<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______TO______
COMMISSION FILE NUMBER:0-9160
INTEK DIVERSIFIED CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2450145
(STATE OF INCORPORATION) I.R.S. EMPLOYER
IDENTIFICATION NUMBER
214 CARNEGIE CENTER, SUITE 304 08549-6237
PRINCETON, NEW JERSEY
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
Registrant's telephone number, including area code: (609) 419-1222
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.01 PAR VALUE
(Title of Each Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of December 31, 1997, the aggregate market value of voting stock held by
non-affiliates was approximately $17,116,747. The number of shares outstanding
of the Registrant's Common Stock was 41,973,946 as of December 31, 1997.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's Definitive Proxy Statement to be filed with the
Commission pursuant to Regulation 14A in connection with the 1998 Annual Meeting
are incorporated herein by reference into Part III of this Report. Such proxy
statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Registrant's fiscal year ended September 30, 1997.
<PAGE>
INDEX
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Forward-Looking Statements. . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Business Acquisitions and Significant Items . . . . . . . . . . . . . . . 2
Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Wireless Communications Industry. . . . . . . . . . . . . . . . . . . . . 3
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
International. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Communications Services . . . . . . . . . . . . . . . . . . . . . . . . . 4
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
International. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Equipment Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . 5
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
International. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
LM Research and Development . . . . . . . . . . . . . . . . . . . . . . . 6
Benefits of LM Technology. . . . . . . . . . . . . . . . . . . . . . . 7
Benefits of LM Technology in an SMR system . . . . . . . . . . . . . . 7
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Non-LM Related . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
LM Related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Patents, Trademarks and Trade Secrets . . . . . . . . . . . . . . . . . . 7
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Communication Services . . . . . . . . . . . . . . . . . . . . . . . . 8
Equipment Distribution . . . . . . . . . . . . . . . . . . . . . . . . 8
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . .10
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
International. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Need for Additional Capital. . . . . . . . . . . . . . . . . . . . . .11
Dependence on Governmental Regulation. . . . . . . . . . . . . . . . .12
Development and Acceptance of LM Technology and Related Products . . .12
Ability to Compete . . . . . . . . . . . . . . . . . . . . . . . . . .12
Control by Majority Shareholder. . . . . . . . . . . . . . . . . . . .12
Supplier Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . .13
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . .14
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . .14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . .15
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . .15
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . .20
Effects of Inflation. . . . . . . . . . . . . . . . . . . . . . . . . .21
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . .21
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . .21
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.. . . . . . . . . . . . . . .21
PART III. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .21
Item 10. Directors and Executive Officers of the Registrant. . . . . . . .21
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . .21
Item 12. Security Ownership or Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Item 13. Certain Relationships and Related Transactions. . . . . . . . . .21
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
<PAGE>
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
as such may involve risks and uncertainties. These forward-looking statements
relate to, among other things, expectations of the business environment in which
the Company operates, projections of future performance, perceived opportunities
in the market and statements regarding the Company's mission and vision. The
Company's actual results, performance, or achievements may differ significantly
from the results, performance, or achievements expressed or implied in such
forward-looking statements. For discussion of the factors that might cause such
a difference, See "Item 1. Business - Risk Factors" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
INTRODUCTION
Intek Diversified Corporation, a Delaware corporation, is a provider of
spectrum-efficient wireless communications technology, products and services.
Unless otherwise indicated, the "Company" refers to Intek Diversified
Corporation and its subsidiaries.
The Company provides analog wireless communications services to its
subscribers in the U.S. utilizing radio frequencies (a) licensed to the
Company's Roamer One, Inc. ("Roamer One") subsidiary by the Federal
Communications Commission ("FCC") or (b) managed by Roamer One. The Company
holds the most licenses of 220 to 222 MHz ("220 MHz") frequency in the U.S.
The Company provides two-way 220 MHz specialized mobile radio ("SMR")
services to its subscribers under the Roamer One-TM- brand name on systems
utilizing the Company's patented and proprietary linear modulation ("LM")
technology ("LM Technology".) The Company's SMR sites cover 120 markets and
a U.S. population base of 175 million people and are referred to herein as
the Roamer One Network. LM Technology was developed by Linear Modulation
Technology, Ltd., a subsidiary of the Company's Securicor Radiocoms Limited
("Radiocoms") subsidiary. The transmitters (base stations) and radios used
on the Roamer One Network are manufactured by Radiocoms.
LM Technology products are distributed in the U.S. by the Company's Midland
USA, Inc. ("MUSA") subsidiary which also distributes SMR and land mobile radio
("LMR") products of other manufacturers through a well established base of
authorized dealers and agents, some of whom market Roamer One's services. In
the U.K., Radiocoms distributes LMR and SMR products of various manufacturers
and operates an SMR network under the Relayfone brand name.
The Company's LM Technology was developed for various wireless
communications applications including SMR, LMR, cellular and personal
communications services ("PCS"). LM Technology is a narrowband technology
designed to capitalize on the worldwide need for more efficient use of the radio
spectrum and offers the fastest data rate capability available for LMR and SMR
trunked radio system technology. LM Technology can overlay digital and analog
radio transmissions and provide up to a six-fold increase in a system's
capacity.
The Company's SMR businesses, and the communications products the
Company distributes, are regulated in the U.S. by the FCC and in the U.K. by
the Radio Communications Agency ("RA"), and therefore a significant portion
of the Company's business affairs (and those of its actual and potential
competitors) are always subject to changes in regulatory rules and policies.
Such changes can increase the level of competition and the cost of regulatory
compliance, affect the methods by which the Company manages its SMR systems
and its ability to obtain or keep licenses and impact other facets of the
Company's regulatory environment. Also, each FCC proceeding which might
affect the Company is subject to reconsideration, appellate review, and FCC
modification from time-to-time. There are other similar governmental
regulatory bodies that may affect the Company's ability to operate other SMR
systems or sell wireless communications products and technology in other
countries.
1
<PAGE>
BUSINESS ACQUISITIONS AND SIGNIFICANT ITEMS
Effective August 1, 1996, MUSA acquired from Midland International
Corporation, a wholly-owned subsidiary of Simmonds Capital Limited, its U.S.
land mobile radio distribution business, and certain of its assets (the "Midland
Transaction") in exchange for 2,345,000 shares of the Company's common stock
("Common Stock").
On December 3, 1996, the Company consummated the acquisition of all the
issued and outstanding common stock of Radiocoms (the "Radiocoms
Acquisition"), a wholly-owned subsidiary of Securicor Communications Limited
("Securicor"). The purchase price for the Radiocoms Acquisition was
25,000,000 shares of Common Stock. The Radiocoms Acquisition, approved by
the stockholders of the Company at a Special Stockholders' Meeting held on
December 3, 1996, was consummated on the same date.
During fiscal 1997, as part of its continuing expansion of the Roamer One
Network, the Company acquired 69 additional constructed systems from various
third parties. The aggregate purchase price paid for these systems and the
related FCC licenses was $7,357,000.
During fiscal 1997, the Company redirected its direct marketing campaign
for the Roamer One Network from a national campaign to a focused specific
geographic campaign beginning with targeted businesses in 4 wide-area geographic
markets.
In December 1997, the Company reached agreement with Securicor regarding
the refinancing of the Company's outstanding indebtedness of approximately
$25.4 million, under which principal and interest payments will begin in July
2001. The new credit facility provides the Company may borrow up to $29.5
million (including the outstanding indebtedness). Additionally, Securicor
agreed to purchase from the Company $12.4 million of preferred stock
redeemable in June 2003 (upon approval by the Intek stockholders of "blank
check" preferred stock) and reimburse the Company $2.6 million for certain
amounts related to the Radiocoms Acquisition.
BUSINESS STRATEGY
The Company's objective is to become a leading international provider of
cost-effective, spectrum-efficient wireless technologies, products and
services. The Company's LM Technology has been developed for implementation
in various wireless communications environments including SMR and LMR, and
may have applications in cellular and PCS. LM Technology is a narrowband
technology designed to capitalize on the worldwide need for more effective
use of the radio spectrum and offers the fastest data rate capability
available in LMR and SMR trunked radio system technology.
To accomplish its objective in the U.S., the Company will capitalize on the
opportunity made possible by the FCC's licensing of 220 MHz frequency nationally
for the use of narrowband technology. In addition, FCC initiatives, as well as
initiatives in the European Union ("EU") by the European Telecommunications
Standards Institute ("ETSI"), are fostering the development of other significant
markets for the Company's LM Technology. The Company's focus is to promote
worldwide commercialization of spectrum-efficient wireless communications
technology including LM Technology by:
- Licensing LM Technology to other wireless communications equipment
manufacturers.
- Fostering key strategic relationships to develop LM Technology
applications.
- Supplying LM ASICs (Application Specific Integrated Circuits) to
other equipment manufacturers for incorporation into their products.
- Developing new products based on LM Technology for the entire wireless
communications industry, but with a focus on LMR applications.
During fiscal 1997, the Company redirected its direct marketing campaign
for the Roamer One Network from a national campaign to a focused specific
geographic campaign beginning with targeted businesses in 4 wide-area geographic
markets. The Company intends to expand its direct marketing campaign into
additional selected markets in fiscal 1998. In the U.K., the Company is
seeking ways to expand its presence as an SMR service provider and it is also
actively seeking partners in other areas of the world to operate SMR systems.
As appropriate, the Company also may seek to acquire or manage SMR systems,
both in the U.S. and worldwide, utilizing technologies other than LM
Technology.
2
<PAGE>
Regarding equipment distribution, the Company is actively marketing its 220
MHz products (base stations and radios) to those U.S. license holders who, as
yet, have not constructed their systems or who want to upgrade their current
systems to the more technologically advanced systems offered by the Company.
The Company is also marketing its products to potential new public safety
license holders that will result from changes currently being made in FCC
regulation and to potential new license holders resulting from the FCC's 220 MHz
auctions scheduled to be held in 1998. See "Business-Government Regulation."
The Company also is expanding its "Midland" branded product line of
traditional LMR and SMR products of other manufacturers which it distributes
through MUSA. For industry segment financial information, see Note 8
"Business Segments" to Consolidated Financial Statements and Notes thereto
appearing elsewhere herein.
WIRELESS COMMUNICATIONS INDUSTRY
UNITED STATES
GENERAL
While two-way LMR communications in the U.S. has been available for many
years, the provision of wireless communications as an industry has only
developed generally since 1970, as a result of various licensing actions taken
by the FCC. The wireless industry provides high quality communication services
for vehicle mounted and hand portable telephones and other two-way radio units
in various frequency bands. Today, the wireless communications industry is
composed principally of telephony systems (cellular and PCS), paging systems,
mobile data providers and SMR systems, some of which also employ enhanced
services and digital technology ("ESMR") and provide telephone interconnect.
The first commercial SMR systems became operational in 1974 while the first
commercial cellular system was not operational until 1983. Historically, SMR
service has been provided utilizing 800 or 900 MHz bands.
The evolution of narrowband technology is a result of the RA's and FCC's
efforts to achieve spectrum efficiency for all types of broadcast service. The
220 MHz band 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 220 MHz band in 1991 ("Phase I Licensing"). Licenses for local 220
MHz SMR systems were issued in 1993. Approximately 3,300 five channel trunked
licenses were awarded to licensees in 220 MHz (the "licensees") of which an
estimated 1,000 were constructed. The Company believes the number of currently
commercially operational 220 MHz systems is very small.
Most users of wireless communications are subscribers to cellular, PCS,
ESMR and/or paging services. The next major segment of wireless communications
users are private, public safety and governmental LMR users followed by users of
commercial SMR systems including the Roamer One Network.
LMR
LMR systems are user owned two-way radio systems. These systems serve
business and industrial users as well as public safety and governmental users.
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.
LMR systems include conventional and trunked systems, both of which operate
on the specific frequency bands allocated for such systems by the FCC.
Conventional LMR systems utilize a single or a pair of channels to transmit and
receive information. This channel is open and unrestricted to all users. To use
a channel, a user has to wait until the channel is unoccupied. Trunked systems
combine multiple channels so when a user begins to transmit, an unoccupied
channel is automatically selected. Technology has been further developed to
allow trunked systems to be networked together allowing for multiple trunked
sites to be centrally switched and controlled.
There are currently different protocols and proprietary systems allowing
for the trunking and networking of LMR systems. Governmental or
quasi-governmental standards bodies are fostering some of these protocols both
in the U.S. and internationally, with the goal of allowing for higher user
capacities. In the U.S., the FCC is encouraging the adoption of narrowband
standards to allow for greater spectrum utilization of frequency bands to allow
for higher capacity ("refarming").
3
<PAGE>
The Company's LM Technology, with its patented system capacity enhancement
features, is one such technology that provides additional capacity through
narrowband technology. See "Business - Communication Services, LM Research and
Development".
According to published data, there are 19 million LMR users today. This
market is projected to grow substantially primarily because of the FCC's
"refarming" efforts.
SMR
SMR systems are LMR systems built to realize profits from the sale of
airtime to end-users that have a need for a dispatcher to communicate with a
fleet of vehicles. Historically, two-way dispatch radio, utilizing analog
technology, was the cornerstone of the SMR industry. Over the last several
years, however, many traditional SMR operators have been acquired by Nextel
Communications, Inc. ("Nextel") and have been, or are being, converted to a
national ESMR system utilizing digital technology which also provides cellular
like service. That consolidation, the Company believes, has left a void in the
U.S. market for those subscribers seeking traditional low cost two-way dispatch
service. Also, as a larger number of businesses are realizing that mobile
communications is paramount to their success in the current competitive business
environment and, because of increasing spectrum congestion, businesses are
unable to obtain their own FCC licenses. The Company's SMR service offers a
solution to their communications needs.
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 2.3 million in 1996. While approximately 50% of the SMR industry
subscribers are ESMR subscribers, the remaining subscribers 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. Only recently, however, SMR
operators have offered other applications besides voice transmission. These
services include automatic vehicle location, mobile messaging and other slow,
medium and high-speed data applications. LM Technology is ideally suited for
transmission of data at high speeds while providing crisp and clear voice
communication with the same mobile radio unit.
The Company's Roamer One Network and Relayfone are SMR systems operating
respectively in the U.S. and the U.K. See "Business - Communications
Services."
INTERNATIONAL
Internationally, wireless communications is growing at a rate equal to or
in some instances, exceeding the rate in the U.S. since traditional telephone
systems are not as reliable or ubiquitous in many parts of the world as
landline telephones are in the U.S.
According to published data, the SMR and LMR markets internationally are
estimated to be twice the size of the current U.S. market, but are projected to
grow at a somewhat slower pace than wireless communications overall.
COMMUNICATIONS SERVICES
UNITED STATES
Roamer One historically participated in the SMR market by focusing on
the construction and management of systems on behalf of other FCC licensees
("Managed Systems"). Today the Company's major focus is owning and operating
SMR systems on its own behalf. In some markets, Managed Systems constitute a
portion of the network the Company is marketing. The Roamer One Network is
constructed using trunked, generally networked, sites utilizing LM
Technology. While the Roamer One Network covers most major markets in the
U.S., individual markets are not interconnected and at this time it is not
the Company's intention to link the markets nationally. The Company believes
it is the largest licensee of 220 MHz spectrum in the U.S.
The Roamer One Network consists of approximately 250 constructed and
operational licenses in 120 U.S. markets and is expanding. The Company does not
yet have systems in certain other markets in which it desires to operate and
needs to expand capacity in certain of its current markets. The Company will
continue to acquire and in
4
<PAGE>
some instances sell, licenses that do not fit into its marketing plans. MUSA
presently has 220 MHz base stations in inventory that, if not sold to third
parties, could be used by the Company to build 200 additional sites.
Of its approximately 250 licenses, the Company holds or is in the
process of receiving 157 FCC licenses with the remaining licenses being
Managed Systems. Of the Managed Systems, the Company has options, at various
prices generally less than $10,000 per site and with varying expirations
dates generally over five years, to acquire 31 FCC licenses and the related
equipment.
During fiscal 1997, the Company redirected its direct marketing campaign
for the Roamer One Network from a national campaign to a focused specific
geographic campaign beginning with targeted businesses in 4 wide-area geographic
markets. The Company offers its SMR subscribers service packages customized
to fit a subscriber's needs including, in addition to basic two-way voice,
specific geographic coverage, various two-way data and vehicle location
capabilities. Examples of data communications applications include the
monitoring of such factors as vehicle 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 Company bills subscribers a fixed charge
for the specific services provided; presently, there are no variable airtime
charges. A subscriber can purchase, lease or rent from the Company the
necessary radio equipment specifically designed to operate only on a LM
Technology system.
The Company markets its SMR services though its own direct sales force and
through third-party dealers; some of who also may be dealers of MUSA. The
Company also intends to market its services through resellers who purchase
capacity on a Roamer One Network for a flat rate and resell the service to their
own subscribers. The Company's direct sales staff is compensated through a
combination of salary and commissions. Dealers are compensated through
commissions and/or a radio equipment subsidy and resellers earn the difference
between what they pay the Company for system capacity versus what they bill
their subscribers.
The Company believes that its SMR service offers an attractive alternative
to other SMR products and will assist in the entry into the marketplace of
various LMR products utilizing LM Technology.
It is anticipated that during fiscal 1998 the Company will be actively
expanding its SMR services in additional markets. The Company believes that its
currently constructed licenses can support between 200,000 and 400,000
subscribers although, ultimately, subscriber loading will depend on numerous
factors not the least of which is the Company's ability to commercially market
its service, the applications used by the Company's subscribers, and the Roamer
One Network performing technically as anticipated.
INTERNATIONAL
In the U.K., the Company operates an SMR network called Relayfone.
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 can support more than 3,500
subscribers. Relayfone subscribers may either purchase or lease radio equipment
from the Company. The Company is currently exploring alternatives to expand
its SMR operations in the U.K.
The Company also has agreements to operate SMR systems utilizing LM
Technology in several international locations. Commercial operation depends on
several factors including local regulatory licensing matters and the economic
viability of the proposed system.
EQUIPMENT DISTRIBUTION
UNITED STATES
The Company's equipment distribution business in the U.S. is conducted
through MUSA. MUSA markets its product line through a national network of over
340 two-way radio dealers, as well as on a direct basis to larger accounts in
the business and government sectors
NON-LM RELATED
The Company's non-LM distribution business consists of the import,
distribution and value-added resale of two-way branded LMR products. This
includes mobile radios, portable hand held radios, desktop base stations,
continuous duty base and repeater stations, and accessories. Most of the LMR
products sold are manufactured by third parties under contract, primarily in
Asia, and are developed to the design, quality and cost specifications
5
<PAGE>
provided by the Company. For certain products, MUSA has exclusive contracts with
a number of suppliers who provide MUSA 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 Company presently does not market any products that comply with the
Association of Public-Safety Communications Officials International ("APCO")
standards which limits the Company's ability to market LMR products to many
public safety and other governmental bodies. See "Business-Competition."
In fiscal 1997, one customer, U.S. Department of Agriculture--Forestry,
accounted for approximately 14% of MUSA's product sales. Products
manufactured by Hitachi Denshi Limited and General Research Electronics
accounted for 80% and 4% respectively of MUSA's sales.
LM RELATED
The Company to date has focused its LM product development for the LMR
market for the 220 MHz band because the FCC's licensing of 220 MHz in 1993 was
the first regulatory recognition internationally of the need for narrowband
technology that LM supports.
Because the Company's development of its product line, including base
stations, did not occur at the outset of 220 MHz licensing, most 220 MHz systems
constructed in the U.S. as of today do not use the Company's equipment. The
only major user of LM equipment is the Company. Other than for holders of
several national licenses and non-nationwide systems within the
American/Canadian border area as defined by the FCC, the mandatory construction
dates for Phase I licenses have expired. Accordingly, the Company's marketing
efforts for 220 MHz equipment in the U.S. is limited to the aforementioned
license holders of unconstructed systems, currently licensed system operators
who desire to upgrade their systems to LM, and the public safety market which it
is expected will shortly become able, under FCC regulations, to construct 220
MHz systems. The FCC has scheduled for 1998 an auction of 220 MHz frequency
("Phase II Licensing") and the Company will market LM equipment to those new
license holders. It is anticipated the Phase II Licensing will result in more
constructed licenses than resulted from Phase I Licensing. The Company's sales
in fiscal 1997 of LM equipment were not significant.
Due to the need for spectrum efficiency in other frequency bands,
especially UHF and VHF, the Company is presently developing products utilizing
LM Technology for those applications. The Company believes that "refarming" of
the bands below 512 MHz will stimulate the markets for products it may introduce
in those bands. It is anticipated that certain of these products may become
available for distribution late in calendar 1998.
INTERNATIONAL
To date, the Company's international direct sales and marketing of LM
products is not significant because the Company's LM product line has been
focused mainly on the U.S. market. With the Company's current efforts to
develop LM products for use outside the 220 MHz frequency band, the Company
anticipates that active marketing of certain of these products will begin late
in calendar 1998.
In the U.K., the Company, through Radiocoms, markets directly LMR products
manufactured by companies such as Motorola, Inc. ("Motorola") and Kenwood Radio
Corp. ("Kenwood"). The Company also rents to third-parties both LMR and
cellular equipment on a short-term basis. In addition, the Company maintains and
supports LMR systems and equipment for various customers.
In fiscal 1997, no one customer accounted for more than 10% of Radiocoms'
U.K. equipment distribution and related service revenue. Products manufactured
by Motorola and Kenwood accounted for 65% and 10% respectively of the Company's
U.K. equipment distribution sales.
LM RESEARCH AND DEVELOPMENT
The focus of the Company's research and development and product development
efforts over the last several years has been the development of LM Technology
and products for the 220 MHz market. The Company's product development efforts
are being refocused to reduce the cost of the Company's current line of 220 MHz
radios and to develop products for the other developing worldwide markets for
narrowband technology. The Company spent approximately $3,266,000 in fiscal
1997, $3,154,000 in fiscal 1996 and $2,831,000 in fiscal 1995 on research
and development.
6
<PAGE>
BENEFITS OF LM TECHNOLOGY
LM Technology:
- Provides up to a six-fold increase in radio system capacity.
- Overlays an existing radio system avoiding the cost of having to
replace the original system.
- Improves existing radio system performance; incrementally adds
capacity to LMR protocols such as APCO 25 and TETRA as well as FM and
CDMA, FDMA and TDMA cellular protocols. LM Technology works in both
analog and digital environments.
- Allows for high speed two-way data transmission at up to 16.8 kps.
BENEFITS OF LM TECHNOLOGY IN AN SMR SYSTEM
For an SMR system operator, including Roamer One, the Company's LM products
are:
- Stable when a system is being operated with a large numbers of
subscribers providing an excellent quality of service. An effective
means to "network" multiple sites and multiple channels. Presently,
certain SMR operators utilizing other technologies are unable to
network their systems in an efficient manner.
- Able to 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.
- Designed to allow for "roaming" over multiple sites servicing wide
coverage areas.
- Capable of high speed two-way data transmission
In fiscal 1997 the Company realized no revenue from the sale of LM
Technology.
MANUFACTURING
NON-LM RELATED
The Company's U.K. manufacturing facility is largely devoted to contract
manufacturing of electronic assemblies for third parties, some of which are
subsidiaries or affiliates of Securicor. The contract manufacturing business is
extremely competitive and the Company's facilities and equipment generally allow
only for small production runs of a product. The Company markets its
manufacturing capabilities to U.K. electronic companies through a direct sales
force. The Company's backlog at November 30, 1997 represents approximately 30%
of sales at fiscal 1997 levels.
In fiscal 1997, the Company realized approximately $5.3 million in
revenue from affiliates of Securicor, down approximately 12% from the prior
year. The Company's major customer in fiscal 1997 excluding affiliates, GEC
Marconi, represented 24% of manufacturing revenue. There is no assurance that
the Company will continue to receive manufacturing contracts from affiliates
of Securicor or others.
LM RELATED
The Company manufactures limited quantities of LM products, currently
mobile radios, to support the introduction of LM products in the marketplace. As
demand for LM products increases, the Company anticipates granting licenses to,
or sub-contracting with, third parties for volume production of equipment.
PATENTS, TRADEMARKS AND TRADE SECRETS
The Company has been issued 4 patents, and has 2 international patent
applications pending which relate to the Company's LM Technology. The policy of
the Company is to apply for patents, or other appropriate proprietary or
statutory protection, when it develops valuable, new or improved technology.
The Company believes that the issued and pending patents provide broad
protection for its LM Technology applications.
In addition to potential patent protection, the Company relies on the laws
of unfair competition and trade secrets to protect its proprietary rights. The
Company intends to protect its trade secrets and other proprietary
7
<PAGE>
information through agreements with its customers and suppliers, proprietary
information agreements with employees and consultants and other security
measures. Although the Company intends to protect its rights vigorously, there
can be no assurance that these measures will be successful.
The Company believes that, because of the rapid pace of technological
change in the communications industry, patent and trademark protections are
important.
COMPETITION
The wireless communications industry is ever changing and developing new
technologies. It consists of major domestic and international companies, many
of which have financial, technical, marketing, sales, manufacturing,
distribution and other resources substantially greater than those of the
Company. The Company believes that cellular, PCS, paging, data and ESMR
services and products provide, to some extent, the same functionality as SMR and
LMR services and, as such, may compete with the Company's products and services.
The Company competes on the basis of service and product technology and quality,
reliability, price, customer support and product features. No business segment
of the Company is dependent on any single customer, the loss of which would have
a material adverse impact on the Company's business.
COMMUNICATION SERVICES
UNITED STATES
The Company has initially focused on providing business users with a low
cost voice dispatch service and pre-packaged data applications. As a result of
LM Technology, the Company is also able to provide subscribers with various
other low and high-speed data applications. The Company has no plans to offer
interconnected service to the public telephone network.
In the SMR industry the largest service provider is Nextel Communications,
Inc. ("Nextel".) Nextel however, has commenced implementing a strategy of
providing ESMR services, including telephone interconnection, which generally
cost substantially more than the Company's services. The Company views Nextel's
move to providing a higher cost digital cellular like service that also embodies
two-way dispatch, as an opportunity for the Company to gain subscribers.
Another provider, Geotek Communications, Inc. ("Geotek") is also implementing a
sophisticated ESMR system. The Company believes that its SMR system is superior
to that system, as well as traditional SMR systems, and that the Roamer One
Network has a competitive advantage for the following reasons:
- Operating at 220 MHz, the Company's system can cover from one site an
area that requires several sites when operating at 800 or 900 MHz; and
the system is less susceptible to signal loss in certain terrain and
conditions than those operating at higher frequencies. This results
in, not only lower initial capital costs, but also lower monthly
operating costs.
- Because of LM Technology, the Company can provide its subscribers with
not only limited text messaging but also high speed data. It is the
intention of the Company to expand its high speed data capability into
markets as dictated by subscriber requirements.
The FCC intends to issue additional 220 MHz licenses during 1998 and there
is no assurance that increased competition resulting from that licensing will
not adversely affect the Company's SMR business. See "Business-Government
Regulation."
INTERNATIONALLY
Relayfone, in the U.K., is the Company's only provider of communications
services outside the U.S. While the Company intends to expand its
communications services business internationally, such expansion would generally
be dependent upon the Company's determination that its proprietary technology
would give it a competitive advantage in a specific market.
EQUIPMENT DISTRIBUTION
UNITED STATES
The LMR market in the U.S. is dominated by Motorola. Other major
competitors are Ericsson, Inc.,
8
<PAGE>
Kenwood and Transcrypt International. The remainder of the U.S. and North
American market is divided up between a large number of suppliers. The Company
competes on the basis of product quality, price and the flexibility, support and
responsiveness that the Company and its dealers provide. Additionally, the
Company views its U.S. LMR equipment distribution business as a gateway to
distribute and support LM products currently available and being developed which
will allow the Company to compete on the basis of technology.
In the 220 MHz equipment market, the Company currently has only one smaller
competitor SEA, Inc., a subsidiary of Datamarine International, Inc. ("SEA").
Historically, SEA has been the major equipment supplier to the 220MHz industry
because SEA was in the marketplace before the Company when FCC regulations
mandated system construction deadlines. Because of LM Technology, the Company
believes that the 220 MHz systems it distributes offer an SMR operator greater
system capabilities, including networking capability that is vital for spectrum
utilization for wide area coverage.
The Company views the FCC auctioning of additional 220 MHz licenses during
1998 as a positive opportunity for the Company's equipment distribution
business. However, the increase in the size of the 220 MHz market, and
interest in narrowband technology, may prompt other competitors to enter this
market.
INTERNATIONALLY
Outside the U.S., the Company only distributes LMR products in the U.K. and
the Company's sales are not significant to the total U.K. market. The Company
competes, through a direct sales force, 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.
See "Business-Competition Technology" for a discussion of the competitive
environment related to LM products in the international market.
TECHNOLOGY
The Company's patented and proprietary LM Technology and its related
products compete internationally with those of other manufacturers such as
Motorola, Ericsson and Qualcomm Incorporated 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"). Geotek 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.
Another group of standards that can incorporate LM Technology but also
compete with LM Technology are those adopted by APCO. APCO standards are widely
followed in the U.S. by public safety and other governmental LMR users. The
public safety market in the U.S. has been working for over 8 years on a new set
of digital narrowband (12.5kHz) standards being completed by the APCO under
their Project 25 committees ("P25").
LM Technology is well suited to incorporate these standards as well as
offering stand-alone LM operation to the much higher spectrum efficiency of 5kHz
(which exceeds APCO's ultimate goal of 6.25kHz) with high quality voice and
higher data speeds than is possible with the P25 standard. LM offers a timely,
cost effective solution to the public safety market that needs highly effective
mobile high speed data solutions. The Company's products using LM Technology
provide a narrowband, single or multiple communication channel, solution to the
problem of spectrum efficiency. Unlike narrowband, 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.
MANUFACTURING
The Company's contract manufacturing business is limited to medium sized
production runs and competes
9
<PAGE>
with numerous smaller companies for contract work. The Company competes on the
basis of price and the flexibility, support and responsiveness that it believes
it provides to its customers. The Company's facilities are not ISO 9001
certified.
GOVERNMENT REGULATION
The Company's business is subject to the regulation of the licensing of
radio frequency ("RF") spectrum and the manufacture, distribution and marketing
of its products in the countries in which it does business. Furthermore, the
spectrum management rules and policies of the International Telecommunications
Union and the ETSI and other industry associations and standard development
organizations impact the potential markets for the Company's products. In
addition to the nation-specific regulations governing the nature of the
equipment, Radiocoms also must comply with certain EU directives and
regulations. The Company is subject to changes in regulations, rules and
policies that, among other things, may increase the level of competition and,
the cost of regulatory compliance, or may impact the Company's ability to obtain
or keep licenses.
UNITED STATES
In the U.S., the licensing of RF spectrum for non-federal government uses
and the production, distribution and marketing of RF equipment are subject to
regulation by the FCC. FCC regulations govern, among other things, the
issuance, renewal, revocation, and modification of RF licenses (usage rights to
frequencies), the assignment or transfer of control of licenses, the technical
specifications, authorization and labeling of the equipment used by stations,
the designation of areas served by particular stations or operators, the
assignment and channelization of frequencies, and the adoption of other
regulations and policies.
The Roamer One Network operates at 220 MHz under the authority of FCC Phase
I licenses issued as a result of a lottery held by the FCC in 1991. While the
Company may acquire additional Phase I licenses from other license holders, it
also may elect to acquire additional licenses which the FCC will award in the
Phase II Licensing through competitive bidding. The FCC has announced that the
Phase II Licensing auction will commence May 19, 1998. Parties who apply to bid
on licenses in the same geographic areas are subject to FCC anti-collusion
rules, and all bidders are subject to the antitrust laws.
While Phase I licenses are site specific, Phase II licensees may locate
their base stations anywhere within their geographic borders provided, among
other things, that co-channel Phase I licensees are protected from harmful
interference consistent with criteria adopted by the FCC. Bidders qualifying as
Very Small Businesses will receive a 35% bidding credit towards their bids and
bidders qualifying as Small Businesses will receive a 25% bidding credit towards
their bids. The Company does not currently believe it can qualify as a Very
Small Business or Small Business.
Both Phase I and Phase II 220 MHz licensees that aggregate contiguous
channels may deploy non-narrowband equipment (i.e., non-5 kHz) on their channels
provided that such equipment satisfies a spectrum efficiency standard of one
voice channel per 5 kHz for data operation. The spectrum efficiency standard
will be enforced through the FCC's type acceptance process and will sunset on
December 31, 2001.
The Phase II service and auction rules are subject to pending rule
reconsideration requests. There can be no assurance that the FCC will not amend
or reverse any of its Phase II service and auction decisions on reconsideration
or be directed to do so by a court. There can be no assurance of the time frame
in which the FCC may commence the Phase II auctions, or that the Company will be
successful in bidding on licenses.
EQUIPMENT REGULATIONS
The Company's products must comply 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. With respect to any particular
frequency band, FCC rule revisions or waivers may be required prior to the
introduction of the Company's products in that band. There can be no assurance
that any particular rule revision or waiver requested by the Company will be
granted.
The FCC has issued a series of decisions governing the "refarming" of the
Private LMR bands in the U.S. below 512 MHz to increase the capacity of those
bands and to promote generally the usage of spectrally-efficient equipment in
the bands. The "refarming" decisions channelize the 150-174 MHz ("VHF") band and
the 421-512.
10
<PAGE>
MHz ("UHF") band, respectively, with channel spacings of 7.5 kHz and 6.25 kHz,
but provide the frequency coordinators the flexibility to recommend licensing
inconsistent with these channel spacings, including licensing in 5 kHz spacings.
The "refarming" decisions permit the introduction of centralized trunking
systems in the refarmed bands with the consent of affected co-channel licensees.
The Company's LM technology is compatible with these "refarming" decisions.
INTERNATIONAL
To the extent that the Company's business expands and it distributes
communications products or provides communications service in countries outside
the U.S., it will become subject to numerous rules and regulations promulgated
by foreign governmental administrative and regulatory organizations.
The Company's Relayfone operations in the U.K. are subject to the rules
and regulations of the RA that is principally responsible for the management of
the civil radio spectrum. The Company currently pays the RA a radio-licensing
fee. 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. Any change in
these regulations will not have a material impact on the overall business of the
Company.
Regarding the possible introduction of narrowband technology in the U.K. by
the Company as either a service or equipment provider, 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.
EMPLOYEES
As of September 30, 1997, the Company and its subsidiaries employed
approximately 350 full-time employees. Of these, approximately 40 are employed
in the Company's research and development efforts, 115 in manufacturing, 135 in
equipment distribution and 55 in the provision of communications services with
the remainder in corporate administrative and management functions. None of the
Company's employees is represented by a collective bargaining agreement. The
Company considers employee relations to be good.
RISK FACTORS
The Company's business, financial condition and future prospects are
subject to a number of risks and contingencies. Those that the Company regards
currently as among the most significant are summarized below. See also
"Business - Forward-Looking Statements".
NEED FOR ADDITIONAL CAPITAL
The Company believes that its current available capital (assuming the
$12.4 million of preferred stock is sold to Securicor) is sufficient to fund
its fiscal 1998 operations. However, should the Company acquire more
licenses for the Roamer One Network as it currently plans, through cash
purchases from other 220 MHz licenses holders and/or through the FCC auction
process, additional funding will be required by the Company in fiscal 1998.
Subsequent to fiscal 1998, the Company will require additional cash
resources to fund operations. The amount of cash required will depend on, among
other things, the rate of subscriber loading on the Roamer One Network and LM
Technology and product development requirements and costs.
11
<PAGE>
There can be no assurance that additional financing will be available on
reasonable terms or at all. If additional capital is raised though the sale of
additional equity or convertible debt securities, dilution to the Company's
stockholders could occur.
DEPENDENCE ON GOVERNMENTAL REGULATION
Operating the Roamer One Network, maintaining and obtaining site licenses,
and operating procedures are all subject to FCC and other regulatory approval.
FCC and other regulatory approvals are also required in the U.S. for LMR
products, including those utilizing LM Technology.
In most international markets there are similar, and in some instances more
stringent, governmental regulatory overview regarding wireless communications
services and products including those offered by the Company.
The current and planned operations of the Company can be adversely impacted
by delayed or adverse actions by the various regulatory authorities and it is
impossible to predict, with any certainty, how the Company's operations will be
impacted by the actions of these regulatory authorities.
DEVELOPMENT AND ACCEPTANCE OF LM TECHNOLOGY AND RELATED PRODUCTS
Today, the focus of the Company's operations is on services and products
utilizing LM Technology. The commercial viability of the Roamer One Network is
dependent upon, among other things, the proper function of LM Technology. LM
Technology provides the Roamer One Network with the capability to network
various sites and control subscriber calling traffic. Because of these
capabilities, the Company believes that the Roamer One Network should be able to
load a sufficient number of subscribers to make it commercially viable.
The Company anticipates that many of the same capabilities believed to be
functional in the Roamer One Network will be included in the LMR products it
plans to develop and market utilizing LM Technology. Accordingly, if products
using LM Technology are not commercially accepted or do not have the
capabilities the Company believes they have or can have, the future results of
operations of the Company could be significantly and negatively impacted.
Additionally, until products utilizing LM Technology progress through the
commercial development stage, their manufacturing costs may be substantially
higher than competing products and the Company may be forced to subsidize
equipment selling prices, negatively impacting the Company's result of
operations.
ABILITY TO COMPETE
Competition in the sale of wireless communication products and services is
fierce. With the provision of wireless services, given the wide variety of
available services, new subscribers can only be acquired if the Company has a
service needed by its potential subscribers and priced so that it, along with
the cost of the necessary radio equipment, is attractively priced when compared
to competing services. Because of this, the Company has geared its marketing of
the Roamer One Network to identifiable targeted groups of business users who
historically have used two-way group dispatch systems. Additionally, the
Company's systems are capable of transmitting data that the Company believes
will be a longer-range benefit to its potential subscribers.
Similarly, the Company believes that LM Technology and related products
will offer substantial benefits to other equipment manufacturers or end users
that purchase the Company's technology or products. However, competing
technologies and products are numerous.
Because the Company is in the early rollout stage of the Roamer One Network
and products utilizing LM Technology have only been recently introduced and/or
are still to be developed, there is no assurance that the services provided on
the Roamer One Network or the technology and products to be developed by the
Company will be competitive to other services, technology and products of other
wireless communications companies.
CONTROL BY MAJORITY SHAREHOLDER
Based on its equity ownership of the Company, Securicor has a sufficient
voting interest in the Company to, among other things, exert effective
control over the approval of amendments to the Company's Restated
Certificate of Incorporation, mergers, sales of assets or other major
corporate transactions as well as other matters submitted to a stockholder
vote, and otherwise control the affairs of the Company
12
<PAGE>
whether particular matters are submitted for a vote of the stockholders.
SUPPLIER RISK
MUSA purchases a significant portion of its mobile radios and
accessories from a single supplier in Japan. The Company believes that if
this foreign supplier were no longer available, such event would have a
severe impact on Intek's financial position or results of operations. MUSA
believes its relationship with its supplier is good. Additionally,
significant fluctuations in the value of the U.S. dollar versus the Japanese
Yen or delays in shipments by the supplier to MUSA could have a material
effect on MUSA's profit margins.
ITEM 2. PROPERTIES
The Company leases its principal executive office, which is located at 214
Carnegie Center, Princeton, New Jersey comprising approximately 2,500 square
feet, for an initial term of five years, expiring in August 2002, with a five
year renewal option. The Company also leases, for administrative and sales
functions, approximately 5,600 square feet in Torrance, California under a
five-year lease, expiring in May 2000 with a five year renewal option and
approximately 175,000 square feet in Kansas City, Missouri for administrative,
sales, assembly and warehouse functions under a four year lease, expiring in
August 2001 with a limited early termination date at the option of the Company
in August 1999.
The Company owns approximately 36,000 square feet of office and factory
facility in Midsomer Norton, England, a 5,000 square foot sales and maintenance
office in Cardiff, Wales, leases two 2,000 square foot workshop and storage
units in Midsomer Norton on nine and ten year leases expiring in November 2003
and a 7,500 square foot sales and maintenance office in Croydon, England under a
lease expiring in June 1998.
The Company leases approximately 178 antenna sites for transmission of its
SMR services. The terms of the leases range from month-to-month to 5 years with
provisions for renewals.
ITEM 3. LEGAL PROCEEDINGS
The Company, Mr. David Neibert, the Company's executive vice president and
Mr. Nicholas R. Wilson, a former Chairman of the Company ("Intek Defendants"),
have been named with forty other defendants in a complaint (Scott et al.
Steingold et al.) filed in U.S. District Court for the Northern District of
Illinois on November 12th, 1997. The lawsuit purports to allege claims under
the Racketeer Influenced Corrupt Organizations Act, the Securities Exchange Act
of 1934 and various common law state claims in connection with the sale and
marketing of interests in certain partnerships formed to operate SMR systems.
Plaintiffs seek rescissory damages with interest and punitive damages allegedly
relating to their purchases of SMR partnership interests. No specific amount of
alleged damages is mentioned in the complaint.
The plaintiffs also have filed, and have now withdrawn against the Intek
Defendants, a motion for a temporary restraining order and preliminary
injunction seeking to freeze the assets of all defendants. The Intek Defendants
have filed a motion to dismiss the complaint on various grounds and in response
the plaintiffs have asked the court to be allowed to file an amended complaint.
The Company does not know when or if such an amendment will be filed or what
specific allegations it will contain with respect to Intek. Intek has requested
the plaintiff withdraw all claims against Intek on the grounds that they are
frivolous. In the opinion of the management of the Company, this lawsuit will
not have a material adverse affect on the Company.
The Company is not involved in any other pending or threatened legal
proceedings which the Company believes could reasonably be expected to have a
material adverse effect on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Common Stock trades on The Nasdaq Small-Cap Market tier of The Nasdaq
Stock Market ("Nasdaq") under the symbol "IDCC." The following table sets forth
the high and low trade price as reported by Nasdaq for each quarter period
indicated.
TRADE PRICE
------------------
HIGH LOW
------ ------
Fiscal 1996
December 31, 1995 $8-5/8 $5-7/8
March 31, 1996 9-3/4 4-7/8
June 30, 1996 9-3/8 6
September 30, 1996 6-7/8 4
Fiscal 1997
December 31, 1996 $5-1/4 $4-1/2
March 31, 1997 5-1/2 2-1/2
June 30, 1997 3-1/8 1-3/4
September 30, 1997 2-1/8 1-5/8
The number of common stockholders of record was approximately 550 on
December 31, 1997. The last reported trade price for the Common Stock by Nasdaq
on December 31, 1997 was $1.531.
The Company has never paid a cash dividend and has no present intention to
pay any cash dividends on the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following data is derived from the Company's audited financial and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto appearing elsewhere herein.
YEAR ENDED SEPTEMBER 30,
(THOUSANDS, EXCEPT SHARE AMOUNTS)
1997 1996 1995
---- ---- ----
STATEMENT OF OPERATIONS DATA:
Total Revenues (1) $42,284 $23,899 $32,601
Total Costs and Expenses 68,222 34,317 33,997
Operating Loss (25,938) (10,418) (1,396)
Net Loss (26,999) (9,089) (1,171)
Loss applicable to Common Shareholders $(27,999) $(9,089) $(1,171)
Net Loss Per Share applicable to Common
Shareholders $(0.74) $(0.36) $(0.05)
Weighted Average Number of
Shares Outstanding 37,885,371 25,000,000 25,000,000
BALANCE SHEET DATA:
Total Assets $112,565 $50,253 $37,463
Working Capital 21,289 (5,268) 3,538
Long Term Debt 45,136,000 32,837,000 23,187,000
Shareholders' Equity (Deficit) $54,289 $(21,289) $(12,949)
RECENT SALES OF UNREGISTERED SECURITIES
On August 27, 1997, under Section 4(2) of the Securities Act of 1933, as
amended, the Company issued 300,000 shares of Common Stock to Robert J.
Shiver, Chairman and Chief Executive Officer of Intek, pursuant to his
employment agreement, and in partial consideration of his services as an
officer of Intek.
(1) See Note 2a "Summary of Significant Accounting Policies -- Principles of
Consolidation" in Consolidated Financial Statements and Notes thereto
appearing elsewhere herein.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ significantly from
those discussed herein. Factors that might cause such a difference include, but
are not limited to, those discussed under the caption "Business-Forward-Looking
Statements" and "Business - Risk Factors". The following discussion should be
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto appearing elsewhere herein. Historical results of operations are
not necessarily indicative of results for any future period. All material
intercompany transactions have been eliminated in the results presented herein.
OVERVIEW
The Company has devoted, and expects to continue to devote, substantial
financial and management resources to the development of the Roamer One Network
utilizing the Company's proprietary LM Technology. Additionally, the Company is
also developing new products utilizing LM Technology for other frequency bands
with a focus on the world-wide need for spectrum efficiency. The Company,
through its various subsidiaries, designs, develops, manufactures and
distributes LMR products including those utilizing LM Technology.
The Company presently has in inventory a substantial number of completed
220 MHz base stations and 220 MHz radios, as well as components for the
manufacture of additional base stations and radios. This inventory is
intended for sale to third parties and for utilization on the Roamer One
Network. The Company has recently commenced the marketing of the Roamer One
Network and intends to continue to expand that network over the next several
years. The construction and expansion of the Roamer One Network, as well as
equipment sales to third parties has been, and may continue to be, impacted
by factors such as the Phase II Licensing auctions by the FCC of additional
220 MHz licenses. The FCC announced a commencement date of May 19, 1998 for
the Phase II Licensing auction. A delay in the auction would significantly
hinder the Company's ability to reduce these inventory levels, especially
through third party sales in the near term.
The Company expects to incur substantial operating losses and have a
negative cash flow from operations for approximately the next two years. This
mainly results from operating, sales, marketing and general and
administrative expenses related to the roll-out of the Roamer One Network as
well as the Company's continuing investment in research and development
related to LM Technology and products.
RESULTS OF OPERATIONS
As discussed more fully in Note 1 "Business Acquisitions and Significant
Risks" to the Consolidated Financial Statements and Notes thereto appearing
elsewhere herein, results of operations for the years ended September 30,
1997, 1996 and 1995 include Radiocoms for the entire three year periods but,
Roamer One, MUSA and corporate are only included for the ten months ended
September 30, 1997.
15
<PAGE>
The following table sets forth, by the Company's various lines of
business for fiscal 1997, the percentage to total revenue represented by
certain Consolidated Statements of Operations data. Line of business
information is not available for fiscal 1996 and 1995.
1997
----
Revenues:
Communications Services 2%
Equipment Distribution 68%
Technology -
Manufacturing 30%
---
Consolidated 100%
----
Cost of Goods and Services Provided:
Communications Services 4%
Equipment Distribution 49%
Technology -
Manufacturing 40%
---
Consolidated 93%
----
Other Operating Expenses:
Communications Services 7%
Equipment Distribution 16%
Technology 11%
Manufacturing 15%
Corporate 8%
--
Consolidated 57%
---
Operating loss, before depreciation and
amortization:
Communications Services (9%)
Equipment Distribution 3%
Technology (11%)
Manufacturing (25%)
Corporate (8%)
----
Consolidated (50%)
Depreciation and Amortization 11%
---
Operating Loss (61%)
-----
FISCAL 1997 COMPARED TO FISCAL 1996 (DOLLAR AMOUNTS IN THOUSANDS)
REVENUES
U.K. OPERATIONS
With respect to the Company's U.K. communication service, manufacturing,
distribution and technology segments, a meaningful breakdown of other operating
expenses prior to fiscal 1997 is not available. During fiscal 1997 those units
had operating results of $445, ($10,661), $424 and ($4,721) respectively for an
aggregate operating loss of ($14,513) compared to ($8,985) in fiscal 1996.
COMMUNICATIONS SERVICES
The Company redirected its direct marketing campaign for the Roamer One
Network late in fiscal 1997 from a national campaign to a focused specific
geographic campaign beginning with targeted businesses in four wide-area
geographic markets. At September 30, 1997, Roamer One had approximately
1,000 subscribers compared to less than 100 at June 30, 1997 and at December
30, 1997, approximately 2,000 subscribers. Subscriber revenues for the ten
months ended September 30, 1997 were $34.
Relayfone at September 30, 1997 had approximately 1,800 subscribers, a
slight decrease in the number of subscribers at September 30, 1996. However,
revenues were down by approximately $186 (21%) because in fiscal 1997 the
average monthly subscriber count was less than in 1996.
EQUIPMENT DISTRIBUTION
16
<PAGE>
Sales by the Company's U.S. equipment distribution business for the ten
months ended September 30, 1997 were $16,676. MUSA sales for the current fiscal
year were positively impacted from the filling of orders that had been
previously backordered by the prior owner because of working capital
limitations. MUSA sales, however, were negatively impacted because of shipping
delays of new products from MUSA's major supplier. The Company's sales of LM
related products to third parties, mostly base stations, were $1,162 in fiscal
1997.
Radiocoms for fiscal 1997 had revenues from equipment distribution and
related services of $12,313, a 66% increase from that reported in fiscal 1996.
The major component of this increase results from an equipment supply contract
the Company obtained from the U.K. Ministry of Defence.
TECHNOLOGY
Technology license fees were $1,961 for the year ended September 30,
1996 and no such license fees were received in fiscal 1997 due to the E.F.
Johnson ("EFJ") transaction (see Note 3 "Summary of Non-Cash Activities" to
Consolidated Financial Statements and Notes thereto appearing elsewhere
herein).
MANUFACTURING
U.K. contract manufacturing revenues were $12,544 in fiscal 1997, an 8%
decline from those reported in the prior fiscal year, resulting from a decline
in contracts from Securicor affiliates. Additionally, during fiscal 1997,
significant portions of Radiocoms' sales were made to Roamer One and MUSA. These
intercompany sales and related costs were eliminated in the consolidated
financial statements of the Company for 1997 although similar sales were
included in fiscal 1996 Radiocoms sales. In fiscal 1997, the Company received
revenues of $5.3 million from contract manufacturing agreements with affiliates
of Securicor.
At September 30, 1997, the Company had a four month backlog for contract
manufacturing, excluding purchase orders from MUSA.
COST OF GOODS AND SERVICES PROVIDED
COMMUNICATIONS SERVICES
Cost of services includes site and certain technical support expenses, net
of reimbursement received from the owners of licenses managed by the Company.
Site expenses are primarily tower lease, telephone, and insurance. Technical
support includes consulting fees, travel and equipment rental required for
optimizing and supporting the network of base stations.
For the ten months ended September 30, 1997, Roamer One's site and
technical support expenses were $1,467. A significant portion of these expenses
are related to operation and maintenance of the various sites that the Company
intends to begin loading in the future.
Relayfone's cost of service for the year ended September 30, 1997 remained
relatively constant with that reported in the prior fiscal year.
EQUIPMENT DISTRIBUTION
For the ten months ended September 30, 1997, the Company's U.S. equipment
business had a cost of sales of $11,791(71% of related sales). Cost of sales as
a percentage of related sales was abnormally high due to the cost of certain LM
base stations sold being in excess of the related revenue realized.
MANUFACTURING
Cost of sales consists principally of costs of raw materials, labor and
factory associated overhead. The percentage of cost of sales to net sales
increased 31% for the year ended September 30, 1997 to 135% of related
revenue from 103% for the year ended September 30, 1996. The increase in the
percentage of cost of sales to sales in fiscal 1997 was largely due to a
one-time write-off of inventory costs (including obsolete and excess
inventory) and to costs (including research and development costs) related to
certain manufacturing contracts, which costs are not anticipated to be
recovered in the future through revenues.
OTHER OPERATING EXPENSES
COMMUNICATIONS SERVICES
Roamer One sales and marketing expenses are primarily salaries, travel and
the preparation of promotional material. The selling expenses for the ten months
ended September 30, 1997 were $1,152. Sales and marketing
17
<PAGE>
expenses are increasing monthly due to the creation of a sales organization in
connection with the loading of the Roamer One Network.
Roamer One general and administrative expenses generally consist of
salaries, consultants, office rent and insurance to support the management of
the Roamer One Network. General and administrative expenses for the ten months
ended September 30, 1997 were $1,876.
EQUIPMENT DISTRIBUTION
MUSA selling expenses are primarily travel, advertising and promotion,
trade shows and the maintenance of a sourcing office in Asia. Selling expenses
for the ten months ended September 30, 1997 were $1,036 (6% of related sales).
General and administrative expenses are salaries, facilities costs, data
processing charges and insurance. General administrative expenses for the ten
months ended September 30, 1997 were $2,992 (18% of related sales.) The Company
anticipates that selling and general and administrative expenses, as a
percentage of sales, will increase in fiscal 1998 as a result of its LM product
sales and support efforts.
In the U.K., selling and general and administrative expenses related to the
Company's equipment distribution and related business aggregated $2,763 (22% of
related sales).
MANUFACTURING
Selling expenses are primarily travel, advertising and promotion, and trade
shows. The selling expenses for the year ended September 30, 1997 were $1,025
(8% of sales). Included in general and administrative expenses are salaries,
facilities, data processing and insurance costs. General and administrative
expenses for the year ended September 30, 1997 were $5,251 (42% of related
sales).
TECHNOLOGY
Research and development expenses, excluding allocated support costs,
increased 4% to $3,266 for the year ended September 30, 1997 from $3,154 in the
prior fiscal year. Research and development expenses in the year ended September
30, 1996 related primarily to LM mobile radio products designed for the 220 MHz
market, with expenses during the year ended September 30, 1997 related primarily
to development of a hand portable radio for the same market.
