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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, 1998
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 GLOBAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2450145
(STATE OF INCORPORATION) I.R.S. EMPLOYER
IDENTIFICATION NUMBER
99 PARK AVENUE 10016
NEW YORK, NY
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
Registrant's telephone number, including area code: (212) 949-4200
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 18, 1998, the aggregate market value of voting stock held by
non-affiliates was approximately $19,375,874. The number of shares outstanding
of the Registrant's Common Stock was 42,303,038 as of December 18, 1998.
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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 1999 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
that 120 days after the Registrant's fiscal year ended September 30, 1998.
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INDEX
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<S> <C>
PART I............................................................................................................5
Item 1. Business.............................................................................................5
Forward-Looking Statements...................................................................................5
Introduction.................................................................................................5
Business Strategy............................................................................................6
Business Acquisitions and Significant Items..................................................................6
Wireless Communications Industry.............................................................................7
General...................................................................................................7
LMR.......................................................................................................8
SMR.......................................................................................................8
LM Research and Development..................................................................................9
Benefits of LM Technology.................................................................................9
Benefits in an SMR System.................................................................................9
SMR Systems Management and Operation.........................................................................9
Equipment Distribution......................................................................................10
LM Related...............................................................................................10
Non-LM Related...........................................................................................11
Manufacturing...............................................................................................11
Patents, Trademarks and Trade Secrets.......................................................................11
Competition.................................................................................................11
Technology...............................................................................................12
SMR Systems Management and Operation.....................................................................12
Equipment Distribution...................................................................................13
Manufacturing............................................................................................13
Government Regulation.......................................................................................13
United States............................................................................................13
International............................................................................................14
Risk Factors................................................................................................14
Risk of Uncertain Market Acceptance......................................................................14
Competing Services.......................................................................................15
Supplier Risk............................................................................................15
Dependence on Government Regulation......................................................................15
Need for Additional Capital..............................................................................15
Control by Majority Shareholder..........................................................................15
Employees...................................................................................................15
Item 2. Properties..........................................................................................15
Item 3. Legal Proceedings...................................................................................16
Item 4. Submission of Matters to a Vote of Security Holders.................................................16
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters................................17
Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters.............17
Recent Sales of Unregistered Securities.....................................................................17
Item 6. Selected Financial Data.............................................................................18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............19
Overview....................................................................................................19
Results of Operations.......................................................................................20
Liquidity and Capital Resources.............................................................................26
Effects of Inflation........................................................................................29
Year 2000...................................................................................................29
Item 7A. Quantitative and Qualitative Disclosures about Market Risk..........................................30
Item 8. Financial Statements and Supplementary Data.........................................................30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................30
PART III.........................................................................................................31
Item 10. Directors and Executive Officers of the Registrant..................................................31
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Item 11. Executive Compensation..............................................................................31
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................31
Item 13. Certain Relationships and Related Transactions......................................................31
PART IV..........................................................................................................32
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K...................................32
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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 Global Corporation, a Delaware corporation, is a provider of
spectrum-efficient wireless communications technology, products and services.
Unless otherwise indicated, the "Company" refers to Intek Global Corporation and
its subsidiaries.
Linear Modulation Technology, Ltd. ("LMT") is a subsidiary of the Company's
Securicor Radiocoms Limited ("Radiocoms") subsidiary. LMT has developed and
patented a proprietary linear modulation ("LM") technology ("LM Technology") for
various wireless communications applications including specialized mobile radio
("SMR"), land mobile radio ("LMR"), 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. LM Technology can
overlay digital and analog radio transmissions and provide up to a six-fold
increase in a system's capacity.
The Company provides wireless communications services for voice and data
to its subscribers in the U.S. utilizing radio frequencies licensed to or
managed by the Company's subsidiaries. The Company holds the most licenses in
the 220 to 222 MHz ("220 MHz") frequency band in the U.S. The Company
provides two-way 220 MHz SMR services to its subscribers under the Roamer
One-TM- brand name on systems utilizing the Company's LM Technology. The
Company will roll out sites relative to customer requirements. The Company's
SMR sites, including four major regional and national markets, are referred
to as the Roamer One Network. The transmitters (base stations) and radios
used on the Roamer One Network are manufactured by Radiocoms and various
outside firms.
LM Technology products are distributed in the U.S. by Midland USA, Inc.
("MUSA"), a subsidiary located in Kansas City, MO. MUSA also distributes SMR and
LMR products of other manufacturers through a well-established base of
authorized dealers and agents, some of whom market Roamer One's services.
The Company's SMR businesses, and the communications products the
Company distributes, are regulated in the U.S. by the Federal Communications
Commission ("FCC"), and in the U.K. by the Radio Communications Agency
("RA"). A significant portion of the Company's business affairs (as well as
those of its competitors) is subject to changes in regulatory rules and
policies. Such changes can increase the level of competition and the cost of
regulatory compliance, and affect the methods by which the Company manages
its SMR systems and its ability to obtain or keep licenses. Each FCC
proceeding 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.
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BUSINESS STRATEGY
The Company's objective is to become a leading international provider of
cost-effective, spectrum-efficient wireless technologies, products and services.
To achieve this objective, the Company is pursuing a three-tiered strategy.
First, the Company intends to commercialize its LM Technology on a global basis.
Second, the Company intends to establish itself as a leading provider of airtime
services, for both voice and data, to local, regional and national subscribers.
Third, the Company intends to establish itself as the premier distributor of
spectrum-efficient and other products to the land mobile radio business, both
domestically and internationally.
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 Application Specific Integrated Circuits ("ASICs")
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.
In addition, FCC initiatives, as well as initiatives in the European Union
("EU") by the European Telecommunications Standards Institute ("ETSI"), may
result in other significant markets for the Company's LM Technology.
During fiscal 1998, the Company put in place its license infrastructure,
having successfully acquired 181 licenses during the FCC's Phase II auction
completed in November 1998. Certain of the licenses acquired at the FCC Phase
II auction will be assigned, partitioned or disaggregated to the National
Rural Communications Cooperative ("NRTC") pursuant to an agreement. See
"Business - Business Acquisitions and Significant Items." As a result, the
Company can now approach larger customers concentrated in four wide-area
major geographic areas: California, St. Louis, Kansas City, and the New
England corridor between Boston, Massachusetts and Rochester, New York.
The Company is actively seeking other partners in other areas of the world
to operate SMR systems. As appropriate, the Company may also seek to acquire or
manage SMR systems, both in the U.S. and worldwide, utilizing technologies other
than LM Technology.
The Company is actively marketing its 220 MHz products (base stations and
radios) to those U.S. license holders who, as of 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 also is
marketing its products to potential new public safety license holders that will
result from changes currently being made in FCC regulation and to new license
holders who acquired licenses in the recent Phase II auction. 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.
BUSINESS ACQUISITIONS AND SIGNIFICANT ITEMS
In December 1997, the Company acquired assets of Wireless Plus, Inc., a
Hayward, California-based SMR service provider.
In February 1998, the Company entered into an agreement with Kukjae
Electronics, Ltd. Co. of South Korea, one of that nation's leading manufacturers
of mobile radio equipment, allowing Kukjae to manufacture and sell LM-compatible
radio products and operate narrowband radio networks based on LM technology.
In April 1998, the Company signed a five-year technology, development and
supply agreement with Nokia Telecommunications OYJ, part of Nokia Corporation of
Finland. The agreement incorporates key components of the LM Technology into
Nokia's TETRA (Trans European Trunked Radio) product lines, the standard of
which is the only European standard for digital professional mobile radio.
In May 1998, the Company acquired privately-held Mobile Data Solutions,
Inc., operator of Data Express,
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a leading developer and supplier of wireless data solutions for the mobile
marketplace, including "Fleet Management 2000," a licensed product which
provides critical real-time vehicle-tracking information.
In July 1998, the FCC approved the first LM Technology-based VHF high band
radio system for frequencies between 150 and 162 MHz. The FCC formally certified
that LM Technology meets all pre-defined narrowband technical requirements and
permits the Company to market LM Technology radio systems for those frequencies.
In August 1998, the Company's Radiocoms subsidiary sold certain assets
to Securicor Information Systems Limited ("SIS"), a U.K. subsidiary of Securicor
plc, for $8.5 million. The divested assets related to non-core distribution
business activities not associated with LM Technology.
In August 1998, the Company acquired certain assets of ComTech
Communications, Inc., including eleven licenses in the 220 MHz spectrum, and
subsequently entered into a letter of intent, resale agreement and equipment
lease relating to ComTech's Phase I national FCC license.
In September 1998, the Company entered into an exclusive strategic
alliance and distribution agreement with the 220 MHz unit of NRTC, a national
telecommunications company servicing the advanced telecommunications needs of
over 900 rural utilities and affiliated organizations. In accordance with the
alliance with the NRTC, the Company targets sales of approximately $50
million in LM products over the next five years. The Company also expects to
provide a broad range of essential services to the NRTC, including system
design and construction, system management, maintenance and repair, customer
service, marketing and advertising support.
In November 1998, the Company announced that it successfully bid on two
10-channel nationwide, seven 15-channel regional, and 172 10-channel Economic
Area ("EA"), or local, business radio airwave licenses (a total of 181
licenses) in the FCC Phase II auction of new 220 MHz spectrum licenses which
concluded in September. As part of its arrangement with the NRTC, the Company
will share with NRTC the approximately $12.2 million cost of the new
licenses. The Company will assign one nationwide and certain EA licenses to
NRTC, disaggregate six "regional" and one EA licenses and partition certain
EA licenses to NRTC. In total, the newly-acquired licenses represent a
substantial increase in the Company's available spectrum in fiscal 1999.
WIRELESS COMMUNICATIONS INDUSTRY
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 (mandated at 5 KHz) 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 of which an estimated 1,000 were constructed. The Company believes
the number of currently commercially operational 220 MHz systems is very
small. The FCC held an auction, which concluded in November 1998, for
additional 220 MHz licenses ("Phase II licenses").
In the U.S., 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
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LMR users followed by users of commercial SMR systems including the Roamer
One Network.
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.
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 systems 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").
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 - LM Research and Development."
According to published data, there are 19 million LMR users in the U.S.
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 in the U.S., the
number of SMR units in service has increased from fewer than 380,000 in 1985 to
approximately 4.6 million in 1998. 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
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suited for transmission of data at high speeds while providing crisp and
clear voice communication with the same mobile radio unit.
The Company's SMR systems operate in the U.S., Relayfone is an SMR system
operating in the U.K. but was sold during fiscal 1998.
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 $1.9 million in fiscal
1998, $3.3 million in fiscal 1997 and $3.2 million in fiscal 1996 on research
and development.
BENEFITS OF 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
kbps.
BENEFITS 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 and 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
220 MHz SMR SYSTEMS MANAGEMENT AND OPERATION
In the U.S., 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 220 MHz 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 many 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 is authorized to provide services across the U.S. and will
be rolling out sites relative to customer requirements. The Company does not
yet have systems in certain 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 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.
During fiscal 1998, the Company continued to redirect its marketing
campaign for the Roamer One Network from a national campaign to a focused
specific geographic campaign beginning with targeted businesses in four
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
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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 and what
they bill their subscribers.
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.
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 1999 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 are 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.
EQUIPMENT DISTRIBUTION
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
380 two-way radio dealers, as well as on a direct basis to larger accounts in
the business and government sectors.
LM RELATED
In the U.S., the Company to date has focused its LM product development for
the LMR market on 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. has been 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. With
the completion of the FCC Phase II Licensing auction of 220 MHz frequency in
November 1998, 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.
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 in early calendar 1999.
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
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develop LM products for use outside the 220 MHz frequency band, the Company
anticipates that active marketing of certain of these products will begin in
fiscal 1999.
The Company leases to third-parties LMR equipment on a short-term basis.
In addition, the Company maintains and supports LMR systems and equipment for
various customers.
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 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 1998, no single customer accounted for more than 5% of MUSA's
product sales. Products manufactured by Hitachi Denshi Limited accounted for 68%
of MUSA's sales.
MANUFACTURING
The Company manufactures limited quantities of LM products, currently
mobile radios, to support the introduction of LM products in the marketplace.
The Company intends to outsource manufacturing of LM related products going
forward. As demand for LM products increases, the Company anticipates granting
licenses to, or sub-contracting with, third parties for volume production of
equipment.
In fiscal 1998, the Company realized approximately $3.2 million in revenue
from affiliates of Securicor, down approximately 40% from the prior year.
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 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. Competition 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
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functionality as SMR and LMR services and, as such, will 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. None of the Company's product lines is dependent on any
single customer, the loss of which would have a material adverse impact on
the Company's business.
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
demands 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").
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 (12.5 KHz) standards being
completed by the APCO under their Project 25 committees ("P25"). While APCO
standards may compete with LM Technology in the narrowband market. APCO products
can also incorporate LM Technology to improve performance.
LM Technology is well suited to incorporate these standards. It also
offers stand-alone LM operation to the much higher spectrum efficiency of 5
KHz (which exceeds APCO's ultimate goal of 6.25 KHz) with high quality voice
and higher data speeds than that which is possible with the P25 standard. LM
Technology products offer 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 solutions, complex wideband solutions such as
TDMA and CDMA require large sections of unused spectrum to be available in
continuous blocks. A narrowband solution permits a planned phasing-in of new
technology and equipment, thereby enabling an upgrade of only those parts of
a customer's system in which 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.
SMR SYSTEMS MANAGEMENT AND OPERATION
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 also is 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. 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. The Company believes
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 lower initial
capital costs as well as 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.
12
<PAGE>
There is no assurance that increased competition resulting from the FCC's
additional 220 MHz licensing during 1998 will not adversely affect the Company's
SMR business. See "Business-Government Regulation."
Relayfone, in the U.K., was the Company's only provider of communications
services outside the U.S. during fiscal 1998. This business was sold during the
fourth quarter of fiscal 1998.
EQUIPMENT DISTRIBUTION
The LMR market in the U.S. is dominated by Motorola. Other major
competitors are Ericsson, Inc., 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 narrowband 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 220
MHz 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 viewed the FCC auctioning of additional 220 MHz licenses during
1998 as an 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.
See "Technology" section of "Business-Competition" for a discussion of the
competitive environment related to LM products in the international market.
MANUFACTURING
The Company's contract manufacturing business is limited to medium-sized
production runs and competes with numerous companies. 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 ISO 9001
and BABT 340 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
LICENSING
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
13
<PAGE>
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, and FCC
Phase II licenses issued as a result of competitive bidding in an auction held
by the FCC in 1998.
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.
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.
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 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. 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.
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: 5 KHz Channels." In
that statement the RA recognized that narrowband 5 KHz 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 product to the market.
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."
RISK OF UNCERTAIN MARKET ACCEPTANCE
LM Technology is a relatively new technology and there is a risk that the
marketplace may not accept the potential benefits of the technology or that the
technology may not perform to expectations. The commercial viability of the
Roamer One Network is dependent upon the performance of the LM Technology and
acceptance of such technology by the marketplace. Until products utilizing LM
Technology progress through the commercial
14
<PAGE>
development stage, manufacturing costs may be substantially higher than
competing products and the Company may be forced to sell equipment below its
manufacturing costs.
If Intek's products using LM Technology are not commercially accepted or do
not have the capabilities the Company believes they have or can have, or
manufacturing costs cannot be reduced, the future results of operations of the
Company could be significantly and negatively impacted.
COMPETING SERVICES
Competition in the sale of wireless communication products and services is
fierce. Given the wide variety of available wireless services, new subscribers
will only be acquired if the Company has a service needed by potential
subscribers and priced, along with the cost of the necessary radio equipment,
attractively when compared to competing services and products. As a result,
there is no assurance that the services provided on the Roamer One Network or
the technology and products developed by the Company will be competitive with
services, technology and products of other wireless communications companies.
SUPPLIER RISK
If Intek's supplies of non-LM Technology radios and accessories were no
longer available, the future results of operations of the Company could be
significantly and negatively impacted.
DEPENDENCE ON GOVERNMENT REGULATION
The current and planned operations of the Company can be adversely impacted
by adverse actions taken by, or delays by, 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. 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.
NEED FOR ADDITIONAL CAPITAL
The Company will require additional cash resources to fund operations if
its business plan is not realized. There can be no assurance that additional
financing will be available on reasonable terms or at all.
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 whether particular matters are submitted for a vote of
the stockholders.
EMPLOYEES
As of September 30, 1998, the Company and its subsidiaries employed
approximately 374 full-time employees. Of these, approximately 49 are employed
in the Company's research and development efforts, 185 in manufacturing, 96 in
equipment distribution and 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.
ITEM 2. PROPERTIES
The Company leases its principal executive office, which is located at
99 Park Avenue, New York, New York comprising approximately 2,600 square
feet, for an initial term of three years, expiring in March 2002. The Company
also leases, for research, manufacturing, administrative and sales functions,
approximately 14,300 square feet in Garden Grove, California under a 3 year
lease, expiring in July 2001 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.
15
<PAGE>
The Company has vacated its former principal executive office 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. While
the Company intends to sublease the space to minimize its contractual exposure,
there is no assurance that such a sublease can be obtained.
The Company owns approximately 36,000 square feet of office and factory in
Midsomer Norton, England, and leases two 2,000 square foot workshop and storage
units in Midsomer Norton on nine and ten year leases expiring in November 2003.
Two other storage units of 500 and 4,000 square feet are leased in Midsomer
Norton under short rental agreements which expire during the first quarter of
fiscal 1999.
The Company leases approximately 231 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") were 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 ("RICO"), 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
filed a motion to dismiss the complaint on various grounds. In response
plaintiffs sought leave to file a second amended complaint, which request was
granted by the court. Intek requested plaintiffs to withdraw all claims against
the Intek Defendants on the grounds that they are frivolous. On February 3,
1998, plaintiffs filed an amended complaint which purports to allege claims
under RICO, the Securities Act of 1933, the Securities Exchange Act of 1934 and
various common law state claims in connection with (i) the sale and marketing of
interests in certain SMR partnerships and (ii) purported improper dissipation of
assets of certain of the SMR partnerships. Plaintiffs seek rescissory damages
with interest and punitive damages relating to such asserted claims. No specific
amount of alleged damages is mentioned in the amended complaint.
The Intek Defendants moved to dismiss the amended complaint. On September
30, 1998, the Court granted in part and denied in part the Intek Defendants'
motion to dismiss the complaint and dismissed plaintiffs' RICO claims with
prejudice. The Court granted plaintiffs leave to replead all claims (except
their RICO claims) that were timely under the applicable statute of limitations.
On October 23, 1998, the plaintiffs filed a third amended complaint which
purported to allege claims under Section 10(b) and 20 of the 1934 Act and Rule
10b-5 promulgated thereunder, Section 12(1) and 12(2) of the 1933 Act and
control person liability thereunder, and various common law state claims in
connection with the sale and marketing of certain SMR Partnerships and the
purported dissipation of assets of certain of these Partnerships. Plaintiffs
seek rescissory damages with interest and punitive damages in an amount to be
determined. The Intek Defendants filed an answer on December 14, 1998 to the
third amended complaint. In the opinion of the management of the Company, this
lawsuit will not have a material adverse affect on the Company.
In addition, from time to time, the Company is involved in other litigation
relating to claims arising out of its operations in the normal course of
business. In the opinion of the Company's management, after consultation with
outside counsel, the ultimate dispositions of such matters will not have a
materially adverse effect on the Company's consolidated financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Common Stock trades on The Nasdaq Small-Cap Market tier of The Nasdaq
Stock Market ("Nasdaq") under the symbol "IGLC." The following table sets forth
the high and low trade price as reported by Nasdaq for each quarter period
indicated.
<TABLE>
<CAPTION>
TRADE PRICE
------------------------------
HIGH LOW
Fiscal 1997 --------- ---------
<S> <C> <C>
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
Fiscal 1998
December 31, 1997 $ 2 $1-34/64
March 31, 1998 1-5/8 3-1/2
June 30, 1998 2-44/64 4-3/16
September 30, 1998 3-62/64 1-3/8
</TABLE>
The number of common stockholders of record was 602 on December 18,
1998. The last reported trade price for the Common Stock by Nasdaq on
December 18, 1998 was $1.19.
The Company has never paid a cash dividend and has no present intention to
pay any cash dividends on the Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES
On May 29, 1998, under Section 4(2) of the Securities Act, the Company
issued 400,608 shares of Common Stock to thirteen shareholders of Mobile Data
Solutions, Inc. pursuant to a Stock Purchase Agreement dated May 28, 1998.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following data is derived from the Company's audited financials and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
(THOUSANDS, EXCEPT SHARE AMOUNTS)
1998 1997 1996 1995
------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Total Revenues $ 35,654 $ 42,284 $ 23,899 $ 32,601
Total Costs and Expenses(2) 97,196 68,222 34,317 33,997
Operating Loss (61,542) (25,938) (10,418) (1,396)
Net Loss (64,419) (26,999) (9,089) (1,171)
Loss applicable to Common Shareholders $ (66,463) $ (27,999) $ (9,089) $ (1,171)
Net Loss Per Share applicable to Common $ (1.58) $ (0.74) $ (0.36) $ (0.05)
Shareholders
Weighted Average Number of 42,151,142 37,885,371 25,000,000 25,000,000
Shares Outstanding
BALANCE SHEET DATA:(1)
Total Assets(2) $ 80,114 $ 112,565 $ 50,253 $ 37,463
Working Capital 10,928 21,289 (5,268) 3,538
Long Term Debt 68,288 45,577 32,837 23,187
Shareholders' Equity (Deficit)(2) $ (8,454) $ 53,848 $ (21,289) $ (12,949)
</TABLE>
- ----------------------
(1) See Note 2 "Basis of Presentation and Summary of Significant Accounting
Policies - Principles of Consolidation" in Consolidated Financial Statements and
Notes thereto appearing elsewhere herein.
(2) See Note 2 "Basis of Presentation and Summary of Significant Accounting
Policies - "Intangible and Long Lived Assets" and Note 3 "Restructuring Charges"
in Consolidated Notes to Financial Statements appearing elsewhere herein.
18
<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 should be read in conjunction with the Consolidated
Financial Statements and related notes contained in Item 14 to this report.
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.
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."
OVERVIEW
The Company's mission is to create and supply spectrum efficient wireless
technologies, products and services worldwide and to establish the Company as a
dominant force in the wireless communications business.
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 technology.
The Company is authorized to provide services across the U.S. and will install
sites relative to customer requirements. The Company's SMR sites, including four
major regional and national markets, are referred to herein as the Roamer One
Network. The Company has devoted, and expects to continue to devote, substantial
financial and management resources to the development of the Roamer One Network.
Additionally, the Company also has developed and continues to develop 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 land mobile radio
products including those utilizing LM Technology.
The Company presently has in inventory a substantial number of completed
220 MHz base stations and radios, as well as components for the manufacture of
additional base stations and radios. This inventory is intended for sale to the
NRTC, to successful bidders in the recently completed FCC Phase II 220 MHz
auctions, public safety market and dealers, as well as for utilization in the
Roamer One Network.
The Company has positioned itself strategically as a vertically
integrated provider of spectrum efficient technologies, products and
services. In addition to incorporating the benefits of LM into its products
which are sold to third parties and used on the Roamer One Network, the
Company also licenses its technology to third party manufacturers. The
Company has redirected its marketing campaign of the Roamer One Network from
a national campaign to a focused specific geographic campaign. The Company
has focused its direct sales effort in the top tier markets while developing
marketing relationships with dealers and others in the middle and lower
markets. The construction and expansion of the Roamer One Network, as well as
equipment sales to third parties will be impacted by factors such as the
Phase II Licensing auction held by the FCC in November 1998. The FCC notified
Intek that it will be awarded two 10-channel nationwide, seven 15-channel
regional, and 172 10-channel EA, or local, Business Radio airwave licenses.
As part of a co-funding partnering arrangement with the NRTC, Intek will
share with NRTC the approximately $12 million cost of the new licenses. The
Company will assign one nationwide and certain EA licenses to NRTC,
disaggregate six regional and one EA licenses and partition certain EA
licenses to NRTC.
During the fourth quarter of fiscal 1998, Intek sold non-core, U.K.-based
LMR distribution and maintenance assets to SIS. The sale price for the ESU
assets was $8,500,000 resulting in a gain of $3,055,000. Due to the related
party nature of the sale, the gain was recorded as a direct increase in
shareholder equity (deficit). The sales price is subject to a post closing
adjustment up to (pound)500,000 (approximately $800,000) depending on certain
circumstances.
The Company expects to incur operating losses and have a negative cash flow
from operations for at least one year. This will result from expenses related to
the buildout of the Roamer One Network and the investment required to build the
Roamer One subscriber base.
19
<PAGE>
RESULTS OF OPERATIONS
As discussed more fully in Note 2 "Basis of Presentation and Significant
Accounting Policies ---Principles of Consolidation" to the Consolidated
Financial Statements and Notes thereto appearing elsewhere herein, results of
operations for all years presented include Radiocoms but, Roamer One, MUSA and
Intek corporate are only included for the periods subsequent to December 3, 1996
(i.e., the fiscal year ended September 30, 1998 and the ten-month period ended
September 30, 1997.)
The Company operates predominately in a single industry segment: provision
of spectrum-efficient wireless technology, products and services. Revenues are
generated by product sales and the provision of services including
communications, technology, and non-warranty repair.
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES
OVERVIEW
Total revenues decreased by $6,630,000 (16%) from $42,284,000 in fiscal
1997 (12 months of Radiocoms and 10 months of non-Radiocoms) to $35,654,000 in
fiscal 1998. Product sales decreased by $10,097,000 (26%) from $38,606,000 to
$28,509,000 while service revenues increased by $3,467,000 (94%) from $3,678,000
to $7,145,000.
PRODUCT SALES
Sales of products for fiscal 1998 were $28,509,000, compared to $38,606,000
for fiscal 1997. Sales in fiscal 1997 were favorably impacted by improved
deliveries of products to fill accumulated backorders, whereas sales in fiscal
1998 returned to more normal levels. Sales in the first half of fiscal 1998 were
negatively impacted by late deliveries of a new line of radios from a major
supplier. The supplier began to ship selected products on a timely basis in late
December 1997. Sales began to increase during the second half of 1998 due to an
improved supply of product and an aggressive marketing campaign.
In November 1998, Intek announced a strategic alliance with NRTC to develop
jointly 220 MHz narrowband business radio networks for NRTC member utilities
across the country relying exclusively on LM-based equipment. NRTC members will
be able to utilize the Roamer One brand under an exclusive royalty agreement to
sell LM-based equipment and airtime services in their territories. As part of
that agreement, the Company and NRTC entered into a five year non-binding
agreement for NRTC to purchase up to $50.0 million of products from the Company.
See "Liquidity and Capital Resources --- Future Capital Needs and Resources".
SERVICE INCOME
Service income for fiscal 1998 was $7,145,000, compared to $3,678,000 for
fiscal 1997.
Subscriber revenues generated by the Roamer One Network were $630,000 for
fiscal 1998, an increase of $596,000 compared to $34,000 for fiscal 1997. 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 six wide-area geographic markets.
At September 30, 1998, Roamer One had approximately 7,800 internally generated
subscribers as well as approximately 2,700 subscribers from the Wireless Plus
acquisition for a total of approximately 10,500 compared to approximately 1,000
at September 30, 1997. Subscriber revenues generated in the U.K. by the ESU
Assets were $575,000 in fiscal 1998 compared to $717,000 in fiscal 1997. As
mentioned previously, the ESU assets were sold during the fourth quarter of
fiscal 1998.
Non-subscriber income includes royalties, equipment rental and non-warranty
repair. Non-subscriber revenues for fiscal 1998 were $6,515,000, compared to
$3,644,000. The increase of $2,871,000 was primarily due to non-warranty repair
and sales by ESU. The ESU assets were sold during the fourth quarter of fiscal
1998.
In the third quarter, the Company entered into a 5-year technology,
development and supply agreement between its LMT subsidiary and Nokia. Nokia's
Trans European Trunked Radio product lines proposes to
20
<PAGE>
incorporate key components of the Company's proprietary LM Technology. The
TETRA standard is the only European standard for digital professional mobile
radio.
South Korea's Kukjae Electronics, Ltd. Co. ("Kukjae"), one of Korea's
leading manufacturers of mobile radio equipment, agreed in February 1998, to
adopt the Company's patented LM Technology. The agreement, which was entered
into in February 1998, allows Kukjae to manufacture and sell LM-compatible radio
products and operate narrowband radio networks based on LM Technology. Product
distribution will include Korea and potentially other Asian markets. Pursuant to
the agreement, the Company provided Kukjae with the equipment and technical
assistance needed to develop a demonstration system to introduce LM Technology
to Korean industry, academic and government authorities. The demonstration
period has not yet been sufficient to determine the financial impact of this
agreement on the Company.
COST OF GOODS AND SERVICES PROVIDED AND GROSS PROFIT MARGIN
OVERVIEW
Total cost of revenues decreased by $12,109,000 (or 30.6%) from $39,585,000
(12 months of Radiocoms and 10 months of non-Radiocoms) to $27,476,000. Gross
Margin increased by $5,479,000 (or 203%) from $2,699,000 to $8,178,000.
COST OF PRODUCT SALES
The cost of product sales decreased by $17,704,000 from $37,846,000 (98%
sales) to $20,142,000 (71% sales). Cost of sales as a percentage of sales was
favorably impacted by improved manufacturing cost controls and the growing
strength of the U.S. Dollar against the Japanese Yen, providing reductions in
the cost of products purchased in Japan. Gross Margin increased by $7,607,000
from $760,000 (2% sales) to $8,367,000 (29% sales).
COST OF SERVICE PROVIDED
The cost of service provided increased by $5,595,000 from $1,739,000 in
fiscal 1997 (47% revenues) to $7,334,000 in fiscal 1998 (103% revenues). Gross
Margin decreased by $2,128,000 from $1,939,000 (53% revenues) to a loss of
$189,000 (3% revenues).
Cost of subscriber service revenue includes site and certain technical and
customer 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 system maintenance,
consulting fees, travel and equipment rental required for optimizing and
supporting the network of base stations. Customer support includes phone-based
assistance to subscribers. Support for additional licenses acquired from third
parties in fiscal 1998 and creation of the infrastructure to support subscribers
resulted in increases during fiscal 1998. Roamer One's site and technical
support expenses were $4,401,000 in fiscal 1998, compared to $2,084,000 for
fiscal 1997.
OTHER OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses increased by $4,146,000 (98%) from $4,214,000
in fiscal 1997 (10% revenues) (12 months of Radiocoms and 10 months of
non-Radiocoms) to $8,360,000 in fiscal 1998 (23% revenues). Sales and marketing
expenses have been increasing monthly due to the creation of a sales
organization in connection with the loading of the Roamer One Network. Sales and
marketing expenses are primarily salaries and commissions, travel, advertising
promotion, trade shows, and preparation of promotional materials.
During fiscal 1998, the Company redirected its marketing campaign of the
Roamer One Network from a national campaign to a focused specific geographic
campaign. The intent is to reduce selling cost per subscriber while developing a
selling model that can be duplicated in other geographic areas throughout the
nation.
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RESEARCH AND DEVELOPMENT
Research and development expenses of $1,913,000 (5% revenues) for fiscal
1998 were 41% lower than the expenses of $3,266,000 (8% revenues) for fiscal
1997 (12 months of Radiocoms and 10 months of non-Radiocoms). This reduction was
due to an increased focus on high priority projects using internal resources and
a corresponding reduction in use of sub-contract and consulting labor.
GENERAL AND ADMINISTRATIVE
General and administrative expenses of $16,735,000 (47% revenues) for
fiscal 1998 were $58,000 higher than the expenses of $16,677,000 (39% revenues)
for fiscal 1997 (12 months of Radiocoms and 10 months of non-Radiocoms). General
and administrative expenses consist of salaries, consultants, office rent,
legal, audit, public relations and shareholder relations costs, insurance, and
recruiting.
