164 12,534 10,215 17,291 17,291
Stockholders' equity............. 5,261 4,754 4,018 3,266 7,934 6,938 7,071 7,071
PER SHARE DATA:
Net loss per common share and
common share equivalent:
Continuing operations.......... $ (0.07) $ (0.12) $ (0.14) $ (0.22) $ (0.30) $ (0.10) $ (0.27) $ (0.84)
Net income..................... $ (0.25) $ (0.18) $ (0.26) $ (0.22) $ (0.30) $ (0.10) $ (0.27) $ (0.84)
Weighted average common shares
and common share equivalents
outstanding..................... 2,816 2,816 2,816 4,341 9,559 8,993 10,983 7,999
Stockholders' equity per common
share and common share
equivalent...................... $ 1.87 $ 1.69 $ 1.43 $ 0.37 $ 0.75 $ 0.69 $ 0.64 $ 0.64
Common shares and common share
equivalents outstanding at
period end...................... 2,816 2,816 2,816 8,917 10,621 10,016 11,125 11,125
</TABLE>
14
<PAGE>
RADIOCOMS BUSINESS
The following selected financial information for the three years ended
September 30, 1995 is derived from the audited historical financial statements
of Radiocoms. These statements have been prepared in accordance with U.S.
generally accepted accounting principles ("GAAP") but are denominated in U.K.
Pounds Sterling (Radicoms' functional currency). The financial information for
the years ended September 30, 1991 and 1992 and the nine-month periods ended
June 30, 1995 and 1996 is derived from unaudited financial statements of
Radiocoms. The unaudited Radiocoms financial statements include all adjustments,
consisting of normal recurring accruals, that Radiocoms considers necessary for
a fair presentation of the financial position and the results of operations for
this period. Operating results for the nine months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending September 30, 1996. The financial information set forth below should be
read in conjunction with Radiocoms' financial statements, related notes and
other financial information included herein.
15
<PAGE>
SELECTED COMBINED FINANCIAL INFORMATION
RADIOCOMS AND AFFILIATES
(POUNDS STERLING IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... L 3,157 L 4,359 L 6,500 L10,843 L19,123 L 12,891 L 11,342
Rental income................. -- -- 666 1,126 1,396 1,016 1,138
--------- --------- --------- --------- --------- --------- ---------
Total revenues.............. 3,157 4,359 7,166 11,969 20,519 13,907 12,480
Cost of sales................. 2,074 2,979 4,767 7,429 12,227 8,871 10,245
--------- --------- --------- --------- --------- --------- ---------
Gross profit................ 1,083 1,380 2,399 4,540 8,292 5,036 2,235
Operating expenses............ 1,858 2,169 3,326 5,557 7,080 4,554 4,923
Research and development...... 200 992 1,010 1,169 1,782 1,197 1,536
Provision for doubtful
accounts..................... -- -- -- 10 309 28 40
--------- --------- --------- --------- --------- --------- ---------
Operating loss.............. (975) (1,781) (1,937) (2,196) (879) (743) (4,264)
Interest expense.............. (34) (138) (152) (156) (322) (204) (792)
--------- --------- --------- --------- --------- --------- ---------
Loss before income taxes.... (1,009) (1,919) (2,089) (2,352) (1,201) (947) (5,056)
Income tax benefit............ (219) (213) (204) (186) (464) (348) (1,430)
--------- --------- --------- --------- --------- --------- ---------
Net loss...................... (790) (1,706) (1,885) (2,166) (737) (599) (3,626)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
SEPTEMBER 30, JUNE 30,
--------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term
investments.................. L 116 L 212 L 19 L 171 L 380 L 91 L 113
Working capital (deficit)..... 13 (1,583) (1,566) 1,655 2,256 1,622 (1,396)
Total assets.................. 2,426 3,928 8,258 11,507 23,670 19,469 32,087
Shareholder's equity
(deficit).................... (1,714) (3,320) (5,258) (7,424) (8,161) (8,023) (11,787)
PER SHARE DATA: (A)
</TABLE>
- ------------------------
(A) Radiocoms is a wholly owned subsidiary of Securicor Communications and an
indirect wholly owned subsidiary of Securicor plc (a publicly traded U.K.
company) and therefore per share data is not presented. Radiocoms has not
paid any cash dividends to date.
16
<PAGE>
SUMMARY OF UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
present pro forma results of operations for 12 months ended December 31, 1995
(INTEK and MIC) and September 30, 1995 (Radiocoms) and the nine-month period
ended June 30, 1996. The fiscal year end for INTEK and MIC is December 31 and
for Radiocoms is September 30. The nine-month period ended June 30, 1996 for
INTEK and MIC is comprised of each company's fourth quarter of fiscal 1995 and
its first two quarters of fiscal 1996 and the nine-month period ended June 30,
1996 for Radiocoms is comprised of Radiocoms' first three quarters of fiscal
1996. The fourth quarter of fiscal 1995 financial information has been derived
from the unaudited fourth quarter of fiscal 1995 financial statements which have
been prepared in accordance with Securities and Exchange Commission rules and
regulations and on a basis consistent with the fiscal 1995 financial statements.
The pro forma statement of operations gives effect to the consummation of the
Transactions as if such Transactions were consummated as of October 1, 1994 for
the twelve-month period presented and October 1, 1995 for the nine month period
presented. The pro forma balance sheet gives effect to the Transactions as if
they were consummated on June 30, 1996. The pro forma financial statements have
been prepared using the purchase method of accounting. Securicor Communications
will be the acquiror for accounting purposes because the shareholders of
Securicor Communications will hold the majority of outstanding Company Common
Stock subsequent to the consummation of the Transactions. The pro forma
financial statements have been prepared as if the Securicor Transaction was
consummated and all of the Escrow Shares have been released to MIC pursuant to
the terms of the Escrow Agreement.
Securicor statements were translated in accordance with FASB 52 which
provides that assets and liabilities are translated at exchange rates in effect
at the balance sheet date and income and expenses are translated at the average
rate for the period presented.
The unaudited pro forma condensed combined financial statements and notes
thereto should be read in conjunction with the separate audited consolidated
financial statements and related notes thereto of the INTEK, MIC, and Radiocoms
included herein. The following unaudited pro forma condensed combined financial
statements do not purport to be indicative of the results which actually would
have occurred if the Transactions had been consummated on the dates indicated or
which may be obtained in the future.
17
<PAGE>
INTEK
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 12 MONTHS ENDED DECEMBER 31, 1995
(U.S.$ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS AND
ELIMINATIONS
INTEK MIDLAND KRYSTAL --------------------------- INTEK
HISTORICAL HISTORICAL TRANSACTION DEBIT CREDIT PROFORMA
------------- ------------- ------------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................ $3,547 $ 27,406 -- $ 71(b) $ 30,882
Cost of sales............ 3,254 23,176 -- 59(b) 26,371
------------- ------------- ----- -------------
Gross profit............. 293 4,230 -- 4,511
Operating expense........ 3,518 8,476 179 (l) 717(e) 12,890
------------- ------------- ----- -------------
Operating loss........... (3,225) (4,246) (179) (8,379)
Other income (expense):
Gain on sale of assets
held for sale........... 1,204 -- -- 1,204
Interest expense, net.... (209 ) (591 ) -- 470 (j) (1,270)
Financing costs.......... (635 ) (635)
Restructuring expense.... -- (203 ) -- 203 (c) --
Gain on sale of Consumer
Products Division....... -- 927 -- 927 (c) --
Amortization of excess of
fair value of acquired
net assets over cost.... -- 681 -- 681 (a) --
Other, net............... 28 638 -- 638 (c) 28
------------- ------------- ----- -------------
Loss from continuing
operations before income
taxes................... (2,837 ) (2,794 ) (179 ) (9,052)
Income tax provision
(benefit)............... -- (288 ) -- 288 (a) --
------------- ------------- ----- ------------- ----- -------------
Net loss................. $(2,837 ) $ (2,506 ) (179 ) $ (3,792 ) $ 262 $ (9,052)
------------- ------------- ----- ------------- ----- -------------
------------- ------------- ----- ------------- ----- -------------
Loss per share........... $(0.30 ) $(0.70)(k)
------------- -------------
------------- -------------
Weighted average shares
outstanding............. 9,558,982 12,936,175(k)
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
18
<PAGE>
NEW INTEK
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 12 MONTHS ENDED DECEMBER 31, 1995 (INTEK) AND
FOR THE 12 MONTHS ENDED SEPTEMBER 30, 1995 (RADIOCOMS)
(U.S.$ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS AND
ELIMINATIONS
INTEK RADIOCOMS --------------------------- NEW INTEK
PROFORMA HISTORICAL DEBIT CREDIT PROFORMA
------------ ------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 30,882 $ 31,913 $ 6,460(d) $ 56,335
Cost of sales....................... 26,371 19,016 $ 1,680(d) 43,707
------------ ------------- -----------------
Gross profit........................ 4,511 12,897 12,628
Operating expense................... 12,890 14,264 2,785(e) 29,939
------------ ------------- -----------------
Operating loss...................... (8,379) (1,367) (17,311)
Other income (expense):
Gain on sale of assets held for
sale............................. 1,204 -- 783(g) 421
Interest expense, net............. (1,270) (501) 465(g) (1,306)
Financing costs................... (635) -- (635)
Other, net........................ 28 -- 28
------------ ------------- -----------------
Loss from continuing operations
before income taxes................ (9,052) (1,868) (18,803)
Income tax provision (benefit)...... -- (722) 722(h) --
------------ ------------- ------------- ------ -----------------
Net loss............................ $ (9,052) $ (1,146) $ 10,750 $ 2,145 $ (18,803)
------------ ------------- ------------- ------ -----------------
------------ ------------- ------------- ------ -----------------
Less preferred dividends............ 1,200(f) (1,200)
-----------------
Loss applicable to Common
Shareholders....................... $ (20,003)
-----------------
-----------------
Loss per share...................... $ (0.70) $ (0.53)
------------ -----------------
------------ -----------------
Weighted average shares
outstanding........................ 12,936,175 37,936,175(i)
------------ -----------------
------------ -----------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
19
<PAGE>
INTEK DIVERSIFIED CORPORATION
PRO FORMA NOTES
FOR THE 12 MONTHS ENDED DECEMBER 31, 1995 (INTEK AND MIC) AND
FOR THE 12 MONTHS ENDED SEPTEMBER 30, 1995 (RADIOCOMS)
(U.S. $ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
(a) To eliminate MIC assets not acquired in the Midland Transaction.
(b) To eliminate sales associated with mobile equipment sold by INTEK to MIC.
These transactions were recorded in their respective historical financial
statements for the periods presented in the accompanying Pro Forma Financial
Statements.
(c) To eliminate historical operating results associated with other MIC business
interest not acquired.
(d) To eliminate sales associated with mobile equipment and repeater station
equipment sold by Radiocoms to INTEK and MIC.
(e) For purposes of the accompanying pro forma financial statements, the excess
purchase price over tangible assets acquired have, in INTEK's case, been
assigned to the value of INTEK's management agreements allowing it to
utilize the 220 MHz licenses and the option agreements relating to certain
licenses which, if exercised and assigned pursuant to the approval of the
FCC, would allow INTEK to exercise all rights and benefits with respect to
such 220 MHz licenses. These management agreements have terms of 5 years and
are renewable indefinitely thereafter. An estimated economic life of 15
years has been ascribed to these intangibles. This estimated useful life is
INTEK management's best estimate based upon the likelihood of renewing the
underlying 220 MHz licenses with the FCC and the operational flexibility
provided by 220 MHz. This flexibility will mitigate the risk of spectrum
obsolescence prior to the end of the 15-year period.
The intangibles associated with the Midland Transaction have been assigned
to brand equity in the Midland name. MIC has sold mobile radio equipment
under the Midland name for over 35 years and has a strong installed radio
base in the U.S. An estimated economic life of 15 years has been ascribed to
these Midland intangibles.
For the purposes of these Pro Forma Financial Statements, fair values of
$4.16 and $4.10 per share have been ascribed to Company Common Stock for the
Midland Transaction and Securicor Transactions, respectively. The fair value
was calculated by averaging the quoted market price of Company Common Stock
for the 10 trading days prior to September 19, 1996 (Midland Transaction)
and November 4, 1996 (Securicor Transaction), respectively, and applying a
20% discount. This discount is based upon the illiquidity of the large size
of the block of stock issued in the Transactions, the small public float of
Company Common Stock, comparison with similar transactions for other
companies and recent stock issuances.
The Securicor Transaction will be accounted for as a reverse acquisition
because Securicor Communications will hold the majority of Company Common
Stock subsequent to the consummation of the Transactions. For accounting
purposes, INTEK will be the accounting acquiree.
20
<PAGE>
INTEK DIVERSIFIED CORPORATION
PRO FORMA NOTES (CONTINUED)
FOR THE 12 MONTHS ENDED DECEMBER 31, 1995 (INTEK AND MIC) AND
FOR THE 12 MONTHS ENDED SEPTEMBER 30, 1995 (RADIOCOMS)
(U.S. $ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
The intangibles related to the Transactions were calculated as follows:
<TABLE>
<CAPTION>
MIC
------------
<S> <C>
Company Common Stock shares issued to MIC................... 2,500,000
Fair market value per share................................. X$4.16
------------
Fair market value of shares issued to MIC................... $ 10,400
Cash Consideration.......................................... $ 4,275
------------
Fair market value of consideration.......................... $ 14,675
Historical book value of Acquired Assets at June 30, 1996... $ 3,926
------------
Midland intangible.......................................... $ 10,749
------------
------------
<CAPTION>
INTEK
------------
<S> <C>
Company Common Stock shares outstanding after issuance of
2.5 million shares to MIC.................................. 13,625,000
Fair market value per share................................. X $4.10
------------
Fair market value of INTEK.................................. $ 55,863
Securicor ownership interest in INTEK after the Securicor
Transaction................................................ 65%
------------
Fair value of INTEK acquired................................ $ 36,311
Historical value of INTEK continuing stockholders........... 7,611
------------
Securicor investment in INTEK............................... 43,922
Book value of INTEK after the Midland Transaction........... (17,471)
------------
INTEK intangible............................................ $ 26,451
------------
------------
</TABLE>
(f) To record Radiocoms' Preferred Stock dividends. Intercompany balances with
Securicor or its parent up to $20 million will be converted into shares of
Radiocoms Preferred Stock with a par value of $1 thousand per share. These
preferred shares will be issued to Securicor Communications, are manditorily
redeemable on June 30, 2006 and bear a dividend rate of 6%.
(g) To eliminate Radiocoms' interest on intercompany debt which will be
contributed to capital.
(h) To eliminate Radiocoms' income tax benefit associated with its tax sharing
arrangement with its parent and affiliates.
(i) The pro forma weighted average shares outstanding are calculated as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------
<S> <C>
INTEK historical...................................... 9,558,982
Shares to be issued in the Midland Transaction........ 2,500,000
Estimated shares to be issued to consummate the
Krystal Transaction.................................. 877,193(m)
Shares to be issued in the Securicor Transaction...... 25,000,000
------------------
37,936,175
------------------
------------------
</TABLE>
21
<PAGE>
INTEK DIVERSIFIED CORPORATION
PRO FORMA NOTES (CONTINUED)
FOR THE 12 MONTHS ENDED DECEMBER 31, 1995 (INTEK AND MIC) AND
FOR THE 12 MONTHS ENDED SEPTEMBER 30, 1995 (RADIOCOMS)
(U.S. $ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
(j) To reflect interest on initial draw against $15 million Interim Note.
(k) Does not reflect potential purchase price adjustments contemplated by the
terms of the Escrow Agreement.
(l) To record amortization of the Krystal 220 MHz licenses over their economic
useful lives of 15 years.
(m) For purposes of the accompanying pro forma financial statements, the number
of shares of the Company Common Stock to be issued in the financing to
consummate the Krystal Transaction is based upon the average quoted market
price for the Company Common Stock for the 10 trading days prior to November
5, 1996.
22
<PAGE>
INTEK DIVERSIFIED CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 9 MONTHS ENDED JUNE 30, 1996
(U.S.$ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS AND
ELIMINATIONS
INTEK MIDLAND KRYSTAL ---------------------- INTEK
HISTORICAL HISTORICAL SYSTEMS DEBIT CREDIT PROFORMA
------------- ------------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 1,766 $ 9,841 $ -- $ 202(b) $ 11,405
Cost of sales.................. 1,765 7,992 -- 168(b) 9,589
------------- ------------- ----- ------------
Gross profit................... 1 1,849 -- 1,816
Operating expense.............. 3,151 4,927 134(r) 537(d) 34(b) 8,715
------------- ------------- ----- ------------
Operating loss................. (3,150) (3,078) (134) (6,899)
Other income (expense):
Loss on sale of assets held
for sale.................... (149) -- -- (149)
Interest expense, net........ (157) (11) -- 352(m) (520)
Financing costs.............. (384) -- -- (384)
Amortization of excess of
fair value.................. -- 511 -- 511(a) --
Other, net................... 11 639 -- 650
------------- ------------- ----- ------------
Loss from continuing operations
before income taxes........... (3,829) (1,939) (134) (7,302)
Income tax provision
(benefit)..................... -- (288) -- 288(a) --
------------- ------------- ----- --------- ----- ------------
Net loss....................... $ (3,829) $ (1,651) $ (134) $ 1,890 $ 202 $ (7,302)
------------- ------------- ----- --------- ----- ------------
------------- ------------- ----- --------- ----- ------------
Less preferred dividends.......
Loss applicable to common
shareholders..................
Loss per share................. $ (0.36) $ (0.52)(p)
------------- ------------
------------- ------------
Weighted average shares
outstanding................... 10,712,959 14,090,152(p)
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
23
<PAGE>
NEW INTEK
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 9 MONTHS ENDED JUNE 30, 1996
(U.S.$ IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS AND
ELIMINATIONS
INTEK RADIOCOMS ---------------------- NEW INTEK
PROFORMA HISTORICAL DEBIT CREDIT PROFORMA
------------ ------------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $ 11,405 $ 19,212 $ 1,201(c) $ 29,416
Cost of sales................................. 9,589 15,771 312(c) 25,048
------------ ------------- ----------------
Gross profit.................................. 1,816 3,441 4,368
Operating expense............................. 8,715 10,005 2,089(d) 20,809
------------ ------------- ----------------
Operating loss................................ (6,899) (6,564) (16,441)
Other income (expense):
Loss on sale of assets held for sale........ (149) -- 97(l) (52)
Interest expense, net....................... (520) (1,219) 1,219(f) (520)
Financing costs............................. (384) -- (384)
Other, net.................................. 650 -- 650
------------ ------------- ----------------
Loss from continuing operations before income
taxes........................................ (7,302) (7,783) (16,747)
Income tax provision (benefit)................ -- (2,201) 2,201(g) --
------------ ------------- --------- ----------- ----------------
Net loss...................................... $ (7,302) $ (5,582) $ 5,491 $ 1,628 $ (16,747)
------------ ------------- --------- ----------- ----------------
------------ ------------- --------- ----------- ----------------
Less preferred dividends...................... 900(e) (900)
----------------
Loss applicable to common shareholders........ $ (17,647)
----------------
----------------
Loss per share................................ $ (0.52) $ (0.45)
------------ ----------------
------------ ----------------
Weighted average shares outstanding........... 14,090,152 39,090,152(h)
------------ ----------------
------------ ----------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
24
<PAGE>
INTEK DIVERSIFIED CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(U.S.$ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS AND
ELIMINATIONS
INTEK MIDLAND KRYSTAL ---------------------- INTEK
HISTORICAL HISTORICAL TRANSACTION (Q) DEBIT CREDIT PROFORMA
------------- --------------- ------------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash, cash equivalents..... $ 782 $ 62 $ 1,002 $ 62(a) $ 1,784
Accounts receivable........ 454 3,226 -- 2,004(a) 1,676
Restricted cash............ 966 -- -- 966
Notes receivable, current
portion................... 135 -- -- 135
Inventories................ 2,992 4,268 (902) 1,978(a) 4,380
Advances for mobile
equipment inventory....... 1,796 -- -- 1,796
Prepaid expenses and other
current assets............ 383 1,073 -- 1,009(a) 447
Assets held for sale....... 1,555 -- -- 1,555
------------- ------ ------ -------------
Total current assets....... 9,063 8,629 100 12,739
PROPERTY AND EQUIPMENT, AT
COST...................... 7,860 191 1,622 159(a) 9,832
Less accumulated
depreciation.............. (63) (74) -- 74(a) (63)
------------- ------ ------ -------------
Net property and
equipment................. 7,797 117 1,622 9,769
NOTE RECEIVABLE............ 70 -- -- 70
DEFERRED FINANCING COSTS... 236 -- -- 236
INVESTMENT IN ADC.......... -- 1,058 -- 1,058(a) --
INVESTMENT IN JOINT
VENTURE................... 125 -- -- 125
INTANGIBLES................ -- -- 2,778 11,881(a) 13,659
OTHER...................... -- 56 -- 56(a) --
------------- ------ ------ -------------
TOTAL ASSETS............... $ 17,291 $ 9,860 $ 4,500 $ 36,598
------------- ------ ------ -------------
------------- ------ ------ -------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
25
<PAGE>
NEW INTEK DIVERSIFIED CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(U.S.$ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS AND
ELIMINATIONS
INTEK RADIOCOMS ----------------------- NEW INTEK
PRO FORMA HISTORICAL DEBIT CREDIT PROFORMA
------------- ------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash, cash equivalents......................... $ 1,784 $ 176 $ 1,960
Accounts receivable............................ 1,676 12,709 14,385
Restricted cash................................ 966 -- 966
Notes receivable, current portion.............. 135 -- 135
Inventories.................................... 4,380 17,322 2,794(c) 18,908
Advances for mobile equipment inventory........ 1,796 -- 1,796
Prepaid expenses and other current assets...... 447 3,259 3,706
Assets held for sale........................... 1,555 -- 1,555
------------- ------------- ------------
Total current assets........................... 12,739 33,466 43,411
PROPERTY AND EQUIPMENT, AT COST................ 9,832 7,963 294(c) 17,438
63(a)
Less accumulated depreciation.................. (63) (3,311) 63(a) (3,311)
------------- ------------- ------------
Net property and equipment..................... 9,769 4,652 14,127
RENTAL EQUIPMENT............................... -- 1,966 1,966
NOTE RECEIVABLE................................ 70 -- 70
DEFERRED FINANCING COSTS....................... 236 -- 236
INVESTMENTS IN EFJ AT COST..................... -- 9,773 9,773
INVESTMENT IN JOINT VENTURE.................... 125 -- 125
13,659 -- 26,451(a) 54,690
INTANGIBLES....................................
10,580(a)
4,000(o)
------------- ------------- ------------
TOTAL ASSETS................................... $ 36,598 $ 49,857 $ 124,398
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
26
<PAGE>
INTEK
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(U.S.$ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS AND
ELIMINATIONS
KRYSTAL ---------------------- INTEK
INTEK MIDLAND TRANSACTION (Q) DEBIT CREDIT PROFORMA
--------- ----------- ------------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable.................. $ 151 $ 1,199 -- 1,199(a) $ 151
Accrued liabilities............... 621 1,936 -- 1,804(a) 753
Related party payable............. 32 1,736 -- 1,736(a) 32
Deferred income taxes............. -- 814 -- 814(a) --
Notes payable..................... 2,500 -- -- 2,500
Letter of credit liability........ 917 -- -- 917
Licensee deposits................. 366 -- -- 366
--------- ----------- ------ -------------
Total current liabilities......... 4,587 5,685 -- 4,719
NOTE PAYABLE -- CONVERTIBLE....... 5,000 -- 5,000
DEFERRED INCOME TAX............... 633 63 -- 63(a) 633
LONG-TERM DEBT.................... -- -- -- 4,275(m) 4,275
EXCESS OF FAIR VALUE OF ACQUIRED
NET ASSETS OVER COST............. -- 227 -- 227(a) --
SHAREHOLDERS' EQUITY
Common stock...................... 116 -- 11 25(i) 152(p)
Capital in excess of par value.... 14,453 -- 4,489 10,375(i) 29,317
Treasury stock, at cost........... (770) -- -- (770)(p)
Retained earnings (deficit)....... (6,728) 3,885 -- 3,885(i) (6,728)
--------- ----------- ------ -------------
TOTAL SHAREHOLDERS' EQUITY........ 7,071 3,885 4,500 21,971(p)
--------- ----------- ------ -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY............. $ 17,291 $ 9,860 $ 4,500 $ 36,598
--------- ----------- ------ -------------
--------- ----------- ------ -------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
27
<PAGE>
NEW INTEK
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(U.S.$ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS AND
ELIMINATIONS
INTEK ---------------------- NEW INTEK
PROFORMA RADIOCOMS DEBIT CREDIT PROFORMA
------------- ------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable................................. $ 151 $ 3,760 $ 3,911
Accrued liabilities.............................. 753 4,444 2,021(c) 4,000(p) 7,176
Related party payable............................ 32 27,081 27,113(k) --
Notes payable.................................... 2,500 350 2,850
Letter of credit liability....................... 917 -- 917
Licensee deposits................................ 366 -- 366
------------- ------------- ------------
Total current liabilities........................ 4,719 35,635 15,220
NOTE PAYABLE -- CONVERTIBLE...................... 5,000 -- 5,000
RELATED PARTY PAYABLE............................ -- 32,459 32,459(k) --
DEFERRED INCOME TAX.............................. 633 78 10,580(a) 11,291
LONG-TERM DEBT................................... 4,275 -- 4,275
MANDATORY REDEEMABLE PREFERRED STOCK............. -- -- 20,000(k) 20,000
SHAREHOLDERS' EQUITY
Common stock..................................... 152 186 186(j) 250(j) 402
Capital in excess of par value................... 29,317 -- 6,728(p) 26,201(j) 88,548
186(j)
39,572(k)
Treasury stock, at cost.......................... (770) -- (770)
Retained earnings (deficit)...................... (6,728) (18,625) 1,067(c) 6,728(n) (19,692)
Currency translation adjustments................. -- 124 124
------------- ------------- ------------
TOTAL SHAREHOLDERS' EQUITY....................... 21,971 (18,315) 68,612
------------- ------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....... $ 36,598 $ 49,857 $ 124,398
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
28
<PAGE>
INTEK DIVERSIFIED CORPORATION
PRO FORMA NOTES
FOR THE 9 MONTHS ENDED JUNE 30, 1996
(US$ IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
(a) To eliminate MIC assets not acquired in the Midland Transaction and to
record the purchase price allocations associated with the Transactions
including related deferred income taxes. Because Securicor Communications
will hold the majority of Company Common Stock subsequent to the
consummation of the Transactions, the Securicor Transaction will be
accounted for as a reverse acquisition. For accounting purposes, INTEK will
be the accounting acquiree.
(b) To eliminate sales and selling expenses associated with mobile equipment
sold by INTEK to MIC. These transactions were recorded in their respective
historical financial statements for the periods presented in the
accompanying Pro Forma Financial Statements.
(c) To eliminate sales and unrealized profit associated with mobile equipment
and repeater station equipment sold by Radiocoms to INTEK and MIC. This
equipment has been retained by INTEK for use in the network of 220 MHz
Systems it is developing or is pending delivery to end user customers. These
transactions were recorded in their respective historical financial
statements for the periods presented in the accompanying Pro Forma Financial
Statements.
(d) For purposes of the accompanying pro forma financial statements, the excess
purchase price over tangible assets acquired have, in INTEK's case, been
assigned to the value of INTEK's management agreements allowing it to
utilize the 220 MHz licenses and the option agreements relating to certain
licenses which, if exercised and assigned pursuant to the approval of the
FCC, would allow INTEK to exercise all rights and benefits with respect to
such 220 MHz licenses. These management agreements have terms of 5 years and
are renewable indefinitely thereafter. An estimated economic life of 15
years has been ascribed to these intangibles. This estimated useful life is
INTEK management's best estimate based upon the likelihood of renewing the
underlying 220 MHz licenses with the FCC and the flexible utility provided
by the 220 MHz. This flexibility will mitigate the risk of spectrum
obsolescence prior to the end of the 15-year period.
The intangibles associated with the MIC acquisitions relate to brand equity
in the Midland name. MIC has sold mobile radio equipment under the Midland
name for over 35 years and has a strong installed radio base in the U.S. An
estimated economic life of 15 years has been ascribed to these Midland
intangibles.
For the purposes of these Pro Forma Financial Statements, fair values of
$4.16 and $4.10 per share have been ascribed to Company Common Stock for the
Midland Transaction and Securicor Transaction, respectively. The fair value
was calculated by averaging the quoted market price of Company Common Stock
for the 10 trading days prior to September 19, 1996 (Midland Transaction)
and November 4, 1996 (Securicor Transaction), and applying a 20% discount.
This discount is based upon the illiquidity of the large size of the block
of stock issued in the Transactions, the small public block of Company
Common Stock, comparison with similar transactions for other companies and
recent stock issuances by the Company.
The Securicor Transaction will be accounted for as a reverse acquisition
because Securicor Communications will hold the majority of Company Common
Stock subsequent to the completion of the Transactions. For accounting
purposes, INTEK will be the accounting acquiree.
29
<PAGE>
INTEK DIVERSIFIED CORPORATION
PRO FORMA NOTES (CONTINUED)
FOR THE 9 MONTHS ENDED JUNE 30, 1996
(US$ IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
The intangibles related to the Transactions were calculated as follows:
<TABLE>
<CAPTION>
MIC
------------
<S> <C>
Company Common Stock shares issued to MIC 2,500,000
Fair market value per share X$ 4.16
------------
Fair market value of shares issued to MIC $ 10,400
Cash consideration $ 4,275
------------
Fair market value of consideration $ 14,675
Historical book value of Acquired Assets at June 30, 1996 $ 3,926
------------
Midland intangible $ 10,749
------------
------------
<CAPTION>
INTEK
------------
<S> <C>
Company Common Stock shares outstanding after issuance of 2.5 million shares to
MIC 13,625,000
Fair market value per share X$ 4.10
------------
Fair market value of INTEK $ 55,863
Securicor ownership interest in INTEK after the Securicor Transaction 65%
------------
Fair value of INTEK acquired $ 36,311
Historical value of INTEK continuing shareholders 7,611
------------
Securicor investment in INTEK 43,922
Book value of INTEK after the Midland Transaction (17,471)
------------
INTEK intangible $ 26,451
------------
------------
</TABLE>
(e) To record Radiocoms Preferred stock dividends discussed in footnote k below.
(f) To eliminate Radiocoms' interest on intercompany debt which will be
contributed to capital.
(g) To eliminate Radiocoms' income tax benefit associated with its tax sharing
agreement with its parents and affiliates.
(h) The pro forma weighed average shares outstanding are calculated as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------
<S> <C>
INTEK historical 10,712,959
Shares to be issued in the Midland Transaction 2,500,000
Estimated shares to be issued to consummate the Krystal Transaction 877,193(s)
Shares to be issued in the Securicor Transaction 25,000,000
--------------
39,090,152
--------------
--------------
</TABLE>
(i) To reflect INTEK's issuance of 2.5 million shares of Company Common Stock in
exchange for all the Acquired Assets and certain liabilities of MIC.
For the purposes of these Pro Forma Financial Statements, fair values of
$4.16 and $4.10 per share have been ascribed to the Company Common Stock for
the Midland Transaction and the Securicor Transaction, respectively. The
fair value was calculated by averaging the quoted market price of Company
Common Stock for the 10 trading days prior to September 19, 1996 (Midland
Transaction) and November 4, 1996 (Securicor Transaction), respectively, and
applying a 20% discount. This discount is
30
<PAGE>
INTEK DIVERSIFIED CORPORATION
PRO FORMA NOTES (CONTINUED)
FOR THE 9 MONTHS ENDED JUNE 30, 1996
(US$ IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
based upon the illiquidity of the large size of the block of stock issued in
the Transactions, the small public float of INTEK Common Stock, comparative
comparison with similar transactions for other companies and recent stock
issuances by the Company.
(j) To reflect INTEK's issuance of 25 million shares of Company Common Stock in
exchange for all the issued and outstanding shares of Radiocoms.
For the purposes of these Pro Forma Financial Statements, fair values of
$4.10 and $4.16 per share have been ascribed to the Company Common Stock for
the Midland Transaction and the Securicor Transaction, respectively. The
fair value was calculated by averaging the quoted market price of Company
Common Stock for the 10 trading days prior to September 19, 1996 (Midland
Transaction) and November 4, 1996 (Securicor Transaction), respectively, and
applying a 20% discount. This discount is based upon the liquidity of the
large size of the block of stock issued in the Transactions, the small
public float of INTEK Common Stock, comparative comparison with similar
transactions for other companies and recent stock issuances of the Company.
(k) To record the conversion of $20 million of intercompany balances between
Radiocoms and Securicor Communications into 20,000 shares of Radiocoms
Preferred Shares with a par value of $1 thousand per share. The intercompany
balance between Radiocoms and Securicor Communications in excess of the
redemption value of the Radiocoms Preferred Shares will be contributed to
the capital account of Radiocoms. These Preferred Shares will be issued to
Securicor Communications, are mandatorily redeemable on June 30, 2006 and
bear a dividend rate of 6%.
(l) To eliminate 65% of INTEK's loss on Assets Held for Sale.
(m) To record initial borrowing of $4,274,775 under the $15 million Interim Note
and related interest expense.
(n) To eliminate INTEK's historical deficit
(o) To accrue for costs related to the Transactions.
(p) Does not reflect potential purchase price adjustments contemplated by the
terms of the Escrow Agreement.
(q) On November 1, 1996, the Company entered into the Krystal Agreement. The
Krystal Agreement provides for (i) Krystal to purchase from the Company 16
base station 220 MHz repeater assemblies for approximately $1,002,000, (ii)
Krystal to hire Roamer One to construct 16 base stations and (iii) the
Company to purchase from Krystal, subject to certain conditions, the Krystal
Systems, at a purchase price of $180,000 for each Krystal station. The
Company expects to raise the capital necessary to fund this purchase price
for the Krystal Systems through the issuance of equity in either a public or
private placement transaction.
The historical cost of the equipment for the 16 stations to be sold from
inventory to Krystal is $902,000. The fair value of the equipment related to
the 9 stations not constructed by Roamer One is $80,000 per station, for a
total of $720,000. The total cost of equipment acquired is $1,622,000 and
the residual purchase price of $2,778,000 has been allocated to the fair
value of the underlying license agreements.
(r) To record amortization of the Krystal 220 MHz licenses over their economic
useful lives of 15 years.
(s) For purposes of the accompanying Pro Forma Financial Statements, the number
of shares of the Company Common Stock to be issued to consummate the Krystal
Transaction is based upon the average quoted market price for Company Common
Stock for 10 trading days prior to November 4, 1996.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROXY STATEMENT INCLUDES FORWARD LOOKING STATEMENTS CONCERNING THE
COMPANY, RADIOCOMS AND NEW INTEK AND THEIR RESPECTIVE SUBSIDIARIES. THE FORWARD
LOOKING STATEMENTS ARE MADE PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE
REFORM ACT. THERE ARE MANY FACTORS THAT COULD CAUSE THE EVENTS IN SUCH FORWARD
LOOKING STATEMENTS TO NOT OCCUR, INCLUDING, WITHOUT LIMITATION THE FOLLOWING:
(A) GENERAL OR INDUSTRY ECONOMIC CONDITIONS, (B) THE ABILITY AND WILLINGNESS OF
LMR USERS TO PURCHASE EQUIPMENT OR SUBSCRIBE FOR SERVICES PROVIDED BY NEW INTEK,
(C) PRICING, PURCHASING, FINANCING, OPERATIONAL, ADVERTISING AND PROMOTIONAL
DECISIONS BY INTERMEDIARIES IN THE DISTRIBUTION CHANNELS WHICH COULD AFFECT THE
SUPPLY OF OR END-USER DEMANDS FOR NEW INTEK'S PRODUCTS OR SERVICES, (D)
DIFFICULTIES IN OBTAINING MATERIALS, SUPPLIES AND EQUIPMENT FOR BUILDING OUT SMR
SYSTEMS, (E) DIFFICULTIES OR DELAYS IN DEVELOPMENT, PRODUCTION, TESTING AND
MARKETING OF PRODUCTS INCLUDING, BUT NOT LIMITED TO, FAILURE TO SHIP NEW
PRODUCTS AND TECHNOLOGIES WHEN ANTICIPATED, (F) ANY DEFECTS IN NEW INTEK'S
PRODUCTS OR TECHNOLOGIES, (G) ANY FAILURE TO REALIZE ECONOMIES WHEN PLANNED, (H)
THE EFFECTS OF AND CHANGES IN TRADE, MONETARY AND FISCAL POLICIES, LAWS AND
REGULATIONS, AND OTHER ACTIVITIES OF GOVERNMENTS, AGENCIES AND SIMILAR
ORGANIZATIONS AND SOCIAL AND ECONOMIC CONDITIONS, SUCH AS TRADE RESTRICTIONS OR
PROHIBITIONS, INFLATION AND MONETARY FLUCTUATIONS, IMPORT AND OTHER CHARGES OR
TAXES, AND THE ABILITY OR INABILITY OF NEW INTEK TO OBTAIN OR HEDGE AGAINST,
FOREIGN CURRENCY, FOREIGN EXCHANGE RATES AND FLUCTUATIONS IN THOSE RATES, (I)
INTERGOVERNMENTAL DISPUTES AS WELL AS ACTIONS AFFECTING FREQUENCY, USE AND
AVAILABILITY, SPECTRUM AUTHORIZATIONS AND LICENSING, AND (J) THE COSTS AND OTHER
EFFECTS OF LEGAL AND ADMINISTRATIVE ACTIONS, CASES AND PROCEEDINGS (WHETHER
CIVIL OR CRIMINAL), SETTLEMENTS AND INVESTIGATIONS.
INTEK
The following is a discussion of the financial condition and results of
operations of the Company for the six-month periods ended June 30, 1996 and 1995
and the years ended December 31, 1995 and 1994. The following should be read in
conjunction with the Financial Statements and related Notes attached as Appendix
I to this Proxy Statement. Historical results of operations, percentage
relationships and any trends that may be inferred therefrom are not necessarily
indicative of the operating results of any future period.
Through Roamer One, INTEK is constructing and plans to operate 220 MHz SMR
Systems in the U.S. utilizing certain rights and benefits accorded it by
licensees in the newly allocated 220 MHz narrowband spectrum. Roamer One's
business has been conducted by INTEK since the September 23, 1994 Merger.
Consequently, the management discussion for the year ended December 31, 1994
covers only the period from February 4, 1994 (inception of Roamer One) to
December 31, 1994 and does not include a comparative discussion for prior
periods. Further, the management discussion does not include a discussion of the
U.S. LMR Distribution Business which was acquired effective August 1, 1996.
For a description of the Company, see "THE COMPANY."
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
NET SALES. As of June 30, 1996, the Company completed construction of 100
systems subject to Option Agreements (as defined herein), 38 systems subject to
Management Agreements (as defined herein) and 28 systems pursuant to a supply
agreement for a total of 166 systems. This is an increase of 94 systems over the
72 systems that were constructed as of June 30, 1995. During the six months
ended June 30, 1996, billings to licensees for site equipment, construction and
installation resulted in equipment sales of $388,000 and sales of mobile radios
to distributors of $156,000 for a total of $544,000. Site equipment sales for
the six months ended June 30, 1995 were $1,520,000 and, there were no sales of
mobile radios. Systems that have been completed are being used for testing of
the Company's billing system software, signal coverage, and system performance.
Limited subscriber loading began in selected markets during the first quarter of
1996 to test the system. As a result of the testing, certain problems were
identified such as white noise and interference from other radio transmissions.
Roamer One believes that it has developed a solution to these problems and
Roamer One is currently retrofitting its repeater sites so that they can operate
in a commercially viable fashion. As a result of the delays caused primarily by
the retrofitting, no significant revenues are expected to be generated from the
operation of these systems prior to the fourth quarter of 1996.
32
<PAGE>
COST OF GOODS. Cost of goods sold as a percentage of net equipment sales
was 108.6% for the first half of 1996. Since the Company elected to standardize
on Securicor repeater equipment, it had incompatible equipment from other
vendors in inventory. During the first half of 1996, some equipment was sold to
third parties at a loss of $110,000. Excluding the loss from this disposal, the
cost of sales was 88.4%, which was an improvement over 92.0% for the first half
of 1995.
SITE EXPENSES. Site expenses are primarily tower lease, telephone (for
modem access), and insurance. For the first half of 1996, site expenses were
$606,000, up from $199,000 in 1995 due to the addition of 94 constructed
systems.
SELLING EXPENSES. Selling expenses are primarily salaries, travel and
preparation of promotional material. The selling expenses for the first half of
1996 were $207,000, an increase of $193,000 over the same period last year due
to the creation of a sales organization and the addition of sales staff.
ENGINEERING EXPENSES. Engineering expenses are primarily consulting fees,
travel and equipment rental required to optimize and support the repeater sites.
The engineering expenses for the first half of 1996 were $33,000. No expenses
were incurred in this category in 1995 as all engineering functions were
performed by SCL.
GENERAL ADMINISTRATIVE EXPENSES. General administrative expenses are
primarily salaries, merger expenses, consulting and management fees, legal and
audit costs to support the management of the systems, together with the efforts
to raise capital. These expenses were $1,463,000 during the first six months of
1996, an increase of $81,000 compared to the first half of 1995. The increase
was due to the legal and audit costs relating to the Transactions and the
previously announced but terminated transaction with SCL.
OPERATING PROFIT (LOSS). For the six months ended June 30, 1996, the
operating loss was $2,356,000, up from $1,474,000 for the same period in 1995.
This was due to the cost of the infrastructure to manage the licenses and sell
services to subscribers and the costs of preparing for the Transactions.
GAIN ON SALE OF ASSETS HELD FOR SALE. During the six months ended June 30,
1996, the Company incurred a cost of $158,000 to upgrade the Olympic building in
preparation for its sale. During the six months ended June 30, 1995, the Company
realized a gain of $1,152,000 from the sale of the productive equipment and
remaining inventory of Olympic.
INTEREST EXPENSE. Interest expense, included in other income (expense), was
$117,000 for the first half of 1996, up from $114,000 during the first half of
1995. 1996 interest expense was accrued in 1996 for a debenture in the principal
amount of $2,500,000 (the "Debenture") held by Mees Pierson ICS Limited ("Mees
Pierson") and interest expense in 1995 related primarily to the $1,500,000
short-term promissory note (the "Quest Note") held by Quest Capital Corporation
("Quest Capital"). The 1996 interest expense included a closing fee of 50,000
shares of Company Common Stock and an agent fee of $25,000 related to the
Debenture. The cost is being amortized over the six month term of the Debenture.
NET LOSS. The net loss was $2,952,000 for the first half of 1996, compared
to a loss of $963,000 for the same period in 1995. Excluding the gain on sale of
assets of $1,152,000 the loss for 1995 would have been $2,115,000.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994
NET SALES. As of December 31, 1995, the Company completed construction of
100 systems subject to Option Agreements and 66 systems subject to Management
Agreements for a total of 166 systems. This is an increase of 145 systems over
the 21 systems that were constructed as of December 31, 1994. During 1995,
billing to licensees for site equipment, construction and installation resulted
in equipment sales of $3,547,000 compared to $329,000 in 1994.
COST OF GOODS. Cost of goods sold as a percentage of net equipment sales
was 91.7% in 1995, compared to 88.8% in 1994. The 2.9% increase generally was
caused by accelerated construction efforts intended to complete installation
within the FCC deadlines. Field installation technicians had to travel to
installation sites in the order that tower leases and equipment became available
and this did not allow for the
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most efficient use of their time. Some installation sites were impacted by the
harsh winter weather, making installation difficult and costly, and certain
metropolitan areas required field upgrades of selected components and on-site
tuning of systems to eliminate the effects of interference.
SITE EXPENSES. Site expenses are primarily tower lease, telephone (for
modem access), and insurance. For 1995, site expenses were $469,000, up from
$86,000 in 1994. The increased expenses were required to support the additional
146 systems that were constructed in 1995.
SELLING EXPENSES. Selling expenses are primarily salaries, travel and
preparation of promotional material. The selling expenses for 1995 were
$183,000. The Company incurred no such expense in 1994 as few sites had been
constructed.
GENERAL ADMINISTRATIVE EXPENSES. General administrative expenses are
primarily salaries, consulting and management fees, legal and audit and merger
expenses. These expenses rose from $857,000 in 1994 to $2,866,000 in 1995 due to
the development of the infrastructure to support the management of the systems,
together with the efforts to raise capital and the efforts to consummate the
Midland Purchase Agreement. General administrative expenses in 1994 resulted
from a much lower level of business activity that included the cost of
compliance reporting and the Merger, but included minimal cost related to
management of the SMR systems. Consulting, management and directors' fees
increased by $620,000 over 1994 fees. Accounting, audit and legal expenses
increased by $445,000 over 1994 expenses and non-recurring expenses from
activities relating to the Midland Purchase Agreement increased by $283,000 over
1994 expenses.
OPERATING LOSS. In 1995, the operating loss was $3,225,000 up from $906,000
in 1994, due to start-up and development costs and the fact that subscribers
have not yet been sought for the Company's services. The Company offset a
portion of this loss in 1995 with a gain from the sale of assets of $1,204,000
related to the disposal of the Plastics Business.
INTEREST EXPENSE. Interest expense, included in other income (expense), was
$209,000 during 1995, up from $33,000 in 1994. 1995 interest expense increased
due to the Quest Note which was issued in November 1994. See "-- Liquidity and
Capital Resources." The interest expense included $635,000 of Company Common
Stock issued to Quest Capital as fees for extending the term of the Quest Note.
INCOME TAXES. There was no provision for income taxes for the year ending
December 31, 1994. The Company experienced an "ordinary" loss for the fiscal
year and this loss, combined with net operating loss carryforwards from previous
years, offset any current tax liability.
In accordance with Statement of Financial Accounting Standards No. 109, the
Company has recorded valuation allowances against the realization of its
deferred tax assets. The valuation allowance is based on management's estimates
and analysis, which includes tax laws which may limit the Company's ability to
utilize its tax loss carryforwards.
In 1990, the State of California passed legislation which disallowed the
utilization of net operating loss carryforwards and carrybacks until 1993 for
California state income tax purposes. At December 31, 1993, the Company had net
operating loss carryforwards available for Federal and California state income
tax purposes of approximately $1,900,000 and $1,800,000, respectively. The net
operating loss carryforwards expire in 2009 for Federal and 1999 for California
state income taxes.
NET LOSS. The net loss was $2,837,000 in 1995, compared to $939,000 in
1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of cash historically since the Merger has been
selling shares of Company Common Stock, borrowing against the Company's assets,
selling the assets relating to the Plastics Business and obtaining vendor
financing. In the first half of 1996, the Company used $6,214,000 in cash for
operating activities to pay employees, vendors and site expenses and $326,000
for capital expenditures. Through its financing activities in 1996, the Company
raised approximately $10,056,000 in gross proceeds from which $2,419,000 was
used to repay related party borrowings. Cash for the first six months of 1996
increased $104,000 over the year-end balance. During the second quarter of 1996,
INTEK arranged for wire transfers and letters of credit in the aggregate amount
of $1,796,000 to key vendors of MIC. Also during the second
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quarter of 1996, the Company paid $2,051,000 to Securicor for equipment that has
been ordered and assembled, but not installed pursuant to a financing agreement
with Securicor related to the buildout of the 220 MHz SMR Systems. See
"DIRECTORS AND EXECUTIVE OFFICERS OF INTEK -- Certain Relationships and Related
Transactions."
Prior to the Company's acquisition of the U.S. LMR Distribution Business,
MIC had a significant need for access to a credit facility to make advance
product purchases in line with the Company's operating plans. Since MIC was
unable to secure such an interim credit facility to provide it with the funding
necessary to facilitate the future business objectives of Midland USA subsequent
to the Midland Transaction, INTEK agreed to advance up to $1,800,000 to key
vendors of MIC for product purchases to be received after August 1, 1996 (the
"Product Purchases"). On May 10, 1996, INTEK arranged for a combination of
letters of credit and wire transfers of U.S. Dollars and Japanese Yen
representing, in the aggregate, approximately $1,560,000. On June 25, 1996,
INTEK advanced an additional $236,529 to a key vendor for deposit against
purchase orders submitted by MIC and due for shipment during October, 1996. On
September 20, 1996, MIC, SCL and the Company entered into the Amended Sale and
License Agreement whereby the Company, through Midland USA, acquired immediately
the U.S. LMR Distribution Business and Securicor Communications agreed to extend
the Interim Loan to Midland USA. Pursuant to the terms of the Loan Agreement,
Securicor Communications has agreed to extend to Midland USA a line of credit
for an amount up to $15 million. Upon the consummation of the Midland
Transaction, INTEK was paid $1,350,000 for certain of the Product Purchases
through a drawdown on the Interim Loan and received the remainder of such
advances for the Product Purchases on October 28, 1996 from available cash from
Midland USA. As security for the Interim Loan, Midland USA has pledged all of
its assets, and INTEK has pledged all of its shares in Midland USA, to Securicor
Communications. In accordance with the terms of the Loan Agreement, Midland USA
may utilize the proceeds under the Interim Loan solely for the operation of the
U.S. LMR Distribution Business, including the repayment to INTEK for the Product
Purchase. Interest on the advances under the Interim Loan accrues at the rate of
eleven percent (11%) per annum. Under the terms of the Interim Loan, and
pursuant to the Company Loan Assumption Agreement dated September 19, 1996
between INTEK, Midland USA and Securicor Communications, upon consummation of
the Securicor Transaction, INTEK has agreed to assume the obligations
outstanding under the Interim Loan and such obligations shall become unsecured
obligations outstanding under the Delayed Drawdown Senior Subordinated Loan. As
of November 5, 1996, the amount outstanding under the Interim Loan was
$5,149,375. In addition, letter of credit guaranties for three months of
purchases have been provided in the amount of $4,892,554. While the guaranties
are not loans and do not accrue interest, such guaranties do reduce the amount
available under the Interim Loan.
On November 1, 1996, INTEK entered into the Krystal Agreement with Krystal,
whereby (a) Krystal ordered 16 base station 220 MHz repeater assemblies (at a
cost to Krystal of approximately $1 million) from Roamer One which were
manufactured by Radicoms, (b) Krystal agreed, at its sole expense, to engage
Roamer One to build out 16 base stations and (c) INTEK agreed to purchase the
Krystal Systems, subject to certain conditions (including, without limitation,
completion of due diligence by INTEK, receipt of all necessary consents and
approvals of governmental bodies and receipt by INTEK, on or before December 31,
1996, of $4,500,000 of proceeds from the sale of Company Common Stock) for a
purchase price of $180,000 for each Krystal System. Krystal has paid to INTEK
$500,000 of the $1,002,000 owed for the 220 MHz repeater assemblies.
The Company has invested a significant portion of its capital in the
equipment necessary to build out those sites for which it holds an option to
purchase. Additional capital will be required to complete the build-out of the
220 MHz SMR Systems, to fund the administrative costs of the Company prior to
its generation of recurrent revenues on a consistent basis and to purchase the
Krystal Systems. The requirement for future working capital will be driven and
highly dependent on the rate of loading subscribers (with mobile radios) onto
the Roamer 220 MHz SMR Systems. Therefore, any delay on the timing of loading
subscribers will place a working capital burden on the Company. The Company may
raise, in the near term, additional
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capital either through private offerings or a public offering of its securities.
Although the Company has been contacted recently with respect to the potential
purchase of Company Common Stock by new investors, no assurance can be made that
the Company will be successful in raising such additional amounts of capital.
BORROWINGS. In November 1994, the Company borrowed from Quest Capital
$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 Capital agreed to extend the term
of the Loan to December 29, 1995 in exchange for 162,000 shares of Company
Common Stock. $635,000, representing the value on 162,000 shares of Company
Common Stock, was amortized over the extension period. On December 29, 1995,
Quest Capital agreed to convert the Loan, through an offering pursuant to
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"), into 336,842 shares of Company Common Stock.
On February 29, 1996, the Company raised $2,500,000 through the issuance of
the Debenture. The Company also issued 50,000 shares of Company Common Stock
under Regulation S of the Securities Act to Mees Pierson as a closing fee for
its investment banking services and paid an agent fee of $25,000 to Octagon
Capital Canada Corporation. See "DIRECTORS AND OFFICERS OF INTEK--Certain
Relationships and Related Transactions." The Debenture matured on August 31,
1996, and bears interest at a rate based on the Bank of America Prime Rate. The
Debenture is secured by perfected liens on the Property (defined below) and the
equipment related to 15 Category I (defined below) licenses and by unperfected
liens on all assets of the Company (excluding the stock of Midland USA and any
assets of Midland USA, including, without limitation, the U.S. LMR Distribution
Business). On August 13, 1996, Mees Pierson agreed in writing to extend further
the repayment date to the earlier of the completion of the sale of the Property
and October 31, 1996. In exchange for the extension, INTEK paid to Mees Pierson
accrued interest through August 31, 1996, issued 25,000 shares of Company Common
Stock to Mees Pierson pursuant to Regulation S under the Securities Act, and
issued 5,000 shares of Company Common Stock pursuant to Regulation S under the
Securities Act to Octagon Capital Corporation. Mees Pierson has agreed to extend
further the repayment date to January 31, 1997. In exchange for the extension,
INTEK will issue 10,000 shares of Company Common Stock to Mees Pierson pursuant
to Regulation S under the Securities Act. In addition, INTEK will issue to Mees
Pierson 1,500 shares of Company Common Stock (pursuant to Regulation S under the
Securities Act) for each business day after November 8, 1996 for which the
Debenture and any accrued interest remains outstanding.
On April 26, 1996, the Company sold a series of 6.5% Notes in the face
amount of $5,000,000, with attached warrants ("the Notes"), to purchasers
through Global Emerging Markets/Northeast Securities, Inc. pursuant to
Regulation S under the Securities Act. Net proceeds to the Company, after fees
and broker 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 Company Common Stock) became exercisable by the holder on July
26, 1996. The Company has the right, which may be exercised in whole or in part
on or after April 26, 1997 to require the holder to exercise the warrants. The
principal amounts of the Notes were reduced by the amounts equal to the exercise
prices of the warrants exercised multiplied by the number of shares of Company
Common Stock issued pursuant thereto. The warrants are exercisable at discounts
(ranging from 0%-25%) from the market price of Company Common Stock on the
exercise date. As of November 5, 1996, off-shore holders of the Notes purchased
through Global Emerging Markets exercised warrants to convert $4,800,000 of the
Notes into Company Common Stock at an average discount of 18% below market
price.
On November 1, 1996, the Company sold a series of 6.5% Notes, with attached
warrants (the "New Notes") to two purchasers through Brown Simpson, LLC pursuant
to Regulation S under the Securities Act. Net proceeds to the Company, after
fees and brokers commissions, were $1,995,000. The New Notes mature on October
31, 1999 and bear interest at the rate of 6.5% per annum. All accrued interest
is due and payable at the time the New Notes mature or upon exercise of the
warrants. The warrants (pursuant to which the principal amounts of the New Notes
will be converted into shares of Company Common Stock) become exercisable by the
holder on December 31, 1996. The Company has the right, which may be exercised
in
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whole or in part on or after October 31, 1997, to require the holder to exercise
the warrants. The principal amount of the New Notes will be reduced by an amount
equal to the exercise price of the warrants multiplied by the number of shares
of Company Common Stock issued pursuant thereto. The warrants are exercisable at
discounts (ranging from 0%-29%) from the market price of Company Common Stock on
the exercise date.
EQUITY SALES. On January 12, 1996, the Company sold 201,000 shares of
Company Common Stock pursuant to an offering under Regulation S of the
Securities Act. The sale generated $849,342 net of fees and broker commissions.
On June 30, 1995, the Company issued 937,042 shares of Company Common Stock
to Securicor International Limited in payment of invoices then outstanding
totaling $4,000,000.
On December 4, 1995, the Company sold 170,000 shares of Company Common Stock
and a warrant to acquire additional shares of Company Common Stock under
Regulation S of the Securities Act. The sale generated $1,020,000 at discounts
ranging from 18% to 23%. On February 29, 1996, the warrant was exercised for
36,645 shares of Company Common Stock at $0.01 per share.
SALES OF ASSETS. The Company is pursuing the sale of the land and building
owned by Olympic (the "Property"). 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 at a sales price of $2,200,000 and escrow
was opened. If the Company is successful in selling the Property (which Property
is encumbered by a lien in favor of Mees Pierson in the amount of $2,500,000),
the Debenture to Mees Pierson will be repaid, in part, with the proceeds of such
sale. The Company will have to fund any shortfall with working capital or borrow
additional funds from another source. The Property Purchase Agreement
contemplated a closing on the sale to occur on or before June 4, 1996. Because a
number of conditions had not been satisfied, such as the buyer's obtaining
financing, and delivery by the Company of a satisfactory environmental report to
buyer's lender, the closing has been delayed. No assurance can be given that the
conditions will be satisfied or that the Property will be sold or that proceeds
from the sale will be timely or sufficient to repay Mees Pierson on or before
January 31, 1997.
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 yielding
proceeds of $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 the assets of Olympic, $900,000
was paid to Quest Capital under the Quest Note and the remainder was used for
working capital.
NEW INTEK
New INTEK will require significant amounts of working capital after the
consummation of the Securicor Transaction. Upon the consummation of the
Securicor Transaction, Securicor Communications has agreed to make available to
New INTEK pursuant to the Delayed Drawdown Senior Subordinated Loan an amount up
to $15,000,000, in minimum increments of $500,000, to fund New INTEK's working
capital needs. In addition, INTEK has agreed to assume the obligations
outstanding under the Interim Loan and INTEK and Securicor Communications have
further agreed that such obligations shall become unsecured obligations
outstanding under the Delayed Drawdown Senior Subordinated Loan. The Delayed
Drawdown Subordinated Loan may be drawn upon by New INTEK so long as it
maintains a net worth of at least $20,000,000, including the Preferred Shares.
The Delayed Draw Down Senior Subordinated Note will bear interest at the rate of
prime (to be defined to the average of prime rates announced by certain
specified banks) plus 1% through December 31, 1997 and thereafter interest will
accrue at the rate of 11% compounded annually on the outstanding principal
balance, payable upon the repayment in full of the outstanding principal balance
but no later than June 30, 2001. The obligations under the Delayed Drawdown
Senior Subordinated Note may be prepaid at any time without any penalty. The
Delayed Drawdown Senior Subordinated Note must be redeemed upon a change of
control of New INTEK or upon the sale of the majority of its assets. New INTEK
may redeem the Delayed Drawdown Senior Subordinated Note, at par
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plus accrued interest, subject to restrictions contained in any senior debt
facility it may obtain, in increments of $500,000. If such redemptions are made
prior to December 31, 1997, the availability under the Delayed Drawdown Senior
Subordinated Loan will be reduced accordingly. See "THE SECURICOR TRANSACTION --
Terms of the Delayed Drawdown Senior Subordinated Loan." Although New INTEK
anticipates that the amount of the Delayed Drawdown Senior Subordinated Loan is
adequate to fund its working capital needs upon the consummation of the
Securicor Transaction for the near term, there can be no assurance that the
Delayed Drawdown Senior Subordinated Loan will be adequate or that New INTEK
will be able to meet the net worth covenant of the Delayed Drawdown Senior
Subordinated Loan.
New INTEK also anticipates that it will require additional sources of
capital in the long term to fund acquisitions and to meet additional working
capital needs. While New INTEK anticipates that it will seek such capital either
through private offerings or a public offering of its securities, there can be
no assurance that such capital will be obtainable and at a reasonable cost.
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RADIOCOMS
The following is a discussion of the financial condition and results of
operations of the Radiocoms Business for the nine month periods ended June 30,
1996 and 1995, and the years ended September 30, 1995, 1994 and 1993. The
following should be read in conjunction with the Financial Statements and
related Notes attached hereto. Historical results of operations are not
necessarily indicative of results for any future period.
Radiocoms is an indirect, wholly owned subsidiary of Securicor that is
incorporated under the laws of England and Wales. For the years ended September
30, 1995, 1994 and 1993, Radiocoms' results of operations include the results of
Radiocoms and its wholly owned subsidiaries (from date of acquisition): Private
Mobile Radio Limited, which was acquired on March 1, 1993 and Socom Group
Limited, which was acquired on June 30, 1993, combined with the results of
Securicor Electronics Limited and Linear Modulation Technology Limited, each of
which was an affiliate of Radiocoms prior to September 30, 1995 and effective
October 1, 1996, the assets and liabilities of Securicor Electronics Limited and
Linear Modulation Technology Limited were transferred to Radiocoms at historical
value. All material intercompany transactions have been eliminated in the
results presented herein.
Radiocoms manufactures and sells products to both affiliates of Securicor
and unaffiliated third parties. Over time, sales to affiliated companies, as a
percentage of Radiocoms total net sales, have declined from 46% of total net
revenues in 1993 to 30% in 1995, primarily as a result of increased sales
efforts directed to unaffiliated third parties. Radiocoms believes that all
sales to affiliated companies were made on an arms length basis on terms
comparable to those available for unaffiliated companies.
Radiocoms' functional currency is pounds sterling and its financial
statements are presented herein in pounds sterling and are prepared in
accordance with U.S. GAAP.
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
NET SALES. Net sales consists principally of revenues from the sale of
products manufactured by Radiocoms, resale of products purchased from other
companies, rental of equipment, maintenance and support of systems, system
design and consulting fees and technology license fees.
Net sales decreased 10.3% (L1,427,000) to L12,480,000 for the nine months
ended June 30, 1996 from L13,907,000 for the nine months ended June 30, 1995.
This decrease is attributable primarily to a L3,925,000 decrease in sales of LM
products, resulting from a decrease in sales to SCL and INTEK. The Company had
anticipated that the decreased sales to SCL and INTEK would be offset by sales
to another major system aggregator that had placed an order for equipment but
such aggregator experienced financial difficulties and consequently was not able
to take delivery of such equipment at the times contemplated by the original
order. The decrease in net sales also was attributable to a L173,000 decrease in
sales by the ESU (as defined below) resulting primarily from increased price
competition.
The decrease in net sales was offset in part by a L2,275,000 increase in
sales of contract manufactured products in the nine months ended June 30, 1996
from the nine months ended June 30, 1995. This increase results primarily from
an increase of more than 100% (L2,321,000) of sales to Radiocoms' affiliate,
Securicor Datatrak, and sales resulting from increased marketing efforts to
unaffiliated companies.
Technology license fees from EFJ were L936,000 and L1,268,000 in the nine
months ended June 30, 1995 and 1996, respectively.
COST OF SALES. Costs of sales consists principally of costs of raw
materials, labor and associated overhead. Cost of sales increased 15.5%
(L1,374,000) to L10,245,000 for the nine months ended June 30, 1996 from
L8,871,000 for the nine months ended June 30, 1995. The percentage of cost of
sales to net sales increased from 63.8% for the nine months to June 30, 1995 to
82.1% for the nine months to June 30, 1996.
GROSS PROFIT. Gross profit decreased 55.6% (L2,801,000) to L2,235,000 for
the nine months ended June 30, 1996 from L5,036,000 for the nine months ended
June 30, 1995. The gross profit margin decreased to 17.9% in the nine months
ended June 30, 1996 from 36.2% in the nine months ended June 30, 1995.
Radiocoms' gross profit margin decreased in part as a result of a change in
product sales mix from base stations to mobile radios which generally carry a
lower margin than base stations. Radiocoms believes that it should be able to
achieve higher gross profit margins when orders for mobile radios increase to
the extent
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that volume manufacturing, with lower unit costs, can be used. Despite the
significant increase in sales, contract manufacturing for the nine months ended
June 30, 1996 has generated a negative gross profit margin of L863,000 primarily
as a result of L1,400,000 of expenses associated with production start-up costs
on new Securicor Datatrak products and Radiocoms' efforts to establish optimum
LM production methods.
Gross margins on Radiocoms' LM business have remained relatively constant at
44.0% in the nine months of 1995 and 1996. Gross margins on ESU sales have
declined slightly to 35.2% for the nine months ended June 30, 1996 from 36.5%
for the nine months ended June 30, 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 8.3% (L381,000) to L4,963,000 for the nine
months ended June 30, 1996 from L4,582,000 for the nine months ended June 30,
1995. This increase is attributable primarily to increased sales and marketing
expenses relating to the U.S. market, greater depreciation resulting from a
higher asset base and other general cost increases. The percentage of operating
expenses to sales increased from 32.9% for the nine months ended June 30, 1995
to 39.8% for the nine months ended June 30, 1996.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 28.3%
(L339,000) to L1,536,000 for the nine months ended June 30, 1996 from L1,197,000
for the nine months ended June 30, 1995. The percentage of research and
development expenses to sales increased from 8.6% for the nine months ended June
30, 1995 to 12.3% for the nine months ended June 30, 1996. Research and
development expenses in the nine months ended June 30, 1995 related primarily to
LM products, with expenses during the nine months ended June 30, 1996 related
primarily to development of a hand portable version of the current mobile radio,
for which Radiocoms expects volume production to begin in early 1997.
INTEREST EXPENSE. Interest expense increased 288.2% (L588,000) to L792,000
for the nine months ended June 30, 1996 from L204,000 for the nine months ended
June 30, 1995. This increase primarily results from a significant increase in
debt due to Securicor to fund increased receivables, inventories, LM development
costs and other operating expenses. Interest payable to Securicor was L792,000
in the nine months ended June 30, 1996 and L204,000 in the nine months ended
June 30, 1995, calculated on a daily basis at 1% above the prevailing U.K. bank
base rate.
INCOME TAX. Radiocoms received a tax benefit of L1,430,000 for the nine
months ended June 30, 1996, up 310.9% from L348,000 for the nine months ended
June 30, 1995.
Tax laws in the U.K. permit the exchange of taxable income and losses
between companies within a group provided that 75% or more of the ordinary
shares of the companies are under common control. Taxable members of the
Securicor group pay the loss making companies at the corporate tax rate applied
to the losses.
NET LOSS. Net loss increased 505.3% (L3,027,000) to L3,626,000 for the nine
months ended June 30, 1996, from L599,000 for the nine months ended June 30,
1995 for the reasons stated above.
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1994
NET SALES. Net sales increased 71.4% (L8,550,000) to L20,519,000 for the
year ended September 30, 1995 from L11,969,000 for the year ended September 30,
1994. This increase is attributable primarily to the commencement of significant
sales of equipment and engineering, project management and installation support
to the U.S. market in late 1994, principally to major 220Mhz system aggregators.
The increase also results from receipt from EFJ during the year ended September
30, 1995 of technology license fees of L1,869,000. The increase in net sales was
also a result of a 12.8% (L581,000) increase in sales of contract manufacturing
products. Contract manufacturing sales to unaffiliated customers increased by
58.6% (L1,317,000) in the year ended September 30, 1995 from the year ended
September 30, 1994 and sales to affiliated businesses decreased by 32.0%
(L736,000) in the year ended September 30, 1995 from the year ended September
30, 1994, principally due to a decline in sales to Securicor Alarms Limited as
Radiocoms shifted its business more to radio products and away from electronic
security products and did not carry products to serve Securicor Alarms' changing
needs. Sales to Securicor Datatrak remained virtually unchanged at L1,067,000 in
the year ended September 30, 1995 and L1,062,000 in the year ended September 30,
1994.
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The increase in net sales in the year ended September 30, 1995 was offset in
part by a decrease in ESU sales principally due to lower than anticipated sales
to the U.K. Department of Social Security and increased price competition
generally. In response to the decrease in ESU net sales, Radiocoms implemented a
cost reduction plan that included a reduction of staff.
COST OF SALES. Cost of sales increased 64.6% (L4,798,000) to L12,227,000
for the year ended September 30, 1995 from L7,429,000 for the year ended
September 30, 1994. The percentage of cost of sales to net sales reduced from
62.1% for the year ended September 30, 1994 to 59.6% for the year ended
September 30, 1995.
GROSS PROFIT. Gross profit increased 82.6% (L3,752,000) to L8,292,000 for
the year ended September 30, 1995 from L4,540,000 for the year ended September
30, 1994. The gross profit margin increased to 40.4% for the year ended
September 30, 1995 from 37.9% for the year ended September 30, 1994. The
increase in gross profit margin was primarily a result of a change in product
sales mix, with sales of LM systems commencing to the U.S. in late 1994 and
providing favorable margins. Sales of LM products and revenues from licensing
technology reflected 60% of Radiocoms' total gross profit for the year ended
September 30, 1995.
The increase in gross profit margin was partially offset by a decrease in
the gross profit margin on contract manufacturing to 24% for the year ended
September 30, 1995 from 28% for the year ended September 30, 1994. This decrease
results primarily from increased price competition and higher material costs.
Gross profit margin on sales by the ESU were constant at 40% for the years
ended September 30, 1995 and 1994, although the level of such sales decreased
from the year ended September 30, 1994 from September 30, 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 32.7% (L1,822,000) to L7,389,000 for the year
ended September 30, 1995 from L5,567,000 for the year ended September 30, 1994.
This increase is attributable primarily to increased sales and marketing
expenses relating to the U.S. market, increased expenses to enhance the ESU's
field engineering team in the U.K., greater depreciation relating to a higher
asset base (particularly additional equipment purchased for the ESU's rental
business and factory surface mount equipment), expenses relating to the
establishment of a centralized human resources department, the establishment of
a L247,000 doubtful debt reserve for a sale of LM products to a customer in the
U.S. and other general cost increases. The percentage of selling, general and
administrative expenses to sales decreased from 46.5% for the year ended
September 30, 1994 to 36.0% for the year ended September 30, 1995.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 52.4%
(L613,000) to L1,782,000 for the year ended September 30, 1995 from L1,169,000
for the year ended September 30, 1994. The percentage of research and
development expenses to sales decreased from 9.8% for the year ended September
30, 1994 to 8.7% for the year ended September 30, 1995. Research and development
expenses in the year ended September 30, 1995 increased as the initial prototype
phase of the LM project was completed and Radiocoms commenced the pre-volume
production stage where significant research and development efforts were
dedicated to reducing production costs for volume manufacturing and increasing
functionality.
INTEREST EXPENSE. Interest expense increased 106.4% (L166,000) to L322,000
for the year ended September 30, 1995 from L156,000 for the year ended September
30, 1994. This increase primarily results from a significant increase in debt
due to Securicor to fund increased receivables, inventories, LM development
costs and other operating expenses. Interest payable to Securicor was L310,000
in the year ended September 30, 1995 and L126,000 in the year ended September
30, 1994, calculated on a daily basis at 1% above the prevailing U.K. bank base
rate.
INCOME TAX. Radiocoms received a tax benefit of L464,000 for the year ended
September 30, 1995, up 149.5% from L186,000 for the year ended September 30,
1994.
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NET LOSS. Net loss decreased by 66.0% (L1,429,000) to L737,000 for the year
ended September 30, 1995, from L2,166,000 for the year ended September 30, 1994
for the reasons stated above.
FISCAL YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1993
NET SALES. Net sales increased 67.0% (L4,803,000) to L11,969,000 for the
year ended September 30, 1994 from L7,166,000 for the year ended September 30,
1993. This increase is attributable primarily to the full year impact in the
year ended September 30, 1994 of sales from the two new ESU businesses acquired
by Radiocoms in the year ended September 30, 1993, as well as an increase in new
business obtained by the existing ESU business. The increase in net sales was
also due to the commencement of sales of LM products to the U.S. in the year
ended September 30, 1994 and the receipt by Radiocoms of the first income from
the licensing of technology to EFJ. The increase also resulted from a 14.0%
(L559,000) increase in sales of contract manufacturing products. Contract
manufacturing sales to unaffiliated customers increased by 96.9% (L1,106,000) in
the year ended September 30, 1994 from the year ended September 30, 1993 and
sales to affiliated businesses decreased by 19.2% (L547,000) in the year ended
September 30, 1994 from the year ended September 30, 1993, principally due to a
decline in sales to Securicor Alarms Limited as Radiocoms shifted its business
more to radio products from electronic security products and did not carry
products to serve Securicor Alarms' changing needs.
COST OF SALES. Cost of sales increased 55.8% (L2,662,000) to L7,429,000 for
the year ended September 30, 1994 from L4,767,000 for the year ended September
30, 1993. The percentage of cost of sales to net sales reduced from 66.5% for
the year ended September 30, 1993 to 62.1% for the year ended September 30,
1994.
GROSS PROFIT. Gross profit increased 89.2% (L2,141,000) to L4,540,000 for
the year ended September 30, 1994 from L2,399,000 for the year ended September
30, 1993. The gross profit margin increased to 37.9% for the year ended
September 30, 1994 from 33.5% for the year ended September 30, 1993. The
increase in gross profit in dollar terms was primarily due to an increase of
L3,279,000 in sales by ESU, however, gross profit margin was adversely impacted
by a decrease in the gross profit margin on ESU sales to 40.5% in the year ended
September 30, 1994 from 45.7% in the year ended September 30, 1993. The increase
in gross profit margin was primarily a result of the receipt by Radiocoms for
the first time of fees from a technology license granted to EFJ and increased
sales of base stations that contributed higher margins than mobile radio sales.
The increase in gross profit margin was partially offset by a decrease in
the gross profit margin on contract manufacturing to 27.7% for the year ended
September 30, 1994 from 28.5% for the year ended September 30, 1993, as well as
the full year impact in the year ended September 30, 1994 of the lower
percentage margins from sales by the two new ESU businesses acquired by
Radiocoms in the year ended September 30, 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 67.4% (L2,241,000) to L5,567,000 for the year
ended September 30, 1994 from L3,326,000 for the year ended September 30, 1993.
This increase is attributable primarily to the full year impact of increased
overhead and sales and marketing expenses relating to the two new ESU businesses
acquired by Radiocoms and increased sales and marketing expenses in the U.S. in
advance of the introduction of LM products to the U.S. market. The percentage of
selling, general and administrative expenses to sales was 46.5% for the year
ended September 30, 1994 and 46.4% for the year ended September 30, 1993. The
increased selling, general and administrative expenses in the year ended
September 30, 1994 also included a L325,000 expense relating to the cancellation
of a joint development project with Securicor Alarms for a new alarm system (the
total charge was L650,000 and was offset in part by a 50% contribution from
Securicor Alarms).
RESEARCH AND DEVELOPMENT. Research and development expenses increased 15.7%
(L159,000) to L1,169,000 for the year ended September 30, 1994 from L1,010,000
for the year ended September 30, 1993. The percentage of research and
development expenses to sales decreased from 14.1% for the year ended
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September 30, 1993 to 9.8% for the year ended September 30, 1994. Research and
development expenses in the years ended September 30, 1994 and 1993 related
primarily to development of Radiocoms LM technology and products.
INTEREST EXPENSE. Interest expense increased 2.6% (L4,000) to L156,000 for
the year ended September 30, 1994 from L152,000 for the year ended September 30,
1993. This increase primarily results from an increase in debt due to Securicor
to fund increased receivables, inventories, LM development costs and other
operating expenses. Interest payable to Securicor was L126,000 in the years
ended September 30, 1994 and 1993, calculated on a daily basis at 1% above the
prevailing U.K. bank base rate.
INCOME TAX. Radiocoms received a tax benefit of L186,000 for the year ended
September 30, 1994, down 8.8% (L18,000) from L204,000 for the year ended
September 30, 1993.
NET LOSS. Net loss increased by 14.9% (L281,000) to L2,166,000 for the year
ended September 30, 1994 from L1,885,000 for the year ended September 30, 1993
for the reasons stated above.
LIQUIDITY AND CAPITAL RESOURCES
Radiocoms incurred losses of L3,626,000, L737,000, L2,166,000 and L1,885,000
for the nine months ended June 30, 1996 and for the years ended September 30,
1995, 1994 and 1993 respectively. These losses have related primarily to costs
of developing LM technology and commercial applications and costs of increasing
sales, marketing, administrative and manufacturing capacity to support
anticipated increases in sales volumes. Radiocoms completed its first commercial
sales of LM products at the end of 1994 and began manufacturing the products in
January 1995. To date, Radiocoms' cash flow from operations has not been
sufficient to fund its operations and capital expenditures. Net cash used in
operating activities was L6,489,000, L8,191,000, L3,721,000, L3,452,000 for the
nine months ended June 30, 1996 and the years ended September 30, 1995, 1994 and
1993, respectively. Capital expenditures were L561,000, L1,496,000, L1,688,000
and L956,000 for the nine months ended June 30, 1996 and the years ended
September 30, 1995, 1994 and 1993, respectively. Radiocoms has financed its
operations and capital expenditures by an aggregate of L38,319,000 of loans from
Securicor Communications Limited and Security Services plc, of which L6,908,000,
L9,779,000, L5,198,000 and L4,628,000 was provided in the nine months ended June
30, 1996 and the years ended September 30, 1995, 1994 and 1993, respectively.
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RISK FACTORS
INTEK's business is currently subject to a number of significant risks,
including changes in government regulations. For a discussion regarding certain
regulatory matters, see "-- Regulation." In addition to the risks currently
applicable to INTEK, the following are certain specific risks to INTEK relating
to the Securicor Transaction and Radiocoms. In evaluating the Securicor
Transaction, Stockholders should carefully consider the following factors
relating to Radiocoms and New INTEK in addition to the other information
presented in this Proxy Statement.
NEW INTEK
CHANGE OF CONTROL. If the Securicor Transaction is consummated, the
existing Stockholders (excluding Securicor Communications and its affiliates and
MIC and its affiliates) will own approximately 20.4% of the outstanding shares
of New INTEK, and Securicor Communications, MIC and their respective affiliates
will beneficially own, directly or indirectly, respectively, approximately 63.7%
and 12.4% of the Company's outstanding shares of Common Stock. As a result,
Securicor Communications and its affiliates will virtually control all matters
requiring approval of the Stockholders of the Company including the election of
directors. However, see "THE TRANSACTION -- Terms of the Voting Agreement."
CAPITAL NEEDS. New INTEK is expected to require significant amounts of
working capital after the consummation of the Securicor Transaction. Additional
capital is necessary to fund the Krystal Transaction. Securicor Communications
has agreed to make available to the Company an amount up to $15,000,000 pursuant
to the Delayed Drawdown Senior Subordinated Loan, in minimum increments of
$500,000, to fund the Company's working capital needs. The Delayed Drawdown
Senior Subordinated Loan may be drawn upon by New INTEK if it maintains a net
worth of at least $20,000,000. See "THE TRANSACTION -- Terms of the Delayed
Drawdown Senior Subordinated Loan." Although New INTEK anticipates that the
amount of the Delayed Drawdown Senior Subordinated Loan is adequate to fund its
working capital needs upon the consummation of the Securicor Transaction for the
short term (but not sufficient to fund the Krystal Transaction), there can be no
assurance that the Delayed Drawdown Senior Subordinated Loan will be adequate or
that New INTEK will be able to meet the net worth covenant of the Delayed
Drawdown Senior Subordinated Loan.
New INTEK also anticipates that it will require additional sources of
capital in the short term to fund the Krystal Transaction and in the long term
to fund acquisitions and to meet additional working capital needs. Although New
INTEK anticipates that it will seek such capital either through private
offerings or a public offering of its securities, there can be no assurance that
such capital will be obtainable. To the extent that New INTEK is not able to
raise new capital in a timely manner, New INTEK may have to curtail its
operations or acquisitions, which could have a material adverse effect on New
INTEK'S operations. See "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- INTEK -- Liquidity and Capital
Resources."
HISTORY OF OPERATING LOSSES. On a pro forma basis, assuming the
Transactions were consummated as of October 1, 1994, New INTEK would have had a
pro forma operating loss of $(17,132,000) and $(16,307,000) for the twelve
months ended December 31, 1995 and the nine months ended June 30, 1996,
respectively. INTEK has incurred net losses since September 23, 1994 (date of
inception) including net losses of $2,837,000 for the fiscal year ended December
31, 1995 and $(2,952,000) for the six-month period ended June 30, 1996. Although
Radiocoms' revenues have increased for each of the past 5 years ending September
30, 1995, Radiocoms has incurred net losses of L(0.7) million, L(2.2) million
and L(1.9) million for the fiscal years ended September 30, 1995, 1994 and 1993,
respectively, and L(3.6) for the nine month period ended June 30, 1996. MIC has
incurred net losses of $(2.5) million, net profit of $0.1 million and net losses
of $(1.7) million for the fiscal years ended December 31, 1995, 1994 and 1993,
respectively, and $1.0 million ($1.0 million which related to the U.S. LMR
Distribution Business) for the six-month period ended June 30, 1996. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- INTEK and -- RADIOCOMS."
There can be no assurance that New INTEK will be able to achieve
profitability or maintain profitability, if achieved, on a consistent basis.
INTEGRATION. The financial performance of New INTEK will depend, in part,
on New INTEK's ability to integrate the Radiocoms Business into the Company's
existing business successfully and in a timely manner. Although New INTEK
expects to integrate this business successfully, the success of, the timing of,
and costs
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associated with, such integration are uncertain. Furthermore, New INTEK will
face numerous uncertainties in integrating these disparate businesses in a
rapidly changing industry environment. New INTEK anticipates that the costs
associated with such integration could have an adverse impact on New INTEK's
financial performance in the near term. There can be no assurance that New INTEK
will be able to integrate successfully the Radiocoms Business into the Company's
existing business.
COMPETITION. Roamer One and Radiocoms each operate in highly competitive
markets that are expected to become even more competitive in the future. Roamer
One expects to compete with SMR operators in the 800 MHz and 900 MHz
frequencies, other communication providers of dispatch and data communications
services and other SMR operators in the 220 MHz frequency after the 220 MHz
Systems are in commercial operation. See "THE COMPANY."
Radiocoms' proprietary LM products compete with those of other manufacturers
such as Motorola and Ericsson. Radiocoms competes in the manufacture and supply
of mobile radio systems with manufacturers such as Motorola, Ericsson,
GE-Ericsson, Philips and Tait, however, none of these competitors manufacture
narrowband linear modulation systems. In the manufacture and supply of 220MHz
mobile radio equipment for the U.S. market, Radiocoms' principal competitor is
SEA Inc. Radiocoms' Equipment and Services Unit competes with a variety of small
U.K. regional companies that typically have exclusive arrangements with a major
equipment manufacturer such as Motorola, Philips or Tait, as well as with the
direct sales forces of such equipment manufacturers. See "RADIOCOMS BUSINESS --
Business of Radiocoms." Radiocoms' Strategic Systems Unit competes with a
variety of companies, most of which are either independent systems integrators
or are the separate systems integration business of the major equipment
manufacturers. See "RADIOCOMS BUSINESS -- Business of Radiocoms."
The LMR equipment market in the U.S. is dominated by Motorola. The main
competitors for the U.S. LMR Distribution Business include Motorola, Ericsson
and EFJ. See "THE COMPANY -- U.S. LMR Distribution Business -- Competition."
MANAGEMENT. Upon the consummation of the Securicor Transaction, the
composition of Directors and the management of New INTEK will change with
directors designated by Securicor assuming control and a number of senior
management positions being filled by persons designated by Securicor (including
Dr. Edmund Hough who will serve as Interim Chief Executive Officer of INTEK).
The position of Chief Financial Officer will be vacant at the time of the
consummation of the Securicor Transaction. New INTEK's success will depend in
part on its ability to fill these positions on a permanent basis promptly with
appropriate personnel. In addition, there will be a number of other senior
management positions that must be filled after the Securicor Transaction is
consummated and no assurance can be made that such positions will be filled on a
timely basis or that New INTEK will be able to attract appropriate personnel.
New INTEK's business, will require personnel with specific technical skill
sets and knowledge, which may not be available at all times at a level to match
New INTEK's needs. New INTEK's affairs will be managed by a small number of key
personnel and operating personnel, the loss of any of whom could have an adverse
impact on INTEK.
FOREIGN STOCK OWNERSHIP. Upon the consummation of the Securicor
Transaction, Securicor Communications and its affiliates, and MIC and its
affiliates, will hold, directly or indirectly, approximately 63.7% and 12.4%,
respectively, of the Company Common Stock. In addition, the Company is aware
that other foreign corporations and foreign nationals hold, or may hold in the
future, directly or indirectly, Company Common Stock. If the relative level of
foreign ownership of the Company Common Stock is not reduced below 25% prior to
the time, if any, that Roamer One seeks to become a CMRS licensee in the 220 MHz
SMR System (as would be required by the FCC), New INTEK or its affiliate, as the
case may be, would be required to obtain an FCC determination that such foreign
ownership would be consistent with the public interest for the purpose of
securing the licenses. New INTEK would also be required to obtain FCC consent to
the acquisition of a license or control thereover by Roamer One. The Securicor
Transaction and the release of Escrow Shares to MIC upon consummation of the
Securicor Transaction contemplated by this proxy statement will increase the
level of foreign ownership of the Company from current levels and thus may
increase the burden Roamer One must meet to obtain a waiver of the foreign
ownership restrictions. There can be no assurance that any such determination,
grant or consent would be obtained, and if not obtained, Roamer One would not
have the right to hold the 220 MHz CMRS licenses, nor participate in FCC
sponsored competitive bidding for additional licenses.