CORPORATE
Corporate expenses include salaries, consulting and management fees, legal
and audit costs. General and administrative expenses for the ten months ended
September 30, 1997 were $3,341. Compensation expense represents the major
component of this item.
OPERATING LOSS, BEFORE DEPRECIATION AND AMORTIZATION
COMMUNICATIONS SERVICES
Roamer One's loss for the ten months ended September 30, 1997 was $4,461.
This loss results from current subscriber count not being sufficient to offset
the cost of the Roamer One Network's infrastructure and subscriber acquisition
cost.
EQUIPMENT DISTRIBUTION
For the ten months ended September 30, 1997, the operating profit was $857
for the Company's U.S. equipment distribution business or 5% of related sales.
DEPRECIATION AND AMORTIZATION
Depreciation of fixed assets and amortization of the intangible assets
related to the Radiocoms Acquisition and Midland Transaction were $1,828 and
$2,652, respectively, for the ten months ended September 30, 1997. The 21%
increase in depreciation expense for fiscal 1997 from that reported in the prior
fiscal year results from the inclusion of Roamer One and MUSA plant and
equipment in the fiscal 1997 calculation.
18
<PAGE>
OTHER INCOME (EXPENSE)
INTEREST
Interest expense for the year ended September 30, 1997 was $2,962 which
was offset by interest income of $68 for net interest expense of $2,894
compared to $1,715 in fiscal 1996. Of the interest expense, $883 related to
borrowings from third parties, $1,364 related to borrowings from Securicor
(of which $858 was added to principal and the balance is accrued) and $715
was imputed interest on convertible debt and warrants resulting from the
Company's capital raising efforts.
GAIN ON SALE OF LONG-TERM ASSETS
During the month of December 1996, the Company sold real property
relating to a discontinued operation for a gain of $766. Offsetting this is
a loss on the writedown of fixed assets in the amount of $442.
OTHER
Included in other income is royalty income of $33, gain on sale of
securities of $176 and foreign exchange gains of $142 for a total of $351.
INCOME TAX BENEFIT
Of the reported income tax benefit, $530 results from Securicor reimbursing
the Company for losses incurred by Radiocoms prior to its acquisition by the
Company. An additional benefit of $628 resulted from the reversal of a deferred
tax liability created in fiscal 1995 for a total benefit of $1,158.
NET LOSS
The consolidated net loss after taxes for the year ended September 30, 1997
was $26,999 including Radiocoms for the entire year and Roamer One, MUSA and
corporate for the ten months ended September 30, 1997. For the year ended
September 30, 1996, the net loss (attributable only to Radiocoms) was $9,089.
PREFERRED DIVIDENDS
Pursuant to the terms of the Radiocoms Acquisition, $20 million of
intercompany balances between Radiocoms and Securicor were converted into 20,000
shares of Radiocoms preferred stock with a par value of $1 per share. The
intercompany balance in excess of the redemption value of the Radiocoms
preferred shares was contributed to the capital account of Radiocoms. The
preferred shares must be redeemed on June 30, 2006 and bear a dividend rate of
6%. Dividends of $1 million relating to 1997 shall be paid through the issuance
of preferred shares.
LOSS APPLICABLE TO COMMON SHAREHOLDERS
After deducting unpaid dividends on preferred stock of Radiocoms held by
Securicor related to the Radiocoms Acquisition, the loss applicable to common
shareholders for the year ended September 30, 1997 was $27,999.
FISCAL 1996 COMPARED TO FISCAL 1995 (DOLLAR AMOUNTS IN THOUSANDS)
REVENUES
Radiocoms' reported revenues in the year ended September 30, 1996 declined
by 27% ($8,702) to $23,899 from that reported in the prior fiscal year.
The major reason for the decline was that in fiscal 1995, Radiocoms had
significant sales of LM base stations for the U.S. market in connection with the
planned construction of the Roamer One Network whereas in fiscal 1996 LM sales
were limited mainly to mobile radios.
The decrease in LM related revenue was partially offset by a $1,081
increase in Radiocoms contract revenue business in fiscal 1996 from that
reported in the prior fiscal year. This increase results primarily from an
increase of more than 330% ($5,677) in sales to a Securicor affiliate, and sales
resulting from increased marketing efforts to unaffiliated companies.
Technology license fees in connection with Radiocoms sales of technology
were $1,961 and $2,036 respectively for fiscal 1996 and 1995.
19
<PAGE>
COST OF GOODS AND SERVICES PROVIDED
In fiscal 1996, cost of goods and services provided increased to 84% of
revenue from 60% in fiscal 1995. This increase was a result of higher component
costs in the manufacture of LM radios versus base stations and Radiocoms
incurring approximately $2,150 in start-up costs associated with new products.
OTHER OPERATING EXPENSES
Sales and marketing expenses declined $460 (3%) in fiscal 1996 from
those reported in fiscal 1995 because of reorganization efforts and other
economies.
General and administrative expenses on a dollar basis remained
relatively constant between fiscal 1996 and 1995 although as a percentage of
revenue they increased 9% because staffing and expense levels remained
constant in anticipation of an increased demand for Radiocoms in contract
manufacturing services and LM product sales.
Research and development expenses increased $323 (11%) as a result of
increase development efforts related primarily to a LM hand portable mobile
radio.
INTEREST EXPENSE
Interest expense increased $1,203 (235%) primarily resulting from a
significant increase in the debt due to Securicor to fund increased
receivables, inventories, LM development cost and other operating expenses.
INCOME TAX BENEFIT
Radiocoms received a tax benefit of $3,044 and $737, respectively, for
fiscal 1996 and 1995. Tax laws in the U.K. permit the exchange of taxable income
and losses between companies within a group, as defined in the statute. Taxable
members of the Securicor group pay the loss making companies at the corporate
rate applied to the losses. Radiocoms does not receive group tax benefits for
operating results subsequent to the Radiocoms Acquisition.
NET LOSS
The reported net loss in fiscal 1996 increased $7,818 over that reported in
the prior fiscal year for the reasons stated above.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Radiocoms Acquisition, the Company's primary historical
sources of cash were selling shares of Common Stock and other securities,
borrowing against the Company's assets, selling the assets relating to
discontinued operations, and obtaining vendor financing. Subsequent to the
Radiocoms Acquisition, the Company's primary source of cash has been
borrowings from Securicor.
For the year ended September 30, 1997, the Company used $4,239 in cash
for operating activities and $9,226 was spent for capital expenditures.
Through its financing activities, the Company raised approximately $23,523 in
gross proceeds from Securicor. The Company also retired $6,599 in previous
borrowings from unaffiliated third parties.
The Board of Directors of the Company also adopted a share repurchase
plan whereby the officers of the Company are authorized to expend up to $1
million to acquire up to 1% of the outstanding Common Stock. Through
December 31, 1997, the Company had acquired 35,000 shares of Common Stock in
open market transactions.
The Company has invested a significant portion of its capital in the
equipment and licenses necessary to construct the Roamer One Network.
Additionally, the Company has invested significantly in inventory for the 220
MHz market either for sale to third parties or to be used to expand the Roamer
One Network.
In the future, the Company will require capital to link sites into the
Roamer One Network and perform other upgrading functions to the current
Roamer One Network and to fund operating expenses. In addition, the Company
intends to continue to build out the Roamer One Network through the
acquisition of additional licenses through direct purchase of existing
licenses and through participation in the Phase II Licensing auction. The
requirement for future working capital will be driven and highly dependent on
the rate of loading subscribers (with mobile radios) onto the Roamer One
Network and the capital requirements of the Company's distributing,
manufacturing and research and development subsidiaries.
In December 1997, the Company entered into various agreements in connection
with the funding of its
20
<PAGE>
future operations. MUSA has entered a revolving credit agreement ("Credit
Agreement") with a non-bank lender making $5 million available to MUSA
through December 1999. The Company intends to use borrowings under this
Credit Agreement to fund MUSA's capital requirements thereby making any
available amounts under the December 1997 Facility discussed below available
for Intek's general corporate purposes.
In December 1997, the Company entered into various agreements with
Securicor:
A) A new loan agreement ("December 1997 Facility"), which replaces the
prior agreements, provides the Company the ability to borrow up to
$29.5 million (including the outstanding indebtedness of $25.4
million). The December 1997 Facility bears interest at 11 1/2% per
annum payable at June 30, 2003. Principal payments will be
$500,000 per month for 12 months beginning July 1, 2001, $1 million
per month for 11 months beginning July 1, 2002 with the remaining
balance due and payable on June 30, 2003. The obligations under
the December 1997 Facility may be prepaid by the Company at any
time in $1.65 million increments without penalty. The December
1997 Facility is subject to mandatory prepayments at the rate of
50% of the net proceeds of any financing by the Company in excess
of $8 million. Subject to the release of Securicor from certain
letter of credit commitments, at December 31, 1997, the Company had
approximately $4 million in availability for future borrowings
under the December 1997 Facility.
B) Securicor has agreed pursuant to the Preferred Stock Purchase
Agreement dated December 29, 1997 ("Preferred Stock Purchase
Agreement") to purchase from the Company (subject to the approval of
the Company's stockholders to authorize "blank check" preferred
stock), approximately $12.4 million of a new series of preferred
stock.
C) Securicor has agreed pursuant to the Termination and Release dated
December 29, 1997 ("Termination and Release") to reimburse the Company
approximately $2.6 million representing the difference between the
Company's carrying value of its investment in EFJ and the proceeds
received upon the ultimate disposition of the investment in EFJ.
Through the funds available under the Credit Agreement, the December
1997 Facility, the Preferred Stock Purchase Agreement and the Termination and
Release, the Company believes it has adequate financial resources for its
fiscal 1998 operating budget. If the Company acquires more licenses for the
Roamer One Network as it currently plans, through cash purchases from other
220 MHz licenses holders and/or through the FCC auction process, additional
funding will be required by the Company in fiscal 1998. The Company is
considering a number of financing alternatives, including strategic partners,
joint ventures, and, if market conditions permit, a financing involving a
private or public placement of its or an affiliate's securities. Management
believes that although it has adequate financing arrangements to meet the
Company's near term cash needs, the Company does need additional financing
but there can be no assurance that the Company will be able to obtain
additional financing on a timely basis or on acceptable terms.
EFFECTS OF INFLATION
The Company was not affected in any material respect by inflation during
fiscal 1997 or 1996.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 are set forth at the pages
indicated in Item 14 (a)(1) and (2). The Company is not required to include the
supplementary data set forth in Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in this item is incorporated by reference to
"Proposal 1: Elect Six Directors," "The Executive Officers," and "Did Directors,
Executive Officers, and Greater-Than-10% Stockholders Comply with Section
16(a) Beneficial Ownership Reporting in 1997" contained in the Proxy
Statement, which will be filed with the Commission within 120 days of the end
of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required in this item is incorporated by reference to the
Proxy Statement, including but not limited to, "Information about Directors
and Executive Officers," "Employment Agreement with Chief Executive Officer,"
"Employment Agreement with Certain Executive Officers," and "Performance
Graph," contained in the Proxy Statement, which will be filed with the
Commission within 120 days of the end of the fiscal year covered by this
report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in this item is incorporated by reference to
"Information About Intek Common Stock Ownership" contained in the Proxy
Statement, which will be filed with the Commission within 120 days of the end
of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in this item is incorporated by reference to
"Certain Relationships and Related Transactions" contained in the Proxy
Statement, which will be filed with the Commission within 120 days of the end
of the fiscal year covered by this report.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
Page
(1) The following financial statements are included in
this Annual Report:
Report of Independent Public Accountants for the
year ended September 30, 1997 F-1
Report of Independent Auditors for the years ended
September 30, 1996 and 1995 F-2
Consolidated Balance Sheets at September 30, 1997
and 1996. F-3, F-4
Consolidated Statements of Operations for the years
ended September 30, 1997, 1996 and 1995. F-5
Consolidated Statements of Shareholders' Equity (Deficit)
for the years Ended September 30, 1997, 1996 and 1995. F-6, F-7
Consolidated Statements of Cash Flows for the years
ended September 30, 1997, 1996 and 1995. F-8, F-9
Notes to Consolidated Financial Statements F-10 to F-29
(B) REPORTS ON FORM 8-K
The Registrant filed one report on Form 8-K during the fourth quarter of
fiscal 1997. The report, filed on September 5, 1997, related to the appointment
of Mr. Robert J. Shiver as Chairman and Chief Executive Officer of the Company.
The report was filed pursuant to Item 5 of Form 8-K.
(C) EXHIBITS
See Index to Exhibits at Page 24 of this Annual Report on Form 10-K for a
list of Exhibits filed with this Annual Report.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on January 9, 1998.
INTEK DIVERSIFIED CORPORATION
By: Robert J. Shiver
-------------------------
Robert J. Shiver
Chief Executive Officer and
Chairman
(Principal Executive Officer)
By: Lee R. Montellaro
-------------------------
Lee R. Montellaro
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURES TITLE DATE
- ------------------ ----------- -------------
/s/ Robert J. Shiver Chief Executive Officer and January 9, 1998
- ----------------------- Chairman
Robert J. Shiver
/s/ Robert Kelly Director January 9, 1998
- -----------------------
Robert Kelly
/s/ Peter Hilton Director January 9, 1998
- -----------------------
Peter Hilton
/s/ David W. Neibert Director January 9, 1998
- -----------------------
David W. Neibert
/s/ John G. Simmonds Director January 9, 1998
- -----------------------
John G. Simmonds
/s/ Steven L. Wasserman Secretary and Director January 9, 1998
- -----------------------
Steven L. Wasserman
/s/ Roger Wiggs Director January 9, 1998
- -----------------------
Roger Wiggs
/s/ Michael G. Wilkinson Director January 9, 1998
- -----------------------
Michael G. Wilkinson
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Intek Diversified Corporation:
We have audited the accompanying consolidated balance sheet of Intek Diversified
Corporation (a Delaware corporation) and subsidiaries as of September 30, 1997
and the related consolidated statements of operations, shareholders' equity and
cash flows for the year then ended, (Post-Reverse Acquisition - See Note 1),
consisting of the statements of operations, shareholders' equity and cash flows
of Securicor Radiocoms Limited (Radiocoms), predecessor corporation in the
continuing business of Intek Diversified Corporation and subsidiaries for the
period from October 1, 1996 through December 2, 1996 (Pre-Reverse Acquisition),
and the statements of operations and cash flows of Intek Diversified Corporation
and subsidiaries for the period from December 3, 1996 through September 30,
1997, (Post-Reverse Acquisition). 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 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 Intek Diversified Corporation
and subsidiaries, as of September 30, 1997 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Los Angeles, California
January 2, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To The Board of Directors of Securicor Radiocoms Limited
We have audited the accompanying balance sheet of Securicor Radiocoms Limited
(predecessor company to Intek Diversified Corporation), as of September 30, 1996
and the related statements of operations and cash flows for the years ended
September 30, 1995 and 1996. These financial statements are the responsibility
of the Radiocoms' management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audit 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
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 Securicor Radiocoms Limited at
September 30, 1996, and the results of its operations and its cash flows for the
years ended September 30, 1995 and 1996, in conformity with generally accepted
accounting principles used in the United States of America.
/s/ Baker Tilly
--------------------------------
London, England BAKER TILLY
24 January 1997 Chartered Accountants
F-2
<PAGE>
INTEK DIVERSIFIED CORPORATION
RADIOCOMS ONLY AT SEPTEMBER 30, 1996 (PRE-REVERSE ACQUISITION)
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands)
September 30,
-------------------------
1997 1996
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,909 $ 417
Marketable securities 8,148 -
Accounts receivable, net
of allowance for doubtful
accounts of $863 in 1997
and $128 in 1996 6,488 4,074
Inventories 12,289 18,895
Taxation receivable from related parties 779 2,983
Amounts due from related parties 3,922 5,587
Prepaid expenses and
other current assets 894 1,481
---------- ----------
Total current assets 34,429 33,437
---------- ----------
PROPERTY AND EQUIPMENT, NET 21,555 6,639
OTHER ASSETS:
Note receivable 556 -
Investment in E.F. Johnson, at cost - 10,177
Intangible assets, net 48,340 -
Inventory-long term 6,980 -
Other 705 -
---------- ----------
TOTAL ASSETS $ 112,565 $ 50,253
---------- ----------
---------- ----------
The accompanying notes are an integral part of these
consolidated balance sheets
F-3
<PAGE>
INTEK DIVERSIFIED CORPORATION
RADIOCOMS ONLY AT SEPTEMBER 30, 1996 (PRE-REVERSE ACQUISITION)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
(Thousands)
September 30,
-------------------------
1997 1996
---------- ----------
CURRENT LIABILITIES:
Bank overdraft $ 120 $ 1,313
Accounts payable 6,110 3,051
Amounts due to related parties 2,005 2,660
Accrued liabilities 3,762 1,373
Deferred income 977 760
Related party notes payable - 29,345
Other 166 203
---------- ----------
Total current liabilities 13,140 38,705
---------- ----------
NOTES PAYABLE - Related Party 24,223 32,837
---------- ----------
CAPITAL LEASE LIABILITY 354 -
---------- ----------
PREFERRED STOCK OF SUBSIDIARY-Mandatorily
Redeemable 20,559 -
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value.
Authorized - 60,000,000 shares at
September 30, 1997 and 25,000,000 at
September 30, 1996
Issued - 42,398,096 at
September 30, 1997 and 25,000,000 at
September 30, 1996 424 250
Capital in excess of par value 106,220 (100)
Treasury stock, at cost - 465,582 shares (770) -
Deficit (50,199) (22,200)
Currency translation adjustment (1,386) 761
---------- ----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 54,289 (21,289)
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 112,565 $ 50,253
---------- ----------
---------- ----------
The accompanying notes are an integral part of these
consolidated balance sheets
F-4
<PAGE>
INTEK DIVERSIFIED CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1994 AND
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 3, 1996
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Net product sales $ 41,533 $ 22,996 $ 32,601
Service income 751 903 -
---------- ---------- ----------
Total revenues 42,284 23,899 32,601
Costs and expenses:
Cost of goods sold 37,846 19,853 19,426
Cost of services sold 1,739 231 -
Sales and marketing 4,214 1,268 1,728
Research and development 3,266 3,154 2,831
General and administrative 16,677 8,301 8,306
Depreciation and amortization 4,480 1,510 1,706
---------- ---------- ----------
Operating loss (25,938) (10,418) (1,396)
Other income (expense):
Interest (2,894) (1,715) (512)
Gain on sale of long term assets 324 - -
Other 351 - -
---------- ---------- ----------
Loss before income taxes (28,157) (12,133) (1,908)
Income tax benefit 1,158 3,044 737
---------- ---------- ----------
Net loss (26,999) (9,089) (1,171)
Less preferred dividends (1,000) - -
---------- ---------- ----------
Net loss applicable to Common Shareholders $ (27,999) $ (9,089) $ (1,171)
---------- ---------- ----------
---------- ---------- ----------
Net loss per share applicable to Common Shareholders $ (0.74) $ (0.36) $ (0.05)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of
Common shares outstanding 37,885,371 25,000,000 25,000,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these
consolidated statements
F-5
<PAGE>
INTEK DIVERSIFIED CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(Thousands, except shares)
Years ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Capital Currency Total
In Trans- Share-
Common Stock Excess Treas- lation holders'
-------------------------- of Par ury Adjust- Equity
Shares Amount Value Stock Deficit ment (Deficit)
------------ ----- ---------- ------ ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
SEPTEMBER 30, 1994 100,000 $250 $(100) $- $(11,940) $- $(11,790)
Net loss - - - - (1,171) - (1,171)
Currency translation
adjustment - - - - - 12 12
------------ ----- ---------- ------ ---------- ------- ----------
BALANCE
SEPTEMBER 30, 1995 100,000 250 (100) - (13,111) 12 (12,949)
Net loss - - - - (9,089) - (9,089)
Currency translation
adjustment - - - - - 749 749
------------ ----- ---------- ------ ---------- ------- ----------
BALANCE
SEPTEMBER 30, 1996 100,000 250 (100) - (22,200) 761 (21,289)
Eliminate stock
of Radiocoms (100,000) (250) 100 - - - (150)
Purchase Radiocoms
for stock 25,000,000 250 84,982 - - - 85,232
Intek shares
December 3, 1996 14,239,416 142 26,383 (770) (11,025) - 14,730
Intek loss
October 1, 1996 through
December 3, 1996 - - - - (3,407) - (3,407)
Eliminate Intek
historic deficit - - (14,432) - 14,432 - -
Adjust shares for
Midland assets (155,000) (1) (644) - - - (645)
Imputed interest
on warrants - - 652 - - - 652
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued for
loan extension fee 34,000 - 203 - - - 203
Exercise of warrants 1,758,776 18 6,495 - - - 6,513
Write off deferred
financing cost
related to note
converted to stock - - (215) - - - (215)
Shares issued for
interest 14,602 - 60 - - - 60
Shares issued for
equipment purchases 1,206,302 12 2,176 - - - 2,188
Employee stock grant 300,000 3 560 - - - 563
Net loss - - - - (26,999) - (26,999)
Preferred stock dividends
settled through issue of
bonus preferred shares - - - - (1,000) - (1,000)
Currency translation
adjustment - - - - - (2,147) (2,147)
------------ ----- ---------- ------ ---------- ------- ----------
BALANCE
SEPTEMBER 30, 1997 42,398,096 424 106,220 (770) (50,199) (1,386) 54,289
------------ ----- ---------- ------ ---------- ------- ----------
------------ ----- ---------- ------ ---------- ------- ----------
</TABLE>
The accompanying notes are an integral part of these
consolidated statements
F-7
<PAGE>
INTEK DIVERSIFIED CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1994 AND
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 3, 1996
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (26,999) $ (9,089) $ (1,171)
---------- ---------- ----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 4,480 1,510 1,706
Increase in fixed asset valuation reserve 855 - -
Loss (gain) on sale of long term assets (324) 29 -
Gain on sale of investments (260) - -
Deferred income taxes (633) - (183)
Non-cash interest and loan extension fees on
convertible debt and warrants 712 - -
Stock compensation to employees 563 - -
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable and amounts due from related parties 1,384 3,477 (7,320)
Inventories 11,376 (2,984) (10,303)
Income taxes receivable from related parties 2,330 - -
Prepaid expenses and other current assets 1,375 67 (755)
Increase (decrease) in:
Accounts payable 2,219 (1,513) 1,851
Amounts due to related parties (1,317) - -
Accrued liabilities (443) (601) 1,146
Accrued liabilities to related parties 342 - -
Deferred income 194 (1,209) 2,015
Other (93) - -
---------- ---------- ----------
Total Adjustments 22,760 (1,224) (11,843)
---------- ---------- ----------
Net cash used in operating activities (4,239) (10,313) (13,014)
---------- ---------- ----------
F-8
<PAGE>
<CAPTION>
<S> <C> <C> <C>
Cash Flows From Investing Activities:
Proceeds from sale of investments 1,853 - -
Expenditures for property, plant & equipment, net (9,226) (1,657) (2,377)
Expenditures for FCC licenses (2,016) - -
Expenditures for other long term assets (6,477) - -
Proceeds from sale of long term assets 2,311 96 56
Notes receivable (428) - -
---------- ---------- ----------
Net cash used in investing activities (13,983) (1,561) (2,321)
---------- ---------- ----------
Cash Flows From Financing Activities:
Net change in bank overdraft (1,252) (731) 130
Capital lease 282 - -
Proceeds from short term debt 71 - -
Proceeds from long term debt 4,000 - -
Proceeds from long term debt-related party 19,452 12,463 15,537
Repayment of long and short term debt (5,347) - -
---------- ---------- ----------
Net cash provided by financing activities 17,206 11,732 15,667
---------- ---------- ----------
Effect of foreign exchange rate changes on cash 936 (42) (1)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (80) (184) 331
Cash and cash equivalents at beginning of year 417 601 270
Cash acquired in reverse acquisition 1,572 - -
---------- ---------- ----------
Cash and cash equivalents at end of year $ 1,909 $ 417 $ 601
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosures of
cash flow information:
Cash paid for interest $ 578 $ 1,715 $ 230
Cash paid for income taxes $ - $ - $ -
Cash received for income taxes
(U.K. group tax relief received from related party) $ 3,117 $ 285 $ 319
Non-cash transactions (see Note 3)
</TABLE>
The accompanying notes are an integral part of these
consolidated statements
F-9
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) BUSINESS ACQUISITIONS AND SIGNIFICANT RISKS
BUSINESS ACQUISITIONS
On May 2, 1996, Intek formed Midland USA, Inc. ("MUSA"), a Delaware
corporation and a wholly-owned subsidiary of Intek. Effective August 1, 1996,
MUSA acquired from Midland International Corporation ("MIC"), a wholly-owned
subsidiary of Simmonds Capital Limited ("SCL"), its U.S. land mobile radio
distribution business and certain of its assets (the "Midland Transaction") in
exchange for 2,345,000 shares of the Company's common stock ("Common Stock").
On December 3, 1996, Intek consummated the acquisition (the "Radiocoms
Acquisition") of all the issued and outstanding common stock of Securicor
Radiocoms Limited ("Radiocoms"), a wholly-owned subsidiary of Securicor
Communications Limited ("Securicor"). Radiocoms designs, develops,
manufactures, distributes and installs a range of land mobile radio equipment,
including its own proprietary linear modulation technology ("LM Technology")
equipment. The purchase price for the Radiocoms Acquisition was 25,000,000
shares of Common Stock. The Radiocoms Acquisition, approved by the stockholders
of Intek at a Special Meeting held on December 3, 1996, was consummated on the
same date.
Upon the consummation of the Radiocoms Acquisition, the Company became a
provider of spectrum-efficient wireless communications technology, products
and services. With the exception of certain products distributed by MUSA and
Radiocoms, the communication services and products of the Company utilize LM
Technology. Roamer One, Inc. ("Roamer One"), a Delaware corporation and a
wholly-owned subsidiary of Intek, is a provider of high quality wireless
voice and data communications services in the U.S., operating on the
220-222MHz ("220MHz") frequency and Radiocoms is a manufacturer of the
systems and radios used by among others, the Company's Specialized Mobile
Radio ("SMR") sites. In addition, Radiocoms, through its LMT division, is
involved in the research and development of products and other applications
of LM Technology. As a result of the Radiocoms Acquisition, the Company is
no longer considered to be in the development stage, as was the case in prior
years.
a. The following unaudited proforma income statement information (in
thousands except shares and per share amounts) is presented as though the
Radiocoms Acquisition and the Midland Transaction had occurred on October 1,
1994:
Year Ended September 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
Revenues $ 44,475 $ 22,569 $ 65,137
Net loss $ (32,780) $ (20,073) $ (9,794)
Net loss per share $ (0.81) $ (0.53) $ (0.27)
Weighted average shares outstanding 40,381,715 38,172,732 36,570,973
The proforma financial information is presented for informational purposes
only and it is not necessarily indicative of the operating results that would
have occurred had the Radiocoms Acquisition and the Midland Transaction been
consummated as of the above date, nor is it necessarily indicative of future
operating results.
b. As discussed below, the Radiocoms Acquisition has been accounted for
as a reverse acquisition, and the Company's financial statements have been
prepared as if Radiocoms acquired Intek under the purchase method of accounting.
The excess of cost over the fair value of net assets acquired at December 3,
1996 is being amortized over 15 years. The purchase price was determined based
on the fair value of the Common Stock outstanding at the date of the Radiocoms
Acquisition and has been allocated to the underlying Intek assets and
liabilities based on fair values at the date of the Radiocoms Acquisition. A
summary of the purchase price allocation is as follows:
F-10
<PAGE>
(in thousands)
----------
Net working capital $(1,138)
Excess of cost over fair value of
net assets acquired 38,573
Net property, plant & equipment 10,179
Other non-current assets 12,918
Other non-current liabilities (6,054)
----------
Total $54,478
----------
----------
SIGNIFICANT RISKS
The Company's business, financial condition and future prospects are
subject to a number of risks and contingencies. Those that the Company regards
currently as among the most significant are summarized below.
NEED FOR ADDITIONAL CAPITAL
The Company believes that its current available capital is sufficient to
fund its fiscal 1998 operations. However, the current available capital is
not sufficient to allow the Company to acquire more licenses for the Roamer
One Network through cash purchases from other 220 MHz licenses holders or
through the FCC auction process. Additional funding will be required by the
Company in fiscal 1998, if it decides to acquire more licenses.
Subsequent to fiscal 1998, the Company will require additional cash
resources to fund operations. The amount of cash required will depend on, among
other things, the rate of subscriber loading on the Roamer One Network and LM
Technology and product development requirements and costs.
There can be no assurance that additional financing will be available on
reasonable terms or at all. If additional capital is raised though the sale of
additional equity or convertible debt securities, dilution to the Company's
stockholders could occur.
DEPENDENCE ON GOVERNMENTAL REGULATION
Operating the Roamer One Network, maintaining and obtaining site licenses,
and operating procedures are all subject to FCC and other regulatory approval.
FCC and other regulatory approvals are also required in the U.S. for LMR
products, including those utilizing LM Technology.
In most international markets there are similar, and in some instances
more stringent, governmental regulatory overviews regarding wireless
communications services and products including those offered by the Company.
The current and planned operations of the Company can be adversely impacted
by delayed or adverse actions by the various regulatory authorities and it is
impossible to predict, with any certainty, how the Company's operations will be
impacted by the actions of these regulatory authorities.
DEVELOPMENT AND ACCEPTANCE OF LM TECHNOLOGY AND RELATED PRODUCTS
Today, the focus of the Company's operations is on services and products
utilizing LM Technology. The commercial viability of the Roamer One Network is
dependent upon, among other things, the proper function of LM Technology. LM
Technology provides the Roamer One Network with the capability to network
various sites and control subscriber calling traffic. Because of these
capabilities, the Company believes that the Roamer One Network should be able to
load a sufficient number of subscribers to make it commercially viable.
The Company anticipates that many of the same capabilities believed to be
functional in the Roamer One Network will be included in the LMR products it
plans to develop and market utilizing LM Technology. Accordingly, if products
using LM Technology are not commercially accepted or do not have the
capabilities the Company believes they have or can have, the future results of
operations of the Company could be significantly and negatively impacted.
F-11
<PAGE>
Additionally, until products utilizing LM Technology progress through the
commercial development stage, their manufacturing costs may be substantially
higher than competing products and the Company may be forced to subsidize
equipment selling prices, negatively impacting the Company's result of
operations.
ABILITY TO COMPETE
Competition in the sale of wireless communication products and services
is fierce. With the provision of wireless services, given the wide variety
of available services, new subscribers can only be acquired if the Company
has a service needed by its potential subscribers and priced so that it,
along with the cost of the necessary radio equipment, is attractively priced
when compared to competing services. The Company has geared its marketing of
the Roamer One Network to identifiable targeted groups of business users who
historically have used two-way group dispatch systems. Additionally, the
Company's systems are capable of transmitting data that the Company believes
will be a longer-range benefit to its potential subscribers.
Similarly, the Company believes that LM Technology and related products
will offer substantial benefits to other equipment manufacturers or end users
that purchase the Company's technology or products. However, competing
technologies and products are numerous.
Because the Company is in the early rollout stage of the Roamer One
Network and products utilizing LM Technology have only been recently
introduced and/or are still being developed, there is no assurance that the
services provided on the Roamer One Network or the technology and products to
be developed by the Company will be competitive to other services, technology
and products of other wireless communications companies.
SUPPLIER RISK
MUSA purchases a significant portion of its mobile radios and accessories
from a single supplier in Japan. The Company believes that if this foreign
supplier were no longer available, such event would have a severe impact on
Intek's financial position or results of operations. Additionally, significant
fluctuations in the value of the U.S. dollar versus the Japanese Yen could have
a material effect on MUSA's profit margins.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of these consolidated financial statements. Certain prior
period amounts have been reclassified to conform to the current period
presentation.
a. PRINCIPLES OF CONSOLIDATION
Because Securicor acquired more than a 50 percent controlling interest in
Intek through the Radiocoms Acquisition, the Radiocoms Acquisition was treated
as a reverse acquisition for accounting purposes, with Radiocoms considered the
acquiring company, although Intek is the surviving company under corporate law.
Accordingly, the consolidated financial statements for fiscal 1996 and 1995
include only the accounts of Radiocoms and its subsidiaries, all of which are
wholly-owned. Subsequent to the date of the Radiocoms Acquisition (December 3,
1996) the consolidated financial statements also include the accounts of Intek
and its other subsidiaries.
Included in reported results of operations for the years ended September
30, 1996 and 1995 (pre-reverse acquisition), are revenues of $8,984 and $0
respectively from the sales of products and services by Radiocoms to other
current Intek subsidiaries. The related cost of sales was $8,827 and $0 in
the years ended September 30, 1996 and 1995, respectively.
b. 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
F-12
<PAGE>
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.
c. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
d. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and include manufacturing labor and overhead. At September 30, 1997, the
Company has $6,980 of completed base stations and components for the
manufacture of additional base stations. These have been classified as long-term
assets since there is no assurance that they will be utilized by the Company, or
sold to third parties, during the fiscal year ending September 30, 1998.
e. PROPERTY AND EQUIPMENT, AT COST
Property and equipment are stated at cost, or in the case of acquired
businesses, at fair market value. The Company's policy is to begin depreciating
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. Gains and losses on
disposal are recognized in the year of the disposition. Depreciation is
provided on the straight-line method over the estimated useful lives of the
assets as follows:
Buildings 11 to 50 years
Site equipment 10 years
Production and test equipment 3 to 10 years
Equipment for rental on operating leases 3 to 5 years
Furniture and fixtures and computers 3 to 10 years
Depreciation expense is shown separately in the accompanying consolidated
financial statements and is not allocated between cost of goods and services
sold and other operating expenses.
f. REVENUE RECOGNITION
With respect to the sale of equipment, including systems and site
equipment, revenue is recognized upon delivery of the equipment or, when
appropriate, upon acceptance of the equipment by the customer. The Company
recognizes subscriber revenue from airtime billings upon provision of the
service. In those instances when subscribers are billed for airtime service
provided from sites managed by the Company, gross billings are included in
service income and distributions to licensees are included in cost of services
sold.
g. INCOME TAXES
The Company and its subsidiaries (except Radiocoms) file consolidated
Federal and combined state income tax returns. The Company accounts for income
taxes in accordance with Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standard "Accounting for Income Taxes" ("FAS
109"). FAS 109 requires, among other things, the use of the liability method in
computing deferred income taxes.
Radiocoms is a company organized under the laws of England and Wales and
files its tax returns with local U.K. tax agencies. Prior to the Radiocoms
Acquisition, Radiocoms' losses were compensated for by its parent company based
on the effective corporate tax rate.
F-13
<PAGE>
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 FAS 109.
In accordance with FAS 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.
h. 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.
i. WEIGHTED AVERAGE SHARES OUTSTANDING
The weighted average number of shares outstanding for the years ended
September 30, 1997, 1996 and 1995, and the pro forma income statement
disclosures were restated to reflect the shares issued in connection with the
reverse acquisition based on the exchange ratio of the Common Stock issued in
exchange for each share of Radiocoms' common stock.
j. WARRANTY COSTS
The Company provides, by a current charge to income, an amount it estimates
will be needed to cover future warranty obligations for products sold during the
period. The accrued liability for warranty costs is included in the caption
"Accrued liabilities" in the accompanying consolidated balance sheets.
k. AMORTIZATION OF INTANGIBLE ASSETS
As part of the Midland Transaction, the Company acquired various rights,
permits and trademarks. These intangible assets are amortized on a
straight-line basis over their legal or estimated useful lives, whichever is
shorter (generally not exceeding 15 years).
As a result of the Radiocoms Acquisition, intangible assets of Intek and
its subsidiaries prior to the Radiocoms Acquisition including various
agreements, rights, permits, and trademarks are being amortized on a
straight-line basis over their legal or estimated useful lives, whichever is
shorter (generally not exceeding 15 years).
Intangible assets recorded in connection with the acquisition of FCC
licenses are amortized on the straight-line basis over 15 years effective when
the related site begins commercial operation.
l. RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
m. SUBSCRIBER ACQUISITION COSTS
Marketing and sales costs associated with obtaining new subscribers are
charged to income in the period incurred.
F-14
<PAGE>
n. FOREIGN CURRENCY
The financial statements of the Company's foreign subsidiaries are
translated into U.S. dollars for consolidation and reporting purposes. Assets
and liabilities are translated into U.S. dollars using the exchange rate at each
balance sheet date and a weighted average exchange rate for each period is used
for revenues and expenses. Translation adjustments are recorded as a separate
component of shareholders' equity.
o. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK
The Company's management believes that the fair value of all financial
instruments approximates carrying value.
The equipment sales and contract manufacturing portions of the Company's
business have a broad range of established customers. In contrast, the sales of
products utilizing LM Technology is a new market with a limited number of
customers in an emerging domestic and 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 with these parties exist.
No assurance can be made that these arrangements will continue on the same terms
or at the same 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.
The Company may periodically hedge firm foreign purchase commitments.
The Company regularly monitors its foreign currency exposures and ensures
that hedge contract amounts do not exceed the amounts of the underlying
exposures. At September 30, 1997, the Company had outstanding hedge
contracts of (in thousands) Japanese Yen 210,000 to cover its firm foreign
purchase commitments of Japanese Yen 374,817, leaving an exposed position of
Japanese Yen 164,817 equating to $1,375. Additionally, at September 30, 1997,
the Company's hedge contracts totaled $1,800 at the contracted rate and had a
fair value of $1,762. Gains and losses on foreign currency firm commitment
hedges are deferred and included in the basis of the transactions underlying
the commitments.
p. LONG-LIVED ASSETS
Effective October 1, 1996, the Company adopted FAS No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
of." Long-lived assets and identifiable intangibles to be held and used are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Impairment is measured by
comparing the carrying value of the long-lived asset to the estimated
undiscounted future cash flows expected to result from use of the assets and
their eventual disposition. The Company determined that as of September 30,
1997, there had been no impairment in the carrying value of long-lived assets.
q. MARKETABLE SECURITIES
During the year, the Company received stock of Transcrypt International
in exchange for its investment in E.F. Johnson Company ("EFJ"). At September
30, 1997, this investment was classified as available for sale and was
recorded at its fair value at that date. Subsequent to September 30, 1997,
the Company sold the investment for approximately $748 less than its carrying
value. The Company did not realize a loss on this transaction as the
shortfall will be recovered from Securicor plc.
r. NEW ACCOUNTING PRONOUNCEMENTS
During the year, the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share," No. 129 "Disclosure of Information About Capital
Structure," No. 130 "Reporting Comprehensive Income" and No. 131 "Disclosure
About Segments of an Enterprise." These statements of Financial Accounting
Standards will be adopted by the Company in fiscal 1998, except No. 131 which
was adopted in the current fiscal year. Management of the Company does not
believe that there will be any material effect of adopting SFAS No. 128, 129
and 130 in fiscal 1998.
(3) SUMMARY OF NON-CASH ACTIVITIES
The following summarizes the supplemental disclosure of non-cash operating,
investing and financing activities:
F-15
<PAGE>
In March 1995, a wholly-owned subsidiary of Securicor acquired 925,850
voting preferred shares and a warrant to acquire 291,791 shares of common
stock of EFJ, a U.S. based communications company, for $10,000. Concurrent
with this transaction, Radiocoms entered into an agreement with EFJ to pay
for the EFJ shares acquired by the delivery to EFJ of certain inventory
products and by granting manufacturing and technology licenses to EFJ for
approximately $9,671. Of this amount, $3,997 was attributable to the
technology license which required future support by Radiocoms through
September 30, 1996. Revenues derived from EFJ have been reflected as related
party sales. On June 17, 1996, Radiocoms acquired the 925,850 shares of
voting preferred stock and a warrant to acquire 291,791 shares of common
stock of EFJ from Securicor at a cost of $10,000, the consideration being a
promissory note payable on June 17, 1997 for $10,000 together with interest
on the principal amount at a rate of 8% per annum ("EFJ Note"). During the
year ended September 30, 1997, Radiocoms exchanged this investment for stock
of a publicly quoted corporation with a market value of $8,148 at September
30, 1997. The shortfall of $1,852 is to be recovered from Securicor and is
included in amounts due from related parties.
On September 20, 1996, Intek, through MUSA, consummated the Midland
Transaction. The original purchase price was 2,500,000 shares of Common Stock.
Pursuant to the terms of the Midland Transaction, a post closing reduction to
the purchase price of 155,000 shares of Common Stock, or $645, was made.
During fiscal 1996, Intek sold two series of notes with warrants attached.
During fiscal 1997, holders of the notes exercised warrants to convert all of
the notes into Common Stock. Accrued interest on certain notes was paid by
issuance of Common Stock. See Note 15 "Sales of Securities".
On December 3, 1997, Intek consummated the Radiocoms Acquisition for
25,000,000 shares of Common Stock. See Note 1 "Business Acquisitions and
Significant Risks".
During fiscal 1997, Intek acquired new systems and management agreements
from Krystal Systems, Inc., American Digital Corporation and Pagers Plus Corp.
Consideration for these transactions included 1,206,302 shares of Common Stock.
See Note 18 "Acquisition of New Systems".
In connection with his employment by the Company, the chief executive
officer of the Company received, among other things, 300,000 shares of Common
Stock. See Note 13 "Employment Agreements".
(4) INVENTORIES
Inventories at September 30 consist of the following (in thousands):
1997 1996
---------- ----------
Raw materials $ 4,020 $ 8,314
Work in progress 1,311 2,321
Finished goods 13,938 8,260
---------- ----------
Subtotal 19,269 18,895
Inventory not likely to be used or
sold within one year (6,980) -
---------- ----------
Total current inventories $ 12,289 $ 18,895
---------- ----------
---------- ----------
F-16
<PAGE>
(5) PROPERTY AND EQUIPMENT
Property and equipment at September 30 consists of the following (in
thousands):
1997 1996
---------- ----------
Land $ 402 $ 469
Buildings 3,008 2,329
Site equipment 13,206 -
Production & test equipment 3,843 4,731
Furniture, fixtures and computers 2,755 555
Equipment held for rental 4,163 3,467
---------- ----------
Total property and equipment, at cost 27,377 11,551
Less accumulated depreciation (5,822) (4,912)
---------- ----------
Net property and equipment $ 21,555 $ 6,639
---------- ----------
---------- ----------
(6) INTANGIBLE ASSETS
Intangible assets at September 30 consists of the following (in thousands):
1997 1996
----------- -----------
Excess of cost over fair value of net
MUSA assets acquired $ 9,755 $ -
Excess of cost over fair value of net
Intek assets acquired in the reverse
acquisition $ 38,573 $ -
FCC licenses and management agreements
acquired from third parties $ 2,899 $ -
----------- -----------
Total intangibles 51,227 -
Less accumulated amortization (2,887) -
----------- -----------
Net intangibles $ 48,340 $ -
----------- -----------
----------- -----------
The excess of cost over fair value of net Intek assets acquired in the
reverse acquisition represents the intangible value of FCC licenses and
management agreements owned by Intek.
(7) INCOME TAXES
The Company's benefit for the income taxes consists of the following (in
thousands) for the years ended September 30:
1997 1996 1995
---------- ---------- ----------
Current:
Federal $ 628 $ - $ -
Foreign 530 3,044 554
F-17
<PAGE>
---------- ---------- ----------
Total Current $ 1,158 $ 3,044 $ 554
Deferred - - 183
---------- ---------- ----------
Total $ 1,158 $ 3,044 $ 737
---------- ---------- ----------
---------- ---------- ----------
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.
The approximate tax effect of temporary differences which gave rise to
significant deferred tax assets and liabilities are as follows at September 30
(in thousands):
1997 1996
---------- ----------
Deferred tax items (Federal, state and foreign):
Accrued liabilities $ 690 $ -
Allowance for doubtful accounts receivable 16 -
Amortization of Roamer One startup costs 64 -
Disallowed interest expense 174 -
Depreciation (156) -
Depreciation (foreign) (178) (63)
Development costs (foreign) (2,779) 3,275
Operating loss carryforwards 5,453 -
Operating loss carryforwards (foreign) 3,939 145
---------- ----------
7,223 3,357
Valuation allowance (7,223) (3,357)
---------- ----------
Net deferred tax liability $ - $ -
---------- ----------
---------- ----------
Because of the Company's history of losses, the Company has provided a
valuation allowance on deferred tax assets. The valuation reserve was increased
by $3,866 for the year ended September 30, 1997.
The reconciliation of the provision (benefit) for income taxes to the
amount computed at the Federal statutory rate of 34% is as follows at September
30 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Benefit at statutory rate $ (9,573) $ (4,125) $ (649)
Statutory rate difference (foreign) 277 121 20
Goodwill amortization 729 - -
Goodwill amortization (foreign) - - 199
Prior period group loss relief (foreign) - (94) (312)
Prior period tax charge (foreign) 73 - -
Accruals 521 - -
Deferred taxes (628) - -
Other (foreign) 167 9 5
Other 247 - -
F-18
<PAGE>
<CAPTION>
<S> <C> <C> <C>
Operating losses not currently available
for use nor available for group relief
(foreign) 3,660 1,045 -
Operating losses not currently available
for use 3,369 - -
---------- ---------- ----------
$ (1,158) $ (3,044) $ (737)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
At September 30, 1997, the Company had net operating loss carryforwards
available for Federal, California and non-California state income tax
purposes of approximately $13,924 and $7,987 respectively. The net operating
loss carryforwards expire in the year 2008 and thereafter for Federal income
tax purposes and 1998 and thereafter for state income tax purposes. The
Company also had foreign net operating losses of $3,939, which do not have an
expiration date.
For Federal income tax purposes, a corporation that undergoes a "change of
ownership" pursuant to Section 382 of the Internal Revenue Code of 1986
("Code"), as amended is subject to limitations on the amount of its net
operating loss carryforwards, which may be used in the future. In addition, the
use of certain other deductions attributable to events occurring in periods
before such an ownership change, that are claimed within the five year period
after such ownership change, may also be limited (such deductions, together with
net operating loss carryforwards, "pre-change losses"). Upon consummation of
the Radiocoms Acquisition, an ownership change under Section 382 did occur. As
a result, the Company's annual limitation for using "pre-change losses" is
$794.
Foreign losses may also be limited due to the change in ownership of the
Company. In addition, Radiocoms will no longer be reimbursed by Securicor for
benefits of Radiocoms losses.
(8) BUSINESS SEGMENTS
Prior to the Radiocoms Acquisition, the operations of Radiocoms were
reported as a single segment. However, since the Radiocoms Acquisition, the
Company has four reportable segments: communications services, equipment
distribution, technology, and manufacturing. The communications services
segment provides high quality wireless voice and data communications services in
the United States and the United Kingdom. The equipment distribution segment
sells radio base stations, mobile radios, spare parts and accessories
manufactured by the Company and by third parties. The technology segment
conducts research and development for products and applications incorporating
linear modulation. The manufacturing segment produces proprietary products
incorporating linear modulation, and produces products and subassemblies on a
contract basis for third parties.
Summarized financial information by business segment, after elimination of
intersegment sales, for the year ended September 30, 1997, the only year for
which this information is available, is as follows (in thousands):
1997
-----------
Net Sales:
Communications services $ 751
Equipment distribution 28,989
Technology -
Manufacturing 12,544
-----------
$ 42,284
-----------
-----------
F-19
<PAGE>
Operating income (loss) after
depreciation and amortization:
Communications services $ (6,322)
Equipment distribution 505
Technology (5,318)
Manufacturing (11,458)
Other (3,345)
-----------
$ (25,938)
-----------
-----------
Total assets:
Communications services 54,382
Equipment distribution 30,263
Manufacturing 16,607
Other 11,313
-----------
$ 112,565
-----------
-----------
The Company has applied the principles of FAS 131 "Disclosures about
Segments of an Enterprise and Related Information" in the above presentation of
Segment Information.
(9) 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 1997,
1996, or 1995.
Radiocoms contributes to the pension plan of Securicor, which maintains 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 upon 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.
Actuarial valuations are performed every three years. The most recent actuarial
valuation was April 5, 1995 and in accordance with the provisions of FASB
Statement No. 87, at September 30, 1997 and 1996, there were no unfunded
accumulated benefit obligations. The assets are held in separate trustee
administered funds. For the years ended September 30, 1997, 1996 and 1995,
Radiocoms' share of the costs of the Securicor's defined benefit pension plan
amounted to $214, $175 and $170 respectively.
(10) STOCK OPTION PLANS
The 1988 Key Employee Incentive Stock Option Plan ("1988 Plan") provides
for the granting of options on up to 500,000 shares of Common Stock. 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 exercisable at a price equal to the average of the closing
per share bid and asked price of the Common Stock on the date an option is
granted ("Fair Market Value") 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. The Board of Directors has approved, subject
to shareholder approval, a
F-20
<PAGE>
modification in the 1988 Plan, so that options granted under this plan qualify
as "incentive stock options" within the meaning of Section of 422 of the Code.
In September 1994, the Board of Directors approved the 1994 Stock Option
Plan ("1994 Option Plan") and the 1994 Director's Option Plan ("1994 Directors
Plan") which plans provide for the granting of options up to 600,000 and 300,000
shares of Common Stock respectively. The 1994 Option Plan and the 1994
Directors Plan were approved by the shareholders at the Annual Meeting of
Stockholders held on July 5, 1995. The 1994 Option Plan provides for the
granting of "incentive stock options" 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.
Under the terms of the 1994 Directors' Plan, each member of the
Compensation Committee received an option to purchase 40,000 shares of Common
Stock on September 24, 1994. All other members of the Board at September 24,
1994, received 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 has received or will receive, on the date of his or her
initial election as a director, an option to purchase 20,000 shares of Common
Stock. No person may receive an option pursuant to the Directors' Plan more
than once.
Under both 1994 plans, the option exercise price equals Fair Market Value
at the date of grant and an option vests after one year and expires after ten
years.
Transactions in stock options for the three years ended September 30, 1997
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- ------------------------
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price (000) Ex Price
--------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beg. of year 315.0 $4.16 475 $3.69 565.0 $3.52
Granted 420.0 $3.30 72.0 $5.88 - $-
Exercised - $- 224.5 $3.80 90.0 $2.64
Forfeited - $- - $- - $-
Expired - $- 7.5 $1.75 - $-
--------- --------- ---------
Outstanding at end of year 735.0 $3.67 315.0 $4.16 475 $3.69
--------- --------- ---------
Exercisable at end of year 315.0 $4.16 315.0 $4.16 475 $3.69
--------- ---------- --------- ---------- --------- -----------
Weighted average fair value of
options Granted $1.93 $4.22 N/A
--------- --------- ---------
--------- --------- ---------
</TABLE>
The 735,000 options outstanding at September 30, 1997 have the following
exercise prices and weighted average remaining contractual lives:
Weighted Average
Remaining
Exercise Price Shares Contractual Life (years)
-------------- ------ ------------------------
$3.00 360,000 9.47
$3.125 20,000 9.40
$3.75 255,000 6.99
$5.875 60,000 8.23
$6.125 40,000 9.18
------
735,000
-------
-------
F-21
<PAGE>
As of September 30, 1997, options available for future grant were as
follows:
1988 Plan 82,500
1994 Stock Option Plan 148,000
1994 Directors Plan 120,000
-------
350,500
-------
-------
The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with FAS 123 "Accounting for
Stock-based Compensation", the Company's net loss and loss per share would
have been increased to the following pro forma amounts in thousands
(except per share amounts):
1997 1996 1995
---- ---- ----
Net Income: As Reported $(26,999) $(9,089) $N/A
Pro Forma $(27,264) $(9,393) $N/A
Primary Loss per Share:
As Reported $(0.74) $(0.36) $N/A
Pro Forma $(0.75) $(0.38) $N/A
Because the FAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for the options granted in the periods ending September 30,
1997 and 1996:
1997 1996
---- ----
Risk free interest rate 5.85% 5.40%
Expected dividend yield 0% 0%
Expected lives of option 3 years 3 years
Expected volatility 84.3% 118.1%
(11) RELATED PARTY TRANSACTIONS
Related parties of Intek include Securicor and its ultimate parent company,
the directors and officers of Intek and companies that are affiliated with
Directors of the Company. John Simmonds, a Director of the Company is
affiliated with SCL, Simmonds Mercantile and Management Inc. ("SMM") which is a
company that is controlled by SCL and MIC. Steven Wasserman, a Director and
Secretary of the Company is a partner of the law firm Kohrman Jackson & Krantz.
Robert Kelly, a Director of the Company, is a partner of the law firm Kelly &
Povich, P.C.
Directors are compensated for services at the rate of $4 per year plus
$.5 per meeting to a maximum of $10 per director. For the twelve months
ended September 31, 1997, the Company paid Directors fees of $48 and accrued
$9 for unpaid directors fees.
Pursuant to a consulting agreement, the Company paid $10 per month to
Nicholas R. Wilson until the Company notified Mr. Wilson on March 21, 1997
that it was terminating the agreement. Mr. Wilson was the Chairman of the
Board of Directors until his resignation on December 3, 1996. During fiscal
1997, 1996 and 1995,
F-22
<PAGE>
the Company paid Mr. Wilson $80, $120 and $30 respectively.
Pursuant to an oral management agreement between SCL and the Company,
the Company paid SCL $10 per month and SCL made available to the Company the
services of Messrs. Simmonds, Dunstan and Heinke, each of whom were officers
and directors of the Company. The agreement was terminated effective
January, 1997. During fiscal 1997, the Company paid $40 to SCL pursuant to
this agreement.
Pursuant to an oral consulting agreement with SMM, the Company paid SMM
$8 per month for consulting services. During fiscal 1997, the Company paid
$32 to SMM. Effective February 1, 1997, the Company terminated the agreement
and ceased such payments.
