<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9/A
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
------------------------
INTEK GLOBAL CORPORATION
(NAME OF SUBJECT COMPANY)
INTEK GLOBAL CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
458134 10 3
(CUSIP NUMBER OF CLASS OF SECURITIES)
ROBERT J. SHIVER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
99 PARK AVENUE
NEW YORK, NEW YORK 10016
(212) 949-4200
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE
AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
NANCY H. WOJTAS, ESQ.
MANATT, PHELPS & PHILLIPS, LLP
11355 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90064
(310) 312-4000
<PAGE> 2
This Amendment No. 2 to Schedule 14D-9 amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9, as amended by Amendment
No. 1 thereto, (the "Schedule 14D-9") of Intek Global Corporation, a Delaware
corporation (the "Company"), filed with the Securities and Exchange Commission
on June 16, 1999 relating to a tender offer by IGC Acquisition Corp., a Delaware
corporation ("Purchaser") and a wholly-owned subsidiary of Security Services
plc, a public limited company incorporated under the laws of England and Wales
("Parent"), to purchase all of the outstanding common stock, par value $.01 per
share, of the Company (the "Shares") at a price of $3.0125 per Share (the "Offer
Price"), net to the seller in cash, without interest thereon and less any
required transfer and withholding taxes, upon the terms and subject to the
conditions set forth in Purchaser's Offer to Purchase, dated June 16, 1999 (the
"Offer to Purchase"), as supplemented by the First Supplement to Offer to
Purchase, dated August 2, 1999 (the "First Supplement"), and in the related
Letter of Transmittal (which together with any amendments or supplements
thereto, collectively constitute the "Offer"). A copy of the Offer to Purchase
and the related Letter of Transmittal were attached as Exhibits 99.5 and 99.6,
respectively, to the initial filing of the Schedule 14D-9. The First Supplement
and related Letter of Transmittal are attached as Exhibits 99.15 and 99.16,
respectively, to this Amendment No. 2. Capitalized terms used and not defined
herein shall have the meaning assigned to such terms in the Schedule 14D-9.
ITEM 2. TENDER OFFER OF PURCHASER
The response to Item 2 in the Schedule 14D-9 is supplemented as follows:
The information set forth under "INCREASE OF THE OFFER PRICE AND MERGER
CONSIDERATION; EXTENSION OF EXPIRATION DATE OF OFFER" in the First Supplement is
hereby incorporated by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
The response to Items 4(b) and (c) of the Schedule 14D-9 are supplemented
as follows: The information set forth under "ADDITIONAL INFORMATION -- SPECIAL
FACTORS -- 1. BACKGROUND OF THE OFFER" and "--2. RECOMMENDATION OF THE
INDEPENDENT COMMITTEE AND THE COMPANY BOARD; FAIRNESS OF THE OFFER AND THE
MERGER" in the First Supplement is hereby incorporated by reference.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The response to Item 8 of the Schedule 14D-9 is further supplemented as
follows: The information set forth under "ADDITIONAL INFORMATION -- THE TENDER
OFFER -- 3. CERTAIN LEGAL MATTERS; REQUIRED REGULATORY PROPOSALS" in the First
Supplement is hereby incorporated by reference.
The response to Item 8 of the Schedule 14D-9 is further supplemented as
follows: The information set forth in the First Supplement and the related
Letter of Transmittal, copies of which are attached as Exhibits 99.15 and
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99.16, respectively, to this Amendment No. 2, is hereby incorporated by
reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Item 9 of the Schedule 14D-9 is supplemented by adding the following
information thereto:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
99.14 Press Release, dated July 15, 1999, issued by Purchaser.
99.15 First Supplement to Offer to Purchase, dated August 2, 1999.
99.16 Form of Letter of Transmittal.
99.17 Press Release, dated August 2, 1999, issued by Purchaser.
99.18 Amendment No. 1 to Agreement and Plan of Merger, dated as
of July 30, 1999, by and among the Company, Parent and
Purchaser.
</TABLE>
3
<PAGE> 4
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Amendment No. 2 is true, complete
and correct.
INTEK GLOBEL CORPORATION
By /s/ ROBERT J. SHIVER
------------------------------------
Robert J. Shiver
Chairman and Chief Executive Officer
Dated: August 2, 1999
4
<PAGE> 5
EXHIBIT INDEX
Exhibit Description
Number
<TABLE>
<CAPTION>
Sequential
Numbered
Exhibit Number Description Pages
-------------- ----------- ---------
<S> <C> <C>
99.14 Press Release, dated July 15, 1999, issued by Purchaser.
99.15 First Supplement to Offer to Purchase, dated August 2, 1999.
99.16 Form of Letter of Transmittal.
99.17 Press Release, dated August 2, 1999, issued by Purchaser.
99.18 Amendment No. 1 to Agreement and Plan of Merger, dated as
of July 30, 1999, by and among the Company, Parent and
Purchaser.
</TABLE>
5
<PAGE> 1
PRESS RELEASE
FOR IMMEDIATE RELEASE
Contact: MacKenzie Partners, Inc.
Edith A. Lohman
(212) 675-0524
IGC ACQUISITION CORP. INCREASES PRICE AND EXTENDS
EXPIRATION DATE IN TENDER OFFER FOR INTEK GLOBAL CORPORATION
NEW YORK, NEW YORK, July 15, 1999 -- IGC Acquisition Corp., a wholly-owned
subsidiary of Security Services plc, announced today that it has increased the
purchase price being offered in its tender offer for the outstanding common
stock of Intek Global Corporation (NASDAQ: IGLC) from $2.75 to $3.0125 per
share, net to the seller in cash, without interest thereon and less any required
transfer and withholding taxes. Similarly, the cash consideration into which
each then outstanding share of common stock of Intek Global Corporation will be
converted upon consummation of the merger of IGC Acquisition Corp. with and into
Intek Global Corporation (which will occur following the successful completion
of the tender offer) has been increased from $2.75 to $3.0125 per share, net to
the seller in cash, without interest thereon and less any required transfer and
withholding taxes. IGC Acquisition Corp. also announced that it was extending
the expiration date for the tender offer from midnight on July 14, 1999 to
midnight on August 3, 1999.
The foregoing changes in the terms of the transaction will be reflected in
an amendment to the previously executed Merger Agreement among IGC Acquisition
Corp., Security Services plc and Intek Global Corporation.
IGC Acquisition Corp. has been advised by the depositary for the tender
offer that, as of 5:00 p.m., New York City time, on July 14, 1999, 6,196,361
shares of Intek Global Corporation common stock had been validly tendered and
not withdrawn pursuant to the tender offer.
###
<PAGE> 1
FIRST SUPPLEMENT TO THE OFFER TO PURCHASE FOR CASH, DATED JUNE 16, 1999
IGC ACQUISITION CORP.
A WHOLLY-OWNED SUBSIDIARY OF
SECURITY SERVICES PLC
HAS AMENDED ITS
OFFER TO PURCHASE FOR CASH
AND IS NOW OFFERING TO PURCHASE ALL OUTSTANDING SHARES OF COMMON STOCK
OF
INTEK GLOBAL CORPORATION
AT
$3.0125 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 NOON, NEW YORK
CITY TIME, ON MONDAY, AUGUST 16, 1999, UNLESS THE OFFER IS EXTENDED.
The following information amends and supplements the Offer to Purchase
dated June 16, 1999 (the "Offer to Purchase") of IGC Acquisition Corp., a
Delaware corporation ("Purchaser") and a wholly-owned subsidiary of Security
Services plc, a public limited company incorporated under the laws of England
and Wales ("Parent"), pursuant to which Purchaser offered to purchase all of the
outstanding shares of common stock, par value $.01 per share (the "Shares") of
Intek Global Corporation, a Delaware corporation (the "Company"), at a price of
$2.75 per Share (the "Offer Price"), net to the seller in cash, without interest
thereon and less any required transfer and withholding taxes, upon the terms and
subject to the conditions set forth in the Offer to Purchase and in the related
Letter of Transmittal (which together with any amendments or supplements hereto
or thereto, collectively constitute the "Offer"). This first supplement to the
Offer to Purchase (the "First Supplement") provides information with respect to
an increase in the Offer Price and Merger Consideration from $2.75 per Share to
$3.0125, an extension of the expiration date of the Offer to August 16, 1999,
and certain other additional information.
This First Supplement should be read in conjunction with the Offer to
Purchase. Except as set forth in this First Supplement and the revised Letter of
Transmittal, the terms and conditions previously set forth in the Offer to
Purchase remain applicable in all respects to the Offer. Terms used but not
defined in this First Supplement have the meanings set forth in the original
Offer to Purchase.
Questions and requests for assistance may be directed to MacKenzie
Partners, Inc. (the "Information Agent") or Lazard Freres & Co. LLC (the "Dealer
Manager") at their respective addresses and telephone numbers set forth on the
back cover of this First Supplement. Additional copies of this First Supplement,
the Letter of Transmittal, the Notice of Guaranteed Delivery and other related
materials may be obtained from the Information Agent or from brokers, dealers,
commercial banks and trust companies.
THE OFFER TO PURCHASE, THIS FIRST SUPPLEMENT AND THE REVISED LETTER OF
TRANSMITTAL AS DEFINED HEREIN CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ
CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The Dealer Manager for the Offer is:
LAZARD FRERES & CO. LLC
August 2, 1999
<PAGE> 2
INCREASE OF THE OFFER PRICE AND MERGER CONSIDERATION;
EXTENSION OF EXPIRATION DATE OF THE OFFER
On July 15, 1999, Purchaser and Parent amended the Offer to: (i) increase
the Offer Price and the Merger Consideration from $2.75 per Share to $3.0125 per
Share and (ii) extend the initial Expiration Date to 12:00 midnight, New York
City time, on August 3, 1999, in each case pursuant to the terms of the
Memorandum of Understanding entered into by counsel for the Company, Securicor,
the Company's directors and the plaintiffs in connection with the proposed
settlement of three class action lawsuits filed relating to the Offer and the
Merger. The Expiration Date subsequently was further extended to 12:00 Noon, New
York City time, on August 16, 1999. The increase in the Offer Price and the
Merger Consideration and the extension of the Expiration Date to August 16, 1999
are reflected in Amendment No. 1 to the Merger Agreement, dated as of July 30,
1999, among Parent, Purchaser and the Company (the "First Amendment"). For a
description of the lawsuits and the Memorandum of Understanding, see "THE TENDER
OFFER -- Certain Legal Matters; Required Regulatory Approvals" in this First
Supplement.
TENDERING SHARES
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either: (a) complete and sign the Letter of Transmittal previously
delivered by Purchaser or Parent (or a facsimile thereof) or the revised Letter
of Transmittal that accompanies this First Supplement in accordance with the
instructions in the Letters of Transmittal, have such stockholder's signature
thereon guaranteed if required by Instruction 1 to such Letters of Transmittal,
and mail or deliver the Letters of Transmittal (or such facsimile) together with
the certificate(s) representing such Shares and any other required documents to
Shareholder Services, L.L.C. (the "Depositary") or tender such Shares pursuant
to the procedures for book-entry transfer set forth under "THE TENDER
OFFER -- Procedures for Accepting the Offer and Tendering Shares" in the Offer
to Purchase or (b) request such stockholder's broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for such stockholder. A
stockholder whose Shares are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if such stockholder
desires to tender such Shares.
Any stockholder who desires to tender such stockholder's Shares and whose
certificates representing such Shares are not immediately available or who
cannot comply with the procedures for book-entry transfer on a timely basis may
tender such Shares by following the procedures for guaranteed delivery set forth
under "THE TENDER OFFER -- Procedures for Accepting the Offer and Tendering
Shares" in the Offer to Purchase.
STOCKHOLDERS WHO HAVE PREVIOUSLY VALIDLY TENDERED SHARES PURSUANT TO THE
OFFER AND WHO HAVE NOT WITHDRAWN THOSE SHARES NEED NOT TAKE ANY FURTHER ACTION
IN ORDER TO TENDER SHARES PURSUANT TO THE OFFER AND RECEIVE THE INCREASED OFFER
PRICE. STOCKHOLDERS WHO HAVE TENDERED SHARES PURSUANT TO THE GUARANTEED DELIVERY
PROCEDURE SHOULD COMPLY WITH THE REQUIRED PROCEDURES. SEE "THE TENDER
OFFER -- PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES" IN THE OFFER
TO PURCHASE.
2
<PAGE> 3
ADDITIONAL INFORMATION
SPECIAL FACTORS
1. BACKGROUND OF THE OFFER. The discussion set forth in "SPECIAL
FACTORS -- Background of the Offer" in the Offer to Purchase is hereby amended
as follows:
To amend the last paragraph on page 6 and the carry-over paragraph on page
7 to read in their entirety as follows:
"On February 23, 1999, Lazard met with the Securicor Board Committee to
discuss the six-year business plan. Lazard explained to the committee that, in
its view, the plan was speculative because, among other things, it assumed that
the Company would have access to substantial additional financing beyond the
funds already committed by Securicor, without consideration as to the likelihood
of the Company being able to obtain such financing from unaffiliated third
parties or the terms of any such financing. In addition, it also assumed that
the Company would introduce a VHF product in late 1999 which would produce
substantial revenues and profits relatively quickly notwithstanding that the
product was not yet fully developed and it was not clear that the market would
develop to the extent, and within the time frames, contemplated by the plan. It
also assumed that a substantial part of the Company's business going forward
would consist of the RoamerR One business, which is also in a relatively early
phase of growth."
To amend the last three paragraphs on page 8 and the carry-over paragraph
on page 9 to read in their entirety as follows:
"During the week of April 19, 1999, Mr. Shiver received a report prepared
over the prior several months by Richard O'Hara (the "O'Hara Report"), the
member of Company management primarily responsible for the Company's activities
in the VHF market.
The O'Hara Report identified those segments of the refarming market in
which the Company believes it will be able to compete successfully. These
markets consist primarily of governmental organizations and rural utilities,
which were estimated to represent a potential market of approximately $770
million through the year 2005. The O'Hara Report concluded that the Company
would likely realize revenues later than initially expected, with most of such
revenues being realized closer to the FCC mandated deadline of 2005 for new
radio equipment to be more spectrally efficient. The O'Hara Report indicated
that the Company believed consumers would be unlikely to invest substantial
amounts in new equipment well in advance of the 2005 FCC deadline. The O'Hara
Report also indicated that sales of the Company's VHF products would be delayed
until such products completed beta testing and the Company further developed its
plan for marketing and distributing this new equipment.