DEPRECIATION AND AMORTIZATION
Depreciation of fixed assets and amortization of the intangible assets
related to the acquisition of all the issued and outstanding common stock of
Radiocoms (the "Radiocoms Acquisition") and the acquisition 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") were $6,711,000 and $4,480,000, respectively,
for fiscal years 1998 and 1997 (12 months of Radiocoms and 10 months of
non-Radiocoms). The 50% increase in depreciation and amortization expense for
fiscal 1998 from that reported in fiscal 1997 results from the inclusion of
additional Roamer One and Midland USA, Inc. ("MUSA") plant and equipment in
fiscal 1998, together with a full year of amortization of the intangible assets
related to the Radiocoms Acquisition which did not begin until December 3, 1996.
RESTRUCTURING CHARGES
During the third quarter of fiscal 1998, the Company recorded a
restructuring charge of approximately $1.6 million related to planned staff
reductions, termination of lease costs associated with the consolidation of
office space and site leases, and equipment removal costs.
In conjunction with the restructuring, the Company has decided to eliminate
and deconstruct certain sites that are not deemed essential to the Company's
growth strategy, consolidate office space and reduce the number of associated
sales force. In addition, the Company has consolidated financial and customer
service functions at its headquarters in Kansas City, Missouri to gain
efficiencies and economies of scale.
During the fourth quarter of 1998, approximately $200,000, primarily
severance, was charged against the restructuring reserve resulting in a
remaining balance of $1.4 million at September 30, 1998. The remaining amount of
the restructuring reserve is expected to be utilized during fiscal 1999.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining useful life of long-lived and intangible
assets might warrant revision or that the remaining balance of these assets may
not be recoverable. The Company evaluates the recoverability of its long-lived
and intangible assets by measuring the carrying amount of the assets against the
estimated undiscounted future cash flows associated with those assets. At the
time such evaluations indicate that the future undiscounted cash flows of
certain long-lived and intangible assets are not sufficient to recover the
carrying value of such assets, the assets are adjusted to their estimated fair
values.
During the fourth quarter of 1998, the Company determined that the recovery
of the carrying value of its goodwill related to the Radiocoms Acquisition is
unlikely. Accordingly, the Company recorded a non-cash charge of $34.4 million
to write-off the goodwill.
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OPERATING LOSS
Intek's operating loss including charges for restructuring and impairment
of long-lived assets was $61,542,000 for fiscal 1998, compared to a loss of
$25,938,000 for fiscal 1997 (12 months of Radiocoms and 10 months of
non-Radiocoms). In addition to a fiscal 1998 restructuring charge of $1,613,000
and a $34,388,000 write-off of goodwill, the loss was due to growth in
subscriber revenue not being sufficient to offset the cost of the Roamer One
Network's infrastructure and subscriber acquisition cost, as well as from
product shortages caused by late deliveries of a new line of radios from a major
supplier.
INTEREST EXPENSE
Interest expense for fiscal 1998 was $2,862,000 compared to $2,894,000 for
fiscal 1997 (12 months of Radiocoms and 10 months of non-Radiocoms). Of the
total, $141,000 related to borrowings from third parties and $2,721,000 related
to borrowings from Securicor (of which $1,233,000 was added to principal and the
balance is accrued).
NET LOSS
The consolidated net loss after taxes for the year ended September 30, 1998
was $64,419,000. The net loss before charges for restructuring and impairment of
long-lived assets was $28,418,000. The net loss for the year ended September 30,
1997 was $26,999,000 including Radiocoms for the entire year and Roamer One,
MUSA and corporate for the ten months ended September 30, 1997
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 $1,000,000 and $1,200,000 were accrued and contributed to the
capital account in fiscal 1997 1998 respectively.
Effective March 1, 1998, Securicor purchased, pursuant to a Preferred Stock
Purchase Agreement dated December 29, 1997, 12,408 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock") for $12,408,000.
Proceeds from the sale of the Series A Preferred Stock were applied against the
principal balance of the December 1997 Facility. The liquidation value of the
Series A Preferred Stock is $1,000 per share and par value is $.001 per share.
Dividends accrue at the rate of eleven and one-half (11 1/2%) percent of the
original issue price of $1,000 per share and are cumulative. The holder of the
Series A Preferred Stock has the right to convert the Series A Preferred Stock
into shares of Common Stock if the market price of Common Stock exceeds $6.00
for 20 consecutive trading days. Intek may cause the Series A Preferred Stock to
be converted if the market price is or exceeds $9.00 for 20 consecutive trading
days. The holder of the Series A Preferred Stock has the right to convert the
Series A Preferred Stock into shares of Common Stock if Intek does not redeem
the Series A Preferred Stock by June 30, 2003. The Series A Preferred Stock is
subject to adjustments for stock dividends, stock splits or share combinations
of Common Stock or distribution of a material portion of Intek's assets to the
holders of Common Stock. The Series A Preferred Stock does not have voting power
except as provided by Delaware corporate law. During fiscal 1998, Intek accrued
dividends totaling $844,000 which are included in the total Intek Global
preferred stock balance at September 30, 1998 of $13.3 million.
LOSS APPLICABLE TO COMMON SHAREHOLDERS
After deducting dividends on preferred stock, the loss applicable to common
shareholders for the year ended September 30, 1998 was $66,463,000, compared to
the loss $27,999,000 for the year ended September 30, 1997. After adjusting
fiscal 1998 for the restructuring charge and write-off of goodwill, the net loss
applicable to
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Common Shareholders was $30,462,000, an increase of $2.4 million over fiscal
1997's loss.
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUES
OVERVIEW
Because Securicor acquired more than a 50% 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 1997 include only
the accounts of Radiocoms and its subsidiaries prior to the date of the
acquisition (December 3, 1996) and statements for fiscal 1996 include only the
accounts of Radiocoms and its subsidiaries.
Total revenues increased by $18,385,000 (77%) from $23,899,000 in fiscal
1996 (Radiocoms only) to $42,284,000 in fiscal 1997 (12 months of Radiocoms and
10 months of non-Radiocoms). Product sales increased by $15,610,000 (68%) from
$22,996,000 to $38,606,000 while service revenues increased by $2,775,000 (307%)
from $903,000 to $3,678,000.
PRODUCT SALES
Sales of products for fiscal 1997 were $38,606,000, compared to $22,996,000
for fiscal 1997. Fiscal 1997 product sales in the United States were favorably
impacted by improved deliveries of products to fill orders that had been
previously backordered by the prior owner because of working capital
limitations. Radiocoms for fiscal 1997 had a 66% increase from that reported in
fiscal 1996, primarily due to an equipment supply contract the Company obtained
from the U.K. Ministry of Defence.
SERVICE INCOME
Service income for fiscal 1997 was $3,678,000, compared to $903,000 for
fiscal 1996. Of this income, $717,000 in fiscal 1997 and $903,000 in fiscal 1996
was directly related to the ESU operations.
COST OF GOODS AND SERVICES PROVIDED AND GROSS PROFIT MARGIN
OVERVIEW
Total cost of revenues increased by $19,501,000 from $20,084,000 (Radiocoms
only) to $39,585,000 (12 months of Radiocoms and 10 months of non-Radiocoms).
Gross margin decreased by $1,116,000 (29%) from $3,815,000 (16% revenues) to
$2,699,000 (6% revenues).
COST OF PRODUCT SALES
The cost of product sales increased by $17,993,000 from $19,853,000 (86%
sales) in fiscal 1996 to $37,846,000 (98% sales) in fiscal 1997. 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 received.
COST OF SERVICES PROVIDED
The cost of service revenues increased by $1,508,000 from $231,000 in
fiscal 1996 (26% revenues) to $1,739,000 in fiscal 1997 (47% revenues).
Cost of subscriber revenue includes site and certain technical and customer
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.
Customer support includes phone-based assistance to
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subscribers. During fiscal 1997, a significant portion of these expenses were
related to operation and maintenance of sites which had not been loaded with
subscribers.
OTHER OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses increased by $2,946,000 (232%) from $1,268,000
in fiscal 1996 (5% revenues) (Radiocoms only) to $4,214,000 in fiscal 1997 (10%
revenues) (12 months of Radiocoms and 10 months of non-Radiocoms). Sales and
marketing expenses have been increasing monthly due to the creation of a sales
organization in connection with building the subscriber base on the Roamer One
Network. Sales and marketing expenses are primarily salaries and commissions,
travel, advertising promotion, trade shows, and preparation of promotional
materials.
RESEARCH AND DEVELOPMENT
Research and development expenses of $3,266,000 (8% revenues) for fiscal
1997 (12 months of Radiocoms and 10 months of non-Radiocoms) were not materially
different from the expenses of $3,154,000 (13% revenues) for fiscal 1996
(Radiocoms only).
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased by $8,376,000 (101%) from
$8,301,000 (35% revenues) in fiscal 1996 (Radiocoms only) to $16,677,000 (39%
revenues) in fiscal 1997 (12 months of Radiocoms and 10 months of
non-Radiocoms). General and administrative expenses consist of salaries,
consultants, office rent, legal, audit, public relations and shareholder
relations costs, insurance, and recruiting.
DEPRECIATION AND AMORTIZATION
Depreciation of fixed assets and amortization of the intangible assets
related to the Radiocoms Acquisition and Midland Transaction were $4,480,000 and
$1,510,000, respectively, for fiscal years 1997 (12 months of Radiocoms and 10
months of non-Radiocoms) and 1996 (Radiocoms only). The 196.7% increase in
expense for fiscal 1997 from that reported in fiscal 1996 results from the
inclusion of Roamer One and MUSA plant and equipment in the fiscal 1997
calculation, together with the amortization of the intangible assets related to
the Radiocoms Acquisition which did not begin until December 3, 1996.
OPERATING LOSS
Intek's operating loss was $25,938,000 for fiscal 1997 (12 months of
Radiocoms and 10 months of non-Radiocoms), compared a loss of $10,418,000 for
fiscal 1996 (Radiocoms only). The loss was due to subscriber count not being
sufficient to offset the cost of the Roamer One Network's.
OTHER INCOME (EXPENSE)
INTEREST
Interest expense for fiscal 1997 (12 months of Radiocoms and 10 months of
non-Radiocoms) $2,894,000 compared to $1,715,000 for fiscal 1996 (Radiocoms
only). Of the interest expense, $883,000 related to borrowings from third
parties and $1,364,000 related to borrowings from Securicor (of which $858,000
was added to principal and the balance is accrued) and $647,000 was imputed
interest on convertible debt and warrants resulting from the Company's capital
raising efforts.
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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 $766,000. Offsetting this is a loss on
the write-down of fixed assets in the amount of $442,000.
NET LOSS
The consolidated net loss after taxes for the year ended September 30, 1997
was $26,999,000 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 $9,089,000
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 $1,000,000 relating to 1997 shall be paid through the issuance
of preferred shares. Dividends of $1,000,000 were accrued and contributed to the
capital account in fiscal 1997.
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 $27,999,000 (12 months of
Radiocoms and 10 months of non-Radiocoms), compared to a loss of $9,089,000 for
the year ended September 30, 1996 (Radiocoms only).
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.
CASH FLOWS
For the year ended September 30, 1998, the Company used $15,554,000 in cash
for operating activities, $7,130,000 was spent for capital expenditures and
$8,257,000 was spent for FCC licenses. Through its financing activities, the
Company raised approximately $15,515,000 in new debt from Securicor. The Company
also incurred $2,425,000 of short term debt of which $992,000 was related to
capital leases, $441,000 related to bank lines of credit used to repurchase
Common Stock in a private transaction and the balance was related to the
acquisition of the FCC licenses and Wireless Plus assets. Of the $1,694,000
increase in of long term debt, $1,374,000 also related to the acquisition of the
Wireless Plus assets while the balance was capital leases. The Company received
proceeds of $7,458,000 from the sale of its investment in E.F. Johnson ("EFJ")
and repurchased $1,329,000 in Common Stock in the public market and in a
private transaction.
In December 1997, the Company entered into a loan agreement ("December 1997
Facility") with Securicor which replaced all prior loan agreements. The December
1997 Facility provides the Company the ability to borrow up to $29.5 million.
The December 1997 Facility bears interest at 11.5% per annum, payable at June
30, 2003. Interest is accrued each month, and on June 30 of each year, is to be
added to the principal amount outstanding. Principal payments are to be $0.5
million per month for 12 months beginning July 1, 2001, $1.0 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 can be
prepaid by the Company at any time in $1.65 million
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increments without penalty. The December 1997 Facility has to be repaid if
Securicor ceases to be the beneficial owner of more than 50 percent of Intek
common stock as a result of any transaction except the direct or indirect
transfer of the Intek common stock by Securicor and also is subject to
mandatory prepayments at the rate of 50 percent of the net proceeds of any
financing by the Company exceeding $8.0 million. At September 30, 1998, the
amount payable under the December 1997 Facility totaled $30.7 million,
consisting of original principal borrowings of $29.5 million and capitalized
interest of approximately $1.2 million.
Effective March 31, 1998, Securicor purchased, pursuant to a Preferred
Stock Purchase Agreement dated December 29, 1997, 12,408 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock") for $12.4 million.
Proceeds from the sale of the Series A Preferred Stock were applied against the
principal balance of the December 1997 Facility. The liquidation value of the
Series A Preferred Stock is $1,000 per share and par value is $.001 per share.
Dividends accrue at the rate of eleven and one-half percent (11 1/2%) of the
original issue price of $1,000 per share and are cumulative. The holder of the
Series A Preferred Stock has the right to convert the Series A Preferred Stock
into shares of Common Stock if the market price of Common Stock exceeds $6.00
for 20 consecutive trading days. Intek may cause the Series A Preferred Stock to
be converted if the market price is or exceeds $9.00 for 20 consecutive trading
days. The holder of the Series A Preferred Stock has the right to convert the
Series A Preferred Stock into shares of Common Stock if Intek does not redeem
the Series A Preferred Stock by June 30, 2003. The Series A Preferred Stock is
subject to adjustments for stock dividends, stock splits or share combinations
of Common Stock or distribution of a material portion of Intek's assets to the
holders of Common Stock. The Series A Preferred Stock does not have voting power
except as provided by Delaware corporate law.
During fiscal 1997, the Company received stock of Transcrypt International
in exchange for its investment in EFJ. At September 30, 1997, this investment
was classified as available for sale and was recorded at its fair value at that
date. During the first quarter of fiscal 1998, the Company disposed of its
investment in Transcrypt International, receiving net cash proceeds of
approximately $7,400,000. The difference between the proceeds and the carrying
value of $10,000,000 was reimbursed during the second quarter of fiscal 1998 by
Securicor.
During the third quarter of fiscal 1998, the Company recorded a
restructuring charge of approximately $1.6 million related primarily to planned
staff reductions, termination of leases associated with the consolidation of
office space and site leases, and equipment removal costs. In conjunction with
the restructuring, the Company has decided to eliminate and deconstruct certain
sites that are not deemed essential to the Company's growth strategy,
consolidate office space and reduce the number of associated sales force. In
addition, the Company has consolidated financial and customer service functions
at its headquarters in Kansas City, Missouri to gain efficiencies and economies
of scale. During the fourth quarter of 1998, approximately $200,000, related
primarily to severance payments, was charged against the restructuring reserve
resulting in a remaining balance of approximately $1.4 million at September 30,
1998. The remaining amount of the restructuring reserve is expected to be
utilized during fiscal 1999.
During the fourth quarter of fiscal 1998, Intek sold non-core, U.K.-based
land mobile radio distribution and maintenance assets ("ESU Assets") to
Securicor Information Systems Limited ("SIS"), a subsidiary of Securicor. The
sale price for the ESU Assets was $8,500,000 resulting in a gain of $3,055,000.
In December 1997, MUSA entered into a revolving credit agreement ("Credit
Agreement") with a non-bank lender. The Credit Agreement makes available $5.0
million through December 1999. Borrowings under the Credit Agreement are secured
by the assets of MUSA and bear interest at 1.5 percent 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 uses the Credit Facility for issuance of letter of credit
commitments on behalf of MUSA, and for borrowings for working capital. As of
September 30, 1998, there was indebtedness of approximately $0.7 million under
this new line of credit.
INVESTMENTS
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.
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In August 1998, the Company entered into an agreement with National
Rural Telecommunications Cooperative, subsequently amended in November 1998,
pursuant to which the Company, through its wholly-owned subsidiary, ILAC, and
NRTC agreed to participate jointly in the recent FCC auction for certain
Phase II licenses in the 220-222 MHz band (the "Licenses"). The agreement
provides for the purchase by ILAC of certain Licenses in the auction on a
cost-sharing basis and the post-auction partitioning and disaggregation of
awarded Licenses between NRTC and ILAC. As a result of the recently concluded
auction, ILAC will be awarded two 10-channel nationwide, seven 15-channel
regional, and 172 10-channel EA, or local, Business Radio airwave Licenses at
a total cost of approximately $12.2 million. The Company will assign one
nationwide and certain EA Licenses to NRTC, disaggregate six regional and one
EA Licenses and partition certain EA Licenses to NRTC. ILAC's portion of the
cost for Licenses awarded in the Auction is approximately $6.6 million. In
addition, ILAC has incurred a penalty charge of $57,200 for withdrawn high
bids on Licenses subsequently awarded at lower bids during the Auction and
has been assessed an additional holdback charge of $25,602 for withdrawn high
bids with respect to Licenses which were not awarded during the Auction. If
such Licenses are subsequently awarded in a later auction (which is presently
scheduled to commence June 15, 1999) at a price equal to or greater than the
withdrawn ILAC bid price, ILAC would be entitled to a return of this holdback
charge. However, if such Licenses are subsequently awarded at less than the
ILAC withdrawn high bid price, ILAC would be liable for the difference, which
the Company estimates its total contingent liability with respect to such
Licenses to be approximately an additional $853,403. At September 30, 1998,
the Company was reflecting a deposit related to the auction of approximately
$1.8 million in the accompanying consolidated balance sheets.
In August 1998, the Company entered into an asset purchase agreement (the
"Purchase Agreement") with ComTech Communications, Inc. ("ComTech"), to purchase
eleven licenses granted by the FCC in the 220-222 MHz band spectrum (the
"Licenses") and certain equipment and other personal property, subscription
contracts, accounts and lists and management and purchase option agreements
relating to the Licenses which were owned by ComTech. The purchase price is
$458,039, with $50,000 payable upon execution of the Purchase Agreement and the
balance payable upon the final transfer of the Licenses to the Company by the
FCC in the form of a three-year promissory note of the Company in the amount of
$408,039 and bearing interest at the rate of 9% per annum. The Company will
receive a credit of $41,640 against the purchase price for each License that is
not so transferred to the Company. As part of the same transaction, the
Company and ComTech entered into a management agreement pursuant to which
Company manages the systems subject to ComTech's supervision and control
until the final transfer of the Licences to the Company by the FCC.
In addition to the transactions described above, Roamer One and ComTech
entered into a letter of intent and resale agreement in September 1998 to
provide for the purchase by Roamer One of a 5-channel Phase I national FCC
License from ComTech and the design and construction of a national network by
Roamer One using the License's frequencies for the provision of paging services
and two-way land mobile radio services. Under the resale agreement, Roamer One
is required to design and construct the radio system to resell airtime on the
network. The equipment used for the base station transmitters will be leased by
ComTech from MUSA under a separate equipment lease agreement. Under the resale
agreement, Roamer One is responsible for all operating expenses, including site
leases and taxes, and has agreed to pay ComTech, initially, $284 per month for
each channel of any radio system operated by Roamer One to resell airtime on the
network. Effective as of May 1, 1998, and through June 30, 1999, Roamer One will
pay ComTech the greater of $284 per month per channel in operation or $39,760
per month, and as of July 1, 1999, for the remaining term of the resale
agreement, Roamer One will pay ComTech the greater of $284 per month per channel
in operation or $37,500 per month. The Purchase Agreement may be terminated by
either party if the FCC has not granted any of the Assignment Applications with
respect to Licenses sought to be acquired by the Company from ComTech by March
1, 1999. A termination of the Purchase Agreement terminates the Management
Agreement between the Company and ComTech. The Equipment Lease Agreement between
Midland and ComTech may be terminated upon 30 days notice by either party and
certain other events. The resale agreement between ComTech and Roamer One may be
terminated by Roamer One during the period January 4, 1999 through January 15,
1999 upon notice to ComTech. The Company is evaluating its options under this
agreement as a result of its recent success in the FCC auction. In the event the
Company terminates the agreement, the agreement provides that Roamer One will be
obligated to make certain payments to ComTech.
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FUTURE CAPITAL NEEDS AND RESOURCES
In the future, the Company will require capital to build sites for the
Roamer One Network, perform other upgrading functions to the current network,
and, to fund operating expenses. 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.
The Company and NRTC entered into a Master Distribution Agreement, dated
September 4, 1998 (the "Distribution Agreement"), to provide for the appointment
of NRTC and the members of its cooperative ("Members") as distributors to
purchase LM-based equipment (the "Contract Products") from the Company for
resale to their customers in certain exclusive geographic areas. The
Distribution Agreement targets the sale of approximately $50 million of Contract
Products to NRTC and its Members over the first five years of the Distribution
Agreement, and as of December 1, 1998, NRTC and its Members have placed orders
for approximately $5 million of Contract Products. NRTC and each of its Members
will be authorized to use the "RoameR One" trademark and trade name in
connection with resales of the Contract Products to their customers and may
further elect to obtain the exclusive right to such use in designated geographic
areas for an annual royalty fee ranging from $15,000 to $25,000, depending on
the number of base stations constructed. The Distribution Agreement permits NRTC
and its Members to purchase the Contract Products at the lowest rate quoted or
charged by MUSA to any of its dealers or customers within the U.S. and also
provides for a 0.5% discount on future purchases of Contract Products, if the
amount of such purchases for the preceding year exceeds $10 million. In
addition, NRTC has been granted stock options to purchase up to 200,000 shares
of the Company's common stock and has been given conditional grants to purchase
up to 1,050,000 additional shares of the Company's common stock. The conditional
stock options will vest to NRTC, incrementally, based on the amount of Contract
Products purchased over the term of the Distribution Agreement. The exercise
price of stock options vested in the first two years is the lower of (a) $3.00
per share or (b) the average closing price for the 20 trading days immediately
preceding the exercise date and the exercise price of options vested after the
first two years is the average closing price for the 20 trading days immediately
preceding the exercise date.
In December 1998, the Company entered into an additional financing
arrangement for $25 million with Securicor. The arrangement provides that
amounts outstanding bear interest at 11.5%, payable quarterly in cash or
deferred at the Company's discretion, and is due December 31, 1999. Outstanding
debt under the arrangement is convertible at any time at Securicor's discretion
into the Company's common stock at various conversion prices. The conversion
price for the first $12.5 million of amounts outstanding will be the average
closing price for the last 20 trading days prior to the date the Company's Board
of Directors approved the arrangement and the next $12.5 million of amounts
outstanding will be set at the average closing price of the Company's common
stock for the 20 trading days prior to the date of each draw by the Company
comprising that amount.
The management of the Company believes that, with the new $25 million
financing agreement entered into with Securicor on December 16, 1998, the
Company's current available capital is sufficient to fund its fiscal 1999
operations. However, if negative events occur in fiscal 1999 and subsequent to
fiscal 1999, the Company will require additional cash resources to fund
operations. There can be no assurance that additional financing will be
available on reasonable terms or at all.
EFFECTS OF INFLATION
The Company was not affected in any material respect by inflation during
fiscal 1998, 1997 or 1996.
YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which would
cause a system failure or other computer errors, leading to disruptions in
operations. In fiscal 1998, the Company developed a three-phase program for Y2K
information systems compliance. Phase I is to identify those systems with which
the Company has exposure to Y2K issues. Phase II is the development and
implementation of action plans to be Y2K compliant in all areas by the end of
the second quarter of fiscal 1999. Phase III, to be
29
<PAGE>
completed by mid-1999, is the final testing of each major area of exposure to
ensure compliance. The Company has identified three major areas determined to
be critical for successful Y2K compliance; (1) financial and informational
system applications, (2) manufacturing applications and (3) third-party
relationships.
The Company, in accordance with Phase I of the program, has conducted an
internal review of all systems and is contacting all software suppliers to
determine major areas of exposure to Y2K issues. In the financial and
information system area, a number of applications have been identified as
being Y2K compliant due to their recent implementation. The Company's core
financial and reporting systems are Y2K compliant. One subsidiary's billing
software is not compliant and will be replaced. A number of alternatives have
already been identified and the replacement software will be installed by
March 31, 1999. In the manufacturing area, the Company has identified areas
of exposure. While the Company has the ability to produce its own core
products, and has assurances from major third party suppliers that Y2K issues
are being addressed, if suppliers of parts and components for production are
adversely affected by Y2K issues, there can be no assurance that supply of
products will not be affected. In the third-party manufacturing area, the
Company has contacted most of its major suppliers. Most of these parties
state that they are or intend to be Y2K compliant by 2000. Other suppliers
who are not Y2K compliant by June 1999 will be replaced if, in Management's
opinion, continuity of supply of products or services is in jeopardy. In all
areas the Company plans to create contingency plans in the first half of 1999
for those functions that it identifies as most susceptible to disruption.
There can be no assurance that these contingency plans will successfully
avoid service disruption.
The Company believes that the total cost to be incurred to become compliant
in all areas will not exceed $800,000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure is the potential loss arising from
changes in interest rates and its impact on foreign currency rate fluctuations.
Exposure to variability in foreign currency exchange rates (primarily
Japanese Yen) relating to foreign purchase commitments is managed periodically
through the use of hedges. The Company does not enter into any derivative
transactions for speculative purposes. The sensitivity of earnings and cash
flows to variability in exchange rates is assessed by applying an appropriate
range of potential rate fluctuations to the Company's assets, obligations and
projected results of operations denominated in foreign currency. Based on the
Company's overall foreign currency rate exposure at September 30, 1998,
movements in foreign currency rates would not materially affect the financial
position of the Company. As of September 30, 1998, the Company had outstanding
forward exchange contracts to exchange Japanese Yen for U.S. dollars in the
amount of $1,270,000.
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.
30
<PAGE>
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 1998" 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.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
(a) FINANCIAL STATEMENTS AND SCHEDULES Page
<S> <C>
(1) The following financial statements are included in this Annual Report:
Report of Independent Public Accountants for the years ended September 30,
1998 and 1997 F-1
Report of Independent Auditors for the year ended September 30, 1996 F-2
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
years ended September 30, 1998, 1997 and 1996. F-3
Consolidated Balance Sheets at September 30, 1998 and 1997. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
September 30, 1998, 1997 and 1996. F-5
Consolidated Statements of Cash Flows for the years ended September 30, 1998,
1997 and 1996. F-6
Notes to Consolidated Financial Statements F-7 to F-28
(2) Financial Statement Schedules:
Report of Independent Public Accountants i
Report of Independent Auditors ii
Schedule II - Valuation and Qualifying Accounts iii
</TABLE>
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
See Index to Exhibits of this Annual Report on Form 10-K for a list of
Exhibits filed with this Annual Report.
32
<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 December 21,
1998.
INTEK GLOBAL CORPORATION
By: /s/ Robert J. Shiver
-----------------------------------------
Robert J. Shiver
Chief Executive Officer and Chairman
(Principal Executive Officer)
By: /s/ George A. Valenti
-----------------------------------------
George A. Valenti
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 December 21, 1998
- -------------------------- Chairman
Robert J. Shiver
/s/ Howard Frank Director December 21, 1998
- --------------------------
Howard Frank
/s/ Robert Kelly Director December 21, 1998
- --------------------------
Robert Kelly
/s/ Eli Noam Director December 21, 1998
- --------------------------
Eli Noam
/s/ John Wareham Director December 21, 1998
- --------------------------
John Wareham
/s/ Steven L. Wasserman Secretary and Director December 21, 1998
- --------------------------
Steven L. Wasserman
/s/ Roger Wiggs Director December 21, 1998
- --------------------------
Roger Wiggs
/s/ Michael G. Wilkinson Director December 21, 1998
- --------------------------
Michael G. Wilkinson
33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Intek Global Corporation:
We have audited the accompanying consolidated balance sheets of Intek Global
Corporation (a Delaware corporation) and subsidiaries as of September 30, 1998
and 1997, and the related consolidated statements of operations and
comprehensive income (loss), shareholders' equity (deficit) and cash flows for
the year ended September 30, 1998, and the related consolidated statements of
operations and comprehensive income (loss), shareholders' equity (deficit) and
cash flows for the year ended September 30, 1997 (See Note 2), consisting of the
statements of operations and comprehensive income (loss), shareholders' equity
(deficit) and cash flows for Securicor Radiocoms Limited, predecessor
corporation in the continuing business of Intek Global Corporation and
subsidiaries for the period from October 1, 1996 through December 2, 1996
(Pre-Reverse Acquisition), and the statements of operations and comprehensive
income (loss), shareholders' equity (deficit) and cash flows of Intek Global
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Intek Global Corporation and
subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Kansas City, Missouri,
December 16, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Securicor Radiocoms Limited:
We have audited the accompanying statements of operations and comprehensive
income (loss) and cash flows of Securicor Radiocoms Limited (predecessor company
to Intek Global Corporation) for the year ended September 30, 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 audit.
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 results of operations and cash flows of Securicor
Radiocoms Limited for the year ended September 30, 1996, in conformity with
generally accepted accounting principles used in the United States of America.