On September 19, 1996, MUSA entered into an agreement with MIC, whereby MIC
agreed to permit MUSA to make use of the services of the supplier liaison office
maintained by MIC in Japan and MIC's purchasing representative in Korea. During
fiscal 1997, MUSA paid $140 to MIC. This agreement continues on a
month-to-month basis.
On September 19, 1996, MUSA and SCL entered into a Computer Services
Agreement pursuant to which SCL agreed to provide MUSA access to the IBM AS400
computer system, including hardware and software, currently owned by SCL, for
data processing purposes. During fiscal 1997, MUSA paid $218 to SCL. This
agreement was terminated on October 31, 1997.
During fiscal 1995 pursuant to a Financing Agreement and related
agreements between the Company, Roamer One, SCL and Radiocoms, the Company
received approximately $4,000 worth of base station equipment and mobile
radios in exchange for 937,042 shares of the Company's Common Stock to
Securicor. Pursuant to the Financing Agreement, such shares were issued at a
share price of $4.26875.
The Company and SCL had an arrangement whereby Roamer One purchased
equipment and installation services from SCL. During the year ended
September 30, 1995, Roamer One purchased $10,195 of radio equipment and
installation services from SCL. During the year ended September 30, 1996,
Roamer One purchased $2,307 of radio equipment and installation services from
SCL. During the year ended September 30, 1997, Roamer One purchased $8 of
radio equipment and installation services from SCL.
On December 3, 1996, the Company entered into a Registration Rights
Agreement to provide certain holders of Common Stock, including SCL, MIC,
Roamer One Holdings, Securicor, Securicor International Limited and Anglo
York Industries, Inc. with certain demand and "piggy-back" registration
rights with respect to the Common Stock owned by the holders. Each is a
stockholder of the Company and, collectively, such stockholders own
approximately 78% of the Company's Common Stock.
Pursuant to a Support Services Agreement dated December 3, 1996, by and
between the Company and Securicor, the Company agreed, in connection with the
Securicor Transaction, to obtain certain support and administrative services
for Radiocoms from Securicor and/or its affiliates for the purpose of
enabling the Company to manage an orderly transition in its ownership of
Radiocoms during fiscal 1997. During fiscal 1997, $666 of support and
administrative service costs (including services of Edmund Hough, Intek's
former Chief Executive Officer) were accrued, but unpaid.
The law firm Kohrman Jackson & Krantz performs legal services for the
Company and its subsidiaries for which it received fees of $237 during fiscal
1997. In addition, Mr. Wasserman received $1 per month as compensation for
his services as the secretary of the Company until January 1, 1997 at which
time his compensation was increased to $2 per month.
The law firm Kelly & Povich, P.C. performs legal services for the
Company and its subsidiaries as of December 1996. Mr. Kelly is a member of
the Company's Board of Directors. During fiscal 1997, Kelly & Povich, P.C.
received fees of approximately $55.
F-23
<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.
For details of related party borrowings, see Note 16 "Related Party
Borrowings".
(12) COMMITMENTS
The Company has entered into 178 site leases for the housing of radio base
station equipment and antenna systems related to the Roamer One network. These
leases may vary in term from 1 to 5 years with provisions for subsequent
extensions upon the mutual agreement of the parties. In addition, the Company
has lease commitments for office space, vehicles and office equipment. As of
September 30, 1997, total future minimum lease payments are as follows:
1998 $1,800
1999 1,840
2000 893
2001 221
2002 39
Thereafter 7
-------
$4,800
-------
-------
(in thousands)
As of September 30, 1997, MUSA had a purchase commitment with its main
supplier of radios to purchase $3,126 of inventory, see Note 2 o. "Financial
Instruments and Concentrations of Risk."
(13) EMPLOYMENT AGREEMENTS
The Company has employment agreements with various key employees. None of
these agreements have terms exceeding two years and these agreements have
varying expiration dates and provide for aggregate annual base compensation of
approximately $1.5 million.
In connection with his employment by the Company in August 1997, the
chief executive officer of the Company received, among other things, 300,000
shares of Common Stock. These shares are non-returnable to the Company if he
continues to be employed by the Company until September 1, 1998 or he has
terminated his employment with the Company prior to the Anniversary Date for
good reason, or he has been terminated without cause. The agreement provides
that in the event the fair market value of the 300,000 shares on December 31,
1998 ("FMV") is less than $1 million, the Company will pay the executive a
sum equal to the difference between $1 million and the FMV in, at executive's
option, cash or Common Stock or a combination thereof. For financial
reporting purposes, the Company has recorded $1 million in compensation
expense for the year ended September 30, 1997.
(14) SALE OF BUILDING
In December 1996, the Company sold land and property, realizing a profit of
$775 relating to a business
F-24
<PAGE>
the Company had conducted prior to the Radiocoms Acquisition, which was
discontinued in 1994.
(15) SALES OF SECURITIES OUTSIDE THE UNITED STATES UNDER REGULATION S OF THE
SECURITIES ACT
a) On February 29, 1996, the Company raised $2,500 through the
issuance of a Senior Secured Debenture ("Senior Debenture") to MeesPierson
ICS Limited, a U.K. limited liability company ("MeesPierson"). The Senior
Debenture was secured by land and a building owned by the Company (the
"Property"). Intek also issued 50,000 shares of Common Stock to MeesPierson
as a closing fee for its investment banking services. The Senior Debenture
matured on August 31, 1996. In exchange for an extension until the earlier
of October 31, 1996 or the sale of the Property, Intek paid to MeesPierson
accrued interest through August 1, 1996, issued 25,000 shares of Common Stock
to MeesPierson and issued 5,000 shares of Common Stock to Octagon Capital
Canada Corporation for an agent's fee. In exchange for a further extension to
January 31, 1997, Intek issued MeesPierson 34,000 shares of Common Stock
valued at $203. The Senior Debenture was paid in full on December 31, 1996.
b) On April 26, 1996, The Company sold a series of 6.5% Notes in the
aggregate principal amount of $5,000 (the "Notes"), maturing April 25, 1999.
During fiscal 1997, holders of the Notes exercised warrants to convert all
$5,000 of the Notes into Common Stock at an average discount of 18% below
market price. This discount, in the amount of $907, was a pre-reverse
acquisition expense of Intek. A portion of accrued interest was repaid
through issuance of Common Stock valued at $60.
c) On November 1, 1996, the Company sold a series of 6.5% Notes in the
aggregate principal amount of $2,000 (the "November 1996 Notes") maturing on
October 31, 1999. Net proceeds to the Company, after fees and broker's
commissions, were $1,995. All accrued interest is due and payable at the
time the November 1996 Notes mature or upon the exercise of the warrants.
During the quarter ended March 31, 1997, holders of the Notes exercised
warrants to convert all $2,000 of the Notes into Common Stock at an average
discount of 28% below market price. This discount, in the amount of $552 was
charged to interest expense during fiscal 1997.
On February 6, 1997, the Company sold a series of 7.5% Convertible
Debentures (the "February 1997 Debentures") and (the "February 1997
Warrants") to three purchasers. Net proceeds to the Company, after fees and
broker's commissions, were $3,990. The February 1997 Debentures matured on
February 6, 2000 and bore interest at the rate of 7.5% per annum. All
accrued interest was due and payable at the time the February 1997 Debentures
matured or upon their conversion to Common Stock. The debt conversion price
was the lesser of $3.825 or 80% of the average closing bid price for the 5
trading days prior to conversion resulting in a discount of $800. In May
1997 the Company redeemed the February 1997 Debentures in exchange for a cash
payment equal to the principal amount of the debentures plus a redemption
premium of 10 percent and all accrued and unpaid interest resulting in a $400
reduction in the originally anticipated discount. The February 1997 Warrants
are exercisable at $4.59 per share and are subject to customary anti-dilution
adjustments. The February 1997 Warrants were estimated by the broker to have
a value of $100 which was included in interest expense in fiscal 1997.
(16) RELATED PARTY BORROWINGS
Prior to the Radiocoms Acquisition, Securicor had extended a limited use
$15 million line of credit to MUSA. In connection with the Radiocoms
Acquisition, Securicor made available to the Company a $15 million line of
credit (the "September 1996 Facility") to fund Intek's working capital needs.
The September 1996 Facility may be drawn upon by Intek so long as it
maintains a net worth of at least $20,000. The September 1996 Facility bears
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
F-25
<PAGE>
balance but no later than June 30, 2001. The obligations under the September
1996 Facility may be prepaid at any time without any penalty. The September
1996 Facility must be redeemed upon a change of control of Intek or upon the
sale of the majority of its assets. The unsecured September 1996 Facility
ranks senior in all rights to any common or preferred stock or any other
subordinated debt of the Company. Intek may redeem the September 1996
Facility, at par plus accrued interest, subject to restrictions contained in
any senior debt facility it may obtain, in increments of $500. The principal
balance at September 30, 1997 was $10,753 plus accrued interest of $971.
In March 1997, the Company borrowed $6 million for working capital purposes
from Securicor. The unsecured borrowings are evidenced by an 11% note payable
due the earlier of (1) the receipt of funds by Intek from a private or public
offering of Intek shares; and (2) October 18, 1998. Additionally, during May
1997, the Company borrowed $4.5 million from Securicor to retire the February
1997 Debentures and an additional $2 million in September 1997. The May and
September loans bear interest at 12.5% and are repayable under the same terms as
the 11% note payable. Interest on these notes is due upon maturity of the
notes.
In December 1997, the Company entered various agreements with Securicor as
follows:
a) A new loan agreement which combines outstanding loans due Securicor,
plus accrued interest, into one new facility ("December 1997
Facility"). The December 1997 Facility bears interest at 11 1/2% per
annum payable at June 30, 2003. Principal payments will be $500 per
month for 12 months beginning July 1, 2001, $1 million per month for
11 months beginning July 1, 2002 with the remaining balance due and
payable on June 30, 2003. The obligations under the December 1997
Facility may be prepaid by the Company at any time in $1.65 million
increments without penalty. The December 1997 Facility must be repaid
upon a change of control of the Company or upon a sale of a majority
of its assets and is also subject to a mandatory prepayments at the
rate of 50% of the net proceeds of a financing by the Company in
excess of $8 million. Subject to the release of Securicor from
certain letter of credit commitments, at December 31, 1997, the
Company had approximately $4 million in availability for future
borrowings under the December 1997 Facility.
b) Securicor has agreed to purchase from the Company, subject to the
approval of the Company's stockholders of blank check preferred stock,
approximately $12.4 million in a new series of preferred stock.
c) Securicor has agreed to reimburse the Company approximately $2.6
million representing the difference between the Company's carrying
value of its investment in EFJ and the proceeds received upon the
ultimate disposition of the investment.
As a result of the above agreements, the September 30, 1997 related
party borrowings will be repaid as follows:
Fiscal Year
--------------
1998 $ -
1999 -
2000 -
2001 1,500
2002 7,500
Thereafter 15,223
-----------
$24,223
-----------
-----------
(17) PREFERRED STOCK OF SUBSIDIARY
In December 1996, the Company consummated the Radiocoms Acquisition. Prior
to the consummation of
F-26
<PAGE>
this transaction, Securicor forgave approximately $12 million due it by
Radiocoms and accepted 20,000 shares of $1,000 par value per share of preferred
stock from Radiocoms ("Radiocoms Preferred Stock") for the remaining balance due
including the EFJ Note, see Note 3. The preferred stock is mandatorily
redeemable on June 30, 2006 and bears a dividend rate of 6%.
(18) ACQUISITION OF NEW SYSTEMS
KRYSTAL SYSTEMS
On November 11, 1996, the Company entered into an agreement to acquire
from Krystal Systems, Inc. up to 25 constructed, but unloaded, 220MHz systems
and related FCC licenses ("Krystal Systems".) Through September 30, 1997, the
Company has paid $3,735 of the purchase price for 22 of the Krystal Systems.
The remaining balance of $225 was accrued at September 30, 1997 and is due
and payable upon receipt, and uncontested grant by the FCC, of the licenses
to Roamer One. Applications for such transfers have been filed with the FCC
and 22 assignments have been granted as of September 30, 1997. Applications
can typically take between 30-120 days for processing by the FCC, however, no
assurance can be made that the FCC will grant the remaining pending
applications.
AMERICAN DIGITAL CORPORATION
During 1997, the Company consummated two agreements with American
Digital Corporation ("ADC") and 22 holders of 220MHz FCC licenses. The
agreements provided for the Company to acquire the licenses from the
licensees and the equipment from ADC for total consideration equal to $1,925.
The purchase price paid by the Company was as follows: (a) return of shares
of ADC stock owned by the Company (valued for purposes of the transaction at
$84); (b) issuance of approximately 682,735 shares of Common Stock
(valued for purposes of the transaction at $1,250); (c) transfer of all
rights held by the Company to acquire 2,666,666 shares of Ventel, Inc.
("Ventel"), a publicly traded company in Canada (valued for purposes of the
transaction at $301); (d) forgiveness of approximately $95 of debt owed
by ADC to Radiocoms; (e) a cash payment of $119. Closing of such
transactions (and payment of the purchase price) will occur upon receipt of,
and uncontested grant by the FCC, of the licenses to Roamer One. John
Simmonds (a director of the Company) and SCL are shareholders in ADC.
Applications have been filed for such transfers with the FCC and applications
typically can take between 30-120 days for processing by the FCC. Such
transactions will be recorded in the period in which they close.
PAGERS PLUS
During the period July 12, 1997 through August 12, 1997, the Company
entered into purchase and sale agreements with 25 licensees of 220MHz FCC
licenses managed by the Company on behalf of Pagers Plus Corp ("PPC"). The
agreements provide that the Company will acquire (subject to the satisfaction
of certain conditions) 25 licenses for a purchase price, in the aggregate,
equal to 465,482 shares of Common Stock (valued for purposes of the
transaction at $938) plus cash payments totaling $759. Closing of such
transactions (and payment of the purchase price) occur upon receipt of the
uncontested grant by the FCC of the licenses to Roamer One. Such grants by
the FCC occurred in late December 1997. Such transactions will be recorded in
such period. The contingent liability, which has not been recorded on the
balance sheet is $834.
VENTEL, INC.
In May 1995, Intek contributed $125 for a one-third ownership interest
in Brook SIG Corp., which was subsequently acquired in a stock transaction by
Ventel. Ventel is in the business of providing financing to various 220MHz
SMR management companies in the United States. Intek and SCL (also a
shareholder of Ventel) 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.
John Simmonds (a director of Intek) is
F-27
<PAGE>
a director of the Board of Directors of Ventel. Intek received a total of
2,666,666 shares of the common stock of Ventel, which represented less than a
10% interest in Ventel.
During 1997, the Company entered into an agreement with Ventel (the
"Ventel Agreement"), which provided for the sale and transfer of certain
outstanding loans, security agreements, and the rights related to the
collateral for such security agreements from Ventel to the Company. Such
loans were made by Ventel to PPC and ADC for the purpose of constructing
220MHz systems. These systems are the subject of purchase agreements
(described above) between various licensees, ADC, PPC and the Company. The
Ventel Agreement provided that the Company would acquire the security
agreements and rights to the collateral in exchange for a payment to Ventel
of 787,921 shares of Common Stock and $100 in cash.
(19) SUBSEQUENT EVENTS
Subsequent to September 30, 1997, the Company disposed of its investment in
Transcrypt International which it received in fiscal 1997 as a result of its
disposition of its investment in EFJ, receiving net cash proceeds of
approximately $7.4 million. The difference between the proceeds and the carrying
value of $8,148 will be reimbursed by Securicor, and is in addition to the
shortfall born by Securicor as described in Note 3.
The Board of Directors of the Company also adopted a share repurchase plan
whereby the officers of the Company are authorized to expend up to $1 million to
acquire up to 1% of the Common Stock. Through December 31, 1997, the Company
had acquired 35,000 shares of Common Stock in open market purchases.
In December 1997, the Company entered into various agreements with
Securicor (see Note 16 "Related Party Borrowings").
In December 1997, MUSA entered into a revolving credit agreement ("Credit
Agreement") with a non-bank lender. The Credit Agreement makes available $5
million though December 1999. Borrowing under the Credit Agreement would be
secured by the assets of MUSA and bear interest at 1 1/2% above the lender's
base rate (as defined). The Credit Agreement contains, among other covenants, a
covenant relating to leverage, limitations on MUSA's ability to repay
intercompany indebtedness and repayment provisions related to change in control
of MUSA. The Company intends to use borrowings under this Credit Agreement as
security for letter of credit commitments on behalf of MUSA, thereby eliminating
use of the December 1997 Facility for letters of credit on behalf of MUSA and
allowing availability under the 1997 December Facility to be used for general
corporate cash flow requirements.
The Company, Mr. David Neibert, the Company's executive vice president and
Mr. Nicholas R. Wilson, a former Chairman of the Company ("Intek Defendants")
have been named with forty other defendants in a complaint (Scott, et al.
Steingold, et al.) filed in U.S. District Court for the Northern District of
Illinois on November 12th, 1997. The lawsuit purports to allege claims under
the Racketeer Influenced Corrupt Organizations Act, the Securities Exchange Act
of 1934 and various common law state claims in connection with the sale and
marketing of interests in certain partnerships formed to operate SMR systems.
Plaintiffs seek rescissory damages with interest and punitive damages allegedly
relating to their purchases of SMR partnership interests. No specific amount of
alleged damages is mentioned in the complaint.
The plaintiffs also had filed, and have now withdrawn against the Intek
Defendants, a motion for a temporary restraining order and preliminary
injunction seeking to freeze the assets of all defendants. The Intek Defendants
have filed a motion to dismiss the complaint on various grounds and in response
the plaintiffs have asked the court to be allowed to file an amended complaint.
The Company does not know when or if such an amendment will be filed or what
specific allegations it will contain with respect to Intek. Intek has requested
the
F-28
<PAGE>
plaintiff withdraw all claims against Intek on the grounds that they are
frivolous. In the opinion of the management of the Company, this lawsuit will
not have a material adverse affect on the Company.
F-29
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Page No.
- ----------- --------
3.1(i) Articles of Incorporation of Intek Diversified (2)
Corporation (the "Registrant").
3.1(ii) By-Laws of the Registrant. (2)
10.1 Employment Agreement dated as of September 8, 1997 (1)
between Intek Diversified Corporation and Robert J. Shiver
10.2 Employment Agreement dated as of February 18, 1997, (1)
by and between Intek Diversified Corporation and Lee R.
Montellaro.
10.3 Employment Agreement dated as of April 21, 1997, by and (1)
between Intek Diversified Corporation and Donald Goeltz.
10.4 Second Amended and Restated Loan Agreement dated as of (1)
December 29, 1997, between Intek Diversified Corporation
as Borrower and Securicor Communications Limited as Lender.
10.5 Promissory note dated December 29, 1997, (1)
in the amount of $29,500,000 made by Intek Diversified
Corporation to the order of Securicor Communications
Limited.
10.6 Preferred Stock Purchase Agreement dated as of December (1)
29, 1997, between Intek Diversified Corporation and
Securicor Communications Limited.
10.7 Loan and Security Agreement dated December 24, 1997, (1)
by and between Summit Commercial/Gibraltar Corp., as
Lender and Midland USA, Inc., as Borrower.
10.8 Subordination Agreement dated December 24, 1997, (1)
by and among Intek Diversified Corporation and Summit
Commercial/Gibraltar Corp.
10.9 Termination and Release dated as of December 29, 1997, (1)
between Intek Diversified Corporation and Securicor
Communications Limited.
11 Statement re computation of per share earnings. (4)
12 Statement re computation of ratios. (4)
21 Subsidiaries. (1)
23.1 Consent of Arthur Andersen LLP. (1)
23.2 Consent of Baker Tilly. (1)
27 Financial Data Schedule. (1)
(1) Included in this Report.
(2) This exhibit is contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994, filed with the Commission
on April 17, 1995 (Commission File No. 0-9160), and incorporated
herein by reference.
(4) Not applicable.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 8th day of September, 1997
by and between INTEK DIVERSIFIED CORPORATION, a Delaware corporation
(together with its successors and assigns permitted under this Agreement, the
"Company"), and ROBERT J. SHIVER (the "Executive").
W I T NE S S E T H:
WHEREAS, the Company desires to employ the Executive and to enter into an
agreement embodying the terms of such employment (the "Agreement") and the
Executive desires to enter into the Agreement and to accept such employment,
subject to the terms and provisions of the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1 . DEFINITIONS.
(a) "BASE SALARY" shall mean the Executive's base salary in accordance
with Section 4 below.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CAUSE" shall mean:
(1) the willful and continued failure by the Executive to
substantially perform his duties as the Company's Chief
Executive Officer, and Chairman of the Board, or a willful and
continued material breach by the Executive of this Agreement
after written notice from the Board delivered to the Executive
identifying the manner in which the Board believes that the
Executive has not substantially performed his duties or is in
material breach of this Agreement; or
(2) conviction of criminal conduct by the Executive which is
injurious to the Company or a Subsidiary.
(d) "CHANGE-IN-CONTROL DATE" shall mean the date that Securicor
Communications Ltd., a corporation formed under the laws of England and Wales,
or Securicor p1c, a corporation formed under the laws of England and Wales,
directly or indirectly, no longer is a "beneficial owner" (as such term is used
in Rule 13d-3 under the Exchange Act) of at least 30% of the Voting Stock of the
Company.
<PAGE>
(e) "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(f) "COMMON STOCK" shall mean the common stock, $.01 par value per
share, of the Company.
(g) "COMPETITIVE ACTIVITY" shall mean:
(1) any activity which is competitive with the Company or any
Subsidiary, regardless of whether the Executive engages in
such activity as an employee, consultant, principal, agent,
officer, director, partner or shareholder (except as a less
than 1 % shareholder of a publicly traded company or a less
than 5% shareholder of a privately held company); and
(2) any activity which is competitive to a business that (x) is
being conducted by the Company or any Subsidiary at the time
in question and (y) was being conducted by the Company or any
Subsidiary at the date of the termination of the Executive's
employment.
Notwithstanding anything to the contrary in this Section 1 (g), an activity
shall not be deemed to be a competitive activity (i) solely as a result of the
Executive's being employed by or otherwise associated with a business of which a
unit is in competition with the Company or any Subsidiary but as to which unit
he does not have direct or indirect responsibilities for the products or product
lines involved or (ii) if the activity contributes less than 5% of the revenues
for the fiscal year in question of the business by which the Executive is
employed or with which he is otherwise associated.
(h) "DISABILITY" OR "DISABLED" shall mean a disability as determined
under the Company's long-term disability plan or program in effect at the time
the disability first occurs, or if no such plan or program exists at the time of
disability, then a "disability" as defined under Code Section 22(e)(3).
(i) "EFFECTIVE DATE" shall mean August 27, 1997.
(j) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time, including applicable regulations thereunder.
(k) "FAIR MARKET VALUE" shall mean:
(1) the average of the highest and lowest selling prices of the
Common Stock on the relevant date (or on the last preceding
trading date if Common Stock was not traded on the relevant
date) if Common Stock is readily tradeable on a national
securities exchange or other market system; or
(2) an amount determined in good faith by the Company as the fair
market
<PAGE>
value of the Common Stock on the date of determination if
Common Stock is not readily tradeable on a national securities
exchange or other market system.
(l) "GOOD REASON" shall mean the occurrence of any of the following,
without the Executive's prior written consent, during the 30 day period
preceding the date the Executive terminates his employment with the Company:
(1) a material adverse change in the Executive's position, duties
or responsibilities with respect to his employment by the
Company, including his removal from, or the failure to elect
or reelect him to, the Board, and/or the failure of the Board
to elect or reelect him to the position of Chairman;
(2) a reduction in the Executive's Base Salary;
(3) a material reduction in the Executive's annual target award as
specified in Section 6 below; or
(4) a change in the Executive's principal work location by more
than 50 miles and more than 50 miles from the Executive's
principal place of abode as of the date of such change in the
Executive's principal work location.
(m) "SUBSIDIARY" shall mean a corporation of which the Company owns more
than 50% of the Voting Stock or any other business entity in which the Company
directly or indirectly has an ownership interest of more than 50%.
(n) "TERM OF EMPLOYMENT" shall mean the period specified in Section 2
below.
(o) "VOTING STOCK" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. TERM OF EMPLOYMENT. The Company hereby employs the Executive, and the
Executive hereby accepts such employment, for the period commencing on (i) the
Effective Date or (ii) on a date other than the Effective Date which has been
mutually selected and agreed to by the Parties, and ending on the second
anniversary of the Effective Date, subject to earlier termination of the Term of
Employment in accordance with the terms of the Agreement. The Term of
Employment shall be automatically renewed for a one-year period on the second
anniversary of the Effective Date and on each anniversary of the Effective Date
thereafter, unless (x) the Company has notified the Executive in writing in
accordance with Section 24 below at least 180 days prior to the expiration of
the then Term of Employment that it does not want the Term of Employment. to so
renew or (y) the Executive has notified the Company in writing in accordance
with Section 24 below at least 90 days prior to the expiration of the then Term
of Employment that he does not want the Term of Employment to so renew.
<PAGE>
3. POSITION, DUTIES AND RESPONSIBILITIES.
(a) On or about the Effective Date and continuing for the remainder of
the Term of Employment, the Executive shall be employed as the Chief Executive
Officer and Chairman of the Company and shall be responsible for the general
management of the affairs of the Company. The Executive shall serve the Company
faithfully, conscientiously and to the best of the Executive's ability and shall
promote the interests and reputation of the Company. Unless prevented by
sickness or Disability, the Executive shall devote substantially all of the
Executive's time, attention, knowledge, energy and skills, during normal working
hours, and at such other times as the Executive's duties may reasonably require,
to the duties of the Executive's employment. The Executive, in carrying out his
duties under this Agreement, shall report to the Board.
(b) The Executive's principal work location shall be selected by the
Executive within a reasonable period of time following the Effective Date. Such
selection shall be subject to the consent of the Company.
(c) It is the intention of the Parties that effective on or about the
Effective Date and continuing for the remainder of the Term of Employment, the
Executive shall be selected and serve as a member of the Board and as Chairman
of the Board.
4. BASE SALARY. The Executive shall be paid an annualized Base Salary of
$300,000, payable in accordance with the regular payroll practices of the
Company. On the first anniversary of the Effective Date, and on each
anniversary date thereafter, the annualized Base Salary payable to Executive
shall be increased at the same rate as the rate of increase in the cost of
living index applying on the East Coast of the United States of America (i.e.
Consumer Price Index, "All-item Figures for Urban Wage Earners and Clerical
Workers" for N.Y.-Northern N.J.-Long Island, NY, NJ-CT).
5. COMMENCEMENT BONUS. In addition to the Base Salary, Executive shall be
entitled to receive a commencement bonus of $65,000, which shall be paid BY
Company to Executive, less appropriate deductions for federal, state and local
income taxes, FICA contributions and any other deductions required by law or
authorized by Executive, on or before November 1, 1997.
6. ANNUAL INCENTIVE COMPENSATION PROGRAMS. The Executive shall participate in
the Company's annual incentive compensation plan or program applicable to
senior-level executives as established and modified from time to time BY the
Board in its sole discretion. The Executive shall have an annual target award
under such plan or program equal to a maximum of 40% of the Base Salary paid
during the relevant performance period. Payment of annual incentive
compensation awards shall be made at the same time that other senior-level
executives receive their annual incentive compensation awards.
7. LONG-TERM INCENTIVE COMPENSATION PROGRAMS.
(a) The Executive shall be eligible to participate in the Company's
applicable long-
<PAGE>
term incentive compensation plan as may be established and modified from time to
time by the Board in its sole discretion.
(b) (i) Notwithstanding anything herein to the contrary, on or about the
Effective Date the Company shall grant the Executive under the Company's
applicable long-term incentive compensation plan a total of 300,000 shares of
Common Stock (the "Restricted Stock), which shall be subject to (i) restrictions
on transferability by the Executive and 00 forfeiture by the Executive, in
accordance with this Section 7(b) and Section 12 below, and which shall be
granted as set forth below:
Date of Grant Number of Shares
------------- ----------------
On or about the Effective Date 300,000
During the period commencing on the Effective Date and ending on December 31,
1998, the Restricted Stock shall not be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of except by will or the laws of descent and
distribution. Any attempt by the Executive to dispose of any shares of the
Restricted Stock in any such manner shall result in the immediate forfeiture of
such shares and all other shares of the Restricted Stock. Notwithstanding the
restrictions contained in this Section 7(b)(i), the Executive may, during the
Restriction Period but subject to the consent of the Board (which shall not
unreasonably withhold such consent), transfer all or a portion of the shares of
the Restricted Stock to a trust established for the benefit of members of the
Executive's immediate family; PROVIDED, however, that the terms of the trust
agreement governing such trust shall provide that such trust shall not sell,
exchange, transfer, pledge, hypothecate or otherwise dispose of any shares of
the Restricted Stock during the Restriction Period. If the Executive's
employment is terminated prior to December 31, 1998 (i) by the Company for Cause
or (ii) by the Executive without Good Reason (other than a termination of the
Executive's employment due to death, Disability or retirement), then all shares
of the Restricted Stock shall immediately be forfeited by the Executive as of
the date of the termination of his employment.
(ii) In the event the Fair Market Value of the 300,000 shares of
Common Stock granted to Executive pursuant to Section 7(b)(i), above, is less
than $1 million on December 31, 1998, Company further agrees to pay to
Executive a sum equal to the difference between $1 million and the (lesser)
Fair Market Value on December 31, 1998 of the 300,000 shares of Common Stock.
The sum which shall become due and payable to Executive on or before February
28, 1999 shall, at Executive's option, be payable either in cash or in Common
Stock (based upon its Fair Market Value at the time of payment), or in a
combination of cash and Common Stock. If applicable, Executive shall notify
Company, in writing, on or before January 7, 1999 as to whether he elects to be
paid in cash, Common Stock, or a combination of cash and Common Stock.
(iii) In the event Executive's employment is terminated prior to
December 31, 1998 due to Executive's disability pursuant to Section 12(b), or
by the Company without Cause pursuant to Section 12(d), or by Executive for
Good Reason pursuant to Section 12(c), or by
<PAGE>
Executive following a Change-in-Control Date pursuant to Section 12(g), the
Common Stock valuation date set forth in Section 7(b)(ii) shall instead be the
effective date of the termination of Executive's employment rather than December
31, 1998, and Company shall pay to Executive, within sixty (60) days following
the date of termination of Executive's employment, a sum equal to the difference
between $1 million and the Fair Market Value on the aforesaid valuation date of
300,000 shares of Common Stock.
(c) Notwithstanding anything herein to the contrary, the Company shall
grant the Executive under the Company's applicable long-term incentive
compensation plan an option to purchase 800,000 shares of Common Stock (the
"Option"). The exercise price of the Option shall be equal to the Fair Market
Value of the Common Stock on the date of grant of the Option. The Option shall
expire on, and shall not be exercisable on and after, the 10th anniversary of
the Option's date of grant, subject to earlier expiration in accordance with
Section 12 below. No portion of the Option shall be exercisable on the
Option's date of grant, but a percentage of the Option shall become exercisable
on, and shall remain exercisable on and after, each of the first 5 anniversaries
of the Effective Date, as set forth in the table below, and subject to the
Option's expiration in accordance with this Section 7(c) and Section 12 below:
Percentage of Option which is
Anniversary of the Exercisable and Remains
Effective Date Exercisable Until Option Expires
-------------- --------------------------------
0 0%
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
8. EMPLOYEE BENEFIT PROGRAMS.
(a) During the Term of Employment, the Executive shall be entitled to
participate in various employee welfare and pension benefit plans, programs
and/or arrangements applicable to the Executive.
(b) During the term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit equal to $1 million.
The Company shall pay all premiums with respect to such life insurance. Such
life insurance may be provided either through the Company's group life insurance
programs, by an individual policy, or by a combination of both group and
individual policies.
9. REIMBURSEMENT OF BUSINESS EXPENSES. The Executive is authorized to incur
reasonable business expenses in carrying out his duties and responsibilities
under the Agreement, and the Company shall reimburse him for all such reasonable
business expenses incurred in connection with carrying out the business of the
Company, subject to documentation in accordance with the
<PAGE>
Company's policy.
10. PERQUISITES.
(a) During the Term of Employment, the Executive shall be entitled to
participate in the Company's executive fringe benefits applicable to the
Company's senior-level executives, commensurate with Executive's position as
Chief Executive Officer and Chairman, in accordance with the terms and
conditions of such arrangements as are in effect from time to time.
(b) Notwithstanding anything herein to the contrary, the Executive shall
receive a minimum monthly car allowance of $850, and the Company shall pay the
Executive such monthly car allowance at the end of each month during the Term of
Employment.
11. VACATION. The Executive shall be entitled to 20 paid vacation days per
calendar year in accordance with the Company's vacation policy.
12. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT DUE TO DEATH. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of his
death;
(2) all annual incentive compensation awards with respect to any
year prior to the year of his death which have been earned but
not paid;
(3) a pro rata annual incentive compensation award for the year in
which the Executive's death occurs; PROVIDED, HOWEVER, that
the performance goals established under the annual incentive
compensation plan or program with respect to the year in which
the Executive's death occurs are met;
(4) the restrictions on transferability with respect to all shares
of the Restricted Stock shall immediately be removed;
(5) the exercisable portion of the Option held by the Executive as
of the date of his death shall remain exercisable until the
earlier of (i) the end of the 1-year period following the date
of the Executive's death or (ii) the date the Option would
otherwise expire;
(6) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 7, 8, 9, 10 or 11 above; and
(7) such other or additional benefits, if any, as may be provided
under
<PAGE>
applicable plans, programs and/or arrangements of the Company.
(b) TERMINATION OF EMPLOYMENT DUE TO DISABILITY. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event less than the benefits due him under
the then current disability program of the Company):
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) all annual incentive compensation awards with respect to any
year prior to the year of the termination of the Executive's
employment which have been earned but not paid;
(3) an amount equal to the Base Salary (based on the Base Salary
in effect on the date of termination of Executive's
employment) with respect to a period equal to 18 months
payable in accordance with the Company's regular payroll
practices, REDUCED, HOWEVER, by any amounts received by
Executive during such 18 month period in benefits provided
under any disability insurance policy the premiums for which
policy are paid by Company as an employee benefit.
(4) a pro rata annual incentive compensation award for the year in
which the termination of the Executive's employment occurs;
PROVIDED, HOWEVER, that the performance goals established
under the annual incentive compensation plan or program with
respect to the year in which the termination of the
Executive's employment occurs are met;
(5) the restrictions on transferability with respect to all shares
of the Restricted Stock shall immediately be removed;
(6) the exercisable portion of the Option held by the Executive as
of the date of the termination of his employment shall remain
exercisable until the earlier of (i) the end of the 1-year
period following the date of the termination of his employment
or (ii) the date the Option would otherwise expire;
(7) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 7, 8, 9, 1 0 or 11 above; and
(8) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
In no event shall a termination of the Executive's employment for Disability
occur unless the
<PAGE>
Party terminating his employment gives written notice to the other Party in
accordance with Section 24 below.
(c) TERMINATION OF EMPLOYMENT BY THE COMPANY FOR CAUSE. If the Company
terminates the Executive's employment for Cause during the Term of Employment,
the Term of Employment shall end as of the date of the Executive's termination
of employment for Cause and the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of the
termination of his employment;
(2) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 7, 8, 9, 1 0 or 11 above; and
(3) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
(d) TERMINATION OF EMPLOYMENT BY THE COMPANY WITHOUT CAUSE. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of the
termination of his employment;
(2) all annual incentive compensation awards with respect to any
year prior to the year of the termination of the Executive's
employment which have been earned but not paid;
(3) an amount equal to the Base Salary (based on the Base Salary
in effect on the date of the termination of the Executive's
employment) with respect to a period equal to 1 8 months
payable at Executive's election: (i) in accordance with
Company's regular payroll practice; or (ii) in a lump sum due
within thirty (30) days of the date of termination of his
employment, reduced to reflect its Present Value at a discount
rate of 8.5% per annum;
(4) a pro rata annual incentive compensation award for the year in
which the termination of the Executive's employment occurs;
PROVIDED, HOWEVER, that the performance goals established
under the annual incentive compensation plan or program with
respect to the year in which the termination of the
Executive's employment occurs are met;
(5) the restrictions on transferability with respect to all shares
of the Restricted Stock shall immediately be removed;
(6) the exercisable portion of the Option held by the Executive as
of the date
<PAGE>
of the termination of his employment shall remain exercisable
until the earlier of (i) the end of the 90 day period
following the date of the termination of his employment or
(ii) the date the Option would otherwise expire;
(7) 100% of the unexercisable portion of the Option held by the
Executive as of the date of the termination of his employment
shall immediately become exercisable and shall remain
exercisable until the earlier of (i) the end of the 90 day
period following the date of the termination of his employment
or (ii) the date the Option would otherwise expire;
(8) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 7, 8, 9, 10 or 11 above;
(9) continued participation, as if he were still an employee, in
the Company's medical, dental, hospitalization and life
insurance plans, programs and/or arrangements and in other
employee benefit plans, programs and/or arrangements in which
he was participating on the date of the termination of his
employment until the earlier of:
(A) the end of the 18-month period following the date of
the termination of the Executive's employment; or
(B) the date, or dates, the Executive receives equivalent
coverage and benefits under the plans, programs and/or
arrangements of a subsequent employer (such coverage
and benefits to be determined on a coverage by coverage
or benefit-by-benefit basis);
PROVIDED, HOWEVER, that:
(X) if the Executive is (i) precluded from continuing his
participation in any employee benefit plan, program or
arrangement as provided in this Section 1 2(d) (9)
because he is not an employee of the Company, and (ii)
not receiving equivalent coverage and benefits through
a subsequent employer, he shall be provided with the
after-tax economic equivalent of the benefits provided
under the plan, program or arrangement in which he is
unable to participate for the period specified in this
Section 12(d)(9);
(Y) the economic equivalent of any benefit foregone shall
be deemed to be the lowest cost that would be incurred
by the Executive in obtaining such benefit himself on
an individual basis; and
(Z) payment of such after-tax economic equivalent shall be
made quarterly in advance; and
<PAGE>
(10) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
(e) TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON. The
Executive may terminate his employment for Good Reason. Upon a termination by
the Executive of his employment for Good Reason, the Executive shall be entitled
to the same payments and benefits as provided in Section 1 2(d) above; PROVIDED,
HOWEVER, that if the Executive terminates his employment for Good Reason based
on a reduction in Base Salary under Section 1(1)(2) above, then the Base Salary
to be used in determining the salary continuation payments in accordance with
Section 12(d)(3) above shall be the Base Salary in effect immediately prior to
such reduction.
(f) VOLUNTARY TERMINATION OF EMPLOYMENT BY.. THE EXECUTIVE WITHOUT GOOD
REASON. If the Executive voluntarily terminates his employment without Good
Reason, other than a termination of employment due to death, Disability or
retirement, the Executive shall be entitled to the same payments and benefits as
provided in Section 12(c) above, A termination of the Executive's employment
under this Section 12(f) shall be effective upon 90 days prior written notice to
the Company and shall not be deemed a breach of this Agreement.
(g) TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOLLOWING A
CHANGE-IN-CONTROL DATE. Notwithstanding anything herein to the contrary:
(1) the restrictions on transferability with respect to all shares
of the Restricted Stock shall immediately be removed as of the
Change-in-Control Date;
(2) 100 percent of the unexercisable portion of the Option held by
the Executive as of the Change-in-Control Date shall
immediately become exercisable and shall remain exercisable
until the earlier of (i) the date the Option would otherwise
expire or (ii) in the event of the Executive's death or a
termination of his employment under Section 12(b) or 12(d)
above or Section 12(g)(3) below, the end of the period
specified in Section 12(a)(5)(i), 12(b)(5)(i) or 12(d)(6)(i)
above, as the case may be; and
(3) if during the 90-day period following a Change-in-Control Date
the Executive terminates his employment for any reason, the
termination of employment shall be deemed a termination of the
Executive's employment by the Company without Cause and the
Executive shall be entitled to the same payments and benefits
as provided in Section 12(d) above.
A failure by the Executive to exercise his rights granted under Section
12(g)(3) above during the 90-day period following a Change-in-Control Date shall
not be deemed a waiver of any rights under this Agreement.
(h) NONRENEWAL OF AGREEMENT BY THE COMPANY. If (i) the Company does not
renew the Term of Employment in accordance with Section 2 above and (ii) the
Executive remains
<PAGE>
employed by the Company on a continuous basis until the end of the Term of
Employment, the Executive shall be entitled only to the same payments and
benefits as provided in Sections 12(d)(1), 12(d)(2), 12(d)(3), 12(d)(4),
12(d)(5), 12(d)(6), 12(d)(7), 12(d)(8), 12(d)(9) and 12(d)(10) above; PROVIDED,
HOWEVER, that:
(1) the unexercisable portion of the Option held by the Executive
as of the end of the Term of Employment that would have become
exercisable as of the date which is 18 months immediately
following the end of the Term of Employment shall immediately
become exercisable and shall remain exercisable until the
earlier of (i) the end of the 90-day period following the end
of the Term of Employment or (ii) the date the Option would
otherwise expire; and
(2) the date on which the Term of Employment ends shall be deemed
to be the date of the termination of the Executive's
employment by the Company without Cause.
(i) NONRENEWAL OF AGREEMENT BY THE EXECUTIVE. In the event that the
Executive does not renew the Term of Employment in accordance with Section 2
above, the Executive shall be entitled to the same payments and benefits as
provided in Section 12(c) above, and the date on which the Term of Employment
ends shall be deemed to be the date of the termination of the Executive's
employment by the Company for Cause.
13. CONFIDENTIALITY: ASSIGNMENT OF RIGHTS.
(a) During the Term of Employment and thereafter, the Executive shall
not disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which he
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with his work as an employee of the
Company, (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 13(a).
(b) The Executive hereby sells, assigns and transfers to the Company all
of his right, title and interest in and to all inventions, discoveries,
improvements and copyrightable subject matter (the "rights") which during the
Term of Employment are made or conceived by him, alone or with others, and which
are within or arise out of any general field of the Company's business or arise
out of any work he performs or information he receives regarding the business of
the Company while employed by the Company. The Executive shall fully disclose
to the Company as promptly as available all information known or possessed by
him concerning the rights
<PAGE>
referred to in the preceding sentence, and upon request by the Company and
without any further remuneration in any form to him by the Company, but at the
expense of the Company, execute all applications for patents and for copyright
registration, assignments thereof and other instruments and do all things which
the Company may deem necessary to vest and maintain in the entire right, title
and interest in and to all such rights.
14. NONCOMPETITION; NONSOLICITATION.
(a) The Executive covenants and agrees that for a period commencing on
the Effective Date and ending on the later of (i) the second anniversary of the
Effective Date or (ii) the end of the 12-month period following the end of the
Term of Employment, he shall not at any time, without the prior written consent
of the Company, directly or indirectly, engage in a Competitive Activity.
(b) The Executive covenants and agrees that for a period commencing on
the Effective Date and ending on the later of (i) the second anniversary of the
Effective Date or (ii) the end of the 12-month period following the end of the
Term of Employment, he shall not at any time, directly or indirectly, solicit
(i) any client or customer of the Company or any Subsidiary with respect to a
Competitive Activity or (ii) any employee of the Company or any Subsidiary for
the purpose of causing such employee to terminate his or her employment with the
Company or such Subsidiary.
(c) The Parties acknowledge that in the event of a breach or threatened
breach of Section 14(a) and/or Section 14(b) above, the Company shall not have
an adequate remedy at law. Accordingly, in the event of any breach or
threatened breach of Section 14(a) and/or Section 14(b) above, the Company shall
be entitled to such equitable and injunctive relief as may be available to
restrain the Executive and any business, firm, partnership, individual,
corporation or entity participating in the breach or threatened breach from the
violation of the provisions of Section 14(a) and/or Section 14(b) above.
Nothing in this Agreement shall be construed as prohibiting the Company from
pursuing any other remedies available at law or in equity for breach or
threatened breach of Section 14(a) and/or Section 14(b) above, including the
recovery of damages.
15. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors, heirs (in
the case of the Executive) and assigns. No rights or obligations of the Company
under this Agreement may be assigned or transferred by the Company except that,
subject to the provisions of Section 12(g), such rights or obligations may be
assigned or transferred pursuant to a merger or consolidation in which the
Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; PROVIDED, HOWEVER, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law.
16. REPRESENTATION. The Company represents and warrants that it is fully
authorized and
<PAGE>
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents and warrants
that no agreement exists between him and any other person, firm or organization
that would be violate by the performance of his obligations under this
Agreement.
17. ENTIRE AGREEMENT. This Agreement contains the entire understanding and
agreement between the Parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the Parties with respect thereto.
18. AMENDMENT OR WAIVER. No provision in this Agreement may be amended unless
such amendment is agreed to in writing and signed by the Executive and an
authorized officer of the Company. No waiver by either P arty or any breach by
the other Party of any condition or provision contained in this Agreement to be
performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by the Executive or an authorized
officer of the Company, as the case may be.
19. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
in whole or in part, the remaining provisions of this Agreement shall be
unaffected thereby and, shall remain in full force and effect to the fullest
extent permitted by law.
20. SURVIVORSHIP . The respective rights and obligations of the Parties
hereunder shall survive any termination of the Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.
21. BENEFICIARIES/REFERENCES. The Executive shall be entitled, to the extent
permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
the Executive's death by giving the Company written notice thereof. In the
event of the Executive's death or a judicial determination of his incompetence,
reference in this Agreement to the Executive shall be deemed, where appropriate,
to refer to his beneficiary, estate or other legal representative.
22. GOVERNING LAW/JURISDICTION. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of New York
without reference to principles of conflict of laws.
23. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with
the Agreement may, at the election of the Executive or the Company, be resolved
by binding arbitration, to be held in New York City in accordance with the rules
and procedures of the American Arbitration Association. If arbitration is
elected, the Executive and the Company shall mutually select the arbitrator. If
the Executive and the Company cannot agree on the selection of an arbitrator,
each Party shall select an arbitrator and the two arbitrators shall select a
third arbitrator, and the three
<PAGE>
arbitrators shall form an arbitration panel which shall resolve the dispute by
majority vote. Judgment upon the award rendered by the arbitrator or
arbitrators may be entered in any court having jurisdiction thereof. Costs of
the arbitrator or arbitrators and other similar costs in connection with an
arbitration shall be shared equally by the Parties; all other costs, such as
attorneys' fees incurred by each Party, shall be borned by the Party incurring
such costs.
24. NOTICES.
If to the Company: INTEK Diversified Corporation
970 West 190th Street,
Suite 72
Torrance, California 90502
Attention: Chairman of the Board
with a copy to: Securicor plc
Sutton Park House
15 Carshalton Road
Sutton Surrey SM1 4LD
Attention: Company Secretary
If to the Executive: Mr. Robert J. Shiver
16 Carton Road
Morristown, New Jersey 07960
with a copy to: Lindabury, McCormick & Estabrook
53 Cardinal Drive
P.O. Box 2369
Westfield, New Jersey 07091
Attention: William R. Watkins, Esq.
25. HEADINGS - The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
<PAGE>
26. COUNTERPARTS - This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
INTEK Diversified Corporation
By:___________________________
______________________________
Robert J. Shiver
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 18th day of February, 1997 by
and between INTEK Diversified Corporation, a Delaware corporation (together with
its successors and assigns permitted under this Agreement, the "Company"), and
Lee R. Montellaro (the "Executive").
W I T N E S S E T H
WHEREAS, the Company desires to employ the Executive and to enter into an
agreement embodying the terms of such employment (the "Agreement") and the
Executive desires to enter into the Agreement and to accept such employment,
subject to the terms and provisions of the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. DEFINITIONS.
(a) "Base Salary" shall mean the Executive's base salary in
accordance with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean:
(1) habitual absence from work by the Executive, including
without limitation, habitual absence from the Company's
offices on non-Company matters that interferes with the
Executive's duties;
(2) habitual drunkenness by the Executive;
(3) habitual drug abuse or drug addiction by the Executive;
(4) the Executive maliciously denigrating in public the
Company or any officer, director or affiliate thereof;
(5) sexual harassment by the Executive which has been
reasonably substantiated;
(6) physical destruction of substantial property or asset
of the Company by, or caused by, the Executive;
(7) appropriation of business opportunities of the Company
by the Executive for the direct or indirect personal
gain of the Executive or members of his family without
the prior written consent of the Board;
(8) the Executive causing the Company to enter into
transactions or arrangements with the Executive, in his
capacity as an individual and not as an employee
<PAGE>
of the Company, or a person or entity affiliated
therewith, which results in direct or indirect personal
gain to the Executive or members of his family without
the prior written consent of the Board; PROVIDED,
HOWEVER, that this Section 1(c)(8) shall not include
the employment of the Executive by the Company or its
affiliates;
(9) willful and malicious interference with the Company's
operations by the Executive;
(10) engagement by the Executive in any act of fraud,
material misappropriation of funds or assets, or
embezzlement, including without limitation, theft,
bribery or the receipt of kickbacks;
(11) a conviction of the Executive for, or a plea of NOLO
CONTENDERE by the Executive to, a felony or other
criminal act for which the possible penalties include a
prison sentence of at least 1 year;
(12) a material breach by the Executive of the restrictive
covenants contained in this Agreement, or for disloyal,
dishonest or illegal conduct by the Executive;
(13) a material breach of this Agreement by the Executive;
(14) a failure, after written notice to the Executive from
the Company, of the Executive to follow the reasonable
directions or instructions of the Board or the
Company's chief executive officer which are consistent
with the Executive's position and responsibilities; or
(15) gross negligence by the Executive which results in
material harm to the Company.
(d) "Common Stock" shall mean the common stock, $.01 par value per
share, of the Company.
(e) "Competitive Activity" shall mean any activity involving
narrow-band SMR technology which is competitive with the Company or any
Subsidiary, regardless of whether the Executive engages in such activity as an
employee, consultant, principal, agent, officer, director, partner or
shareholder (except as a less than 1 percent shareholder of a publicly traded
company or a less than 10 percent shareholder of a privately held company).
Notwithstanding anything to the contrary in this Section 1(e), an activity shall
not be deemed to be a competitive activity (i) solely as a result of the
Executive's being employed by or otherwise associated with a business of which a
unit is in competition with the Company or any Subsidiary but as to which unit
he does not have direct or indirect responsibilities for the products or product
lines involved or (ii) if the activity contributes less than 5 percent of the
revenues for the fiscal year in question of the business by which the Executive
is employed or with which he is otherwise associated.
(f) "Disability" or "Disabled" shall mean a disability as
determined under the Company's long-term disability plan or program in effect at
the time the disability first occurs, or if no such plan or program exists at
the time of disability, then a "disability" as defined under Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended.
2
<PAGE>
(g) "Effective Date" shall mean February 18, 1997.
(h) "Good Reason" shall mean the occurrence of any of the
following, without the Executive's prior written consent, during the 30-day
period preceding the date the Executive terminates his employment with the
Company:
(1) a material adverse change in the Executive's position,
duties or responsibilities with respect to his
employment by the Company; or
(2) a change in the Executive's principal work location by
more than 60 miles from Princeton, New Jersey.
(i) "Subsidiary" shall mean a corporation of which the Company owns
more than 50 percent of the Voting Stock or any other business entity in which
the Company directly or indirectly has an ownership interest of more than 50
percent.
(j) "Term of Employment" shall mean the period specified in Section
2 below.
(k) "Voting Stock" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. TERM OF EMPLOYMENT.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing on the Effective Date and
ending on the first anniversary of the Effective Date, subject to earlier
termination of the Term of Employment in accordance with the terms of the
Agreement. The Term of Employment shall be automatically renewed for a 1-year
period on the first anniversary of the Effective Date and on each anniversary of
the Effective Date thereafter, unless (x) the Company has notified the Executive
in writing in accordance with Section 23 below at least 365 days prior to the
expiration of the then Term of Employment that it does not want the Term of
Employment to so renew or (y) the Executive has notified the Company in writing
in accordance with Section 23 below at least 90 days prior to the expiration of
the then Term of Employment that he does not want the Term of Employment to so
renew.
3. POSITION, DUTIES AND RESPONSIBILITIES.
On the Effective Date and continuing for the remainder of the Term
of Employment, the Executive shall be employed as the Chief Financial Officer
and Vice President of the Company and shall be responsible for the management of
the financial affairs of the Company. The Executive shall serve the Company
faithfully, conscientiously and to the best of the Executive's ability and shall
promote the interests and reputation of the Company. Unless prevented by
sickness or Disability, the Executive shall devote all of the Executive's time,
attention, knowledge, energy and skills, during normal working hours, and at
such other times as the Executive's duties may reasonably require, to the duties
of the Executive's employment. The Executive, in carrying out his duties under
this Agreement, shall report to the Company's chief executive officer.
Notwithstanding anything contained in this Agreement to the contrary, the
Executive may devote an insignificant amount of time to the affairs of Paging
Management, Inc. or its successor; PROVIDED, HOWEVER, that such activity does
not interfere with his duties and
3
<PAGE>
responsibilities as the Chief Financial Officer and Vice President of the
Company.
4. BASE SALARY.
During the period beginning on the Effective and ending on June 30,
1997, the Executive shall be paid an annualized Base Salary of $160,000, payable
in accordance with the regular payroll practices of the Company. Effective as
of July 1, 1997, the Base Salary shall be increased to $175,000. Thereafter,
the Base Salary shall be reviewed no less frequently than annually in the
discretion of the Board. In reviewing the Base Salary, the Board shall take
into account, among other factors, the cost-of-living increase with respect to
the most recently completed 12-month period for which data are available.