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REGULATION BY THE FCC. 220 MHz SMR operators, just as radio and television
stations, are subject to the jurisdiction of the FCC under the Communications
Act, to issue, renew, revoke, and modify licenses (usage rights to frequencies),
to approve the assignment or transfer of control of licenses, to regulate the
apparatus used by stations, to designate areas served by particular stations or
operators, to assign frequencies, to adopt such regulations as may be necessary
to carry out the provisions of the Communications Act and to impose penalties
for violations of such regulations. The FCC's policy considerations, as well as
technical limitations and interference standards, determine the number of
persons or entities that can be granted licenses.
Because 220 MHz SMR Systems are regulated by the FCC, the Company's business
affairs (and those of its actual or potential competitors) are always subject to
changes in FCC rules and policies. Such changes can increase the level of
competition, increase the cost of regulatory compliance, impact the methods in
which the Company manages its systems, and make it more difficult to obtain or
retain licenses. Further, each FCC proceeding which might affect the Company is
subject to reconsideration, appellate review, and FCC modification from time to
time. See "THE COMPANY -- Regulation."
DILUTION. As of June 30, 1996, the tangible book value of the Company's
Common Stock was $7.7 million or $0.69 per share. After the Midland Transaction,
the Stockholders of the Company suffered a decrease in tangible book value to
$7.2 million or $0.64 per share (assuming only 150,000 shares of Company Common
Stock are paid to MIC) or $0.53 (assuming all 2.5 million shares of Company
Common Stock are paid to MIC). If the Securicor Transaction is approved, the
Company's tangible book value will increase to $23.5 million or $0.61 per share.
There can be no assurance that the actual amount of dilution for the Securicor
Transaction will not be a greater amount. See "THE TRANSACTION -- Accounting
Treatment; Dilution." In addition, to the extent outstanding options and
additional options to purchase the Company's Common Stock are exercised and
granted, there may be further dilution.
CONTRACT BONDING REQUIREMENTS. Suppliers of radio communications systems
are often required by end-users issuing requests for bids to supply bonds from
an approved surety company at the time that the bid is submitted and at the time
that the contract is awarded. The availability of such bonds is effected by a
number of factors including the applicant's financial condition and operating
results; the applicant record for completing similar systems contracts in the
past; and the extent to which the applicant has bonds in place for other
projects. As a result, access to the required bonds on an ongoing basis may
present a barrier to entry into the systems contract business and a constraint
on a system supplier's ability to participate in future requests for bids for
system contracts. There is no assurance that required bonds would be available
or that the costs of such bonds would not be prohibitive.
Certain claims have been commenced in the U.S. against a supplier of
cellular telephones for compensation for cancer claimed to have resulted from
radio frequency ("RF") energy radiated by cellular telephone equipment used by
the plaintiff. The Company is not aware of any study or other evidence that
would link radiation of RF energy as used in the products to be manufactured or
distributed by New INTEK with the occurrence of cancer. However, to the extent
that such a link is found to exist, the Company and other manufacturers and
distributors of products that emit RF energy may have liability for causing or
contributing to the incurrence of cancer.
CURRENCY RISK. It is anticipated that New INTEK LMR product purchases will
be made primarily using the Japanese yen and the British pound currencies.
Fluctuations in these foreign currencies relative to the U.S. dollar may impact
upon the gross margin and profit of New INTEK. New INTEK may utilize hedging
instruments including currency swaps, forward contracts and currency options to
minimize this exposure, however, there is no assurance that such arrangements
will be available to fully offset further currency risk or continue to be
cost-effective.
RADIOCOMS
EMERGING TECHNOLOGY AND MARKET; RISK OF UNCERTAIN MARKET
ACCEPTANCE. Radiocoms is engaged in the design and development of products
using its patented LM technology. See "THE RADIOCOMS BUSINESS -- Linear
Modulation." Radiocoms' LM technology remains a relatively new technology and,
as with many new technologies, there is the risk that the marketplace may not
accept the potential benefits of the technology or that the new technology may
not perform to expectations. Radiocoms expects to incur substantial expenses to
penetrate new markets and that there may be some delay until Radiocoms' products
obtain name recognition in the appropriate markets. Moreover, Radiocoms
anticipates that its existing and new competitors will introduce additional
competitive products, which may reduce market acceptance of
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Radiocoms' products. Market acceptance of Radiocoms' products will depend, in
large part, upon the pricing of its products, the ability of Radiocoms to
demonstrate the advantages of its products over competing products and the
performance of its products. There can be no assurance that Radiocoms will be
able to market its technology successfully, that any of Radiocoms' current or
future products will gain market acceptance or that there will not be problems
with such technology. Failure by Radiocoms to gain market acceptance for its
products, or to maintain such acceptance, if achieved, as a result of
competition, technological change or other factors, could have a material
adverse effect on Radiocoms' business, financial condition and results of
operations. See "THE RADIOCOMS BUSINESS -- Marketing."
DEPENDENCE ON A SINGLE FACILITY. Any material disruption in Radiocoms'
operations, whether due to fire, natural disaster or otherwise, could have a
material adverse effect on Radiocoms' business, financial condition and results
of operations. The occurrence of a fire, natural disaster or other disruption in
Radiocoms' business could be particularly significant for Radiocoms because
currently its principal offices and all of its manufacturing, research and
development facilities are located in a single facility in the U.K. See "THE
RADIOCOMS BUSINESS -- Properties."
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. Radiocoms' success is
dependent upon its proprietary technology. Radiocoms currently relies on a
combination of patent, trade secret, copyright and trademark law, invention
assignment agreements, license agreements and non-disclosure agreements to
establish and protect the proprietary rights and technology used in its
products.
Radiocoms currently holds three U.K. and two U.S. patents covering certain
portions of the technology upon which Radiocoms' LM technology is based.
Radiocoms believes that its patents are important to Radiocoms and to its
ability to market its products. Radiocoms has also filed patent applications
relating to these technologies and improvements thereof in the U.K., the U.S.
and several foreign jurisdictions. No assurance can be given, however, that
Radiocoms' pending patent applications will be granted or that its existing
patents or any other patents that may be granted will be enforceable or provide
Radiocoms with meaningful protection from competitors.
In addition, there can be no assurance that competitors will not otherwise
develop products with features based upon, or otherwise similar to, Radiocoms'
products. Patents that may be granted to Radiocoms in some foreign countries may
not afford the same protection to Radiocoms as is provided under the patent laws
of the U.K. or the U.S. If a competitor were to infringe Radiocoms' patents, the
costs of enforcing Radiocoms' rights might be substantial or even prohibitive.
Radiocoms does not believe that its products infringe upon any valid
proprietary rights of third parties. However, there can be no assurance that
Radiocoms' products do not infringe, or will not be alleged to infringe, the
patents or proprietary rights of others. If any of Radiocoms' products are found
to infringe on the proprietary rights of others, Radiocoms may be forced to
redesign its products (if possible), which could result in significant delays
and increased costs for such products. Additionally, whether or not Radiocoms
ultimately was successful in defending against a claim of infringement,
Radiocoms could incur substantial costs and diversion of management resources in
order to defend against any such claims, which could have a material adverse
effect on Radiocoms' business, financial condition and results of operations.
Furthermore, an adverse determination of any such claim could subject Radiocoms
to significant liabilities to third parties, could require Radiocoms to seek
licenses from third parties and could prevent Radiocoms from manufacturing,
selling or using certain of its products, any of which could have a material
adverse effect on Radiocoms' business, financial condition and results of
operations.
Radiocoms believes that certain technology licensed by it from third parties
is critical to its business. See "THE RADIOCOMS BUSINESS -- Linear Modulation."
There can be no assurance, however, that the patents or other rights underlying
such licenses are valid and enforceable, or that the technology underlying such
licenses will remain proprietary in nature. Similarly, there can be no assurance
that such licensed technology does not infringe, or will not be alleged to
infringe, patents or proprietary rights of others. Radiocoms may also desire or
be required to obtain other licenses from third parties in order to further
develop, produce and market commercially viable products effectively. There can
be no assurance that such licenses will be obtainable on commercially reasonable
terms, if at all.
Radiocoms also relies on unpatented proprietary know-how, copyrights,
trademarks and trade secrets, and employs various methods, including
confidentiality agreements with employees, consultants and marketing partners,
to protect its trade secrets and know-how. However, such methods may not afford
complete
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protection and there can be no assurance that others will not independently
develop such trade secrets and know-how or obtain access thereto. See "THE
RADIOCOMS BUSINESS -- Linear Modulation."
REGULATION. Radiocoms is subject to the regulation of the manufacture,
distribution and marketing of its products in the countries in which it does
business. These regulations typically require that Radiocoms' products meet
certain RF emission standards and technical parameters. These regulations are
highly technical in nature and subject to change. The mobile communications
services markets in the nations in which Radiocoms does business are also
subject to regulation by governmental authorities of competent jurisdiction.
These regulations may include the licensing of private and commercial mobile
systems, limitations on eligibility for such licenses, the permissible uses of
such systems, and the technical operating parameters of the systems, including,
among other things, the channel bandwidth. In the U.S., these regulations are
principally promulgated by the FCC; in the U.K. these regulations are
principally promulgated by the RA and the DTI (each as defined below). See "--
THE RADIOCOMS BUSINESS -- Regulation." There can be no assurance that future
changes in regulation or legislation by the governmental authorities in the
countries in which Radiocoms does business will not adversely affect Radiocoms'
business.
CONSTRUCTION OF FACILITIES. Pursuant to a contractual arrangement with one
of its customers, Radiocoms has been assigned all of the customer's rights to
acquire the licenses for twenty 220 MHz SMR systems on the terms set forth in
the customer's agreements with the licensees for these systems (which vary by
license). Radiocoms, among other things, in return has provided the equipment to
be used in the construction of these systems. Radiocoms to date has not
completed review of the construction of these systems. No assurance can be made
that the construction of these systems was timely completed in accordance with
the FCC's rules and regulations, that the equipment supplied by Radiocoms was
used to construct such twenty systems, that the licensees of those systems that
were timely constructed will cooperate with Radiocoms in seeking assignment of
the licenses in the event that Radiocoms elects to exercise its acquisition
rights therefor, that a waiver of the foreign ownership limitations imposed on
FCC CMRS licenses could be obtained in the event that it were determined to be
necessary to permit Radiocoms to exercise its acquisition rights, that a dispute
will not arise with Radiocoms' customer concerning the adequacy, timeliness or
number of stations that were constructed or that such a dispute would not
encumber or jeopardize Radiocoms' rights to recover the equipment from these
systems.
RELIANCE ON ONE PRINCIPAL SUPPLIER OF EQUIPMENT. Following its acquisition
of Radiocoms, New INTEK anticipates that it will rely on Radiocoms for the
manufacture of a substantial portion of its LMR Products. No assurance can be
made that Radiocoms will be able to supply an adequate number of product on a
timely basis or at a reasonable cost.
CUSTOMER RISK. Although Roamer One is a significant customer of Radiocoms,
Radiocoms currently does have other customers that are competitors of Roamer One
and expects to continue to have such competitor customers (or others) in the
future. Upon the consummation of the Securicor Transaction, such Radiocoms'
customers may not wish to continue to do business with Radiocoms because of
their competitive positions with Roamer One. No assurance can be made that such
customers will continue to order from Radiocoms, or that if they terminate their
relationship, that such terminations will not have a material adverse effect on
the financial condition of the Company.
INTERCOMPANY SALES. For the nine months ended June 30, 1996, approximately
30% of Radiocoms' sales were with affiliates of Securicor Communications (and
for the twelve months ended September 30, 1996, sales to one affiliate of
Radiocoms, Securicor Datatrak Limited, were approximately $3,636,000 or
approximately 23.5% of Radiocoms' sales) and New INTEK anticipates that
significant intercompany sales will continue in the future. No assurance can be
made, however, that Securicor affiliates will continue to purchase from
Radiocoms or that favorable terms can be obtained.
PRODUCT LIABILITY; WARRANTY LIABILITY; INDUSTRY RISK. Radiocoms designs,
develops and manufactures a range of LMR Products using its LM technology and
also sells mobile communications systems and equipment for business using
products purchased from other manufacturers. This business could expose New
INTEK to potential liability from consumers and others should there be damage to
life or property or other claims arising from or connected to any of the
products designed, developed, manufactured, distributed or sold by Radiocoms or
New INTEK. Each of Radiocoms and New INTEK maintains insurance against such
potential liability in such amounts as they believe are appropriate and
consistent with industry practice. Such coverage contains various exclusions,
including personal injury arising out of the broadcasting of matter from any
radio. The occurrence of such an event or others not fully covered by insurance
could have a material adverse impact on the financial condition and results of
operations of New INTEK.
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THE SECURICOR TRANSACTION
BACKGROUND; REASONS FOR THE SECURICOR TRANSACTION
BACKGROUND. Prior to September 1994, the Company's principal business
related to the Plastics Business. In September 1994, upon the Merger of Simrom
into a newly formed subsidiary of the Company, the Company acquired certain
rights relating to licenses granted by the FCC for 220 MHz. At the time of the
Merger, Simrom (which changed its name to Roamer One) had a contract with SCL
pursuant to which SCL would provide Roamer One assistance in developing 220 MHz
SMR Systems and technical support with respect to the operation of such systems.
Simrom was jointly owned by Roamer One Holdings and SCL. Upon consummation of
the Merger, the Company refocused its business from the Plastic Business to an
enterprise of developing, constructing and managing 220 MHz SMR Systems in the
U.S. utilizing the recently licensed 220 MHz.
At approximately the same time as the Merger, SCL publicly announced that it
had entered into negotiations with the American Digital Communications Inc.
("ADC") of Denver, Colorado, to sell its subsidiary, MIC, a major distributor of
radio equipment in the U.S., to ADC. Following this announcement, Nicholas
Wilson, Chairman of the Board of the Company, met with David Neibert, President
of Roamer One, to discuss the impact ADC's acquisition of MIC would have on
implementation of the Company's new business strategy. Based upon their
assessment of the strategic importance of MIC, Mr. Wilson contacted John
Simmonds, Chairman of SCL, to advise him that the Company would be interested in
acquiring MIC if the transaction with ADC was not consummated. In October 1994,
discussions between SCL and ADC for the acquisition of MIC were discontinued.
Between October 1994 and March 1995, representatives of the Company and SCL
informally discussed on several occasions a possible combination of the
businesses of MIC and Roamer One. On or about March 1, 1995, Mr. Simmonds
proposed to Mr. Wilson a transaction whereby SCL would sell to the Company SCL's
wireless communications business including MIC, in exchange for 15,000,000
shares of Company Common Stock. A letter of intent was signed on March 7, 1995
and the Board of Directors of the Company formed a special committee (the
"Committee") consisting of Messrs. Wilson, Neibert, Wasserman and Branston and
Vincent Paul to negotiate a definitive purchase agreement with SCL. The Board of
Directors (with the directors affiliated with SCL abstaining) approved the
letter of intent on March 20, 1995.
In April 1995, the Company and Securicor Communications and its subsidiaries
entered into an agreement pursuant to which Securicor Communications and its
subsidiaries agreed to sell to the Company up to $8 million of radio products
incorporating the LM technology. (See "THE RADIOCOMS BUSINESS.") The agreement
provided that, subject to the execution of a definitive agreement for the
acquisition of SCL's wireless communications business by the Company, the
Company could purchase up to $4 million of radio equipment from Securicor
Communications and its subsidiaries in exchange for Company Common Stock.
During the period between March 7, 1995 and June 1995, representatives of
the Company and SCL, including their respective legal counsel and accountants,
conducted due diligence and negotiated the terms of a definitive purchase
agreement. On June 22, 1995, the Committee unanimously approved, and recommended
to the Board of Directors of the Company that it approve a definitive purchase
agreement pursuant to which the Company would acquire SCL's wireless
communications business (the "Midland Purchase Agreement"). On June 29, 1995,
the Board of Directors of the Company (with the members of the Board affiliated
with SCL abstaining) approved the Midland Purchase Agreement.
Subsequent to the execution of the Midland Purchase Agreement, the Company
purchased the radio equipment from Securicor Communications and its subsidiaries
and issued 937,042 shares of Company Common Stock to Securicor Communications in
exchange for the equipment.
In November 1995, the Committee and representatives of SCL commenced
discussions to make certain amendments to the Midland Purchase Agreement
(including reducing the purchase price and extending the closing date) to take
into account the deteriorating financial performance of MIC. Subsequently, the
Midland Purchase Agreement as amended was unanimously approved by the Committee
and the Board of
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Directors of the Company (with the members of the Board of Directors affiliated
with SCL abstaining). On January 29, 1996, the Midland Purchase Agreement was
amended once again to extend the date for consummation of the transaction and
the Midland Purchase Agreement as amended was unanimously approved by the
Committee and the Board of Directors of the Company (with members of the Board
of Directors affiliated with SCL abstaining).
During the same period as the Company and SCL were amending the Midland
Purchase Agreement, Mr. Simmonds, who is the Chairman of the Board of SCL and a
director and the Chief Executive Officer of the Company, had several
conversations with Dr. Ed Hough, Chairman of Securicor Communications,
concerning strategies for the deployment of narrow band equipment in the U.S.,
the complementary nature of the businesses of the Company, MIC and Radiocoms and
possible benefits which could be realized from a combination of the three
businesses.
In December 1995, Securicor Communications retained Lehman Brothers to
review the business and potential opportunities for Securicor Communications' LM
technology and LM radio equipment, as well as the advisability of pursuing a
combination of the businesses of the Company, the U.S. LMR Distribution Business
and Radiocoms Business. Thereafter, Lehman Brothers advised it as to its views
with respect thereto.
By January 1996, the transaction contemplated by the Midland Purchase
Agreement still had not been consummated. In view of the continued delays in
consummating such transaction, Messrs. Wilson, Simmonds and Hough met on January
31, 1996 in London, England to discuss a possible combination of the businesses.
Between February 1996 and March 1996, representatives of the Company, SCL,
MIC and Securicor Communications met on numerous occasions and had numerous
telephone conversations to discuss the terms of a possible combination of the
businesses of the Company, the Radiocoms Business and the U.S. LMR Distribution
Business.
On March 8, 1996, the Board of Directors of the Company considered a
proposed letter of intent providing for the Company to acquire from Securicor
Communications the Radiocoms Business and to acquire the U.S. LMR Distribution
Business from MIC. On March 8, 1996, the Board of Directors of the Company
approved the letter of intent, and the Midland Purchase Agreement, as amended,
was terminated. The Board of Directors of the Company authorized the Special
Committee to negotiate the terms of the definitive acquisition agreements with
each of Securicor Communications, MIC and SCL, and select a financial advisor
for the Company. A joint press release announcing the Transactions was issued on
March 8, 1996.
The Special Committee selected Fahnestock to serve as financial advisor to
the Company. Between March 8, 1996 and June 18, 1996 representatives of the
Special Committee, the Company, SCL and Securicor Communications conducted due
diligence and met and had telephone conversations on numerous occasions to
negotiate the final terms of the definitive purchase agreements.
On June 12, 1996, the Special Committee met to consider the principal terms
of the proposed Securicor Transaction. Following presentations from management
of the Company and the Company's financial advisor, the Special Committee
unanimously approved the principal terms of the Securicor Transaction and
unanimously resolved to recommend to the full Board of Directors of the Company
to approve the definitive purchase agreements.
On June 17 and 18, 1996, Messrs. Wilson, Simmonds and Hough and David
O'Kell, an Executive Vice President of SCL, and other representatives of
Securicor Communications met in London, England, to finalize the definitive
purchase agreements. The Stock Purchase Agreement, Sale and License Agreement
and related agreements were executed on June 18, 1996.
Due to the desire of INTEK, Securicor and MIC to take advantage of business
opportunities relating to the U.S. LMR Distribution Business and MIC's inability
to make advance product purchases prior to the expected consummation of the
Transactions at such a level to take advantage of such business opportunities,
INTEK, SCL and MIC agreed (with Securicor's consent) to amend the Sale and
License Agreement as set
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out in the Amended Sale and License Agreement to provide for the immediate
acquisition by INTEK, of the U.S. LMR Distribution Business. The Acquired Assets
were then assigned to Midland USA, pursuant to the Assignment and Assumption
Agreement. In connection therewith Securicor Communications agreed to extend the
credit facility providing the Interim Loan to Midland USA. The parties also
agreed that the terms of the purchase would consist of certain inventory and
other fixed assets for cash and that the Escrow Shares being issued in
consideration of the Acquired Assets would be put into escrow, to be released
pending certain events, including consummation of the Securicor Transaction.
On September 12, 1996, Fahnestock delivered its written opinion. On
September 12, 1996, the Board of Directors of the Company met and approved (with
members of the Board of Directors affiliated with SCL abstaining with respect to
the Midland Transaction) the Stock Purchase Agreement, as amended, the Amended
Sale and License Agreement and related documents.
On September 20, 1996, the Company and MIC and SCL entered into the Amended
Sale and License Agreement and simultaneously therewith the Company, through
Midland USA, acquired the U.S. LMR Distribution Business and Securicor
Communications provided $4,274,775 of funding to Midland USA under the Interim
Loan. The Escrow Shares issued by INTEK were placed into escrow pursuant to the
terms of the Amended Sale and License Agreement and the Escrow Agreement. The
Escrow Shares will be released to MIC upon consummation of the Securicor
Transaction or if Securicor Communications and INTEK, or their respective
affiliates, enter into one or more transactions within six months of the
termination of the Stock Purchase Agreement, which in the aggregate, convey
majority control of INTEK to Securicor Communications, upon the closing of such
transactions, subject to pricing adjustments of (a) a reduction of up to 155,000
shares of Company Common Stock in the event that the U.S. LMR Distribution
Business experiences losses between the period of August 1, 1996 and the date
the Securicor Transaction is consummated, and (b) up to 500,000 shares which
will remain in escrow (after title and voting rights have been conveyed to MIC)
to indemnify the Company in the event that the Hitachi Supply Agreement is
terminated prior to, or the benefits thereof are not otherwise provided to the
Company through, May 12, 1997. MIC, INTEK and SCL have agreed that, if the
Securicor Transaction is not consummated, MIC has the option to acquire the U.S.
LMR Distribution Business in exchange for payment of all obligations outstanding
under the Interim Loan and 150,000 shares of Company Common Stock. The option
may be exercised on or before the Option Exercise Date. If MIC does not exercise
such option, Midland USA has until the Repayment Date to repay its obligations
outstanding under the Interim Loan, after which time, if full repayment has not
been made, Securicor may foreclose upon all of the assets of Midland USA and the
stock of Midland USA held by INTEK. See "THE SECURICOR TRANSACTION -- Terms of
the Escrow Agreement."
REASONS FOR THE SECURICOR TRANSACTION. Management of INTEK believes that
there is a need to establish strategic alliances through partnering, technology
transfers or mergers within the LMR industry to compete effectively against the
dominant firms operating on a global scale. Management of INTEK believes that as
a provider of only air time service, Roamer One would be at a disadvantage
competing with other air time providers who either manufacture or control the
supply of base station equipment, subscriber equipment and the air time service
within the SMR industry.
In approving the Securicor Transaction, the Board of Directors consulted
with its financial advisor and management, and considered such factors as they
deemed appropriate, including, without limitation, the following factors:
(a) The belief by the Board of Directors and INTEK's management that the
Radiocoms Business of designing and manufacturing radio and related
equipment complements its newly acquired U.S. LMR Distribution Business.
(b) The belief by the Board of Directors and INTEK's management that it is
advantageous to, (a) have a direct interest in the technology used in the
LMR Products that INTEK sells and distributes, (b) control the sale and
distribution of subscriber equipment, (c) control the design, acquisition
and installation of base station radio equipment, and (d) manage the
spectrum on which the subscriber equipment is to be activated.
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(c) The belief by the Board of Directors and INTEK's management that a
presence in more segments of the LMR Product and service markets (other
than solely as a seller of air time) in the U.S. and worldwide will
enable INTEK to respond more effectively and quickly to changes in the
220MHz SMR market.
(d) The belief by the Board of Directors and INTEK's management that a more
diversified business will provide INTEK with access to a broader range of
potential sources of capital.
(e) The belief by the Board of Directors and INTEK's management that is
desirable to eliminate the risk of losing Radiocoms as its sole supplier
and to obtain greater control over its supply of equipment.
(f) INTEK's need for capital over the near term and Securicor
Communications' willingness to provide the Delayed Drawdown Subordinated
Loan, and the Interim Loan on terms favorable to INTEK.
(g) INTEK's ability to consummate the Securicor Transaction utilizing its
Company Common Stock as payment for the Radiocom's Stock.
(h) INTEK's analysis of information with respect to the financial condition,
business, operations and prospects of both INTEK and Radiocoms on both a
historical and prospective basis, including certain information
reflecting the two companies on a pro forma combined basis.
(i) INTEK's analysis of the potential synergies expected to be realized by
the combined operations of INTEK and Radiocoms.
(j) The written opinion of Fahnestock.
(k) The information contained in the risk factors described, and the other
information set forth, in this Proxy Statement.
These factors were considered collectively by the Board of Directors,
without giving specific weight to any particular factor.
OPINION OF FAHNESTOCK & CO. INC.
Fahnestock has acted as the financial advisor to the Special Committee and
the Board of Directors in connection with the Transactions and has assisted the
Special Committee and the Board of Directors in their examination of the
fairness to the Company and its Stockholders, from a financial point of view, of
the consideration being paid in the aggregate by the Company in the Transactions
to Securicor Communications and MIC.
INTEK requested Fahnestock to render an opinion (the "Fahnestock Opinion")
as to whether the consideration to be paid in the aggregate to Securicor
Communications for the Radiocoms Stock pursuant to the Stock Purchase Agreement
and to MIC for the U.S. LMR Distribution Business pursuant to the Amended Sale
and License Agreement (collectively the "Agreements"), is fair, from a financial
point of view, to the Company and its Stockholders. The Fahnestock Opinion
relates to both Transactions inasmuch as the consummation of the Securicor
Transaction will trigger the release of the Escrow Shares to MIC, subject to the
terms of the Escrow Agreement.
In connection with the Special Committee's consideration of the
Transactions, Fahnestock delivered the Fahnestock Opinion on June 12, 1996,
which was reaffirmed in writing as of September 12, 1996, to the effect that, as
of the date of the Fahnestock Opinion, based on its review and assumptions and
subject to the limitations summarized therein, the consideration paid in the
aggregate by INTEK under the Agreements is fair, from a financial point of view,
to the Company and its Stockholders.
The following is a summary of the Fahnestock Opinion. This summary is
qualified in its entirety by reference to the full text of the Fahnestock
Opinion which is attached as Appendix I to this Proxy Statement. The Fahnestock
Opinion is directed only to the fairness of the consideration to be paid in the
aggregate to Securicor Communications for the Radiocoms Stock pursuant to the
Stock Purchase Agreement and to MIC
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for the Acquired Assets pursuant to the Amended Sale and License Agreement, from
a financial point of view, to INTEK and its stockholders and does not constitute
a recommendation as to how any stockholder should vote at the Annual Meeting.
Fahnestock was not requested or authorized to solicit, and did not solicit,
potential parties for a business combination. The stockholders are urged to read
the Fahnestock Opinion in its entirety.
In connection with rendering the Fahnestock Opinion, Fahnestock, among other
things, has reviewed and analyzed the following: (i) the Agreements, including
the exhibits and schedules thereto; (ii) certain publicly available information
concerning INTEK, including the Annual Reports on Form 10-K of INTEK for each of
the years in the five (5) year period ended December 31, 1995 and the quarterly
report on Form 10-Q of INTEK for the quarter ended June 30, 1996; (iii) certain
internal information, primarily financial in nature concerning the business and
operations of INTEK furnished to Fahnestock by INTEK for purposes of its
analysis; (iv) certain publicly available information relating to the trading of
Company Common Stock; (v) certain internal business and financial information
concerning Radiocoms and the U.S. LMR Distribution Business, (vi) Radiocoms'
audited financial statements for the fiscal years ended September 30, 1993, 1994
and 1995 and for the six month period ended March 31, 1996, (vii) to the extent
Fahnestock deemed appropriate, certain publicly available information with
respect to certain other companies that Fahnestock believed to have some
similarities to INTEK, Radiocoms or the U.S. LMR Distribution Business and the
trading markets for certain of such other companies' securities, and (viii) to
the extent Fahnestock deemed appropriate, certain publicly available information
concerning the nature and terms of certain other transactions that Fahnestock
considered relevant to its inquiry. Fahnestock also met with certain officers
and employees of INTEK, Securicor Communications, Radiocoms, SCL and MIC to
discuss the business and prospects of INTEK, Radicoms and the U.S. LMR
Distribution Business, as well as other matters Fahnestock believed relevant to
its inquiry.
In rendering the Fahnestock Opinion, Fahnestock assumed and relied upon,
without independent verification, the accuracy and completeness of the financial
and other information reviewed by Fahnestock for purposes of the Fahnestock
Opinion including the accuracy of the representations and warranties of INTEK,
Securicor Communications, Radiocoms, SCL and MIC contained in the Agreements.
With respect to financial projections, Fahnestock assumed that the projections
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of INTEK, Securicor
Communications, Radiocoms, SCL and MIC with respect to the future financial
performance of New INTEK, INTEK, Radiocoms and the U.S. LMR Distribution
Business, respectively. Fahnestock is not qualified to and did not evaluate the
technical capabilities of Radiocoms or MIC's LMR products or the respective
capabilities of Radiocoms or MIC to manufacture or assemble such products.
Fahnestock relied on INTEK's evaluations of such matters. Fahnestock relied as
to all legal matters concerning the Transactions on counsel to INTEK. Fahnestock
did not conduct a physical inspection or appraisal of any of the assets,
properties or facilities of INTEK, Radiocoms and MIC, nor was Fahnestock
furnished with any such evaluation or appraisal. The Fahnestock Opinion was
based on economic, market and other conditions as they existed, and the
information made available to Fahnestock, as of the date of the Fahnestock
Opinion. Fahnestock expressed no opinion as to the price or trading range at
which the shares of INTEK will trade in the future.
The following is a summary of the analysis performed by Fahnestock in
connection with the Fahnestock Opinion and reviewed with the Special Committee
and the Board of Directors.
PUBLICLY TRADED COMPANY FINANCIAL ANALYSIS.
Fahnestock selected groups of public companies which it deemed to be
reasonably similar to each of INTEK, Radiocoms and the U.S. LMR Distribution
Business. Although Fahnestock used these companies for comparison purposes, none
of these companies are identical to INTEK, Radiocoms or the U.S. LMR
Distribution Business. Fahnestock reviewed and analyzed certain publicly
available financial and stock market information. Such financial and market
information included: (i) market equity capitalization plus face value of
long-term debt and preferred stock less cash ("Enterprise Value") and market
common equity capitalization ("Market Value") of the selected public companies;
(ii) the Enterprise Value to the latest reported twelve months ("LTM") sales,
earnings before interest, taxes, depreciation and amortization
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("EBITDA"), and earnings before interest and taxes ("EBIT") multiples; and (iii)
the Market Value to most recently reported book value, LTM net income, and
projected calendar year 1996 and 1997 net income multiples (as estimated by
research analysts and compiled by the International Brokers Estimate System
(IBES)). Because all the public companies Fahnestock deemed somewhat similar to
INTEK or Radiocoms were in the development stage and did not have meaningful
Enterprise Value to LTM sales, EBITDA, and EBIT multiples, and Market Value to
most recently reported book value, LTM net income, forecasted calendar year 1996
and 1997 net income multiples, Fahnestock informed the Special Committee and the
Board of Directors that the financial analysis of comparable public companies
did not provide a meaningful indication of value for INTEK and Radiocoms. Given
the negative LTM EBITDA, EBIT and net income of MIC and its negative projected
net income for calendar years 1996 and 1997 for the U.S. LMR Distribution
Business, Fahnestock informed the Special Committee and the Board of Directors
that the aforementioned valuation methodologies did not provide a meaningful
indication of value for the U.S. LMR Distribution Business. However, based upon
the median and mean Enterprise Value to LTM sales multiples for public companies
comparable to the U.S. LMR Distribution Business of 0.6x and 0.7x, Fahnestock
calculated the implied equity value of U.S. LMR Distribution Business to be $9
million to $10 million.
TRANSACTION ANALYSIS
Fahnestock reviewed certain publicly available information on similar merger
and acquisition transactions between January 1, 1995 and May 31, 1996. In this
analysis, Fahnestock looked at 80 recent transactions in which the target
companies' nature of operations were deemed somewhat comparable to INTEK, 16
recent transactions in which the target companies' nature of operations were
deemed somewhat comparable to Radiocoms, and 25 recent transactions in which the
target companies' nature of operations were deemed somewhat comparable to MIC.
However, no company or transaction used in this analysis was directly comparable
to INTEK, Radiocoms, U.S. LMR Distribution Business, or the Transactions. Also,
there was a lack of complete financial information in virtually all of these
transactions. Consequently, Fahnestock informed the Special Committee and the
Board of Directors that the financial analysis of comparable transactions did
not provide a meaningful indication of value.
STOCK TRADING HISTORY
Fahnestock examined the trading history of the trading prices for INTEK from
March 9, 1995, when INTEK signed a letter of intent to purchase the wireless
communications business of SCL, to September 11, 1996, the day before Fahnestock
rendered its written opinion to the Special Committee and the Board of
Directors. The median, average, high and low of the Company Common Stock's daily
closing price during the above-mentioned period were $7.25, $7.18, $12.00, and
$3.75, respectively.
DISCOUNTED CASH FLOW ANALYSIS.
Fahnestock calculated ranges of the implied Enterprise Values of New INTEK,
INTEK, Radiocoms and the U.S. LMR Distribution Business by means of discounted
cash flow analysis. The implied Enterprise Values of New INTEK, INTEK, Radiocoms
and the U.S. LMR Distribution Business were based upon the discounted present
value of each entity's respective five-year stream of unleveraged free cash flow
plus the calendar year 2001 terminal value. The terminal values were calculated
by multiplying the projected calendar year 2001 free cash flow for each entity
by its projected future free cash flow growth rate into perpetuity (the "Future
Growth Rate") divided by the difference between the discount rate and Future
Growth Rate. The discount rates used were calculated by utilizing the capital
asset pricing model based on the 2-year Standard & Poors 500 betas of companies
determined by Fahnestock to be somewhat similar to New INTEK, INTEK, Radiocoms
and the U.S. LMR Distribution Business, respectively, historical market
premiums, and the current 10-year Treasury Bond rate as the risk free rate. In
conducting its analysis, Fahnestock relied upon certain financial projections
provided by INTEK, Radiocoms and MIC and applied discount rates ranging from
18.0% to 18.5% with a Future Growth Rate of 12% for New INTEK; discount rates
ranging from 22.5% to 23.5% with a Future Growth Rate of 10% for INTEK; discount
rates ranging from 21.0% to 21.5% with a Future Growth Rate of 20% for
Radiocoms; and discount rates ranging from 20.0% to 21.0% with a Future Growth
Rate of 10% for the U.S. LMR Distribution Business. Based upon this analysis,
Fahnestock derived a range of the implied Enterprise Value of New INTEK of $301
million to $335
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million, a range of the implied Enterprise Value of Intek of $69 million to $81
million; a range of the implied Enterprise Value of Radiocoms of $155 million to
$230 million; and a range of the implied Enterprise Value of the U.S. LMR
Distribution Business of $21 million to $23 million.
CONTRIBUTION ANALYSIS
Fahnestock analyzed the relative contributions of INTEK, Radiocoms and the
U.S. LMR Distribution Business to the implied Enterprise Value of New INTEK. In
computing the implied Enterprise Value of New INTEK, INTEK and Radiocoms,
Fahnestock relied solely upon the discounted cash flow analysis. In determining
the implied Enterprise Value of the U.S. LMR Distribution Business, Fahnestock
applied an equal weighting to the discounted cash flow value and publicly traded
company financial analysis value. Based on these calculations, Fahnestock
determined that the ranges of implied Enterprise Value contributions of INTEK,
Radiocoms and the U.S. LMR Distribution Business to be $69 million to $81
million, $155 million to $230 million; and $10 million to $22 million,
respectively, with the average valuations for INTEK, Radiocoms and the U.S. LMR
Distribution Business of $75 million, $185 million and $16 million,
respectively. By providing New INTEK with a loan of $15 million, Securicor
Communications in effect contributed additional value of $5 million to New INTEK
(see "--Other Considerations"). Therefore, the total Enterprise value
contributed by Radiocoms to New INTEK was the sum of the average Radiocoms
implied Enterprise Value of $185 million and the $5 million value of the
Securicor Communications loan to New INTEK, which equaled $190 million. Based on
this calculation, the relative contributions of Enterprise Values of INTEK,
Radiocoms and the U.S. LMR Distribution Business to New INTEK are 27%, 67% and
6%, respectively.
In addition, Fahnestock determined the range of Enterprise Value of New
INTEK to be $301 million to $335 million, with the average of $318 million. The
implied equity value of New INTEK was determined by subtracting the $10 million
value of the Preferred Shares from New INTEK's Enterprise Value, for a total of
$308 million. Pursuant to the Agreements, INTEK Stockholders shall own 29% of
the common equity of New INTEK, which, based on the analysis, was equivalent to
an implied value of $89 million, or 28% of New INTEK's Enterprise Value.
Pursuant to the Agreements, Securicor Communications shall own 65% of the common
equity of New INTEK and 100% of the Preferred Shares; these totaled an implied
value up to $209 million, or 66% of the Enterprise Value of New INTEK. Pursuant
to the Agreements, MIC shall own 6% of the common equity of New INTEK, which
based on the analysis, was equivalent to an implied value of $19 million, or 6%
of the Enterprise Value of New INTEK. The results of these contribution analyses
are not necessarily indicative of the contributions that the respective business
may make in the future.
OTHER CONSIDERATIONS
The Special Committee and the Board of Directors considered access to cost
effective capital to be very important to the near-term development plans of New
INTEK. Pursuant to the Agreements, Securicor Communications shall provide New
INTEK a Delayed Drawdown Senior Subordinated Loan of up to $15 million. The
Delayed Drawdown Senior Subordinated Note will bear interest at the rate of
prime (to be defined as the average of prime rates announced by certain
specified banks) plus 1% through December 31, 1997 and thereafter accrue at the
rate of 11% compounded annually on the outstanding principal balance, payable
upon the repayment in full of the outstanding principal balance but no later
than June 30, 2001. The obligations under the Delayed Drawdown Senior
Subordinated Note may be prepaid at any time without any penalty. The amount and
terms of the Delayed Drawdown Senior Subordinated Note were viewed by the
Special Committee and the Board of Directors as favorable and consequently, the
Delayed Drawdown Senior Subordinated Note was considered an important component
of the Securicor Transaction. As part of its opinion, Fahnestock considered the
Delayed Drawdown Senior Subordinated Note and undertook the following analysis.
In computing the contribution of value of Securicor Communications to New INTEK
by providing the Delayed Drawdown Senior Subordinated Note, Fahnestock assumed
that a similar loan to be provided by a willing third party to New INTEK should
carry an internal rate of return of 15% to 17%. Fahnestock further assumed that
New INTEK would borrow $15 million soon after Closing, and would repay the
principal amount plus accrued interest in its entirety at maturity on June 30,
2001. Fahnestock discounted the principal amount plus accrued interest of the
Delayed Drawdown Senior Subordinated Note
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at maturity, and determined that the average fair market value of the Delayed
Drawdown Senior Subordinated Note was $10 million. To arrive at the value of the
Securicor Communications contribution to New INTEK by providing the Delayed
Drawdown Senior Subordinated Note, Fahnestock took the difference between the
face value of the Delayed Drawdown Senior Subordinated Note and the average of
the fair market value of the Delayed Drawdown Senior Subordinated Note and
determined that to be approximately $5 million.
Pursuant to the Agreements, Securicor Communications is to retain 20,000
Preferred Shares at a $1,000 per share par value of Radiocoms (i.e., $20
million). The Preferred Shares, which have a cumulative dividend yield of 6% per
annum and will be paid in-kind through the issuance of additional preferred
stock, and such redemption is effectively guaranteed by New INTEK pursuant to a
right of Securicor Communications to require New INTEK to purchase any
unredeemed Preferred Shares for the redemption price. The Preferred Shares are
redeemable by Radiocoms on June 30, 2006. In addition, Securicor Communications
will be granted detachable Warrants for 1% of the fully diluted common equity of
New INTEK at Closing. Such Warrants, with an exercise price of $13.00 per share,
will have a ten year term, but will be non-exercisable for the first five years.
The Securicor Transaction includes the EFJ Securities. If, at any time, the
carrying value of the EFJ Securities is written down, New INTEK has the ability
to offset (I.E., reduce) against the Preferred Shares by a corresponding amount
equal to the liquidation value of the EFJ Securities. During the course of its
engagement, Fahnestock was unable to review any financial or business
information of EFJ. Given the lack of information, Fahnestock assumed that the
value of the EFJ Securities had to be written down to zero for analysis
purposes. Assuming the potential write-down, Fahnestock determined that the EFJ
Securities would be reduced by $10 million, resulting in the net valuation of
the Preferred Shares of $10 million.
SUMMARY
The summary set forth above does not purport to be a complete description of
the analyses performed by Fahnestock. The preparation of a fairness opinion
involves determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances. The preparation of a fairness opinion is a complex process and is
not necessarily susceptible to partial analysis or summary description.
Fahnestock believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create a misleading view of the
processes underlying its opinion. In addition, Fahnestock may have given various
factors more or less weight than other factors, and may have deemed various
assumptions more or less probable than other assumptions, so that the range of
Fahnestock valuations resulting for any particular analysis described above
should not be taken to be Fahnestock's view of the actual value of New INTEK,
INTEK, Radiocoms or the U.S. LMR Distribution Business. In performing its
analysis, Fahnestock made numerous assumptions with respect to industry
performance, general business and economic conditions, and other matters, many
of which are beyond the control of New INTEK, INTEK, Radiocoms and the U.S. LMR
Distribution Business. Any estimates Fahnestock used in its analysis are not
necessarily indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by such estimates. In
addition, estimates relating to the value of businesses or assets do not purport
to be appraisals or to necessarily reflect the prices at which businesses or
assets may actually be sold. The analyses performed were prepared solely as part
of Fahnestock's analysis of the fairness of the consideration to be paid in the
aggregate to Securicor Communications and MIC pursuant to the Agreements, from a
financial point of view, to INTEK and its Stockholders, and were orally
presented to the Special Committee and the Board of Directors prior to the
delivery of the Fahnestock Opinion.
Fahnestock, as a part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distribution of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. The Special Committee and the Board of Directors selected
Fahnestock as its financial advisor upon its favorable evaluation of
Fahnestock's experience and expertise. Pursuant to the letter agreement dated
March 10, 1996, INTEK agreed to pay Fahnestock $250,000 for its services. INTEK
also agreed to reimburse Fahnestock for all out-of-pocket expenses incurred by
Fahnestock in connection with its engagement, and to
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indemnify Fahnestock against certain liabilities in connection with its
engagement. The terms of the fee arrangement with Fahnestock, which Fahnestock
and INTEK believe are customary in transactions of this nature, were negotiated
at arms' length between Fahnestock and the Special Committee.
In the ordinary course of business, Fahnestock may actively trade the
securities of INTEK for its own account and for that of its customers, and,
accordingly, may at any time hold a long or short position in such securities.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO INTEK
INTEK has been advised by its legal counsel, Manatt, Phelps & Phillips, LLP
("Legal Counsel"), with respect to the following U.S. federal income tax
consequences of the proposed Securicor Transaction to INTEK.
THE SECURICOR TRANSACTION. The authorization and issuance of the 25,000,000
shares of the Company Common Stock (and INTEK Warrants) to Securicor
Communications in exchange for the Radiocoms Stock will be treated as the
issuance by INTEK of its stock in exchange for property, within the meaning of
Section 1032 of the Code, and, accordingly, that no gain or loss will be
recognized by INTEK with respect to such exchange for U.S. federal income tax
purposes. Securicor Communications has received the written determination from
the U.K. Inland Revenue to the effect that the consummation of the Securicor
Transaction will not give rise to any tax liability to Radiocoms with respect to
such exchange under the laws of the U.K. or any jurisdiction located therein.
However, the consummation of the Securicor Transaction may result in a
limitation on the utilization or the elimination of certain income tax benefits
of Radiocoms in determining Radiocoms' U.K. tax liability. The potential adverse
effect to Radiocoms of such loss of U.K. tax benefits cannot be quantified at
this time because the U.K. Inland Revenue has not yet agreed to the
computations. Fahnestock has been advised of the potential adverse U.K. tax
effects of the Securicor Transaction for purposes of rendering its valuation
opinion. Legal Counsel to INTEK has not been requested to analyze and has
offered no opinion regarding the tax consequences of this transaction to
Radiocoms or to Securicor Communications. Further, except as provided herein, no
opinion is expressed with respect to any other tax consequence of the Securicor
Transaction.
The current Stockholders of INTEK (other than Securicor Communications, or
any person affiliated or related to any of the parties to the Securicor
Transaction) will neither sell nor exchange any of their Company Common Stock in
connection with the Securicor Transaction, and, accordingly, such Stockholders
should not recognize any gain or loss for U.S. federal income tax purposes as a
result of the Securicor Transaction.
NET OPERATING LOSS CARRYFORWARDS. The consummation of the Securicor
Transaction will result in an "ownership change" of INTEK, within the meaning of
Section 382 of the Code. As a result, INTEK's ability to utilize its net
operating loss carryforwards will be limited following the Closing. In general,
the amount of income that INTEK may offset in any given subsequent taxable year
by its previously-accrued net operating loss carryforwards will be limited to an
amount determined by multiplying the value of the equity of INTEK immediately
prior to the Securicor Transaction by the U.S. federal long-term tax-exempt
interest rate in effect on the date of Closing. (In addition, the net operating
loss carryforwards will be eliminated unless INTEK continues to maintain its
current business operations for the two-year period following the Closing.) Any
"net unrealized built-in losses" of INTEK (as specially defined in the Code),
can also be limited as a result of an "ownership change" under Section 382 of
the Code.
At December 31, 1995, INTEK had net operating loss carryforwards available
for U.S. federal income tax purposes of approximately $2,225,000. It is
uncertain whether INTEK has any "net unrealized built-in losses" that could be
affected by an "ownership change." The potential adverse effect to INTEK of the
limitations under Section 382 of the Code cannot be quantified at this time
because, among other things, it is anticipated that INTEK will continue to incur
operating losses for U.S. federal income tax purposes for several years
following the Closing of the Securicor Transaction.
THE FOREGOING SUMMARY IS INTENDED TO BE ONLY AN OVERVIEW OF SPECIFIC FEDERAL
INCOME TAX CONSEQUENCES OF THE SECURICOR TRANSACTION TO INTEK AND SHOULD
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NOT BE CONSIDERED TO BE GENERAL TAX ADVICE. THIS SUMMARY DOES NOT PURPORT TO
DEAL WITH ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT AND
IS NOT INTENDED AS TAX ADVICE TO ANY PERSON WHO IS A PARTY TO THE SECURICOR
TRANSACTION OTHER THAN INTEK. ALL PERSONS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX AND OTHER
TAX CONSEQUENCES WITH RESPECT TO THE FOREGOING MATTERS AND ANY OTHER
CONSIDERATIONS WHICH MAY BE APPLICABLE TO THEM.
ACCOUNTING TREATMENT; DILUTION
The Securicor Transaction is expected to be accounted for as a reverse
acquisition because, after the consummation of the Securicor Transaction,
Securicor Communications will hold a majority of Company Common Stock. See
"SELECTED FINANCIAL DATA -- Pro Forma Condensed Combined Balance Sheet."
The 25,000,000 share increase in Company Common Stock outstanding that will
result from the Securicor Transaction will not have a dilutive effect on the net
book value per share of Common Stock on the basis of the Company's unaudited
financial statements as of June 30, 1996 and the pro forma financial information
as of June 30, 1996. As of June 30, 1996, the tangible book value of Company
Common Stock was $7.7 million or $0.69 per share. After the Midland Transaction,
the Stockholders of the Company suffered a decrease in tangible book value to
$7.2 million or $0.64 per share (assuming only 150,000 shares of Company Common
Stock are paid to MIC) or $.53 (assuming all 2.5 million shares of Company
Common Stock are paid to MIC). If the Securicor Transaction is approved, the
Company's tangible book value will increase to $23.5 million or $0.61 per share.
There can be no assurance that the actual amount of dilution at the time the
consummation of the Securicor Transaction is effected will not be a greater
amount. To the extent outstanding options and additional options to purchase
shares of Company Common Stock are granted and exercised, there may be further
dilution.
REGULATORY APPROVALS
Each of the Securicor Transaction and the release of the Escrow Shares (upon
consummation of the Securicor Transaction to MIC pursuant to the Escrow
Agreement) is subject to the requirements of the HSR Act, which provides that
certain acquisition transactions may not be consummated until certain
information has been furnished to the Antitrust Division of the Department of
Justice and the Federal Trade Commission and unless certain waiting period
requirements are met. The Company anticipates that the Notification and Report
Forms required pursuant to the HSR Act will be filed by the Company, Securicor
and MIC in the near term.
The Division and the FTC frequently review the legality under the antitrust
laws of transactions such as the Securicor Transaction and the release of the
Escrow Shares as contemplated by the Midland Transaction. Moreover, the
expiration of the HSR Act waiting periods does not preclude the Division, the
FTC or third parties from challenging either or both of the Securicor
Transaction on antitrust grounds. Accordingly, at any time before or after the
Closing, either the Division or the FTC could take such action under the
antitrust laws as it deems necessary or desirable in the public interest, or
certain other persons could take action under the antitrust laws, including
seeking to delay or enjoin the Securicor Transaction or the Midland Transaction
or both. There can be no assurance that such a challenge, if made, would not be
successful.
TERMS OF THE STOCK PURCHASE AGREEMENT AND SECURICOR TRANSACTION
The following is a summary of certain provisions of the Stock Purchase
Agreement and the Securicor Transaction. This summary is qualified in its
entirety by reference to the full text of the Stock Purchase Agreement which is
attached as Appendix II to this Proxy Statement and incorporated herein by
reference. Capitalized terms used and not defined below or elsewhere in this
Proxy Statement have the respective meanings assigned to them in the Stock
Purchase Agreement. Parenthetical section references appearing at the end of
paragraphs in this summary refer to relevant sections in the Stock Purchase
Agreement and are provided for convenience of reference only. All Stockholders
are encouraged to read the Stock Purchase Agreement carefully and in its
entirety.
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GENERAL
The Stock Purchase Agreement provides for the acquisition by the Company
from Securicor Communications at the Closing of the Radiocoms Stock. See
" -- Sale and Purchase of Shares; Purchase Price." The Company also will acquire
indirect ownership of the EFJ Securities which are held by Radiocoms. The
Company will not acquire the 20,000 Preferred Shares. The Preferred Shares will
be issued by Radiocoms to Securicor Communications prior to the Closing in
satisfaction of certain intercompany indebtedness and may in certain
circumstances be canceled against the delivery to Securicor Communications of
all or a portion of the EFJ Shares. See "Terms of the Preferred Shares." The
Stock Purchase Agreement is governed by the laws of the State of New York.
SALE AND PURCHASE OF SHARES; PURCHASE PRICE
The Closing is subject to the satisfaction of certain conditions set forth
in the Stock Purchase Agreement. See " -- Conditions to the Closing; Amendment,
Waiver and Termination." Subject to the satisfaction or waiver of such
conditions, the Closing shall take place five business days after the
satisfaction or waiver of such conditions or on such other date as the parties
may designate in writing. On the Closing Date, the Company will acquire the
Radiocoms Stock and the Company will issue 25,000,000 shares of Company Common
Stock to Securicor Communications in exchange for the Radiocoms Stock. (Sections
1.1, 2.1)
CONDITIONS TO THE CLOSING; AMENDMENT, WAIVER AND TERMINATION
CONDITIONS TO THE CLOSING. The obligations of the Company and Securicor
Communications to consummate the transactions contemplated by the Stock Purchase
Agreement are subject to, among other things, (a) the receipt of all consents
and waivers required to be obtained by each of the Company and Securicor
Communications with respect to the transactions contemplated by the Stock
Purchase Agreement and certain related documents, (b) the absence of any
threatened or instituted litigation (or similar proceedings) or any claim or
demand made against Securicor Communications, Radiocoms or the Company seeking
to restrain or prohibit, or to obtain damages with respect to, the consummation
of any of the transactions contemplated by the Stock Purchase Agreement or the
Amended Sale and License Agreement, and the absence of any order, injunction,
judgment, decree, ruling, writ, assessment or arbitration award issued by any
governmental body of competent jurisdiction that restrains, enjoins or otherwise
prohibits the consummation of any such transactions, (c) the expiration of the
waiting period under the HSR Act, or the early termination of such waiting
period, (d) the receipt of all approvals required to be obtained by Securicor
Communications, the Company or MIC from any governmental body with respect to
any of the transactions contemplated by the Stock Purchase Agreement and the
Amended Sale and License Agreement, (e) the receipt at the Annual Meeting of the
requisite vote of the holders of the issued and outstanding shares of Company
Common Stock to authorize the Stock Purchase Agreement, the Amended Sale and
License Agreement (if necessary) and the consummation of each of the
transactions contemplated thereby (as necessary), (f) the consummation of the
transactions contemplated by the Sale and License Agreement prior to or
simultaneously with the consummation of the transactions contemplated by the
Stock Purchase Agreement, and (g) the absence of any action by Fahnestock to
withdraw or modify its fairness opinion in any material respect. (Section 7.1)
In addition, the obligations of the Company to consummate the transactions
contemplated by the Stock Purchase Agreement are subject to (a) except as
expressly permitted by the Stock Purchase Agreement, (i) the truth and accuracy
of Securicor Communications' representations and warranties as of the date of
the Stock Purchase Agreement, (ii) the truth and accuracy at the Closing Date of
all representations and warranties of Securicor Communications that are
qualified as to materiality and (iii) the truth and accuracy at the Closing
Date, in all material respects, of the representations and warranties of
Securicor Communications that are not qualified as to materiality, (b) the
performance of and compliance in all material respects with all obligations and
covenants required by the Stock Purchase Agreement to be performed or complied
with by Securicor Communications on or prior to the Closing Date, (c) the
Company's receipt of certificates representing the Radiocoms Stock, free and
clear of any and all liens or encumbrances, (d) the absence since the date of
the Stock Purchase Agreement of any material adverse change with respect to
Radiocoms and its subsidiaries, taken as a whole, (e) the execution by Securicor
Communications of a loan agreement (the "Loan Agreement") to make available to
the Company $15,000,000 of financing (see "-- Terms of the
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Delayed Drawdown Senior Subordinated Loan"), (f) the receipt by the Company of
an agreement by Securicor Communications to provide certain support services to
Radiocoms and its subsidiaries after the Closing Date (the "Support Services
Agreement") (see " -- Terms of the Support Services Agreement"), (g) the
cancellation of a certain note in the principal amount of $10,000,000 issued by
Radiocoms to Securicor Communications and (h) the execution by Securicor
Communications of a certain registration rights agreement (the "-- Terms of the
Registration Rights Agreement") with the Company (see "-- Terms of Registration
Rights Agreement.") (Section 7.2)
In addition, the obligations of Securicor Communications to consummate the
transactions contemplated by the Stock Purchase Agreement are subject to (a)
except as expressly permitted by the Stock Purchase Agreement, (i) the truth and
accuracy of the Company's representations and warranties as of the date of the
Stock Purchase Agreement, (ii) the truth and accuracy at the Closing Date of all
representations and warranties of the Company that are qualified as to
materiality and (iii) the truth and accuracy at the Closing Date, in all
material respects, of the representations and warranties of the Company that are
not qualified as to materiality, (b) the performance of and compliance in all
material respect with all obligations and covenants required by the Stock
Purchase Agreement to be performed or complied with by the Company on or prior
to the Closing Date, (c) the receipt by Securicor Communications of certificates
representing 25,000,000 shares of Company Common Stock, free and clear of any
and all liens or encumbrances, and the approval of such shares for quotation on
the Nasdaq Small Cap Market, subject to official notice of issuance, (d) the
execution and delivery by the Company of the Registration Rights Agreement, (e)
the due election and qualification to the Company's board of directors of the
persons designated by Securicor Communications, and the removal or resignation
of any other members of the Company's board of directors designated by Securicor
Communications, (f) the absence of any material adverse change with respect to
the Company or MIC since the date of the Stock Purchase Agreement, (g) the
execution by the Company of a warrant agreement (the "Warrant Agreement") in
favor of Securicor Communications providing for the issuance of the INTEK
Warrants for 1% of the Company's fully diluted common equity, determined as of
the Closing Date (see "-- Terms of Warrant Agreement"), (h) the management by
the Company, as of the Closing Date, of at least 162 constructed 220-222 MHz LMR
systems pursuant to valid and subsisting management agreements, including at
least 73 constructed systems under Category I management and 26 constructed
systems under Category II management, pursuant in each case to valid and
subsisting management and option agreements, which constructed systems shall
have been validly constructed at primary transmitter sites licensed by the FCC
pursuant to an order that is not subject to reconsideration or appeal and for
which the time for the request for any such reconsideration or appeal has
expired, (i) the absence of any material pending or threatened litigation (or
similar proceedings), or any claims or litigation (or similar proceedings) that
are reasonably likely to be asserted, against the Company or its subsidiaries
with respect to the Company's performance under any of its management agreements
or other agreements concerning 220 MHz band radio systems, including its
construction or failure to construct any such systems in accordance with the
FCC's rules and regulations or the terms of any FCC license, (j) the delivery by
the Company of a valid, binding and fully-executed termination and release of a
certain letter of understanding entered into between Roamer One and certain
other parties on January 28, 1994, (k) the delivery by the Company of an
amendment to a certain management and option agreement adding designated
stations to the list of land mobile radio systems subject to management by (and
under option to) Roamer One thereunder, and (l) the receipt by Securicor
Communications from the United Kingdom Inland Revenue of advance clearance under
Section 138 of the Taxation of Chargeable Gains Act of 1992 to the effect that
the consummation of the transactions contemplated by the Stock Purchase
Agreement do not give rise to a capital gain on the transfer of the Radiocoms
Stock or the receipt of the shares of Company Common Stock to be issued to
Securicor Communications thereunder. (Section 7.3)
WAIVER OF CONDITIONS; AMENDMENT. Each of Securicor Communications and the
Company may waive the satisfaction of conditions to its obligations under the
Stock Purchase Agreement or extend the time for performance of any of the
obligations or other acts of the other party. Such waivers or extensions may be
made only by written instrument signed by the party against whom enforcement of
such waiver or extension is sought. The Stock Purchase Agreement may be amended
at any time prior to the Closing Date by written instrument signed by the party
against whom enforcement of such amendment is sought. (Section 10.5)
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TERMINATION. The Stock Purchase Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the Company's
stockholders: (a) by mutual consent of the Company and Securicor Communications;
(b) at the election of the Company or Securicor Communications after December
31, 1996, if the Closing shall not have occurred by the close of business on
such date (provided that the terminating party is not in default of any of its
obligations under the Stock Purchase Agreement); (c) by either the Company or
Securicor Communications if any governmental body shall have issued a final
nonappealable order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by the Stock Purchase Agreement or the Sale and
License Agreement; (d) by Securicor Communications, if (i) there shall have been
a breach of any representation or warranty on the part of the Company as set
forth in the Stock Purchase Agreement, or if any representation or warranty of
the Company shall have become untrue, and in either case such breach or failure
would be incapable of being cured by December 31, 1996 (or as otherwise
extended) or (ii) there shall have been a breach by the Company of any of its
covenants or agreements having a material adverse effect on the Company and its
subsidiaries, taken as a whole, or materially adversely affecting (or materially
delaying) the consummation of the transactions contemplated by the Stock
Purchase Agreement or the Sale and License Agreement, and the Company has not
cured such breach within ten business days after notice by Securicor
Communications thereof, provided that Securicor Communications has not breached
any of its obligations under the Stock Purchase Agreement; (e) by the Company,
if (i) there shall have been a breach of any representation or warranty on the
part of Securicor Communications set forth in the Stock Purchase Agreement or if
any representation or warranty of Securicor Communications shall have become
untrue, and in either case such breach or failure would be incapable of being
cured by December 31, 1996 (or as otherwise extended) or (ii) there shall have
been a breach by Securicor Communications of its covenants or agreements under
the Stock Purchase Agreement having a material adverse effect on the Business or
Radiocoms and its subsidiaries, taken as a whole, or materially adversely
affecting (or materially delaying) the consummation of the transactions
contemplated by the Stock Purchase Agreement, and Securicor Communications has
not cured such breach within ten business days after notice by the Company
thereof, provided that the Company has not breached any of its obligations under
the Stock Purchase Agreement; (f) by Securicor Communications, if the Company's
Board of Directors shall have withdrawn, modified or changed its approval or
recommendation of the Stock Purchase Agreement and the transactions contemplated
thereby, or shall have failed to give such recommendation or to call, give
notice of, convene or hold the Annual Meeting as required by the Stock Purchase
Agreement; (g) by the Company, if the Company's board of directors or a special
committee thereof, in its good faith judgment, after consultation with
independent legal counsel, shall have withdrawn, modified or changed its
approval or recommendation of the Purchase Agreement and the transactions
contemplated thereby (having determined that it is necessary to do so in order
to comply with its fiduciary duties to stockholders under applicable law); (h)
by the Company or Securicor Communications if the requisite vote of the
Company's stockholders is not obtained at the Annual Meeting; or (i) by
Securicor Communications if at the time of closing, the closing conditions
described above regarding the number of constructed systems to be managed by the
Company and the absence of material pending or threatened litigation (or claims
or litigation reasonably likely to be asserted) against the Company or its
subsidiaries with respect to its performance under any of its management
agreements or other agreements concerning any 220-222 MHz band radio system are
not satisfied. See " -- Conditions to the Closing." (Section 3.2)
The Stock Purchase Agreement provides that, in the event of its termination,
each of the parties shall be relieved of its duties and obligations thereunder
after the date of such termination, and such termination shall be without
liability to the Company, Radiocoms or Securicor Communications, except (a) for
liability for breach of the Stock Purchase Agreement and (b) the continuing
enforceability of certain provisions of the Stock Purchase Agreement relating to
expense reimbursement by the Company to Securicor Communications under certain
circumstances, the allocation of expenses between the parties and choice of law.
See " -- Fees and Expenses; Expense Reimbursement." (Section 3.5)
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FEES AND EXPENSES; EXPENSE REIMBURSEMENT
Except as set forth below, each of the Company and Securicor Communications
has agreed to bear its own expenses in connection with the negotiation and
execution of the Stock Purchase Agreement, each other agreement, document of
instrument contemplated thereby and the consummation of the transactions
contemplated by the foregoing. (Section 10.3)
The filing fees with respect to the reports, notifications or other
information required under the HSR Act with respect to the transactions
contemplated by the Stock Purchase Agreement and the Amended Sale and License
Agreement are being borne by the Company. (Section 6.4)
Securicor Communications shall be liable for and shall pay (and shall
indemnify and hold harmless the Company against) all sales, use, stamp,
documentary, filing, recording, transfer or similar fees or taxes or
governmental charges as levied by any taxing authority or governmental agency in
connection with the transfer of the Radiocoms Stock contemplated by the Stock
Purchase Agreement or any recapitalization of Radiocoms or any transfer to
Radiocoms of assets or shares that takes place in contemplation of the Stock
Purchase Agreement. See " -- Certain Covenants -- Recapitalization; Refinancing
of Intercompany Debt." The Company likewise shall be liable for and shall pay
(and shall indemnify and hold harmless Securicor Communications against) any
such fees, taxes or governmental charges as levied by any taxing authority or
governmental agency in connection with the issuance of the 25,000,000 shares of
Company Common Stock contemplated by the Stock Purchase Agreement. (Section 6.9)
If the Stock Purchase Agreement is terminated by Securicor Communications or
the Company because the Company's Board of Directors shall have withdrawn,
modified or changed its recommendation or approval of the Stock Purchase
Agreement and the transactions contemplated thereby (or, in the case of a
termination by Securicor Communications, shall have failed to give such
recommendation or to call, give notice of, convene or hold a Stockholders
Meeting in accordance with the terms of the Stock Purchase Agreement), the
Company shall under certain circumstances be obligated to reimburse Securicor
Communications and its affiliates for all documented out-of-pocket fees and
expenses actually and reasonably incurred by them (or on their behalf) in
connection with all of the transactions contemplated by the Stock Purchase
Agreement (including, without limitation, fees payable to investment bankers,
counsel to Securicor Communications and its affiliates and accountants' fees).
Such expense reimbursement shall be payable only if (a)(i) after the date of the
Stock Purchase Agreement and prior to the date of such termination, the Company
(or its agents) had negotiations with a view towards a Third Party Acquisition
(as hereinafter defined) or furnished information to a Third-Party (as
hereinafter defined) with a view towards a Third-Party Acquisition and (ii) the
Company consummates a Third-Party Acquisition within 12 months following any
such termination, (b)(i) after the date of the Stock Purchase Agreement and
prior to such termination, a Third-Party (other than a Third-Party referred to
in clause (a)(i)) submitted a proposal for a Third-Party Acquisition to the
Company (or its agents), or expressed an interest in a Third-Party Acquisition
to the Company (or its agents) and (ii) the Company consummates a Third-Party
Acquisition with such Third-Party or an affiliate thereof within 12 months
following any such termination or (c) the Company accepted a proposal for a
Third-Party Acquisition on or prior to the date of such termination.
For purposes of the Stock Purchase Agreement, "Third-Party Acquisition"
means the occurrence of any of the following events: (a) the acquisition of the
Company by merger or otherwise by any person or entity other than Securicor
Communications or any affiliate thereof (a "Third-Party"); (b) the acquisition
by a Third-Party of more than 50% of the total assets of the Company and its
subsidiaries, taken as a whole; or (c) the acquisition by the Third-Party of 50%
or more of the outstanding shares of the Company Common Stock. (Section 3.5)
CERTAIN COVENANTS
The Stock Purchase Agreement contains numerous covenants and agreements,
certain of which are summarized below.
RECAPITALIZATION; REFINANCING OF INTERCOMPANY DEBT. As of the date of the
Stock Purchase Agreement, the capital stock of Radiocoms consisted of 100,000
ordinary shares, L1.00 par value per share (the "Existing Shares"). Securicor
Communications has represented that the capital stock of Radiocoms, as of the
Closing
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Date, will consist of the Radiocoms Stock and the Preferred Shares, thus
necessitating a recapitalization of Radiocoms prior to the Closing Date.
Pursuant to the Stock Purchase Agreement, prior to the Closing Date, Securicor
Communications is required to take all actions necessary so that (a) the
Existing Shares shall be canceled and the Radiocoms Stock shall be issued,
substantially on the terms disclosed to the Company prior to the date of the
Stock Purchase Agreement and (b) any debt owed by Radiocoms and any of its
subsidiaries to Securicor Communications and its affiliates at the Closing Date
is refinanced such that, after giving effect to such refinancing and the
issuance of the Preferred Shares in connection therewith, the aggregate
liquidation preference of the Preferred Shares, together with all debt
outstanding of Radiocoms and its subsidiaries, in each case at the Closing Date,
will not exceed $22 million. Any Preferred Shares issued to Securicor
Communications or its affiliates in connection with the recapitalization shall
have the terms and conditions hereinafter described (see "--Terms of the
Preferred Shares"); PROVIDED that in no event shall the aggregate liquidation
preference of the Preferred Shares so issued to Securicor Communications in
connection with such refinancing exceed the amount of such indebtedness of
Radiocoms and its subsidiaries to Securicor Communications and its affiliates
prior to such refinancing. All debt so owed by Radiocoms and its subsidiaries to
Securicor Communications and its affiliates shall be satisfied and canceled as
of the Closing. (Section 6.11)
TRANSFER OF THE BUSINESS TO RADIOCOMS AND ITS SUBSIDIARIES. Prior to
Closing, some portions of the Radiocoms Business may be conducted by affiliates
of Radiocoms ("Relevant Affiliates"), rather than by Radiocoms and its
subsidiaries. Pursuant to the Stock Purchase Agreement, prior to the Closing,
Securicor Communications shall (a) cause its Relevant Affiliates, if any, to
transfer any and all of their respective right, title and interest in any parts
of, or benefits of or rights in, the Radiocoms Business currently not held or
owned by Radiocoms or its subsidiaries to Radiocoms or one of its subsidiaries
in such manner so as to ensure that Radiocoms and its subsidiaries after the
Closing will enjoy and have all rights, benefits, operations and assets of the
Radiocoms Business without any material diminution of the value or utility of
any such rights, benefits, operations and assets; and (b) transfer or cause to
be transferred to Radiocoms all of the issued and outstanding capital stock of
its Relevant Affiliates, if any. (Section 6.17)
CONDUCT OF THE COMPANY'S AND RADIOCOMS' RESPECTIVE BUSINESSES PENDING THE
CLOSING. Pursuant to the Stock Purchase Agreement, the Company and Securicor
Communications have agreed that, during the period from the date of the Stock
Purchase Agreement until the Closing Date, except as expressly contemplated by
the Stock Purchase Agreement or with the prior written unanimous consent of a
committee (the "Representative Committee") composed of one Representative of
each of Securicor Communications, INTEK and SCL (which consent shall not be
unreasonably withheld), Securicor Communications shall cause Radiocoms and its
subsidiaries (and, to the extent they are engaged in the Radiocoms Business, any
Relevant Affiliates) to, and the Company shall, and shall cause its subsidiaries
to: (a) conduct its business only in the ordinary course consistent with past
practice; (b) use its best efforts to (i) preserve its present business
operations, organization (including, without limitation, management and the
sales force) and goodwill, (ii) preserve its present relationship with persons
having business dealings with it and (iii) take such actions as may be
reasonably necessary to maintain in good standing all FCC licenses with respect
to any 220 MHz LMR systems or Department of Trade and Industry ("DTI") licenses,
permits or authorizations, as applicable; (c) maintain (i) all its assets and
properties in their current condition, ordinary wear and tear excepted, and (ii)
insurance upon all of its properties and assets in such amounts and of such
kinds comparable to that in effect on the date of the Stock Purchase Agreement;
(d) (i) maintain its books, accounts and records in the ordinary course of
business consistent with past practices, (ii) continue to collect accounts
receivable and pay accounts payable utilizing normal procedures and without
discounting or accelerating payment of such accounts (other than in the ordinary
course of business), and (iii) comply with all contractual and other obligations
applicable to its operations; and (e) comply in all material respects with
applicable laws. (Section 6.1)
In addition, except as otherwise expressly contemplated by the Stock
Purchase Agreement or with the prior unanimous written consent of the
Representative Committee (which consent shall not be unreasonably withheld),
prior to the Closing Date, Securicor Communications shall cause Radiocoms and
its subsidiaries and, to the extent that it is engaged in the Radiocoms
Business, any Relevant Affiliate not to, and the
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Company shall not, and shall cause its subsidiaries not to: (a) declare, set
aside, make or pay any dividend or other distribution in respect of its capital
stock or repurchase, redeem or otherwise acquire any outstanding shares of the
capital stock or other securities of, or other ownership interests in, itself or
any of its subsidiaries, except for the cancellation of the Existing Shares and
the issuance of the Deferred Shares in lieu thereof (see "--Recapitalization;
Refinancing of Intercompany Debt"); PROVIDED, HOWEVER, that any wholly owned
subsidiaries of Radiocoms or the Company shall be permitted to declare and pay
dividends to Radiocoms or the Company, as applicable, to the extent that funds
are legally available therefor; (b) transfer, issue, sell or dispose of any
shares of its capital stock or other securities of itself or its subsidiaries or
grant options, warrants, calls or other rights to purchase or otherwise acquire
shares of the capital stock or other securities of itself or any of its
subsidiaries; PROVIDED, HOWEVER, that (i) the Company may issue and sell up to
1,000,000 shares of Company Common Stock and may, subject in each instance to
the prior unanimous written consent of the Committee, which approval will not be
unreasonably withheld, issue up to an aggregate of 1,500,000 shares of Company
Common Stock to acquire interests in additional FCC licenses to be used in the
operation or development of its business, (ii) any such person may issue debt
securities as permitted by clause (f), and (iii) Securicor Communications may
cause shares of any Relevant Affiliate owning any part of the Radiocoms Business
to be transferred to Radiocoms and its subsidiaries, may cause Radiocoms to
issue the Deferred Shares and up to a maximum of 20,000 Preferred Shares (having
a liquidation preference not in excess of $20,000,000) to Securicor
Communications; (c) effect any recapitalization, reclassification, stock split
or like change in its capitalization except, in the case of Securicor
Communications, as may be required to authorize the issuance of the Deferred
Shares and the Preferred Shares; (d) amend its certificate of incorporation,
bylaws, memorandum or articles of association or similar organizational
documents, except that Securicor Communications may cause Radiocoms to amend its
Memorandum of Association and Articles of Association solely for the purposes of
authorizing the Radiocoms Stock and the Preferred Shares as contemplated by the
Stock Purchase Agreement, or changing the name of Radiocoms so as to delete the
word "Securicor" therefrom, and the Company may amend its certificate of
incorporation to increase the number of authorized shares as necessary to permit
the Company to consummate the transactions contemplated hereby; (e) (i)
materially increase the annual level of compensation of any employee, (ii)
increase the annual level of compensation payable or to become payable by it or
any of its subsidiaries to any of their respective executive officers, (iii)
grant any bonus, benefit or other direct or indirect compensation to any
employee, director or consultant, other than in the ordinary course consistent
with past practice and in such amounts as are fully reserved against in the
financial statements delivered by such party pursuant to the Stock Purchase
Agreement, (iv) increase the coverage or benefits available under any (or create
any new) severance pay, termination pay, vacation pay, company awards, salary
continuation for disability, sick leave, deferred compensation, bonus or other
incentive compensation, insurance, pension or other employee benefit plan or
arrangement made to, for, or with any of its or its subsidiaries' directors,
officers, employees, agents or representatives or otherwise modify or amend or
terminate any such plan or arrangement or (v) enter into any employment,
deferred compensation, severance, consulting, non-competition or similar
agreement (or amend any such agreement) to which it or any of its subsidiaries
is a party or involving a director, officer or employee of it or any of its
subsidiaries in his or her capacity as a director, officer or employee; (f)
except (i) for trade payables and (ii) for pledges of assets and indebtedness
for borrowed money which do not exceed, individually or in the aggregate,
$500,000 (it being understood that (A) such amount shall not include
indebtedness existing or assets pledged prior to the date of the Stock Purchase
Agreement and (B) the transaction value of any asset pledges shall be deemed to
be equal to the fair market value of the assets pledged in such transaction),
borrow monies for any reason or draw down on any line of credit or debt
obligation, or become the guarantor, surety, endorser or otherwise liable for
any debt, obligation or liability (contingent or otherwise) of any other person;
PROVIDED, HOWEVER, that, subject to the unanimous prior written consent of the
Representative Committee, which consent will not be unreasonably withheld, the
Company may issue an unsecured debenture, which shall be a general obligation of
the Company, in an aggregate principal amount of up to $2,500,000 on such terms
as may be reasonably determined by the Company; (g) except as may be permitted
pursuant to clause (f) above, subject to any lien (except for leases that do not
materially impair the use of the property subject thereto in their respective
businesses as presently conducted) any of its properties or assets (whether
tangible or intangible); (h) acquire any material properties or assets (other
than, in the case of the Company, FCC licenses as
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contemplated by clause (b) above) or sell, assign, transfer, convey, lease or
otherwise dispose of any of its FCC authorizations, FCC licenses, DTI licenses
or material properties or assets, or its rights to any of the foregoing or to
any FCC licenses issued to or held by other persons (except for fair
consideration in the ordinary course of business consistent with past practice),
or, in the case of the Company, take any action, other than in the exercise of
its reasonable business judgment, that causes, or could reasonably be expected
to cause, the FCC licensees with respect to any system to cancel, assign,
transfer or otherwise dispose of their FCC license in a manner that would be
adverse to the Company; (i) cancel or compromise any debt or claim or waive or
release any material right except in the ordinary course of business consistent
with past practice, except, in the case of Radiocoms for cancellations of
intercompany indebtedness contemplated by the Stock Purchase Agreement; (j)
other than, in the case of the Company, capital expenditures necessary for the
build-out of the 220 MHz LMR systems pursuant to the Company's contractual
obligations, enter into any commitment for capital expenditures in excess of
$20,000 for any individual commitment and $100,000 for all commitments in the
aggregate; (k) enter into, modify or terminate any labor or collective
bargaining agreement or, through negotiation or otherwise, make any commitment
or incur any liability to any labor organization; (l) introduce any material
change with respect to its operations, including, without limitation, any
material change in its "roll-out" plans or the types, nature, composition or
quality of its products or services, or, other than in the ordinary course of
business, make any material change in product specifications or prices or terms
of distributions of such products; (m) enter into any transaction or make or
enter into any contract which by reason of its size or otherwise is not in the
ordinary course of business consistent with past practice; (n) enter into or
agree to enter into any merger or consolidation with any corporation or other
entity, or engage in any new business or invest in, make a loan, advance or
capital contribution to, or otherwise acquire the securities of any other person
except that Securicor Communications may engage in such transactions solely to
the extent required to transfer any part of the Radiocoms Business to Radiocoms
and its subsidiaries; (o) transfer any funds or assets to any of its affiliates,
which funds and assets are, in the aggregate, worth in excess of $500,000,
except for the purchase of goods and services from any such affiliate in the
ordinary course of business at the fair market value for such goods and services
and transactions solely to the extent required to transfer any part of the
Radiocoms Business to Radiocoms and its subsidiaries; or (p) agree to do
anything prohibited by the foregoing covenants or anything which would make any
of the representations and warranties of the Company or Securicor Communications
in the Stock Purchase Agreement, or any of the other documents contemplated by
the Stock Purchase Agreement or to be executed in connection with the
consummation of the transactions contemplated thereby, untrue or incorrect in
any material respect as of any time through and including the Closing Date. The
Company and Securicor have agreed that the consummation of the Midland
Transaction shall not be deemed to violate any of the foregoing covenants or
obligations, as set forth in the Stock Purchase Agreement. (Section 6.2)
NO SOLICITATION. In the Stock Purchase Agreement, the Company agreed that
it, its affiliates and their respective officers, directors, employees,
representatives and agents would immediately cease any existing discussions or
negotiations, if any, with any parties conducted prior to the date of the Stock
Purchase Agreement with respect to (except as otherwise expressly permitted by
the Stock Purchase Agreement) any acquisition of all or any material portion of
the assets of, or (except as otherwise expressly permitted by the Stock Purchase
Agreement) any equity interest in, the Company or its subsidiaries or any
business combination with the Company or its subsidiaries. Under the terms of
the Stock Purchase Agreement, the Company may, directly or indirectly, furnish
information and access, in each case only in response to unsolicited requests
therefor, to any corporation, partnership, person or other entity or group
pursuant to confidentiality agreements, and may participate in discussions and
negotiate with such entity or group concerning any merger, sale of assets, sale
of shares of capital stock or similar transaction involving the Company or any
subsidiary or division of the Company, if such entity or group has submitted a
written proposal to the Company relating to any such transaction and the
Company's board of directors by a majority vote has determined in its good faith
judgment, after consultation with independent legal counsel, that it is
necessary to do so to comply with its fiduciary duties to stockholders under
applicable law. The Company's board of directors must provide a copy of any such
written proposal and a summary of any oral proposal to Securicor Communications
immediately after receipt thereof and thereafter keep Securicor Communications
promptly advised of any material development with respect thereto. Except as set
forth above, neither the
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Company nor any of its affiliates shall, nor shall the Company authorize or
permit any of its or their respective officers, directors, employees,
representatives or agents to, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Securicor Communications or its affiliates or associates) concerning
any merger, sale of assets, sale of shares of capital stock or similar
transaction involving the Company or any subsidiary or division of the Company.
Notwithstanding the foregoing, (a) nothing in the Stock Purchase Agreement shall
prevent the Company's board of directors from taking, and disclosing to the
Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Securities Exchange Act of 1934, as amended, with regard
to any tender offer, and (b) nothing in the Stock Purchase Agreement shall
prevent the Company's Board of Directors from making such disclosure to the
Company's stockholders as, in the good faith judgment of the Company's Board of
Directors, after consultation with independent legal counsel, is necessary to
comply with its fiduciary duties to stockholders under applicable law. (Section
6.10)
NON-COMPETE. In the Stock Purchase Agreement, Securicor Communications has
agreed that for a period of three (3) years following the Closing, neither
Securicor plc nor its direct or indirect subsidiaries (other than the Company
and its subsidiaries) will, anywhere in the world, (a) sell, manufacture,
distribute or otherwise transfer "land mobile radio" products or (b) engage in
the provision of services related to the construction or integration of land
mobile radio product systems. Such covenant does not apply, however, (i) to the
extent that any law, regulation or order of any governmental body would be
violated thereby, (ii) to the business or operations of Dopra, Datatrak,
Cellular or TrakBak as conducted or proposed to be conducted as of the date of
the Stock Purchase Agreement or as the reasonable expansion and growth of such
businesses and operations may require in order to retain their competitiveness
in the marketplace. The Stock Purchase Agreement provides that, if Securicor
Communications shall sell, transfer or otherwise dispose of Dopra, Datatrak,
Cellular or TrakBak (whether by merger, sale of stock, sale of all or
substantially all of the business and assets or otherwise) in a transaction with
a non-affiliate, the non-competition provisions of the Stock Purchase Agreement
shall cease to apply to the business so sold, transferred or otherwise disposed
of. (Section 6.13)
PROXY STATEMENT; STOCKHOLDERS' MEETING. The Company has agreed to call a
meeting of the holders of the Company Common Stock to approve the issuance of
25,000,000 shares of Company Common Stock pursuant to the Stock Purchase
Agreement and to use its best efforts to cause this Proxy Statement to be mailed
to its Stockholders at such time and in such manner as permits such meeting to
be held as promptly as practicable. The Company has agreed that, through its
Board of Directors, it will recommend to its Stockholders approval of the
foregoing; PROVIDED, HOWEVER, that if the Company's Board of Directors
determines, in its good faith judgment after consultation with independent legal
counsel, that it is necessary to do so to comply with its fiduciary duties to
stockholders under applicable law, the Company's Board of Directors may withdraw
or modify such recommendation. No amendment or supplement to this Proxy
Statement may be made by the Company without the prior written approval of
Securicor Communications unless the Company determines such amendment or
supplement is required by law. (Section 6.3)
CERTAIN FCC MATTERS. During the period from the date of the Stock Purchase
Agreement to the earlier of the Closing Date or the termination of the Stock
Purchase Agreement, the Company has agreed that it will diligently pursue
appeals of the denial by the FCC of any request by the Company or its affiliates
for the modification of any FCC licenses and will keep Securicor Communications
informed with respect to any material developments with respect to such appeals.