London, England BAKER TILLY
24 January 1997 Chartered Accountants
F-2
<PAGE>
INTEK GLOBAL CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1995 AND
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 3, 1996
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS) ($'s in thousands, except share and
per share amounts)
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Net product sales $ 28,509 $ 38,606 $ 22,996
Service income 7,145 3,678 903
------------ ------------ ------------
Total revenues 35,654 42,284 23,899
Costs and expenses:
Cost of product sales 20,142 37,846 19,853
Cost of services provided 7,334 1,739 231
Sales and marketing 8,360 4,214 1,268
Research and development 1,913 3,266 3,154
General and administrative 16,735 16,677 8,301
Depreciation and amortization 6,711 4,480 1,510
Restructuring charges 1,613 - -
Impairment of long-lived assets 34,388 - -
------------ ------------ ------------
Operating loss (61,542) (25,938) (10,418)
Other income (expense):
Interest (2,862) (2,894) (1,715)
Gain on sale of long term assets - 324 -
Other (15) 351 -
------------ ------------ ------------
Loss before income taxes (64,419) (28,157) (12,133)
Income tax benefit - 1,158 3,044
------------ ------------ ------------
Net loss (64,419) (26,999) (9,089)
Less preferred dividends (2,044) (1,000) -
------------ ------------ ------------
Net loss applicable to common shareholders $ (66,463) $ (27,999) $ (9,089)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax 186 (2,588) 749
------------ ------------ ------------
Comprehensive income (loss) $ (66,277) $ (30,587) $ (8,340)
------------ ------------ ------------
------------ ------------ ------------
Net loss per share applicable to common shareholders (basic & diluted) $ (1.58) $ (0.74) $ (0.36)
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common shares outstanding (basic & diluted) 42,151,142 37,885,371 25,000,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-3
<PAGE>
INTEK GLOBAL CORPORATION
CONSOLIDATED BALANCE SHEETS
($'s in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30,
-----------------------------
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,719 $ 1,909
Marketable securities - 8,148
Accounts receivable, net of allowance for doubtful accounts
of $993 in 1998 and $863 in 1997 3,870 6,488
Inventories 17,677 12,289
Deposits 1,750 -
Amounts due from related parties 396 4,701
Prepaid expenses and other current assets 1,796 894
--------- ---------
Total current assets 31,208 34,429
--------- ---------
PROPERTY AND EQUIPMENT, NET 23,569 21,555
OTHER ASSETS:
Note receivable 580 556
Intangible assets, net 20,961 48,340
Inventory-long term 3,189 6,980
Other 607 705
--------- ---------
Total other assets 25,337 56,581
--------- ---------
TOTAL ASSETS $ 80,114 $ 112,565
--------- ---------
--------- ---------
CURRENT LIABILITIES:
Accounts payable $ 7,062 $ 6,110
Amounts due to related parties 2,499 2,005
Accrued liabilities 7,420 3,928
Deferred income - 977
Notes payable - third party 3,299 120
--------- ---------
Total current liabilities 20,280 13,140
--------- ---------
LONG TERM DEBT:
Notes payable - third party 2,038 -
Notes payable - related party 30,733 24,223
Other 65 354
--------- ---------
Total long term debt 32,836 24,577
--------- ---------
PREFERRED STOCK - Mandatorily Redeemable 35,452 21,000
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 60,000,000 shares authorized
43,305,620 and 42,398,096 shares issued at 1998 and 1997, respectively 433 424
Capital in excess of par value 108,471 105,220
Treasury stock, at cost, 1,002,582 and 465,582 shares at
1998 and 1997, respectively (2,099) (770)
Accumulated deficit (113,618) (49,199)
Currency translation adjustment (1,641) (1,827)
--------- ---------
Total shareholders' equity (deficit) (8,454) 53,848
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 80,114 $ 112,565
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets
F-4
<PAGE>
INTEK GLOBAL CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1995 AND
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 3, 1996
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
($'s in thousands, except shares)
Years ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Capital Currency Total
In Trans- Share-
Common Stock Excess Treas- lation holders'
---------------------- of Par ury Accumulated Adjust- Equity
Shares Amount Value Stock Deficit ment (Deficit)
------------ ---------- ------------ ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1995 100,000 $ 250 $ (100) $ - $ (13,111) $ 12 $ (12,949)
Net loss - - - - (9,089) - (9,089)
Foreign currency translation
adjustments - - - - - 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
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 purchase 1,206,302 12 2,176 - - - 2,188
Employee stock grant 300,000 3 560 - - - 563
Preferred stock dividends - - (1,000) - - - (1,000)
Net loss - - - - (26,999) - (26,999)
Foreign currency translation
adjustments - - - - - (2,588) (2,588)
------------ --------- ----------- ---------- ----------- ------- -----------
BALANCE SEPTEMBER 30, 1997 42,398,096 424 105,220 (770) (49,199) (1,827) 53,848
Purchase treasury shares - - - (1,329) - - (1,329)
Shares issued for licenses 506,916 5 968 - - - 973
Shares issued for acquisition of
Data Express 400,608 4 1,272 - - - 1,276
Gain on sale of assets to related party - - 3,055 - - - 3,055
Preferred stock dividends - - (2,044) - - - (2,044)
Net loss - - - - (64,419) - (64,419)
Foreign currency translation
adjustment - - - - - 186 186
------------ --------- ----------- ---------- ----------- ------- -----------
BALANCE SEPTEMBER 30, 1998 43,305,620 $ 433 $ 108,471 $ (2,099) $ (113,618) $(1,641) $ (8,454)
------------ --------- ----------- ---------- ----------- ------- -----------
------------ --------- ----------- ---------- ----------- ------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-5
<PAGE>
INTEK GLOBAL CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1995 AND
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 3, 1996
CONSOLIDATED STATEMENTS OF CASH FLOWS
($'s in thousands)
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(64,419) $(26,999) $ (9,089)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 6,711 4,480 1,510
Impairment of long-lived assets 34,388 - -
Interest capitalized into principal 3,527 - -
Stock compensation to employees - 563 -
Other - 350 29
Changes in operating assets and liabilities:
Accounts receivable and amounts due from related parties 4,231 1,384 3,477
Allowance for doubtful accounts 252 - -
Deposits (1,735) - -
Inventories (2,215) 11,376 (2,984)
Income taxes receivable from related parties - 2,330 -
Prepaid expenses and other current assets (77) 1,375 67
Accounts payable and amounts due to related parties 2,430 902 (1,513)
Deposits (42) - -
Accrued liabilities 112 (443) (601)
Accrued liabilities to related parties - 342 -
Deferred income (667) 194 (1,209)
Restructuring reserve 1,424 - -
Other 526 (93) -
-------- -------- --------
Net cash used in operating activities (15,554) (4,239) (10,313)
-------- -------- --------
Cash Flows From Investing Activities:
Proceeds from sale of marketable securities 7,458 1,853 -
Expenditures for property and equipment, net (7,130) (9,226) (1,657)
Expenditures for FCC licenses (8,257) (2,016) -
Expenditures for other long term assets 71 (6,477) -
Proceeds from sale of long term assets 8,500 2,311 96
Other 152 (428) -
-------- -------- --------
Net cash provided by (used in) investing activities 794 (13,983) (1,561)
-------- -------- --------
Cash Flows From Financing Activities:
Net change in bank overdraft 653 (1,252) (731)
Proceeds from short term debt 2,425 71 -
Proceeds from long term debt 1,694 4,000 -
Proceeds from long term debt-related party 15,515 19,452 12,463
Repayment of long and short term debt - (5,347) -
Purchase of treasury stock (1,329) - -
Other (6) 282 -
-------- -------- --------
Net cash provided by financing activities 18,952 17,206 11,732
-------- -------- --------
Effect of foreign exchange rate changes on cash (382) 936 (42)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 3,810 (80) (184)
Cash and cash equivalents at beginning of year 1,909 417 601
Cash acquired in reverse acquisition - 1,572 -
-------- -------- --------
Cash and cash equivalents at end of year $ 5,719 $ 1,909 $ 417
-------- -------- --------
-------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 317 $ 578 $ 1,715
Cash paid for income taxes - - -
Cash received for income taxes
(U.K. group tax relief received from related party) - 3,117 285
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-6
<PAGE>
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Intek Global Corporation, a Delaware corporation, is a provider of
spectrum-efficient wireless communications technology, products and services. At
the Annual Meeting of Shareholders held on February 18, 1998, the shareholders
approved the change of the Company's name from Intek Diversified Corporation to
Intek Global Corporation.
With the exception of certain products distributed by Midland USA, Inc
("MUSA"), a Delaware corporation, and Securicor Radiocoms Limited
("Radiocoms"), a corporation formed under the laws of England and Wales, both
wholly-owned subsidiaries of Intek, the communication services and products
of the Company utilize linear modulation technology ("LM Technology" or
"LMT"). Roamer One, Inc., 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 220-222 MHz ("220 MHz")
frequency ("Roamer One Network) 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 a subsidiary, is
involved in the research and development of products and other applications
of LM Technology. During fiscal 1998, the Company formed Intek License
Acquisition Corporation ("ILAC"), a Delaware corporation and a wholly-owned
subsidiary of Intek, to participate in a Federal Communications Commission
("FCC") auction and to acquire FCC licenses from third parties.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
On December 3, 1996, Securicor Communications Limited ("Securicor"), a
corporation formed under the laws of England and Wales, acquired more than a 50
percent controlling interest in Intek through the Radiocoms Acquisition (Note
4). Accordingly, the Radiocoms Acquisition was treated as a reverse acquisition
for accounting purposes. Radiocoms was considered the acquiring company,
although Intek was the surviving company under corporate law. The consolidated
financial statements for fiscal 1996 include only the accounts of Radiocoms and
its subsidiaries, all of which were wholly-owned. Included in reported results
of operations for fiscal 1996 (pre-reverse acquisition period), are revenues and
cost of sales of $9.0 million and $8.8 million, respectively, from the sales of
products and services by Radiocoms to other current Intek subsidiaries.
Subsequent to the date of the Radiocoms Acquisition (post-reverse
acquisition periods), the consolidated financial statements include the accounts
of Intek and its subsidiaries. All material intercompany accounts and
transactions have been eliminated. Certain prior period amounts have been
reclassified to conform with the current period presentation.
USE OF ESTIMATES AND SIGNIFICANT RISKS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
RISK OF UNCERTAIN MARKET ACCEPTANCE. LM Technology is a relatively new
technology and there is a risk that the marketplace may not accept the potential
benefits of the technology or that the technology may not perform to
expectations. The commercial viability of the Roamer One Network is dependent
upon the performance of the LM Technology and acceptance of such technology by
the marketplace. Until products utilizing LM Technology
F-7
<PAGE>
progress through the commercial development stage, manufacturing costs may be
substantially higher than competing products and the Company may be forced to
sell equipment below its manufactured costs.
If Intek's products using LM Technology are not commercially accepted or do
not have the capabilities the Company believes they have or can have, or
manufacturing costs cannot be reduced, the future results of operations of the
Company could be significantly and negatively impacted.
COMPETING SERVICES. Competition in the sale of wireless communication
products and services is fierce. Given the wide variety of available wireless
services, new subscribers will only be acquired if the Company has a service
needed by potential subscribers and priced, along with the cost of the necessary
radio equipment, attractively when compared to competing services and products.
As a result, there is no assurance that the services provided on the Roamer One
Network or the technology and products developed by the Company will be
competitive with services, technology and products of other wireless
communications companies.
SUPPLIER RISK. If the Company's Japanese supplier of non-LM Technology
radios and accessories was no longer available, Intek's financial position and
results of operations would be adversely impacted.
DEPENDENCE ON GOVERNMENTAL REGULATION. The current and planned operations
of the Company can be adversely impacted by delayed or adverse actions by
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. 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.
NEED FOR ADDITIONAL CAPITAL. The Company will require additional cash
resources to fund operations if its business plan is not realized. There can be
no assurance that additional financing will be available on reasonable terms or
at all.
REVENUE RECOGNITION
With respect to the sale of equipment, including systems and site
equipment, revenue is recognized upon acceptance of the equipment by the
customer. The Company recognizes subscriber revenue from airtime billings upon
provision of the service. In those instances where 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 provided.
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.
MARKETABLE SECURITIES
During fiscal 1997, 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 $748,000 less than its carrying value. The
Company did not realize a loss on this transaction as the shortfall was
recovered from Securicor.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and include manufacturing labor and overhead.
F-8
<PAGE>
Inventories at September 30 consist of the following ($'s in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Raw materials $ 5,526 $ 4,020
Work in progress 2,681 1,311
Finished goods 12,659 13,938
-------- --------
20,866 19,269
Total long term inventories (3,189) (6,980)
-------- --------
Total current inventories $ 17,677 $ 12,289
-------- --------
-------- --------
</TABLE>
At September 30, 1998 and 1997, the Company has classified approximately
$3.2 million and $7.0 million, respectively, of completed base stations and
components for the manufacture of additional base stations as non-current assets
since there is no assurance that the inventory will be utilized by the Company
or sold to third parties during the subsequent fiscal year.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on a
straight-line basis over their estimated useful lives. The Company's policy is
to begin depreciating site equipment at such time as it begins to generate
subscriber revenues. Normal maintenance and repairs are charged to expense as
incurred. Expenditures which increase the useful lives of assets are
capitalized. Gains and losses on disposal are recognized in the year of the
disposition.
Property and equipment at September 30, with their estimated useful lives,
consist of the following ($'s in thousands):
<TABLE>
<CAPTION>
Estimated
Useful Lives
(Years) 1998 1997
------------- ---------- ---------
<S> <C> <C> <C>
Land - $ 423 $ 402
Buildings 11 to 50 2,735 3,008
Site equipment 10 15,893 13,206
Production & test equipment 3 to 10 4,077 3,843
Furniture, fixtures and computers 3 to 10 3,190 2,755
Equipment held for rental 3 to 5 2,451 4,163
---------- ----------
Total property and equipment 28,769 27,377
Less accumulated depreciation (5,200) (5,822)
---------- ----------
Property and equipment, net $ 23,569 $ 21,555
---------- ----------
---------- ----------
</TABLE>
INTANGIBLE AND LONG LIVED ASSETS
Statement of Financial Accounting Standards ("FAS") No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of" ("FAS 121") requires that long-lived assets and certain identifiable
intangibles, including goodwill, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Intangible assets consist of goodwill, which represents the
excess of the purchase price of an acquisition over the fair value of the net
assets acquired, and costs
F-9
<PAGE>
allocated to FCC licenses, patents and trademarks as a result of business or
systems acquisitions. These assets are amortized on a straight line basis
over their estimated useful lives (generally not exceeding 15 years).
Intangible assets at September 30, consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Excess of cost over fair value of net assets acquired (goodwill):
Midland USA, Inc. $ 9,755 $ 9,755
Radiocoms reverse acquisition - 38,573
Data Express 1,386 -
-------- --------
11,141 48,328
FCC licenses acquired from third parties 11,333 2,899
Trademarks and patents 770 -
-------- --------
Total 23,244 51,227
Less accumulated amortization (2,283) (2,887)
-------- --------
Intangibles, net $ 20,961 $ 48,340
-------- --------
-------- --------
</TABLE>
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of long-lived and
intangible assets may warrant revision or that the remaining balance of these
assets may not be recoverable. The Company evaluates the recoverability of its
long-lived and intangible assets by measuring the carrying amount of the assets
against the estimated undiscounted future cash flows associated with those
assets. At the time such evaluations indicate that the future undiscounted cash
flows of certain long-lived and intangible assets are not sufficient to recover
the carrying value of such assets, the assets are adjusted to their estimated
fair values.
During the fourth quarter of fiscal 1998, management concluded that
goodwill arising from the Radiocoms reverse acquisition (Note 4), primarily
attributable to Roamer One, was not recoverable. Management reached that
conclusion when the Company revised its strategic plan after the Company's
success at the recent FCC auction. New markets for the Company opened for
spectrum and equipment sales as a result of the FCC auction and the Company's
partnering arrangement with the NRTC (Note 5). While the Phase I licenses
continue to have value as a result of the FCC auction, management forecasts
that Roamer One will operate at a negative cash flow for at least the next
five years because of the significant costs to be incurred in building its
subscriber base. Thus, the Company believes that subscriber growth will be
slower than it originally planned. The amount of goodwill impairment was
measured based on the projected future operating cash flows for Roamer One
(which are expected to be negative). As a result, the Company recorded a
charge equal to the unamortized balance of the Radiocoms reverse acquisition
goodwill of approximately $34.4 million. Management determined
that the fair value of the Company's remaining long-lived and intangible
assets approximated their carrying value.
ACCRUED LIABILITIES
Accrued liabilities at September 30 consist of the following ($'s in
thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Payroll $1,383 $ 591
Restructuring reserve 1,424 -
Accrual for radio replacement 1,555 -
Other 3,058 3,337
------ ------
Total accrued liabilities $7,420 $3,928
------ ------
------ ------
</TABLE>
F-10
<PAGE>
INCOME TAXES
The Company and its domestic subsidiaries file consolidated Federal and
combined state income tax returns. The Company accounts for income taxes in
accordance with the liability method in computing deferred income taxes.
Radiocoms 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.
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.
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.
FINANCIAL INSTRUMENTS
The Company's management believes that the fair value of all financial
instruments approximates carrying value.
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. Gains
and losses on foreign currency firm commitment hedges are deferred and included
in the basis of the transactions underlying the commitments.
Details of the hedging of firm foreign purchase commitments as of September
30 follows ((Y)'s and $'s in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Firm foreign purchase commitments Y 407,771 Y 374,817
Outstanding hedge contracts 170,000 210,000
--------- ---------
Unhedged position Y 237,771 Y 164,817
--------- ---------
--------- ---------
Unhedged position $ 1,768 $ 1,375
--------- ---------
--------- ---------
Outstanding hedge contracts at contract rate $ 1,270 $ 1,800
Outstanding hedge contracts at fair value $ 1,264 $ 1,762
</TABLE>
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. Cumulative translation adjustments are recorded as a
separate component of shareholders' equity (deficit).
NET LOSS PER SHARE
Basic EPS is computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period.
Diluted EPS is consistent with the calculation of basic EPS while giving effect
to any dilutive potential common shares outstanding during the period. The
weighted average number of common shares outstanding during fiscal 1998 was
42,148,964. Stock options for 4,251,666
F-11
<PAGE>
common shares at various prices ranging from $1.688 to $6.125 were not
included in the diluted EPS calculation as the effect would be anti-dilutive
(Note 12). Likewise, warrants for 318,750 common shares at an exercise price
of $4.59 were not included in the diluted EPS calculation as the effect would
be anti-dilutive (Note 10).
NEW ACCOUNTING PRONOUNCEMENTS
During fiscal year 1998, the FASB issued FAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
Intek does not anticipate adopting FAS 133 early. FAS 133 must be adopted no
later than the first quarter of fiscal 2000. Management of the Company has not
yet evaluated the impact FAS 133 will have on the Company's financial position
or results of operations
3. RESTRUCTURING CHARGES
During the third quarter of fiscal 1998, the Company recorded a
restructuring charge of approximately $1.6 million related primarily to planned
staff reductions, termination of leases associated with the consolidation of
office space and site leases, and equipment removal costs.
In conjunction with the restructuring, the Company has decided to eliminate
and deconstruct certain sites that are not deemed essential to the Company's
growth strategy, consolidate office space and reduce the number of associated
sales force. In addition, the Company has consolidated financial and customer
service functions at its headquarters in Kansas City, Missouri to gain
efficiencies and economies of scale.
During the fourth quarter of 1998, approximately $200,000, related
primarily to severance payments, was charged against the restructuring reserve
resulting in a remaining balance of approximately $1.4 million at September 30,
1998. The remaining amount of the restructuring reserve is expected to be
utilized during fiscal 1999.
4. BUSINESS ACQUISITIONS
MIDLAND USA
On May 2, 1996, Intek formed MUSA. 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 other assets (the "Midland Transaction"). The original
purchase price was 2,500,000 shares of Intek common stock. Pursuant to the terms
of the Midland Transaction, a post closing reduction to the purchase price of
155,000 shares, or $645,000, was made.
RADIOCOMS
On December 3, 1996, Intek consummated the acquisition (the "Radiocoms
Acquisition") of all the outstanding common stock of Radiocoms. Radiocoms
designs, develops, manufactures, distributes and installs a range of land mobile
radio equipment, including its own LM Technology equipment. The purchase price
for the Radiocoms Acquisition was 25,000,000 shares of Intek 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.
F-12
<PAGE>
The following unaudited proforma income statement information (in
thousands, except per share amounts) is presented as though the Radiocoms
Acquisition and the Midland Transaction had occurred on October 1, 1995:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues $ 44,475 $ 22,569
Net loss $ (32,780) $ (20,073)
Proforma net loss per share (basic and diluted) $ (0.81) $ (0.53)
Weighted average shares outstanding 40,381,715 38,172,732
</TABLE>
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.
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,
was being amortized over 15 years. (Note 2 "Intangible and Long Lived Assets").
The purchase price was determined based on the fair value of the Intek 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 (in thousands):
<TABLE>
<S> <C>
Net working capital $ (1,138)
Excess of cost over fair value of
net assets acquired (goodwill) 38,573
Net property, plant & equipment 10,179
Other non-current assets 12,918
Other non-current liabilities (6,054)
--------
Total $ 54,478
--------
--------
</TABLE>
DATA EXPRESS
In May, 1998, the Company completed the stock acquisition of Mobile Data
Solutions, Inc. ("Data Express"), a developer and provider of wireless data
solutions for the mobile marketplace. Data Express's main product (for which it
holds a non-exclusive license) is a satellite Global Positioning System based
automatic vehicle location system for mobile fleet operators. The system
provides real-time information on the location of all fleet vehicles as well as
a full tracking history of any given vehicle's previous movements. The Company
issued 400,608 shares of its common stock valued at approximately $1.3 million
plus cash for total consideration of $1.5 million. The acquisition was accounted
for under the purchase method of accounting and resulted in goodwill of
approximately $1.4 million. Data Express' results of operation prior to the
acquisition were not material.
5. 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"). The Company acquired a total of 23 of
the Krystal Systems for a total of approximately $4.1 million in cash of which
approximately $3.7 million was paid during fiscal 1997 and the balance was paid
during fiscal 1998.
F-13
<PAGE>
AMERICAN DIGITAL CORPORATION
During September 1997, the Company consummated two agreements with American
Digital Corporation ("ADC") and 22 holders of 220 MHz 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 approximately $1.9
million. 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 $84,000); (b) issuance of approximately 682,735 shares of common stock
(valued for purposes of the transaction at approximately $1.3 million); (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 $301,000); (d) forgiveness of approximately
$95,000 of debt owed by ADC to Radiocoms; and (e) a cash payment of $119,000.
Closing of the transactions (and payment of the purchase price) occurred upon
receipt of, and uncontested grant by the FCC of, the licenses to Roamer One.
During 1998, the Company issued an aggregate of 465,484 shares of common stock
for the acquisition of those licenses, valued at $807,000 for financial
reporting purposes.
PAGERS PLUS
During the period July 12, 1997 through August 12, 1997, the Company
entered into purchase and sale agreements with 25 licensees of 220 MHz FCC
licenses managed by the Company on behalf of Pagers Plus Corp ("PPC"). The
agreements provided that the Company would acquire (subject to the satisfaction
of certain conditions) 25 licenses for a purchase price equal to 465,482 shares
of Intek common stock (valued for purposes of the transaction at approximately
$0.9 million) plus cash payments totaling approximately $0.8 million. Closing of
the transactions and payment of the purchase price occurred in December 1997
upon receipt of uncontested grant by the FCC of the licenses to Roamer One.
VENTEL, INC.
Ventel is in the business of providing financing to various 220 MHz SMR
management companies in the United States. During 1997, the Company (a
shareholder of Ventel) 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 its common stock and $100,000 in cash.
WIRELESS PLUS
In December 1997, Intek completed the acquisition of selected assets of
Wireless Plus, Inc. ("Wireless Plus"), a Hayward, California-based specialized
mobile radio provider. The acquired assets include approximately 2,700
subscriber accounts, 19 five channel FCC licenses for operation of 220 MHz
frequencies, and 12 five-channel and eight single-channel management agreements
with third party licensees within the 220 MHz spectrum for total consideration
of approximately $5.3 million. In addition, two licenses managed by Wireless
Plus were purchased directly from the licensees for an aggregate purchase price
of $106,406. The purchase price paid by the Company to Wireless Plus was as
follows: (a) $100,000 paid as a deposit in November, 1997, (b) $500,000 in cash
on February 17, 1998, (c) $106,579 in cash for each license transfer granted by
the FCC to be paid at the time such transfer is completed, and (d) a secured
subordinated note in the amount of approximately $2.6 million bearing interest
at the rate of 8% per annum payable annually. Note principal is payable in two
equal annual installments due in February 1999 and February 2000. At the date of
the acquisition, the radio equipment used by existing Wireless Plus subscribers
was not LMT-compatible. As part of the acquisition, the Company agreed to
provide the subscribers with LMT-compatible radio equipment and return the old
radio equipment to Wireless Plus. As a result, the Company accrued a liability
of $1.7 million for the costs to replace the radios. As of September 30, 1998,
the balance of the accrual for radio replacement was approximately $1.6 million.
F-14
<PAGE>
COMTECH
In August 1998, the Company entered into an asset purchase agreement (the
"Purchase Agreement") with ComTech Communications, Inc. ("ComTech"), to purchase
eleven licenses granted by the FCC in the 220-222 MHz band spectrum (the
"Licenses") and certain equipment and other personal property, subscription
contracts, accounts and lists and management and purchase option agreements
relating to the Licenses which were owned by ComTech. The purchase price is
$458,039, with $50,000 payable upon execution of the Purchase Agreement and the
balance payable upon the final transfer of the Licenses to the Company by the
FCC in the form of a three-year promissory note of the Company in the amount of
$408,039 and bearing interest at the rate of 9% per annum. The Company will
receive a credit of $41,640 against the purchase price for each License that is
not so transferred to the Company. As part of the same transaction, the
Company and ComTech entered into a management agreement pursuant to which
Company manages the systems subject to ComTech's supervision and control
until the final transfer of the Licences to the Company by the FCC.
In addition to the transactions described above, Roamer One and ComTech
entered into a letter of intent and resale agreement in September 1998 to
provide for the purchase by Roamer One of a 5-channel Phase I national FCC
License from ComTech and the design and construction of a national network by
Roamer One using the License's frequencies for the provision of paging services
and two-way land mobile radio services. Under the resale agreement, Roamer One
will design and construct the radio system in order to resell airtime on the
network. The equipment used for the base station transmitters will be leased by
ComTech from MUSA under a separate equipment lease agreement. Under the resale
agreement, Roamer One is responsible for all operating expenses, including site
leases and taxes, and has agreed to pay ComTech, initially, $284 per month for
each channel of any radio system operated by Roamer One to resell airtime on the
network. Effective as of May 1, 1998, and through June 30, 1999, Roamer One will
pay ComTech the greater of $284 per month per channel in operation or $39,760
per month, and as of July 1, 1999, for the remaining term of the resale
agreement, Roamer One will pay ComTech the greater of $284 per month per channel
in operation or $37,500 per month. The Purchase Agreement may be terminated by
either party if the FCC has not granted any of the Assignment Applications with
respect to Licenses sought to be acquired by the Company from ComTech by March
1, 1999. A termination of the Purchase Agreement terminates the Management
Agreement between the Company and ComTech. The Equipment Lease Agreement between
Midland and ComTech may be terminated upon 30 Days notice by either party and
certain other events. The Resale Agreement between ComTech and Roamer One may be
terminated by Roamer One during the period January 4, 1999 through January 15,
1999 upon notice to ComTech. The Company is evaluating its options under this
agreement as a result of its recent success in the FCC auction. In the event
the Company terminates the Agreement, the Agreement provides that Roamer One
will be obligated to make certain payments to ComTech.
FCC AUCTION
In August 1998, the Company entered into an agreement with National
Rural Telecommunications Cooperative ("NRTC"), subsequently amended in
November 1998, pursuant to which the Company, through its wholly-owned
subsidiary, ILAC, and NRTC agreed to participate jointly in the recent FCC
auction (the "Auction") for certain Phase II licenses in the 220-222 MHz band
(the "Licenses"). The agreement provides for the purchase by ILAC of certain
Licenses in the Auction on a cost-sharing basis and the post-auction
partitioning and disaggregation of awarded Licenses between NRTC and ILAC. As
a result of the conclusion of the Auction in November 1998, ILAC will be
awarded two 10-channel nationwide, seven 15-channel regional, and 172
10-channel Economic Area ("EA"), or local, Business Radio airwave Licenses at
a total cost of approximately $12.2 million. The Company will assign one
nationwide and certain EA licenses to NRTC, disaggregate six regional and one
EA licenses and partition certain EA licenses to NRTC. ILAC's portion of the
cost for Licenses awarded in the Auction is approximately $6.6 million. In
addition, ILAC has incurred a penalty charge of $57,200 for withdrawn high
bids on Licenses subsequently awarded at lower bids during the Auction and
has been assessed an additional holdback charge of $25,602 for withdrawn high
bids with respect to Licenses which were not awarded during the Auction. If
such Licenses are subsequently awarded in a later auction (which is presently
scheduled to commence June 15, 1999) at a price equal to or greater than the
withdrawn ILAC bid price, ILAC would be entitled to a return of this holdback
charge. However, if such Licenses are subsequently awarded at less than the
ILAC withdrawn high bid price, ILAC would be liable for the difference, which
the Company estimates its total contingent liability with respect to such
Licenses to be approximately an additional $853,000. At September 30, 1998,
the Company was reflecting a deposit related to the Auction of approximately
$1.8 million in the accompanying consolidated balance sheets.
F-15
<PAGE>
The Company and NRTC entered into a Master Distribution Agreement, dated
September 4, 1998 (the "Distribution Agreement"), to provide for the appointment
of NRTC and the members of its cooperative ("Members") as distributors to
purchase LM-based equipment (the "Contract Products") from the Company for
resale to their customers in certain exclusive geographic areas. The
Distribution Agreement targets the sale of approximately $50 million of Contract
Products to NRTC and its Members over the first five years of the Distribution
Agreement, and as of December 1, 1998, NRTC and its Members have placed orders
for approximately $5 million of Contract Products. NRTC and each of its Members
will be authorized to use the "RoameR One" trademark and trade name in
connection with resales of the Contract Products to their customers and may
further elect to obtain the exclusive right to such use in designated geographic
areas for an annual royalty fee ranging from $15,000 to $25,000, depending on
the number of base stations constructed. The Distribution Agreement permits NRTC
and its Members to purchase the Contract Products at the lowest rate quoted or
charged by MUSA to any of its dealers or customers within the United States and
also provides for a 0.5% discount on future purchases of Contract Products, if
the amount of such purchases for the preceding year exceeds $10 million. In
addition, NRTC has been granted stock options to purchase up to 200,000 shares
of the Company's stock and has been given conditional grants to purchase up to
1,050,000 additional shares of the Company's stock. The conditional stock
options will vest to NRTC, incrementally, based on the amount of Contract
Products purchased over the term of the Distribution Agreement. The exercise
price of stock options vested in the first two years is the lower of (a) $3.00
per share or (b) the average closing price for the 20 trading days immediately
preceding the exercise date and the exercise price of options vested after the
first two years is the average closing price for the 20 trading days immediately
preceding the exercise date.
6. PENSION PLAN
Radiocoms contributes to the pension plan of Securicor, which maintains a
defined benefit pension plan that covers executives and other senior employees.
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 at
least every three years. The most recent actuarial valuation was April 5, 1997
and in accordance with the provisions of FAS No. 87, "Employers' Accounting for
Pensions", at September 30, 1998 and 1997, there were no unfunded accumulated
benefit obligations. The assets are held in separate trustee administered funds.
For fiscal 1998, 1997 and 1996, Radiocoms' share of the costs of the Securicor's
defined benefit pension plan amounted to $140,000, $200,000 and $200,000,
respectively.
7. INCOME TAXES
The Company's benefit for the income taxes consists of the following for
the three fiscal years ended September 30 ($'s in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ - $ 628 $ -
Foreign - 530 3,044
------- ------- -------
Total Current $ - $ 1,158 $ 3,044
Deferred - - -
------- ------- -------
Total $ - $ 1,158 $ 3,044
------- ------- -------
------- ------- -------
</TABLE>
F-16
<PAGE>
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.
Management has provided a valuation allowance on the Company's total net
deferred tax assets due to the Company's history of losses. The valuation
reserve was increased by $18,265,000 and $3,866,000 for September 30, 1998 and
1997, respectively.
The approximate tax effect of temporary differences which gave rise to
significant deferred tax assets and liabilities at September 30 are as follows
($'s in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- --------
<S> <C> <C> <C>
Deferred tax items (Federal, state and foreign):
Accrued liabilities $ 1,634 $ 690 $ -
Allowance for doubtful accounts receivable 140 16 -
Amortization of Roamer One startup costs 28 64 -
Disallowed interest expense 1,256 174 -
Depreciation (655) (156) -
Depreciation (foreign) 42 (178) (63)
Development costs (foreign) 1,623 (2,779) 3,275
Equipment site reserve 1,011 - -
General provisions (foreign) 10 - -
Contributions carryforward 6 - -
Operating loss carryforwards 14,001 5,453 -
Operating loss carryforwards (foreign) 6,392 3,939 145
---------- ----------- --------
25,488 7,223 3,357
Valuation allowance (25,488) (7,223) (3,357)
---------- ----------- --------
Net deferred tax liability $ - $ - -
---------- ----------- --------
---------- ----------- --------
</TABLE>
A reconciliation of the provision (benefit) for income taxes to the amount
computed at the Federal statutory rate of 34 percent for the three fiscal years
ended September 30 is as follows ($'s in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
Benefit at statutory rate $ (23,797) $ (9,573) $ (4,125)
Statutory rate difference (foreign) 102 277 121
Goodwill amortization / write-off 12,620 729 -
Accruals 1,355 521 -
Operating losses offset by capital Gain (foreign) 1,189 - -
Operating losses not currently available for use
nor available for group relief (foreign) 2,172 3,660 1,045
Operating losses not currently available for use 6,348 3,369 -
Other 11 (141) (85)
---------- ---------- --------
$ - $ (1,158) $ (3,044)
---------- ----------- --------
---------- ----------- --------
</TABLE>
At September 30, 1998, the Company had net operating loss carryforwards
available for Federal and State income tax purposes of approximately $36.7
million and $21.9 million, respectively. The net operating loss
F-17
<PAGE>
carryforwards expire in the year 2008 and thereafter for Federal income tax
purposes and in the year 1999 and thereafter for state income tax purposes.
The Company also had foreign net operating losses of approximately $6.4
million, 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
approximately $0.8 million.
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. DEBT
THIRD PARTY BORROWINGS
In December 1997, MUSA entered into a revolving credit agreement
("Credit Agreement") with a non-bank lender. The Credit Agreement makes
available $5.0 million through December 1999. Borrowings under the Credit
Agreement are secured by the assets of MUSA and bear interest at 1.5% 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 uses the Credit Facility for
issuance of letter of credit commitments on behalf of MUSA, and for
borrowings for working capital. As of September 30, 1998, there was
indebtedness outstanding of approximately $0.7 million and letter of credit
commitments of $0.3 million under this Credit Agreement.