5. ANNUAL INCENTIVE COMPENSATION PROGRAMS.
The Executive shall participate in the Company's annual incentive
compensation plan or program applicable to senior-level executives as
established and modified from time to time by the Board in its sole discretion.
The Executive shall have an annual target award under such plan or program equal
to a maximum of 25 percent of the Base Salary paid during the relevant
performance period. Payment of annual incentive compensation awards shall be
made at the same time that other senior-level executives receive their annual
incentive compensation awards; PROVIDED, HOWEVER, that such bonus shall be paid
during the 3-month period following the end of the Company's fiscal year.
6. LONG-TERM INCENTIVE COMPENSATION PROGRAMS.
(a) The Executive shall be eligible to participate in the Company's
applicable long-term incentive compensation plan as may be established and
modified from time to time by the Board in its sole discretion.
(b) Notwithstanding anything herein to the contrary, the Company
shall grant the Executive under any of its stock option plans an option to
purchase 200,000 shares of Common Stock (the "Option"). The exercise price of
the Option shall be equal to $3.00 per share. The Option shall expire on, and
shall not be exercisable on and after, the 10th anniversary of the Option's date
of grant, subject to earlier expiration in accordance with Section 11 below. No
portion of the Option shall be exercisable on the Option's date of grant, but a
percentage of the Option shall become exercisable on, and shall remain
exercisable on and after, each of the first 3 anniversaries of the Effective
Date, as set forth in the table below, and subject to the Option's expiration in
accordance with this Section 6(b) and the Option's expiration and/or accelerated
exercisability in accordance with Section 11 below:
Anniversary Percentage of Option which is
of the Exercisable and Remains
Effective Date Exercisable Until Option Expires
--------------------------------------------------------
0 0%
1st 33-1/3%
2nd 66-2/3%
3rd 100%
4
<PAGE>
7. EMPLOYEE BENEFIT PROGRAMS.
(a) During the Term of Employment, the Executive shall be entitled
to participate in various employee welfare and pension benefit plans, programs
and/or arrangements applicable to the Executive.
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit equal to 1 times the
current Base Salary. The Company shall pay all premiums with respect to such
life insurance. Such life insurance may be provided either through the
Company's group life insurance programs, by an individual policy, or by a
combination of both group and individual policies.
8. REIMBURSEMENT OF BUSINESS EXPENSES.
The Executive is authorized to incur reasonable business expenses in
carrying out his duties and responsibilities under the Agreement, and the
Company shall reimburse him for all such reasonable business expenses reasonably
incurred in connection with carrying out the business of the Company, subject to
documentation in accordance with the Company's policy.
9. PERQUISITES.
(a) During the Term of Employment, the Executive shall be entitled
to participate in the Company's executive fringe benefits applicable to the
Company's senior-level executives in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
(b) Notwithstanding anything herein to the contrary, the Executive
shall receive a minimum monthly car allowance of $400, and the Company shall pay
the Executive such monthly car allowance at the end of each month during the
Term of Employment.
10. VACATION.
The Executive shall be entitled to 20 paid vacation days per
calendar year in accordance with the Company's vacation policy; PROVIDED,
HOWEVER, that the Executive may carryover any unused vacation days in any
calendar year to the following calendar year subject to the approval by the
Company's chief executive officer.
11. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT DUE TO DEATH. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
his death;
(2) all annual incentive compensation awards with respect
to any year prior to the year of his death which have
been earned but not paid;
(3) a pro rata annual incentive compensation award for the
year in which the Executive's death occurs; PROVIDED,
HOWEVER, that the performance goals established under
the annual incentive compensation plan or program with
5
<PAGE>
respect to the year in which the Executive's death
occurs are met;
(4) the unexercisable portion of the Option held by the
Executive as of the date of his death shall be
immediately forfeited by the Executive as of such date
and the exercisable portion of the Option held by the
Executive as of such date shall remain exercisable
until the earlier of (i) the end of the 1-year period
following the date of the Executive's death or (ii) the
date the Option would otherwise expire;
(5) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 7, 8, 9 or 10 above; and
(6) such other or additional benefits, if any, as may be
provided under applicable plans, programs and/or
arrangements of the Company.
(b) TERMINATION OF EMPLOYMENT DUE TO DISABILITY. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event less than the benefits due him under
the then current disability program of the Company):
(1) Base Salary earned but not paid prior to the date of
the termination of the Executive's employment;
(2) all annual incentive compensation awards with respect
to any year prior to the year of the termination of the
Executive's employment which have been earned but not
paid;
(3) a pro rata annual incentive compensation award for the
year in which the termination of the Executive's
employment occurs; PROVIDED, HOWEVER, that the
performance goals established under the annual
incentive compensation plan or program with respect to
the year in which the termination of the Executive's
employment occurs are met;
(4) the unexercisable portion of the Option held by the
Executive as of the date of the termination of his
employment shall be immediately forfeited by the
Executive as of such date and the exercisable portion
of the Option held by the Executive as of such date
shall remain exercisable until the earlier of (i) the
end of the 1-year period following the date of the
termination of his employment or (ii) the date the
Option would otherwise expire;
(5) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 7, 8, 9 or 10 above; and
(6) such other or additional benefits, if any, as are
provided under applicable plans, programs and/or
arrangements of the Company.
6
<PAGE>
In no event shall a termination of the Executive's employment for Disability
occur unless the Party terminating his employment gives written notice to the
other Party in accordance with Section 23 below.
(c) TERMINATION OF EMPLOYMENT BY THE COMPANY FOR CAUSE. If the
Company terminates the Executive's employment for Cause during the Term of
Employment, the Term of Employment shall end as of the date of the termination
of the Executive's employment for Cause and the Executive shall be entitled to
the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
(2) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 7, 8, 9 or 10 above; and
(3) such other or additional benefits, if any, as are
provided under applicable plans, programs and/or
arrangements of the Company.
(d) TERMINATION OF EMPLOYMENT BY THE COMPANY WITHOUT CAUSE. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
(2) all annual incentive compensation awards with respect
to any year prior to the year of the termination of the
Executive's employment which have been earned but not
paid;
(3) an amount equal to the Base Salary (based on the Base
Salary in effect on the date of the termination of the
Executive's employment), payable with respect to the
12-month period following the date of the termination
of the Executive's employment (the "Severance Period")
and in accordance with the Company's regular payroll
practice;
(4) an annual incentive compensation award with respect to
the year in which the termination of the Executive's
employment occurs equal to the greater of (i) the
annual incentive compensation award paid to the
Executive with respect to the year preceding the year
in which the termination of the Executive's employment
occurs or (ii) 25 percent of Base Salary;
(5) the exercisable portion of the Option held by the
Executive as of the date of the termination of his
employment shall remain exercisable until the earlier
of (i) the end of the 1-year period following the date
of the termination of his employment or (ii) the date
the Option would otherwise expire;
(6) the unexercisable portion of the Option held by the
Executive as of the date of the termination of his
employment that would have become exercisable during
7
<PAGE>
the Severance Period if the Executive's employment had
not been terminated shall immediately become
exercisable (the "Accelerated Portion") as of such
date, and the remaining portion of such unexercisable
portion of the Option shall immediately be forfeited by
the Executive as of such date, as set forth in the
table below:
Date of Percent Percent
Termination of Option of Option
of Executive's which is which is
Employment Accelerated Forfeited
------------------------------------------------------
After Effective Date
but on or before 1st
anniversary of
Effective Date: 33-1/3% 66-2/3%
After 1st anniversary
of Effective Date but on
or before 2nd anniversary
of Effective Date: 33-1/3% 33-1/3%
After 2nd anniversary
of Effective Date but on
or before 3rd anniversary
of Effective Date: 33-1/3% 0%
After 3rd anniversary of
Effective Date: 0% 0%
and the Accelerated Portion shall remain exercisable until
the earlier of (i) the end of the 1-year period following
the date of the termination of his employment or (ii) the
date the Option would otherwise expire;
(7) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 7, 8, 9 or 10 above; and
(8) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
(e) TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON.
The Executive may terminate his employment for Good Reason at the end of the
10-day period following the date that the Executive notifies the Company in
writing in accordance with Section 23 below that he intends to terminate his
employment for Good Reason (the "Notification Date"), such notice to state in
detail the particular event that constitutes Good Reason. The Company shall
have reasonable opportunity to cure the event constituting Good Reason;
PROVIDED, HOWEVER, that if the Company has not cured such event to the
reasonable satisfaction of Executive (and the Executive has not waived the
Company's failure to cure) during the 10-day period following the Notification
Date (the "Curing Period"), the Executive may terminate his employment following
the end of the Curing Period; PROVIDED, HOWEVER, that the Executive may not
terminate his employment for Good Reason after the end of the 30-day period
following the date the event constituting Good Reason first occurs. Upon a
termination by the Executive of his employment for Good Reason, the
8
<PAGE>
Executive shall be entitled to the same payments and benefits as provided in
Section 11(d) above.
(f) VOLUNTARY TERMINATION OF EMPLOYMENT BY THE EXECUTIVE WITHOUT
GOOD REASON. If the Executive voluntarily terminates his employment, other than
a termination of employment due to death, Disability or retirement, the
Executive shall be entitled to the same payments and benefits as provided in
Section 11(c) above. A termination of the Executive's employment under this
Section 11(f) shall be effective upon 90 days prior written notice to the
Company and shall not be deemed a breach of this Agreement.
(g) NONRENEWAL OF AGREEMENT BY THE COMPANY OR THE EXECUTIVE. In
the event that the Company or the Executive does not renew the Term of
Employment in accordance with Section 2 above, the Executive shall be entitled
to the same payments and benefits as provided in Section 11(c) above, and the
date on which the Term of Employment ends shall be deemed to be the date of the
termination of the Executive's employment by the Company for Cause.
12. CONFIDENTIALITY: ASSIGNMENT OF RIGHTS.
(a) During the Term of Employment and thereafter, the Executive
shall not disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which he
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with his work as an employee of the
Company, (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 12(a).
(b) The Executive hereby sells, assigns and transfers to the
Company all of his right, title and interest in and to all inventions,
discoveries, improvements and copyrightable subject matter (the "rights") which
during the Term of Employment are made or conceived by him, alone or with
others, and which are within or arise out of any general field of the Company's
business or arise out of any work he performs or information he receives
regarding the business of the Company while employed by the Company. The
Executive shall fully disclose to the Company as promptly as available all
information known or possessed by him concerning the rights referred to in the
preceding sentence, and upon request by the Company and without any further
remuneration in any form to him by the Company, but at the expense of the
Company, execute all applications for patents and for copyright registration,
assignments thereof and other instruments and do all things which the Company
may deem necessary to vest and maintain in it the entire right, title and
interest in and to all such rights.
13. NONCOMPETITION; NONSOLICITATION.
(a) The Executive covenants and agrees that for a period commencing
on the Effective Date and ending on the end of the 12-month period following the
end of the Term of Employment, he shall not at any time, without the prior
written consent of the Company, directly or indirectly, engage in a Competitive
Activity.
9
<PAGE>
(b) The Executive covenants and agrees that for a period commencing
on the Effective Date and ending on the end of the 12-month period following the
end of the Term of Employment, he shall not at any time, directly or indirectly,
solicit (i) any client or customer of the Company or any Subsidiary with respect
to a Competitive Activity or (ii) any employee of the Company or any Subsidiary
for the purpose of causing such employee to terminate his or her employment with
the Company or such Subsidiary.
(c) The Parties acknowledge that in the event of a breach or
threatened breach of Section 13(a) and/or Section 13(b) above, the Company shall
not have an adequate remedy at law. Accordingly, in the event of any breach or
threatened breach of Section 13(a) and/or Section 13(b) above, the Company shall
be entitled to such equitable and injunctive relief as may be available to
restrain the Executive and any business, firm, partnership, individual,
corporation or entity participating in the breach or threatened breach from the
violation of the provisions of Section 13(a) and/or Section 13(b) above.
Nothing in this Agreement shall be construed as prohibiting the Company from
pursuing any other remedies available at law or in equity for breach or
threatened breach of Section 13(a) and/or Section 13(b) above, including the
recovery of damages.
14. ASSIGNABILITY; BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may
be assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; PROVIDED, HOWEVER, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law.
15. REPRESENTATION.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents and warrants
that no agreement exists between him and any other person, firm or organization
that would be violated by the performance of his obligations under this
Agreement.
16. ENTIRE AGREEMENT.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties with respect thereto.
17. AMENDMENT OR WAIVER.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time.
10
<PAGE>
Any waiver must be in writing and signed by the Executive or an authorized
officer of the Company, as the case may be.
18. SEVERABILITY.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect to the fullest extent permitted by law.
19. SURVIVORSHIP.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
20. BENEFICIARIES/REFERENCES.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's
death or a judicial determination of his incompetence, reference in this
Agreement to the Executive shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative.
21. GOVERNING LAW/JURISDICTION.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New Jersey without reference to
principles of conflict of laws.
22. RESOLUTION OF DISPUTES.
Any disputes arising under or in connection with the Agreement may,
at the election of the Executive or the Company, be resolved by binding
arbitration, to be held in New York City in accordance with the rules and
procedures of the American Arbitration Association. If arbitration is elected,
the Executive and the Company shall mutually select the arbitrator. If the
Executive and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the 2 arbitrators shall select a third
arbitrator, and the 3 arbitrators shall form an arbitration panel which shall
resolve the dispute by majority vote. Judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. Costs of the arbitrator or arbitrators and other similar costs in
connection with an arbitration shall be paid by the Party that does not prevail
at such arbitration.
23. NOTICES.
Any notice given to a Party shall be in writing and shall be deemed
to have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
11
<PAGE>
If to the Company: INTEK Diversified Corporation
970 West 190th Street, Suite 720
Torrance, California 90502
Attention: Chief Executive Officer
with a copy to: Securicor plc
Sutton Park House
15 Carshalton Road
Sutton Surrey SM1 4LD
Attention: Company Secretary
and a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Mark A. Jacoby, Esq.
Stewart Reifler, Esq.
If to the Executive: Mr. Lee R. Montellaro
60 Ticonderoga Boulevard
Freehold, New Jersey 07728
24. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
25. COUNTERPARTS.
This Agreement may be executed in 2 or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
INTEK Diversified Corporation
By: /s/ Edmund Hough
-----------------------------
Dr. Edmund Hough
Chairman of the Board
/s/ Lee R. Montellaro
-----------------------------
Lee R. Montellaro
12
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 21st day of April, 1997 by and
between INTEK Diversified Corporation, a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and
Donald Goeltz (the "Executive").
W I T N E S S E T H
WHEREAS, the Company desires to employ the Executive and to enter into an
agreement embodying the terms of such employment (the "Agreement") and the
Executive desires to enter into the Agreement and to accept such employment,
subject to the terms and provisions of the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. DEFINITIONS.
(a) "Base Salary" shall mean the Executive's base salary in
accordance with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean:
(1) habitual absence from work by the Executive, including
without limitation, habitual absence from the Company's
offices on non-Company matters that interferes with the
Executive's duties;
(2) habitual drunkenness by the Executive;
(3) habitual drug abuse or drug addiction by the Executive;
(4) the Executive maliciously denigrating in public the
Company or any officer, director or affiliate thereof;
(5) sexual harassment by the Executive which has been
reasonably substantiated;
(6) physical destruction of substantial property or asset
of the Company by, or caused by, the Executive;
(7) appropriation of business opportunities of the Company
by the Executive for the direct or indirect personal
gain of the Executive or members of his family without
the prior written consent of the Board;
(8) the Executive causing the Company to enter into
transactions or arrangements with the Executive, in his
capacity as an individual and not as an employee
<PAGE>
of the Company, or a person or entity affiliated
therewith, which results in direct or indirect personal
gain to the Executive or members of his family without
the prior written consent of the Board; PROVIDED,
HOWEVER, that this Section 1(c)(8) shall not include
the employment of the Executive by the Company or its
affiliates;
(9) willful and malicious interference with the Company's
operations by the Executive;
(10) engagement by the Executive in any act of fraud,
material misappropriation of funds or assets, or
embezzlement, including without limitation, theft,
bribery or the receipt of kickbacks;
(11) a conviction of the Executive for, or a plea of NOLO
CONTENDERE by the Executive to, a felony or other
criminal act for which the possible penalties include a
prison sentence of at least 1 year;
(12) a material breach by the Executive of the restrictive
covenants contained in this Agreement, or for disloyal,
dishonest or illegal conduct by the Executive;
(13) a material breach of this Agreement by the Executive;
(14) a failure, after written notice to the Executive from
the Company, of the Executive to follow the reasonable
directions or instructions of the Board or the
Company's chief executive officer which are consistent
with the Executive's position and responsibilities; or
(15) gross negligence by the Executive which results in
material harm to the Company.
(d) "Common Stock" shall mean the common stock, $.01 par value per
share, of the Company.
(e) "Competitive Activity" shall mean any activity involving
narrow-band SMR technology which is competitive with the Company or any
Subsidiary, regardless of whether the Executive engages in such activity as an
employee, consultant, principal, agent, officer, director, partner or
shareholder (except as a less than 1 percent shareholder of a publicly traded
company or a less than 10 percent shareholder of a privately held company).
Notwithstanding anything to the contrary in this Section 1(e), an activity shall
not be deemed to be a competitive activity (i) solely as a result of the
Executive's being employed by or otherwise associated with a business of which a
unit is in competition with the Company or any Subsidiary but as to which unit
he does not have direct or indirect responsibilities for the products or product
lines involved or (ii) if the activity contributes less than 5 percent of the
revenues for the fiscal year in question of the business by which the Executive
is employed or with which he is otherwise associated.
(f) "Disability" or "Disabled" shall mean a disability as
determined under the Company's long-term disability plan or program in effect at
the time the disability first occurs, or if no such plan or program exists at
the time of disability, then a "disability" as defined under Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended.
2
<PAGE>
(g) "Effective Date" shall mean April 21, 1997.
(h) "Good Reason" shall mean the occurrence of any of the
following, without the Executive's prior written consent, during the 30-day
period preceding the date the Executive terminates his employment with the
Company:
(1) a material adverse change in the Executive's position,
duties or responsibilities with respect to his
employment by the Company; or
(2) a change in the Executive's principal work location by
more than 60 miles from Montclair, New Jersey.
(i) "Subsidiary" shall mean a corporation of which the Company owns
more than 50 percent of the Voting Stock or any other business entity in which
the Company directly or indirectly has an ownership interest of more than 50
percent.
(j) "Term of Employment" shall mean the period specified in Section
2 below.
(k) "Voting Stock" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. TERM OF EMPLOYMENT.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing on the Effective Date and
ending on the first anniversary of the Effective Date, subject to earlier
termination of the Term of Employment in accordance with the terms of the
Agreement. The Term of Employment shall be automatically renewed for a 1-year
period on the first anniversary of the Effective Date and on each anniversary of
the Effective Date thereafter, unless (x) the Company has notified the Executive
in writing in accordance with Section 23 below at least 365 days prior to the
expiration of the then Term of Employment that it does not want the Term of
Employment to so renew or (y) the Executive has notified the Company in writing
in accordance with Section 23 below at least 90 days prior to the expiration of
the then Term of Employment that he does not want the Term of Employment to so
renew.
3. POSITION, DUTIES AND RESPONSIBILITIES.
On the Effective Date and continuing for the remainder of the Term
of Employment, the Executive shall be employed as the Senior Vice President--
Business Development of the Company and shall be responsible for the development
and expansion of the Company's business. The Executive shall serve the Company
faithfully, conscientiously and to the best of the Executive's ability and shall
promote the interests and reputation of the Company. Unless prevented by
sickness or Disability, the Executive shall devote all of the Executive's time,
attention, knowledge, energy and skills, during normal working hours, and at
such other times as the Executive's duties may reasonably require, to the duties
of the Executive's employment. The Executive, in carrying out his duties under
this Agreement, shall report to the Company's chief executive officer.
3
<PAGE>
4. BASE SALARY.
The Executive shall be paid an annualized Base Salary of $160,000,
payable in accordance with the regular payroll practices of the Company. The
Base Salary shall be reviewed no less frequently than annually in the discretion
of the Board. In reviewing the Base Salary, the Board shall take into account,
among other factors, the cost-of-living increase with respect to the most
recently completed 12-month period for which data are available.
5. ANNUAL INCENTIVE COMPENSATION PROGRAMS.
The Executive shall participate in the Company's annual incentive
compensation plan or program applicable to senior-level executives as
established and modified from time to time by the Board in its sole discretion.
The Executive shall have an annual target award under such plan or program equal
to a maximum of 25 percent of the Base Salary paid during the relevant
performance period. Payment of annual incentive compensation awards shall be
made at the same time that other senior-level executives receive their annual
incentive compensation awards; PROVIDED, HOWEVER, that such bonus shall be paid
during the 3-month period following the end of the Company's fiscal year.
6. LONG-TERM INCENTIVE COMPENSATION PROGRAMS.
(a) The Executive shall be eligible to participate in the Company's
applicable long-term incentive compensation plan as may be established and
modified from time to time by the Board in its sole discretion.
(b) Notwithstanding anything herein to the contrary, the Company
shall grant the Executive under any of its stock option plans an option to
purchase 160,000 shares of Common Stock (the "Option"). The exercise price of
the Option shall be equal to $3.00 per share. The Option shall expire on, and
shall not be exercisable on and after, the 10th anniversary of the Option's date
of grant, subject to earlier expiration in accordance with Section 11 below. No
portion of the Option shall be exercisable on the Option's date of grant, but a
percentage of the Option shall become exercisable on, and shall remain
exercisable on and after, each of the first 3 anniversaries of the Effective
Date, as set forth in the table below, and subject to the Option's expiration in
accordance with this Section 6(b) and the Option's expiration and/or accelerated
exercisability in accordance with Section 11 below:
Anniversary Percentage of Option which is
of the Exercisable and Remains
Effective Date Exercisable Until Option Expires
--------------------------------------------------------
0 0%
1st 33-1/3%
2nd 66-2/3%
3rd 100%
7. EMPLOYEE BENEFIT PROGRAMS.
(a) During the Term of Employment, the Executive shall be entitled
to participate in various employee welfare and pension benefit plans, programs
and/or arrangements applicable to the Executive.
4
<PAGE>
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit equal to 1 times the
current Base Salary. The Company shall pay all premiums with respect to such
life insurance. Such life insurance may be provided either through the
Company's group life insurance programs, by an individual policy, or by a
combination of both group and individual policies.
8. REIMBURSEMENT OF BUSINESS EXPENSES.
The Executive is authorized to incur reasonable business expenses in
carrying out his duties and responsibilities under the Agreement, and the
Company shall reimburse him for all such reasonable business expenses reasonably
incurred in connection with carrying out the business of the Company, subject to
documentation in accordance with the Company's policy.
9. PERQUISITES.
(a) During the Term of Employment, the Executive shall be entitled
to participate in the Company's executive fringe benefits applicable to the
Company's senior-level executives in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
(b) Notwithstanding anything herein to the contrary, the Executive
shall receive a minimum monthly car allowance of $500, and the Company shall pay
the Executive such monthly car allowance at the end of each month during the
Term of Employment.
10. VACATION.
The Executive shall be entitled to 20 paid vacation days per
calendar year in accordance with the Company's vacation policy; PROVIDED,
HOWEVER, that the Executive may carryover any unused vacation days in any
calendar year to the following calendar year subject to the approval by the
Company's chief executive officer.
11. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT DUE TO DEATH. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
his death;
(2) all annual incentive compensation awards with respect
to any year prior to the year of his death which have
been earned but not paid;
(3) a pro rata annual incentive compensation award for the
year in which the Executive's death occurs; PROVIDED,
HOWEVER, that the performance goals established under
the annual incentive compensation plan or program with
respect to the year in which the Executive's death
occurs are met;
(4) the unexercisable portion of the Option held by the
Executive as of the date of his death shall be
immediately forfeited by the Executive as of such date
and the exercisable portion of the Option held by the
5
<PAGE>
Executive as of such date shall remain exercisable
until the earlier of (i) the end of the 1-year period
following the date of the Executive's death or (ii) the
date the Option would otherwise expire;
(5) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 7, 8, 9 or 10 above; and
(6) such other or additional benefits, if any, as may be
provided under applicable plans, programs and/or
arrangements of the Company.
(b) TERMINATION OF EMPLOYMENT DUE TO DISABILITY. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event less than the benefits due him under
the then current disability program of the Company):
(1) Base Salary earned but not paid prior to the date of
the termination of the Executive's employment;
(2) all annual incentive compensation awards with respect
to any year prior to the year of the termination of the
Executive's employment which have been earned but not
paid;
(3) a pro rata annual incentive compensation award for the
year in which the termination of the Executive's
employment occurs; PROVIDED, HOWEVER, that the
performance goals established under the annual
incentive compensation plan or program with respect to
the year in which the termination of the Executive's
employment occurs are met;
(4) the unexercisable portion of the Option held by the
Executive as of the date of the termination of his
employment shall be immediately forfeited by the
Executive as of such date and the exercisable portion
of the Option held by the Executive as of such date
shall remain exercisable until the earlier of (i) the
end of the 1-year period following the date of the
termination of his employment or (ii) the date the
Option would otherwise expire;
(5) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 7, 8, 9 or 10 above; and
(6) such other or additional benefits, if any, as are
provided under applicable plans, programs and/or
arrangements of the Company.
In no event shall a termination of the Executive's employment for Disability
occur unless the Party terminating his employment gives written notice to the
other Party in accordance with Section 23 below.
(c) TERMINATION OF EMPLOYMENT BY THE COMPANY FOR CAUSE. If the
Company terminates the Executive's employment for Cause during the Term of
6
<PAGE>
Employment, the Term of Employment shall end as of the date of the termination
of the Executive's employment for Cause and the Executive shall be entitled to
the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
(2) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 7, 8, 9 or 10 above; and
(3) such other or additional benefits, if any, as are
provided under applicable plans, programs and/or
arrangements of the Company.
(d) TERMINATION OF EMPLOYMENT BY THE COMPANY WITHOUT CAUSE. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
(2) all annual incentive compensation awards with respect
to any year prior to the year of the termination of the
Executive's employment which have been earned but not
paid;
(3) an amount equal to the Base Salary (based on the Base
Salary in effect on the date of the termination of the
Executive's employment), payable with respect to the
12-month period following the date of the termination
of the Executive's employment (the "Severance Period")
and in accordance with the Company's regular payroll
practice;
(4) an annual incentive compensation award with respect to
the year in which the termination of the Executive's
employment occurs equal to the greater of (i) the
annual incentive compensation award paid to the
Executive with respect to the year preceding the year
in which the termination of the Executive's employment
occurs or (ii) 25 percent of Base Salary;
(5) the exercisable portion of the Option held by the
Executive as of the date of the termination of his
employment shall remain exercisable until the earlier
of (i) the end of the 1-year period following the date
of the termination of his employment or (ii) the date
the Option would otherwise expire;
(6) the unexercisable portion of the Option held by the
Executive as of the date of the termination of his
employment that would have become exercisable during
the Severance Period if the Executive's employment had
not been terminated shall immediately become
exercisable (the "Accelerated Portion") as of such
date, and the remaining portion of such unexercisable
portion of the Option shall immediately be forfeited
7
<PAGE>
by the Executive as of such date, as set forth in the
table below:
Date of Percent Percent
Termination of Option of Option
of Executive's which is which is
Employment Accelerated Forfeited
----------------------------------------------------
After Effective Date
but on or before 1st
anniversary of
Effective Date: 33-1/3% 66-2/3%
After 1st anniversary
of Effective Date but on
or before 2nd anniversary
of Effective Date: 33-1/3% 33-1/3%
After 2nd anniversary
of Effective Date but on
or before 3rd anniversary
of Effective Date: 33-1/3% 0%
After 3rd anniversary of
Effective Date: 0% 0%
and the Accelerated Portion shall remain exercisable until
the earlier of (i) the end of the 1-year period following
the date of the termination of his employment or (ii) the
date the Option would otherwise expire;
(7) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 7, 8, 9 or 10 above; and
(8) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
(e) TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON.
The Executive may terminate his employment for Good Reason at the end of the
10-day period following the date that the Executive notifies the Company in
writing in accordance with Section 23 below that he intends to terminate his
employment for Good Reason (the "Notification Date"), such notice to state in
detail the particular event that constitutes Good Reason. The Company shall
have reasonable opportunity to cure the event constituting Good Reason;
PROVIDED, HOWEVER, that if the Company has not cured such event to the
reasonable satisfaction of Executive (and the Executive has not waived the
Company's failure to cure) during the 10-day period following the Notification
Date (the "Curing Period"), the Executive may terminate his employment following
the end of the Curing Period; PROVIDED, HOWEVER, that the Executive may not
terminate his employment for Good Reason after the end of the 30-day period
following the date the event constituting Good Reason first occurs. Upon a
termination by the Executive of his employment for Good Reason, the Executive
shall be entitled to the same payments and benefits as provided in Section 11(d)
above.
8
<PAGE>
(f) VOLUNTARY TERMINATION OF EMPLOYMENT BY THE EXECUTIVE WITHOUT
GOOD REASON. If the Executive voluntarily terminates his employment, other than
a termination of employment due to death, Disability or retirement, the
Executive shall be entitled to the same payments and benefits as provided in
Section 11(c) above. A termination of the Executive's employment under this
Section 11(f) shall be effective upon 90 days prior written notice to the
Company and shall not be deemed a breach of this Agreement.
(g) NONRENEWAL OF AGREEMENT BY THE COMPANY OR THE EXECUTIVE. In
the event that the Company or the Executive does not renew the Term of
Employment in accordance with Section 2 above, the Executive shall be entitled
to the same payments and benefits as provided in Section 11(c) above, and the
date on which the Term of Employment ends shall be deemed to be the date of the
termination of the Executive's employment by the Company for Cause.
12. CONFIDENTIALITY: ASSIGNMENT OF RIGHTS.
(a) During the Term of Employment and thereafter, the Executive
shall not disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which he
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with his work as an employee of the
Company, (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 12(a).
(b) The Executive hereby sells, assigns and transfers to the
Company all of his right, title and interest in and to all inventions,
discoveries, improvements and copyrightable subject matter (the "rights") which
during the Term of Employment are made or conceived by him, alone or with
others, and which are within or arise out of any general field of the Company's
business or arise out of any work he performs or information he receives
regarding the business of the Company while employed by the Company. The
Executive shall fully disclose to the Company as promptly as available all
information known or possessed by him concerning the rights referred to in the
preceding sentence, and upon request by the Company and without any further
remuneration in any form to him by the Company, but at the expense of the
Company, execute all applications for patents and for copyright registration,
assignments thereof and other instruments and do all things which the Company
may deem necessary to vest and maintain in it the entire right, title and
interest in and to all such rights.
13. NONCOMPETITION; NONSOLICITATION.
(a) The Executive covenants and agrees that for a period commencing
on the Effective Date and ending on the end of the 12-month period following the
end of the Term of Employment, he shall not at any time, without the prior
written consent of the Company, directly or indirectly, engage in a Competitive
Activity.
(b) The Executive covenants and agrees that for a period commencing
on the Effective Date and ending on the end of the 12-month period following the
end of the Term of Employment, he shall not at any time,
9
<PAGE>
directly or indirectly, solicit (i) any client or customer of the Company or any
Subsidiary with respect to a Competitive Activity or (ii) any employee of the
Company or any Subsidiary for the purpose of causing such employee to terminate
his or her employment with the Company or such Subsidiary.
(c) The Parties acknowledge that in the event of a breach or
threatened breach of Section 13(a) and/or Section 13(b) above, the Company shall
not have an adequate remedy at law. Accordingly, in the event of any breach or
threatened breach of Section 13(a) and/or Section 13(b) above, the Company shall
be entitled to such equitable and injunctive relief as may be available to
restrain the Executive and any business, firm, partnership, individual,
corporation or entity participating in the breach or threatened breach from the
violation of the provisions of Section 13(a) and/or Section 13(b) above.
Nothing in this Agreement shall be construed as prohibiting the Company from
pursuing any other remedies available at law or in equity for breach or
threatened breach of Section 13(a) and/or Section 13(b) above, including the
recovery of damages.
14. ASSIGNABILITY; BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may
be assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; PROVIDED, HOWEVER, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law.
15. REPRESENTATION.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents and warrants
that no agreement exists between him and any other person, firm or organization
that would be violated by the performance of his obligations under this
Agreement.
16. ENTIRE AGREEMENT.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties with respect thereto.
17. AMENDMENT OR WAIVER.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
10
<PAGE>
18. SEVERABILITY.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect to the fullest extent permitted by law.
19. SURVIVORSHIP.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
20. BENEFICIARIES/REFERENCES.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's
death or a judicial determination of his incompetence, reference in this
Agreement to the Executive shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative.
21. GOVERNING LAW/JURISDICTION.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New Jersey without reference to
principles of conflict of laws.
22. RESOLUTION OF DISPUTES.
Any disputes arising under or in connection with the Agreement may,
at the election of the Executive or the Company, be resolved by binding
arbitration, to be held in New York City in accordance with the rules and
procedures of the American Arbitration Association. If arbitration is elected,
the Executive and the Company shall mutually select the arbitrator. If the
Executive and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the 2 arbitrators shall select a third
arbitrator, and the 3 arbitrators shall form an arbitration panel which shall
resolve the dispute by majority vote. Judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. Costs of the arbitrator or arbitrators and other similar costs in
connection with an arbitration shall be paid by the Party that does not prevail
at such arbitration.
23. NOTICES.
Any notice given to a Party shall be in writing and shall be deemed
to have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: INTEK Diversified Corporation
970 West 190th Street, Suite 720
Torrance, California 90502
Attention: Chief Executive Officer
11
<PAGE>
with a copy to: Securicor plc
Sutton Park House
15 Carshalton Road
Sutton Surrey SM1 4LD
Attention: Company Secretary
and a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Mark A. Jacoby, Esq.
Stewart Reifler, Esq.
If to the Executive: Mr. Donald Goeltz
60 Warren Place
Montclair, New Jersey 07043
24. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
25. COUNTERPARTS.
This Agreement may be executed in 2 or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
INTEK Diversified Corporation
By: /s/ Edmund Hough
---------------------
Dr. Edmund Hough
Chairman of the Board
/s/ Donald Goeltz
---------------------
Donald Goeltz
12
<PAGE>
Execution Copy
$29,500,000
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of December 29, 1997
between
INTEK DIVERSIFIED CORPORATION
as Borrower
and
SECURICOR COMMUNICATIONS LIMITED
as Lender
<PAGE>
SECOND AMENDED AND RESTATED LOAN AGREEMENT, dated as of December 29,
1997, between INTEK DIVERSIFIED CORPORATION, a Delaware corporation having an
office at 214 Carnegie Center, Suite 304, Princeton, New Jersey 08540 (the
"Borrower"), and SECURICOR COMMUNICATIONS LIMITED, a company incorporated under
the laws of England and Wales having an office at 15 Carshalton Road, Sutton,
Surrey, SM1 4LD, England ("Lender").
W I T N E S S E T H :
WHEREAS, Borrower and Lender entered into a Stock Purchase Agreement,
dated as of June 18, 1996, as amended by agreement of the parties dated as of
September 19, 1996 (the "Stock Agreement"), pursuant to which Lender sold
Borrower all of the outstanding securities (other than certain preferred shares)
of Lender's wholly-owned subsidiary, Securicor Radiocoms Limited ("Radiocoms"),
in consideration for 25,000,000 shares of Borrower's Common Stock (the
"Securicor Transaction"); and
WHEREAS, pursuant to the Stock Agreement, Lender agreed, among other
things, to advance up to $15 million to Borrower to finance the combined
business of Borrower, the U.S. LMR Distribution Business and Radiocoms which was
implemented by the Amended and Restated Loan Agreement between Borrower and
Lender dated as of December 3, 1996 (the "First Restated Loan Agreement");
WHEREAS, pursuant to the First Restated Loan Agreement, Borrower
assumed all of the obligations of Midland USA, Inc., a wholly owned subsidiary
of Borrower ("MUSA") outstanding under a Loan Agreement between Borrower and
MUSA dated as of September 19, 1996 and such obligations became obligations of
Borrower under the First Restated Loan Agreement; and
WHEREAS, the Lender has made additional advances to Borrower (the
"Other Advances") represented by the loan agreements (the "Other Loan
Agreements") listed in Schedule I hereto having various maturities and interest
rates; and
WHEREAS, the aggregate amount outstanding under the First Restated
Loan Agreement and Other Loan Agreements, including accrued interest thereon, as
of the date hereof, is $25,422,996.30 as of the date of this amendment; and
WHEREAS, concurrently with the execution of this Agreement, Borrower
and Lender have entered into a "Preferred Stock Purchase Agreement and
"Termination and Release"; and
1
<PAGE>
WHEREAS, the parties wish to amend and restate the Loan Agreement as
set forth herein to, among other things, provide for a single integrated credit
facility and provide for certain other changes;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. DEFINITIONS
In addition to the defined terms appearing above, capitalized terms used in
this Agreement shall have (unless otherwise provided elsewhere in this
Agreement) the following respective meanings when used herein:
"Advance" shall have the meaning ascribed to it in Section 2.1(a) hereof.
"Affiliate" shall mean, with respect to any Person, any other Person that
controls such Person or is controlled by or under common control with such
Person.
"Agreement" shall mean this Loan Agreement, including all amendments,
modifications and supplements hereto and any appendices, exhibits or schedules
to any of the foregoing, and shall refer to the Agreement as the same may be in
effect at the time such reference becomes operative.
"Ancillary Agreements" shall mean any and all supplemental agreements,
undertakings, instruments, documents or other writings executed by Borrower.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day on
which banks are required or permitted to be closed in the State of New York.
"Cash Equivalents" shall mean (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency thereof
maturing within one year from the date of acquisition thereof; (ii) commercial
paper maturing no more than one year from the date of creation thereof and at
the time of their acquisition having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc.; and (iii)
certificates of deposit, maturing no more than one year from the date of
creation thereof, issued by commercial banks incorporated under the laws of the
United States of America, each having combined capital, surplus and undivided
profits of not less than $200,000,000 and having a rating of "A" or better by a
nationally recognized rating agency.
"Change of Control" shall mean any acquisition, directly or indirectly, in one
transaction or a series of transactions, by any Person, other than Lender or any
Affiliate thereof, of greater than (i) 50% or more of the issued and outstanding
Common Stock, or (ii) 50% or more of the assets of
2
<PAGE>
Borrower and its Subsidiaries, taken as a whole (including without limitation
the sale by Borrower of the stock of a Subsidiary or Subsidiaries whose combined
assets represent 50% or more of the assets of Borrower and its Subsidiaries,
taken as a whole).
"Charges" shall mean all federal, state, county, city, municipal, local, foreign
or other governmental taxes at the time due and payable, levies, assessments,
charges, liens, claims or encumbrances upon or relating to (i) the Collateral,
(ii) the Obligations, (iii) Borrower's or any of its Subsidiaries' ownership or
use of any of its assets, or (iv) any other aspect of Borrower's or any of the
Subsidiaries' business.
"Closing Date" shall mean the date on which all of the conditions precedent to
the effectiveness of this Agreement have been satisfied.
"Code" shall mean the Uniform Commercial Code of the jurisdiction with respect
to which such term is used, as in effect from time to time.
"Commitment Termination Date" shall mean December 31, 2002.
"Common Stock" shall mean common stock, par value $0.01, of Borrower.
"Default" shall mean any event which, with the passage of time or notice or both
would, unless cured or waived, become an Event of Default.
"Event of Default" shall have the meaning ascribed to it in Section 9.1 hereof.
"Federal Reserve Board" shall have the meaning ascribed to it in Section 4.8
hereof.
"Fiscal Year" shall mean the fiscal year ended September 30. Subsequent changes
of the fiscal year of Borrower shall not change the term "Fiscal Year," unless
Lender shall consent in writing to such changes.
"GAAP" shall mean generally accepted accounting principles in the United States
of America as in effect from time to time.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such
Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
manner including, without limitation, any obligation or
3
<PAGE>
arrangement of such Person (a) to purchase or repurchase any such primary
obligation, (b) to advance or supply funds (i) for the purchase or payment of
any such primary obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet condition of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (d) to indemnify the owner of such
primary obligation against loss in respect thereof.
"Indebtedness" of any Person shall mean (i) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or services
(including, without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers' acceptances, whether or
not matured, but not including obligations to trade creditors incurred in the
ordinary course of business), (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, (iii) all indebtedness created or arising
under any conditional sale or other title retention agreements with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (iv) all Guaranteed Indebtedness,
(v) all Indebtedness referred to in clause (i), (ii), (iii) or (iv) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness, and (vi) the Obligations.
"Letter of Credit Obligations" shall mean all outstanding obligations incurred
by Lender at the request of Borrower, whether direct or indirect, contingent or
otherwise, due or not due, in connection with the issuance or guarantee, by
Lender or another, of letters of credit, bank acceptances in respect of letters
of credit, or the like. The amount of such Letter of Credit Obligations shall
equal the maximum amount which may be payable by Lender thereupon or pursuant
thereto.
"Letters of Credit" shall mean commercial or standby letters of credit issued at
the request and for the account of Borrower, and bankers' acceptances issued by
Borrower, for which Lender has incurred Letter of Credit Obligations pursuant
thereto.
"Lien" shall mean any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to
4
<PAGE>
give, any financing statement perfecting a security interest under the Code or
comparable law of any jurisdiction).
"Loan" shall mean the aggregate amount of Advances outstanding at any time plus
the amount of any interest capitalized with respect thereto.
"Loan Documents" shall mean this Agreement, the Note, and any other Ancillary
Agreements as to which Lender is a party or a beneficiary and all other
agreements, instruments, documents and certificates, including, without
limitation, pledges, powers of attorney, consents, assignments, contracts,
notices, and all other written matter whether heretofore, now or hereafter
executed by or on behalf of Borrower or any of its Affiliates, or any employee
of Borrower or any of its Affiliates, and delivered to Lender in connection with
this Agreement or the transactions contemplated hereby.
"Material Adverse Effect" or "Material Adverse Change" shall mean an event or
circumstance which materially adversely affects the business, properties,
financial condition or operations of Borrower and its Subsidiaries (taken as a
whole).
"Maximum Lawful Rate" shall have the meaning ascribed to it, in Section 2.4(c)
hereof.
"Net Worth" shall mean the total assets less the total liabilities of Borrower
and its consolidated Subsidiaries as determined in accordance with GAAP;
PROVIDED, HOWEVER, that in no event shall the par value of the Radiocoms
Preferred Stock be counted as a liability in making such calculation nor shall
any outstanding preferred stock of Borrower be counted as a liability.
"Note" shall have the meaning ascribed to it in Section 2.1(b).
"Obligations" shall mean all loans, advances, debts, liabilities, and
obligations, for monetary amounts (whether or not such amounts are liquidated or
determinable) owing by Borrower to Lender (including all Letter of Credit
Obligations), and all covenants and duties regarding such amounts, of any kind
or nature, present or future, whether or not evidenced by any note, agreement or
other instrument, arising under any of the Loan Documents. This term includes,
without limitation, all interest (whether capitalized or otherwise), charges,
expenses, attorneys' fees and any other sum chargeable to Borrower under any of
the Loan Documents.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Radiocoms" shall have the meaning ascribed to it in the recitals hereof.
5
<PAGE>
"Radiocoms Preferred Stock" shall mean the 20,000 shares of Preference Stock of
Radiocoms, par value $1,000 per share, which are issued and outstanding as of
the date hereof.
"Repayment Date" means June 30, 2003.
"Securicor Transaction" shall have the meaning ascribed to it in the recitals
hereof.
"Senior Debt" shall mean all Indebtedness of Borrower (including without
limitation all principal of and premium, if any, and interest on, and all other
amounts of any nature whatsoever owing in respect of such Indebtedness, as the
same may be amended, modified or supplemented and any refinancing thereof from
time to time) other than Indebtedness which, in accordance with its terms, ranks
pari passu or junior to the Loan.
"Senior Indebtedness" shall have the meaning ascribed to it in Section 10.1
hereof.
"Significant Financing" shall mean any sale by the Borrower of equity, including
preferred stock (except preferred stock sold to Lender or any of its
affiliates), or indebtedness for cash (or a combination thereof) exceeding
$8,000,000.
"Solvent" shall mean, when used with respect to any Person, that:
the present fair saleable value of such Person's assets (including,
without limitation, the fair saleable value of the goodwill and other
intangible assets) is in excess of the total amount of such Person's
liabilities;
such Person is able to pay its debts as they become due; and
such Person does not have unreasonably small capital to carry on such
Person's business as theretofore operated and all businesses in which
such Person is about to engage.
"Stock" shall mean all shares, options, warrants, general or limited partnership
interests, participations or other equivalents (regardless of how designated) of
or in a corporation, partnership or equivalent entity whether voting or
nonvoting, including, without limitation, common stock, preferred stock, or any
other "equity security" (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended).
"Subordinated Indebtedness" shall have the meaning ascribed to it in Section
10.1 hereof.
"Subsidiary" shall mean any Person 50% or more of whose issued and outstanding
voting securities is owned or controlled, directly or indirectly, by the
specified Person.
6
<PAGE>
"Taxes" shall have the meaning ascribed thereto in Section 2.11 hereof.
"Trademarks" shall mean the Trademarks described on Schedule 4.12(b) hereto and
the trade name "Midland" and similar variations thereof, and all registrations,
applications and renewals thereof and all logos, whether or not registered, used
in connection therewith.
Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given such term
in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are explicitly
modified by the phrase "in accordance with GAAP" shall in no way be construed to
limit the foregoing. All other undefined terms contained in this Agreement
shall, unless the context indicates otherwise, have the meanings provided for by
the Code as in effect in the State of New York to the extent the same are used
or defined therein. The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole, including the
Exhibits and Schedules hereto, as the same may from time to time be amended,
modified or supplemented, and not to any particular section, subsection or
clause contained in this Agreement.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter.
2. AMOUNT AND TERMS OF CREDIT
2.1. (a) REVOLVING ADVANCES. Upon and subject to the terms and conditions
hereof (including the condition that at the time of such advance, the Lender
shall be the beneficial owner of 50% or more of the Borrower's common
stock), Lender shall make available, from time to time on a revolving basis,
until the Commitment Termination Date, for Borrower's use and upon the request
of Borrower therefor, advances (each, an "Advance") in an aggregate amount
(which amount shall include all outstanding Letter of Credit Obligations,
whether or not then due and payable) which shall not exceed $29,500,000 (less
the sum of Scheduled and Mandatory Prepayments set forth in Section 2.5(c) and
(d)). Each Advance shall be made on notice, given no later than 1:00 P.M. (New
York City time) on the second Business Day prior to the proposed Advance, by
Borrower to Lender and no Advance shall be requested unless the amount thereof
is equal to the greater of (i) $500,000 and (ii) a whole number multiple of
$500,000 in excess thereof unless the availability under this Agreement is less
than $500,000 in which case such Advance shall equal such amount; PROVIDED,
HOWEVER, that there shall be no minimum Advance with respect to any Letter of
Credit Obligations to be incurred pursuant to Section 2.2. Each such notice (a
"Notice of Advance") shall be in writing in substantially the form of Exhibit A
hereto, executed by any duly authorized officer of Borrower, specifying therein
the requested date and amount of such Advance. Lender shall, before 5:00 P.M.
(New York City time) on the date of the proposed
7
<PAGE>
Advance, upon fulfillment of the applicable conditions set forth in Section 3,
wire to a bank in the United States or the United Kingdom designated by Borrower
and reasonably acceptable to Lender the amount of such Advance.
(b) NOTE. The Loan made by Lender shall be evidenced by a promissory note to be
executed and delivered by Borrower at or prior to the Closing Date, the form of
which is attached hereto and made a part hereof as Exhibit B (the "Note"). The
Note shall be payable to the order of Lender and shall represent the obligation
of Borrower to pay the amount of the Loan, with interest thereon as prescribed
in Section 2.4. The date and amount of each Advance and each payment of
principal and interest or any capitalization of interest with respect thereto
shall be recorded on the books and records of Lender, which books and records
shall constitute PRIMA FACIE evidence of the accuracy of the information therein
recorded. Borrower acknowledges that, (i) as of the date hereof, the amount
outstanding under the Restated Loan Agreement is $10,752,555, (ii) the principal
amount outstanding under the Other Loan Agreements is $12,500,000; (iii) the
amount of accrued and unpaid interest outstanding as of the date hereof under
the Restated Loan Agreement and the Other Loan Agreements is $12,500,000;
(iv) that such amount constitutes the amount outstanding under this Agreement as
of the date hereof, and (v) that the amount of the Loan shall be increased by
the amount of any payments on or pursuant to any Letter of Credit Obligations,
regardless of the date of such payments. The entire unpaid balance of the Loan
and all other Obligations shall be due and payable on the Repayment Date.
(c) TERMINATION OF OTHER LOAN AGREEMENTS. This Agreement shall supersede
and the Lender and Borrower agree that the other Loan Agreement are hereby
terminated.
2.2. LETTERS OF CREDIT. (a) Lender shall, subject to the terms and
conditions hereinafter set forth, (i) incur Letter of Credit Obligations in
respect of the issuance, on the Closing Date, of such Letters of Credit
supporting obligations of Borrower or its Subsidiaries, as Borrower shall
request by written notice to Lender executed by any duly authorized officer of
Borrower, which is received by Lender not less than 2 Business Days prior to the
Closing Date, and (ii) incur from time to time on written request of Borrower or
its Subsidiaries, additional Letter of Credit Obligations in respect of Letters
of Credit supporting obligations of Borrower or its Subsidiaries; PROVIDED,
HOWEVER, that no such Letter of Credit shall have an expiry date which is after
September 30, 1998. It is understood that the determination of the bank or
other legally authorized Person (including Lender) which shall issue or accept,
as the case may be, any letter of credit or bankers acceptance contemplated by
this Section 2.2(a) shall be made by Lender, in its sole discretion.
(b) In the event that Lender shall make any payment on or pursuant to any
Letter of Credit Obligation, such payment shall then be deemed to constitute an
Advance under Section 2.1(a) hereof (whether or not Borrower is then permitted
to request Advances at such time).
8
<PAGE>
(c) In the event that Lender shall incur any Letter of Credit Obligations
pursuant hereto at the request or on behalf of Borrower hereunder, Borrower
shall pay to Lender, as compensation to Lender for such Letter of Credit
Obligation, all fees and charges paid by Lender on account of such Letter of
Credit Obligation to the issuer or like party. Fees payable in respect of
Letter of Credit Obligations shall be paid to Lender, in arrears, on the first
day of each month for the preceding month.
2.3. USE OF PROCEEDS. Borrower shall apply the proceeds of the Advances
for the general corporate purposes of Borrower and its Subsidiaries.
2.4. INTEREST ON LOAN . (a) (i) From the Closing Date through and
including the Commitment Termination Date, interest accrues on the amount
outstanding from time to time under the Loan at the rate of eleven and one-half
percent (11-1/2%) per annum, calculated on the basis of a 360 day year for the
number of days elapsed. Interest will be capitalized on June 30, of each year
of the Loan and shall be added to the principal amount outstanding at such time
under the Loan.
(ii) Interest accrued and uncapitalized on the Repayment Date shall be
payable on such date.
(b) So long as any Event of Default shall be continuing, the interest rate
applicable to the Loan shall be increased by 3% per annum above the rate
otherwise applicable.
(c) Notwithstanding anything to the contrary set forth in this Section 2.4, if
at any time until payment in full of all of the Obligations, the applicable rate
of interest under this Agreement exceeds the highest rate of interest
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in
such event and so long as the Maximum Lawful Rate would be so exceeded, the rate
of interest payable hereunder shall be equal to the Maximum Lawful Rate;
PROVIDED, HOWEVER, that if at any time thereafter the applicable rate of
interest under this Agreement is less than the Maximum Lawful Rate, Borrower
shall continue to pay interest hereunder at the Maximum Lawful Rate until such
time as the total interest received by Lender from the making of advances
hereunder is equal to the total interest which Lender would have received had
the applicable rate of interest under this Agreement been (but for the operation
of this paragraph) the interest rate payable since the Closing Date.
Thereafter, the interest rate payable hereunder shall be the applicable rate of
interest under this Agreement, unless and until such rate shall again exceed the
Maximum Lawful Rate, in which event this paragraph shall again apply.
2.5. PREPAYMENTS. (a) Upon the Lender ceasing to be the beneficial owner of
more than 50% of
9
<PAGE>
the Borrower's Common Stock as a result of any transaction except the direct or
indirect transfer of the Common Stock of Borrower by Lender, the commitment of
Lender to make Advances under this Agreement shall immediately terminate, and
Borrower shall immediately pay to Lender the full amount of the Loan then
outstanding, together with any accrued but uncapitalized interest thereon.
(b) Borrower shall have the right, at any time, to prepay the Loan, in whole or
in part, without premium or penalty, upon at least three Business Days
irrevocable notice to Lender specifying (i) the amount to be repaid and (ii) the
date of such repayment. If any such notice is given, Borrower shall make the
prepayment specified therein, and such prepayment shall be due and payable as
specified therein. Amounts prepaid may be reborrowed, but only so long as
Lender retains beneficial ownership of more than 50% of Borrower's Common Stock.
Each partial prepayment of the Loan pursuant to this Section 2.5(b) shall be in
an amount equal to the lesser of $1,650,000 or a whole number multiple of
$1,650,000 in excess thereof or such lesser amount outstanding and shall be
accompanied by payment of interest (whether or not capitalized) allocable to the
amount of principal prepaid.