On April 22, 1999, Mr. Shiver, Mr. O'Hara and George Naspo (the Executive
Vice President of the Company) met with Mr. Griffiths and Roger Wiggs (the Chief
Executive of Securicor) to discuss the O'Hara Report.
On April 23, 1999, the Company's Board held a meeting at which the
Independent Committee updated the Company's Board regarding the discussions held
by Bear Stearns with Lazard relating to Securicor's informal indication of
interest. The Independent Committee reported that it would not be in a position
to make a recommendation to the Company's Board to accept a proposal from
Securicor, if made, at the level reflected in the latest informal indication of
interest, due to its inadequacy. The directors who are employees of affiliates
of Purchaser were not present during this portion of the meeting. Following the
discussion of Securicor's indication of interest, the directors who are
employees of an affiliate of Purchaser joined the meeting and there was a
discussion of the O'Hara Report. Mr. Frank was not present during the discussion
of the O'Hara Report and Mr. Noam was present for a part of such discussion.
On April 29, 1999, at an Independent Committee meeting, the O'Hara Report
was discussed. In addition, at this meeting Bear Stearns informed the
Independent Committee that the management of the Company had advised Bear
Stearns that certain assumptions in the Company's six-year business plan
3
<PAGE> 4
needed updating, and had delivered several projected "scenarios" to reflect the
updated assumptions. Mr. Shiver joined the meeting by telephone and expressed
management's view that certain assumptions in such plan needed updating in light
primarily of the then current status of delays in the anticipated development of
the VHF product market as discussed in the O'Hara Report and reduced margins on
the Company's land mobile radio equipment sales resulting from increased
competition. Mr. Shiver expressed management's belief that, in light of the
foregoing, its previous forecasts had been aggressive and needed to be revised.
Mr. Shiver then left the call. The Independent Committee revisited with Bear
Stearns whether, if Securicor made an offer at $2.75 per share, Bear Stearns
would issue a fairness opinion after adjusting its analyses to reflect the
updated information. Bear Stearns indicated that to complete its analyses, it
could not rely on the scenarios presented by the management of the Company, but
would instead need the Company to update its forecasts based on the updated
operating assumptions described by Mr. Shiver."
To amend the third full paragraph on page 9 to read in its entirety as
follows:
"At a May 10, 1999 Independent Committee meeting, the Independent Committee
decided that although ultimately it might recommend a proposal at a price of
$2.75 per share, it would instruct Bear Stearns, as part of the Independent
Committee's negotiating strategy of encouraging a higher proposal, to
communicate to Lazard that although the Independent Committee was still
dissatisfied with the informal indication of interest at $2.75 per share, the
Independent Committee was prepared to proceed to discuss the other terms that
might form a part of an offer by Securicor, subject to the understanding that
any merger agreement should contain only very limited representations and
warranties and minimal closing conditions."
To replace the fourth full paragraph on page 11 with the following:
"Following the Company Board meeting, on June 8, 1999 Mr. Shiver received a
letter via facsimile from The World Team Corporation ("WorldTeam") expressing an
interest in "beginning due diligence towards possibly making a more competitive
offer" to acquire the Company. In the letter, WorldTeam describes itself as "a
start-up wireless communication venture that is in the advanced arrangements of
securing US$250 million via a single equity investor" and whose three founders
"have more than 30 years of senior management experience from AT&T, Nextel and
McCaw Cellular Communications." Although the letter sought a response from the
Company only in the event that the Company decided to turn down Securicor's
proposal, the Independent Committee instructed Bear Stearns to contact WorldTeam
to seek further information about WorldTeam, its interest in the Company and its
ability to consummate a transaction with the Company.
Bear Stearns was unsuccessful in trying to contact WorldTeam by telephone
and therefore sent an e-mail to WorldTeam on June 21, 1999 requesting the
further information specified by the Independent Committee. WorldTeam responded
on the same date by sending back a "standard WorldTeam non-disclosure agreement"
providing for a mutual exchange of information to be kept confidential by each
party. On June 23, 1999, Bear Stearns sent WorldTeam a revised draft of the
non-disclosure agreement prepared by GDC and advised WorldTeam that the
revisions were to reflect the fact that the agreement should initially only
cover financial and other background information to be provided by WorldTeam to
the Company necessary to establish if WorldTeam was a credible potential
purchaser. Bear Stearns received an e-mail response from WorldTeam on June 23,
1999 indicating that a non-disclosure agreement that was not mutual was
unacceptable. Bear Stearns called WorldTeam on June 25, 1999 and explained that
if the information provided by WorldTeam was satisfactory to establish
WorldTeam's credibility, the Company would then enter into a separate
non-disclosure agreement with WorldTeam regarding the disclosure to WorldTeam of
information regarding the Company. WorldTeam responded that it was unwilling to
share any information given that it was planning to close its equity financing
in the next two to three weeks. WorldTeam also stated that it was not in fact
interested in making an offer to purchase the Company as a whole but rather in
potentially forming a joint venture or other business arrangement with Securicor
regarding the RoameR One business. WorldTeam further stated that it would like
to suspend further discussions until after the closing of its financing, at
which point it would contact Bear Stearns again.
4
<PAGE> 5
WorldTeam asked if it was possible for Bear Stearns to put it in touch with
Securicor at that time. Bear Stearns indicated that it did not represent
Securicor, but stated that WorldTeam was welcome to call Bear Stearns or
Securicor at that time. WorldTeam said to expect its call in mid-July. Neither
Bear Stearns nor Securicor has heard anything further from WorldTeam since that
time. Based on these developments, the Independent Committee has concluded that
it would not be productive to pursue further discussions with WorldTeam.
Moreover, the Independent Committee has concluded that the WorldTeam
communications have done nothing to call into question the Independent
Committee's assumption that no third party would be willing to offer more than
Securicor and it has therefore not caused the Independent Committee to revisit
its fairness determination.
Three class action lawsuits have been filed against the Company, Securicor,
and the Company's directors relating to the Offer. During the period from
mid-June through July 8, 1999, counsel for the Company, Securicor and the
Company's directors and counsel for the plaintiffs in these lawsuits engaged in
various discussions regarding the possible settlement of these lawsuits. In
early July 1999, the parties to the lawsuits agreed to the terms of a
settlement, which were reflected in a Memorandum of Understanding executed by
the parties on July 8, 1999. See "THE TENDER OFFER -- Certain Legal Matters;
Required Regulatory Approvals" for a description of the lawsuits and the
settlement."
Following the execution of the Memorandum of Understanding, the members of
the Independent Committee engaged in discussions with GDC and Bear Stearns about
the terms of the settlement outlined in the Memorandum of Understanding,
including, among other things, the proposed increase in the consideration
payable in the Offer and the Merger from $2.75 per Share to $3.0125 per Share
and the extension of the expiration date of the Offer.
On July 14, 1999, WGM distributed for review by the members of the
Independent Committee, GDC and Bears Stearns a preliminary draft of the First
Amendment, reflecting (i) the increase in the Offer Price and the Merger
Consideration from $2.75 per Share to $3.0125 per Share and (ii) the extension
of the expiration date of the Offer, in each case pursuant to the terms of the
Memorandum of Understanding.
Between July 14, 1999 and July 21, 1999, the members of the Independent
Committee continued to engage in discussions with GDC regarding the fairness of
the Offer, as amended by the First Amendment. During this period, the
Independent Committee also consulted with Mr. Shiver to determine whether there
had been any material change in the Company's business or business prospects
since June 7, 1999, the date when the Independent Committee resolved to
recommend the approval of the Offer at $2.75 per Share. Based on these
discussions, the Independent Committee determined that there had been no
material change in the Company's business or business prospects since June 7,
1999.
On July 15 and 16, 1999, the Independent Committee and GDC held discussions
with Bear Stearns about whether it would be advisable to request that Bear
Stearns deliver in connection with the First Amendment an additional opinion
that that Offer Price, as increased pursuant to the First Amendment, is fair to
the Company's stockholders (other than Securicor and its affiliates) from a
financial point of view. Based on these discussions, the Independent Committee
concluded that it was not necessary for Bear Stearns to render such an opinion.
In reaching its determination, the Independent Committee considered that: (a)
there had been no material change in the Company's business or business
prospects since June 7, 1999 when Bear Stearns delivered its written opinion to
the Independent Committee that the $2.75 per Share Offer Price is fair to the
Company's stockholders (other than Securicor and its affiliates) from a
financial point of view; (b) the cost of obtaining an additional fairness
opinion from Bear Stearns would be substantial and outweighed any benefit to be
derived therefrom; and (c) the Offer Price and the Merger Consideration had
increased from $2.75 per Share to $3.0125 per Share.
The First Amendment subsequently was approved by the Independent Committee
and was signed by Parent, Purchaser and the Company on July 30, 1999."
5
<PAGE> 6
2. RECOMMENDATION OF THE INDEPENDENT COMMITTEE AND THE COMPANY BOARD;
FAIRNESS OF THE OFFER AND THE MERGER. The discussion set forth in "SPECIAL
FACTORS -- Recommendation of the Independent Committee and the Company Board;
Fairness of the Offer and the Merger" in the Offer to Purchase is hereby amended
as follows:
To replace the first two lines of the last paragraph on page 11 in the
Offer to Purchase with the following:
"In determining that the Offer Price was fair to the public stockholders of
the Company and resolving to recommend the approval of the Merger Agreement and
the transactions contemplated thereby to the Board, the Independent Committee
considered a number of factors, including:"
To replace paragraph s) on page 13 in the Offer to Purchase with the
following:
"s) Detailed analyses presented by Bear Stearns, including an analysis of
current and historical market prices and trading information relating to the
Company's common stock, valuation based on discounted cash flow analysis, and
consideration, to the extent Bear Stearns deemed relevant, of comparable
transactions and valuation parameters of comparable publicly traded companies,
which analyses were evaluated in detail by the Independent Committee and adopted
by them;"
To add at the end of "SPECIAL FACTORS -- Recommendation of the Independent
Committee and the Company Board; Fairness of the Offer and the Merger" in
the Offer to Purchase the following:
"The Independent Committee did not authorize Bear Stearns to conduct an
auction for the Company because Securicor had indicated that it was not then
interested in selling its Shares. The Independent Committee also believed that
an auction was unlikely to attract any bidders in view of the fact that no other
potential bidders contacted the Company to express interest from the time
Securicor announced its intention to consider various alternatives relating to
its debt and equity investments in the Company to the time the Board decided to
recommend the Securicor transaction."
3. OPINION OF FINANCIAL ADVISOR TO THE INDEPENDENT COMMITTEE. The
discussion set forth in "SPECIAL FACTORS -- Opinion of Financial Advisors to the
Independent Committee" in the Offer to Purchase is hereby amended as follows:
To replace the last four paragraphs of Page 14 and the carry-over paragraph
on page 15 of the Offer to Purchase with the following:
"The Company, on behalf of the Independent Committee, retained Bear Stearns
on February 3, 1999 after interviewing Bear Stearns regarding its qualifications
to act as the Independent Committee's financial advisor in connection with its
evaluation of strategic alternatives for the Company, including any proposal
received from Securicor.
On February 25, 1999, Bear Stearns made a presentation to the Independent
Committee and, separately, to the Company Board (excluding the two directors who
are employees of affiliates of Purchaser). As part of this presentation, Bear
Stearns reviewed the work it had performed to date and discussed the business
plan developed by the Company. Bear Stearns then outlined various valuation
parameters and methodologies that potentially could be used in a valuation of
the Company. The presentation concluded with a discussion of potential financing
alternatives in light of the Company's projected capital needs.
On March 18, 1999, Bear Stearns made a presentation to the Independent
Committee with respect to the preliminary financial analyses that had been
performed by Bear Stearns. As part of this presentation, Bear Stearns reviewed
and discussed the Company's financial projections and evaluated the Company's
cash flows in the context of these projections. Bear Stearns then reviewed the
trading performance of the Company's stock and discussed a preliminary valuation
framework for the Company. In addition, Bear Stearns analyzed the capital needs
of the RoameR One business under various market development scenarios and the
Midland business' sales and cash flows. Finally, Bear Stearns concluded the
presentation with a review of proposed courses of action in response to the
Securicor indication of interest.
6
<PAGE> 7
On June 7, 1999, Bear Stearns delivered its written opinion to the
Independent Committee to the effect that, as of such date and based upon and
subject to the assumptions, limitations and qualifications set forth therein,
the Offer Price was fair, from a financial point of view, to the public
stockholders of the Company (the "Bear Stearns Opinion").
THE FULL TEXT OF THE BEAR STEARNS OPINION, WHICH SETS FORTH A DESCRIPTION
OF THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS SET OUT IN ANNEX A HERETO AND IS
INCORPORATED HEREIN BY REFERENCE. THE FULL TEXT OF THE BEAR STEARNS
PRESENTATIONS (AS DEFINED BELOW) IS SET OUT IN EXHIBITS (b)(5) AND (b)(6) TO THE
SCHEDULE 13E-3 AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED
TO READ THE BEAR STEARNS OPINION AND THE BEAR STEARNS PRESENTATIONS CAREFULLY IN
THEIR ENTIRETY, ESPECIALLY WITH REGARD TO THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED AND MATTERS CONSIDERED BY BEAR STEARNS, AS WELL AS THE LIMITATIONS ON
THE INFORMATION CONSIDERED AND ANALYSIS PRESENTED. THE SUMMARY OF THE BEAR
STEARNS OPINION AND THE BEAR STEARNS PRESENTATIONS SET FORTH IN THIS DOCUMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION AND SUCH
PRESENTATIONS.
The Bear Stearns Opinion and the presentations of February 25, 1999 and
March 18, 1999 (the "Bear Stearns Presentations"), intended for the benefit and
use of the Independent Committee, did not constitute a recommendation to the
Independent Committee or to the Company Board in connection with the Merger
Agreement or the Offer and does not constitute a recommendation to any holder of
Shares as to whether to tender shares in connection with the Offer. Bear Stearns
was not requested to opine as to, and its opinion does not address, the
Company's underlying business decision to proceed with or effect the Merger. The
Bear Stearns Opinion and the Bear Stearns Presentations are necessarily based
upon economic, monetary, market and other conditions, and the information made
available to it, as of the date of such opinion and presentations. It should be
understood that, although subsequent developments may affect the conclusions
reached in the Bear Stearns Opinion and in the Bear Stearns Presentations, Bear
Stearns does not have any obligation to, and does not intend to, update, revise
or reaffirm its opinion or its presentations."