In December 1997, Intek completed the acquisition of selected assets of
Wireless Plus (Note 5). The purchase price paid by the Company to Wireless Plus
included a secured subordinated note in the amount of approximately $2.6 million
bearing interest at the rate of 8% per annum payable annually. The note
principal is payable in two equal annual installments due in February 1999 and
February 2000.
In March 1998, Intek repurchased 352,500 shares of Intek common stock at
$2.75 per share in a private transaction for a total of $969,375 (Note 11). The
purchase price paid by the Company included notes in the aggregate amount of
$440,625. The notes are non-interest bearing and are due and payable on December
15, 1998.
In August 1998, the Company entered into a purchase agreement with ComTech
(Note 5). The purchase price paid by the Company to ComTech included a
three-year promissory note in the amount of $408,039, bearing interest at the
rate of 9% per annum. The note principal is payable in two installments in
fiscal 2000 and 2001.
Radiocoms has an overdraft agreement of 1.0 million pounds sterling
(approximately U.S. $1.6 million) with a bank. Borrowings under the Agreement
are unsecured at an ajustable rate of 1% over the prevailing U.K. base rate.
The year-end rate was 7.75%. The Company uses the overdraft
Facility for borrowings for working capital. As of September 30, 1998, there was
indebtedness of approximately $0.7 million under this overdraft agreement.
In addition, the Company has other borrowings related primarily to the
acquisition of property and equipment from third parties in the aggregate amount
of $410,000.
F-18
<PAGE>
As a result of the above agreements, as of September 30, 1998, third party
borrowings will be repaid as follows ($'s in thousands):
<TABLE>
<CAPTION>
Fiscal year
-----------
<S> <C>
1999 $ 3,299
2000 1,615
2001 384
2002 102
2003 2
Thereafter -
------------
$ 5,402
------------
------------
</TABLE>
RELATED PARTY BORROWINGS
Prior to the Radiocoms Acquisition, Securicor had extended a limited use
$15.0 million line of credit to MUSA. In connection with the Radiocoms
Acquisition, Securicor made available to the Company a $15.0 million line of
credit (which replaced the MUSA $15.0 million line of credit) to fund Intek's
working capital needs. The September 1996 Facility could be drawn upon by Intek
so long as it maintained a net worth of at least $20.0 million. The September
1996 Facility bore interest at the rate of prime (defined as the average of
prime rates announced by certain specified banks), plus 1.0 percent through
December 31, 1997, and thereafter interest was to accrue at the rate of 11.0
percent, compounded annually. The principal balance at September 30, 1997 was
approximately $10.8 million, plus accrued interest of approximately $1.0
million.
In March 1997, the Company borrowed $6.0 million for working capital
purposes from Securicor. The unsecured borrowings was evidenced by an 11 percent
note payable due the earlier of (1) the receipt of funds by Intek from a private
or public offering of Intek common shares; or (2) October 18, 1998.
Additionally, during May 1997, the Company borrowed $4.5 million from Securicor
to retire certain outstanding debentures and an additional $2.0 million
in September 1997. The May and September loans bore interest at 12.5 percent and
were repayable under the same terms as the 11 percent note payable. Interest on
these notes was due upon maturity of the notes. Accrued interest on these loans
at September 30, 1997, was approximately $506,000.
In December 1997, the Company entered into a loan agreement ("December 1997
Facility") with Securicor which replaced all prior loan agreements. The December
1997 Facility provides the Company the ability to borrow up to $29.5 million.
The December 1997 Facility bears interest at 11.5% per annum, payable at June
30, 2003. Interest is accrued each month, and on June 30 of each year, is to be
added to the principal amount outstanding. Principal payments are to be $0.5
million per month for 12 months beginning July 1, 2001, $1.0 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 can be
prepaid by the Company at any time in $1.65 million increments without penalty.
The December 1997 Facility has to be repaid if Securicor ceases to be the
beneficial owner of more than 50 percent of Intek common stock as a result of
any transaction except the direct or indirect transfer of the Intek common stock
by Securicor and also is subject to mandatory prepayments at the rate of 50
percent of the net proceeds of any financing by the Company exceeding $8.0
million. At September 30, 1998, the amount payable under the December 1997
Facility totaled $30.7 million, consisting of original principal borrowings of
$29.5 million and capitalized interest of approximately $1.2 million.
F-19
<PAGE>
As a result of the above agreements, as of September 30, 1998, related
party borrowings will be repaid as follows ($'s in thousands):
<TABLE>
<CAPTION>
Fiscal year
-----------
<S> <C>
1999 $ -
2000 -
2001 1,500
2002 7,500
2003 21,733
Thereafter -
------------
$ 30,733
------------
------------
</TABLE>
In December, 1998 the Company entered into an additional financing
arrangement for $25 million with Securicor (Note 17). During fiscal 1998 and
1997, interest expense for related party borrowings totaled $2.7 million and
$1.4 million, respectively.
9. PREFERRED STOCK
RADIOCOMS
In December 1996, the Company consummated the Radiocoms Acquisition (Note
4). Prior to the consummation of this transaction, Securicor forgave
approximately $12.0 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. The preferred stock is
mandatorily redeemable on June 30, 2006 at its par value and bears a dividend
rate of 6 percent. During fiscal 1998 and 1997, Radiocoms accrued dividends of
$1.2 million and $1.0 million, respectively, which are included in the total
Radiocoms preferred stock balance at September 30, 1998, of $22.2 million.
INTEK GLOBAL
Effective March 1, 1998, Securicor purchased, pursuant to a Preferred Stock
Purchase Agreement dated December 29, 1997, 12,408 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock") for approximately
$12.4 million. Proceeds from the sale of the Series A Preferred Stock were
applied against the principal balance of the December 1997 Debt Facility (Note
8). The liquidation value of the Series A Preferred Stock is $1,000 per share
and par value is $.001 per share. Dividends accrue at the rate of 11 1/2% of the
original issue price of $1,000 per share and are cumulative. Dividend payments
are due upon the conversion or redemption of the Series A Preferred Stock. The
holder of the Series A Preferred Stock has the right to convert the Series A
Preferred Stock into shares of Intek common stock if the market price of Intek
common stock exceeds $6.00 for 20 consecutive trading days. Intek may cause the
Series A Preferred Stock to be converted if the market price is or exceeds $9.00
for 20 consecutive trading days. The holder of the Series A Preferred Stock has
the right to convert the Series A Preferred Stock into shares of Intek common
stock if Intek does not redeem the Series A Preferred Stock by June 30, 2003.
The Series A Preferred Stock is subject to adjustments for stock dividends,
stock splits or share combinations of Intek common stock or distribution of a
material portion of Intek's assets to the holders of Intek common stock. The
Series A Preferred Stock does not have voting power except as provided by
Delaware corporate law. During fiscal 1998, Intek accrued dividends totaling
$844,000 which are included in the total Intek Global preferred stock balance at
September 30, 1998 of $13.3 million.
10. SALES OF SECURITIES OUTSIDE THE UNITED STATES UNDER REGULATION S OF THE
SECURITIES ACT
On February 29, 1996, the Company raised $2.5 million through the issuance
of a Senior Secured Debenture ("Senior Debenture") to MeesPierson ICS Limited, a
U.K. limited liability company ("MeesPierson"). The Senior
F-20
<PAGE>
Debenture was secured by land and a building owned by the Company (the
"Property"). Intek also issued 50,000 shares of Intek 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
Intek common stock to MeesPierson and issued 5,000 shares of Intek 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 Intek common stock valued at approximately $0.2 million. The Senior
Debenture was paid in full on December 31, 1996.
On April 26, 1996, The Company sold a series of 6.5% Notes in the aggregate
principal amount of $5.0 million (the "Notes"), maturing April 25, 1999. During
fiscal 1997, holders of the Notes exercised warrants to convert all $5.0 million
of the Notes into Intek common stock at an average discount of 18 percent below
market price. This discount, in the amount of approximately $0.9 million, was a
pre-reverse acquisition expense of Intek. A portion of accrued interest was
repaid through issuance of Intek common stock valued at approximately $0.1
million.
On November 1, 1996, the Company sold a series of 6.5% Notes in the
aggregate principal amount of $2.0 million (the "November 1996 Notes") maturing
on October 31, 1999. Net proceeds to the Company, after fees and broker's
commissions, were approximately $2.0 million. 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 $2.0 million of the Notes into Intek common
stock at an average discount of 28% below market price. This discount, in the
amount of approximately $0.6 million, 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 Warrants (the "February 1997
Warrants") to three purchasers. Net proceeds to the Company, after fees and
broker's commissions, were approximately $4.0 million. The February 1997
Debentures matured on February 6, 2000 and bore interest at the rate of 7.5
percent per annum. All accrued interest was due and payable at the time the
February 1997 Debentures matured or upon their conversion to Intek common stock.
The debt conversion price was the lesser of $3.83 million or 80% of the average
closing bid price for the 5 trading days prior to conversion resulting in a
discount of $0.8 million. 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 $0.4 million 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 $0.1 million, which was included in
interest expense in fiscal 1997. All February 1997 warrants were outstanding and
unexercised at September 30, 1998.
11. COMMON STOCK REPURCHASE PLAN
On November 24, 1997, the Board of Directors of the Company adopted a share
repurchase plan whereby the officers of the Company are authorized to expend up
to $1.0 million to acquire up to 1 percent of Intek common stock. During fiscal
1998, the Company repurchased 184,500 shares of Intek common stock, $0.01 par
value in the open market at a cost of $359,000. In March 1998, the Board of
Directors terminated the share repurchase plan.
In March 1998, Intek repurchased 352,500 shares of Intek common stock at
$2.75 per share from SCL in a private transaction for a total of $969,375.
Pursuant to the terms of the transaction, Intek paid SCL cash in the amount of
$528,750 and notes in the aggregate amount of $440,625. The notes are
non-interest bearing and are due and payable on December 15, 1998.
12. STOCK-BASED COMPENSATION PLANS
EXECUTIVE STOCK GRANT
In connection with his employment by the Company in August 1997, the chief
executive officer of the
F-21
<PAGE>
Company received, among other things, 300,000 shares of Intek common stock.
The employment agreement provides that in the event the fair market value of
the 300,000 shares on December 31, 1998 ("December Fair Value"), is less than
$1.0 million, the Company will pay the executive an amount equal to the
difference between $1.0 million and the December Fair Value. The payment will
be made, at the executive's option, in cash, Intek common stock or a
combination thereof. In fiscal 1997, the Company recorded compensation
expense of approximately $1.0 million, related to the executive stock grant.
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 Intek 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 Intek 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. At the Annual Meeting of Stockholders held on February 18,
1998, the stockholders approved a modification in the1988 Plan so that options
granted under this plan qualify as "incentive stock options" within the meaning
of Section of 422 of the Internal Revenue Code (IRC). At September 30, 1998,
there were 436,666 options outstanding under the 1988 Plan, of which
approximately 120,000 options were exercisable.
In September 1994, the Board of Directors approved the 1994 Stock Option
Plan ("1994 Option Plan") and the 1994 Director's Option Plan ("1994 Director's
Plan"). The two plans were approved by Intek's stockholders at the Annual
Meeting of Stockholders held on July 5, 1995. The 1994 Option Plan and the 1994
Director's Plan provide for the granting of options to purchase up to 600,000
and 300,000 shares, respectively, of Intek common stock.
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. No optionee may be granted stock options to purchase more
than 60,000 shares in any fiscal year. At September 30, 1998, there were 350,000
options outstanding under the 1994 Option Plan, of which approximately 250,000
options were exercisable.
Under the terms of the 1994 Directors' Plan, each director is entitled to
receive, on the date of his or her initial election as a director, an option to
purchase 20,000 shares of Intek common stock. No person may receive an option
pursuant to the 1994 Directors' Plan more than once. At September 30, 1998,
there were 160,000 options outstanding under the 1994 Directors' Plan, of which
approximately 80,000 options were exercisable.
Under both 1994 plans, the option exercise price equals the fair market
value of Intek common stock at the date of grant. Historically, under both 1994
plans, options have vested after one year and expire after ten years. The
100,000 options granted under the 1994 Option Plan during fiscal 1998 vest at a
rate of 20% per year.
At the Annual Meeting of Stockholders held on February 18, 1998, the
stockholders approved the 1997 Performance and Equity Incentive Plan ("1997
Incentive Plan"). The 1997 Incentive Plan authorized the Compensation Committee
of the Board of Directors to issue up to a total of 4,000,000 shares to attract,
retain and motivate key employees, nonemployee directors and independent
contractors. The 1997 Incentive Plan authorizes the following awards based upon
Intek common stock: stock options, stock appreciation rights, stock awards,
stock units, performance shares, performance units and cash awards. No awards
may be granted under the 1997 Incentive Plan after November 20, 2007. Stock
options issued under the 1997 Incentive Plan may be either nonqualified or
incentive stock options within the meaning of Section 422 of the IRC. The term
of nonqualified stock options may be no longer than twenty years and ten years
for incentive stock options. The Compensation Committee shall specify the
vesting period of each stock option issued. At September 30, 1998, there were
3,305,000 stock options outstanding under the 1997 Incentive Plan, of which
approximately 365,000 options were exercisable. At September 30, 1998,
F-22
<PAGE>
the Company had not issued any stock appreciation rights, stock awards, stock
units, performance shares, performance units or cash awards under the 1997
Incentive Plan.
A summary of the stock options issued under the 1988 Plan, the 1994 Option
Plan, the 1994 Directors' Plan and the 1997 Incentive Plan, and changes during
the fiscal years ended September 30 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ -------------------- -------------------
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, beginning of year 735 $ 3.67 315 $ 4.16 475 $ 3.69
Granted 3,695 2.39 420 3.30 72 5.88
Exercised - - - - 225 3.80
Forfeited 178 3.46 - - - -
Expired - - - - 7 1.75
------- ------- -------
Outstanding, end of year 4,252 2.56 735 3.67 315 4.16
------- ------- -------
Options exercisable at year-end 815 3.18 315 4.16 315 4.16
------- ------- ------- -------- ------- --------
Weighted average fair value of
options granted during the year $ 2.15 $ 1.93 $ 4.22
------- ------- -------
------- ------- -------
</TABLE>
The 4,251,666 options outstanding at September 30, 1998, have the following
exercise prices and weighted average remaining contractual lives:
<TABLE>
<CAPTION>
Weighted Average
Remaining
Exercise Price Shares Contractual Life (years)
-------------- ------ ------------------------
<S> <C> <C>
$1.688 40,000 9.09
$1.970 800,000 8.95
$2.000 600,000 9.89
$2.500 2,005,000 9.45
$3.000 226,666 6.28
$3.125 20,000 8.40
$3.190 40,000 9.85
$3.750 230,000 5.99
$4.000 210,000 9.67
$5.875 60,000 7.23
$6.125 20,000 8.18
------
4,251,666
</TABLE>
As of September 30, 1998, options available for future grant were as follows:
<TABLE>
<S> <C>
1988 Plan 5,834
1994 Stock Option Plan 48,000
1994 Directors' Plan 85,000
1997 Incentive Plan 695,000
-------
833,834
</TABLE>
The Company accounts for these plans under Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. As long as the exercise price of the stock
F-23
<PAGE>
options is not less than the fair value of the Intek common stock at the date
of grant, no compensation expense is recognized. Had compensation expense for
these plans been determined consistent with the requirements of FAS No. 123
"Accounting for Stock-based Compensation" ("FAS 123"), the Company's net loss
and loss per share would have been increased to the following pro forma
amounts during the three fiscal years ended September 30 ($'s in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Net loss applicable to
common shareholders: As Reported $(66,463) $(26,999) $(9,089)
Pro Forma (68,941) (27,264) (9,393)
Net loss per share
applicable to common
shareholders (basic and
diluted): As Reported (1.58) (0.74) (0.36)
Pro Forma (1.63) (0.75) (0.38)
</TABLE>
Because the FAS 123 method of accounting has not been applied to options
granted prior to October 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 during the three fiscal years ended
September 30 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate (percent) 5.64 5.85 5.40
Expected dividend yield (percent) 0.0 0.0 0.0
Expected lives of option (years) 4.8 3.0 3.0
Expected volatility (percent) 98.4 84.3 118.1
</TABLE>
13. 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. Related party transactions, other than those disclosed
elsewhere in the Notes to the Consolidated Financial Statements, are disclosed
below.
The Company believes that the terms of the transactions and the agreements
described below 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.
SECURICOR
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, approximately $0.7 million of support and
administrative service costs (including services of Edmund Hough, Intek's former
Chief Executive Officer) were billed to Intek by Securicor. As of September 30,
1998, these costs remained unpaid by Intek.
During the fourth quarter of fiscal 1998, Intek sold its non-core,
U.K.-based land mobile radio distribution and maintenance assets ("ESU Assets")
to Securicor Information Systems Limited ("SIS"), a subsidiary of Securicor. The
sale price for the ESU Assets was $8.5 million resulting in a gain of $3.1
million. Due to the related party nature
F-24
<PAGE>
of the sale, the gain was recorded as a direct increase in shareholders'
equity (deficit). The sales price is subject to a post closing adjustment up
to (pound)500,000 (approximately $800,000) depending on certain circumstances.
Radiocoms sells products to Securicor. In fiscal years 1998, 1997, and
1996, revenues from such sales were $3.2 million, $6.8 million, and $6.9
million, respectively.
DIRECTORS, OFFICERS AND AFFILIATED COMPANIES
John Simmonds, a former 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. Mr. Simmonds resigned from the Board of Directors in
July 1998. 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 Squire, Sanders & Dempsey L.L.P.,
which acquired the practice of Kelly & Povich, P.C. John Wareham, a director of
the Company, is the President of the consulting and executive recruiting firm
Wareham Associates, Inc.
The law firm Kohrman Jackson & Krantz performs legal services for the
Company and its subsidiaries for which it received fees of approximately
$111,000 and $237,000, respectively, during fiscal 1998 and 1997. In addition,
Mr. Wasserman received $1,000 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 $2,000 per month.
The law firm Kelly & Povich, P.C. performed 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 1998 and 1997, Kelly & Povich, P.C. received
fees of approximately $170,000 and $55,000, respectively. Squire, Sanders &
Dempsey L.L.P. received fees of $38,000 during fiscal 1998 and received no fees
during fiscal 1997.
The firm of Wareham Associates, Inc. provides executive recruiting and
management consulting services to the Company for which it received fees of
$249,000 during fiscal 1998 and no fees during fiscal 1997.
Directors are compensated for services at the rate of $4,000 per year plus
$500 per meeting to a maximum of $10,000 per director. For fiscal 1998, the
Company paid directors fees of $61,000 and as of September 30, 1998, had accrued
$9,000 for unpaid directors fees. For fiscal 1997, the Company paid directors
fees of $48,000 and as of September 30, 1997, had accrued $9,000 for unpaid
directors fees.
The Company has entered into several related party borrowings with
Securicor (Note 8). Roger Wiggs and Michael Wilkinson, directors of the
Company, are also officers of Securicor. Directors fees for Messers. Wiggs
and Wilkinson are paid to Securicor plc.
Pursuant to a consulting agreement, the Company paid $10,000 a 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 and
1996, the Company paid Mr. Wilson $80,000 and $120,000, respectively.
Pursuant to an oral management agreement between SCL and the Company, the
Company paid SCL $10,000 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 $40,000 to SCL pursuant to this agreement.
Pursuant to an oral consulting agreement with SMM, the Company paid SMM
$8,000 per month for consulting services. During fiscal 1997, the Company paid
$32,000 to SMM. Effective February 1, 1997, the Company terminated the agreement
and ceased such payments.
In March 1998, Intek repurchased 352,500 shares of Intek common stock at
$2.75 per share from SCL in a private transaction.
During fiscal 1997, the Company entered into two agreements with ADC and 22
holders of 220 MHz FCC licenses (Note 5). John Simmonds and SCL were
shareholders of ADC when the agreements were consummated.
The Company and SCL had an arrangement whereby Roamer One purchased
equipment and installation services from SCL. During fiscal 1997 and 1996,
Roamer One purchased approximately $8,000 and $2.3 million,
F-25
<PAGE>
respectively, of radio equipment and installation services from SCL. The
agreement was terminated during fiscal 1997.
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 1998 and 1997, MUSA paid $56,000 and $140,000, respectively, to MIC. This
agreement was terminated in January, 1998.
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 1998 and 1997, MUSA paid $16,000 and
$218,000, respectively, to SCL. This agreement was terminated on October 31,
1997.
On December 3, 1996, the Company entered into a Registration Rights
Agreement to provide certain holders of Intek common stock, including SCL, MIC,
Roamer One Holdings, Securicor, Securicor International Limited and Anglo York
Industries, Inc. with certain demand and "piggy-back" registration rights with
respect to the Intek common stock owned by the holders. Each is a stockholder of
the Company and, collectively, such stockholders own approximately 70 percent of
Intek common stock at September 30, 1998.
14. COMMITMENTS AND CONTINGENCIES
SITE LEASES
The Company has entered into 231 site leases for the housing of radio base
station equipment and antenna systems related to the Roamer One network. These
leases may vary in term from 1 to 5 years with provisions for subsequent
extensions upon the mutual agreement of the parties. In addition, the Company
has lease commitments for office space, vehicles and office equipment. As of
September 30, 1998, total future minimum lease payments are as follows ($'s in
thousands):
<TABLE>
<S> <C>
1999 $2,362
2000 1,800
2001 1,041
2002 329
2003 149
Thereafter 221
------
$5,902
------
------
</TABLE>
PURCHASE COMMITMENTS
As of September 30, 1998, MUSA had a purchase commitment with its main
supplier of radios to purchase approximately $3.8 million of inventory (Note 2).
15. LEGAL PROCEEDINGS
The Company, David Neibert, the Company's Executive Vice President, and
Nicholas R. Wilson, a former Chairman of the Company ("Intek Defendants") were
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 in
November, 1997. The lawsuit purports to allege claims under the Racketeer
Influenced Corrupt Organizations Act ("RICO"), 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 specialized
mobile radio ("SMR") systems. Plaintiffs seek rescissory
F-26
<PAGE>
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
filed a motion to dismiss the complaint on various grounds. In response
plaintiffs sought leave to file a second amended complaint, which request was
granted by the court. Intek requested plaintiffs to withdraw all claims against
the Intek defendants on the grounds that they are frivolous. On February 3,
1998, plaintiffs filed an amended complaint which purports to allege claims
under RICO, the Securities Act of 1933, the Securities Exchange Act of 1934 and
various common law state claims in connection with (i) the sale and marketing of
interests in certain SMR partnerships and (ii) purported improper dissipation of
assets of certain of the SMR partnerships. Plaintiffs seek rescissory damages
with interest and punitive damages relating to such asserted claims. No specific
amount of alleged damages is mentioned in the amended complaint.
The Intek Defendants moved to dismiss the amended complaint. On September
30, 1998, the Court granted in part and denied in part the Intek defendants'
motion to dismiss the complaint and dismissed plaintiffs' RICO claims with
prejudice. The Court granted plaintiffs leave to replead all claims (except
their RICO claims) that were timely under the applicable statute of limitations.
On October 23, 1998, the plaintiffs filed a third amended complaint which
purported to allege claims under Section 10(b) and 20 of the 1934 Act and Rule
10b-5 promulgated thereunder, Section 12(1) and 12(2) of the 1933 Act and
control person liability thereunder, and various common law state claims in
connection with the sale and marketing of certain SMR Partnerships and the
purported dissipation of assets of certain of these Partnerships. Plaintiffs
seek rescissory damages with interest and punitive damages in an amount to be
determined. The Intek Defendants have until December 14, 1998 to answer the
third amended complaint, or otherwise plead. In the opinion of the management of
the Company, this lawsuit will not have a material adverse affect on the
Company's consolidated financial position or results of operations.
In addition, from time to time, the Company is involved in other litigation
relating to claims arising out of its operations in the normal course of
business. In the opinion of the Company's management, after consultation with
outside counsel, the ultimate dispositions of such matters will not have a
materially adverse effect on the Company's consolidated financial position or
results of operations.
16. SEGMENT REPORTING
During fiscal 1998, the Company restructured itself to integrate its
design, manufacturing, distribution and airtime operations. The Company operates
in one industry segment as a provider of spectrum-efficient wireless
communications technology, products and services. Products include LM and non-LM
based radios, and products manufactured under contract for third parties.
Services include subscriber revenues, royalties, equipment rental, and
non-warranty repair. All prior year segment information has been restated to
reflect the current year's structure of the Company's internal organization. The
Company's geographic data from continuing operations for the three fiscal years
ended September 30, are as follows ($'s in thousands):
F-27
<PAGE>
<TABLE>
<CAPTION>
Revenues
------------------------------------------
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
GEOGRAPHIC AREAS
United States
Unaffiliated $ 13,563 $ 16,710 $ -
To foreign affiliates - 7 -
Foreign
Unaffiliated 22,091 25,574 23,899
To United States affiliates 1,649 12,442 8,984
Total sales between geographic areas (1,649) (12,449) (8,984)
---------- ----------- -----------
Consolidated Revenues $ 35,654 $ 42,284 $ 23,899
---------- ----------- -----------
---------- ----------- -----------
<CAPTION>
Long Term Assets
------------------------------------------
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
United States $ 44,270 $ 70,316 $ -
Foreign 4,636 7,820 16,816
---------- ----------- -----------
Total consolidated long term assets $ 48,906 $ 78,136 $ 16,816
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
17. SUBSEQUENT EVENTS
Subsequent events, other than those disclosed elsewhere Notes to the
Consolidated Financial Statements, are disclosed below.
In December 1998, the Company entered into an additional financing
arrangement for $25 million with Securicor. The arrangement provides that
amounts outstanding bear interest at 11.5%, payable quarterly in cash or
deferred at the Company's discretion, and is due December 31, 1999. Outstanding
debt under the arrangement is convertible at any time at Securicor's discretion
into the Company's common stock at various conversion prices. The conversion
price for the first $12.5 million will be the average closing price for the last
20 trading days prior to the date the Company's Board of Directors approved the
arrangement and the next $12.5 million will be set at the average closing price
of the Company's common stock for the last 20 trading days prior to the date of
each draw on the facility.
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE OF
INTEK GLOBAL CORPORATION
To the Board of Directors of
Intek Global Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated balance sheets of Intek Global Corporation as of September 30, 1998
and 1997, and the related consolidated statements of operations and
comprehensive income (loss), shareholders' equity (deficit) and cash flows for
the year ended September 30, 1998, and the related consolidated statements of
operations and comprehensive income (loss), shareholders' equity (deficit) and
cash flows for the year ended September 30, 1997, consisting of the statements
of operations and comprehensive income (loss), shareholders' equity (deficit)
and cash flows for Securicor Radiocoms Limited, predecessor corporation in the
continuing business of Intek Global Corporation and subsidiaries for the period
from October 1, 1996 through December 2, 1996 (Pre-Reverse Acquisition), and the
statements of operations and comprehensive income (loss), shareholders' equity
(deficit) and cash flows of Intek Global Corporation and subsidiaries for the
period from December 3, 1996 through September 30, 1997 (Post-Reverse
Acquisition), all included in this Form 10-K and have issued our report thereon
dated December 16, 1998. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule of
Intek Global Corporation listed in Item 14 (a)(2) of Part IV of this Form 10-K
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commissions rules and is not part
of the basic financial statements. This schedule, for the periods referred to
above, has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Kansas City, Missouri,
December 16, 1998
i
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE OF
INTEK GLOBAL CORPORATION
To the Board of Securicor Radiocoms Limited:
We have audited in accordance with generally accepted accounting principles used
in the United States of America, the statements of operations and comprehensive
income (loss) and cash flows of Securicor Radiocoms Limited (predecessor company
to Intek Global Corporation) for the year ended September 30, 1996, included in
this Form 10-K and have issued our report thereon dated 24 January 1997. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule of Intek Global Corporation listed in
Item 14 (a)(2) of Part IV of this Form 10-K is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic financial
statements. This schedule, for the period referred to above, has been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
London, England BAKER TILLY
24 January 1997 Chartered Accountants
ii
<PAGE>
INTEK GLOBAL CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1995 AND
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 3, 1996
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
($'s in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning of costs and Charged to end of
Period expenses other accounts Deductions period
------------ ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Fiscal 1998 $ 863 350 $ - $ 220 $ 993
Fiscal 1997 128 735 - - 863
Fiscal 1996 475 - - 347 128
Restructuring reserve
Fiscal 1998 - 1,613 - 189 1,424
Fiscal 1997 - - - - -
Fiscal 1996 - - - - -
</TABLE>
iii
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<C> <S> <C>
3.1(i) Articles of Incorporation of Intek Global Corporation (the
"Registrant"). (3)
3.1(ii) By-Laws of the Registrant. (2)
10.1 Employment Agreement dated as of September 8, 1997 between the
Registrant and Robert J. Shiver. (4)
10.2 Amendment to Employment Agreement dated as of January 12, 1998
between the Registrant and Robert J. Shiver. (1)
10.3 Employment Agreement dated as of April 21, 1997 between the
Registrant and Donald Goeltz. (4)
10.4 Employment Agreement dated as of August 27, 1998 between Intek
Global Corporation and George Valenti. (1)
10.5 Employment Agreement dated December 8, 1997 between the Registrant
and Louis Monari. (1)
10.6 Employment Agreement dated July 15, 1998 between the Registrant and
Robert Hardy. (1)
10.7 Second Amended and Restated Loan Agreement dated as of December 29,
1997, between Intek Global Corporation as Borrower and Securicor
Communications Limited as Lender. (4)
10.8 Promissory note dated December 29, 1997, in the amount of
$29,500,000 made by Intek Global Corporation to the order of
Securicor Communications Limited. (4)
10.9 Preferred Stock Purchase Agreement dated as of December 29, 1997,
between Intek Global Corporation and Securicor Communications
Limited. (4)
10.10 Loan and Security Agreement dated December 24, 1997, by and between
Summit Commercial/Gibraltar Corp., as Lender and Midland USA, Inc.,
as Borrower. (4)
10.11 Subordination Agreement dated December 24, 1997, by and among Intek
Global Corporation and Summit Commercial/Gibraltar Corp. (4)
<PAGE>
10.12 Master Distribution Agreement dated September 4, 1998 between the
Registrant and National Rural Telecommunications Cooperative
("NRTC"). (1)
10.13 Auction Participation and License Partitioning Agreement between the
Registrant, Intek License Acquisition Corp. and NRTC dated August 17,
1998. (1)
10.14 Amendment to Auction Participation and License Partitioning Agreement
dated November 6, 1998. (1)
10.15 Amendment to Master Distribution Agreement dated November 6, 1998 between
the Registrant and NRTC. (1)
10.16 Escrow Agreement dated as of September 10, 1998 between the Registrant
and NRTC. (1)
10.17 Agreement dated as of August 14, 1998 between Securicor Radiocoms
Limited and Securicor Information Systems Limited. (1)
11. Statement re computation of per share earnings. (5)
12. Statement re computation of ratios. (5)
13. Annual Report, Quarterly Report on Form 10Q. (5)
16. Letter on change in certifying accountant. (5)
18. Letter on change in accounting principles. (5)
21 Subsidiaries (1)
22. Published report regarding matters submitted to vote. (5)
23.1 Consent of Arthur Andersen LLP (1)
23.2 Consent of Baker Tilly (1)
27 Financial Data Schedule (1)
28. Information from report furnished to state insurance Regulatory Authority (5)
</TABLE>
(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.
(3) This exhibit is contained in the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 filed with the Commission on May 15,
1998 (Commission File No. 0-9160), and incorporated herein by reference.
(4) This exhibit is contained in the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1997, filed with the Commission on
January 12, 1998 (Commission File No. 0-9160), and incorporated herein by
reference.
(5) Not applicable
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment is made and entered into as of the 12th day of January, 1998
by and between INTEK DIVERSIFIED CORPORATION, a Delaware corporation (together
with its successors and assigns the "Company"), and ROBERT J. SHIVER (the
"Executive").