In addition, the Company and Securicor Communications have agreed to cooperate
in the preparation, filing and prosecution of a request to the FCC seeking a
waiver of Section 310(b)(4) of the Communications Act of 1934, as amended, to
permit the Company upon Closing to acquire such FCC licenses as may be agreed by
the parties and to participate in such 220 MHz Band spectrum auctions as may be
conducted by the FCC. (Section 6.14)
CERTAIN TAX MATTERS. Pursuant to the Stock Purchase Agreement, Securicor
Communications has agreed (a) to take all actions and make any necessary
elections so that, to the maximum extent permissible under applicable law,
Securicor Communications shall obtain the tax benefits in the U.K. and other
jurisdictions attributable to Radiocoms and its subsidiaries for the tax year
ending September 30, 1996 and
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any tax year thereafter to the extent permitted by law and (b) promptly after
the relevant tax returns are filed with the applicable taxing authorities, to
transfer funds to Radiocoms equal to the cash value of such tax benefits to
Securicor Communications. (Section 6.9)
INDEMNIFICATION OF CERTAIN PERSONS; DIRECTORS' AND OFFICERS' INSURANCE. For
a period of three years after the Closing Date, Securicor Communications has
agreed, to the extent that it remains the majority stockholder of the Company
during such period, to cause the Company to maintain an extension of coverage of
the Company's policy of directors' and officers' liability insurance maintained
by the Company for the benefit of those persons who are covered by such policy
at the time of the Closing with respect to matters occurring prior to the
Closing Date, provided that in no event shall the Company be required to expend
more than $100,000 per annum to maintain such insurance. In addition, Securicor
Communications has agreed that for a period of six years after the Closing Date,
it shall, to the extent that it remains the majority stockholder of the Company,
(a) cause the bylaws of the Company to continue to contain the provisions with
respect to indemnification which are set forth in such bylaws as of the date of
the Stock Purchase Agreement, and (b) not permit such provisions to be amended,
repealed or otherwise modified in any manner that would adversely affect the
rights thereunder of individuals who at the Closing Date were directors,
officers, employees or agents of the Company, unless such modification is
required by applicable law. (Section 6.15)
CERTAIN OTHER COVENANTS. In addition to the covenants described above, the
Company and Securicor Communications have agreed, among other things, (a) to use
their best efforts, and to cooperate with each other, to obtain at the earliest
practicable date all consents and approvals required to consummate the
transactions contemplated by the Stock Purchase Agreement (provided that neither
party is obligated to pay consideration to any party from whom consent or
approval is requested), (b) to use their best efforts to (i) take all actions
necessary or appropriate to consummate the transactions contemplated by the
Stock Purchase Agreement and (ii) cause the fulfillment at the earliest
practicable date of all of the conditions to their respective obligations to
consummate the transactions contemplated by the Stock Purchase Agreement, (c) to
preserve records relating to the Radiocoms Business for a period of three years
from the Closing Date and to make such records available to each other as
described in the Stock Purchase Agreement, (d) to refrain from issuing any press
release or public announcement regarding the Stock Purchase Agreement or the
transactions contemplated thereby, subject to certain exceptions, without the
written approval of the other party and (e) to update the disclosure set forth
in their respective disclosure letters during the period from the date of the
Stock Purchase Agreement to the Closing Date. (Sections 6.3, 6.4, 6.5, 6.6, 6.7,
6.12)
The Company also has agreed (a) to use its reasonable best efforts to (i)
take all actions necessary or appropriate to consummate the transactions
contemplated by the Sale and License Agreement, (ii) cause the fulfillment at
the earliest practicable date of all of the conditions to its obligations to
consummate such transactions and (b) to use its best efforts to assure that,
prior to the Closing, the 25,000,000 shares of Company Common Stock to be issued
to Securicor Communications have been approved for quotation on the Nasdaq Small
Cap Stock Market, subject to official notice of issuance. (Section 6.5)
INDEMNIFICATION
INDEMNIFICATION BY SECURICOR COMMUNICATIONS. In the Stock Purchase
Agreement, Securicor Communications has agreed to indemnify and hold the
Company, Radiocoms, and their respective directors, officers, employees,
affiliates, agents, successors and assigns (collectively, the "Company
Indemnified Parties") harmless from and against: (a) any and all losses,
liabilities, obligations, damages, costs and expenses based upon, attributable
to or resulting from the failure of any representation or warranty of Securicor
Communications to be true and correct in all respects as of the date made; (b)
any and all losses, liabilities, obligations, damages, costs and expenses based
upon, attributable to or resulting from any and all liabilities of Radiocoms and
its subsidiaries or affiliates that are not directly related to the Radiocoms
Business; (c) any and all losses, liabilities, obligations, damages, costs and
expenses based upon, attributable to or resulting from any breach by Securicor
Communications of any of its covenants; (d) any and all losses, liabilities,
obligations, damages, costs and expenses based upon, attributable to or
resulting from the transfer of the EFJ Shares and the EFJ Warrant to Radiocoms
(including, without limitation, any tax liability occurring, on redemption of
the EFJ Shares or on their use to redeem the Preferred Shares, by reason of the
tax basis of the EFJ Shares and the EFJ Warrant being considered to be less than
$10,000,000, the amount of the
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intercompany note issued by Radiocoms in connection with the acquisition
thereof); and (e) any and all notices, actions, suits, proceedings, claims,
demands, assessments, judgments, costs, penalties and reasonable expenses,
including reasonable attorneys' and other professionals' fees and disbursements
(collectively, "Expenses") incident to any and all losses, liabilities,
obligations, damages, costs and expenses with respect to which indemnification
is provided hereunder (collectively, "Losses"). (Section 9.1)
The indemnification obligations of Securicor Communications are guaranteed
by its parent corporation, Security Services plc.
INDEMNIFICATION BY THE COMPANY. The Company has agreed to indemnify and
hold Securicor Communications and its respective directors, officers, employees,
affiliates, agents, successors and assigns (collectively, the "Securicor
Indemnified Parties") harmless from and against: (a) any and all Losses based
upon, attributable to or resulting from the failure of any representation or
warranty of the Company to be true and correct in all respects as of the date
made; (b) any and all Losses based upon, attributable to or resulting from any
breach by the Company of any of its covenants; (c) any and all Losses based
upon, attributable to or resulting from the failure of the property located at
5800 West Jefferson Boulevard, Los Angeles, California 90016 (the "Site") to
comply with any environmental law (including, without limitation, any
environmental clean-up costs, whether such environmental clean-up costs are
incurred by the Company voluntarily or in response to actions by governmental
bodies or other persons); PROVIDED, HOWEVER, (i) that, if the Site is sold by
the Company to a third-party in a bona fide transaction within one year
following the date of the Stock Purchase Agreement, the amount of such Losses
shall be deemed to be reduced by the amount, if any, by which the net proceeds
to the Company upon the sale of the Site exceed the net book value of the Site
as reflected on certain financial statements of the Company, and (ii) that, in
all other cases, the amount of such Losses shall be deemed to be reduced by
$250,000; (d) any and all Losses attributable to the Olympic Plastics Simplified
Employees Pension Plan referred to in the disclosure letter delivered to
Securicor Communications in connection with the Stock Purchase Agreement; and
(e) any and all Expenses incident to the foregoing. (Section 9.1)
LIMITATIONS ON INDEMNIFICATION FOR BREACHES OF REPRESENTATIONS AND
WARRANTIES. Under the Stock Purchase Agreement, an indemnifying party does not
have any liability for a breach of a representation or warranty contained in the
Stock Purchase Agreement unless the aggregate amount of Losses and Expenses to
the indemnified parties finally determined to arise thereunder based upon,
attributable to or resulting from the failure of its representations and
warranties to be true and correct exceeds $300,000 (the "Basket"). In such
event, the indemnifying party is required to pay the entire amount of such
Losses and Expenses without regard to the Basket.
Notwithstanding anything contained in the Stock Purchase Agreement to the
contrary, (a) the aggregate liability of Securicor Communications and its
affiliates for the breach of representations or warranties contained in the
Stock Purchase Agreement, except for any liability arising as a result of the
failure of its representations and warranties with respect to certain intangible
property matters to be true and correct, shall not exceed $6,000,000 (the
"Securicor Cap"), and (ii) the aggregate liability of the Company and its
affiliates for the breach of a representation or warranty contained in the Stock
Purchase Agreement, except for any liability arising as a result of the failure
of its representations and warranties with respect to certain FCC matters to be
true and correct, shall not exceed $4,000,000 (the "Company Cap"). (Section 9.2)
CERTAIN INDEMNIFICATION PROCEDURES. The indemnification obligations of the
Company and Securicor Communications are subject to certain customary procedures
regarding, among other things, the giving of notice with respect to claims for
indemnification and liquidated sums due and owing in respect of such claims, the
defense and settlement of any such claims and similar matters. The failure of
the indemnified party to give reasonably prompt notice of any claim shall not
release, waive or otherwise affect the indemnifying party's obligations with
respect thereto except to the extent that the indemnifying party can demonstrate
actual loss and prejudice as a result of such failure.
Except as set forth below, all payments of indemnification claims to an
indemnified party may be made by wire transfer of immediately available funds
within ten business days after the date of a notice of sums due and owing
provided by the indemnified party. In addition, except as set forth below, the
Company or
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Securicor Communications may elect, at its option, to pay any claims to an
indemnified party in shares of Company Common Stock, and the number of shares of
Company Common Stock to be transferred in satisfaction of such liabilities shall
be determined as set forth below.
In the event that the Company is the indemnifying party and Securicor
Communications is the indemnified party with respect to any claim, the amount of
such claim shall be increased as appropriate to reflect the percentage of the
Company's issued and outstanding capital stock that is owned beneficially or of
record by Securicor Communications as of the date of the notice of sums due and
owing provided by the indemnified party with respect to such claim. As an
example, if the Company must indemnify Securicor Communications for a claim
otherwise amounting to $100,000 and Securicor Communications owns 60% of the
Company's issued and outstanding capital stock at such time, the amount of
Securicor Communications' claim shall be deemed to be increased to $250,000 (the
amount which, when 60% of its value is subtracted, equals the original amount of
the claim).
Notwithstanding any other provision of the Stock Purchase Agreement to the
contrary, any liability of Securicor Communications with respect to the failure
of a representation or warranty to be true and correct, up to the Securicor Cap,
and any liability of the Company with respect to the failure of a representation
or warranty to be true and correct, up to the Company Cap, shall be payable
solely in shares of Company Common Stock. The number of shares of Company Common
Stock to be transferred with respect to any such liability being paid in shares
of Company Common Stock shall be determined as set forth in the following
paragraph.
In the event that the Company or Securicor Communications elects or is
required to pay any liabilities owing by it in shares of Company Common Stock,
the number of shares to be transferred with respect to any such liability shall
be determined by dividing the amount of such liability by the Applicable Average
Share Value. The "Applicable Average Share Value" shall be equal to the average
of the Daily Closing Prices for each of the ten business days immediately
preceding the date of the notice of sums due and owing provided by the
indemnified party; and the "Daily Closing Price" for each such day shall be the
average of the last bid and ask price of Company Common Stock quoted on such day
on the Nasdaq Small Cap Stock Market (or such exchange or quotation system as
shall report the trading prices of Company Common Stock at the relevant time).
(Section 9.3)
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and Securicor Communications shall survive the
execution and delivery of the Stock Purchase Agreement, and the Closing,
regardless of any investigation made by the parties thereto, for a period of 18
months following the Closing. Any claims or actions with respect to any
representation or warranty that survives the execution and delivery of the Stock
Purchase Agreement and the Closing shall terminate unless, within 18 months
after the Closing Date, written notice of such claims is given to the
indemnifying party or such actions are commenced. (Section 10.2)
EFJ
GENERAL. On March 14, 1995, Securicor Communications Inc., an affiliate of
Securicor Communications and Radiocoms ("Securicor Communications Inc."),
acquired the EFJ Securities consisting of the EFJ Warrant and the EFJ Shares.
Securicor Communications Inc. believed that acquiring the EFJ Securities would
facilitate the introduction of LMR products in U.S. markets through the
distribution channels available to EFJ. The total consideration paid for the EFJ
Securities was $10,000,000. The EFJ Securities were subsequently transferred to
Radiocoms. The EFJ Securities represent a minority interest in EFJ, and, thus,
Radiocoms does not exercise day-to-day operational control over EFJ. EFJ, a
Minnesota corporation, among other things, is engaged in the business of the
manufacture and distribution of LMR products in the U.S. and other markets and
is a competitor of Midland USA and Radiocoms in these markets. EFJ has not
participated in the preparation of this Proxy Statement.
TERMS OF THE EFJ WARRANT. The EFJ Warrant permits the holder to purchase up
to 291,790 shares of EFJ's common stock, $.01 par value per share (the "EFJ
Common Stock") representing 5% of the outstanding EFJ Common Stock as of March
14, 1995 (on a fully-diluted basis). As the holder of the EFJ Warrant,
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Radiocoms has the right to exercise the EFJ Warrant, in whole or in part, until
the expiration thereof on the earlier of (a) the date on which the EFJ Shares
are redeemed as described below (see "-- Terms of the EFJ Shares"), (b) the date
immediately following the date on which EFJ consummates a registered,
underwritten initial public offering of EFJ Common Stock ("EFJ's IPO Date") and
(c) March 14, 2005.
The per share exercise price equals the "Fair Market Value" of a share of
EFJ Common Stock on the date of exercise, as agreed by the holder and EFJ. If
EFJ and the holder shall not have agreed on the Fair Market Value within ten
days after the holder's delivery of its election to purchase EFJ Common Stock
under the EFJ Warrant, then EFJ may, or upon the holder's request EFJ shall,
appoint an investment banking firm to determine initially the Fair Market Value;
PROVIDED, HOWEVER, that the holder shall have the right to appoint a second
investment banking firm to review the work done by EFJ's appointee. The
investment banking firm appointed by EFJ shall conduct an independent assessment
of the Fair Market Value and deliver a written report setting forth its
determination to EFJ and the holder within 30 days of its appointment. The
holder shall then have a period of 15 days from receipt of such report to give
written notice to EFJ of any disagreement with the Fair Market Value as so
determined; if it fails to give such notice, the Fair Market Value as determined
by the investment banking firm appointed by EFJ shall be final and binding. If
the holder timely gives such notice of disagreement with the Fair Market Value,
then the investment banking firm appointed by EFJ and an investment banking firm
appointed by the holder (which shall be the firm, if any, appointed by the
holder to review the work done by EFJ's appointee) shall jointly appoint a third
investment banking firm, which shall then have an additional period of 30 days
to conduct an appraisal of the Fair Market Value and to submit a written report
setting forth its determination. The Fair Market Value as determined by such
third investment banking firm shall be conclusive and binding. The fees and
expenses of each investment banking firm appointed as described above shall be
borne equally by EFJ and the holder. The transfer of the EFJ Warrant is
restricted in accordance with the EFJ Shareholders Agreement (as defined below).
See "-- EFJ Shareholders Agreement." The EFJ Warrant contains certain customary
anti-dilution protections for the benefit of the holder.
TERMS OF THE EFJ SHARES. The purchase price for the EFJ Shares was
$9,999,900, or $10.80 per EFJ Share (the "EFJ Purchase Price"). Dividends on the
EFJ Shares accrue at the rate of 6% per annum based on the liquidation value of
the EFJ Shares, which is the sum of the EFJ Purchase Price and any accrued but
unpaid dividends on the EFJ Shares (the "EFJ Liquidation Value"). Dividends are
cumulative and accrue, on the basis of a 360-day year, whether or not such
dividends are declared and whether or not profits, surplus or other funds of EFJ
are legally available for the payment thereof. Except for dividends payable
solely in the EFJ Common Stock, no dividends or distributions may be made for
the EFJ Shares until all dividends have been paid on another series of preferred
stock of EFJ.
The holders of EFJ Shares are entitled to vote on each matter on which EFJ's
shareholders are entitled to vote and are entitled to 1.2 votes for each EFJ
Share. Except as otherwise required by law, the holders of EFJ Shares vote
together with the holders of the EFJ Common Stock as a single class.
In the event of any liquidation, dissolution or winding up of EFJ, after
payment of any liquidation preference on another series of preferred stock of
EFJ, the holders of the EFJ Shares are entitled to receive the applicable EFJ
Liquidation Value before any distribution of assets may be made to the holders
of EFJ Common Stock or any junior preferred shares of EFJ.
EFJ may not redeem any EFJ Shares unless it has paid all accrued but unpaid
dividends on another series of EFJ preferred stock. Subject to the foregoing,
EFJ may redeem at any time all or any portion of the EFJ Shares at a price equal
to the aggregate EFJ Liquidation Value of the redeemed EFJ Shares. EFJ is
required to redeem all of the EFJ Shares, at the aggregate Liquidation Value
thereof, upon the earlier of March 14, 2000, (b) EFJ's IPO Date, (c) the
occurrence of a transaction or series of transactions resulting in the sale or
transfer of more than 50% of the shares of EFJ Common Stock owned as of March
14, 1994 by a certain major EFJ shareholder (the "Major EFJ Shareholder") to
non-affiliated persons and (d) the occurrence of a transaction or series of
transactions pursuant to which certain beneficial owners of the Major EFJ
Shareholder sell or transfer to non-affiliated persons the ownership of more
than 50% of the beneficial interests in the Major EFJ Shareholder.
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The EFJ Shares, or any portion of them, are convertible at the option of
Radiocoms into shares of EFJ Common Stock on a one-to-one basis, subject to
certain anti-dilution adjustments.
So long as any EFJ Shares remain outstanding, EFJ is not permitted, without
the affirmative vote or written consent of the holders of at least 51% of the
outstanding EFJ Shares, to (a) issue additional EFJ Shares or authorize or issue
shares of any class of stock which ranks senior to, or PARI PASSU with, the EFJ
Shares with respect to the rights upon liquidation, redemption or the payment of
dividends or (b) make any amendment to its articles of incorporation or bylaws
if such amendment would alter or change the powers, preferences or special
rights of the EFJ Shares so as to affect them adversely.
TERMS OF THE EFJ SHAREHOLDERS AGREEMENT. Simultaneously with its purchase
of the EFJ Securities, Securicor Communications Inc. entered into a Shareholders
Agreement, dated March 14, 1995, among EFJ, Securicor Communications Inc. and
certain other shareholders of EFJ (the "EFJ Shareholders Agreement"). The EFJ
Shareholders Agreement is binding on Radiocoms as the assignee of Securicor
Communications Inc. Among other things, the EFJ Shareholders Agreement provides
that Radiocoms, as the assignee of Securicor Communications Inc., is entitled to
nominate one of the members of EFJ's board of directors, and certain other
parties have agreed to vote in favor of such nominee. Currently, Dr. Hough, the
Chief Executive Officer of Securicor Communications, serves as a director of EFJ
pursuant to this provision. In addition, the EFJ Shareholders Agreement provides
that Radiocoms may designate a second individual to receive notices of and to
attend (but not otherwise participate in) all of EFJ's board meetings. The EFJ
Shareholders Agreement further provides that no actions of EFJ's board of
directors shall have any force or effect unless requisite notices are given to
Radiocoms and Radiocoms' designated director, and that EFJ's board of directors
must consider and adopt appropriate resolutions before EFJ may take certain
actions. In addition, prior to the earlier of EFJ's IPO Date and the termination
of such governance provisions (which occurs upon the sale or other disposition
of the EFJ Shares or the date on which Radiocoms owns less than 10%, on a
fully-diluted basis, of EFJ's authorized capital stock), EFJ and its
subsidiaries cannot make certain major decisions (such as the authorization or
approval of certain business combinations, transactions with affiliates,
recapitalizations or reorganizations, securities offerings, etc.) without the
prior written consent of Radiocoms.
Radiocoms is obligated, until the fifth anniversary of EFJ's IPO Date, not
to take certain actions in respect of EFJ, including, among other things,
acquiring (alone or as part of a "group" under Section 13(d)(3) of the Exchange
Act) more than 25% of the EFJ Common Stock, soliciting proxies with respect to
EFJ or depositing EFJ Securities in voting trust or otherwise subjecting them to
a voting agreement or similar arrangement.
In addition, the EFJ Shareholders Agreement contains certain provisions that
restrict Radiocoms' ability to transfer the EFJ Securities, including a
requirement that, in connection with any sale before the earlier of March 14,
2005 and EFJ's IPO Date, the selling shareholder must offer certain "tag-along"
rights to the other shareholders who are parties to the EFJ Shareholders
Agreement. The EFJ Shareholders Agreement and Radiocoms' rights thereunder are
not assignable in most situations without the prior written consent of the other
parties thereto.
The EFJ Shareholders Agreement also contains certain demand and piggyback
registration rights for the benefit of Radiocoms, although Radiocoms may not
exercise such rights until after EFJ's IPO Date.
TERMS OF THE PREFERRED SHARES
The Company will not acquire the Preferred Shares in the Securicor
Transaction. The Preferred Shares will be issued by Radiocoms to Securicor
Communications prior to the Closing in satisfaction of the cancellation of
certain intercompany indebtedness. The Preferred Shares, which will have no
voting rights, will be redeemable in full by Radiocoms on June 30, 2006 and will
be subject to mandatory redemption by Radiocoms upon a Change of Control of
Radiocoms or the Company or the sale of a majority of the assets of either
company. The Preferred Shares are also subject to optional redemption at any
time by Radiocoms at par plus accrued dividends, subject to certain restrictions
in the Senior Debt Facilities; provided that 10,000 shares of the Preferred
Shares may not be redeemed until the earlier of (i) March 15, 2000 or (ii) the
redemption or disposition in full by Radiocoms of the EFJ Shares to a
third-party (such earlier date, the
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"EFJ Date"). On or after March 15, 2000, redemption is payable in cash or in EFJ
Shares (or any securities, properties or rights into which such EFJ Shares may
be converted, including, without limitation, as a result of bankruptcy or
dissolution of EFJ), at the option of the Company.
Pursuant to an option held by Securicor Communications, if Radiocoms
defaults on its obligations under the Preferred Shares, the Preferred Shares
will become an obligation of the Company.
The Preferred Shares will be entitled to annual aggregate cumulative
dividends (the "Dividends") of $1,200,000 based on a 6% annual coupon or $60.00
per share and will accrue from the issue date. During the period through the EFJ
Date, this entitlement will be satisfied by a bonus issue of Preferred Shares
every six months of 30 shares for each 1,000 shares held. Thereafter, Dividends
will be payable semi-annually. Furthermore, to the extent that Radiocoms is
prohibited by law or by the terms of the Senior Debt Facilities from paying
Dividends in cash, or otherwise does not have available cash to pay such
Dividends, the entitlement to the Dividends will be satisfied, to the extent
permitted by law, by a bonus issue of Preferred Shares.
The Preferred Shares rank junior in rights to the Senior Debt Facilities but
senior in all rights to any common stock and any other preferred stock of
Radiocoms.
For purposes of the Preferred Shares, "Change of Control" means acquisition,
directly or indirectly, by an entity other than Securicor or any other
affiliates, of greater than 50% of the Common Stock or assets of the Company and
"Senior Debt Facilities" means third-party forms of indebtedness which outrank
priority of all other forms of indebtedness, including, without limitation,
subordinated debt and preferred stock.
TERMS OF THE WARRANTS
At Closing, INTEK will issue warrants to Securicor Communications for one
percent (1%) of the fully diluted common equity of INTEK at the time of Closing.
Securicor Communications shall have the right to exercise, in whole or in part,
the INTEK Warrants commencing five years after the date of issuance. The right
to exercise the INTEK Warrants shall expire on June 30, 2006. The exercise price
of the INTEK Warrants shall be $13 per share of Company Common Stock. In the
event of a Change of Control of INTEK prior to the expiration or exercise of the
INTEK Warrants, the holder shall have the right to exercise the INTEK Warrants
at the exercise price. The INTEK Warrants will be assignable to an affiliate of
Securicor Communications, by way of pledge to Securicor's lenders and otherwise
as is customary for these types of securities and as mutually agreed upon by
INTEK and Securicor Communications.
TERMS OF THE VOTING AGREEMENT
The following is a summary of certain provisions of the Voting Agreement, as
amended by the First Amendment. The Company will provide without charge to each
person entitled to vote at the Annual Meeting on written request of such person
a copy of the Voting Agreement. This summary is qualified in its entirety by
reference to the full text of the Voting Agreement. Parenthetical section
references appearing at the end of paragraphs in this summary refer to relevant
sections in the Voting Agreement and are provided for convenience of reference
only.
Concurrently with the execution and delivery of the Stock Purchase
Agreement, Securicor Communications entered into the Voting Agreement with the
holders of approximately 45% of the outstanding Company Common Stock (consisting
of SCL, Roamer One Holdings, Inc. and Securicor International Limited, an
affiliate of Securicor Communications (collectively, the "Interested
Stockholders"). As of November 1, 1996, the parties to the Voting Agreement
entered into the First Amendment which amended the Voting Agreement to provide,
among other things, that the shares of Company Common Stock held by the
Interested Stockholders would be voted in a manner consistent with the vote of
the majority of the shares of the Company Common Stock voted at the annual
meeting and not owned by Interested Stockholders (the "Independent Stock") with
respect to certain proposals directly related to the approval of the Stock
Purchase, and the amendment to the Company's Restated Certificate of
Incorporation.
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Directed Voting of Stock held by Interested Stockholders. Pursuant to the
Voting Agreement, as amended, each of the Interested Stockholders has executed
and delivered to the Company a limited proxy directing the Company to vote the
shares of Company Common Stock held by such Interested Stockholder in a manner
consistent with the vote of a majority of the Independent Stock (for or against)
voted at the Annual Meeting in connection with the resolutions approving or
disapproving the Amendment and the Stock Purchase Agreement and any actions
required in furtherance thereof.
Each limited proxy of Interested Stockholders is irrevocable until the
earlier of (a) termination by any party of either of the Stock Purchase
Agreement or the Sale and License Agreement in accordance with the terms of such
agreement, (b) the close of the INTEK Stockholder Meeting, or (c) December 31,
1996.
Accordingly, to effectuate the intent of the Voting Agreement, as amended,
the Company shall first count all shares of Independent Stock (i.e. shares held
by Stockholders other than the Interested Stockholders) voted at the Annual
Meeting with respect to any resolution described above to determine whether a
majority of such shares of Independent Stock shall have been cast in favor of or
against such resolution. If a majority of the Independent Stock voted with
respect to a resolution approves such resolution, then the Company shall vote
all of the Interested Stock (i.e., the shares held by the Interested
Stockholders) in favor of such resolution. If a majority of the Independent
Stock voted with respect to a resolution are voted against such result, then the
Company shall vote all of the Interested Stock against such resolution.
BOARD REPRESENTATION. During the two-year period following the consummation
of the transactions contemplated by the Stock Purchase Agreement, each of the
parties to the Voting Agreement has agreed that Roamer One Holdings shall be
entitled to designate one member of the Board of Directors of the Company,
provided that such designee shall be reasonably acceptable to each of the
Company and Securicor. Each of the parties agreed to vote the shares of Company
Common Stock held by it from time to time in favor of any such acceptable
designee of Roamer One Holdings. (Section 3)
TERMINATION. Other than as provided therein, the Voting Agreement will
terminate by its terms upon the earlier to occur of the termination of the Stock
Purchase Agreement or the Closing under the Stock Purchase Agreement. (Section
5)
TERMS OF THE DELAYED DRAWDOWN SENIOR SUBORDINATED LOAN
Securicor Communications has agreed to make available to INTEK upon the
consummation of the Securicor Transaction, through December 31, 1997, a line of
credit in an amount up to $15 million. The Delayed Draw Down Senior Subordinated
Note will bear interest at the rate of prime (to be defined as the average of
prime rates announced by certain specified banks) plus 1% through December 31,
1997 and thereafter interest will accrue at the rate of 11% compounded annually
on the outstanding principal balance, payable upon the repayment in full of the
outstanding principal balance but no later than June 30, 2001. The obligations
under the Delayed Draw Down Senior Subordinated Note may be prepaid at any time
without any penalty. The Delayed Drawdown Senior Subordinated Note shall be
redeemed upon a change of control of INTEK or upon the sale of the majority of
its assets. The term "Change of Control" means acquisition, directly or
indirectly, by an entity other than Securicor or any other affiliates, of
greater than 50% of the Common Stock or assets of INTEK. INTEK may redeem the
Delayed Drawdown Senior Subordinated Note, at par plus accrued interest, subject
to restrictions in the Senior Debt Facility, in increments of $500,000. To the
extent payments are made prior to December 31, 1997, such payments shall
constitute a permanent reduction in total availability under the Delayed
Drawdown Senior Subordinated Loan. The term "Senior Debt Facilities" shall mean
third-party forms of indebtedness which outrank priority of all other forms of
indebtedness, including, without limitation, subordinated debt and preferred
stock. The Delayed Drawdown Senior Subordinated Note will rank junior in rights
to Senior Debt Facilities, but senior in all rights to any common or preferred
stock or any other subordinated debt of INTEK.
INTEK must maintain a net worth of at least $20 million, including the
Preferred Shares, before it can draw upon the Delayed Drawdown Senior
Subordinated Loan. The bankruptcy of INTEK or the acceleration of any INTEK debt
(in an amount to be agreed upon) by a third-party creditor shall constitute an
event of default under the Delayed Drawdown Senior Subordinated Note.
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TERMS OF THE SUPPORT SERVICES AGREEMENT
Securicor Communications has agreed to provide (or cause its affiliates to
provide) certain services to Radiocoms and its subsidiaries after the Closing.
These services include: (a) business insurance through September 1997 (annual
renewal thereafter at Radiocoms' option) with charges based on open market
rates, payable annually in advance; (b) vehicle leases for terms of two to three
years, each with lease payments (which vary by type of vehicle) payable monthly
in advance; (c) payroll services for directors through September 1997 (annual
renewal thereafter at Radiocoms' option) at a cost of 360 Pounds Sterling per
year, payable monthly; (d) pension benefits for employees of Radiocoms who
participated in any pension scheme of Securicor Communications prior to the
Closing in accordance with Securicor Communications' pension scheme, with
employee contributions equal to 4% of base salary and employer contributions
equal to 11% of base salary, payable monthly in arrears; and (e) such other
services as Radiocoms may request at open market rates.
TERMS OF THE REGISTRATION RIGHTS AGREEMENT
At the Closing of the Securicor Transaction, the Company and certain of its
stockholders, including SCL, MIC, Roamer One Holdings, Securicor Communications,
Securicor International Limited, Anglo York Industries, Inc. ("Anglo York"),
CHOI & CHOI HK Limited ("Choi Choi") and Octagon Investments Limited will enter
into a Registration Rights Agreement. The Company will provide without charge to
each person entitled to vote at the Annual Meeting on written request of such
person, a copy of the Registration Rights Agreement. This summary is qualified
in its entirety by reference to the full text of the Registration Rights
Agreement. The Registration Rights Agreement provides certain demand
registration rights and incidental registration rights to such Stockholders with
respect to shares of Common Stock of the Company or options to acquire shares of
Common Stock of the Company ("Registrable Securities").
Pursuant to the Registration Rights Agreement, demand registration rights
are granted to certain named Stockholders and assignees of 100% of a named
Stockholder's Registrable Securities, subject to certain minimum numbers of
Registrable Securities which must be tendered to effectuate a demand
registration and provided further that the reasonably anticipated aggregate
offering price of such Registrable Securities offered pursuant to such demand
registration must equal or exceed Three Million Dollars ($3,000,000). The number
of demand registrations which a named Stockholder may demand, and the minimum
number of registrable securities which must be tendered in making a demand
registration are as follows:
<TABLE>
<CAPTION>
MINIMUM NO.
SHARES
TO BE
NO. OF DEMAND REGISTERED
ELIGIBLE DEMAND HOLDER REGISTRATIONS PER DEMAND
- ---------------------------------------- --------------------- ---------------
<S> <C> <C>
Securicor 5 2,500,000
Simmonds and Midland, collectively 3 1,250,000
Roamer 2 1,250,000
Anglo York 1 No minimum
</TABLE>
The above minimum numbers of shares of Common Stock to be registered by a
particular Stockholder shall be adjusted to reflect any stock dividends, stock
splits, combinations, exchanges, reorganizations, recapitalizations or
reclassifications of the Registrable Securities or in connection with any
merger, consolidation or other similar business combination transaction
involving the Company.
In addition to the foregoing demand registration rights, all parties to the
Registration Rights Agreement shall be entitled to register Registrable
Securities by "piggy backing" on any public offering of equity securities by the
Company, subject to the priority of persons exercising demand registration
rights and limitations on the number of Registrable Securities which may be sold
pursuant to such registered public offering at the requested offering price, as
determined by the managing underwriter of such public offering. If piggy back
registration rights are oversubscribed with respect to any one offering, the
number of shares which a tendering Stockholder may have registered under such
public offering shall be reduced pro-rata with all other Stockholders tendering
Registrable Securities for piggy back registration based upon the number of
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Registrable Securities tendered for piggy back registration by a Stockholder as
against the number of Registrable Securities tendered by all Stockholders for
piggy back registration. For a period of two years commencing on the date of
Closing, Securicor and its affiliates' rights to participate in any registration
other than on a demand basis shall be limited to not more than 25% of such
offering in the event that piggy back registration rights for such offering are
oversubscribed. (Sections 9.1(b) and 9.2(b); Exhibit C)
TERMS OF THE ESCROW AGREEMENT
The following is a summary of certain provisions of the Escrow Agreement.
The Company will provide without charge to each person entitled to vote at the
Annual Meeting on written request of such a copy of the Escrow Agreement. This
summary is qualified in its entirety by reference to the full text of the Escrow
Agreement.
In connection with the consummation of the transactions contemplated by the
Amended Sale and License Agreement, INTEK issued to the Escrow Agent 2,350,000
shares of Company Common Stock to be held in escrow pending the consummation of
the Securicor Transaction or if Securicor and INTEK, or their respective
affiliates, enter into one or more transactions within six months of the
termination of the Stock Purchase Agreement, which, in the aggregate, convey
majority control of INTEK to Securicor Communications, upon the closing of such
transactions.
The Escrow Shares will be voted for and against the Securicor Transaction
and the transactions contemplated thereby, including the Amendment, in
proportion to the vote of the Independent Stock, but excluding abstentions and
broker non-votes. The Escrow Shares will not be voted in the election of
directors or in the approval of independent accountants.
The Hitachi Supply Agreement was not assignable by MIC without the prior
written consent of Hitachi and is subject to early termination by Hitachi as a
result of the consummation of the transactions under the Amended Sale and
License Agreement. Further, at September 20, 1996, the date on which INTEK
acquired the U.S. LMR Distribution business, MIC was in material default under
this agreement and was subject to termination by Hitachi. The Company plans to
continue to purchase LMR Products from Hitachi, to the extent permitted to do so
by Hitachi. The Escrow Agreement therefore provides that, upon the closing of
the Securicor Transaction, MIC will be entitled to receive the Escrow Shares
subject to pricing adjustments of (a) a reduction of up to 155,000 of such
shares to be returned to INTEK as an offset against any losses incurred in the
operation of the U.S. LMR Distribution Business from August 1, 1996 through the
Closing of the Securicor Transaction ("Net Operating Losses"), such Net
Operating Losses would be offset against the 155,000 shares at the rate of 1
share for each $5.375 of Net Operating Losses; and (b) 500,000 of such shares
will remain in escrow to provide a mechanism for indemnifying the Company
against any actual out-of-pocket loss, cost, liability or expense incurred by
the Company ("Losses"), aggregating more than $50,000, and resulting from the
termination by Hitachi of the Hitachi Supply Agreement without the consent of
the Company prior to May 12, 1997. The Escrow Agreement provides, however, that,
notwithstanding any such termination, the Company would not be entitled to
indemnification for Losses resulting from such termination if (a) an action by
the Company resulted in such the termination of the Hitachi Supply Agreement
(other than pursuant to the transactions contemplated by the Amended Sale and
License Agreement, any termination resulting from the Company's continued
purchase of 220 MHz products from Securicor or the Company's failure to satisfy
any minimum purchase requirements under the Hitachi Supply Agreement), (b)
notwithstanding such termination, Hitachi continues to be willing to sell
Hitachi Products to the Company after May 12, 1997 upon substantially the terms
set forth in the Hitachi Supply Agreement or on such other terms as are agreed
to by the Company, or (c) the Company has not ordered any Hitachi Products
pursuant to the Hitachi Supply Agreement during the sixty (60) days immediately
preceding such termination. (Section 8.9)
The indemnification provided under the Escrow Agreement is the Company's
sole remedy with respect to any failure of MIC to provide the Company with the
benefit of the Hitachi Supply Agreement.
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GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies for use at the Annual Meeting. At the Annual Meeting, including any
adjournments thereof, the Stockholders of the Company will consider and vote:
(1) to elect directors to serve for a term of one year; (2) to approve the
Amendment; (3) to approve and adopt the Stock Purchase Agreement pursuant to
which INTEK will acquire the Radiocoms Stock from Securicor Communications in
exchange for the issuance of 25,000,000 shares of Company Common Stock; (4) to
approve the appointment of Arthur Andersen, LLP as independent accountants for
the Company for the fiscal year ending December 31, 1996; and (5) to transact
such other business as may properly come before the Annual Meeting and any
adjournments thereof. No Stockholder is entitled to preemptive rights. Proposal
3 is contingent upon the approval by the Stockholders of Proposal 2.
REVOCABILITY OF PROXIES
A form of proxy ("Proxy") for voting shares at the Annual Meeting is
enclosed. Any person who executes and delivers a Proxy has the right to revoke
it at any time before it is exercised (1) by filing with the Secretary of the
Company a written notice of revocation or a duly executed Proxy bearing a date
or time later than the date or time of the Proxy being revoked or (2) by
attending the Annual Meeting and voting in person. Mere attendance at the
Company's Annual Meeting will not serve to revoke a proxy. All validly executed
Proxies received by the Company pursuant to this solicitation will be voted at
the Annual Meeting in accordance with the instructions specified on the Proxy.
IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT THE ANNUAL MEETING, THE PROXY
WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE COMPANY'S BOARD OF
DIRECTORS.
PERSONS MAKING THE SOLICITATION
The solicitation of proxies is being made by the Board of Directors of the
Company. The expense of preparing and assembling, printing and mailing this
Proxy Statement and the materials used in the solicitation of proxies for the
Annual Meeting will be borne by the Company. It is contemplated that proxies
will be solicited principally through the use of the mail but officers,
directors and employees of the Company may solicit Proxies personally or by
telephone without receiving special compensation therefor. Although there is no
formal agreement to do so, the Company may reimburse banks, brokerage houses and
other custodians, nominees and fiduciaries for their reasonable expenses in
forwarding these proxy materials to shareholders whose stock in the Company is
held of record by such entities. In addition, the Company may use the services
of individuals or companies it does not regularly employ in connection with this
solicitation of proxies, if management of the Company determines it advisable.
VOTING RIGHTS
Holders of record of shares of the Company's Common Stock, par value $0.01
per share (the "Common Stock"), at the close of business on October 29, 1996 are
entitled to vote at the Annual Meeting. On the Record Date, there were
14,735,850 shares of Common Stock outstanding. Each share is entitled to one
vote.
The affirmative vote of the holders of a plurality of the votes of the
shares present in person or represented by proxy at the Annual Meeting is
required for the election of directors. The approval of the Amendment will be
determined by the affirmative vote of a majority of shares of outstanding stock
entitled to vote thereon. The approval of the Stock Purchase Agreement submitted
for Stockholder approval at the annual meeting will be decided by the
affirmative vote of a majority of shares present in person or represented by
proxy and entitled to vote on each such matter. The shares held by the
Interested Stockholders will be voted at the annual meeting on the resolutions
to approve the Securicor Transaction and to approve the Amendment in a manner
consistent with the vote of a majority of the Independent Stock (for or
against), but excluding abstentions and broker non-votes (defined below). See
"THE SECURICOR TRANSACTION--Terms of the Voting Agreement." The Escrow Shares
will be voted by the Escrow Agent with respect to the Securicor Transaction and
the Amendment in proportion to the vote of Independent Stock (for or against),
but excluding abstentions and broker non-votes. The Escrow Shares will not be
voted with respect to the election of directors or approval of the Independent
Accountant. The approval of the Independent Accountant submitted for Stockholder
approval at the Annual Meeting will be decided by the
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affirmative vote of a majority of shares present in person or represented by
proxy and entitled to vote on each such matter. Shares represented by proxies
that reflect abstentions or broker non-votes (I.E., shares held by a broker or
nominee which are represented at the Annual Meeting, but with respect to which
such broker or nominee is not empowered to vote on a particular proposal) will
be counted for the purpose of determining a quorum and therefore (i) each will
have the effect of a vote "against" Proposal 2, (ii) abstentions will have the
effect of a vote "against" each of Proposals 3 and 4 and (iii) neither will have
any effect on Proposal 1. See "THE SECURICOR TRANSACTION--Terms of the Escrow
Agreement."
PROPOSALS
PROPOSAL 1: NOMINATION AND ELECTION OF DIRECTORS
Each director to be elected at the Annual Meeting will hold office until the
next Annual Meeting of Stockholders and until his or her successor is elected
and has qualified, or until the director's earlier death, resignation or
removal. The Company's Board of Directors currently has seven members, all of
whom have a term expiring in 1996. Vincent P. Paul, who has served on the Board
of Directors since 1984, was the President and Chairman of the Board of
Directors from June 1992 to September 1994, was Vice Chairman of the Board of
Directors from September 1994 to January 1996, and was elected to the Board of
Directors at the Company's last Annual Meeting of Stockholders, died on January
31, 1996. Mr. Paul's position on the Board of Directors has been vacant since
his death.
The Board of Directors has nominated the following seven persons for
election as directors. All of the nominees listed below are currently directors
of the Company. The seven candidates receiving the highest number of affirmative
votes cast at the Annual Meeting will be elected as directors of the Company.
Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unable to serve.
For the eight seats available, the Board of Directors has chosen to nominate
only seven persons since immediately following the Closing, four of the seven
members of the Board of Directors (Nicholas R. Wilson, Harry Dunstan, Peter A.
Heinke and Christopher Branston) will resign pursuant to the terms of the Stock
Purchase Agreement and the remaining members of the Board of Directors have
agreed to fill three of the five vacancies resulting from these resignations and
the one currently existing vacancy by appointing three other persons designated
by Securicor Communications to the Board of Directors. See "DIRECTORS AND
EXECUTIVE OFFICERS OF INTEK."
Unless otherwise indicated, the proxy holders will vote the proxies received
by them for the seven nominees named below. If any of the nominees are
unavailable or decline to serve as a director for any reason, the proxy holders
will vote the proxies for a substitute nominee or nominees designated by the
Board of Directors. The Board of Directors does not expect that any nominee will
be unavailable.
Set forth below is information regarding the nominees, including information
furnished by them as to their principal occupations for the last five years,
certain other directorships and offices held by them, and their ages:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITIONS HELD WITH THE COMPANY SINCE
- ----------------------------------------------- --------- ----------------------------------------------- -----------
<S> <C> <C> <C>
Nicholas R. Wilson 51 Chairman of the Board 1994
John G. Simmonds 46 Chief Executive Officer and Director 1994
Harry Dunstan 45 President, Chief Operating Officer and Director 1994
Peter A. Heinke 38 Chief Financial Officer, Treasurer and Director 1994
Christopher Branston 51 Director 1994
David Neibert 41 Director and Executive Vice President 1994
Steven L. Wasserman 42 Secretary and Director 1994
</TABLE>
NICHOLAS R. WILSON Mr. Wilson became the Chairman of the Board of the
Company on September 23, 1994. Mr. Wilson is the President of Roamer One
Holdings, Inc., a holding company which owns
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approximately 21% of the outstanding shares of Common Stock of the Company, and
since 1990, the Chairman of the Board of Opportunities Associates, Inc., a real
estate development company. From 1990 to 1994, Mr. Wilson was the President of
Roamer Corporation of America, a company engaged in the short-term rental of
portable cellular telephones. Mr. Wilson is also President of Roamer
Communications Network, which was responsible for providing engineering services
to a large number of 220 MHz licensees during 1990 and 1991.
JOHN G. SIMMONDS Mr. Simmonds became the Chief Executive Officer of the
Company on September 23, 1994. Mr. Simmonds has been the Chairman of the Board
of Directors, President and Chief Executive Officer of Simmonds Capital Limited,
a diversified electronics company, since 1990, and Chairman of the Board of
Directors and Chief Executive Officer of Kustom Electronics Inc., a manufacturer
of equipment for wireless data transmission, since 1991. On November 18, 1994,
Kustom Electronics, Inc. filed for protection under Chapter 11 of the Federal
Bankruptcy Laws and is still in bankruptcy. Mr. Simmonds has been Chairman of
the Board of Ventel, Inc., a Canadian corporation listed on the Vancouver Stock
Exchange and Montreal Exchange, since October 1995. In January 1995, Mr.
Simmonds was appointed to the Board of Directors and Chairman of Circuit World
Corporation. Mr. Simmonds was Executive Vice President and a director of
Glenayre Electronics, Ltd., a wireless communications business, from 1988-1990.
He was formerly a director (1977-1990) and Vice President (1968-1990) of A.C.
Simmonds & Sons Limited., an electronics distributor.
HARRY DUNSTAN Mr. Dunstan is a Professional Engineer who became the
President and Chief Operating Officer of the Company on September 23, 1994. Mr.
Dunstan has been a Director of SCL and Kustom Electronics, Inc. since 1991. At
SCL and its affiliates, he has held various executive offices from time to time,
including President of SCLI and most recently Chief Technology Officer of SCL.
During 1989-1991, Mr. Dunstan was the Vice President of Technology and Systems
for Glenayre Electronics, a wireless communications company. Prior to 1989, Mr.
Dunstan was President of RMS and Signalcom, both of which are LMR communications
companies.
PETER A. HEINKE Mr. Heinke became the Chief Financial Officer and Treasurer
of the Company on September 23, 1994. Mr. Heinke was the Chief Financial Officer
of SCL from 1993-1995 and is currently a consultant to SCL. He was formerly
self-employed as a financial consultant (1990-1992) and the Treasurer/
Controller of Trac Industries Inc. (1986-1990).
CHRISTOPHER BRANSTON Mr. Branston became a director of the Company on
September 23, 1994. Mr. Branston is also a member of the Company's Stock Option
Committee and Audit Committee. Mr. Branston has been a solicitor in the United
Kingdom since 1971. Since October 1987 Mr. Branston has had his own law practice
and since September 1994 has also been a consultant to the United Kingdom law
firm of Rodgers & Burton.
DAVID NEIBERT Mr. Neibert has been a director of the Company since
September 23, 1994 and an Executive Vice President of the Company since
September 1996. Mr. Neibert is President and a director of Roamer One. Mr.
Neibert is a director and was the President (1992-1994) of Roamer One Holdings,
Inc. and was the President of Master Marine Incorporated D.N.A. Seamark Marine
Electronics (1987-1992).
STEVEN L. WASSERMAN Mr. Wasserman became Secretary and a director of the
Company on September 23, 1994. Mr. Wasserman is a member of the Company's Audit
Committee and the Stock Option Committee. Since September 1, 1994, Mr. Wasserman
has been a partner of the law firm of Kohrman Jackson & Krantz, P.L.L., located
in Clevland, Ohio. Mr. Wasserman is a member of the state bars of Ohio and
Florida. He is a director of Roamer One Holdings. Mr. Wasserman was a vice
president of the law corporation of Honohan, Harwood, Chernett & Wasserman, from
September 1983 until September 1, 1994. Pursuant to the terms of the Voting
Agreement, Mr. Wasserman is the board designee of Roamer One Holdings.
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VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a plurality of the votes of the
shares present in person or represented by proxy at the Annual Meeting is
required for the election of directors. The Escrow Shares will not be voted in
the election of directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE INTEK BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE NOMINEES
FOR DIRECTOR NAMED ABOVE.
PROPOSAL 2: APPROVAL OF AMENDMENT TO INTEK'S RESTATED CERTIFICATE OF
INCORPORATION
GENERAL
The Board of Directors of INTEK has approved the proposed Amendment to
increase the total number of authorized shares of Company Common Stock from
20,000,000 to 60,000,000. The Amendment must be approved before the Securicor
Transaction may be consummated.
As of November 5, 1996, the authorized capital stock of INTEK consisted of
20,000,000 shares of Common Stock. As of the Record Date there were 14,735,850
shares of Common Stock issued and outstanding and an additional 1,085,500 shares
of Common Stock reserved for issuance pursuant to employee benefit plans of
INTEK. Approximately 4,178,650 shares of Company Common Stock are authorized and
available for issuance. Assuming the Amendment is approved and the Securicor
Transaction is consummated, INTEK would have approximately 40,739,593 shares of
Company Common Stock outstanding and an additional 1,085,500 shares of Company
Common Stock reserved for issuance pursuant to employee benefit plans.
Approximately 18,174,907 shares of Company Common Stock would be authorized and
remain available for issuance.
The Board of Directors of INTEK believes that it is in the best interests of
INTEK to increase the number of authorized shares of Company Common Stock. The
Amendment will provide INTEK with flexibility in the future by assuring that
there will be sufficient authorized but unissued shares of Company Common Stock
available for financing requirements, possible acquisitions, and other corporate
purposes without the necessity of further stockholder action at any special or
annual meeting. Other than as described in this Proxy Statement, there are no
current plans to issue any shares of INTEK Common Stock. From time to time,
however, INTEK reviews potential acquisition transactions, some of which could
involve the issuance of Company Common Stock as acquisition consideration.
RIGHTS OF CURRENT STOCKHOLDERS
When issued, the additional shares of Company Common Stock authorized by the
Amendment will have the same rights and privileges as the shares of Company
Common Stock currently authorized and outstanding. Holders of Company Common
Stock have no preemptive rights and, accordingly, stockholders of INTEK would
not have any preferential right to purchase any of the additional shares of
Company Common Stock when such shares are issued.
Under the provisions of the Delaware General Corporation Law ("DGCL"), a
board of directors generally may issue authorized but unissued shares of common
stock without stockholder approval. A substantial number of authorized but
unissued shares of Company Common Stock not reserved for specific purposes
allows INTEK to take prompt action with respect to corporate opportunities that
develop, without the delay and expense of convening a meeting of Stockholders.
The issuance of additional shares of Company Common Stock by INTEK may,
depending on the circumstances under which shares are issued, cause a dilution
of voting rights, net income, and net book value per share of Company Common
Stock. INTEK would receive valuable consideration for any such shares issued
however, thereby reducing or eliminating the economic effect to each stockholder
of such dilution. If the Amendment is adopted, it is not the present intention
of the Board of Directors to seek stockholder approval prior to any issuance of
additional shares of Company Common Stock unless otherwise required by law or
the rules of any securities exchange or inter-dealer quotation system on which
the shares may be listed or quoted at the time.
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VOTE REQUIRED FOR APPROVAL
For the Stockholders to adopt the Amendment, the holders of a majority of
the outstanding shares of Company Common Stock entitled to vote thereon must
vote for such adoption; provided, however, the shares of Company Common Stock
held by Interested Stockholders, and the Escrow Shares, will be voted in a
manner consistent with the vote of the Independent Stock (for or against), but
excluding abstentions and broker non-votes. See "THE TRANSACTION -- Terms of the
Voting Agreement."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE INTEK BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF PROPOSAL
2.
PROPOSAL 3: APPROVAL OF THE SECURICOR TRANSACTION, ISSUANCE OF COMMON STOCK AND
THE STOCK PURCHASE AGREEMENT
GENERAL
The Board of Directors of INTEK has unanimously approved the Stock Purchase
Agreement and the Securicor Transaction whereby the Company will issue
25,000,000 shares of Company Common Stock to Securicor Communications in
connection with the Company's acquisition of the Radiocoms Stock and issue the
INTEK Warrants.
VOTE REQUIRED FOR APPROVAL
For the Stockholders to approve Proposal 3, the holders of a majority of the
outstanding shares of INTEK Common Stock present in person or represented by
proxy and entitled to vote must vote for such adoption; provided, however, the
shares of Company Common Stock held by Interested Stockholders, and the Escrow
Shares will be voted in a manner consistent with the vote of the Independent
Stock (for or against) excluding abstentions and broker non-votes. See the "THE
TRANSACTION--Terms of the Voting Agreement."
DISSENTERS APPRAISAL RIGHTS
The DGCL does not afford holders of Company Common Stock that vote against
Proposal 3 any appraisal rights, as such rights are defined under the DGCL,
because no approval of the Securicor Transaction by the holders of Company
Common Stock is required pursuant to Section 251 of the DGCL.
REASONS FOR SEEKING STOCKHOLDER APPROVAL
Approval of the Securicor Transaction by the Company's Stockholders is not
required under Delaware law (although approval of the Amendment is required).
However, because (a) the Securicor Transaction involves Securicor
Communications, an entity affiliated with a significant Stockholder of the
Company, (b) a change of control of INTEK will occur upon the consummation of
the Securicor Transaction, and (c) upon consummation of the Securicor
Transaction, SCL, a major Stockholder in the Company, will receive up to 2.35
million shares of Company Common Stock, approval of the Securicor Transaction is
being placed before the Stockholders so the Stockholders may exercise their
independent judgment as to whether the Securicor Transaction is in the best
interests of the Company and its Stockholders. The Board of Directors intends to
abide by the vote of the Stockholders, irrespective of the outcome.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE INTEK BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
PROPOSAL 3.
PROPOSAL 4: APPROVAL OF INDEPENDENT ACCOUNTANTS
GENERAL
The Board of Directors of the Company has selected Arthur Andersen LLP as
independent accountants to examine the books, records and accounts of the
Company and its subsidiaries for the fiscal year
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ending December 31, 1996. Although the By-laws of the Company do not require the
selection of independent accountants to be submitted to stockholders for
approval, this selection is being presented to stockholders for approval or
rejection at the Annual Meeting.
Arthur Andersen LLP was the independent accountant of the Company for the
fiscal years ended December 31, 1995, December 31, 1994 and December 31, 1993,
and is considered by the Board of Directors to be well qualified. A
representative of Arthur Andersen LLP is expected to be present at the Annual
Meeting, and will have an opportunity to make a statement if he or she so
desires and will be available to respond to appropriate questions.
VOTE REQUIRED FOR APPROVAL
This proposal will require the affirmative vote of the holders of a majority
of the shares of Common Stock represented at the meeting in person or by proxy.
If the resolution is rejected, or if Arthur Andersen LLP declines to act or
becomes incapable of action, or its employment is discontinued, the Board of
Directors will appoint other public accountants. The Escrow Shares will not be
voted in the approval of independent accountants.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF PROPOSAL
4.
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THE RADIOCOMS BUSINESS
OVERVIEW
Radiocoms designs, develops and manufactures a range of LMR products using
its proprietary LM technology. Radiocoms' LM products are highly efficient in
the use of radio spectrum for the transmission of high quality voice and data.
Radiocoms also provides technical and project management expertise for "turn
key" custom engineered LMR communication system solutions and sells, primarily
in the U.K., mobile communications systems and radio equipment for businesses,
using standard products purchased from established manufacturers.
The world market for wireless mobile voice and data communications is
rapidly growing and includes LM users in the service, commercial dispatch and
transportation industries, private company communications systems, public
utilities and essential public services (such as police and fire departments).
As the market has grown, the radio spectrum dedicated to it has become
increasingly congested. There is an increasing demand for spectrally efficient
LMR products as governments and regulators address the problems caused by the
congestion of the radio spectrum in densely populated areas. Radiocoms believes
that its LMR products, using its patented LM technology, provide spectrally
efficient and cost effective solutions to these congestion problems. In early
1996, in an independent survey of more than 15 mobile radio solutions conducted
by the Spectrum Engineering 23 Committee of CEPT (CEPT is the organization
responsible for coordinating the use of the radio spectrum within the European
Union), Radiocoms' LM products in both voice and data applications received the
highest "figures of merit" based on factors including channel spacing,
information capacity and geographical frequency reuse.
Radiocoms competes in the existing and growing market for mobile radio
systems as well as the market for alleviating the congested mobile radio
spectrum through spectrum "refarming". Refarming is the reorganization of the
spectrum through the replacement of existing radio infrastructure and mobile
units with systems that are spectrally more efficient, thereby using less
spectrum and increasing the total system capacity. Because it is difficult
either to allocate large areas of new spectrum or to clear existing users from
the spectrum, improvements can be effected efficiently through refarming,
allowing the phased and planned introduction of spectrum efficient equipment
into an already congested system.
To meet increasing user demand as well as to encourage efficiency in the use
of the mobile radio spectrum, various regulatory bodies around the world have
announced initiatives to promote development of, and encourage migration to, new
spectrally efficient equipment. For example, in the U.S., the FCC has allocated
spectrum in the 220 MHz range for spectrally efficient 5kHz per channel (I.E.
"narrowband") SMR and private LMR systems. This initiative was intended in part
to serve as a proving ground for narrowband technology, and Radiocoms
manufactures and distributes products for this market.
The address and telephone number of Radiocoms is Sutton Park House, 15
Carshalton Road, Sutton, Surrey SM1 4LD England, 0181-770-7000.
HISTORY OF RADIOCOMS
Radiocoms is an indirect, wholly owned subsidiary of Securicor. Securicor is
a multinational U.K. based company that provides a broad range of security,
distribution, communications and business services. Securicor's involvement in
mobile communications developed from its need for high quality, reliable, low
cost communications between its dispatch centers and armored and other vehicles.
As part of a plan to capitalize on Securicor's extensive experience in
business communications, particularly mobile communications, in 1986 Securicor
acquired the business of Ashley Telecom Limited. The business, operated by a
Securicor subsidiary, Ashley Communications U.K. Limited ("Ashley"), provided a
mobile radio equipment distribution and support service using products acquired
from leading manufacturers. Ashley was renamed Securicor PMR Systems and in 1993
expanded further through the acquisitions of Private Mobile Radio Limited, a
U.K. regional distributor of Kenwood products with strength in the
petrochemicals market, and SOCOM Group Limited, a U.K. regional distributor of
Motorola products with strength in airline and airport markets.
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In 1990, Securicor formed a new company, LMT, to develop spectrally
efficient mobile radio products and solutions as a response to the increasing
congestion of the mobile radio spectrum. In 1995, Radiocoms was formed by
combining the businesses of LMT and Securicor Electronics Limited, an
electronics manufacturing subsidiary of Securicor, with Securicor Radiocoms
Limited (which was formerly Securicor PMR Systems).
BUSINESS OF RADIOCOMS
Radiocoms is currently organized in four units: Strategic Systems Unit
("SSU"), Equipment and Services Unit ("ESU"), Technology Unit ("TU") and
Manufacturing Unit ("MU"). The following is a brief description of the four
business units:
STRATEGIC SYSTEMS UNIT
SSU provides technical and project management expertise for "turnkey" custom
engineered system solutions to meet the specific mobile radio needs of its
customers. SSU typically deals with complex solutions having a long lead time
and which are not readily addressable by off-the-shelf products. SSU's services
include specification, design, procurement, integration, installation,
commissioning and support of special purpose-designed systems. For example, the
ground based activities systems at Heathrow Airport, the U.K.'s largest airport,
are managed using a UHF mobile radio system designed, supplied and maintained by
Radiocoms. This system required customization to include special features to
permit system operation in difficult conditions (E.G., in tunnels and in metal
clad buildings) and tailored applications such as the creation of dynamic user
groups.
SSU customers include public safety organizations (E.G., police and fire
departments), public utilities (E.G., electricity generation and distribution
companies), port authorities and major commercial organizations. SSU customers
in the U.S. 220 MHz market include Roamer One, American Digital Communications,
Rush Networks and Rapid Wireless Communications. On June 21, 1995, Radiocoms,
for the ESU, entered into a Purchase Order (the "Purchase Order") with one of
its customers which provided for the purchase by the customer of certain radio
equipment (the "Equipment") from Radiocoms to be used in the construction of
radio licenses under the management of the customer. In connection with the
Purchase Order, Radiocoms entered into an Equipment Delivery Agreement, dated
May 9, 1996 and amended on August 1, 1996 (the "Equipment Agreement"), with the
customer pursuant to which, among other things, the customer granted to
Radiocoms a security interest in the equipment and various agreements pertaining
to ten constructed and operational systems owned or managed by the customer (the
"Constructed Systems").
As of September 30, 1996, the customer owed Radiocoms $492,153 representing
the remaining portion of the purchase price for the Equipment (the "Outstanding
Balance") and Radiocoms continued to hold a security interest in the Constructed
Systems.
On September 23, 1996, Radiocoms and the customer entered into an Agreement
(the "Superseding Agreement") which superseded the Purchase Order and in most
respects the Equipment Agreement, as amended. Pursuant to the terms of the
Superseding Agreement, Radiocoms retained its security interest in the
Constructed Systems and Radiocoms was granted the right to select any or all of
the unconstructed licenses under management by the customer (subject to certain
rights of the customer to propose alternative licenses for up to 50% of the
licenses initially selected by Radiocoms, which alternatives, if not agreed to
by Radiocoms, shall be excluded from the provisions of the Superseding
Agreement) (the "Selected Licenses"). Radiocoms has agreed, subject to certain
conditions, to provide equipment for the Selected Licenses. For all Selected
Licenses for which Radiocoms provides equipment, the customer is obligated to
assign to Radiocoms all of its rights to acquire the Selected Licenses on the
terms set forth in the customer's option to acquire these systems (which vary by
license) and, upon receipt of FCC approval of the transfer of each Selected
License, Radiocoms will reduce the Outstanding Balance by $10,000 per Selected
License so transferred. Additionally, upon the construction and initiation of
the transfer of each group of five Selected Licenses, Radiocoms shall release
its security interest in one Constructed System.
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The customer holds a repurchase option, subject to certain conditions, that
permit it to pay, for each Selected License assigned to Radiocoms, a price of
$130,000 plus $550 per subscriber and the reimbursement of certain costs
incurred by Radiocoms to acquire the Selected License from Radiocoms.
Radiocoms is now evaluating the status of construction of the Selected
Licenses. Radiocoms anticipates that the aggregate cost to build-out the
Selected Licenses will be between $700,000 and $2.8 million.
SSU intends to capitalize on LM technology to offer customized solutions to
businesses in both existing and new markets. For example, SSU has designed and
installed a data only LM system for the Port of London Authority. The system
enables the transmission of data from survey vessels to a central location where
information is processed and analyzed. In addition, in 1995, SSU installed a
pilot narrowband system in Budapest, Hungary as an experiment in spectrum
refarming, with a view to the commercial implementation of an operating system.
SSU personnel currently are installing and commissioning narrowband systems
supplied by Radiocoms for the 220MHz initiative in the U.S. During the next two
years, SSU engineers expect to upgrade these systems by interconnecting them to
form custom engineered regional, state wide and, eventually, nationwide
multi-site networks. SSU will also be the business unit through which Radiocoms
will actively pursue market opportunities for LM technology in spectrum
refarming.
EQUIPMENT AND SERVICES UNIT
ESU offers a broad range of business related mobile communication solutions
using standard off-the-shelf products made and supplied by established
manufacturers. ESU sells and distributes mobile radio equipment for point to
point or multipoint applications manufactured by companies such as Motorola and
Kenwood. ESU also rents out both mobile radio and cellular equipment on a short
term basis. In addition, ESU maintains and supports mobile radio systems and
equipment supplied by it or supplied by other manufacturers. For example, ESU
provides maintenance services for the mobile radio system operated by one of the
major bus companies in London and supplied by another manufacturer. ESU also
sells airtime on Securicor's "Relayfone" network of U.K. regional dispatch radio
systems. Relayfone is a public access mobile radio system operating from 10
sites in the U.K. in the VHF high band allocated for public mobile radio using
FM equipment. The network covers major U.K. cities and supports more than 2500
subscribers. Relayfone subscribers may either purchase or lease radio equipment
from ESU.
ESU operates primarily in the U.K. and its customers include airports,
airlines, local governments, public agencies, construction companies,
petrochemical companies, public and private transportation services, police and
Securicor's own Security Services and Distribution divisions.
TECHNOLOGY UNIT
TU is Radiocoms' research and development operation that develops new
products based on Radiocoms' LM technology to meet the needs of the market for
narrowband products.
Securicor's interest in LM technology initially arose in the late 1980s as a
result of its appointment as project manager for the U.K.'s Department of Trade
and Industry to carry out comparative trials to determine the technical
viability of narrowband technology in the field of mobile radios. Following the
trials, Securicor incorporated Linear Modulation Technology Limited (the
predecessor of TU), to use LM technology to develop a range of commercially
viable LM-based mobile radio products. In 1992 Radiocoms began manufacturing its
first generation base station and vehicle mounted mobile radio. Thereafter, and
following the FCC's initiative in the U.S. 220MHz market, LMT produced a second
generation of equipment, designed specifically for that market. The second
generation of products went into commercial production in 1994.
TU is currently concentrating on achieving cost reductions in product design
and manufacturing, particularly through the use of custom ASICS (Application
Specific Integrated Circuits). Reductions in equipment size and power
consumption have allowed Radiocoms to reach the advanced stages of developing a
hand held mobile radio unit. The Company anticipates commencing manufacturing of
hand held units in early 1997. TU also engages in ongoing research and
development intended to enhance system functionality and performance.
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As part of Radiocoms' strategy to create an industry-wide narrowband
standard for worldwide refarming of congested mobile radio spectrum, TU also
licenses its basic LM technology and products to, and intends to set up joint
ventures with, other leading mobile radio companies as narrowband solutions
become more widely adopted. As part of this strategy, in March 1995 LMT entered
into non-exclusive manufacturing and technology transfer license agreements with
EFJ, one of the major manufacturers of mobile radios in the U.S. These
agreements grant EFJ the right to manufacture and distribute two way land mobile
radio equipment incorporating LMT's LM technology (now owned by Radiocoms) for
use in the 220MHz frequency band, and for the transfer of certain know how to
EFJ in connection with LM technology. In exchange for such rights, LMT received
a payment of $5,000,000. In connection with these licensing arrangements,
Securicor Communications purchased 925,850 shares of EFJ Shares, which are
convertible into approximately 16% of the common stock of EFJ, and the EFJ
Warrant to purchase up to 291,790 shares of EFJ common stock at an exercise
price of $0.01 per share. Securicor Communications paid an aggregate of
$10,000,000 for the EFJ Securities. Securicor Communications transferred the EFJ
Preferred Stock and the EFJ Warrant to Radiocoms. EFJ is currently selling
product utilizing such technology. See "THE TRANSACTIONS -- EFJ."
MANUFACTURING UNIT
MU provides Radiocoms' manufacturing capability. It manufactures limited
quantities of Radiocoms' LM products to support their introduction in the
marketplace and to ensure that they are capable of volume production. MU is also
used for limited production runs of customized base stations and other products
used by SSU in custom engineered solutions. As demand for Radiocoms' LM products
increases, Radiocoms anticipates granting licences to, or sub-contracting with,
third parties for volume production. In addition, and to ensure maximum
utilization of its manufacturing facilities, Radiocoms manufactures a variety of
electronic products for third parties on a contract basis.
LINEAR MODULATION
TECHNOLOGY
LM is a technique that allows the efficient use of the radio spectrum,
approaching the theoretical optimum information carrying capacity of such
spectrum. The technique can be used effectively to provide the very narrowband,
high integrity radio channels required to refarm existing, wider band width,
congested radio spectrum. Historically, prior to the development of Radiocoms'
proprietary LM technology, mobile radio technology for very narrowband
transmission (E.G., 5kHz channel width) of high quality voice and data has been
limited by technological constraints. Practically, these constraints have meant
unacceptably high error levels in voice and data transmission due to signal
fading and fluctuations. Radiocoms believes advances it has made and
incorporated into its proprietary LM technology have overcome these
technological challenges.
Specifically, in advancing these issues, Radiocoms' LM Technology merges
four technologies:
Reference Vector Equalization (RVE). A reference vector is added to the
information contained in the signal to be transmitted. This reference vector is
used to facilitate real time corrections (equalization) to the rapid
characteristic changes which occur in all radio signal paths.
Fast Feed Forward Signal Regeneration (FFSR). The Fast Feed Forward Signal
Regeneration technique uses the RVE to correct the rapid fluctuations in phase,
frequency and amplitude caused by variances in the signal path and by movements
of the mobile radio platform.
Cartesian Loop Transmitters (CLT). Low cost, high efficiency non-linear
power amplifiers are forced to take on highly linear characteristics (so that a
non-linear transmitter can act as a linear transmitter) using this sophisticated
real time correction technique which allows multi-level coded signals to be
used, while still meeting the strict adjacent channel specification imposed by
regulatory authorities.
Digital Signal Processing (DSP). This is a technique for fast processing of
digitally coded information.
The effect of the combination of RVE and FFSR is the reduction of the impact
of fade and other signal fluctuations, thereby reducing voice and data loss. CLT
technology then allows a non linear transmitter to act
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as a linear transmitter, thereby enabling greater quantities of information to
be transmitted using sophisticated multi-level coding. The recent improvements
in the processing power of commercially available Digital Signal Processing
devices enable the practical implementation of RVE, FFSR and CLT techniques in a
mobile radio environment.
Radiocoms' current generation of products has been developed to operate in
the VHF mobile radio band (which ranges from 30MHz to 300MHz and includes the
220MHz band). Radiocoms believes, however, that LM technology can operate
effectively in other bands used for mobile radio communications. Radiocoms also
believes that LM technology can be used for applications in virtually all areas
of radio communications. Systems using LM technology can carry analog speech,
plain or encrypted digital speech and text, maps and pictures with high speed
data transmission capability.
LICENSES AND PATENTS
Radiocoms developed its proprietary applications of LM technology based on
original work during the 1980s carried out by researchers at the Universities of
Bath and Bristol in the U.K. The U.S. and foreign patents on some of the basic
techniques are held by BTG plc ("BTG,") and licensed to Radiocoms under
agreement. BTG is a U.K. based organization that promotes technology research
and development (including research and development conducted by the
Universities of Bath and Bristol in relation to LM) for commercial use through
licensing. The BTG agreement provides Radiocoms with non-exclusive rights during
the terms of the licensed patents to make and have made products incorporating
the patented technology and related know-how in the U.S., U.K. and other
territories, and the right to use and sell such products anywhere in the world.
Radiocoms' rights under the agreement extend to certain future patents and
patent applications on improvements devised by researchers at the Universities
of Bath and Bristol. In exchange, Radiocoms pays a fixed royalty on each such
product made or sold, and a smaller fixed royalty on such products leased by
Radiocoms, with an annual guaranteed minimum total royalty payment of L2,000.
Radiocoms has independently developed a number of techniques which improve
on some of the basic techniques licensed from BTG. Radiocoms has been awarded
three U.K. and two U.S. patents in respect of these developments. These specific
engineering solutions, together with certain copyrighted software and designs,
form the basis of Radiocoms' proprietary LM technology. Radiocoms has also filed
additional U.S. and European patent applications that are pending.
Radiocoms' current mobile radio systems incorporate Advanced Digital Network
Trunking ("ADNT") technology licensed from Fylde Microsystems Limited, an
English manufacturer of trunked radio systems, under a ten year license
agreement that commenced on January 1, 1993. ADNT allocates communications
channels to users on an as-needed basis, thereby alleviating the limitations
inherent in systems in which users are assigned single frequencies.
APPLICATIONS OF LM TECHNOLOGY
Radiocoms believes that the LM techniques developed and patented by
Radiocoms have widespread applications in many sectors of radio communications.
Radiocoms has focused its initial applications on the implementation of very
narrowband mobile radio systems, delivering wide area cover at reasonable cost
in areas where traffic density varies significantly across the coverage area.
Radiocoms is developing a range of products to cover the principal spectrum
allocations for such systems, which includes specified (but not continuous)
allocations between 70MHz and 470MHz for emergency services and public safety
organizations, as well as commercial users. With the growing demand for mobile
communications, these spectrum allocations have become congested in highly
populated areas, and communications have become problematic for many existing
users due to interference from other co-channel systems.
Radiocoms' LM narrowband technology allows the introduction of narrowband
systems in and among systems using existing FM technologies. The new LM
technology can be introduced on a site by site, user by user and channel by
channel basis, releasing spectrum for additional narrowband channels at each
stage.
Radiocoms' current generation of mobile radio products using LM technology
meets the technical requirements recently established by the FCC in the U.S. and
the Radiocommunications Agency in the U.K. (the "RA"), for narrowband operation
in private mobile radio. The FCC has established 5kHz channel
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spacing as the current standard for the 220MHz band. The RA has established 5kHz
channel spacing for use in mobile radio applications. If 5kHz spacing is adopted
for other bands, channel spacing could be increased significantly where current
authorization is as much as 30kHz in the 150-174MHz VHF band in the U.S.
(although the FCC has adopted rules to assign channels in this band based on
7.5kHz spacing). In some other parts of the world, such as the U.K., channel
spacing is currently 12.5kHz per channel.
The 5kHz channel spacing, selected by the FCC for its very narrowband 220MHz
initiative and by the RA in MPT 1376 (which specifies the co-existence
requirements for transmitters and receivers) is the narrowest mobile radio band
established in the world. Within this narrowband, Radiocoms' LM products deliver
high quality voice and a high data transmission rate (up to 14.4 kbps in a 5kHz
channel) with wide area coverage.
MARKETING
The ESU markets its services and products through its own direct sales
force. The sales force included eight employees as of June 30, 1996 and is
organized primarily by market sectors (E.G., the petrochemical, construction and
transportation sectors). The ESU relies primarily on direct sales efforts,
including telemarketing and presentations at trade shows.
The SSU markets its services through its own sales force. This salesforce,
which consisted of three employees as of June 30, 1996, often receives referrals
of business opportunities from ESU when customized solutions are required. It
also seeks to obtain business by responding to tenders issued by entities
seeking mobile communications solutions. SSU has one sales representative based
in the U.S. marketing Radiocoms' products in 220MHz.
In addition to marketing Radiocoms' products and services, the Managing
Director of Radiocoms and the U.S. based sales representatives spend
considerable time marketing LM technology generally to potential equipment
manufacturers and to governments and regulatory authorities, advocating the
advantages of a narrowband solution in refarming congested spectrum.
In the U.S. 220MHz market, in addition to marketing sales of equipment for
new systems, Radiocoms is targeting existing system operators seeking to switch
from equipment purchased from other manufacturers.
PROPRIETARY LM PRODUCTS
Radiocoms designs, manufactures and distributes both base stations and
mobile radios using its proprietary LM technology. Radiocoms' LMC3005 base
station includes separate receiver, transmitter, power amplifier, power supply
unit and trunking channel controller modules. The base station offers from 1 to
20 channels, the option of 25 or 100 watts peak envelope power and uses only
half the transmit power of a comparable FM transmitter for the same range
(thereby reducing on site noise).
Radiocoms' LM 3XXX series of 5kHz channel mobile radios is currently
available in vehicle mounted form. Development of a hand held portable unit is
at an advanced stage and Radiocoms anticipates commencing production in early
1997. Radiocoms' equipment is compatible with MPT 1327 (a trunking standard in
widespread use around the world), MPT 1376 (the co-existence specification
issued by the RA for UHF and VHF private mobile radio systems operating in 5kHz
channels), and applicable FCC regulations.
Features of Radiocoms' base station and mobile radio include clear, flutter
and fade free signals over a very wide range of signal conditions, high quality
speech providing good voice recognizability, fast data transmission capability
at an adaptable rate up to 14.4 kb per second and fully trunked systems.
Radiocoms' systems are capable of providing telephone interconnect capability
with the addition of appropriate interface equipment.
COMPETITION
ESU competes with a variety of small U.K. regional companies that typically
have exclusive arrangements with a major equipment manufacturer such as
Motorola, Philips and Tait, as well as with the direct sales forces of such
equipment manufacturers.
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SSU competes with a variety of companies, most of which are either
independent systems integrators or are the separate systems integration business
of the major equipment manufacturers.
Radiocoms' proprietary LM products compete primarily in the U.K. and Europe
with those of other manufacturers such as Motorola and Ericsson and distributors
of mobile radio equipment seeking to provide spectrally efficient solutions in
response to demand of both regulators and users. Most of the major established
manufacturers have moved away from the existing "single communication channel"
approach ("Frequency Division Multiple Access" or "FDMA"), to amalgamating
several channels and pipelining information down the new, broader, channel in
time slots ("Time Division Multiple Access" or "TDMA"), such as TETRA ("Trans
European Trunked Radio") or overlaying a large number of coded information sets
and decoding only the "wanted" set at the receiver ("Code Division Multiple
Access" or "CDMA"). One company, Geotek Communications, uses a technique known
as "Frequency Hopping Multiple Access" or "FHMA" where digital packets of voice
or data information hop from frequency to frequency in predetermined order.
Radiocoms' products using LM technology provide a simple narrowband, single
or multiple communication channel solution to the problem of spectrum
efficiency. Unlike narrowband solutions, complex wideband solutions, such as
TDMA and CDMA, require large sections of unused spectrum to be available in
continuous blocks. A narrowband solution permits a planned phasing in of new
technology and equipment, thereby enabling an upgrade of only those parts of a
customer's system where improved performance is needed or desired. In addition,
unlike the existing alternative approaches, the LM narrowband approach provides
a high degree of system planning flexibility by enabling a close match of
available channels to the predicted traffic requirements in each particular
geographical area of operation.
Radiocoms competes in the manufacture and supply of mobile radio systems
with manufacturers such as Motorola, Ericsson, GE-Ericsson, Philips and Tait,
however, none of these competitors manufacture narrowband systems. In the
manufacture and supply of 220MHz mobile radio equipment for the U.S. market,
Radiocoms' principal competitor is SEA Inc. In addition, licensees using
Radiocoms' LM technology to manufacture LM products also may compete with
Radiocoms' own proprietary products.
EMPLOYEES
As of October 1, 1996, Radiocoms had 258 employees: 29 employees in
management, administration and finance, 12 in sales and marketing, 33 in
research and development, 133 in manufacturing, 11 in systems engineering and
project management and 40 technical support staff. All of Radiocoms' employees
(except one) currently are employed in the U.K. Radiocoms believes that
relations with its employees are good and it has never encountered a strike or
material work stoppage. In addition, Radiocoms currently engages 18 contract
staff on consultancy and product development work.
PROPERTIES
The following table sets forth Radiocoms' principal owned and leased
executive, finance, sales and marketing, manufacturing, warehouse and research
and development facilities and radio mast locations:
<TABLE>
<CAPTION>
LOCATION USE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Midsomer Norton, England+/* executive and finance offices, sales and marketing,
manufacturing, warehousing and research and development
Cardiff, Wales+ sales and maintenance
Croydon, England* sales and maintenance
Barnstaple, England+ radio mast site
Liskeard, England* radio mast site
Peterborough, England* radio mast site
Broomfield, England* radio mast site
Redruth, England* radio mast site
Heathrow Airport, England* maintenance base
Abington, Scotland* radio mast site
Kilcreggan, Scotland* radio mast site
</TABLE>
- ------------------------
+ Owned
* Leased or occupied under license
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Radiocoms considers its properties generally to be in good condition and
believes that its facilities are adequate for its operations and provide
sufficient capacity to meet its anticipated requirements.
REGULATION
GENERAL
Radiocoms is subject to the regulation of the manufacture, distribution and
marketing of its products in the countries in which it does business. These
regulations typically govern the technical specifications under which Radiocoms'
products are manufactured and distributed. Furthermore, the spectrum management
rules and policies of the countries in which Radiocoms conducts its business and
of the International Telecommunications Union ("ITU") and the European
Telecommunications Standards Institute ("ETSI") impact the potential markets for
Radiocoms products. In addition to the country specific regulations governing
the nature of the equipment, Radiocoms must also comply with certain European
Union directives and regulations, including the EMC ("Electro-Magnetic
Compatibility") regulations and the Low Voltage Directive which apply to all
electronic equipment, including radio equipment, used in the European Union.
Similar regulations also apply in the U.S.
U.S. In the U.S., the production, distribution and marketing of Radiocoms'
products is subject principally to regulation by the FCC. FCC regulations govern
the technical specifications of Radiocoms' products, including, channel
bandwidth, emissions mask and frequency stability. Radiocoms' products require
authorization by the FCC as in compliance with the FCC's rules, regulations and
policies prior to their distribution and marketing within the U.S. and must be
properly labeled as such when marketed. Alterations or changes in Radiocoms
products may also require FCC approval prior to marketing. Radiocoms may also be
subject to any reporting requirements that the FCC may impose on foreign or
domestic equipment manufacturers from time to time.
The FCC, in addition, is principally responsible for the promulgation of
rules and policies governing the management of spectrum allocated for
non-Federal government use in the U.S., including those allocations made for
commercial mobile, private mobile and public mobile safety uses. Except for such
unlicensed use of the spectrum as may be otherwise permitted by the FCC's rules,
the FCC licenses radio operators in the U.S. pursuant to Title III of the
Communications Act of 1934, as amended. The FCC has adopted many rules and
policies applicable to spectrum allocations that vary from band to band, and has
numerous open proceedings proposing new or revised rules or policies for certain
bands, including one governing the refarming of the Private Land Mobile Radio
Bands below 512MHz wherein the FCC has adopted, subject to reconsideration
(including pursuant to a request made therefor by Radiocoms), channel spacings
of 7.5kHz in the 150-174MHz band and 6.25kHz in the 421-512MHz bands. Radiocoms
believes the FCC's decision on reconsideration in its refarming proceedings
imminent. It is not anticipated that the reconsideration decision in the
refarming proceeding will significantly alter the channel spacings adopted for
the 150-174 MHz and 421-512 MHz bands, although the FCC on reconsideration may
grant the frequency coordinators in these bands the flexibility to coordinate
licensing in these bands in 5 kHz spacings. There is no assurance, however,
until the FCC's decision is released, that the decision on reconsideration will
adopt any particular approach or rule or will provide the frequency coordinators
the flexibility to coordinate licensing in 5 kHz spacings. With respect to any
particular frequency band, FCC rule revisions or waivers may be required prior
to the introduction of Radiocoms' products into those bands.
On July 28, 1995, the FCC adopted a SECOND MEMORANDUM OPINION AND ORDER AND
THIRD NOTICE OF PROPOSED RULEMAKING in PR Docket No. 89-552, GN Docket No.
93-252, and PP Docket No. 93-253. Based upon its review of comments in the THIRD
REPORT AND ORDER in GN Docket No. 93-252, the FCC proposed a revised regulatory
scheme for the 220MHz service.
Under this proposal, the 220MHz band would be reallocated to provide for
contiguous channel assignments for Phase II licensing in the 220-222MHz band.
Licensees obtaining such contiguous channel assignments under this proposal
would be permitted to aggregate such channels and use non-narrow band equipment
to provide service. Under this proposal, Phase II licenses will be issued in
different channel blocks ranging from five to 20 channels by local areas,
regional areas and 172 Economic Areas ("EA's") as defined by the Bureau of
Economic Analysis in the Department of Commerce and nationwide. The FCC's
decision on Phase II licensing is believed to be imminent. Although no assurance
can be given at this time
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that the FCC will adopt any particular approach or rule, the FCC, rather than
rechannelizing the band entirely into contiguous channel assignments, may elect
to retain the Phase I band plan for Phase II licensing and to permit those
licensees that are able to aggregate contiguous channels to deploy non-narrow
band equipment subject to the satisfaction by that equipment of a spectrum
efficiency standard to be defined by the Commission.
The National Telecommunications and Information Administration ("NTIA") of
the U.S. Department of Commerce is principally responsible for the promulgation
of rules and policies governing the management of spectrum allocated for Federal
government use. NTIA licenses the use of Federal government spectrum. Spectrum
allocated for both non-Federal Government and Federal Government use is jointly
managed by the FCC and NTIA through the Interdepartmental Radio Advisory
Committee ("IRAC").
Project 25 of the Association of Public Safety Communications Officers
("APCO-25") is an industry effort by suppliers of public safety communications
products to agree upon standards for voice and data wireless public safety
communications systems. Phase I of APCO-25 is nearing completion and has
identified a channel bandwidth of 12.5kHz and a raw data rate of 9600 bp/s.
Phase II of APCO-25 commenced in August 1996 to examine the narrowing of the
channel bandwidth for voice and data wireless public safety communications
systems to 6.25kHz while maintaining a data rate of 9600 bp/s. The Public Safety
Wireless Advisory Committee ("PSWAC") was chartered in 1995 under the Federal
Advisory Committee Act to provide advice to the FCC and NTIA on, among other
things, the need for interoperability in spectrum requirements. PSWAC delivered
its final report to the FCC in September 1996. The FCC has opened a rulemaking
docket to consider modifications to its rules based upon PSWAC's report and
other comments that it may receive in that docket.
See "THE COMPANY -- Regulation."
U.K. In the U.K., all operators of mobile radio systems require a licence
from the RA. For short term use (E.G., of equipment rented out by the ESU) the
user can rely on the licence granted by the RA to the renting company.
In the U.K., the RA is principally responsible for the management of the
civil radio spectrum. In August 1993, the RA issued a policy statement entitled
"Private Mobile Radio: 5kHz Channels." In that statement the RA recognized that
narrowband 5kHz channeling was one of a number of possible ways of achieving the
benefits of greater spectrum efficiency. The RA has indicated that it will be
making spectrum available in narrowband channels in accordance with a common
European approach. The RA stated that the progressive introduction of narrowband
channels would enable users to take advantage of the new spectrally efficient
technology and would provide a sound basis for manufacturers to supply into the
market.
On June 17, 1996, the Department of Trade and Industry published a
Consultative Document entitled "Spectrum Management: Into the 21st Century."
This document sets out the view of the RA that existing regulatory measures for
spectrum management in the U.K. are no longer sufficient. New measures are
proposed by which the current radio license fees will be replaced by new
spectrum pricing methods intended to reflect more closely the value of the
spectrum. Under the present policies established by the Wireless Telegraphy Act
of 1949, radio license fees are set at a level to recover no more than the fully
allocated costs of managing the spectrum. As a result, the price charged for
spectrum is very low in comparison to its economic value. The RA believes that
the new method, encompassing both auctions and administrative pricing, will
provide users of congested frequencies with incentives to migrate to less
congested frequencies, to re-equip with spectrum-efficient equipment, to move to
more spectrum efficient services and to cease hoarding spectrum. Comments on the
Consultative Document in general, and the question of spectrum pricing in
particular, are due by October 25, 1996.
Radiocoms believes that any moves by regulatory authorities that, by
increasing the cost of available spectrum, encourage mobile radio users to
consider re-equipping with spectrum efficient equipment, will increase business
opportunities for Radiocoms.
LEGAL PROCEEDINGS
Radiocoms is not a party to any material litigation and is not aware of any
pending or threatened litigation that would have a material adverse effect on
Radiocoms or the Radiocoms Business.