(c) Borrower will make mandatory principal prepayments (i) at the rate of
$500,000 per month beginning July 1, 2001; and (ii) at the rate of $1,000,000
per month beginning July 1, 2002 and ended May 1, 2003 ("Scheduled Prepayment")
or, if less, the amount of the Loan Outstanding..
(d) The Company will make additional prepayments of principal at the rate of
50% of the net proceeds of a Significant Financing exceeding $8,000,000 on the
second business day following the date the Borrower completes a Significant
Financing ("Mandatory Prepayments"). Concurrently with each Mandatory
Prepayment, the Borrower will pay interest (whether or not capitalized)
associated with such Mandatory Prepayment.
2.6. RECEIPT OF PAYMENTS. Borrower shall make each payment under this
Agreement not later than 11:00 A.M. (New York City time) on the day when due in
lawful money of the United States of America in immediately available funds to
Lender's depositary bank as designated by Lender from time to time for deposit
in Lender's depositary account. For purposes only of computing interest
hereunder, all payments shall be applied by Lender on the day payment has been
credited by Lender's depository bank to Lender's account in immediately
available funds. For purposes of determining the amount of funds available for
borrowing by Borrower pursuant to Section 2.1(a) hereof, such payments shall be
applied by Lender against the outstanding amount of the Loan at the time they
are credited to its account.
2.7. APPLICATION OF PAYMENTS. Borrower irrevocably waives the right to direct
the application of any and all payments at any time or times hereafter received
by Lender from or on behalf of Borrower, and Borrower irrevocably agrees that
Lender shall have the continuing exclusive right
10
<PAGE>
to apply any and all such payments against the then due and payable Obligations
of Borrower and in repayment of the Loan as Lender may deem advisable. Lender
is authorized to, and at its option may, make advances on behalf of Borrower for
payment of all fees, expenses, charges, costs, principal and interest incurred
by Borrower hereunder when and as Borrower fails to promptly pay any such
amounts. At Lender's option and to the extent permitted by law, any advances so
made may be deemed Advances constituting part of the Loan hereunder.
2.8. ACCOUNTING. Lender will, upon Borrower's request, provide a monthly
accounting of transactions under the Loan to Borrower within 10 days of the end
of the month. Each and every such accounting shall (absent manifest error) be
deemed final, binding and conclusive upon Borrower in all respects as to all
matters reflected therein, unless Borrower, within 20 days after the date any
such accounting is rendered, shall notify Lender in writing of any objection
which Borrower may have to any such accounting, describing the basis for such
objection with specificity. In that event, only those items expressly objected
to in such notice shall be deemed to be disputed by Borrower. Lender's
determination, based upon the facts available, of any item objected to by
Borrower in such notice shall (absent manifest error) be final, binding and
conclusive on Borrower, unless Borrower shall commence a judicial proceeding to
resolve such objection within 45 days following Lender's notifying Borrower of
such determination.
2.9. INDEMNITY. Borrower shall indemnify and hold Lender and its officers,
directors, employees, agents, Affiliates and shareholders (collectively, the
"Indemnified Persons") harmless from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable attorneys' fees and disbursements, including
those incurred upon any appeal) which may be instituted or asserted against or
incurred by any Indemnified Person as the result of the execution of the Loan
Documents or extension of credit hereunder; PROVIDED, HOWEVER, that Borrower
shall not be liable for such indemnification to such Indemnified Person to the
extent that any such suit, action, proceeding, claim, damage, loss, liability or
expense results from such Indemnified Person's negligence or willful misconduct.
2.10. ACCESS. Lender and any of its officers, employees and/or agents shall
have the right, exercisable as frequently as Lender determines to be
appropriate, during normal business hours (or at such other times as may
reasonably be requested by Lender), to inspect the properties and facilities of
Borrower and to inspect, audit and make extracts from all of Borrower's records,
files and books of account. Borrower shall deliver any document or instrument
reasonably necessary for Lender, to obtain records from any service bureau
maintaining records for Borrower, and shall maintain duplicate records or
supporting documentation on media, including, without limitation, computer tapes
and discs owned by Borrower. Borrower shall instruct its banking and other
financial institutions to make available to Lender such information and records
as Lender may reasonably request.
11
<PAGE>
2.11. TAXES. (a) Any and all payments by Borrower hereunder or under the
Note shall be made, in accordance with this Section 2.11, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on or measured by the net income of Lender by the
jurisdiction under the laws of which Lender is organized or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If Borrower shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder or under the Note to Lender, (i) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.11) Lender receives an amount equal to the sum it would have received had no
such deductions been made, (ii) Borrower shall make such deductions, and
(iii) Borrower shall pay the full amount deducted to the relevant taxing or
other authority in accordance with applicable law.
(b) In addition, Borrower shall pay any present or future stamp or documentary
taxes or any other sales, transfer, excise, mortgage recording or property
taxes, charges or similar levies that arise from any payment made hereunder or
under the Note or from the execution, sale, transfer, delivery or registration
of, or otherwise with respect to the Loan Documents and any other agreements and
instruments contemplated thereby (hereinafter referred to as "Other Taxes").
(c) Borrower shall indemnify Lender for the full amount of Taxes or Other Taxes
(including without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.11) paid by Lender and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within 30 days from the
date such Lender makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, Borrower shall
furnish to Lender, at its address referred to in Section 11.10, the original or
a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower contained in this Section
2.11 shall survive both (i) the payment in full of principal and interest
hereunder and under the Note and (ii) the termination of this Agreement.
3. CONDITIONS PRECEDENT
3.1. CONDITIONS TO THE EFFECTIVENESS. Notwithstanding any other provision of
this Agreement and
12
<PAGE>
without affecting in any manner the rights of Lender under the Restated Loan
Agreement or other Loan Agreements, this Agreement shall not be effective, and
Borrower shall have no rights under this Agreement, and Lender shall not be
obligated to make available any Advance or Letter of Credit hereunder, unless
and until Borrower shall have delivered to Lender, in form and substance
satisfactory to Lender and (unless otherwise indicated) each dated not later
than the Closing Date:
(a) The Note to the order of Lender duly executed by Borrower.
(b) Resolutions of the board of directors of Borrower certified by the
Secretary or Assistant Secretary of Borrower, as of the Closing Date, to be duly
adopted and in full force and effect on such date, authorizing (i) the
consummation of each of the transactions contemplated by the Loan Documents and
(ii) specific officers to execute and deliver this Agreement and the other Loan
Documents.
(c) A certificate of the chief executive officer of Borrower stating
that all of the representations and warranties of the Borrower contained herein
or in any of the Loan Documents are correct on and as of the Closing Date as
though made on and as of such date, and no event has occurred and is continuing,
or would result from any Advance, if made on the Closing Date, which constitutes
or would constitute a Default or an Event of Default.
(d) Certificates of the Secretary or an Assistant Secretary of Borrower, dated
the Closing Date, as to the incumbency and signatures of the officers of
Borrower executing any of the Loan Documents and any other certificate or other
document to be delivered pursuant hereto or thereto, together with evidence of
the incumbency of such Secretary or Assistant Secretary.
(e) Such additional information and materials as Lender may reasonably request,
including, without limitation, copies of any debt agreements, security
agreements and other material contracts.
3.2. FURTHER CONDITIONS TO EACH ADVANCE AND LETTER OF CREDIT . It shall be a
further condition to the funding of each subsequent Advance and incurrence of
Letter of Credit Obligations that the following statements shall be true on the
date of each such Advance or incurrence:
(a) All of the representations and warranties of Borrower contained
herein or in any of the Loan Documents shall be correct on and as of the Closing
Date and the date of each such Advance as though made on and as of such date,
except to the extent that any such representation or warranty expressly relates
to an earlier date and for changes therein permitted or contemplated by this
Agreement.
(b) No event shall have occurred and be continuing, or would result from
the funding of any Advance, which constitutes or would constitute a Default or
an Event of Default.
13
<PAGE>
(c) The aggregate principal amount of the Advances made to Borrower
hereunder after giving effect to such Advance, plus the aggregate amount of all
outstanding Letter of Credit Obligations (whether or not then due or payable),
shall not exceed $29,500,000.
The acceptance by Borrower of the proceeds of any Advance or the incurrence by
Lender of Letter of Credit Obligations shall be deemed to constitute, as of the
date of such acceptance, a representation and warranty by Borrower that the
conditions in this Section 3.2 have been satisfied.
4. REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loan, as herein provided for, Borrower makes the
following representations and warranties to Lender, each and all of which shall
be true and correct as of the date of execution and delivery of this Agreement:
4.1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW . Borrower and each Subsidiary
of Borrower (i) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation; (ii) except as indicated
on Schedule 4.1(ii) hereto, is duly qualified to do business and is in good
standing under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification (except for
jurisdictions in which such failure to so qualify or to be in good standing
would not have a Material Adverse Effect); (iii) has the requisite corporate
power and authority and the legal right to own, pledge, mortgage or otherwise
encumber and operate its properties, to lease the property it operates under
lease, and to conduct its business as now, heretofore and proposed to be
conducted; (iv) except as indicated on Schedule 4.1(iv) hereto, has all material
licenses, permits, consents or approvals from or by, and has made all material
filings with, and has given all material notices to, all Governmental
Authorities having jurisdiction, to the extent required for such ownership,
operation and conduct; (v) is in compliance with its certificate of
incorporation and by-laws; and (vi) is in compliance with all applicable
provisions of law where the failure to comply would have a Material Adverse
Effect.
4.2. EXECUTIVE OFFICES . The location of Borrower's executive offices and
principal place of business is set forth in Schedule 4.2 hereto, and, after the
Closing Date, as set forth in a written amendment thereto delivered by Borrower
to Lender.
4.3. SUBSIDIARIES. There exist no Subsidiaries of Borrower other than (a) as
set forth on Schedule 4.3 hereto, which sets forth such Subsidiaries, together
with their respective jurisdictions of organization, and the authorized and
outstanding capital Stock of each such Subsidiary, by class and number and
percentage of each class legally owned by Borrower or a Subsidiary of Borrower
or any other Person, or to be owned by the Closing Date or (b) after the Closing
Date, as set forth
14
<PAGE>
in a written amendment to Schedule 4.3 delivered by Borrower to Lender. There
are no options, warrants, rights to purchase or similar rights covering capital
Stock for any such Subsidiary.
4.4. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The execution,
delivery and performance by Borrower of the Loan Documents, Ancillary Agreements
and all instruments and documents to be delivered by Borrower, to the extent it
is a party thereto, hereunder and thereunder: (i) are within Borrower's
corporate power; (ii) have been duly authorized by all necessary or proper
corporate action; (iii) are not in contravention of any provision of Borrower's
certificates or articles of incorporation or by-laws; (iv) will not violate any
law or regulation, or any order or decree of any court or governmental
instrumentality in any material respect; (v) will not conflict with or result in
the breach or termination of, constitute a default under or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which Borrower or any of its Subsidiaries is a
party or by which Borrower or any of its Subsidiaries or any of their respective
properties is bound; (vi) will not result in the creation or imposition of any
Lien upon any of the property of Borrower or any of its Subsidiaries; and
(vii) do not require the consent or approval of any Governmental Authority or
any other Person. Each of the Loan Documents has been duly executed and
delivered for the benefit of or on behalf of Borrower and each constitutes a
legal, valid and binding obligation of Borrower, to the extent it is a party
thereto, enforceable against it in accordance with its terms.
4.5. SOLVENCY. After giving pro forma effect to the Preferred Stock Purchase
and Termination and Release and the initial Advance, if made on the Closing
Date, and the payment of all estimated legal, accounting and other fees related
hereto, Borrower will be Solvent as of and on the Closing Date.
4.6 LABOR MATTERS. There are no strikes or other labor disputes against
Borrower pending or, to Borrower's knowledge, threatened which would have a
Material Adverse Effect.
4.7 INVESTMENT COMPANY ACT. Neither Borrower nor any of its Subsidiaries is
an "investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company", as such terms are defined
in the Investment Company Act of 1940, as amended. The making of the Advances
by Lender, the application of the proceeds and repayment thereof by Borrower and
the consummation of the transactions contemplated by this Agreement and the
other Loan Documents will not violate any provision of such Act or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder.
4.8 MARGIN REGULATIONS. Neither Borrower nor any of its Subsidiaries owns
any "margin security," as that term is defined in Regulations G and U of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
and the proceeds of the Advances will be used only for the purposes contemplated
hereunder. The Advances will not be used, directly or indi-
15
<PAGE>
rectly, for the purpose of purchasing or carrying any margin security, for the
purpose of reducing or retiring any indebtedness which was originally incurred
to purchase or carry any margin security or for any other purpose which might
cause any of the loans under this Agreement to be considered a "purpose credit"
within the meaning of Regulations G, T, U or X of the Federal Reserve Board.
Borrower will not take or permit any Subsidiary or agent acting on its behalf to
take any action which might cause this Agreement or any document or instrument
delivered pursuant hereto to violate any regulation of the Federal Reserve
Board.
4.9 NO LITIGATION. Except as set forth on Schedule 4.9 hereto, no action,
claim or proceeding is now pending or, to the knowledge of Borrower, threatened
against Borrower or any of its Subsidiaries at law, in equity or otherwise,
before any court, board, commission, agency or instrumentality of any federal,
state, or local government or of any agency or subdivision thereof, or before
any arbitrator or panel of arbitrators, which, if determined adversely, could
have a Material Adverse Effect, nor to the knowledge of Borrower does a state of
facts exist which is reasonably likely to give rise to such proceedings.
4.10 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES. Borrower and each of its
Subsidiaries owns all material patents, patent applications, copyrights,
trademarks, trademark applications, and know-how (collectively, "Intangible
Property") necessary to continue to conduct its business as heretofore conducted
by it, now conducted by it and proposed to be conducted by it, each of which is
listed, together with Patent and Trademark Office application or registration
numbers, where applicable, on Schedule 4.11(a) hereto. Further, (i) Borrower
and each of its Subsidiaries has good and lawful title to the Intangible
Property owned by it (subject to the licenses set forth on Schedule 4.11(d)
hereto); (ii) to Borrower's knowledge, the Intangible Property is valid and
subsisting and is enforceable; (iii) to Borrower's knowledge, there are no
actual or threatened claims by third parties regarding the Intangible Property;
(iv) to Borrower's knowledge, the Intangible Property does not infringe or
otherwise violate any rights of any third party, except where any violation or
infringement would not have a Material Adverse Effect.
4.11 NO MATERIAL ADVERSE EFFECT. No event has occurred and is continuing
which has had or could have a Material Adverse Effect.
5. FINANCIAL STATEMENTS AND INFORMATION
5.1. REPORTS AND NOTICES. Borrower covenants and agrees that from and after
the Closing Date and until the Commitment Termination Date, it shall deliver to
Lender:
(a) Within 45 days after the end of each fiscal month, (i) a copy of
the unaudited consolidated balance sheets of Borrower as of the end of such
month and the related statements of income and cash flows for that portion of
the Fiscal Year ending as of the end of
16
<PAGE>
such month, and (ii) a copy of the unaudited consolidated statements of income
of Borrower for such month, all prepared in accordance with GAAP (subject to
normal year-end adjustments), accompanied by the certification of the chief
executive officer or chief financial officer of Borrower that all such financial
statements are complete and correct and present fairly in accordance with GAAP
(subject to normal year-end adjustments), the financial position, the results of
operations and the statements of cash flows of Borrower as at the end of such
month and for the period then ended, and that there was no Default or Event of
Default in existence as of such time.
(b) As soon as practicable, but in any event within two (2) Business Days
after Borrower becomes aware of the existence of any Default or Event of
Default, or any development or other information which would have a Material
Adverse Effect, telephonic or telegraphic notice specifying the nature of such
Default or Event of Default or development or information, including the
anticipated effect thereof, which notice shall be promptly confirmed in writing
within five (5) days.
(c) If requested by Lender, copies of all federal, state, local and foreign
tax returns and reports in respect of income, franchise or other taxes on or
measured by income (excluding sales, use or like taxes) filed by Borrower or any
of its Subsidiaries.
(d) Such other information respecting Borrower's or its Subsidiaries'
business (including with respect to orders received and inventory purchased),
financial condition or prospects as Lender may, from time to time, reasonably
request.
5.2. COMMUNICATION WITH ACCOUNTANTS. Borrower authorizes Lender to
communicate directly with its (or any of its Subsidiaries') independent
certified public accountants and tax advisors and authorizes those accountants
to disclose to Lender any and all financial statements and other supporting
financial documents and schedules including copies of any management letter with
respect to the business, financial condition and other affairs of Borrower or
any of its Subsidiaries. At Lender's request, Borrower shall deliver a letter
addressed to such accountants and tax advisors instructing them to comply with
the provisions of this Section 5.2.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, unless Lender shall otherwise consent in
writing, from and after the date hereof and until the Repayment Date:
6.1. MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS. Borrower shall:
(a) do or cause to be done all things necessary to preserve and keep in full
force and effect the corporate existence, and the rights and franchises of
Borrower and each of its Subsidiaries; (b) transact business on
17
<PAGE>
behalf of itself or any Subsidiary only in such names as Borrower shall specify
to Lender in writing not less than thirty days prior to the first date such name
is used by Borrower and (c) at all times maintain, preserve and protect all of
its Trademarks and any tradenames.
6.2. PAYMENT OF OBLIGATIONS. (a) Borrower shall: (i) pay and discharge or
cause to be paid and discharged all its and its Subsidiaries' Indebtedness,
including, without limitation, all the Obligations as and when due and payable,
and (ii) pay and discharge or cause to be paid and discharged promptly all
(A) Charges imposed upon it, its income and profits, or any of its property
(real, personal or mixed), and (B) lawful claims for labor, materials, supplies
and services or otherwise before any thereof shall become in default.
(b) Borrower, on behalf of itself or any Subsidiary, may in good faith
contest, by proper legal actions or proceedings diligently pursued, the validity
or amount of any Charges or claims arising under Section 6.2(a)(ii), provided
that at the time of commencement of any such action or proceeding, and during
the pendency thereof (i) adequate reserves with respect thereto are maintained
on the books of Borrower, in accordance with GAAP; (ii) such contest operates to
suspend collection of the contested Charges or claims and is maintained and
prosecuted continuously with diligence; (iii) no Lien shall exist for such
Charges or claims during such action or proceeding; (iv) Borrower shall promptly
pay or discharge such contested Charges and all additional charges, interest,
penalties and expenses, if any, and shall deliver to Lender evidence acceptable
to Lender of such compliance, payment or discharge, if such contest is
terminated or discontinued adversely to Borrower; and (v) Lender has not advised
Borrower in writing that Lender reasonably believes that nonpayment or
nondischarge thereof would have a Material Adverse Effect.
(c) Notwithstanding anything to the contrary contained in Section 6.2(b)
above, Borrower shall have the right to pay the charges or claims arising under
Section 6.2(a)(ii) and in good faith contest, by proper legal actions or
proceedings, the validity or amount of such charges or claims.
6.3 BOOKS AND RECORDS. Borrower shall keep, and shall cause its Subsidiaries
to keep, all books, accounts and records in the ordinary course of business.
6.4 LITIGATION. Borrower shall notify Lender in writing, promptly upon
learning thereof, of any litigation commenced against Borrower or any of its
Subsidiaries, and of the institution against any of them of any suit or
administrative proceeding that may have a Material Adverse Effect.
6.5 INSURANCE. Borrower shall maintain insurance covering, without
limitation, fire, theft, burglary, public liability, property damage, product
liability and insurance on all property and assets of Borrower and its
Subsidiaries, all in amounts customary for its business and in any event with a
lender's loss payable clause for the benefit of Lender.
18
<PAGE>
6.6 COMPLIANCE WITH LAW. Borrower shall, and shall cause its Subsidiaries
to, comply in all material respects with all federal, state and local laws and
regulations applicable to it.
6.7 SUPPLEMENTAL DISCLOSURE. From time to time as may be necessary (in the
event that such information is not otherwise delivered by Borrower to Lender
pursuant to this Agreement), so long as there are Obligations outstanding
hereunder, Borrower will supplement each Schedule (if any) or representation
herein with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in such Schedule or as an exception to such representation or
which is necessary to correct any information in such Schedule or representation
which has been rendered inaccurate thereby; PROVIDED, HOWEVER, that such
supplement to such Schedule or representation shall not be deemed an amendment
thereof unless otherwise consented to by the Lender.
6.8 NET WORTH. Borrower shall maintain at all times, on a consolidated
basis with its Subsidiaries, a Net Worth of not less than $20 million.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, without Lender's prior written
consent, from and after the date hereof and until the Repayment Date:
7.1. MAINTENANCE OF BUSINESS. Borrower shall not and shall not permit any of
its subsidiaries to engage in any business other than the business currently
engaged in by Borrower or such Subsidiary.
7.2. TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 7.2(b),
Borrower shall not, and shall not permit any of its Subsidiaries to, enter into
or be a party to any transaction with any Affiliate of Borrower, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's or
such Subsidiary's business and upon fair and reasonable terms that are fully
disclosed to Lender and are no less favorable to Borrower or such Subsidiary
than would be obtained in a comparable arm's-length transaction with a Person
not an Affiliate of Borrower.
7.3. EVENTS OF DEFAULT. Borrower shall not, and shall not permit any of its
Subsidiaries to, take or omit to take any action, which act or omission would
constitute (i) a default or an event of default pursuant to, or noncompliance
with any of, the terms of any of the Loan Documents or (ii) a material default
or an event of default pursuant to, or noncompliance with any other contract,
lease, mortgage, deed of trust or instrument to which it is a party or by which
it or any of its property is bound, or any document creating a Lien, unless such
default, event of default or non-compliance would not have a Material Adverse
Effect.
8. TERM
19
<PAGE>
8.1 TERMINATION . Subject to the provisions of Section 2 hereof, the
financing arrangement contemplated hereby in respect of the Loan shall be in
effect until the Commitment Termination Date.
8.2 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF FINANCING ARRANGEMENT .
Except as otherwise expressly provided for in the Loan Documents, no termination
or cancellation (regardless of cause or procedure) of any financing arrangement
under this Agreement shall in any way affect or impair the powers, obligations,
duties, rights and liabilities of Borrower or the rights of Lender relating to
any transaction or event occurring prior to such termination. Except as
otherwise expressly provided herein or in any other Loan Document, all
undertakings, agreements, covenants, warranties and representations contained in
the Loan Documents shall survive such termination or cancellation and shall
continue in full force and effect until such time as all of the Obligations have
been paid in full in accordance with the terms of the agreements creating such
Obligations, at which time the same shall terminate.
20
<PAGE>
9. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
9.1. EVENTS OF DEFAULT . The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder:
(a) Borrower shall fail to make any payment of principal of, or interest
on or any other amount owing in respect of, the Loan or any of the other
Obligations when due and such failure continues for a period of five (5) days.
(b) Borrower shall fail or neglect to perform, keep or observe any of
the provisions of Section 6.8 or Section 7 hereof.
(c) Borrower shall fail or neglect to perform, keep or observe any other
provision of this Agreement or of any of the other Loan Documents and the same
shall remain unremedied for a period ending on the first to occur of twenty (20)
days after Borrower shall receive written notice of any such failure from any
Lender or forty five (45) days after Borrower shall become aware thereof.
(d) A default shall occur under any other agreement, document or
instrument to which Borrower or any of its Subsidiaries is a party or by which
Borrower's or any of its Subsidiaries' property is bound, and such default
causes (or permits any holder of such Indebtedness or a trustee to cause) such
Indebtedness or a portion thereof in an aggregate amount exceeding $250,000 to
become due prior to its stated maturity or prior to its regularly scheduled
dates of payment.
(e) Any representation or warranty herein or in any Loan Document or in any
written statement pursuant thereto or hereto, report, financial statement or
certificate made or delivered to Lender by Borrower shall be untrue or incorrect
in any material respect, as of the date when made or deemed made (including
those made or deemed made pursuant to Section 3.2).
(f) Any of the assets of Borrower or any of its Subsidiaries shall be
attached, seized, levied upon or subjected to a writ or distress warrant, or
come within the possession of any receiver, trustee, custodian or assignee for
the benefit of creditors of Borrower or any Subsidiary of Borrower and shall
remain unstayed or undismissed for thirty (30) consecutive days; or any Person
other than Borrower shall apply for the appointment of a receiver, trustee or
custodian for any of the assets of Borrower or any Subsidiary of Borrower and
shall remain unstayed or undismissed for thirty (30) consecutive days; or
Borrower or any Subsidiary of Borrower shall have concealed, removed or
permitted to be concealed or removed, any part of its property, with intent to
hinder, delay or defraud its creditors or any of them or made or suffered a
transfer of any of its property or the incurring of an obligation which may be
fraudulent under any bankruptcy, fraudulent
21
<PAGE>
conveyance or other similar law.
(g) A case or proceeding shall have been commenced against Borrower or
any Subsidiary of Borrower in a court having competent jurisdiction seeking a
decree or order in respect of Borrower or any Subsidiary of Borrower (i) under
title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal, state or foreign bankruptcy or other similar law,
(ii) appointing a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of Borrower or any Subsidiary of Borrower or
of any substantial part of its or their properties, or (iii) ordering the
winding-up or liquidation of the affairs of Borrower or any Subsidiary of
Borrower and such case or proceeding shall remain undismissed or unstayed for
thirty (30) consecutive days or such court shall enter a decree or order
granting the relief sought in such case or proceeding.
(h) Borrower or any Subsidiary of Borrower shall (i) file a petition
seeking relief under title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal, state or foreign bankruptcy
or other similar law, (ii) consent to the institution of proceedings thereunder
or to the filing of any such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of Borrower or any Subsidiary of Borrower or
of any substantial part of its or their properties, (iii) fail generally to pay
its debts as such debts become due, or (iv) take any corporate action in
furtherance of any such action.
9.2. REMEDIES. If any Event of Default specified in Section 9.1 shall have
occurred and be continuing, Lender may, by written notice to Borrower and the
lender with respect to any Senior Debt (the "Senior Lender") declare all
Obligations to be forthwith due and payable, whereupon all such Obligations,
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived by Borrower, shall become due and payable (x) if none of
the Senior Debt is outstanding, immediately and (y) if any Senior Debt is
outstanding, upon the first to occur of (1) acceleration of any Senior Debt or
(2) the fifth Business Day after receipt by Borrower and the Senior Lender of
such written notice given hereunder, unless on or prior to the date such amounts
become due and payable Borrower shall have cured the default, event or condition
resulting in such Event of Default and no other Event of Default is then
continuing and Borrower shall have given notice of such cure to Agent and
Lenders; PROVIDED, HOWEVER, that upon the occurrence of an Event of Default
specified in Section 9.1(f), (g) or (h) hereof, such Obligations shall become
due and payable without declaration, notice or demand by Lender.
Notwithstanding the above, at any time after such declaration of acceleration
has been made and before payment in full of the Obligations, Lender, by written
notice to Borrower, may rescind and annul such declaration and its consequences
if all Events of Default, other than the non-payment of principal of the Loan
which has become due solely by such declaration of acceleration, have been cured
or waived.
22
<PAGE>
9.3. WAIVERS BY BORROWER. Except as otherwise provided for in this Agreement
and applicable law, Borrower waives (i) presentment, demand and protest and
notice of presentment, dishonor, notice of intent to accelerate, notice of
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties at any
time held by Lender on which Borrower may in any way be liable and hereby
ratifies and confirms whatever Lender may do in this regard, (ii) all rights to
notice and a hearing prior to Lender's taking possession or control of, or to
Lender's replevy, attachment or levy upon, any bond or security which might be
required by any court prior to allowing Lender to exercise any of its remedies,
and (iii) the benefit of all valuation, appraisal and exemption laws. Borrower
acknowledges that it has been advised by counsel of its choice with respect to
this Agreement, the other Loan Documents and the transactions evidenced by this
Agreement and the other Loan Documents.
9.4 RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any
Event of Default, Lender is hereby authorized at any time and from time to time,
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by Lender to or for the credit or
the account of Borrower against any and all of the obligations of Borrower now
or hereafter existing under this Agreement, and the Note held by Lender
irrespective of whether or not Lender shall have made any demand under this
Agreement or such Note and although such obligations may be unmatured. Lender
agrees promptly to notify Borrower after any such set-off and application made
by Lender; PROVIDED, HOWEVER, that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of Lender under
this Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which Lender may have.
10. SUBORDINATION
10.1. LOAN SUBORDINATED TO SENIOR INDEBTEDNESS. Borrower covenants and
agrees, and Lender likewise covenants and agrees, that all payments of the
principal of (and premium, if any), and interest on, the Loan and all other
Obligations by Borrower pursuant to this Agreement (collectively the
"Subordinated Indebtedness") shall be subordinated in accordance with the
provisions of this Section 10 to the prior payment in full of all Senior
Indebtedness of Borrower. For purposes of this Section 10, the term "Senior
Indebtedness" shall mean the Senior Debt of Borrower and shall include principal
of and premium, if any, and interest (including interest accruing at the rate
provided for in the documents evidencing such Senior Indebtedness after the
commencement of any proceeding of the type referred to in Section 10.2(a)
hereof, whether or not an allowed claim in such proceeding) on all loans and
other extensions of credit under, and all expenses, fees, reimbursements,
indemnities and other amounts owing pursuant to, all such Senior Debt of the
Borrower.
23
<PAGE>
10.2 PRIORITY AND PAYMENT OVER OF PROCEEDS IN CERTAIN EVENTS. (a) Upon
payment or distribution of assets or securities of Borrower of any kind or
character, whether in cash, property or securities, upon any dissolution or
winding up or total or partial liquidation or reorganization of Borrower,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings or upon an assignment for the benefit of creditors or any
other marshalling of the assets and liabilities of Borrower, all Senior
Indebtedness shall first be paid in full in cash, or payment provided for in
cash or cash equivalents in a manner satisfactory to the holders of Senior
Indebtedness, before any direct or indirect payments or distributions,
including, without limitation, by exercise of set-off, of any cash, property or
securities on account of principal of (or premium, if any) or interest on the
Subordinated Indebtedness and to that end the holders of Senior Indebtedness
shall be entitled to receive (pro rata on the basis of the respective amounts of
Senior Indebtedness held by them) directly, for application to the payment
thereof (to the extent necessary to pay all Senior Indebtedness in full after
giving effect to any substantially concurrent payment or distribution to or
provision for payment to the holders of such Senior Indebtedness), any payment
or distribution of any kind or character, whether in cash, property or
securities, in respect of the Subordinated Indebtedness. The holders of Senior
Indebtedness are hereby authorized to file an appropriate claim for and on
behalf of Lender if they or any of them do not file, and there is not otherwise
filed on behalf of the Holders, a proper claim or proof of claim in the form
required in any such proceeding prior to 30 days before the expiration of the
time to file such claim or claims.
(b) No direct or indirect payment by or on behalf of Borrower of principal of
(premium, if any), or interest on, the Loan, whether pursuant to the terms of
this Agreement, upon acceleration or otherwise, shall be made if at the time of
such payment there exists (i) a default in the payment of all or any portion of
principal of (premium, if any), interest on, fees or other amounts owing in
connection with any Senior Indebtedness, or (ii) any other default or event of
default under any document or instrument evidencing the Senior Indebtedness as
the same may be amended, modified or otherwise refinanced (and Lender has
received notice thereof from the agent for or representative of the holders of a
majority of the outstanding principal amount of the Senior Indebtedness (the
"Representative") as provided below), and in either case such default or event
of default shall not have been cured or waived in writing; PROVIDED, HOWEVER,
that if within the period specified in the next sentence with respect to a
default or event of default referred to in clause (ii) above, the holders of
Senior Indebtedness have not declared the Senior Indebtedness to be immediately
due and payable (or have declared such Senior Indebtedness to be immediately due
and payable and within such period have rescinded such acceleration), then and
in that event, payment of principal of, and interest on, the Loan shall be
resumed. With respect to any default or event of default under clause (ii)
above the period referred to in the preceding sentence shall commence upon
receipt by Lender of a written notice or notices (which shall specify all
defaults and events of default existing under such documents or instruments on
the date of such notice and of which the Representative, whichever is giving
such notice, had actual knowledge at such time)
24
<PAGE>
of the commencement of such period from the Representative, and shall end at the
completion of the 180th day after the beginning of such period. Only one such
180 day period may commence within any 360 consecutive days. Upon termination
of any such period, Borrower shall resume payments on account of the principal
of (premium, if any), and interest on, the Loan, and on account of all other
Subordinated Indebtedness, subject to the provisions of Sections 10.1 and 10.2
hereof.
(c) (i) In the event that, notwithstanding the foregoing
provision prohibiting such payment or distribution, Lenders shall
have received any payment on account of the Subordinated
Indebtedness at a time when such payment is prohibited by such
provision before the Senior Indebtedness is paid in full, then and
in such event, such payment or distribution shall be received and
held in trust by Lender apart from its other assets and paid over or
delivered to the holders of the Senior Indebtedness remaining unpaid
to the extent necessary to pay in full in cash the principal of
(premium, if any), and interest on, such Senior Indebtedness in
accordance with its terms and after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness.
(ii) Nothing contained in this Section 10 will limit the right of
the Lender to take any action to accelerate the maturity of the
Subordinated Indebtedness pursuant to Section 9.2 hereof.
(iii) Upon any payment or distribution of assets or securities
referred to in this Section 10, Lender shall be entitled to rely
upon any order or decree of a court of competent jurisdiction in
which such dissolution, winding up, liquidation or reorganization
proceedings are pending, and upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person
making any such payment or distribution, delivered to Lender for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Indebtedness and other
Indebtedness of Borrower, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Section 10.
10.3. RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS NOT TO BE IMPAIRED . No right
of any present or future holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act by any such holder, or by any
noncompliance by Borrower with the terms and provisions and covenants herein
regardless of any knowledge thereof such holder may have or otherwise be charged
with.
The provisions of this Section 10 are intended to be for the benefit of, and
shall be enforceable
25
<PAGE>
directly by, the holders of the Senior Indebtedness. Borrower and Lender
acknowledges that the holders of the Senior Indebtedness are or will be relying
upon the provisions of this Section 10 in extending such Senior Indebtedness.
10.4 SUBROGATION . Upon the payment in full of all Senior Indebtedness,
Lender shall be subrogated to the extent of the payments or distributions made
to the holders of, or otherwise applied to payment of, the Senior Indebtedness
pursuant to the provisions of this Section 10 and to the rights of the holders
of Senior Indebtedness to receive payments or distributions of assets of
Borrower made on the Senior Indebtedness until the Loan shall be paid in full;
and for the purposes of such subrogation, no payments or distributions to
holders of Senior Indebtedness of any cash, property or securities to which
Lender would be entitled except for the provisions of this Section 10, and no
payment over pursuant to the provisions of this Section 10 to holders of Senior
Indebtedness by Lender, shall, as between Borrower, their creditors other than
holders of Senior Indebtedness and Lender, be deemed to be payment by Borrower
to or on account of Senior Indebtedness, it being understood that the provisions
of this Section 10 are solely for the purpose of defining the relative rights of
the holders of Senior Indebtedness, on the one hand, and Lender, on the other
hand.
If any payment or distribution to which Lender would otherwise have been
entitled but for the provisions of this Section 10 shall have been applied,
pursuant to the provisions of this Section 10, to the payment of Senior
Indebtedness, then and in such case, Lender shall be entitled to receive from
the holders of Senior Indebtedness at the time outstanding any payments or
distributions received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all Senior Indebtedness in full.
10.5. OBLIGATIONS OF BORROWER UNCONDITIONAL . Nothing contained in this
Section 10 or elsewhere in this Agreement or in the Note is intended to or shall
impair, as between Borrower and Lender, the obligations of Borrower, which are
absolute and unconditional, to pay to Lender the principal of (premium, if any),
and interest on, the Loan as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of Lender and creditors of Borrower other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent any Holder from
exercising all remedies otherwise permitted by applicable law upon the
occurrence of a default or event of default under this Agreement, subject to the
rights, if any, under this Section 10 of the holders of Senior Indebtedness in
respect of cash, property or securities of Borrower received upon the exercise
of any such remedy.
The failure to make a payment on account of principal of, or interest on, the
Loan by reason of any provision of this Section 10 shall not be construed as
preventing the occurrence of a Default or an Event of Default hereunder.
26
<PAGE>
10.6. NOTICE TO LENDER . Borrower shall give prompt written notice to
Lender of any fact known to Borrower which would prohibit the making of any
payment on or in respect of the Loan, but failure to give such notice shall not
affect the subordination of the Subordinated Indebtedness to the Senior
Indebtedness provided in this Section 10. Notwithstanding the provisions of
this Section 10 or any other provision of this Agreement or the Loan, Lender
shall not be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or in respect of the Loan, unless and
until Lender shall have received written notice thereof from Borrower, the
Representative or other holder of Senior Indebtedness, and, prior to the receipt
of any such written notice, subject to the provisions of this Section 10, Lender
shall be entitled in all respects to assume no such facts exist. Nothing
contained in this Section 10.6 shall limit the right of the holders of Senior
Indebtedness to recover payments as contemplated by Sections 10.1 and 10.2.
10.7. RIGHT OF LENDER AS HOLDER OF SENIOR INDEBTEDNESS . Lender in its
individual capacity shall be entitled to all the rights set forth in this
Section 10 with respect to any Senior Indebtedness which may at any time be held
by it, to the same extent as any other holder of Senior Indebtedness, and
nothing in this Agreement shall deprive Lender of any of its rights as such
holder.
10.8 REINSTATEMENT . The provisions of this Section 10 shall
continue to be effective or be reinstated, and the Senior Indebtedness shall not
be deemed to be paid in full, as the case may be, if at any time any payment of
any of the Senior Indebtedness is rescinded or must otherwise be returned by the
holder thereof upon the insolvency, bankruptcy or reorganization of the Borrower
or otherwise, all as though such payment had not been made.
11. MISCELLANEOUS
11.1. COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT; SALE OF INTEREST.
(a) The Loan Documents constitute the complete agreement between the parties
with respect to the subject matter hereof and may not be modified, altered or
amended except by an agreement in writing signed by Borrower and Lender.
Borrower may not sell, assign or transfer any of the Loan Documents or any
portion thereof including, without limitation, Borrower's rights, title,
interests, remedies, powers and duties hereunder or thereunder. Borrower hereby
consents to Lender's sale of participations, assignment, transfer or other
disposition, at any time or times, of any of the Loan Documents or of any
portion thereof or interest therein, including, without limitation, Lender's
rights, title, interests, remedies, powers or duties thereunder, whether
evidenced by a writing or not. Borrower agrees that it will use its best
efforts to assist and cooperate with Lender in any manner reasonably requested
by Lender to effect the sale of participations in or assignments of any of the
Loan Documents or of any portion thereof or interest therein.
27
<PAGE>
(b) In the event Lender assigns or otherwise transfers all or any part of the
Note Borrower shall, upon the request of Lender, issue a new Note to effectuate
such assignment or transfer.
11.2. FEES AND EXPENSES . If, at any time or times, regardless of the
existence of an Event of Default, Lender shall employ counsel or other advisors
for advice or other representation or shall incur reasonable legal or other
costs and expenses in connection with any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender, Borrower or any other
Person) in any way relating to any of the Loan Documents or any other agreements
to be executed or delivered in connection herewith, including any future
amendments, supplements, waivers or consents at the request of Borrower, then,
and in any such event, the attorneys' and other parties' fees reasonably arising
from such services, including those of any appellate proceedings, and all
expenses, costs, charges and other fees reasonably incurred by such counsel and
others in any way or respect arising in connection with or relating to any of
the events or actions described in this Section shall be payable, on demand, by
Borrower to Lender and shall be additional Obligations secured under this
Agreement and the other Loan Documents. Without limiting the generality of the
foregoing, such expenses, costs, charges and fees may include: paralegal fees,
costs and expenses; accountants' and investment bankers' fees, costs and
expenses; court costs and expenses; photocopying and duplicating expenses; court
reporter fees, costs and expenses; long distance telephone charges; air express
charges; telegram charges; secretarial overtime charges; and expenses for
travel, lodging and food paid or incurred in connection with the performance of
such legal services.
11.3. NO WAIVER BY LENDER . Lender's failure, at any time or times, to
require strict performance by Borrower of any provision of this Agreement any of
the other Loan Documents shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Lender of an Event of Default by Borrower under the Loan
Documents shall not suspend, waive or affect any other Event of Default by
Borrower under this Agreement and any of the other Loan Documents whether the
same is prior or subsequent thereto and whether of the same or of a different
type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or any of the other Loan
Documents and no Event of Default by Borrower under this Agreement and no
defaults by Borrower under any of the other Loan Documents shall be deemed to
have been suspended or waived by Lender, unless such suspension or waiver is by
an instrument in writing signed by an officer of Lender and directed to Borrower
specifying such suspension or waiver.
11.4 REMEDIES . Lender's rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies which Lender may
have under any other agreement, including without limitation, the Loan
Documents, by operation of law or otherwise.
28
<PAGE>
11.5 WAIVER OF JURY TRIAL . THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THE LOAN
DOCUMENTS.
11.6 SEVERABILITY . Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
11.7 PARTIES . This Agreement and the other Loan Documents shall be binding
upon, and inure to the benefit of, the successors of Borrower and Lender and the
assigns, transferees and endorsees of Lender.
11.8 CONFLICT OF TERMS . Except as otherwise provided in this Agreement or
any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and control.
11.9 GOVERNING LAW . EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE
LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY
AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE,
WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. LENDER AND BORROWER AGREE TO
SUBMIT TO PERSONAL JURISDICTION AND TO WAIVE ANY OBJECTION AS TO VENUE IN THE
COUNTY OF NEW YORK, STATE OF NEW YORK. SERVICE OF PROCESS ON BORROWER OR LENDER
IN ANY ACTION ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS SHALL BE
EFFECTIVE IF
29
<PAGE>
MAILED TO SUCH PARTY AT THE ADDRESS LISTED IN SECTION 11.10 HEREOF. NOTHING
HEREIN SHALL PRECLUDE LENDER OR BORROWER FROM BRINGING SUIT OR TAKING OTHER
LEGAL ACTION IN ANY OTHER JURISDICTION.
11.10 NOTICES . Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by
another, or whenever any of the parties desires to give or serve upon another
any communication with respect to this Agreement, each such notice, demand,
request, consent, approval, declaration or other communication shall be in
writing and either shall be delivered in person with receipt acknowledged or by
registered or certified mail, return receipt requested, postage prepaid, or
telecopied and confirmed by telecopy answerback addressed as follows:
(a) If to Lender at:
15 Carshalton Road
Sutton Surrey SM1 4LD
England
Attention: Nigel Griffiths, LLB
Telecopy No. (0181) 770 1145
With copies to:
Weil, Gotshal & Manges LLP
99 Bishopsgate
London, EC2M 3XD
Attention: David Lefkowitz, Esq.
Telecopy No. (0171) 426 0990
(b) If to Borrower, at:
Intek Diversified Corporation
214 Carnegie Center, Suite 304
Princeton, NJ 08540
Attention: Lee Montellaro
Telecopy No.: (609) 419-1222
30
<PAGE>
With copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Howard Chatzinoff, Esq.
Telecopy No.: (212) 310-8007
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback or
seven (7) Business Days after the same shall have been deposited (i) in the
United States mail (in the case of notice being given by Borrower or any other
Person in the United States) or (ii) in the United Kingdom mail (in the case of
notice being given by Lender or any other Person located in the United Kingdom).
Failure or delay in delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons designated above to
receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
11.11 SURVIVAL . The representations and warranties of Borrower in this
Agreement shall survive the execution, delivery and acceptance hereof by the
parties hereto and the closing of the transactions described herein or related
hereto.
11.12 SECTION TITLES . The Section titles and Table of Contents contained in
this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
11.13 COUNTERPARTS . This Agreement may be executed in any number of separate
counterparts, each of which shall, collectively and separately, constitute one
agreement.
[SIGNATURE PAGE FOLLOWS]
31
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
INTEK DIVERSIFIED CORPORATION
By:
-------------------------------------
Name:
Title:
SECURICOR COMMUNICATIONS LIMITED
By:
-------------------------------------
Name:
Title:
The undersigned hereby guarantees to Borrower the performance by Lender of all
of its obligations under this Agreement.
SECURITY SERVICES PLC
By:
-------------------------------------
Name:
Title:
Date:
32
<PAGE>
SCHEDULE I
OTHER LOANS
Annual
Agreement Date Principal Maturity Interest
-------------- --------- --------- ---------
September 11, 1997
(September Facility) $2.0 Million 10/15/98 12.5%
May 12, 1997
(March Facility) $6.0 Million 10/15/98 11.0%
May 20, 1997
(May Facility) $4.5 Million 10/15/98 17.5%
33
<PAGE>
SCHEDULE 4.1
CORPORATE MATTERS
4.1(ii) Qualified to Do Business
Midland USA, Inc. is not qualified to do business in the states of Massachusetts
and Texas.
34
<PAGE>
SCHEDULE 4.2
EXECUTIVE OFFICES
The executive office and principal place of business of Intek Diversified
Corporation is 214 Carnegie Center, Suite 304, Princeton, New Jersey 08540 .
35
<PAGE>
SCHEDULE 4.3
SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Subsidiary Number Percentage
- ------------------ Jurisdiction of Classes of of Shares Issued of Class
By Borrower Incorporation Capital Stock And Outstanding Owned
- ----------- ------------- ------------- --------------- -----
<S> <C> <C> <C> <C>
Roamer One, Inc. Delaware common stock 100
100%
Midland USA, Inc. Delaware common stock 100
100%
Olympic Plastics
Company, Inc. California common stock 253,164
100%
IMCX Corporation California common stock 100
100%
IDC International
Corporation Florida common stock 1,000
100%
Securicor England and common stock --
100%
Radiocoms Limited Wales preferred stock --
0%1
Linear Modulation England and
Technology Limited Wales common stock --
100%
</TABLE>
- ---------------
1 Owned by Securicor Communications Limited
36
<PAGE>
SCHEDULE 4.9
LITIGATION
Charlotte Scott et al v. Joseph Steingold et al, Case No. 97-6-7871 (U.S.
District Court, Northern District of Illinois).
37
<PAGE>
SCHEDULE 4.12
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
4.12(a) Patents
Midland USA, Inc.:
US Patent Number 4,718,586 (Swivel Fastening Device)
4.12(b) Trademarks
Midland USA, Inc.:
The trademark "Midland" Reg. No 927193, serial number 72-277,496, first
registered on January 18, 1972 and renewed on December 13, 1991.
The trademark "Midland" Reg. No 895483, serial number 72-156,089, first
registered on July 28, 1970 and renewed on December 18, 1990.
Roamer One, Inc.:
The trademark "ROAMER R and design" Reg. No. 1,494,062, first registered
June 28, 1988.
The trademark "ROAMER R and design" Reg. No. 1,494,063, first registered
June 28, 1988.
The trademark "ROAMER" Reg. No. 1,494,064, first registered June 28, 1988.
The trademark "R and design" Reg. No. 1,599,916, first registered June 5,
1990.
The trademark "RoameR" Reg. No. 1,625,235, first registered on November 27,
1990.
The trademark "ROAMER" Reg. No. 1,634,393, first registered on February 5,
1991.
The trademark "RENT-A-ROAMER and..." Reg. No. 1,635,737, first registered
on February 19, 1991.
The trademark "ROAMER ONE", serial number 74/198,033. The application for
this trademark has been approved and will be issued shortly.
38
<PAGE>
The trademark "ROAMER", Canadian Reg. No. 594,735.
4.12(c) Copyrights
None
4.12(d) Licenses
Midland USA, Inc.:
1) Midland USA - Midland International Corp. Trademark License
Agreement dated September 19, 1996.
2) Midland International Corp. - Midland Consumer Int'l. Exclusive
License Agreement dated June 30, 1995.
3) Midland International Corp. - LETT Electronics Private Label Agreement
dated March 1, 1995.
4) Midland International Corp. - American Digital Communications, Inc.
Asset Purchase Agreement dated December 29, 1995.
39
<PAGE>
SCHEDULE 7.2(b)
CERTAIN TRANSACTIONS
Any management or consulting agreement referenced in the Borrower's Proxy
Statement, dated November 8, 1996, under the caption "Certain Relationships and
Related Transactions."
Employment Agreement dated April 21, 1997 between Borrower and Donald
Goeltz.
Employment Agreement dated February 18, 1997 between Borrower and Lee R.
Montellaro.
Employment Agreement dated September 8, 1997 between Borrower and Robert J.
Schiver.
Inter-company loans between Borrower and its Subsidiaries.
40
<PAGE>
EXHIBIT A
NOTICE OF ADVANCE
_____________, 199_
Securicor Communications Limited
15 Carshalton Road
Sutton, Surrey
SM1 4LDAttention:Michael Wilkinson
Gentlemen:
The undersigned, INTEK DIVERSIFIED CORPORATION, refers to the
Amended and Restated Loan Agreement, dated as of November __, 1997 (the "Loan
Agreement", the terms defined therein being used herein as therein defined),
between the undersigned and SECURICOR COMMUNICATIONS LIMITED, and hereby gives
you notice, irrevocably, pursuant to Section 2.1 of the Loan Agreement, that the
undersigned hereby requests an Advance under the Loan Agreement, and in that
connection sets forth below the information relating to such Advance as required
by Section 2.1(a) of the Loan Agreement:
(i) The date of the requested Advance shall be _______________, 199__.
(ii) The aggregate amount of the requested Advance is $___________
(minimum: $500,000).
(iii) The Advance shall be used solely as permitted by Section 2.3 of the
Loan Agreement.
41
<PAGE>
The undersigned hereby certifies that the statements contained in
Section 3.2 of the Loan Agreement are true on the date hereof, and will be true
on the date of the requested Advance, before and after giving effect thereto and
to the application of the proceeds therefrom.
Very truly yours,
INTEK DIVERSIFIED CORPORATION
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
42
<PAGE>
PROMISSORY NOTE
$29,500,000 New York, New York
December 29, 1997
1997
FOR VALUE RECEIVED, the undersigned, INTEK DIVERSIFIED CORPORATION, a
Delaware corporation (hereinafter referred to as "Borrower"), hereby PROMISES TO
PAY to the order of SECURICOR COMMUNICATIONS LIMITED, a corporation formed under
the laws of England and Wales ("Lender"), at 15 Carshalton Road, Sutton, Surrey,
SM1 4LD, or at such other place as the holder of this Note may designate from
time to time in writing, in lawful money of the United States of America and in
immediately available funds, the amount of twenty nine million five hundred
thousand dollars ($29,500,000), or such lesser principal amount of outstanding
Advances under the Loan Agreement (as hereinafter defined) PLUS the unpaid
amount of any capitalized interest arising pursuant to the terms of the Loan
Agreement, together with interest on the unpaid principal amount of the Note
(including capitalized interest) outstanding from time to time from the date
hereof at the rate or rates provided in the Loan Agreement.
This Note is issued pursuant to that certain Second Amended and
Restated Loan Agreement dated as of December 29, 1997 between Borrower and
Lender (the "Loan Agreement"), to which reference is hereby made for a statement
of all of the terms and conditions under which the Advances evidenced hereby are
made. All capitalized terms, unless otherwise defined herein, shall have the
meanings ascribed to them in the Loan Agreement.
The principal amount of the indebtedness evidenced hereby shall be
payable on the dates and in the amounts set forth in the Loan Agreement.
Interest thereon shall accrue on a daily basis at the rate specified in the Loan
Agreement and shall be capitalized annually on December 28th of each year
commencing December, 1998 and will be paid in the manner set forth in the Loan
Agreement. All accrued and unpaid interest (whether or not capitalized) shall
be due and payable on the Repayment Date.
If any payment on this Note becomes due and payable on a day other
than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall continue to accrue at the then applicable rate during such
extension.
The rights of Lender under this Note are subordinate and junior to the
rights of the holders of Senior Debt, as defined in, and to the extent set forth
in, Article 10 of the Loan Agreement. This Note is subject to the provisions of
such Article 10, and any payment pursuant hereto shall be made in accordance
with the provisions thereof.
1
<PAGE>
Upon and after the occurrence of an Event of Default, this Note may,
as provided in the Loan Agreement, and without demand, notice or legal process
of any kind, be declared or may automatically become, and immediately shall
become, due and payable.
Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by Borrower.
THIS NOTE HAS BEEN EXECUTED, DELIVERED AND ACCEPTED AT NEW YORK, NEW
YORK AND SHALL BE INTERPRETED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
INTEK DIVERSIFIED CORPORATION
By:
---------------------------------
2
<PAGE>
INTEK DIVERSIFIED CORPORATION
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT, dated as of December 29, 1997, between
INTEK DIVERSIFIED CORPORATION, a Delaware corporation having an office at 214
Carnegie Center, Suite 304, Princeton, New Jersey 08540 (the "Company"), and
SECURICOR COMMUNICATIONS LIMITED, a company incorporated under the laws of
England and Wales having an office at 15 Carshalton Road, Sutton, Surrey, SM1
4LD, England (the "Investor").
W I T N E S S E T H:
WHEREAS, the Company desires to sell an aggregate of 12,408 shares (the
"Shares") of convertible preferred stock, $.001 par value (the "Preferred
Stock") which will, when authorized, have a liquidation preference of $1,000 per
share and the designations, powers, preferences, rights, qualifications,
limitations and restrictions substantially as those set forth in the Certificate
of Designation annexed hereto as Exhibit A (the "Designation") for an aggregate
of $12,408,000 to the Investor, who is an "accredited investor" within the
meaning of Rule 501(a) adopted under the Securities Act of 1933 (the " 1933
Act"); and
WHEREAS, the Investor wishes, pursuant to the terms and conditions
hereinafter set forth, to purchase the Preferred Stock referred to in the
proceeding paragraph.