W I T N E S S E T H:
WHEREAS, on September 8, 1997 the Company and the Executive entered into a
certain Employment Agreement (the "Agreement") whereby the Company agreed to
employ the Executive, subject to the terms and provisions said Agreement; and
WHEREAS, the Company and the Executive desire to amend the Agreement to
more accurately define certain terms and conditions relating to the Executive's
participation in the Company's applicable long-term incentive compensation plan;
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 agree as follows:
1. Paragraph 7(b)(ii) is hereby deleted in its entirety and is amended to
read as follows:
(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, but not before January 1, 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.
2. All other terms and conditions of the Agreement shall remain in full
force and effect except as otherwise modified by this Amendment.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first written above.
INTEK Diversified Corporation
By: /s/ Steven L. Wasserman, Secretary
--------------------------------------
/s/ Robert J. Shiver
------------------------------------------
Robert J. Shiver
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 27th day of August, 1998 by and
between INTEK GLOBAL CORPORATION, a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and
GEORGE A. VALENTI (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) engagement by the Executive in any act of fraud, material
misappropriation of funds or assets, embezzlement, or
similar conduct, including without limitation, theft,
bribery or the receipt of kickbacks;
(2) 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;
(3) a material breach by the Executive of the restrictive
covenants contained in this Agreement, or for disloyal,
dishonest or illegal conduct by the Executive;
(4) a material breach of this Agreement by the Executive;
<PAGE>
(5) the Executive's material violation of any written Company
policies or procedures which are applicable to all employees
of the Company and which have been distributed or posted;
(6) 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
(7) gross negligence or willful misconduct in the performance of
his duties; or
(8) breach of any fiduciary duty owed to the Company.
(d) "Change in Control" shall be deemed to have occurred if any
person, or any two or more persons acting as a group, and all affiliates of such
person or persons, other than the current majority shareholder of the Company,
shall acquire sufficient Common Stock in one or more transactions, or series of
transactions, such that following such transaction or series of transactions,
such person or group and affiliates beneficially own fifty percent (50%) or more
of the Company's outstanding Common Stock.
(e) "Common Stock" shall mean the common stock, $.01 par value per
share, of the Company.
(f) "Competitive Activity" shall mean any activity involving any
business in which the Company has been engaged at any time during Executive's
employment, or in which the Company has begun preparations to engage during
such period, 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 l(f), 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.
(g) "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.
(h) "Effective Date" shall mean August 3, 1998.
<PAGE>
(i) "Good Reason" shall mean the occurrence, without the Executive's
prior written consent, during the 30-day period preceding the date the Executive
terminates his employment with the Company, of a material adverse change in the
Executive's Position, duties or responsibilities with respect to his employment
by the Company.
(j) "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.
(k) "Term of Employment" shall mean the period specified in Section 2
below.
(l) "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 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 1-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 23 below at least 90 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 of
the Company and shall render such services to the Company and its subsidiaries
as may be required, or as the Chief Executive Officer of the Company may from
time to time direct, commensurate with such position and title. 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 Chairman of
the Board and Chief Executive Officer of the Company.
-3-
<PAGE>
4. BASE SALARY.
The Executive shall be paid a Base Salary at the annual rate of
$180,000, 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, if any, with
respect to the most recently completed 12-month period for which data are
available.
The Executive also shall receive a $15,000 signing bonus as of the
date of execution of this Agreement, subject to regular payroll practices of the
Company.
5. ANNUAL INCENTIVE COMPENSATION PROGRAMS.
The Executive shall be eligible to participate in such Company annual
incentive compensation plan or program applicable to senior-level executives as
may be established and modified from time to time by the Board in its sole
discretion, if any. Any such plan shall provide that the Executive shall have
an annual target award under such plan or program equal to a maximum of forty
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. Notwithstanding the
previous sentence, advance payments in an amount not to exceed (in the
aggregate) fifty percent of the maximum bonus which the Executive can earn
hereunder with respect to a fiscal year shall be paid to the Executive on a
quarterly basis during such 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 its 1997 Performance and Equity Incentive Plan,
or such other stock option plan as the Company may establish, an option to
purchase 250,000 shares of Common Stock (the "Option"). The exercise price of
the Option shall be determined by the Compensation Committee of the Board of
Directors of the Company. 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 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 6(b) and the Option's expiration and/or accelerated
exercisability in accordance with Section 11 below.
-4-
<PAGE>
<TABLE>
<CAPTION>
Anniversary Percentage of Option which is
of the Exercisable and Remains
Effective Date Exercisable Until Option Expires
-------------- --------------------------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
In the event of a Change of Control, 100% of the unexercisable portion of the
Option shall become immediately exercisable, and shall remain exercisable until
the Option's expiration in accordance with this Section 6(b) and Section 11
below.
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. These shall include
participation in the Company's standard medical and dental insurance programs,
at no cost to the Executive, and participation in an executive medical and
dental benefit program providing reimbursement of certain expenses not covered
by the standard programs.
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit equal to $500,000, and
with long-term disability insurance, and the Company shall pay all premiums with
respect to such 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.
-5-
<PAGE>
(b) Notwithstanding anything herein to the contrary, the Executive
shall receive a minimum monthly car allowance of $600, and the Company shall pay
the Executive such monthly car allowance in accordance with Company policy as
may be in effect from time to time.
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 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.
-6-
<PAGE>
(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
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:
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(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;
(3) the unexercisable and the unexercised portions of the Option
shall be immediately forfeited by the Executive as of such
date of termination; and
(4) 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) 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 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;
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<PAGE>
(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, if any, shall immediately become exercisable
(the "Accelerated Portion") as of such termination date, and
the remaining portion of such unexercisable portion of the
Option shall immediately be forfeited by the Executive as of
such date, 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.
(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. In the event that the
Company 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(d) above.
(h) 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
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be entitled to the same payments and benefits as provided in Section 11(c)
above.
(i) TERMINATION FOLLOWING CHANGE OF CONTROL. In the event that the
Executive terminates his employment within ninety (90) days following a Change
of Control, Executive shall be entitled to the same payments and benefits as
provided in Section 11(d) above; provided, however, that, in the circumstances
described in this Section 11(h), the Severance Period shall be the 12-month
period following the date of termination.
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
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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.
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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.
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 Delaware 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
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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 Global Corporation
214 Carnegie Center, Suite 304
Princeton, New Jersey 08540-6237
Attention: Chief Executive Officer
and a copy to: Kohrman Jackson & Krantz P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Attention: Steven L. Wasserman, Esq.
If to the Executive: George A. Valenti
5808 West 147th Place
Overland Park, KS 66223
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 two or more counterparts, each of
which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
INTEK GLOBAL CORPORATION
By: /s/ Robert J. Shiver
----------------------------
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<PAGE>
Robert J. Shiver
Chairman of the Board and Chief
Executive Officer
/s/ George A. Valenti
---------------------------
GEORGE A. VALENTI
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EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 27th day of April, 1998 by and
between INTEK GLOBAL CORPORATION, a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and LOUIS
J. MONARI (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) engagement by the Executive in any act of fraud, material
misappropriation of funds or assets, embezzlement, or
similar conduct, including without limitation, theft,
bribery or the receipt of kickbacks;
(2) 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;
(3) a material breach by the Executive of the restrictive
covenants contained in this Agreement, or for disloyal,
dishonest or illegal conduct by the Executive;
<PAGE>
(4) a material breach of this Agreement by the Executive;
(5) the Executive's violation of any written Company policies or
procedures which are applicable to all employees of the
Company and which have been distributed or posted;
(6) 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
(7) gross negligence or willful misconduct in the performance of
his duties; or
(8) breach of any fiduciary duty owed to the Company.
(d) "Change in Control" shall be deemed to have occurred if any
person, or any two or more persons acting as a group, and all affiliates of such
person or persons, other than the current majority shareholder of the Company,
shall acquire sufficient Common Stock in one or more transactions, or series of
transactions, such that following such transaction or series of transactions,
such person or group and affiliates beneficially own fifty percent (50%) or more
the Company's outstanding Common Stock.
(e) "Common Stock" shall mean the common stock, $.01 par value per
share, of the Company.
(f) "Competitive Activity" shall mean any activity involving wireless
communications products and/or services, including but not limited to 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 l(f), 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.
(g) "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
<PAGE>
22(e)(3) of the Internal Revenue Code of 1986, as amended.
(h) "Effective Date" shall mean December 8, 1997.
(i) "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 to a
place more than 60 miles from New York City.
(j) "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.
(k) "Term of Employment" shall mean the period specified in Section 2
below.
(l) "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 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 1-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 23 below at least 90 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 Vice President-Administration
of the Company and shall
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render such services to the Company and its subsidiaries as may be required,
or as the Chief Executive Officer of the Company may from time to time
direct, commensurate with such position and title. 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.
4. BASE SALARY.
The Executive shall be paid a Base Salary at the annual rate of
$145,000, 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, if any, with
respect to the most recently completed 12-month period for which data are
available.
5. ANNUAL INCENTIVE COMPENSATION PROGRAMS.
The Executive shall be eligible to participate in such Company annual
incentive compensation plan or program applicable to senior-level executives as
may be established and modified from time to time by the Board in its sole
discretion, if any. Any such plan shall provide that the Executive shall have
an annual target award under such plan or program equal to a maximum of 30
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 275,000 shares of Common Stock (the "Option"). The exercise price of
the Option shall be equal to $2.50 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.
Twenty percent of the Option shall become exercisable on, and shall remain
exercisable on and after, the Option's date of
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grant, and an additional percentage of the Option shall become exercisable
on, and shall remain exercisable on and after, each of the first 4
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.
<TABLE>
Anniversary Percentage of Option which is
of the Exercisable and Remains
Effective Date Exercisable Until Option Expires
-----------------------------------------------------------
<S> <C>
0 (date of this Agreement) 20%
1st 40%
2nd 60%
3rd 80%
4th 100%
</TABLE>
In the event of a Change of Control, 100% of the unexercisable portion of the
Option shall become immediately exercisable, and shall remain exercisable until
the Option's expiration in accordance with this Section 6(b) and Section 11
below.
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 $250,000. 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.
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(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 $600, and the Company shall pay
the Executive such monthly car allowance in accordance with Company policy as
may be in effect from time to time.
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 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
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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.
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(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;
(3) the unexercisable and the unexercised portions of the Option
shall be immediately forfeited by the Executive as of such
date of termination; and
(4) 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 9-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) 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
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<PAGE>
occurs are met;
(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, if any, shall immediately become
exercisable (the "Accelerated Portion") as of such
termination date, and the remaining portion of such
unexercisable portion of the Option shall immediately
be forfeited by the Executive as of such date, 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.
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<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. In the event that the
Company 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(d) above.
(h) 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 11(c) above.
(i) TERMINATION FOLLOWING CHANGE OF CONTROL. In the event that the
Executive terminates his employment within ninety (90) days following a Change
of Control, Executive shall be entitled to the same payments and benefits as
provided in Section 11(d) above; provided, however, that, in the circumstances
described in this Section 11(h), the Severance Period shall be the 12-month
period following the date of termination.
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
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<PAGE>
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, 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
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<PAGE>
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.
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<PAGE>
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.
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 Delaware 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
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<PAGE>
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 Global Corporation
214 Carnegie Center, Suite 304
Princeton, New Jersey 08540-6237
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: Kohrman Jackson & Krantz P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Attention: Steven L. Wasserman, Esq.
If to the Executive: Louis J. Monari
44 Harter Road
Morristown, New Jersey 07960
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<PAGE>
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 two or more counterparts, each of
which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
INTEK GLOBAL CORPORATION
By: /s/ Robert J. Shiver
---------------------------------
Robert J. Shiver
Chairman of the Board
/s/ Louis J. Monari
---------------------------------
LOUIS J. MONARI
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 15th day of July, 1998 by and
between INTEK GLOBAL CORPORATION, a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and
ROBERT M. HARDY (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) engagement by the Executive in any act of fraud, material
misappropriation of funds or assets, embezzlement, or
similar conduct, including without limitation, theft,
bribery or the receipt of kickbacks;
(2) 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;
(3) a material breach by the Executive of the restrictive
covenants contained in this Agreement, or for disloyal,
dishonest or illegal conduct by the Executive;
(4) a material breach of this Agreement by the Executive;
<PAGE>
(5) the Executive's material violation of any written Company
policies or procedures which are applicable to all employees
of the Company and which have been distributed or posted;
(6) 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
(7) gross negligence or willful misconduct in the performance of
his duties; or
(8) breach of any fiduciary duty owed to the Company.
(d) "Change in Control" shall be deemed to have occurred if any
person, or any two or more persons acting as a group, and all affiliates of such
person or persons, other than the current majority shareholder of the Company,
shall acquire sufficient Common Stock in one or more transactions, or series of
transactions, such that following such transaction or series of transactions,
such person or group and affiliates beneficially own fifty percent (50%) or more
of the Company's outstanding Common Stock.
(e) "Common Stock" shall mean the common stock, $.01 par value per
share, of the Company.
(f) "Competitive Activity" shall mean any activity involving any
business in which the Company has been engaged at any time during Executive's
employment, or in which the Company has begun preparations to engage during such
period, 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 l(f), 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.
(g) "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.
(h) "Effective Date" shall mean July 15, 1998.
<PAGE>
(i) "Good Reason" shall mean the occurrence, without the Executive's
prior written consent, during the 30-day period preceding the date the Executive
terminates his employment with the Company, of a material adverse change in the
Executive's Position, duties or responsibilities with respect to his employment
by the Company.
(j) "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.
(k) "Term of Employment" shall mean the period specified in Section 2
below.
(l) "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 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 1-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 23 below at least 90 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 President of Intek Global USA
and shall render such services to the Company and its subsidiaries as may be
required, or as the Chief Executive Officer of the Company may from time to time
direct, commensurate with such position and title. 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 Chairman of the Board and Chief
Executive Officer of the Company.
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<PAGE>
4. BASE SALARY.
The Executive shall be paid a Base Salary at the annual rate of
$225,000, 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, if any, with
respect to the most recently completed 12-month period for which data are
available.
5. ANNUAL INCENTIVE COMPENSATION PROGRAMS.
The Executive shall be eligible to participate in such Company annual
incentive compensation plan or program applicable to senior-level executives as
may be established and modified from time to time by the Board in its sole
discretion, if any. Any such plan shall provide that the Executive shall have
an annual target award under such plan or program equal to a maximum of forty
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. Notwithstanding the
previous sentence, advance payments in an amount not to exceed (in the
aggregate) fifty percent of the maximum bonus which the Executive can earn
hereunder with respect to a fiscal year shall be paid to the Executive on a
quarterly basis during such 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 its 1997 Performance and Equity Incentive Plan,
or such other stock option plan as the Company may establish, an option to
purchase 250,000 shares of Common Stock (the "Option"). The exercise price of
the Option shall be determined by the Compensation Committee of the Board of
Directors of the Company. 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 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 6(b) and the Option's expiration and/or accelerated
exercisability in accordance with Section 11 below.
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<TABLE>
Anniversary Percentage of Option which is
of the Exercisable and Remains
Effective Date Exercisable Until Option Expires
-----------------------------------------------------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
In the event of a Change of Control, 100% of the unexercisable portion of the
Option shall become immediately exercisable, and shall remain exercisable until
the Option's expiration in accordance with this Section 6(b) and Section 11
below.
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. These shall include
participation in the Company's standard medical and dental insurance programs,
at no cost to the Executive, and participation in an executive medical and
dental benefit program providing reimbursement of certain expenses not covered
by the standard programs.
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit equal to $500,000, and
with long-term disability insurance, and the Company shall pay all premiums with
respect to such 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.
(c) The Company shall pay the Executive a one-time relocation expense
payment in the amount of $18,000. The Executive agrees that he will be
obligated to repay the entire amount thereof to the Company if he voluntarily
terminates his employment without Good Reason prior to the anniversary of the
Effective Date in the year 2000, and that, in such event, the Company may deduct
that amount from any monies due to the Executive from the Company, or collect
that amount from the Executive in any manner authorized by law.
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.
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<PAGE>
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 $600, and the Company shall pay
the Executive such monthly car allowance in accordance with Company policy as
may be in effect from time to time.
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 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;
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<PAGE>
(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.
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(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;
(3) the unexercisable and the unexercised portions of the Option
shall be immediately forfeited by the Executive as of such
date of termination; and
(4) 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) 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 exercisable portion of the Option held by the Executive
as of the
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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, if any, shall immediately become exercisable
(the "Accelerated Portion") as of such termination date, and
the remaining portion of such unexercisable portion of the
Option shall immediately be forfeited by the Executive as of
such date, 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.
(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.
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<PAGE>
(g) NONRENEWAL OF AGREEMENT BY THE COMPANY. In the event that the
Company 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(d) above.
(h) 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 11(c) above.
(i) TERMINATION FOLLOWING CHANGE OF CONTROL. In the event that the
Executive terminates his employment within ninety (90) days following a Change
of Control, Executive shall be entitled to the same payments and benefits as
provided in Section 11(d) above; provided, however, that, in the circumstances
described in this Section 11(h), the Severance Period shall be the 12-month
period following the date of termination.
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.
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(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, 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.
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<PAGE>
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.
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 Delaware 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
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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 Global Corporation
214 Carnegie Center, Suite 304
Princeton, New Jersey 08540-6237
Attention: Chief Executive Officer
and a copy to: Kohrman Jackson & Krantz P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Attention: Steven L. Wasserman, Esq.
If to the Executive: Robert M. Hardy
1690 N. Topping Avenue
Kansas City, MO 64120
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 two or more counterparts, each of
which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date
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first written above.
INTEK GLOBAL CORPORATION
By: /s/ Robert J. Shiver
----------------------------------
Robert J. Shiver
Chairman of the Board and Chief
Executive Officer
/s/ Robert M. Hardy
----------------------------------
ROBERT M. HARDY
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<PAGE>
MASTER DISTRIBUTION AGREEMENT
BY AND BETWEEN
INTEK GLOBAL CORPORATION
AND
NRTC LLC
<PAGE>
MASTER DISTRIBUTION AGREEMENT
This Master Distribution Agreement ("Agreement") is made and
entered into effective as of September 4, 1998, by and between Intek Global
Corporation, a Delaware corporation ("Intek"), and NRTC LLC, a
limited-liability company organized under the laws of the Commonwealth of
Virginia ("NRTC").
RECITALS:
A. National Rural Telecommunications Cooperative, a non-profit
cooperative association organized under the laws of the District of Columbia
("NRTC Corporate") has acquired licenses granted by the Federal
Communications Commission ("FCC") in the 220 - 222 megahertz ("220 MHZ") band
spectrum for the purpose of providing the member companies of NRTC Corporate
and/or of NRTC (the "Members") the opportunity to develop and construct a
nationwide wireless communications system. NRTC Corporate intends to
transfer the 220 MHZ licenses it now owns and any such 220 MHZ licenses it
subsequently acquires to NRTC.
B. Intek, through its wholly-owned subsidiary RoameR One, Inc., and
any successor(s) ("RoameR"), is in the business of developing, constructing,
owning and managing two-way 220 MHZ specialized mobile radio ("SMR") services
in the United States through the ownership or management of licenses granted
by the FCC for the 220 MHZ band ("FCC Licenses") and, through its
wholly-owned subsidiary, Midland USA, Inc., ("Midland") is in the business of
sales and distribution of specialized mobile radio equipment ("SMR Products")
utilizing "Linear Modulation Technology" ("LM Technology"). (Intek, RoameR
and Midland and their businesses and products are sometimes referred to
herein as "Company").
C. NRTC desires Company to provide the equipment and its expertise to
Members for the construction and operation of each Member's 220 MHZ SMR
Systems and Company desires to participate in NRTC's undertaking and to
provide its equipment and expertise to NRTC and the Members.
1. APPOINTMENT AS DISTRIBUTOR
1.1 APPOINTMENT. Company hereby appoints NRTC and Members who
have acquired rights to use the FCC Licenses from NRTC each as a distributor
of "Contract Products" (as defined below) solely for use by NRTC and such
Members to their customers and/or subscribers in the "Exclusive Territory"
(as defined below). In addition, Company hereby appoints NRTC, NRTC
Corporate, Members and non-Member associates of NRTC Corporate as
distributors of Contract Products on a non-exclusive basis in areas outside
of the Exclusive Territory in the United States. Company and NRTC have
agreed to negotiate in good faith and
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enter into a definitive supply agreement with respect to the Contract
Products and other services (as appropriate). The Company agrees to provide
NRTC inventory price protection for a ninety day period for purchased
products and free freight for specified thresholds for inventory products.
1.2 "CONTRACT PRODUCTS."
(a) The term "Contract Products" shall mean, collectively,
the 220 MHZ SMR system equipment and radio products sold or distributed by
Company as those products are more particularly described on SCHEDULE 1.2
attached hereto, as the same may be amended from time to time, by Company
upon written notice to NRTC.
(b) Company reserves the right to make changes or
modifications in the manufacture, design and specifications of Contract
Products in such manner and at such times as Company shall, in its sole
discretion, deem to be necessary or advisable, and any changes so made shall
be accepted by NRTC. If any such changes or modifications in Contract
Products are made, Company shall have no obligation to exchange, replace,
change or modify any Contract Products previously sold by Company to NRTC or
Members. Company may, at any time, in its sole discretion, amend SCHEDULE
1.2 to expand, limit, decrease or eliminate products to be included in
Contract Products by so notifying NRTC in writing. Company will use all
reasonable efforts to follow any changes or modifications to the Contract
Products requested by NRTC; provided Company receives such request in writing
from NRTC and in sufficient detail of NRTC's specifications and requirements
to enable Company to analyze the viability of such changes or modifications
and, further provided, NRTC agrees to purchase all such modified Contract
Products and to pay Company's costs and expenses for the design and
production of such modified Contract Products at the prices determined by
Company and agreed to by NRTC.
1.3 "EXCLUSIVE TERRITORY." The term "Exclusive Territory" shall
mean the geographic areas described on SCHEDULE 1.3 attached hereto, as the
same may be amended from time to time by Company and NRTC.
1.4 EXCLUSIVITY.
(a) NRTC EXCLUSIVE TERRITORY. During the term of this
Agreement, NRTC shall have the right to promote, sell, market and distribute
products and services under the RoameR brand name, including but not limited
to the Contract Products using the Marks (as defined below), or to grant to
any Member, the right to promote, sell, market and distribute the Contract
Products using the Marks (as defined below) in the geographic areas described
in SCHEDULE 1.3 (the "Exclusive Territory"). NRTC may submit proposed
changes or modifications to the Exclusive Territory and Company agrees to
consider such proposals in good faith. Neither NRTC (or any affiliate of
NRTC) nor any person who acquires rights to use an FCC License held by NRTC
(or any affiliate of such person) may promote, sell, market or distribute any
products which compete directly in the 220 MHZ market and which compete
directly with the Contract
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Products in the Exclusive Territory; provided, however, that the foregoing
restriction shall have no application to any person or entity who promoted,
sold, marketed or distributed any products which competed directly with the
Contract Products prior to the time such person or entity acquired the rights
to use an FCC License from NRTC, nor to NRTC or any such person with respect
to the promotion, sale, marketing, or distribution of any products or
equipment which do not compete with the Contract Products (for example,
including, but not limited to, automatic meter reading equipment.) Except as
provided with respect to an "Overlapping Company System" (described in
subparagraph (d) below) and with respect to the existing RoameR dealers
currently subject to a distribution or reseller agreement with Company (as
listed on SCHEDULE 1.4 (a)) attached hereto), Company shall not promote,
sell, market or distribute any Contract Products (or competing products) in
the Exclusive Territory to any new RoameR dealers, except NRTC and Members.
Notwithstanding anything to the contrary, Company shall have the right to
sell Contract Products to any person other than a RoameR dealer. Without
NRTC's consent, the Company agrees not to sell any Contract Products,
directly or indirectly, to any Members.
(b) TERMINATION OF EXCLUSIVITY. Notwithstanding the
foregoing, the exclusivity of NRTC, and those persons or entities who have
acquired the rights to use FCC Licenses from NRTC, may be eliminated with
respect to any portion of the Exclusive Territory to the extent NRTC fails to
meet the minimum build out requirements established by the FCC to preserve
ownership of the FCC Licenses and minimum sales requirements to be agreed by
the parties hereto and set forth in SCHEDULE 1.4(b) to be attached hereto.
(c) NON-EXCLUSIVE TERRITORY. During the term of this
Agreement, Company shall have the right to manufacture, promote, sell, market
or distribute, or to grant to any other person the right to manufacture,
promote, sell, market or distribute, Contract Products in all geographic
areas outside the Exclusive Territory and within the Exclusive Territory as
permitted by Section 1.4(a) hereof.
(d) OVERLAPPING COMPANY SYSTEM. If, as of the Effective Date
of this Agreement, Company is providing or able to provide, wireless
communications services to airtime subscribers who are located (in whole or
in part) in the Exclusive Territory utilizing FCC Licenses either owned or
managed by Company (the "Overlapping Company System"), Company may continue
to promote, sell and service any FCC Licenses and equipment constituting a
part of such existing Systems in the Exclusive Territory. For the period
commencing on the Effective Date of this Agreement and ending on the one year
anniversary of the close of the 220 MHZ Auction, NRTC, or the persons or
entities who acquired rights to use FCC Licenses from NRTC in the geographic
area which includes all or part of the Overlapping Company System, shall have
the right to purchase the Overlapping Company System from Company in an
amount equal to the capitalized investment of Company in such System plus an
amount equal to forty-four (44) times the monthly gross revenue of air
subscription rights from such System.
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<PAGE>
1.5 COMMITMENT AND DUTIES OF NRTC.
(a) NRTC COMMITMENT. NRTC shall actively promote and market
the Contract Products to all Members utilizing the FCC Licenses and further
intends and makes a non-binding obligation to Company, without recourse or
penalty for its failure to comply, to purchase Fifty Million Dollars
($50,000,000) of Contract Products during the first five year term of this
Agreement.
(b) NRTC DUTIES. The protection of the Marks (as defined
below) and the success of NRTC in promoting the Contract Products depend upon
maintaining a high standard of service and during the term of this Agreement.
NRTC shall, at its sole expense and in the amount it determines, take the
following actions:
(i) inform Members as to the attributes and
characteristics of the Contract Products and the sales, promotional,
marketing and merchandising programs of Company;
(ii) cooperate with Company in its sales, promotional,
marketing, merchandizing and advertising programs for the Contract Products
in the Exclusive Territory;
(iii) use commercially reasonable efforts to
successfully promote, sell, market and distribute Contract Products to
Members throughout the Exclusive Territory;
(iv) act in strict compliance with all applicable laws,
ordinances, regulations and other requirements of any and all federal, state,
county, municipal or other governmental authorities, and obtain all permits,
licenses or other consents necessary for the performance of its duties under
this Agreement; and
(v) permit authorized representative(s) of Company to
call on or to contact Members through NRTC, and to assist such representative
in establishing such contact where and as appropriate, as determined by NRTC.
2. TRADEMARKS
2.1 "MARKS." The term "Marks" shall mean all trademarks,
tradenames, trade dress, service marks, logos, logotypes, designs, artwork,
copyrights, signs, emblems, insignia, symbols, slogans or other marks set
forth on SCHEDULE 2.1 hereto, as the same may be amended from time to time by
Company upon written notice to NRTC, or any derivative or variation thereof
that might create the impression to the reasonable consumer that the products
or services thus marked are manufactured or distributed by, or otherwise
associated with, a single business organization.
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<PAGE>
2.2 OWNERSHIP AND LICENSE OF MARKS.
(a) Nothing in this Agreement shall be deemed to confer upon
NRTC any right, title or interest in or to any of the Marks, all of which
shall be and remain the exclusive and valuable property of Company,
including, but not limited to, the right to use any of the Marks as part of
the name of any business owned, in whole or in part, by NRTC or any Member.
(b) During the term of this Agreement, NRTC and authorized
Members shall have the non-exclusive right to use the Marks in the Exclusive
Territory solely in connection with the distribution of Contract Products.
Company and NRTC may subsequently agree to a license fee for the use of the
Marks. Immediately upon the termination of the rights granted to NRTC by
Company under Section 1.1, NRTC, all Members (and all other persons acquiring
rights to use the Marks from NRTC or a Member (or any affiliate of either of
the foregoing) shall cease using the Marks in any manner.
(c) The Contract Products shall be distributed only under the
Marks.
3. SALE OF CONTRACT PRODUCTS
3.1 SALE OF CONTRACT PRODUCTS.
(a) Company shall sell and deliver to NRTC (or to a Member
with NRTC's consent) such Contract Products as NRTC (or such Member) shall
request.
(b) Each order for Contract Products shall be made using
Company's standard form of purchase order, as the same may be amended by
Company from time to time, and all such purchases shall be billed to NRTC or
as otherwise agreed to by Company and NRTC.
3.2 PURCHASE PRICE.
(a) The purchase price for Contract Products ordered or
authorized by NRTC shall be as set forth on SCHEDULE 3.2. Company shall have
the right to change the purchase price of any of the Contract Products upon
sixty (60) days written notice to NRTC. The purchase price of Contract
Products to be purchased by NRTC shall be the lowest rate quoted or charged
by Midland to any dealer, customer or affiliate located in the United States
for such item within the preceding 60 day period (including but not limited
to any incentives, offsets, credits and/or other form of remuneration, in
each case, applied on a consistent basis). On each one-year anniversary of
the Effective Date of this Agreement, if NRTC has purchased at least $10
million of Contract Products during such one-year period, NRTC shall be given
a credit for future purchases of Contract Products equal to one-half of one
percent (0.5%) of the aggregate price paid for Contract Products purchased
during such one-year period. Such credit will be applied to subsequent
purchases.
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<PAGE>
(b) The purchase price for each order of Contract Products
shall be paid within thirty (30) days after the date of the bill of lading.
For any order (or aggregate of orders) of Contract Products of One Million
Dollars ($1,000,000) or more, Company may require NRTC to make payment of ten
percent (10%) of such order as a deposit toward the Purchase Price.
(c) In the event that full payment for any Contract Product
has not been made on or before the thirtieth (30th) day after the date of the
bill of lading, the payment due therefor shall be increased by one percent
(1%) above the initial purchase price, and in the event that such payment has
not been made on or before the thirtieth (30th) day after the date of the
bill of lading, the payment due therefor shall increase to two percent (2%)
above the initial purchase price.
(d) Company agrees to pay NRTC a commission equal to six (6%)
percent of the purchase price paid to Company for each order of Contract
Products made by (or with the authorization of) NRTC under this Agreement.
Such commission shall be paid by Company to NRTC within thirty (30) days of
receipt of final payment by Company with respect to such order.
3.3 LIMITATIONS ON WARRANTIES. COMPANY MAKES NO REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE CONTRACT PRODUCTS OR THE
MARKS, INCLUDING, BUT NOT LIMITED TO, (i) THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR (ii) ANY
REPRESENTATION OR WARRANTY WITH RESPECT TO THE VALIDITY OR SCOPE OF THE
MARKS, OR (iii) ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE OWNERSHIP
OF THE CONTRACT PRODUCTS OR THE MARKS OR THE INFRINGEMENT BY THE SAME OF ANY
PATENT, TRADEMARK, COPYRIGHT OR OTHER PROPRIETARY RIGHT OF ANY THIRD PARTY,
OR (iv) ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE ABSENCE OF ANY
DEFECT IN THE CONTRACT PRODUCTS. NRTC REPRESENTS TO COMPANY THAT IT HAS
REVIEWED THE CONTRACT PRODUCTS AND THE MARKS TO VERIFY THE SUITABILITY OF THE
CONTRACT PRODUCTS FOR NRTC'S INTENDED PURPOSE. COMPANY AGREES TO INDEMNIFY
AND HOLD NRTC HARMLESS AGAINST THE COST TO DEFEND AND ANY LIABILITY RESULTING
FROM CLAIMS BY ANY THIRD PARTY (OTHER THAN NRTC OR ANY MEMBER OR ANY
AFFILIATE OF NRTC OR ANY MEMBER) WITH RESPECT TO THE USE OF THE MARKS AS
PERMITTED IN THIS AGREEMENT; PROVIDED NRTC GIVES COMPANY PROMPT WRITTEN
NOTICE OF ANY SUCH CLAIM AND PROVIDES COMPANY SUCH REASONABLE COOPERATION AND
ASSISTANCE AS COMPANY MAY REQUEST FROM TIME TO TIME IN THE DEFENSE THEREOF.