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THE COMPANY
INTEK was incorporated in 1969. On September 23, 1994, the Merger occurred
with Simrom, whose principal assets consisted of certain rights relating to
licenses granted by the FCC for the 220MHz. Subsequent to the Merger, Simrom
changed its name to Roamer One and the Company refocused its business from the
Plastics Business, to a development stage enterprise of developing, constructing
and managing 220MHz SMR Systems in the U.S.
The Company has two principal subsidiaries, Roamer One and Midland USA,
Inc., and three insignificant subsidiaries, Olympic, IMCX, Inc. and IDC, Inc.
On September 20, 1996, the Company acquired, through its wholly owned
subsidiary, Midland USA, Inc., the U.S. LMR Distribution Business of MIC. See
"The Company -- Midland USA, Inc."
ROAMER ONE, INC.
HISTORY OF SMR. In 1970, the FCC initiated a process for a new spectrum
plan that laid the groundwork for the present day wireless communications
industry. The FCC reallocated 115MHz of radio spectrum in the 800/900MHz bands
from the federal government and UHF television to land mobile service use. Fifty
MHz were allocated for cellular service and forty-six MHz were allocated for
private radio services, including nineteen MHz of spectrum to SMR operators. The
remaining nineteen MHz in these bands were divided among six different services,
including reserves. Due to regulatory delays, the first commercial cellular
systems were not operational until 1983. The first SMR systems became
operational in 1974.
DESCRIPTION OF BUSINESS. Roamer One has established itself as a manager of
220MHz SMR Systems utilizing its contracts with certain holders of 220MHz local
licenses. The evolution of narrowband technology is a result of the FCC's effort
to achieve spectrum efficiency for all types of broadcast service. The 220MHz
spectrum was allocated to explore further the development of narrowband
equipment in a "virgin" spectrum, virtually free of existing licensees or
authorized users. The FCC adopted its rules and opened a filing window for
applications for licensing of SMR and other private land-mobile communication
systems in 220MHz band in 1991. Licenses for local 220MHz SMR systems were
issued in 1993. Approximately 3,300 five channel trunked licenses were awarded
to licensees. Roamer One has contracted with certain holders of 220MHz licensees
and has classified them generally 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, or others affiliated with the Company) has
entered into a management agreement which 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 220MHz SMR system, together with
the 220MHz license, for a nominal sum. Under the Option Agreement, Roamer One is
required to fund all capital costs and operating expenses. The option under the
Option Agreement may be exercised by Roamer One at any time after construction
by Roamer One of the 220MHz SMR System is completed. As of June 30, 1996, Roamer
One had 228 Category I Agreements, of which 73 were constructed.
Under Category II Agreements, each of the licensees has entered into a
management agreement which permits Roamer One to earn and retain, depending upon
the licensee, 30-65% of the gross subscriber revenues. Each of the licensees
also has entered into an Option Agreement, however, in most cases, the option
may be exercised only after the expiration of 18 months to 48 months (depending
on the licensee) after the construction of the 220MHz SMR system by Roamer One
has been completed. Roamer One is required to finance the building of the 220MHz
SMR system and contribute operating capital until such time as the system is
profitable. The purchase price of the 220MHz SMR system, together with the
220MHz license, is generally computed using a multiple of earnings at the time
of purchase. As of June 30, 1996, Roamer One had 33 Category II Agreements, of
which 27 were constructed.
Under the Category III Agreements, each of the licensees has entered into a
management agreement providing that Roamer One will manage the 220MHz SMR system
for a fee varying (depending on the licensee) from 20% to 40% of gross revenues.
Under a Category III Agreement, Roamer One has no option
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to purchase such 220MHz 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 and the Company is able to match such
offer. The licensees under Category III Agreements are obligated to provide the
funds for the system construction and operating costs. As of June 30, 1996,
Roamer One had 153 Category III Agreements, of which 38 were constructed. An
additional 28 systems were constructed for, and sold to third parties.
The Company also has begun to implement a strategy of acquiring management
agreements entered into with licensees and other management firms, which firms
in some cases may be competitors of the Company. These management agreements
will be assumed by Roamer One and vary in their terms and conditions and,
therefore, do not fit within the definitions of Category I, II or III Agreements
as established by the Company for its own contracts. As of October 31, 1996, the
Company acquired, pursuant to this strategy, five management agreements from
Pagers Plus Cellular in exchange for a brokerage fee of $10,000 for each
assigned management agreement.
There were 425 Management Agreements as of June 30, 1996, covering a total
of 2,125 channels. Roamer One will provide services related to its managed
systems as well as to others that include:
(a) System design and construction
(b) Market demographics
(c) Advertising
(d) Subscriber acquisition and loading
(e) Dealer network establishment
(f) Subscriber billing and tracking
(g) Budget administration
(h) System management, maintenance and repair
The current manufacturers of 220MHz transceiver equipment from whom the
Company obtains its base station repeater equipment are SEA and Radiocoms.
Equipment from these vendors and of peripheral equipment may not be available in
time to allow the completed construction of all 220MHz SMR systems prior to the
FCC imposed deadline as existing or amended.
The Company believes that Roamer One name recognition in the marketplace is
critical to the planned growth of the Roamer One Network. Accordingly, the
Company has purchased mobile radios bearing the Roamer One logo from LMT. Prior
to the acquisition of the U.S. LMR Distribution Business Roamer One had
contracted with MIC for the receipt, warehousing and distribution of such Roamer
One branded mobile radios in exchange for a commission payable to MIC for each
radio sold to subscribers. As of June 30, 1996, approximately 1,400 radios had
been delivered by Radiocoms to MIC. Subsequent to August 1, 1996, Midland USA
will be responsible for the distribution of Roamer One radios.
MARKETING STRATEGY. Industry sources currently estimate that in the
aggregate, the number of SMR units in service has increased from fewer than
380,000 in 1985 to more than 2 million by the end of 1995. The largest sector of
LMR users today are utilizing trunked channels with traditional, push-to-talk,
voice radios. Subscribers consist mainly of service companies such as
contractors, plumbers, electricians, roofers, maintenance personnel and other
operators of fleets of vehicles. Also comprising a large segment are couriers,
limousine services and other transportation companies. Utility companies,
package handlers, fire and paramedic vehicles and other public safety concerns
are typical LMR users who may own or lease entire systems in a local area. LMR
meets the need of these users because they require a form of voice communication
from a dispatch, or base station, location to a fleet of vehicles which is well
served by LMR systems. The typical "customer" for an LMR operator is a company
that requires a base station plus an average of four mobiles. The Roamer One
radio can offer these customers not only dispatch group calling capability, but
also privacy. The operator can contact each radio individually or a group of
radios at the same time.
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The initial radios offered to subscribers look very much like the
traditional LMR, under dash mount, units currently in use by dispatch customers
such as taxi cabs, trucking firms, and construction companies.
Portable radios have now been type accepted by the FCC and are being
produced by SEA for use on SEA base station equipment. Radiocoms expects to have
a portable radio available by the first calendar quarter of 1997. The other
major development area is data transmission and devices. Radiocoms offers a 14.4
kilobit per second (kbps) transmission rate and can send data over their
existing radio via a standard RS232 pin plug on the chassis. SEA, together with
other contract vendors are working on enhancements to their data capability,
which currently is below that of Radiocoms' products.
Due to the 5 kHz bandwidth in the 220MHz spectrum, compared to 25 kHz
bandwidth in the 800MHz spectrum, high speed data transmissions are a far more
efficient use of the narrowband spectrum than other applications such as mobile
telephone service. Roamer One does not intend to compete with cellular or
personal communication services ("PCS") operators. Roamer One's initial
marketing efforts will be directed toward traditional SMR dispatch users.
Examples of available data communications include Global Positioning System
receivers mounted on a vehicle to determine location, monitoring of such other
factors as fuel consumption, speed, and engine performance, two way messaging,
credit card reading for wireless authorizations, and remote control of any
application or function (lights, valves, doors, switches, etc.). The current
offerings of data terminals require connection to a radio to facilitate their
messaging.
The success of the planned Roamer One network of 220MHz Systems will, to a
large extent, be dependent upon the Company's ability to attract subscribers for
its services. Roamer One will use two key methods to market its services. The
primary distribution method is the exclusive arrangement with Midland USA.
Roamer One's National Sales Manager identifies the areas of planned development
and contracts with dealers (which may include resellers, two-way radio dealers
or other Roamer One authorized agents) for air time activation. In cases where
Midland USA does not have a representative dealer, Roamer One will be
responsible for identifying and "signing up" a Roamer One authorized dealer who
will purchase subscriber product from Midland USA. Further incentives will be
offered by Roamer One in the way of co-operative advertising and purchase price
rebates. In some cases the distributor, such as Midland USA, may elect to offer
other sales incentives and Roamer One will reimburse the distributor for certain
of such incentives. The dealer base selected will be comprised of radio shops
who maintain their own sales staff and generally have extensive knowledge of the
local marketplace. Roamer One believes that the 220MHz product should offer the
dealer an attractive alternative to other SMR products and provide Radiocoms an
entry into the U.S. LMR business.
The second method is direct sales by the Roamer One sales force and Roamer
One authorized agents. The sales force will pursue larger fleet clients such as
regional and national trucking firms, government agencies, or utility companies.
Agents are responsible for the pursuit of more traditional targeted subscribers
through personal contacts. In each case Midland USA, or a Roamer One authorized
dealer, would provide the equipment to the end user. Roamer One will provide the
radio service. INTEK's National Sales Manager is responsible for overseeing the
operation of each of these efforts.
The category of dealer, agent, or reseller is defined by the level of
service given to the subscriber and the volume of mobile units activated by the
firm. A dealer is a firm which sells, services and activates mobile units for
the end user. The dealer must submit an application completed by the subscriber
to obtain activation on the system. After activation, Roamer One will conduct
all invoicing to the subscriber for usage and remit a commission to the dealer
for their efforts. The agent is a firm who merely submits activation
applications to Roamer One. An agent neither stocks nor services the mobile
units. The reseller is typically a large two-way radio franchised dealer or
distributor. The firm may also be an SMR operator in another frequency who needs
additional channel capacity. The reseller is granted a block of "unique
identification codes" by Roamer One and must pay a flat fee for each code per
month. All aspects of selling mobile radios, the billing for air time and base
charges, and the tracking of subscribers is the responsibility of the reseller.
Roamer One renders one invoice to the reseller covering the group of activated
codes.
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COMPETITIVE ADVANTAGES: As Roamer One begins to market its services, the
management of Roamer One believes that it will have a competitive advantage over
other SMR providers because of the following factors:
(a) In the case of wide area coverage, certain radio propagation parameters
at 220MHz are superior. The signal is less susceptible to loss in certain
terrain and conditions.
(b) The signaling protocol being used in the Radiocoms equipment has been
proven in many other installations to be stable with a large numbers of
subscribers while continuing to provide an excellent quality of service.
The techniques being employed in digital compression are yet to be
perfected, thereby providing INTEK with a near term market opportunity.
(c) The protocol being used by Radiocoms equipment is substantially similar
to that currently being utilized in Europe and has proven to be an
effective means to "network" multiple sites and multiple channels. As
Roamer One rolls out its plan to create a national network of systems, it
believes it will have a distinct advantage over other SMR analog Logic
Trunked Radio ("LTR") operators which are unable to network their systems
in a cost efficient manner.
(d) The Radiocoms systems allow for the assignment of an electronic site
address for the station and a unique identity number for the mobile
radio. These features allow for the control of, and the accounting for,
each subscriber on the service. Traditional LTR operators are unable to
effectively police their systems and account for the number of
subscribers. As a consequence, LTR operators are unable to appropriately
bill for their service because they have no method of accurately
determining how many subscribers there are on each of the licensee's
systems. Roamer One will be able to accurately charge for usage of its
managed systems. Additionally, the assignment of unique identity numbers
will provide for the subscribers to contact other subscribers
individually and with privacy instead of communicating through a shared
group of mobile codes.
(e) Due to the relatively low infrastructure cost of 220MHz SMR Systems and
the cost of acquisition of 220MHz licenses when compared to Enhanced
Specialized Mobile Radio ("ESMR") 800MHz and 900MHz systems and licenses,
Roamer believes that it can offer a lower priced (but comparable quality)
service while recovering its invested capital in a shorter time period.
COMPETITION: Roamer One believes that it will be able to provide services
that are competitive with certain services provided by SMR operators in the
800MHz and 900MHz frequencies and other existing and future wireless
communication providers of dispatch and data communications services, including
the emerging PCS. Roamer One does not expect to compete directly with cellular
carriers, paging companies, or providers of one-way PCS communications, although
to some extent services provided by Roamer One and by these other carriers will
be substitutes for each other.
The SMR operators in the 800MHz spectrum are expending large sums of money
to build-out digitally enhanced mobile networks in order to provide an
integrated package of services, including mobile telephone service, dispatch,
and data communications services. The technology in use is sometimes generally
referred to as ESMR. A consolidation of 800MHz licenses and operators has been
underway for some time by a publicly traded, well capitalized company named
Nextel. During 1995, Nextel has implemented service in selected major cities in
the U.S., utilizing a Motorola technology aimed at providing a cellular like
service. Roamer One has no current plans to provide mobile telephone service,
although it intends to provide dispatch and data services in these markets.
Roamer One expects that 800MHz digital system operations will charge a
premium for their service over and above rates currently charged to dispatch
users of analog systems because these wireless digital 800MHz systems require
large sums of capital expenditures, transmission quality on their digital
networks reportedly will be better than on traditional analog SMR channels, and
their new integrated package of services to be offered by these wireless systems
is claimed to be a more effective and comprehensive wireless communications
systems. As a result, Roamer One expects that it will be successful in
attracting a significant number of customers who are not interested in paying
the higher premiums for an ESMR service. Current users of 800MHz SMR service
will also be required to purchase new digital mobile radio equipment to
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continue use of the SMR system after a conversion has been made to ESMR. Roamer
One believes that a window of opportunity exists to offer these displaced users
a more economical alternative for fleet communications.
There are, however, several factors which Roamer One believes may negatively
impact its ability to attract 800MHz customers to its 220MHz SMR service:
(a) Many of the 800MHz system operators own channels in the 900MHz spectrum
in the same market in which they are converting their 800MHz SMR to an
ESMR. As a result, they are able to load those existing clients who do
not desire ESMR onto the analog 900MHz system. This migration still
requires the purchase of new mobile radio equipment, however the 900MHz
equipment is priced below levels of the 220MHz equipment.
(b) The conversion to ESMR involves in most cases the use of a technique
known as Time Divisional Multiple Access ("TDMA"). TDMA provides for
three times the number of channels and may allow for the operator to
eventually lower its basic subscriber rates as a function of capacities
and economies of scale.
(c) The 800MHz SMR operators are able to offer subscribers a mature radio
product that has progressed through the commercial development stages
that the Roamer One radio has not. The volume of sales related to the
800MHz radios has resulted in a significantly lower price compared to
that of the Roamer One radio. Also, the 800MHz operators and service
providers are for the most part well established and better able to
withstand the efforts of a newly competing product offering, such as that
of Roamer One, by subsidizing the air time or mobile radio costs to
levels that may make it difficult for Roamer One to compete.
(d) Other SMR operators have already begun a consolidation with a goal of
achieving a nationwide network. Because these operators have had clients
and systems in operation for a considerably longer period than Roamer
One, they have a competitive advantage in completing their respective
networks and maintaining a significant percentage of their existing
subscriber base.
As of June 30, 1996, there were very few 220MHz systems in commercial
operation. Like Roamer One, other management firms and licensees have been
directing their efforts to constructing base stations for their non-nationwide
licenses in advance of the approaching the FCC mandated construction deadline.
Additionally, the nationwide licensees have only recently commenced constructing
their base stations.
The FCC has commenced a competitive bidding schedule for licenses in the
recently allocated PCS market. To date, the FCC has issued national and regional
narrowband PCS licenses and certain broadband PCS licenses. An auction for
additional broadband PCS licenses began August 26, 1996. The FCC has indicated
that in the future it intends to auction additional narrowband PCS licenses. PCS
is described to be the next generation in personal wireless communications and
will provide for digital voice, data, paging, messaging and dispatch operations
all transmitted with low power, lightweight, portable hand-held units.
In addition to PCS, there are a host of other services that could eventually
compete with the 220MHz SMR operators and Roamer One due to the movement that
the FCC is taking towards a "level playing field" or "regulatory parity."
Services such as Interactive Video Data Service, or Wireless Cable may be
allowed to offer dispatch services under the FCC proposed rulemaking. This
regulatory parity, however, is a corresponding benefit to Roamer One as 220MHz
operators will be allowed to offer fixed point transmissions, paging, messaging
and other services previously garnered by licensees of differing spectrum.
OLYMPIC
Olympic was engaged in the Plastics Business. The Company decided to divest
itself of the Plastics Business. Olympic ceased all operations of its Plastics
Business on or about March 31, 1995.
Olympic has sold the productive assets and inventory of its compression
molding, electrostatic discharge, aerospace product lines and custom molding
operations. See "--Properties"
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IMCX CORPORATION
On June 7, 1985, the Company acquired all the issued and outstanding stock
of IMCS Corporation ("IMCS"), a California manufacturer of electrostatic
simulation and testing systems. On August 12, 1993 the Company incorporated IMCX
Corporation ("IMCX") in California for the purposes of holding patents and other
assets and liabilities previously owned by IMCS. On August 12, 1993 IMCS was
sold to Advanced Technology Inc.
MIDLAND USA, INC.
On May 2, 1996, INTEK formed Midland USA.
On September 20, 1996, Midland USA began operating the U.S. LMR Distribution
Business acquired from MIC. The U.S. LMR Distribution Business distributes in
the U.S. LMR Products, with sales of $27,406,000 in 1995 and $18,211,000 and
$5,869,000 in the six months ending June 30, 1995 and 1996, respectively. The
business consists of the import, distribution and value added resale of two-way
radio products for the U.S. professional LMR market. LMR products are marketed
for the commercial and professional LMR Market in the U.S. by Midland USA
through a national network of over 220 two-way radio dealers as well as on a
direct basis to larger accounts in the business and government sectors. In the
U.S., a radio dealer may offer several different product lines but will
typically feature two or three major product lines in which they have
confidence. MIC's dealer relationships have been strained over the past year as
a result of product price increases and delays in product delivery.
Historically, approximately 55% to 60% of LMR products sold by the U.S. LMR
Distribution Business were sold to dealers. The radio dealers sell, install and
service two-way radio products primarily for commercial, industrial and local
government customers. Some radio dealers also are involved in the maintenance
and sales and service for custom SMR systems. Long standing business
relationships ranging in length from 5-10 years exist with many of the dealers
who are responsible for sales and support to the large installed user base of
Midland radios. Parts and accessories to LMR Products constitute a significant
portion of the U.S. LMR Distribution Business sales, which represented
approximately 30% of revenues during 1995.
Midland USA did not acquire from MIC the international LMR businesses, which
include the distribution and value added resale of two-way radio product for the
professional LMR market outside the U.S., including the U.K., Europe, the Middle
East and Africa.
PRODUCTS
The U.S. LMR Distribution Business markets LMR products for radio
frequencies allocated by the FCC for LMR use. This includes mobile radios,
portable hand held radios, desk top base stations, and accessories. Most of the
LMR products sold are manufactured by third parties under contract, primarily in
Asia. These products were developed to the design, quality and cost
specifications provided by MIC. For certain products, MIC has exclusive
contracts with a number of suppliers which provide MIC with certain rights with
respect to product design and product tooling. Such rights make it more
difficult for these suppliers to develop products of similar appearance or
design for other marketers of two-way communication products.
The principal suppliers of LMR products for the U.S. LMR Distribution
Business include Hitachi Denshi Limited and General Research Electronics. With
the exception of China and Japan, MIC has exclusive worldwide distribution
rights to the Hitachi Denshi line of two-way radio products. As part of the
Midland Transaction, MIC agreed to give the benefits of these rights to INTEK,
through Midland USA, for the U.S. LMR Distribution Business. See "THE SECURICOR
TRANSACTION -- Terms of the Escrow Agreement."
COMPETITION
The LMR market in the U.S. is dominated by Motorola. In addition to
Motorola, other main competitors in the U.S. include Ericsson, Standard
Communications, Kenwood and EFJ. These companies supply primarily their own
products for radio systems integration.
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EMPLOYEES
As of October 1, 1996, there were 65 employees engaged in the conduct of the
U.S. LMR Distribution Business: 2 in management, 24 in administration, 14 in
technical and engineering support, and 25 in sales.
PROPERTIES
The Company, through Olympic, owns the Property located at 5800 West
Jefferson Boulevard, Los Angeles, California. The Property consists of a
one-story masonry building with approximately 66,750 square feet of
manufacturing and office space on approximately 89,210 square feet of land. A
sale is currently pending. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION -- INTEK -- Liquidity and Capital
Resources."
Roamer One entered into a five-year lease for approximately 3,370 square
feet of office space at 970 West 190th Street, Suite 720, Torrance, California.
Four years remain on the lease.
Midland USA has assumed a lease from MIC for approximately 44,050 square
feet of warehouse and office space at 1690 North Topping Avenue, Kansas City,
Missouri. Three months remain on the lease. The Company expects to extend the
lease at least through July, 1997 on substantially the same terms and conditions
as currently set forth in the lease.
REGULATION
REGULATION BY THE FCC. 220MHz SMR operators, just as radio and television
stations, are subject to the jurisdiction of the FCC under the Communications
Act of 1934, as amended (the "Communications Act") which empowers the FCC, among
other things, to issue, renew, revoke, and modify licenses (usage rights to
frequencies), to approve the assignment or transfer of control of licenses, to
regulate the apparatus used by stations, to designate areas served by particular
stations or operators, to assign frequencies, to adopt such regulations as may
be necessary to carry out the provisions of the Communications Act and to impose
penalties for violations of such regulations. The FCC's policy considerations,
as well as technical limitations and interference standards, determine the
number of persons or entities that can be granted licenses.
On August 10, 1993, Congress enacted the Budget Act, in which it, INTER
ALIA, amended Section 332 of the Communications Act to replace the existing
mobile common carrier and private land mobile definitions with two newly defined
categories of mobile services: commercial mobile radio service (CMRS) and
private mobile radio service (PMRS). CMRS is defined as "any mobile service (as
defined in section 3(n) [of the Communications Act]) that is provided for profit
and makes interconnected services available (i) to the public or (ii) such
classes of eligible users as to be effectively available to a substantial
portion of the public." PMRS is defined as "any mobile service (as defined in
section 3(n)) that is not a commercial mobile service or the functional
equivalent of a commercial mobile services, as specified by regulation by the
FCC."
The FCC began the process of implementing the Budget Act in the CMRS SECOND
REPORT AND ORDER released on March 7, 1994. In the CMRS SECOND REPORT AND ORDER,
the FCC determined that its private land mobile service rules with respect to
Specialized Mobile Radio (SMR), Business Radio, 220-222MHz, and private paging
allow, but do not require, licensees to offer for-profit, interconnected service
to the public, thus meeting the CMRS definition. The FCC found that, to the
extent 220-222MHz channels are used to offer for-profit and interconnected
service, the channels fall within the definition of CMRS.
On November 18, 1994, the FCC adopted the FOURTH REPORT AND ORDER in GN
Docket No. 93-252, placing contracts for the management of FCC-licensed CMRS
under its jurisdiction. Roamer One-managed 220MHz systems would qualify as CMRS
if they were interconnected with the telephone system or were found to compete
with other CMRS systems. Under the rules and policies adopted in this ORDER, any
entity managing the operations of a CMRS system is considered to have any
attributable ownership interest in the license if the manager has the authority
to make decisions, determine, or significantly influence (i) the nature and type
of services offered, (ii) the terms upon which such services are offered, or
(iii) the prices charged for such services. In contrast, contracts for the sole
purpose of providing specialized technical products or services and management
agreements involving day-to-day technical and operational functions are not
subject to this attribution.
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The determination whether a management contract is subject to this
attribution is factual, and the licensee bears the burden of proof to
demonstrate non-attribution in contested cases. Roamer One's option management
agreements would be subject to attribution if they were found to involve the
operation of CMRS systems and if Roamer One was found to hold the decision
making power over services being offered. The effect of attribution of 220MHz
licenses to Roamer One is uncertain at this time. In one scenario, this
attribution would only apply to the general CMRS spectrum cap, and likely would
not affect Roamer One. In the most adverse scenario, attribution could trigger
the 220MHz "one-to-a-market" rule resulting in the cancellation of multiple
licenses or management contracts within each market. Roamer One is not sure of
the effect future CMRS rulings may have on its management contracts, or
ultimately the systems or whether future CMRS rulings will specifically apply to
the 220MHz systems at all. Other relationships between licensees serving
overlapping coverage areas as defined by a 40-mile radius should they exist, may
also result in the attribution of interests between the licensees and thus in
violation of the "one-to-a-market" rule. The Company has no knowledge of any
such attributable relationships, but has not undertaken an investigation of the
relationships between its licensees under management. The FCC is currently
considering a proposal to eliminate the "one-to-a-market" rule in connection
with its on-going rulemaking in PR Docket 89-552 that will govern Phase II
license assignments in the 220-222 MHz band. The FCC's decision on Phase II
licensing is believed to be imminent although, at this time, no assurance can be
given that the FCC will eliminate the "one-to-a-market" rule in this proceeding.
Traditionally, the FCC has regarded dispatch service as non-interconnected
service, and thus a PMRS offering. However, the FCC is also considering
permitting CMRS carriers to provide dispatch service. Thus, Roamer One's mode of
operating managed systems could determine whether the licensees are deemed to be
CMRS or PMRS providers. Alternatively, the FCC could deem Roamer One's dispatch
and data services to be the functional equivalent of CMRS, and thus classify the
licensees as CMRS providers without regard to the existence of
intercommunication. At this time, no assurance can be given whether the
licensees whose systems are managed by Roamer One will be deemed to be CMRS or
PMRS providers. Roamer One cannot provide any assurance that such regulation or
forbearance will not adversely affect its business plan.
On July 28, 1995, the FCC adopted a SECOND MEMORANDUM OPINION AND ORDER AND
THIRD NOTICE OF PROPOSED RULEMAKING in PR Docket No. 89-552, GN Docket No.
93-252, and PP Docket No. 93-253. Based upon its review of comments in the THIRD
REPORT AND ORDER in GN Docket No. 93-252, the FCC proposed a revised regulatory
scheme for the 220MHz service.
Under this proposal, the 220MHz band would be reallocated to provide for
contiguous channel assignments for Phase II licensing in the 220-222MHz band.
Licensees obtaining such contiguous channel assignments under this proposal
would be permitted to aggregate such channels and use non-narrow band equipment
to provide service. Under this proposal, Phase II licenses will be issued in
different channel blocks ranging from five to 20 channels by local areas,
regional areas and 172 Economic Areas ("EA's") as defined by the Bureau of
Economic Analysis in the Department of Commerce and nationwide. The FCC's
decision on Phase II licensing is believed to be imminent. Although no assurance
can be given at this time that the FCC will adopt any particular approach or
rule, the FCC, rather than rechannelizing the band entirely into contiguous
channel assignments, may elect to retain the Phase I band plan for Phase II
licensing and to permit those licensees that are able to aggregate contiguous
channels to deploy non-narrow band equipment subject to the satisfaction by that
equipment of a spectrum efficiency standard to be defined by the Commission.
The FCC further proposed to license the nationwide, regional, and EA "any
use" channel blocks in a simultaneous multiple round auction using procedures
similar to the 900MHz and PCS auctions. This would represent Phase II of 220MHz
licensing, in contrast to the Phase I licenses issued by lottery. Under these
procedures, potential bidders would be required to file a "short-form"
application and submit an up-front payment of $0.02 per pop per MHz for the
aggregate market size (population) and licenses for which it wished to be a
simultaneous bidder. Winning bidders would be required to supplement their down
payments within five days after the conclusion of the auction to have 20% of
their winning bids on deposit with the FCC, with the remainder of the bid price
paid five days after their licenses are granted. Loss of up-front payments or
down-payments, monetary forfeitures, and disqualification from future auctions
would be
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potential penalties for bidders who default on their payment obligations or who
withdraw otherwise winning bids. The Company can give no assurance that this FCC
proposal will or will not be adopted as proposed or what the impact would be on
the markets available to LM technology should the FCC permit non-narrow band
equipment to be used in the 220MHz band. The Company can give no assurance that
the FCC will adopt rules favorable to Roamer One, or the time schedule upon
which the FCC will act. The Company can give no assurances that it will be
successful in becoming eligible for or bidding in any 220MHz Phase II auction,
that any winning bids will not adversely affect projections or future
performance, that Roamer One's participation in the auction might divert funds
from other uses, that Roamer One would not be competitively or financially
disadvantaged by other bidders qualifying as a small businesses for auction
purposes, or that any increased competition resulting from the Phase II
licensing would not adversely affect Roamer One.
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 220MHz
licensees which Roamer One seeks to manage and acquire. A licensee's failure to
maintain control can result in an FCC investigation or hearing, imposition of
monetary forfeitures, or revocation of the license. Pursuant to certain
guidelines, the FCC will review the specific facts of a particular situation on
a case-by-case basis to determine if a licensee has given control to a manager,
either under the terms of the agreement or as a result of the course of dealing
between the licensee and the manager. No assurance can be given that the
Company's Management Agreements or course of conduct in acquiring rights to or
managing the 220MHz Systems will be found to comply with such FCC requirements.
CONSTRUCTION. Although non-nationwide 220MHz licenses originally were
granted with a "construction period" of eight months following the date of
issuance, the construction period was extended three times, most recently by the
FCC Second Report and Order in PR Docket No. 89-552 and GN Docket No. 93-252.
The construction deadline was March 11, 1996 for all non-nationwide 220MHz
licensees that elected to construct base stations at currently authorized
locations, and for all licensees granted authority to modify licenses to
relocate base stations, 75 days after the grant of permission to modify the site
location. The extended deadline is applicable only to licensees who filed with
the FCC (a) on or before March 11, 1996, a Letter of Intention to modify their
location, and (b) on or before May 1, 1996, a valid application to modify their
authorizations by relocating their stations to a different location. A total of
191 modification applications were filed by or on behalf of licensees under
management by Roamer One and, as of September 30, 1996, 130 of them have been
granted. Extended construction deadlines now vary from October 7 to December 10,
1996. Action by the FCC on the remainder of these applications is expected
shortly. There can be no assurance that the FCC will act favorably on the
applications or that the FCC's decision will not result in reductions in
coverage, increased site rental, further site relocation costs, or other adverse
effects. In the event that a modification application is denied, the license for
the system may become subject to automatic cancellation.
Under the FCC's rules, any failure to construct a 220MHz system on or before
its construction deadline and to notify the FCC thereof results in automatic
cancellation of the license for any unconstructed frequencies. Any system
constructed at an alternate site prior to January 26, 1996 pursuant to Special
Temporary Authority ("STA") granted by the FCC by that date is considered having
met the construction deadline and will be granted a permanent modification to
the license regardless of the compliance to the rules as contained in the FCC
Second Report and Order provided that a valid modification application was
timely filed for this system. These STA sites must be constructed, however,
within the technical rules for 220MHz systems as outlined by the FCC.
The Company will have at latest until December 10, 1996 to construct each
system for which a modification has been obtained from the FCC. There can be no
assurance that the Company will be successful in gaining a grant of site
modification on behalf of all licenses for which an application is made. The
Company will continue to assess site locations, market indicators and its
financial resources in deciding whether to construct a system. There can also be
no assurance that the Company will be able to complete the construction of all
systems for which a modification is granted by the end of the extended
construction period or that it will have the financial resources to do so. In
the event a system for which a modification to the
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license was granted by the FCC is not built by the construction deadline, the
license would be forfeited and the Company would lose all of its rights and
benefits under its Management Agreement with respect to such license.
Licensees whose sites are located near the Canadian border are subject to
the same rules and have the same opportunity to modify site locations, except
that the construction period of one year does not become effective until such
time as a treaty is signed between Canada and the United States regarding the
use of the 220MHz frequencies that cross borders. If the Company decides to
construct such systems prior to a treaty between Canada and the United States,
there can be no assurance that a treaty will ultimately be negotiated and
adopted or that the Company will be able to retain its rights and benefits
afforded by the Management Agreement relating to such licenses in the event a
treaty is not negotiated.
Although current technology imposes capacity limitations on each 220MHz
channel, currently there is no regulatory limit on the maximum number of mobile
units that SMR operators may serve on their systems and the FCC has not
established loading requirements for 220MHz channels. No assurance can be made
that the imposition of a regulatory limit or loading requirements will not have
a material adverse effect on the Company.
Licenses are generally granted for a five-year term, subject to compliance
with FCC rules. Licenses may be renewed for additional five-year terms upon
demonstrating compliance with FCC rules and provision of adequate service to the
public. All 220MHz SMR licenses may be revoked for cause after notice and
opportunity for a hearing.
Roamer One's business is regulated by the FCC, and therefore its business
affairs (and those of its actual and potential competitors) are always subject
to changes in FCC rules and policies. Such changes can increase the level of
competition, the cost of regulatory compliance, the methods in which the Company
manages its 220MHz Systems, the Company's ability to obtain or keep licenses, 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.
FOREIGN OWNERSHIP. The Communications Act restricts foreign investment in
and ownership of FCC licensees which are classified as common carriers,
including CMRS providers, This restriction is not applicable to non-licensee
managers of communications systems.
Among other things, foreign citizens, corporations and partnerships may not
own more than 20% of a common carrier or CMRS licensee directly or more than 25%
of the parent of a common carrier licensee. In the case of parent corporations,
the FCC can determine that this limitation can be exceeded in specific cases
where consistent with the public interest. Although certain FCC precedent
supports such a wavier in the case of foreign entities having interests in the
parent companies of common carriers, no assurance can be given that the Company
would be able to receive such a favorable determination if required. See "RISK
FACTORS -- Foreign Stock Ownership."
On November 28, 1995, the FCC adopted a REPORT AND ORDER in IB Docket No.
95-22. In this proceeding the FCC adopted an additional standard for assessing
foreign ownership of CMRS licenses under Section 310(b) of the Communications
Act that examines whether "effective competitive opportunities" exist for U.S.
companies in the home market of the foreign applicant. Applying this standard in
conjunction with other public interest considerations, the FCC may permit
indirect foreign ownership of CMRS licenses greater than 25 percent.
The FCC has not yet applied this additional standard to 220MHz SMR
licensees. The Company can give no assurance that Roamer One will be permitted
to become a 220MHz SMR licensee. The Company presently intends to initiate a
discussion with the FCC to guide its further efforts, one of which could be to
obtain a declaratory ruling from the FCC that its ownership structure qualifies
for a waiver of the alien ownership restrictions. Those discussions could also
suggest that Roamer One should restructure its management or ownership structure
in some fashion as a prerequisite for obtaining a waiver. If no waiver is
obtained, neither the Company nor its subsidiary will be able to hold any CMRS
licenses, which could limit growth opportunities.
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<PAGE>
TARIFFS. Common carriers, including CMRS providers, are subject to the
tariffing requirements of Title II of the Communications Act for interstate
communications services. Pursuant to its statutory authority under the 1993
Budget Act, the FCC exercised its authority to forebear from enforcing the
tariffing requirements against CMRS licensees. The FCC did retain its statutory
authority over CMRS rates and to permit users to recover unlawful charges. The
Company cannot provide any assurance that such regulation or forbearance will
not adversely affect its business plan.
USER FEES. The 1993 Budget Act also adopted a schedule of user fees for
virtually all FCC licensees. This schedule provides for an annual fee of $16 per
license for 220MHz SMR licenses. The Budget Act also specifies a mechanism by
which this user fee will increase over time, although there was no increase for
the 1995 fiscal year. In contrast, the user fee for certain CMRS licensees is
per two-way radio as opposed to per license, and for fiscal year 1995 the user
fee was raised to $0.15 per two-way radio. Additionally, Congress also has been
presented with proposals to increase its FCC user fees substantially for a
variety of purposes. No assurance can be given that 220MHz user fees will be
maintained at or near their present levels, or that any such increases will not
be so high as to affect the profitability of 220MHz SMR systems.
LEGAL PROCEEDINGS
Neither INTEK nor any of its subsidiaries is a party to any material
litigation and is not aware of any pending or threatened litigation that would
have a material adverse effect on INTEK, its subsidiaries or their respective
businesses.
EXCHANGE LISTING, MARKET PRICES AND DIVIDENDS ON THE COMPANY'S COMMON STOCK
The Company's Common Stock is quoted on The Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol IDCC. The following table sets forth
the trade price as reported by the Nasdaq for each quarter during the last two
fiscal years ended December 31, 1995 and 1994, the first three fiscal quarters
of 1996 and for October 7, 1996.
<TABLE>
<CAPTION>
TRADE PRICE
--------------------
HIGH LOW
------- ---------
<S> <C> <C>
1996
First Quarter............... $ 9 3/4 $ 5
Second Quarter.............. 9 6
Third Quarter............... 6 7/8 4 3/8
1995
First Quarter............... $ 4 7/8 $ 2 1/8
Second Quarter.............. 10 3/4 3 7/8
Third Quarter............... 12 1/4 5 1/2
Fourth Quarter.............. 8 5/8 5 7/8
1994
First Quarter............... $ 3 5/8 $ 7/16
Second Quarter.............. 5 3/8 2 9/16
Third Quarter............... 5 1/8 2 13/16
Fourth Quarter.............. 5 1/4 2 5/8
</TABLE>
The number of Stockholders of record was 3,328 on the Record Date. The high
and low trade prices for Company Common Stock on June 18, 1996, the date on
which the Transactions were announced, were $8 3/8 and $7 5/8, respectively. The
last reported trade price for Company Common Stock on November 4, 1996 was
$6 5/8.
The Company has never paid a cash dividend and anticipates that for the
future that no cash dividends will be paid on its Common Stock. The Company
intends to retain earnings.
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NEW INTEK
BUSINESS STRATEGY
The Transaction brings together in New INTEK three complementary businesses
with strong established business relationships with one another: (a) Roamer One,
an LMR airtime service provider; (b) Radiocoms, a developer and manufacturer of
spectrally efficient land mobile radios; and (c) U.S. LMR Distribution Business,
a marketer and distributor of land mobile radios and accessories.
New INTEK intends to seek to utilize its proprietary LM technology to
establish an industry-wide narrowband standard for worldwide refarming of
congested mobile radio spectrum. Through the marketing and distribution
capabilities of the U.S. LMR Distribution Business and the 220MHz airtime system
infrastructure of Roamer One, New INTEK will seek to promote recognition of the
competitive advantages of the LM technology in the U.S. by users, manufacturers,
operators and government regulators, as well as create a significant installed
based of equipment. Management believes that the success of their initial
combined operations, which will focus on completing the build out and subscriber
loading of Roamer One systems with Radiocoms LM-based equipment and using the
extensive Midland USA dealer network, will serve as a platform for marketing
existing and new products and services to other 220MHz service providers and
users, as well as those operating across other LMR frequency bands.
Management believes that as a fully integrated airtime, equipment and
services provider, the combination of the three businesses provides a critical
mass of products, services and research, operating, manufacturing, marketing,
and distribution infrastructure to compete more effectively in each business'
respective current markets, as well as in the broader LMR market segments which
are not currently being addressed. Management believes that its ability to
provide, in a coordinated manner, a broad range of low cost, technologically
advanced products and services (including airtime in the 220MHz market under the
Roamer One brand name; LM-based base stations, mobile radios, and handheld
radios under the Securicor LM, Roamer One, and private label brand names; and
non-LM based radios and products under the Midland brand name) to a diverse
customer base, including dealers, systems integrators, systems operators,
license holders and subscribers, provides it with a competitive advantage in the
LMR market. Similarly, the Company believes that its participation across broad
segments and channels of the market will allow it to identify and address,
through advanced technical solutions, end user needs as they emerge, as well as
position it prominently in the effort to capture a significant portion of
equipment sales and services to new entrants to the LMR market (e.g., 220 MHz
market following the FCC auctions for additional licenses).
Through the combined operations of Roamer One, U.S. LMR Distribution
Business, and Radiocoms, New INTEK's market will have expanded considerably from
providing airtime to potential Roamer One subscribers for the 166 constructed
220MHz licenses it manages in the U.S. to the total market of LMR service users
and providers in the U.S. and abroad. LMR growth is driven by new user
opportunities and requirements (E.G., mobile work force, wireless data
applications, etc.) and the encouragement by regulatory bodies for users and
providers to migrate to more spectrally efficient products.
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF INTEK
Pursuant to the terms of the Stock Purchase Agreement, effective immediately
following the Closing, Nicholas R. Wilson, Harry Dunstan, Peter A. Heinke and
Christopher Branston will resign as officers and directors of the Company and,
in accordance with the provisions of the Company's Bylaws, the remaining members
of the Company's Board of Directors (Messrs. Simmonds, Neibert and Wasserman)
will fill three of the five vacancies created by these resignations by
appointing the following three persons (leaving two vacancies on the Board of
Directors) to the Company's Board of Directors: Edmund Hough, Peter Hilton and
Robert Kelly. Set forth below is certain information regarding each of these
persons, including their ages and information furnished by them as to their
principal occupations for the last five years and certain other directorships
and offices held by them:
<TABLE>
<CAPTION>
PROPOSED
POSITIONS WITH DIRECTOR
NAME AGE THE COMPANY SINCE
- ----------------------------------------------- --------- ----------------------------------------------- -----------
<S> <C> <C> <C>
Edmund Hough 51 Interim Chief Executive Officer and Director N/A
Peter Hilton 56 Director; Chairman of Radiocoms N/A
Robert Kelly 40 Director N/A
Gregg Marston 46 Interim Chief Financial Officer N/A
Thomas Little 48 Managing Director of Radiocoms N/A
</TABLE>
EDMUND HOUGH
Dr. Hough is the Chief Executive Officer of the Communication Division of
Securicor and has served in this position since June 1992. Prior thereto, Dr.
Hough was the Managing Director of Johnson Matthey Europe Limited from 1989 to
May 1992 and the Managing Director of Hoeschst Paint Group Limited from 1985 to
1989. Dr. Hough is a director of Securicor and Cellnet Group Limited (a U.K.
mobile telephone operator in which Securicor has a 40% interest).
PETER HILTON
Mr. Hilton is the Chairman of Radiocoms and has served in this position
since September 1996, and has served previously as the Managing Director of
Radiocoms (or similar positions with predecessor companies) since May 1990.
Prior thereto, Mr. Hilton served in various senior technical and management
positions with the Radio Communications, Avionics and Marine Systems
subsidiaries of The Plessey Company plc. Mr. Hilton is a Chartered Engineer and
a Fellow of the Institute of Electrical Engineers.
ROBERT KELLY
Mr. Kelly has been a principal in the Washington, D.C. law firm of Kelly &
Povich, P.C. since its formation in October 1994 and currently serves as
telecommunications counsel to Securicor. Mr. Kelly was a partner in the
Washington, D.C. firm of Piper & Marbury from January 1989 to March 1992, was a
sole practitioner from March 1992 to February 1993 and was a principal in the
firm of Kelly, Hunter, Mow & Povich, P.C. from February 1993 to October 1994.
Securicor has agreed to indemnify Mr. Kelly for certain liabilities arising out
of his duties as a director of INTEK.
GREGG MARSTON
Mr. Marston has been the Controller of INTEK since April 1995. He was a
consultant to INTEK from October 1994 to April 1995. From June 1992 through
October 1994, Mr. Marston was Chief Financial Officer of Promenity, Inc., a
distributor of sunscreens and personal care products. From August 1990 through
June 1992, Mr. Marston was a financial consultant to companies in the real
estate and recreational equipment industries. Mr. Marston is a Certified Public
Accountant. Securicor has agreed to indemnify Mr. Marston for certain
liabilities arising out of his duties as Interim Chief Financial Officer.
THOMAS LITTLE
Mr. Little is the Managing Director of Radiocoms, having served in this
position since September 1996. He joined Securicor in July 1990 and, prior to
joining Radiocoms, served as Managing Director of Securicor Monitoring Services,
Securicor Alarms and Bedwas Bodyworks. Prior to joining Securicor, he held a
number
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of senior management posts in the electronic, security and telecommunications
industry with Securitas, Turneall Security and British Telecommunications. He is
a Chartered Engineer, a Member of the Bristol Institute of Management and a
Member of the Institute of Electrical Engineers.
EXECUTIVE COMPENSATION
The following table sets forth as of December 31, 1995 all compensation paid
by the Company to the Company's Chief Executive Officer and the other executive
officers of the Company whose total annual salary and bonus exceeds $100,000
(the "Named Executive Officers"). Upon the consummation of the Securicor
Transaction, Messrs. Wilson and Simmonds (two of the Named Executive Officers)
as well as Messrs. Dunstan and Heinke will resign as officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
CAPACITY IN WHICH CASH UNDERLYING
NAME COMPENSATION RECEIVED COMPENSATION OPTIONS
- -------------------------------------- ---------------------------------------------- ------------- -----------
<S> <C> <C> <C>
Nicholas Wilson Chairman of the Board
1995 $ 158,750
1994 $ 20,000 40,000
1993 $ 0
John Simmonds Chief Executive Officer,
INTEK Diversified Corporation
1995 $ 0(1)
1994 $ 0 40,000
1993 $ 0
Vincent P. Paul Vice Chairman of the Board,
INTEK Diversified Corporation
1995 $ 200,000
1994 $ 200,000 40,000
1993 $ 200,000
David Neibert President, Roamer One
Director and Executive Vice President, INTEK
Diversified
Corporation
1995 $ 131,000
1994 $ 80,000 40,000
1993 $ 0
</TABLE>
- ------------------------
(1) Mr. Simmonds received compensation as a director of INTEK. See "Executive
Compensation -- Director Compensation."
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION/SAR VALUES
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS/SARS IN-THE MONEY OPTIONS/SARS
NAME AT FISCAL YEAR-ENDED AT FISCAL YEAR-ENDED
- ------------------------------------------------------------- ----------------------- -------------------------
<S> <C> <C>
Nicholas Wilson 40,000(1)(2) $ 170,000
John Simmonds 40,000(2) $ 170,000
Vincent P. Paul 40,000(1)(2) $ 170,000
David Neibert 40,000(2)(3) $ 170,000
</TABLE>
- ------------------------
(1) All of these options have been exercised since the end of fiscal year 1995.
104
<PAGE>
(2) These options were granted on September 23, 1994, were first exercisable on
September 23, 1995 and expire on September 23, 2004. The exercise price for
the options is $3.75 per share.
(3) Mr. Neibert has exercised 20,000 of his options since the end of fiscal year
1995.
INCENTIVE STOCK OPTION PLANS
1988 PLAN
In 1988, the stockholders of the Company approved the 1988 Key Employee
Incentive Stock Option Plan (the "1988 Plan"). The 1988 Plan is intended to
qualify as an "incentive stock option plan" within the meaning of Section 422A
of the Internal Revenue Code of 1986, as amended.
The 1988 Plan provides that, subject to adjustment as described below,
500,000 shares of the Company's Common Stock will be reserved for issuance upon
the exercise of options to be granted. The stock options are exercisable over a
period determined by the Stock Option Committee, but no longer than ten years
after the date they are granted. The options are to be exercisable at a price
equal to the fair market value (average of the closing per share bid and asked
price of the Company's Common Stock on the date an option is granted) or 110% of
fair market value for persons who have in excess of a 10% voting interest in all
classes of the Company's stock prior to the date of grant. The dollar amount of
options issued under the 1988 Plan in any calendar year is limited to $100,000
per person in value plus any unused limit carry-over.
The 1988 Plan provides that the number of shares subject to the 1988 Plan,
the outstanding options and their exercise prices are to be appropriately
adjusted for mergers, consolidations, recapitalizations, stock dividends, stock
splits, or combinations of shares.
The 1988 Plan is administered by a Stock Option Committee consisting of not
less than three members appointed by the Board of Directors. The Stock Option
Committee has the authority to designate participants and to determine the terms
and provisions of each option agreement and interpret and amend the Plan. The
Board of Directors, upon recommendation of the Stock Option Committee, may
terminate, amend or modify the 1988 Plan, except that the following actions may
not be taken without the approval of the Company's stockholders: (1) increase in
the number of shares of the Company's Common Stock available under the Plan
(except for the adjustments referred to above); or (2) alteration in the method
of determining the exercise price of options granted under the Plan.
The persons eligible to receive options under the 1988 Plan are all officers
or other key employees of the Company and its subsidiaries (as defined in the
Plan). There have been no material amendments to the 1988 Plan since its
inception.
1994 PLAN
The Company adopted the 1994 Stock Option Plan (the "1994 Plan") which
provides for the granting of options for up to an aggregate 600,000 shares of
the Company's Common Stock to key employees, officers or consultants of the
Company. On July 5, 1995, the 1994 Plan was approved by the stockholders of
INTEK. The options granted under the 1994 Plan will be exercisable at a price
equal to or exceeding the market value per share on the date an option is
granted. The dollar amount of options issued under the Plan in any calendar year
is limited to 60,000 shares of Common Stock per person. The 1994 Plan provides
for the administration of such plan by a committee of not less than two members
of the Board of Directors of the Company.
The 1994 Plan provides that the number of shares subject to the 1994 Plan,
the outstanding options and exercise prices therefor, shall be adjusted in the
event of a stock dividend, stock split, recapitalization, reorganization, merger
or other event that causes a change in the capital structure of the Company.
No further awards may be granted under the 1994 Plan after the passage of
ten years from the date first approved by the stockholders of the Company.
Further, any amendment that increases the aggregate number of shares of Common
Stock covered by the 1994 Plan or otherwise causes the Plan to cease to satisfy
any applicable condition of Rule 16b-3 under the Securities Exchange Act of 1934
is subject to approval of the stockholders of the Company.
105
<PAGE>
1994 DIRECTORS PLAN
In September, 1994, the Board of Directors of the Company adopted the 1994
Directors Stock Option Plan (the "1994 Directors Plan") which provides for the
granting of options of up to 300,000 shares of the Company's Common Stock to
members of the Board of Directors of the Company. On July 5, 1995, the 1994
Directors Plan was approved by the stockholders of the Company. The 1994
Directors Plan provides that options granted under such plan will be exercisable
at a price equal to or exceeding the market value per share on the date the
option is granted.
OPTIONS IN THE LAST FISCAL YEAR
The Company did not grant any options to any of the Named Executive Officers
in 1995.
Options for 57,500 shares of Common Stock of INTEK were exercised under the
1988 Key Employee Plan during 1995 and 7,500 options were terminated, leaving no
outstanding options under this plan as of December 31, 1995. Options for 40,000
shares of Common Stock of INTEK were exercised under the 1994 Stock Option Plan
and options were issued to four non-executive officer employees for a total of
72,000 shares at an exercise price of $5.875 per share. As of December 31, 1995,
options for 412,000 shares were outstanding under the 1994 Stock Option Plan. No
options under the 1994 Directors Plan were exercised in 1995.
SEP-IRA PLAN
Olympic adopted a Simplified Employees Pension Individual Retirement Account
Plan ("SEP-IRA") in 1979. The plan permitted Olympic to contribute up to 15% of
a salaried employee's annual remuneration to any qualified SEP-IRA account of
the employees' choice. The annual contribution, if any, is solely at the
discretion of the Board of Directors and is not based on profits, sales or any
other operational measure. Olympic no longer has any employees. No contribution
was made to the SEP-IRA for the year ended December 31, 1995 and no further
contributions are anticipated in the future.
EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS
Pursuant to an oral consulting agreement between Roamer One Holdings and the
Company, the Company paid $10,000 per month to Roamer One Holdings and in
consideration thereof Roamer One Holdings made available the services of
Nicholas R. Wilson, the Chairman of the Board, to the Company. This arrangement
was terminated on June 30, 1995. The Company entered into a Consulting Agreement
with Nicholas R. Wilson on July 1, 1995 for a period of three years commencing
on July 1, 1995 and terminating June 30, 1998 and providing total annual
compensation is $120,000, paid in monthly installments of $10,000. Mr. Wilson is
not entitled to participate in any retirement, bonus, insurance or other
employee benefit plan maintained by the Company for the benefit of its
employees. Upon the consummation of the Transactions, this agreement may be
continued at the option of the Company.
Roamer One entered into an employment agreement with David Neibert,
President of Roamer One on July 1, 1995. The employment period is three years
commencing on July 1, 1995 and terminating June 30, 1998. Salary begins at
$150,000 and increases by 7% at each anniversary date during the employment
period. Mr. Neibert will receive a one-time bonus in an amount equal to 10% of
gross subscriber billings of the Company in the first month that gross
subscriber billings exceed $250,000.
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. ("Anglo York"), 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.
DIRECTOR COMPENSATION
All directors are paid an annual director's fee of $4,000 plus $500 for each
board meeting, special committee meeting or audit committee meeting. The annual
maximum fee per director is $10,000. Vincent Paul was a member of the Board of
Directors and the Audit and Stock Options Committees in 1995. Mr. Paul
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<PAGE>
died in January, 1996. During his tenure, Mr. Paul was not paid any director's
fees. Pursuant to a management agreement with Peter Paul Corporation, Inc., Mr.
Paul's services were made available to the Company. See "-- Certain
Relationships and Related Transactions." The director's fees for 1995 were:
<TABLE>
<CAPTION>
UNPAID FEES
FEES FEES PAID ACCRUED AS OF
DIRECTOR'S NAME EARNED IN 1995 12/31/95
- ------------------------ --------- ----------- -------------
<S> <C> <C> <C>
Nicholas Wilson $ 10,000 $ 7,500 $ 2,500
Vincent Paul $ 0 $ 0 $ 0
John Simmonds $ 9,500 $ 7,000 $ 2,500
Harry Dunstan $ 9,000 $ 7,000 $ 2,000
Peter Heinke $ 8,500 $ 6,500 $ 2,000
Steven Wasserman $ 10,000 $ 7,000 $ 3,000
David Neibert $ 10,000 $ 8,500 $ 1,500
Christopher Branston $ 10,000 $ 8,000 $ 2,000
</TABLE>
ELIMINATION OF DIRECTORS' LIABILITY; INDEMNIFICATION; INSURANCE
ELIMINATION OF DIRECTORS' LIABILITY. As authorized by the DGCL, the
Company's Restated Certificate of Incorporation provides that, to the fullest
extent permitted by Delaware law, no director of the Company shall be liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. Delaware law does not permit the elimination of liability,
and the directors will be liable to the Company (a) for any breach of a
director's duty of loyalty to the Company or its Stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) in respect of certain unlawful dividend payments or stock
redemptions or repurchases or (d) for any transaction from which the director
derived an improper benefit. The effect of this provision is to eliminate the
rights of the Company and its stockholders (through derivative suits) to recover
monetary damages against a director for breach of fiduciary duty as a director
(including breaches resulting from negligent or grossly negligent behavior)
(except in the situations described in clauses (a) through (d) above). These
provisions do not alter the liability of directors under federal securities
laws.
INDEMNIFICATION. In addition, as authorized by the DGCL, the Company's
Bylaws provide that, to the fullest extent permitted by Delaware law, the
Company shall indemnify its executive officers and directors against all
expenses (including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with any pending or
threatened action, suit or proceeding to which any executive officer or director
is a party or is threatened to be made a party by reason of the fact that he or
she is an executive officer or director of the Company if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Company, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful; provided, however, that if the action or suit is by or in the name of
the Company to procure a judgment in its favor and such person shall have been
adjudged to be liable to the Company, indemnification will be provided only to
the extent that the court determines upon application that, despite the
adjudication of liability but in view of all of the circumstances of the case,
such person is fairly and reasonably entitled to indemnification for such
expenses as the court shall deem proper. Furthermore, expenses incurred by an
executive officer or director in defending any action, suit or proceeding may be
paid in full in advance of the final disposition of such action, suit or
proceeding upon receipt by the Company of an undertaking from such executive
officer or director to repay such amount if it ultimately shall be determined
that he or she is not entitled to such indemnification.
INSURANCE. The Company maintains on behalf of its officers and directors
insurance relating to their acts as officers and directors of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
GENERALLY. Under Section 16(a) of the Exchange Act, the Company's
directors, executive officers and any persons holding ten percent or more of the
Common Stock are required to report their ownership of
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<PAGE>
Common Stock of the Company and any changes in that ownership to the Securities
and Exchange Commission (the "SEC") and to furnish the Company with copies of
such reports. Specific due dates for these reports have been established and the
Company is required to report any failure to file on a timely basis by such
persons.
SECTION 16(A) REPORTING DELINQUENCIES. Based solely upon a review of copies
of reports filed with the Securities and Exchange Commission during the fiscal
year ended December 31, 1995, except for Vincent Paul who filed one late report
involving two transactions, Anglo York which filed two late reports involving
two transactions and SCL which filed one late report involving one transaction,
all persons subject to the reporting requirements of Section 16(a) filed all
required reports on a timely basis.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Company has no compensation committee. Compensation decisions for the
executive officers (other than grants of options which are determined by the
Stock Option Committee consisting of Messrs. Branston and Wasserman) are made by
the Board of Directors of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the information regarding the beneficial
ownership of the Company's Common Stock as of October 1, 1996, by (a) each
person known by the Company to own beneficially more than five percent of the
Company's outstanding Common Stock, (b) each Director of the Company, (c) each
nominee who will be appointed upon the consummation of the Transactions and (d)
all Directors and Officers as a group. Unless otherwise noted, the persons named
in the table have sole voting and investment power with respect to all shares of
the Company's Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF COMMON PERCENT OF
NATURE OF STOCK BEFORE COMMON STOCK AFTER
BENEFICIAL TRANSACTIONS TRANSACTIONS
NAME AND ADDRESS OWNERSHIP (15,224,020 SH.)(1) (41,101,213 SH.)(1)
- ----------------------------------- ----------- --------------------- ---------------------
Roamer One Holdings, Inc. 2,000,000 (2) 13.1% 4.9%
1431 West 117th Street
Cleveland, OH 44107
<S> <C> <C> <C>
Simmonds Capital Limited 2,560,850 (3) 16.8% 11.9%(4)
5255 Yonge Street, #1050
Willowdale, Ontario, Canada
Anglo York Industries, Inc. 912,049 (5) 6.0% 2.2%
1050 McNicoll Avenue, Unit 13
Scarborough, Ontario
M1W 2L8 Canada
Octagon Investments Limited 771,400 5.1% 1.9%
LaTourgabd House
Lomer Pollet
St. Peter Port,
Guernsey, Channel Islands GYI 4E
A
Securicor International Limited 937,042 6.2% 63.1%(6)
Sutton Park House
15 Carshalton Road
Sutton, Surrey SM 1 4LD
United Kingdom
Nicholas R. Wilson(7) 2,000,000 13.1% 4.9%
7808 Veraqua Dr.
Playa Del Rey, CA 90293
Harry Dunstan(8) 45,000 0.3%(4) 0.1%
RR #2
Caledon East, Ontario
Canada
John Simmonds(9) 57,500 0.4% 0.1%
44 Old Yonge Street
North York, Ontario, Canada
M2P 1P7
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF COMMON PERCENT OF
NATURE OF STOCK BEFORE COMMON STOCK AFTER
BENEFICIAL TRANSACTIONS TRANSACTIONS
NAME AND ADDRESS OWNERSHIP (15,224,020 SH.)(1) (41,101,213 SH.)(1)
- ----------------------------------- ----------- --------------------- ---------------------
<S> <C> <C> <C>
Peter Heinke(10) 50,000 0.3% 0.1%
RR #1 Clarksburg
Ontario, Canada NOH 1JO
Steven L. Wasserman(11) 40,000 0.3% 0.1%
2800 Belgrave Road
Pepper Pike, Ohio 44124
David Neibert(12) 20,445 0.1% 0.1%
24028 Clarington Dr.
West Hills, CA 91304
Christopher Branston(13) 25,000 0.2% 0.1%
14 Willow Avenue
Barnes, London
SW13OLT England
Edmund Hough 0 0% 0%
c/o Securicor plc
15 Carshalton Road
Sutton, Surrey, England SM 1 4LD
Peter Hilton 0 0% 0%
c/o Securicor Group
15 Carshalton Road
Sutton, Surrey, England SM 1 4LD
Robert Kelly 0 0% 0%
c/o Kelly & Povich, P.C.
1101 Thirtieth Street, N.W.
Washington, D.C. 20007
All officers and directors 2,237,945 14.7% 5.4%
as a group (7 persons)
</TABLE>
- ------------------------
(1) Includes 14,862,400 shares of Common Stock outstanding at November 5, 1996,
and options for 250,000 shares under the 1994 Stock Option Plan and 65,000
shares under the 1994 Directors Plan. On April 26, 1996, the Company sold a
series of 6.5% Notes with attached warrants to qualified off-shore
purchasers through Global Emerging Markets/Northeast Securities, Inc.
pursuant to Regulation S under the Securities Act. The warrants are
exercisable at discounts (ranging from 0% to 25%) from the market price of
common stock on the exercise date. On November 4, 1996 $200,000 aggregate
principal amount of notes were outstanding, and the attached warrants were
exercisable at $4.29 (a 17% discount), for an aggregate of 46,620 shares.
(2) On June 16, 1995, Roamer One Holdings entered into an option agreement (the
"SCL Option") with SCL pursuant to which SCL paid Roamer One Holdings
$1,800,000 for an option to purchase up to 1,800,000 shares of Common Stock
at a purchase price of $1.50 per share. The option may be exercised, in
whole or in part, for a period of five years. Roamer One Holdings also
entered into a pledge agreement granting to SCL a security interest in the
shares subject to the option and depositing certificates representing the
shares with R-M Trust Company as agent for SCL. Under the pledge agreement,
Roamer One Holdings has the right to exercise any and all voting and other
consensual rights pertaining to Roamer One Holdings's pledged shares. Roamer
One Holdings is a private company controlled by Mr. Wilson, Chairman of the
Board of the Company. Messrs. Neibert and Wasserman, directors of the
Company, are officers, directors and shareholders of Roamer One Holdings.
Through November 5, 1996, SCL had exercised options to acquire 1,200,000
shares of Company Common Stock from Roamer One Holdings.
(3) Includes 150,000 shares of Company Common Stock received pursuant to the
Midland Transaction and excludes 2,350,000 shares of Company Common Stock
held in escrow, which will be released upon consummation of the Securicor
Transaction. On March 24, 1995, SCL purchased 45,000 shares of Common Stock
at $4.25 per share from certain of SCL's employees, including certain
officers and directors of the Company, and SCL has agreed, under the
Employee Option Agreement dated as of April 7, 1995, to permit each employee
from whom shares were purchased to repurchase the same
109
<PAGE>
number of such shares at $4.25 per share until March 31, 1997 subject to
SCL's right to cancel these options upon 90 days' written notice. On June
16, 1995, SCL entered into an option agreement with Roamer One Holdings
pursuant to which SCL paid Roamer One Holdings $1,800,000 for an option to
purchase up to 1,800,000 shares of Company Common Stock at a purchase price
of $1.50 per share. The option may be exercised, in whole or in part, for a
period of five years. Through November 5, 1996, SCL had exercised options to
acquire 1,200,000 shares of Company Common Stock.
(4) Includes 2,350,000 shares of Company Common Stock.
(5) Anglo York is a wholly-owned subsidiary of Anglo York Industries, Limited,
an Ontario corporation ("Anglo Limited"). The outstanding voting securities
of Anglo Limited are beneficially owned in equal amounts by three children
of Vincent P. Paul who have obtained majority and by one child who is a
minor and whose interest is held in Trust. Nancy A. Paul, the wife of
Vincent Paul, is the Trustee of such Trust and may be deemed to beneficially
own the shares of Company Common Stock beneficially owned by their minor
child. Mrs. Paul disclaims beneficial ownership of the shares of Company
Common Stock beneficially owned by any of her adult children. Mr. Paul died
on January 31, 1996. Anglo York has pledged 1,000,049 shares of the Company
Common Stock to the Royal Bank of Canada and 220,000 shares in the aggregate
to Swiss Bank Corporation (Canada) to secure certain indebtedness of Anglo
York. Accordingly, the Royal Bank of Canada and the Swiss Bank Corporation
(Canada) may be deemed to be the respective beneficial owners of such
shares. All of the shares pledged to Swiss Bank Corporation (Canada) were
sold as of February 29, 1996. Of the 1,000,049 shares of Company Common
Stock pledged to Royal Bank of Canada, 80,000 shares were sold as of March
5, 1996.
(6) Includes 25,000,000 shares to be issued to Securicor Communications as the
purchase price pursuant to the terms of the Stock Purchase Agreement.
(7) Mr. Wilson controls Roamer One Holdings which beneficially owns 2,000,000
shares of Company Common Stock.
(8) On March 24, 1995, Mr. Dunstan sold 5,000 shares of Company Common Stock to
SCL at $4.25 per share and SCL granted to Mr. Dunstan an option to purchase
the same number of shares at $4.25 per share until March 31, 1997, subject
to SCL's right to cancel such option upon 90 days' written notice. Pursuant
to the 1994 Plan, Mr. Dunstan has an option to acquire 40,000 shares of
Company Common Stock at an exercise price of $3.75 per share.
(9) On March 24, 1995, Mr. Simmonds sold 16,150 shares of Company Common Stock
to SCL at $4.25 per share and SCL granted Mr. Simmonds an option to purchase
the same number of shares at $4.25 per share until March 31, 1997, subject
to SCL's right to cancel such option upon 90 days' written notice. Pursuant
to the 1994 Plan, Mr. Simmonds has an option to acquire 40,000 shares of
Company Common Stock at an exercise price of $3.75 per share.
(10) On March 24, 1995, Mr. Heinke sold 10,000 shares of Company Common Stock to
SCL at $4.25 per share and SCL granted Mr. Heinke an option to purchase the
same number of shares at $4.25 per share until March 31, 1997, subject to
SCL's right to cancel such option upon 90 days' written notice. Pursuant to
the 1994 Plan, Mr. Heinke has an option to acquire 40,000 shares of Company
Common Stock at an exercise price of $3.75 per share.
(11) Pursuant to the 1994 Directors Plan, Mr. Wasserman has an option to acquire
40,000 shares of Company Common Stock at an exercise price of $3.75 per
share.
(12) Pursuant to the 1994 Plan, Mr. Neibert has an option to acquire 20,000
shares of Company Common Stock at an exercise price of $3.75 per share.
(13) Pursuant to the 1994 Director Plan, Mr. Branston has an option to acquire
25,000 shares of Company Common Stock at an exercise price of $3.75 per
share.
110
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED 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, 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 each of the years ended December 31, 1995 and 1994, the Company paid
management fees of $200,000 to Peter Paul Corporation, Inc.
In November 1994, the Company borrowed $2,500,000 bearing 12% interest from
Quest Capital. The Quest Loan was secured by a first mortgage on the Property
and a guaranty by SCL. Quest Capital was issued a total of 262,000 shares of
Company Common Stock as a loan commitment fee and compensation for two
extensions to the maturity date. 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 of Company Common Stock to Quest Capital as payment in
full of the principal then due.
Roamer One, Inc. borrowed $150,000 from SCL evidenced by a short-term,
non-interest bearing note in October, 1994 and repaid the obligation in
November, 1994.
Pursuant to an oral consulting agreement between Roamer One Holdings and the
Company, the Company paid $10,000 per month to Roamer One Holdings and Roamer
One Holdings made available the services of Mr. Wilson, Chairman of the Board of
the Company, to the Company. This arrangement was terminated on June 30, 1995.
The Company entered into a Consulting Agreement with Mr. Wilson on July 1, 1995
for a period of 3 years commencing on July 1, 1995 and terminating June 30, 1998
and providing total annual compensation of $120,000, paid in monthly
installments of $10,000. Mr. Wilson is not entitled to participate in any
retirement, bonus, insurance or other employee benefit plan maintained by the
Company for the benefit of its employees. For the year ended December 31, 1995,
the Company incurred $100,000 and paid $90,000 to Mr. Wilson pursuant to this
agreement. In addition, the Company paid $30,000 to Mr. Wilson that had been
accrued as of December 31, 1994. Upon the consummation of the Securicor
Transaction, this agreement may be continued at the option of the Company.
Pursuant to an oral management agreement between SCL and the Company, the
Company pays SCL $10,000 per month and SCL makes available the services of
Messrs. Simmonds, Dunstan and Heinke, each of whom are officers and directors of
the Company, to the Company. For the year ended December 31, 1995, the Company
incurred $100,000 and paid $90,000 to SCL pursuant to this agreement. In
addition, the Company paid $30,000 to SCL that had been accrued as of December
31, 1994. The Company is reimbursing SCL for the services of Mr. Heinke related
to the Transactions at the hourly rate of $75.00 per hour. Upon the consummation
of the Securicor Transaction, this agreement may be terminated at the option of
the Company.
Pursuant to an oral consulting agreement between Simmonds Mercantile and
Management Inc. ("SMM"), a company controlled by SCL, the Company pays SMM
$8,000 per month for consulting services. For the year ended December 31, 1995,
the Company incurred $112,000 and paid $104,000 to SMM pursuant to this
agreement. Upon the consummation of the Securicor Transaction, this agreement
may be terminated at the option of the Company.
Pursuant to a Financing Agreement and related agreements between the
Company, Roamer One, SCL and LMT, LMT has delivered approximately $4,000,000
worth of base station equipment and mobile radios in exchange for 937,042 shares
of Company Common Stock to Securicor International Limited. 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 June 30, 1996, Roamer One had purchased $5.4
million worth of equipment. On May 7, 1996, the Company wired approximately a $2
million deposit to Radiocoms towards a yet to be determined quantity of LMT
equipment. On September 27, 1996, the Company issued a purchase order related to
the $2 million deposit paid to Radiocoms for LMT equipment, against which
approximately $400,000 worth of equipment has been delivered. The balance of the
equipment is scheduled to be delivered prior to the end of December 1996.
111
<PAGE>
The Company and SCL have an arrangement whereby Roamer One purchases
equipment and installation services from SCL. During the twelve months ended
December 31, 1995, Roamer One, Inc. purchased $9,298,209 of radio equipment and
installation services from SCL. Previous accounts payable for equipment totaled
$1,212,300. Roamer One made payments to SCL totaling $7,941,802 leaving a
balance of $2,568,707 as of December 31, 1995. On February 29, 1996, Roamer One
made a payment to SCL in the amount of $2,300,000. As of June 30, 1996, the
Company has a balance of $14,000 owing to SCL.
On September 23, 1994, the Company and SCL, Roamer One Holdings, Anglo York
Industries, Inc. and Harold Davis (collectively referred to as the "Holders")
entered into a Registration Rights Agreement to provide the Holders with certain
demand and "piggy-back" registration rights with respect to the Company's Common
Stock owned by the Holders. This Agreement will be replaced by a Registration
Rights Agreement to be entered into at Closing by and among the Company and
certain of its stockholders, including SCL, MIC, Roamer One Holdings, Securicor
Communications, Securicor International Limited, Anglo York, Choi & Choi and
Octagon Investments Limited. See "THE SECURICOR TRANSACTION -- Terms of the
Registration Rights Agreement."
Kohrman Jackson & Krantz, a Cleveland, Ohio law firm, of which Mr. 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 and is the Secretary
of the Company. Mr. Wasserman receives $1,000 a month as compensation for his
services as the Secretary of the Company. The law firm received fees of $162,097
in 1995 and $8,856 in 1994 from INTEK. Mr. Wasserman was formerly a principal
with the law firm of Honohan, Harwood, Chernett & Wasserman, which received fees
of $23,722 in 1994 from INTEK.
On February 29, 1996, the Company borrowed $2.5 million from Mees Pierson
through the issuance of the Debenture. The loan was due on August 31, 1996 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 (the "Property") and by the
equipment related to 15 Category I licenses. A closing fee was paid to Mees
Pierson ICS Limited of 50,000 shares of Company Common Stock issued under
Regulation S of the Securities Act. An agent fee of $25,000 cash was paid to
Octagon Capital Canada Corporation. At June 30, 1996, Octagon Investments, Ltd
had beneficial interest in 5.0% of the outstanding Company Common Stock. On
August 13, 1996, Mees Pierson agreed in writing to extend the repayment date to
the earlier of the completion of the sale of the Property and October 31, 1996.
INTEK paid to Mees Pierson accrued interest through August 31, 1996, issued
25,000 shares of Company Common Stock to Mees Pierson and issued 5,000 shares of
Company Common Stock to Octagon Capital Corporation in exchange for the
extension. Mees Pierson has agreed to extend further the repayment date to
January 31, 1997. In exchange for the extension, INTEK will issue 10,000 shares
of Company Common Stock to Mees Pierson pursuant to Regulation S under the
Securities Act. In addition, INTEK will issue to Mees Pierson 1,500 shares of
Company Common Stock (pursuant to Regulation S under the Securities Act) for
each business day after November 8, 1996 for which the Debenture and any accrued
interest remains outstanding.
In anticipation of INTEK's acquisition of the U.S. LMR Distribution
Business, and to facilitate the future business objectives of Midland USA
subsequent to the Midland Transaction, INTEK agreed to advance up to $1,800,000
to key vendors of MIC for product purchases to be received after August 1, 1996.
On May 10, 1996, INTEK arranged for a combination of letters of credit and wire
transfers of U.S. Dollars and Japanese Yen representing, in the aggregate,
approximately $1,560,000. On June 25, 1996, INTEK advanced an additional
$236,529 to a key vendor for deposit against purchase orders submitted by MIC
and due for shipment during October, 1996. In connection with these advances,
MIC established Midland USA as a "Midland Affiliate" entitled to purchase, at
net cost, product directly from Hitachi pursuant to the Hitachi Supply
Agreement. INTEK also was indemnified by SCL against any and all losses that it
might incur relative to its advances on behalf of MIC. Midland USA was granted
control over the shipments from Hitachi that related to the purchase orders for
which INTEK or Midland USA had posted payment. Simultaneously upon the closing
of the Midland Transaction, INTEK was paid $1,350,000 and received the balance
of the advances from Midland USA on October 28, 1996.
112
<PAGE>
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.
In October 1996, SCL made a claim against the Company for approximately
$175,000 to reimburse SCL for certain costs and expenses incurred by SCL on the
Company's behalf during the last 15 months for certain officers and directors
who are also officers and directors of the Company. These costs and expenses
relate to the negotiation and due diligence of the aborted transaction
contemplated by the Midland Purchase Agreement, the Midland Transaction and the
Securicor Transaction. The Board of the Directors of the Company approved the
reimbursement of certain expenses relating to the Securicor Transaction subject
to SCL supplying proper documentation supporting such expenses. The Company has
advanced $100,000 to SCL at this time and has committed to pay the remainder
within ten days of receipt of the supporting documentation and agreement upon
the amounts relating thereto.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors met two times and held meetings by telephonic
conference nine times during fiscal 1995. With the exception of Messrs.
Branston, Wilson and Heinke, who each missed two meetings, and Mr. Dunstan, who
missed one meeting, each director attended all of the meetings of the Board of
Directors and meetings of the committees on which he served.
The Audit Committee currently consists of Messrs. Wasserman and Branston.
Until his death, Mr. Paul together with Mr. Wasserman served on and comprised
this Committee. The purpose of the Audit Committee is to review the accounting
and reporting principles, policies and practices followed by the Company and the
adequacy of the Company's internal, financial and operating controls. The Audit
Committee met once in 1995.
The Stock Option Committee consists of Mr. Branston and Mr. Wasserman. The
purpose of the Stock Option Committee is to administer the Company's stock
option plans. The Stock Option Committee met once in 1995.
The Company does not have a standing nominating committee.
BOARD REPORT ON EXECUTIVE COMPENSATION
The Board of Directors of the Company is responsible for reviewing the
Company's compensation policies and programs applicable to the Company's
executive officers, except stock option grants which are administered by the
Stock Option Committee. As disclosed in the Summary Compensation Table, the
Company paid no compensation to its Chief Executive Officer for the year ended
December 31, 1995. The Company has no compensation committee of the Board of
Directors and the Board of Directors has not adopted compensation policies,
since most management services are provided by executives of SCL and Roamer One
Holdings, the principal stockholders of the Company. The Company has paid
management fees to each of SCL and Roamer One Holdings at the rate of $10,000
per month since October 1, 1994.
Stock options have been granted to all of the incumbent directors of the
Company to recognize their contributions for services to the Company and to
provide additional incentive to retain them.
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company's
Common Stock with the cumulative total return of the companies in the Nasdaq
Stock Market Index, the Nasdaq Telecommunication Stocks Index (which includes
wireless telecommunications companies that are quoted on the Nasdaq Stock
Market) and the Nasdaq Non-Financial Stocks Index (which includes manufacturing
companies that are quoted on the Nasdaq Stock Market). Cumulative total return
for each of the periods shown in the Performance Graph are measured assuming an
initial investment of $100 on December 29, 1989, and the reinvestment of any
dividends.
113
<PAGE>
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN AMONG
INTEK DIVERSIFIED CORPORATION, NASDAQ STOCK MARKET,
NASDAQ TELECOMMUNICATIONS STOCKS
AND NASDAQ NON-FINANCIAL STOCKS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTEK DIVERSIFIED
FISCAL YEAR ENDED DECEMBER 31 CORPORATION THE NASDAQ STOCK MARKET (US) NASDAQ TELECOMMUNICATIONS STOCKS
<S> <C> <C> <C>
1990 100.000 100.000 100.000
1991 160.000 160.584 137.922
1992 740.000 186.866 169.399
1993 140.000 214.511 261.200
1994 920.000 209.686 215.953
1995 2,440.000 296.304 259.936
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31 NASDAQ NON-FINANCIAL STOCKS
<S> <C>
1990 100.000
1991 160.983
1992 176.069
1993 203.323
1994 194.855
1995 267.923
</TABLE>
INTEK DIVERSIFIED CORPORATION, NASDAQ STOCK MARKET, NASDAQ TELECOMMUNICATIONS
STOCKS AND NASDAQ NON-FINANCIAL STOCKS
On September 23, 1994, the Company acquired the business of Simrom pursuant
to the Merger of Simrom into a subsidiary of the Company. Subsequent to the
Merger, the Company redirected its business from the Plastics Business to the
business of developing and managing 220 MHz SMR Systems in the U.S. utilizing
the recently licensed 220 MHz. By May 15, 1995, the Company sold substantially
all of the operating assets of Olympic as part of repositioning its business
into the communications industry. Management has selected the Nasdaq
Non-Financial Stock Index (which includes manufacturing companies) as a
meaningful index against which to measure the Company's performance prior to
September 1994, as the Company was a manufacturing company in the Plastics
Business. The Company has also selected the Nasdaq Telecommunication Stocks
Index as a meaningful index against which to measure the Company's performance
since subsequent to the September 1994 merger, the Company redirected its
business into the communications industry. As of December 31, 1995, a $100
investment made in September, 1994 (the month and year in which the Merger
occurred) would have increased to $110 if invested in the Nasdaq
Telecommunications Stock Index, and $213 if invested in the Company.
ACCOUNTANTS
Arthur Andersen LLP is the independent accountant of the Company. A
representative of Arthur Andersen LLP is expected to be present at the Annual
Meeting, and will be available to respond to appropriate questions.
Baker Tilly, Chartered Accountants, are the independent accountants of
Radiocoms. A representative of Baker Tilly is expected to be present at the
Annual Meeting, and will be available to respond to appropriate questions.
114
<PAGE>
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Pursuant to Rule 14a-8 promulgated by the Securities and Exchange
Commission, a stockholder intending to present a proposal to be included in the
Company's proxy statement for the Company's 1997 Annual Meeting of Stockholders
must deliver a proposal, in accordance with the requirements of the Company's
Bylaws, to the Company's principal executive office located at 970 West 190th
Street, Suite 720, Torrance, California 90502, sent to the attention of David
Neibert, no later than February 23, 1997. No stockholder proposals were
submitted for the 1996 Annual Meeting.
OTHER MATTERS
The Board of Directors of the Company is not aware of any other matters to
be submitted to the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares they represent as the Board of Directors may recommend.
You are urged to sign and return your proxy promptly to make certain your
shares will be voted at the Annual Meeting. For your convenience, a return
envelope is enclosed requiring no additional postage if mailed in the United
States.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON ENTITLED TO VOTE AT
THE ANNUAL MEETING ON WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995, INCLUDING THE
FINANCIAL STATEMENT SCHEDULES WHICH ARE A PART THEREOF. WRITTEN REQUEST SHOULD
BE DIRECTED TO DAVID NEIBERT, INTEK DIVERSIFIED CORPORATION, 970 WEST 190TH
STREET, SUITE 720, TORRANCE, CALIFORNIA 90502.
By Order of the Board of Directors,
[SIG]
November 8, 1996 STEVEN L. WASSERMAN, Secretary
115
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
Independent Auditors' Report............................................................................. F-2
Combined Balance Sheets at September 30, 1994 and 1995 and June 30, 1996 (unaudited)..................... F-3
Combined Statement of Operations for the Years Ended September 31, 1993, 1994 and 1995 and for the Nine
Months Ended June 30, 1995 and 1996 (unaudited)......................................................... F-5
Combined Statements of Cash Flows for the Years Ended September 30, 1993, 1994 and 1995 and for the Nine
Months Ended June 30, 1995 and 1996 (unaudited)......................................................... F-6
Notes to Combined Financial Statements................................................................... F-7
MIDLAND INTERNATIONAL CORPORATION -- U.S. OPERATIONS
Report of Independent Auditors........................................................................... F-19
Balance Sheets at December 31, 1995 and 1994............................................................. F-20
Statements of Operations and Net Worth for the Years Ended December 31, 1994 and 1995 and for the
Two-Month Period Ended December 31, 1993................................................................ F-21
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and for the Two-Month Period
Ended December 31, 1993................................................................................. F-22
Notes to Financial Statements for the Years Ended December 31, 1995 and 1994 and for the Two-Month Period
Ended December 31, 1993................................................................................. F-23
Report of Independent Auditors........................................................................... F-32
Balance Sheet at October 31, 1993........................................................................ F-33
Statement of Operations and Net Worth for the Ten-Month Period Ended October 31, 1993.................... F-34
Statement of Cash Flows for the Ten-Month Period Ended October 31, 1993.................................. F-35
Notes to Financial Statements for the Ten-Month Period Ended October 31, 1993............................ F-36
Unaudited Financial Statements...........................................................................
Balance Sheet at June 30, 1996........................................................................... F-39
Statements of Operations and Net Worth for the Six-Month Periods Ended June 30, 1995 and 1996
(unaudited)............................................................................................. F-40
Statements of Cash Flows for the Six-Month Periods Ended June 30, 1995 and 1996 (unaudited).............. F-41
Notes to Unaudited Financial Statements.................................................................. F-42
INTEK DIVERSIFIED CORPORATION
Independent Auditors' Report............................................................................. F-43
Consolidated Balance Sheets at December 31, 1994, 1995 and at June 30, 1996.............................. F-44
Consolidated Statements of Operations for the Years Ended December 31, 1994 and 1995 and for the
Six-Months Ended June 30, 1996 and 1995................................................................. F-46
Consolidated Statements of Operations for the Period February 4, 1994 through June 30, 1996.............. F-47
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and for the
Six-Months Ended June 30, 1996.......................................................................... F-48
Consolidated Statements of Cash Flows for the Period February 4, 1994 through June 30, 1996.............. F-49
Notes to Consolidated Financial Statements............................................................... F-50
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Shareholder of
Securicor Communications Limited
We have audited the accompanying combined balance sheets of Securicor
Radiocoms Limited and Affiliates as of September 30, 1994 and 1995, and the
related combined statements of operations, and cash flows for the three years
ended September 30, 1995. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom which are substantially the same as those used
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Securicor
Radiocoms Limited and Affiliates at September 30, 1994 and 1995 and the combined
results of their operations and their cash flows for the three years in the
period ended September 30, 1995 in conformity with generally accepted accounting
principles used in the United States of America.