To replace the first full paragraph on page 17 in the Offer to Purchase
with the following:
"The full text of Bear Stearns' written presentations delivered to: (i) the
Independent Committee and the Company Board on February 25, 1999, (ii) the
Independent Committee on March 18, 1999 and (iii) the Independent Committee on
June 7, 1999 have been included as Exhibits (b)(5), (b)(6) and (b)(2),
respectively, to the Schedule 13E-3, and the foregoing summary is qualified in
its entirety by reference to such exhibits. The full text of Bear Stearns'
Presentations will be available for inspection and copying at the principal
offices of the Company during regular business hours by any holder of Shares or
such holder's representative who has been so designated in writing. Also, copies
of Bear Stearns' Presentations will be delivered to any holder of Shares or such
holder's representative who has been so designated in writing upon written
request and at the expense of such holder."
4. ANALYSIS OF FINANCIAL ADVISOR TO SECURICOR. The discussion set forth in
"SPECIAL FACTORS -- Analysis of Financial Advisor to Securicor" in the
Offer to Purchase is hereby amended to read in its entirety as follows:
"4. Analysis of Financial Advisor to Securicor
Securicor retained Lazard to act as its financial advisor in connection
with a strategic review of Securicor's debt and equity investments in the
Company, including the potential acquisition by Securicor of the Shares held by
the public stockholders of the Company. Securicor did not request that Lazard
provide, nor did Lazard provide, any opinion as to the fairness of the Offer to
Securicor or its stockholders, the Company, the holders of the Shares or any
other person or perform any independent examination or investigation of the
Company's business or assets. Lazard's presentation and discussion materials
referred to below were for the benefit of and directed to Securicor and do not
constitute recommendations to the
7
<PAGE> 8
holders of the Shares as to whether such stockholders should or should not
tender the Shares pursuant to the Offer.
As part of the engagement, Securicor requested that Lazard perform certain
valuation analyses with respect to the Company and make a presentation to the
Securicor Board at a meeting held on February 4, 1999. The Company had no role
in Securicor's selection of Lazard or in formulating any of the terms under
which Lazard was to prepare its presentation.
In preparing its February 4, 1999 presentation and its February 23, 1999
discussion materials referred to below, Lazard relied upon the accuracy and
completeness of all the information it analyzed or reviewed in connection with
these presentation and discussion materials and did not assume any
responsibility for any independent verification of such information or any
independent valuation or appraisal of any of the Company's assets or liabilities
or concerning the solvency of or issues relating to solvency concerning the
Company.
With respect to the three-year business plan, the six-year business plan
and any other financial or operating information furnished by or with respect to
the Company or during discussions with the Company's management, Lazard assumed
that they were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's management as to the future
financial performance of the Company. Lazard assumed no responsibility for such
forecasts or the assumptions on which they were based. The Lazard presentation
and the discussion materials were necessarily based on economic, monetary,
market and other conditions as in effect on, and the information made available
to it as of, February 4, 1999 and February 23, 1999, respectively.
In preparing its February 4, 1999 presentation to the Securicor Board,
Lazard:
(i) analyzed certain historical business and financial information
relating to the Company;
(ii) reviewed the three-year business plan provided by the Company to
each of the Company directors in December 1998, which was the only plan
available to Lazard at the time of the presentation to the Securicor Board
on February 4, 1999, and other data provided to Lazard by the Company
relating to the Company's business;
(iii) held discussions with members of senior management of the
Company with respect to the business and prospects of the Company;
(iv) reviewed the financial terms of certain business combinations
involving companies in lines of business Lazard believed to be generally
comparable to those of the Company;
(v) reviewed the historical stock prices and trading volumes of the
Shares; and
(vi) conducted such other financial studies, analyses and
investigations as Lazard deemed appropriate.
At the February 4, 1999 meeting with the Securicor Board, Lazard, in order
to assist the Securicor Board in its consideration of the proposed acquisition
of the Shares held by the public stockholders of the Company, delivered a
written and oral presentation analyzing, from a financial point of view, the
consideration to be offered to the holders of the Shares pursuant to the Offer.
Lazard, prior to making its oral presentation to the Securicor Board,
distributed to members of the Securicor Board copies of its written
presentation. In delivering its presentation to the Securicor Board, Lazard
discussed certain financial and summary comparative analyses. The following is a
summary of Lazard's written presentation to the Securicor Board:
Historical Stock Price Analysis. Lazard compared (i) the 20-day average
trading price of $1.31 per Share, (ii) the 52-week high trading price of $4.75
per Share and (iii) the 52-week low trading price of $1.03 per Share to the
closing price of $1.44 per Share on January 15, 1999, the last trading day
before Securicor filed its most recent Schedule 13D with respect to the Company
on January 19, 1999. These analyses revealed a discount of 9%, a premium of 230%
and a discount of 28%, respectively.
8
<PAGE> 9
Premiums Paid Analysis. Lazard reviewed the premiums paid in selected
technology transactions of a relatively similar size to the proposed
acquisition. Lazard reviewed the premiums paid over recent trading prices of the
target company stock in each such transaction. The selected transactions
reviewed by Lazard reflected a change of control premium, which would not be
relevant to this transaction. Using this information, Lazard determined a
relevant reference range of premiums paid of approximately 25% to 39%. Lazard
applied this range of premiums to the closing price of $1.44 per Share on
January 15, 1999. This analysis yielded a per Share value ranging from
approximately $1.80 to $2.00.
Minority Transactions Analysis. Lazard reviewed the premiums paid in other
recent transactions in which a parent company acquired the publicly-held shares
of its majority-owned subsidiary. Lazard reviewed the premiums paid over recent
trading prices of the publicly-held shares of the subsidiary in each such
transaction. The selected transactions reviewed by Lazard do not reflect a
change of control premium. Using this information, Lazard determined a relevant
reference range of premiums paid of approximately 22% to 29%. Lazard applied
this range of premiums to the closing price of $1.44 per Share on January 15,
1999. This analysis yielded a per Share value ranging from approximately $1.75
to $1.85.
Discounted Cash Flow Analysis. Lazard performed a discounted cash flow
analysis of the Company's projected cash flows based solely on the three-year
business plan presented to Securicor by the Company in December 1998. This
analysis yielded a per Share value ranging from approximately $1.75 to $2.25.
Based on each of the foregoing analyses, Lazard determined a per Share
value ranging from approximately $1.75 to $2.25. Lazard did not at that time
perform an analysis of the six-year business plan provided by the Company to
each of the directors on February 14, 1999, because that business plan was not
finalized at the time of Lazard's presentation to the Securicor Board.
After Lazard made the presentation to the Securicor Board on February 4,
1999, Securicor requested that Lazard, as part of its engagement, assess the
Company's six-year business plan provided by the Company to each of the Company
directors on February 14, 1999 and discuss with the Securicor Board Committee
certain analyses with respect to the projections contained therein.
Securicor did not request that Lazard provide any opinion as to the
fairness of the Offer to Securicor or its stockholders, the Company or the
holders of the Shares or perform any independent examination or investigation of
the Company's business or assets, nor did Lazard do so. Lazard's analyses
discussed below were prepared for the benefit of and directed to Securicor and
do not constitute a recommendation to the holders of the Shares as to whether
such stockholders should or should not tender the Shares pursuant to the Offer.
In preparing its analysis and discussion with the Securicor Board
Committee, Lazard:
(i) analyzed certain historical business and financial information
relating to the Company;
(ii) reviewed the six-year business plan provided by the Company to
each of the Company directors in February 1998 and the three-year business
plan provided by the Company to each of the Company directors in December
1998;
(iii) held discussions with members of senior management of the
Company with respect to the business and prospects of the Company;
(iv) reviewed the premiums paid of certain business combinations
involving technology companies in lines of business Lazard believed to be
generally comparable to those of the Company; and
(v) reviewed the historical stock prices and trading volumes of the
Shares.
At the February 23, 1999 meeting with the Securicor Board Committee,
Lazard, in order to assist the Securicor Board Committee in its consideration of
the proposed acquisition of the Shares held by the minority stockholders of the
Company, discussed with the Securicor Board Committee the Company's six-year
business plan and provided certain analyses with respect to the projections
contained therein. Lazard, prior to discussing its analyses, distributed to
members of the Securicor Board Committee copies of
9
<PAGE> 10
discussion materials. At the meeting, Lazard discussed certain financial and
summary comparative analyses. The following is a summary of Lazard's written
discussion materials provided to the Securicor Board Committee:
Recent Stock Price Performance and Trading Volume Analysis. Lazard
examined the historical trading price of the Shares for the period beginning
January 15, 1999, the last trading day before Securicor filed its January 19
Schedule 13D with respect to the Company, and ending February 18, 1999. During
this period, the trading price of the Shares increased approximately 41%, from
$1.44 per Share to $2.03 per Share. Lazard also examined the average daily
trading volume for the Shares for the same period. The average daily trading
volume over this period increased by approximately 69% compared to the average
daily trading volume over the ten previous trading days in 1999, and increased
by approximately 22% over the 1998 average daily trading volume.
Discounted Cash Flow Analysis. Lazard performed a DCF analysis of the
Company's projected cash flows for each business segment, based solely on the
six-year business plan as presented by the Company to each of the Company
directors in February 1999. The projections and assumptions underlying this
business plan, as presented by the Company, are referred to below as the "as
given" business plan assumptions. DCF is defined as discounted cash flow. The
DCFs for the Company were calculated using different discount rates and EBITDA
terminal values for each business segment. EBITDA is defined as earnings before
interest, taxes, depreciation and amortization. The discount rates utilized for
each of the RoameR One, Midland and LMT business segments ranged from 17.5% to
22.5%, 15% to 20% and 15% to 20%, respectively. The EBITDA terminal multiples
utilized for the fiscal year ending December 31, 2004, for each of the RoameR
One, Midland and LMT business segments ranged from 12x to 14x, 8x to 10x and 8x
to 10x, respectively. Assuming 42.3 million shares outstanding as of September
30, 1998, and that the Company had drawn down $15 million from its credit
agreement with Securicor, this analysis yielded a per Share value ranging from
approximately $4.79 to $8.41.
In addition, Lazard performed a series of DCF sensitivity analyses of the
Company's projected cash flows, which included adjustments to the RoameR One and
Midland business segments to reflect the potential downside risk in the
projections for those business segments. Lazard also sensitized the analysis by
adjusting the discount rates and EBITDA terminal values as applied to the DCFs
of the RoameR One business segment to take into account potential execution and
market risks relating to that business segment and the expected lack of free
cash flows from that business until 2003. The adjustments to the "as given"
business plan assumptions and the adjustment to the discount rates and EBITDA
terminal values are referred to as the "stress test" valuation sensitivities.
The "stress test" valuation sensitivities included the following:
- higher discount rates ranging from 25% to 30% instead of discount rates
ranging from 17.5% to 22.5% for the RoameR One business segment;
- 2003 EBITDA terminal value instead of 2004 EBITDA terminal value for the
RoameR One business segment;
- decreased subscriber growth with respect to the RoameR One projections;
- decreased service revenue with respect to the RoameR One business
segment; and
- decreased sales with respect to the Midland business segment.
Other than the valuation sensitivities discussed in this paragraph, all
other valuation assumptions in this analysis remained consistent with the "as
given" business plan assumptions. The individual "stress test" valuation
sensitivities reduced the valuation implied by the analysis of the "as given"
business plan assumptions by $0.92 to $4.59 per Share. Lazard believed that each
of the risks reflected by these valuation sensitivities could occur on its own
or in combination with one or more of the others to result in a variety of more
severe downside scenarios. Based on that understanding, Lazard highlighted the
low end of the equity valuation range for the Company implied by the "as given"
business plan assumptions ($4.79), and reduced it by applying the high end
valuation impact from the most severe ($4.59) and the
10
<PAGE> 11
least severe ($1.73) individual "stress test" valuation sensitivities, which
indicated a value per Share ranging from $0.20 to $3.06.
Premiums Paid Analysis. Lazard reviewed the premiums paid in 346 selected
recent technology transactions valued between $100 million and $1 billion that
were announced between January 1, 1995 and January 15, 1999, all of which
transactions reflect change of control premiums. The information with respect to
the premiums paid in these transactions was obtained from Securities Data
Company. The median premiums paid for the selected transactions over the common
stock trading prices one day and four weeks prior to the announcement date were
approximately 25% to 39%, respectively. Lazard applied the above premiums to the
closing price of $1.44 per Share on January 15, 1999, the last trading day
before Securicor filed its January 19 Schedule 13D with respect to the Company.
This analysis yielded a per Share value ranging from approximately $1.80 to
$2.00.
Minority Transactions Analysis. Lazard reviewed the premiums paid in 53
recent transactions in which a parent company acquired those shares of its
majority-owned subsidiary that the parent did not own, which transactions do not
reflect a change of control premium. The information with respect to the
premiums paid in these transactions was obtained from Securities Data Company.
The median premiums paid for the selected transactions over the common stock
trading prices one day and four weeks prior to the announcement date were
approximately 22% to 29%. Lazard applied the above premiums to the closing price
of $1.44 per Share on January 15, 1999. This analysis yielded a per Share value
ranging from approximately $1.75 to $1.85.
The summaries set forth above do not purport to be complete descriptions of
the analyses performed by Lazard, but describe the material elements of the
presentation made by Lazard to the Securicor Board on February 4, 1999 and the
discussion materials provided by Lazard to the Securicor Board Committee on
February 23, 1999. The preparation of such a presentation and the discussion
materials involved a complex process and is not necessarily susceptible to
partial analysis or summary description. Selecting portions of the analyses or
the summaries set forth above without considering the analyses as a whole could
create an incomplete or misleading view of the process underlying Lazard's
preparation of its presentation and the discussion materials. No company or
transaction used in the analyses described above as a comparison is identical to
the Company or the Offer. In preparing its presentation and the discussion
materials, Lazard considered the results of all such analyses and did not assign
relative weights to any of the analyses. The analyses were prepared solely for
the purpose of Lazard providing its presentation to the Securicor Board and
discussion with the Securicor Board Committee in connection with Securicor's
strategic review of Securicor's investment in the Company, including a proposed
acquisition of the Shares held by the minority stockholders of the Company, and
do not purport to be appraisals or necessarily reflect the prices at which the
Company or its securities actually may be sold, which may be significantly more
or less favorable than as set forth in these analyses.