NOW THEREFORE, in consideration of the premises, and the respective
representations and warranties hereinafter set forth, the Company and the
Investor agree as follows:
1. SUBSCRIPTION.
(a) The Investor, intending to be legally bound, hereby irrevocably
subscribes for and agrees to purchase the Preferred Stock, subject to the
conditions set forth in paragraph 1(b), below.
(b) The obligations of Purchaser to purchase the Preferred Stock is
conditioned upon:
1
<PAGE>
(i) the approval of the Company's shareholders of an amendment to
the Company's Certificate of Incorporation to permit the
issuance of preferred stock; and
(ii) the amendment described in Section 5.2 shall have been
approved by the Intek shareholders by April 30, 1998.
2. PURCHASE AND CLOSING.
2.1 At the Closing (as hereinafter defined), the Company shall issue and
sell to the Investor and the Investor shall purchase the Preferred Stock from
the Company.
2.2 The aggregate purchase price to be paid by the Investor to the Company
for the Preferred Stock (the "Purchase Price") at the Closing shall be
$12,408,000.
2.3 The closing of the purchase and sale of the Preferred Stock (the
"Closing") shall take place at 1:00 P.M. New York time on the business day
immediately following the date the Company files an amendment to its certificate
of incorporation permitting the issuance of preferred stock and the Designation.
The Closing shall take place at the offices of [INTEK] or at such other time and
place as the Company and Investor agree.
2.4 At Closing the Company will deliver the following to the Investor:
(a) a certificate, in due and proper form, representing the Preferred
Stock purchased upon which a legend substantially in the following
form will be endorsed:
"THE SHARES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
INTO WHICH THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE CONVERTED HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF
1933 OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE"; and
2
<PAGE>
(b) an opinion of Sommer & Schneider LLP addressed to the Company which
indicates that the Investor may rely upon it as to the matters set forth in
Sections 6.1, 6.2, 6.3, 6.5, 6.6, 6.7 and 6.8 of this Agreement, without
reference to any pre-conditions referred to therein.
2.5 At Closing, the Investor shall deliver the Purchase Price to the
Company, in immediately available funds by wire transfer to a bank in
the United States designated by the Company.
3. INVESTOR REPRESENTATIONS AND WARRANTIES.
The Investor hereby acknowledges, represents and warrants to (which
representations and will be true and correct as of the date of the Closing as if
the Agreement were made on the date of Closing), and agrees with, the Company
as follows:
3.1 The Investor is acquiring the Preferred Stock for its own account as
principal, for investment purposes only, and not with a view to, or for, resale,
distribution or fractionalization thereof, in whole or in part;
3.2 The Investor acknowledges its understanding that the offering and sale
of the Preferred Stock is intended to be exempt from registration under the
1933 Act by virtue of Section 4(2) of the 1933 Act and the provisions of
Regulation D thereunder. In furtherance thereof, the Investor represents and
warrants to and agrees with the Company as follows:
(a) the Investor has the financial ability to bear the economic risk of
its investment, has adequate means for providing for its current needs
and has no need for liquidity with respect to its investment in the
Company;
(b) the Investor is a corporation, trust, estate benefit plan, partnership
other entity, which comes within a category of "accredited investor"
as that term is defined in Rule 501(a) of Regulation D under the 1933
Act (17 C.F.R. 230.501(a));
3.3 The Investor:
(a) has relied on all of the Company's reports and filings since January
1, 1996 and the
3
<PAGE>
representations of the Company set forth in the Second Amended and
Restated Loan Agreement between the Company, as Borrower and Investor,
as Lender of even date herewith (the "Documents") under the United
States Securities Exchange Act of 1934, as amended (the "1934 Act")
and any other documents which may have been requested and has
carefully read the Documents and understands and has evaluated the
risks of a purchase of Preferred Stock, and has relied solely (except
as indicated in subsections (b) and (c) below) on the information
contained in the Documents;
(b) has been provided an opportunity to obtain additional information
concerning the Company and all other information to the extent the
Company possesses such information or can acquire it without
unreasonable effort or expense;
(c) has been given the opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of this investment,
and has been given the opportunity to obtain such additional information
necessary to verify the accuracy of the information contained in the Documents
or that which was otherwise provided in order for the Investor to evaluate the
merits and risks of purchase of the Preferred Stock to the extent the Company
possesses such information or can acquire it without unreasonable efforts or
expense, and has not been furnished any other offering literature or prospectus
except as mentioned herein;
(d) has not relied on any oral representation or oral information in
connection with the offering of the Preferred Stock which is not
contained in the Documents; and
(e) has determined that the Preferred Stock is a suitable investment and
that at the time of Closing the Investor could bear a complete loss of
its investment;
3.4 The Investor represents, warrants and agrees that it will not sell or
otherwise transfer the Preferred Stock or the shares of the Company's common
stock into which the Preferred Stock may be converted unless registered under
the 1933 Act (which registration may be pursuant to that Registration Rights
Agreement dated December 3, 1996 or otherwise) or in reliance upon an exemption
therefrom, and fully understands and agrees that it must bear the economic risk
of its purchase for an indefinite period of time because, among other reasons,
the Preferred Stock or underlying securities have not been registered under the
1933 Act or under the
4
<PAGE>
securities laws of certain states and, therefore, cannot be resold, pledged,
assigned or otherwise disposed of unless they are subsequently registered under
the 1933 Act and under the applicable securities laws of such states or an
exemption from such registration is available. The Investor also understands
that except for the Company's independent obligation to remain current in its
filings under the 1934 Act, as amended, the Company is under no obligation to
register the Preferred Stock on its behalf or to assist the Investor in
complying with any exemption from registration under the 1933 Act. The Investor
further understands that sales or transfers of the Preferred Stock or underlying
securities are restricted by the provisions of state securities laws;
3.5 The person signing this Preferred Stock Purchase Agreement on behalf
of such entity has been duly authorized by such entity to do so;
3.6 No representation or warranties have been made to the Investor by the
Company, or any officer, employee, agent, affiliate or subsidiary of the
Company, other than the representations of the Company herein;
3.7 The execution and delivery by the Investor of, and the performance by
the Investor of its obligations under this Agreement will not contravene any
provision of applicable law or the charter documents of the Investor or any
agreement or other instrument binding upon the Investor, or any judgment, order
or decree of any governmental body, agency or court having jurisdiction over the
Investor, and no consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the performance by the
Investor of its obligations under such Agreements in accordance with their
respective terms;
3.8 The Investor has been duly organized, is validly existing and is in
good standing under the laws of England and Wales. The Investor has full
corporate power and authority to enter into this Agreement and this Agreement
has been duly and validly authorized, executed and delivered by the Company and
are valid and binding obligations of the Investor, enforceable against the
Investor in accordance with their respective terms, except as such enforcement
may be limited by the laws effecting creditors rights, generally and general
equitable principles.
3.9 The foregoing representations, warranties and agreements shall survive
the Closing.
4. INVESTOR AWARENESS.
The Investor acknowledges and is aware that:
5
<PAGE>
4.1 No Federal or state agency has passed on the Preferred Stock or made
any finding or determination as to the fairness of this investment.
4.2 There are substantial restrictions on transferability of the Preferred
Stock.
4.3 The Company is a defendant in an action entitled Scott v. Steingold et
al in the United States District Court, Northern District of Ohio.
4.4 The foregoing acknowledgments shall survive the Closing.
5. APPROVAL OF AMENDMENT AND DESIGNATION.
5.1 As part of its 1998 Annual Meeting of Stockholders to be held no later
than April 30, 1998, the Company will propose to amend its certificate of
incorporation to, among other things, permit its board of directors to issue
shares of preferred stock in one or more series, including the series which will
include the Preferred Stock.
5.2 Pursuant to Section 218(c) of the Delaware General Corporation Law,
the Investor will agree with Robert Shiver, the Company's President, to vote
shares of the Company's common stock owned by it for such amendment consistent
with the resolutions of the directors of the Company dated November 20, 1997.
5.3 Investor agrees to cause its directors of the Company that are
employed directly or indirectly by Investor to abstain from voting on matters
concerning the authorization and issuance of the Preferred Stock to the
Investor.
6. COMPANY REPRESENTATIONS AND WARRANTIES.
6
<PAGE>
The Company hereby acknowledges, represents and warrants to, and agrees
with the Investor (which representations and will be true and correct as of the
date of the Closing as if the Agreement were made on the date of Closing) as
follows:
6.1 The Company has been duly organized, is validly existing and is in
good standing under the laws of the State of Delaware. The Company has full
corporate power and authority to enter into this Agreement and perform the
obligations hereunder. This Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as such enforcement may be limited by the United States
Bankruptcy Code, laws effecting creditors rights, generally and general
equitable principles.
6.2 Assuming the accuracy of the representations and warranties of the
Investor, the offering and sale of the Preferred Stock will be exempt from the
registration requirements of the 1933 Act and all applicable State Securities
Laws.
6.3 The execution and delivery by the Company of, and the performance by
the Company of its obligations under this Agreement in accordance with the terms
of this Agreement will not (a) contravene any provision of applicable law or the
charter documents or by-laws of the Company or any agreement or other instrument
binding upon the Company, or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company, or; (b) give any
third party rights to acquire capital stock. No filing (except for a Form D
and Form 8-K following the closing), notice, consent, approval, authorization or
order of, or qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this Agreement in
accordance with the terms of this Agreement.
6.4 The Documents did not, and through the date of the Closing will not,
contain an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made and at the time of their filing, not misleading.
6.5 All of the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable and
free of preemptive or similar rights. The Company does not have any class of
authorized stock other than Common Stock. Following the amendment to the
Company's certificate of incorporation and approval of the Designation, the
Preferred Stock will have been duly authorized and, when issued and delivered as
provided by this Agreement, will be validly issued and fully paid and
non-assessable, and the
7
<PAGE>
Preferred Stock is not subject to any preemptive or similar rights. In
addition, the shares of Common Stock issuable upon the conversion of the
Preferred Stock, when issued as provided in the Designation will be validly
issued and fully paid and non-assessable, and such shares are not subject to any
preemptive or similar rights. Except for the approval of the Company's
shareholders, the issuance of the Preferred Stock in accordance with the terms
hereof has been duly authorized by all requisite action on the part of the
Company.
6.6 The Company is not in violation of its charter or bylaws and is not in
default in the performance of any bond, debenture, note or any other evidence of
indebtedness or any indenture, mortgage, deed of trust, license, contract, lease
or other instrument to which the Company is a party or by which it is bound, or
to which any of the property or assets of the Company is subject, except such as
have been waived or which would not have, singly or in the aggregate, a material
adverse effect on the Company, taken as a whole.
6.7 Except as set forth in the Documents, there is no material litigation
or governmental proceeding pending, or to the knowledge of the Company,
threatened against, or involving the property or the business of the Company,
or, to the best knowledge of the Company which would adversely affect the
condition (financial or otherwise), business, prospects or results of operations
of the Company, taken as a whole.
6.8 The consolidated financial statements set forth in the Documents
fairly present the financial position and the results of operations of the
Company, at the dates and periods therein specified. Such financial statements
have been prepared in accordance with U.S. generally accepted accounting
principles applied on a consistent basis throughout the respective periods
involved and are complete and accurate and are in accordance with the books and
records of the Company.
6.9 (a) The authorized capital stock of Purchaser consists of
60,000,000 shares of Purchaser Common Stock. As of the date hereof, there are
41,932,514 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 on Schedule 6.9 hereto, there is no
existing option, warrant, call, right, commitment or other agreement of any
character to which the Company is a
8
<PAGE>
party requiring, and there are no securities of the Company 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 the Company 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
the Company. The Company is not a party to any voting trust or other voting
agreement with respect to any of the shares of the Company Common Stock or to
any agreement relating to the issuance, sale, redemption, transfer or other
disposition of the capital stock of the Company, except for matters arising
after the date hereof.
(c) The consummation of the transaction contemplated hereby will
not (i) 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 Purchase or any of its
Subsidiaries or any of its properties or assets is bound; (ii) violate any
statute, rule, regulation, order or decree of any Governmental Body by which
Purchase or any of its Subsidiaries is bound.
6.10 The Company at all times will keep sufficient shares of its Common
Stock available for issuance upon the conversion of the Preferred Stock.
6.11 The foregoing representations, warranties and agreements shall survive
the Closing.
7. MISCELLANEOUS.
7.1 COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT . The Agreement
constitutes the complete agreement between the parties with respect to the
subject matter hereof and may not be modified, altered or amended except by an
agreement in writing signed by Company and Investor.
7.2 WAIVER OF JURY TRIAL . THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THE LOAN
DOCUMENTS.
7.3 SEVERABILITY . Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
9
<PAGE>
such provision or the remaining provisions of this Agreement.
7.4 PARTIES . This Agreement shall be binding upon, and inure to the benefit
of, the successors of Company and Investor.
7.5 GOVERNING LAW . EXCEPT AS TO MATTERS OF INTERNAL CORPORATE LAW, WHICH
SHALL BE GOVERNED BY THE GENERAL CORPORATION LAW OF DELAWARE, IN ALL OTHER
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE
PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. INVESTOR AND COMPANY AGREE TO SUBMIT TO PERSONAL
JURISDICTION AND TO WAIVE ANY OBJECTION AS TO VENUE IN THE COUNTY OF NEW YORK,
STATE OF NEW YORK. SERVICE OF PROCESS ON COMPANY OR INVESTOR IN ANY ACTION
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EFFECTIVE IF MAILED TO
SUCH PARTY AT THE ADDRESS LISTED IN SECTION 7.6 HEREOF.
7.6 NOTICES . Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by
another, or whenever any of the parties desires to give or serve upon another
any communication with respect to this Agreement, each such notice, demand,
request, consent, approval, declaration or other communication shall be in
writing and either shall be delivered in person with receipt acknowledged or by
registered or certified mail, return receipt requested, postage prepaid, or
telecopied and confirmed by telecopy answerback addressed as follows:
(a) If to Investor at:
15 Carshalton Road
Sutton Surrey SM1 4LD
England
Attention: Nigel Griffiths, LLB
10
<PAGE>
Telecopy No. (0181) 770 1145
With copies to:
Weil, Gotshal & Manges LLP
99 Bishopsgate
London, EC2M 3XD
Attention: David Lefkowitz, Esq.
Telecopy No. (0171) 426 0990
(b) If to Company at:
Intek Diversified Corporation
214 Carnegie Center, Suite 304
Princeton, NJ 08540
Attention: Lee Montellaro
Telecopy No.: (609) 419-1222
With copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Howard Chatzinoff, Esq.
Telecopy No.: (212) 310-8007
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback or
seven (7) Business Days after the same shall have been deposited (i) in the
United States mail (in the case of notice being given by Company or any other
Person in the United States) or (ii) in the United Kingdom mail (in the case of
notice being given by Investor or any other Person located in
11
<PAGE>
the United Kingdom). Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to the
persons designated above to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
7.7 COUNTERPARTS. This Agreement may be executed in any number of separate
counterparts, each of which shall, collectively and separately, constitute one
agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
INTEK DIVERSIFIED CORPORATION
By:
-------------------------------------
Name:
Title:
SECURICOR COMMUNICATIONS LIMITED
By:
-------------------------------------
Name:
Title:
The undersigned hereby guarantees to Company the performance by Investor of
all of its
12
<PAGE>
obligations under this Agreement.
SECURITY SERVICES PLC
By:
-------------------------------------
Name:
Title:
Date:
-------------------------------------------------
Pursuant to Section 218(c) of the Delaware General Corporation Law, the
undersigned shareholders agree to vote (or give proxy's to vote) shares of Intek
Diversified Corporation's (the "Company") common stock owned by them on the
record date for the Company's next annual meeting as directed by the independent
directors of the Company on matters relating to amendments to the Company's
certificate of incorporation and the issuance of Preferred Stock consistent with
the resolutions of the Company's board of directors dated November 20, 1997.
Date:
--------------------- --------------------------------
Robert Shiver
Date: SECURICOR COMMUNICATIONS LIMITED
---------------------
13
<PAGE>
By:
------------------------------
14
<PAGE>
Schedule 6.9
Outstanding Options, Warrants and Convertible Securities
15
<PAGE>
LOAN AND SECURITY AGREEMENT
by and between
SUMMIT COMMERCIAL/GIBRALTAR CORP.,
as Lender
and
MIDLAND USA, INC.,
as Borrower
Dated: December 24, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION AND
CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. LOANS AND ADVANCES . . . . . . . . . . . . . . . . . . . . . . . 16
2.1 Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.2 Accounts Advances. . . . . . . . . . . . . . . . . . . . . . . . 16
2.3 Inventory Advances . . . . . . . . . . . . . . . . . . . . . . . 16
2.4 L/C Accommodations . . . . . . . . . . . . . . . . . . . . . . . 17
2.5 Term Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.6 Maximum Credit . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.7 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.8 Overline and Overformula Rights. . . . . . . . . . . . . . . . . 19
2.9 The Loan Accounts. . . . . . . . . . . . . . . . . . . . . . . . 19
2.10 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3. INTEREST, FEES AND CHARGES . . . . . . . . . . . . . . . . . . . 20
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.2 Facility Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.3 L/C Accommodation Charges. . . . . . . . . . . . . . . . . . . . 20
3.4 Account Servicing Fee. . . . . . . . . . . . . . . . . . . . . . 21
3.5 Minimum Borrowing Fee. . . . . . . . . . . . . . . . . . . . . . 21
3.6 Unused Line Fee. . . . . . . . . . . . . . . . . . . . . . . . . 21
3.7 Early Termination Fee. . . . . . . . . . . . . . . . . . . . . . 21
3.8 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . 22
3.9 Right to Charge Account. . . . . . . . . . . . . . . . . . . . . 23
SECTION 4. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.2 Early Termination. . . . . . . . . . . . . . . . . . . . . . . . 23
4.3 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . 23
SECTION 5. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 Security Interests in Borrower's Assets. . . . . . . . . . . . . 23
5.2 Financing Statements and Mortgages; Further Assurances . . . . . 25
SECTION 6. CONDITIONS TO INITIAL EXTENSION OF CREDIT. . . . . . . . . . . . 25
6.1 Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.2 Representations and Warranties . . . . . . . . . . . . . . . . . 25
(i)
<PAGE>
6.3 Certified Copies of Corporate Documents. . . . . . . . . . . . . 25
6.4 Proof of Corporate Action. . . . . . . . . . . . . . . . . . . . 25
6.5 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.6 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.7 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.8 Minimum Closing Availability . . . . . . . . . . . . . . . . . . 26
SECTION 7. CONDITIONS TO MAKING EACH LOAN . . . . . . . . . . . . . . . . . 26
7.1 Applications and Compliance. . . . . . . . . . . . . . . . . . . 26
7.2 Representations and Warranties . . . . . . . . . . . . . . . . . 27
7.3 Performance, etc . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 8. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 27
8.1 Corporate Existence: Good Standing . . . . . . . . . . . . . . . 27
8.2 Corporate Authority, etc . . . . . . . . . . . . . . . . . . . . 28
8.3 Binding Effect of Documents, etc . . . . . . . . . . . . . . . . 28
8.4 No Events of Default . . . . . . . . . . . . . . . . . . . . . . 28
8.5 No Governmental Consent Necessary. . . . . . . . . . . . . . . . 28
8.6 No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.7 No Violations of Laws. . . . . . . . . . . . . . . . . . . . . . 29
8.8 Use of Proceeds of the Loan. . . . . . . . . . . . . . . . . . . 29
8.9 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 29
8.10 Changes in Financial Condition . . . . . . . . . . . . . . . . . 30
8.11 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.12 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.13 Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.14 Taxes and Assessments. . . . . . . . . . . . . . . . . . . . . . 30
8.15 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.16 O.S.H.A. and Environmental Matters . . . . . . . . . . . . . . . 31
8.17 Location of Collateral . . . . . . . . . . . . . . . . . . . . . 31
8.18 Other Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.19 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . 32
8.20 Representations and Warranties: True, Accurate and Complete. . . 32
8.21 Location of Offices. . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 32
9.1 Notify Lender. . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.2 Pay Taxes and Liabilities; Comply with Agreement . . . . . . . . 32
9.3 Observe Covenants, etc . . . . . . . . . . . . . . . . . . . . . 33
9.4 Maintain Corporate Existence and Qualifications. . . . . . . . . 33
9.5 Information and Documents to be Furnished to Lender. . . . . . . 33
(ii)
<PAGE>
9.6 Access to Records and Property . . . . . . . . . . . . . . . . . 35
9.7 Comply with Laws . . . . . . . . . . . . . . . . . . . . . . . . 35
9.8 Insurance Required . . . . . . . . . . . . . . . . . . . . . . . 36
9.9 Condition of Collateral; No Liens. . . . . . . . . . . . . . . . 36
9.10 Payment of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 36
9.11 Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.12 Delivery of Documents. . . . . . . . . . . . . . . . . . . . . . 36
9.13 United States Contracts. . . . . . . . . . . . . . . . . . . . . 37
9.14 Name Changes; Location Changes . . . . . . . . . . . . . . . . . 37
9.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 37
9.16 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 37
9.17 Operating Accounts . . . . . . . . . . . . . . . . . . . . . . . 38
9.18 Tradestyles. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 10. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 39
10.1 No Consolidation, Merger, Acquisition. . . . . . . . . . . . . . 39
10.2 Disposition of Assets or Collateral. . . . . . . . . . . . . . . 39
10.3 Other Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.4 Other Liabilities. . . . . . . . . . . . . . . . . . . . . . . . 39
10.5 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.6 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.7 Remove Property. . . . . . . . . . . . . . . . . . . . . . . . . 40
10.8 Transfers of Notes or Accounts . . . . . . . . . . . . . . . . . 40
10.9 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.10 Sale or Pledge of Shares . . . . . . . . . . . . . . . . . . . . 40
10.11 Modification of Documents. . . . . . . . . . . . . . . . . . . . 40
10.12 Change Business. . . . . . . . . . . . . . . . . . . . . . . . . 40
10.13 Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.14 Ratio of Debt to Tangible Net Worth. . . . . . . . . . . . . . . 40
10.15 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . 40
10.16 PAYMENTS TO PARENT AND AFFILIATES. . . . . . . . . . . . . . . . 41
SECTION 11. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 42
11.1 Failure to Pay . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.2 Failure of Insurance . . . . . . . . . . . . . . . . . . . . . . 42
11.3 Failure to Perform . . . . . . . . . . . . . . . . . . . . . . . 42
11.4 Cross Default. . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 False Representation or Warranty . . . . . . . . . . . . . . . . 42
11.6 Liquidation, Voluntary Bankruptcy, Dissolution, Assignment to
Creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.7 Involuntary Petition Against Borrower or any of the Guarantors . 43
(iii)
<PAGE>
11.8 Guarantor's Disclaimer of Liability . . . . . . . . . . . . . 43
11.9 Judgments; Levies . . . . . . . . . . . . . . . . . . . . . . 43
11.10 Change in Condition. . . . . . . . . . . . . . . . . . . . . . 43
11.11 Environmental Claims . . . . . . . . . . . . . . . . . . . . . 43
11.12 Failure to Notify. . . . . . . . . . . . . . . . . . . . . . . 43
11.13 Failure to Deliver Documentation . . . . . . . . . . . . . . . 43
11.14 Change in Ownership. . . . . . . . . . . . . . . . . . . . . . 44
11.15 Non-Payment of Debts . . . . . . . . . . . . . . . . . . . . . 44
11.16 Dissolution; Maintenance of Existence. . . . . . . . . . . . . 44
11.17 Indictment . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.18 Tax Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 12. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.1 Acceleration; Other Remedies. . . . . . . . . . . . . . . . . 44
12.2 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
12.3 Cumulative Remedies; Waivers. . . . . . . . . . . . . . . . . 46
12.4 Other Property. . . . . . . . . . . . . . . . . . . . . . . . 47
12.5 Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . 47
12.6 No Marshalling. . . . . . . . . . . . . . . . . . . . . . . . 47
12.7 No Implied Waivers; Rights Cumulative . . . . . . . . . . . . 47
12.8 Recision of Rights of Borrower. . . . . . . . . . . . . . . . 48
SECTION 13. OTHER RIGHTS OF LENDER. . . . . . . . . . . . . . . . . . . . 48
13.1 Collections . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.2 Repayment of Obligations. . . . . . . . . . . . . . . . . . . 49
13.3 Notification of Account Debtors and Bailees of Inventory. . . 49
13.4 Lender Appointed Attorney-in-Fact . . . . . . . . . . . . . . 50
13.5 Release of Lender . . . . . . . . . . . . . . . . . . . . . . 50
13.6 Uniform Commercial Code . . . . . . . . . . . . . . . . . . . 51
13.7 Preservation of Collateral. . . . . . . . . . . . . . . . . . 51
13.8 Lender's Right to Cure. . . . . . . . . . . . . . . . . . . . 51
13.9 Test Verifications. . . . . . . . . . . . . . . . . . . . . . 51
13.10 Inspection of Collateral. . . . . . . . . . . . . . . . . . . 52
SECTION 14. PROVISIONS OF GENERAL APPLICATION . . . . . . . . . . . . . . 52
14.1 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.2 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.3 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.5 Amendments; Waiver of Defaults. . . . . . . . . . . . . . . . 53
14.6 Binding on Successors . . . . . . . . . . . . . . . . . . . . 54
(iv)
<PAGE>
14.7 Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.8 Section or Paragraph Headings . . . . . . . . . . . . . . . . 54
14.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 54
14.10 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . 54
14.11 Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . 54
14.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 55
14.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 55
(v)
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT dated this 24th day of December, 1997 by
and between MIDLAND USA, INC., a Delaware Corporation, with its principal place
of business located at 1609 North Topping Avenue, Kansas City, Missouri 64120
(as further defined below, the "BORROWER") and SUMMIT COMMERCIAL/GIBRALTAR
CORP., having a place of business at 546 Fifth Avenue, New York, New York 10036
(as further defined below, the "LENDER").
R E C I T A L S:
WHEREAS, Borrower desires to enter into certain financing arrangements with
Lender pursuant to which Lender may make loans and provide other financial
accommodations to Borrower; and
WHEREAS, all loans, advances and other financial accommodations provided by
Lender to Borrower will benefit and are necessary and essential to Borrower in
the conduct of its business; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations provided that Borrower (a) undertakes and assumes the liability
for all loans, advances, extensions of credit and other financial accommodations
to be provided by Lender, whether provided for hereunder or otherwise, including
all principal, interest, fees and charges in connection therewith,(b) grants
security interests and liens to Lender for such undertakings as provided herein
and (c) agrees to the terms and conditions hereinafter set forth; and
WHEREAS, Borrower is willing to agree as aforesaid and to execute and
deliver all documents, agreements or instruments necessary or reasonable in
connection therewith as set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements herein contained and other good and valuable consideration, Lender
and Borrower mutually covenant, warrant and agree as follows:
SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION AND
CONSTRUCTION.
SPECIFIC TERMS DEFINED. The following terms (including both the singular
and plurals thereof) shall have the following meanings unless the context
indicates otherwise:
1.1 "ACCOUNT DEBTOR" or "ACCOUNT DEBTOR" shall have the meaning ascribed
to such term in the UCC and shall also include a Person obligated for payment of
an Account.
<PAGE>
1.2 "ACCOUNTS" shall mean all "accounts" as defined in the UCC, and, in
addition, any and all obligations of any kind at any time due and/or owing to
Borrower, whether now existing or hereafter arising, and all rights of Borrower
to receive payment or any other consideration (whether classified under the UCC
of the State of New York or any other State as accounts, accounts receivable,
contract rights, chattel paper, general intangibles or otherwise) including,
without limitation, invoices, contract rights, accounts receivable, general
intangibles, choses-in-action, notes, drafts, acceptances, instruments and all
other debts, obligations and liabilities in whatever form owing to Borrower from
any person, firm, governmental authority, corporation or any other entity, all
security therefor, and all Borrower's rights to goods sold (whether delivered,
undelivered, in transit or returned), which may be represented thereby, or with
respect thereto, including, but not limited to, all rights as an unpaid vendor
(including stoppage in transit, replevin or reclamation), all additional amounts
due from any Account Debtor irrespective of whether such additional amounts have
been specifically assigned to Lender, together with all Proceeds and products of
any and all of the foregoing.
1.3 "ACCOUNTS ADVANCES" shall have the meaning set forth in Section 2.2.
1.4 "ACCOUNTS AVAILABILITY" shall have the meaning set forth in
Section 2.2.
1.5 "AFFILIATE" shall mean, in relation to any corporation, any Person
that (directly or indirectly) controls or is controlled by or is under common
control with such corporation. For the purposes of this definition, the term
"control", as used with respect to any person, shall mean the possession
(directly or indirectly) of the power to direct or to cause the direction of the
management or the policies of such person, whether through the ownership of any
class of stock or equity of such person or by contract or otherwise.
1.6 "AGREEMENT" shall mean this Loan and Security Agreement (including all
Schedules and Exhibits annexed hereto) as originally executed or, if amended,
modified, supplemented, renewed or extended from time to time, as so amended,
modified, supplemented, renewed or extended.
1.7 "BANK" shall mean Summit Bank or its successor.
1.8 "BASE" or "BASE RATE" shall mean the fluctuating rate of interest that
the Bank adopts on a daily basis as its official Base Rate. The Base Rate is
not tied to any external rate of interest or index and does not necessarily
reflect the lowest rate of interest actually charged at any given time by the
Bank to any particular class or category of customers of the Bank. Any change
in the Base Rate shall be effective immediately when adopted by the Bank,
without notice to Borrower.
2
<PAGE>
1.9 "BORROWER" shall mean MIDLAND USA, INC. and its successors.
1.10 "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any
other day on which banks located in the State of New Jersey or New York City are
authorized or required to close under applicable banking laws.
1.11 "CAPITAL ASSETS" shall mean, in accordance with GAAP, fixed assets,
both tangible (such as land, buildings, fixtures, machinery and equipment) and
intangible (such as patents, copyrights, trademarks, franchises and goodwill)
PROVIDED, THAT, Capital Assets shall not include any item depreciated or
amortized over a useful life of 12 months or less.
1.12 "CAPITAL EXPENDITURES" shall mean expenditures or obligations incurred
for the acquisition of Capital Assets.
1.13 "COLLATERAL" shall have the meaning as set forth in Section 5.1
hereof.
1.14 "CURRENT ASSETS" shall mean the assets of Borrower that are classified
as current assets in accordance with GAAP.
1.15 "CURRENT LIABILITIES" shall mean all liabilities of Borrower that are
classified as current liabilities in accordance with GAAP, including, but not
limited to, all obligations payable on demand or within one (1) year after the
date on which the determination is made.
1.16 "DEBT" shall mean, with respect to any Person, at any applicable time,
the aggregate sum of the following items:(a) the unpaid principal balance of all
indebtedness and liabilities owed to any other Person from time to time
(including any renewals, extensions and refundings thereof), whether or not the
indebtedness or liability was heretofore or hereafter created, issued, incurred,
assumed or guarantied, as determined in accordance with GAAP;(b) the unpaid
principal balance of all indebtedness or liabilities for the deferred purchase
price of property or services rendered (including accounts payable);(c) all
obligations as lessee under leases which have been or should be, in accordance
with GAAP, recorded as capitalized lease liabilities,(d) all Current Liabilities
in respect of unfunded vested benefits under any Plan covered by Title IV of
ERISA,(e) all obligations, contingent or otherwise relative to the face amount
of all letters of credit issued for said Person's account, whether or not
drawn;(f) all obligations outstanding under banker's acceptance facilities
issued for the account of said Person,(g) all guarantees, endorsements and other
contingent obligations to purchase, to provide funds for payments, to supply
funds to invest in any Person or otherwise to assure a creditor against loss,
and (h) all obligations secured by any mortgage, lien, pledge, or security
3
<PAGE>
interest or other charge or encumbrance on property of such Person, whether or
not the obligations have been assumed or there is liability for any deficiency.
1.17 "DEFAULT" shall mean any of the events of default as defined and
described in this Agreement, whether or not any requirement for the giving of
notice, passing of time, or both, or the happening of any other condition, has
been satisfied.
1.18 "DOCUMENTARY L/C ACCOMMODATION SUBLIMIT" shall have the meaning set
forth in Section 2.4(b).
1.19 "ELIGIBLE ACCOUNTS" shall mean the Accounts as to which Borrower has
furnished to Lender information adequate to identify the same, at such times and
in such form as has been or, from time to time may be, requested by Lender,
which meet all of the following criteria on the origination date of the said
Accounts and continuing thereafter until collected, and which is, in all other
respects, acceptable to Lender:
(a) Such Accounts shall be valid and legally enforceable, owing to
Borrower for the performance of services or the sale of goods arising in the
ordinary course of business for which Borrower has delivered, or, at the time of
origination of such Accounts, if required by Lender, will deliver to Lender,
invoices, billings and shipping documents and other documents evidencing the
obligation of Borrower's customer to pay such Accounts;
(b) Such Accounts are not unpaid more than ninety (90) days after the
date of the original invoice for them, PROVIDED THAT, in Lender's sole
discretion, with respect to certain Accounts for which dating has been given,
such Accounts are not unpaid more than one hundred twenty (120) days after the
date of the original invoice for them;
(c) Such Accounts do not arise from sales on consignment, progress
billings, guaranteed sale, sale and return, sale on approval, or other terms
under which payment by the account debtor may be conditional or contingent;
(d) Borrower is the sole owner of such Accounts and, other than
financing statements in favor of Lender, no financing statement covering such
Accounts or their proceeds is on file in any public office, and neither Borrower
nor Lender have received any notice of any proposed acquisition of any security
interest in such Accounts;
(e) The chief executive office of the account debtor with respect to
such Accounts is located in the United States of America, or, at Lender's
option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender, sufficient to cover such Account, in form and
4
<PAGE>
substance satisfactory to Lender and, if required by Lender, the original of
such letter of credit has been delivered to Lender or Lender's agent and the
issuer thereof notified of the assignment of the proceeds of such letter of
credit to Lender, or (ii) such Account is subject to credit insurance payable to
Lender issued by an insurer and on terms and in an amount acceptable to Lender;
(f) Such Accounts do not consist of bill and hold invoices or
retainage invoices;
(g) Such Accounts are not subject to any counterclaim, defense or
dispute and the account debtor with respect to such Accounts does not have, and
does not engage in transactions which may give rise to, any right of setoff
against such Accounts (but, in the discretion of Lender, the portion of the
Accounts of such account debtor in excess of the amount at any time and from
time to time owed by Borrower to such account debtor or claimed owed by such
account debtor may be deemed Eligible Accounts);
(h) No facts, events or occurrences exist which would impair the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;
(i) Neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent of
or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
(j) The account debtor with respect to any such Account is not any
foreign government. If the account debtor is the United States of America, any
State, political subdivision, department, agency or instrumentality thereof,
upon Lender's request, the Federal Assignment of Claims Act of 1940, as amended
or any similar State or local law, if applicable, has been complied with in a
manner satisfactory to Lender;
(k) To the best knowledge of Borrower, after due investigation, there
are no proceedings or actions which are threatened or pending against the
account debtors with respect to such Accounts which might result in any material
adverse change in any such account debtor's financial condition;
(l) Such Accounts of a single account debtor or its affiliates do not
constitute more than twenty-five (25%) percent of all otherwise Eligible
Accounts (but the portion of the Accounts not in excess of such percentage may
be deemed Eligible Accounts);
5
<PAGE>
(m) Such Accounts are not owed by an account debtor who has Accounts
unpaid more than ninety (90) days after the date of the original invoice for
them which constitute more than fifty (50%) percent of the total Accounts of
such account debtor; and
(n) Such Accounts are deemed creditworthy at all times by Lender, as
determined by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.20 "ELIGIBLE INVENTORY" shall mean the Inventory as to which Borrower has
furnished to Lender information adequate to identify the same at such times and
in such form as has been, or from time to time may be, requested by Lender,
which meets all of the following criteria on the date of any requested Inventory
Advance under this Agreement and while any Obligations are outstanding, and
which is, in all other respects, acceptable to Lender:
(a) Borrower is the sole owner of the Inventory, none of the
Inventory is being held by Borrower on a consignment basis, or on a bill and
hold basis, and Borrower has not sold, assigned, transferred, mortgaged or
hypothecated, nor released from Lender's security interest, all or any portion
thereof, nor are they subject to any claim or security interest of any Persons
(other than Lender);
(b) No Financing Statement covering any of the Inventory or its
proceeds is on file in any public office (other than the Financing Statement
filed by Lender), and neither Borrower nor Lender has received any notice of any
proposed acquisition of any security interest in the Inventory;
(c) If any of the goods are represented or covered by documents of
title, instruments or chattel paper, Borrower is the owner of all such
documents, instruments and chattel paper, and none of it has been sold or
transferred nor has any security interest in all or any portion thereof been
acquired or granted to any person;
(d) The Inventory is in good and marketable condition and meets all
standards imposed by any governmental agency, department or division thereof
having regulatory authority over such Inventory, its use or sale including, but
not limited to, the Federal Fair Labor Standards Act of 1938 as amended, and all
rules, regulations and orders thereunder;
6
<PAGE>
(e) The Inventory is currently either usable or salable in the normal
course of Borrower's business;
(f) The Inventory consists of finished goods or spare parts held for
resale in the ordinary course of the business of Borrower acceptable to Lender;
(g) The Inventory is current and not out of date;
(h) The Inventory is not damaged, defective or returned Inventory;
(i) The Inventory is located at premises owned or controlled by
Borrower and is not in the control or possession of third parties;
(j) Eligible L/C Inventory; and
(k) The Inventory is not Linear Modulation Inventory.
General criteria for Eligible Inventory may be established and revised from time
to time by Lender in good faith. Any Inventory which is not Eligible Inventory
shall nevertheless be part of the Collateral.
1.21 "ELIGIBLE L/C INVENTORY" shall mean all Inventory owned by Borrower
and covered by an L/C Accommodation and which Inventory is or will be in transit
to one of the Borrower's addresses set forth in Schedule B and which Inventory
(a) is fully insured and evidence thereof is provided to Lender;(b) is subject
to a first and only Lien upon such goods in favor of Lender;(c) all documents,
notices, instruments, statements and bills of lading relating thereto, if any,
which Lender may deem necessary or desirable to evidence ownership by Borrower
and/or to give effect to and protect the liens, security interests and other
rights of Lender in connection therewith, are delivered to Lender; and (d) is
otherwise deemed to be "Eligible Inventory" pursuant to Section 1.20 of the
Agreement.
1.22 "ENVIRONMENTAL LAW" or "ENVIRONMENTAL LAWS" shall mean all federal,
state and local laws, statutes, ordinances and regulations now or hereafter in
effect, and in each case as amended or supplemented from time to time, and any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment relating to the regulation and
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental
Laws include, but are not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 ET
SEQ.) ("CERCLA"); the Hazardous Material Transportation Act, as amended (49
U.S.C.
7
<PAGE>
Section 180 ET SEQ.); the Federal Insecticide, Fungicide, and Rodenticide
Act, as amended (7 U.S.C. Section 136 ET SEQ.); the Resource Conservation
and Recovery Act, as amended (42 U.S.C. Section 6901 ET SEQ.) ("RCRA"); the
Toxic Substance Control Act, as amended (42 U.S C. Section 7401 ET SEQ.);
the Clean Air Act, as amended (42 U.S.C. Section 740 ET SEQ.); the Federal
Pollution Control Act, as amended (33 U.S.C. Section 1251 ET SEQ); the
Occupational Safety and Health Act, as amended (29 U.S.C. Section 651 ET
SEQ.); the Safe Drinking Water Act, as amended (42 U.S.C. Section 300f ET
SEQ.); the Food, Drug and Cosmetic Act, as amended (21 U.S.C. Section 301 ET
SEQ.); the Medical Waste Tracking Act of 1988, Pub. L. No. 100-582, 102 Stat.
2950 (1988), and their state and local counterparts or equivalents.
1.23 "ENVIRONMENTAL LIABILITIES AND COSTS" shall mean, as to any Person,
all liabilities obligations, responsibilities, remedial actions, losses,
damages, punitive damages, consequential damages, treble damages, costs and
expenses (including all reasonable fees, disbursements and expenses of counsel,
experts and consultants and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand by any other Person, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute, including any
Environmental Law, permit, order or agreement with any Governmental Authority or
other Person, and which arise from any environmental, health or safety
conditions, or a Release or conditions that are reasonably likely to result in a
Release, and result from the past, present or future operations of such Person
or any of its Subsidiaries.
1.24 "ENVIRONMENTAL LIEN" shall mean any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.
1.25 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same now exists or may from time to time hereafter be amended,
modified, recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.26 "EQUIPMENT" shall mean "equipment", as such term is defined in the
UCC, now owned or hereafter acquired by Borrower and, wherever located, and
shall include, without limitation, all equipment, machinery, furniture,
fixtures, computer equipment, telephone equipment, molds, tools, dies,
partitions, tooling, transportation equipment, all other tangible assets used in
connection with the manufacture, sale or lease of goods or rendition of
services, and Borrower's interests in any leased equipment, and all repairs,
modifications, alterations, additions, controls and operating accessories
thereof or thereto, and all substitutions and replacements therefor.
1.27 "EXCESS CASH FLOW" shall have the meaning set forth in Section 10.17.
8
<PAGE>
1.28 "EVENT OF DEFAULT" shall mean the occurrence or existence of any event
or condition described in Section 11 of this Agreement.
1.29 "FINANCING STATEMENTS" shall mean the Uniform Commercial Code UCC-1
Financing Statements to be filed with applicable governmental authorities of
each State or Commonwealth or political subdivisions thereof where the
Collateral is or may hereafter be located pursuant to which Lender shall perfect
its security interest in the Collateral.
1.30 "FISCAL YEAR" shall mean that twelve (12) month period (or such other
twelve (12) month period as agreed upon by Borrower and Lender) commencing on
October 1 and ending on September 30 of each year.
1.31 "FOREIGN EXCHANGE LETTERS OF CREDIT" shall mean standby letters of
credit issued for the benefit of Borrower in the ordinary course of Borrower's
business as presently conducted in connection with currency hedging
transactions.
1.32 "FX L/C ACCOMMODATION SUBLIMIT" shall have the meaning set forth in
Section 2.4(b).
1.33 "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" OR "GAAP" shall mean
generally accepted principles and practices for financial statements as
promulgated and modified from time to time by the Accounting Principles Board,
American Institute of Certified Public Accountants and the Financial Accounting
Standards Board, which are applicable to the circumstances as of the date of any
determination, applied on a consistent basis.
1.34 "GOVERNMENTAL AUTHORITY" or "GOVERNMENTAL AUTHORITIES" shall mean any
federal, state, county or municipal governmental agency, board, commission,
officer, official or entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government whose
consent or approval is required as a prerequisite to (a) the continued
uninterrupted operation of Borrower's business operations, or (b) the
performance of any act or obligation or the observance of any agreement or
condition of Borrower under this Agreement or the other Loan Documents.
1.35 "GUARANTOR" shall mean any Person that now or hereafter guaranties any
of the Obligations of Borrower to Lender or executes a validity guaranty in
favor of Lender.
1.36 "GUARANTY" shall mean any guaranty, including, without limitation, any
validity guaranty, now or hereafter executed and delivered to Lender by any
Guarantor.
9
<PAGE>
1.37 "INDEBTEDNESS" shall mean all of the obligations of Borrower which, in
accordance with GAAP, should be classified upon Borrower's balance sheet as
liabilities, or to which reference should be made by footnotes thereto,
including without limitation, in any event and whether or not so classified:
(a) all debt and similar monetary obligations of Borrower, whether
direct or indirect, including, without limitation, Subordinated Debt;
(b) all obligations of Borrower arising or incurred under or in
respect of any guaranties (whether direct or indirect) by Borrower of the
indebtedness, obligations or liabilities of any other Person; and
(c) all obligations of Borrower arising or incurred under or in
respect of any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property owned by such Person, even though such
Person has not assumed or become liable for the payment of such obligations.
1.38 "INVENTORY" shall mean any "inventory," as such term is defined in the
UCC, now owned or hereafter acquired by Borrower, wherever located, and, in any
event, shall include, without limitation, all raw materials, work-in-process,
finished and semi-finished Inventory including, without limitation, all
materials, parts, components and supplies relating to the manufacture or
assembly thereof, packaging and shipping supplies relating thereto, and all
other inventory, merchandise, goods and other personal property now or hereafter
owned by Borrower, which are held for sale, exchange or lease or are furnished
or are to be furnished under a contract of service or an exchange arrangement or
which constitute raw materials, work-in-process or materials used or consumed or
to be used or consumed in Borrower's business, or the processing, packaging,
delivery or shipping of the same, and all finished goods and the products of the
foregoing, whatever form and wherever located; and all names or marks affixed to
or to be affixed thereto for purposes of selling same by the seller,
manufacturer, lessor or licensor thereof and all right, title and interest of
Borrower therein and thereto;
1.39 "INVENTORY ADVANCES" shall have the meaning set forth in Section 2.3.
1.40 "INVENTORY AVAILABILITY" shall have the meaning set forth in Section
2.3.
1.41 "LENDER" shall mean SUMMIT COMMERCIAL/GIBRALTAR CORP. and its
successors and assigns.
1.42 "L/C ACCOMMODATIONS" shall have the meaning set forth in Section 2.4.
10
<PAGE>
1.43 "LIEN" or "LIEN" shall mean any mortgage, deed of trust, pledge,
security interest, hypothecation, assignment, lien (statutory or other), charge,
or other encumbrance of any kind or nature whatsoever (including, without
limitation, pursuant to any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the UCC or comparable
law of any jurisdiction to evidence any of the foregoing) on personal or real
property or fixtures.
1.44 "LINEAR MODULATION INVENTORY" shall mean any finished goods inventory
owned by Borrower which is purchased from Securicor Radiocom Limited and which
consists of inventory utilizing linear modulation narrow band radio technology.
1.45 "LOAN" shall have the meaning set forth in Section 2.1.
1.46 "LOAN ACCOUNT" shall have the meaning set forth in Section 2.9.
1.47 "LOAN DOCUMENTS" shall mean this Agreement and any and all other
agreements, notes, documents, mortgages, financing statements, guaranties
certificates and instruments executed and/or delivered by Borrower or any other
Person to Lender pursuant to and in connection with the Loan and this Agreement,
together with any amendments, modifications, supplements, renewals and
extensions thereof or thereto.
1.48 "MAXIMUM CREDIT" shall mean the amount of $5,000,000.
1.49 "NET AMOUNT OF ELIGIBLE ACCOUNTS" shall mean the gross amount of
Eligible Accounts less sales, excise or similar taxes included in the amount
thereof and less returns, discounts, claims, credits and allowances of any
nature at any time issued, owing, granted, outstanding, available or claimed
with respect thereto.
1.50 "NET AVAILABILITY" shall mean the sum of the Accounts Availability and
Inventory Availability LESS any Reserves.
1.51 "NET INCOME" shall mean, for any applicable period, all revenues of
Borrower for such period derived from whatever source determined in accordance
with GAAP, reduced by all expenses of Borrower, whether operating, non-operating
or extraordinary.
1.52 "OBLIGATIONS" shall mean any and all Loans and all other obligations,
liabilities and indebtedness of every kind, nature and description owing by
Borrower to Lender and/or its Affiliates, including, without limitation,
principal, interest, charges, fees, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor
11
<PAGE>
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including, without limitation, the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.53 "OBLIGATION" shall mean any one of the Obligations.
1.54 "PARTICIPANT" shall mean any Person or entity which at any time
participates with Lender in respect of all or any portion of the Obligations of
Borrower or any of them.
1.55 "PERMITTED ENCUMBRANCES" shall mean the following: (a)security
interests and liens granted to Lender or its Affiliates; (b) purchase money
security interests in favor of equipment vendors upon any Capital Assets
hereafter acquired (including, without limitation, capitalized or finance
leases); PROVIDED THAT,(i) no such purchase money or other mortgage, lien or
security interest (or capitalized or finance lease, as the case may be) with
respect to specific future Capital Assets or as refinanced shall extend to or
cover any other property, other than the specific Capital Assets so acquired,
and the proceeds thereof,(ii) such mortgage, lien or security interest only
secures the cost or obligation to pay the purchase price of such specific
Capital Assets (or the obligations under the capitalized or finance lease) and
(iii) the principal amount secured thereby shall not exceed one hundred (100%)
percent of the cost of the Capital Assets so acquired; and (c) the leases,
security interests, liens and other encumbrances as set forth on SCHEDULE A
annexed hereto and made a part hereof.
1.56 "PERSON" or "PERSON" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.
1.57 "PROCEEDS" shall have the meaning ascribed to such term in the UCC and
shall also include, but not be limited to, (a)any and all proceeds of any and
all insurance (including, without limitation, life insurance, business
interruption insurance and credit insurance), indemnity, warranty or guaranty
payable to Borrower from time to time with respect to any of the Collateral or
otherwise,(b) any and all payments (in any form
12
<PAGE>
whatsoever) made or due and payable to Borrower from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental body, authority, bureau or
agency or any other Person (whether or not acting under color of Governmental
Authority) and (c) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
1.58 "RESERVES" shall mean, as of any date of determination, such amounts
as Lender may from time to time establish and revise in good faith reducing the
amount of Revolving Loans and L/C Accommodations which would otherwise be
available to Borrower under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as determined by
Lender in good faith, do or may affect either (i) the Collateral or any other
property which is security for the Obligations or its value,(ii) the assets,
business or prospects of Borrower or any Obligor or (iii) the security interests
and other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof); or (b) to reflect outstanding L/C
Accommodations as provided in Section 2.4; or (c) in respect of any state of
facts which Lender determines in good faith constitutes an Event of Default or
may, with notice or passage of time or both, constitute an Event of Default.
1.59 "REVOLVING LOANS" shall mean the Accounts Advances, Inventory Advances
and any other advance now or hereafter made by Lender to or for the benefit of
Borrower on a revolving basis (involving advances, repayments and readvances)
pursuant to the terms of this Agreement.
1.60 "STANDBY L/C ACCOMMODATION SUBLIMIT" shall have the meaning set forth
in Section 2.4(b).
1.61 "SUBORDINATED CREDITORS" shall have the meaning set forth in Section
10.16.
1.62 "SUBORDINATION AGREEMENT" shall have the meaning set forth in Section
10.16.
1.63 "SUBORDINATED DEBT" shall mean, at any particular time, all of the
Indebtedness of Borrower that shall be expressly subordinated upon written terms
and conditions, satisfactory to Lender, in right of payment to the prior payment
in full of all of the Obligations.
1.64 "SUBSIDIARY" shall mean, as to any Person, a corporation with respect
to which more than fifty (50%) percent of the outstanding shares of stock of
each class
13
<PAGE>
having voting power is at the time owned by such Person or by one or more
Subsidiaries of such Person or by such Person.
1.65 "TANGIBLE NET WORTH" shall mean, as to Borrower, at any applicable
time, the excess of total assets over total liabilities each to be determined in
accordance with GAAP consistently applied excluding however from the
determination of total assets, all amounts due from any Affiliate, and all
assets which would be classified as intangible assets under GAAP including,
without limitation, goodwill, patents, trade names, trademarks, copyrights and
franchises and excluding from liabilities, indebtedness which is Subordinated
Debt.
1.66 "TERM" shall have the meaning set forth in Section 4.1.
1.67 "TERMINATION FEE DEFAULT" shall mean the occurrence of any one or more
of the following: the non-payment when due of any of the Obligations; or if any
warranty or representation or other statement furnished to Lender by Borrower
herein or in any of the other Loan Documents furnished in connection herewith,
proves to have been false or misleading in any material respect when made or
furnished; or the breach of those covenants contained herein or in the other
Loan Documents providing for the proper maintenance and insurance of the
Collateral, and providing for the Collateral to remain free from liens and
security interests except as permitted herein; or the occurrence of an Event of
Default specified in Sections 11.6, 11.7, 11.10, 11.16, 11.17 or 11.18.
1.68 "TERM LOAN" shall have the meaning set forth in Section 2.5.
1.69 "TERM NOTE" shall have the meaning set forth in Section 2.5.
1.70 "TRADESTYLE" AND "TRADESTYLES" shall have the meaning set forth in
Section 9.18.
1.71 "UCC" shall mean the Uniform Commercial Code as enacted in New York
(or any successor legislation thereto), as the same may be amended from time to
time, and the state counterparts thereof as may be enacted in such states or
jurisdictions where any of the Collateral is located or held.
1.72 "VALUE" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost or (b) market.
1.73 "WORKING CAPITAL" shall mean as to Borrower, at any applicable time,
the amount equal to the difference between: (a) the aggregate net book value of
all Current
14
<PAGE>
Assets of Borrower and its subsidiaries, and (b) all Current Liabilities of
Borrower and its subsidiaries.