3.4 LIMITATIONS ON REMEDIES. IN NO EVENT SHALL EITHER PARTY TO
THIS AGREEMENT BE LIABLE TO THE OTHER PARTY FOR ANY DAMAGES,
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INCLUDING, BUT NOT LIMITED TO, ANY LOST PROFITS, LOST SAVINGS OR OTHER
INCIDENTAL OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH
NRTC'S DISTRIBUTION OF THE CONTRACT PRODUCTS OR NRTC'S USE OF THE MARKS IN
CONNECTION WITH THE DISTRIBUTION OF THE CONTRACT PRODUCTS, EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
3.5 DEFECTIVE MERCHANDISE. NRTC shall notify Company as soon as
reasonably practicable of any defective Contract Products sold and delivered
by Company to NRTC. NRTC shall allow Company the opportunity to inspect any
defective Contract Products at NRTC's premises, and, if requested by Company,
shall return any defective Contract Products to Company at Company's expense.
In the event that Company determines in its sole discretion that the defects
in any such defective Contract Products were not caused by NRTC or others
after the shipment of the same by Company to NRTC, Company shall, at its
option, either provide NRTC with a refund or credit for the purchase price
paid by NRTC to Company for or exchange such defective Contract Products.
3.6 ADHERENCE TO LAWS. NRTC acknowledges that it is Company's
policy to comply with all federal, state and local laws, rules and
regulations applicable to the transactions contemplated hereby and the
performance of the obligations of the parties hereunder. NRTC further
acknowledges that it is a violation of this policy for an agent or sales
representative of Company to attempt to dictate a resale price or to force
adherence to suggested participation in sales promotions or to suggested
resale prices. NRTC further acknowledges that no employee or representative
of Company has the power or authority to act contrary to this policy, and
that any action contrary to this policy by any employee or representative of
Company shall not bind Company or NRTC. NRTC shall immediately notify
Company in writing of any act or attempted act that NRTC has reason to
believe is a violation of this policy.
4. TERM AND TERMINATION
4.1 TERM.
Unless otherwise terminated in accordance with Section 4.2, the
initial term of this Agreement shall commence on the Effective Date hereof
and shall terminate on the fifth anniversary of such date and shall be
renewed automatically thereafter for subsequent one (1) year terms unless
written notice of termination is given by either party to the other not less
than thirty (30) days before the end of the initial term or any subsequent
one (1) year renewal term.
4.2 TERMINATION. The rights granted by Company to NRTC under the
Agreement shall terminate prior to the expiration of the stated term upon the
happening of any of the following events:
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(a) at the option of either party, except as provided in
subsection (c) below with respect to Purchase Price payments, if the other
party shall fail to perform in any material respect any material term,
condition or obligation to be performed by it under this Agreement and such
failure is not cured within ninety (90) days after written notice of such
failure is given by the terminating party to the defaulting party; or
(b) at the option of either party, if any material
representation, warranty, certificate or statement made by the other party in
this Agreement or in any certificate or other document delivered by the other
party pursuant hereto shall have been incorrect in any material respect when
made; or
(c) at the option of Company, if NRTC shall fail to pay
when due any amounts under Section 3.2, which failure is not cured within ten
(10) days of written demand therefor; or
(d) immediately and without any notice or other act by
either party, if the other party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for it or any substantial
part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action to authorize any
of the foregoing; or
(e) immediately and without any notice or other act by
either party, if an involuntary case or other proceeding shall be commenced
against the other party seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, and such involuntary case remains
unstayed and in effect for more than sixty (60) days; or
(f) at the option of either party and in their sole
determination, within six (6) months after the close of the 220 MHZ Auction,
if the Company and NRTC do not acquire the FCC Licenses as contemplated by
the parties and as reflected in the Auction Participation and License
Partitioning Agreement; or
(g) at the option of NRTC, for any reason, within six (6)
months after the close of the 220 MHZ Auction, and returning all unexercised
stock options to the Company.
4.3 DUTIES UPON TERMINATION. Upon the termination of this
Agreement for any reason, neither Company nor NRTC shall have any remaining
rights, duties or obligations
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hereunder, except that (i) NRTC shall immediately cease to distribute
Contract Products, (ii) NRTC shall cease to use the Marks, (iii) NRTC
promptly shall pay to Company all amounts then due hereunder, (iv) Company
shall have the right, but not the obligation, to purchase from NRTC the
Contract Products held by NRTC or on behalf of NRTC by any person at NRTC's
actual cost, by delivery to NRTC of a written notice of intent to purchase
the same within fifteen (15) days after such termination, (v) Company and
NRTC shall continue to be bound by Section 7 hereof and (vi) Company and NRTC
shall use commercially reasonable efforts to effect the orderly termination
of the distributorship contemplated by this Agreement.
In the event Company ceases to manufacture or sell any of the
Contract Products, NRTC shall have the right to procure such products from
other manufacturers or sellers thereof (the "Terminated Products") and to
sell and distribute such Terminated Products, but without the use of the
Marks with respect thereto; provided such Terminated Products do not compete
with the available Contract Products. If Company owns the design
specifications, patents or other intellectual property rights with respect to
the manufacture of the Terminated Products, Company shall provide them to
NRTC without charge and; further, provided that, if the Company is involved
in a liquidation, reorganization or other bankruptcy proceeding, the Company
shall cooperate as reasonably necessary with NRTC to provide NRTC with any
such design specifications, patents or other intellectual property with
respect to the manufacture of any Terminated Products.
5. INTEK STOCK OPTION
5.1 STOCK OPTION AGREEMENT. Intek will enter into an agreement
with NRTC, subject to all the terms and conditions of this Agreement,
granting NRTC options to purchase up to One Million Two Hundred Fifty
Thousand (1,250,000) shares of Intek common stock upon the following terms
and conditions substantially in the form of EXHIBIT 5.1 attached hereto.
5.2 INCREMENTAL SHARE OPTION. This option to purchase Intek
common stock is granted as follows: (1) upon the execution of this
Agreement, an option to purchase Two Hundred Thousand (200,000) shares of
Intek common stock; (2) on an incremental basis to vest in NRTC an option to
purchase blocks of 100,000 shares (without proration) of Intek common stock
(but not in excess of 800,000 in the aggregate) for each Five Million Dollars
($5,000,000) of Contract Products that are purchased and paid for under this
Agreement; and (3) an additional option to purchase Two Hundred Fifty
Thousand (250,000) shares of Intek common stock if (a) NRTC places an order
for Five Million Dollars ($5,000,000) or more of Contract Products not later
than October 9, 1998, (b) NRTC purchases and pays Company for Five Million
Dollars ($5,000,000) or more of Contract Products not later than the one year
anniversary of the close of the 220 MHZ Auction and (c) NRTC purchases from
and pays Company for Fifty Million Dollars ($50,000,000) or more of Contract
Products prior to September 4, 2003 or the earlier termination of this
Agreement.
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5.3 OPTION TERM. NRTC shall have the right to exercise the option
rights granted herein, in whole or in part, at any time during the term of
this Agreement and such right to exercise any portion of this option shall
expire on the termination of this Agreement. Notwithstanding the foregoing,
if this Agreement is terminated on or prior to September 4, 2003, NRTC shall
have the right to exercise the portion of the option which is vested in NRTC
at such date, if any, until the earlier of one year from such early
termination date of this Agreement or September 4, 2004.
5.4 EXERCISE PRICE. The exercise price for each share of Intek
common stock to be purchased under this option shall be (a) the lower of
Three Dollars ($3.00) or the average closing price for Intek common stock for
the twenty (20) trading days immediately preceding the date of exercise per
share with respect to share options vested in NRTC within the first two years
of the Effective Date of this Agreement, and thereafter (b) the average
closing price for Intek common stock for the twenty (20) trading days
immediately preceding the date of exercise with respect to any share option
vested in NRTC after the first two years of the Effective Date of this
Agreement.
6. REPRESENTATIONS AND WARRANTIES
6.1 Company and NRTC each hereby represent and warrant to the
other that the statements set forth in such sections (a) through (c) hereof
with respect to such party are true and correct.
(a) ORGANIZATION AND STANDING. Such party is a corporation
or a limited-liability company duly organized, validly existing and in good
standing under the laws of the state of its incorporation or formation, with
full power and authority (corporate and other) to own its property and to
carry on its business as now conducted.
(b) AUTHORITY AND ENFORCEABILITY. Such party has the right,
power and authority required for the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby; all
authorizations and approvals (corporate and other) have been secured by such
party which are necessary to authorize the execution, delivery and
performance of this Agreement; and this Agreement constitutes a legal, valid
and binding agreement of such party and is enforceable against it in
accordance with its terms.
(c) COMPLIANCE WITH THE LAW AND OTHER INSTRUMENTS. The
execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby, will not result in the breach of any term
or provision of, or constitute a default under, the Articles of Incorporation
or Bylaws of such party, as amended to the date hereof, or any statute,
order, judgment, writ, injunction, decree, license, permit, rule or
regulation of any governmental or regulatory body, or any indenture,
mortgage, deed of trust or other agreement or instrument to which such party
is a party or by which it is bound.
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6.2 NRTC represents and warrants to Company that NRTC Corporate
will use its reasonable and best efforts to transfer the 220 MHZ licenses
NRTC Corporate now owns to NRTC within ninety (90) days of the Effective Date
of this Agreement and that NRTC Corporate will use its reasonable and best
efforts to transfer any such 220 MHZ licenses NRTC Corporate subsequently
acquires to NRTC within ninety (90) days after such licenses are acquired.
It is understood, however, that such transfer requires FCC approval and the
failure to obtain such approval timely shall not be deemed a failure to
comply with this provision.
7. MISCELLANEOUS
7.1 CONFIDENTIAL INFORMATION. Except as may be required by law,
each party shall refrain, without the prior written consent of the other
party in each instance, from disclosing or using in any way, except as
required by the terms of this Agreement, any confidential information of the
other party acquired in the course of the transactions contemplated hereby.
7.2 INFRINGEMENT.
(a) In the event either party hereto discovers or becomes
aware of any infringement of, or unfair competition with, any of the rights
granted by Company to NRTC pursuant to Section 1.1, actual or threatened, or
any proceeding, controversy or claim relating to or affecting the same, such
party immediately shall notify the other party of the details of such
infringement, competition, proceeding, controversy or claim. Company shall
have the right, but not the obligation, to take any and all appropriate
action, legal or otherwise, to protect the rights granted by it to NRTC
pursuant to Section 1.1.
(b) In the event NRTC discovers or becomes aware of any
infringement of, or unfair competition with, any of the Marks, actual or
threatened, NRTC immediately shall notify Company of the details of such
infringement or competition, and shall cooperate fully with Company in the
protection of the Marks, as Company shall direct; PROVIDED, however, that all
reasonable and documented costs incurred by NRTC in connection therewith
shall be borne by Company.
(c) NRTC shall not take any action which could affect
adversely the scope of the Marks or the exclusive right, title or interest of
Company therein.
7.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements made by the parties hereto in this
Agreement (including, but not limited to, statements contained in any
schedule or certificate or other instrument delivered by or on behalf of any
party hereto or in connection with the transactions contemplated hereby)
shall survive the date hereof and any investigations, inspections,
examinations or audits made by or on behalf of any party.
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7.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof,
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, relating to the subject matter of this
Agreement. No supplement, modification, waiver or termination of this
Agreement shall be valid unless executed by the party to be bound thereby.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether or not similar),
nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
7.5 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been
given (i) if personally delivered, when so delivered, (ii) if mailed, one (1)
week after having been placed in the mail, registered or certified, postage
prepaid, addressed to the party to whom it is directed at the address set
forth on the signature page hereof or (iii) if given by telex or telecopier,
when such notice or other communication is transmitted to the telex or
telecopier number specified on the signature page hereof and the appropriate
answerback or telephonic confirmation is received and confirmed receipt by
the intended recipient. Either party may change the address to which such
notices are to be addressed by giving the other party notice in the manner
herein set forth.
7.6 SUCCESSORS AND ASSIGNS. The parties shall not assign or
otherwise transfer any of their rights or delegate any of their duties
hereunder (whether voluntarily or involuntarily), except to entities that are
owned, controlled or managed by the assignor, without the prior written
consent of the other party in each instance, which consent shall not be
unreasonably withheld. Subject to the foregoing, all of the terms, provisions
and obligations of this Agreement shall inure to the benefit of and shall be
binding upon the parties hereto and their respective permitted successors and
assigns.
7.7 GOVERNING LAW. The validity, construction and interpretation
of this Agreement shall be governed in all respects by the laws of the State
of Delaware applicable to contracts made and to be performed wholly within
that State.
7.8 HEADINGS. Section and subsection headings are not to be
considered part of this Agreement and are included solely for convenience and
reference and in no way define, limit or describe the scope of this Agreement
or the intent of any provisions hereof.
7.9 ATTORNEYS' FEES. In the event any party takes legal action to
enforce any of the terms of this Agreement, the unsuccessful party to such
action shall pay the successful party's reasonable expenses (including, but
not limited to, attorneys' fees and costs) incurred in such action.
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7.10 THIRD PARTIES. Nothing in this Agreement, expressed or
implied, is intended to confer upon any person other than the parties hereto
and their successors and assigns any rights or remedies under or by reason of
this Agreement.
7.11 INJUNCTIVE RELIEF. Each party hereby acknowledges and agrees
that it would be difficult to fully compensate the other party for damages
resulting from the breach or threatened breach of any provision of this
Agreement and, accordingly, that each party shall be entitled to temporary
and injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, to enforce such provisions without the
necessity of proving actual damages or being required to post any bond or
undertaking in connection with any such action. This provision with respect
to injunctive relief shall not diminish, however, the right of either party
to any other relief or to claim and recover damages.
7.12 COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each one of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
7.13 FURTHER ASSURANCES. Each party hereto shall, from time to
time at and after the date hereof, execute and deliver such instruments,
documents and assurances and take such further actions as the other party may
reasonably request to carry out the purpose and intent of this Agreement.
7.14 FORCE MAJEURE. Except for obligations of payment, neither
party hereto shall be liable for non-performance caused by any circumstances
beyond its reasonable control, including, but not limited to, lightning,
earthquake, storm, strike, lockout or other industrial disturbance, shortage
of necessary labor, acts of enemies, sabotage, war, blockage, insurrection,
riot, epidemic, landslide, flood, fire, washout or the order of any court or
authority, which circumstance by the exercise of due diligence the party
invoking this Section 7.14 is unable to prevent or overcome; provided,
however, that (i) lack of financial capacity shall in no event be deemed to
be a cause beyond a party's control and (ii) no party shall be entitled to
invoke this Section 7.14 if the failure to observe or perform any of the
covenants or obligations herein imposed upon it was caused by such party
failing to act in a reasonable and prudent manner under the circumstances, or
failing to remedy the condition with reasonable diligence, or failing to give
notice as soon as possible after determining that an event of force majeure
has occurred and specifying those covenants or conditions such party will be
unable to perform, or was the result of a knowing or negligent breach by such
party of any applicable laws, regulations, agreements or contracts; provided,
further, that in the event of such delay in the delivery of any Contract
Products under Section 3.1, NRTC shall have the right either (i) to terminate
this Agreement or (ii) to cancel the order with respect to which delivery has
been delayed.
7.15 RELATIONSHIP OF THE PARTIES. The relationship between the
parties hereto under this Agreement is solely that of supplier and
distributor, and neither party hereto is or shall
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be construed to be a partner, joint venturer, employee, agent,
representative, franchisee or participant of or with the other party for any
purpose whatsoever. Neither party shall have any right or authority
whatsoever to assume or to create any obligation or responsibility, express
or implied, on behalf of or in the name of the other party or to bind the
other party in any capacity.
7.16 SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be illegal
or otherwise unenforceable, in whole or in part, the remaining provisions,
and any partially unenforceable provisions to the extent enforceable, shall
nevertheless be binding and enforceable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date and year first set forth below.
COMPANY: INTEK GLOBAL CORPORATION
By /s/
--------------------------------------
Authorized Representative
219 Carnegie Center, Suite 304
Princeton, NJ 08540
Attn: Mr. Don Goeltz
Telecopier Number (609) 419-1221
DISTRIBUTOR: NRTC LLC
By /s/
--------------------------------------
Authorized Representative
2201 Cooperative Way, Suite 400
Herndon, VA 20171
Attn: Mr. Charles Horton
Telecopier Number (903) 787-9301
Effective Date: September 4, 1998
Initial Termination Date: September 4, 2003
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. APPOINTMENT AS DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . 1
1.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 "Contract Products.". . . . . . . . . . . . . . . . . . . . . 2
1.3 "Exclusive Territory.". . . . . . . . . . . . . . . . . . . . 2
1.4 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Commitment and Duties of NRTC . . . . . . . . . . . . . . . . 4
2. TRADEMARKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 "Marks.". . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Ownership and License of Marks. . . . . . . . . . . . . . . . 5
3. SALE OF CONTRACT PRODUCTS . . . . . . . . . . . . . . . . . . . . . 5
3.1 Sale of Contract Products . . . . . . . . . . . . . . . . . . 5
3.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Limitations on Warranties . . . . . . . . . . . . . . . . . . 6
3.4 Limitations on Remedies . . . . . . . . . . . . . . . . . . . 6
3.5 Defective Merchandise . . . . . . . . . . . . . . . . . . . . 7
3.6 Adherence to Laws . . . . . . . . . . . . . . . . . . . . . . 7
4. TERM AND TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Duties Upon Termination . . . . . . . . . . . . . . . . . . . 8
5. INTEK STOCK OPTION. . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 Stock Option Agreement. . . . . . . . . . . . . . . . . . . . 9
5.2 Incremental Share Option. . . . . . . . . . . . . . . . . . . 9
5.3 Option Term . . . . . . . . . . . . . . . . . . . . . . . . .10
5.4 Exercise Price. . . . . . . . . . . . . . . . . . . . . . . .10
6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . .10
6.1 Organization and Standing . . . . . . . . . . . . . . . . . .10
6.2 Authority and Enforceability. . . . . . . . . . . . . . . . .10
6.3 Compliance with the Law and Other Instruments . . . . . . . .10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . .11
7.1 Confidential Information. . . . . . . . . . . . . . . . . . .11
7.2 Infringement. . . . . . . . . . . . . . . . . . . . . . . . .11
7.3 Survival of Representations, Warranties and Agreements. . . .11
7.4 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . .11
7.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .12
7.6 Successors and Assigns. . . . . . . . . . . . . . . . . . . .12
7.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .12
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7.8 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . .12
7.9 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . .12
7.10 Third Parties . . . . . . . . . . . . . . . . . . . . . . . .12
7.11 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . .13
7.12 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .13
7.13 Further Assurances. . . . . . . . . . . . . . . . . . . . . .13
7.14 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . .13
7.15 Relationship of the Parties . . . . . . . . . . . . . . . . .13
7.16 Severable Provisions. . . . . . . . . . . . . . . . . . . . .14
</TABLE>
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AUCTION PARTICIPATION AND
LICENSE PARTITIONING AGREEMENT
This Auction Participation and License Partitioning Agreement (the
"Agreement") is entered into this 17th day of August, 1998 (the "Effective
Date") by and between Intek Global Corp ("Intek"), a corporation organized
under the laws of the State of Delaware with principal offices at 214
Carnegie Center, Suite 304, Princeton, New Jersey 08540-6237, Intek License
Acquisition Corp. ("ILAC"), a corporation organized under the laws of the
State of Delaware with principal offices at 24327 Van Owen Street, West
Hills, California 91307 and the National Rural Telecommunications Cooperative
("NRTC"), a non-profit cooperative organized under the laws of the District
of Columbia with principal offices at 2201 Cooperative Way, Suite 400,
Herndon, Virginia 20171.
RECITALS
WHEREAS, Intek, through its wholly owned subsidiary Roamer One, Inc.,
owns, operates and manages two-way land mobile radio stations in the 220-222
MHz band (the "220 MHz Band") within the United States listed on Attachment A;
WHEREAS, Intek, through its wholly-owned subsidiary Midland USA, Inc.,
distributes Linear Modulation ("LM") equipment capable of operating in the
220 MHz Band,
WHEREAS, Intek desires to enhance the coverage and capacity of those
Roamer One operated licenses in certain markets through acquisition of
additional channel capacity acquired through the auction of Phase II 220 MHz
Band licenses (the "220 MHz Auction") to be conducted by the Federal
Communications Commission ("FCC" or "Commission") and has formed ILAC to
participate in such auction;
WHEREAS, NRTC is a non-profit cooperative of rural telecommunication
companies, many of which are interested in procuring such channel capacity in
the 220 MHz Band as may reasonably accommodate the needs of their markets;
WHEREAS, the 220 MHz Auction will award through competitive bidding
Phase II 220 MHz Band licenses on a nationwide, Regional Economic Area
Grouping ("REAG") and Economic Area ("EA") basis as defined by the FCC;
WHEREAS, the parties desire to enter into an agreement to enable the
purchase by ILAC of certain Phase II 220 MHz Band licenses (the "Licenses")
in the 220 MHz Auction at aggregate prices higher than either party could
justify separately and to allow for the post-auction partitioning and
disaggregation (hereinafter "partitioning") of those certain Licenses to
enable each party to provide 220 MHz Band wireless communications services in
the most efficient and economical manner that more closely corresponds to
market demands;
NOW, THEREFORE, in consideration of the premises, and the agreements,
covenants, representations and warranties hereinafter set forth, and other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
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1. LICENSES TO BE PARTITIONED
1.1 Prior to August 28, 1998, NRTC will submit to ILAC its proposed
Schedule 1 which will set forth a list of target licenses referenced
by nationwide, REAG, or EA market number and frequency block which
NRTC desires to acquire during the Auction (each License being a
"Target License" or collectively the "Target Licenses"). ILAC and
NRTC shall agree upon such Schedule 1 and shall identify and agree
upon a desired partitioned service area for the Target Licenses,
defined either by FCC recognized service areas, by county boundary,
by US Postal Service Zip Codes or otherwise as defined by the
parties. Each of such areas agreed to be partitioned by ILAC within
each Target License is hereafter referred to as a "NRTC License."
1.2 To the extent that, for licensing purposes, non-contiguous areas
within a particular Target License be separately partitioned and
subject to a separate license, there may be more than one NRTC
License within the Target License. Further, the parties understand
and agree that if a Target License designated in Schedule 1 would
overlap a 45 mile radius from the base site of (i) any 220 MHz
system currently licensed to Intek or one of its affiliates or (ii)
any 220 MHz system for which Intek or one of its affiliates
currently has a binding contractual commitment or option to acquire,
then such overlapping area shall not be included in the partitioned
NRTC License despite having been included in such NRTC License in
Schedule 1. The parties agree to negotiate mutually satisfactory
arrangements, including where appropriate, sharing and resale
arrangements, as will be required to accommodate each party's use of
the licensed 220 MHz spectrum in those areas in which the parties
own or operate overlapping system coverage areas.
1.3. NRTC shall provide on Schedule 2, to be attached hereto no later
than September 10, 1998, the maximum dollar amount it is willing to
pay for the partitioned license for the NRTC Licenses within each of
the Target Licenses, which amounts for the respective NRTC
License(s) are referred to as the "NRTC Maximum".
2. PHASE II LICENSE ACQUISITION
2.1 ILAC's management, staff and outside contractors will provide
ongoing expertise to NRTC with regard to the 220 MHz Auction without
charge to NRTC. ILAC shall provide a bidding center facility
together with the development of an electronic database,
telecommunications access, and computer resources as required to
conduct the auction preparation and the bidding process.
2.2 ILAC shall provide to NRTC a data base of Phase I, including Intek
incumbent positions. ILAC shall do so: as soon as possible after
the effective date of this Agreement; by August 21, 1998, if
practicable; and, in no event, later than August 26, 1998. In
addition, ILAC shall provide NRTC the following during the course of
the 220 MHz Auction:
2.2.1 Auction round results and ILAC round results reports;
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2.2.2 Access to bidding center as appropriate to implement the
purposes of this Agreement.
2.3 ILAC will submit to the FCC a Form 175 application seeking to
participate in the 220 MHz Auction. Subject to the satisfaction by
NRTC of its obligations pursuant to Section 4.1 of this Agreement
and the acceptance of its Form 175 by the FCC, ILAC shall tender an
up front payment (the "Upfront Payment") to the FCC as determined in
its sole discretion but, at a minimum, sufficient to qualify ILAC to
bid on each of the Target Licenses. To the extent required by the
FCC's rules, ILAC shall disclose in its Form 175 filing the
existence of this Agreement. ILAC and NRTC shall cooperate in
making all filings required by the FCC subsequent to the conclusion
of the 220 MHz Auction in order to obtain the Licenses for which
ILAC is the winning bidder in the Auction, and to partition them in
accordance with this Agreement and the FCC's Rules and regulations.
2.4 ILAC shall retain sole and exclusive authority and discretion to
determine the licenses it bids on in the 220 MHz Auction on its
behalf subject only to the reservation of those certain licenses
agreed by the parties to be Target Licenses as reflected on Schedule
1 hereto. ILAC shall retain sole and exclusive authority and
discretion to determine the amount of its bids in the 220 MHz
Auction, subject only to the provisions of this Agreement. NRTC will
have no authority to place bids on behalf of Intek or ILAC.
Notwithstanding the foregoing, ILAC and NRTC shall consult on the
bids to be placed on the Target Licenses, and NRTC may direct ILAC
to, and ILAC shall, place a bid on any Target License up to the NRTC
Maximum for that License, or such other value as may be permitted by
amendment to the NRTC Maximum. ILAC shall not bid on Target Licenses
except on behalf of NRTC unless and until the NRTC Maximum for that
Target License is exceeded or until NRTC notifies ILAC that it is no
longer pursuing that License. ILAC shall use its best efforts to
place such bids in the 220 MHz Auction as directed pursuant to this
Agreement; provided; however, that nothing in this Agreement shall
be interpreted to guarantee a particular result or a successful bid
in the 220 MHz Auction on any or all of the Target Licenses.
2.5 ILAC shall have the sole control over the bidding strategy and
management of bidding credits, waivers and maintenance of
eligibility.
2.6 NRTC shall identify in writing one or more NRTC designees who have
authority to make decisions with regard to License values and
bidding strategy. Such designees shall be available to ILAC during
the 220 MHz Auction either in person at the bidding center or
electronically within 15 minutes notice to render decisions with
respect to bid placements as deemed required by ILAC. Such designees
shall remain available until the conclusion of the 220 MHz Auction.
3. PARTITIONING.
3.1 Upon grant of a Target License to ILAC and without further charge to
NRTC, ILAC shall take all necessary steps, including filing all
required applications and related materials with the FCC, to
partition the Target Licenses or assign such Target Licenses as may
be required to create the NRTC Licenses designated pursuant to
Section 1.1. NRTC shall cooperate with ILAC in all such filings.
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3.2 By August 28, 1998, the Parties shall designate certain Target
Licenses as "Joint Target Licenses." The Joint Target Licenses
shall be partitioned between the parties in the following manner:
3.2.1 NRTC has designated nine (9) States (the "Designated
States"). The Designated States are as follows: Alabama,
Alaska, Arkansas, Kentucky, Louisiana, Nebraska, North
Carolina, Texas, and Washington. Any Joint Target License
granted to ILAC in the 220 MHz Auction within any Designated
State shall be partitioned entirely to NRTC.
3.2.2 Prior to September 10, 1998, with respect to the Nationwide
license, Intek shall designate up to fifty (50) of the 100
top MSAs not in the Designated States and, with respect to
the Regional licenses, Intek shall designate up to ten of
the top 100 MSAs not in a Designated State in each REAG (the
"Designated MSAs"). Any Joint Target License granted to
ILAC in the 220 MHz Auction within any Designated MSA shall
be partitioned as follows:
3.2.2.1 For National Licenses: five (5) of the channels
shall be partitioned to Intek, and five (5) of the
channels shall be partitioned to NRTC.
3.2.2.2 For Regional Licenses: eight (8) of the channels
shall be partitioned to Intek; seven (7) of the
channels shall be partitioned to NRTC, subject to
the provisions of Section 1.2 of this Agreement.
3.2.2.3 Any additional Joint Target license granted to
ILAC in the 220 MHz Auction that is not in a
Designated MSA shall be partitioned to NRTC
subject to the provisions of Section 1.2 of this
Agreement.
3.2.2.4 The parties shall provide on Schedule 1 for the
apportionment of FCC construction responsibilities
for each Joint Target License consistent with the
FCC's partitioning rules for the 220 MHz Band.
3.3 Any Target Licenses not identified as Joint Target Licenses
granted to ILAC shall be assigned or partitioned in their
entirety to NRTC subject to the provisions of Section 1.2
of this Agreement.
4. PAYMENT AND VALUATION
4.1 UPFRONT PAYMENT NRTC shall pay to ILAC one half of the Upfront
Payment. The NRTC portion shall be due and payable to ILAC on or
before August 28, 1998. Such payment to be made in cash, by wire
transfer of same day funds, to the bank as identified by ILAC.
4.2 ESCROW AGREEMENT The parties hereby agree to enter into an Escrow
Agreement for the purpose of apportioning and securing payment by
NRTC to ILAC of the winning bids on the Target Licenses upon the
close of the 220 MHz Auction. The
4
<PAGE>
terms of the Escrow Agreement shall include, but not be limited to
the following points: (1) Payment deadline shall be no later than
5:30 PM EDT, September 10, 1998, (2) the amount payable into escrow
by NRTC shall be no less than the sum total of the NRTC Maximum
amounts for each of the Target Licenses, (3) release of the escrowed
funds to ILAC for winning bids on the Target Licenses shall be due
at least 3 business days prior to the date prior to any ILAC payment
required on a Target License, (4) such payment shall be released to
ILAC automatically upon presentation to the escrow agent of an FCC
Public Notice announcing the conclusion of the 220 MHz Auction or
establishing any payment date on the Target Licenses. In the event
no Target Licenses are purchased at Auction, or funds remain in
escrow after disbursement to Intek for all purchased Target
Licenses, the total amount of the escrow funds remaining, together
with any accrued interest, will be refunded to NRTC. The cost of the
escrow account shall be borne by NRTC.
5. ASSIGNMENT AND INDEMNIFICATION
5.1 Each Party (the "Indemnitor") shall indemnify and hold harmless the
other (the "Indemnitee") from and against all loss, damage, expenses
including court costs, amounts paid in settlements, judgments,
reasonable attorneys' fees, and other expenses for investigating and
defending any suits, actions, claims, liability or obligations
relating to, caused by or arising from, any gross negligence or
willful misconduct of the Indemnitor or the Indemnitor's employees
or agents, misrepresentation by the Indemnitor, breach of warranty
by the Indemnitor, or failure by the Indemnitor to fulfill any
covenant or agreement contained herein. If any action is brought by
either Party to enforce any provision of this Agreement, the
prevailing Party shall be entitled to recover court costs,
arbitration expenses and reasonable attorneys' fees. The provisions
of this section shall survive any termination of this Agreement.
5.2 This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective legal representatives,
successors and assigns. No party may assign or transfer its rights,
benefits, duties or obligations under this Agreement without the
prior written consent of the other parties, which consent shall not
be unreasonably withheld. Notwithstanding the foregoing, without
any prior consent of the other party, either party may assign or
transfer all or any part of its rights, benefits, duties or
obligations under this Agreement to a parent company or an affiliate
or subsidiary or to a partnership or other entity in which such
party or a parent, affiliate or subsidiary owns a substantial
interest or manages such entity, or as part of the sale, transfer or
assignment of substantially all of its wireless businesses; provided
that such assignee must satisfy applicable FCC qualifications, and
such assignee must agree in writing to be bound by and subject to
the applicable terms and conditions therein contained, and in the
absence of the other party's consent, which shall not be
unreasonably withheld and notwithstanding the validity of any such
assignment or transfer, the assigning party shall remain primarily
liable under this Agreement.
6. The validity and effectiveness of this Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
and the applicable rules and policies of the FCC without giving effect to
the provisions, policies or principles relating to choice or conflict laws.
5
<PAGE>
7. Should any provision of this Agreement be determined to be invalid or
unenforceable, it shall be deemed severed from this Agreement, and so long
as invalidity or unenforceability does not deny either party the material
benefits of this agreement for which it has bargained, such invalidity or
unenforceability shall not affect the remaining provisions of this
Agreement, which shall remain in full force and effect.