The presentation of Lazard to the Securicor Board on February 4, 1999 and
the discussion between Lazard and the Securicor Board Committee on February 23,
1999 were only two of many factors taken into consideration by the Securicor
Board in making its determination to approve the Offer. In addition, the Offer
Price and the form of consideration were determined through arm's-length
negotiations between the Independent Committee and Securicor.
Lazard is an internationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts, and valuations for estate, corporate and other purposes. Lazard was
selected to act as investment banker to Securicor because of its expertise and
its reputation in investment banking and mergers and acquisitions.
In the ordinary course of its business, Lazard and its affiliates may
actively trade in the securities of Securicor or the Company for its own account
and for the account of its customers and, accordingly, may at any time hold a
long or short position in the securities of Securicor or the Company. Lazard has
performed investment banking and other services for Securicor in the past.
11
<PAGE> 12
The full text of Lazard's February 4, 1999 written presentation delivered
to Securicor's Board of Directors and February 23, 1999 discussion materials
delivered to the Securicor Board Committee have been included as Exhibit (b)(3)
and (b)(4), respectively, to the Schedule 13E-3, and the foregoing summary is
qualified in its entirety by reference to such exhibits. For a description of
the fees payable to Lazard in connection with its engagement, see "THE TENDER
OFFER -- Certain Fees and Expenses." The full text of Lazard's written
presentation and discussion materials will be available for inspection and
copying at the principal offices of Securicor during regular business hours by
any holder of Shares or such holder's representative who has been so designated
in writing. Also, a copy of Lazard's written presentation will be delivered to
any holder of Shares or such holder's representative who has been so designated
in writing upon written request and at the expense of such holder."
5. REASONS OF PARENT AND PURCHASER FOR THE OFFER AND THE MERGER. The
discussion set forth in the fifth paragraph of "SPECIAL FACTORS -- Reasons of
Parent and Purchaser for the Offer and the Merger; Position of Parent and
Purchaser Regarding Fairness of the Offer and the Merger" in the Offer to
Purchase is hereby amended to read in its entirety as follows:
"Parent and Purchaser believe that the Tender Offer and the Merger are fair
to the Company's stockholders (excluding affiliates of Securicor). Parent and
Purchaser base their belief on the following factors: (i) an Independent
Committee that consisted of directors who are neither designees of Securicor or
its affiliates nor officers of the Company was appointed to represent the
interests of the stockholders of the Company (other than Securicor and its
affiliates); (ii) the Independent Committee retained and was advised by
independent legal and financial advisors; (iii) the fact that the Independent
Committee unanimously concluded that (a) the Offer and the Merger are fair to
and in the best interests of the Company's stockholders (other than Securicor
and its affiliates), and (b) the price per Share to be paid in the transaction
was fair to stockholders (other than Securicor and its affiliates) and
recommended to the full Company Board that the Company Board approve the Merger
Agreement substantially in the form presented to the Independent Committee; (iv)
notwithstanding the fact that Bear Stearns' opinion was addressed to the
Independent Committee and that neither Parent nor Purchaser is entitled to rely
on such opinion, the fact that the Independent Committee received an opinion
from Bear Stearns that, as of the date of such opinion and based on and subject
to certain matters stated in such opinion, the consideration to be received by
the Company's stockholders pursuant to the Offer and the Merger is fair to such
stockholders (excluding affiliates of Securicor) from a financial point of view;
(v) the analysis of Securicor's financial advisor described above under
"-- Analysis of Financial Advisor to Securicor," which analysis was evaluated in
detail by Parent and Purchaser and adopted by them; (vi) the fact that the Offer
and the Merger provide Company stockholders (excluding affiliates of Securicor)
with liquidity to dispose of their Shares which may not be available in the
public market due to the low level of trading volume of the Shares on Nasdaq
prior to the announcement of the Securicor proposal; and (vii) the other factors
enumerated by the Independent Committee as supporting their recommendation of
the Offer and the Merger. See "-- Recommendation of the Independent Committee
and the Company Board; Fairness of the Offer and the Merger."
6. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER; SHARE
OWNERSHIP. The discussion set forth in the first paragraph of "SPECIAL
FACTORS -- Interests of Certain Persons in the Offer and the Merger" in the
Offer to Purchase is hereby amended to read in its entirety as follows:
"In considering the recommendation of the Company Board, stockholders of
the Company should be aware that certain members of the Company Board have
certain interests that present actual or potential conflicts of interest in
connection with the Offer and the Merger. Stockholders should also be aware that
Parent and Purchaser have certain interests that present actual or potential
conflicts of interest in connection with the Offer and the Merger. These actual
or potential conflicts include the following: (i) Securicor beneficially owns
approximately 70.73% of the outstanding Shares and may be deemed to control the
Company and (ii) certain directors of the Company have or have had relationships
with Securicor or its affiliates (Mr. Wiggs is the Chief Executive Officer of
Securicor, Mr. Wilkinson is the Financial Director of Securicor Communications,
Mr. Shiver served as a member of the Board of
12
<PAGE> 13
Directors of Securicor Communications until late January 1999 and Mr. Wareham
received a speaking fee for a presentation to Securicor unrelated to the
Company's business). In addition, no unaffiliated representative was retained to
act solely on behalf of the unaffiliated public stockholders for the purpose of
negotiating the terms of the proposed transaction or preparing a report
concerning the fairness of the Offer. The Independent Committee and the Company
Board were aware of these actual or potential conflicts of interest and
considered them in connection with its recommendation."
THE TENDER OFFER
1. CERTAIN INFORMATION CONCERNING THE COMPANY. The discussion set forth in
"THE TENDER OFFER -- Certain Information Concerning the Company" in the Offer to
Purchase is hereby amended to read in its entirety as follows:
"Except as otherwise stated below, the information set forth below in this
"Certain Information Concerning the Company" section has been taken from the
Company's Annual Report on Form 10-K filed with the Commission for the fiscal
year ended September 30, 1998 (the "1998 Annual Report") and from the Company's
Quarterly Report on Form 10-Q filed with the Commission for the quarter ended
March 31, 1999 (the "March 1999 Quarterly Report"), in each case as amended to
the date of this First Supplement. The information not so taken has been
otherwise supplied by the Company. The following information is qualified in its
entirety by reference to the 1998 Annual Report and March 1999 Quarterly Report
and all other reports and documents filed by the Company with the Commission.
ALTHOUGH NEITHER PARENT NOR PURCHASER HAS ANY KNOWLEDGE THAT ANY SUCH
INFORMATION IS UNTRUE, NEITHER PARENT NOR PURCHASER TAKES ANY RESPONSIBILITY FOR
THE ACCURACY OR COMPLETENESS OF INFORMATION CONTAINED IN THIS OFFER TO PURCHASE
WITH RESPECT TO THE COMPANY OR ANY OF ITS SUBSIDIARIES OR AFFILIATES OR FOR ANY
FAILURE BY THE COMPANY TO DISCLOSE EVENTS WHICH MAY HAVE OCCURRED OR MAY AFFECT
THE SIGNIFICANCE OR ACCURACY OF ANY SUCH INFORMATION.
Available Information. The Company is subject to the information and
reporting requirements of the Exchange Act and in accordance therewith is
required to file periodic reports, proxy statements and other information with
the Commission relating to its business, financial condition and other matters.
Certain information, as of particular dates, concerning the Company's directors
and officers (including their remuneration and the stock options granted to
them), the principal holders of the Company's securities, any material interests
of such persons in transactions with the Company and certain other matters is
required to be disclosed in proxy statements and annual reports distributed to
the Company's stockholders and filed with the Commission. Such reports, proxy
statements and other information may be inspected and copied at the Commission's
public reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and are also available for inspection at the
following regional offices of the Commission: 7 World Trade Center, New York,
New York 10048 and 500 West Madison Street, Chicago, Illinois 60621. Copies of
such reports, proxy statements and other materials may be obtained by mail at
prescribed rates, from the principal office of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission also maintains an internet
site on the world wide web at http://www.sec.gov that contains reports, proxy
statements and other information. Reports, proxy statements and other
information concerning the Company are also available for inspection at The
Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, DC 20006-1500.
General. The Company is a Delaware corporation incorporated in 1969, with
its principal executive offices located at 99 Park Avenue, New York, New York
10016. The Company is a provider of spectrum efficient wireless communications
technology, products and services.
Directors and Executive Officers. The name, address, principal occupation
or employment, five-year employment history and citizenship of each director and
executive officer of the Company is set forth in Schedule I hereto.
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<PAGE> 14
Selected Consolidated Financial Data. Set forth below is certain selected
financial information of the Company and its consolidated subsidiaries. More
comprehensive financial information is included in the most recent copies of the
Company's 1998 Annual Report on Form 10-K and its March 1999 Quarterly Report on
Form 10-Q (including management's discussion and analysis of results of
operations and financial position) and other documents filed with the
Commission. A copy of the financial statements included in the reports, is
reproduced as Schedule III to the Offer to Purchase and Annex 1 to this First
Supplement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(in thousands, except per share data and share amounts)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................ $ 42,284 $ 35,654 $ 17,283 $ 12,766
Total costs and expenses.............. 68,222 97,196 30,187 25,195
Operating loss........................ (25,938) (61,542) (12,904) (12,429)
Net loss.............................. (26,999) (64,419) (14,277) (15,036)
Loss applicable to common
shareholders........................ (27,999) (66,463) (14,870) (16,358)
Net loss per share applicable to
common shareholders................. (0.74) (1.58) (0.35) (0.38)
Weighted average number of common
shares outstanding.................. 37,885,371 42,151,142 42,128,258 42,303,038
BALANCE SHEET DATA:
Total assets.......................... $ 112,565 $ 80,114 $ 109,039 $ 84,534
Working capital....................... 21,289 10,928 6,619 (11,541)
Long term debt........................ 24,577 32,836 17,641 31,442
Shareholders' equity (deficit)........ 53,848 (8,454) 38,800 (24,568)
OTHER DATA:
Coverage of deficiencies of earnings
to fixed and preferred
dividends(1)........................ -- -- -- --
Book value per share.................. $ 1.28 $ (0.20) $ 0.93 (0.58)
</TABLE>
- ---------------
(1) The deficiency of earnings to fixed charges for the years ended September
30, 1997 and 1998 and the six months ended March 31, 1998 and 1999 was
($29,157), ($66,463), ($14,870) and ($16,358), respectively.
FORECASTS
The Company does not, as a matter of course, make public any forecasts as
to its future financial performance. However, the Company has made available
certain non-public projected financial information regarding the Company to Bear
Stearns, the Independent Committee, Lazard and Securicor in connection with
their respective reviews of the transactions contemplated by the Offer and the
Merger. Such information included, among other things, three sets of forecasts
prepared by the Company of consolidated total revenues, gross profit, EBITDA,
operating income and net income to common stockholders for certain future fiscal
years, which are set forth in the tables below.
In late December 1998, the Company provided a three-year business plan,
including base case and growth case financial forecasts (collectively, the
"December Forecast"), to each of the directors on the Company Board. Securicor
subsequently provided the December Forecast to Lazard for use in connection with
its due diligence. On February 14, 1999, the Company provided a six-year
business plan, including financial forecasts (the "February Forecast"), to each
of the directors on the Company Board and Bear Stearns. Bear Stearns
subsequently provided the February Forecast to Lazard. In May 1999, the Company
provided an updated six-year business plan, including financial forecasts (the
"May Forecast"), to each of
14
<PAGE> 15
the directors on the Company Board and Bear Stearns. Bear Stearns subsequently
provided the May Forecast to Lazard.
Set forth below are the December, February and May Forecasts, in each case
with a summary of the principal underlying assumptions. Each forecast reflects
the then most recent financial performance of the Company and its prospects,
including the Company's analysis of the anticipated financial impact of all
sales, licensing, marketing and development agreements then in effect.
DECEMBER FORECAST
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-----------------------------------
1999 2000 2001
------ --------------- ------
($ in millions)
<S> <C> <C> <C>
Base Rate
Total revenues.............................................. $ 57.5 $ 80.5 $104.2
Gross profit................................................ 18.6 28.7 38.1
EBITDA...................................................... (9.0) 4.6 14.8
Operating income (loss)..................................... (14.7) (3.5) 4.4
Net loss applicable to common stockholders.................. (23.9) (16.7) (10.8)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-----------------------------------
1999 2000 2001
------ --------------- ------
($ in millions)
<S> <C> <C> <C>
Growth Case
Total revenues.............................................. $ 57.5 $ 97.2 $134.1
Gross profit................................................ 18.6 35.0 49.3
EBITDA...................................................... (9.0) 6.7 18.5
Operating income (loss)..................................... (14.7) (0.5) 11.1
Net loss applicable to common stockholders.................. (23.9) (13.2) (2.4)
</TABLE>
December Base Case Forecast Assumptions:
The December Base Case Forecast was prepared as a three-year plan covering
fiscal years 1999 through 2001 and based on the trends reflected in the
Company's fiscal 1999 operating budget finalized by the Company in September
1998 (as adjusted for the actual cost of new licenses acquired by the Company in
the Phase II license auction). Revenues, costs and expenses were forecasted
using the Company's then current pricing and cost structure and cost reductions
in equipment purchases that were expected to result from increased sales volume.
The significant assumptions underlying the December Base Case Forecast include
the following:
Subscriber Service Revenue. Subscriber service revenue was based on adding
12,500 new subscribers only in RoameR One's existing markets during fiscal 1999
and increasing the number of new subscribers by 10% for each of the two
subsequent years. Growth was limited to 10% due to the anticipated costs
associated with obtaining new subscribers and the uncertainty of the Company's
ability to finance more rapid growth.
Product Sales Revenue. The product sales revenues were based on sales of
three primary product lines: (i) 220 MHz linear modulation products; (ii) VHF
linear modulation products; and (iii) land mobile radio ("LMR") products.
Product sales revenues in the US for fiscal 2000 were forecasted by annualizing
the projected product sales revenue of the fourth quarter of fiscal 1999. 220
MHz and VHF products were projected to be sold primarily during the last half of
fiscal 1999, with the fourth quarter reflecting the largest sales volume.
Product sales revenues for fiscal 2001 were forecasted to increase by 32% over
fiscal 2000 based on the assumption that the products would have achieved more
widespread acceptance in the market by that time. The forecasts for fiscal 2000
and 2001 included only a limited amount of sales to the National Rural
Telecommunications Cooperative ("NRTC") because that
15
<PAGE> 16
relationship was in the early development stage. Product sales revenues
generated by the Company's UK-based third party manufacturing unit for fiscal
2000 and 2001 were forecasted using the projected growth rate for fiscal 1999.