1.74 RULES OF INTERPRETATION AND CONSTRUCTION. In this Agreement unless
the context otherwise requires:
(a) All terms used herein which are defined in the UCC (as presently
in effect in the State of New York) shall have the meanings given therein unless
otherwise defined in this Agreement;
(b) Sections mentioned by number only are the respective Sections of
this Agreement as so numbered;
(c) Words importing a particular gender shall mean and include the
other gender and words importing the singular number mean and include the plural
number and vice versa;
(d) Words importing persons shall mean and include firms,
associations, partnerships (including limited partnerships), societies, trusts,
corporations or other legal entities, including public or governmental bodies,
as well as natural persons;
(e) Each reference in this Agreement to a particular person shall be
deemed to include a reference to such person's successors and permitted assigns;
(f) Any headings preceding the texts of any Section of this
Agreement, and any table of contents or marginal notes appended to copies hereof
are intended, solely for convenience of reference and shall not constitute a
part of this Agreement, nor shall they affect its meaning, construction or
effect;
(g) If any clause, provision or section of this Agreement shall be
ruled invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any of the remaining
provisions thereof;
(h) The terms "herein", "hereunder", "hereby", "hereto", and any
similar terms as used in this Agreement refer to this agreement; the term
"heretofore" means before the date of execution of this Agreement; and the term
"hereafter" shall mean after the date of execution of this Agreement;
(i) This Agreement and all matters relating hereto shall be governed
by and construed and interpreted in accordance with the laws of the State of New
York (without reference to conflict of laws rules);
15
<PAGE>
(j) If any clause, provision or section of this Agreement shall be
determined to be apparently contrary to or conflicting with any other clause,
provision or section of this Agreement, then the clause, provision or section
containing the more specific provisions shall control and govern with respect to
such apparent conflict;
(k) Unless otherwise specified,(i) all accounting terms used herein
or in any Loan Document shall be interpreted in accordance with GAAP,(ii) all
accounting determinations and computations hereunder or thereunder shall be made
in accordance with GAAP, and (iii) all financial statements required to be
delivered hereunder or thereunder shall be prepared in accordance with GAAP; and
(l) An Event of Default shall exist or continue or be continuing
unless such Event of Default is waived by Lender in accordance with the terms of
this Agreement.
(m) The word "and" when used from time to time herein shall mean "or"
or "and/or" if such meaning is expansive of the rights or interests of Lender in
the given context.
SECTION 2. LOANS AND ADVANCES.
2.1 COMMITMENT. Subject to the terms and conditions hereof and of the
other Loan Documents, Lender agrees to make available to Borrower a revolving
line of credit consisting of such loans, advances and other financial
accommodations as are described in Sections 2.2, 2.3 and 2.4 hereof and a term
loan as described in Section 2.5 hereof (collectively, the "LOAN").
2.2 ACCOUNTS ADVANCES.
(a) Lender agrees to make loans and advances to Borrower, from time
to time, in its sole discretion, in respect of Borrower's Eligible Accounts
("ACCOUNTS ADVANCES") in an amount equal to eighty-five (85%) percent (or such
lesser percentage as Lender may determine) of the Net Amount of Eligible
Accounts ("ACCOUNTS AVAILABILITY").
(b) Any Account which Lender determines to be ineligible or
unacceptable for borrowing purposes at any time shall nevertheless be and remain
at all times part of the Collateral (as defined below).
2.3 INVENTORY ADVANCES.
16
<PAGE>
(a) In addition to the Accounts Advances, Lender agrees to make loans
and advances to Borrower, from time to time, in its sole discretion, in respect
of Borrower's Eligible Inventory ("INVENTORY ADVANCES") in an amount equal to
(i) fifty (50%) percent (or such lesser percentage as Lender may determine) of
the Value of Borrower's Eligible Inventory consisting of finished goods and, in
the case of Eligible L/C Inventory, net of all duty, freight, taxes, costs,
insurance and other charges and expenses which may pertain to such Eligible L/C
Inventory or (ii) twenty-five (25%) percent (or such lesser percentage as Lender
may determine) of the Value of Borrower's Eligible Inventory consisting of spare
parts ("INVENTORY AVAILABILITY"); EXCEPT THAT, in Lender's sole discretion, (x)
the aggregate principal amount of Inventory Advances made by Lender to Borrower
shall not, at any time outstanding, exceed $2,500,000 and (y) the aggregate
principal amount of Inventory Advances made by Lender to Borrower in respect of
Eligible Inventory consisting of spare parts shall not, at any time outstanding,
exceed $250,000.
(b) Any Inventory which Lender determines at any time to be
ineligible or unacceptable for borrowing purposes shall nevertheless be and
remain at all times part of the Collateral.
2.4 L/C ACCOMMODATIONS.
(a) Lender may, in its sole discretion, issue or cause to be issued,
from time to time at Borrower's request and on terms and conditions and for
purposes satisfactory to Lender, credit accommodations consisting of letters of
credit, bankers' acceptances, merchandise purchase guaranties or other
guaranties or indemnities for Borrower's account ("L/C ACCOMMODATIONS").
Borrower shall execute and perform additional agreements relating to the L/C
Accommodations in form and substance acceptable to Lender and the issuer of any
L/C Accommodations, all of which shall supplement the rights and remedies
granted herein. Any payments made by Lender or any affiliate of Lender in
connection with the L/C Accommodations shall constitute additional Revolving
Loans to Borrower.
(b) No L/C Accommodation will be issued unless the full amount of the
L/C Accommodation requested, plus fees and costs for issuance, is less than the
Net Availability existing immediately prior to the issuance of the requested L/C
Accommodation, but including within the calculation thereof any Eligible L/C
Inventory to be purchased or acquired by Borrower under such requested L/C
Accommodation, or if the requested L/C Accommodation would cause the outstanding
Obligations to exceed the Maximum Credit, or cause the open amount of all L/C
Accommodations to exceed, at any one time outstanding, the amount of (i)
$1,500,000 for standby letters of credit ("STANDBY L/C ACCOMMODATION
SUBLIMIT"),(ii) $2,000,000 for documentary letters of credit
17
<PAGE>
("DOCUMENTARY L/C ACCOMMODATION SUBLIMIT"), and (iii) $300,000 for Foreign
Exchange Letters of Credit ("FX L/C ACCOMMODATION SUBLIMIT").
(c) All indebtedness, liabilities and obligations of any sort
whatsoever, however arising, whether present or future, fixed or contingent,
secured or unsecured, due or to become due, paid or incurred, arising or
incurred in connection with any L/C Accommodation shall be included in the
Obligations, and shall include, without limitation,(i) all amounts due or which
may become due under any L/C Accommodation; (ii)all amounts charged or
chargeable to Borrower or to Lender by any bank, other financial institution or
correspondent bank which opens, issues or is involved with such L/C
Accommodations; (iii)Lender's L/C Accommodation Charges and all fees, costs and
other charges of any issuer of any L/C Accommodation; and (iv) all duties,
freight, taxes, costs, insurance and all such other charges and expenses which
may pertain directly or indirectly to any Obligations or L/C Accommodations or
to the goods or documents relating thereto.
(d) Borrower unconditionally agrees to indemnify and hold Lender
harmless from any and all loss, claim or liability (including reasonable
attorneys' fees) arising from any transactions or occurrences relating to any
L/C Accommodation established or opened for Borrower's account, the Collateral
relating thereto and any drafts or acceptances thereunder, including any such
loss or claim due to any action taken by an issuer of any L/C Accommodation.
Borrower further agrees to indemnify and hold Lender harmless for any errors or
omissions in connection with the L/C Accommodations,(i) caused by Lender, unless
such error or omission is caused as a sole result of Lender's willful misconduct
or gross negligence or (ii) caused by the issuer of any L/C Accommodation or
otherwise. Borrower's unconditional obligation to indemnify and hold Lender
harmless under this provision shall not be modified or diminished for any reason
or in any manner whatsoever, except for Lender's willful misconduct or gross
negligence. Borrower agrees that any charges made to Lender by any issuer of
any L/C Accommodation shall be conclusive on Borrower and may be charged to
Borrower's account.
(e) Lender shall not be responsible for: the conformity of any goods
to the documents presented; the validity or genuineness of any documents; delay,
default, or fraud by Borrower or shipper and/or anyone else in connection with
the L/C Accommodations or any underlying transaction.
(f) Borrower agrees that any action taken by Lender, if taken in good
faith, or any action taken by an issuer of any L/C Accommodation, under or in
connection with any L/C Accommodation, shall be binding on Borrower and shall
not create any resulting liability to Lender. In furtherance thereof, Lender
shall have the full right and authority to clear and resolve any questions of
non-compliance of documents; to give any
18
<PAGE>
instructions as to acceptance or rejection of any documents or goods; to execute
for Borrower's account any and all applications for steamship or airway
guarantees, indemnities or delivery orders; to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents; and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the applications or L/C Accommodations. All of the foregoing actions may be
taken in Lender's sole name, and the issuer thereof shall be entitled to comply
with and honor any and all such documents or instruments executed by or received
solely from Lender, all without any notice to or any consent from Borrower.
None of the foregoing actions described in this subsection (f) may be taken by
Borrower without Lender's express written consent, which consent shall not be
unreasonably withheld.
2.5 TERM LOAN. In addition to the Revolving Loans and L/C Accommodations,
Lender has contemporaneously herewith made an additional advance to Borrower in
the sum of $-0- (the "TERM LOAN"). The Term Loan shall be evidenced by a
Promissory Note (the "TERM NOTE"). The indebtedness evidenced by the Term Note
shall be payable as set forth therein. As of the date hereof, Borrower
acknowledges, confirms and agrees that Borrower has no right to request and
Lender has no obligation to make whatsoever any Term Loan to Borrower.
2.6 MAXIMUM CREDIT. Except in Lender's sole discretion, the aggregate
principal amount of the Loan shall not exceed the Maximum Credit.
2.7 RESERVES. Without limiting any other rights and remedies of Lender
hereunder or under the other Loan Documents, all loans, advances or financial
accommodations made or otherwise available to Borrower shall be subject to
Lender's continuing right, in its sole discretion, to withhold from Borrower's
availability under the Loan, a reserve, and to increase and decrease such
reserve from time to time, if and to the extent that, in Lender's sole judgment,
reasonably exercised, such reserve is necessary to protect the interests of
Lender against possible non-payment of Accounts, for any reason, by Account
Debtors, possible non-payment by Borrower of any Indebtedness owed to, or liens
held by, third parties, or to protect the interests of Lender against the
possible adverse effect of any state of facts which does or would, with notice
or passage of time or both, constitute an Event of Default hereunder.
2.8 OVERLINE AND OVERFORMULA RIGHTS. Lender may, from time to time, in
its sole discretion, permit the outstanding amounts of any components of, or the
aggregate outstanding amounts of, the loans, advances or other financial
accommodations to exceed the formulas or limitations set forth in Sections 2.2
through 2.6 hereof. In any such event, and without limiting the rights of
Lender to demand payment of the Loan in whole or in part at any time and from
time to time, Borrower shall, upon demand by Lender, which may be
19
<PAGE>
made at any time and from time to time, immediately repay to Lender, and/or
furnish cash collateral to Lender for, such portion of the outstanding loans,
advances or other financial accommodations which equals the amount(s) by which
the formulas or the limitations set forth herein have been exceeded.
2.9 THE LOAN ACCOUNTS. Lender will open and maintain a loan account or
loan accounts (collectively, the "LOAN ACCOUNT") on its books in the name of
Borrower with respect to the Loan. Lender shall render to Borrower on or before
the tenth (10th) Business Day of each month a statement of the Loan Account
which statement shall be considered correct and accepted by Borrower and binding
upon Borrower unless Lender is notified to the contrary within ten (10) days
from the receipt of such statement; provided, however, that the failure of
Lender to render any such statement in a timely fashion shall not impair the
validity or binding nature of the Loan Account.
2.10 USE OF PROCEEDS. Borrower shall use the initial proceeds of loans and
advances made to it hereunder, together with other funds of Borrower, to pay any
and all outstanding Indebtedness of Borrower to those parties listed on the Pay
Proceeds Authorization executed and delivered by Borrower contemporaneously
herewith and for the payment of all fees, costs and expenses associated with or
related to the execution and delivery of this Agreement or any transaction
related hereto or contemplated herewith. Borrower shall use the proceeds of all
future loans, advances and other financial accommodations made to it hereunder,
for general operating and working capital purposes in the conduct of its
business.
SECTION 3. INTEREST, FEES AND CHARGES.
3.1 INTEREST. All Obligations, including the Loans made by Lender
pursuant to this Agreement, shall bear interest at the rate of one and one-half
(1 1/2%) percent per annum in excess of the Base Rate, and shall be calculated
on the basis of a 360-day year. Such interest shall be due and payable, in
arrears, at the close of each month in such interest, as well as any other fees
due and payable hereunder to Lender, may, at Lender's option, be charged to any
Loan Account maintained by Lender. On or after the occurrence of any Event of
Default, or termination or non-renewal of this Agreement, interest on all
outstanding unpaid Obligations shall accrue at a rate equal to two (2%) percent
per annum in excess of the pre-default rate set forth above from the date of
such Event of Default or termination or non-renewal, and all interest accruing
hereunder shall thereafter be payable on demand. No provision of this Agreement
shall require the payment or permit the collection of interest in excess of the
rate then permitted by applicable law, provided, that if any provision is so
limited by such applicable law, the interest shall be the maximum amount
permitted thereunder.
20
<PAGE>
3.2 FACILITY FEES.
(a) Borrower shall pay Lender a Closing Facility Fee in the amount of
one (1%) percent of the Maximum Credit, which Closing Facility Fee shall be
fully earned and payable on the date hereof.
(b) Borrower shall pay Lender an annual Facility Fee payable as
follows: (i) on the first anniversary of the date of this Agreement, Lender
shall receive a Facility Fee in the amount of one half of one (1/2%) percent of
the Maximum Credit, which Facility Fee shall be fully earned as of, and shall be
payable on, the first anniversary of the date hereof; and (ii) on the first
(1st) day of each renewal term of this Agreement, Lender shall receive a
Facility Fee in the amount of one-half (1/2%) percent of the Maximum Credit,
with such Facility Fee being fully earned as of, and shall be payable on, the
first (1st) day of each such renewal Term.
3.3 L/C ACCOMMODATION CHARGES. In addition to the customary fees and
costs of any issuing bank in connection with administering L/C Accommodations
(e.g., examining, wiring, set up and amendment fees), (a) with respect to any
L/C Accommodation which is a standby letter of credit, Borrower shall pay to
Lender, on the opening or issuance of such L/C Accommodation, a charge on such
open L/C Accommodation at a rate per annum equal to two (2%) percent per annum
of the face amount of any such L/C Accommodation but in no event shall such L/C
Accommodation charge be less than one (1%) percent of the face amount of such
L/C Accommodation; (b) with respect to any L/C Accommodation which is a
documentary letter of credit, Borrower shall pay to Lender on the opening or
issuance of such L/C Accommodation or if the original term is extended on the
extension thereof, a charge of three quarters of one (3/4%) percent of the face
amount of any such L/C Accommodation (other than drafts or acceptances) for up
to the initial ninety (90) days of the term thereof and an additional charge of
three quarters of one (3/4%) percent of such face amount for each additional
ninety (90) days, or any portion thereof; and (c) with respect to any L/C
Accommodation which is a Foreign Exchange Letter of Credit, Borrower shall pay
to Lender, on the opening or issuance of such L/C Accommodation, a charge on
such open L/C Accommodation at a rate per annum equal to one (1%) percent per
annum of the face amount of any such L/C Accommodation (collectively, the "L/C
ACCOMMODATION CHARGES"). Except for the opening or issuance fees set forth in
Section 3.3(a), (b) and (c) above, Borrower shall not be responsible for the
payment of any additional letter of credit issuance or opening fees of any
issuing bank.
3.4 ACCOUNT SERVICING FEE. Borrower shall pay to Lender an account
servicing fee in an amount equal to $1,000 on or before the first (1st) day of
each calendar month, in respect of Lender's services for the preceding calendar
month, during the term,
21
<PAGE>
including all renewal terms, of this Agreement or so long as any of the
Obligations are outstanding.
3.5 MINIMUM BORROWING FEE. No Minimum Borrowing Fee shall be payable
under this Agreement.
3.6 UNUSED LINE FEE. No Unused Line Fee shall be payable under this
Agreement.
3.7 EARLY TERMINATION FEE. If Lender terminates this Agreement upon or
after the occurrence of any Termination Fee Default, or if Borrower shall
terminate this Agreement as permitted herein effective prior to the end of the
initial term or the end of any renewal term, in addition to all other
Obligations, Borrower shall pay to Lender, upon the effective date of
termination, in view of the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits, an early termination fee equal
to:
(a) Three (3%) percent of the Maximum Credit if such termination
occurs after the date hereof, but on or prior to the first anniversary of the
date hereof; and
(b) One (1%) percent of the Maximum Credit if such termination occurs
after the first anniversary of the date hereof but prior to the second
anniversary of the date hereof; and
(c) One (1%) percent of the Maximum Credit if such termination occurs
at any time after the second anniversary of the date hereof but prior to any
anniversary of the date hereof;
EXCEPT THAT, no Early Termination Fee shall be payable by Borrower to
Lender if, and only if: (i) Borrower has requested in writing ("Notice") that
Lender increase the Maximum Credit to an amount not to exceed the sum of
Borrower's average Accounts Availability plus average Inventory Availability for
the immediately preceding sixty (60) consecutive days prior to the date of the
Notice (the "Proposed Increased Maximum Credit"), and Lender, in its sole
discretion, has elected not to increase the Maximum Credit; and (ii) Borrower
has provided Lender with sixty (60) days prior written notice of termination of
this Agreement solely as a result of Lender's refusal to increase the Maximum
Credit to the Proposed Increased Maximum Credit; and (iii) as of the date of
termination in accordance with clause (ii) hereof, no Event of Default exists.
3.8 FEES AND EXPENSES. Borrower shall pay, on Lender's demand, all costs,
expenses, filing fees and taxes payable in connection with the preparation,
execution,
22
<PAGE>
delivery, recording, administration, collection, liquidation, enforcement and
defense of the Obligations, Lender's rights in the Collateral, this Agreement,
the other Loan Documents, and all other existing and future agreements or
documents contemplated herein or related hereto, including any amendments,
waivers, supplements or consents which may now or hereafter be made or entered
into in respect hereof, or in any way involving claims or defenses asserted by
Lender or claims or defenses against Lender asserted by Borrower, any Guarantor
or any third party directly or indirectly arising out of or related to the
relationship between Borrower and Lender or any Guarantor and Lender, including,
but not limited to the following, whether incurred before, during or after the
initial or any renewal Term or after the commencement of any case with respect
to Borrower or any Guarantor under the United States Bankruptcy Code or any
similar or successor statute:(a) all costs and expenses of filing or recording
(including UCC Financing Statement filing fees and taxes, documentary stamp
taxes, intangibles taxes and mortgage recording taxes and fees, if
applicable);(b) all title insurance and other insurance premiums, appraisal
fees, fees incurred in connection with any environmental report and audit,
survey and search fees and charges;(c) all fees relating to the wire transfer of
loan proceeds and other funds and fees for returned checks;(d) all out-of-pocket
expenses and costs heretofore and from time to time hereafter incurred by Lender
during the course of periodic field examinations of the Collateral and
Borrower's operations, plus a per diem charge at the rate of $750 per person,
per day for Lender's examiners in the field and office PROVIDED THAT, prior to
the occurrence of the Event of Default, Borrower's obligation to reimburse
Lender for such per diem charges for Lender's examiners in the field and office
incurred by Lender during the course of periodic field examinations of the
Collateral and Borrower's operations shall not exceed in any one calendar year
the aggregate amount of $4,500 plus all out-of-pocket expenses and costs; and
(e) the costs, disbursements and reasonable fees of counsel to Lender.
3.9 RIGHT TO CHARGE ACCOUNT. At Lender's option, all principal, interest,
fees, costs, expenses and other charges provided for in this Agreement, or in
any other agreement now or hereafter existing between Lender and Borrower, shall
be deemed Obligations secured by the Collateral and may be charged to any Loan
Account of Borrower maintained by Lender. All interest, fees and charges
payable by Borrower to Lender based on a per annum rate shall be calculated on
the basis of actual days elapsed over a 360-day year.
SECTION 4. TERM.
4.1 TERM. This Agreement shall continue in full force and effect for a
term (the "TERM") of two (2) years from the date hereof and shall be deemed
automatically renewed for successive terms of one (1) year thereafter unless
terminated as of the end of the initial
23
<PAGE>
Term or any renewal Term by either party giving the other written notice at
least sixty (60) days' prior to the end of the then-current Term.
4.2 EARLY TERMINATION. Borrower may also terminate this Agreement by
giving Lender at least sixty (60) days prior written notice at any time upon
payment in full of all of the Obligations as provided herein, including the
early termination fee provided for in Section 3.7. Lender shall also have the
right to terminate this Agreement at any time upon or after the occurrence of an
Event of Default.
4.3 EFFECT OF TERMINATION. Upon termination of this Agreement by Borrower
as permitted herein, or upon termination by Lender upon or after the occurrence
of an Event of Default, in addition to payment of all Obligations which are not
contingent, Borrower shall deposit such amount of cash collateral as Lender
determines is necessary to secure Lender from loss, cost, damage or expense,
including reasonable attorneys' fees, in connection with any open L/C
Accommodations or remittance items or other payments provisionally credited to
the Obligations and/or to which Lender has not yet received final and
indefeasible payment.
SECTION 5. COLLATERAL.
5.1 SECURITY INTERESTS IN BORROWER'S ASSETS. As collateral security for
the payment and performance of the Obligations, Borrower hereby grants and
conveys to Lender a continuing security interest in and lien upon all now owned
and hereafter acquired property and assets of Borrower and the Proceeds and
products thereof (which property and assets, together with all other collateral
security for the Obligations now or hereafter granted to or otherwise acquired
by Lender, are referred to herein collectively as the "COLLATERAL"), including,
without limitation, all property of Borrower now or hereafter held or possessed
by Lender and including the following:
(a) All now owned and hereafter acquired: Accounts; contract rights;
chattel paper (including, but not limited to, rentals and other amounts payable
under leases of equipment to customers pursuant to which Borrower is the lessor
or assignee of any lessor); tax and duty refunds; general intangibles to the
extent relating to the Accounts and Inventory; goodwill; customer and mailing
lists; life insurance policies; licenses (whether as licensor or licensee),
franchises and permits; Documents (including, without limitation, all warehouse
receipts); instruments; all guaranties, letters of credit, steamship guaranties,
airway releases or other similar guaranties, agreements or property securing or
relating to any of the items referred to above (including, but not limited to,
purchase money security interests granted by Account Debtors in connection with
installment sales); all cash monies, investment properties, deposits,
securities, bank accounts, deposit
24
<PAGE>
accounts, credits and other property now or hereafter held in any capacity by
Lender or any Participant in the financing of Borrower;
(b) Inventory;
(c) All now owned and hereafter acquired right, title and interests
of Borrower in, to and in respect of any real or other personal property in or
upon which Lender has or may hereafter have a security interest, lien or right
of setoff;
(d) All of Borrower's existing and future leasehold interests in
premises or facilities leased from third parties by Borrower;
(e) All present and future books and records relating to any of the
above including, without limitation, all present and future books of account of
every kind or nature, purchase and sale agreements, invoices, ledger cards,
bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to any of
the foregoing maintained with or by any other person); and
(f) Any and all products and Proceeds of the foregoing in any form
including, without limitation, all insurance claims, warranty claims and
proceeds and claims against third parties for loss or destruction of or damage
to any or the foregoing.
(g) In addition to, and not in limitation of the foregoing, so long
as any of the Obligations remain outstanding, Borrower hereby unconditionally
and irrevocably grants in favor of Lender for the purpose of permitting Lender
to sell or otherwise dispose of Inventory, a royalty-free license to use any of
Borrower's patents, trademarks, tradenames, tradestyles, copyrights, trade
rights, discoveries, improvements, processor know-know, formulas, trade secrets,
service marks and other rights in intellectual property.
5.2 FINANCING STATEMENTS AND MORTGAGES; FURTHER ASSURANCES. Borrower has
executed or will contemporaneously herewith execute and deliver to Lender such
of the Loan Documents to which it is a party, Financing Statements with respect
to the Collateral in form acceptable to Lender and its counsel. Borrower shall,
at all times, do, make, execute, deliver and record, register or file all
Financing Statements and other instruments, acts, pledges, leasehold or other
mortgages, amendments, modifications, assignments and transfers (or cause the
same to be done) and will deliver to Lender such instruments and/or
documentation evidencing items of Collateral as may be requested by
25
<PAGE>
Lender to better secure or perfect Lender's security interest in the Collateral
or any security interest, mortgage or Lien with respect thereto.
SECTION 6. CONDITIONS TO INITIAL EXTENSION OF CREDIT.
The obligation of Lender to make the initial Loans under this Agreement
shall be subject to the satisfaction or waiver by Lender, prior thereto or
concurrently therewith, of each of the following conditions precedent:
6.1 LOAN DOCUMENTS. Each of the Loan Documents shall have been duly and
properly authorized, executed and delivered by the parties hereto and shall be
in full force and effect on and as of the date hereof and shall have been duly
and properly authorized, executed and delivered by Borrower and the other
parties thereto and shall be in full force and effect on and as of the date
hereof.
6.2 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by or on behalf of Borrower or any Guarantor to Lender in this
Agreement or in other Loan Documents shall be true and correct in all material
respects on the date hereof.
6.3 CERTIFIED COPIES OF CORPORATE DOCUMENTS. Lender shall have received
from Borrower certified by a duly authorized officer to be true and complete on
and as of a date which is not more than ten (10) Business Days prior to the date
hereof, a copy of each of (a) the certificate of incorporation or such other
incorporation documents of Borrower in effect on such date of certification, and
(b) the by-laws of Borrower in effect on such date.
6.4 PROOF OF CORPORATE ACTION. Lender shall have received from Borrower a
copy, certified by a duly authorized officer to be true and complete on and as
of the date which is not more than ten (10) Business Days prior to the date
hereof, of the records of all corporate action taken by Borrower to authorize
(a) its execution and delivery of each of the Loan Documents to which it is or
is to become a party as contemplated or required by this Agreement,(b) its
performance of all of its agreements and obligations under each of such
documents, and (c) the incurring of the Obligations contemplated by this
Agreement.
6.5 LEGAL OPINIONS. Lender shall have received a written legal opinion,
addressed to Lender, dated the date hereof, from counsel for Borrower and, if
applicable, any Guarantor of the Obligations. Such legal opinion shall be
reasonably acceptable to Lender and its counsel.
26
<PAGE>
6.6 COLLATERAL.
(a) All of the Obligations of Borrower to Lender under or in respect
of this Agreement shall be entitled to all of the benefits of and be secured by
this Agreement and the Loan Documents, and Lender shall have obtained a first,
perfected security interest in the Collateral of Borrower, subject only to the
Permitted Encumbrances.
(b) The Loan Documents and all other documents in respect thereto,
which shall create and maintain a first perfected security interest in favor of
Lender and the appropriate Financing Statements in respect thereto and necessary
to enable Lender to perfect its security interests thereunder, shall have been
duly executed and delivered by Borrower to Lender.
6.7 INSURANCE. Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Loan Documents, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee as required hereunder.
6.8 MINIMUM CLOSING AVAILABILITY. As of the date of the hereof and after
giving effect to the initial Loan contemplated to be made hereunder in
connection with the closing of the transactions under this Agreement, Borrower
shall have Net Availability of not less than $250,000.
SECTION 7. CONDITIONS TO MAKING EACH LOAN.
The obligations of Lender to make Loans to Borrower shall be subject to the
satisfaction or waiver by Lender, prior thereto or concurrently therewith, of
each of the following conditions precedent:
7.1 APPLICATIONS AND COMPLIANCE. The application for such Loans shall
have been made by Borrower to Lender in accordance with the applicable
provisions of this Agreement and in compliance with all provisions of this
Agreement.
7.2 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by or on behalf of Borrower to Lender in this Agreement or in
other Loan Documents shall have been true and correct in all material respects
when made, shall, for all purposes of this Agreement, be deemed to be repeated
on and as of the date of each Loan by Lender hereunder and shall be true and
correct in all material respects on and as of each such date, except to the
extent that any of such representations and warranties relate, by the express
terms thereof, solely to a date prior to the date of each Loan by Lender
hereunder.
27
<PAGE>
7.3 PERFORMANCE, ETC. Borrower shall have duly and properly performed,
complied with and observed each of its covenants, agreements and obligations
contained in this Agreement, and shall have duly and properly performed,
complied with and observed in all material respects its covenants, agreements
and obligations in all other articles of this Agreement and any of the Loan
Documents to which it is a party or by which it is bound on the date of each
Loan by Lender hereunder. No event shall have occurred on or prior to the date
of each Loan by Lender hereunder and be continuing on the date of each Loan by
Lender hereunder, and no condition shall exist on the date of each Loan by
Lender hereunder, which constitutes an Event of Default or which would, with
notice or the lapse of time, or both, constitute an Event of Default under this
Agreement or any of the Loan Documents.
SECTION 8. REPRESENTATIONS AND WARRANTIES.
Borrower hereby represents and warrants to Lender, knowing and intending
that Lender shall rely thereon in making the Loan contemplated hereby (each of
which representations and warranties shall be continuing unless expressly made
in relation only to a specific date), that:
8.1 CORPORATE EXISTENCE: GOOD STANDING.
(a) Borrower (i) is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware,(ii) is in good
standing in all other states in which it is required to be qualified to do
business as a foreign corporation, and (iii) has all requisite corporate power
and authority and full legal right to own or to hold under lease its properties
and to carry on the business as presently engaged.
(b) Borrower has adequate corporate power and authority and has full
legal rights to enter into each of the Loan Documents to which it is a party, to
perform, observe and comply with all of its agreements and obligations under
each of such documents, and to obtain all of the Loans contemplated by this
Agreement.
8.2 CORPORATE AUTHORITY, ETC.
(a) The execution and delivery by Borrower of the Loan Documents to
which it is a party, the performance by Borrower of all of its agreements and
obligations under each of such documents, and the incurring by Borrower of all
of the Obligations contemplated by this Agreement, have been duly authorized by
all necessary corporate actions on the part of Borrower and its shareholders and
do not and will not contravene any provision of Borrower's charter or bylaws or
this Agreement (each as from time to time in effect),(b) conflict with, or
result in a breach of the terms, conditions, or provisions of,
28
<PAGE>
or constitute a default under, or result in the creation of any mortgage, lien,
pledge, charge, security interest or other encumbrance upon any of the property
of Borrower under any material agreement, mortgage or other instrument to which
Borrower is or may become a party,(c) violate or contravene any provision of any
law, regulation, order, ruling or interpretation thereunder or any decree, order
or judgment or any court or governmental or regulatory authority, bureau, agency
or official (all as from time to time in effect and applicable to such
entity),(d) require any waivers, consents or approvals by any of the creditors
or trustees for creditors of Borrower, or (e) require any approval, consent,
order, authorization, or license by, or giving notice to, or taking any other
action with respect to, any Governmental Authority.
8.3 BINDING EFFECT OF DOCUMENTS, ETC. Borrower has duly executed and
delivered each of the Loan Documents to which it is a party, and each of the
Loan Documents is valid, binding and in full force and effect. The agreements
and obligations of Borrower as contained in each of the Loan Documents
constitutes, or upon execution and delivery thereof will constitute, legal,
valid and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms, subject, as to the enforcement of
remedies only, to limitations imposed by federal and state laws regarding
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights and remedies generally, and by general principles of law and
equity.
8.4 NO EVENTS OF DEFAULT.
(a) No Event of Default has occurred and is continuing and no event
has occurred and is continuing and no condition exists that would, with notice
or the lapse of time, or both, constitute an Event of Default.
(b) Borrower is not in default in any material respect under any
contract, agreement or instrument to which Borrower is a party or by which
Borrower or any of property of Borrower is bound, the consequence of which
default could materially or adversely affect the financial condition, assets,
operations or property of Borrower.
8.5 NO GOVERNMENTAL CONSENT NECESSARY. No consent or approval of, giving
of notice to, registration with or taking of any other action in respect of, any
Governmental Authority is required with respect to the execution, delivery and
performance by Borrower of this Agreement and the other Loan Documents to which
it is a party.
8.6 NO PROCEEDINGS. There are no actions, suits, or proceedings pending
or, to the best of Borrower's knowledge, threatened against or affecting
Borrower in any court or before any Governmental Authority which, if adversely
determined, would have an
29
<PAGE>
adverse effect on the ability of Borrower to perform its obligations under this
Agreement or the other Loan Documents to which it is a party.
8.7 NO VIOLATIONS OF LAWS. Borrower has conducted, and is conducting, its
business, so as to comply in all material respects with all applicable federal,
state, county and municipal statutes and regulations. Borrower or any officer,
director or shareholder of Borrower is not charged with, or so far as is known
by Borrower, is not under investigation with respect to, any violation of any
such statutes, regulations or orders, which could have a material or adverse
effect on the financial condition, business or operations of Borrower;
8.8 USE OF PROCEEDS OF THE LOAN. Proceeds from the Loan shall be used
only for those purposes set forth in this Agreement. No part of the proceeds of
the Loan shall be used, directly or indirectly, for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System, or for the purpose of purchasing or
carrying or trading in any stock under such circumstances as to involve Borrower
in a violation of Regulation X of the Board of Governors of the Federal Reserve
System or Lender in a violation of Regulation G of said Board of Governors. In
particular, without limitation of the foregoing, no part of the proceeds from
the Loans are intended to be used to acquire any publicly-held stock of any
kind.
8.9 FINANCIAL STATEMENTS.
(a) Subject to any limitation stated therein, all balance sheets,
income statements and other financial data which have been or shall hereafter be
furnished to Lender to induce it to enter into this Agreement, and to continue
to provide financing under this Agreement or otherwise in connection herewith,
do and will truly and accurately represent the financial condition of Borrower
as at the periods for which the same are furnished to Lender. All other
information, reports and other papers and data furnished to Lender are, or will
be at the time the same are so furnished, true, accurate and complete in all
material respects. Unless provided otherwise herein, all such financial
statements and other information have been, or will have been at the time of
issuance, prepared on a certified basis by certified public accountants in
accordance with GAAP consistently applied during all periods.
(b) Except as shown on the most recent financial statements which
have been delivered to Lender, Borrower has no other indebtedness as of the date
hereof which would materially or adversely affect the financial condition of
Borrower or the Collateral.
30
<PAGE>
8.10 CHANGES IN FINANCIAL CONDITION. There has been no material change in
Borrower's financial condition since the date of its last financial statements
which have been delivered to Lender.
8.11 ACCOUNTS. The most recent list of Accounts of Borrower delivered to
Lender is complete, and contains an accurate aging thereof. All of said
Accounts are valid, are subject to no counterclaims or setoffs of any nature
whatsoever, and require no further act on Borrower's part to make such Accounts
owing by the account debtors. None of the Accounts include any conditional
sales, consignments or sales on any basis other than that of absolute sale in
the ordinary and usual course of business, except as otherwise set forth on said
list. No agreement has been made under which any deductions or discounts may be
claimed as to any such Account except customary discounts in the ordinary course
of business.
8.12 INVENTORY. Borrower's Inventory, as of the date hereof, consists of
items of quality and quantity suitable for sale, lease or use in the ordinary
course of its business. The value of obsolete items, items below standard
quality and items in the process of repair have been written down to realizable
market value, or adequate reserves have been provided therefore, and the values
carried on the Borrower's balance sheet are set at the lower of cost or market,
in accordance with GAAP.
8.13 EQUIPMENT. Borrower shall keep its equipment in good order and
repair, and in running and marketable condition, ordinary wear and tear
excepted.
8.14 TAXES AND ASSESSMENTS. Borrower has paid and discharged when due all
taxes, assessments and other governmental charges which may lawfully be levied
or assessed upon its income and profits, or upon all or any portion of any
property belonging to it, whether real, personal or mixed, to the extent that
such taxes, assessment and other charges have become due. Borrower has filed
all tax returns, federal, state and local, and all related information, required
to be filed by it.
8.15 ERISA.
(a) Borrower is in compliance in all respects with the applicable
provisions of ERISA and all regulations issued thereunder by the United States
Treasury Department, the Department of Labor and the Pension Benefit Guaranty
Corporation.
(b) No "Employee Benefit Plan", as defined in Section 3 of ERISA,
maintained by Borrower, as from time to time in effect (hereinafter called the
"Benefit Plans" or individually "Benefit Plan") nor any trusts created
thereunder, nor any trustee or administrator thereof has engaged in a
"prohibited transaction", as defined in Section 4975
31
<PAGE>
of the Internal Revenue Code of 1986, as amended, which could subject Borrower,
any Benefit Plan or any such trust, or any trustee or administrator thereof, or
any party dealing with any Benefit Plan, or any such trust to the tax or penalty
on prohibited transactions imposed by said Section 4975. Neither any of the
Benefit Plans nor any such trusts have been terminated, nor has there been any
"reportable event", as defined in Section 4043 of ERISA, or "accumulated funding
deficiency." Borrower has not incurred any liability to the Pension Benefit
Guaranty Corporation.
8.16 O.S.H.A. AND ENVIRONMENTAL MATTERS.
(a) Borrower has duly complied with, and its facilities, business
assets, property, leaseholds and equipment are in compliance in all material
respects with, the provisions of the federal Occupational Safety and Health Act,
the Environmental Protection Act, the Clean Air Act, the Water Pollution Control
(Clean Water) Act, the Resource Conservation and Recovery Act, and the
Comprehensive Environmental Response Compensation and Liability Act (including
the Superfund Amendment and Reauthorization Act of 1986), and all rules and
regulations thereunder and all similar state and local laws, rules and
regulations; and there have been no outstanding citations, notices or orders of
non-compliance issued to Borrower or relating to its business, assets, property,
leaseholds or equipment under any such laws, rules and regulations.
(b) Borrower has been issued all required federal, state and local
licenses, certificates or permits relating to the operation of its business; and
Borrower and its facilities, business, assets, property and equipment are in
compliance in all material respects with, all applicable federal, state and
local laws, rules and regulations relating to air emissions, water discharge,
noise emissions, solid or liquid waste disposal, hazardous waste or materials,
or other environmental, health or safety matters.
8.17 LOCATION OF COLLATERAL. As of the date hereof, none of the Collateral
is or will be located in or on any property other than those set forth in
SCHEDULE B of this Agreement.
8.18 OTHER LIENS. Borrower has good and marketable title to and owns all
of the Collateral free and clear of any and all liens, encumbrances or security
interests whatsoever, except the Permitted Encumbrances and in favor of Lender.
None of the Collateral is subject to any prohibition against encumbering,
pledging, hypothecating or assigning the same or requires notice or consent to
Borrower's doing of the same.
8.19 BOOKS AND RECORDS. Borrower maintains its chief executive office and
its books and records related to its Accounts, Inventory and all other
Collateral at its address or addresses set forth in SCHEDULE B of this
Agreement.
32
<PAGE>
8.20 REPRESENTATIONS AND WARRANTIES: TRUE, ACCURATE AND COMPLETE.
(a) None of the representations, certificates, reports, warranties or
statements now or hereafter made or delivered to Lender pursuant hereto or in
connection with this Agreement or the transactions contemplated hereby contains
or will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances in which they are made, not
misleading.
(b) All warranties and representations made herein or in any the Loan
Documents by Borrower will be true and accurate at the time Borrower requests
Lender to make a Loan to it hereunder.
8.21 LOCATION OF OFFICES. SCHEDULE B hereto sets forth Borrower's chief
executive office, and further sets forth a complete and accurate list of all
offices and locations at or out of which Borrower conducts any of its business
or operations.
SECTION 9. AFFIRMATIVE COVENANTS.
Until payment and satisfaction in full of all Obligations and the
termination of this Agreement, Borrower hereby covenants and agrees as follows:
9.1 NOTIFY LENDER. Borrower shall promptly inform Lender if any one or
more of the representations and warranties made by Borrower in this Agreement or
in any document related hereto shall no longer be entirely true, accurate and
complete in any material respect.
9.2 PAY TAXES AND LIABILITIES; COMPLY WITH AGREEMENT. Borrower shall
promptly pay, when due, all indebtedness, sums and liabilities of any kind now
or hereafter owing by Borrower to any party however created, incurred,
evidenced, acquired, arising or payable, including without limitation the
Obligations, income taxes, excise taxes, sales and use taxes, license fees, and
all other taxes with respect to any of the Collateral, or any wages or salaries
paid by Borrower or otherwise, unless the validity of which are being contested
in good faith by Borrower by appropriate proceedings, provided that Borrower
shall have maintained reasonably adequate reserves and accrued the estimated
liability on Borrower's balance sheet for the payment of same.
9.3 OBSERVE COVENANTS, ETC. Borrower shall observe, perform and comply
with the covenants, terms and conditions of this Agreement, the Loan Documents
and any other agreement or document entered into between Borrower and Lender.
33
<PAGE>
9.4 MAINTAIN CORPORATE EXISTENCE AND QUALIFICATIONS. Borrower shall
maintain and preserve in full force and effect, its corporate existence and
rights, franchises, licenses and qualifications necessary to continue its
business, and comply with all applicable statutes, rules and regulations
pertaining to the operation, conduct and maintenance of its existence and
business including, without limitation, all federal, state and local laws
relating to benefit plans, environmental safety, or health matters, and
hazardous or liquid waste or chemicals or other liquids (including use, sale,
transport and disposal thereof).
9.5 INFORMATION AND DOCUMENTS TO BE FURNISHED TO LENDER. Borrower shall
deliver or cause to be delivered to Lender:
(a) ANNUAL FINANCIAL STATEMENTS. At its own cost, audited
consolidated and consolidating certified financial statements of Intek
Diversified Corporation which separately show the financial statements of the
Borrower as set forth in Section 9.5(a)(i), (ii) and (iii) below, as soon as
available, but in any event within one hundred twenty (120) days after the end
of its Fiscal Year during the term of the Loan. Such financial statements are
to include (i) a detailed balance sheet for it and its subsidiaries as at the
end of its Fiscal Year,(ii) a detailed statement of profit and loss for it for
the twelve (12) months then ended, and (iii) a detailed statement of changes in
cash or a statement of changes in funds for it as at the close of the Fiscal
Year then ended, all with respect to the operation of said Borrower. Such
financial statements shall be prepared in accordance with GAAP, and shall be
accompanied by a report prepared in conformity with GAAP, from an independent
certified public accountant acceptable to Lender stating that the consolidated
financial statements referred to present fairly, in all material respects, the
financial position of Borrower and its Subsidiaries as of the end of Borrower's
then ended Fiscal Year, and the results of their operations and their cash flows
for the year then ended.
(b) MONTHLY FINANCIAL STATEMENTS. On or before the thirtieth (30th)
day of each month, internally prepared interim financial statements for the
immediately preceeding month, certified as to its accuracy by an officer of the
Borrower, in such form, and together with such other information with respect to
the business of Borrower or any Guarantor, as Lender may request.
(c) SALES AND COLLECTIONS REPORTS. (i) Weekly, or more frequently as
may be requested by Lender from time to time, a schedule of all sales for such
period designated by Lender; and (ii) on or before the close of business of each
Business Day, a schedule of all collections for the immediately preceding
Business Day; together with such other information and documentation as Lender
may request.
34
<PAGE>
(d) ACCOUNTS AGING REPORTS. On or before the tenth (10th) day of
each month, a detailed aging report setting forth and certifying the amounts due
and owing on Accounts on Borrower's books as of the close of the preceding
month, together with a reconciliation report satisfactory to Lender setting
forth the aggregate amount of all sales, collections, payments and adjustments
to Accounts (including, without limitation, any and all offsets, deductions
and/or contras) on Borrower's books for the preceding month.
(e) ACCOUNTS PAYABLE AGING REPORTS. On or before the tenth (10th)
day of each month, a detailed aging report, in form, content and substance
reasonably acceptable to Lender, setting forth amounts due and payable on
accounts payable on Borrower's books as of the close of the preceding month,
together with a reconciliation report reasonably satisfactory to Lender showing
any and all adjustments to accounts payable on Borrower's books as of the close
of the preceding month.
(f) INVENTORY REPORTS. On or before the fifteenth (15th) day of each
month for the last day of the immediately preceding month and on or before the
last day of each month for the fifteenth (15th) day of such month,(i) a report
of Inventory, in form, substance and content reasonably satisfactory to Lender,
setting forth total Value of Borrower's Inventory; (ii)the location of the
Inventory; and (iii) a certified statement showing Inventory on hand, Inventory
represented or covered by warehouse receipts or bills of lading, Eligible
Inventory on hand and Inventory in possession of bailees, including the names
and addresses of such bailees.
(g) REJECTION, DELAY, CLAIMS. Borrower shall notify Lender promptly
of the rejection of goods, delays in performance, or claims made in regard to
Accounts.
(h) ERISA DOCUMENTS. Borrower shall deliver to Lender, as and when
filed, all ERISA reports, notices, returns and all other documents filed as
required by or in compliance with ERISA, whether to the Internal Revenue
Service, the Department of Labor, the Pension Benefit Guaranty Corporation or
any other appropriate agency, and all documents and information distributed to
participants in any Benefit Plan.
(i) NOTICE OF JUDGMENTS, ENVIRONMENTAL, HEALTH OR SAFETY COMPLAINTS.
(i) Within thirty (30) days thereafter, written notice to Lender
of the entry of any judgment or the institution of any lawsuit or of other legal
or equitable proceedings or the assertion of any crossclaim or counterclaim
seeking monetary damages from Borrower in an amount exceeding $25,000;
35
<PAGE>
(ii) Within thirty (30) days thereafter, notice or copies if
written of all claims, complaints, orders, citations or notices, whether formal
or informal, written or oral, from a governmental body or private person or
entity, relating to air emissions, water discharge, noise emission, solid or
liquid waste disposal, hazardous waste or materials, or any other environmental,
health or safety matter, which adversely effect Borrower. Such notices shall
include, among other information, the name of the party who filed the claim, the
potential amount of the claim, and the nature of the claim.
(j) OTHER INFORMATION. Upon demand,
(i) Certificates of insurance for all policies of
insurance to be maintained by Borrower pursuant hereto;
(ii) An estoppel certificate executed by an authorized
officer of Borrower indicating that there then exists no Event of Default and
no event which, with the giving of notice or lapse of time, or both, would
constitute an Event of Default;
(iii) All information received by Borrower affecting the
financial status or condition of any account debtor or the payment of any
Account, including but not limited to, invoices, original orders, shipping and
delivery receipts; and
(iv) Assignments, in form acceptable to Lender, of all
Accounts, and of the monies due or to become due on specific contracts
relating to the same.
(k) ADDITIONAL INFORMATION. From time to time, such other
information as Lender may reasonably request, including financial projections
and cash flow analysis.
9.6 ACCESS TO RECORDS AND PROPERTY. At any time and from time to time,
Borrower shall give any representatives or designees of Lender reasonable access
to its properties, and permit any of them to, examine, audit, copy or make
extracts from, any and all books, records and documents in the possession of
Borrower or any independent contractor relating to Borrower's affairs and the
Collateral, and to inspect any of its properties wherever located, all at
Borrower's expense.
9.7 COMPLY WITH LAWS. Borrower shall comply with the requirements of all
applicable laws, rules, regulations and orders of any Governmental Authority,
compliance with which is necessary to maintain its corporate existence or the
conduct of its business or non-compliance with which would adversely affect in
any material respect its ability to perform its obligations or any security
given to secure its obligations.
36
<PAGE>
9.8 INSURANCE REQUIRED.
(a) Borrower shall cause to be maintained, in full force and effect
on all property of Borrower including, without limitation, all Inventory and
Equipment, insurance in such amounts against such risks as is satisfactory to
Lender, including, but without limitation, fire, boiler, theft, burglary,
pilferage, vandalism, malicious mischief, loss in transit, and hazard insurance
and, if as of the date hereof, any of the real property of Borrower is in an
area that has been identified by the Secretary of Housing and Urban Development
as having special flood or mudslide hazards, and on which the sale of flood
insurance has been made available under the National Flood Insurance Act of
1968, then Borrower shall maintain flood insurance. Said policy or policies
shall be in form, substance and with insurers which are satisfactory to Lender
in all respects and Borrower will obtain non-contributory Lender's loss payable
endorsements to all insurance policies in form and substance satisfactory to
Lender;
(b) Borrower shall obtain such additional insurance as Lender may
reasonably require;
(c) Borrower shall, in the event of loss or damage, forthwith notify
Lender and file proofs of loss with the appropriate insurer. Borrower hereby
authorizes Lender to endorse any checks or drafts constituting insurance
proceeds;
(d) Borrower shall forthwith upon receipt of insurance proceeds
endorse and deliver the same to Lender; and
(e) In no event shall Lender be required either to (i) ascertain the
existence of or examine any insurance policy or (ii) advise Borrower in the
event such insurance coverage shall not comply with the requirements of this
Agreement.
9.9 CONDITION OF COLLATERAL; NO LIENS. Borrower shall maintain all
Collateral in good condition and repair at all times, and preserve it against
any loss, damage, or destruction of any nature whatsoever relating to said
Collateral or its use, and keep said Collateral free and clear of any Liens,
except the Permitted Encumbrances.
9.10 PAYMENT OF PROCEEDS. Borrower shall forthwith upon receipt of all
proceeds of Collateral, pay such proceeds over to Lender for application
against the Obligations in such order and manner as Lender may elect.
9.11 RECORDS. Borrower shall at all times keep accurate and complete
records of its operations, of the Collateral and the status of each Account.
37
<PAGE>
9.12 DELIVERY OF DOCUMENTS. If any proceeds of Accounts shall include, or
any of the Accounts shall be evidenced by, notes, trade acceptances or
instruments or documents, or if any Inventory is covered by documents of title
or chattel paper, whether or not negotiable, then Borrower waives protest
regardless of the form of the endorsement. If Borrower fails to endorse any
instrument or document, Lender is authorized to endorse it on Borrower's behalf.
9.13 UNITED STATES CONTRACTS. If any of the Accounts arise out of
contracts with the United States or any of its departments, agencies or
instrumentalities, Borrower will notify Lender and execute, if requested by
Lender, any necessary instruments in order that all monies due or to become due
under such contract shall be assigned to Lender and proper notice of the
assignment given under the Federal Assignment of Claims Act.
9.14 NAME CHANGES; LOCATION CHANGES.
(a) Borrower shall promptly notify Lender if Borrower is known by or
conducting business under any names other than those set forth in this
Agreement; and
(b) Borrower shall deliver not less than thirty (30) Business Days
prior written notice to Lender if Borrower intends to conduct any of its
business or operations at or out of offices or locations other than those set
forth in this Agreement, or if it changes the location of its chief executive
office or the address at which it maintains its books and records or the
location of any of the Collateral.
9.15 FURTHER ASSURANCES. Borrower shall at any time or from time to time
upon request of Lender take such steps and execute and deliver such Financing
Statements and other documents all in the form of substance satisfactory to
Lender relating to the creation, validity or perfection of the security
interests provided for herein, under the UCC or other laws of the State of New
York or of another state or states in which the Collateral is located or which
are reasonably necessary to effectuate the purposes and provisions of this
Agreement.
9.16 INDEMNIFICATION. Borrower shall indemnify, protect, defend and save
harmless Lender, as well as Lender's directors, officers, trustees, employees,
agents, attorneys and shareholders (hereinafter referred to collectively as the
"Indemnified Parties" and individually as an "Indemnified Party") from and
against (a) any and all losses, damages, expenses or liabilities of any kind or
nature and from any suits, claims or demands, by third parties including
reasonable counsel fees incurred in investigating or defending such claim,
suffered by any of them and caused by, relating to, arising out of, resulting
from, or in any way connected with the Loans and the transactions contemplated
herein up to a maximum amount equivalent to the appraised value of the
Collateral, and
38
<PAGE>
(b) any and all losses, damages, expenses or liabilities sustained by Lender in
connection with any Environmental Liabilities and Costs, provided, however,
Borrower shall not be obligated to indemnify, protect, defend and save harmless
an Indemnified Party, if the loss, damage, expense or liability was caused by or
resulted from the willful misconduct of that Indemnified Party as determined by
a final non-appealable order of a court or Governmental Authority of competent
jurisdiction. In case any action shall be brought against an Indemnified Party
based upon any of the above and in respect to which indemnity may be sought
against Borrower, the Indemnified Party against whom such action was brought,
shall promptly notify Borrower in writing, and Borrower shall assume the defense
thereof, including the employment of counsel selected by Borrower and reasonably
satisfactory to the Indemnified Party, the payment of all costs and expenses and
the right to negotiate and consent to settlement. Upon reasonable determination
made by the Indemnified Party, the Indemnified Party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof; provided, however that the Indemnified Party shall pay the costs and
expenses incurred in connection with the employment of separate counsel.
Borrower shall not be liable for any settlement of any such action effected
without its consent, but if settled with Borrower's consent, or if there be a
final judgment for the claimant in any such action, Borrower agrees to indemnify
and save harmless said Indemnified Party against whom such action was brought
from and against any loss or liability by reason of such settlement or judgment,
except as otherwise provided above. The provisions of this Section shall
survive the termination of this Agreement and the final repayment of the
Obligations.
9.17 OPERATING ACCOUNTS. Borrower, throughout the term of the Loan, shall
maintain an operating account with a bank acceptable to Lender.