<TABLE>
<S> <C>
London, England
June 19, 1996
except for Note 16,
as to which the date BAKER TILLY
is September 23, 1996 Chartered Accountants
</TABLE>
F-2
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
COMBINED BALANCE SHEETS
ASSETS
(THOUSANDS OF BRITISH POUNDS, STERLING)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
-------------------- -------------
1994 1995 1996
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents L 171 L 380 L 113
Accounts receivable net of allowance for doubtful accounts
of: 3,564 8,171 8,179
L101 in September 1994
L300 in September 1995
L35 in June 1996
Inventories 3,056 9,541 11,148
Prepaid expenses and other current assets 870 1,345 2,098
--------- --------- -------------
Total current assets 7,661 19,437 21,538
--------- --------- -------------
INVESTMENT in EF Johnson Inc., at cost -- -- 6,290
PROPERTY & EQUIPMENT, at cost
less accumulated depreciation 2,572 3,126 2,994
EQUIPMENT FOR RENTAL on operating leases, at cost 2,126 2,659 3,085
less accumulated depreciation (1,230) (1,552) (1,820)
--------- --------- -------------
896 1,107 1,265
--------- --------- -------------
GOODWILL, net of accumulated amortization 378 -- --
--------- --------- -------------
Total assets L 11,507 L 23,670 L 32,087
--------- --------- -------------
--------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
COMBINED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
(THOUSANDS OF BRITISH POUNDS, STERLING)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
-------------------- -------------
1994 1995 1996
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES
Bank overdraft L 286 L 368 L 225
Accounts payable 2,423 3,588 2,273
Accrued expenses 653 1,334 2,212
Deferred income -- 1,268 648
Taxes, other than income taxes 62 102 147
Related party loan payable to Securicor Communications
Limited (interest bearing) 2,582 10,521 17,429
--------- --------- -------------
Total current liabilities 6,006 17,181 22,934
--------- --------- -------------
RELATED PARTY LOAN payable to Securicor Communications
Limited (non-interest bearing) 12,760 14,600 20,890
DEFERRED INCOME TAXES 165 50 50
--------- --------- -------------
12,925 14,650 20,940
--------- --------- -------------
SHAREHOLDER'S EQUITY (DEFICIT)
Common stock 120 120 120
(L1 par value; 230,000 shares authorised; 120,002 shares
issued and outstanding)
Deficit (7,544) (8,281) (11,907)
--------- --------- -------------
Total shareholder's equity (deficit) (7,424) (8,161) (11,787)
--------- --------- -------------
Total liabilities and shareholder's equity (deficit) L 11,507 L 23,670 L32,087
--------- --------- -------------
--------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(THOUSANDS OF BRITISH POUNDS, STERLING)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales:
Third parties L 3,226 L 6,017 L 12,913 L 8,237 L 6,557
Related parties 3,274 4,826 6,210 4,654 4,785
---------- ---------- ---------- ---------- ----------
6,500 10,843 19,123 12,891 11,342
Rental income 666 1,126 1,396 1,016 1,138
---------- ---------- ---------- ---------- ----------
7,166 11,969 20,519 13,907 12,480
Cost of goods sold 4,767 7,429 12,227 8,871 10,245
---------- ---------- ---------- ---------- ----------
Gross profit 2,399 4,540 8,292 5,036 2,235
Selling, general and administrative
expenses 3,326 5,557 7,080 4,554 4,923
Research and Development expenses 1,010 1,169 1,782 1,197 1,536
Provision for doubtful accounts -- 10 309 28 40
---------- ---------- ---------- ---------- ----------
Operating loss (1,937) (2,196) (879) (743) (4,264)
Interest expense (152) (156) (322) (204) (792)
---------- ---------- ---------- ---------- ----------
Loss from continuing operations (2,089) (2,352) (1,201) (947) (5,056)
Income tax provision/(benefit) (204) (186) (464) (348) (1,430)
---------- ---------- ---------- ---------- ----------
Net loss L (1,885) L (2,166) L (737) L (599) L (3,626)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements of operations.
F-5
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(THOUSANDS OF BRITISH POUNDS, STERLING)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss L (1,885) L (2,166) L (737) L (599) L (3,626)
---------- ---------- ---------- ---------- ----------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 707 1,561 1,074 535 525
Deferred income taxes 117 (5) (115) (87) --
Loss (gain) on sale of fixed assets -- (3) -- (40) (8)
Provision for doubtful accounts -- 10 309 28 40
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase) in:
Accounts receivable (931) (1,544) (4,916) (2,203) (48)
Inventories (770) (1,414) (6,485) (4,449) (1,607)
Prepaid expenses and other current assets (147) (416) (475) (1,360) (753)
Increase (decrease) in:
Accounts payable (443) 798 1,165 (53) (1,315)
Accrued expenses (100) (464) 681 391 878
Deferred income -- -- 1,268 1,820 (620)
Taxes, other than income taxes -- (78) 40 25 45
---------- ---------- ---------- ---------- ----------
TOTAL ADJUSTMENTS (1,567) (1,555) (7,454) (5,393) (2,863)
---------- ---------- ---------- ---------- ----------
Net cash (used in) operating activities (3,452) (3,721) (8,191) (5,992) (6,489)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (956) (1,688) (1,496) (791) (561)
Acquisition of PMR (510) -- -- -- --
Proceeds from sale of fixed assets -- 596 35 63 18
---------- ---------- ---------- ---------- ----------
Net cash (used in) investing activities (1,466) (1,092) (1,461) (728) (543)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease
obligations -- (9) -- -- --
Net change in bank overdraft 97 (224) 82 (63) (143)
Related party loan proceeds 4,628 5,198 9,779 6,703 6,908
---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities 4,725 4,965 9,861 6,640 6,765
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents (193) 152 209 (80) (267)
Cash and cash equivalents at beginning of
period 212 19 171 171 380
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period L 19 L 171 L 380 L 91 L 113
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest L 240 L 139 L 145 L 204 L 792
Cash received for income tax (group tax
relief receipt) L (214) L (268) L (201) L -- L (90)
</TABLE>
The accompanying notes are an integral part of these statements of cash flows.
F-6
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(INFORMATION WITH RESPECT TO THE 9 MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(THOUSANDS OF BRITISH POUNDS, STERLING)
NOTE 1 -- ORGANIZATION AND NATURE OF BUSINESS
Securicor Communications Limited, a wholly owned subsidiary of Securicor plc
a publicly held company whose shares are traded on the London Stock Exchange
("Securicor Communications"), had three wholly owned subsidiaries. These
companies subsequently referred to as the "Company" are: Securicor Radiocoms
Limited, Linear Modulation Technology Limited, and Securicor Electronics
Limited.
The Company designs, develops and manufactures a range of land mobile radio
products using linear modulation technology. The Company also provides technical
and project management expertise for "turn-key" custom engineered land mobile
radio communications systems and radio equipment for businesses, using products
purchased from established manufacturers.
On March 8, 1996, the Company, together with Securicor Communications
reached an agreement in principle to combine the operations of the Company with
certain operations of Midland International Corporation ("Midland"), a company
located in the United States engaged in the sale and distribution in the U.S. of
land mobile radio products bearing the Midland trademark and INTEK Diversified
Corporation ("INTEK"), a publicly held company located in the United States
which is engaged in the business of developing, constructing and managing a
specialized radio network in the United States.
Pursuant to the terms of a stock purchase agreement dated June 18, 1996 (the
"Stock Purchase Agreement"), INTEK will acquire from Securicor Communications
the common stock of Securicor Radiocoms Limited ("Radiocoms") in exchange for
approximately 65% of the common stock of INTEK ("the Securicor Transaction").
The Company believes that the Securicor Transaction will be accounted for as a
reverse acquisition with the Company as the Acquirer and INTEK and Midland as
the Acquirees.
NOTE 2 -- FINANCIAL STATEMENT PRESENTATION
The combined financial statements include the combined results of Radiocoms
and its wholly owned subsidiaries; Private Mobile Radio Limited ("PMR") which
was acquired on March 1, 1993; and SOCOM Group Limited ("SOCOM") acquired on
June 30, 1993, combined with Securicor Electronics Limited ("SEL") and Linear
Modulation Technology Limited ("LMT"). All material intercompany transactions
have been eliminated in combination.
Effective October 1, 1995, the assets and liabilities of SEL and LMT were
transferred to Radiocoms at historical value.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP")
These financial statements have been prepared in accordance with GAAP used
in the United States. Such accounting principles differ in certain respects from
United Kingdom GAAP, which is applied by the Company for local and statutory
financial reporting purposes. In addition, certain reclassifications and changes
in terminology have been made to the financial statements previously issued in
order that these financial statements conform with reporting practices
prevailing in the United States.
F-7
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(INFORMATION WITH RESPECT TO THE 9 MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(THOUSANDS OF BRITISH POUNDS, STERLING)
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. There were no cash
equivalents at September 30, 1994 and 1995 and June 30, 1996.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market value. Inventories include purchased parts, labour, and overhead.
INVESTMENT IN E. F. JOHNSON COMPANY.
The investment in E. F. Johnson Company ("EFJ") is stated at cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings 11 to 50 years
Property and equipment 3 to 10 years
Equipment for rental on operating leases 3 to 5 years
</TABLE>
Gains and losses on disposal are recognized in the year of the disposition.
Expenditures for repairs and maintenance are charged to expense as incurred, and
significant renewals and betterments are capitalized.
GOODWILL
Goodwill represents the excess of cost over the fair value of net assets
acquired. Goodwill of L1,517 was being amortized on a straight line basis over
two years and is presented net of accumulated amortization of L1,139 and L1,517,
and L1,517 at September 30, 1994 and 1995 and June 30, 1996, respectively.
REVENUE RECOGNITION
Revenue related to system and mobile sales is recognized at the time of
title transfer, which ordinarily occurs at the time of shipment. From time to
time, customers request delayed shipment. If the Company's substantial
performance obligations otherwise have been fulfilled, revenue on such delayed
shipment transactions generally is recognized upon acceptance of goods by the
customer at the Company's facility. Revenue related to service activities and
sale of items from inventory is recognized when the service has been performed
or when the items are shipped. Revenue from long term contracts is recognized as
the units are completed.
F-8
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(INFORMATION WITH RESPECT TO THE 9 MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(THOUSANDS OF BRITISH POUNDS, STERLING)
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RENTAL INCOME
Rental income is recognized on short term operating leases on a straight
line basis over the life of the lease. The assets from which the income is
derived are capitalized on the balance sheet and called "Equipment for rental on
operating leases".
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
FOREIGN CURRENCY
Transactions in foreign currencies are recorded at the prevailing exchange
rate at the time of the related transactions. Assets and liabilities denominated
in foreign currencies are translated into British Sterling at the exchange rate
at the balance sheet date. The related transaction gains and losses are
recognized in the statement of operations as they occur and historically have
not been material.
INCOME TAXES
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." The liability method provides that deferred tax
assets and liabilities are recorded based on the difference between the tax
bases of assets and liabilities and their carrying amount for financial
reporting purposes, as measured by the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
CONCENTRATIONS OF CREDIT RISK
The equipment sales and contract manufacturing parts of the business have a
broad range of established customers. In contrast, the sale of communications
systems is a new market with a limited number of customers in an emerging
overseas environment and consequently may involve greater credit risks. The
Company has derived a substantial amount of its sales from related parties. No
formal agreements exist to continue on the same terms or volume of business in
the future. To the extent these sales do not continue, it may adversely affect
the Company's financial position and results of operations.
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited balance sheet as of June 30, 1996 and the unaudited statements
of operations and cash flows for the nine month periods ended June 30, 1995 and
1996 (interim financial information), have been prepared on the same basis as
the audited financial statements included herein. In the opinion of the Company,
the interim financial information includes all adjustments, consisting of only
normal recurring adjustments, necessary for a fair statement of the results of
the interim periods.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted from the interim financial information. The
results of operations for the nine months ended June 30, 1996 may not be
indicative of the operating results for the full year or any interim period.
F-9
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(INFORMATION WITH RESPECT TO THE 9 MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(THOUSANDS OF BRITISH POUNDS, STERLING)
NOTE 4 -- ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
SEPT 30, SEPT 30, JUNE 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Billed L3,665 L7,857 L6,017
Unbilled contract amounts -- 614 2,197
----------- ----------- -----------
3,665 8,471 8,214
Allowance for doubtful accounts (101) (300) (35)
----------- ----------- -----------
L3,564 L8,171 L8,179
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE 5 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPT 30, SEPT 30, JUNE 30,
1994 1995 1996
----------- --------- ---------
<S> <C> <C> <C>
Raw materials L 697 L3,998 L4,430
Work in progress 1,507 3,746 1,085
Finished goods 852 1,797 5,633
----------- --------- ---------
L3,056 L9,541 L11,148
----------- --------- ---------
----------- --------- ---------
</TABLE>
NOTE 6 -- PREPAID EXPENSES AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
SEPT 30, SEPT 30, JUNE 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Taxation L207 L 355 L 1,578
Other debtors 2 533 --
Prepaid expenses 661 457 520
----- ----------- -----------
L870 L 1,345 L 2,098
----- ----------- -----------
----- ----------- -----------
</TABLE>
NOTE 7 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPT 30, SEPT 30, JUNE 30,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Land L 320 L 320 L 320
Buildings 1,470 1,470 1,470
Manufacturing equipment 1,307 1,714 1,816
Office furniture and equipment 1,004 1,496 1,519
--------- --------- ---------
4,101 5,000 5,125
Less: accumulated depreciation and amortization (1,529) (1,874) (2,131)
--------- --------- ---------
L 2,572 L 3,126 L 2,994
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-10
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(INFORMATION WITH RESPECT TO THE 9 MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(THOUSANDS OF BRITISH POUNDS, STERLING)
NOTE 8 -- BANK OVERDRAFT
The bank overdraft bears interest at 1% over prevailing the UK bank base
rates, (6.75%, 7%, and 6.75% at September 30, 1994, 1995 and at June 30, 1996,
respectively). Interest is payable monthly and the overdraft is unsecured.
NOTE 9 -- RELATED PARTY TRANSACTIONS
(A) At September 30, 1994 and 1995 and June 30, 1996, the Company had
borrowings from Securicor Communications of L15,342, L25,121 and L38,319,
respectively. The current portion bears interest at 1% over base rate, (6.75%,
7%, and 6.75% at September 30, 1994 and 1995 and at June 30, 1996,
respectively).
Amounts payable beyond one year have no specified repayment date and are
non-interest bearing. Further details regarding these loans are provided in Note
16(A).
(B) Other related party transactions include:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest expense 126 126 310 204 792
Management fees 524 917 1,198 566 612
Sales 3,274 4,826 6,210 4,654 4,785
</TABLE>
In 1994 the Company received a payment of L325 from Securicor Alarms
Limited, an affiliate, representing its proportionate share of the related
expenses of a joint development project. This has been offset against selling,
general and administrative expenses for that year.
In March 1995, Securicor Communications Inc. ("Comms Inc."), an affiliated
company located in the US, acquired 925,850 voting preferred shares and a
warrant to acquire 291,790 shares of common stock of EFJ, a US based
communications company, for L6,290. Concurrent with this transaction, the
Company entered into an agreement with EFJ to sell certain inventory products
and granted manufacturing and technology licenses to EFJ for approximately
L6,087. Of this amount, L2,516 was attributable to the technology license which
requires future support by the Company through September 30, 1996. Accordingly,
the Company is recognizing the income attributable to the technology license on
a straight line basis through September 30, 1996. Revenues derived from EFJ have
been reflected as related party sales (see Note 16).
NOTE 10 -- ACCRUED EXPENSES
Included within accrued expenses, no one particular category represents more
than 5% of total current liabilities.
F-11
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(INFORMATION WITH RESPECT TO THE 9 MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(THOUSANDS OF BRITISH POUNDS, STERLING)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
The Company leases various office equipment and motor vehicles under
non-cancellable operating leases which expire at various dates through to 2001.
Rent expense was approximately L163, L278, L300, L216, and L360 for the years
ended September 30, 1993, 1994 and 1995, and the nine months ended June 30, 1995
and 1996, respectively.
Minimum annual payments for the operating leases for each of the next five
fiscal years are as follows:
<TABLE>
<S> <C>
SEPTEMBER 30,
1996 (remaining 3 months) L 83
1997 212
1998 103
1999 57
2000 57
Thereafter 47
---------
L559
---------
---------
</TABLE>
NOTE 12 -- INCOME TAXES
At September 30, 1995 the Company had no net operating loss carry forwards.
Tax laws in the UK permit the exchange of taxable income and losses between
companies within a group provided 75% or more of their ordinary stock is held.
The Company's past losses have been compensated by group members with the
taxable companies paying the loss making companies at the corporate tax rate
applied to the losses subject to any waivers.
At June 30, 1996 the Company has unused net operating losses of
approximately L247 to offset against future taxable income which may be carried
forward indefinitely. Deferred tax assets have a valuation allowance due to the
history of losses and upon consummation of the Securicor Transaction discussed
in Note 1 the Company will no longer be eligible for tax relief from group
members.
F-12
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(INFORMATION WITH RESPECT TO THE 9 MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(THOUSANDS OF BRITISH POUNDS, STERLING)
NOTE 12 -- INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows :
<TABLE>
<CAPTION>
SEPT 30, SEPT 30, JUNE 30,
1994 1995 1996
----------- --------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Depreciation L98 L2 L--
General provisions -- 21 55
Development costs 862 1,069 1,371
Operating loss carry forwards -- 82 82
----- --------- -----------
960 1,174 1,508
Valuation allowance (960) (1,153) (1,500)
----- --------- -----------
-- 21 8
Deferred tax liabilities:
Depreciation (165) (71) (58)
----- --------- -----------
Net deferred tax liability L(165) L(50) L(50)
----- --------- -----------
----- --------- -----------
</TABLE>
The Company's provision (benefit) for income taxes were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current L(321) L(181) L(349) L(261) L(1,430)
Deferred 117 (5) (115) (87) --
--------- --------- --------- --------- ---------
Total L(204) L(186) L(464) L(348) L(1,430)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-13
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(INFORMATION WITH RESPECT TO THE 9 MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(THOUSANDS OF BRITISH POUNDS, STERLING)
NOTE 12 -- INCOME TAXES (CONTINUED)
The reconciliation of the provision (benefit) for income taxes at September
30, 1993, 1994 and 1995 and for the nine months ended June 30, 1995 and 1996 to
the amount computed at the UK statutory rate of 33% for all periods is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Provision (benefit) at the statutory rate L(689) L(776) L(396) L(313) L(1,668)
Permanent differences:
Goodwill amortization 125 251 125 94 --
Waiver of group tax relief benefit 357 336 -- -- --
Other 3 3 3 3 4
Operating losses not currently available for use -- -- -- -- 234
Prior period group loss relief -- -- (196) (132) --
--------- --------- --------- --------- ---------
L(204) L(186) L(464) L(348) L(1,430)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NOTE 13 -- RETIREMENT PLANS
The Company contributes to the pension scheme of Securicor plc, which is a
defined benefit pension plan that covers executives and selected other employees
based on merit. The plan calls for benefits to be paid to eligible employees at
retirement based primarily on years of service with the Company and compensation
rates near retirement. Contributions to the plan reflect benefits attributed to
employees' services to date, as well as services expected to be earned in the
future.
The pension costs are assessed on the advice of independent qualified
actuaries using the projected unit credit method. The most recent actuarial
valuation was April 5, 1995. The assets of the scheme are held in separate
trustee administered funds.
The Company's share of the costs of the group's defined benefit pension
scheme amounted to:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Pension expense L16 L63 L107 L90 L98
--- --- --------- --- ---
--- --- --------- --- ---
</TABLE>
Full particulars of the pension scheme are disclosed in the published
accounts of Securicor plc.
NOTE 14 -- FOREIGN SALES AND MAJOR CUSTOMER
Net sales to international customers primarily located in the United States
were to approximately L Nil, L1,784, L9,392, L6,341 and L2,920 for the years
ended September 30, 1993, 1994, 1995, and the nine months ended June 30, 1995
and 1996, respectively. Sales to these international customers were in respect
of
F-14
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(INFORMATION WITH RESPECT TO THE 9 MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(THOUSANDS OF BRITISH POUNDS, STERLING)
NOTE 14 -- FOREIGN SALES AND MAJOR CUSTOMER (CONTINUED)
communication systems. Certain sales contracts are denominated in U.S. dollars.
Accordingly, significant fluctuations in the U.S. dollar versus the British
Sterling could have a significant effect on the Company's profits.
The following table summarises significant third party customers with sales
in excess of 10% of total net revenues for the years ended September 30, 1993,
1994 and 1995 and for the nine months ended June 30, 1995 and 1996,
respectively.
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Customer A -- 11% 17% 25% 11%
Customer B -- -- 19% 20% --
--- --- --- --- ---
-- 11% 36% 45% 11%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
At September 30, 1994 and 1995 and June 30, 1996, 24.8%, 19.7% and 18.6% of
accounts receivable were due from one customer, respectively.
NOTE 15 -- GROUP SUPPORT
The immediate parent company, Securicor Communications, and Security
Services plc, have confirmed their willingness to support INTEK following the
consummation of the Securicor Transaction (at which time the Company will be a
wholly owned subsidiary of INTEK) to the extent up to an aggregate of $15,000 on
the terms set forth in the Stock Purchase Agreement (defined below).
NOTE 16 -- SUBSEQUENT EVENTS
A) CAPITALIZATION:
On June 17, 1996, the Company acquired the 925,850 voting preferred shares
and Warrant to acquire 291,790 shares of EFJ common stock from Comms Inc. at
cost of L6,290, the consideration being a promissory note payable on June 17,
1997 for L6,290 (the "principal amount") together with interest on the principal
amount at a rate of 8% per annum.
On June 18, 1996, Securicor Communications entered into the Stock Purchase
Agreement to effect the sale of the common stock of Radiocoms to INTEK in
exchange for 25 million shares of common stock ("Common Stock") of INTEK,
representing the purchase consideration, which would provide Securicor
Communications with approximately 65% of the INTEK Common Stock. As part of the
arrangements, the intercompany loans of the Company are to be used as payment
for the issue of both new Preference and new Equity shares in the Company to
recapitalize its Balance Sheet.
The final amounts will depend upon exchange rates and are subject to the
future closing.
F-15
<PAGE>
SECURICOR RADIOCOMS LIMITED AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(INFORMATION WITH RESPECT TO THE 9 MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(THOUSANDS OF BRITISH POUNDS, STERLING)
NOTE 16 -- SUBSEQUENT EVENTS (CONTINUED)
B) SALES CONTRACT:
During the year ended September 30, 1995 Radiocoms had sold and delivered
200 mobiles and 21 SMR systems to a US license aggregator ("the customer") for a
total of L650 in accordance with the customer's Purchase Order. The customer
paid L250 leaving an outstanding balance of L400 against which a doubtful
account provision of L247 has been made.
During the nine months to June 30, 1996, the Company was prepared to meet
its remaining obligation under this contract to supply systems and invoiced the
final contract value in December 1995 (approximately L5,000). As a result of
non-payment by the customer, the Company did not deliver the balance of the
systems and title of the undelivered goods remained with Radiocoms and the
revenue has, therefore, not been recognized in the nine months accounts. In
addition, on May 9, 1996, in connection with the Purchase Order, Radiocoms
entered into an Equipment Delivery Agreement (which was amended on August 1,
1996) (the "Equipment Agreement") pursuant to which, among other things, the
customer granted to Radiocoms a security interest in the equipment and various
agreements pertaining to ten constructed and operational systems owned or
managed by the customer (the "Constructed Systems").
As of June 30, 1996, the customer owed Radiocoms L323 representing the
remaining portion of the purchase price for the systems (the "Outstanding
Balance") and Radiocoms continued to hold a security interest in ten of the
customer's Constructed Systems.
On September 23, 1996, Radiocoms and the customer entered into an Agreement
(the "Superseding Agreement") which superseded the Purchase Order and in most
respects the subsequent Equipment Agreement, as amended. Pursuant to the terms
of the Superseding Agreement, Radiocoms retained its security interest in the
Constructed Systems and Radiocoms was granted the right to select any number of
the un-constructed licenses held and under management by the customer (the
"Selected Licenses"). Radiocoms has agreed, subject to certain conditions, to
provide equipment to be used in the construction of the Selected Licenses. The
customer is obligated to assign to Radiocoms all of its rights to acquire the
Selected Licenses on the terms set forth in the customer's option to acquire
these systems (which vary by license) and, upon receipt of FCC approval of the
transfer of each Selected License, Radiocoms will reduce the Outstanding Balance
by approximately L6 per Selected License so transferred. Additionally, upon the
construction and the initiation of transfer of each group of five Selected
Licenses, Radiocoms shall release its security interest in one Constructed
System.
The customer holds a repurchase option, subject to certain conditions, that
permit it to pay, for each Selected License assigned to Radiocoms a price of L87
plus L0.37 per subscriber and the reimbursement of certain costs incurred by
Radiocoms to acquire the Selected License back from Radiocoms.
NOTE 17 -- CONTINGENT LIABILITY FOR GROUP V.A.T. REGISTRATION
The Company is included in a Group Registration for UK sales tax purposes
(Value Added Tax "V.A.T.") and is therefore jointly and severally liable for any
unpaid sales tax debts of the parent undertaking and fellow undertakings in this
connection.
F-16
<PAGE>
FINANCIAL STATEMENTS
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1993
WITH REPORT OF INDEPENDENT AUDITORS
F-17
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS (NOTE 1)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1993
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-19
Audited Financial Statements
Balance Sheets....................................................................... F-20
Statements of Operations and Net Worth............................................... F-21
Statements of Cash Flows............................................................. F-22
Notes to Financial Statements........................................................ F-23
</TABLE>
F-18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Midland International Corporation -- United States Operations
We have audited the accompanying balance sheets of Midland International
Corporation -- United States Operations (Midland), as of December 31, 1995 and
1994 and the related statements of operations and net worth, and cash flows for
the years ended December 31, 1995 and 1994, and the two-month period ended
December 31, 1993. These financial statements are the responsibility of
Midland's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Midland International
Corporation -- United States Operations at December 31, 1995 and 1994 and the
results of its operations and its cash flows for the years ended December 31,
1995 and 1994, and the two-month period ended December 31, 1993, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, Midland's recurring
operating losses raise substantial doubt about its ability to continue as a
going concern. Management's plan as to these matters is also described in Note
1. The 1995 financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ERNST & YOUNG LLP
February 29, 1996
F-19
<PAGE>
MIDLAND INTERNATIONAL CORPORATION -
UNITED STATES OPERATIONS (NOTE 1)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 215 $ 1,154
Accounts receivable, less allowance for doubtful
accounts of $47,000
and $55,000 in 1995 and 1994, respectively 2,978 6,546
Receivable from subsidiaries 1,407 2,894
Amounts receivable from affiliates 100 867
Inventories 4,011 13,760
Refundable income taxes 288 91
Prepaid expenses and other current assets 229 249
--------- ---------
Total current assets 9,228 25,561
Deferred income taxes (Note 5) -- 558
Furniture and equipment, net of accumulated depreciation
of $53,000
and $13,000 in 1995 and 1994, respectively 137 84
Other assets:
Debt issuance costs, net of accumulated amortization of
$180,000
and $76,000 in 1995 and 1994, respectively -- 104
Investment in ADC (Note 10) 1,058 --
Other 86 78
--------- ---------
TOTAL ASSETS $ 10,509 $ 26,385
--------- ---------
--------- ---------
LIABILITIES AND NET WORTH:
Current liabilities:
Notes payable to bank (Note 2) $ -- $ 9,226
Accounts payable 943 3,696
Accrued salaries and benefits 801 1,237
Other accrued expenses 1,100 1,645
Deferred income taxes (Note 5) 814 1,435
Amounts payable to Simmonds 1,327 458
--------- ---------
Total current liabilities: 4,985 17,737
Deferred income taxes (Note 5) 63 --
Excess of fair value of acquired net assets over cost,
net of accumulated amortization of $1,475,000 and
$794,000 in 1995 and 1994, respectively 567 1,248
Net worth 4,894 7,400
--------- ---------
TOTAL LIABILITIES AND NET WORTH $ 10,509 $ 26,385
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
F-20
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS (NOTE 1)
STATEMENTS OF OPERATIONS AND NET WORTH
<TABLE>
<CAPTION>
TWO-MONTH
DECEMBER 31, PERIOD ENDED
---------------- DECEMBER 31,
1995 1994 1993
------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales $27,406 $49,388 $6,780
Cost of sales 23,176 39,177 5,294
------- ------- ------
Gross profit 4,230 10,211 1,486
Selling, general and administrative expenses 8,476 11,120 1,677
------- ------- ------
Operating loss (4,246) (909) (191)
Other income (expense):
Interest expense (591) (668) (31)
Restructuring expense (Note 8) (203) -- --
Gain on sale of consumer products division (Note 9) 927 -- --
Amortization of excess of fair value of acquired net assets over cost 681 681 113
Other income, net (Note 10) 638 1,083 817
------- ------- ------
Income (loss) before income taxes (2,794) 187 708
Income tax provision (benefit) (Note 5) (288) 89 240
------- ------- ------
Net income (loss) (2,506) 98 468
Net worth, beginning of period 7,400 7,302 6,834
------- ------- ------
Net worth, end of period $ 4,894 $ 7,400 $7,302
------- ------- ------
------- ------- ------
</TABLE>
See accompanying notes.
F-21
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS (NOTE 1)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWO-MONTH
DECEMBER 31, PERIOD ENDED
------------------ DECEMBER 31,
1995 1994 1993
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (2,506) $ 98 $ 468
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization 146 83 9
Gain on disposal of furniture and equipment -- (4) --
Gain on sale of consumer products division (927) -- --
Gain from ADC transaction (150) -- --
Provision for doubtful accounts 8 -- 11
Deferred income taxes -- (23) 26
Amortization of excess of fair value of acquired net assets over cost (681) (681) (114)
Changes in operating assets and liabilities, net of the effects of the sale of division:
Accounts receivable 3,464 619 (2,093)
Intercompany receivable 1,487 427 (337)
Amounts receivable from affiliates 767 (804) (63)
Inventories 6,539 (4,853) (887)
Refundable income taxes (197) (91) --
Prepaid expenses and other current assets 14 (72) 218
Accounts payable (2,752) (342) 1,487
Accrued salaries and benefits (436) (210) 144
Other accrued expenses (272) (53) 208
Income taxes payable -- (222) 185
Amounts payable to Simmonds 869 793 (2,024)
-------- -------- ------------
Net cash provided by (used in) operating activities 5,373 (5,335) (2,762)
INVESTING ACTIVITIES
Purchases of furniture and equipment (126) (91) (7)
Proceeds from sale of furniture and equipment -- 4 --
Proceeds from sale of consumer products division 3,088 -- --
Purchases of other assets (8) (101) --
-------- -------- ------------
Net cash provided by (used in) investing activities 2,954 (188) (7)
FINANCING ACTIVITIES
Proceeds from borrowings on line of credit 19,591 56,716 8,064
Principal payments on line of credit borrowings (28,857) (50,188) (5,327)
Debt issuance costs incurred -- -- (160)
-------- -------- ------------
Net cash provided by (used in) financing activities (9,266) 6,528 2,577
-------- -------- ------------
Net increase (decrease) in cash (939) 1,005 (192)
Cash at beginning of period 1,154 149 341
-------- -------- ------------
Cash at end of period $ 215 $ 1,154 $ 149
-------- -------- ------------
-------- -------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for income taxes $ -- $ 420 $ --
-------- -------- ------------
-------- -------- ------------
Cash paid during the period for interest $ 655 $ 577 $ 7
-------- -------- ------------
-------- -------- ------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITY
Exchange of inventory for shares of American Digital Communications, Inc. $ 1,058 $ -- $ --
-------- -------- ------------
-------- -------- ------------
</TABLE>
See accompanying notes.
F-22
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1993
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Midland International Corporation (the Company) is a wholly-owned subsidiary
of SCL, Inc., (the Parent), which is a wholly-owned subsidiary of Simmonds
Capital Limited (Simmonds), a Canadian company. The Company is engaged primarily
in the light assembly and distribution of two-way land mobile radios and related
equipment and, until May 1995, certain other consumer product radios, both
domestically and internationally (see Note 9).
During February 1996, the Company, together with Simmonds, entered into a
letter of intent to combine the United States operations of the Company with
certain operations of Securicor Radiocoms Limited (Securicor), a United Kingdom
company, and INTEK Diversified Corporation (INTEK), a publicly-held company in
the United States.
According to the terms of the agreement, the Company will contribute
substantially all of its United States businesses, operations, assets and
liabilities to INTEK in exchange for shares of common stock of INTEK. In
connection with the Securicor part of the proposed combination, INTEK intends to
circulate a proxy to its shareholders requesting approval of the proposed
combination. As a result of the financial statement requirements for businesses
acquired under the proxy rules promulgated by the Securities and Exchange
Commission, the accompanying financial statements represent only the United
States operations to be sold by the Company, hereafter referred to as Midland.
The accompanying financial statements of Midland exclude the Company's
wholly-owned subsidiaries, since such operations will not be included in the
operations to be contributed to INTEK. Simmonds and the Company presently expect
the combination to close during the third quarter of 1996. The receivable from
subsidiaries amounting to $1,407,000 and $2,894,000 at December 31, 1995 and
1994, respectively, is eliminated in the consolidated financial statements of
the Parent.
Effective November 1, 1993, 100% of the outstanding capital stock of the
Company was acquired by the Parent in exchange for $8,688,000 in cash and
$121,000 in liabilities, including acquisition costs of approximately $275,000.
The acquisition was accounted for as a purchase; accordingly, the assets and
liabilities of Midland were recorded at their estimated fair values at the date
of acquisition. The excess of the estimated fair value of the net assets
acquired over the purchase price, which amounted to $2,042,000, is being
amortized on the straight-line basis over three years.
BASIS OF PRESENTATION
Midland's financial statements have been prepared on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. Midland has incurred operating
losses of $4,246,000, $909,000 and $191,000 in 1995, 1994 and 1993,
respectively. Midland's ability to continue as a going concern is dependent upon
its ability to successfully close its pending combination with INTEK and
Securicor as described above. If Midland is unable to successfully close the
pending combination, it may be necessary to undertake other actions and seek
other financial arrangements, as appropriate. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
F-23
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1993
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories, which consist primarily of finished goods and component parts,
are stated at the lower of cost or market. Cost has been determined using the
last-in, first-out (LIFO) method. If the first-in, first-out (FIFO) method of
costing inventory had been used during the years ended December 31, 1995 and
1994 and during the two-month period ended December 31, 1993, no material
difference in the carrying value of inventories or cost of sales would have
resulted.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
Midland accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." The liability method provides that deferred tax assets and
liabilities are recorded based on the difference between the tax bases of assets
and liabilities and their carrying amount for financial reporting purposes, as
measured by the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
ACCOUNTS RECEIVABLE
Midland grants credit to certain domestic customers who meet its
preestablished credit requirements. Generally, Midland does not require security
when trade credit is granted to such domestic customers but does require
substantially all foreign customers to issue letters of credit which secure
payment of the accounts receivable balances. Credit losses are provided for in
Midland's financial statements and consistently have been within management's
expectations.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost, and depreciation is computed
using accelerated methods over their estimated useful lives of five to seven
years.
DEBT ISSUANCE COSTS
Costs incurred in connection with the issuance of debt were capitalized and
amortized on the straight-line method over three years, the term of the related
debt. As a result of the termination of the credit facility as discussed in Note
2, all capitalized debt issuance costs have been fully amortized as of December
31, 1995.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are recorded at the approximate rate of
exchange at the transaction date. Assets and liabilities resulting from these
transactions are translated at the rate of exchange in effect at each balance
sheet date. All differences are recorded in results of operations and amounted
to exchange gains of approximately $20,000 and $212,000 for the years ended
December 31, 1995 and 1994, respectively. There was no exchange gain for the
two-month period ended December 31, 1993. These gains are included in other
income, net in the accompanying statements of operations.
F-24
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1993
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Midland expenses advertising costs as incurred. For the years ended December
31, 1995 and 1994 and for the two-month period ended December 31, 1993,
advertising costs amounting to approximately $329,000, $398,000 and $24,000,
respectively, were charged to operations.
CONCENTRATION
Midland acquired approximately 59%, 49% and 37% of its aggregate inventory
purchases from a single manufacturer located in Japan during the years ended
December 31, 1995 and 1994 and for the two-month period ended December 31, 1993,
respectively. Midland's regular supply of inventory could be adversely affected
should this supplier terminate its relationship with Midland. Additionally,
significant fluctuations in the value of the United States dollar versus the yen
could have a material effect on Midland's profit margins. At December 31, 1995,
Midland had a purchase commitment with this supplier to purchase approximately
$560,000 of inventory.
2. LINE OF CREDIT
During 1995 and 1994, Midland had a revolving line of credit agreement with
a bank which was secured by substantially all its assets and provided for
borrowings based on a specified percentage of accounts receivable and
inventories up to a maximum of $16,000,000.
Pursuant to the provisions of the line of credit agreement, Midland was
subject to certain restrictive covenants which, among other things, required the
maintenance of certain financial ratios and minimum levels of working capital
and net worth. Due primarily to losses incurred in 1995, Midland was in
violation of its credit agreement during the year ended December 31, 1995. In
September 1995, Midland was notified that the bank would exercise its right
under the credit agreement and demand repayment of all borrowings thereunder and
terminate the credit agreement. All borrowings under the credit agreement were
fully repaid at November 30, 1995.
3. RELATED PARTIES
Midland entered into several related-party transactions with Simmonds and
its affiliates and subsidiaries of the Company during the years ended December
31, 1995 and 1994 and during the two-month period ended December 31, 1993 as
described below (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net sales to Simmonds and affiliates $ 4,939 $ 6,923 $ 411
Purchases from Simmonds and affiliates 2,503 187 --
Net sales to subsidiaries of the Company 411 1,358 203
Management fees charged to Midland by Simmonds 564 691 80
</TABLE>
Net sales to Simmonds and affiliates of Simmonds, aggregating $4,939,000,
$6,923,000 and $411,000 for the years ended December 31, 1995 and 1994 and for
the two-month period ended December 31, 1993, respectively, generated gross
margins of approximately 3%, 7% and 15%, respectively.
F-25
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1993
4. COMMITMENTS AND CONTINGENCIES
Midland leases certain office equipment and facilities under operating
leases. These leases expire on varying dates through 1997. Future minimum lease
rentals under noncancelable operating leases for the years ended December 31 are
as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 53
1997 4
---
$ 57
---
---
</TABLE>
Rental expense under all operating leases amounted to $330,000, $116,000 and
$52,000 for the years ended December 31, 1995 and 1994 and for the two-month
period ended December 31, 1993, respectively. In addition to the leases
described above, Midland has commitments under operating leases for various
automobiles which generally have initial lease terms of two years. In most cases
management expects, that in the normal course of business, existing automobile
leases with annual rentals of approximately $97,200 will be renewed or replaced
by new leases.
5. INCOME TAXES
At December 31, 1995, Midland had net operating loss carryforwards of
approximately $2,800,000 which expire as follows: $850,000 in 2009 and
$1,950,000 in 2010. These operating losses may be used to offset future taxable
income in the United States. For financial reporting purposes, a valuation
allowance of $1,061,000 and $323,000 has been recognized to offset the deferred
tax assets relating to these net operating loss carryforwards at December 31,
1995 and 1994, respectively. As of December 31, 1993, there was no valuation
allowance recorded.
F-26
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1993
5. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Midland's deferred tax assets and liabilities as of December 31, 1995 and 1994
are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Current:
Accrued expenses $ 278 $ 334
Other 18 21
--------- ---------
296 355
Noncurrent:
Alternative minimum tax 14 304
Basis difference in acquired assets 134 188
Net operating loss carryforwards 1,061 323
--------- ---------
1,209 815
--------- ---------
Total deferred tax assets 1,505 1,170
Deferred tax liabilities:
Current:
Basis difference in acquired assets (1,050) (1,714)
--------- ---------
(1,050) (1,714)
Valuation allowance (1,332) (333)
--------- ---------
Net deferred tax liabilities $ (877) $ (877)
--------- ---------
--------- ---------
</TABLE>
The income tax provision (benefit) for the years ended December 31, 1995 and
1994 and for the two-month period ended December 31, 1993 differs from the
amounts computed at the statutory federal income tax rate as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Provision (benefit) at statutory rate $ (950) $ 64 $ 241
State income tax provision (benefit) -- (2) 2
Nontaxable amortization of the excess of fair value of acquired net
assets over cost (232) (232) (38)
State tax effects of net operating losses, for which valuation
allowances have been provided (78) (34) --
Nondeductible items 15 28 6
Change in valuation allowance 999 333 --
Other (42) (68) 29
--------- --------- ---------
$ (288) $ 89 $ 240
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-27
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1993
5. INCOME TAXES (CONTINUED)
Midland's provision (benefit) for income taxes for the years ended December
31, 1995 and 1994 and for the two-month period ended December 31, 1993 were as
follows (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
1995
Federal $ (288) $ -- $ (288)
State -- -- --
----- --- ---------
$ (288) $ -- $ (288)
----- --- ---------
----- --- ---------
1994
Federal $ 112 $ (20) $ 92
State -- (3) (3)
----- --- ---------
$ 112 $ (23) $ 89
----- --- ---------
----- --- ---------
1993
Federal $ 214 $ 23 $ 237
State -- 3 3
----- --- ---------
$ 214 $ 26 $ 240
----- --- ---------
----- --- ---------
</TABLE>
6. EMPLOYEE BENEFIT PLAN
Midland has a defined contribution profit-sharing/thrift plan (the Plan)
which covers all employees who have reached the age of 25 and who have completed
one year of service. Plan participants may contribute up to 10% of their annual
compensation, subject to maximum limitations established by the Internal Revenue
Service. Midland's annual contribution to the Plan, as defined, is the lesser of
an amount equal to 12.5% of Midland's pretax income before the contribution, if
any, for the year or an amount equal to 15% of the total annual compensation of
the Plan's participants. There was no contribution to the Plan for the year
ended December 31, 1995 and for the two-month period ended December 31, 1993.
For the year ended December 31, 1994, Midland's contribution to the Plan was
$26,000.
7. FOREIGN OPERATIONS AND MAJOR CUSTOMER
Net sales to international customers amounted to approximately $5,245,000,
$8,515,000 and $829,000 for the years ended December 31, 1995 and 1994 and for
the two-month period ended December 31, 1993, respectively.
Sales to one retail customer accounted for approximately 7%, 11% and 24% of
sales for the years ended December 31, 1995 and 1994 and the two-month period
ended December 31, 1993, respectively. Additionally, this customer accounted for
approximately 23% of accounts receivable at December 31, 1994.
8. RESTRUCTURING
During March 1995, Midland initiated a plan of restructuring whereby certain
operations, primarily warehousing and engineering, were relocated to Canada and
merged into Simmonds' operations. In connection with this restructuring, a total
of 17 employees were terminated. During the year ended December 31, 1995,
termination benefits totaling approximately $203,000 were charged to operations
in connection with the restructuring, all of which were paid during the year.
F-28
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1993
9. SALE OF CONSUMER PRODUCTS DIVISION
In June 1995, Midland reached an agreement to sell (i) all of its operating
assets of the consumer wireless communications business, primarily including
inventory, equipment and customer lists and (ii) a transferable license to use
the "Midland" trademark and logo for the sale of the consumer wireless
communication products. In exchange, Midland received net proceeds of
approximately $3,088,000 for the license and the operating assets and recognized
a gain of approximately $927,000. Sales from Midland's the consumer wireless
communications business represented approximately 17%, 30% and 38% of net sales
for the years ended December 31, 1995 and 1994 and for the two-month period
ended December 31, 1993, respectively. Additionally, the consumer wireless
communications business represented approximately 22% of total assets at
December 31, 1994.
10. SALE OF LICENSES
Effective December 29, 1995, Midland, together with Simmonds, entered into a
transaction pursuant to which Midland agreed to sell a license for the exclusive
distribution of its LTR radio product line and all of its related LTR inventory
to American Digital Communications, Inc. (ADC), a publicly-held corporation in
the United States, in exchange for 4,230,906 shares of the common stock of ADC.
The ADC shares were valued at $1,058,000, resulting in a gain of approximately
$150,000 which has been classified as other income in the accompanying financial
statements.
During February 1994, Simmonds entered into an agreement in connection with
licensing the "Midland" trademark. Pursuant to the terms of the licensing
agreement, Simmonds received $1,000,000 in exchange for its granting of
exclusive rights to market certain of Midland's products in certain geographic
regions of Eastern Europe. Midland has recorded no income as a result of this
transaction.
During December 1993, Midland entered into a similar agreement under which
it received an aggregate of $1,250,000 in exchange for its granting of exclusive
rights to market certain of the Midland's products in certain geographic areas
of Europe and Africa. Such license fees, net of related commission expense
payable to Simmonds of $250,000, have been recorded and classified as other
income in the two-month period ended December 31, 1993.
F-29
<PAGE>
FINANCIAL STATEMENTS
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
FOR THE TEN-MONTH PERIOD ENDED OCTOBER 31, 1993
WITH REPORT OF INDEPENDENT AUDITORS
F-30
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
FINANCIAL STATEMENTS
FOR THE TEN-MONTH PERIOD ENDED OCTOBER 31, 1993
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-32
Audited Financial Statements
Balance Sheet........................................................................ F-33
Statement of Operations and Net Worth................................................ F-34
Statement of Cash Flows.............................................................. F-35
Notes to Financial Statements........................................................ F-36
</TABLE>
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Midland International Corporation -- United States Operations
We have audited the accompanying balance sheet of Midland International
Corporation -- United States Operations (Midland), as of October 31, 1993 and
the related statements of operations and net worth, and cash flows for the
ten-month period ended October 31, 1993. These financial statements are the
responsibility of Midland's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Midland International
Corporation -- United States Operations at October 31, 1993 and the results of
its operations and its cash flows for the ten-month period ended October 31,
1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 29, 1996
F-32
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS (NOTE 1)
BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 31,
1993
---------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash $ 341
Accounts receivable, less allowance for doubtful accounts $72,000 5,337
Receivable from subsidiaries 2,984
Inventories 8,020
Prepaid expenses and other current assets 395
-------
Total current assets 17,077
Deferred income taxes 1,507
Furniture and equipment, net of accumulated depreciation of $1,202,000 (Note 4) 1,395
Other assets 23
-------
Total assets $ 20,002
-------
-------
LIABILITIES AND NET WORTH
Current liabilities:
Accounts payable $ 2,553
Accrued salaries and benefits 1,303
Other accrued expenses 1,503
Amounts payable to Parent 1,563
-------
Total current liabilities 6,922
Net worth 13,080
-------
Total liabilities and net worth $ 20,002
-------
-------
</TABLE>
See accompanying notes
F-33
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS (NOTE 1)
STATEMENT OF OPERATIONS AND NET WORTH
TEN-MONTH PERIOD ENDED OCTOBER 31, 1993
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales $ 33,266
Cost of sales 27,168
---------
Gross profit 6,098
Selling, general and administrative expenses 9,609
---------
Operating loss (3,511)
Other income (expense):
Interest expense (1)
Other income, net 1,236
---------
Loss before income taxes (2,276)
Income tax benefit (539)
---------
Net loss (1,737)
Net worth, beginning of period 16,392
Amount due from Western Auto (1,575)
---------
Net worth, end of period $ 13,080
---------
---------
</TABLE>
See accompanying notes.
F-34
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS (NOTE 1)
STATEMENT OF CASH FLOWS
TEN-MONTH PERIOD ENDED OCTOBER 31, 1993
(IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss $ (1,737)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 1,029
Gain on disposal of furniture and equipment (2)
Provision for doubtful accounts 14
Changes in operating assets and liabilities:
Accounts receivable (262)
Inventories 3,853
Prepaid expenses and other current assets (135)
Receivable from subsidiaries (2,278)
Accounts payable (48)
Accrued salaries and benefits (218)
Other accrued expenses 358
---------
Net cash provided by operating activities 574
INVESTING ACTIVITIES
Purchases of furniture and equipment (31)
Proceeds from sale of furniture and equipment 27
Proceeds from collection of note receivable 366
Purchases of other assets (357)
---------
Net cash provided by investing activities 5
FINANCING ACTIVITIES
Proceeds from advances from Western Auto 33,230
Payments on advances from Western Auto (33,471)
---------
Net cash used in financing activities (241)
---------
Net increase in cash 338
Cash at beginning of period 3
---------
Cash at end of period $ 341
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 13
---------
---------
</TABLE>
See accompanying notes.
F-35
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEN-MONTH PERIOD ENDED OCTOBER 31, 1993
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Midland International Corporation (the Company), a wholly-owned subsidiary
of Western Auto Supply Company (Western Auto), which is a wholly-owned
subsidiary of Sears, Roebuck and Company (Sears), is engaged primarily in the
light assembly and distribution of two-way land mobile radios and related
equipment and, until May 1995, certain other consumer product radios, both
domestically and internationally (SEE NOTE 7).
Effective November 1, 1993, 100% of the outstanding capital stock of the
Company was acquired by Simmonds Capital Limited (Simmonds) in exchange for
$8,688,000 in cash and $121,000 in liabilities, including acquisition costs of
approximately $275,000. The acquisition has been accounted for as a purchase.
Accordingly, the assets and liabilities of Midland were recorded at their
estimated fair values at the date of acquisition. The excess of the estimated
fair value of the net assets acquired over the purchase price amounted to
$2,042,000.
During February 1996, the Company, together with Simmonds, entered into a
letter of intent to combine the United States operations of the Company with
certain operations of Securicor Radiocoms Limited, a United Kingdom company, and
INTEK Diversified Corporation (INTEK), a publicly-held company in the United
States.
According to the terms of the agreement, the Company will contribute
substantially all of its United States businesses, operations, assets and
liabilities to INTEK in exchange for shares of common stock of INTEK. In
connection with the Securicor part of the proposed combination, INTEK intends to
circulate a proxy to its shareholders requesting approval of the proposed
combination. As a result of the financial statement requirements for businesses
acquired under the proxy rules promulgated by the Securities and Exchange
Commission, the accompanying financial statements represent only the United
States operations to be sold by the Company, hereafter referred to as Midland.
The accompanying financial statements of Midland exclude the Company's
wholly-owned subsidiaries, since such operations will not be included in the
operations to be contributed to INTEK. Simmonds and the Company presently expect
the combination to close during the third quarter of 1996.
INVENTORIES
Inventories, which consist primarily of finished goods and component parts,
are stated at the lower of cost, determined using the average cost method which
approximates FIFO, or market.
INCOME TAXES
Midland was part of a group of companies which filed consolidated income tax
returns with Sears. The income tax benefit recorded by Midland for the ten-month
period ended October 31, 1993 was based on the tax-sharing arrangement by and
between Midland, Western Auto and Sears.
The deferred tax asset and income tax benefit recorded for the ten-month
period ended October 31, 1993 was allocated to Midland by Western Auto based on
the tax-sharing arrangement by and between Midland, Western Auto and Sears.
F-36
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEN-MONTH PERIOD ENDED OCTOBER 31, 1993
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
Midland grants credit to certain domestic customers who meet Midland's
preestablished credit requirements. Generally, Midland does not require security
when trade credit is granted to such domestic customers, but does require
substantially all foreign customers to issue letters of credit which secure
payment of the accounts receivable balances. Credit losses are provided for in
the financial statements and consistently have been within management's
expectations.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost, and depreciation has been
calculated using the straight-line method over the assets' estimated useful
lives of five to seven years.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are recorded at the approximate rate of
exchange at the transaction date. Assets and liabilities resulting from these
transactions are translated at the rate of exchange in effect at the balance
sheet date. For the ten-month period ended October 31, 1993, Midland recorded
exchange losses of approximately $441,000. These losses are included in other
income, net in the accompanying statement of operations.
2. RELATED PARTIES
In connection with the acquisition described in NOTE 1, Midland agreed to
forgive $1,575,000 due from Western Auto which was charged directly to net worth
in the accompanying financial statements. In addition, Midland entered into
several related-party transactions as described below (IN THOUSANDS):
<TABLE>
<S> <C>
Net sales to subsidiaries of the Company $ 868
Net sales to Western Auto 40
Commission income from Western Auto 170
Rent and other costs charged to Western Auto 174
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
Midland leases certain office equipment under operating leases. These leases
expire on varying dates through 1997. Future minimum lease rentals under
noncancelable operating leases for years ending December 31 are as follows (IN
THOUSANDS):
<TABLE>
<S> <C>
1994 $ 15,125
1995 16,500
1996 16,500
1997 1,375
---------
$ 49,500
---------
---------
</TABLE>
Rental expense under all operating leases amounted to $281,000 for the
ten-month period ended October 31, 1993. In addition to the leases described
above, Midland has commitments under operating leases for various automobiles
which generally have initial lease terms of two years. In most cases management
expects that in the normal course of business, existing automobile leases with
annual rentals of approximately $82,300 will be renewed or replaced by new
leases.
Midland was contingently liable for outstanding letters of credit at October
31, 1993 totaling $8,268,800.
F-37
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEN-MONTH PERIOD ENDED OCTOBER 31, 1993
4. FURNITURE AND EQUIPMENT
At October 31, 1993, furniture and equipment consisted of the following (in
thousands):
<TABLE>
<S> <C>
Furniture and equipment $ 1,766
Production tooling 831
---------
2,597
Accumulated depreciation 1,202
---------
$ 1,395
---------
---------
</TABLE>
5. EMPLOYEE BENEFIT PLAN
Midland has a defined contribution profit-sharing/thrift plan (the Plan)
which covers substantially all employees who have reached the age of 25 and who
have completed one year of service. Plan participants may contribute up to 10%
of their annual compensation, subject to maximum limitations established by the
Internal Revenue Service. Midland's annual contribution to the Plan, as defined,
is the lesser of an amount equal to 12.5% of Midland's pretax income before the
contribution, if any, for the year or an amount equal to 15% of the total annual
compensation of the Plan's participants. There were no contributions to the Plan
for the ten-month period ended October 31, 1993.
6. FOREIGN OPERATIONS
Net sales to international customers amounted to approximately $4,222,000
for the ten-month period ended October 31, 1993.
7. SALE OF CONSUMER PRODUCTS DIVISION
In April 1995, Midland reached an agreement to sell (i) all of its operating
assets of the consumer wireless communications business, primarily consisting of
inventory, equipment and customer lists and (ii) a transferable license to use
the "Midland" trademark and logo for the sale of consumer wireless communication
products. In exchange, Midland received net proceeds of approximately $3,088,000
for the license and the operating assets. A gain was recorded on this sale
transaction in 1995. The operations of the consumer wireless communications
business represented approximately 25% of consolidated sales for the ten-month
period ended October 31, 1993.
F-38
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS (NOTE 1)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1996
---------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash $ 62
Accounts receivable, less allowance for doubtful accounts $42,000 1,647
Receivable from subsidiaries 1,493
Amounts receivable from affiliates 86
Inventories 4,268
Refundable income taxes 288
Prepaid expenses and other current assets 785
------
Total current assets 8,629
Deferred income taxes (Note 2) --
Furniture and equipment, net of accumulated depreciation of $74,000 117
Other assets:
Investment in ADC 1,058
Other 56
------
Total assets $ 9,860
------
------
LIABILITIES AND NET WORTH
Current liabilities:
Accounts payable $ 1,199
Accrued salaries and benefits 781
Other accrued expenses 1,155
Deferred income taxes 814
Amounts payable to Simmonds 1,736
------
Total current liabilities 5,685
Deferred income taxes 63
Excess of fair value of acquired net assets over cost, net of accumulated
amortization of $1,645,000 227
Net worth 3,885
------
Total liabilities and net worth $ 9,860
------
------
</TABLE>
See accompanying notes
F-39
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS (NOTE 1)
STATEMENTS OF OPERATIONS AND NET WORTH
(UNAUDITED)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED JUNE 30,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net sales $ 5,869 $ 18,211
Cost of sales 4,513 15,424
--------- ---------
Gross profit 1,356 2,787
Selling, general and administrative expenses 2,892 4,538
--------- ---------
Operating loss (1,536) (1,751)
Other income (expense):
Interest expense -- (440)
Restructuring expense -- (203)
Gain on sale of Consumer Product Division -- 927
Amortization of excess of fair value of acquired net assets over cost 340 340
Other income, net 187 428
--------- ---------
Loss before income taxes (1,009) (699)
Income tax provision (Note 2) -- --
--------- ---------
Net loss (1,009) (699)
Net worth, beginning of period 4,894 7,400
--------- ---------
Net worth, end of period $ 3,885 $ 6,701
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-40
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS (NOTE 1)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED JUNE 30,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,009) $ (699)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 54 62
Loss on disposal of furniture and equipment 2 1
Provision for doubtful accounts (6) (7)
Deferred income taxes -- 280
Amortization of excess of fair value of acquired net assets over cost (340) (340)
Changes in operating assets and liabilities:
Accounts receivable 1,337 (375)
Receivable from subsidiaries (86) 1,157
Amounts receivable from affiliates 14 354
Inventories (257) 5,933
Refundable income taxes -- 91
Prepaid expenses and other current assets (556) (40)
Accounts payable 256 (2,529)
Accrued salaries and benefits (20) (174)
Other accrued expenses 55 (526)
Income taxes payable -- (258)
Amounts payable to Simmonds 409 (1,693)
--------- ---------
Net cash provided by (used in) operating activities (147) 1,237
INVESTING ACTIVITIES
Purchases of furniture and equipment (9) (10)
Proceeds from sale of furniture and equipment 3 --
Purchases of other assets -- (24)
--------- ---------
Net cash used in investing activities (6) (34)
FINANCING ACTIVITIES
Proceeds from borrowings on line of credit -- 4,468
Principal payments on line of credit borrowings -- (6,871)
--------- ---------
Net cash used in financing activities -- (2,403)
--------- ---------
Net decrease in cash (153) (1,200)
Cash at beginning of period 215 1,154
--------- ---------
Cash (overdraft) at end of period $ 62 $ (46)
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ -- $ 440
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-41
<PAGE>
MIDLAND INTERNATIONAL CORPORATION --
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Midland International Corporation (the Company) is a wholly-owned subsidiary
of SCL Inc., (the Parent), which is a wholly-owned subsidiary of Simmonds
Capital Limited (Simmonds), a Canadian Company. The Company is engaged primarily
in the light assembly and distribution of two-way land mobile radios and related
equipment and, until June 1995, certain other consumer product radios, both
domestically and internationally.
During February 1996, the Company, together with Simmonds, entered into a
letter of intent to combine the United States operations of the Company with
certain operations of Securicor Radiocoms Limited (Securicor), a United Kingdom
company, and Intek Diversified Corporation (Intek), a publicly-held company in
the United States.
According to the terms of the agreement, the Company will contribute
substantially all of its United States businesses, operations, assets and
liabilities to Intek in exchange for shares of common stock of Intek. In
connection with the Securicor part of the combination, Intek is required to file
a Form 8-K with the Securities and Exchange Commission. As a result of the
financial statement requirements for businesses acquired under rules promulgated
by the Securities and Exchange Commission, the accompanying financial statements
represent only the United States operations to be sold by the Company, hereafter
referred to as Midland. The accompanying financial statements of Midland exclude
the Company's wholly-owned subsidiaries, since such operations will not be
included in the operations to be contributed to Intek. The receivable from
subsidiaries, amounting to $1,493,000 at June 30, 1996, is eliminated in the
consolidated financial statements of the Parent.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six months ended
June 30, 1996 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1996. For further information, refer to the
audited financial statements and footnotes of Midland for the year ended
December 31, 1995.
2. INCOME TAXES
The accompanying financial statements reflect no income tax benefit for the
six months ended June 30, 1996 and 1995, since the deferred tax assets relating
to the Company's net operating loss carryforwards have been offset by increases
in the valuation allowance.
F-42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of INTEK Diversified Corporation:
We have audited the accompanying consolidated balance sheets of INTEK
Diversified Corporation (a Delaware corporation in the development stage) and
subsidiaries as of December 31, 1995 and 1994 (Post-Reverse Merger -- See Note
1), and the related consolidated statements of operations, shareholders' equity
and cash flows for the year ended December 31, 1995, for the periods from
February 4, 1994 through December 31, 1994 (Post-Reverse Merger, consisting of
the statements of operations and cash flows of Roamer One, Inc., predecessor
corporation in the continuing business of INTEK Diversified Corporation and
subsidiaries for the period from inception (February 4, 1994) through September
23, 1994 (Pre-Reverse Merger), audited by us, and the statements of operations
and cash flows of INTEK Diversified Corporation and subsidiaries for the period
from September 24, 1994 through December 31, 1994 (Post-Reverse Merger), also
audited by us), for the period from January 1, 1994 through September 23, 1994
(Pre-Reverse Merger) and for the year ended December 31, 1993 (Pre-Reverse
Merger). We have also audited the statements of operations and cash flows of
INTEK Diversified Corporation and subsidiaries for the period from inception
(February 4, 1994) through December 31, 1995 (Post Reverse Merger, consisting of
the statements of operations and cash flows of Roamer One, Inc. and INTEK
Diversified Corporation and subsidiaries as described above). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of INTEK Diversified
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the periods indicated above
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 22, 1996
F-43
<PAGE>
INTEK DIVERSIFIED CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, 1994 AND DECEMBER 31, 1995, JUNE 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DEC. 31 DEC. 31 JUNE 30
1994 1995 1996
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,557 $ 678 $ 782
Accounts receivable, net of allowance
for doubtful accounts of
$35 in Dec. 1994
$60 in Dec. 1995
$61 in June 1996 922 1,199 454
Restricted cash -- -- 966
Notes receivable, current portion 68 54 135
Advances for mobile equipment inventory -- -- 1,796
Inventories of equipment 1,127 1,248 2,992
Prepaid expenses and other current assets 483 77 383
Assets held for sale 4,334 1,555 1,555
--------- --------- ------------
Total current assets 8,491 4,811 9,063
--------- --------- ------------
PROPERTY AND EQUIPMENT, AT COST 794 7,535 7,860
Less -- Accumulated Depreciation (22) (37) (63)
--------- --------- ------------
772 7,498 7,797
--------- --------- ------------
OTHER ASSETS:
Note receivable -- 100 70
Deferred financing costs -- -- 236
Investment in joint venture -- 125 125
--------- --------- ------------
TOTAL ASSETS $ 9,263 $ 12,534 $ 17,291
--------- --------- ------------
--------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
F-44
<PAGE>
INTEK DIVERSIFIED CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, 1994 AND DECEMBER 31, 1995, JUNE 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DEC. 31 DEC. 31 JUNE 30
1994 1995 1996
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 718 $ 301 $ 151
Accrued liabilities 270 870 621
Related party payable 1,292 2,452 32
Notes payable 2,992 -- 2,500
Letter of credit liability -- -- 917
Licensee deposits 3 344 366
--------- --------- -------------
Total current liabilities 5,275 3,967 4,587
--------- --------- -------------
NOTES PAYABLE -- -- 5,000
--------- --------- -------------
DEFERRED INCOME TAXES 723 633 633
--------- --------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value
Authorized -- 20,000,000 shares
Issued -- 9,382,831 in 1994 11,086,215 in 1995 and
11,590,860 in 1996 94 111 116
Capital in excess of par value 4,880 12,369 14,453
Treasury stock, at cost -- 465,582 shares in 1994, 1995 and
1996 (770) (770) (770)
Retained deficit (939) (3,776) (6,728)
--------- --------- -------------
Total shareholders' equity 3,265 7,934 7,071
--------- --------- -------------
Total liabilities and shareholders' equity $ 9,263 $ 12,534 $ 17,291
--------- --------- -------------
--------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
F-45
<PAGE>
INTEK DIVERSIFIED CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1994 AND DECEMBER 31, 1995,
THE SIX MONTH PERIODS ENDED JUNE 30, 1995 (UNAUDITED) AND JUNE 30, 1996
(UNAUDITED)
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
6 MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 329 $ 3,547 $ 1,520 $ 544
Cost of goods sold -- 292 3,254 1,399 591
--------- --------- --------- --------- ---------
Gross Profit -- 37 293 121 (47)
Operating expenses:
Site -- 86 469 199 606
Selling -- -- 183 14 207
Engineering -- -- -- -- 33
General administrative 448 857 2,866 1,382 1,463
--------- --------- --------- --------- ---------
Operating (loss) (448) (906) (3,225) (1,474) (2,356)
Other income (expense):
Gain on sale of assets held for sale -- -- 1,204 1,152 (158)
Interest -- (41) (209) (114) (117)
Financing costs -- -- (635) (533) (333)
Other 52 8 28 6 12
--------- --------- --------- --------- ---------
Loss from continuing operations (396) (939) (2,837) (963) (2,952)
Income tax provision 8 -- -- -- --
--------- --------- --------- --------- ---------
Loss from continuing operations (404) (939) (2,837) (963) (2,952)
Discontinued operations:
Loss from discontinued operations, net of
income taxes (342) -- -- -- --
Gain on disposal of discontinued operations,
net of
income taxes 10 -- -- -- --
--------- --------- --------- --------- ---------
Net loss $ (736) $ (939) $ (2,837) $ (963) $ (2,952)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Per Share Data:
Net loss per common share and common share
equivalent
Continuing operations $ (0.14) $ (0.22) $ (0.30) $ (0.10) $ (0.27)
Net loss $ (0.26) $ (0.22) $ (0.30) $ (0.10) $ (0.27)
Weighted average common shares and common
share equivalents outstanding 2,816 4,341 9,559 8,993 10,983
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-46
<PAGE>
INTEK DIVERSIFIED CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 4, 1994) THROUGH JUNE 30, 1996
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INCEPTION
(FEBRUARY 4,
1994)
THROUGH
JUNE 30, 1996
---------------
(UNAUDITED)
<S> <C>
Net sales $ 4,420
Cost of goods sold 4,137
-------
Gross Profit 283
Operating expenses:
Site 1,161
Selling 390
Engineering 33
General administrative 5,185
-------
Operating loss (6,486)
Other income (expense):
Gain on sale of assets held for sale 1,045
Interest (367)
Financing costs (968)
Other 48
-------
Net loss $ (6,728)
-------
-------
Per share data:
Net loss per common share and common share equivalent $ (0.84)
Continuing Operations $ (0.84)
Net Loss $ (0.84)
Weighted average common shares and common share equivalents outstanding 7,999
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-47
<PAGE>
INTEK DIVERSIFIED CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1994 AND DECEMBER 31, 1995,
THE SIX MONTH PERIODS ENDED JUNE 30, 1995 (UNAUDITED)
AND JUNE 30, 1996 (UNAUDITED)
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 6 MONTHS ENDED
JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net profit (loss)................................................... $ (736) $ (939) $ (2,837) $ (963) $ (2,952)
Adjustments to reconcile net (loss) to net cash provided by (used
in) operating activities:
Amortization of financing costs................................... -- -- 635 533 333
Management fees................................................... -- 425 -- -- --
Depreciation and amortization..................................... 25 48 14 38 26
Deferred income taxes............................................. 6 -- -- -- --
Loss (Gain) on sale of assets held for sale....................... 332 -- (1,204) (1,152) --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable............................................. 232 (214) (277) 535 745
Restricted cash................................................. -- -- -- -- (966)
Notes receivable................................................ (157) -- 68 25 (1,847)
Inventories..................................................... -- (1,127) (121) (1,614) (1,744)
Refundable income taxes......................................... 167 -- -- -- --
Prepaid expenses and other current assets....................... 1 (366) 406 388 (147)
Increase (decrease) in:
Accounts payable................................................ 337 352 (417) (359) (150)
Licensee deposits............................................... -- 3 341 122 22
Accrued liabilities............................................. 105 132 600 (462) (249)
Deferred income taxes........................................... -- -- (90) -- --
--------- --------- --------- --------- ---------
Total Adjustments..................................................... 1,048 (747) (45) (1,946) (3,977)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities................... 312 (1,686) (2,882) (2,909) (6,929)
Cash Flows From Investing Activities:
Capital expenditures................................................ (237) (795) (2,740) 1,105 (326)
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............................................................... 13 -- 3,868 3,373 --
Proceeds from collection of note receivable......................... 23 -- -- -- --
Investment in joint venture......................................... -- -- (125) (125) --
Change in working capital of discontinued operations................ -- -- (39) 189 --
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities................. (290) (1,306) 964 4,542 (326)
Cash Flows From Financing Activities:
Issuance of common stock............................................ -- 75 1,271 -- 1,639
Loan proceeds....................................................... -- 2,500 -- -- 7,500
Letter of credit liability.......................................... -- -- -- -- 917
Principal payments on borrowings.................................... (162) -- (1,392) (900) --
Deferred financing costs............................................ -- -- -- -- (277)
Related party borrowings.............................................. -- 1,293 1,160 (1,121) (2,420)
--------- --------- --------- --------- ---------
Net cash provided (used) by financing activities.................. (162) 3,868 1,039 (2,021) 7,359
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents.................. (140) 876 (879) (388) 104
Cash and cash equivalents at beginning of period...................... 567 427 1,557 1,557 678
Cash and equivalents acquired in reverse merger....................... -- 254 -- -- --
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period............................ $ 427 $ 1,557 $ 678 $ 1,169 $ 782
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosure of Cash flow information:
Cash paid for interest................................................ $ 87 $ 42 $ 227 $ 112 $ --
Cash paid for income taxes............................................ $ 5 $ 254 $ -- $ 3 $ 7
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-48
<PAGE>
INTEK DIVERSIFIED CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 4, 1994) THROUGH JUNE 30, 1996
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INCEPTION
(FEBRUARY 4,
1994)
THROUGH
JUNE 30, 1996
---------------
(UNAUDITED)
<S> <C>
Cash Flows From Operating Activities:
Net loss $ (6,729)
-------
Adjustments to reconcile net (loss) to net cash provided by (used in) operating
activities:
Amortization of financing costs 968
Management fees 425
Depreciation and amortization 88
Loss (Gain) on sale of assets held for sale (1,203)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 254
Restricted cash (965)
Notes receivable (1,780)
Inventories (2,992)
Prepaid expenses and other current assets (107)
Increase (decrease) in:
Accounts payable (215)
Licensee deposits 366
Accrued liabilities 484
Deferred income taxes (90)
-------
Total Adjustments (4,767)
-------
Net cash provided by (used in) operating activities (11,496)
Cash Flows From Investing Activities:
Capital expenditures (3,861)
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 3,869
Investment in joint venture (125)
Change in working capital of discontinued operations (40)
-------
Net cash used in investing activities (668)
Cash Flows From Financing Activities:
Issuance of common stock 2,984
Loan proceeds 10,000
Letter of credit liability 917
Principal payments on borrowings (1,392)
Deferred financing costs (278)
Related party borrowings 34
-------
Net cash provided by financing activities 12,265
-------
Net increase in cash and cash equivalents 101
Cash and cash equivalents at beginning of period 427
Cash and equivalents acquired in reverse merger 254
-------
Cash and cash equivalents at end of period $ 782
-------
-------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 227
Cash paid for income taxes $ 12
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-49
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(1) BUSINESS AND SIGNIFICANT RISKS
A. DEVELOPMENT STAGE ENTERPRISE
INTEK Diversified Corporation ("INTEK" or the "Company") was incorporated in
1969 and until September 23, 1994 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
Romnet, Inc. (the "Merger"). After the Merger, the surviving corporation changed
its name to Roamer One, Inc. ("Roamer One") The Company refocused its resources
to the development of the Roamer One business, the telecommunications industry,
and discontinued and divested the operations of Olympic Plastics. Since the
former shareholders of Simrom retained more than a 50 percent controlling
interest in INTEK, the business combination was treated as a reverse merger for
accounting purposes. After the Merger, 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.
The Company is engaged in a development stage enterprise of developing,
constructing, and managing narrow band 220 MHz Specialized Mobile Radio ("SMR")
systems in the United States ("U.S.") utilizing certain rights and benefits
afforded it by licensees in the newly allocated 220 MHz narrow band spectrum.
Roamer One contracted with certain holders of 220 MHz licensees who can
generally be grouped under one of the following classifications: Category I,
Category II, or Category III Agreements. Under the Category I Agreements, each
of the licensees (which are, in some instances, directors of, and others
affiliated with the Company) has 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 for a
nominal sum. Under the Option Agreement, Roamer One is required to fund all
capital costs and operating expenses. The option 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. As of June 30, 1996, Roamer One had 228
Category I Agreements, of which 73 were constructed.
Under Category II Agreements, each of the licensees has entered into a
Management Agreement which permits Roamer One to earn and retain, depending on
the Licensee, 30%-65% of the gross subscriber revenues. Each of the licensees
also has entered into an Option Agreement, however, in most cases, the option
may be exercised only after 18 months to 48 months (depending on the licensee)
after the construction of the 220 MHz SMR System by Roamer One has been
completed. 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 generally computed using a multiple of earnings at the time of
purchase. As of June 30, 1996, Roamer One had 33 Category II Agreements, of
which 27 were constructed.
F-50
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(1) BUSINESS AND SIGNIFICANT RISKS (CONTINUED)
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 varying (depending on the licensee) varying from 20% to 40% of
gross revenues. 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 and the Company is able to match such
offer. The licensees under Category III Agreements are obligated to provide the
funds for the system construction and operating costs. As of June 30, 1996,
Roamer One had 153 Category III Agreements, of which 38 were constructed. An
additional 28 systems were constructed for and sold to third parties.
While the Company has management agreements for 138 constructed 220 MHz SMR
systems, 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 elected to construct base
stations at currently authorized locations. An additional extension is
applicable only to licensees who filed with the FCC (a) on or before March 11,
1996, a Letter of Intention to modify their location, and (b) on or before May
1, 1996, a valid application to modify their authorizations by relocating their
stations to a different location. For sites constructed to date, 6 modification
applications are currently pending before the FCC. Action by the FCC on these
applications is expected shortly. There can be no assurance the FCC will act
favorably on the applications or that the FCC's decision will not result in
reductions in coverage, increased site rental, further site relocation costs, or
other adverse effects. In the event that a modification application is denied,
the license for the system may become subject to automatic cancellation.
The Company will have 75 days from the date modifications are granted) to
construct each system for which a modification is obtained from the FCC. There
are no assurances that the Company will be successful in gaining a grant of site
modification on behalf of all licenses for which an application is made. The
Company will continue to assess site locations, market indicators and its
financial resources in deciding whether to construct a system. No assurances can
be made that the Company will be able to complete the construction of all
systems for which a modification is granted by the end of the extended
construction period or that it will have the financial resources to do so.
Systems that have been completed are being used for testing of the Company's
billing system software, signal coverage, and system performance. Limited
subscriber loading began in selected markets during the first quarter of 1996 to
test the system. As a result of the testing, certain problems were identified
such as white noise and interference from other radio transmissions. A solution
to these problems appears to have been developed and Roamer One is currently
retrofitting its repeater sites so that they can operate in a commercially
viable fashion. 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. No
significant revenues are expected to be generated from the operation of these
systems prior to the fourth quarter of 1996.
The Company has management agreements for 413 licenses. Of the 166 systems
it has constructed as of June 30, 1996, the Company has management agreements
for 138 systems. The remaining 28 systems were constructed for, and sold to
third parties. The Company has not entered into management agreements for
F-51
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(1) BUSINESS AND SIGNIFICANT RISKS (CONTINUED)
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
34 systems that were constructed by third parties. Of the 138 systems
constructed by the Company for which it has management agreements, 6 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.
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 Roamer One'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, can increase the level of
competition, the cost of regulatory compliance, the methods in which the Company
manages the 220 MHz 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.
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 manage or acquire. A Licensee's failure to
maintain control can result in an FCC investigation or hearing, imposition of
monetary forfeitures, or revocation of a license. Pursuant to certain
guidelines, the FCC will review the specific facts of a particular situation on
a case-by-case to determine if a licensee has given control to a manager, either
under the terms of the agreement or as a result of the course of dealing between
the licensee and the manager. No assurances can be given that the Company's
management agreements or course of conduct in acquiring rights to or managing
the 220 MHz systems will be found to comply with such FCC requirements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of INTEK (from
September 23, 1994 through June 30, 1996) and its wholly-owned subsidiaries
Roamer One (from February 4, 1994 (inception) through June 30, 1996), IMCX
Corporation ("IMCX"), and IDC International Corporation ("IDC") with Olympic
Plastics Company, Inc. ("Olympic") assets reported as Assets Held for Sale. The
results of operations of Olympic have been excluded from continuing results of
operations after September 23, 1994. The operating assets of IMCS were sold by
the Company on August 12, 1993 and thus revenues have been restated to exclude
IMCS from continuing operations. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Although the operations of Roamer One were combined with those of the
Company for a period of seven days prior to September 30, 1994 pursuant to the
Merger, the Consolidated Statements of Operations do not include the operations
of Roamer One during this period as such operations did not involve significant
revenues or expenses.
F-52
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. 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:
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, 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.
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 February 29, 1996, the Company raised $2,500,000 through the issuance of
a Senior Secured Debenture to Mees Pierson 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 Mees
Pierson as a closing fee for its investment banking services. An agency fee of
$25,000 cash was paid to Octagon Capital Canada Corporation. On August 13, 1996,
Mees Pierson agreed in writing to extend the repayment date to the earlier of
the completion of the sale of the Property and October 31, 1996. INTEK paid to
Mees Pierson accrued interest through August 31, 1996, issued 25,000 shares of
Company Common Stock to Mees Pierson and issued 5,000 shares of Company Common
Stock to Octagon Capital Corporation in exchange for the extension.
C. INVENTORIES
Inventories are stated at the lower of cost or market and consist of
repeater site receive/transmit systems for sale to Category III licensees and
mobile radios for sale to subscribers.
D. PROPERTY AND EQUIPMENT, AT COST
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets which are ten years for site equipment and 5 years
for furniture, fixtures, office equipment, and computers. The Company's policy
is to begin depreciating repeater site equipment at such time as it begins to
generate subscriber revenues. Normal maintenance and repairs are charged to
expense as incurred. Expenditures which increase the useful lives of assets are
capitalized.
F-53
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. 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 billings per the terms of the management agreements.
F. INCOME TAXES
The Company and its subsidiaries file consolidated Federal and combined
state income tax returns. The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standard No. 109 "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires, among other things, the use of the
liability method in computing deferred income taxes.
The Company provides for deferred income taxes relating to timing
differences in the recognition of income and expense items (primarily relating
to depreciation, amortization and certain leases) for financial and tax
reporting purposes. Such amounts are measured using current tax laws and
regulations in accordance with the provisions of SFAS 109.
In accordance with SFAS No. 109, the Company has recorded valuation
allowances against the realization of its deferred tax assets. The valuation
allowance is based on management's estimates and analysis, which includes tax
laws which may limit the Company's ability to utilize its tax loss
carryforwards.
G. NET LOSS PER SHARE
The net loss per share for all periods shown is based upon the weighted
average number of shares outstanding for the periods. No common stock
equivalents are included in the calculation since they would have an
anti-dilutive effect.
H. RECLASSIFICATIONS
Certain amounts in the December 31, 1994 and 1993 Financial Statements have
been reclassified to conform with the current period presentation.
I. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
J. CONCENTRATIONS OF RISK
Accounts receivable are unsecured and the Company is at risk to the extent
such amounts become uncollectible. As of June 30, 1996, one customer comprised
70% of the Company's accounts receivable.
The Company's equipment sales are to customers located primarily in the
United States. During the six months ended June 30, 1996, the Company had sales
to one customer which represented approximately 99% of sales. During the six
months ended June 30, 1995, the same customer represented 89% of sales.
F-54
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company purchases a significant portion of its equipment from Securicor
Radiocoms Limited, a corporation formed under the laws of England and Wales, and
a wholly owned subsidiary of Securicor Communications. The Company believes that
if this foreign supplier were no longer available, it could have a severe impact
on its financial position or results of operations.
K. NEW PRONOUNCEMENTS
ADOPTION OF SFAS 121 -- IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (the Statement). The Statement establishes accounting
standards for long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company will adopt the Statement in 1996. The Company has not
yet evaluated the impact of this Statement.
ADOPTION OF SFAS 123 -- STOCK-BASED COMPENSATION
In November 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." The statement recommends changes in accounting for employee
stock-based compensation plans, and requires certain disclosures with respect to
these plans. The Statement's disclosures were adopted by the Company effective
January 1, 1996.
(3) INVENTORIES
Inventories at December 31, 1994 and 1995 and at June 30, 1996 consist of
the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Site installations $ 1,127 $ 549 $ 2,442
Mobile radios -- 699 550
--------- --------- ---------
$ 1,127 $ 1,248 $ 2,992
--------- --------- ---------
--------- --------- ---------
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 and at June 30, 1996
consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Site equipment $ 768 $ 7,283 $ 7,560
Furniture and fixtures 26 73 73
Computers -- 179 227
--------- --------- ---------
Total property and equipment, at cost 794 7,535 7,860
Less accumulated depreciation (22) (37) (63)
--------- --------- ---------
Net property and equipment $ 772 $ 7,498 $ 7,797
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-55
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(5) INCOME TAXES
There was no provision for income taxes for the twelve months ended December
31, 1994 and 1995 except for the minimum state tax. Taxes included in general
and administrative expenses amounted to $3,200 in 1994 and 1995. The Company is
expecting an "ordinary" loss for the current fiscal year and this, combined with
net operating loss carryforwards from the previous years, are expected to offset
any current tax liability.
The reconciliation of the provision (benefit) for income taxes at December
31 to the amount computed at the Federal statutory rate is as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Benefit at the statutory rate $ (319) $ (965)
State taxes, net of federal tax benefit 3 3
Operating losses not currently available for use 319 965
Other -- --
--------- ---------
$ 3 $ 3
--------- ---------
--------- ---------
</TABLE>
The approximate tax effect of temporary differences which gave rise to
significant deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax assets (state and Federal):
Accrued liabilities $ 36 $ 25
Inventory reserve 14 --
Allowance for doubtful accounts receivable 15 13
Building valuation allowance -- 173
Amortization of Roamer One startup costs -- 118
Operating loss carryforwards 856 956
--------- ---------
921 1,285
Valuation allowance (921) (1,285)
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
Deferred tax liabilities (state and Federal):
Depreciation $ (607) $ (607)
Other (116) (26)
--------- ---------
$ (723) $ (633)
--------- ---------
--------- ---------
</TABLE>
In 1990, the State of California passed legislation which disallowed the
utilization of net operating loss carryforwards and carrybacks until 1993. At
December 31, 1995, the Company had net operating loss carryforwards available
for Federal and California income tax purposes of approximately $2,225,000, and
$2,147,000, respectively. The net operating loss carryforwards expire in the
year 2008 and thereafter for Federal and 1997 and thereafter for State income
tax purposes.
F-56
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(6) PENSION PLAN
One of the Company's subsidiaries has a Simplified Employees Pension
Individual Retirement Account Plan (the Plan). Annual contributions to the Plan
are at the discretion of the Board of Directors and cannot exceed 15 percent of
all employee's compensation. No contributions were made for 1994, 1995 or 1996.
(7) 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 twelve months ended December 31, 1995, the Company paid Directors fees
of an aggregate of $51,500. For the six months ended March 31, 1996, the Company
paid Directors fees of an aggregate of $15,500 that were accrued as of December
31, 1995. The Company has also paid an aggregate of $39,000 for 1996 annual fees
plus meetings and has accrued an aggregate of $12,000 for unpaid directors fees.
For the six months ended June 30, 1995, the Company accrued an aggregate of
$48,000 for unpaid directors fees.
(8) STOCK OPTION PLAN
In July 1985, the shareholders approved the "1985 INTEK Diversified
Corporation Key Employee Incentive Stock Option Plan" which provides for the
granting of options on up to 500,000 shares of the Company's common stock to key
employees. In 1988, the shareholders of the Company approved the 1988 "Key
Employee Incentive Stock Option Plan" which provides for the granting of options
on up to 500,000 shares of the Company's common stock to key employees. The
stock options are exercisable over a period determined by the Stock Option
Committee, but no longer than ten years after the date they are granted.
The options are to be exercisable at a price equal to the "Fair Market
Value" (average of the closing per share bid and asked price of the Company's
Common Stock on the date an option is granted) or 110 percent of Fair Market
Value for persons who have in excess of a 10 percent voting interest in all
classes of the Company's stock prior to the date of grant. The dollar amount of
options issued under the Plan in any calendar year is limited to $100,000 per
person in value plus any unused limit carry-over.
In September 1994, the shareholders approved the "1994 Stock Option Plan"
which provides for the granting of options up to 600,000 shares of common stock
per person.
On June 23, 1995 the Company filed with the Securities and Exchange
Commission a registration statement on Form S-8 for the offering and sale by the
Company of up to 500,000 shares of the Company's common stock, par value $0.01
pursuant to stock options granted or to be granted under the 1988 INTEK
Diversified Corporation Key Employee Incentive Stock Option Plan.
At the Annual Meeting of Shareholders held on July 5, 1995, the shareholders
voted to approve the 1994 Stock Option Plan which provides for the granting of
options of up to 600,000 shares of the Company's Common Stock. The 1994 Plan
provides for the granting of "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
"nonqualified stock options", which are not intended to qualify under any
provision of the Code. Each grant shall specify the number of shares of Common
Stock to which it pertains; provided, however, that no optionee may be granted
stock options for more than 60,000 shares in any fiscal year of the Company.
The shareholders also voted to approve the 1994 Directors' Stock Option Plan
(the "Directors' Plan") which provides for the granting of options of up to
300,000 shares of the Company's Common Stock. Under the terms of the Directors'
Plan, each member of the Stock Option Committee received an option to purchase
40,000 shares of Common Stock on September 24, 1994. All other members of the
Board received
F-57
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(8) STOCK OPTION PLAN (CONTINUED)
an option to purchase 40,000 shares of Common Stock under the 1994 Stock Option
Plan. In addition, each director who was not a director on September 23, 1994
will receive, on the date of his or her initial election as a director, an
option to purchase 20,000 shares of Common Stock. Options are exercisable on the
first anniversary of the date of grant, provided the optionee remains a director
on such anniversary. No person may receive an option pursuant to the Directors'
Plan more than once.