Technology Revenue. The technology revenue was based primarily on global
licensing of the Company's narrowband linear modulation technology and product
development contracts generated by the Company's UK technology group. Technology
revenue was forecasted for 2000 by annualizing the projected technology revenue
of the fourth quarter of fiscal 1999. Technology revenue was forecasted to
increase by 2% in 2001.
Gross Profit Margin. Sales volume, pricing, and costs of products and
services all impact the Company's gross profit. The Company used its then
current cost and pricing structure to forecast revenue and the cost of goods and
services sold, including appropriate unit cost reductions resulting from
increased sales volumes. The gross profit margins reflected in the December Base
Case Forecast were approximately 32%, 36% and 37% in fiscal 1999, 2000 and 2001,
respectively. The increase in the later years is expected to result from
forecasted increases in sales and product cost reductions.
Expenses. Operating expenses consist of sales and marketing expenses,
general and administrative expenses, and depreciation and amortization. The
expenses were forecasted using the Company's fiscal 1999 operating budget as the
baseline. Sales and marketing expenses were projected to increase on average by
8% a year throughout the forecast period. The annual increase in these expenses
reflects the costs associated with higher projected sales volumes. General and
administrative expenses were projected to decline by approximately 10% in fiscal
2000 and increase by approximately 3% in fiscal 2001. The 10% decrease in fiscal
2000 was expected to result from the consolidation of certain functions and
process improvement initiatives. Depreciation and amortization were calculated
based on the forecasted tangible and intangible assets required to support the
business.
December Growth Case Forecast Assumptions:
In addition to the December Base Case Forecast described above, the Company
prepared a December Growth Case Forecast based on the following alternative
assumptions:
Subscriber Services Revenue. Subscriber service revenue was based on
adding 12,500 new subscribers in existing markets in fiscal 1999 and increasing
the number of new subscribers to 20,900 in fiscal 2000 and 31,400 in fiscal
2001, respectively.
Product Sales Revenue. VHF, 220MHz and LMR product sales for fiscal 2000
and 2001 were forecasted to increase at a rate of 40% in each year.
Technology Revenue. The assumptions used were substantially the same as
those used in the December Base Case Forecast.
Gross Profit Margin. The assumptions used were substantially the same as
those used in the December Base Case Forecast.
Expenses. Expenses were forecasted using the Company's fiscal 1999
operating budget as the baseline. Sales and marketing expenses increased on
average by 15% a year throughout the forecast period due to higher projected
sales volumes than were reflected in the December Base Case Forecast. General
and administrative expenses were forecasted to increase 2% and 6% for fiscal
2000 and 2001, respectively, due to the larger projected sales volume in the
December Growth Case Forecast. Depreciation and amortization were unchanged from
the December Base Case Forecast.
16
<PAGE> 17
FEBRUARY FORECAST
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
--------------------------------------------------------
1999 2000 2001 2002 2003 2004
------ ------ ------ ------ ------ ------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Total revenues....................... $ 56.9 $ 77.9 $127.5 $190.8 $257.1 $312.8
Gross profit......................... 11.9 19.6 36.2 64.1 101.5 140.7
EBITDA............................... (10.2) (6.8) (2.8) 13.0 43.3 80.8
Operating income..................... (16.6) (13.7) (11.6) 0.5 26.5 62.0
Net income to common stockholders.... (23.4) (22.2) (21.6) (11.7) 13.1 53.0
</TABLE>
February Forecast Assumptions:
The February Forecast extended the forecast to six years based on the
Company's strategic business plan and reflected business developments since the
December Forecast. The operating cost structure was increased to support the
anticipated increased revenues described below. The February Forecast reflected
the following assumptions.
Subscriber Service Revenue. The February Forecast increased the RoameR One
subscriber growth to reflect the new licenses acquired in the Phase II license
auction. The Company assumed that such licenses would enable RoameR One to enter
60 of the top 100 metropolitan statistical areas ("MSA's") in the US through
fiscal 2003, generating approximately 300,000 new subscribers over the five-year
period.
Product Sales Revenue. Product sales were forecasted to increase
significantly to reflect the Company's new distribution arrangements with NRTC
(which were not fully reflected in the December Forecast) and significantly
higher VHF product sales based on the Company's then current assessment of its
VHF market opportunities. The Company assumed at the time of the February
Forecast that revenues from VHF product sales would grow rapidly in anticipation
of the acceptance of linear modulation technology in the VHF "refarming" market.
The February Forecast eliminated the UK-based third party manufacturing product
sales after 1999 because the unit was a non-core operation and was assumed to be
sold within one year. The February Forecast included additional revenues to be
generated from the use by NRTC of the Company's network monitoring and customer
services as the NRTC developed its 220 MHz network.
Technology Revenue. The February Forecast modestly lowered projected
revenue generated by the technology group to reflect the Company's current
projections based on firm contracts and estimated probability of potential
contracts.
Gross Profit Margin. The forecasted gross profit margins were 21%, 25%,
28%, 34%, 40% and 45% in fiscal 1999 through 2004, respectively. The higher
margins in the later years result primarily from the anticipated increase in
RoameR One's subscriber service revenue in subsequent years and the decrease in
customer acquisition costs decreased as a percentage of revenue.
Expenses. The Company's fiscal 1999 operating budget expenses were used as
the baseline to project the future operating expenses. Projected sales and
marketing expenses, as a percentage of revenues, averaged 15% throughout the
forecast period. This increase is due primarily to RoameR One's projected
expansion into the 60 MSA's on a nationwide basis. General and administrative
expenses, starting in fiscal 2001, were forecasted to increase by approximately
$4 million a year to accommodate this RoameR One expansion, as well as higher
product sales volumes. Depreciation and amortization were calculated based on
the forecasted tangible and intangible assets required to support the business.
17
<PAGE> 18
MAY FORECAST
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
------------------------------------------------------
1999 2000 2001 2002 2003 2004
----- ----- ------ ------ ------ ------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Total revenues......................... $44.5 $69.6 $105.0 $153.3 $201.0 $240.3
Gross profit........................... 11.1 15.8 26.4 48.9 80.3 114.2
EBITDA................................. (12.7) (8.8) (9.2) 2.9 29.5 63.8
Operating income....................... (18.8) (15.8) (18.0) (9.6) 12.7 45.0
Net income to common stockholders...... (28.8) (25.2) (29.6) (24.3) (3.9) 32.8
</TABLE>
May Forecast Assumptions:
The May Forecast reflects the assumptions used to generate the February
Forecast, adjusted for updated assumptions related to certain parts of the
Company's US distribution business only. Sales, marketing and other operating
expenses were reduced to reflect the reductions in revenue outlined below. The
May Forecast reflected the following assumptions:
Subscriber Service Revenue. No changes were made to the RoameR One
subscriber service revenue forecast from those used in the February Forecast.
Product Sales Revenue. Sales of VHF products were projected to be realized
later than originally anticipated and the volume of sales was reduced based on
the conclusions in the O'Hara Report. LMR product gross margins were reduced to
reflect current and anticipated pricing pressure in the marketplace. The
additional revenues included in the February Forecast from anticipated network
monitoring and customer service revenues from NRTC were revised to reflect lower
anticipated usage by NRTC than originally forecasted, based on the Company's
most recent information from NRTC.
Technology Service Revenue. No changes were made to the Company's UK based
technology group forecast from those used in the February Forecast.
Gross Profit Margin. The forecasted gross profit margins were 25%, 23%,
25%, 32%, 40% and 48% in fiscal 1999 through 2004, respectively. The changes in
gross profit margins from the February Forecast are the direct result of the
changes in the product revenue assumptions outlined above.
Expenses. Sales and marketing and general and administrative expenses were
reduced from those reflected in the February Forecast to reflect the reductions
in projected revenue described above. Depreciation and amortization remained the
same as in the February Forecast.
The forecasts reflect the Company's forecast of the enumerated items on a
stand-alone basis and without reflecting any potential synergies from the
acquisition of the Company by Purchaser.
The forecasts were prepared by the Company solely for internal use, were
not prepared in accordance with generally accepted accounting principles or with
a view to public disclosure or compliance with the published guidelines of the
Commission or the American Institute of Certified Public Accountants regarding
projections, and were not prepared with the assistance of, or reviewed by, the
Company's independent accountants. Such forecasts are included in this Offer to
Purchase solely because such information was furnished to Bear Stearns, the
Independent Committee, Lazard and Securicor. While presented with numerical
specificity, the forecasts were based on a variety of assumptions relating to
the businesses of the Company, industry performance, general business and
economic conditions and other matters which are inherently subject to
significant uncertainties and contingencies, many of which are beyond the
Company's control. These assumptions involve judgments with respect to, among
other things, future economic and competitive conditions, availability and cost
of capital, inflation rates and future business conditions. Therefore, such
forecasts are inherently imprecise and there can be no assurance that they will
prove to be reliable. Also, actual future results may vary materially from those
shown in the forecasts. None of the Company, Bear Stearns, the Independent
Committee, Lazard or Securicor is under
18
<PAGE> 19
any obligation, or has any intention, to update the projections at any future
time, except as may otherwise be required by law."
2. SOURCE AND AMOUNT OF FUNDS. The discussion set forth in "THE TENDER
OFFER -- Source and Amount of Funds" in the Offer to Purchase is hereby amended
to read in its entirety as follows:
"The total amount of funds required by Purchaser and Parent to consummate
the Offer and the Merger and to pay related fees and expenses (excluding
payments to be made in respect of options exercised after June 7, 1999 or in
connection with the cancellation of outstanding options and warrants) is
estimated to be approximately $50.8 million. Purchaser intends to obtain the
funds required by it from capital contributions and/or loans from Parent. Parent
intends to fund such capital contributions from its available cash resources or
from capital contributions and/or loans from its ultimate parent company,
Securicor. The Offer and Merger are not conditional on Purchaser obtaining
financing.
Securicor is a company incorporated under the laws of England and Wales and
is one of the 100 largest companies (measured by market capitalization) listed
on the London Stock Exchange. Securicor's market capitalization as of July 16,
1999 was in excess of $5 billion. In fiscal 1998, Securicor's consolidated
revenues were approximately $1.8 billion and its profits were approximately $82
million. At March 31, 1999, Securicor's consolidated net current assets were
approximately $62 million.
3. CERTAIN LEGAL MATTERS; REQUIRED REGULATORY APPROVALS. The discussion
set forth in "THE TENDER OFFER -- Certain Legal Matters; Required Regulatory
Approvals" in the Offer to Purchase under the heading "Lawsuits" is hereby
amended to read in its entirety as follows:
"Lawsuits: The Company, Securicor and the Company's directors have been
named as defendants in a class action lawsuit filed on June 7, 1999 in the Court
of Chancery of the State of Delaware following the Company's announcement on
that day of the Offer. The complaint alleges, among other things, that the
Company, Securicor and the Company Board have suppressed the price of the Shares
by, among other things, suppressing material information so that Securicor can
purchase the publicly-held Shares at an inadequate price. The complaint alleges
claims for breaches of fiduciary duty to the Company's public stockholders and
seeks injunctive relief, unspecified compensatory and/or rescissory damages,
attorneys' fees and costs, and other relief relating to the Offer and the
Merger.
The Company, Securicor and the Company's directors have been named as
defendants in a second class action lawsuit filed on June 11, 1999 in the Court
of Chancery of the State of Delaware following the Company's announcements on
June 7, 1999 of the Offer and on June 10, 1999 that the Company Board had
approved the Offer. The complaint alleges that Securicor has timed the Offer to
take advantage of the investments made by the Company from its inception through
1998. The complaint alleges that the Company, Securicor and the Company's
directors have breached their fiduciary duties to the Company's public
stockholders by offering to purchase the Shares it does not already own for
grossly inadequate consideration and without adequate procedural protections
customarily afforded public stockholders under such circumstances. The complaint
seeks preliminary and permanent injunctive relief, unspecified compensatory
and/or rescissory damages, and costs and disbursements, including attorneys' and
experts' fees, relating to the Offer.
The Company, Securicor and the Company's directors have been named as
defendants in a third class action lawsuit filed on June 17, 1999 in the Court
of Chancery of the State of Delaware. The complaint, including the relief
sought, is virtually identical to the class action complaint filed on June 11,
1999 that is described above.
The plaintiffs in the class action lawsuit originally filed on June 7, 1999
filed an amended complaint on June 21, 1999. As indicated in the related notice
of filing, the amended complaint is "in full substitution" of the prior
complaint. The amended complaint alleges, among other things, that the Company,
Securicor and the Company Board suppressed the price of the Shares by, among
other things, suppressing material information so that Securicor could purchase
the publicly-held Shares at an inadequate price. The amended complaint also
alleges that the defendants breached their fiduciary duties
19
<PAGE> 20
to the Company's public stockholders and that the Schedule 14D-1 and Schedule
14D-9 relating to the Offer failed to disclose allegedly material information.
The amended complaint seeks injunctive relief, unspecified compensatory and/or
rescissory damages, attorneys' fees and costs, and other relief relating to the
Offer and the Merger.
On July 8, 1999, counsel to the parties to the three pending class actions
(the "Pending Actions") entered into a Memorandum of Understanding setting forth
an agreement in principle regarding the potential settlement of the Pending
Actions (the "Memorandum of Understanding"). Pursuant to the terms of the
Memorandum of Understanding, the Offer Price and the Merger Consideration will
be increased from $2.75 per Share to $3.0125 per Share. The Memorandum of
Understanding provided that the contemplated settlement was subject to the
plaintiffs in the Pending Actions taking two depositions on or before July 10,
1999. The plaintiffs then had the right to withdraw from the settlement within
96 hours following the completion of the depositions if they discovered material
new facts as a result of the depositions that would, in the reasonable opinion
of the plaintiffs' counsel, render the settlement not fair or adequate under the
circumstances. The referenced depositions were taken on July 7 and July 8, 1999
and, on July 9, 1999, counsel to the plaintiffs informed Securicor that they had
waived their right to withdraw from the settlement.