8. TERMINATION:
8.1 This Agreement shall automatically terminate without further
liability by either party if NRTC files a Form 175 to participate in
the 220 MHz Auction.
8.2 This Agreement shall automatically terminate in the event that NRTC
fails to make the payments to ILAC pursuant to Section 4.1 or to
fund the escrow pursuant to Section 4.2 of this Agreement.
8.3 This Agreement shall automatically terminate without further
liability by either party ten days after the close of the Auction if
ILAC was not the winning bidder for at least one of the Target
Licenses, and upon such termination all funds previously paid by
NRTC to ILAC or otherwise remaining in Escrow shall be promptly
refunded.
8.4 Either party may terminate this Agreement upon the existence of a
Material Uncured Breach by the other party. For purposes of this
Agreement, a Material Uncured Breach shall be deemed to occur if
either party breaches a material obligation or covenant imposed
hereunder, or there exists a material breach of any representation
or warranty made hereunder or thereunder, in either case, which
breach has not been cured within thirty days after written notice of
such breach has been given to the breaching party.
8.5 Intek, ILAC and NRTC shall each have the right to terminate this
Agreement without any further liability to the other parties, in the
event that NRTC, Intek or ILAC files or has filed against it a
petition for voluntary or involuntary bankruptcy or is dissolved
during the initial term of this Agreement or any renewal term
thereof; or any court or governmental agency, order, or any material
agreement to which Intek is a party, would require such termination
in order for Intek to avoid being in violation thereof.
8.6 Termination of this Agreement by either party pursuant to this
Section shall not prevent such terminating party from seeking and
securing damages or equitable relief permitted by this Agreement.
8.7 This Agreement may be terminated by the mutual consent of the
parties, and upon such termination all funds previously paid by NRTC
to ILAC or otherwise remaining in Escrow shall be promptly refunded.
9. FCC MATTERS. The parties are familiar with the Rules, regulations and
policies of the FCC, including those pertaining to spectrum auctions as
published by the FCC. NRTC acknowledges that it has been provided a copy of
Intek's Statement of Corporate Policy concerning the conduct of its
employees, officers, directors, affiliates and agents during the 220 MHz
Auction in compliance with Section 1.2105 of the FCC's Rules. The parties
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<PAGE>
and their respective officers, directors, affiliates, agents and designees
hereunder will abide by the Intek Statement of Corporate Policy and will
not engage in any communications in violation of the FCC's Rules during the
220 MHz Auction. NRTC acknowledges that ILAC has informed it that ILAC will
not claim credits to bid as a small business or a very small business in
the 220 MHz Auction. In addition, the parties are aware of the United
States Department of Justice guidelines with regard to alliances designed
to affect the pricing or availability of products to be sold in a public
forum. The parties will make all appropriate disclosures and will take all
steps required to insure full compliance with the FCC rules and other
regulatory bodies. The parties further acknowledge their understanding that
the Rules and regulations of the FCC which permit the partitioning and
disaggregation of 220 MHz Band Phase II Licenses may be subject to
reconsideration by the FCC on its own motion or at the request of a third
party. In the event that the FCC determines that any terms hereof would
violate its Rules, regulations or policies or would otherwise be cause for
the denial of grant of a 220MHz License to ILAC or the revocation of any
license granted, then the parties shall use their best efforts to reform
this Agreement or negotiate and execute such further documents as may be
permissible and necessary or other arrangement which will satisfy any FCC
concerns and which maintains the essential benefits of the bargain between
the parties.
10. REPRESENTATIONS AND WARRANTIES.
10.1 NRTC hereby represents and warrants to Intek and ILAC as follows:
(i) NRTC is duly organized, validly existing and in good standing
under the jurisdiction of its organization with all the requisite
power and authority to enter into and perform under this Agreement;
(ii) neither the execution nor the delivery of this Agreement nor
the consummation of the transaction contemplated hereby will
conflict with or result in any violation of or constitute a default
under any term of the Articles of Incorporation or by-laws of NRTC
or any agreement, mortgage, indenture, license, permit, lease or
other instrument, judgment, decree, order, law or regulation by
which NRTC is bound; (iii) neither NRTC nor its officers, directors,
affiliates or members have entered into any bidding agreements,
partitioning agreements or other agreements with third parties which
contemplate participation in the 220 MHz Auction, nor do NRTC, its
officers, directors, affiliates and members intend to participate in
the 220 MHz auction except as contemplated by this Agreement.
10.2 Intek and ILAC represent and warrant to NRTC as follows: (i) Intek
and ILAC are duly organized, validly existing and in good standing
under the jurisdiction of its organization, with all the requisite
power and authority to enter into and perform under this Agreement;
(ii) neither the execution nor the delivery of this Agreement nor
the consummation of the transaction contemplated hereby will
conflict with or result in any violation of or constitute a default
under any term of the Articles of Incorporation or by-laws of Intek
or ILAC or any agreement, mortgage, indenture, license, permit,
lease or other instrument, judgment, decree, order, law or
regulation by which Intek or ILAC is bound.
11. DISCLOSURE. Subject to Section 2.3 hereof, each party agrees that it will
not disclose the terms of this Agreement or any confidential information
exchanged in the negotiation or implementation of the terms of this
Agreement, including any valuation information relating to the value of all
or any part of the Licenses being auctioned, to any other party, except to
each party's officers, directors, attorney, consultants, accountants,
employees
7
<PAGE>
and NRTC members involved in the transactions contemplated hereby, and
only then on the condition that such individuals not disclose the
information disclosed to them. Notwithstanding the foregoing, either
party may disclose the terms of this Agreement to any third party at any
time if: (1) it is required to do so by law (including without limitation
applicable securities and communications laws and regulations, this
Agreement or other contractual obligation); or (2) it is reasonably
determined to be required to do so by its lender or other source of
financing or their agents; or (3) the other party consents in writing to
such disclosure.
12. NOTICES. Any notice or other communication required or permitted hereunder
shall be given in person or sent by express overnight courier, express mail
or by registered or certified mail, postage prepaid, addressed as follows:
If to NRTC to: Steven T. Berman
NRTC
2201 Cooperative Way
Suite 400
Herndon, VA 20171
With a copy to: Jack Richards
Keller & Heckman
1001 G St., N.W.
Washington, D.C. 20001
If to Intek: Robert Shiver
Intek Global Corp.
214 Carnegie Center
Suite 304
Princeton, New Jersey 08540-6237
With a copy to: Robert B. Kelly
Squire, Sanders & Dempsey LLP
1201 Pennsylvania Ave., NW
Post Office Box 407
Washington, D.C. 20044-0407
If to ILAC: David Neibert
Intek License Acquisition Corp.
24327 VanOwen Street
Suite 206
West Hills, California 91307
or at such other address or with additional copied parties as shall be
furnished in writing by any such Party.
13. MISCELLANEOUS. This Agreement may be executed simultaneously in one or
more counterparts, each of which be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement shall
become effective upon its execution by the parties and their transmitting to the
other party by facsimile proof of their execution of the
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<PAGE>
Agreement. This Agreement constitutes the entire agreement between the
Parties pertaining to the subject matter contained herein and supersedes all
prior and contemporaneous agreements, representations, and understandings of
the parties. No party shall be liable to the other party as a result of its
failure to perform hereunder due to acts of god, civil unrest or
disobedience, or other cause entirely beyond its control ("Force Majeure").
No supplement, modification, or amendment of this Agreement shall be binding
unless executed in writing by all of the Parties. Amendment of this Agreement
and all prior agreements must be in writing and executed by each of the
parties. Notwithstanding any law or rule of contract interpretation to the
contrary, this Agreement shall not be interpreted strictly for or against
any party hereto. In the event of litigation between the parties pursuant to
a dispute under this Agreement, the prevailing party shall be entitled to
recover its costs incurred in such litigation, including reasonable
attorneys' fees. Each of the parties hereto acknowledges to the other that
it has reviewed this Agreement with, and is relying solely upon the advice
of, its independent counsel and tax advisor, as to the negotiation,
preparation, execution and delivery of this Agreement and as to the legal and
tax implications hereunder.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals this
17th day of August, 1998.
NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE
By: /s/
----------------------------------------------
INTEK GLOBAL CORP.
By: /s/
----------------------------------------------
INTEK LICENSE ACQUISITION CORP.
By: /s/
----------------------------------------------
9
<PAGE>
AMENDMENT TO AUCTION PARTICIPATION AND
LICENSE PARTITIONING AGREEMENT
This AMENDMENT (the "Amendment") is made and entered into this 6th day
of November, 1998 (the "Amendment Date"), by and between Intek Global Corp.
("Intek"), a corporation organized under the laws of the State of Delaware
with principal offices at 214 Carnegie Center, Suite 304, Princeton, New
Jersey 08540-6237, Intek License Acquisition Corp. ("ILAC"), a corporation
organized under the laws of the State of Delaware with principal offices at
24327 Van Owen Street, West Hills, California 91307 and the National Rural
Telecommunications Cooperative ("NRTC"), a non-profit cooperative organized
under the laws of the District of Columbia with principal offices at 2201
Cooperative Way, Suite 400, Herndon, Virginia 20171.
WITNESSETH:
WHEREAS, the parties entered into an Auction Participation and License
Partitioning Agreement dated August 17, 1998 (the "Auction Agreement")
pursuant to which the parties agreed to participate jointly in the auction
held by the Federal Communications Commission (the "FCC") for certain Phase
II licenses in the 220-222 MHz band (the "220 MHz Band");
WHEREAS, in the Auction Agreement, the parties agreed to a process that
would enable each party to carry out its 220 MHz Band communications services
plans in the most efficient and economical manner, through cooperation and
post-auction license partitioning, disaggregation and assignments of
specified Target Licenses won in the 220 MHz Band auction, thereby enabling
each party to purchase the geographic portions of the various licenses in
nationwide ("NWAs"), regional ("REAGs") and Economic Areas ("EAs") in which
each is interested;
WHEREAS, in accordance with the terms of the Auction Agreement, ILAC
entered the 220 MHz Band auction, and ILAC was the successful high bidder for
certain 220 MHz Band licenses (the "Acquired Licenses"); and
WHEREAS, the parties have agreed to further define their rights and
obligations as to the Acquired Licenses and now are desirous of further
memorializing in this Amendment their current understandings regarding the
assignment, disaggregation and partitioning of the Acquired Licenses.
NOW, THEREFORE, in consideration of the foregoing and of the respective
representations, warranties, agreements and conditions contained herein, the
parties hereto agree as follows:
1. Except to the extent that a new definition is provided in this
Amendment, all Capitalized terms used herein shall have the meaning defined
for such terms in the Agreement.
<PAGE>
2
2. NRTC hereby acknowledges that to the best of its knowledge Intek and
ILAC have fully performed their obligations under Section 2 of the Auction
Agreement.
3. Notwithstanding any provision of the Auction Agreement, and in
furtherance of the obligations set forth in Section 1 of the Agreement, the
parties hereby agree as follows:
(a) Nationwide license Block L shall be retained in its entirety
to ILAC; nationwide license Block K shall be partitioned or assigned in its
entirety to NRTC. The parties agree that ILAC shall bear the construction
obligations pursuant to Section 90.769 of the Commission's Rules with respect
to Nationwide Block L and NRTC shall bear the construction obligations
pursuant to Section 90.769 of the FCC's Rules with respect to Nationwide
Block K.
(b) As set forth on Exhibit 1 to this Amendment, REAG licenses on
Block J for all regions shall be disaggregated by assigning the upper eight
(8) channel pairs to ILAC and the lower seven (7) channel pairs to NRTC. The
parties agree to share the construction obligations pursuant to Section
90.767 with respect to the REAG licenses on Regional Block J. The parties
shall negotiate and enter into a Construction Agreement with respect to such
obligations, which Construction Agreement shall provide for mutual options
between the parties to acquire partitioned areas which remain unconstructed
three years after the grant of the license.
(c) For each Acquired License, Exhibit 1 to this Amendment sets
forth (i) whether the license is to be assigned, partitioned or disaggregated
in its entirety to ILAC or NRTC or jointly to both parties, (ii) the cost of
the successful bid in the 220 MHz Band auction for each Acquired License to
be borne respectively by ILAC and NRTC and (iii) the apportionment of the
construction obligations pursuant to the FCC's Rules.
(d) For each EA license to be jointly partitioned between
NRTC and ILAC, Exhibit 2 to this Amendment, sets forth the areas to be
partitioned in accordance with Section 1.2 of the Auction Agreement, which
areas partition to ILAC from the EA license a 45 mile service area from the
coordinates of the base stations of all Intek 220 MHz systems currently
licensed to Intek or one of its affiliates or for which Intek or its
affiliates has a binding contractual commitment or option to acquire.
(e) The E Block license in EA 147 shall be disaggregated by
assigning five (5) channel pairs to Intek and five (5) channel pairs to NRTC.
The parties shall bear the purchase price of the license for EA 147, E Block
equally.
(f) Notwithstanding any provision of the Auction Agreement, NRTC
shall contribute to the payments due to the FCC from ILAC high bids in the
220 MHz Band auction for the Acquired Licenses that amount for each NRTC
License as reflected on Schedule 1 hereto, which amounts total $5,576,600.00
(the "NRTC Payments"). NRTC Payments shall be made in accordance with the
terms and conditions of that certain Escrow Agreement entered into between
the parties on September 10, 1998 (the "Escrow Agreement"). NRTC shall make
such payment into the Escrow not later than five (5) business days prior to
the date payment on the Acquired Licenses is due to the FCC upon the FCC's
release of a Public Notice announcing that it is
2
<PAGE>
3
prepared to grant the Acquired Licenses in the amount equal to $1,533,402.00
(the "NRTC Supplemental Deposit").
(g) Notwithstanding any provision of the Auction Agreement, NRTC
shall make such payments as necessary to make payment to ILAC of fifty
percent (50%) of those certain penalties (the "Withdrawal Penalties") imposed
on ILAC by the FCC for withdrawal of the high bids in the 220 MHz Band
auction as set forth in Exhibit 3 to this Amendment. Exhibit 3 to this
Amendment sets forth (i) certain licenses for which ILAC withdrew high bids
during the auction, (ii) the amount of such ILAC high bid, (iii) the amount
of the winning bid, if any, for that license in the auction, (iv) the amount
of the Withdrawal Penalty for that license or the contingent liability for a
Withdrawal Penalty. NRTC, in addition, shall make such further payments from
time to time to ILAC in an amount equal to 50% of any Withdrawal Penalties
assessed by the FCC within five (5) business days of its receipt on written
notice from ILAC of any request by the FCC for further payments of Withdrawal
Penalties. NRTC shall be entitled to receive from ILAC 50% of the amounts of
any monies refunded to ILAC by the FCC that were withheld in anticipation of
the Withdrawal Penalties within five (5) business days of ILAC's receipt of
such funds.
(h) NRTC's failure to timely make any payments due under the
Auction Agreement or this Amendment shall be deemed a material breach of the
Auction Agreement, and shall entitle ILAC to apply any funds then held in
escrow as necessary to pay such amounts as are due and owing. ILAC shall not
have any obligation to apply for a partitioned license until such time as all
amounts then due and owing are paid in full.
4. Section 3.2.1 of the Auction Agreement is hereby deleted in its
entirety, and the following Section 3.2.1 is hereby inserted in its stead:
NRTC has designated eleven (11) states (the "Designated States"). The
Designated States are as follows: Alaska, Arizona, Arkansas, Kentucky,
Louisiana, Nebraska, New Mexico, North Carolina, Oklahoma, Texas and
Washington.
5. Sections 3.2.2 and of the Auction Agreement is hereby deleted in its
entirety.
6. Each of Intek, ILAC and NRTC hereby restate and confirm as of the date
hereof the truth and accuracy in all material respects of the representations
and warranties contained in Sections 10.1 and 10.2, respectively of the
Auction Agreement.
7. Except as expressly amended by the terms of this Amendment, the Auction
Agreement remains in full force and effect between the parties.
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4
In Witness whereof, the parties have hereunto set their hands and seals
this 6th day of November, 1998.
NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE
/s/
-----------------------------------------
By:
INTEK GLOBAL CORP.
/s/
-----------------------------------------
By:
INTEK LICENSE ACQUISITION CORP.
/s/
-----------------------------------------
By:
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AMENDMENT TO MASTER DISTRIBUTION AGREEMENT
This AMENDMENT (the "Amendment") is made and entered into this 6th day
of November, 1998 (the "Amendment Date"), by and between Intek Global Corp.
("Intek"), a corporation organized under the laws of the State of Delaware
with principal offices at 214 Carnegie Center, Suite 304, Princeton, New
Jersey 08540-6237, NRTC LLC ("NRTC"), a limited-liability company organized
under the laws of the Commonwealth of Virginia with principal offices at 2201
Cooperative Way, Suite 400, Herndon, Virginia 20171, and the National Rural
Telecommunications Cooperative ("NRTC Corporate"), a non-profit cooperative
association organized under the laws of the District of Columbia with
principal offices at 2201 Cooperative Way, Suite 400, Herndon, Virginia
20171.
RECITALS:
WHEREAS, Intek and NRTC entered into a Master Distribution Agreement
dated September 4, 1998 (the "'Distribution Agreement") pursuant to which the
parties agreed to provide for the distribution by NRTC to its Members of the
equipment and expertise of Intek and its affiliates in the construction and
operation of wireless communications systems in the 220-222 MHz band (the
"220 MHz Band") pursuant to licenses granted by the Federal Communications
Commission (the "FCC");
WHEREAS, pursuant to the FCC's auction of Phase II 220 MHz Band
licenses, affiliates of each of the parties have acquired the rights to
operate on new frequencies and in new geographic areas in the 220 MHz Band;
WHEREAS, the parties have agreed to further define their rights and
obligations pursuant to the distribution of Intek products and services to
NRTC and its members and now are desirous of further memorializing in this
Amendment their current understandings;
NOW, THEREFORE, in consideration of the foregoing and of the respective
representations, warranties, agreements and conditions contained herein, the
parties hereto agree as follows:
1. Except to the extent that a new definition is provided in this
Amendment, all Capitalized terms used herein shall have the meaning defined
for such terms in the Distribution Agreement.
2. Amendment to Section 2. Section 2.2 of the Distribution Agreement is
hereby amended by adding Subsection (d) as follows:
(d) For purposes of this Amendment the "Roamer Marks" shall mean the
trademark "RoameR One" and the tradename "RoameR One" and similar variations
thereof and all registration, application and renewals thereof in the U.S.
and all logos, whether or not registered, used in the U.S. in connection
therewith. The Members in each State in the Exclusive Territory who purchased
whole state 220 MHz rights from NRTC (or its affiliate, NRTC Corporate) shall
<PAGE>
notify Intek no later than January 1, 1999 (or such later date as the parties
may agree) of their intention to use the Roamer Marks in connection with the
distribution of Company Products in their State. Any authorized Member who
purchased whole state 220 MHz rights from NRTC (or its affiliate, NRTC
Corporate) which elects to use the Roamer Marks in a State (a "Participating
Member") in the Exclusive Territory shall pay royalties annually to Intek in
the amount of $15,000 plus $500 for each base station constructed within that
State up to maximum annual royalty due of $25,000 for each State. Intek and
all Participating Members shall execute License Agreements, which Agreements
shall provide for support of the use of the Roamer Marks by Intek as
described in Schedule 1 to this Amendment. The License Agreements shall
further provide for use of the Roamer Marks by the Participating Member
subject to the continuing rights of Intek and existing RoameR dealers to use
such Roamer Marks and the payment of the royalties by the Participating
Member. Intek and any NRTC Member (a "Non-Participating Member") or
non-member associate of NRTC Corporate (including NRTC and NRTC Corporate
each) who desires to use the Roamer Marks on a non-exclusive, non-statewide
and royalty-free basis shall enter into Dealer Agreements, which Agreements
shall on a most favored nation basis provide, among other things, the
Non-Participating Member (and NRTC and/or NRTC Corporate each) a
non-exclusive license to use the Roamer Marks within that Member's or
entity's service area. The License Agreements and the Dealer Agreements shall
also provide Intek with the right to take such actions as are necessary to
protect the Roamer Marks, including the right to approve all promotional
materials bearing the Roamer Marks and the right to terminate the license
upon the misuse of the Roamer Marks by a Member or upon the provision of
service by a Member employing the Roamer Marks not in accordance with
acceptable industry practices and standards.
3. Amendment to Section 4. Sections 4.2 (f) and 4.2 (g) of the
Distribution Agreement are hereby deleted in their entirety and shall be of
no further force and effect.
4. Joint Development.
Intek and NRTC have agreed as follows with respect to the use and joint
development of the J, K and L Block licenses: (a) the Nationwide K Block
License shall be available for use during the term of the Development
Agreements, as defined below, by Intek and NRTC, respectively, and their
affiliates, subsidiaries, members and subscribers as follows: Intek shall
designate up to fifty (50) of the 100 top MSAs not in the Exclusive Territory
and five (5) of the channel pairs shall be available for use by Intek, and
five (5) of the channel pairs shall be available for use by NRTC in the
selected MSAs, with all channel pairs available for use by NRTC outside the
selected MSAs; (b) the Nationwide L Block License shall be available for
three years following grant of the license for the use and development by
Intek and NRTC of national wireless communications opportunities employing
Intek's Linear Modulation ("LM") technology and equipment, or such other
technology and equipment as may be mutually agreed by the parties; and (c)
the Regional J Block Licenses shall be available for three years following
the grant of the licenses for the use and development by Intek and NRTC of
wireless communications systems employing Intek's LM technology and
equipment, or such other technology and equipment as may be mutually agreed
by the parties as follows: Intek shall designate up to ten of the top 100
MSAs not in the Exclusive Territory in each Region and eight (8) of the
channel pairs shall be available for use by Intek and seven of the channel
pairs shall be
2
<PAGE>
available for use by NRTC in the selected MSAs, with all channel pairs
available for use by NRTC outside the selected MSAs. The parties use and
development of the licenses pursuant to this Section shall be subject to all
applicable FCC Rules, regulations and policies. Intek and NRTC shall each
use their best reasonable efforts to negotiate and agree on Joint Development
Agreements (the "Development Agreements") for the joint development and use
by the parties and their affiliates, subsidiaries and members of the
Nationwide K and L Block FCC Licenses and the Regional J Block FCC Licenses
incorporating these provisions. The Development Agreement shall further
provide that if after three years from the date of grant of the J Block
licenses satisfactory progress towards construction of the licenses in
response to FCC construction requirements and market demands has not been
made, then Intek and NRTC shall each hold an option to terminate the J Block
Development Agreement and purchase the J Block licenses and all associated J
Block assets held by the other party for a payment in the amount of
$1,018,250.00 plus the book value of any systems or equipment then operated
by the other party or its Members, subsidiaries and affiliates on such
frequencies. The Development Agreements shall provide for cooperation between
the parties in the construction of facilities on the J, K and L Block
licenses in an efficient manner to timely satisfy the construction
requirements of Sections 90.767 and 90.769 of the FCC's Rules.
5. Each of Intek and NRTC hereby restate and confirm as of the Amendment Date
the truth and accuracy in all material respects of the representations and
warranties contained in Section 6 of the Distribution Agreement.
6. NRTC Corporate is hereby made a party to the Distribution Agreement for
such purposes as expressly indicated herein.
3
<PAGE>
In Witness Whereof, the parties have hereunto set their hands and seals
this 6th day of November, 1998.
NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE
/s/
---------------------------------------------
By:
INTEK GLOBAL CORP.
/s/
---------------------------------------------
By:
NRTC LLC
/s/
---------------------------------------------
By:
4
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of September 10, 1998, is by and
among INTEK GLOBAL CORPORATION, a Delaware corporation ("INTEK"), INTEK
LICENSE ACQUISITION CORP., a Delaware corporation (the "ILAC"), and NATIONAL
RURAL TELECOMMUNICATIONS COOPERATIVE, a non-profit cooperative association
organized under the laws of the District of Columbia ("NRTC") and U.S. TRUST
COMPANY, NATIONAL ASSOCIATION ("Escrow Agent"). Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Auction Participation and License Partitioning Agreement entered into August
17, 1998 by and between Intek, ILAC and NRTC (the "Auction Agreement").
RECITALS:
WHEREAS, Intek, through its wholly owned subsidiary Roamer One,
Inc., owns, operates and manages two-way land mobile radio stations in the
220-222 MHZ band (the "220 MHZ Band") within the United States.
WHEREAS, Intek desires to enhance the coverage and capacity of
those Roamer One operated licenses in certain markets through acquisition of
additional channel capacity acquired through the auction of Phase II 220 MHZ
Band licenses (the "220 MHZ Auction") to be conducted by the Federal
Communications Commission ("FCC" or "Commission") and has formed ILAC to
participate in such auction;
WHEREAS, NRTC is a non-profit cooperative of rural
telecommunications companies, many of which are interested in procuring such
channel capacity in the 220 MHZ Band as may reasonably accommodate the needs
of their markets;
WHEREAS, the 220 MHZ Auction will award through competitive bidding
Phase II 220 MHZ Band licenses on a nationwide, Regional Economic Area
Grouping ("REAG") and Economic Area ("EA") basis as defined by the FCC;
WHEREAS, the parties have entered into the Auction Agreement to
enable the purchase by ILAC of certain Phase II 220 MHZ Band licenses (the
"Licenses") in the 220 MHZ Auction and to allow for the post-auction
partitioning and disaggregation (hereinafter "partitioning") of those certain
Licenses;
WHEREAS, pursuant to Section 1.3 of the Auction Agreement, NRTC
shall prepare and deliver to ILAC no later than September 10, 1998, a
Schedule 2 to be attached as part of the Auction Agreement, setting forth the
maximum dollar amount NRTC is willing to pay for the NRTC partitioned
licenses within the Targeted Licenses (the "NRTC Maximum"); and
<PAGE>
WHEREAS, pursuant to Section 4.2 of the Auction Agreement, NRTC has
agreed to deposit with Escrow Agent the sum total of the NRTC Maximum amounts
for each of the Target Licenses (to be used solely for the purpose of making
payments with respect to NRTC's portion of partitioned licenses within the
Targeted Licenses) not later than September 10, 1998 (the "NRTC Deposit").
NOW, THEREFORE, Intek, ILAC, NRTC and the Escrow Agent hereby agree
as follows:
1. ESCROW FUND; EARNINGS.
a. The NRTC Deposit is herewith deposited by NRTC with the
Escrow Agent, together with Schedule 2 to the Auction Agreement, receipt of
which the Escrow Agent hereby acknowledges, subject to the satisfaction of
the following condition (the "Effective Condition"):
ILAC shall deliver to Escrow Agent, on or before 5:00 p.m., Eastern
Standard Time, on September 10, 1998, one original of this Agreement, duly
executed by ILAC, accompanied by a letter or certificate from ILAC stating
that the Auction Agreement and Schedule 2 thereto has been duly executed by
an authorized agent of ILAC and is the Auction Agreement and Schedule 2
thereto described in the preamble of this Agreement.
If Escrow Agent receives such agreement and letter or certificate, then the
Effective Condition shall be satisfied, and Escrow Agent shall hold the NRTC
Deposit in accordance with the other terms and conditions of this Agreement
as the "Escrow Fund." If Escrow Agent does not receive such agreement and
letter or certificate, then the Effective Condition shall not be satisfied
and Escrow Agent shall distribute the NRTC Deposit, together with interest
thereon, to NRTC on the next business day thereafter and this Agreement shall
terminate.
b. In the event NRTC and ILAC subsequently agree to amend
Schedule 2 to the Auction Agreement to provide for an increase in the NRTC
Maximum amounts set forth therein, NRTC shall deposit with Escrow Agent the
increase in the sum total of the NRTC Maximum amount as shown on such amended
Schedule 2, together with a copy of the amended Schedule 2, and such amount
shall be added to and become a part of the "Escrow Fund."
c. All taxes in respect of earnings on the Escrow Fund shall
be the obligation of and shall be paid when due by NRTC. All accumulated
earnings (net of accumulated losses) on the Escrow Fund shall be paid to NRTC
monthly and shall not become part of the Escrow Fund. Upon receipt of the
NRTC Deposit, Escrow Agent shall invest all cash funds, if any,
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<PAGE>
comprising the Escrow Fund in a Money Market Fund (as defined in Section 2),
so that immediately available funds will be available for payment.
2. INVESTMENT OF ESCROW FUND. Escrow Agent shall invest and
reinvest all cash funds from time to time comprising the Escrow Fund,
together with the earnings thereon, in any shares of a money market fund
registered under the Investment Company Act of 1940 the sole assets of which
are (a) bonds or other obligations or, or guaranteed by, the government of
the United States of America or any State thereof or the District of Columbia
or agencies thereof and not having maturities of greater than thirty (30)
days; (b) commercial paper that is rated, at the time of Escrow Agent's
investment therein or contractual commitment providing for such investment,
at least P-1 by Moody's Investors Service, Inc. ("MOODY'S") and A-1 by
Standard & Poor's Corporation ("S&P") and not having maturities of greater
than thirty (30) days; (c) corporate obligations that are rated, at the time
of Escrow Agent's investment therein or contractual commitment providing for
such investment, among the two highest ratings by any nationally recognized
statistical ratings organization and not having maturities of greater than
thirty (30) days; (d) demand or time deposits in, certificates of deposit of
or bankers' acceptances issued by (i) a depository institution or trust
company incorporated under the laws of the United States of America, any
State thereof or the District of Columbia or (ii) a United States branch
office or agency of a foreign depository institution or trust company if, in
any such case, the depository institution, trust company or office or agency
has combined capital and surplus of not less than One Hundred Million Dollars
($100,000,000) (any such institution being herein called a "PERMITTED BANK")
and not having maturities of greater than thirty (30) days; (e) repurchase
obligations of a Permitted Bank or securities dealer (acting as principal)
meeting the capital and surplus requirements specified for a Permitted Bank
with respect to any bond or other obligation referred to in clause (a) above;
or repurchase agreements collateralized by such obligations (a "MONEY MARKET
FUND").
3. OBLIGATIONS SECURED BY THE ESCROW FUND. The Escrow Fund shall
be held by Escrow Agent as a trust fund and shall not be subject to lien or
attachment by any creditor of any party hereto and shall be used solely for
the purpose and subject to the terms and conditions set forth in this
Agreement.
4. RELEASE OF THE ESCROW FUND PRIOR TO CLOSING. Escrow Agent,
upon receipt of a certificate from NRTC in substantially the form of EXHIBIT
I attached hereto (a "NRTC'S CERTIFICATE OF INSTRUCTION"), shall, not later
than the third business day next following its receipt thereof, give written
notice to ILAC of its receipt, together with a copy, of such NRTC Certificate
of Instruction. If Escrow Agent shall not, within five (5) days after it
shall have given such notice to ILAC, have received from ILAC a certificate
in substantially the form of EXHIBIT II attached hereto (an "ILAC'S OBJECTION
CERTIFICATE") in respect of the Certificate of Instruction to which such
notice relates, then Escrow Agent shall, pay over to NRTC, all funds in the
Escrow Fund. The
3
<PAGE>
applicable circumstances which may be set forth in the NRTC's Certificate of
Instruction are the following:
(i) the Auction Agreement is terminated by mutual consent
of NRTC and ILAC;
(ii) the Auction Agreement is automatically terminated by
reason of the occurrence of an event described in Sections 8.1, 8.2, 8.3 of
the Auction Agreement;
(iii) either party has elected to terminate the Auction
Agreement because there has been a Material Unsecured Breach by the other
party as described in Section 8.4 of the Auction Agreement;
(iv) either party has elected to terminate the Auction
Agreement because the event described in Section 8.5 of the Auction
Agreement has occurred.
In such event, the Escrow Fund and any interest accrued thereon shall be
distributed to NRTC by wire transfer to the NRTC account.