On August 2, 1995 the Company filed with the Securities and Exchange
Commission a registration statement on Form S-8 for the offering and sale by the
Company of up to 900,000 shares of the Company's common stock, par value $0.01
pursuant to stock options granted or to be granted under the INTEK Diversified
Corporation 1994 Stock Option Plan and the INTEK Diversified Corporation
Directors' 1994 Stock Option Plan.
A summary of the Company's Stock Option Plans as of March 31, 1996 is as
follows:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
---------- -------------
<S> <C> <C>
1988 PLAN
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
----------
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 (162,000)
----------
Shares under option 250,000
----------
1994 DIRECTORS' STOCK OPTION PLAN
Shares granted:
September 23, 1994 120,000 $ 3.75
----------
Shares exercised in 1996 (55,000)
Shares under option 65,000
----------
Total shares under option 315,000
----------
----------
</TABLE>
As of March 31, 1996, options available for future grant were as follows:
<TABLE>
<S> <C> <C>
1988 Plan 442,500
1994 Stock Option Plan 148,000
1994 Directors Plan 180,000
---------
770,500
---------
---------
</TABLE>
F-58
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(9)DIRECTORS AND OFFICERS OF INTEK -- CERTAIN RELATIONSHIPS AND RELATED
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 years ended December 31, 1994 and 1995, the Company
paid management fees of $200,000 and $200,004 respectively to Peter Paul
Corporation, Inc. For the six months ended June 30, 1996 and 1995, the Company
paid management fees of $16,667 and $50,000 respectively.
In November 1994, the Company borrowed $2,500,000 bearing 12% interest, from
Quest Capital. The Quest loan was secured by a first mortgage on the land and
building owned by Olympic and a guaranty by Simmonds Capital Ltd ("SCL"),
formerly known as Simmonds Communications Ltd. Quest was issued a total of
262,000 shares of Company common stock, as a loan commitment fee and
compensation for two extensions to the maturity date. 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 of Company common stock to Quest as
payment in full of the principal then due.
Roamer One, Inc. borrowed $150,000 from SCL evidenced by a short-term,
non-interest bearing note in October, 1994 and repaid the obligation in
November, 1994.
Pursuant to an oral consulting agreement between Roamer One Holdings and the
Company, the Company paid $10,000 per month to Roamer One Holdings and Roamer
One Holdings made available the services of Mr. Wilson, Chairman of the Board of
the Company, to the Company. This arrangement was terminated on June 30, 1995.
The Company entered into a Consulting Agreement with Mr. Wilson on July 1, 1995.
The consulting period is 3 years commencing on July 1, 1995 and terminating June
30, 1998. Total annual compensation is $120,000, paid in monthly installments of
$10,000. Mr. Wilson is not entitled to participate in any retirement, bonus,
insurance or other employee benefit plan maintained by the Company for the
benefit of its employees. For both the six months ended June 30, 1996 and 1995,
the Company incurred and paid $60,000 to Mr. Wilson pursuant to this agreement.
In addition, the Company paid $30,000 to Mr. Wilson that had been accrued as of
December 31, 1994.
Pursuant to an oral management agreement between SCL and the Company, the
Company pays SCL $10,000 per month and SCL makes available the services of
Messrs. Simmonds, Dunstan and Heinke, each of whom are officers and directors of
the Company, to the Company. For both the six months ended June 30, 1996 and
1995, the Company incurred and paid $60,000 to SCL pursuant to this agreement.
The Company is also reimbursing SCL for the services of Mr. Heinke and Mr. Chris
Green, an SCL employee, related to the Proposed Transaction at the hourly rate
of $75.00. These services were not contemplated in the original management
agreement. In addition, the Company paid $30,000 to SCL that had been accrued as
of December 31, 1994.
Pursuant to an oral consulting agreement between Simmonds Mercantile and
Management Inc. (("SMM"), a company controlled by SCL, the Company pays SMM
$8,000 per month for consulting services. For the six months ended June 30,
1996, the Company incurred and paid $48,000 to SMM.
On April 18, 1995, Roamer One entered into a Memorandum of Understanding
with Midland International Corporation ("MIC"), a Delaware corporation and a
wholly owned subsidiary of SCL, Inc., a Delaware corporation, and a wholly owned
subsidiary of Simmonds Capital Limited, an Ontario corporation. The Memorandum
of Understanding granted MIC exclusive sales and distribution rights for all
F-59
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(9)DIRECTORS AND OFFICERS OF INTEK -- CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS (CONTINUED)
Roamer One private branded 220 MHz radio product in the U.S. MIC will be paid a
commission on sales of such radios. Roamer One also entered into an agreement
with Securicor LMT ("LMT"), whereby LMT will supply Securicor radios bearing the
Roamer One Logo.
Pursuant to a Financing Agreement and related agreements between the
Company, Roamer One, SCL and LMT, an affiliate of Securicor International
Limited, a stockholder of the Company, LMT had delivered in 1995 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 International Limited.
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 June 30, 1996, Roamer One had
purchased $7.0 million.
The Company and SCL have an arrangement whereby Roamer One, purchases
equipment and installation services from SCL. During the twelve months ended
December 31, 1995, Roamer One, Inc. purchased $9,298,000 of radio equipment and
installation services from SCL. During the six months ended June 30, 1996,
Roamer One, Inc. purchased $554,000 of radio equipment and installation services
from SCL. As of June 30, 1996 Roamer One had a balance due to SCL of $63,000.
On September 23, 1994, the Company and SCL, ROH, Anglo York Industries, Inc.
and Harold Davis (collectively referred to as the "Holders") entered into a
Registration Rights Agreement to provide the Holders with certain demand and
"piggy-back" registration rights with respect to the Company's Common Stock
owned by the Holders. ROH is a stockholder of the Company holding approximately
34.8% of the Company's Common Stock. Anglo York Industries, Inc. is a
stockholder of the Company holding approximately 10.5% of the Company's Common
Stock. Mr. Davis was an executive vice president and treasurer of the Company
until September 23, 1994.
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 and
is its secretary. Mr. Wasserman receives $1,000 per month as compensation for
his services as the secretary of the Company. The law firm received fees of
$8,856 in 1994 and $162,097 in 1995 from INTEK. The law firm received fees of
$136,000 during the first six months of 1995 and $43,000 during the first six
months of 1996 from INTEK. Mr. Wasserman was formerly a principal with the law
firm of Honohan, Harwood, Chernett & Wasserman, which received fees of $23,722
in 1994 from INTEK.
On February 29, 1996, the Company borrowed $2,500,000 through the issuance
of a debenture held by Mees Pierson ICS. The loan is due in on August 31, 1996
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 (the "Property") and by the
equipment related to 15 Category I licenses. A closing fee was paid to Mees
Pierson of 50,000 shares of the Company 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 Canada Corporation. At June 30, 1996, Octagon Investments,
Ltd had beneficial interest in 6.2% of the Company's outstanding common stock
and stock options. The Company has a signed offer from Mees Pierson to extend
the maturity date of the Debenture to October 31, 1996 upon payment of 25,000
shares of Company Common Stock to Mees Pierson and 5,000 shares to Octagon
Capital Corporation which shall be issued under Regulation S, or other
exemptions, of the Securities Act of 1933, as amended (the "Securities Act").
Under the terms of the offer, 10,000 shares would be rebated to the Company if
the Debenture is paid by September 14, 1996. The Company has not yet accepted
this offer. If the Company were to default on the Debenture, Mees Pierson could
exercise its rights under its security agreements and take possession of the
Property and 15 Category I licenses.
F-60
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(9)DIRECTORS AND OFFICERS OF INTEK -- CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS (CONTINUED)
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.
(10) INVESTMENT IN JOINT VENTURE
In May 1995, INTEK contributed $125,000 for a one-third ownership interest
in Brook SIG Corp., which was subsequently acquired in a stock transaction by
Ventel, Inc., a publicly traded company in Canada. Ventel is in the business of
providing financing to various 220 MHz SMR management companies in the United
States. SCL was also a one-third owner of Brook SIG Corp. and is 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 is President of Ventel. To date, INTEK has received 2,666,667
shares of the common stock of Ventel which represents 9.3% of the outstanding
shares at June 30, 1996. Of these shares, 80% or 2,133,334 are held in escrow
and will be automatically released from escrow at the rate of one-third on
September 20, 1996, one-third on September 20, 1997 and the balance on September
20, 1998. The receipt of shares of common stock of Ventel has not been accounted
for in these financial statements due to the market volatility and the lack of
historical operating results which make it impractical to accurately value the
stock at this time.
(11) NOTE PAYABLE
In November 1994, the Company borrowed $2,500,000 evidenced by a short-term
promissory note, bearing 12% interest, from Quest Capital Corporation ("Quest").
The loan was secured by a first mortgage on the property owned by Olympic and a
guaranty by Simmonds Capital Ltd ("SCL"), formerly known as Simmonds
Communications Ltd. Quest was issued a total of 162,000 shares of INTEK common
stock as a loan commitment fee and compensation for two extensions to the
maturity date. 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 of INTEK common stock to Quest as payment in full of the
principal.
(12) COMMITMENTS
As of June 30, 1996, Roamer One had negotiated 175 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 June 30, 1996, Roamer One has entered
into 74 site leases relating to Category I Licensees; 29 site leases relating to
Category II Licensees; and arranged for it's Category III licensees to enter
into 72 site leases. As of June 30, 1996, Roamer One had paid $782,000, before
reimbursements, in site lease fees pertaining to 1996. As of June 30, 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:
<TABLE>
<S> <C>
1996 $ 448,869
1997 842,238
1998 754,473
1999 711,916
2000 352,078
Thereafter --
---------
$3,109,574
---------
---------
</TABLE>
F-61
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(12)COMMITMENTS (CONTINUED)
In November 1994, INTEK entered into a management services agreement with
Quest for corporate finance and corporate restructuring services. In
consideration for these services, INTEK paid $1,000 and issued 100,000 shares of
its common stock.
(13) 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 years 1994 and 1995, and the first six months of 1995 and
1996, billing for site equipment, construction and installation accounted for
100% of consolidated net sales. As of June 30, 1996, a total of 66 systems had
been completely constructed for one customer, VDC. During the first six months
of 1996, a total of 6 systems had been delivered and invoiced to VDC at a gross
profit of $31,630.
(14) DISCONTINUED OPERATIONS
On August 12, 1993, the Company sold to Advanced Technology, Inc., ("ATI"),
all of the issued and outstanding capital stock of its wholly owned subsidiary,
IMCS. At the time of the sale, IMCS owned office furnishings and equipment and a
Technical Information Agreement with American Telephone and Telegraph Company
dated January 1, 1991, pursuant to which IMCS received certain rights to
manufacture and sell electronic equipment. Prior to the sale, the Company had
transferred to a newly formed wholly owned subsidiary, IMCX, all other assets
and all liabilities of IMCS. In consideration for the sale of the capital stock
of IMCS, the Company received cash in the amount of $75,000 and a long-term
non-interest bearing note in the amount of $180,000. The note was completely
repaid by December 31, 1994. The gain on the sale from this transaction was
$11,552. Net sales for IMCS were $530,000 and $758,000 for the eight months
ended August 1993 and 1992 respectively and the net losses were $52,000 and
$170,000.
Subsequent to the Merger, the Company redirected its business from
fabricating and selling plastic products, primarily by injection and compression
molding of various plastic resins, to customers in the electronics, aerospace
and commercial aircraft markets, to the business of developing and managing a
SMR Network in the United States utilizing the recently licensed 220 MHz
narrowband spectrum. Consequently, during the first half of 1995, the Company
entered into agreements to sell its machinery, equipment and inventory to four
separate buyers.
As of December 31, 1995, the Company completed four sales totaling
$3,895,076 for equipment and inventory. The Company has received cash to date of
$3,767,745 and a note in the remaining principal amount of $127,331 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. Included in liabilities at
December 31, 1994 was a note payable balance of $492,000. This note was repaid
in full during 1995.
A summary of the assets held for sale is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Inventories $ 705 $ -- $ --
Property, Plant and Equipment, Net 3,492 1,555 1,555
Patent Rights 137 -- --
--------- --------- ---------
Net Assets $ 4,334 $ 1,555 $ 1,555
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-62
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(15) 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 borrowed $2.5 million through the issuance
of a debenture held by Mees Pierson. The loan is due on August 31, 1996 and
bears interest at a rate based on the Bank of America Prime Rate. The loan is
secured by the Property and by the equipment related to 15 Category I licenses.
A closing fee was paid to Mees Pierson of 50,000 shares of the Company 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 Canada Corporation. At
June 30, 1996, Octagon Investments, Ltd had beneficial interest in 6.2% of the
Company's outstanding common stock and stock options. The Company has a signed
offer from Mees Pierson to extend the maturity date of the Debenture to October
31, 1996 upon payment of 25,000 shares of Company Common Stock to Mees Pierson
and 5,000 shares to Octagon Capital Corporation which shall be issued under
Regulation S, or other restrictions, of the Securities Act of 1933, as amended
(the "Securities Act"). Under the terms of the offer, 10,000 shares would be
rebated to the Company if the Debenture is paid by September 14, 1996. The
Company has not yet accepted this offer. If the Company were to default on the
Debenture, Mees Pierson could exercise its rights under its security agreements
and take possession of the Property and 15 Category I licenses.
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 by the Holder on July
26, 1996. The Company has the right, which may be exercised in whole or in part
on or after April 26, 1997 to force the Holder to exercise the warrants. The
principal amount of the Notes will be reduced by an amount equal to the exercise
price of the warrants exercised multiplied by the number of shares of Company
Common Stock issued pursuant thereto. The warrants are exercisable at discounts
(ranging from 0%-25%) from the market price of INTEK's common stock on the
exercise date. On July 26, 1996, an off-shore holder of notes purchased through
Global Emerging Markets exercised a warrant to convert $100,000 of notes into
Company common stock at a discount of 17% below market price.
(16) SUBSEQUENT EVENT (UNAUDITED)
On September 19, 1996, an amended Stock Purchase Agreement was signed
between the Company and Securicor Communications Limited (the "Securicor
Transaction"), pursuant to which the Company will acquire all of the issued and
outstanding common stock of Securicor Radicoms Limited from Securicor
Communications Limited in exchange for the issuance of 25,000,000 shares of
Company Common Stock. The acquisition is subject to shareholder approval.
On September 20, 1996, INTEK, acquired the U.S. LMR Distribution Business of
Midland International Corporation ("MIC"). Simultaneously therewith, INTEK and
Midland USA, a wholly-owned subsidiary of INTEK ("Midland USA"), entered into an
Assignment and Assumption Agreement whereby Midland USA acquired right, title
and interest to the acquired business and assumed the obligations relating
thereto.
F-63
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(16)SUBSEQUENT EVENT (UNAUDITED) (CONTINUED)
The purchase price for the acquired business included up to 2.5 million shares
of Company Common Stock plus cash consideration in the amount of $3,417,296 and
the assumption of certain liabilities. At the closing, MIC was entitled to
receive, and promptly thereafter did receive, 150,000 shares of Company Common
Stock. On September 20, 1996, 2.35 million shares of Company Common Stock were
issued to the American Stock Transfer & Trust Company pursuant to the Escrow
Agreement (the "Escrow Shares"). In the event the Securicor Transaction is
consummated, MIC will be entitled to receive up to the total amount of Escrow
Shares, subject to pricing adjustments of a maximum of (a) a reduction of up to
155,000 shares of Company Common Stock in the event that the U.S. LMR
Distribution Business experiences losses between the period of August 1, 1996
and the date the Securicor Transaction is consummated and (b) up to 500,000
shares which will remain in escrow after title and voting rights have been
conveyed to MIC to indemnify the Company in the event that the Hitachi Supply
Agreement is terminated prior to, or the benefits thereof are not otherwise
provided to the Company through May 12, 1997.
Pursuant to terms of Amended Sale of Assets and Trademark Agreement dated
September 19, 1996 and effective as of June 18, 1996, between INTEK and MIC (the
"Amended Sale and License Agreement"), in the event the Securicor Transaction is
not consummated, MIC has the option to acquire the U.S. LMR Distribution
Business by acquiring the stock of Midland USA in exchange for payment of all
obligations under the Interim Loan Agreement with Securicor and 150,000 shares
of Company Common Stock. In the event such option is not exercised, Midland USA,
under the terms of the Loan Agreement dated September 19, 1996, between
Securicor Communications and Midland USA (the "Interim Loan Agreement"), may
retain ownership of the U.S. LMR Distribution Business by the repayment on the
Repayment Date, as defined in the Interim Loan Agreement, of all obligations
outstanding under the Interim Loan. In the event such repayment does not occur,
Securicor may foreclose upon all of the assets of Midland USA and the stock of
Midland USA held by INTEK.
On November 1, 1996, the Company sold a series of 6.5% Notes, with attached
warrants (the "New Notes") to two purchasers through Brown Simpson, LLC pursuant
to Regulation S under the Securities Act. Net proceeds to the Company, after
fees and brokers commissions, were $1,995,000. The New Notes mature on October
31, 1999 and bear interest at the rate of 6.5% per annum. All accrued interest
is due and payable at the time the New Notes mature or upon exercise of the
warrants. The warrants (pursuant to which the principal amounts of the New Notes
will be converted into shares of Company Common Stock) become exercisable by the
holder on December 31, 1996. The Company has the right, which may be exercised
in whole or in part on or after October 31, 1997, to require the holder to
exercise the warrants. The principal amount of the New Notes will be reduced by
an amount equal to the exercise price of the warrants multiplied by the number
of shares of Company Common Stock issued pursuant thereto. The warrants are
exercisable at discounts (ranging from 0%-29%) from the market price of Company
Common Stock on the exercise date.
Mees Pierson has agreed to extend further the repayment date of the Senior
Secured Debenture to January 31, 1997. In exchange for the extension, INTEK will
issue 10,000 shares of Company Common Stock to Mees Pierson pursuant to
Regulation S under the Securities Act. In addition, INTEK will issue to Mees
Pierson 1,500 shares of Company Common Stock (pursuant to Regulation S under the
Securities Act) for each business day after November 8, 1996 for which the
Debenture and any accrued interest remains outstanding.
F-64
<PAGE>
[FAHNESTOCK LETTERHEAD]
APPENDIX I
September 12, 1996
Intek Diversified Corporation
970 West 190th Street
Suite 720
Torrance, CA 90502
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, as of the date hereof, to the holders of the outstanding shares of common
stock, par value $0.01 per share (the "Common Stock"), of Intek Diversified
Corporation (the "Company") of the consideration to be paid in the aggregate to
Securicor Communications Limited ("Securicor Communications") and Midland
International Corporation ("MIC") in connection with the proposed acquisitions
(the "Acquisitions") by the Company of all the common shares of Securicor
Radiocoms Limited ("Radiocoms") and certain assets relating to the U.S. land
mobile radio business of MIC (the "U.S. LMR Distribution Business") pursuant to
that certain Stock Purchase Agreement dated as of June 18, 1996, as amended, by
and between the Company and Securicor Communications (the "Stock Purchase
Agreement") and that certain Sale of Assets and Trademark License Agreement
dated as of June 18, 1996, as amended, by and among the Company, MIC and
Simmonds Capital Limited ("SCL") (the "Sale and License Agreement" and together
with the Stock Purchase Agreement, the "Agreements"). Pursuant to the Stock
Purchase Agreement, the Company shall issue to Securicor Communications
25,000,000 restricted shares of Common Stock for all of the common shares of
Radiocoms. Pursuant to the Sale and License Agreement, the Company shall issue
to MIC 2,500,000 restricted shares of Common Stock for certain assets relating
to the U.S. LMR Distribution Business.
Fahnestock & Co. Inc., as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
In connection with rendering this opinion, we have reviewed and analyzed,
among other things, the following: (i) the Agreements, including the exhibits
and schedules thereto; (ii) certain publicly available information concerning
the Company, including the Annual Reports on Form 10-K of the Company for each
of the years in the five (5) year period ended December 31, 1995 and the
Quarterly Report on Form 10-Q of the Company for the quarter ended June 30,
1996; (iii) certain internal information, primarily financial in nature,
including financial projections, concerning the business and operations of the
Company furnished to us by the Company for purposes of our analysis; (iv)
certain publicly available information relating to the trading of the Company's
Common Stock; (v) certain internal business and financial information concerning
Radiocoms and the U.S. LMR Distribution Business, including financial
projections; (vi) Radiocoms audited financial statements for the fiscal years
ended September 30, 1993, 1994 and 1995 and for the six month period ended March
31, 1996; (vii) to the extent we deemed appropriate, certain publicly available
information with respect to certain other companies that we believe to have some
similarities to the Company, Radiocoms or the U.S. LMR Distribution Business and
the trading markets for certain of such other companies' securities; and (viii)
to the extent we deemed appropriate, certain publicly available information
concerning the nature and terms of certain other transactions that we consider
relevant to our inquiry. We have also met with certain officers and employees of
the Company, Securicor Communications, Radiocoms, SCL and MIC to discuss the
business and prospects of the Company, Radiocoms and the U.S. LMR Distribution
Business, as well as other matters we believe relevant to our inquiry.
<PAGE>
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and have assumed and relied
upon the representations and warranties of the Company, Securicor
Communications, Radiocoms, SCL and MIC contained in the Agreements, and we have
not independently attempted to verify any of such information. With respect to
the financial projections, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the respective managements of the Company, Securicor
Communications, Radiocoms, SCL and MIC with respect to the future performance of
New Intek (i.e. the Company after consummation of the Acquisitions), the
Company, Radiocoms and the U.S. LMR Distribution Business. We express no view as
to such projections or the assumptions on which they are based, including the
ability of New Intek to raise capital in addition to the $15 million loan to be
provided by Securicor Communications. In addition, we have not conducted a
physical inspection or appraisal of any of the assets, properties or facilities
of either the Company, Radiocoms or the U.S. LMR Distribution Business nor have
we been furnished with any such evaluation or appraisal. Fahnestock is not
qualified to and did not evaluate the technical capabilities of Radiocoms and
the U.S. LMR Distribution Business' products or their respective capabilities to
manufacture or assemble such products. Fahnestock has relied on the Company's
evaluation of such matters. Fahnestock has relied as to all legal matters
concerning the Acquisitions on counsel to the Company. We have also assumed that
the conditions to the Acquisitions as set forth in the Agreements will be
satisfied and that the Acquisitions will be consummated on a timely basis in the
manner contemplated by the Agreements. Fahnestock expresses no opinion as to the
price or trading range at which the shares of the Company will trade in the
future.
It should be noted that this opinion is based on economic and market
conditions and other circumstances existing on, and information made available
as of, the date hereof and does not address any matters subsequent to such date
of issuance thereof. In addition, our opinion is, in any event, limited to the
fairness, as of the date hereof, from a financial point of view, of the
aggregate number of shares of Common Stock to be issued by the Company pursuant
to the Agreements and does not address the Company's underlying business
decision to effect the Acquisitions or any other terms of the Acquisitions.
We have acted as financial advisor to the Company in connection with the
Acquisitions and will receive from the Company a fee for our services upon the
rendering of this opinion. In addition, the Company has agreed to indemnify us
under certain circumstances.
In the ordinary course of our business, we may actively trade securities of
the Company for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this opinion was prepared solely for the confidential
use of the Board of Directors and senior management of the Company and may not
be disclosed, summarized, excerpted from or otherwise publicly referred to
without our prior written consent, except for inclusion in a proxy statement
relating to the Acquisitions.
Based upon and subject to the foregoing and such other matters as we
consider relevant, it is our opinion that as of the date hereof, the aggregate
number of shares to be issued by the Company for the Acquisitions pursuant to
the Agreements is fair to the holders of the Common Stock from a financial point
of view.
Very truly yours,
Fahnestock & Co. Inc.
By:
--------------------------------------
Henry P. Williams
SENIOR VICE PRESIDENT
I-2
<PAGE>
APPENDIX II
STOCK PURCHASE AGREEMENT
BETWEEN
INTEK DIVERSIFIED CORPORATION
AND
SECURICOR COMMUNICATIONS LIMITED
DATED AS OF JUNE 18, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
ARTICLE I -- SALE AND PURCHASE OF SHARES...................................... 2
1.1 Sale and Purchase of Shares................................. 2
ARTICLE II -- PURCHASE PRICE AND PAYMENT...................................... 3
2.1 Amount and Payment of Purchase Price........................ 3
ARTICLE III -- CLOSING AND TERMINATION........................................ 3
3.1 Closing Date................................................ 3
3.2 Termination of Agreement.................................... 3
3.3 Procedure Upon Termination.................................. 5
3.4 Effect of Termination....................................... 5
3.5 Expense Reimbursement....................................... 5
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SELLER........................ 6
4.1 Organization and Good Standing.............................. 6
4.2 Authorization of Agreement.................................. 7
4.3 Capitalization.............................................. 8
4.4 Subsidiaries................................................ 9
4.5 Corporate Records........................................... 10
4.6 Conflicts; Consents of Third Parties........................ 10
Ownership and Transfer of Shares; Ownership of EFJ Shares
4.7 and EFJ Warrant............................................. 12
4.8 Financial Statements........................................ 12
4.9 No Undisclosed Liabilities.................................. 13
4.10 Absence of Certain Developments............................. 13
4.11 Taxes....................................................... 17
4.12 Real Property............................................... 20
4.13 Tangible Personal Property.................................. 23
4.14 Intangible Property......................................... 24
4.15 Material Contracts.......................................... 26
4.16 Employee Benefits........................................... 27
4.17 Labor....................................................... 32
4.18 Litigation.................................................. 33
4.19 Compliance with Laws........................................ 35
4.20 Environmental Matters....................................... 35
4.21 Insurance................................................... 37
4.22 Related Party Transactions.................................. 38
4.23 Financial Advisors.......................................... 38
4.24 Claims to Property.......................................... 38
4.25 Licenses; Permits; Authorizations........................... 39
4.26 Investment in Purchaser Shares.............................. 39
4.27 Investments in Purchaser.................................... 41
4.28 Accounts Receivable......................................... 41
4.29 Accounts Payable............................................ 41
4.30 Inventory................................................... 41
4.31 Products.................................................... 41
4.32 No Misrepresentation........................................ 42
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF PURCHASER...................... 42
5.1 Organization and Good Standing.............................. 42
5.2 Authorization of Agreements................................. 43
5.3 Capitalization.............................................. 43
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
5.4 Subsidiaries................................................ 44
5.5 Corporate Records........................................... 45
5.6 Conflicts; Consents of Third Parties........................ 46
5.7 Issuance of Purchaser Shares................................ 46
5.8 Financial Statements........................................ 47
5.9 No Undisclosed Liabilities.................................. 48
5.10 Periodic SEC Filings........................................ 48
5.11 Absence of Certain Developments............................. 49
5.12 Taxes....................................................... 52
5.13 Real Property............................................... 55
5.14 Tangible Personal Property.................................. 57
5.15 Intangible Property......................................... 58
5.16 Material Contracts.......................................... 60
5.17 Employee Benefits........................................... 62
5.18 Labor....................................................... 66
5.19 Litigation.................................................. 67
5.20 Compliance with Laws........................................ 68
5.21 Environmental Matters....................................... 68
5.22 Insurance................................................... 70
5.23 Related Party Transactions.................................. 70
5.24 Financial Advisors.......................................... 71
5.25 Claims to Property.......................................... 71
5.26 Licenses; Permits; Authorizations........................... 71
5.27 FCC Matters................................................. 72
5.28 Investment in Shares........................................ 77
5.29 General Partnerships........................................ 77
5.30 No Misrepresentation........................................ 78
ARTICLE VI -- COVENANTS....................................................... 78
6.1 Access to Information....................................... 78
6.2 Conduct of Purchaser's and Radiocoms's Respective Businesses 79
Pending the Closing.........................................
6.3 Consents and Approvals...................................... 84
6.4 Filings with Governmental Bodies............................ 85
6.5 Other Actions............................................... 86
6.6 Preservation of Records..................................... 86
6.7 Publicity................................................... 87
6.8 Agreements with Respect to Other Transactions............... 87
6.9 Tax and Accounting Matters.................................. 87
6.10 No Solicitation............................................. 89
6.11 Recapitalization; Refinancing of Intercompany Debt.......... 90
6.12 Updates to Disclosure Letters............................... 90
6.13 Non-Compete................................................. 90
6.14 FCC Matters................................................. 91
6.15 Indemnification; Directors and Officers Insurance........... 91
6.16 Pension Schemes............................................. 92
Transfer of the Business to Radiocoms and Its
6.17 Subsidiaries................................................ 92
ARTICLE VII -- CONDITIONS TO CLOSING.......................................... 93
Conditions Precedent to Obligations of Purchaser and
7.1 Seller...................................................... 93
7.2 Conditions Precedent to Obligations of Purchaser............ 94
7.3 Conditions Precedent to Obligations of Seller............... 95
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
ARTICLE VIII -- DOCUMENTS TO BE DELIVERED..................................... 98
8.1 Documents to be Delivered by Seller......................... 98
8.2 Documents to be Delivered by Purchaser...................... 98
ARTICLE IX -- INDEMNIFICATION................................................. 99
9.1 Indemnification............................................. 99
Limitations on Indemnification for Breaches of
9.2 Representations and Warranties.............................. 101
9.3 Indemnification Procedures.................................. 101
ARTICLE X -- MISCELLANEOUS.................................................... 105
10.1 Certain Definitions......................................... 105
10.2 Survival of Representations and Warranties.................. 111
10.3 Expenses.................................................... 112
10.4 Further Assurances.......................................... 112
10.5 Entire Agreement; Amendments and Waivers.................... 112
10.6 Governing Law............................................... 112
10.7 Table of Contents and Headings.............................. 113
10.8 Notices..................................................... 113
10.9 Severability................................................ 114
10.10 Binding Effect; Assignment.................................. 114
EXHIBITS
A Term Sheet for Redeemable Preference Stock
B Term Sheet for Delayed Drawdown Senior Subordinated Note
C Term Sheet for Support Services Agreement
D Form of Registration Rights Agreement
E Term Sheet for Warrants
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of June 18, 1996 (the "Agreement"),
between INTEK Diversified Corporation, a Delaware corporation ("Purchaser"), and
Securicor Communications Limited, a corporation formed under the laws of England
and Wales ("Seller"), a wholly owned indirect subsidiary of Securicor plc and
the sole shareholder of Securicor Radiocoms Limited, a corporation formed under
the laws of England and Wales ("Radiocoms").
W I T N E S S E T H :
WHEREAS, Seller is currently engaged, through Radiocoms and its Subsidiaries
(and previously was engaged through certain Affiliates), in the Business (as
defined below); and
WHEREAS, (i) as of the date hereof, Seller owns 100,000 ordinary shares,
L1.00 par value per share (the "Existing Shares") and (ii) as of the Closing,
Seller will own an aggregate of 100,000 deferred shares, L1.00 par value per
share (the "Deferred Shares"), and an aggregate of 150,000 ordinary shares,
$0.10 par value per share (the "Ordinary Shares" and, collectively with the
Deferred Shares, the "Shares"), and an aggregate of 20,000 redeemable preference
shares, $1,000 par value per share (the "Preferred Shares"), of Radiocoms, which
Shares and Preferred Shares will constitute, at the time of the Closing, all of
the issued share capital of Radiocoms; and
WHEREAS, Radiocoms owns (i) an aggregate of 925,850 shares of Series I Class
B Preferred Stock, $.01 par value per share (the "EFJ Shares") of E.F. Johnson
Company, a Minnesota corporation ("EFJ"), and (ii) a warrant providing for the
purchase of up to 291,790 shares of the common stock, $.01 par value per share,
of EFJ (the "EFJ Warrant"); and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, the Shares, for the purchase price and upon the terms and
conditions hereinafter set forth; and
WHEREAS, the consummation of the transactions contemplated hereby is a
condition precedent to, and is conditioned upon, the consummation of certain
other transactions pursuant to that certain Sale of Assets and Trademark License
Agreement, dated as of the date hereof (the "Midland Agreement"), by and among
Purchaser, Midland International Corporation, a Delaware corporation ("Midland
US") and a wholly-owned indirect subsidiary of Simmonds Capital Limited, an
Ontario corporation ("Simmonds"), and Simmonds (collectively with each other
agreement, document, instrument or certificate contemplated by the Midland
Agreement, the "Other Transaction Documents") (the transactions contemplated by
the Midland Agreement being referred to herein collectively as the "Other
Transactions" and, together with the transactions contemplated by this
Agreement, as the "Transactions"); and
WHEREAS, simultaneously with the execution of this Agreement, Purchaser has
obtained the unconditional written agreement (the "Voting Agreement") of
Simmonds and Roamer One Holdings, Inc., as stockholders of Purchaser, (i) to
vote all of their respective shares of the common stock of Purchaser in favor of
the approval of the issuance of the Purchaser Shares (as hereinafter defined)
pursuant hereto and (ii) not to sell, transfer or dispose of any such shares
prior to the consummation of the Transactions or the termination of this
Agreement except in accordance with the terms of the Voting Agreement; and
WHEREAS, the consummation of the Transactions will be mutually beneficial to
Purchaser and Seller; and
WHEREAS, certain terms used in this Agreement are defined in Section 10.1.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter contained, the parties hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
1.1 SALE AND PURCHASE OF SHARES. Upon the terms and subject to the
conditions contained herein, on the Closing Date, Seller shall sell, assign,
transfer, convey and deliver to Purchaser, and Purchaser shall purchase from
Seller, the Shares.
<PAGE>
ARTICLE II
PURCHASE PRICE AND PAYMENT
2.1 AMOUNT AND PAYMENT OF PURCHASE PRICE. In consideration of the sale of
the Shares to Purchaser, the Purchaser shall deliver to Seller, on the Closing
Date, 25,000,000 shares of the common stock, $.01 par value (the "Purchaser
Common Stock"), of Purchaser (the "Purchaser Shares").
ARTICLE III
CLOSING AND TERMINATION
3.1 CLOSING DATE. Subject to the satisfaction of the conditions set forth
in Sections 7.1, 7.2 and 7.3 hereof (or the waiver thereof by the party or
parties entitled to waive that condition), the closing of the sale and purchase
of the Shares provided for in Section 1.1 hereof (the "Closing") shall take
place at 10:00 a.m., New York City time, at the offices of Weil, Gotshal &
Manges LLP, located at 767 Fifth Avenue, New York, New York (or at such other
place as the parties may designate in writing), five (5) Business Days after the
conditions listed in Article VII have been satisfied or waived or on such other
date as Seller and Purchaser may designate in writing. The date on which the
Closing shall be held is referred to in this Agreement as the "Closing Date."
3.2 TERMINATION OF AGREEMENT. This Agreement may be terminated prior to
the Closing as follows:
(a) At the election of Seller or Purchaser after December 31, 1996, if the
Closing shall not have occurred by the close of business on such date, provided
that the terminating party is not in default of any of its obligations
hereunder;
(b) by mutual written consent of Seller and Purchaser;
(c) by Seller or Purchaser, if there shall be in effect a final
nonappealable Order of a Governmental Body of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby or the Other Transactions; it being agreed that
the parties hereto (or Purchaser, in the case of any Order that relates solely
to the Other Transactions) shall promptly appeal any adverse determination which
is not nonappealable (and pursue such appeal with reasonable diligence);
(d) by Seller, if (i) there shall have been a breach of any representation
or warranty on the part of Purchaser set forth in this Agreement, or if any
representation or warranty of Purchaser shall have become untrue, in either case
such that the condition set forth in Section 7.3(a) would be incapable of being
satisfied by December 31, 1996 (or as otherwise extended) or (ii) there shall
have been a breach by Purchaser of any of its covenants or agreements having a
Material Adverse Effect on Purchaser and its Subsidiaries, taken as a whole, or
materially adversely affecting (or materially delaying) the consummation of the
transactions contemplated hereby or the Other Transactions, and Purchaser has
not cured such breach within ten Business Days after notice by Seller thereof,
provided that Seller has not breached any of its obligations hereunder;
(e) by Purchaser, if (i) there shall have been a breach of any
representation or warranty on the part of Seller set forth in this Agreement or
if any representation or warranty of Seller shall have become untrue, in either
case such that the condition set forth in Section 7.2(a) would be incapable of
being satisfied by December 31, 1996 (or as otherwise extended); or (ii) there
shall have been a breach by Seller of its covenants or agreements hereunder
having a Material Adverse Effect on the Business or Radiocoms and its
Subsidiaries, taken as a whole, or materially adversely affecting (or materially
delaying) the consummation of the transactions contemplated hereby or the Other
Transactions, and Seller has not cured such breach within ten Business Days
after notice by Purchaser thereof, provided that Purchaser has not breached any
of its obligations hereunder;
(f) by Seller, if the Board of Directors of Purchaser shall have withdrawn,
modified or changed its approval or recommendation of this Agreement and the
transactions contemplated hereby, or shall have
2
<PAGE>
failed to give such recommendation or to call, give notice of, convene or hold
the Purchaser Stockholders' Meeting in accordance with the terms of this
Agreement, or shall have adopted any resolution to effect any of the foregoing;
(g) by Purchaser, if the Board of Directors of Purchaser or a Special
Committee thereof, in its good faith judgment, after consultation with
independent legal counsel, shall have withdrawn, modified or changed its
approval or recommendation of this Agreement and the transactions contemplated
hereby (having determined that it is necessary to do so in order to comply with
its fiduciary duties to stockholders under applicable law);
(h) by Purchaser or Seller, if Purchaser shall have duly called and convened
the Purchaser Stockholders' Meeting and shall have failed to obtain the
requisite vote of its stockholders; or
(i) by Seller, if, at any time after sixty days from the date hereof, the
closing conditions set forth in Section 7.3(j) or Section 7.3(k) shall not be
satisfied.
3.3 PROCEDURE UPON TERMINATION. In the event of termination by Purchaser
or Seller pursuant to Section 3.2 hereof, written notice thereof shall forthwith
be given to the other party, and this Agreement shall terminate, and the
purchase of the Shares hereunder shall be abandoned, without further action by
Purchaser or Seller. If this Agreement is terminated, as provided herein, each
party shall redeliver all documents, work papers and other material of any other
party relating to the transactions contemplated hereby, whether so obtained
before or after the execution hereof, to the party furnishing the same, or,
promptly following the request of the furnishing party, destroy all such
documents, work papers or other materials.
3.4 EFFECT OF TERMINATION. In the event that this Agreement is validly
terminated as provided herein, then each of the parties shall be relieved of
their duties and obligations arising under this Agreement after the date of such
termination, and such termination shall be without liability to Purchaser,
Radiocoms or Seller; PROVIDED, HOWEVER, that the provisions of this Section 3.4
and Sections 3.5, 10.3 and 10.6 hereof shall survive any such termination and
shall be enforceable hereunder; and PROVIDED, FURTHER, that nothing in this
Section 3.4 shall relieve Purchaser or Seller of any liability for a breach of
this Agreement.
3.5 EXPENSE REIMBURSEMENT. If this Agreement is terminated by Seller
pursuant to Section 3.2(f) or by Purchaser pursuant to Section 3.2(g), Purchaser
shall reimburse Seller and its Affiliates (not later than ten business days
after the submission of statements therefor) for all documented out-of-pocket
fees and expenses actually and reasonably incurred by any of them or on their
behalf in connection with the consummation of all transactions contemplated by
this Agreement (including, without limitation, fees payable to investment
bankers, counsel to any of the foregoing, and accountants); PROVIDED, HOWEVER,
that such expense reimbursement shall be payable only if (i)(a) after the date
hereof and prior to such termination, Purchaser (or its agents) had negotiations
with a view towards a Third Party Acquisition or furnished information to a
Third Party with a view towards a Third Party Acquisition and (b) Purchaser
consummates a Third Party Acquisition within twelve months following any such
termination, (ii)(a) after the date hereof and prior to such termination a Third
Party (other than an Third Party referred to in clause (a)(i)) submitted a
proposal for a Third Party Acquisition to Purchaser (or its agents), or
expressed an interest in a Third Party Acquisition to Purchaser (or its agents)
and (b) Purchaser consummates a Third Party Acquisition with such Third Party or
an Affiliate thereof within twelve months following any such termination or
(iii) Purchaser accepted a proposal for a Third Party Acquisition on or prior to
the date of termination pursuant to Section 3.2(f) or Section 3.2(g).
"Third Party Acquisition" means the occurrence of any of the following
events: (i) the acquisition of Purchaser by merger or otherwise by any Person
(which includes a "person" as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) or entity other than Seller or any
Affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
more than 50% of the total assets of Purchaser and its subsidiaries, taken as a
whole; or (iii) the acquisition by a Third Party of 50% or more of the
outstanding shares of Purchaser Common Stock.
3
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser that:
4.1 ORGANIZATION AND GOOD STANDING. Each of Radiocoms and Seller is a
corporation duly organized, validly existing and in good standing under the Laws
of England and Wales. EFJ is a corporation validly existing and in good standing
under the Laws of Minnesota. Each of Radiocoms, Seller, and, to the knowledge of
Seller, EFJ, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now conducted. Radiocoms
is duly qualified or authorized to do business as a foreign corporation and is
in good standing under the Laws of each jurisdiction in which it owns or leases
real property and each other jurisdiction in which the conduct of its business
or the ownership of its properties requires such qualification or authorization,
except where the failure to be so qualified or authorized could not reasonably
be expected to have a Material Adverse Effect on Radiocoms and its Subsidiaries,
taken as a whole. Radiocoms is not subject to any agreement, commitment or
understanding which restricts or may restrict the conduct of the Business in any
jurisdiction or location in any material respect. Copies of the Memorandum of
Association and Articles of Association (together with all amendments thereto)
of Radiocoms and the articles of incorporation of EFJ have heretofore been
provided or made available to Purchaser and such copies are true, correct and
complete copies of such instruments.
4.2 AUTHORIZATION OF AGREEMENT. Seller has all requisite power, authority
and legal capacity to execute and deliver this Agreement and each other
agreement, document, instrument or certificate contemplated by this Agreement or
to be executed by Seller in connection with the consummation of the transactions
contemplated by this Agreement (together with this Agreement, the "Seller
Documents"), and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and each of the Seller Documents
has been duly and validly authorized by the Board of Directors of Seller, and no
other corporate proceedings on the part of Seller will be necessary to authorize
this Agreement and the transactions contemplated hereby or the Other
Transactions. Assuming the due authorization, execution and delivery by the
other parties hereto and thereto, this Agreement constitutes, and each of the
Seller Documents when executed and delivered will constitute, legal, valid and
binding obligations of Seller, enforceable against Seller in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar Laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity) (the "Bankruptcy Exception").
4.3 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of (i) Radiocoms
consists of 100,000 Existing Shares (ii) EFJ consists of 10,000,000 common
shares, $.01 par value per share, 80,000 shares of preferred stock, $100.00 par
value per share, and 2,000,000 shares of Class B Preferred Stock, $.01 per value
per share. As of the date hereof, there are (i) 100,000 Existing Shares issued
and outstanding and no shares of any class are held by Radiocoms as treasury
stock and (ii) to the knowledge of Seller, 10,000,000 shares of common stock of
EFJ, 80,000 shares of preferred stock of EFJ and 2,000,000 shares of Class B
Preferred Stock of EFJ issued and outstanding. As of the Closing Date, there
will be 100,000 Deferred Shares, 150,000 Ordinary Shares and 20,000 shares of
Radiocoms Preferred Stock issued and outstanding, and no shares of any class
will be held by Radiocoms as treasury stock. All of the Existing Shares were
duly authorized for issuance and are validly issued, fully paid and
non-assessable. Upon issuance thereof prior to the Closing, all of the Shares
and the Preferred Shares will have been duly authorized for issuance and validly
issued, fully paid and non-assessable. To the knowledge of Seller, the EFJ
Shares and the EFJ Warrant were duly authorized for issuance and are validly
issued, fully paid and non-assessable.
(b) Except for the EFJ Warrant or as set forth in Section 4.3(b) of the
disclosure letter delivered by Seller to Purchaser on the date hereof (the
"Radiocoms Disclosure Letter"), there is no existing option, warrant, call,
right, commitment or other agreement of any character to which Seller or
Radiocoms or, to the knowledge of Seller, EFJ is a party requiring, and there
are no securities of Radiocoms or, to the knowledge
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of Seller, EFJ, as the case may be, outstanding which upon conversion or
exchange would require, the issuance, sale or transfer of any additional shares
of capital stock or other equity securities of Radiocoms or EFJ, as the case may
be, or other securities convertible into, exchangeable for or evidencing the
right to subscribe for or purchase shares of capital stock or other equity
securities of Radiocoms or EFJ, as the case may be. Except as set forth in
Section 4.3(b) of the Radiocoms Disclosure Letter, neither Seller nor Radiocoms,
nor, to the knowledge of Seller, EFJ is a party to any voting trust or other
voting agreement with respect to any of the shares of Common Stock or the EFJ
Shares or to any agreement relating to the issuance, sale, redemption, transfer
or other disposition of the capital stock of Radiocoms or EFJ, as the case may
be, except for the EFJ Warrant.
4.4 SUBSIDIARIES.
(a) Set forth in Section 4.4(a) of the Radiocoms Disclosure Letter is the
name of each of the Subsidiaries of Radiocoms and any Affiliate of Radiocoms
that is conducting (including through ownership of properties or through its
employees) (or has conducted during the periods covered by the Radiocoms
Financial Statements) the Business (a "Relevant Affiliate") and, with respect to
each such Subsidiary or Relevant Affiliate, the jurisdiction in which it is
incorporated, the number of shares of its authorized capital stock, the number
and class of shares thereof duly issued and outstanding, the names of all
stockholders and the numbers of shares of stock owned by each stockholder. Each
such stockholder is the record and beneficial owner of the shares set forth
opposite its name in Section 4.4(a) of the Radiocoms Disclosure Letter. The
outstanding shares of capital stock of each Subsidiary of Radiocoms have been
duly authorized, validly issued and fully paid and are non-assessable.
(b) All shares of Subsidiaries that are set forth in Section 4.4(a) of the
Radiocoms Disclosure Letter are owned by such stockholders free and clear of all
Liens. No shares of capital stock are held by any Subsidiary of Radiocoms as
treasury stock.
(c) None of the Subsidiaries of Radiocoms has outstanding or authorized
subscriptions, options, warrants, calls, rights, commitments or any other
agreements of any character obligating any of them to issue, sell or transfer
any shares of its capital stock or other equity interests or any securities
convertible into or evidencing the right to subscribe for or purchase any shares
of such stock or other equity interests with any Person, and there are no
agreements or understandings with respect to the voting, sale or transfer of
shares of the capital stock of any Subsidiary of Radiocoms to which Radiocoms or
any Subsidiary thereof is a party.
(d) Each Subsidiary of Radiocoms is a corporation duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation. Each Subsidiary of Radiocoms has full corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted. Each Subsidiary of Radiocoms is duly qualified and
in good standing as a foreign corporation under the Laws of each jurisdiction in
which the conduct of its business or the ownership of its assets requires such
qualification, except where the failure to be so qualified could not reasonably
be expected to have a Material Adverse Effect on Radiocoms and its Subsidiaries,
taken as a whole. No Subsidiary of Radiocoms is subject to any agreement,
commitment or understanding which restricts or may restrict the conduct of the
Business in any jurisdiction or location in any material respect. Copies of the
Memorandum of Association and Articles of Association or equivalent
organizational documents (together with all amendments thereto) of each
Subsidiary of Radiocoms have heretofore been provided or made available to
Purchaser and such copies are true, correct and complete copies of such
instruments.
(e) Except as set forth in Section 4.4(e) of the Radiocoms Disclosure
Letter, neither Radiocoms nor any of its Subsidiaries owns, beneficially or of
record, any shares of capital stock or any other security of any corporation or
other legal entity, or has any option or obligation to acquire any such stock or
other security, or has any investments in securities or owns, directly or
indirectly, any interest in any partnership, joint venture or other business
enterprise.
4.5 CORPORATE RECORDS. The minute books of Radiocoms and each of its
Subsidiaries previously made available to Purchaser contain complete and
accurate records, in all material respects, of all meetings, and accurately
reflect, in all material respects, all other corporate actions of the
stockholders and board of directors (including committees thereof) of Radiocoms
and each of its Subsidiaries. The stock certificate
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books and stock transfer ledgers of Radiocoms and its Subsidiaries previously
made available to the Purchaser are true, correct and complete. All stock
transfer taxes levied or payable with respect to all transfers of shares of
Radiocoms and its Subsidiaries prior to the date hereof (if any) have been paid
and appropriate transfer tax stamps affixed.
4.6 CONFLICTS; CONSENTS OF THIRD PARTIES.
(a) None of the execution and delivery by Seller of this Agreement and the
Seller Documents, the consummation of the transactions contemplated hereby or
thereby (including, without limitation, the transaction referred to in the
second sentence of Section 4.7), or compliance by Seller with any of the
provisions hereof or thereof do or will (i) conflict with, or result in the
breach of, any provision of the Memorandum of Association or Articles of
Association or comparable organizational documents of Seller, Radiocoms or any
of Radiocoms's Subsidiaries or Relevant Affiliates; (ii) conflict with, violate,
result in the breach or termination of, or constitute a default under any note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
to which Seller, Radiocoms or any of its Subsidiaries or Relevant Affiliates is
a party or by which Seller, Radiocoms or any of its Subsidiaries or Relevant
Affiliates or any of their respective properties or assets is bound, including,
without limitation, the EFJ Shareholders' Agreement (as hereinafter defined) and
any other such agreement that relates in any way to the EFJ Shares or the EFJ
Warrant; (iii) violate any statute, rule, regulation, order or decree of any
Governmental Body by which Seller, Radiocoms or any of its Subsidiaries or
Relevant Affiliates is bound; or (iv) result in the creation of any Lien upon
the properties or assets of Seller, Radiocoms or any of its Subsidiaries or
Relevant Affiliates except, in case of clauses (ii), (iii) and (iv), for such
violations, breaches or defaults as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Radiocoms and its
Subsidiaries, taken as a whole, or materially delay the consummation of the
transactions contemplated hereby.
(b) No consent, waiver, approval, Order, Permit or authorization of, or
declaration or filing with, or notification to, any Person or Governmental Body
is required on the part of Seller, Radiocoms or any Subsidiary or Relevant
Affiliate of Radiocoms in connection with the execution and delivery of this
Agreement or the Seller Documents, or the compliance by Seller or any of its
Relevant Affiliates with any of the provisions hereof or thereof, except (i) for
compliance with the applicable requirements of the HSR Act, (ii) for amendments
to Seller's Schedule 13D filing with respect to Purchaser to reflect the
execution of this Agreement and the consummation of the Transactions, and (iii)
where the failure to obtain such consent, waiver, approval, Order, Permit or
authorizations, or to make such declaration or filing, could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
Radiocoms and its Subsidiaries, taken as a whole, or materially delay the
consummation of the transactions contemplated hereby.
4.7 OWNERSHIP AND TRANSFER OF SHARES; OWNERSHIP OF EFJ SHARES AND EFJ
WARRANT. Seller is the sole record and beneficial owner of the Existing Shares
(and, as of the Closing, Seller will be the sole record and beneficial owner of
the Shares), and, except as set forth in Section 4.7 of the Radiocoms Disclosure
Letter, Radiocoms is the sole record and beneficial owner of the EFJ Shares and
the EFJ Warrant, in each case free and clear of any and all Liens, except (in
the case of the EFJ Warrant and the EFJ Warrant) for that certain Shareholders
Agreement, dated as of March 14, 1995, among certain shareholders of E.F.
Johnson Company (the "EFJ Shareholders' Agreement"), to which the EFJ Shares,
and any shares issuable pursuant to the EFJ Warrant, are subject. The EFJ Shares
and the EFJ Warrant constitute all of the securities of EFJ owned or held by
Radiocoms or any of its Affiliates, and were transferred to Radiocoms by
Securicor Communications Inc. in exchange for a one-year note of Radiocoms (the
"EFJ Note") in an aggregate principal amount of $10,000,000 on June 17, 1996.
Seller has the corporate power and authority to sell, transfer, assign and
deliver the Shares, and such delivery will convey to Purchaser good and
marketable title to the Shares, free and clear of any and all Liens.
4.8 FINANCIAL STATEMENTS. Seller has delivered to Purchaser copies of (a)
the audited consolidated balance sheet of Radiocoms and its Subsidiaries as at
September 30, 1995, and the related audited consolidated statements of income
and of cash flows of Radiocoms and its Subsidiaries (determined as of September
30, 1995) for the year then ended and (b) the unaudited consolidated balance
sheet of Radiocoms and its
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Subsidiaries as at March 31, 1996, and the related statements of income and cash
flows of Radiocoms and its Subsidiaries (determined as of March 31, 1996) for
the six-month period then ended (the "Interim Statements") (such audited and
unaudited statements, including the related notes and schedules thereto, are
referred to herein as the "Radiocoms Financial Statements"). Each of the
Radiocoms Financial Statements (i) is complete and correct in all material
respects, (ii) has been prepared in accordance with GAAP (subject to normal
year-end adjustments in the case of the Interim Statements), in accordance with
the books and records of Radiocoms and its Subsidiaries and in conformity with
the practices consistently applied by Radiocoms without modification of the
accounting principles used in the preparation thereof, except that such
financial statements have been conformed to GAAP and except as set forth in
Section 4.8 of the Radiocoms Disclosure Letter, (iii) except for the issuance of
the Shares and the Preferred Shares, the transfer of the EFJ Shares and EFJ
Warrant to Radiocoms, and the cancellation of intercompany indebtedness,
reflects all transactions relating to the Business including, without
limitation, operations of Radiocoms and the Subsidiaries and any transaction
with Securicor plc or its Subsidiaries, and (iv) presents fairly the financial
position, results of operations and cash flows of Radiocoms and its Subsidiaries
as at the dates and for the periods indicated. The Pro Forma Balance Sheet (as
defined in Section 6.9(c)) will present fairly the financial position of
Radiocoms and its Subsidiaries on a pro forma basis as at the date indicated, as
adjusted as described in Section 6.9(c), in accordance with GAAP (subject to
normal year-end adjustments).
For the purposes hereof, the audited balance sheet of Radiocoms as at
September 30, 1995 and the unaudited balance sheet of Radiocoms as at March 31,
1996, respectively, are referred to as the "Radiocoms Balance Sheet" and the
"March Radiocoms Balance Sheet," respectively, and September 30, 1995 and March
31, 1996, respectively, are referred to as the "Radiocoms Balance Sheet Date"
and the "March Radiocoms Balance Sheet Date," respectively.
4.9 NO UNDISCLOSED LIABILITIES. Radiocoms and its Subsidiaries have no
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due) (a) that would be
required by GAAP to be reflected in, reserved against or otherwise described in
the consolidated balance sheet of Radiocoms and its Subsidiaries (including the
notes thereto) or (b) which could reasonably be expected to have a Material
Adverse Effect on Radiocoms and its Subsidiaries, taken as a whole, except (i)
as set forth on the March Radiocoms Balance Sheet or in the notes thereto, (ii)
for liabilities and obligations incurred in the ordinary course of business
consistent with past practice since the March Radiocoms Balance Sheet Date and
(iii) as set forth in Section 4.9 of the Radiocoms Disclosure Letter.
4.10 ABSENCE OF CERTAIN DEVELOPMENTS. Except as expressly contemplated by
this Agreement or as set forth in Section 4.10 of the Radiocoms Disclosure
Letter, since the Radiocoms Balance Sheet Date:
(a) there has not been any Material Adverse Change nor has there occurred
any event which is reasonably likely to result in a Material Adverse Change with
respect to the Business or Radiocoms and its Subsidiaries, taken as a whole;
(b) there has not been any damage, destruction or loss, whether or not
covered by insurance, with respect to the property and assets of the Business
having a replacement cost of more than L10,000 for any single loss or L10,000
for all such losses;
(c) there has not been any declaration, setting aside or payment of any
dividend or other distribution in respect of any shares of capital stock of
Radiocoms or any of its Subsidiaries or any repurchase, redemption or other
acquisition by Seller, Radiocoms or any Subsidiary of Radiocoms of any
outstanding shares of capital stock or other securities of, or other ownership
interest in, Radiocoms or any of its Subsidiaries, except for (i) dividends to
Radiocoms by any of its wholly owned Subsidiaries and (ii) Seller's acquisition
of the Shares and the Preferred Shares as contemplated by this Agreement;
(d) neither Radiocoms nor any or its Subsidiaries has issued any equity
securities or any securities convertible into or exchangeable for equity
securities of Radiocoms or any of its Subsidiaries, other than the Shares and
the Preferred Shares;
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(e) neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
awarded or paid any bonuses to employees of the Business or Radiocoms with
respect to the fiscal year ended September 30, 1995 and the period ended March
31, 1996, except to the extent accrued on the Radiocoms Balance Sheet or the
March Radiocoms Balance Sheet, or entered into any employment, deferred
compensation, severance or similar agreement (or amended any such agreement) or
agreed to increase the compensation payable or to become payable by it to any of
its directors, officers, employees, agents or representatives or agreed to
increase the coverage or benefits available under any severance pay, termination
pay, vacation pay, company awards, salary continuation for disability, sick
leave, deferred compensation, bonus or other incentive compensation, insurance,
pension or other employee benefit plan, payment or arrangement made to, for or
with such directors, officers, employees, agents or representatives (other than
normal increases in the ordinary course of business consistent with past
practice and that in the aggregate have not resulted in a material increase in
the benefits or compensation expense of Radiocoms and its Subsidiaries, taken as
a whole);
(f) there has not been any change by Radiocoms or any of its Subsidiaries or
Relevant Affiliates in accounting or Tax reporting principles, methods or
policies relating to the Business;
(g) neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
entered into any transaction or Contract or conducted its business related to
the Business other than in the ordinary course consistent with past practice,
and no Relevant Affiliate of Radiocoms has entered into any transaction or
Contract or conducted any business related to the Business other than in the
ordinary course consistent with past practice, except for the acquisition by
Radiocoms of the EFJ Shares, the EFJ Warrant and the issued and outstanding
capital stock of Linear Modulation Technology Limited ("LMT") and Securicor
Electronics Limited ("SEL");
(h) neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
failed to promptly pay and discharge current liabilities of the Business, except
where disputed in good faith by appropriate proceedings;
(i) neither Radiocoms nor any of its Subsidiaries has made any loans (other
than as evidenced by the EFJ Note), advances or capital contributions to, or
investments in, any Person or paid any fees or expenses to Seller or any
Affiliate of Seller;
(j) neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
mortgaged, pledged or subjected to any Lien any assets related to the Business,
or acquired any assets or sold, assigned, transferred, conveyed, leased or
otherwise disposed of any assets of Radiocoms or its Subsidiaries or Relevant
Affiliates related to the Business, except for (i) assets acquired or sold,
assigned, transferred, conveyed, leased or otherwise disposed of in the ordinary
course of business consistent with past practice, (ii) the transfer of the
ownership of the issued and outstanding capital stock of LMT and SEL from Seller
to Radiocoms on May 14, 1996 and (iii) the acquisition by Radiocoms of the EFJ
Shares and the EFJ Warrant from Securicor Communications Inc. on June 17, 1996;
(k) neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
discharged or satisfied any Lien related to the Business, or paid any obligation
or liability (fixed or contingent) related to the Business, except (i) in the
ordinary course of business consistent with past practice and which, in the
aggregate, would not be material to Radiocoms and its Subsidiaries, taken as a
whole, and (ii) for the refinancing of all of the outstanding indebtedness owed
by Radiocoms to Seller and its Affiliates in connection with the issuance of the
Preferred Shares;
(l) neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
canceled or compromised any debt or claim related to the Business or amended,
canceled, terminated, relinquished, waived or released any Contract or right
related to the Business except in the ordinary course of business consistent
with past practice and which, in the aggregate, would not be material to the
Business or Radiocoms and its Subsidiaries, taken as a whole;
(m) neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
instituted or settled any material Legal Proceeding related to the Business;
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(n) neither the Business nor Radiocoms or any of its Subsidiaries has
suffered any extraordinary loss or extraordinary losses (as defined in Opinion
No. 30 of the Accounting Principles Board of the American Institute of Certified
Public Accountants and any amendments or interpretations thereof) (individually,
an "Extraordinary Loss" and, collectively, "Extraordinary Losses");
(o) neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
transferred or granted any material rights under any concessions, leases,
licenses, agreements, patents, inventions, trademarks, trade names, service
marks, brandmarks, brand names, copyrights or the like, or with respect to any
know-how, in any case related to the Business;
(p) neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
received any notice or citation for any violation of, nor, to the knowledge of
Seller, has any complaint been filed with the Department of Trade and Industry
("DTI") alleging a violation of any rule, regulation or policy of the DTI
related to the Business, or allowed any equipment authorization related to the
Business issued by the FCC to Radiocoms or any of its Subsidiaries or Relevant
Affiliates to lapse or be impaired in any manner, or operated any of its
businesses related to the Business in any manner not in compliance with its FCC
equipment authorizations and all applicable DTI or FCC rules, regulations and
policies; and
(q) none of Seller or its Relevant Affiliates (on behalf of Radiocoms or any
Subsidiary thereof), Radiocoms or any Subsidiary of Radiocoms has agreed to do
anything set forth in this Section 4.10.
4.11 TAXES.
(a) (A) All material Tax Returns required to be filed by or on behalf of
Radiocoms and each of its Subsidiaries and Relevant Affiliates, or the
Affiliated Group(s) of which any of them is or was a member, have been duly and
timely filed with the appropriate taxing authorities in all jurisdictions in
which such Tax Returns are required to be filed (after giving effect to any
valid extensions of time in which to make such filings), and all such Tax
Returns were true, complete and correct in all material respects; (B) all Taxes
payable by or on behalf of Radiocoms, its Subsidiaries and Relevant Affiliates,
either directly, as part of an Affiliated Group Tax Return, or otherwise, have
been fully and timely paid, except to the extent adequately reserved for in
accordance with GAAP on the March Radiocoms Balance Sheet, and adequate reserves
or accruals for Taxes related to the Business have been provided in accordance
with GAAP on the March Radiocoms Balance Sheet with respect to any period
through the date thereof for which Tax Returns have not yet been filed or for
which Taxes are not yet due and owing; and (C) no agreement, waiver or other
document or arrangement extending or having the effect of extending the period
for assessment or collection of Taxes related to the Business (including, but
not limited to, any applicable statute of limitation) has been executed or filed
with any taxing authority by or on behalf of Radiocoms or any of its
Subsidiaries or Relevant Affiliates, or any Affiliated Group(s) of which any of
them is or was a member.
(b) Radiocoms and each of its Subsidiaries and Relevant Affiliates has
complied in all material respects with all applicable Laws, rules and
regulations relating to the payment and withholding of Taxes related to the
Business and has duly and timely withheld from employee salaries, wages and
other compensation related to the Business and has paid over to the appropriate
taxing authorities all amounts required to be so withheld and paid over for all
periods under all applicable Laws.
(c) Purchaser has received (A) complete copies of all material income,
franchise or corporation Tax Returns of Radiocoms and each of its Subsidiaries
and Relevant Affiliates (or, in the case of Tax Returns filed for an Affiliated
Group, the portion of such Tax Returns relating to Radiocoms or any of its
Subsidiaries or Relevant Affiliates) relating to the taxable periods since
October 1, 1993 and (B) details of all material issues of which Seller has
knowledge raised by any taxing authority within the last six years relating to
any material Taxes due from Radiocoms and each of its Subsidiaries and Relevant
Affiliates with respect to the income, assets or operations of the Business.
(d) No claim has been made by a taxing authority in a jurisdiction where
Radiocoms or any of its Subsidiaries or Relevant Affiliates does not file an
income, franchise or corporation Tax Return such that Radiocoms or such
Subsidiary or Relevant Affiliate is or may be subject to taxation related to the
Business by that jurisdiction.
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(e) All deficiencies asserted or assessments made as a result of any
examinations by any taxing authority of the Tax Returns of or covering or
including Radiocoms and/or its Subsidiaries or Relevant Affiliates have been
fully paid, and there are no other audits or investigations by any taxing
authority in progress, nor have Seller, Radiocoms or any of its Subsidiaries or
Relevant Affiliates received any written notice from any taxing authority that
it intends to conduct such an audit or investigation with respect to the
Business. No request for a ruling, clearance or a determination letter related
to the Business is pending with any taxing authority. No issue has been raised
in writing by any taxing authority in any current or prior examination which, by
application of the same or similar principles, could reasonably be expected to
result in a proposed deficiency against Radiocoms or any Subsidiary or Relevant
Affiliate for any subsequent taxable period that could be material.
(f) Neither Radiocoms (except with one or more of its Subsidiaries or
Relevant Affiliates) nor any Subsidiary or Relevant Affiliate (except with
Radiocoms or another Subsidiary or Relevant Affiliate) is a party to any Tax
Sharing Agreement or similar agreement or arrangement (whether or not written)
pursuant to which it will have any obligation to make any payments after the
Closing.
(g) There are no liens as a result of any unpaid Taxes upon any of the
assets of Radiocoms or any of its Subsidiaries or Relevant Affiliates.
(h) Radiocoms, its Subsidiaries and its Relevant Affiliates have not made
any payment to or provided any benefit for any of its officers, employees,
former officers or former employees and have not made or agreed to make a
payment of an income nature which would not be allowable as a deduction in
computing its profits for corporation tax purposes except in the ordinary course
of business.
(i) As of the Closing, Radiocoms and its Subsidiaries will have received
payment equal to the tax benefit obtained by the claimant company for all
amounts surrendered as group relief in accordance with Section 402 of the Income
and Corporation Taxes Act 1988.
(j) Neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
acquired any of its assets by virtue of a transfer from a group company under
Section 171 of the Taxation of Chargeable Gains Act 1992, except for those
specified in Section 4.11(j) of the Radiocoms Disclosure Letter.
(k) No claim has been made under Section 152 of the Taxation of Chargeable
Gains Act 1992, which affects the amount of the consideration which would be
allowable under Section 8 of the Taxation of Chargeable Gains Act 1992 on a
disposal of an asset by Radiocoms or its Subsidiaries or Relevant Affiliates.
(l) Except for the issuances of the Shares and the Preferred Shares
contemplated by this Agreement, Radiocoms, its Subsidiaries and its Relevant
Affiliates have at no time after April 6, 1965 repaid, redeemed or purchased or
agreed to repay, redeem or purchase, or granted an option under which it may
become liable to purchase, any shares of any class of its issued share capital
nor have they after that date capitalized or agreed to capitalize in the form of
shares or debentures any profits or reserves of any class or description or
otherwise issued or agreed to issue any share capital other than for the receipt
of a new consideration (within the meaning of Part VI of the Income and
Corporation Taxes Act 1988) or passed or agreed to pass any resolution to do so.
(m) No securities (within the meaning of Part VI of the Income and
Corporation Taxes Act 1988) issued by Radiocoms or any of its Subsidiaries and
its Relevant Affiliates remaining in issue at the date of the Closing were
issued in such circumstances that any interest or any other distribution out of
assets in respect thereof falls to be treated as a distribution under Section
209(2)(d), (da) or (e).
(n) Neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
received any capital distribution to which the provisions of Section 189 of the
Taxation of Chargeable Gains Act 1992 could apply.
(o) Except as disclosed in Section 4.11(o) of the Radiocoms Disclosure
Letter, no asset of Radiocoms or its Subsidiaries or Relevant Affiliates shall
be deemed under Sections 178 or 179 of the Taxation of Chargeable Gains Act 1992
to have been disposed of and reacquired by virtue of or in consequence of the
entering into or performance of this Agreement or any other event since the
Radiocoms Balance Sheet Date.
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(p) Neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates has
been a party to or otherwise involved in any arrangement of which the main
purpose was the avoidance of liability to taxation or any transaction to which
any of the following provisions could apply:
(i) Sections 29-34 of the Taxation of Chargeable Gains Act 1992;
(ii) Sections 116-118 of the Income and Corporation Taxes Act 1988;
(iii) Section 399 of the Income and Corporation Taxes Act 1988; or
(iv) Sections 729-746 or Sections 774-778 of Part XVII of the Income and
Corporation Taxes Act 1988.
4.12 REAL PROPERTY.
(a) Section 4.12(a) of the Radiocoms Disclosure Letter describes (i) all
real property and all interests therein owned of record or beneficially by
Radiocoms or any of its Subsidiaries or, by any Relevant Affiliate of Radiocoms
and occupied by or used in the Business (the "Radiocoms Real Properties"), (ii)
all leases of real property directly or principally related to the Business or
to which Radiocoms or any of its Subsidiaries is a party or by which Radiocoms
or any of its Subsidiaries is bound and (iii) the purposes for which such
properties are used. True, correct and complete copies of all documents referred
to in Section 4.12(a) of the Radiocoms Disclosure Letter have been delivered or
made available to Purchaser.
(b) (i) Radiocoms or one of its Subsidiaries or Relevant Affiliates (which
Relevant Affiliate is identified in Section 4.12(a) of the Radiocoms Disclosure
Letter) has (A) good and marketable title to the Radiocoms Real Properties, free
and clear of all Liens except for imperfections of title, if any, that do not
materially detract from the value of the property subject thereto, or materially
interfere with the manner in which such property is currently being used or is
proposed to be used in the Business by Radiocoms or any of its Subsidiaries or
materially impair the operations of the Business or Radiocoms or any of its
Subsidiaries and which do not secure obligations for borrowed money used in the
Business or the deferred portion of the purchase price of acquired property used
in the Business (collectively, the "Radiocoms Permitted Encumbrances"), and (B)
all material easements and rights, including, but not limited to, easements for
power lines, water lines, sewers, roadways and other means of ingress and
egress, necessary to conduct the business conducted on the Radiocoms Real
Properties; and none of the Liens set forth in Section 4.12(b) of the Radiocoms
Disclosure Letter has had or could reasonably be expected to have a Material
Adverse Effect on the Business or Radiocoms and its Subsidiaries, taken as a
whole;
(ii) Neither the whole nor any portion of any of the Radiocoms Real
Properties is subject to any pending condemnation or similar proceeding by
any Governmental Body, and Seller does not know that any such condemnation
or taking is threatened or contemplated;
(iii) Neither Radiocoms nor any of its Subsidiaries is, or as of the
Closing Date will be, in violation of any applicable Law or Order relating
to the Radiocoms Real Properties, except where the failure to be in
compliance with such Law or Order could not reasonably be expected to have a
Material Adverse Effect on the Business or Radiocoms and its Subsidiaries,
taken as a whole, and no notice from any Governmental Body has been served
upon Radiocoms or any of its Subsidiaries or Affiliates claiming any
material violation thereof or calling attention to the need for any material
work, repairs, construction, alterations, installations on or in connection
with said owned or leased real properties used in connection with the
Business or by Radiocoms and its Subsidiaries;
(iv) Radiocoms or one of its Subsidiaries or Relevant Affiliates has
obtained all permits, licenses or certificates of occupancy pertaining to
the ownership or operation of any of the owned or leased real properties of
the Business or Radiocoms or any of its Subsidiaries (including, without
limitation, the Radiocoms Real Properties) that are required to be obtained
from any Governmental Body by a Relevant Affiliate (in connection with the
Business) or by Radiocoms or any of its Subsidiaries, except where the
failure to obtain such permits, licenses or certificates of occupancy could
not reasonably be expected to have a Material Adverse Effect on the Business
or on Radiocoms and its Subsidiaries, taken as a whole;
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(v) Each of the leases of real property referred to in Section 4.12(a)
above is valid and enforceable in accordance with its terms, subject to the
Bankruptcy Exception, and there is not under any such lease any existing
breach, default, event of default or event which, with notice and/or lapse
of time, would constitute a breach, default or event of default (A) by
Radiocoms or any of its Subsidiaries or Relevant Affiliates or (B) to the
knowledge of Seller, by any other party to any such lease, except where such
breach, default or event of default could not reasonably be expected to have
a Material Adverse Effect on the Business or Radiocoms and its Subsidiaries,
taken as a whole;
(vi) No previous or current party to any such lease has given notice of
or made a claim with respect to any breach or default, the consequences of
which, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect on the Business or Radiocoms and its
Subsidiaries, taken as a whole;
(vii) None of the rights of Radiocoms or any of its Subsidiaries or
Relevant Affiliates under any of such leases will be subject to termination
or modification as the result of the consummation of the transactions
contemplated by this Agreement; and
(viii) No consent or approval of any third party is required under any of
such real property leases to the consummation of the transactions
contemplated hereby.
4.13 TANGIBLE PERSONAL PROPERTY.
(a) Section 4.13(a) of the Radiocoms Disclosure Letter sets forth all leases
of personal property related to the Business, other than leases for motor
vehicles, involving annual payments in excess of L10,000 to which Radiocoms or
any of its Subsidiaries or Relevant Affiliates is a party or by which Radiocoms
or any of its Subsidiaries or Relevant Affiliates is bound. True, correct and
complete copies of all documents referred to in Section 4.13(a) of the Radiocoms
Disclosure Letter have been delivered or made available to Purchaser.
(b) (i) Each of the leases of personal property referred to in Section
4.13(a) is valid and enforceable in accordance with its terms, subject to the
Bankruptcy Exception, and there is not, under any such lease, any existing
breach, default, or event of default or event which, with notice and/or lapse of
time, would constitute a breach, default or event of default (A) by Radiocoms or
any of its Subsidiaries or Relevant Affiliates or, (B) to the knowledge of
Seller, by any other party to any such lease, except where such breach, default,
event of default could not reasonably be expected to have a Material Adverse
Effect on the Business or Radiocoms and its Subsidiaries, taken as a whole;
(ii) No previous or current party to any such lease has given notice of
or made a claim with respect to any breach or default thereunder, the
consequences of which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on the Business or Radiocoms and
its Subsidiaries, taken as a whole;
(iii) None of the rights of any of Radiocoms or any of its Subsidiaries
or Relevant Affiliates under any of such leases will be subject to
termination or modification as the result of the consummation of the
transactions contemplated by this Agreement;
(iv) No consent or approval of any third party is required under any
lease referred to in Section 4.13(a) for the consummation of the
transactions contemplated hereby;
(v) Radiocoms or one of its Subsidiaries or Relevant Affiliates (which
is identified) has good title to all material items of tangible personal
property reflected on the March Radiocoms Balance Sheet (except as sold or
disposed of subsequent to the date thereof in the ordinary course of
business consistent with past practices), free and clear of Liens; and
(vi) All of the items of tangible personal property not owned by
Radiocoms or one of its Subsidiaries or Relevant Affiliates, but used in the
Business and which, individually or in the aggregate, are material to the
conduct of such business, are in such condition that upon the return of such
properties to their owners in the current condition of such properties,
normal wear and tear excepted, at the end of
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the relevant lease terms or as otherwise contemplated by the applicable
agreements with owners thereof, the obligations of Radiocoms or its
Subsidiaries or Relevant Affiliates (as applicable) to such owners will be
discharged in all material respects.
4.14 INTANGIBLE PROPERTY. Section 4.14 of the Radiocoms Disclosure Letter
sets forth a list of each letters patent, material trademark, material trade
name, registered copyright, material service mark, and any other similar,
registered property or trade right owned by Radiocoms or any of its
Subsidiaries, or owned by a Relevant Affiliate of Radiocoms and used in the
Business (collectively, together with all know-how, processes, formulae, trade
secrets, inventions, designs, industrial models, computer programs and other
technical data or drawings, the "Radiocoms Intellectual Property"), and sets
forth all applications and licenses for any of the foregoing, and all licenses
or similar agreements or arrangements relating to the operation of the Business
or of Radiocoms or any of its Subsidiaries or to which Radiocoms or any of its
Subsidiaries is a party or subject (property of the foregoing type being
hereinafter collectively referred to as the "Radiocoms IP Licenses"), including
all licenses or similar agreements or arrangements by which Radiocoms or its
Subsidiaries or Relevant Affiliates are authorized to use intellectual property
of a third party related to the Business or have granted to a third party rights
to use intellectual property related to the Business. Except as indicated in
Section 4.14 of the Radiocoms Disclosure Letter:
(a) Radiocoms or one of its Subsidiaries owns all title and interest in,
and, to the knowledge of Seller, right and authority to use, in connection with
the conduct of the Business as such Business is presently conducted, all of the
Radiocoms Intellectual Property and Radiocoms IP Licenses listed in Section 4.14
of the Radiocoms Disclosure Letter, free and clear of all Liens. The Radiocoms
Intellectual Property and Radiocoms IP Licenses (other than licenses granted to
third parties), to the knowledge of Seller, constitute all of the intellectual
property that Radiocoms needs to conduct the Business as currently conducted.
The operation of the Business by Radiocoms and its Subsidiaries or Relevant
Affiliates does not, to the knowledge of Seller, infringe upon, misappropriate
or violate (in each case, in any material respect) any valid patent, trade name,
trademark, service mark, trade secret, brand mark and brand name and other
property or trade right of any other person, firm or corporation. None of
Radiocoms or any of its Subsidiaries or Affiliates has received any notice or
has knowledge pertaining to any actual or threatened, infringement,
misappropriation or violation of the items of intellectual property listed in
the preceding sentence;
(b) There are no asserted or, to the knowledge of Seller, threatened,
governmental, judicial or adversarial proceedings, hearings, arbitrations,
disputes or claims with respect to any of the Radiocoms Intellectual Property or
Radiocoms IP Licenses listed in Section 4.14 of the Radiocoms Disclosure Letter;
(c) To the knowledge of Seller, no third party is infringing or engaging in
an unauthorized use of the Radiocoms Intellectual Property or Radiocoms IP
Licenses; and
(d) To the knowledge of Seller, neither Seller nor any of its Affiliates has
made any disclosure to a third party that would materially impair the value of
any confidential Radiocoms Intellectual Property or confidential Radiocoms IP
Licenses, and Seller and its Affiliates have treated such confidential
information in a manner reasonably designed to preserve its confidentiality.
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4.15 MATERIAL CONTRACTS.
(a) Section 4.15(a) of the Radiocoms Disclosure Letter sets forth (i) each
oral or written agreement, arrangement or commitment of any nature relating to
the Business or to which Radiocoms or any of its Subsidiaries is a party or by
which it is bound involving (A) a commitment of more than L50,000 or (B) the
purchase or sale of any assets relating to the Business or of Radiocoms or its
Subsidiaries having a book value or more than L50,000 and (ii) all (A) loan or
credit agreements, indentures, guaranties, promissory notes, pledge agreements,
mortgages, security agreements or other instruments in respect of borrowed
funds, (B) distributorship, agency, representation, dealer or similar
agreements, (C) covenants not to compete or other agreements or understandings
which would restrict the distribution or sale of any of the products of the
Business or of Radiocoms or any of its Subsidiaries in any geographical area or
to any person or class of persons, or which in any way affects the price or
other terms at which the Business or Radiocoms or any of its Subsidiaries or any
agent or representative of the Business or Radiocoms or any of its Subsidiaries
may sell products or services, (D) contracts or commitments for capital
expenditures, and (E) partnership or joint venture agreements. Agreements,
arrangements and commitments of the types described in subsections (i) and (ii)
above are hereinafter collectively referred to as the "Radiocoms Material
Agreements."
(b) Each Radiocoms Material Agreement is valid and enforceable in accordance
with its terms, subject to the Bankruptcy Exception. (i) Neither Radiocoms nor
any of its Subsidiaries or Relevant Affiliates nor, to the knowledge of Seller,
any other party thereto, is in breach of or in default under any Radiocoms
Material Agreement, (ii) to the knowledge of Seller, there has not occurred any
event which, after the giving of notice or the lapse of time or both, would
constitute a default under, or result in a breach of, any Radiocoms Material
Agreement, (iii) no previous or current party to any Radiocoms Material
Agreement has given notice of or made a claim or, to the knowledge of the
Seller, threatened to make a claim, with respect to any breach or default
thereunder, the consequences of which, in the case of clauses (i), (ii) and
(iii), individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on the Business or Radiocoms and its Subsidiaries, taken
as a whole, (iv) none of the rights of Radiocoms or any of its Subsidiaries or
Affiliates under any of the Radiocoms Material Agreements will be subject to
termination or modification as a result of the consummation of the transactions
contemplated by this Agreement, (v) no consent or approval of any third party is
required under any Radiocoms Material Agreement to the consummation of the
transactions contemplated hereby and (vi) no power of attorney that remains in
effect has been granted by Radiocoms or its Subsidiaries.
(c) Section 4.15(c) of the Radiocoms Disclosure Letter sets forth a true and
accurate list of all oral or written agreements, arrangements or commitments of
any nature between Radiocoms or any of its Subsidiaries or Affiliates, on the
one hand, and EFJ, on the other hand.
4.16 EMPLOYEE BENEFITS.
(a) For purposes of this Agreement, the following terms shall have the
following meanings: (i) "Approved" means approved by the Board of Inland Revenue
as an exempt approved scheme (within the meaning of Section 592 Income and
Corporation Taxes Act of 1988) and "Approval" has the corresponding meaning;
(ii) "Retirement/Death/Disability Benefit" means any pension, lump sum, gratuity
or other like benefit given or to be given on retirement or on death, or in
anticipation of retirement, or, in connection with past service after retirement
or death, or to be given on or in anticipation of, or in connection with any
change in the nature of the service of the employee in question or given or to
be given on or in connection with the illness, injury or disability of, or
suffering of any accident by, an employee of Radiocoms or any of its
Subsidiaries or Relevant Affiliates; (iii) "Scheme" means those of the Schemes
participated in by Radiocoms, or any of its Subsidiaries or Relevant Affiliates,
such Schemes being referred to on Section 4.16(b) of the Radiocoms Disclosure
Letter; (iv) "Scheme Documents" means the documents constituting and governing a
Scheme (including all notices, announcements and explanatory literature of
current effect) and all documents relating to the participation by Radiocoms or
any of its Subsidiaries or Relevant Affiliates in and obligations of those
entities under such Scheme; (v) "Trustees" means the trustees of a Scheme and
includes their predecessors as trustees; (vi) "Valuation" means the most recent
actuarial valuation of a Scheme as set forth on Section 4.16(b) of the Radiocoms
Disclosure Letter with respect to each Scheme where such a
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Valuation is required by the Inland Revenue; and (vii) "Valuation Date" and
"Valuation Report" mean, respectively, the date as at which the Valuation was
carried out and the report of the actuary preparing the Valuation.
(b) Section 4.16(b) of the Radiocoms Disclosure Letter sets forth a list of
all Schemes. All information made available to Purchaser in connection with each
Scheme is complete and accurate in all material respects. Except pursuant to the
Schemes, neither Radiocoms nor any of its Subsidiaries or Relevant Affiliates
has paid, provided or contributed toward, and neither Radiocoms nor any of its
Subsidiaries or Relevant Affiliates is under any obligation or commitment
(whether or not legally enforceable) to pay, provide or contribute towards, any
Retirement/Death/Disability Benefit for and or in respect of any present or past
employee (or any spouse, child or dependent of any them) of Radiocoms or any of
its Subsidiaries or Relevant Affiliates.
(c) Seller has made available to Purchaser prior to the date hereof: (i)
true, complete and correct copies of all Scheme Documents; (ii) the names and
addresses of the current trustees and administrators of each Scheme; (iii) a
complete copy of the latest Trustees' Report to members of the audited accounts
of each Scheme (including the auditor's report); (iv) a complete copy of the
most recent Valuation Report and, if not stated therein, the name and address of
the current actuary to each Scheme; (v) a list of each Scheme's active members,
pensioners and deferred pensioners who are employees or past employees of
Radiocoms with particulars relevant to establish their entitlement to benefits
thereunder; (vi) a statement of the rate at which during the current and
preceding Scheme year each participating employer contributes to the Scheme and
makes payments in respect of the expenses of administration, management and
trusteeship of the Scheme and of any proposal to change such rate; (vii) the
identity of the principal employer of each Scheme and particulars of the terms
of participation of each of Radiocoms and any of its Subsidiaries in each
Scheme; (viii) all material particulars of the assets currently held by each
Scheme by reference to the categories listed in Schedule 3 to the Occupational
Pension Schemes (Disclosure of Information) Regulations 1986 (including full
particulars of any employer-related investment as defined in Section 112 of the
Pension Schemes Act 1993) of any investment in which more than 5% of the total
value of the net assets of the Scheme is invested and of any requirements
relating to the Schemes' investments imposed by the Inland Revenue (other than
requirements relating to Approved Retirement Benefit Schemes generally) and all
material particulars of any common investment fund in which the Scheme
participates; (ix) all material particulars of any surplus payment within the
meaning of the Pension Scheme Surpluses (Administration) Regulations 1987 which
has been made or is proposed to be made from such Scheme; (x) a complete copy
(or, in the case of an oral contract, full written particulars) of any contract
with any person providing services of any nature in connection with the Scheme,
including, without limitation, investment management or advisory services,
custody services, administration and data processing services; (xi) all material
particulars of any discretionary practice of the Scheme in relation to employees
or past employees of Radiocoms or any of its Subsidiaries or Relevant Affiliates
in the preceding three years (other than pension increases and individual
enhancements or additions); (xii) a complete copy of each contract of insurance
and of any associated agreement with the insurance company relating to the
Scheme and full particulars of the premiums payable under them; (xiii) a
complete copy of the contracting-out certificate relating to the participation
of Radiocoms and any of its Subsidiaries or Relevant Affiliates and of the
Inland Revenue's Letter of Approval in force in relation to such Scheme; and
(xiv) the basic information about the Scheme required to be given under Schedule
1 of the Occupational Pension Schemes (Disclosure of Information) Regulations
1986.