The Memorandum of Understanding provides that, as promptly as reasonably
practicable, (i) the defendants are to amend the Merger Agreement to reflect the
increase in the Offer Price and the Merger Consideration and (ii) the Offer to
Purchase is to be amended to reflect the increased Offer Price and to extend the
Expiration Date from midnight on July 14, 1999 to midnight on July 29, 1999
(subsequently agreed by the parties to be extended to a date initially during
the first week of August 1999 and, thereafter, to August 3, 1999). The Merger
Agreement was so amended by the First Amendment. The Memorandum of Understanding
also provides that each of the named plaintiffs in the Pending Actions will
cause all Shares "owned" (as defined in Section 203(c)(9) of the DGCL) by such
plaintiff to be tendered in the Offer.
The Memorandum of Understanding requires that the parties to the Pending
Actions attempt in good faith to agree upon and execute as soon as practicable
(i) an appropriate Stipulation of Settlement (the "Stipulation") of all claims
asserted in the complaints filed in the Pending Actions and all related claims
described in the Memorandum of Understanding, and (ii) such other documentation
as may be required to obtain any and all necessary or appropriate court
approvals of the Stipulation, upon and consistent with the terms set forth in
the Memorandum of Understanding. The Stipulation will provide for the dismissal
of all such claims with prejudice. The Stipulation will also provide for the
release of all claims of members of the plaintiff class, whether known or
unknown, against the defendants in the Pending Actions and any of their present
or former officers, directors, employees, agents, attorneys, accountants,
financial advisors, commercial bank lenders, investment bankers,
representatives, affiliates, associates, parents, direct and indirect
subsidiaries, general partners, limited partners, partnerships, heirs,
executors, administrators, successors and assigns (collectively, the
"releasees"), whether under state or federal law, and whether directly,
derivatively, representatively or arising in any other capacity, and in
connection with, or that arise out of any claim that was or could have been
brought against any of the releasees in any of the Pending Actions, and/or that
relates in any way to (i) any claim that any action by any of the releasees, or
any failure of any of the releasees to take any action, affected the price of
the Shares, (ii) the acquisition or ownership of equity securities of the
Company or its affiliates by Securicor or any of the releasees, (iii) loans made
to the Company or its affiliates by Securicor or any of the releasees, (iv) the
fiduciary duties of any of the releasees to stockholders of the Company, (v) the
announcement made by Securicor on January 19, 1999, (vi) the Offer, (vii) the
Merger, (viii) the negotiation, consideration or formulation of the Offer or the
Merger, (ix) the disclosure obligations of any of the releasees in connection
with the Offer or the Merger, or (x) any other claim, other than claims for
appraisal of shares pursuant to Section 262 of the DGCL, relating in any way to
any of the foregoing.
The settlement contemplated by the Memorandum of Understanding is subject
to "final court approval," which is defined to mean the issuance by the court of
an order approving the settlement in accordance with the Stipulation, with such
order being finally affirmed on appeal or no longer being
20
<PAGE> 21
subject to appeal. The Memorandum of Understanding expressly acknowledges that,
at the sole option of the defendants, the Merger may be consummated prior to
court approval of the settlement and that it is expected that the Merger will be
consummated prior to final court approval of the settlement.
Pursuant to the Memorandum of Understanding, the Stipulation will also
provide that if final court approval of the settlement and dismissal of the
Pending Actions by the court with prejudice has been obtained in accordance with
the Stipulation, the plaintiffs and their counsel of record in the Pending
Actions will jointly apply to the court for an award of attorneys' fees and
expenses (including, but not limited to, fees of plaintiffs' counsels' financial
advisor) in an aggregate amount not to exceed $1,432,000. The Memorandum of
Understanding provides that the plaintiffs and their counsel intend to request
that plaintiffs' counsel be permitted to pay $10,000 of the foregoing fees as
special payments to certain of the named plaintiffs (a total of $40,000).
Defendants and their counsel agreed in the Memorandum of Understanding not to
oppose plaintiffs' and plaintiffs' counsels' application for attorneys' fees,
expenses and special payments to plaintiffs, provided that the application does
not exceed the specified amounts. The Memorandum of Understanding further
provides that, subject to certain conditions and any order of the court, any
such attorneys' fees and expenses awarded by the court to plaintiffs and
plaintiffs' counsel shall be paid by the Company (or any successor in interest).
The Memorandum of Understanding, by its terms, will be null and void and of
no force and effect if: (i) the Merger is not effectuated for any reason
whatsoever or (ii) final court approval of the settlement does not occur for any
reason.
The Company, each of its directors, and Securicor have denied that they
have engaged in any wrongdoing whatsoever, and have agreed to the settlement to
eliminate the burden and expense of further litigation and to permit the Offer
and the Merger to proceed without the risk of injunctive or other relief.
The foregoing summary of the Memorandum of Understanding is qualified in
its entirety by reference to the Memorandum of Understanding, a copy of which
has been filed as an exhibit to Amendment No. 1 to the Schedule 14D-1 and the
Schedule 13E-3 relating to the Offer."
4. FINANCIAL STATEMENTS OF THE COMPANY. The financial statements of the
Company set forth in Schedule III of the Offer to Purchase are hereby amended to
read in their entirety as set forth in Annex 1 hereto.
5. ADJUSTMENT TO NUMBER OF OUTSTANDING SHARES OF THE COMPANY. The Company
has informed Parent and Purchaser that the number of Shares issued and
outstanding as of June 9, 1999 has been increased by 8,000 to 42,311,038
following the presentation to the Company of an old stock certificate of a
predecessor company which entitles the holder of such certificate to Shares of
the Company. The Company has also informed Parent and Purchaser that, in part as
a result of the increase in the Offer Price and Merger Consideration from $2.75
to $3.0125 per Share, options to purchase an additional 289,834 Shares are
exercisable (i.e., there are currently exercisable options to purchase an
aggregate of 4,425,500 Shares). All references to the number of Company Shares
issued and outstanding and the number of options currently exercisable, and all
amounts derived therefrom, are hereby amended as appropriate to reflect the
foregoing.
6. OTHER AMENDMENTS. All references to the "Company's five-year business
plan" (which was in fact a six-year business plan) are hereby amended to read
the "Company's six-year business plan."
7. MISCELLANEOUS. Parent and Purchaser have filed with the Commission
amendments to the Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3
of the General Rules and Regulations under the Exchange Act, furnishing certain
additional information with respect to the Offer. The Schedule 14D-1, and any
amendments thereto, may be inspected at, and copies may be obtained from, the
same places and in the same manner as set forth in "THE TENDER OFFER -- Certain
Information Concerning the Company" in the Offer to Purchase (except that they
may not be available at the regional offices of the Commission).
IGC ACQUISITION CORP.
August 2, 1999
21
<PAGE> 22
ANNEX I
FINANCIAL STATEMENTS OF THE COMPANY
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Report of Independent Auditors.............................. F-3
Consolidated Statements of Operations and Comprehensive
Income (Loss) for the years ended September 30, 1998, 1997
and 1996.................................................. F-4
Consolidated Balance Sheets at September 30, 1998 and
1997...................................................... F-5
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended September 30, 1998, 1997 and 1996..... F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996......................... F-7
Notes to Consolidated Financial Statements.................. F-8
Consolidated Statements of Operations and Comprehensive Loss
for the three and six months Ended March 31, 1999 and
1998...................................................... F-35
Consolidated Balance Sheets at March 31, 1999 and September
30, 1998.................................................. F-36
Consolidated Statements of Cash Flows for the six months
ended March 31, 1999...................................... F-37
Notes to Consolidated Financial Statements.................. F-38
</TABLE>
F-1
<PAGE> 23
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-2
<PAGE> 24
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.
BAKER TILLY
Chartered Accountants
London, England
24 January 1997
F-3
<PAGE> 25
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 33,146 19,853
Cost of product sales -- inventory write-off......... -- 4,700 --
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-4
<PAGE> 26
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)
Accumulated other comprehensive income -- Currency
translation adjustment.................................. (1,641) (1,827)
--------- --------
Total shareholders' equity (deficit)...................... (8,454) 53,848
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 80,114 $112,565
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
F-5
<PAGE> 27
INTEK GLOBAL CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1995 AND
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 3, 1996
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
($'S IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
----------------------------------------------------------------------------------------
CAPITAL ACCUMULATED TOTAL
COMMON STOCK IN EXCESS OTHER SHAREHOLDERS'
------------------- OF PAR TREASURY ACCUMULATED COMPREHENSIVE EQUITY
SHARES AMOUNT VALUE STOCK DEFICIT INCOME (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 and
licenses purchased from ADC and
PPC................................. 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)
Accumulated other comprehensive
income -- currency translation
adjustments......................... -- -- -- -- -- 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-6
<PAGE> 28
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-7
<PAGE> 29
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
F-8
<PAGE> 30
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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. The percentage of product
sales that rely on products supported by the Company's Japanese supplier of
non-LMT radios and supplies is approximately 31%, 35% and 5% in 1998, 1997 and
1996, respectively.
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
In March 1995, Securicor acquired 925,850 shares of voting preferred stock
and a warrant to acquire 291,791 shares of common stock of E.F. Johnson Company
("EFJ"), a U.S.-based communications company (the "EFJ Investment"), for $10
million. Concurrent with this transaction Radiocoms entered into an agreement
with EFF to deliver to EFJ certain inventory products and to grant manufacturing
and
F-9
<PAGE> 31
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
technology licenses to EFJ valued at approximately $9.7 million. On June 17,
1996, Securicor transferred its EFJ Investment to Radiocoms. Radiocoms accounted
for the EFJ Investment using the cost method. Under the agreement between the
Company and Securicor relating to the Radiocoms Acquisition, Securicor agreed to
reimburse the Company for the difference between the original $10 million
carrying amount of the EFJ Investment and the proceeds the Company would receive
from the sale of the EFJ Investment.
During fiscal 1997, the Company exchanged the EFJ Investment for 374,609
shares of common stock of a publicly-traded company, Transcrypt International
(the "TI Investment"), with a fair value of $8.1 million, when Transcrypt
International acquired EFJ. The Company and Transcrypt International are not
related parties. The $1.9 million difference between the carrying value of the
EFJ Investment and the fair value of the TI Investment would be recovered from
Securicor, thus no gain or loss was recognized on the exchange. At September 30,
1997, the $1.9 million difference was included in amounts due from related
parties. Under the provisions of FAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", the Company classified the TI
Investment as "available for sale", and at September 30, 1997, had reflected the
TI Investment at its fair value using quoted market prices published by The
Nasdaq Stock Market.
During fiscal 1998, the Company sold its TI Investment for approximately
$7.4 million in a firm commitment public offering through Nationsbanc Montgomery
Securities, Furman Selz and Dain Bosworth Incorporated. The Company did not
recognize a realized loss from the sale of the TI Investment since the
difference between the original fair value ($8.1 million) and the sales price
would be recovered from Securicor pursuant to the stock purchase agreement for
the Radiocoms Acquisition. During fiscal 1998, the Company received
approximately $2.6 million from Securicor representing the difference between
the original $10 million carrying amount of the EFJ Investment and the $7.4
million received from the sale of the TI common stock.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and include manufacturing labor and overhead.
Inventories at September 30 consist of the following ($'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.
In fiscal 1997, the Company determined that certain inventory manufactured
by its UK subsidiary relating to both third party products and the Company's LM
products were slow-moving or obsolete. Accordingly, the Company recorded a
charge of $4.7 million against the cost of product sales to reduce the value of
the inventory to its estimated net realizable value.
F-10
<PAGE> 32
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost and are depreciated on a
straight-line basis over their estimated useful lives. The Company's policy is
to begin depreciation on site equipment when the site is ready for commercial
use. The Company interprets "ready for commercial use" to mean that the
communications site is operating at the minimum level required to provide
acceptable communications services to customers. The evidence that the Company
uses to determine whether the communications site is ready for commercial use is
the fact that the communications site begins to generate revenues.
Property and equipment at September 30, with their estimated useful lives,
consist of the following ($'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 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 of 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 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
F-11
<PAGE> 33
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
long-lived and intangible assets by measuring the carrying amount of the assets
against the estimated future cash flows, undiscounted without interest,
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 Acquisition (Note 4), attributable to Roamer
One, was not recoverable. Management reached the conclusion that the Radiocoms
reverse acquisition goodwill was not recoverable when the Company revised its
strategic plan after the Company's success at the recent FCC auction. The
Company's strategic planning process, which began during the third fiscal
quarter, was concluded subsequent to the September 1998 FCC Phase II auction and
included 5 year forecasts prepared for each operating subsidiary ("Strategic
Forecasts"). New markets for the Company became available for spectrum and
equipment sales by the Company as a result of the FCC Phase II auction and the
Company's partnering arrangement with NRTC (Note 5). Prior to the FCC Phase II
auction, Roamer One owned or managed site specific Phase I FCC licenses in the
220 MHz spectrum. The Company intended to build a network on a national basis
attributing substantially higher forecasted growth in the Acquisition Forecasts
(as defined below). Subsequent to the FCC Phase II Auction, management
reconfirmed its decision to focus on vertically integrating networks in four
major geographic operating areas. Such changes in strategy would result in
substantially slower growth attributable to Roamer One subscriber revenues
compared to forecasts prepared in connection with the Radiocoms Acquisition
("Acquisition Forecasts").
The Strategic Forecasts anticipated that Roamer One would operate at a
negative cash flow for the next five years because of the significant start up
losses and capital expenditures to be incurred in building its subscriber base.
Further, subscriber growth would be significantly slower than originally
forecasted in the Acquisition Forecasts. The Acquisition Forecasts reflected
positive operating results and cash flow in the second year of the Acquisition
Forecasts. The Acquisition Forecasts reflected significant subscriber growth and
system management fees generated on a national basis and reflected only very
modest capital costs for the subscriber network and the FCC licenses.
The Strategic Forecasts reflected Roamer One's performance from the date of
acquisition, including the substantially higher subscriber network and the FCC
license costs incurred, reflected substantially lower subscriber growth than
forecasted in the Acquisition Forecasts and reflected the Company's decision to
focus on vertically integrating networks in four major geographic operating
areas which also generated a slower subscriber growth. Based on the projected
operating losses and the negative cash flows contained in the Strategic
Forecasts, management did not believe that the goodwill was recoverable and did
not believe it was appropriate to select arbitrarily a shorter amortization
life. Accordingly, pursuant to SFAS 121, the Company determined that changes in
circumstances had occurred requiring the need to assess the impairment of Roamer
One's long-lived assets. As a result, the Company recorded a charge equal to the
unamortized balance of the Radiocoms reverse acquisition goodwill of
approximately $34.4 million. However, under the Strategic Forecasts, Roamer One
would be an integral part of the continuing operations notwithstanding Roamer
One's forecasted operating and cash losses for the foreseeable future.