9.18 TRADESTYLES. Certain Accounts may be and/or certain of Borrower's
invoices to Account Debtors may be, from time to time, rendered to customers
under the tradestyles of Borrower listed on SCHEDULE C annexed hereto (which,
together with any new tradestyles used after the date hereof are referred to
collectively as the "Tradestyles" and individually as a "Tradestyle"). As to
such Tradestyles and the related Accounts, Borrower hereby warrants and agrees
that:
(a) each Tradestyle is a trade name and style (and not the name
of an independent corporation or other legal entity) by which Borrower may
identify and sell certain of its goods or services and conduct a portion of its
business;
(b) all Accounts and Proceeds thereof and returned merchandise
which arise from the sale of goods invoiced under the Tradestyles are and shall
be (i) owned solely by Borrower and (ii) subject to the security interest and
other terms of this Agreement and the other Loan Documents;
39
<PAGE>
(c) any dispute which may arise with customers with respect to
the products invoiced under the name of any of the Tradestyles are to be subject
to the terms of this Agreement and the other Loan Documents as though the
Tradestyle did not exist;
(d) all confirmation sheets on assignments of Accounts delivered
to Lender by Borrower, whether such accounts are invoiced in the name of any of
the Tradestyles or Borrower, shall be executed by Borrower as the owner of such
assigned accounts;
(e) new Tradestyles may only be used by Borrower after Lender is
given fifteen (15) days prior written notice of the use of any such new
Tradestyle, which notice shall set forth the name of such new Tradestyle; and
(f) Borrower does not currently use any Tradestyle other than
the Tradestyles listed on SCHEDULE C hereto.
SECTION 10. NEGATIVE COVENANTS.
Until payment and satisfaction in full of all Obligations and the
termination of this Agreement, Borrower hereby covenants and agrees as follows:
10.1 NO CONSOLIDATION, MERGER, ACQUISITION. Borrower will not
consolidate with, merge with, or acquire the stock or assets of any person,
firm, joint venture, partnership, corporation, or other entity, whether by
merger consolidation, purchase of stock or otherwise without the prior
written consent of Lender.
10.2 DISPOSITION OF ASSETS OR COLLATERAL. Borrower will not sell,
lease, transfer, convey, or otherwise dispose of any or all of its assets or
Collateral, other than the sale of Inventory in the ordinary course of
business and other than the sale of Borrower's Linear Modulation Inventory.
10.3 OTHER LIENS. Borrower will not incur, create or permit to exist
any Lien on any of its property or assets, whether now owned or hereafter
acquired, except (a) those Liens in favor of Lender created by this Agreement
and the other Loan Documents; and (b) the Permitted Encumbrances.
10.4 OTHER LIABILITIES. Borrower will not incur, create, assume or
permit to exist any Indebtedness or liability on account of either borrowed
money or the deferred purchase price of property, except (a) Obligations to
Lender; or (b) indebtedness
40
<PAGE>
constituting Subordinated Debt or incurred in connection with any of the
Permitted Encumbrances.
10.5 LOANS. Borrower will not make any loans to any Person.
10.6 GUARANTIES. Borrower will not assume, guaranty, endorse,
contingently agree to purchase or otherwise become liable upon the obligation
of any Person, except by the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business.
10.7 REMOVE PROPERTY. Borrower will not remove, or cause or permit to
be removed, without Lender's prior written consent, any of its Collateral or
assets from those locations set forth on SCHEDULE B of in this Agreement,
except for sales of Inventory in the ordinary course of Borrower's business.
10.8 TRANSFERS OF NOTES OR ACCOUNTS. Borrower will not sell, assign,
transfer, discount or otherwise dispose of any Accounts or any promissory
note payable to it, with or without recourse, except for the Lien of Lender
therein.
10.9 DIVIDENDS. Borrower will not declare or pay any cash dividend,
make any distribution on, redeem, retire or otherwise acquire directly or
indirectly, any shares of its stock without the prior written consent of
Lender.
10.10 SALE OR PLEDGE OF SHARES. Borrower will not, at any time sell,
transfer, pledge, mortgage, assign or otherwise dispose of (a) any shares in
the capital of Borrower, (b) any securities exchangeable for or convertible
into or conveying any rights to acquire any shares in the capital of Borrower
or (c) any options, warrants or any other rights to acquire shares in the
capital of Borrower.
10.11 MODIFICATION OF DOCUMENTS. Borrower will not change, alter or
modify, or permit any material change, alteration or modification of its
certificate of incorporation, by-laws or other governing documents without
Lender's prior written consent.
10.12 CHANGE BUSINESS. Borrower will not materially change or alter the
nature of its business.
10.13 SETTLEMENTS. Other than in the ordinary course of its business,
Borrower will not comprise, settle or adjust any claims in a material amount
relating to any of the Collateral, without the prior written consent of
Lender.
41
<PAGE>
10.14 RATIO OF DEBT TO TANGIBLE NET WORTH. Borrower will maintain a
ratio of (a) the sum of Debt less Subordinated Debt to (b) Tangible Net Worth
of not more than 15 to 1.
10.15 TANGIBLE NET WORTH. Borrower will maintain a Tangible Net Worth of
not less than $1 million.
10.16 PAYMENTS TO PARENT AND AFFILIATES.
(a) Borrower will not, directly or indirectly: make any payment of
the principal amount of or interest on any indebtedness owing to any officer,
director, shareholder, or affiliate of Borrower (other than Securicor Radiocom
Limited) or Intek Diversified Corporation or any other person or entity with
outstanding loans to Borrower (collectively, the "Subordinated Creditors"),
EXCEPT THAT, with respect to any indebtedness owing to any Subordinated Creditor
and provided that such Subordinated Creditor has executed and delivered in favor
of Lender a Subordination Agreement in form and substance acceptable to Lender
("Subordination Agreement"), Borrower shall be permitted, notwithstanding
anything to the contrary contained herein, from and after the first anniversary
of the date hereof, provided no default or Event of Default then exists, to make
regularly scheduled payments or distributions, on an unmatured and unaccelerated
basis; to such Subordinated Creditors on a semi-annual and non-cumulative basis,
in an aggregate amount not to exceed fifty (50%) percent of Borrower's Excess
Cash Flow (as defined below) for the Borrower's immediately preceding
semi-annual period, PROVIDED THAT, after giving effect to such payments or
distributions, the Borrower has Net Availability of not less than $200,000.
Borrower agrees to provide Lender with no less than five (5) Business Days prior
written notice of any contemplated payment or disbursement to any Subordinated
Creditor permitted hereunder. Borrower shall not be permitted to make payments
or distributions to any Subordinated Creditor who fails to deliver in favor of
Lender a Subordination Agreement. For purposes of this Agreement, "Excess Cash
Flow" shall mean, for each semi-annual period of Borrower, the sum of (A) net
income (loss), PLUS (B) the sum of depreciation, amortization and any other
non-cash charges reported on Borrower's profit and loss statement, LESS (C)
regularly scheduled principal payments due on any of Borrower's outstanding
indebtedness, on an unmatured and unaccelerated basis, LESS (D) capital
expenditures.
(b) Borrower shall not make any payment to Securicor Radiocom
Limited, EXCEPT THAT, Borrower shall be permitted, notwithstanding anything to
the contrary contained herein, provided no default or Event of Default then
exists, to make payments to Securicor Radiocom Limited on an unmatured and
unaccelerated basis, solely from the proceeds received from the sale of
Borrower's Linear Modulation Inventory, PROVIDED, THAT, after giving effect to
such payments, the Borrower has a Net Availability of not less than
42
<PAGE>
$200,000. Borrower agrees to provide Lender with no less than five (5) Business
Days prior written notice of any contemplated payment to Securicor Radiocom,
Limited.
(c) Notwithstanding anything to the contrary contained in Section
10.16(a) and (b), Borrower may make payments to any Affiliate of Borrower for
services rendered or merchandise purchased, each in the ordinary course of
business, PROVIDED THAT, the aggregate amount of such payments shall not exceed
$25,000 per month.
SECTION 11. EVENTS OF DEFAULT.
The occurrence of any of the following shall constitute an event of default
(hereinafter referred to as an "EVENT OF DEFAULT"):
11.1 FAILURE TO PAY. The failure by Borrower or any Guarantor to pay, when
due, any payment of principal, interest or other charges due and owing to Lender
pursuant to any obligations of Borrower to Lender including, without limitation,
those Obligations arising pursuant to this Agreement or any Loan Document, or
under any other agreement for the payment of monies then due and payable to
Lender.
11.2 FAILURE OF INSURANCE. Failure on the part of Borrower to pay or cause
to be paid all premiums when due on the insurance policies pursuant to this
Agreement; failure to take such other action as may be requested by Borrower in
order to keep said policies of insurance in full force and effect until the
entire indebtedness represented by the Loan Documents, and interest thereon, has
been paid in full; and failure on the part of Borrower to execute any and all
documentation required by the insurance companies issuing said policies to
effectuate said assignments.
11.3 FAILURE TO PERFORM. Borrower's failure to perform or observe any
covenant, term or condition of this Agreement to be performed or observed by
Borrower.
11.4 CROSS DEFAULT.
(a) The occurrence of any Event of Default on any of the Obligations,
an Event of Default under any Loan Document or any default on any other
obligation or indebtedness of Borrower or any Guarantor to any third party so
that the holder of such obligation or indebtedness has accelerated or has a
right to accelerate such obligation or indebtedness because of Borrower's or a
Guarantor's default thereunder.
(b) The failure of any Guarantor to perform or observe any covenant,
term or condition of any of the Loan Documents to which any of them is a party.
43
<PAGE>
11.5 FALSE REPRESENTATION OR WARRANTY. Borrower or any Guarantor shall
have made any statement, representation or warranty in this Agreement or in any
of the other Loan Documents to which it is a party or in a certificate executed
by Borrower incident to this Agreement, which is at any time found to have been
false in any material respect at the time such representation or warranty was
made.
11.6 LIQUIDATION, VOLUNTARY BANKRUPTCY, DISSOLUTION, ASSIGNMENT TO
CREDITORS. Any petition or application for any relief is filed against Borrower
under applicable insolvency or bankruptcy laws now or hereafter existing
(including the United States Bankruptcy Code) or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity).
11.7 INVOLUNTARY PETITION AGAINST BORROWER. Any petition or application
for any relief is filed against Borrower under applicable insolvency or
bankruptcy laws now or hereafter existing (including the United States
Bankruptcy Code) or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law or in equity), EXCEPT
THAT, the commencement against Borrower of an involuntary action or case for
relief under any bankruptcy law shall not constitute an Event of Default unless
the same remains undismissed for thirty (30) days from commencement, PROVIDED
THAT, Borrower has not admitted the allegations and is contesting the same
diligently, and further provided that the relief requested therein has not been
sooner granted; during any such period within which such involuntary action or
case remains undismissed, Lender shall have no obligation to make loans,
advances or other financial accommodations to Borrower under this Agreement or
the other Loan Documents without an Order of the United States Bankruptcy Court
or other Court of competent jurisdiction, acceptable in form and substance
satisfactory to Lender.
11.8 GUARANTOR'S DISCLAIMER OF LIABILITY. Any Guarantor makes a disclaimer
of liability or terminates its or his or her liability under its or his or her
Guaranty or the Guarantor breaches any covenant, condition warranty,
representation or other provision of such Guaranty unless, contemporaneously
therewith, an officer or director of Borrower, acceptable to Lender, in its
discretion, reasonably exercised, executes and delivers in favor of Lender a
validity guaranty in form and substance acceptable to Lender.
11.9 JUDGMENTS; LEVIES. Any judgment or judgments aggregating in excess of
$50,000 or any injunction or attachment is obtained against Borrower or any
Guarantor which remains unstayed for a period of ten (10) days or is enforced.
44
<PAGE>
11.10 CHANGE IN CONDITION. There occurs any event or a change in the
condition or affairs, financial or otherwise, of Borrower or of any Guarantor
which, in the reasonable opinion of Lender, impairs the Collateral.
11.11 ENVIRONMENTAL CLAIMS. At any time Lender determines that any
Environmental Liabilities and Costs or Environmental Lien with respect to
Borrower or any Guarantor will have a potentially material or adverse effect
on the financial condition of Borrower or any Guarantor or on the Collateral.
11.12 FAILURE TO NOTIFY. If at any time Borrower fails to provide Lender
immediately with notice or copies, if written, of all complaints, orders,
citations or notices with respect to environmental, health or safety
complaints.
11.13 FAILURE TO DELIVER DOCUMENTATION. Borrower or any Guarantor shall
fail to obtain and deliver to Lender any other documentation required to be
signed or obtained as part of this Agreement or shall have failed to take any
reasonable action requested by Lender to perfect, protect, preserve and
maintain the security interests and Lien on the Collateral provided for
herein.
11.14 CHANGE IN OWNERSHIP. Any change in the controlling ownership of
Borrower.
11.15 NON-PAYMENT OF DEBTS. Any default by Borrower or any Guarantor
under any agreement, document or instrument relating to any indebtedness for
borrowed money owing to any person other than Lender, or any capitalized
lease obligations, contingent indebtedness in connection with any guarantee,
letter of credit, indemnity or similar type of instrument in favor of any
person other than Lender, in any case in an amount in excess of $25,000,
which default continues for more than the applicable cure period, if any,
with respect thereto, or any default by Borrower or any Guarantor under any
material contract, lease, license or other obligation to any Person other
than Lender, which materially affects its business or the Collateral or other
property which is security for the Obligations and which default continues
for more than the applicable cure period, if any, with respect thereto.
11.16 DISSOLUTION; MAINTENANCE OF EXISTENCE. Borrower fails to maintain
its corporate existence in good standing, or the usual business of Borrower
ceases or is suspended in any material respect.
11.17 INDICTMENT. The indictment of Borrower, or any of its officers and
directors, under any criminal statute, or commencement of criminal or civil
proceedings against Borrower, or any of its officers and directors, pursuant
to which statute or proceedings the
45
<PAGE>
penalties or remedies sought or available include forfeiture of any material
portion of the property of Borrower.
11.18 TAX LIENS. The filing of a lien for any taxes filed by any
Governmental Authority against Borrower or any of its assets.
SECTION 12. REMEDIES.
12.1 ACCELERATION; OTHER REMEDIES. Upon the occurrence of an Event of
Default and at any time thereafter:
(a) Lender shall have all rights and remedies provided in this
Agreement, any of the other Loan Documents, the UCC or other applicable law, all
of which rights and remedies may be exercised without notice to Borrower, all
such notices being hereby waived, except such notice as is expressly provided
for hereunder or is not waivable under applicable law. All rights and remedies
of Lender are cumulative and not exclusive and are enforceable, in Lender's
discretion, alternatively, successively, or concurrently on any one or more
occasions and in any order Lender may determine. Without limiting the
foregoing, Lender may (i)accelerate the payment of all Obligations and demand
immediate payment thereof to Lender,(ii) with or without judicial process or the
aid or assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral,
(iii) require Borrower, at Borrower's expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender,(iv) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral,(v) extend the time of payment of, compromise or settle
for cash, credit, return of merchandise, and upon any terms or conditions, any
and all Accounts or other Collateral which includes a monetary obligation and
discharge or release the account debtor or other obligor, without affecting any
of the Obligations,(vi) sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including, without limitation, entering into
contracts with respect thereto, by public or private sales at any exchange,
broker's board, any office of Lender or elsewhere) at such prices or terms as
Lender may deem reasonable, for cash, upon credit or for future delivery, with
Lender having the right to purchase the whole or any part of the Collateral at
any such public sale, all of the foregoing being free from any right or equity
of redemption of Borrower, which right or equity of redemption is hereby
expressly waived and released by Borrower. If any of the Collateral or other
security the Obligations is sold or leased by Lender upon credit terms or for
future delivery, the Obligations shall not be reduced as a result thereof until
payment therefor is finally collected by Lender. If notice of disposition of
Collateral is required by law, seven (7) days prior notice by Lender to Borrower
designating the time and place of any public sale or the time after which any
private sale or other intended disposition of
46
<PAGE>
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Borrower waives any other notice. In the event Lender institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of prejudgment
remedy, Borrower waives the posting of any bond which might otherwise be
required.
(b) Lender may apply the cash proceeds of Collateral or other
security for the Obligations actually received by Lender from any sale, lease,
foreclosure or other disposition of the Collateral to payment of any of the
Obligations, in whole or in part (including reasonable attorneys' fees and legal
expenses incurred by Lender with respect thereto or otherwise chargeable to
Borrower) and in such order as Lender may elect, whether or not then due.
Borrower and each Guarantor shall remain liable to Lender for the payment on
demand of any deficiency together with interest at the highest rate provided for
herein and all costs and expenses of collection or enforcement, including
reasonable attorneys' fees and legal expenses.
(c) If Borrower or any Guarantor shall default in the performance of
any of the provisions of this Agreement or any other Loan Document to which it
is a party, Lender may (but without any obligation to do so) perform same for
Borrower's account or such Guarantor's account and any monies expended in doing
so shall be chargeable with interest to Borrower, repayable by Borrower on
demand and added to the Obligations.
(d) Lender may, at its option, cure any default by Borrower under any
agreement with a third party or pay or bond on appeal any judgment entered
against Borrower, discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and pay any amount, incur any expense or perform any act which, in Lender's sole
judgment, is necessary or appropriate to preserve, protect, insure, maintain, or
realize upon the Collateral. Lender may charge Borrower's loan account for any
amounts so expended, such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment, bonding or discharge,
and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrower.
12.2 SET-OFF. Lender shall have the right, immediately and without notice
of other action, to set-off against any of Borrower's liabilities to Lender any
money or other liability owed by Lender or any Affiliate of Lender (and such
Affiliate of Lender is hereby authorized to effect such set-off) in any capacity
to Borrower, whether or not due, and Lender or such Affiliate shall be deemed to
have exercised such right of set-off and to have made a charge against any such
money or other liability immediately upon the occurrence of such Event of
Default even though the actual book entries may be made at a time subsequent
thereto. The right of set-off granted hereunder shall be effective irrespective
of whether Lender shall have made demand under or in connection with the
47
<PAGE>
Loan. Lender is hereby granted a security interest in all money and property of
Borrower being held by it or any Affiliate of Lender, which security interest
shall be a first priority perfected security interest in favor of Lender as a
result of Lender's or Affiliates of Lender's possession thereof. None of the
rights of Lender described in this Section 12.2 are intended to diminish or
limit in any way Lender's or Affiliates of Lender's common-law set-off rights.
12.3 CUMULATIVE REMEDIES; WAIVERS. No remedy referred to in this Agreement
or the other Loan Documents is intended to be exclusive, but each shall be
cumulative and in addition to any other remedy referred to above or otherwise
available to Lender at law or in equity. No express or implied waiver by Lender
of any default or Event of Default hereunder shall be effective unless in a
writing signed by an officer of Lender and shall not in any way be, or be
construed to be, a waiver of any future or subsequent default or Event of
Default, whether similar in kind or otherwise. The failure, delay or waiver of
Lender in exercising any rights granted it hereunder or under the other Loan
Documents upon the occurrence of any of the contingencies set forth herein shall
not constitute a waiver of any such right upon the continuation or recurrence of
any such contingency or similar contingency and any single or partial exercise
of any particular right by Lender shall not exhaust the same or constitute a
waiver of any other right provided herein. The Events of Default and remedies
set forth herein are not restrictive of and shall be in addition to any and all
other rights and remedies of Lender provided for by this Agreement and
applicable law.
12.4 OTHER PROPERTY. Lender shall have a security interest in any other
property, tangible or intangible, owned by or in which Borrower has an interest
which is or may hereafter be in the possession of Lender.
12.5 COSTS AND EXPENSES. Borrower shall be liable for all costs, charges
and expenses, including reasonable attorney's fees and disbursements, incurred
by Lender by reason of the occurrence of any Event of Default or the exercise of
Lender's remedies with respect thereto, each of which shall be repayable by
Borrower on demand with interest, and added to the Obligations.
12.6 NO MARSHALLING. Lender shall be under no obligation whatsoever to
proceed first against any of the Collateral or other property which is security
for the Obligations before proceeding against any other of the Collateral. It
is expressly understood and agreed that all of the Collateral or other property
which is security for the Obligations stands as equal security for all
Obligations, and that Lender shall have the right to proceed against any or all
of the Collateral or other property which is security for the Obligations in any
order, or simultaneously, as in its sole and absolute discretion it shall
determine. It is further understood and agreed that Lender shall have the
right, as
48
<PAGE>
it in its sole and absolute discretion shall determine, to sell any or all of
the Collateral or other property which is security for the Obligations in any
order or simultaneously, as Lender shall determine in its sole and absolute
discretion.
12.7 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No delay on the part of Lender
in exercising any right, remedy, power or privilege hereunder or under any of
the Loan Documents or provided by statute or at law or in equity or otherwise
shall impair, prejudice or constitute a waiver of any such right, remedy, power
or privilege or be construed as a waiver of any Event of Default or as an
acquiescence therein. No right, remedy, power or privilege conferred on or
reserved to Lender hereunder or under any of the Loan Documents or otherwise is
intended to be exclusive of any other right, remedy, power or privilege. Each
and every right, remedy, power or privilege conferred on or reserved to Lender
under this Agreement or under any of the other Loan Documents or otherwise shall
be cumulative and in addition to each and every other right, remedy, power or
privilege so conferred on or reserved to Lender and may be exercised by Lender
at such time or times and in such order and manner as Lender shall (in its sole
and complete discretion) deem expedient.
12.8 RECISION OF RIGHTS OF BORROWER. Upon the occurrence of an Event of
Default:
(a) With respect to any obligations owing to Borrower, all rights of
Borrower to receive the principal and interest payments which it would otherwise
be authorized to receive and retain pursuant to this Agreement shall cease, and
all such rights shall thereupon become vested in Lender, so long as an Event of
Default shall continue, who shall thereupon have the sole right to receive and
hold as collateral such principal and interest payments;
(b) All rights of Borrower to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
this Agreement shall cease, and all such rights shall thereupon become vested in
Lender who shall thereupon have the sole right to exercise such voting and other
consensual rights;
(c) All rights of Borrower to receive the dividends which it would
otherwise be authorized to receive and retain pursuant to this Agreement shall
cease, and all such rights shall thereupon become vested in Lender who shall
thereupon have the sole right to receive and hold as collateral such dividends;
and
(d) Any and all principal, interest and dividends which are received
by Borrower contrary to the provisions of this Agreement shall be received in
trust for the benefit of Lender, shall be segregated from other funds of
Borrower, and shall be forthwith
49
<PAGE>
paid over to Lender as Collateral in the same form so received (with any
necessary endorsement).
In order to permit Lender to exercise the voting and other rights which it
may be entitled to exercise pursuant to this Agreement, and to receive all
dividends and distributions which it may be entitled to receive under this
Agreement, Borrower shall, if necessary, upon notice from Lender, from time to
time execute and deliver to Lender appropriate dividend payment orders and other
instruments, including, without limitation, proxies, as Lender may reasonably
request.
SECTION 13. OTHER RIGHTS OF LENDER.
13.1 COLLECTIONS. Borrower shall, at Borrower's expense and in the manner
requested by Lender from time to time,(a) direct that remittances and all other
proceeds of accounts and other Collateral shall be (i) sent to a post office box
designated by and/or in the name of Lender, or in the name of Borrower, but as
to which access is limited to Lender and/or (ii) deposited into a bank account
maintained in the name of Lender and/or a blocked bank account under
arrangements with the depository bank under which all funds deposited to such
blocked bank account are required to be transferred solely to Lender, and/or (b)
immediately remit in kind to Lender, in whatever forms, all collections or other
proceeds of accounts and other Collateral received by Borrower. In connection
therewith, Borrower shall execute such post office box and/or blocked bank
account agreements as Lender shall specify. Lender may modify or terminate any
authority of the Borrower regarding the Accounts and other monetary obligations
included in the Collateral at any time, whether or not an Event of Default has
occurred, and Lender may directly collect the Accounts and other monetary
obligations included in the Collateral.
13.2 REPAYMENT OF OBLIGATIONS. All Obligations shall be payable at
Lender's office set forth below or at a bank or such other place as Lender may
expressly designate from time to time for purposes of this Section. Lender
shall apply all proceeds of Accounts or other Collateral received by Lender and
all other payments in respect of the Obligations to the Revolving Loans whether
or not then due or to any other Obligations then due, in whatever order or
manner Lender shall determine. For purposes of determining Net Availability,
remittances and other payments with respect to the Collateral and Obligations
will be treated as credited to the loan account of Borrower maintained by Lender
and Collateral balances to which they relate, upon the date of Lender's receipt
of advice from Lender's bank that such remittances or other payments have been
credited to Lender's account or in the case of remittances or other payments
received directly in kind by Lender, upon the date of Lender's deposit thereof
at Lender's bank, subject to final payment and collection. In computing
interest charges, the Loan Account of Borrower maintained by Lender will be
credited with remittances and other payments three (3)
50
<PAGE>
Business Days after the day Lender has received advice of receipt of remittances
in Lender's account at Lender's Bank.
13.3 NOTIFICATION OF ACCOUNT DEBTORS AND BAILEES OF INVENTORY. Lender may,
at any time, whether or not an Event of Default has occurred, without notice to
or assent of Borrower, (a) notify any account debtor that the accounts and other
Collateral which includes a monetary obligation have been assigned to Lender by
Borrower and that payment thereof is to be made to the order of and directly to
Lender,(b) send, or cause to be sent by its designee, requests (which may
identify the sender by a pseudonym) for verification of accounts and other
Collateral directly to any account debtor or any other obligor or any bailee
with respect thereto, and (c) demand, collect or enforce payment of any accounts
or such other Collateral, but without any duty to do so, and Lender shall not be
liable for any failure to collect or enforce payment thereof. At Lender's
request, all invoices and statements sent to any account debtor, other obligor
or bailee, shall state that the accounts and such other Collateral have been
assigned to Lender and are payable directly and only to Lender. At any time,
Lender may, in its sole and absolute discretion, notify the bailee of any
Inventory of its security interest therein.
13.4 LENDER APPOINTED ATTORNEY-IN-FACT.
(a) Borrower hereby irrevocably constitutes and appoints Lender, with
full power of substitution, as its true and lawful attorney-in-fact, with full
irrevocable power and authority in its place and stead and in its name or
otherwise, from time to time in Lender's discretion, at Borrower's sole cost and
expense, take any and all appropriate action and to execute and deliver any and
all documents and instruments which Lender may deem reasonably necessary or
advisable to accomplish the purposes of this Agreement, including, without
limiting the generality of the foregoing,(i) to receive, take, endorse, assign,
deliver, accept and deposit, in the name of Lender or Borrower, any and all
cash, checks, commercial paper, drafts, remittances and other instruments and
documents relating to the Collateral or the proceeds thereof,(ii) to transmit to
account debtors, other obligors or any bailees notice of the interest of Lender
in the Collateral or request from account debtors or such other obligors or
bailees at any time, in the name of Borrower or Lender or any designee of
Lender, information concerning the Collateral and any amounts owing with respect
thereto,(iii) to notify account debtors or other obligors to make payment
directly to Lender, or notify bailees as to the disposition of Collateral,
(iv)to take or bring, in the name of Lender or Borrower, all steps, actions,
suits or proceedings deemed by Lender necessary or desirable to effect
collection of or other realization upon the accounts and other Collateral,(v) to
after an Event of Default, change the address for delivery of mail to Borrower
and to receive and open mail addressed to Borrower,(vi) after an Event of
Default, to extend the time of payment of, compromise or settle for cash,
credit, return of merchandise, and upon any terms or conditions, any and all
accounts or other Collateral
51
<PAGE>
which includes a monetary obligation and discharge or release the account debtor
or other obligor, without affecting any of the Obligations,(vii) to execute in
the name of Borrower and file against Borrower in favor of Lender Financing
Statements or amendments with respect to the Collateral, or record a copy or an
excerpt hereof in the United States Copyright Office or the United States Patent
and Trademark Office and to take all other steps as are necessary in the
reasonable opinion of Lender under applicable law to perfect the security
interests granted herein, (viii)to obtain and adjust insurance required pursuant
to this Agreement and to pay all or any part of the premiums therefor and the
costs thereof, and (ix) to pay or discharge taxes, liens, security interests or
other encumbrances levied or placed on or threatened against the Collateral.
(b) Borrower hereby ratifies, to the extent permitted by law, all
that Lender shall lawfully and in good faith do or cause to be done by virtue of
and in compliance with this Agreement. The powers of attorney granted pursuant
to this Agreement are each a power coupled with an interest and shall be
irrevocable until the Obligations are paid indefeasibly in fully.
13.5 RELEASE OF LENDER. Borrower hereby releases and exculpates Lender,
its officers, directors, employees, agents and designees, from any liability
arising from any acts under this Agreement or in furtherance thereof, whether as
attorney-in-fact or otherwise, whether of omission or commission, and whether
based upon any error of judgment or mistake of law or fact, except for gross
negligence or willful misconduct as determined by a final and non-appealable
order from a court of competent jurisdiction. In no event will Lender have any
liability to Borrower for lost profits or other special or consequential
damages.
13.6 UNIFORM COMMERCIAL CODE. At all times prior and subsequent to an
Event of Default hereinafter, Lender shall be entitled to all the rights and
remedies of a secured party under the UCC with respect to all Collateral.
13.7 PRESERVATION OF COLLATERAL. At all times prior and subsequent to an
Event of Default hereinafter, Lender may (but without any obligation to do so)
take any and all action which in its sole and absolute discretion is necessary
and proper to preserve its interest in the Collateral, including without
limitation the payment of debts of Borrower which might, in Lender's sole and
absolute discretion, impair the Collateral or Lender's security interest
therein, purchasing insurance on the Collateral, repairing the Collateral, or
paying taxes or assessments thereon, and the sums so expended by Lender shall be
secured by the Collateral, shall be added to the amount of the Obligations due
Lender and shall be payable on demand with interest at the rate set forth in
Section 3.1 hereof from the date expended by Lender until repaid by Borrower.
After written notice by Lender to Borrower and automatically, without notice,
after an Event of Default, Borrower shall not,
52
<PAGE>
without the prior written consent of Lender in each instance, (a) grant any
extension of time of payment of any of the accounts or any other Collateral
which includes a monetary obligation, (b) compromise or settle any of the
accounts or any such other Collateral for less than the full amount thereof,(c)
release in whole or in part any account debtor or other person liable for the
payment of any of the accounts or any such other Collateral, or (d) grant any
credits, discounts, allowances, deductions, return authorizations or the like
with respect to any of the accounts or any such other Collateral except for
customary discounts granted in the ordinary course of business.
13.8 LENDER'S RIGHT TO CURE. In the event Borrower shall fail to perform
any of its Obligations hereunder or under any of the Loan Documents, then
Lender, in addition to all of its rights and remedies hereunder, may perform the
same, but shall not be obligated to do so, at the cost and expense of Borrower.
In any such event, Borrower shall promptly reimburse Lender together with
interest at the rate set forth in Section 3.1 hereof from the date such sums
are expended until repaid by Borrower.
13.9 TEST VERIFICATIONS. Lender or its designees shall have the right to
make test verifications of any and all Accounts and other Collateral in any
manner and through any medium Lender considers advisable, and Borrower shall
render any necessary assistance to Lender. At such times as Lender may request
and in the manner specified by Lender, Borrower shall deliver to Lender or
Lender's representative original invoices, agreements, proofs of rendition of
services and delivery of goods and other documents evidencing or relating to the
transactions which gave rise to Accounts or other Collateral, together with a
schedule of the names and addresses of Borrower's customers, customer
statements, schedules describing the Accounts or other Collateral and/or
statements of Account and confirmatory assignments to Lender of the Accounts or
other Collateral, in form and substance satisfactory to Lender and duly executed
by Borrower. Without limiting the provisions of this Agreement contained
elsewhere, Borrower's granting of credits, discounts, allowances, deductions,
return authorizations or the like will be promptly reported to Lender in
writing. In no event shall any such schedule or confirmatory assignment (or the
absence thereof or omission of any of the Accounts or other Collateral
therefrom) limit or in any way be construed as a waiver, limitation or
modification of the security interests or rights of Lender or the warranties,
representations and covenants of Borrower under this Agreement.
13.10 INSPECTION OF COLLATERAL. From time to time as requested by
Lender, at the sole expense of Borrower, subject, however, with respect to
such expenses, to the provisions of Section 3.8(d), Lender or its designee
shall have access, prior to an Event of Default during reasonable business
hours and on or after an Event of Default at any time, to all of the premises
where Collateral is located for the purposes of inspecting, disposing and
realizing upon the Collateral, and all Borrower's books and records, and
53
<PAGE>
Borrower shall permit Lender or its designee to make such copies of such books
and records or extracts therefrom as Lender may request. Without expense to
Lender, Lender may use such of Borrower's personnel, equipment, including
computer equipment, programs, printed output and computer readable media,
supplies and premises for the collection of Accounts and realization on other
Collateral as Lender, in its sole discretion, deems appropriate. Borrower
hereby irrevocably authorizes all accountants and third parties to disclose and
deliver to Lender at Borrower's expense all financial information, books and
records, work papers, management reports and other information in their
possession regarding Borrower.
SECTION 14. PROVISIONS OF GENERAL APPLICATION.
14.1 WAIVERS. Borrower waives demand, presentment, notice of dishonor
protest and notice of protest of any instrument either of Borrower or others
which may be included in the Collateral.
14.2 CONSENTS. Borrower consents:
(a) to any extension, postponement of time of payment, indulgence or
to any substitution, exchange or release of Collateral.
(b) to any addition to, or release of, any party or persons primarily
or secondarily liable, or acceptance of partial payments on any Accounts or
instruments and the settlement, compromising or adjustment thereof.
14.3 SURVIVAL. All covenants, agreements, representations and warranties
made by Borrower herein or in any of the Loan Documents or in any certificate,
report or instrument contemplated hereby shall survive any independent
investigation made by Lender and the execution and delivery of this Agreement,
and such certificates, reports or instruments and shall continue so long as any
Obligations are outstanding and unsatisfied, applicable statutes of limitations
to the contrary notwithstanding.
14.4 NOTICES. All notices, requests and demands to or upon the
respective parties hereto shall be deemed to have been duly given or made:
(a) if by hand, immediately upon delivery; (b)if by telex, telecopy,
facsimile transmission or telegram, immediately upon sending, PROVIDED it is
sent on a Business Day, but if not, then immediately upon the beginning of
the first Business Day after being sent and provided further that such telex,
telecopy, facsimile transmission or telegram is promptly confirmed by
delivery of a copy by personal delivery or by United States Mail as otherwise
provided in this Section 14.4; (c) if by Federal Express, Express Mail or any
other overnight delivery service for next day delivery, one (1) Business Day
after dispatch; and (d) if mailed by
54
<PAGE>
certified mail, return receipt requested, five (5) days after mailing. All
notices, requests and demands are to be given or made to the respective parties
at the following addresses (or to such other addresses as either party may
designate by notice in accordance with the provisions of this paragraph):
If to Borrower: MIDLAND USA, INC.
1690 North Topping Avenue
Kansas City, Missouri 64120
Attention: Mr. Marvin Marstall
Telephone No. 816-241-8400
Facsimile No. 816-920-1144
If to Gibraltar: SUMMIT COMMERCIAL/GIBRALTAR CORP.
546 Fifth Avenue
New York, New York 10036
Attention: President
Telephone No. 212 997-3350
Facsimile No. 212 398-6990
14.5 AMENDMENTS; WAIVER OF DEFAULTS. The terms of this Agreement shall not
be amended, waived, altered, modified, supplemented or terminated in any manner
whatsoever except by a written instrument signed by Lender and Borrower. Any
default or Event of Default by a party hereto may only be waived by a written
instrument specifically describing such default or Event of Default and signed
by the other party hereto.
14.6 BINDING ON SUCCESSORS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
(including any Participant or Participants of Lender), EXCEPT THAT, Borrower may
not assign any of its rights under this Agreement or the other Loan Documents to
any Person without the prior written consent of Lender.
14.7 INVALIDITY. Any provision of this Agreement which may be determined
by competent authority to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
14.8 SECTION OR PARAGRAPH HEADINGS. Section and paragraph headings are for
convenience only and shall not be construed as part of this Agreement.
55
<PAGE>
14.9 GOVERNING LAW. This Agreement shall be construed in accordance with,
and shall be governed by, the laws of the State of New York (without giving
effect to conflict of law rules).
14.10 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE ANY AND ALL
RIGHTS THAT THEY MAY NOW OR HEREAFTER HAVE UNDER THE LAWS OF THE UNITED
STATES OF AMERICA OR ANY STATE TO A TRIAL BY JURY OF ANY AND ALL ISSUES
ARISING EITHER DIRECTLY OR INDIRECTLY IN ANY ACTION OR PROCEEDING BETWEEN
BORROWER, LENDER OR ITS SUCCESSORS AND ASSIGNS, OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS
AND/OR THE COLLATERAL. IT IS INTENDED THAT SAID WAIVER SHALL APPLY TO ANY
AND ALL DEFENSES, RIGHTS, AND/OR COUNTERCLAIMS IN ANY ACTION OR PROCEEDINGS
BETWEEN BORROWER AND LENDER. BORROWER WAIVES ALL RIGHTS TO INTERPOSE ANY
CLAIMS, DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND, NATURE OR
DESCRIPTION IN ANY ACTION OR PROCEEDING INSTITUTED BY LENDER WITH RESPECT TO
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS, THE COLLATERAL OR
ANY MATTER ARISING THEREFROM OR RELATING THERETO, EXCEPT COMPULSORY
COUNTERCLAIMS.
14.11 CONSENT TO JURISDICTION. Borrower and Lender each hereby (a)
irrevocably submits and consents to the nonexclusive jurisdiction of the
Supreme Court for New York County, State of New York, and the United State
District Court for the Southern District of New York with respect to any
action or proceeding arising out of this Agreement, the Notes, the other
Obligations, the other Loan Documents, the Collateral or any matter arising
therefrom or relating thereto and (b) waives any objection based on venue or
FORUM NON CONVENIENS with respect thereto. In any such action or proceeding,
Borrower waives personal service of the summons and complaint or other
process and papers therein and agrees that the service thereof may be made by
mail directed to Borrower at its chief executive office set forth herein or
other address thereof of which Lender has received notice as provided herein,
service to be deemed complete as permitted under the rules of either of said
Courts. Any such action or proceeding commenced by Borrower against Lender
will be litigated only in the New York Supreme Court for New York County,
State of New York, and the United States District Court for the Southern
District of New York.
14.12 ENTIRE AGREEMENT. This Agreement, the other Loan Documents, any
supplements or amendments hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents
the entire agreement and understanding concerning the subject matter hereof
and thereof between the parties hereto, and supersede all other prior
agreements, understandings, negotiations
56
<PAGE>
and discussions, representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or written. In the
event of any inconsistency between the terms of this Agreement and any schedule
or exhibit hereto, the terms of this Agreement shall govern.
14.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which when so executed, shall be deemed an original,
but all of which shall constitute but one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
MIDLAND USA, INC.
By:
---------------------------------
Title:
-----------------------------
SUMMIT COMMERCIAL/GIBRALTAR CORP.
By:
---------------------------------
Title:
------------------------------
57
<PAGE>
SCHEDULE A
TO
LOAN AND SECURITY AGREEMENT
PERMITTED ENCUMBRANCES
58
<PAGE>
SCHEDULE B
TO
LOAN AND SECURITY AGREEMENT
CHIEF EXECUTIVE OFFICE
1690 North Topping Avenue
Kansas City, Missouri 64120
PRINCIPAL PLACE OF BUSINESS
1690 North Topping Avenue
Kansas City, Missouri 64120
LOCATIONS OF COLLATERAL
1690 North Topping Avenue
Kansas City, Missouri 64120
LOCATIONS OF BOOKS AND RECORD
1690 North Topping Avenue
Kansas City, Missouri 64120
59
<PAGE>
SCHEDULE C
TO
LOAN AND SECURITY AGREEMENT
TRADESTYLES
60
<PAGE>
SUBORDINATION AGREEMENT
Agreement made this 24th day of December, 1997, by and among MIDLAND USA,
INC. (the "Debtor"), INTEK DIVERSIFIED CORPORATION (the "Junior Creditor") and
SUMMIT COMMERCIAL/GIBRALTAR CORP. (the "Senior Creditor").
W I T N E S S E T H:
WHEREAS, the above-named Debtor is indebted to Junior Creditor, as of
November 30, 1997, in the principal amount of $17,133,679.00, which debt is
unsecured; and
WHEREAS, Debtor has requested that Senior Creditor make loans and advances
or otherwise extend financial accommodations to Debtor pursuant to the terms and
conditions of certain agreements, including, but not limited to, the Loan and
Security Agreement and other supplements, agreements, documents and guaranties
granting collateral security or creating or evidencing indebtedness (all of the
foregoing, together with all other related documents, instruments or notes, as
the same may now exist or hereafter be amended or supplemented are collectively
referred to as the "Loan Documents"); and
WHEREAS, Senior Creditor is willing to make such loans and advances or
otherwise extend financial accommodations only upon the due execution and
delivery of this Subordination Agreement ("Agreement"), pursuant to which Junior
Creditor shall subordinate all of the present and future indebtedness of Debtor
to Junior Creditor from time to time existing to the payment of any and all
indebtedness now or hereafter owed by Debtor to Senior Creditor, except as
otherwise permitted herein;
NOW, THEREFORE, in consideration of the premises and as an inducement to
Senior Creditor to grant said request of Debtor for loans, advances and other
financial accommodations, the parties hereto agree as follows:
1. The Junior Creditor hereby subordinates payment of all the
Debtor's "Obligations" to the Junior Creditor ("Junior Debt") to the
indefeasible full payment of any and all the Debtor's "Obligations" to the
Senior Creditor ("Senior Debt"). "Obligations" means all obligations,
liabilities and indebtedness of any kind, nature or description whatsoever,
direct or indirect, absolute or contingent, matured or unmatured, consensual or
created by law, now existing or hereafter incurred or created, both before and
after the commencement of any case under Title 11 of the United States Code, as
amended ("Bankruptcy Code") and including charges, commissions, costs, expenses
and fees.
2. (a)Debtor and Junior Creditor agree that until all Senior Debt is
indefeasibly paid in full to Senior Creditor: The Debtor shall not, directly or
indirectly,
<PAGE>
make any payment of any Junior Debt and that no collateral or guarantees, or
proceeds thereof, will be enforced or applied to any Junior Debt, except in
favor of Senior Creditor as provided herein; that the Junior Creditor will not
accept payment or prepayment of or seek to collect any Junior Debt or join in
any petition or otherwise initiate against the Debtor any proceeding described
in paragraph 5 hereof; that no collateral will be granted for any Junior Debt;
that the Debtor shall not directly or indirectly make any loan, gift or
distribution of any assets to the Junior Creditor; and that no Junior Debt will
be waived, forgiven or canceled unless converted to or exchanged for
non-convertible capital stock of Debtor.
(b) Notwithstanding anything to the contrary contained herein,
Debtor may make, and Junior Creditor may accept and retain, payments on account
of the Junior Debt in accordance with and subject to Section 10.16(a) of the
Loan and Security Agreement.
3. An endorsement shall be written on any instrument evidencing the
Junior Debt to the effect that it is subordinate to the Senior Debt and subject
to the terms and conditions of this Agreement and such instrument shall be
delivered to Senior Creditor. The Debtor and Junior Creditor agree to notify
Senior Creditor in writing immediately of the creation of any additional debt
due to the Junior Creditor from the Debtor ("New Junior Debt") and of the
acquisition of any collateral for or guaranty of any Junior Debt; and agree to
issue and endorse or assign to Senior Creditor said guarantees and collateral
and evidence of New Junior Debt, and to give Senior Creditor such Financing
Statements under the Uniform Commercial Code as Senior Creditor requires. All
New Junior Debt shall be and is subject to the same terms and conditions of this
Agreement as Junior Debt and is included in the term "Junior Debt". In the
event any endorsement is omitted, Senior Creditor is hereby irrevocably
authorized on behalf of the Junior Creditor to make the same. However, no
specific endorsement or assignment shall be necessary to subject any Junior Debt
to the assignment and subordination thereof contained in this Agreement. The
Debtor and the Junior Creditor will make appropriate notations in their books
and records to show the subordinate character of all Junior Debt and make such
books available for Senior Creditor to examine during regular business hours,
and deliver financial statements to Senior Creditor on request.
4. The Debtor and the Junior Creditor warrant to Senior Creditor
that the Junior Creditor is and will be the exclusive legal and beneficial owner
of all Junior Debt and related collateral and guarantees, and that none of the
Junior Debt or collateral or guarantees is or will be subject to any lien,
security interest, financing statement, subordination, assignment or other
claim, except in favor of Senior Creditor (and the Debtor and Junior Creditor
agree to notify Senior Creditor immediately in writing of any claims made or
adverse occurrence pertaining to any Junior Debt).
-2-
<PAGE>
5. In the event of any insolvency or bankruptcy case, under the
Bankruptcy Code or any other federal or state insolvency statute, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Debtor or its property, or in the event of
any proceedings for voluntary liquidation, dissolution or other winding up of
the Debtor, whether or not involving insolvency or bankruptcy, or in the event
of any assignment for the benefit of creditors of the Debtor or any marshalling
of assets of the Debtor ("Insolvency Case"), then the Senior Creditor shall
first be entitled to receive indefeasible payment in full of all Senior Debt
before the Junior Creditor shall be entitled to receive any payment on account
of the Junior Debt, and the Senior Creditor shall be entitled to receive for
application in payment of the Senior Debt any payment or distribution of any
kind or character, whether in cash, property or securities, which may be payable
or deliverable in any such Insolvency Case in respect of the Junior Debt,
including, without limitation, securities of the Debtor as reorganized or
readjusted or securities of the Debtor or any other corporation provided for by
a plan of reorganization or readjustment. In any such Insolvency Case, Senior
Creditor is irrevocably authorized to:
(a) Enforce and vote claims comprising any of the Junior Debt
either in its own name or the name of the Junior Creditor, by proof of debt,
proof of claim, suit or otherwise;
(b) Vote claims comprising any of the Junior Debt to accept or
reject any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension; and/or
(c) Take generally any action in connection with any such
Insolvency Case which the Junior Creditor might otherwise take.
6. Should any payment of or distribution on account of any Junior
Debt be received by the Junior Creditor, such payment shall be held in trust by
the Junior Creditor for the benefit of the Senior Creditor and shall be
delivered forthwith to Senior Creditor for application to Senior Debt, in the
form received with any necessary endorsement or assignment. The Junior Creditor
shall not be subrogated to, or be entitled to any assignment or reassignment of
any Senior Debt or Junior Debt, or of any collateral for or guarantees or
evidences of any Senior Debt or Junior Debt.
7. The Junior Creditor and Debtor waive notice of acceptance hereof
by Senior Creditor, and waive notice of and consent to the creation of any
Senior Debt, extensions granted or other action taken by Senior Creditor in
reliance hereon, the acquisition or release of collateral for or guarantors of
the payment of Senior Debt, the releasing of any other subordinating creditor;
and the Junior Creditor and Debtor waive
-3-
<PAGE>
demand, presentment, protest, notice of protest and of default and any and all
other notices to which either of them might otherwise be entitled. No failure
or delay by Senior Creditor to exercise any right granted herein, or in any
other agreement or by law shall constitute a waiver of such right or of any
other right. The Debtor and the Junior Creditor agree to execute and deliver to
Senior Creditor such additional documents and to take such further action as
Senior Creditor may hereafter require to effect the purposes of this Agreement.
8. The parties hereto hereby waive trial by jury in any action or
proceeding arising out of or in any way relating to this Agreement and hereby
irrevocably consent to the non-exclusive jurisdiction of the State and Federal
Courts in the State of New York in all actions or proceedings arising out of or
in any way relating to this Agreement. Junior Creditor and Debtor waive the
right to interpose any claims, offset, deductions or counterclaims of any kind,
nature or description in any action or proceeding, except compulsory
counterclaims.
9. This Agreement constitutes the entire agreement of subordination
between the parties, and shall bind and benefit the Junior Creditor, the Debtor
and Senior Creditor (and any of its affiliates, subsidiaries or parent to which
the Debtor may now or hereafter be indebted), and their respective heirs,
executors, administrators, successors and assigns. This Agreement shall be
governed by the laws of the State of New York.
IN WITNESS WHEREOF, the Junior Creditor and Debtor have executed and
delivered this Agreement on the day and year first above written.
INTEK DIVERSIFIED CORPORATION
By:
-------------------------------------
Title:
----------------------------------
MIDLAND USA, INC.
By:
-------------------------------------
Title:
----------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-4-
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ACKNOWLEDGED:
SUMMIT COMMERCIAL/GIBRALTAR CORP.
By:
-------------------------
Title:
----------------------
-5-
<PAGE>
TERMINATION AND RELEASE
TERMINATION AND RELEASE dated as of December 29, 1997, between INTEK
DIVERSIFIED CORPORATION, a Delaware corporation having an office at 214
Carnegie Center, Suite 304, Princeton, New Jersey 08540 (the "Intek"), and
SECURICOR COMMUNICATIONS LIMITED, a company incorporated under the laws of
England and Wales having an office at 15 Carshalton Road, Sutton, Surrey, SM1
4LD, England ("Securicor").
WHEREAS, Intek and Securicor entered into a Stock Purchase Agreement
dated as of June 18, 1996 (the "Stock Purchase Agreement"); and
WHEREAS, Intek and Securicor wish to settle certain liabilities under
the Stock Purchase Agreement; and
WHEREAS, Intek and Securicor propose to further amend (the "Loan
Amendment") that Amended and Restated Loan Agreement between Intek and
Securicor dated as of December 3, 1996 so as to include all outstanding loans
and advances to Intek and its subsidiaries from Securicor in a single
integrated loan agreement; and
WHEREAS, Intek and Securicor propose to enter into a Preferred Stock
Purchase Agreement (the "Preferred Stock Purchase Agreement").
NOW, THEREFORE, in consideration of the payments set forth herein and
other good and valuable consideration, it is hereby agreed as follows:
1. SETTLEMENT. In full settlement of all claims for
indemnification arising under Section 9.1(a)(iv) of the Stock Purchase
Agreement (relating to liabilities arising from the sale of "EFJ Shares and
EFJ Warrants" to Securicor Radiocoms Limited), Securicor will, upon the
execution of this Agreement, pay Intek U.S. $2,592,000 (the "Settlement
Payment").
2. RELEASES. Subject to the satisfaction of the conditions set
forth in Section 4, below, and effective upon such satisfaction (the
"Effective Date"), notwithstanding the terms of the Stock Purchase
Agreement, Intek hereby releases Securicor, except as set forth in Section 3
of this Termination and Release, from any and all liabilities or obligations
arising under the Stock Purchase Agreement.
3. SURVIVAL. The following rights and obligations of the parties
shall survive the Release set forth in Section 2, above (section references
and titles are to sections of the Stock Purchase Agreement):
Section 6.6 Preservation of Records
Section 6.9 Tax and Accounting Matters (except paragraph
6.9(c))
Section 6.13 Non-Compete
Section 6.14 FCC Matters
Section 6.15 Indemnification; Directors and Officers
1
<PAGE>
Section 6.16 Pension Schemes
Section 10.4 Further Assurances
4. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF RELEASES. The
Release contained in Section 2 is conditioned upon the fulfillment of
following conditions, except to the extent waived by the parties in writing:
4.1 EXECUTION OF SECOND AMENDED AND RESTATED LOAN AGREEMENT.
Intek and Securicor shall have executed the Loan
Amendment.
4.2 EXECUTION OF PREFERRED STOCK PURCHASE AGREEMENT. Intek
and Securicor shall have executed the Preferred Stock
Purchase Agreement.
4.3 PAYMENT OF THE SETTLEMENT PAYMENT. Intek shall have
received the Settlement Payment in immediately available
U.S. funds.
5. MISCELLANEOUS. This Termination and Release shall be binding
upon and inure to the benefit of the Parties and their respective heirs,
assigns and successors in interest. This Termination and Release shall be
governed by and construed in accordance with the laws of England and Wales
applicable to agreements made and to be entirely performed therein. The
Parties covenant to each other to execute and deliver such further
instruments and do such further acts and things as may be reasonably required
to carry out the intent and purposes of this Termination and Release.
INTEK DIVERSIFIED CORPORATION
By: ______________________________
SECURICOR COMMUNICATIONS
LIMITED
By: ______________________________
2
<PAGE>
EXHIBIT 21
Subsidiary State or other jurisdiction of incorporation
- ----------- ---------------------------------------------
Midland USA, Inc. Delaware
Roamer One, Inc. Delaware
Securicor Radiocoms Limited England and Wales
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated January 2, 1998, with
respect to the financial statements of Intek Diversified Corporation included
in the Form 10-K of Intek Diversified Corporation dated September 30, 1997.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Los Angeles, California
January 12, 1997
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated January 24, 1997, with
respect to the financial statements of Intek Diversified Corporation included
in the Form 10-K of Intek Diversified Corporation dated September 30, 1997.
/s/ Baker Tilly
Baker Tilly
Los Angeles, California
January 12, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,909,000
<SECURITIES> 8,148
<RECEIVABLES> 7,351,000
<ALLOWANCES> 863,000
<INVENTORY> 12,289,000
<CURRENT-ASSETS> 34,429,000
<PP&E> 27,377,000
<DEPRECIATION> 5,822,000
<TOTAL-ASSETS> 112,565,000
<CURRENT-LIABILITIES> 13,140,000
<BONDS> 0
0
20,559,000
<COMMON> 105,874,000
<OTHER-SE> (51,585,000)
<TOTAL-LIABILITY-AND-EQUITY> 112,565,000
<SALES> 41,533,000
<TOTAL-REVENUES> 42,284,000
<CGS> 37,846,000
<TOTAL-COSTS> 39,585,000
<OTHER-EXPENSES> 28,637,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,894,000)
<INCOME-PRETAX> (28,299,000)
<INCOME-TAX> (1,158,000)
<INCOME-CONTINUING> (26,999,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,999,000)
<EPS-PRIMARY> (.74)
<EPS-DILUTED> (.74)
</TABLE>