(d) Each Scheme is Approved as of its commencement and, to Seller's
knowledge, there is no ground on which Approval may be withdrawn or cease to
apply.
(e) The active members of the Scheme employed by Radiocoms or any of its
Subsidiaries or Relevant Affiliates are contracted out of the State
Earnings-Related Pension Scheme by reference to the Scheme. To Seller's
knowledge, there is no ground on which such contracted-out status may be
withdrawn or cease to apply. All state scheme premiums, within the meaning of
the Pension Schemes Act 1993, due in respect of any member or former member of
the Scheme who is an employee or past employee of Radiocoms or any of its
Subsidiaries or Relevant Affiliates have been paid in accordance with applicable
statutory requirements.
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(f) Every employee of Radiocoms or any of its Subsidiaries who is entitled
to membership of the Scheme (whether under the Scheme Documents or any
applicable law) has been invited to join the Scheme as of the date on which he
became entitled. Radiocoms and its Subsidiaries or Relevant Affiliates have been
properly admitted to participation in each Scheme in which employees of
Radiocoms and its Subsidiaries or Relevant Affiliates participate.
(g) Since the effective date of the Valuation, no power has been exercised
under the Scheme to admit to membership any employee of Radiocoms or any of its
Subsidiaries or Relevant Affiliates who is not automatically eligible for
membership under the Scheme Documents or to grant or augment any benefit under
the Scheme in respect of employees of Radiocoms or its Subsidiaries or Relevant
Affiliates which would not otherwise have been provided in the ordinary course
under the Scheme Documents.
(h) To Seller's knowledge, the books of account, Trustees' minutes and other
records of the Scheme have been properly and accurately maintained in all
material respects and, to Seller's knowledge, all such books, minutes and
records and originals of the Scheme Documents are in the possession of the
Trustees.
(i) All contributions and expenses payable by Radiocoms or any of its
Subsidiaries or Relevant Affiliates (including actuarial, trusteeship,
consultancy, legal, audit and administrative expenses) in respect of the Scheme
have been paid and, to Seller's knowledge, no services have been rendered or
requested in respect of the Scheme of which an account has not been rendered and
which when rendered would tend to increase materially the rate of contribution
of Radiocoms or any of its Subsidiaries or Relevant Affiliates to each of the
Schemes in respect of the recoupment of such expenses or costs.
(j) Each contract and agreement referred to in sub-paragraph (c)(xii) is
enforceable and, to Seller's knowledge, there is no ground on which the insurers
might avoid liability under it. All premiums payable under all such contracts
have been paid. Without limiting the foregoing, all lump sum and pension
benefits payable in the event of the death of an employee of Radiocoms or any of
its Subsidiaries or Relevant Affiliates while in service are fully insured, and
all benefits in respect of employees of Radiocoms or any of its Subsidiaries or
Relevant Affiliates which are in payment and which are paid up (payment not
having commenced) and all contingent benefits are fully secured, with a
reputable insurance company authorized to carry on ordinary long-term insurance
business under the Insurance Companies Act 1982.
(k) To Seller's knowledge, the Scheme has at all times been operated in all
material respects in accordance with, and the Trustees and all of the employers
participating in the Scheme have observed and performed all their obligations
under, the Scheme Documents, the requirements of the Inland Revenue for
Approval, the requirements of the Occupational Pensions Board applicable to the
Scheme and all applicable laws.
(l) To Seller's knowledge, the Valuation is accurate in all material
respects on the basis of the information supplied to the actuary who carried out
the Valuation. Such information supplied to the actuary was complete and
accurate in all material respects as of the date when it was so supplied,
including the information relating to the assets held by the Scheme and to any
augmentation of benefits, and to any benefits which would not otherwise have
been provided under the Scheme Documents, to or in respect of employees of
Radiocoms or any of its Subsidiaries or Relevant Affiliates. Since the Valuation
Date: (i) pensionable earnings of employees of Radiocoms or any of its
Subsidiaries or Relevant Affiliates have not increased at a rate greater than
the rate of increase assumed for the purpose of the Valuation Report; and (ii)
no action has been taken by Seller or by Radiocoms or any of its Subsidiaries or
Relevant Affiliates (including, without limitation, by way of a change relating
to the assets held by the Scheme or in investment policy or practice or in the
number, age or sex distribution of members) which might cause the result of an
actuarial valuation carried out at Closing, adopting the same actuarial methods
and assumptions as were adopted for the purpose of the Valuation, to be
materially different from the result of the Valuation.
(m) At Closing the Scheme will hold assets which have a value at least as
great as the value of the assets as stated in the Valuation increased since the
Valuation Date at a rate not lower than the rate of investment return assumed
for the purpose of the Valuation. On the basis of the methods and assumptions
used for the Valuation, the rate of contributions payable by Radiocoms or any of
its Subsidiaries or Relevant Affiliates
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recommended in the Valuation Report will be adequate to fund the benefits in
payment and prospectively or contingently payable under the Scheme in respect of
employees of Radiocoms or any of its Subsidiaries or Relevant Affiliates.
(n) Each transfer payment received by the Scheme after 17th May, 1990 in
respect of employees or pensioners or deferred pensioners who are past employees
of Radiocoms or any of its Subsidiaries or Relevant Affiliates and who are
members of the Scheme has been calculated in such a way that it does not treat
men and women unequally insofar as the payment relates to employment after that
date but disregards the application of any actuarial assumption which may by law
differ as between men and women for this purpose.
(o) No Scheme is registered under Chapter III of Part V of the Income and
Corporation Taxes Act 1988 and no application for such a registration has been
made.
(p) Section 4.16(p) of the Radiocoms Disclosure Letter sets out full details
of all current dispensations and notices granted by the Inland Revenue relating
to Radiocoms, its Subsidiaries and Relevant Affiliates under Section 166 of the
Income and Corporation Taxes Act 1988.
(q) No Scheme is subject to the provisions of Section 187 and Schedule 9 of
the Income and Corporation Taxes Act 1988.
(r) No employee share ownership trust established in respect of the
employees of Radiocoms or its Subsidiaries or Relevant Affiliates is subject to
any charge to tax under Section 68 or Section 71 of the Finance Act 1989 and
there are no circumstances likely to lead to such a charge and Radiocoms, its
Subsidiaries and its Relevant Affiliates are not subject to any liability
whether actual or potential under Section 68(3) of the Finance Act 1989 to pay
tax otherwise due from the trustees of any such trust.
(s) Each Scheme has been operated in accordance and in compliance with the
recommendations set forth in Section 5 of the most recent Valuation Report that
is set forth in the Radiocoms Disclosure Letter.
4.17 LABOR.
(a) No employees of the Business or Radiocoms or any of its Subsidiaries are
represented by any labor organization, and no labor organization or group of
employees of the Business or Radiocoms or any of its Subsidiaries has made a
demand for recognition, has filed a petition seeking a representation proceeding
or given Radiocoms or any of its Subsidiaries or Relevant Affiliates written
notice of any intention to be represented by a collective bargaining
representative. No collective bargaining agreement is currently being negotiated
with respect to any employees of the Business or Radiocoms or any of its
Subsidiaries.
(b) (i) The Business and Radiocoms and each of its Subsidiaries is in
material compliance with all applicable Laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and with each collective bargaining agreement applicable to it, and is not
engaged in any unfair labor practice; (ii) to the knowledge of Seller, there is
no unfair labor practice charge, complaint or similar claim relating to the
Business against Radiocoms or any of its Subsidiaries or Relevant Affiliates
pending or threatened before any Governmental Body charged with the regulation
or oversight of labor relations or similar matters; (iii) there is no labor
strike, work slowdown or stoppage or other significant labor dispute or
disturbance pending or, to the knowledge of Seller, threatened against or
affecting the Business or Radiocoms or any of its Subsidiaries; (iv) to the
knowledge of Seller, there is no representation claim or petition pending before
any Governmental Body charged with the regulation or oversight of labor
relations or similar matters, and no question concerning representation exists
with respect to the respective employees of the Business or Radiocoms or any of
its Subsidiaries; (v) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending, and no claim therefor exists,
which in any case could reasonably be expected to have a Material Adverse Effect
on the Business or Radiocoms and its Subsidiaries, taken as a whole; and (vi)
neither the Business nor Radiocoms or any of its Subsidiaries has experienced
any work stoppage or other significant labor difficulty during the past three
years.
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(c) There are no agreements or supplemental agreements currently in effect
between Radiocoms or any of its Subsidiaries or Affiliates and any collective
bargaining representative representing a group of employees employed by the
Business or Radiocoms or any of its Subsidiaries.
(d) Section 4.17(d) of the Radiocoms Disclosure Letter sets forth the names
of all present salaried employees of the Business or of Radiocoms and its
Subsidiaries and their current annual salaries and other compensation.
4.18 LITIGATION.
(a) Except as disclosed in Section 4.18(a) of the Radiocoms Disclosure
Letter, (i) there are no Legal Proceedings (including, but not limited to, any
proceedings which seek the revocation, non-renewal or the adverse modification
of any DTI license) asserted or, to the knowledge of Seller, threatened, or any
governmental investigation pending or, to the knowledge of Seller, threatened,
against or affecting the Business or Radiocoms or any of its Subsidiaries at law
or in equity, before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency, court or other instrumentality,
or by any private person, firm, corporation or other entity (such representation
being limited, in the case of any such matter in which the sole remedy sought or
threatened to be sought, as the case may be, is the payment of money, to matters
in which the sum sought or threatened to be sought is unspecified or in excess
of L10,000), (ii) to the knowledge of Seller, there is no basis for any such
Legal Proceeding which could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Business or Radiocoms and its
Subsidiaries, taken as a whole and (iii) there are no existing or, to the
knowledge of Seller, threatened orders, judgments or decrees of any court or
governmental agency affecting the Business or Radiocoms or any of its
Subsidiaries or any of their respective properties or assets.
(b) Seller is not aware of any facts which would disqualify Radiocoms or any
of its Subsidiaries under the Telecommunications Act of 1984 or the rules,
regulations and practices of the DTI from transferring ownership of the Business
and Radiocoms to Purchaser. Neither Radiocoms or any of its Subsidiaries nor the
Seller or any of its Affiliates shall take any action which would cause such
disqualification or fail to take any action if the failure to take such action
would cause such disqualification.
(c) There are no Legal Proceedings asserted or, to the knowledge of Seller,
threatened against, or any governmental investigation pending or, to the
knowledge of Seller, threatened against, the Business, Radiocoms or any of its
Subsidiaries or Seller or any of its Affiliates which would give any third party
the right to enjoin or rescind the transactions contemplated by this Agreement
or otherwise prevent any of the parties hereto from complying with the terms and
provisions of this Agreement.
(d) There are no applications, complaints or proceedings pending or, to the
knowledge of Seller, threatened before the DTI, relating (i) to the Business or
(ii) to Radiocoms and its Subsidiaries or Relevant Affiliates which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect on the Business or Radiocoms and its Subsidiaries, taken as a whole.
4.19 COMPLIANCE WITH LAWS.
(a) To the knowledge of Seller, Radiocoms and each of its Subsidiaries and
Relevant Affiliates is in compliance with all Laws applicable to the Business or
the conduct of the Business or its operations or the use of its properties
(including any leased properties) and assets, except for Environmental Laws
(which are addressed in Section 4.20) and such instances of non-compliance as
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Business or Radiocoms and its Subsidiaries, taken
as a whole. Neither Seller nor Radiocoms or any of its Subsidiaries has received
any written notice alleging any non-compliance with applicable Laws.
(b) Except as set forth in Section 4.19(b) of the Radiocoms Disclosure
Letter, Radiocoms or one of its Subsidiaries has timely obtained all required
FCC consents or authorizations or consents or authorizations of other
Governmental Entities that perform functions or regulate matters similar to
those performed or regulated by the FCC (the "Equipment Authorizations")
necessary to manufacture and commercially distribute its linear modulation
technology in the United States and the United Kingdom and each other country in
which such technology has been or is being sold by Radiocoms, its Subsidiaries
or any of the
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Relevant Affiliates. The Equipment Authorizations are valid and in full force
and effect. The equipment for which Radiocoms or any of its Subsidiaries has
received the Equipment Authorizations conforms to the terms and conditions of
such Authorizations and, to the knowledge of Seller, otherwise complies with all
applicable rules, regulations and policies (including, without limitation, those
of the FCC), except for such instances of non-compliance as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Business or Radiocoms and its Subsidiaries, taken as a
whole.
4.20 ENVIRONMENTAL MATTERS.
(a) For purposes of this Section 4.20, "Real Property" means all real
property presently owned or operated by Radiocoms or any of its Subsidiaries or
by Relevant Affiliates and used in the Business and all real property (including
property held as trustee or in any other fiduciary capacity) over which
Radiocoms or any of its Subsidiaries currently exercises ownership, dominion,
management or control. "Divested Real Property" means any real property formerly
owned or operated by Radiocoms or its Subsidiaries or Relevant Affiliates which,
if it were still so owned or operated, would constitute Real Property.
(b) Except as would not individually or in the aggregate have a Material
Adverse Effect on Radiocoms and its Subsidiaries, taken as a whole, or the
Business,
(i) the operations of the Business, Radiocoms and each of its
Subsidiaries (and, with respect to the Business, each of its Relevant
Affiliates) are and have been in compliance with all applicable
Environmental Laws,
(ii) to the knowledge of Seller, the Real Property does not (and any
Divested Property at the time of its disposition did not) contain any
Hazardous Substance in violation of any applicable Environmental Law,
(iii) neither Radiocoms nor any of its Subsidiaries or Relevant
Affiliates has any knowledge that, or has received any written notices,
demand letters or written requests for information from any Governmental
Body or any third party indicating that, it may be in violation of, or
liable under, any Environmental Law,
(iv) there are no civil, criminal or administrative actions, suits,
demands, claims, hearings, investigations or proceedings pending or, to the
knowledge of Seller, threatened against Radiocoms or any of its Subsidiaries
or Affiliates with respect to the Business or the Real Property (or any
Divested Real Property) relating to any violation or alleged violation, of
any Environmental Law,
(v) no reports have been filed, or are required to be filed, by
Radiocoms or any of its Subsidiaries or Affiliates concerning the release of
any Hazardous Substance or the threatened or actual violation of any
Environmental Law on or at the Real Property (or any Divested Real
Property),
(vi) to the knowledge of Seller, there are no underground storage tanks
on, in or under any of the Real Property, and there were no underground
storage tanks on, in or under any Divested Real Property at the time of its
disposition; and no underground storage tanks have been closed or removed
from any Real Property or Divested Real Property while such Real Property or
Divested Real Property was owned or operated by Radiocoms or any of its
Subsidiaries, and
(vii) neither Radiocoms nor any of its Subsidiaries (or, with respect to
the Business, any of its Relevant Affiliates) has incurred, and none of the
Real Property is presently subject to, any liabilities fixed (or, to the
knowledge of Seller, contingent) relating to any suit, settlement, court
order, administrative order, judgment or claim asserted or arising under any
Environmental Law.
(c) There are no permits or licenses required under any Environmental Law in
respect of the Real Property, except for such permits or licenses the absence of
which could not reasonably be expected to have a Material Adverse Effect on
Radiocoms and its Subsidiaries, taken as a whole, or the Business.
(d) Neither Radiocoms nor any of its Subsidiaries or Affiliates has received
written notice or otherwise has knowledge that any part of the Real Property or
any Divested Real Property has been or is listed as a site containing Hazardous
Substances pursuant to any Environmental Law.
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4.21 INSURANCE. Seller has made available to Purchaser true, complete and
correct copies of all policies of insurance of any kind or nature covering the
Business or Radiocoms or any of its Subsidiaries or any of their respective
employees, properties or assets, including, without limitation, policies of
life, disability, fire, theft, workers compensation, employee fidelity, product
liability, and other casualty and liability insurance. All such policies are in
full force and effect and have not been reduced or cancelled; no change in any
such insurance policy has been notified to Radiocoms or any of its Subsidiaries
or Affiliates; and, to the Seller's knowledge, neither Radiocoms nor any of its
Subsidiaries or any Relevant Affiliate is in default of any provision thereof,
except for such defaults as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Business or
Radiocoms and its Subsidiaries, taken as a whole.
4.22 RELATED PARTY TRANSACTIONS. Except as set forth in Section 4.22 of
the Radiocoms Disclosure Letter, neither Seller nor any of its Affiliates has
borrowed any moneys from or has outstanding any indebtedness or other similar
obligations to Radiocoms or any of its Subsidiaries, and neither Radiocoms nor
any of its Subsidiaries has borrowed any moneys from or has any indebtedness or
other similar obligations to Seller or any of its Affiliates or any holder of
more than 15% of Securicor plc's issued and outstanding shares of capital stock.
Except as set forth in Section 4.22 of the Radiocoms Disclosure Letter, none of
the Seller, Radiocoms or any of its Subsidiaries, any Affiliate of Radiocoms or
Seller or, to the knowledge of Seller, any holder of more than 15% of Securicor
plc's issued and outstanding shares of capital stock, nor, to the knowledge of
Seller, any officer or employee of Radiocoms or its Affiliates (i) owns any
direct or indirect interest of any kind in, or controls or is a director,
officer, employee or partner of, or consultant to, or lender to or borrower from
or has the right to participate in the profits of, any Person which is (A) a
competitor, supplier, customer, landlord, tenant, creditor or debtor of
Radiocoms or any of its Subsidiaries, (B) engaged in a business related to the
business of Radiocoms or any of its Subsidiaries, or (C) a participant in any
transaction to which Radiocoms or any of its Subsidiaries is a party, except
where any officer or employee of Radiocoms or its Affiliates owns less than 5%
of the issued and outstanding capital stock of such Person and such Person's
equity securities are traded or quoted on a recognized stock exchange or
quotation system, or (ii) is a party to any Contract with Radiocoms or any of
its Subsidiaries.
4.23 FINANCIAL ADVISORS. Except as set forth in Section 4.23 of the
Radiocoms Disclosure Letter, no Person has acted, directly or indirectly, as a
broker, finder or financial advisor for Seller in connection with the
transactions contemplated by this Agreement and no Person is entitled to any fee
or commission or like payment in respect thereof. Seller and its Affiliates have
entered into no agreement or arrangement which would require Purchaser or any of
its Subsidiaries to pay any such fee or commission.
4.24 CLAIMS TO PROPERTY. Except as otherwise disclosed in this Agreement,
Seller and its Affiliates (other than Radiocoms and its Subsidiaries) will, as
of the Closing Date, have no claim to any property, asset or right owned by
Radiocoms or any of its Subsidiaries or used in the Business by Radiocoms or any
of its Subsidiaries or Relevant Affiliates.
4.25 LICENSES; PERMITS; AUTHORIZATIONS.
(a) Except as set forth in Section 4.25 of the Radiocoms Disclosure Letter,
Radiocoms and its Subsidiaries have all material approvals, authorizations,
consents, licenses (including DTI licenses), orders and permits (except for
sales and use tax permits, franchise tax registrations and zoning ordinances,
variances and permits) of all Governmental Bodies required by the nature of the
operations of the Business or Radiocoms or any of its Subsidiaries to permit the
operations thereof in the manner in which they are currently conducted
(collectively, the "Radiocoms Licenses"). Radiocoms or one of its Subsidiaries
is the authorized legal holder of the Radiocoms Licenses issued to and used by
it, none of which is subject to any restriction or condition which would limit
in any material respect the full operation of the Business or Radiocoms or any
of its Subsidiaries as now or proposed to be operated.
(b) Except as set forth in Section 4.25 of the Radiocoms Disclosure Letter,
there are no competing applications or proceedings pending or complaints filed
or, to the knowledge of Seller, threatened, as of the date hereof, before the
DTI relating to the Business or its operations of Radiocoms other than
applications, proceedings or complaints which generally affect the land mobile
radio industry. The Radiocoms Licenses
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are in good standing, are in full force and effect and are unimpaired in any
material respect by any act or omission of the officers, directors or employees
of Radiocoms or Seller or their respective Affiliates, and the operation of the
Business and Radiocoms and its Subsidiaries are in accordance therewith in all
material respects and no registration, clearance or prenotification is required
in respect of them in connection with the Transactions. Seller has no reason to
believe that any of such Radiocoms Licenses will not be renewed in the ordinary
course on their existing or no less favorable terms.
4.26 INVESTMENT IN PURCHASER SHARES.
(a) Seller will hold the Purchaser Shares issued to it pursuant to this
Agreement for investment and not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"). Seller does not have any present intention of
selling, offering to sell or otherwise disposing of or distributing the
Purchaser Shares issued to it pursuant to this Agreement.
(b) Seller acknowledges that Purchaser has disclosed that the Purchaser
Shares to be issued to Seller pursuant to this Agreement have not been
registered under the Securities Act and, therefore, cannot be resold unless they
are registered under the Securities Act or unless an exemption from registration
is available.
(c) Seller is sophisticated in financial matters and is able to evaluate the
risks and benefits of the investment in the Purchaser Shares.
(d) Seller has had an opportunity to ask questions and receive answers
concerning the terms and conditions of the acquisition of the Purchaser Shares
and has had full access to such other information concerning the Purchaser as
Seller has requested.
(e) Seller is able to bear the economic risk of its investment in the
Purchaser Shares for an indefinite period of time, recognizing that the
Purchaser Shares have not been registered under the Securities Act and,
therefore, cannot be sold unless subsequently registered under the Securities
Act or an exemption from such registration is available.
(f) Seller acknowledges that until such time as the Purchaser Shares have
been registered, or are otherwise eligible, for resale in accordance with the
Securities Act, each certificate representing the Purchaser Shares shall be
endorsed with the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE AND THE CORPORATION SHALL HAVE RECEIVED,
AT THE EXPENSE OF THE HOLDER, EVIDENCE OF SUCH EXEMPTION REASONABLY
SATISFACTORY TO THE CORPORATION (WHICH MAY INCLUDE, AMONG OTHER THINGS,
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION)."
4.27 INVESTMENTS IN PURCHASER. Except as set forth in Section 4.27 of the
Radiocoms Disclosure Letter or in Schedule 13D filings under the Exchange Act by
Securicor plc, or as contemplated by this Agreement, neither Securicor plc nor
any of its Affiliates has, or has had within the preceding twelve months, any
direct or indirect beneficial interest (including, without limitation, any right
to acquire any interest) in the capital stock of Purchaser.
4.28 ACCOUNTS RECEIVABLE. Each of the accounts receivable recorded on the
books of Radiocoms and any of its Subsidiaries or Relevant Affiliates related to
the Business is a bona fide account receivable which has arisen in the ordinary
course of business. Except as set forth in Section 4.28 of the Radiocoms
Disclosure Letter, the reserves for such accounts receivable were calculated in
a manner consistent with past practices
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of Radiocoms and its Subsidiaries and Relevant Affiliates. To the knowledge of
Seller, such accounts receivable, in the aggregate, (a) are collectible, net of
reserves with respect thereto, within the greater of 120 days and the date when
they are due in accordance with their terms or (b) are adequately secured.
4.29 ACCOUNTS PAYABLE. Each of the accounts payable recorded on the books
of Radiocoms and each of its Subsidiaries or Relevant Affiliates that is related
to the Business is valid and represents obligations in respect of good or
services related to the Business which have been received by Radiocoms or one of
its Subsidiaries or Relevant Affiliates, respectively and were priced no higher
than market value.
4.30 INVENTORY. All inventory of the Business recorded in the books of
Radiocoms and its Subsidiaries or Relevant Affiliates is carried at the lower of
cost or market value, and, to the knowledge of Seller, except as set forth in
Section 4.30 of the Radiocoms Disclosure Letter, consists of a quality and
quantity usable and saleable in the ordinary course of the Business. To the
knowledge of Seller, no material part of such inventories has been priced in
excess of its ultimate net expected realizable value and the present quantities
of inventories of the Business are reasonable and warranted in the present
circumstances of the Business. All of the inventory of the Business is located
on Radiocoms or its Subsidiaries' properties.
4.31 PRODUCTS. Section 4.31 of the Radiocoms Disclosure Letter sets forth
all generic products and lines of products sold or distributed by the Business
or by Radiocoms and/or its Subsidiaries, and Seller has made available to
Purchaser all material information with respect to the brand names, technical
specifications, origin, approval numbers and prices of such products and all
information usually supplied to dealers or customers. Radiocoms and/or its
Subsidiaries have all necessary rights and authority to sell and distribute such
products as presently sold or distributed.
4.32 NO MISREPRESENTATION. No representation or warranty of Seller
contained in this Agreement or in the Radiocoms Disclosure Letter or in any
certificate or other instrument furnished by Seller to the Purchaser pursuant to
the terms hereof contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller that:
5.1 ORGANIZATION AND GOOD STANDING. Purchaser is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now conducted. Purchaser
is duly qualified or authorized to do business as a foreign corporation and is
in good standing under the Laws of each jurisdiction in which it owns or leases
real property and each other jurisdiction in which the conduct of its business
or the ownership of its properties requires such qualification or authorization,
except where the failure to be so qualified or authorized could not reasonably
be expected to have a Material Adverse Effect on Purchaser and its Subsidiaries,
taken as a whole. Purchaser is not subject to any agreement, commitment or
understanding which restricts or may restrict the conduct of its business in any
jurisdiction or location in any material respect. Copies of the Certificate of
Incorporation and By-Laws (together with all amendments thereto) of Purchaser
have heretofore been provided or have been made available to the Seller and such
copies are true, correct and complete copies of such instruments.
5.2 AUTHORIZATION OF AGREEMENTS.
(a) Purchaser has all requisite power, authority and legal capacity to
execute and deliver this Agreement, each other agreement, document, instrument
or certificate contemplated by this Agreement or to be executed by Purchaser in
connection with the consummation of the transactions contemplated by this
Agreement (together with this Agreement, the "Purchaser Documents") and each of
the Other Transaction Documents, and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement, the Midland
Agreement, each of the Purchaser Documents and each of the Other Transaction
Documents has been duly and validly ratified and/or authorized by the Board of
Directors of Purchaser, and (assuming the accuracy of Seller's representation in
Section 4.27) no other corporate
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proceedings on the part of Purchaser will be necessary to authorize this
Agreement, the issuance of the Purchaser Shares, or the other transactions
contemplated hereby or the Other Transactions, except for the stockholder
approval referred to in Section 5.2(b). Assuming the due authorization,
execution and delivery by the other parties hereto and thereto, this Agreement
and the Midland Agreement will constitute, and each of the Purchaser Documents
and the Other Transaction Documents to which Purchaser is a party, when executed
and delivered will constitute, legal, valid and binding obligations of
Purchaser, enforceable against Purchaser in accordance with their respective
terms, subject to the Bankruptcy Exception.
(b) Assuming the accuracy of Seller's representation in Section 4.27, the
affirmative vote of the holders of a majority of the outstanding shares of
Purchaser Common Stock is the only vote of the holders of any class or series of
Purchaser's capital stock (under applicable Law or otherwise) necessary to
approve this Agreement, the issuance of the Purchaser Shares, the other
transactions contemplated hereby or the Other Transactions.
5.3 CAPITALIZATION.
(a) The authorized capital stock of Purchaser consists of 20,000,000 shares
of Purchaser Common Stock. As of the date hereof, there are 11,125,278 shares of
the Purchaser Common Stock issued and outstanding and 465,582 shares of the
Purchaser Common Stock are held by Purchaser as treasury stock. All of the
issued and outstanding shares of Common Stock were duly authorized for issuance
and are validly issued, fully paid and non-assessable.
(b) Except as set forth in Section 5.3 of the disclosure letter delivered by
Purchaser to Seller on the date hereof (the "Purchaser Disclosure Letter") and
except for matters arising after the date hereof as permitted in accordance with
Section 6.2, there is no existing option, warrant, call, right, commitment or
other agreement of any character to which the Purchaser is a party requiring,
and there are no securities of Purchaser outstanding which upon conversion or
exchange would require, the issuance, sale or transfer of any additional shares
of capital stock or other equity securities of Purchaser or other securities
convertible into, exchangeable for or evidencing the right to subscribe for or
purchase shares of capital stock or other equity securities of Purchaser.
Purchaser is not a party to any voting trust or other voting agreement with
respect to any of the shares of the Purchaser Common Stock or to any agreement
relating to the issuance, sale, redemption, transfer or other disposition of the
capital stock of Purchaser, except for matters arising after the date hereof as
permitted by Section 6.2.
5.4 SUBSIDIARIES.
(a) Set forth in Section 5.4 of the Purchaser Disclosure Letter is the name
of each of the Subsidiaries of Purchaser and, with respect to each Subsidiary,
the jurisdiction in which it is incorporated, the number of shares of its
authorized capital stock, the number and class of shares thereof duly issued and
outstanding, the names of all stockholders and the numbers of shares of stock
owned by each stockholder. Each such stockholder is the record and beneficial
owner of the shares set forth opposite its name in Section 5.4 of the Purchaser
Disclosure Letter. The outstanding shares of capital stock of each Subsidiary of
Purchaser have been duly authorized, validly issued and fully paid and are
non-assessable.
(b) Except as set forth in Section 5.4 of the Purchaser Disclosure Letter,
all such shares are owned by such stockholders free and clear of all Liens. No
shares of capital stock are held by any Subsidiary of Purchaser as treasury
stock.
(c) None of the Subsidiaries of Purchaser has outstanding or authorized
subscriptions, options, warrants, calls, rights, commitments or any other
agreements of any character obligating any of them to issue, sell or transfer
any shares of its capital stock or other equity interests or any securities
convertible into or evidencing the right to subscribe for or purchase any shares
of such stock or other equity interests with any Person, and there are no
agreements or understandings with respect to the voting, sale or transfer of
shares of the capital stock of any Subsidiary of Purchaser to which Purchaser or
Subsidiary thereof is a party.
(d) Each Subsidiary of Purchaser is a corporation duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation. Each Subsidiary of Purchaser has full corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being
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conducted. Each Subsidiary of Purchaser is duly qualified and in good standing
as a foreign corporation under the Laws of each jurisdiction in which the
conduct of its business or the ownership of its assets requires such
qualification, except where the failure to be so qualified could not reasonably
be expected to have a Material Adverse Effect on Purchaser and its Subsidiaries,
taken as a whole. No Subsidiary of Purchaser is subject to any agreement,
commitment or understanding which restricts or may restrict the conduct of its
business in any jurisdiction or location in any material respect. Copies of the
Certificate or Articles of Incorporation and By-Laws (together with all
amendments thereto) of each Subsidiary of Purchaser have heretofore been
provided to Seller and such copies are true, correct and complete copies of such
instruments.
(e) Except as set forth in Section 5.4 of the Purchaser Disclosure Letter or
as permitted by Section 6.2, neither Purchaser nor any of its Subsidiaries owns,
beneficially or of record, any shares of capital stock or any other security of
any corporation or other legal entity, or has any option or obligation to
acquire any such stock or other security, or has any investments in securities
or owns, directly or indirectly, any interest in any partnership, joint venture
or other business enterprise.
5.5 CORPORATE RECORDS. The minute books of Purchaser and each of its
Subsidiaries previously made available to Seller contain complete and accurate
records, in all material respects, of all meetings and accurately reflect, in
all material respects, all other corporate action of the stockholders and board
of directors (including committees thereof) of Purchaser and each of its
Subsidiaries.
5.6 CONFLICTS; CONSENTS OF THIRD PARTIES.
(a) Except as set forth in Section 5.6 of the Purchaser Disclosure Letter,
none of the execution and delivery by Purchaser of this Agreement and the
Purchaser Documents, the consummation of the transactions contemplated hereby or
thereby, or compliance by Purchaser with any of the provisions hereof or thereof
will (i) conflict with, or result in the breach of, any provision of the
certificate of incorporation or by-laws or comparable organizational documents
of Purchaser or any of its Subsidiaries; (ii) conflict with, violate, result in
the breach or termination of, or constitute a default under any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which Purchaser or any of its Subsidiaries is a party or by which Purchaser or
any of its Subsidiaries or any of its properties or assets is bound; (iii)
violate any statute, rule, regulation, order or decree of any Governmental Body
by which Purchaser or any of its Subsidiaries is bound; or (iv) result in the
creation of any Lien upon the properties or assets of Purchaser and its
Subsidiaries except, in case of clauses (ii), (iii) and (iv), for such
violations, breaches or defaults as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Purchaser and its
Subsidiaries, taken as a whole, or materially delay the consummation of the
transactions contemplated hereby.
(b) Except as set forth in Section 5.6(b) of the Purchaser Disclosure
Letter, no consent, waiver, approval, Order, Permit or authorization of, or
declaration or filing with, or notification to, any Person or Governmental Body
is required on the part of the Purchaser or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the Purchaser
Documents, or the compliance by the Purchaser with any of the provisions hereof
or thereof, except for compliance with the applicable requirements of the HSR
Act and except where the failure to obtain such consent, waiver, approval,
Order, Permit or authorization, or to make such declaration or filing, could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Purchaser and its Subsidiaries, taken as a whole, or
materially delay the consummation of the transactions contemplated hereby.
5.7 ISSUANCE OF PURCHASER SHARES.
(a) Except as provided in Section 5.2(b), the issuance of the Purchaser
Shares to Seller in accordance with the terms of this Agreement has been duly
authorized by all necessary action on the part of Purchaser. The Purchaser
Shares, upon issuance to Seller in accordance with the terms of this Agreement,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights, and will be registered on the stock certificate books and
stock transfer ledgers of Purchaser solely in the name of Seller. The Purchaser
Shares, upon issuance to Seller in accordance with the terms of this Agreement,
will be approved
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for quotation on the National Association of Securities Dealers Automatic
Quotation System ("NASDAQ") Small Cap Market (the "Small Cap Market"). Seller
will receive good and marketable title to the Purchaser Shares as of the Closing
Date, free and clear of any and all Liens.
(b) Based upon Seller's representation and warranty in Section 4.26 hereof,
the issuance of the Purchaser Shares to Seller in accordance with the terms of
this Agreement will be exempt from (i) the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, and (ii) the registration and/or
qualification provisions of all applicable state securities or "blue sky" Laws.
5.8 FINANCIAL STATEMENTS. Purchaser has delivered to Seller copies of (a)
the audited consolidated balance sheets of Purchaser and its Subsidiaries as at
December 31, 1995, 1994 and 1993 and the related audited consolidated statements
of operations and of cash flows of Purchaser and its Subsidiaries for the years
then ended and (b) the unaudited consolidated balance sheet of Purchaser and its
Subsidiaries as at March 31, 1996 and the related consolidated statements of
operations and cash flows of Purchaser and its Subsidiaries for the three-month
period then ended (such audited and unaudited statements, including the related
notes and schedules thereto, are referred to herein as the "Purchaser Financial
Statements"). Each of the Purchaser Financial Statements (i) is complete and
correct in all material respects, (ii) has been prepared in accordance with GAAP
(subject to normal year-end adjustments and the absence of footnotes in the case
of the unaudited statements), in accordance with the books and records of
Purchaser and its Subsidiaries and in conformity with the practices consistently
applied by Purchaser without modification of the accounting principles used in
the preparation thereof, (iii) reflects all transactions relating to the
business or operations of Purchaser and its Subsidiaries, including, without
limitation, any transactions with Simmonds or its Affiliates, and (iv) presents
fairly the financial position, results of operations and cash flows of Purchaser
and its Subsidiaries as at the dates and for the periods indicated.
For the purposes hereof, the audited balance sheet of Purchaser and its
Subsidiaries as at December 31, 1995 is referred to as the "Purchaser Balance
Sheet" and December 31, 1995 is referred to as the "Purchaser Balance Sheet
Date."
5.9 NO UNDISCLOSED LIABILITIES. Purchaser and its Subsidiaries have no
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due) (a) that would be
required by GAAP to be reflected in, reserved against or otherwise described in
the consolidated balance sheet of Purchaser and its Subsidiaries (including the
notes thereto) or (b) which could reasonably be expected to have a Material
Adverse Effect on Purchaser and its Subsidiaries, taken as a whole, except (i)
as set forth on the Purchaser Balance Sheet or in the notes thereto and (ii) for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since the Purchaser Balance Sheet Date.
5.10 PERIODIC SEC FILINGS. Purchaser has filed all required forms, reports
and documents with the Securities and Exchange Commission (the "SEC") since
January 1, 1993, each of which has complied in all material respects with all
applicable requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, each as in effect on the dates such
forms, reports and documents were filed. Purchaser has heretofore delivered or
made available to Seller true and complete copies of all reports (including
Current Reports on Form 8-K) and proxy statements filed by Purchaser with, and
all registration statements of Purchaser declared effective by, the SEC since
January 1, 1993 (such public filings with the SEC, as the same have been
amended, are hereinafter referred to as the "SEC Documents"). None of such
forms, reports or documents, including, without limitation, any financial
statements or schedules included or incorporated by reference therein or any SEC
Documents, contained, when filed, any untrue statement of a material fact or
omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
consolidated financial statements of Purchaser included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and fairly present, in conformity with GAAP (except as may be indicated
in the notes thereto), the consolidated financial position of Purchaser
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and its Subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments). Since December 31, 1995, there has not been any change,
or any application or request for any change, by Purchaser or any of its
Subsidiaries in accounting principles, methods or policies for financial
accounting or tax purposes (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments).
5.11 ABSENCE OF CERTAIN DEVELOPMENTS. Except as expressly contemplated by
this Agreement or as set forth in Section 5.11 of the Purchaser Disclosure
Letter, since the Purchaser Balance Sheet Date:
(a) there has not been any Material Adverse Change nor has there occurred
any event which is reasonably likely to result in a Material Adverse Change with
respect to Purchaser and its Subsidiaries, taken as a whole;
(b) there has not been any damage, destruction or loss, whether or not
covered by insurance, with respect to the property and assets of Purchaser or
any of its Subsidiaries having a replacement cost of more than $20,000 for any
single loss or $20,000 for all such losses;
(c) there has not been any declaration, setting aside or payment of any
dividend or other distribution in respect of any shares of capital stock of
Purchaser or any repurchase, redemption or other acquisition by Purchaser or any
of its Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interest in, Purchaser or any of its
Subsidiaries, except for dividends to Purchaser by any of its wholly owned
Subsidiaries;
(d) neither Purchaser nor any of its Subsidiaries has issued any equity
securities or any securities convertible into or exchangeable for equity
securities of Purchaser or any of its Subsidiaries;
(e) neither Purchaser nor any of its Subsidiaries has awarded or paid any
bonuses to employees of Purchaser or any of its Subsidiaries with respect to the
fiscal year ended December 31, 1995, except to the extent accrued on the
Purchaser Balance Sheet, or entered into any employment, deferred compensation,
severance or similar agreement (or amended any such agreement) or agreed to
increase the compensation payable or to become payable by it to any of its
directors, officers, employees, agents or representatives or agreed to increase
the coverage or benefits available under any severance pay, termination pay,
vacation pay, company awards, salary continuation for disability, sick leave,
deferred compensation, bonus or other incentive compensation, insurance, pension
or other employee benefit plan, payment or arrangement made to, for or with such
directors, officers, employees, agents or representatives (other than normal
increases in the ordinary course of business consistent with past practice and
that in the aggregate have not resulted in a material increase in the benefits
or compensation expense of Purchaser and its Subsidiaries, taken as a whole);
(f) there has not been any change by Purchaser or any of its Subsidiaries in
accounting or Tax reporting principles, methods or policies except as may be
required by a change in national accounting standards;
(g) neither Purchaser nor any of its Subsidiaries has entered into any
transaction or Contract or conducted its business other than in the ordinary
course consistent with past practice;
(h) neither Purchaser nor any of its Subsidiaries has failed to promptly pay
and discharge current liabilities except where disputed in good faith by
appropriate proceedings;
(i) neither Purchaser nor any of its Subsidiaries has made any loans,
advances or capital contributions to, or investments in, any Person or paid any
fees or expenses to the Purchaser or any Affiliate or holder of 15% or more of
the issued and outstanding capital stock of Purchaser;
(j) neither Purchaser nor any of its Subsidiaries has mortgaged, pledged or
subjected to any Lien any assets, or acquired any assets or sold, assigned,
transferred, conveyed, leased or otherwise disposed of any assets of Purchaser
or its Subsidiaries, except for assets acquired or sold, assigned, transferred,
conveyed, leased or otherwise disposed of in the ordinary course of business
consistent with past practice;
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(k) neither Purchaser nor any of its Subsidiaries has discharged or
satisfied any Lien, or paid any obligation or liability (fixed or contingent),
except in the ordinary course of business consistent with past practice and
which, in the aggregate, would not be material to Purchaser and its
Subsidiaries, taken as a whole;
(l) neither Purchaser nor any of its Subsidiaries has canceled or
compromised any debt or claim or amended, canceled, terminated, relinquished,
waived or released any Contract or right except in the ordinary course of
business consistent with past practice and which, in the aggregate, would not be
material to Purchaser and its Subsidiaries, taken as a whole;
(m) neither Purchaser nor any of its Subsidiaries has instituted or settled
any material Legal Proceeding;
(n) neither Purchaser nor any of its Subsidiaries has suffered any
Extraordinary Loss or Extraordinary Losses;
(o) neither Purchaser nor any of its Subsidiaries has transferred or granted
any material rights under any concessions, leases, licenses, agreements,
patents, inventions, trademarks, trade names, servicemarks, brandmarks, brand
names, copyrights or the like, or with respect to any know-how;
(p) neither Purchaser nor any of its Subsidiaries has (A) received any
notice or citation for any violation of, nor, to the best knowledge of
Purchaser, has any complaint been filed with the FCC alleging a violation of,
any rule, regulation or policy of the FCC by the Purchaser or any of its
Subsidiaries or the FCC licensee with respect to any System (as defined in
Section 5.27), or (B) allowed any license issued by the FCC to Purchaser or any
of its Subsidiaries or any FCC licensee with respect to any System
(individually, a "Purchaser FCC License" and, collectively, the "Purchaser FCC
Licenses") to lapse or be impaired in any manner, or operated any of its
businesses in any manner not in compliance with its FCC authorization and all
applicable FCC rules, regulations and policies; and
(q) neither Purchaser nor any of its Subsidiaries has agreed to do anything
set forth in this Section 5.11.
5.12 TAXES.
(a) Except as set forth in Section 5.12 of the Purchaser Disclosure Letter,
(A) all material Tax Returns required to be filed by or on behalf of Purchaser
and each of its Subsidiaries, or the Affiliated Group(s) of which any of them is
or was a member have been duly and timely filed with the appropriate taxing
authorities in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make such
filings), and all such Tax Returns were true, complete and correct in all
material respects; (B) all Taxes payable by or on behalf of Purchaser and its
Subsidiaries, either directly as part of an Affiliated Group Tax Return or
otherwise, have been fully and timely paid, except to the extent adequately
reserved therefor in accordance with GAAP on the Purchaser Balance Sheet, and
adequate reserves or accruals for Taxes have been provided in the Purchaser
Balance Sheet with respect to any period through the date thereof for which Tax
Returns have not yet been filed or for which Taxes are not yet due and owing;
and (C) no agreement, waiver or other document or arrangement extending or
having the effect of extending the period for assessment or collection of Taxes
(including, but not limited to, any applicable statute of limitation) has been
executed or filed with any taxing authority by or on behalf of Purchaser or any
of its Subsidiaries, or any Affiliated Group(s) of which any of them is or was a
member.
(b) Purchaser and each of its Subsidiaries has complied in all material
respects with all applicable Laws, rules and regulations relating to the payment
and withholding of Taxes and has duly and timely withheld from employee
salaries, wages and other compensation and has paid over to the appropriate
taxing authorities all amounts required to be so withheld and paid over for all
periods under all applicable Laws.
(c) Seller has received complete copies of (A) all material income or
franchise Tax Returns of Purchaser and each of its Subsidiaries relating to the
taxable periods since January 1, 1994 and (B) any audit report issued within the
last three years relating to any material Taxes due from or with respect to
Purchaser and each of its Subsidiaries with respect to its income, assets or
operations.
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(d) Except as set forth in Section 5.12 of the Purchaser Disclosure Letter,
no claim has been made by a taxing authority in a jurisdiction where Purchaser
or any of its Subsidiaries does not file an income or franchise Tax Return such
that Purchaser or such Subsidiary is or may be subject to taxation by that
jurisdiction.
(e) Except as set forth in Section 5.12 of the Purchaser Disclosure Letter,
all deficiencies asserted or assessments made as a result of any examinations by
any taxing authority of the Tax Returns of or covering or including Purchaser
and/or its Subsidiaries have been fully paid, and there are no other audits or
investigations by any taxing authority in progress, nor has Purchaser received
any written notice from any taxing authority that it intends to conduct such an
audit or investigation. No requests for a ruling or a determination letter are
pending with any taxing authority. No issue has been raised in writing by any
taxing authority in any current or prior examination which, by application of
the same or similar principles, could reasonably be expected to result in a
proposed deficiency against Purchaser or any Subsidiary for any subsequent
taxable period that could be material.
(f) Except as set forth in Section 5.12 of the Purchaser Disclosure Letter,
neither Purchaser, any Subsidiary nor any other Person on behalf of Purchaser or
any Subsidiary has (A) filed a consent pursuant to Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by Purchaser or any Subsidiary, (B) agreed to or is required to make any
adjustments pursuant to Section 481(a) of the Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Purchaser or any Subsidiary or has any knowledge that the Internal
Revenue Service has proposed any such adjustment or change in accounting method,
or has any application pending with any taxing authority requesting permission
for any changes in accounting methods that relate to the business or operations
of Purchaser or any Subsidiary, or (C) executed or entered into a closing
agreement pursuant to Section 7121 of the Code or any predecessor provision
thereof or any similar provision of state, local or foreign law with respect to
Purchaser or any of its Subsidiaries.
(g) Except as set forth in Section 5.12 of the Purchaser Disclosure Letter,
no property owned by Purchaser or any Subsidiary is (i) property required to be
treated as being owned by another Person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (ii)
constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code or (iii) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code.
(h) Neither Purchaser (except with one or more Subsidiaries) nor any
Subsidiary (except with Purchaser) is a party to any tax sharing or similar
agreement or arrangement (whether or not written) pursuant to which it will have
any obligation to make any payments after the Closing.
(i) There is no contract, agreement, plan or arrangement covering any person
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible by the Purchaser, the Affiliates or their
respective affiliates by reason of Section 280G of the Code, or would constitute
compensation in excess of the limitation set forth in Section 162(m) of the
Code.
(j) There are no liens as a result of any unpaid Taxes upon any of the
assets of Purchaser or any Subsidiary thereof.
(k) Except as set forth in Section 5.12 of the Purchaser Disclosure Letter,
Purchaser has no elections in effect for federal income tax purposes under
Sections 108, 168, 338, 441, 463, 472, 1017, 1033 or 4977 of the Code.
(l) Except as set forth in Section 5.12 of the Purchaser Disclosure Letter,
none of the members of Purchaser's Affiliated Group has any net operating loss
carryovers.
5.13 REAL PROPERTY.
(a) Section 5.13(a) of the Purchaser Disclosure Letter describes (i) all
real property and all interests therein owned of record or beneficially by
Purchaser (other than site leases for use with FCC Licenses) or
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any of its Subsidiaries (the "Purchaser Real Properties"), (ii) all leases of
real property to which Purchaser or any of its Subsidiaries is a party or by
which Purchaser or any of its Subsidiaries is bound (other than site leases for
use with FCC Licenses) and (iii) the purposes for which such properties are
used. True, correct and complete copies of all documents referred to in Section
5.13(a) of the Purchaser Disclosure Letter have been delivered or made available
to Seller.
(b) Except as set forth in Section 5.13(b) of the Purchaser Disclosure
Letter:
(i) Purchaser or one of its Subsidiaries has (A) good and valid title to
the Purchaser Real Properties, free and clear of all Liens except for
imperfections of title, if any, that do not materially detract from the
value of the property subject thereto, or materially interfere with the
manner in which such property is currently being used or is proposed to be
used by Purchaser or any of its Subsidiaries or materially impair the
operations of Purchaser or any of its Subsidiaries and which do not secure
obligations for borrowed money or the deferred portion of the purchase price
of acquired property (collectively, "Purchaser Permitted Encumbrances"), and
(B) all material easements and rights, including but not limited to
easements for power lines, water lines, sewers, roadways and other means of
ingress and egress, necessary to conduct the business conducted on the
Purchaser Real Properties; and none of the Liens set forth in Section
5.13(b) of the Purchaser Disclosure Letter has had or could reasonably be
expected to have a Material Adverse Effect on Purchaser and its
Subsidiaries, taken as a whole;
(ii) Neither the whole nor any portion of any of the Purchaser Real
Properties is subject to any pending condemnation or similar proceeding by
any governmental authority, and Purchaser does not know that any such
condemnation or taking is threatened or contemplated;
(iii) Neither Purchaser nor any of its Subsidiaries is, or as of the
Closing Date will be, in violation of any applicable Law or Order relating
to the Purchaser Real Properties, except (A) for Environmental Laws (which
are addressed in Section 5.21), (B) for compliance with the rules and
regulations of the FCC (which are addressed in Section 5.27) and (C) where
the failure to be in compliance with such Law or Order could not reasonably
be expected to have a Material Adverse Effect on Purchaser and its
Subsidiaries, taken as a whole, and no notice from any Governmental Body has
been served upon Purchaser or any of its Subsidiaries or Affiliates claiming
any material violation thereof or calling attention to the need for any
material work, repairs, construction, alterations, installations on or in
connection with said owned or leased real properties used by Purchaser or
its Subsidiaries;
(iv) Purchaser or one of its Subsidiaries has obtained all permits,
licenses or certificates of occupancy pertaining to the ownership or
operation of any of the owned or leased real properties of Purchaser or any
of its Subsidiaries (including, without limitation, the Purchaser Real
Properties) that are required to be obtained from any Governmental Body by
Purchaser or any of its Subsidiaries, except where the failure to obtain
such permits, licenses or certificates of occupancy could not reasonably be
expected to have a Material Adverse Effect on Purchaser and its Subsidiaries
taken as a whole;
(v) Each of the leases of real property referred to in Section 5.13(a)
above is valid and enforceable in accordance with its terms, subject to the
Bankruptcy Exception, and there is not under any such lease any existing
breach, default, event of default or event which, with notice and/or lapse
of time, would constitute a breach, default or event of default (A) by
Purchaser or any of its Subsidiaries or (B) to the knowledge of Purchaser,
by any other party to any such lease, except where such breach, default or
event of default could not reasonably be expected to have a Material Adverse
Effect on Purchaser and its Subsidiaries, taken as a whole;
(vi) No previous or current party to any such lease has given notice of
or made a claim with respect to any breach or default, the consequences of
which, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect on Purchaser and its Subsidiaries, taken as a
whole;
(vii) None of the rights of Purchaser or any of its Subsidiaries under
any of such leases will be subject to termination or modification as the
result of the consummation of the transactions contemplated by this
Agreement; and
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(viii) No consent or approval of any third party is required under any
lease referred to in Section 5.13(a) to the consummation of the transactions
contemplated hereby.
5.14 TANGIBLE PERSONAL PROPERTY.
(a) Section 5.14(a) of the Purchaser Disclosure Letter sets forth all leases
of personal property, other than leases for motor vehicles, involving annual
payments in excess of $20,000 to which Purchaser or any of its Subsidiaries is a
party or by which Purchaser or any of its Subsidiaries is bound. True, correct
and complete copies of all documents referred to in Section 5.14(a) of the
Purchaser Disclosure Letter have been delivered or made available to Seller.
(b) Except as set forth in Section 5.14(b) of the Purchaser Disclosure
Letter:
(i) Each of the leases of personal property referred to in Section
5.14(a) is valid and enforceable in accordance with its terms, subject to
the Bankruptcy Exception, and there is not, under any such lease, any
existing breach, default, or event of default or event which, with notice
and/or lapse of time, would constitute a breach, default or event of default
(A) by Purchaser or any of its Subsidiaries or, (B) to the knowledge of
Purchaser, by any other party to any such lease, except where such breach,
default or event of default could not reasonably be expected to have a
Material Adverse Effect on Purchaser and its Subsidiaries, taken as a whole;
(ii) No previous or current party to any such lease has given notice of
or made a claim with respect to any breach or default thereunder, the
consequences of which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on Purchaser and its
Subsidiaries, taken as a whole;
(iii) None of the rights of any of Purchaser or any of its Subsidiaries
under any of such leases will be subject to termination or modification as
the result of the consummation of the transactions contemplated by this
Agreement;
(iv) No consent or approval of any third party is required under any
lease referred to in Section 5.14(a) to the consummation of the transactions
contemplated hereby;
(v) Purchaser or one of its Subsidiaries has good title to all material
items of tangible personal property reflected on the Purchaser Balance Sheet
(except as sold or disposed of subsequent to the date thereof in the
ordinary course of business consistent with past practices), free and clear
of Liens; and
(vi) All of the items of tangible personal property not owned by
Purchaser or one of its Subsidiaries but used in the business of Purchaser
and which, individually or in the aggregate, are material to the conduct of
such business, are in such condition that upon the return of such properties
to their owners in the current condition of such properties, normal wear and
tear excepted, at the end of the relevant lease terms or as otherwise
contemplated by the applicable agreements with owners thereof, the
obligations of Purchaser or its Subsidiaries (as applicable) to such owners
will be discharged in all material respects.
5.15 INTANGIBLE PROPERTY. Section 5.15 of the Purchaser Disclosure Letter
sets forth a list of each letters patent, material trademark, material trade
name, registered copyright, material service mark, and any other similar,
registered property or trade right owned by Purchaser or any of its
Subsidiaries, or used by Purchaser or any of its Subsidiaries in its business
(collectively, together with all know-how, processes, formulae, trade secrets,
inventions, designs, industrial models, computer programs and other technical
data or drawings, the "Purchaser Intellectual Property"), and sets forth all
applications and licenses for any of the foregoing, and all licenses or similar
agreements or arrangements relating to the operation of the business of
Purchaser or any of its Subsidiaries or to which Purchaser and its Subsidiaries
is a party or subject (property of the foregoing type being hereinafter
collectively referred to as the "Purchaser IP Licenses"), including all licenses
or similar agreements or arrangements by which Purchaser or its Subsidiaries are
authorized to use
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intellectual property of a third party or have granted a third party rights to
use intellectual property related to the business of Purchaser or any of its
Subsidiaries. Except as indicated in Section 5.15 of the Purchaser Disclosure
Letter:
(a) Purchaser or one of its Subsidiaries owns all title and interest in,
and, to the knowledge of Purchaser, right and authority to use, in connection
with the conduct of the business of Purchaser and its Subsidiaries as such
business is presently conducted, all of the Purchaser Intellectual Property and
Purchaser IP Licenses listed in Section 5.15 of the Purchaser Disclosure Letter
free and clear of all Liens. The Purchaser Intellectual Property and Purchaser
IP Licenses, to the knowledge of Purchaser, constitute all of the intellectual
property that Purchaser needs to conduct its (and its Subsidiaries) business as
currently conducted. The operation of the business of Purchaser and its
Subsidiaries does not, to the knowledge of Purchaser, infringe upon,
misappropriate or violate any patent, trade name, trademark, service mark, trade
secret, brand mark and brand name and other property or trade right of any other
person, firm or corporation, and none of Purchaser or any of its Subsidiaries
has received any notice or has knowledge pertaining to any actual or threatened,
infringement, misappropriation or violation of the items of intellectual
property listed in the preceding sentence;
(b) There are no asserted or, to the knowledge of Purchaser, threatened
governmental, judicial or adversarial proceedings, hearings, arbitrations,
disputes or claims with respect to any of the Purchaser Intellectual Property or
Purchaser IP Licenses listed in Section 5.15 of the Purchaser Disclosure Letter;
(c) To the knowledge of Purchaser, no third party is infringing or engaging
in an unauthorized use of the Purchaser Intellectual Property or Purchaser IP
Licenses; and
(d) To the knowledge of Purchaser, neither Purchaser nor any of its
Subsidiaries or Affiliates has made any disclosure to a third party that would
materially impair the value of any confidential Purchaser Intellectual Property
or confidential Purchaser IP Licenses, and Purchaser and its Affiliates have
treated such confidential information in a manner reasonably designed to
preserve its confidentiality.
5.16 MATERIAL CONTRACTS.
(a) Section 5.16 of the Purchaser Disclosure Letter sets forth (i) each oral
or written agreement, arrangement or commitment of any nature to which Purchaser
or any of its Subsidiaries is a party or by which it is bound involving (A) a
commitment of more than $75,000, or (B) the purchase or sale of any assets of
Purchaser or its Subsidiaries having a book value of more than $75,000 and (ii)
all (A) loan or credit agreements, indentures, guaranties, promissory notes,
pledge agreements, mortgages, security agreements or other instruments in
respect of borrowed funds, (B) distributorship, agency, representation, dealer
or similar agreements, (C) covenants not to compete or any other agreements or
understandings which would restrict the operation of Purchaser's or any of its
Subsidiaries' businesses in any geographical area or to any person or class of
persons, or which in any way affects the price or other terms at which such
businesses or Purchaser or any of its Subsidiaries or any agent or
representative of such businesses or Purchaser or any of its Subsidiaries may
sell products or services, (D) contracts or commitments for capital expenditures
and (E) partnership or joint venture agreements. Agreements, arrangements and
commitments of the types described in subsections (i) and (ii) above, other than
System management and option agreements, are hereinafter collectively referred
to as the "Purchaser Material Agreements."
(b) Each Purchaser Material Agreement is valid and enforceable in accordance
with its terms, subject to the Bankruptcy Exception. Except as set forth in
Section 5.16 of the Purchaser Disclosure Letter, (i) neither Purchaser nor any
of its Subsidiaries nor, to the knowledge of Purchaser, any other party thereto,
is in breach of or in default under any Purchaser Material Agreement, (ii) to
the knowledge of Purchaser, there has not occurred any event which, after the
giving of notice or the lapse of time or both, would constitute a default under,
or result in a breach of, any Purchaser Material Agreement, (iii) no previous or
current party to any Purchaser Material Agreement has given notice of or made a
claim, or, to the knowledge of Purchaser, threatened to make a claim, with
respect to any breach or default thereunder, the consequences of which, in the
case of clauses (i), (ii) and (iii), individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Purchaser and its
Subsidiaries, taken as a whole, (iv) none of the rights
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of Purchaser or any of its Subsidiaries under any of the Purchaser Material
Agreements will be subject to termination or modification as a result of the
consummation of the transactions contemplated by this Agreement, and (v) no
consent or approval of any third party is required under any Purchaser Material
Agreement to the consummation of the transactions contemplated hereby.
(c) Simultaneously with the execution of this Agreement, Purchaser has
delivered to Seller a true, complete and correct copy of the Midland Agreement
(including all exhibits and schedules thereto) as in effect on the date hereof.
The Midland Agreement is valid and enforceable in accordance with its terms,
subject to the Bankruptcy Exception. Each of the representations and warranties
of Purchaser contained in the Midland Agreement, and to Purchaser's knowledge,
each of the representations and warranties of Midland US contained therein, is
true and correct in all material respects and will be true and correct in all
material respects as of the Closing Date. (i) Neither Purchaser nor, to the
knowledge of Purchaser, Midland US, is in material breach of or in material
default under the Midland Agreement, (ii) to the knowledge of Purchaser, there
has not occurred any event which, after the giving of notice or the lapse of
time or both, would constitute a material default under, or result in a material
breach of, the Midland Agreement, (iii) no party to the Midland Agreement has
given notice of or made a claim with respect to any material breach or material
default thereunder, (iv) except as set forth in the Midland Agreement, none of
the rights of Purchaser under the Midland Agreement will be subject to
termination or modification as a result of the consummation of the transactions
contemplated by this Agreement, and (v) except as set forth therein, no consent
or approval of any third party is required under the Midland Agreement to the
consummation of the transactions contemplated thereby or hereby.
5.17 EMPLOYEE BENEFITS.
(a) Section 5.17(a) of the Purchaser Disclosure Letter sets forth a complete
and correct list of (i) all "employee benefit plans", as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and any other pension plans, employee benefit plans, programs or arrangements,
payroll practices (including, without limitation, severance pay, vacation pay,
company awards, consulting or other compensation arrangements, salary
continuation for disability, sick leave, retirement, deferred compensation,
bonus or other incentive compensation, stock purchase, hospitalization, medical
insurance, life insurance and scholarship programs) maintained by Purchaser or
its Subsidiaries or to which Purchaser or any of its Subsidiaries contributes or
is obligated to contribute thereunder with respect to employees of Purchaser or
any of its Subsidiaries (the "Purchaser Employee Benefit Plans") and (ii) all
"employee pension plans," as defined in Section 3(2) of ERISA, maintained by
Purchaser or its Subsidiaries or any trade or business (whether or not
incorporated) which are under control, or which are treated as a single employer
with Purchaser and any of its Subsidiaries under Section 414(b), (c), (m) or (o)
of the Code ("ERISA Affiliate") or to which Purchaser, any of its Subsidiaries
or any ERISA Affiliate contributed or is obligated to contribute thereunder (the
"Purchaser Pension Plans"). Section 5.17(a) of the Purchaser Disclosure Letter
clearly identifies, in separate categories, the Purchaser Employee Benefit Plans
or the Purchaser Pension Plans that are (i) subject to Section 4063 and 4064 of
ERISA ("Multiple Employer Plans"), (ii) multiemployer plans (as defined in
Section 4001(a)(3) of ERISA) ("Multiemployer Plans") or (iii) "group health
plans," within the meaning of Section 5000(b)(1) of the Code providing
continuing benefits after the termination of employment (other than as required
by Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA and at
the former employee's or his beneficiary's sole expense).
(b) None of Purchaser, any Subsidiary or any ERISA Affiliate has withdrawn
in a complete or partial withdrawal from any Multiemployer Plan prior to the
Closing Date, nor has any of them incurred any liability due to the termination
or reorganization of a Multiemployer Plan; and Seller shall not have (i) any
obligation to make any contribution to any Multiemployer Plan or (ii) any
withdrawal liability from any such Multiemployer Plan under Section 4201 of
ERISA which it would not have had it not received the Purchaser Shares from
Purchaser at the Closing in accordance with the terms of this Agreement.
(c) Each of the Purchaser Employee Benefit Plans and Purchaser Pension Plans
intended to qualify under Section 401 of the Code ("Qualified Plans") so qualify
and the trusts maintained thereto are exempt from federal income taxation under
Section 501 of the Code, and, except as disclosed in Section 5.17(b) of
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the Purchaser Disclosure Letter, nothing has occurred with respect to the
operation of any such plan which could cause the loss of such qualification or
exemption or the imposition of any liability, penalty or tax under ERISA or the
Code.
(d) All contributions, including all employer contributions and employee
salary reduction contributions and premiums required by Law or by the terms of
any Purchaser Employee Benefit Plan or Purchaser Pension Plan as of the Closing
Date, have been timely made (without regard to any waivers granted with respect
thereto) to any funds or trusts established thereunder or in connection
therewith, and no accumulated funding deficiencies exist in any of the Purchaser
Employee Benefit Plans or Purchaser Pension Plans subject to Section 412 of the
Code.
(e) The benefit liabilities, as defined in Section 4001(a)(16) of ERISA, of
each of the Purchaser Employee Benefit Plans and Purchaser Pension Plans subject
to Title IV of ERISA using the actuarial assumptions that would be used by the
Pension Benefit Guaranty Corporation (the "PBGC") in the event it terminated
each such plan do not exceed the fair market value of the assets of each such
plan. The liabilities of each Purchaser Employee Benefit Plan or Purchaser
Pension Plan that has been terminated or otherwise wound up, have been fully
discharged in full compliance with applicable Law.
(f) There has been no "reportable event" as that term is defined in Section
4043 of ERISA and the regulations thereunder with respect to any of the
Purchaser Employee Benefit Plans or Purchaser Pension Plans subject to Title IV
of ERISA which would require the giving of notice or any event requiring notice
to be provided under Section 4041(c)(3)(C) or 4063(a) of ERISA.
(g) There has been no violation of ERISA with respect to the filing of
applicable returns, reports, documents and notices regarding any of the
Purchaser Employee Benefit Plans or Purchaser Pension Plans with the Secretary
of Labor or the Secretary of the Treasury or the furnishing of such notices or
documents to the participants or beneficiaries of the Purchaser Employee Benefit
Plans or Purchaser Pension Plans.
(h) True, correct and complete copies of the following documents, with
respect to each of the Purchaser Employee Benefit Plans and Purchaser Pension
Plans (as applicable), have been delivered to the Seller: (i) any plans and
related trust documents, and all amendments thereto, (ii) the most recent Form
5500s for the past three years and schedules thereto, (iii) the most recent
financial statements and actuarial valuations for the past three years, (iv) the
most recent Internal Revenue Service determination letter, (v) the most recent
summary plan descriptions (including letters or other documents updating such
descriptions), (vi) written descriptions of all non-written agreements relating
to the Purchaser Employee Benefit Plans and Purchaser Pension Plans and (vii)
all written communications to employees relating to the Purchaser Employee
Benefit Plans or Purchaser Pension Plans.
(i) There are no pending Legal Proceedings which have been asserted or
instituted against any of the Purchaser Employee Benefit Plans or Purchaser
Pension Plans, the assets of any such plans of Purchaser, or the plan
administrator or any fiduciary of the Purchaser Employee Benefit Plans or
Purchaser Pension Plans with respect to the operation of such plans (other than
routine, uncontested benefit claims), and there are no facts or circumstances
which could form the basis for any such Legal Proceeding.
(j) Each of the Purchaser Employee Benefit Plans and Purchaser Pension Plans
has been maintained, in all material respects, in accordance with its terms and
all provisions of applicable Law. All amendments and actions required to bring
each of the Purchaser Employee Benefit Plans and Purchaser Pension Plans into
conformity in all material respects with all of the applicable provisions of
ERISA and other applicable Laws have been made or taken except to the extent
that such amendments or actions are not required by Law to be made or taken
until a date after the Closing Date and are disclosed in Section 5.17(j) of the
Purchaser Disclosure Letter.
(k) Purchaser, any of its Subsidiaries and any ERISA Affiliate which
maintains a "group health plan" within the meaning of Section 5000(b)(1) of the
Code have complied with the notice and continuation requirements of Section
4980B of the Code, Part 6 of Subtitle B of Title I of ERISA and the applicable
regulations thereunder.
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(l) None of the Purchaser, any of its Subsidiaries, any ERISA Affiliate or
any organization to which any is a successor or parent corporation, has divested
any business or entity maintaining or sponsoring a defined benefit pension plan
having an "amount of unfunded benefit liabilities" (within the meaning of
Section 4001(a)(18) of ERISA) or transferred any such plan to any person other
than the Purchaser or any ERISA Affiliate during the six-year period ending on
the Closing Date.
(m) Neither Purchaser, any of its Subsidiaries nor any "party in interest"
or "disqualified person" with respect to the Purchaser Employee Benefit Plans or
Purchaser Pension Plans has engaged in a "prohibited transaction" within the
meaning of Section 4975 of the Code or Section 406 of ERISA. No fiduciary has
any liability for breach of fiduciary duty or any other failure to act or comply
in connection with the administration or investment of the assets of any
Employee Benefit Plan and Pension Plan.
(n) None of Purchaser, its Subsidiaries, or any ERISA Affiliate has
terminated any Purchaser Employee Benefit Plan or Purchaser Pension Plan subject
to Title IV of ERISA, or incurred any outstanding liability under Section 4062
of ERISA to the PBGC or to a trustee appointed under Section 4042 of ERISA. All
premiums due to the PBGC with respect to the Purchaser Employee Benefit Plans
and Purchaser Pension Plans have been paid.
(o) Except as disclosed on Schedule 5.17(o) of the Purchaser Disclosure
Letter, none of Purchaser or any of its Subsidiaries maintains retiree life or
retiree health insurance plans which are "welfare benefit plans" within the
meaning of Section 3(1) of ERISA.
(p) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment becoming due to any current, former or retired employee of Purchaser or
any of its Subsidiaries; (ii) increase any benefits otherwise payable under any
Purchaser Employee Benefit Plan or Purchaser Pension Plan; or (iii) result in
the acceleration of the time of payment or vesting of any such benefits.
(q) No stock or other security issued by Purchaser or any of its
Subsidiaries forms or has formed a material part of the assets of any Purchaser
Employee Benefit Plan or Purchaser Pension Plan.
5.18 LABOR.
(a) Except as set forth in Section 5.18 of the Purchaser Disclosure Letter,
no employees of Purchaser or any of its Subsidiaries are represented by any
labor organization, and no labor organization or group of employees of Purchaser
or any of its Subsidiaries has made a demand for recognition, has filed a
petition seeking a representation proceeding or given Purchaser or any of its
Subsidiaries written notice of any intention to be represented by a collective
bargaining representative. No collective bargaining agreement is currently being
negotiated with respect to any employees of Purchaser or any of its
Subsidiaries.
(b) Except to the extent set forth in Section 5.18 of the Purchaser
Disclosure Letter, (i) to the knowledge of each of Purchaser and its
Subsidiaries, Purchaser and each of its Subsidiaries is in material compliance
with all applicable Laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, and with each collective
bargaining agreement applicable to it, and is not engaged in any unfair labor
practice; (ii) to the knowledge of Purchaser, there is no unfair labor practice
charge, complaint or similar claim against Purchaser or any of its Subsidiaries
pending or threatened before the National Labor Relations Board or any similar
foreign Governmental Body; (iii) there is no labor strike, work slowdown or
stoppage or other significant labor dispute or disturbance pending or, to the
knowledge of Purchaser, threatened against or affecting Purchaser and its
Subsidiaries; (iv) to the knowledge of Purchaser, there is no representation
claim or petition pending before the National Labor Relations Board or any
similar foreign Governmental Body, and no question concerning representation
exists with respect to the respective employees of Purchaser or any of its
Subsidiaries; (v) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending, and no claim therefor exists, which
in any case could reasonably be expected to have a Material Adverse Effect on
Purchaser and its Subsidiaries, taken as a whole; and (vi) neither Purchaser nor
any of its Subsidiaries has experienced any work stoppage or other significant
labor difficulty during the past three years.
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(c) Section 5.18 of the Purchaser Disclosure Letter sets forth each
agreement and supplemental agreement currently in effect between Purchaser or
any of its Subsidiaries and each collective bargaining representative
representing a group of employees employed by Purchaser or any of its
Subsidiaries, and Seller has been furnished with a true and complete copy of
each such agreement and supplemental agreement.
(d) Section 5.18 of the Purchaser Disclosure Letter sets forth the names of
all present salaried employees of Purchaser or its Subsidiaries and their
current annual salaries or other compensation.
5.19 LITIGATION.
(a) Except as disclosed in Section 5.19 of the Purchaser Disclosure Letter,
(i) there are no Legal Proceedings (including, but not limited to, any
proceedings which seek the revocation, non-renewal or the adverse modification
of any license) asserted or, to the knowledge of Purchaser, threatened, or any
governmental investigation asserted or threatened, against or affecting
Purchaser or any of its Subsidiaries, at law or in equity, before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency, court or other instrumentality, or by any private person, firm,
corporation or other entity (such representation being limited, in the case of
any such matter in which the sole remedy sought or threatened to be sought, as
the case may be, is the payment of money, to matters in which the sum sought or
threatened to be sought is unspecified or in excess of $15,000), (ii) to the
knowledge of Purchaser, there is no basis for any such Legal Proceeding which
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Purchaser and its Subsidiaries, taken as a whole and
(iii) there are no existing or, to the knowledge of Purchaser, threatened
orders, judgments or decrees of any court or governmental agency affecting
Purchaser or any of its Subsidiaries or any of their respective properties or
assets.
(b) Except as set forth in Section 5.19 of the Purchaser Disclosure Letter,
as of the date hereof, there are no Legal Proceedings pending or, to the
knowledge of Purchaser, threatened against, or any governmental investigation
asserted or, to the knowledge of Purchaser, threatened against, Purchaser or any
of its Subsidiaries which would give any third party the right to enjoin or
rescind the transactions contemplated by this Agreement or otherwise prevent any
of the parties hereto from complying with the terms and provisions of this
Agreement.
5.20 COMPLIANCE WITH LAWS. To the knowledge of Purchaser, Purchaser and
each of its Subsidiaries is in compliance with all Laws applicable to it or to
the conduct of its business or operations or the use of its properties
(including any leased properties) and assets, except for (a) Environmental Laws
(which are addressed in Section 5.21), (b) as may be disclosed in Section 5.27
(including, to the extent set forth therein, in the Recent SEC Documents) or in
Section 5.27 of the Purchaser Disclosure Letter, and (c) such instances of
non-compliance as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Purchaser and its Subsidiaries,
taken as a whole. Neither Purchaser nor any of its Subsidiaries has received any
written notice alleging any non-compliance with applicable Laws, except as set
forth in Section 5.20 of the Purchaser Disclosure Letter.
5.21 ENVIRONMENTAL MATTERS.
(a) For purposes of this Section 5.21, "Real Property" means all real
property presently owned or operated by Purchaser or any of its Subsidiaries on
which facilities are located and all real property (including property held as
trustee or in any other fiduciary capacity) over which Purchaser or any of its
Subsidiaries currently exercises ownership, dominion, management or control. To
the extent that Real Property includes site leases (the "Site Leases"), any
representation or warranty set forth in this Section 5.21 shall, with respect to
such Site Leases, be deemed to be given to the knowledge of Purchaser, without
any independent investigation. "Divested Real Property" means any real property
formerly owned or operated by Purchaser or its Subsidiaries which, if it were
still so owned or operated, would constitute Real Property.
(b) Except as set forth in Section 5.21 of the Purchaser Disclosure Letter
or as would not individually or in the aggregate have a Material Adverse Effect
on Purchaser and its Subsidiaries, taken as a whole,
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(i) The operations of Purchaser and each of its Subsidiaries are and
have been in compliance with all applicable Environmental Laws,
(ii) to the knowledge of Purchaser, the Real Property does not (and any
Divested Real Property at the time of its disposition did not) contain any
Hazardous Substance in violation of any applicable Environmental Law,
(iii) neither Purchaser nor any of its Subsidiaries has any knowledge
that, or has received any written notices, demand letters or written
requests for information from any Governmental Body or any third party
indicating that, it may be in violation of, or liable under, any
Environmental Law,
(iv) there are no civil, criminal or administrative actions, suits,
demands, claims, hearings, investigations or proceedings pending or, to the
knowledge of Purchaser, threatened against Purchaser or any of its
Subsidiaries with respect to the business or operations of Purchaser or any
of its Subsidiaries or the Real Property (or any Divested Real Property)
relating to any violation or alleged violation, of any Environmental Law,
(v) no reports have been filed, or are required to be filed, by
Purchaser or any of its Subsidiaries concerning the release of any Hazardous
Substance or the threatened or actual violation of any Environmental Law on
or at the Real Property (or any Divested Real Property),
(vi) to the knowledge of Purchaser, there are no underground storage
tanks on, in or under any of the Real Property, and there were no
underground storage tanks on, in or under any Divested Real Property at the
time of its disposition; and no underground storage tanks have been closed
or removed from any Real Property or Divested Real Property while such Real
Property or Divested Real Property was owned or operated by Purchaser or any
of its Subsidiaries, and
(vii) neither Purchaser nor any of its Subsidiaries has incurred, and
none of the Real Property is presently subject to, any liabilities fixed
(or, to the knowledge of Purchaser, contingent) relating to any suit,
settlement, court order, administrative order, judgment or claim asserted or
arising under any Environmental Law.
(c) There are no permits or licenses required under any Environmental Law in
respect of the Real Property, except for such permits or licenses the absence of
which could not reasonably be expected to have a Material Adverse Effect on
Purchaser and its Subsidiaries, taken as a whole.
(d) Neither Purchaser nor any of its Subsidiaries has received written
notice or otherwise has knowledge that any part of the Real Property or any
Divested Real Property has been or is listed as a site containing Hazardous
Substances pursuant to any Environmental Law.
5.22 INSURANCE. Purchaser has made available to Seller true, complete and
correct copies of all policies of insurance of any kind or nature covering
Purchaser or any of its Subsidiaries or any of their respective employees,
properties or assets, including, without limitation, policies of life,
disability, fire, theft, workers compensation, employee fidelity, product
liability and other casualty and liability insurance. All such policies are in
full force and effect and have not been reduced or cancelled; no change in any
such insurance policy has been notified to Purchaser; and, to the Purchaser's
knowledge, neither Purchaser nor any of its Subsidiaries is in default of any
provision thereof, except for such defaults as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Purchaser
and its Subsidiaries, taken as a whole.
5.23 RELATED PARTY TRANSACTIONS. Except as set forth in Section 5.23 of
the Purchaser Disclosure Letter, no Affiliate of Purchaser (other than its
Subsidiaries) has borrowed any moneys from or has outstanding any indebtedness
or other similar obligations to Purchaser or any of its Subsidiaries, and
neither Purchaser nor any of its Subsidiaries has borrowed any moneys from or
has any indebtedness or other similar obligations to any Affiliates of Purchaser
(other than its Subsidiaries) or any holder of more than 15% of Purchaser's
issued and outstanding shares of capital stock. Except as set forth in Section
5.23 of the Purchaser Disclosure Letter, no Affiliate (other than Subsidiaries)
or, to the knowledge of Purchaser, holder of more than 15% of the issued and
outstanding common stock of Purchaser nor, to the knowledge of
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Purchaser, any officer or employee of Purchaser or its Affiliates (i) owns any
direct or indirect interest of any kind in, or controls or is a director,
officer, employee or partner of, or consultant to, or lender to or borrower from
or has the right to participate in the profits of, any Person which is (A) a
competitor, supplier, customer, landlord, tenant, creditor or debtor of
Purchaser or any of its Subsidiaries, (B) engaged in a business related to the
business of Purchaser or any of its Subsidiaries, or (C) a participant in any
transaction to which Purchaser or any of its Subsidiaries is a party or except
where any officer or employee of Purchaser or its Affiliates owns less than 5%
of the issued and outstanding capital stock of such Person and such Person's
equity securities are traded or quoted on a recognized stock exchange or
quotations system, (ii) is a party to any Contract with Purchaser or any of its
Subsidiaries.
5.24 FINANCIAL ADVISORS. Except as set forth in Section 5.24 of the
Purchaser Disclosure Letter, no Person has acted, directly or indirectly, as a
broker, finder or financial advisor for the Purchaser in connection with the
transactions contemplated by this Agreement and no Person is entitled to any fee
or commission or like payment in respect thereof. Purchaser and its Affiliates
have entered into no agreement or arrangement which would require Seller or any
of its Affiliates to pay any such fee or commission.
5.25 CLAIMS TO PROPERTY. Except as otherwise disclosed in this Agreement
or the Purchaser Disclosure Letter, no Affiliates of Purchaser (other than its
Subsidiaries) have any claim to any property, asset or right owned by Purchaser
or any of its Subsidiaries or used by Purchaser or any of its Subsidiaries in
the conduct of its business.
5.26 LICENSES; PERMITS; AUTHORIZATIONS. Purchaser and its Subsidiaries
have all material approvals, authorizations, consents, licenses (excluding FCC
licenses), orders and permits (except for sales and use tax permits, franchise
tax registrations and zoning ordinances, variances and permits) of all
Governmental Bodies, required by the nature of the operations of Purchaser or
any of its Subsidiaries to permit the operation thereof in the manner in which
they are currently conducted (collectively, the "Purchaser Licenses"). Purchaser
or one of its Subsidiaries is the authorized legal holder of the Purchaser
Licenses issued to and used by it, none of which is subject to any restriction
or condition which would limit in any material respect the full operation of
Purchaser or any of its Subsidiaries as now or proposed to be operated.
5.27 FCC MATTERS.
(a) Section 5.27(a) of the Purchaser Disclosure Letter sets forth a true and
complete list of the following information for each 220 MHz land mobile radio
system under management by Purchaser or any of its Subsidiaries or which
Purchaser or any of its Subsidiaries holds an option to acquire (individually, a
"System," and, collectively, the "Systems"):
(i) the name of the FCC licensee of the System (and an appropriate
notation if any such licensee is an Affiliate or an "associate" (as defined
under the Securities Exchange Act of 1934, as amended) of Purchaser), the
call sign, the licensed transmitter location (by site coordinates and city)
and the transmitter location (by site coordinates and city) on which a
system has been constructed that is different from the licensed location,
the frequency or frequencies authorized, the date of construction of the
frequencies, the number of frequencies constructed and the license renewal
date;
(ii) a list and current copies (or written summaries, including all
material terms, in the case of oral agreements) of all contracts (excluding
customer contracts), leases and site licenses related to Purchaser's SMR
business and the Systems, including, without limitation, all agreements
between purchaser and licensee, all site licenses, equipment leases or
installment sale contracts, partnership, joint-venture or joint-use
agreements, management agreements, dealer agreements, short-space agreements
or the like;
(iii) to Purchaser's knowledge, a list of all agreements between the
licensee and any third party relating to the license, including, without
limitation, rights of first refusal, options and other such rights or
obligations which may affect the rights of Purchaser to manage the license
or to exercise any of Purchaser's option or right of first refusal to
acquire the license; and
(iv) a list of all installed equipment with respect to such System for
which title is held by Purchaser.
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(b) Except as set forth in Section 5.27(a) of the Purchaser Disclosure
Letter, all of the contracts, leases and site licenses relating to the Systems
have been entered into by Purchaser on arm's length terms with non-Affiliates.
Neither Purchaser nor any of its Subsidiaries nor, to the knowledge of
Purchaser, any of the other contracting parties is in default in any material
respect, or has acted or failed to act in a manner which, with notice or the
passage of time or both, will result in a material default, under any of the
contracts, leases, and site licenses, and no penalties have been incurred nor
are any material amendments pending with respect to any of such contracts,
leases and site licenses.
(c) Except as set forth in Section 5.27(c) of the Purchaser Disclosure
Letter or in the Purchaser's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 or Quarterly Report on Form 10-Q for the period ended
March 31, 1996 (collectively, as filed prior to the date hereof, without taking
into account any amendments filed after the date hereof, the "Recent SEC
Documents"), all of the properties, equipment and systems of the Purchaser or
any of its Subsidiaries, and all of the properties, equipment and systems of the
Systems and all properties, equipment and systems of Purchaser or any of its
Subsidiaries and the Systems to be added in connection with any contemplated
system expansion or construction prior to Closing are and will be in compliance
with all standards or rules imposed by any Governmental Body, including, without
limitation, the FCC and (if applicable) any public utilities commission or other
state or local governments or instrumentalities (but excluding Environmental
Laws, which are not addressed hereby) or as imposed under any agreements with
customers, and are and will be in good repair and working order.
(d) Except as set forth in Section 5.27(d) of the Purchaser Disclosure
Letter or the Recent SEC Documents, to the knowledge of Purchaser, all
franchise, license or other fees and charges which have become due with respect
to the FCC licenses for the Systems have been duly and timely paid, and
Purchaser or one of its Subsidiaries has made appropriate provision for any such
fees and charges which have accrued and remain unpaid. Except as set forth in
Section 5.27(d) of the Purchaser Disclosure Letter or the Recent SEC Documents,
to the knowledge of Purchaser, all licenses, necessary permits, consents and
authorizations required to construct and operate the Systems from the FCC and,
if applicable, any public utilities commission, have been duly obtained in
compliance with all FCC Rules, regulations and policies and are in good
standing. Except as set forth in Section 5.27(d) of the Purchaser Disclosure
Letter or the Recent SEC Documents, to the knowledge of Purchaser, the FCC
licenses for the Systems are valid and in full force and effect without
conditions except for such conditions as are stated on the FCC license or as are
generally applicable to holders of 220 MHz non-nationwide FCC licenses in the
Private Land Mobile Radio Service. Except as set forth in Section 5.27(d) of the
Purchaser Disclosure Letter or the Recent SEC Documents, to the knowledge of
Purchaser, no event has occurred or is continuing which could (i) result in the
revocation or termination or adverse modification of any FCC license that is
managed by, or under option to, Purchaser or any of its Subsidiaries, or (ii)
adversely affect any of the rights of the FCC licensee or Purchaser or any of
its Subsidiaries thereunder. Except as set forth in Section 5.27(d) of the
Purchaser Disclosure Letter or the Recent SEC Documents, Purchaser has no reason
to believe or any knowledge that the FCC licenses will not be renewed in the
ordinary course or that a transfer or assignment to Purchaser of the FCC
licenses will not be granted in the ordinary course.