Management determined that the fair value of the other long-lived assets on
Roamer One's and the Company's other subsidiaries' books, consisting of site
equipment, long-term inventory, FCC licenses and goodwill applicable to other
acquisitions, approximated their carrying value and thus were not written down.
Effective October 1, 1999, certain modifications were made to depreciation
policies, which will not be material to future operating results.
In connection with the site equipment and long-term inventory of the
Company, the Company has 230 base stations in inventory and equipment from
certain underutilized sites. Management believes the market for these products
will begin to open when the FCC issues the Phase II licenses. The equipment is
not technologically obsolete and the Company's anticipated needs for site/base
stations and anticipated
F-12
<PAGE> 34
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NRTC sales and sales to others, make such assets recoverable. Prior to the
recent FCC auction, there was a shortage of spectrum, which hampered equipment
sales for the entire industry. The anticipated sales price for these products
less costs to sell exceed the carrying value of this equipment.
The Company can package the base stations with spectrum and sell the
packages to dealers. In connection with the FCC licenses, the Phase I licenses
currently owned become more valuable because the FCC removed certain
restrictions. As a result, the Company has more flexibility as to their uses
together with the Phase II licenses which increases the market universe of
subscribers. The method used for determining fair value of the FCC licenses was
the fair market value of the Phase II licenses recently auctioned by the FCC.
The Company concluded that the carrying cost of the Phase I licenses was
realizable. Thus, management determined that no write-downs, to the FCC
licenses, were necessary.
The Company concluded that the carrying costs of the Midland goodwill on
the books of the Company was realizable based on expected cash flow from
operations as evidenced by the Company's Strategic Forecasts. In connection with
the Data Express goodwill, the Company has recently completed the acquisition of
Data Express, and management concluded that such goodwill was not impaired.
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>
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 is exposed to foreign currency exchange risk related to the
non-LM technology inventory purchased from its Japanese supplier. The Company
periodically enters into foreign currency forward contracts to minimize the
impact of currency movements on firm purchase commitments from this
F-13
<PAGE> 35
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
supplier. The counterparty for these instruments is a major financial
institution. The Company accounts for these foreign currency forward contracts
using hedge accounting. The terms of the derivatives are set to approximate the
inventory purchase dates. The Company regularly monitors its foreign currency
exposures and ensures that total amount of the foreign currency forward
contracts do not exceed the firm purchase commitments subject to the foreign
exchange risk. Gains and losses on the foreign currency forward contracts are
deferred and recognized when the related inventory purchases are recorded. The
Company does not enter into derivative financial instruments for trading or
speculative purposes.
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...................... Y407,771 Y374,817
Outstanding hedge contracts............................ 170,000 210,000
-------- --------
Unhedged position...................................... Y237,771 Y164,817
======== ========
Unhedged position...................................... $ 1,768 $ 1,375
======== ========
Outstanding hedge contracts at contract rate........... $ 1,270 $ 1,800
Outstanding hedge contracts at fair value (based upon
market prices at balance sheet date)................. $ 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 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.
F-14
<PAGE> 36
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. RESTRUCTURING CHARGES
During the third quarter of fiscal 1998, the Company recorded a pre-tax
restructuring charge of $1,613,000, as a result of its strategic plan which
included plans to consolidate and relocate certain administrative services
functions and to eliminate and deconstruct certain communications sites related
to its air time services product line. Activities related to the reserve created
as a result of that charge are summarized as follows (in thousands):
<TABLE>
<CAPTION>
OFFICE
STAFF LEASE SITE LEASE EQUIPMENT
REDUCTIONS TERMINATIONS TERMINATIONS REMOVAL TOTAL
---------- ------------ ------------ --------- ------
<S> <C> <C> <C> <C> <C>
Restructuring reserve -- June 30,
1998............................. $ 776 $210 $427 $200 $1,613
Cash payments...................... (193) (71) (4) (27) (295)
Adjustments........................ 70 36 0 0 106
----- ---- ---- ---- ------
Balance at September 30, 1998.... $ 653 $175 $423 $173 $1,424
===== ==== ==== ==== ======
</TABLE>
To gain efficiencies and economies of scale, the Company decided to
consolidate its offices and employee base by closing its Torrance, California
office and its Princeton, New Jersey office, relocate its corporate office to
New York City and relocate its consolidated financial and customer service
functions to Kansas City, Missouri. In connection with the Company's plans to
consolidate its operations into Kansas City and to relocate its corporate
office, the Company identified selected employee positions to eliminate. The
employee groups identified for termination were primarily those employees
located in California and New Jersey who were unwilling to relocate to Kansas
City, Missouri. The terminations were involuntary and the Company notified its
employees before September 30, 1998 that such terminations would be forthcoming
as a result of the office consolidations. The majority of the terminations
occurred in July 1998 and the termination dates differed depending on
circumstances. Termination dates began as early as July 8, 1998 and are expected
to continue through fiscal 1999. As of September 30, 1998, the Company had made
severance payments of approximately $193,000. The remaining balance of the
restructuring reserve at September 30, 1998 relates to severance payments to be
paid to the remaining employees identified for termination -- primarily
employees in upper management positions or employees critical to transitioning
key responsibilities to the Kansas City, Missouri location. Normal salary and
benefits paid to those employees identified for termination, up to the date they
depart the Company, are reflected in current period costs and expenses and have
not been charged to the restructuring reserve.
In connection with the Company's decision to consolidate and relocate
certain administrative services functions, the Company identified leases in
Torrance, California and Princeton, New Jersey that the Company no longer
required for its operations. As a result, the Company recorded its best estimate
of the net costs of the noncancelable operating leases at those locations and
included them as part of the restructuring reserves. The offices in California
and New Jersey were not owned by the Company. The major equipment located at
these two locations has been or will be redeployed elsewhere within the Company.
In conjunction with the restructuring, the Company decided to eliminate or
"deconstruct" certain communication sites that are not deemed essential to the
Company's growth strategy in its four major geographic operating areas. The
Company identified approximately 40 sites in twelve states that are not part of
the Company's four major geographic operating areas, and will deconstruct those
sites. Deconstruction of sites represents ceasing all operations at the sites
and recovering the Company's equipment (i.e., base stations, combiners, etc.)
from those sites. Costs included by the Company in the restructuring reserve
related to the deconstruction of the sites include net costs related to
noncancelable operating site leases, and costs to remove the equipment and
write-off of unrecoverable installation costs
F-15
<PAGE> 37
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(estimated at approximately $2,000 -- $7,000 per site.) At September 30, 1998,
the Company had completed deconstruction of approximately one-third of the
sites. Deconstructing of the sites is expected to be completed in fiscal 1999.
At September 30, 1998, equipment with a net book value of approximately $3
million was located at the sites identified for deconstruction. The Company
expects the majority of the equipment to be utilized by the Company at future
sites that the Company constructs for itself or for others. As a result, no
impairment or revaluation has been taken on this equipment and depreciation has
not been suspended.
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.
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
F-16
<PAGE> 38
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 220 MHz 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.
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 site 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 724,167 shares of Intek
common stock (valued for purposes of the transaction at approximately $1.3
million), provided that the number of shares (682,735) would be adjusted if the
FCC licenses underlying the managed systems were not validly issued or contained
technical defects; (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 fiscal 1997, the Company issued 682,735 shares of Intek common
stock, valued at approximately $1.9 million for the ADC site equipment and FCC
licenses acquired through September 30, 1997. Of the total shares issued in
fiscal 1997, 264,354 shares were issued to Ventel, Inc. (see below).
F-17
<PAGE> 39
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1998, the Company issued an additional 41,432 shares of Intek
common stock, valued at approximately $76,000, for the remaining ADC site
equipment and FCC licenses acquired.
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 Cellular ("PPC"). The
agreements provided that the Company would acquire (subject to the satisfaction
of certain conditions) 25 licenses and site equipment for a purchase price equal
to 989,051 shares of Intek common stock (valued for purposes of the transaction
at approximately $1.8 million) plus cash payments totaling approximately $0.8
million. During fiscal 1997, the Company issued 523,567 shares of Intek common
stock, valued at $938,000 for the PPC site equipment and FCC licenses acquired
through September 30, 1997. All of the shares issued in fiscal 1997 were issued
to Ventel, Inc. (see below). Closing of the transactions and payment of the
remaining purchase price occurred in December 1997 upon receipt of uncontested
grant by the FCC of the licenses to Roamer One. At that time, the Company issued
an additional 465,484 shares of Intek common stock, valued at approximately
$834,000 for the remaining PPC site equipment and FCC licenses acquired.
Ventel, Inc.
Ventel is in the business of providing financing to various 220 MHz SMR
management companies (including ADC and PPC) in the U.S. During fiscal 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 ADC and PPC for the purpose of constructing 220 MHz 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 Intek common stock, valued
at approximately $1.4 million and $100,000 in cash. All shares were issued to
Ventel in fiscal 1997. The value of the shares issued were allocated to the site
equipment and FCC licenses acquired from ADC and PPC, and the loans were
cancelled.
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
F-18
<PAGE> 40
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to replace the radios. As of September 30, 1998, the balance of the accrual for
radio replacement was approximately $1.6 million.
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 Licenses 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 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 (approximately $500,000) 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
F-19
<PAGE> 41
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The Company and NRTC entered into a Master Distribution Agreement, dated
September 4, 1998 (the "Master 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
Master Distribution Agreement targets the sale of approximately $50 million of
Contract Products to NRTC and its Members over the first five years of the
Master 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 Master
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.
As part of the Master Distribution Agreement, the Company agreed to enter
into a separate agreement with NRTC, subject to all the terms and conditions of
the Master Distribution Agreement, to grant NRTC the option to purchase up to
1,250,000 of Intek common stock. Upon the execution of the Master Distribution
Agreement, NRTC was entitled to an option to purchase 200,000 shares. For each
block of $5 million of Contract Products purchased over the term of the Master
Distribution Agreement, NRTC is entitled to an option to purchase 100,000
shares, up to a maximum of 800,000 shares. NRTC is entitled to an option to
purchase 250,000 shares of the Company common stock if it meets certain
conditions related to the ordering, purchase and payment of Contract Products
over the life of the Master Distribution Agreement. NRTC has the right to
exercise any option it receives from the Company at any time during the term of
the Master Distribution Agreement. If the Master Distribution Agreement is
terminated on or prior to September 4, 2003, NRTC shall have the right to
exercise the options it has received or the portion of the options it has earned
until the earlier of one year from the date of the termination of the Master
Distribution Agreement or September 30, 2004. 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.
The Company intends to account for the NRTC stock options in accordance
with EITF 96-18. "Accounting For Equity Instruments That Are Issued To Other
Than Employees For Acquiring, Or In Conjunction With Selling, Goods Or
Services." The fair value of the first option to purchase 200,000
F-20
<PAGE> 42
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares of Company common stock will be recorded as a contract acquisition cost,
reflected as a long-lived asset and amortized to income over the term of the
Master Distribution Agreement. The fair value of each option granted as a result
of NRTC purchasing $5 million of Contract Products will be recorded as a cost of
product sales in the period the sales are recorded. The fair value of the option
for the final 250,000 shares of Company common stock will be recorded as a cost
of product sales when it is probable that the certain conditions will be met by
NRTC. Since the exercise price of the options is not known until the exercise
date, the Company will follow variable accounting for all options granted until
such time as NRTC earns the options. The Company anticipates recording the fair
value of the option to purchase 200,000 shares of Intek common stock on the
earlier of the date the option is granted to NRTC or the date the NRTC becomes
entitled to additional options based upon product purchases.
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>
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 $3,866,000 for September 30, 1998 and
1997, respectively.
F-21
<PAGE> 43
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The approximate tax effect of temporary differences which gave rise to
significant deferred tax assets and liabilities at September 30 are as follows
($'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 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
F-22
<PAGE> 44
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 adjustable 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 $410,000.
F-23
<PAGE> 45
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the above agreements, as of September 30, 1998, third party
borrowings will be repaid as follows ($'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 $1.2 million.
F-24
<PAGE> 46
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the above agreements, as of September 30, 1998, related
party borrowings will be repaid as follows ($'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.
F-25
<PAGE> 47
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 or 80% of the average closing
bid price for the 5 trading days prior to conversion resulting in a discount of
$0.8 million. The Company assigned value to the beneficial conversion feature
and was amortizing such value to interest expense. 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. The unamortized balance of the beneficial
conversion feature relating to the February 1997 Debentures at the date of
redemption was approximately $0.4 million. 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
F-26
<PAGE> 48
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 the 1988 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.
F-27
<PAGE> 49
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 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>
F-28
<PAGE> 50
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
$6.125 20,000 8.18
---------
4,251,666
=========
</TABLE>
As of September 30, 1998, options available for future grant were as
follows:
<TABLE>
<S> <C>
1988 Plan.................................................. 5,834
1994 Stock Option Plan..................................... 48,000
1994 Directors' Plan....................................... 85,000
1997 Incentive Plan........................................ 695,000
-------
833,834
=======
</TABLE>
The Company accounts for these plans under Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. As long as the exercise price of the stock options is not less
than the fair value of the Intek common stock at the date of grant, no
compensation expense is recognized. Had compensation expense for these plans
been determined consistent with the requirements of FAS No. 123 "Accounting for
Stock-based Compensation" ("FAS 123"), the Company's net loss and loss per share
would have been increased to the following pro forma amounts during the three
fiscal years ended September 30 ($'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.
F-29
<PAGE> 51
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 L500,000 (approximately $800,000) if the revenue
generated from the assets during the period of two years ending September 30,
2000 is less than 2 times the aggregate revenue from the assets generated during
the year ending September 30, 1998.
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
F-30
<PAGE> 52
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Messrs. 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, respectively, of
radio equipment and installation services from SCL. The agreement was terminated
during fiscal 1997.
F-31
<PAGE> 53
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-32
<PAGE> 54
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 defined by FAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The Company is a provider of
spectrum-efficient wireless communications technology, products and services.
This conclusion is based upon how the Company's chief operating decision makers
view the Company's operations and how decisions are made to invest resources and
to assess performance. 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, is
presented below. Revenues are attributed to geographic areas by destination of
the goods or services. Sales to European customers are reflected as European
revenues. Radiocoms' sales to U.S. customers are reflected as U.S. sales.