5. PROCEDURE FOR RELEASE OF ESCROW FUND. The following procedure
shall apply with respect to the release of the Escrow Fund under this
Agreement.
a. TARGET LICENSE DEPOSIT PAYMENTS. In the event ILAC is
the winning bidder of one or more Target Licenses in the 220 MHZ Auction,
ILAC shall submit a certificate or letter to Escrow Agent, together with a
copy of the FCC Public Notice as published in the FCC Daily Digest (the "FCC
Auction Closing Notice"), announcing the conclusion of the 220 MHZ Auction,
establishing the deposit payment dates, the amount of winning bids of any
Target Licenses acquired by ILAC and the amount of the deposit payments
required with respect thereto. The letter or certificate from ILAC shall set
forth (1) each Target License on which ILAC made a winning bid; (2) the
winning bid amount for each such License; (3) the amount of deposit payment
required by the FCC with respect to each such License; (4) the application of
the "Upfront Payment" (as described in the Auction Agreement) towards such
deposit payment; and (5) the dollar amount of the Escrow Fund to be released
to ILAC for the balance of the deposit payment for each such License in an
amount not in excess of the NRTC Maximum for each such License, as set forth
on Schedule 2 to the Auction Agreement, as the same may have been amended.
Upon receipt of such letter or certificate and the FCC Auction Closing
Notice, Escrow Agent shall release the Escrow Fund to ILAC to the extent
necessary to make the required deposit payments shown to be due, not less
than three (3) Business Days before such payments are due.
4
<PAGE>
b. TARGET LICENSE AWARD PAYMENTS. When the FCC makes a
public announcement published in the FCC Daily Digest indicating the final
award, subject to receipt of final payment, of licenses in the 220 MHz
Auction (the "FCC Award Notice"), ILAC shall submit a letter or certificate
to Escrow Agent to request a release of additional amounts from the Escrow
Fund to make the final payments required by the FCC with respect to the
winning binds on the Target Licenses acquired by ILAC. The letter or
certificate from ILAC shall set forth (1) each Target License acquired by
ILAC; (2) the winning bid amount for each such License; (3) the remaining
balance due with respect to each such License; and (4) the dollar amount of
the Escrow Fund to be released to ILAC for the remaining balance due for each
such License in an amount not in excess of the NRTC Maximum for each such
License, as set forth on Schedule 2 to the Auction Agreement, as the same may
have been amended. Upon receipt of such letter or certificate and the FCC
Award Notice, Escrow Agent shall release the Escrow Fund to ILAC to the
extent necessary to make the required final payments shown to be due, not
less than three (3) Business Days before such payments are due.
c. CLOSE OF ESCROW. In the event no Target Licenses are
purchased at the 220 MHZ Auction, or any portion of the Escrow Fund remains
after disbursement to ILAC for all acquired Target Licenses (as set forth in
subsection 5(b) above), all Escrow Funds remaining, together with any accrued
interest, shall be released to NRTC.
6. TERMINATION DATE. This Agreement shall terminate on the
release and discharge of the Escrow Fund as permitted in Sections 4 and 5
herein (the "Termination Date").
7. DUTIES AND OBLIGATIONS OF ESCROW AGENT; FEES OF ESCROW AGENT.
The duties and obligations of Escrow Agent shall be determined solely by the
provisions of this Agreement and the Certificates referred to in the Exhibits
hereto delivered in accordance herewith, Escrow Agent is not charged with
knowledge of or any duties or responsibilities in respect of any other
agreement or document, and Escrow Agent shall not be liable except for the
performance of such duties and obligations as are specifically set forth in
this Agreement. In furtherance and not in limitation of the foregoing:
a. NRTC shall pay all fees and expenses of the Escrow Agent
for its services hereunder as and when billed by Escrow Agent and shall
reimburse and indemnify Escrow Agent for, and hold it harmless against any
loss, liability, cost or expense, including but not limited to reasonable
attorneys' fees, reasonably incurred on the part of Escrow Agent in
connection with Escrow Agent's duties and obligations under this Agreement,
as well as the reasonable costs and expenses of defending against any claim
or liability relating to this Agreement (and Escrow Agent may debit the
Escrow Fund for such amounts if its invoice is not paid within 30 days);
provided that, notwithstanding the foregoing, NRTC shall not be required to
indemnify Escrow Agent for any such loss, liability, cost or expense arising
as a result of its willful misconduct or gross negligence;
5
<PAGE>
b. Escrow Agent shall not be liable for any loss of interest
sustained as a result of investments made hereunder in accordance with the
terms hereof, including any liquidation of any investment of the Escrow Fund
prior to its maturity effected to make a payment required by the terms of
this Agreement;
c. Escrow Agent shall be fully protected in relying in good
faith upon any written certification, notice, direction, request, waiver,
consent, receipt or other document that Escrow Agent reasonably believes to
be genuine and duly authorized, executed and delivered;
d. Escrow Agent shall not be liable for any error of
judgment, or for any act done or omitted by it, or for any mistake in fact or
law, or for anything that it may do or refrain from doing in connection
herewith; provided that, notwithstanding any other provision in this
Agreement, Escrow Agent shall be liable for its willful misconduct or gross
negligence;
e. Escrow Agent may seek the advice of legal counsel in the
event of any dispute or question as to the construction of any of the
provisions of this Agreement or its duties hereunder, and it shall incur no
liability and shall be fully protected in respect of any action taken,
omitted or suffered by it in good faith in accordance with the opinion of
such counsel;
f. In the event that Escrow Agent shall in any instance,
after seeking the advice of legal counsel pursuant to the immediately
preceding clause, in good faith be uncertain as to its duties or rights
hereunder, it shall be entitled to refrain from taking any action in that
instance and its sole obligation, subject to those of its duties hereunder as
to which there is no such uncertainty, shall be to keep safely all property
held in escrow until it shall be directed otherwise in writing by each of the
parties hereto or by a final order or judgment of a court of competent
jurisdiction; provided that, in the event Escrow Agent has not received such
written direction or court order or judgment within ninety (90) days after
requesting same, it shall have the right to interplead ILAC and NRTC in any
court of competent jurisdiction and request that such court determine its
rights and duties hereunder; and
g. Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either directly
or by or through its agents or attorneys. Nothing in this Agreement shall be
deemed to impose upon Escrow Agent any duty to qualify to do business or to
act as fiduciary or otherwise in any jurisdiction other than the State of
California and Escrow Agent shall not be responsible for and shall not be
under a duty to examine into or pass upon the validity, binding effect,
execution or sufficiency of this Agreement or of any agreement amendatory or
supplemental hereto.
8. COOPERATION. ILAC and NRTC shall provide to Escrow Agent all
instruments and documents within their respective powers to provide that are
necessary for Escrow Agent to perform its duties and responsibilities
hereunder.
6
<PAGE>
9. RESIGNATION AND REMOVAL OF ESCROW AGENT.
a. Escrow Agent may resign as escrow agent hereunder thirty
(30) days following the giving of written notice thereof to ILAC and NRTC.
Similarly, Escrow Agent may be removed and replaced as escrow agent hereunder
thirty (30) days following the giving of written notice to Escrow Agent by
ILAC and NRTC. Notwithstanding the foregoing, no such resignation or removal
shall be effective until a successor Escrow Agent has acknowledged its
appointment as such as provided in paragraph (c) below. In either event, upon
the effective date of such resignation or removal, Escrow Agent shall deliver
the property comprising the Escrow Fund to such successor Escrow Agent.
b. If ILAC and NRTC are unable to agree upon a successor
Escrow Agent, or shall have failed to appoint a successor Escrow Agent prior
to the expiration of thirty (30) days following the date of the notice of
such resignation or removal, the then acting Escrow Agent shall petition a
court of competent jurisdiction to appoint a successor, provided that any
such successor selected shall be a Permitted Bank referred to in subclause
(i) of clause (d) of Section 2.
c. Upon acknowledgment by any duly appointed successor
Escrow Agent of the receipt of the property then comprising the Escrow Fund,
the then acting Escrow Agent shall be fully released and relieved of all
duties, responsibilities and obligations under this Agreement, subject to the
provisos contained in clauses (a) and (d) of Section 8.
10. NOTICES. All notices and other communications required or
permitted hereunder must be in writing and will be deemed to have been duly
given if delivered (personally or by overnight courier) or mailed (by
certified mail return receipt requested, first class postage prepaid) to the
parties at the following addresses:
If to NRTC to: Charles Horton
NRTC
2201 Cooperative Way
Suite 400
Herndon, VA 20171
Facsimile: (703) 793-1980
and
Steven T. Berman
NRTC
2201 Cooperative Way
Suite 400
Herndon, VA 20171
Facsimile: (703) 797-9301
7
<PAGE>
With a copy to: Jack Richards
Keller & Heckman
1001 G Street, N.W.
Washington, D.C. 20001
Facsimile: (202) 434-4653
If to Intek: Robert Shiver
Intek Global Corporation
214 Carnegie Center
Suite 304
Princeton, New Jersey 08540-6237
Facsimile (609) 419-1282
and
George Valenti
Intek Global USA
1690 Topping Avenue
Kansas City, MO 64120
Facsimile: (816) 920-1102
With a copy to: Robert B. Kelly
Squire, Sanders & Dempsey LLP
1201 Pennsylvania Ave., N.W.
Post Office Box 407
Washington, D.C. 20044-0407
Facsimile: (202) 626-6780
If to ILAC: David Neibert
Intek License Acquisition Corp.
24327 VanOwen Street
Suite 206
West Hills, California 91307
Facsimile: (818) 610-0313
8
<PAGE>
If to Escrow Agent, to: U.S. Trust Company, National Association
515 South Flower Street
Suite 2700
Los Angeles, CA 90071-2291
Attn: Corporate Trust Department
Facsimile: (213) 488-1370
or to such other address or number, or to the attention of such other Person,
as any party may designate, at any time, in writing in conformity with these
notice provisions. Failure to send a copy to counsel shall not invalidate
the notice.
All notices and other communications required or permitted under this
Agreement that are addressed as provided in this Section 9 will (a) if
delivered personally or by overnight courier, be deemed given upon delivery,
and (b) if delivered by mail in the manner described above, be deemed given
on the fifth day after deposit in a regular depositary of the United States
mail. Any party from time to time may change its address for the purpose of
notices to that party by giving notice to the other parties hereto specifying
a new address, but no such notice will be deemed to have been given until it
is actually received by the party sought to be charged with the contents
thereof.
11. AMENDMENTS, ETC. This Agreement may be amended, modified,
superseded or canceled, and any of the terms hereof may be waived, only by a
written instrument executed by or on behalf of each of the parties hereto. No
waiver by any party of any breach of any term contained in this Agreement, in
any one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such breach or a waiver of any breach of any other
term contained in this Agreement.
12. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of California, without
reference to principles of conflicts of law.
13. JURISDICTION AND SERVICE OF PROCESS.
ILAC AND NRTC (THE "SUBMITTING PARTIES") HEREBY IRREVOCABLY
SUBMIT TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
CENTRAL DISTRICT OF CALIFORNIA, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF BROUGHT BY THE SUBMITTING PARTIES. IN THE EVENT THAT THE UNITED
STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA SHALL NOT
9
<PAGE>
HAVE JURISDICTION OVER THE SUBMITTING PARTIES ON SUCH MATTERS, THE SUBMITTING
PARTIES HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE STATE COURTS OF
THE STATE OF CALIFORNIA. THE SUBMITTING PARTIES TO THE EXTENT PERMITTED BY
APPLICABLE LAW (A) HEREBY WAIVE, AND SHALL NOT ASSERT, BY WAY OF MOTION, AS A
DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH
COURTS, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF
THE ABOVE-NAMED COURTS, THAT THEIR PROPERTY IS EXEMPT OR IMMUNE FROM
ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER OR THAT THIS AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE
ENFORCED IN OR BY SUCH COURT, AND (B) HEREBY WAIVE THE RIGHT TO ASSERT IN ANY
SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT
COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT
MATTER. THE SUBMITTING PARTIES HEREBY CONSENT TO SERVICE OF PROCESS BY MAIL
AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN PURSUANT TO SECTION 9 HEREOF.
FINAL JUDGMENT AGAINST ANY OF THE SUBMITTING PARTIES IN ANY SUCH ACTION,
SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION (A) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED
OR TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT
OF INDEBTEDNESS OR LIABILITY OF SUCH SUBMITTING PARTY THEREIN DESCRIBED OR
(B) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER
JURISDICTION.
14. MISCELLANEOUS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. The headings
in this Agreement are for convenience of reference only and shall not define
or limit the provisions hereof. This Agreement may be executed in several
counterparts, each of which is an original but all of which together shall
constitute one instrument.
15. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be illegal
or otherwise unenforceable, in whole or in part, the remaining provisions,
and any partially unenforceable provisions to the extent enforceable, shall
nevertheless be binding and enforceable.
10
<PAGE>
16. COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each one of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first above written.
NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE
By: /s/
---------------------------------------------------
Name:
-------------------------------------------------
Title:
------------------------------------------------
INTEK GLOBAL CORPORATION
By: /s/
---------------------------------------------------
Name:
-------------------------------------------------
Title:
------------------------------------------------
INTEK LICENSE ACQUISITION CORP.
By: /s/
---------------------------------------------------
Name:
-------------------------------------------------
Title:
------------------------------------------------
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
By: /s/
---------------------------------------------------
Name:
-------------------------------------------------
Title:
------------------------------------------------
11
<PAGE>
EXHIBIT I
NRTC'S CERTIFICATE OF INSTRUCTION
TO
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
AS ESCROW AGENT
The undersigned, National Rural Telecommunications Cooperative ("NRTC"),
pursuant to Section 4 of the Escrow Agreement, dated as of September 10,
1998, hereby:
(a) certifies that the Auction has concluded and no Target Licenses were
acquired at Auction (as set forth in the Auction Agreement) or the
Auction Agreement has terminated because [list one of reasons in
Section 4]; and
(b) instructs you, subject to and after your compliance with the
provisions of Section 4 of the Escrow Agreement, to pay to NRTC the
Escrow Fund.
NATIONAL RURAL TELECOMMUNICATIONS
COOPERATIVE
By:
---------------------------------------------
---------------------------------------------
Its:
--------------------------------------------
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<PAGE>
EXHIBIT II
ILAC'S OBJECTION CERTIFICATE
TO
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
AS ESCROW AGENT
The undersigned, Intek License Acquisition Corp. ("ILAC") pursuant to
Section 4 of the Escrow Agreement dated as of September 10, 1998, hereby:
(a) certifies that (i) NRTC is not entitled to the Escrow Fund, and
(ii) the undersigned has sent to NRTC a written statement dated
_________, 199_ to such effect; and
(b) objects to your making payment to NRTC as provided in such certificate
of NRTC.
INTEK LICENSE ACQUISITION CORP.
By:
----------------------------------------
Its:
---------------------------------------
By:
----------------------------------------
Its:
----------------------------------------
13
<PAGE>
THIS AGREEMENT is made the 14th day of August 1998
BETWEEN
1. Securicor Radiocoms Limited a company incorporated in England whose
registered office is at Sutton Park House, 15 Carshalton Road, Sutton,
Surrey SM1 4LD, England ("the Vendor") being a wholly owned subsidiary of
Intek Global Corporation, a Delaware, USA publicly traded corporation
("Intek").
2. Securicor Information Systems Limited a company incorporated in England and
whose registered office is at Sutton Park House, 15 Carshalton Road,
Sutton, Surrey SM1 4LD ('the Purchaser') being a wholly owned subsidiary of
Securicor plc, a company registered in England and Wales whose shares are
publicly traded on the London Stock Exchange.
WHEREAS:-
1. The Vendor wishes to sell and the Purchaser wishes to purchase the Goodwill
and Assets of the Business known as the Equipment and Services Unit of the
Vendor.
2. The parties have agreed to transact on the terms set out in this Agreement.
NOW IT IS HEREBY AGREED as follows:-
1. DEFINITIONS
'ASSETS' - those assets of the Business listed in Schedule 1.
'BALANCE SHEET' - the balance sheet of the Business as of the Balance Sheet
Date.
'BALANCE SHEET DATE' - 31 July 1998.
'BUSINESS' - the business carried on by the Vendor under the name of the
Equipment and Services Unit which is comprised of:
<PAGE>
(i) the supply and maintenance of mobile radio products;
(ii) the sale of National Band 3 and Relayfone III Airtime;
(iii) the ownership and management of aerial sites and paging and other
ancillary businesses;
'COMPLETION DATE' - 30th day of September 1998.
'CONTRACTS' - all the Contracts of the Business including in particular the
material contracts listed in Schedule 2.
'DEBTORS' - the amounts owed to the Vendor in the normal course of trading
operations at the Completion Date.
'DISCLOSURE LETTER' - the letter of even date with this Agreement from the
Purchaser to the Vendor setting out exceptions and qualifications to the
warranties set out in clause 6, together with the documents attached
thereto.
'EMPLOYEES'- the employees listed in Schedule 3.
'GOODWILL' - the goodwill of the Vendor in relation to the Business
including the exclusive right to carry on the Business in succession to the
Vendor.
'PREMISES' - the premises details of which are set out in Schedule 4.
2. SALE
The Vendor shall on the Completion Date sell to the Purchaser the Goodwill,
Debtors and the Assets.
3. CONSIDERATION
<PAGE>
3.1 Subject to clauses 3.3, 3.4 and 3.5, in consideration of the sale to
it of the Goodwill, the Assets and the Debtors the Purchaser shall
pay to the Vendor L5,000,000 and shall assume the liabilities of the
Vendor relating to the Business as shown in the Balance Sheet.
3.2 The consideration referred to in clause 3.1 shall be paid in two
installments as follows:-
(a) on the date of this Agreement L2,500,00 by way of
deposit refundable to the Purchaser plus interest at Lloyds
Bank plc base rate plus 2% from the date of payment if the
sale of the Business is not completed by the Completion Date.
(b) the balance of L2,500,000 shall be paid on the Completion
Date.
3.3 Within 30 days following Completion, the Vendor shall prepare and
deliver to the Purchaser a balance sheet showing a true and fair
view of the assets and liabilities of the Business as at the
Completion Date and, within 30 days of receipt thereof, the
Purchaser shall inform the Vendor whether it accepts such balance
sheet and, if not, what changes it considers should be made to such
balance sheet. In the event that the parties are unable to agree
upon such balance sheet within 60 days of the Completion date,
either party may refer the matter for determination by an
independent accountant appointed by agreement of the parties, or if
the parties cannot agree upon such appointment, appointed by the
President for the time being of the Institute of Chartered
Accountants upon the application of either party. Such independent
accountant shall be requested to determine the balance sheet within
30 days of his appointment and the parties shall give such
accountant all reasonable assistance and co-operation in relation
thereto.
3.4 If the balance sheet as agreed by the parties or, as the case may
be, determined by an independent accountant, pursuant to clause 3.3
shows the value of the Assets to be less than their value as shown
in the Balance Sheet by a factor of 5% or greater, than the
consideration paid pursuant to this clause 3 shall be reduced by an
amount equal to the whole of such diminution and the amount of any
reduction of the consideration
<PAGE>
pursuant to this clause 3.4 shall be paid by the Vendor to the
Purchaser within 7 days of the date on which such balance sheet
is agreed or determined, as appropriate.
3.5 In the event that the aggregate revenue of the Business from its
Band III, Service and Maintenance, Relayfone and PMR Hire products
and services during the period of two years ending 30 September 2000
is less than an amount equal to two times the aggregate revenue of
the Business from such products and services during the year ending
30 September 1998, the Vendor shall repay to the Purchaser, no later
than 31 December 2000, a sum equal to such shortfall, up to a
maximum of L500,000 PROVIDED THAT in the event that the Purchaser
disposes of or discontinues to a material extent any part of the
Business which consists of the supply of any of such products and
services, the provisions of this clause 3.5 shall be of no effect in
relation to any period following any such disposal or cessation.
Any repayment made pursuant to this clause 3.5 shall be treated as a
reduction in the consideration payable pursuant to this Agreement.
4. COMPLETION
4.1 The Vendor shall deliver or cause to be delivered to the Purchaser
on completion:-
(a) such of the Assets referred to in schedule 1 as a are capable
of being transferred by delivery;
(b) such documents as a are required to complete the sale and
purchase of the Assets;
(c) such books, records, contracts and other documents relating to
the Business as a the Purchaser may reasonably require.
5. EMPLOYEES
5.1 The parties accept that the sale of the Business is governed by the
Transfer of Undertakings (Protection of Employment) Regulations 1981
and that the contracts of
<PAGE>
employment of the Employees will be transferred to the Purchaser
with effect from the Completion Date on the terms of such
Regulations.
5.2 All salaries, wages and other payments due in respect of a period
preceding the Completion Date and relating to the employees shall be
borne by the Vendor.
5.3 All salaries, wages and other payments due in respect of a period
after the Completion Date will be borne by the Purchaser.
5.4 The Purchaser shall notify the Inland Revenue as a soon as a
practicable following Completion of the change of the PAYE reference
number of the Employees to that of the Purchaser.
6. WARRANTIES
6.1 The Vendor warrants to the Purchaser that (except as a set out in
sufficient detail in the Disclosure Letter to enable the Purchaser
to be aware of the extent to which any of the following warranties
is accurate):-
(a) the Assets are owned absolutely by the Vendor free from any
encumbrance and good title in the Assets will pass to the
Purchaser on completion of the sale and purchase;
(b) all statutory requirements relating to the Business have been
complied with;
(c) there has been no loss of a Significant Customer of the
Business since 1 April 1998; for this purpose a 'Significant
Customer' means a customer whose business represents more than
five per cent of the sales revenue of the Business;
<PAGE>
(d) since the Balance Sheet Date, there has been no material
adverse change in the financial position of the Business, the
Business has been carried on in the ordinary course and there
has been no unusual increase or decrease in the level of stock
of the Business;
(e) the Vendor will take all necessary steps and co-operate with
the Purchaser to ensure that it obtains the full benefit of
the Business and shall execute such documents and take such
other steps as a are necessary for vesting in the Purchaser
all its rights and interests in the Business including in
particular relating to:-
- the assignment of the Contracts
- the transfer of licences for the Relayfone 3 radio system
(f) all business conducted by the Business is on the terms, or
substantially on the terms of the standard conditions of the
Business disclosed to the Purchaser prior to the Completion
Date;
(g) the accounting and other information provided to the Purchaser
prior to the Completion Date including in particular the
Balance Sheet for the Business as a at 31 July 1998 is
accurate in all material respects;
(h) there is so far as a the Vendor is aware no litigation,
arbitration or other legal claim pending or threatened
relating to the Business.
6.2 The Vendor will be under no liability in respect of any breach or
non-fulfillment of any of the Warranties unless the Purchaser has
served on the Vendor written notice on or before the date one year
from the Completion Date giving reasonable details of the breach or
non-fulfillment including the Purchaser's best estimate of the
amount of liability of the Vendor.
6.3 The Purchaser will not knowingly compromise or settle any claim
which may give rise to a claim against the Vendor under the terms of
this Agreement without prior
<PAGE>
consultation and the prior written consent of the Vendor, such
consent not to be unreasonably withheld or delayed.
6.4 The Vendor will not be liable in respect of any claim for breach of
the Warranties unless such claim individually exceeds L10,000 and
unless the aggregate amount of all such claims exceed L50,000 and if
such aggregate amount does exceed L50,000 the Vendor's liability
will not be limited to the excess and the whole amount will be
recoverable in full.
6.5 The aggregate amount of the liability of the Vendor in respect of
any breach of the warranties will in no event exceed the aggregate
amount of the sum received by the Vendor under this Agreement.
7. CONTRACTS
7.1 In so far as a the benefit and burden of any of the Contracts cannot
effectively be assigned by the Vendor to the Purchaser except by
novation or with the consent of any third party:
7.1.1 the Vendor and the Purchaser shall co-operate to take all
reasonable steps to procure that the Contracts are novated as
a aforesaid; and
7.1.2 unless and until any such Contracts shall be novated, the
Purchaser shall perform and discharge the outstanding
obligations and liabilities of the Vendor under the Contracts,
except for any obligations or liabilities attributable to a
breach on the part of the Vendor and shall indemnify the
Vendor on demand against all actions, proceedings, costs,
damages, claims, liabilities and reasonable costs and expenses
in respect of any failure on the part of the Purchaser after
the Completion Date to carry out, perform and complete the
outstanding obligations and liabilities of the Vendor under
the Contracts (other than any obligations or liabilities
attributable to a breach on the part of the Vendor).
<PAGE>
8. INDEMNITY
8.1 The Vendor shall discharge and indemnify the Purchaser against any
liability incurred or costs, claims and demands arising in
connection with the Business carried on by the Vendor prior to the
Completion Date, save to the extent that details thereof are set out
in the Disclosure Letter.
8.2 The Purchaser will discharge and indemnify the Vendor in the same
terms as a 8.1 above (mutatis mutandis) in relation to the Business
after the Completion Date except to the extent caused by the act or
default of the Vendor, its employees or agents.
9. APPORTIONMENT OF PROFITS AND RECEIPTS
9.1 All profits and receipts of the Business and all losses and
outgoings in respect of the Business up to the Completion Date shall
belong to and be paid by the Vendor. After the Completion Date all
profits and receipts and all losses and outgoings of the Business
shall belong to and be paid and discharged by the Purchaser.
Prepayments and payments in arrears shall be apportioned on a daily
basis as a at the Completion Date.
9.2 The parties will use all reasonable endeavors to agree such
apportionments within one month after the Completion Date. If the
matter cannot be resolved between the parties, either party may then
refer the matter to an independent accountant acceptable to the
parties. If no such accountant can be agreed within 30 days, an
accountant will be appointed by the President for the time being of
the Institute of Chartered Accountants of England and Wales. The
decision of such accountant (acting as a expert not arbitrator) will
be final and binding on the parties (in the absence of manifest
error). The cost of such referral will be borne by the parties in
such manner as a the independent accountant shall determine.
10. PREMISES
<PAGE>
The Vendor will procure the transfer of its interests (or, in the case of
the Cardiff site, that of its wholly owned subsidiary, Private Mobile Radio
Limited) in the Premises to the Purchaser on or before the Completion Date
free of all claims and encumbrances, except as a may be set out in the
Disclosure Letter or otherwise disclosed in writing to the Purchaser prior
to the Completion Date.
11. VALUE ADDED TAX
11.1 The parties intend that the Business will be sold as a a going
concern for VAT purposes and accordingly:
(i) the Vendor and the Purchaser will when required to do so give
notice of such sale to HM Customs & Excise as a required by
law;
(ii) the Vendor will on Completion deliver to the Purchaser all
relevant VAT records.
12. USE OF SECURICOR RADIOCOMS NAME
The Purchaser will have the transitional right to use the Securicor
Radiocoms name for a three month transitional period from the Completion
Date during which time Securicor Radiocoms Limited will change its name to
another name and the Purchaser will then have the right to use the
Securicor Radiocoms name.
13. RESTRICTIVE COVENANT
The Vendor undertakes with the Purchaser and its successors in title
(subject to the Distributor Agreement in clause 14 below) that it will not
directly or indirectly:
(a) for a period of 5 years following the Completion Date set up,
acquire or be directly or indirectly interested in a business
distributing, marketing or servicing mobile radio products or
networks in the United Kingdom except that this provision will not
prevent
<PAGE>
Intek (or its subsidiary companies) appointing non-exclusive
distributors for its linear modulation or associated products in the
United Kingdom during such 5 year period;
(b) at any time after the Completion Date make use of or furnish to any
other person the Vendor's know-how or information of a confidential
or secret nature relating to the Business and or any of the Assets
unless so requested in writing by the Purchaser or required or
requested by any competent authority in the exercise of any legal
power or unless the same becomes public knowledge other than by
reason of breach of this clause.
14. DISTRIBUTOR AGREEMENT
The parties agree to negotiate in good faith for the drawing up of a
distributor agreement including the following terms:-
(i) the non-exclusive right for the Purchaser to distribute throughout
the countries comprising the European Union linear modulation and
other products marketed by Intek or any subsidiary of Intek;
(ii) non-exclusive rights for the Vendor, Intek, or any subsidiary of
Intek as a the Vendor may nominate, to distribute in North America
products and systems handled by the Purchaser.
15. TRANSITIONAL PROVISION OF ADMINISTRATIVE SERVICES
The Vendor agrees to provide and the Purchaser to accept administrative
services for a transitional period of three months from the Completion Date
in consideration of the payment by the Purchaser to the Vendor of a
peppercorn and thereafter, if so required by the Purchaser, on such terms
as a may reasonably be agreed between the parties; thereafter subject to
the right of eight party to terminate all or some of such services on
giving not less than 30 days prior written notice to the other. The
services to be covered will include:-
(i) information technology support including access to the Vendor's
Visibility software;
<PAGE>
(ii) salary administration;
(iii) health and safety advice;
(iv) other services as a currently provided to the Vendor's Equipment and
Services Unit by central support staff based at Midsomer Norton.
16. GENERAL PROVISIONS
16.1 This Agreement shall be binding upon and enure for the benefit of
successors of the parties but shall not be assignable.
16.2 This Agreement together with the Schedules constitutes the whole
Agreement between the parties and no variations shall be effective
unless made in writing and signed by an authorized representative of
the parties. No representation or warranty shall be binding unless
expressly incorporated in this Agreement.
16.3 Each party shall bear its own legal and other costs incidental to
the preparation of this Agreement and the completion of the
Transaction hereby agreed.
16.4 This Agreement will be conditional on:-
(i) receipt by the Vendor of a fairness opinion from Fahnestock &
Co.;
(ii) approval by the Board of Directors of Intek Global
Corporation;
(iii) approval by the Board of Directors of Securicor plc.;
(iv) completion of the Purchaser to its satisfaction of due
diligence relating to the Business.
16.5 For the avoidance of doubt and subject to the provisions of clause
16.3 above, the Purchaser shall be responsible for all and any stamp
duty, land registry fees and other
<PAGE>
charges relating to the transactions contemplated by this Agreement
PROVIDED THAT the Vendor will co-operate with the Purchaser in
taking reasonable steps to minimize any such charges.
17. NOTICES
17.1 Any notice required to be given by any party hereto to any other
party shall be deemed validly served if sent by prepaid letter,
telex or facsimile to the relevant address given in this Agreement
or to such other address as a may from time to time be notified for
this purpose.
17.2 The relevant addresses as a at the date of this Agreement are:
VENDOR: Securicor Radiocoms Limited
Cross Keys House
Westfield Industrial Estate
Midsomer Norton
Avon BA3 4BS
for the attention of Mr. T. Little;
with copies to:
Intek Global Corporation
1690 N. Topping Avenue
Kansas City
MO 64120
USA;
and
Intek Global Corporation
214 Carnegie Center, Suite 304
Princeton
NJ 08540-6237
USA
<PAGE>
PURCHASER: Securicor Information Systems Limited
Marshfield
Chippenham
Wiltshire SN14 8NN
for the attention of Mr. B. Brain.
SIGNED BY /s/
-----------------------------------------------
FOR SECURICOR RADIOCOMS LIMITED
IN THE PRESENCE OF: /s/
SIGNED BY /s/
-----------------------------------------------
FOR SECURICOR INFORMATION SYSTEMS LIMITED
IN THE PRESENCE OF: /s/
<PAGE>
<TABLE>
<CAPTION>
Percentage
Number ------------------------------
Jurisdiction of Classes of of Shares Issued of Class
Name of Subsidiary 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%
Linear Modulation England and
Technology Limited Wales common stock -- 100%
Intek License
Acquisition
Corporation Delaware common stock 100 100%
Mobile Data
Solutions Nevada common stock -- 100%
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10K, into the Company's
previously filed Registration Statement File No. 033-61529, Statement File
No. 033-60505 and Statement File No. 333-51039.
/s/ ARTHUR ANDERSEN LLP
Kansas City, Missouri,
December 21, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the incorporation of our
report included in this Form 10K, into the company's previously filed
Registration Statement files Nos. 033-61529, 033-60505, and 333-51039.
/s/ BAKER TILLY
Chartered Accountants
London, England
21 December 1998
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 5719000
<SECURITIES> 0
<RECEIVABLES> 4863000
<ALLOWANCES> 993000
<INVENTORY> 17677000
<CURRENT-ASSETS> 31208000
<PP&E> 28769000
<DEPRECIATION> 5200000
<TOTAL-ASSETS> 80114000
<CURRENT-LIABILITIES> 20280000
<BONDS> 0
0
35452000
<COMMON> 106805000
<OTHER-SE> (115259000)
<TOTAL-LIABILITY-AND-EQUITY> 80114000
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