(e) Except as set forth in Section 5.27(e) of the Purchaser Disclosure
Letter or the Recent SEC Documents, to the knowledge of Purchaser, Purchaser's
(or its Subsidiary's) management of the Systems complies with the FCC's rules,
regulations and policies. Except as set forth in Section 5.27(e) of the
Purchaser Disclosure Letter or the Recent SEC Documents, to the knowledge of
Purchaser, there is no investigation, inquiry or other proceeding pending, or,
to Purchaser's knowledge, threatened before the FCC or other Governmental Body
which relates to the Communications Act or the FCC's rules, regulations or
policies and concerns Purchaser or its Subsidiaries, the FCC licensees or the
Systems.
(f) Except as set forth in Section 5.27(f) of the Purchaser Disclosure
Letter, no additional FCC, state or local public utilities commission or other
authority of like jurisdiction permits, licenses, consents and authorizations
will be required to be obtained by Purchaser or any of its Subsidiaries as a
result of the Closing of the transactions contemplated hereunder.
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(g) Section 5.27(a) of the Purchaser Disclosure Letter contains a complete
list of all Systems that have been constructed (the "Constructed Systems"), and
Section 5.27(g) of the Purchaser Disclosure Letter contains a complete list of
all Systems whose license has been the subject of an FCC Form 600 modification
application request (the "Modified Systems"). All of the Constructed Systems
were constructed and placed in operation in accordance with their license or any
Special Temporary Authorities ("STAs") granted by the FCC prior to January 26,
1996. Except as set forth in Section 5.27(g) of the Purchaser Disclosure Letter
or in the SEC Documents, to the knowledge of Purchaser, all required
construction notifications to the FCC for the Constructed Systems have been
properly and timely made. From and after the date hereof, Purchaser shall notify
Seller of (i) the completion of construction of any additional Systems (the
"Additional Systems"), (ii) the decommissioning of any System that had been
constructed and (iii) the termination, cancellation or expiration without
renewal of any agreements referred to in Section 5.27(a)(ii) with respect to any
System, in each case within five business days of such completion,
decommissioning, termination, cancellation or expiration, as applicable, and
shall provide all information with respect to any Additional Systems as required
by Section 5.27 of this Agreement. The Additional Systems shall be subject to
and included within Purchaser's warranties and representations of this Section
5.27.
(h) Except as set forth in Section 5.27(h) of the Purchaser Disclosure
Letter or the Recent SEC Documents, to the knowledge of Purchaser, none of the
FCC licenses under management by, or option to, Purchaser or any of its
Subsidiaries are subject to third-party agreements that would materially
restrict Purchaser's or such Subsidiary's management of said licenses or the
exercise of Purchaser's or such Subsidiary's option to acquire the Systems.
(i) Except as set forth in Section 5.27(i) of the Purchaser Disclosure
Letter or the Recent SEC Documents, Purchaser is not aware of any facts which
would disqualify Purchaser or any of its Subsidiaries under the Communications
Act, or the rules, regulations and practices of the FCC, from transferring
control of Purchaser and its Subsidiaries to Seller, as contemplated by this
Agreement and neither Purchaser nor any of its Subsidiaries shall take any
action which would cause such disqualification or fail to take any action if the
failure to take such action would cause such disqualification.
(j) There are no applications, complaints or proceedings pending or, to the
knowledge of Purchaser, threatened before the FCC, relating to the business and
operations of Purchaser or any of its Subsidiaries which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect on
Purchaser and its Subsidiaries, taken as a whole.
(k) Except as set forth in Section 5.27(k) of the Purchaser Disclosure
Letter or the Recent SEC Documents, there are no competing applications or
proceedings pending or complaints filed of which Purchaser and its Subsidiaries
have received notice or, to the best knowledge of Purchaser, threatened, as of
the date hereof, before the FCC relating to the business or operations of
Purchaser and its Subsidiaries other than applications, proceedings or
complaints which generally affect the land mobile radio industry or 220MHz
licenses.
(l) Neither Purchaser nor any of its Subsidiaries is, as of the date hereof,
the record or beneficial licensee and owner of any FCC licenses, and Purchaser
or its Subsidiaries are entitled to act and is acting, as of the date hereof, as
manager, pursuant to valid and subsisting management agreements of each of the
FCC licenses identified as Systems in Section 5.27(l) of the Purchaser
Disclosure Letter (and, to the knowledge of Purchaser, the persons identified on
Section 5.27(l) of the Purchaser Disclosure Letter as the holders of such
Systems are the sole record and beneficial licensees and owners of such
Systems). Purchaser and its Subsidiaries are, as of the date hereof, in
compliance in all material respects with all regulations concerning construction
and spacing of the Systems or the facilities associated therewith. None of the
Systems is currently subject to or operating under any short-space or any other
agreement encumbering any of them or any FCC waiver of otherwise applicable
rules or regulations, except as disclosed in Section 5.27(l) of the Purchaser
Disclosure Letter.
(m) Section 5.27(m) of the Purchaser Disclosure Letter sets forth a true and
complete list, by customer, of the units in service in Purchaser's 220-222 MHz
business (the "Units in Service"). The Units in Service are, to the knowledge of
Purchaser, in the possession of the indicated customers, which customers are
billed for their use of such Units in Service at the actual customer rates shown
in Schedule 5.27(m) of the Purchaser
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Disclosure Letter and which customers are required to pay such billed amounts in
full (subject to Purchaser's normal prompt payment, volume and similar
discounts, all of which have been disclosed in writing to Seller) on or before
the relevant due date reflected in the relevant billing.
5.28 INVESTMENT IN SHARES.
(a) Purchaser will hold the Shares transferred to it pursuant to this
Agreement for investment and not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities Act. Subject
to the terms of Section 6.10, Purchaser does not have any present intention of
selling, offering to sell or otherwise disposing of or distributing the Shares
transferred to it pursuant to this Agreement.
(b) Purchaser acknowledges that Seller has disclosed that the Shares to be
transferred to Purchaser pursuant to this Agreement have not been registered
under the Securities Act, as amended, and, therefore, cannot be resold unless
they are registered under the Securities Act or unless an exemption from
registration is available.
(c) Purchaser is sophisticated in financial matters and is able to evaluate
the risks and benefits of the investment in the Shares.
(d) Purchaser has had an opportunity to ask questions and receive answers
concerning the terms and conditions of the acquisition of the Shares and has had
full access to such other information concerning the Seller as Purchaser has
requested.
(e) Purchaser is able to bear the economic risk of its investment in the
Shares for an indefinite period of time, recognizing that the Shares have not
been registered under the Securities Act and, therefore, cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available.
5.29 GENERAL PARTNERSHIPS.
(a) Purchaser has received inquiries from securities regulators in Kansas,
North Carolina, North Dakota and South Dakota regarding the syndication of
general partnership interests in certain partnerships (the "Partnerships") for
the purpose of the acquisition of stations licensed by the FCC to operate in the
220-222 MHz band (the "220 MHz Band"). Purchaser has not received inquiries from
any other Governmental Bodies with respect to the Partnerships or any similar
partnerships.
(b) None of Purchaser or its Subsidiaries (including, without limitation,
Roamer One, Inc. ("Roamer One")), their respective affiliates or
predecessors-in-interest or any of their respective officers and directors or,
to the knowledge of Purchaser, Simmonds or any of its affiliates,
predecessors-in-interest, officers or directors:
(i) has had any direct participation or role in developing, preparing or
marketing materials for the syndication of the Partnerships or any similar
partnerships;
(ii) has had any involvement in the organization, planning, formation,
or promotion of the Partnerships or any similar partnerships, or had or has
any direct or indirect ownership Interests in any such partnerships;
(iii) authorized the use of the "Roamer One" name, trademark or network
map in any promotional material associated with the syndication of any
partnership interests (including, without limitation, interests in the
Partnerships); or
(iv) has received directly or indirectly any of the proceeds of any
syndications of such partnership interests (including, without limitation,
interests in the Partnerships) (other than the receipt by Roamer One of
payments in return for Roamer One services as may have been made pursuant to
an Exclusive Management Agreement and Right of First Refusal entered into
between Roamer One and such partnerships or the Supply Agreement between
Roamer One and Voice Data Communications, Inc. ("VDC") entered into on May
3, 1994).
5.30 NO MISREPRESENTATION. No representation or warranty of Purchaser
contained in this Agreement or in the Purchaser Disclosure Letter or in any
certificate or other instrument furnished by Purchaser to Seller pursuant to the
terms hereof, contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements contained herein or therein not
misleading.
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ARTICLE VI
COVENANTS
6.1 ACCESS TO INFORMATION. Each of Seller and Purchaser agrees that, prior
to the Closing Date, the other party hereto shall be entitled, through its
officers, employees and representatives (including, without limitation, its
legal and financial advisors and accountants), to make such investigation of the
properties, businesses and operations of the Business and Radiocoms or Purchaser
and their respective Subsidiaries, as applicable, and such examination of the
books, records and financial condition of the Business and Radiocoms or
Purchaser (and their respective Subsidiaries), as applicable, as such other
party reasonably requests and to make extracts and copies of such books and
records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and each of Seller
and Purchaser shall cooperate, and shall cause their respective Subsidiaries to
cooperate, fully therein. No investigation by Seller or Purchaser prior to or
after the date of this Agreement shall diminish or obviate any of the
representations, warranties, covenants or agreements of the other party thereto
contained in this Agreement or any other agreements or certificates in
connection with the transactions contemplated by this Agreement or the Midland
Agreement. In order that each of Purchaser and Seller may have full opportunity
to make such physical, business, accounting and legal review, examination or
investigation as it may reasonably request of the affairs of the Business and
Radiocoms or Purchaser (and their respective Subsidiaries), as applicable,
Seller and Purchaser shall cause the officers, employees, consultants, agents,
accountants, attorneys and other representatives of Radiocoms or Purchaser, as
applicable, to cooperate fully with such representatives in connection with such
review and examination.
6.2 CONDUCT OF PURCHASER'S AND RADIOCOMS'S RESPECTIVE BUSINESSES PENDING
THE CLOSING.
(a) Prior to the Closing Date, except as otherwise expressly contemplated by
this Agreement or with the prior unanimous written consent of a committee (the
"Committee") composed of Ed Hough, John Simmonds and Nicholas Wilson, which
consent will not be unreasonably withheld, Seller shall cause Radiocoms and its
Subsidiaries (and, to the extent they are engaged in the Business, any Relevant
Affiliates) to, and Purchaser shall, and shall cause its Subsidiaries to:
(i) conduct its business only in the ordinary course consistent with
past practice;
(ii) use its best efforts to (A) preserve its present business
operations, organization (including, without limitation, management and the
sales force) and goodwill, (B) preserve its present relationship with
Persons having business dealings with it, and (C) take such actions as may
be reasonably necessary to maintain in good standing all FCC licenses with
respect to any Systems or DTI licenses, permits or authorizations, as
applicable;
(iii) maintain (A) all its assets and properties in their current
condition, ordinary wear and tear excepted, and (B) insurance upon all of
its properties and assets in such amounts and of such kinds comparable to
that in effect on the date of this Agreement;
(iv) (A) maintain its books, accounts and records in the ordinary course
of business consistent with past practices, (B) continue to collect accounts
receivable and pay accounts payable utilizing normal procedures and without
discounting or accelerating payment of such accounts (other than in the
ordinary course of business), and (C) comply with all contractual and other
obligations applicable to its operations; and
(v) comply in all material respects with applicable Laws.
(b) Prior to the Closing Date, except as otherwise expressly contemplated by
this Agreement or with the prior unanimous written consent of the Committee
(which consent shall not be unreasonably withheld), Seller shall cause Radiocoms
and its Subsidiaries and, to the extent that it is engaged in the Business, any
Relevant Affiliate not to, and Purchaser shall not, and shall cause its
Subsidiaries not to:
(i) declare, set aside, make or pay any dividend or other distribution
in respect of its capital stock or repurchase, redeem or otherwise acquire
any outstanding shares of the capital stock or other securities of, or other
ownership interests in, itself or any of its Subsidiaries, except for the
cancellation of the Existing Shares and the issuance of the Deferred Shares
in lieu thereof; PROVIDED, HOWEVER, that
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any wholly owned Subsidiaries of Radiocoms or Purchaser shall be permitted
to declare and pay dividends to Radiocoms or Purchaser, as applicable, to
the extent that funds are legally available therefor;
(ii) transfer, issue, sell or dispose of any shares of its capital stock
or other securities of itself or its Subsidiaries or grant options,
warrants, calls or other rights to purchase or otherwise acquire shares of
the capital stock or other securities of itself or any of its Subsidiaries;
PROVIDED, HOWEVER, that (A) Purchaser may issue and sell up to 1,000,000
shares of Purchaser Common Stock and may, subject in each instance to the
prior unanimous written consent of the Committee, which approval will not be
unreasonably withheld, issue up to an aggregate of 1,500,000 shares of
Purchaser Common Stock to acquire interests in additional FCC licenses to be
used in the operation or development of its business, (B) any such Person
may issue debt securities as permitted by clause (vi), and (C) Seller may
cause shares of any Relevant Affiliate owning any part of the Business to be
transferred to Radiocoms and its Subsidiaries, may cause Radiocoms to issue
the Shares and up to a maximum of 20,000 Preferred Shares (having a
liquidation preference not in excess of $20,000,000) to Seller;
(iii) effect any recapitalization, reclassification, stock split or like
change in its capitalization except, in the case of Seller, as may be
required to authorize the issuance of the Shares and the Preferred Shares;
(iv) amend its certificate of incorporation, by-laws, memorandum or
articles of association or similar organizational documents, except that
Seller may cause Radiocoms to amend its Memorandum of Association and
Articles of Association solely for the purposes of authorizing the Shares
and the Preferred Shares as contemplated by this Agreement, or changing the
name of Radiocoms so as to delete the word "Securicor" therefrom, and
Purchaser may amend its certificate of incorporation to increase the number
of authorized shares as necessary to permit Purchaser to consummate the
transactions contemplated hereby;
(v) (A) materially increase the annual level of compensation of any
employee, (B) increase the annual level of compensation payable or to become
payable by it or any of its Subsidiaries to any of their respective
executive officers, (C) grant any bonus, benefit or other direct or indirect
compensation to any employee, director or consultant, other than in the
ordinary course consistent with past practice and in such amounts as are
fully reserved against in the Radiocoms Financial Statements or the
Purchaser Financial Statements, as applicable, (D) increase the coverage or
benefits available under any (or create any new) severance pay, termination
pay, vacation pay, company awards, salary continuation for disability, sick
leave, deferred compensation, bonus or other incentive compensation,
insurance, pension or other employee benefit plan or arrangement made to,
for, or with any of its or its Subsidiaries' directors, officers, employees,
agents or representatives or otherwise modify or amend or terminate any such
plan or arrangement or (E) enter into any employment, deferred compensation,
severance, consulting, non-competition or similar agreement (or amend any
such agreement) to which it or any of its Subsidiaries is a party or
involving a director, officer or employee of it or any of its Subsidiaries
in his or her capacity as a director, officer or employee;
(vi) except (A) for trade payables and (B) for pledges of assets and
indebtedness for borrowed money which do not exceed, individually or in the
aggregate, $500,000 (it being understood that (1) such amount shall not
include indebtedness existing or assets pledged prior to the date of this
Agreement and (2) the transaction value of any asset pledges shall be deemed
to be equal to the fair market value of the assets pledged in such
transaction), borrow monies for any reason or draw down on any line of
credit or debt obligation, or become the guarantor, surety, endorser or
otherwise liable for any debt, obligation or liability (contingent or
otherwise) of any other Person; PROVIDED, HOWEVER, that, subject to the
unanimous prior written consent of the Committee, which consent will not be
unreasonably withheld, Purchaser may issue an unsecured debenture, which
shall be a general obligation of Purchaser, in an aggregate principal amount
of up to $2,500,000 on such terms as may be reasonably determined by
Purchaser;
(vii) except as may be permitted pursuant to clause (vi) above, subject
to any Lien (except for leases that do not materially impair the use of the
property subject thereto in their respective businesses as presently
conducted), any of its properties or assets (whether tangible or
intangible);
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(viii) acquire any material properties or assets (other than, in the case
of Purchaser, FCC licenses as contemplated by clause (ii) above) or sell,
assign, transfer, convey, lease or otherwise dispose of any of its FCC
authorizations, FCC licenses, DTI licenses or material properties or assets,
or its rights to any of the foregoing or to any FCC licenses issued to or
held by other Persons (except for fair consideration in the ordinary course
of business consistent with past practice), or in the case of Purchaser,
take any action, other than in the exercise of its reasonable business
judgment, that causes, or take any action that could reasonably be expected
to cause, the FCC licensees with respect to any System to cancel, assign,
transfer or otherwise dispose of their FCC license in a manner that would be
adverse to Purchaser;
(ix) cancel or compromise any debt or claim or waive or release any
material right except in the ordinary course of business consistent with
past practice, except, in the case of Radiocoms for cancellations of
intercompany indebtedness contemplated hereby;
(x) other than, in the case of Purchaser, capital expenditures necessary
for the build-out of the Systems pursuant to Purchaser's contractual
obligations, enter into any commitment for capital expenditures in excess of
$20,000 for any individual commitment and $100,000 for all commitments in
the aggregate;
(xi) enter into, modify or terminate any labor or collective bargaining
agreement or, through negotiation or otherwise, make any commitment or incur
any liability to any labor organization;
(xii) introduce any material change with respect to its operations,
including, without limitation, any material change in its "roll-out" plans
or the types, nature, composition or quality of its products or services,
or, other than in the ordinary course of business, make any material change
in product specifications or prices or terms of distributions of such
products;
(xiii) enter into any transaction or make or enter into any Contract which
by reason of its size or otherwise is not in the ordinary course of business
consistent with past practice;
(xiv) enter into or agree to enter into any merger or consolidation with,
any corporation or other entity, or engage in any new business or invest in,
make a loan, advance or capital contribution to, or otherwise acquire the
securities of any other Person except that Seller may engage in such
transactions solely to the extent required to transfer any part of the
Business to Radiocoms and its Subsidiaries;
(xv) transfer any funds or assets to any of its Affiliates, which funds
and assets are, in the aggregate, worth in excess of $500,000, except for
the purchase of goods and services from any such Affiliate in the ordinary
course of business at the fair market value for such goods and services and
transactions solely to the extent required to transfer any part of the
Business to Radiocoms and its Subsidiaries; or
(xvi) agree to do anything prohibited by this Section 6.2 or anything
which would make any of the representations and warranties of the Purchaser
or the Seller in this Agreement or the Purchaser Documents or the Seller
Documents untrue or incorrect in any material respect as of any time through
and including the Closing Date.
6.3 CONSENTS AND APPROVALS.
(a) Seller and Purchaser shall use their respective best efforts, and shall
cooperate with each other, to obtain at the earliest practicable date all
consents and approvals required to consummate the transactions contemplated by
this Agreement; PROVIDED, HOWEVER, that neither Seller nor Purchaser shall be
obligated to pay any consideration therefor to any third party from whom consent
or approval is requested.
(b) Promptly following the date of this Agreement, Purchaser shall prepare
and file with the Securities and Exchange Commission a proxy statement and
related solicitation materials relating to a special meeting of the holders of
the Purchaser Common Stock (the "Purchaser Stockholders' Meeting") to approve
the issuance of Purchaser Shares pursuant hereto (such proxy statement, as
amended or supplemented from time to time, being hereinafter referred to as the
"Proxy Statement"), and shall use its best efforts to cause the Proxy Statement
to be mailed to its stockholders at such time and in such manner as permits the
Purchaser Stockholders' Meeting to be held as promptly as practicable. Seller
shall furnish all information as may be reasonably requested by Purchaser and,
in any case, as required with respect to Purchaser by
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Regulation 14A under the Securities Exchange Act of 1934, as amended, for
inclusion in the Proxy Statement. The information provided by Purchaser and
Seller, respectively, for use in the Proxy Statement shall, on the date when the
Proxy Statement is first mailed to Purchaser's stockholders, and on the date of
the Purchaser Stockholders' Meeting, be true and correct in all material
respects and shall not omit to state any material fact required to be stated
therein or necessary in order to make the statements contained therein not
misleading, and Purchaser and Seller each agree to promptly correct any
information provided by it for use in the Proxy Statement which shall have
become false or misleading. Seller and Purchaser shall instruct, and shall use
all reasonable efforts to cause, their respective accountants to deliver to each
other a letter dated the time the Proxy Statement is mailed to Purchaser's
stockholders, addressed to such party, containing such matters as are required
in accordance with F.A.S. No. 72 and deliver a letter dated as of the Closing
Date bringing down the matters contained in such letter.
(c) Purchaser shall duly call, give notice of, convene and hold the
Purchaser Stockholders' Meeting, for the purpose of approving, among other
matters, the issuance of the Purchaser Shares pursuant hereto. Purchaser,
through its Board of Directors, shall recommend to its stockholders approval of
the foregoing; PROVIDED, HOWEVER, that if Purchaser's Board of Directors
determines, in its good faith judgment after consultation with independent legal
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to stockholders under applicable law, Purchaser's Board of Directors may
withdraw or modify such recommendation. The Proxy Statement shall comply as to
form in all material respects with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and no amendment or supplement to the Proxy
Statement shall be made by Purchaser without the prior written approval of
Seller unless Purchaser determines such amendment or supplement is required by
law.
6.4 FILINGS WITH GOVERNMENTAL BODIES. As promptly as practicable after the
execution of this Agreement, each party shall, in cooperation with the other,
file or cause to be filed any reports, notifications or other information that
may be required under the HSR Act and shall furnish or cause to be furnished to
the other all such information in its possession as may be reasonably necessary
for the completion of the reports, notifications or submissions to be filed by
the other. Each party hereto agrees to use its reasonable best efforts to comply
and cause its Affiliates to comply in a full and timely manner with any request
from a Governmental Body for additional information. The filing fee with respect
to the reports, notifications or other information that may be required under
the HSR Act with respect to the Transactions shall be borne solely by Purchaser.
6.5 OTHER ACTIONS.
(a) Each of Seller and Purchaser shall use its best efforts to (i) take all
actions necessary or appropriate to consummate the transactions contemplated by
this Agreement and (ii) cause the fulfillment at the earliest practicable date
of all of the conditions to their respective obligations to consummate the
transactions contemplated by this Agreement.
(b) Purchaser shall use its reasonable best efforts to (i) take all actions
necessary or appropriate to consummate the Other Transactions and (ii) cause the
fulfillment at the earliest practicable date of all of the conditions to its
obligations to consummate the Other Transactions.
(c) Purchaser shall use its best efforts to assure that, prior to the
Closing, the Purchaser Shares have been approved for quotation on the Small Cap
Market, subject to official notice of issuance.
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6.6 PRESERVATION OF RECORDS. Subject to Section 6.9(a) hereof (relating to
the preservation of Tax records), Seller and Purchaser agree that each of them
shall preserve and keep the records held by it relating to the Business for a
period of three years from the Closing Date and shall make such records and
personnel available to the other as may be reasonably required by such party in
connection with, among other things, any insurance claims by, legal proceedings
against or governmental investigations of Seller or Purchaser or any of their
Affiliates or in order to enable Seller or Purchaser to comply with their
respective obligations under this Agreement and each other agreement, document
or instrument contemplated hereby or thereby. In the event Seller or Purchaser
wishes to destroy such records after that time, such party shall first give
ninety (90) days' prior written notice to the other and such other party shall
have the right at its option and expense, upon prior written notice given to
such party within that ninety (90) day period, to take possession of the records
within one hundred and eighty (180) days after the date of such notice.
6.7 PUBLICITY. Neither Seller nor Purchaser shall issue any press release
or public announcement concerning this Agreement or the transactions
contemplated hereby without obtaining the prior written approval of the other
party hereto, which approval will not be unreasonably withheld or delayed,
unless, in the sole judgment of Purchaser or Seller, disclosure is otherwise
required by applicable Law or by the applicable rules of any stock exchange on
which Purchaser or Seller (or any Affiliates thereof) lists securities; PROVIDED
that, to the extent required by applicable Law, the party intending to make such
release shall use commercially reasonable efforts consistent with such
applicable Law to consult with the other party with respect to the text thereof.
6.8 AGREEMENTS WITH RESPECT TO OTHER TRANSACTIONS. From and after the
execution and delivery of this Agreement, Purchaser shall not amend, modify,
supplement, waive any rights or remedies under or grant any consents under
either the Midland Agreement or the Asset Purchase Agreement (including, in each
case, any schedules or exhibits thereto), or agree to do any of the foregoing,
without the prior written consent of Seller.
6.9 TAX AND ACCOUNTING MATTERS.
(a) Purchaser and Seller agree to furnish or cause to be furnished to each
other, and each at their own expense, as promptly as practicable, such
information (including access to books and records) and assistance, including
making employees available on a mutually convenient basis to provide additional
information and explanations of any material provided, relating to the Business
and/or Radiocoms, its Subsidiaries and/or its Relevant Affiliates as is
reasonably necessary for the filing of any Tax Return, for the preparation for
any audit, and for the prosecution or defense of any claim, suit or proceeding
relating to any adjustment or proposed adjustment with respect to Taxes.
Purchaser or Radiocoms shall retain in its possession, and shall provide Seller
reasonable access to (including the right to make copies of), such supporting
books and records and any other materials that Seller may specify with respect
to Tax matters of Radiocoms, its Subsidiaries and/or its Relevant Affiliates for
any taxable period ending on or prior to the Closing Date until the relevant
statute of limitations has expired. After such time, Purchaser may dispose of
such material; PROVIDED that prior to such disposition Purchaser shall give
Seller ninety (90) days' prior written notice thereof, and Seller may, at any
time during such ninety (90) day period, at its own expense, take possession of
such materials.
(b) Seller shall be liable for and shall pay (and shall indemnify and hold
harmless Purchaser against) all sales, use, stamp, documentary, filing,
recording, transfer or similar fees or taxes or governmental charges as levied
by any taxing authority or governmental agency in connection with the transfer
of the Shares contemplated by this Agreement or any recapitalization of
Radiocoms or any transfer to Radiocoms of assets or shares that takes place in
contemplation of this Agreement. Purchaser likewise shall be liable for and
shall pay (and shall indemnify and hold harmless Seller against) any such fees,
taxes or governmental charges as levied by any taxing authority or governmental
agency in connection with the issuance of the Purchaser Shares contemplated by
this Agreement.
(c) Within 14 days following the date hereof, Seller will deliver to
Purchaser (i) the Interim Statements, together with an unqualified audit report
thereon by Radiocoms' independent public accountants and (ii) an unaudited pro
forma consolidated balance sheet of Radiocoms and its Subsidiaries as at
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March 31, 1996 after giving effect to the transactions contemplated by this
Agreement, including without limitation the issuance of the Shares and the
Preferred Shares, the transfer of the EFJ Shares and the EFJ Warrant and the
refinancing of intercompany indebtedness (the "Pro Forma Balance Sheet").
(d) Seller shall (i) take all actions and make any necessary elections so
that, to the maximum extent permissible under applicable Law, Seller shall
obtain the tax benefits in the United Kingdom and other jurisdictions
attributable to Radiocoms and its Subsidiaries for the tax year ending September
30, 1996 and any tax year thereafter to the extent permitted by Law and (ii),
promptly after the relevant Tax Returns are filed with the applicable taxing
authorities, transfer funds to Radiocoms equal to the cash value of such tax
benefits to Seller.
6.10 NO SOLICITATION. Purchaser, its affiliates and their respective
officers, directors, employees, representatives and agents shall immediately
cease any existing discussions or negotiations, if any, with any parties
conducted heretofore with respect to (except as otherwise expressly permitted by
this Agreement) any acquisition of all or any material portion of the assets of,
or (except as otherwise expressly permitted by this Agreement) any equity
interest in, Purchaser or its Subsidiaries or any business combination with
Purchaser or its Subsidiaries. Purchaser may, directly or indirectly, furnish
information and access, in each case only in response to unsolicited requests
therefor, to any corporation, partnership, person or other entity or group
pursuant to confidentiality agreements, and may participate in discussions and
negotiate with such entity or group concerning any merger, sale of assets, sale
of shares of capital stock or similar transaction involving Purchaser or any
Subsidiary or division of Purchaser, if such entity or group has submitted a
written proposal to Purchaser relating to any such transaction and Purchaser's
Board of Directors by a majority vote determines in its good faith judgment,
after consultation with independent legal counsel, that it is necessary to do so
to comply with its fiduciary duties to shareholders under applicable law.
Purchaser's Board of Directors shall provide a copy of any such written proposal
and a summary of any oral proposal to Seller immediately after receipt thereof
and thereafter keep Seller promptly advised of any material development with
respect thereto. Except as set forth above, neither Purchaser nor any of its
Affiliates shall, nor shall Purchaser authorize or permit any of its or their
respective officers, directors, employees, representatives or agents to,
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Seller or
any affiliate or associate of Seller) concerning any merger, sale of assets,
sale of shares of capital stock or similar transaction involving Purchaser or
any Subsidiary or division of Purchaser; PROVIDED, HOWEVER, that nothing herein
shall prevent Purchaser's Board of Directors from taking, and disclosing to
Purchaser's shareholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender offer; PROVIDED,
FURTHER, that nothing herein shall prevent Purchaser's Board of Directors from
making such disclosure to Purchaser's shareholders as, in the good faith
judgment of Purchaser's Board of Directors, after consultation with independent
legal counsel, is necessary to comply with its fiduciary duties to shareholders
under applicable law.
6.11 RECAPITALIZATION; REFINANCING OF INTERCOMPANY DEBT. Prior to the
Closing Date, Seller shall take all actions necessary so that (a) the Existing
Shares shall be cancelled and the Shares shall be issued, substantially on the
terms heretofore disclosed to Purchaser and (b) any debt owed by Radiocoms and
any of its Subsidiaries to Seller and its Affiliates at the Closing Date
(including, without limitation, the EFJ Note) is refinanced such that, after
giving effect to such refinancing and the issuance of the Preferred Shares in
connection therewith, the aggregate liquidation preference of the Preferred
Shares, together with all debt outstanding of Radiocoms and its Subsidiaries, in
each case at the Closing Date, will not exceed $22 million. Any Preferred Shares
issued to Seller or its Affiliates shall have the terms and conditions provided
in Exhibit A; PROVIDED, that in no event shall the aggregate liquidation
preference of the Preferred Shares so issued to Seller in connection with such
refinancing exceed the amount of such indebtedness of Radiocoms and its
Subsidiaries to Seller and its Affiliates prior to such refinancing. For greater
certainty, as of the Closing, all debt so owed by Radiocoms and its Subsidiaries
to Seller and its Affiliates shall be satisfied and cancelled as of the Closing.
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6.12 UPDATES TO DISCLOSURE LETTERS. Each of Seller and Purchaser shall
update the Seller Disclosure Letter and Purchaser Disclosure Letter from time to
time and all representations and warranties that speak as of the date hereof
shall be updated as of the Closing Date; PROVIDED that no such update shall be
deemed to waive any breaches of the representation and warranties disclosed as a
result of such updates.
6.13 NON-COMPETE. Seller agrees, as a means to assure Purchaser obtains
the full value of the Shares and not in exchange for separately bargained-for
consideration, that for a period of three (3) years following the Closing,
neither Securicor plc nor its direct or indirect Subsidiaries (other than
Purchaser and its Subsidiaries) will, anywhere in the world, (i) sell,
manufacture, distribute or otherwise transfer "land mobile radio" products or
(ii) engage in the provision of services related to the construction or
integration of land mobile radio product systems; PROVIDED, HOWEVER, that this
covenant shall not apply (a) to the extent that any law, regulation or order of
any Governmental Body would be violated thereby, (b) to the business or
operations of Dopra Systems Integration, Ltd. ("Dopra") or Securicor Datatrak,
Ltd. ("Datatrak") or Securicor Cellular Services, Ltd. ("Cellular") or Securicor
TrakBak, Ltd. ("TrakBak") as conducted or proposed to be conducted as of the
date hereof or as the reasonable expansion and growth of such businesses and
operations may require in order to retain their competitiveness in the
marketplace. It is understood and agreed that, if Seller shall sell, transfer or
otherwise dispose of Dopra or Datatrak or Cellular or TrakBak (whether by
merger, sale of stock, sale of all or substantially all of the business and
assets or otherwise) in a transaction with a non-Affiliate, the provisions of
this Section 6.13 shall cease to apply to the business so sold, transferred or
otherwise disposed of. Notwithstanding the foregoing, to the extent any of the
terms of this Section 6.13 is held to be unenforceable, it is the intention of
the parties that such provision shall be replaced by any court holding such
terms to be unenforceable with another, enforceable provision that shall as
closely as possible approximate the original, unenforceable term.
6.14 FCC MATTERS.
(a) From and after the date of this Agreement, until the earlier of the
Closing Date or the termination of this Agreement, Purchaser undertakes and
agrees that it will diligently pursue appeals of the denial by the FCC of any
request by Purchaser or its Affiliates for the modification of any FCC licenses
and will keep Seller informed with respect to any material developments with
respect to such appeals. Purchaser will copy Seller on any documents delivered
by it to the FCC in connection with any of such appeals and will supply Seller
with copies of any documents received from the FCC with respect to any of such
appeals.
(b) Purchaser and Seller shall cooperate in the preparation, filing and
prosecution of a request to the FCC seeking a waiver of Section 310(b)(4) of the
Communications Act of 1934, as amended, to permit Purchaser upon Closing to
acquire such FCC licenses as may be agreed by the parties and to participate in
such 220 MHz Band spectrum auctions as may be conducted by the FCC.
6.15 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE.
(a) For a period of three years after the Closing Date, Seller shall, to the
extent that it remains the majority stockholder of Purchaser during such period,
cause Purchaser to maintain an extension of coverage of Purchaser's policy of
directors' and officers' liability insurance maintained by Purchaser for the
benefit of those persons who are covered by such policy at the time of the
Closing with respect to matters occurring prior to the Closing Date, provided
that in no event shall Purchaser be required to expend more than $100,000 per
annum to maintain such insurance.
(b) Seller further agrees that for a period of six years after the Closing
Date, Seller shall, to the extent that Seller remains the majority stockholder
of Purchaser, (i) cause the by-laws of Purchaser to continue to contain the
provisions with respect to indemnification which are set forth in such by-laws
as of the date hereof, and (ii) not permit such provisions to be amended,
repealed or otherwise modified in any manner that would adversely affect the
rights thereunder of individuals who at the Closing Date were directors,
officers, employees or agents of Purchaser, unless such modification is required
by applicable law.
6.16 PENSION SCHEMES. Seller agrees that following the Closing Date, any
employee of Radiocoms as of the Closing Date who is a participant in any pension
scheme of Seller shall be eligible to participate in the same pension scheme of
Seller that such employee participated in as of the Closing Date subject to the
same
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terms and conditions of participation (including, without limitation, the terms
of such pension schemes as they may be amended and applicable laws relating to
pensions in England and Wales) that such employee was subject to on the day that
immediately preceded the Closing Date; PROVIDED, HOWEVER, that the foregoing
shall not preclude Seller from amending or terminating any of its pension
schemes in accordance with the terms of such pension scheme and the laws of
England and Wales.
6.17 TRANSFER OF THE BUSINESS TO RADIOCOMS AND ITS SUBSIDIARIES. Prior to
Closing, Seller shall (i) cause its Relevant Affiliates, if any, to transfer any
and all of their respective right, title and interest in any parts of, or
benefits of or rights in, the Business currently not held or owned by Radiocoms
or its Subsidiaries to Radiocoms or one of its Subsidiaries in such manner so as
to ensure that Radiocoms and its Subsidiaries after the Closing will enjoy and
have all rights, benefits, operations and assets of the Business without any
material diminution of the value or utility of any such rights, benefits,
operations and assets and/or (ii) transfer or cause to be transferred to
Radiocoms all of the issued and outstanding capital stock of its Relevant
Affiliates, if any.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND SELLER. The
obligation of each of Purchaser and Seller to consummate the transactions
contemplated by this Agreement is subject to the fulfillment, on or prior to the
Closing Date of each of the following conditions (any or all of which may be
waived by Purchaser and Seller in whole or in part to the extent permitted by
applicable Law):
(a) Purchaser shall have obtained all consents and waivers referred to in
Section 7.1(a) of the Purchaser Disclosure Letter with respect to the
transactions contemplated by this Agreement and the Purchaser Documents;
(b) Seller shall have obtained all consents and waivers referred to in
Section 7.1(b) of the Radiocoms Disclosure Letter with respect to the
transactions contemplated by this Agreement and the Seller Documents;
(c) No Legal Proceedings shall have been instituted or threatened or claim
or demand made against Seller, Radiocoms or Purchaser seeking to restrain or
prohibit or to obtain damages with respect to the consummation of any of the
Transactions and there shall not be in effect any Order by Governmental Body of
competent jurisdiction restraining, enjoining or otherwise prohibiting the
consummation of any of the Transactions;
(d) The waiting period under the HSR Act shall have expired or early
termination shall have been granted;
(e) All approvals required to be obtained by Seller, Purchaser or Midland US
from any Governmental Body with respect to any of the Transactions shall have
been obtained;
(f) The Purchaser Stockholders' Meeting shall have been duly convened and
held, and Purchaser shall have obtained the requisite vote so as to authorize
this Agreement, the Midland Agreement and the consummation of each of the
Transactions;
(g) The Other Transactions shall have been consummated as contemplated in
the Midland Agreement, or shall be consummated simultaneously with the
transactions contemplated by this Agreement; and
(h) Purchaser shall have received the opinion of Fahnestock & Co. Inc.
("Fahnestock") on the date on which Purchaser's Board of Directors voted to
approve this Agreement and the Midland Agreement, and the written opinion of
Fahnestock, dated on or prior to the date of the mailing of the Proxy Statement,
that the consideration to be paid by Seller to Purchaser under this Agreement in
respect of the Purchaser Shares (as well as the consideration to be paid by
Seller to Simmonds under the Midland Agreement) is fair to Purchaser and its
stockholders from a financial point of view, and such opinion shall not have
been withdrawn or modified in any material respect.
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7.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. The obligation of
Purchaser to consummate the transactions contemplated by this Agreement is
subject to the fulfillment, on or prior to the Closing Date, of each of the
following conditions (any or all of which may be waived by Purchaser in whole or
in part to the extent permitted by applicable Law):
(a) Except for facts, events or changes arising or occurring between the
date hereof and the Closing Date which are expressly permitted by this
Agreement, all representations and warranties of Seller contained herein shall
be true and correct as of the date hereof; and except for facts, events or
changes arising or occurring between the date hereof and the Closing Date which
are expressly permitted by this Agreement, all representations and warranties of
Seller contained herein qualified as to materiality shall be true and correct,
and the representations and warranties of Seller contained herein not qualified
as to materiality shall be true and correct in all material respects, at and as
of the Closing Date with the same effect as though those representations and
warranties had been made again at and as of that time;
(b) Seller shall have performed and complied in all material respects with
all obligations and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date;
(c) Purchaser shall have been furnished with certificates (dated the Closing
Date and in form and substance reasonably satisfactory to Purchaser) executed by
Seller, certifying as to the fulfillment of the conditions specified in Sections
7.2(a) and 7.2(b) hereof;
(d) Certificates representing the Shares shall have been, or shall at the
Closing be, validly delivered and transferred to the Purchaser, free and clear
of any and all Liens, together with appropriate stock powers executed by Seller;
(e) There shall not have been or occurred any Material Adverse Change with
respect to Radiocoms and its Subsidiaries, taken as a whole;
(f) Seller shall have delivered to Purchaser a loan agreement incorporating
the terms set forth on Exhibit B hereto (the "Loan Agreement") to make available
to Purchaser $15 million of financing;
(g) Seller shall have delivered to Purchaser an agreement incorporating the
terms set forth on Exhibit C hereto (the "Support Services Agreement") to
provide certain services to Radiocoms and its Subsidiaries after the Closing;
(h) The EFJ Note shall have been cancelled; and
(i) Seller shall have executed and delivered to Purchaser the Registration
Rights Agreement (as hereinafter defined).
7.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of
Seller to consummate the transactions contemplated by this Agreement are subject
to the fulfillment, prior to or on the Closing Date, of each of the following
conditions (any or all of which may be waived by Seller in whole or in part to
the extent permitted by applicable Law):
(a) Except for facts, events or changes arising or occurring between the
date hereof and the Closing Date which are expressly permitted by this
Agreement, all representations and warranties of Purchaser contained herein
shall be true and correct as of the date hereof; and except for facts, events or
changes arising or occurring between the date hereof and the Closing Date which
are expressly permitted by this Agreement, all representations and warranties of
Purchaser contained herein qualified as to materiality shall be true and
correct, and the representations and warranties of Purchaser contained herein
not qualified as to materiality shall be true and correct in all material
respects, at and as of the Closing Date with the same effect as though those
representations and warranties had been made again at and as of that time;
(b) Purchaser shall have performed and complied in all material respects
with all obligations and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date;
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(c) Seller shall have been furnished with certificates (dated the Closing
Date and in form and substance reasonably satisfactory to Seller) executed by
Purchaser, certifying as to the fulfillment of the conditions specified in
Sections 7.3(a) and 7.3(b) hereof;
(d) Certificates representing 25,000,000 shares of Purchaser Common Stock
(the Purchaser Shares) shall have been, or shall at the Closing be, validly
delivered to and duly registered in the name of the Seller, free and clear of
any and all Liens;
(e) The Purchaser Shares shall have been approved for quotation on the Small
Cap Market, subject to official notice of issuance;
(f) Purchaser shall have executed and delivered to Seller that certain
Registration Rights Agreement (the "Registration Rights Agreement"), in the form
of Exhibit D, and that certain Registration Rights Agreement, dated as of
September 23, 1994, among the Company, Simmonds, Roamer One Holdings, Inc.,
Anglo York Industries, Inc. and Howard Davis shall have been terminated;
(g) Purchaser shall have furnished evidence of the due election and
qualification to its Board of Directors of the persons designated prior to
Closing by Seller and the removal or resignation of any other members of
Purchaser's Board of Directors designated prior to Closing by Seller;
(h) There shall not have been or occurred any Material Adverse Change with
respect to Purchaser or Midland US;
(i) Purchaser shall have entered into a warrant agreement in favor of Seller
substantially on the terms set forth in Exhibit E hereto (the "Warrant
Agreement");
(j) Purchaser shall have at Closing a minimum of 162 Constructed Systems (as
that term is defined in Section 5.27(f)) under management pursuant to valid and
subsisting management agreements, including a minimum of 73 Constructed Systems
under Category I management and 26 Constructed Systems under Category II
management by Purchaser pursuant, respectively, to valid and subsisting Category
I and Category II Exclusive Management Agreements and Rights of First Refusal
and valid and subsisting Option to Purchase Agreements as reflected in Section
5.27(a)(iv) of the Purchaser Disclosure Letter, which Constructed Systems shall
have been timely and validly constructed at primary transmitter sites licensed
by the FCC pursuant to an order that is not subject to reconsideration or appeal
and for which the time for the request for any such reconsideration or appeal
has expired;
(k) There shall be no material Legal Proceedings pending, threatened or
reasonably likely to be asserted against Purchaser or its Subsidiaries in any
federal or state court, agency or other Governmental Body with respect to
Purchaser's performance, including its construction or failure to construct of
any System in accordance with the FCC's rules and regulations or the terms of
any FCC license, under any of its management agreements or other agreements
concerning any 220-222 MHz band radio system;
(l) Purchaser shall have delivered a valid, binding and fully executed
Termination and Release of that certain Letter of Understanding entered into on
January 28, 1994 by and between Roamer One, Inc., Angell Communications, Nancy
M. Wilson, Square 1 Communications Partnership, Nicholas R. Wilson and NICMAR;
(m) Purchaser shall have delivered a valid, binding and fully executed
Amendment to the Management Agreement and Options agreement entered into by and
between Roamer One, Inc., and NICMAR dated January 31, 1994 adding as a system
subject to the management by Roamer One, Inc. and under option to Roamer One,
Inc. the following stations: WPCW452, Reno, Nevada and WPFP940, Denison, Texas;
and
(n) Seller shall have received from the United Kingdom Inland Revenue
advance clearance under Section 138 of the Taxation of Chargeable Gains Act of
1992 to the effect that the consummation of the transactions contemplated by
this Agreement do not give rise to a capital gain on the transfer of the Shares
or the receipt of the Purchaser Shares.
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ARTICLE VIII
DOCUMENTS TO BE DELIVERED
8.1 DOCUMENTS TO BE DELIVERED BY SELLER. At the Closing, Seller shall
deliver, or cause to be delivered, to Purchaser the following:
(a) stock certificates representing the Shares, duly endorsed in blank or
accompanied by a stock transfer power and with all requisite stock transfer tax
stamps attached;
(b) the certificates referred to in Section 7.2(c) hereof;
(c) the opinion of Messrs. Herbert Smith, U.K. counsel to Seller, in form
and substance reasonably satisfactory to Purchaser;
(d) copies of all consents, waivers and approvals referred to in Section
7.1(a) and (e) hereof, to the extent such consents, waivers and approvals are
required to be obtained by Seller;
(e) an executed copy of the Loan Agreement;
(f) an executed copy of the Registration Rights Agreement;
(g) an executed copy of the Support Services Agreement; and
(h) such other documents as the Purchaser shall reasonably request.
8.2 DOCUMENTS TO BE DELIVERED BY PURCHASER. At the Closing, Purchaser
shall deliver to the Seller the following:
(a) stock certificates representing the Purchaser Shares, registered in the
name of Seller;
(b) the certificates referred to in Section 7.3(c) hereof;
(c) the opinion of, Kohrman, Jackson & Krantz PLL, counsel to Purchaser, in
form and substance reasonably satisfactory to Seller;
(d) copies of all consents, waivers or approvals referred to in Section
7.2(a) and (e) to the extent such consents, waivers or approvals are required to
be obtained by Purchaser;
(e) an executed copy of the Registration Rights Agreement;
(f) an executed copy of the Warrant Agreement; and
(g) such other documents as Seller shall reasonably request.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION.
(a) Seller hereby agrees to indemnify and hold Purchaser, Radiocoms, and
their respective directors, officers, employees, Affiliates, agents, successors
and assigns (collectively, the "Purchaser Indemnified Parties") harmless from
and against:
(i) any and all losses, liabilities, obligations, damages, costs and
expenses based upon, attributable to or resulting from the failure of any
representation or warranty of Seller hereof to be true and correct in all
respects as of the date made;
(ii) any and all losses, liabilities, obligations, damages, costs and
expenses based upon, attributable to or resulting from the Excluded
Liabilities;
(iii) any and all losses, liabilities, obligations, damages, costs and
expenses based upon, attributable to or resulting from any breach by Seller
of any covenant of Seller;
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(iv) any and all losses, liabilities, obligations, damages, costs and
expenses based upon, attributable to or resulting from the transfer of the
EFJ Shares and the EFJ Warrant to Radiocoms (including, without limitation,
any Tax liability occurring, on redemption of the EFJ Shares or their use to
redeem the Preferred Shares, by reason of the tax basis of the EFJ Shares
and the EFJ Warrant being considered to be less than the face amount of the
EFJ Note); and
(v) any and all notices, actions, suits, proceedings, claims, demands,
assessments, judgments, costs, penalties and reasonable expenses, including
reasonable attorneys' and other professionals' fees and disbursements
(collectively, "Expenses") incident to any and all losses, liabilities,
obligations, damages, costs and expenses with respect to which
indemnification is provided hereunder (collectively, "Losses").
(b) Purchaser hereby agrees to indemnify and hold Seller and its respective
directors, officers, employees, Affiliates, agents, successors and assigns
(collectively, the "Seller Indemnified Parties") harmless from and against:
(i) any and all Losses based upon, attributable to or resulting from the
failure of any representation or warranty of the Purchaser to be true and
correct in all respects as of the date made;
(ii) any and all Losses based upon, attributable to or resulting from
any breach by Purchaser of any covenant of Purchaser;
(iii) any and all Losses based upon, attributable to or resulting from
the failure of the property located at 5800 West Jefferson Boulevard, Los
Angeles, California 90016 (the "Site") to comply with any Environmental Law
(including, without limitation, any environmental clean-up costs, whether
such environmental clean-up costs are incurred by INTEK voluntarily or in
response to actions by Governmental Bodies or other Persons); PROVIDED,
HOWEVER, (A) that, if the Site is sold by Purchaser to a third party in a
bona fide transaction within one year following the date hereof, the amount
of such Losses shall be deemed to be reduced by the amount, if any, by which
the net proceeds to Purchaser upon the sale of the Site exceed the net book
value of the Site as reflected on the Purchaser Financial Statements, and
(B) that, in all other cases, the amount of such Losses shall be deemed to
be reduced by $250,000;
(iv) any and all Losses attributable to the Olympic Plastics Simplified
Employees Pension Plan referred to in Section 5.17(a) of the Purchaser
Disclosure Letter; and
(v) any and all Expenses incident to the foregoing.
9.2 LIMITATIONS ON INDEMNIFICATION FOR BREACHES OF REPRESENTATIONS AND
WARRANTIES.
(a) An indemnifying party shall not have any liability for a breach of a
representation or warranty under Section 9.1(a)(i) or (b)(i) hereof unless the
aggregate amount of Losses and Expenses to the indemnified parties finally
determined to arise thereunder based upon, attributable to or resulting from the
failure of any representation or warranty to be true and correct, exceeds
$300,000 (the "Basket") and, in such event, the indemnifying party shall be
required to pay the entire amount of such Losses and Expenses without regard to
the Basket.
(b) Notwithstanding anything contained in this Agreement to the contrary,
(i) the aggregate liability of Seller and its Affiliates under Section
9.1(a)(i), except for any liability arising as a result of the failure of
Seller's representations and warranties set forth in Section 4.14 to be true and
correct, shall not exceed $6,000,000 (the "Seller Cap") and (ii) the aggregate
liability of Purchaser and its Affiliates under Section 9.1(b)(i), except for
any liability arising as a result of the failure of Purchaser's representations
and warranties set forth in Section 5.27 to be true and correct, shall not
exceed $4,000,000 (the "Purchaser Cap").
9.3 INDEMNIFICATION PROCEDURES.
(a) In the event that any Legal Proceedings shall be instituted or that any
claim or demand ("Claim") shall be asserted by any Person in respect of which
payment may be sought under Section 9.1 hereof (regardless of the Basket
referred to above), the indemnified party shall reasonably and promptly cause
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written notice of the assertion of any Claim of which it has knowledge which is
covered by this indemnity to be forwarded to the indemnifying party. The
indemnifying party shall have the right, at its sole option and expense, to be
represented by counsel of its choice, which must be reasonably satisfactory to
the indemnified party, and to defend against, negotiate, settle or otherwise
deal with any Claim which relates to any Losses indemnified against hereunder.
If the indemnifying party elects to defend against, negotiate, settle or
otherwise deal with any Claim which relates to any Losses indemnified against
hereunder, it shall within five (5) days (or sooner, if the nature of the Claim
so requires) notify the indemnified party of its intent to do so. If the
indemnifying party elects not to defend against, negotiate, settle or otherwise
deal (as provided herein) with any Claim which relates to any Losses indemnified
against hereunder, fails to notify the indemnified party of its election as
herein provided or contests its obligation to indemnify the indemnified party
against such Losses under this Agreement, the indemnified party may defend
against, negotiate, settle or otherwise deal with such Claim; PROVIDED, HOWEVER,
that the indemnified party may not settle such Claim without the consent of the
indemnifying party, which consent will not be unreasonably withheld or delayed.
If the indemnified party defends any Claim, then the indemnifying party shall
reimburse the indemnified party for the Expenses of defending such Claim upon
submission of periodic bills; PROVIDED, HOWEVER, that, if the indemnifying party
reasonably contests its obligation to indemnify the indemnified party against
such Losses under this Agreement, the indemnifying party may defer the
reimbursement of the periodic bills with respect to such Losses until such time
as it is obligated to make payment to the indemnified party under Section
9.3(b). If the indemnifying party shall assume the defense of any Claim, the
indemnified party may participate, at his or its own expense, in the defense of
such Claim; PROVIDED, HOWEVER, that such indemnified party shall be entitled to
participate in any such defense with separate counsel at the expense of the
indemnifying party if, (i) so requested by the indemnifying party to participate
or (ii) in the reasonable opinion of counsel to the indemnified party, a
conflict or potential conflict exists between the indemnified party and the
indemnifying party that would make such separate representation advisable; and
PROVIDED, FURTHER, that the indemnifying party shall not be required to pay for
more than one such counsel for all indemnified parties in connection with any
Claim. The parties hereto agree to cooperate fully with each other in connection
with the defense, negotiation or settlement of any such Claim.
(b) After any final judgment or award shall have been rendered by a court,
arbitration board or administrative agency of competent jurisdiction and the
expiration of the time in which to appeal therefrom, or a settlement shall have
been consummated, or the indemnified party and the indemnifying party shall have
arrived at a mutually binding agreement with respect to a Claim hereunder, the
indemnified party shall forward to the indemnifying party notice of any sums due
and owing by the indemnifying party pursuant to this Agreement with respect to
such matter and the indemnifying party shall be required to pay all of the sums
so due and owing to the indemnified party in accordance with Section 9.3(d).
(c) The failure of the indemnified party to give reasonably prompt notice of
any Claim shall not release, waive or otherwise affect the indemnifying party's
obligations with respect thereto except to the extent that the indemnifying
party can demonstrate actual loss and prejudice as a result of such failure.
(d) Except as set forth in Section 9.3(e), all payments of Claims to an
indemnified party may be made by wire transfer of immediately available funds
within 10 business days after the date of the notice of sums due and owing
provided for in Section 9.3(b). In addition, except as set forth in Section
9.3(e), Seller or Purchaser may elect, at its option, to pay any Claims to an
indemnified party in shares of Purchaser Common Stock, and the number of shares
of Purchaser Common Stock to be transferred in satisfaction of such liabilities,
and the terms of any such transfer, shall be determined as set forth in Sections
9.3(f). In the event that Purchaser is the indemnifying party and Seller is the
indemnified party with respect to any Claim, the amount of such Claim shall be
increased as appropriate to reflect the percentage of Purchaser's issued and
outstanding capital stock that is owned beneficially or of record by Seller as
of the date of the notice delivered pursuant to Section 9.3(b) with respect to
such Claim. As an example, if Purchaser must indemnify Seller for a Claim
otherwise amounting to $100,000 and Seller owns 60% of Purchaser's issued and
outstanding capital stock at such time, the amount of Seller's Claim shall be
deemed to be increased to $250,000 (the amount which, when 60% of its value is
subtracted, equals the original amount of the Claim).
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(e) Notwithstanding any other provision of this Agreement to the contrary,
any liability of Seller under Section 9.1(a)(i), up to the Seller Cap, and any
liability of Purchaser under Section 9.1(b)(i), up to the Purchaser Cap, shall
be payable solely in shares of Purchaser Common Stock. The number of shares of
Purchaser Common Stock to be transferred with respect to any such liability
being paid in shares of Purchaser Common Stock shall be determined as set forth
in Section 9.3(f).
(f) In the event that Seller or Purchaser, in accordance with Section
9.3(d), elects or is required to pay any liabilities owing by it in shares of
Purchaser Common Stock, the number of shares to be transferred with respect to
any such liability shall be determined by dividing the amount of such liability
(as such amount may be adjusted pursuant to Section 9.3(d)) by the Applicable
Average Share Value. The "Applicable Average Share Value" shall be equal to the
average of the Daily Closing Prices for each of the ten Business Days
immediately preceding the date of the notice provided for in Section 9.3(b); and
the "Daily Closing Price" for each such day shall be average of the last bid and
ask price of Purchaser Common Stock quoted on such day on the Small Cap Market
(or such exchange or quotation system as shall report the trading prices of
Purchaser Common Stock at the relevant time).
(g) Purchaser covenants and agrees that, in the event it issues any shares
of Purchaser Common Stock to Seller in payment of any Claim of Seller
("Additional Shares") hereunder, it will take such actions as may be necessary
to assure that, upon issuance, such Additional Shares (i) will be duly
authorized, validly issued, fully paid and non-assessable and free of preemptive
rights, and will be registered on the stock certificate books and stock transfer
ledgers of Purchaser solely in the name of Seller and (ii) will be approved for
quotation on the Small Cap Market, subject to official notice of issuance.
Seller will receive good and marketable title to any Additional Shares within 10
business days after the date of the notice provided for in Section 9.3(b), free
and clear of any and all Liens.
(h) Seller covenants and agrees that, in the event it transfers any shares
of Purchaser Common Stock to Purchaser in payment of any Claims hereunder
("Adjustment Shares"), it will take such actions as may be reasonably necessary
to assure that, upon such transfer, Seller shall have delivered to Purchaser
good and marketable title to such Adjustment Shares, free and clear of any and
all Liens. Any such transfers of Adjustment Shares will be made within 10
business days after the date of the notice provided for in Section 9.3(b).
ARTICLE X
MISCELLANEOUS
10.1 CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings specified in this Section 10.1:
"AFFILIATE" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person. Roamer
One Holdings Inc., Nicholas Wilson and their respective affiliates and
associates shall be deemed to be Affiliates of Purchaser for the purposes of
this Agreement.
"AFFILIATED GROUP" means, with respect to any entity, a group of
entities required or permitted to file consolidated, combined or unitary Tax
Returns, including, without limitation, Chapter IV of Part X of the Income
and Corporation Taxes Act 1988.
"BASKET" shall have the meaning set forth in Section 9.2.
"BUSINESS" means any and all (a) operations, assets, rights or
liabilities of Radiocoms and its Subsidiaries whatsoever and (b) operations,
assets and rights or liabilities of other of Seller's Affiliates, other than
Dopra, Datatrak, Cellular and TrakBak, related directly and principally to
the business of manufacturing and selling land mobile radio equipment.
"BUSINESS DAY" means any day of the year on which national banking
institutions in New York and London are open to the public for conducting
business and are not required or authorized to close.
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"CLOSING" shall have the meaning set forth in Section 3.1.
"CLOSING DATE" shall have the meaning set forth in Section 3.1 hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITTEE" has the meaning set forth in Section 6.2.
"COMMUNICATIONS ACT" has the meaning set forth in Section 5.27(h).
"CONTRACT" means any contract, agreement, indenture, note, bond, loan,
instrument, lease, commitment or other arrangement or agreement.
"DTI" means the Department of Trade and Industry.
"EFJ SHARES" shall have the meaning set forth in the recitals to this
Agreement.
"ENVIRONMENTAL LAW" means any applicable federal, state or local
statute, law ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decrees, injunction,
directive, requirement or agreement with any Governmental Body, now
existing, relating to: (a) the protection, preservation or restoration of
the environment (including, without limitation, air water vapor, surface
water, groundwater, drinking water supply, surface land, subsurface land,
plant and animal life or any other natural resource), or to human health or
safety, or (b) the exposure to, or the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production,
release or disposal of Hazardous Substances, in each case as amended. The
term Environmental Law includes, without limitation, (a) the following
statutes, each as amended: (i) the Federal Clean Air Act; (ii) the Federal
Clean Water Act; (iii) the Federal Resource Conservation and Recovery Act of
1976 ("RCRA"); (iv) the Federal Comprehensive Environmental Response
Compensation and Liability Act of 1980 ("CERCLA"); (v) the Federal Toxic
Substances Control Act; (vi) the Federal Occupational Safety and Health Act
of 1970; (vii) the Federal Safe Drinking Water Act; (viii) the Federal
Insecticide, Fungicide and Rodenticide Act; (ix) the California Hazardous
Waste Control Law; (x) the California Hazardous Substance Account Act; (xi)
the Porter-Cologne Water Quality Control Act; and (xii) the California Air
Pollution Control Law; and (b) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
"EXCLUDED LIABILITIES" means any and all liabilities of Radiocoms and
its Subsidiaries or Affiliates not directly related to the Business,
including, without limitation:
(a) any and all Tax liabilities of Radiocoms and its Subsidiaries
attributable to any asset, right, liability or operation of Securicor plc or
its Affiliates (other than Radiocoms and its Subsidiaries) that are not
included in the Business (including, without limitation, liabilities arising
from any Tax Sharing Agreement (except to the extent attributable to income,
assets or liabilities of the Business) and any liability for value-added
Taxes arising from activities that are not part of the Business);
(b) any and all liabilities and obligations related to employees of
Radiocoms or any of its Subsidiaries other than those employees listed on
Section 4.17(d) of the Radiocoms Disclosure Letter;
(c) all liabilities of Radiocoms and its Subsidiaries to Seller and its
Affiliates except in respect of the Preferred Shares;
(d) any and all Tax liabilities of Radiocoms and its Subsidiaries
arising as a result of the provisions of sections 94 or 582 of the Income
and Corporation Taxes Act 1988 or sections 178 or 179 of the Taxation of
Chargeable Gains Act 1992 by virtue of or in consequence of the entering
into or performance of this Agreement, including, without limitation, Tax
liabilities arising from the transfer of shares of capital stock or other
assets to Radiocoms to ensure that Radiocoms owns all assets related to the
Business as of the Closing Date; and
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(e) any Tax liability of Radiocoms and its Subsidiaries arising as a
result of the denial of a deduction for interest accrued on any intercompany
indebtedness which is refinanced in accordance with Section 6.11 of this
Agreement.
"EXPENSES" shall have the meaning set forth in Section 9.1(a).
"FCC" means the Federal Communications Commission.
"GAAP" means, with respect to financial or accounting information
concerning any Person, generally accepted accounting principles as of the
date hereof in the United States.
"GOVERNMENTAL BODY" means any government or governmental or regulatory
body thereof, or political subdivision thereof, whether federal, state,
local or foreign, or any agency, instrumentality or authority thereof, or
any court or arbitrator (public or private).
"HAZARDOUS SUBSTANCE" means any substance, whether liquid, solid or gas,
listed, defined, designated or classified as hazardous, toxic, radioactive
or dangerous, under any applicable Environmental Law, whether by type or by
quantity. Hazardous Substance includes, without limitation, (aa) any
"hazardous substance" as defined in CERCLA, (bb) any "hazardous waste" as
defined in RCRA, and (cc) any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste or petroleum or
any derivative or by-product thereof, radon, radioactive material, friable
asbestos, asbestos containing material releasing friable asbestos, urea
formaldehyde foam insulation, lead and polychlorinated biphenyls ("PCBs").
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"KNOWLEDGE" means, with respect to any Person, the actual or
constructive knowledge of such Person and, in the case of a corporation, the
actual or constructive knowledge of its executive officers and directors,
after reasonable investigation (except as set forth in Section 5.21);
PROVIDED, HOWEVER, that with respect to any representation or warranty of
Seller concerning EFJ which is qualified as to knowledge, "knowledge" means
the actual knowledge of Seller's executive officers and directors without
any independent investigation.
"LAW" means any federal, state, local or foreign law (including common
law), statute, code, ordinance, rule, regulation or other requirement.
"LEGAL PROCEEDING" means any judicial, administrative or arbitral
actions, suits, proceedings (public or private), claims or governmental
proceedings.
"MIDLAND AGREEMENT" shall have the meaning set forth in the recitals to
this Agreement.
"LIEN" means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"LOAN AGREEMENT" has the meaning set forth in Section 7.2(f).
"LOSSES" shall have the meaning set forth in Section 9.1(a).
"MATERIAL ADVERSE CHANGE" means, with respect to any Person or the
Business, any material adverse change in the business, properties, results
of operations, condition (financial or otherwise) of such Person, it being
presumed that any such change which results in the decrease of the net asset
value of a Person or the Business by 10% or more constitutes a Material
Adverse Change.
"MATERIAL ADVERSE EFFECT" means any effect which has resulted in, or
could be reasonably likely to result in, a Material Adverse Change.
"MIDLAND US" shall have the meaning set forth in the recitals to this
Agreement.
"ORDER" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award.
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"OTHER TRANSACTIONS" shall have the meaning set forth in the recitals to
this Agreement.
"PERMITS" means any approvals, authorizations, consents, licenses,
permits or certificates.
"PERMITTED EXCEPTIONS" means (i) all defects, exceptions, restrictions,
easements, rights of way and encumbrances disclosed in policies of title
insurance which have been made available to Purchaser or Seller, as
applicable; (ii) statutory liens for current taxes, assessments or other
governmental charges not yet delinquent or the amount or validity of which
is being contested in good faith by appropriate proceedings, provided an
appropriate reserve is established therefor; (iii) mechanics', carriers',
workers', repairers' and similar Liens arising or incurred in the ordinary
course of business that are not material to the business, operations and
financial condition of the property so encumbered or owner thereof; (iv)
zoning, entitlement and other land use and environmental regulations by any
Governmental Body, provided that such regulations have not been violated;
and (v) such other imperfections in title, charges, easements, restrictions
and encumbrances which do not detract more than 10% from the value of or
materially interfere with the present use of any property subject thereto or
affected thereby.
"PERSON" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated
organization, Governmental Body or other entity.
"PURCHASER" shall have the meaning set forth in the recitals to this
Agreement.
"PURCHASER DISCLOSURE LETTER" shall have the meaning set forth in the
Section 5.4(a).
"PURCHASER SHARES" shall have the meaning set forth in Section 2.1.
"PURCHASER STOCKHOLDERS' MEETING" shall have the meaning ascribed
thereto in Section 6.3(b).
"RADIOCOMS" shall have the meaning set forth in the recitals to this
Agreement.
"RADIOCOMS DISCLOSURE LETTER" shall have the meaning set forth in
Section 4.4(a).
"RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, or leaching into the
indoor or outdoor environment, or into or out of any property.
"RELEVANT AFFILIATE" shall have the meaning set forth in Section 4.4(a).
"REMEDIAL ACTION" means all actions to (x) clean up, remove, treat or in
any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; or (z) perform
pre-remedial studies and investigations or post-remedial monitoring and
care.
"SELLER" shall have the meaning set forth in the recitals to this
Agreement.
"SHARES" shall have the meaning set forth in the recitals to this
Agreement.
"SIMMONDS" shall have the meaning set forth in the recitals to this
Agreement.
"SUBSIDIARY" means any other Person of which a majority of the
outstanding voting securities or other voting equity interests are owned,
directly or indirectly, by such Person.
"TAXES" means (i) all federal, state, local or foreign taxes, charges,
fees, imposts, levies or other assessments, including, without limitation,
all net income, gross receipts, capital, sales, use, ad valorem, value
added, transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, national insurance,
unemployment, excise, severance, stamp, occupation, property, corporation
and estimated taxes, customs duties, fees, assessments and charges of any
kind whatsoever; (ii) all interest, penalties, fines, additions to tax or
additional amounts imposed by any taxing authority in connection with any
item described in clause (i); and (iii) any transferee liability in respect
of any items described in clauses (i) and/or (ii).
"TAX RETURN" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any
Taxes.
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"TAX SHARING AGREEMENT" means an agreement (whether or not in writing)
pursuant to which Tax losses of one entity are made available to another
entity of the "group" or Affiliates for purposes of Taxes.
"TRANSACTIONS" shall have the meaning set forth in the recitals to this
Agreement.
10.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The parties hereto hereby
agree that the representations and warranties of Seller and of Purchaser shall
survive the execution and delivery of this Agreement, and the Closing hereunder,
regardless of any investigation made by the parties hereto, for a period of
eighteen months following the Closing. Any claims or actions with respect to any
representation or warranty that survives the execution and delivery of this
Agreement and the Closing hereunder shall terminate unless, within eighteen
months after the Closing Date, written notice of such claims is given to the
indemnifying party or such actions are commenced.
10.3 EXPENSES. Except as otherwise provided in this Agreement, Seller and
Purchaser shall each bear its own expenses incurred in connection with the
negotiation and execution of this Agreement and each other agreement, document
and instrument contemplated by this Agreement and the consummation of the
transactions contemplated hereby and thereby.
10.4 FURTHER ASSURANCES. Seller and Purchaser each agrees to execute and
deliver such other documents or agreements and to take such other action as may
be reasonably necessary or desirable for the implementation of this Agreement
and the consummation of the transactions contemplated hereby.
10.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement (including
the exhibits hereto), the Radiocoms Disclosure Letter and the Purchaser
Disclosure Letter represent the entire understanding and agreement between the
parties hereto with respect to the subject matter hereof and can be amended,
supplemented or changed, and any provision hereof can be waived, only by written
instrument making specific reference to this Agreement signed by the party
against whom enforcement of any such amendment, supplement, modification or
waiver is sought. No information disclosed in any Section of the Radiocoms
Disclosure Letter or Purchaser Disclosure Letter shall be deemed to have been
disclosed for purposes of any other Section without being specifically
cross-referenced in such Section. No action taken pursuant to this Agreement,
including without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representation, warranty, covenant or agreement contained
herein. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach. No failure on the
part of any party to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by Law.
10.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of the State of New York (without application of its
principles of conflicts of laws).
10.7 TABLE OF CONTENTS AND HEADINGS. The table of contents and section
headings of this Agreement are for reference purposes only and are to be given
no effect in the construction or interpretation of this Agreement.
10.8 NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the
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parties (and may also be transmitted by facsimile to the Persons receiving
copies thereof) at the following addresses (or to such other address as a party
may have specified by notice given to the other party pursuant to this
provision):
If to Seller, to:
Securicor Communications Ltd.
Sutton Park House
15 Carshalton Road
Sutton, Surrey, SM1 4LD England
Attn: Dr. Ed Hough
Telecopier: (011 44) 181-661-0205
With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Howard Chatzinoff, Esq.
Telecopier: (212) 310-8007
If to Purchaser, to:
INTEK Diversified Corporation
970 West 190th Street, Suite 720
Torrance, California 90502
Attn: David Neibert
Telecopier: (310) 366-7712
With a copy to:
Kohrman Jackson & Krantz PLL
One Cleveland Center, 20th Floor
1375 East Ninth Street
Cleveland, Ohio 44114
Attn: Steven L. Wasserman, Esq.
Telecopier: (216) 621-6536
10.9 SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of this Agreement shall remain in effect.
10.10 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. Nothing in this Agreement shall create or be deemed to create
any third party beneficiary rights in any person or entity not a party to this
Agreement except as provided below. No assignment of this Agreement or of any
rights or obligations hereunder may be made by either Seller or Purchaser (by
operation of Law or otherwise) without the prior written consent of the other
parties hereto and any attempted assignment without the required consents shall
be void.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
INTEK DIVERSIFIED CORPORATION
By: /s/
-----------------------------------
Name: Nicholas R. Wilson
Title: Chairman
SECURICOR COMMUNICATIONS LIMITED
By: /s/
-----------------------------------
Name: Edmond Hough
Title: Director
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Each of the undersigned hereby agrees that he will not unreasonably withhold
his consent to any action as to which the consent of the Committee (as defined
in the foregoing Agreement) is required under Sections 6.2(a) or 6.2(b) of the
foregoing Agreement.
--------------------------------------
Ed Hough
--------------------------------------
John Simmonds
--------------------------------------
Nicholas Wilson
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Security Services plc, a corporation formed under the laws of England and
Wales and the owner of 100% of the issued and outstanding capital stock of
Securicor Communications Limited ("SCL") hereby guarantees the obligations of
SCL under Section 9.1(a) of the foregoing Stock Purchase Agreement and agrees to
cause SCL to provide the financing contemplated under Section 7.2(f) thereof.
SECURITY SERVICES PLC
By:
-----------------------------------
Name:
Title:
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AMENDMENT NO. 1
TO STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 ("Amendment No. 1"), dated as of September 19, 1996, to
that certain Stock Purchase Agreement, dated as of June 18, 1996 (the
"Agreement"), between INTEK Diversified Corporation, a Delaware corporation
("Purchaser"), and Securicor Communications Limited, a corporation formed under
the laws of England and Wales ("Seller"), a wholly-owned indirect subsidiary of
Securicor plc and the sole shareholder of Securicor Radiocoms Limited, a
corporation formed under the laws of England and Wales ("Radiocoms").
W I T N E S S E T H:
WHEREAS, Purchaser and Seller have entered into the Agreement providing for
Seller to sell to Purchaser, and Purchaser to purchase from Seller, all of the
ordinary shares, 1.00 par value per share, deferred shares, 1.00 par value per
share and ordinary shares, $0.10 par value per share, of Radiocoms, for the
purchase price and upon the terms and conditions set forth in the Agreement;
WHEREAS, the consummation of the transactions contemplated by the Agreement
is a condition precedent to, and is conditioned upon, the consummation of
certain other transactions (the "Other Transactions") pursuant to that certain
Sale of Assets and Trademark License Agreement, dated as of June 18, 1996 and as
amended and restated as of the date hereof (as so amended and restated, the
"Amended and Restated Midland Agreement"), by and among Purchaser, Midland
International Corporation, a Delaware corporation and a wholly-owned indirect
subsidiary of Simmonds Capital Limited, an Ontario corporation ("Simmonds"), and
Simmonds;
WHEREAS, Seller and Purchaser have determined that it is mutually beneficial
to amend the Agreement to provide for the consummation of the Other Transactions
prior to the consummation of the transactions contemplated by the Agreement (the
"Transactions") and to make certain other changes as set forth therein, said
amendment to be in accordance with the terms and subject to the conditions set
forth in this Amendment No. 1; and
WHEREAS, capitalized terms used in this Amendment No. 1 without definition
herein shall be deemed to have the meanings ascribed to such terms in the
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter contained, the parties hereby agree as follows:
ARTICLE I
1.1. Wherever in the Agreement (a) the term "Agreement" appears it shall be
deemed to refer to the Agreement as amended by this Amendment No. 1, (b) the
term "Midland Agreement" appears it shall be deemed to refer to the Midland
Agreement as amended and restated in the Amended and Restated Midland Agreement
and (c) the term "Transactions" appears it shall be deemed to refer to the
transactions contemplated under the Agreement and not the transactions
contemplated under the Midland Agreement, which are referred to herein as "Other
Transactions", except in the case of each of the foregoing where the context
otherwise requires.
1.2. Section 4.6(b) of the Agreement is hereby amended by deleting clause
(ii) thereof in its entirety and such clause (ii) is replaced with the
following:
"(ii) for amendments to Seller's Schedule 13D filing with respect to
Purchaser to reflect the execution of this Agreement (or any amendments hereto)
and the consummation of the Transactions or the Other Transactions, and"
1.3. Section 5.2(b) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
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"(b) ]Assuming the accuracy of Seller's representation in Section 4.27, the
affirmative vote of the holders of a majority of the outstanding shares of
Purchaser Common Stock is the only vote of the holders of any class or series of
Purchaser's capital stock (under applicable Law or otherwise) necessary to
approve this Agreement, the issuance of the Purchaser Shares or the
Transactions, and no vote of the holders of any class or series of Purchaser's
capital stock (under applicable Law or otherwise) is necessary to approve the
Midland Agreement or the Other Transactions."
1.4. Section 5.11(d) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"(d) Neither Purchaser nor any of its Subsidiaries has issued any equity
securities or any securities convertible into or exchangeable for equity
securities of Purchaser or any of its Subsidiaries, except for the issuance of
2,500,000 shares of Purchaser Common Stock in connection with the consummation
of the Other Transactions and the issuance of the option contemplated by the
Midland Agreement in respect of the capital stock of Midland USA, Inc. ("Midland
USA");"
1.5. Section 5.11(g) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"(g) Neither Purchaser nor any of its Subsidiaries has entered into any
transaction or Contract or conducted its business other than in the ordinary
course consistent with past practice, except for the consummation of the Other
Transactions and in connection with the Loan Agreement, dated the date hereof,
by and between Midland USA and Seller (the "Loan Agreement") and the documents
thereunder to which Midland USA or Purchaser is a party (the Loan Agreement and
such loan documents are collectively referred to herein as the "Loan
Documents");"
1.6. Section 5.11(i) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"(i) Neither Purchaser nor any of its Subsidiaries has made any loans,
advances or capital contributions to, or investments in, any Person or paid any
fees or expenses to the Purchaser or any Affiliate or holder of 15% or more of
the issued and outstanding capital stock of Purchaser, except in connection with
the consummation of the Other Transactions;"
1.7. Section 5.11(j) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"(j) neither Purchaser nor any of its Subsidiaries has mortgaged, pledged or
subjected to any Lien any assets, or acquired any assets or sold, assigned,
transferred, conveyed, leased otherwise disposed of any assets of Purchaser or
its Subsidiaries, except in the ordinary course of business consistent with past
practice and except in connection with the consummation of the Other
Transactions or the execution, delivery and performance of the Loan Documents."
1.8. Section 5.16(c) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"(c) Simultaneously with the execution of this Agreement, Purchaser has
delivered to Seller a true, complete and correct copy of the Midland Agreement
(including all exhibits and schedules thereto) as in effect on the date hereof
and will deliver to Seller a true, complete and correct copy of any amendments
to, or restatements of, the Midland Agreement (or any exhibits or schedules
thereto). The Midland Agreement, as the same may be amended or restated from
time to time, is valid and enforceable in accordance with its terms, subject to
the Bankruptcy Exception. Each of the representations and warranties of
Purchaser contained in the Midland Agreement, and to Purchaser's knowledge, each
of the representations and warranties of Midland US contained therein, is true
and correct in all material respects and will be true and correct in all
material respects as of the date of the consummation of the Other Transactions.
(i) Neither Purchaser nor, to the knowledge of Purchaser, Midland US, is in
material breach of or in material default under the Midland Agreement, (ii) to
the knowledge of Purchaser, there has not occurred any event which, after the
giving of notice or the lapse of time or both, would constitute a material
default under, or result in a
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material breach of, the Midland Agreement, (iii) no party to the Midland
Agreement has given notice of or made a claim with respect to any material
breach or material default thereunder, (iv) except as set forth in the Midland
Agreement, none of the rights of Purchaser under the Midland Agreement will be
subject to termination or modification as a result of the consummation of the
transactions contemplated by this Agreement, and (v) except as set forth
therein, no consent or approval of any third party is required under the Midland
Agreement to the consummation of the transactions contemplated thereby or
hereby."
1.9. The prefatory clause of paragraph (b) of Section 6.2 of the Agreement
is hereby deleted in its entirety and replaced with the following:
"(b) Prior to the Closing Date, except as otherwise expressly contemplated
by this Agreement, or in connection with, or as a result of the consummation of
the Other Transactions or the execution, delivery and performance of the Loan
Documents, or with the prior unanimous written consent of the Committee (which
consent shall not be unreasonably withheld), Seller shall cause Radiocoms and
its Subsidiaries and to the extent that it is engaged in the Business, any
Relevant Affiliate, not to and Purchaser shall not, and shall cause its
Subsidiaries not to:"
1.10. Section 6.4 of the Agreement is hereby amended by adding the words
"and the Other Transactions" in the last sentence thereof, immediately following
the word "Transactions".
1.11. Section 7.1(c) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"(c) No Legal Proceedings shall have been instituted or threatened or claim
or demand made against Seller, Radiocoms or Purchaser seeking to restrain or
prohibit or to obtain damages with respect to the consummation of any of the
Transactions or the Other Transactions and there shall not be in effect any
Order by Governmental Body of competent jurisdiction restraining, enjoining or
otherwise prohibiting the consummation of any of the Transactions or the Other
Transactions;"
1.12. Section 7.1(e) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"(e) All approvals required to be obtained by Seller, Purchaser or Midland
US from any Governmental Body with respect to any of the Transactions or the
Other Transactions shall have been obtained;"
1.13. Section 7.1(f) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"(f) The Purchaser Stockholders' Meeting shall have been duly convened and
held, and Purchaser shall have obtained the requisite vote so as to authorize
this Agreement, the Midland Agreement (if necessary) and the consummation of
each of the Transactions and (if necessary) the Other Transactions;"
ARTICLE II
2.1. It is understood and agreed that the consummation of the Other
Transactions prior to the consummation of the Transactions and the execution,
delivery and performance by Midland USA of the Loan Agreement and the execution,
delivery and performance by Midland USA and Purchaser of the Loan Documents
thereunder to which each is a party will necessitate the updating of the
Purchaser Disclosure Letter that was delivered by Purchaser to Seller in
connection with the execution of the Agreement, as contemplated by Section 6.12
of the Agreement, and in some cases (as where the Agreement does not contemplate
any exceptions being set forth in the Purchaser Disclosure Letter) will
necessitate a further amendment to the Agreement to provide for the disclosure
of information in the relevant section of the Purchaser Disclosure Letter.
Purchaser agrees to update the Purchaser Disclosure Letter promptly following
the execution of this Amendment No. 1 (and Purchaser and Seller agree promptly
to enter into any further amendment to the Agreement necessary to give effect
thereto) and, in any event, shall deliver a complete, revised Purchaser
Disclosure Letter to Seller within 20 Business Days following the date hereof
(and Purchaser and Seller agree to execute and deliver any amendment to the
Agreement required in
65
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connection therewith by such date). It is understood and agreed that, to the
extent such revised Purchaser Disclosure Letter (or amendment) reflects (a) the
addition of matters that were disclosed as of June 18, 1996 in the "Midland
Disclosure Schedules" referred to in the Midland Agreement or matters resulting
directly from the consummation of the Other Transactions prior to the
consummation of the Transactions or (b) the transactions contemplated by the
Loan Documents, no representations or warranties of Purchaser contained in the
Agreement shall be deemed to be breached solely by such additions.
2.2 It is understood and agreed that (a) the consummation of the Other
Transactions on or after the date of this Amendment No. 1, on the terms and in
the manner contemplated by the Amended and Restated Midland Agreement and (b)
the consummation of the transactions contemplated by the Loan Documents on the
terms and in the manner contemplated therein, shall not be deemed to violate any
covenants or other obligations of Purchaser pursuant to Section 6.2 of the
Agreement.
2.3. Pursuant to the provisions of Section 6.8 of this Agreement, execution
of this Agreement by Seller shall constitute the written consent of Seller to
the Amended and Restated Midland Agreement.
ARTICLE III
3.1. Each of Purchaser and Seller hereby represents and warrants to the
other that: (a) it has all requisite power, authority and legal capacity to
execute and deliver this Amendment No. 1; (b) the execution and delivery of this
Amendment No. 1 has been duly and validly authorized by its Board of Directors,
and no other corporate proceedings on its part will be necessary to authorize
this Amendment No. 1; and (c) assuming the due authorization, execution and
delivery by the other party hereto, this Amendment No. 1 constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its
terms, subject to the Bankruptcy Exception.
ARTICLE IV
4.1. Except as expressly amended hereby, the Agreement shall remain in full
force and effect from and after the execution of this Amendment No. 1.
4.2. This Amendment No. 1 shall be governed by and construed in accordance
with the Laws of the State of New York (without application of its principles of
conflicts of Laws).
4.3. This Amendment No. 1 may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
the Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first written above.
INTEK DIVERSIFIED CORPORATION
By: _/s/______________________________
Name: Steven L. Wasserman
Title: Secretary
SECURICOR COMMUNICATIONS LIMITED
By: _/s/______________________________
Name: M. G. Wilkinson
Title: Director
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PROXY PROXY
INTEK DIVERSIFIED CORPORATION
ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 3, 1996
11:00 A.M. LOCAL TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Nicholas R. Wilson and David Neibert, and
each of them, the proxy or proxies of the undersigned, with full powers of
substitution to each, to attend the Annual Meeting of Stockholders of INTEK
Diversified Corporation, to be held on December 3, 1996, at the offices of Weil,
Gotshal & Manges LLP, 767 Fifth Avenue, 30th Floor, New York, New York 10153,
beginning at 11:00 a.m. local time, and any adjournments thereof, and to vote
all shares of stock that the undersigned would be entitled to vote if personally
present in the manner indicated below and on the reverse side, and on any other
matters properly brought before the Meeting or any adjournments thereof, all as
set forth in the November 8, 1996 proxy statement.
PLEASE MARK YOUR CHOICE LIKE THIS /X/ IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR ALL NOMINEES", FOR PROPOSAL
2,
FOR PROPOSAL 3 AND FOR PROPOSAL 4. PROPOSAL 3 IS CONTINGENT ON APPROVAL OF
PROPOSAL 2.
1. Election of the following nominees as directors: Nicholas R. Wilson, John G.
Simmonds, Harry Dunstan, Peter A. Heinke, Christopher Branston, David
Neibert and Steven L. Wasserman:
/ / FOR / / WITHHOLD
(Authority to vote for any nominee may be withheld by lining through to
otherwise striking out the name of such nominee)
2. Approval of amendment to Restated Certificate of Incorporation:
/ / FOR / / AGAINST / / ABSTAIN
3. Approval and adoption of the Stock Purchase Agreement, as amended:
/ / FOR / / AGAINST / / ABSTAIN
4. Approval of appointment of independent accountants:
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE DATE, SIGN AND RETURN
PROMPTLY.
<PAGE>
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF INTEK DIVERSIFIED CORPORATION.
(Signature should be exactly as name
or names appear on this proxy. If
stock is held jointly each holder
should sign. If signature is by
attorney, executor, administrator,
trustee or guardian, please give
full title.)
Dated: _______________________, 1996
____________________________________
Signature
____________________________________
Signature if held jointly
I plan to attend the meeting:
Yes / / No / /
This proxy will be voted FOR the
nominees and the above matters
unless otherwise indicated, and in
the discretion of the proxies on all
other matters properly brought
before the Meeting.