F-33
<PAGE> 55
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
REVENUES ($'S IN THOUSANDS)
------------------------------
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
GEOGRAPHIC AREAS
Domestic:
United States............................................. $13,563 $ 16,710 $ --
To foreign affiliated..................................... -- 7 --
------- -------- -------
13,563 16,717 --
------- -------- -------
Foreign:
Europe (primarily the United Kingdom)..................... 22,091 25,574 23,899
To United States affiliates............................... 1,649 12,442 8,984
------- -------- -------
23,740 38,016 32,883
------- -------- -------
Total sales between geographic areas........................ (1,649) (12,449) (8,984)
------- -------- -------
Total consolidated revenues....................... $35,654 $ 42,284 $23,899
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
LONG TERM ASSETS ($'S IN THOUSANDS)
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
United States............................................... $44,270 $70,316 $ --
United Kingdom.............................................. 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 $12.5 million will be set at the average closing price
of the Company's common stock for the last 20 trading days prior to the date of
each draw on the facility.
F-34
<PAGE> 56
INTEK GLOBAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
($'S IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
----------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Net product sales....................... $ 5,990 $ 5,016 $ 11,343 $ 14,055
Service income.......................... 802 3,027 1,423 3,228
---------- ---------- ---------- ----------
Total revenues............................ $ 6,792 $ 8,043 $ 12,766 $ 17,283
Costs and expenses:
Cost of product sales................... 4,628 3,890 7,968 10,434
Cost of services provided............... 1,251 2,602 2,239 3,610
Sales and marketing..................... 1,428 2,229 2,981 4,082
Research and development................ 413 532 1,089 1,165
General and administrative.............. 3,746 3,937 7,776 7,948
Depreciation and amortization........... 1,413 1,619 2,806 2,948
Strategic planning charges.............. 336 336
---------- ---------- ---------- ----------
Operating loss............................ $ (6,423) $ (6,766) $ (12,429) $ (12,904)
Other income (expense):
Interest................................ (1,410) (721) (2,502) (1,404)
Other................................... (69) 15 (105) 31
---------- ---------- ---------- ----------
Loss before income taxes.................. $ (7,902) $ (7,472) $ (15,036) (14,277)
Income tax benefit........................ -- -- --
---------- ---------- ---------- ----------
Net loss.................................. $ (7,902) $ (7,472) $ (15,036) $ (14,277)
Less: preferred dividends................. (657) (295) (1,322) (593)
---------- ---------- ---------- ----------
Net loss applicable to common
shareholders............................ $ (8,559) $ (7,767) $ (16,358) $ (14,870)
Other comprehensive income (loss):
Foreign currency translation
adjustments, net of tax.............. (342) (171) 48 (172)
---------- ---------- ---------- ----------
Comprehensive income (loss)............... $ (8,901) $ (7,938) $ (16,310) $ (15,042)
========== ========== ========== ==========
Net loss per share applicable to common
Shareholders (basic & diluted).......... $ (0.21) $ (0.18) $ (0.38) $ (0.35)
========== ========== ========== ==========
Weighted average number of common Shares
outstanding (basic & diluted)........... 42,303,038 42,201,852 42,303,038 42,128,258
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-35
<PAGE> 57
INTEK GLOBAL CORPORATION
CONSOLIDATED BALANCE SHEETS
($'S IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,311 $ 5,719
Accounts receivable, net of allowance for doubtful
accounts of $342 at March 31, 1999 and $993 at September
30, 1998................................................ 4,270 3,870
Inventories............................................... 20,444 17,677
Deposits.................................................. 73 1,750
Amounts due from related parties.......................... 246 396
Prepaid expenses and other current assets................. 2,001 1,796
--------- ---------
Total current assets:..................................... 29,345 31,208
--------- ---------
PROPERTY AND EQUIPMENT, NET................................. 23,584 23,569
OTHER ASSETS:
Note receivable........................................... 142 580
Intangible assets, net.................................... 27,219 20,961
Inventory-long term....................................... 3,549 3,189
Other..................................................... 695 607
--------- ---------
Total other assets........................................ 31,605 25,337
--------- ---------
TOTAL ASSETS................................................ $ 84,534 $ 80,114
========= =========
CURRENT LIABILITIES:
Accounts payable.......................................... $ 6,866 $ 7,062
Amounts due to related parties............................ 3,979 2,499
Accrued liabilities....................................... 5,097 7,420
Notes payable-third party................................. 7,444 3,299
Notes payable-related party............................... 17,500 --
--------- ---------
Total current liabilities................................. 40,886 20,280
--------- ---------
LONG TERM DEBT:
Notes payable -- third party.............................. 547 2,038
Notes payable -- related party............................ 30,839 30,733
Other..................................................... 56 65
--------- ---------
Total long term debt...................................... 31,442 32,836
--------- ---------
PREFERRED STOCK -- Mandatorily Redeemable................... 36,774 35,452
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 60,000,000 shares
authorized 43,305,620 shares issued at March 31, 1999
and September 30, 1998.................................. 433 433
Capital in excess of par value............................ 107,321 108,471
Treasury stock, at cost, 1,002,582 shares at March 31,
1999 and September 30, 1998............................. (2,099) (2,099)
Accumulated deficit....................................... (128,606) (113,618)
Accumulated other comprehensive income -- currency
translation adjustment.................................... (1,617) (1,641)
--------- ---------
Total shareholders' equity (deficit)........................ (24,568) (8,454)
--------- ---------
$ 84,534 $ 80,114
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-36
<PAGE> 58
INTEK GLOBAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
($'S IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss.................................................... $(15,036) $(14,277)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 2,806 2,948
Interest added to principal................................. 2,170
Stock option expense........................................ 317 --
Changes in operating assets and liabilities:
Accounts receivable and amounts due from related parties.... (249) 2,994
Deposits.................................................... 1,677 --
Inventories................................................. (3,097) 700
Income taxes receivable from related parties................ -- 261
Prepaid expenses and other current assets................... (208) (376)
Accounts payable and amounts due to related parties......... 1,101 (161)
Accrued liabilities......................................... (2,242) 1,709
Accrued liabilities to related parties...................... -- 304
Deferred income............................................. -- (724)
Other....................................................... (447) (57)
-------- --------
Net cash used in operating activities....................... (15,378) (4,509)
-------- --------
Cash Flows From Investing Activities:
Proceeds from sale of marketable securities................. -- 7,458
Expenditures for property and equipment, net................ (2,192) (3,453)
Expenditures for FCC licenses............................... (7,017) (5,707)
Collection of note receivable............................... 440 116
Other....................................................... 438 (222)
-------- --------
Net cash used in investing activities....................... (8,331) (1,808)
-------- --------
Cash Flows From Financing Activities:
Net change in bank overdraft................................ 3,083 893
Proceeds from short term debt............................... 1,633 2,915
Proceeds from long term debt................................ -- 1,656
Proceeds from notes payable-related party................... 17,186 2,000
Repayment on long and short term debt....................... (1,993) --
Purchase of treasury stock.................................. -- (1,329)
Other....................................................... 309 (277)
-------- --------
Net cash provided by financing activities................... 20,219 5,858
-------- --------
Effect of foreign exchange rates on cash.................... 82 18
-------- --------
Net decrease in cash and cash equivalents................... (3,408) (441)
Cash and cash equivalents at beginning of period............ 5,719 1,909
Cash and cash equivalents at end of period.................. $ 2,311 $ 1,468
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest...................................... $ 210 $ 60
Cash paid for income taxes.................................. $ $
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-37
<PAGE> 59
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) PRESENTATION
The unaudited condensed consolidated financial statements included herein
have been prepared by Intek Global Corporation (the "Company" or "Intek
Global"), pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. These unaudited condensed consolidated financial statements should
be read in conjunction with Management's Discussion and Analysis and the
financial statements and the notes thereto included in the Company's latest
annual report on Form 10-K for the period ended September 30, 1998. These
financial statements have been prepared in accordance with Generally Accepted
Accounting Principles ("GAAP") used in the United States ("U.S."). Such
accounting principles differ in certain respects from GAAP used in the United
Kingdom ("U.K."), which is applied by the Company's Securicor Electronics
Limited ("SEL") subsidiary (formerly known as Securicor Radiocoms Limited) for
local and statutory financial reporting purposes. The information furnished
herein reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of the condensed consolidated financial
statements for the interim periods presented taken as a whole. These adjustments
are of a normal and recurring nature. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue, and expenses. Actual results may differ from these
estimates. The results of the interim periods are not necessarily indicative of
results to be expected for the entire year.
(2) FINANCIAL INSTRUMENTS
The Company's management believes that fair value of all financial
instruments approximates carrying value. The Company is exposed to foreign
currency exchange risk related to non-LM technology inventory purchased from its
Japanese supplier. The Company periodically enters into foreign currency forward
contracts to minimize the impact of currency movements on firm purchase
commitments from this supplier. The counter party for these instruments is a
major financial institution. The Company accounts for these foreign currency
forward contracts using hedge accounting. The terms of the derivatives are set
to approximate the inventory purchase dates. The Company regularly monitors its
foreign currency exposures and ensures that the total amount of the foreign
currency forward contracts do not exceed the firm purchase commitments subject
to foreign exchange risk. Gains and losses on the foreign currency forward
contracts are deferred and recognized when the related inventory purchases are
recorded. The Company does not enter into derivative financial instruments for
trading or speculative purposes. Details of the hedging of firm foreign
commitments as of March 31, 1999 follows:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
(Y'S AND $'S
IN THOUSANDS)
<S> <C>
Firm foreign purchase commitments...................... Y144,345
Outstanding hedge contracts............................ 20,000
--------
Unhedged position...................................... Y124,345
========
Unhedged position...................................... $ 1,058
========
Outstanding hedge contracts at contract rate........... $ 172
Outstanding hedge contracts at fair value (based upon
market prices at balance sheet date)................. $ 170
</TABLE>
F-38
<PAGE> 60
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(3) INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
--------- -------------
(UNAUDITED)
<S> <C> <C>
Raw materials........................................ $ 5,820 $ 6,077
Work in progress..................................... 2,995 2,681
Finished goods....................................... 15,178 12,108
------- -------
Subtotal............................................. 23,993 20,866
Inventory not likely to be used or sold within one
year............................................... (3,549) (3,189)
------- -------
Total current inventories............................ $20,444 $17,677
======= =======
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED MARCH 31, SEPTEMBER 30,
USEFUL LIVES 1999 1998
------------ --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land................................................ $ 401 $ 423
Buildings........................................... 11 to 50 2,908 2,735
Site equipment...................................... 10 16,294 15,893
Production & test equipment......................... 3 to 10 4,088 4,077
Furniture, fixtures and computers................... 3 to 10 3,275 3,190
Equipment held for rental........................... 3 to 5 3,645 2,451
------- -------
Total property and equipment, at cost............... 30,611 28,769
Less accumulated depreciation..................... (7,027) (5,200)
------- -------
Net property and equipment.......................... $23,584 $23,569
======= =======
</TABLE>
(5) INTANGIBLE AND LONG LIVED ASSETS
Intangible assets consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
--------- -------------
(UNAUDITED)
<S> <C> <C>
Excess of cost over fair value of net assets acquired
(goodwill):
Intek Global USA, Inc. ............................ $ 9,755 $ 9,755
Data Express....................................... 1,386 1,386
------- -------
11,141 11,141
FCC licenses acquired from third parties............. 18,351 11,333
Trademarks and patents............................... 81 81
------- -------
Total intangibles.................................... 29,573 22,555
Less accumulated amortization...................... (2,354) (1,594)
------- -------
Net intangibles...................................... $27,219 $20,961
======= =======
</TABLE>
(6) SEGMENT REPORTING
During fiscal 1998, the Company restructured itself to integrate its
design, manufacturing, distribution and airtime operations. The Company operates
in one industry segment as defined by FAS No. 131,
F-39
<PAGE> 61
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
"Disclosures about Segments of an Enterprise and related Information." The
Company is a provider of spectrum-efficient wireless communications technology,
products and services. This conclusion is based upon how the Company's chief
operating decision makers view the Company's operations and how decisions are
made to invest resources and to assess performance. Products include linear
modulation ("LM") and non-LM based radios, and products manufactured under
contract for third parties. Services include subscriber revenues, royalties,
equipment rental, and non-warranty repair. All prior year segment information
has been restated to reflect the current year's structure of the Company's
internal organization. The Company's geographic data from continuing operations
for the six months ended March 31, 1999 and 1998 are as follows ($'s in
thousands):
<TABLE>
<CAPTION>
REVENUES
6 MONTHS ENDED MARCH 31,
------------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Geographic Areas
United States............................................... $ 7,225 $ 6,294
Unaffiliated..............................................
To foreign affiliates..................................... 5,541 10,989
Foreign
Europe (primarily United Kingdom).........................
To United States affiliates............................... 3,154 1,616
Total sales between geographic areas........................ (3,154) (1,616)
------- -------
Consolidated Revenues..................................... $12,766 $17,283
======= =======
</TABLE>
<TABLE>
<CAPTION>
LONG TERM ASSETS
--------------------------
MARCH 31, SEPTEMBER 30,
1999 1999
--------- -------------
(UNAUDITED)
<S> <C> <C>
United States............................................... $51,096 $44,270
United Kingdom.............................................. 4,093 4,636
------- -------
Total consolidated long term assets......................... $55,189 $ 8,906
======= =======
</TABLE>
(7) RELATED PARTY TRANSACTIONS
Related parties of Intek Global include Securicor Communications Limited
("Securicor"), a corporation formed under the laws of England and Wales, and its
ultimate parent company, the directors and officers of Intek Global 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 and in the Company's annual report on
Form10-K, 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 to obtain certain support
and administrative services for SEL from Securicor and/or its affiliates for the
purpose of enabling the Company to manage an orderly transition in its owner
ship of SEL during fiscal 1997. During fiscal 1997, approximately $0.7 million
of support and administrative service costs (including services of Edmund Hough,
Intek Global's former Chief Executive
F-40
<PAGE> 62
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Officer) were billed to Intek Global by Securicor. As of March 31, 1999, these
costs remained unpaid by Intek Global.
SEL sells products to Securicor. In the first half of fiscal year 1999,
revenues from such sales were $1,025,000. Sales to Securicor during the first
half of fiscal year 1998 were $1,324,000.
Directors, Officers and Affiliated Companies
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 management 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 $25,000
and $72,000 during the first half of fiscal 1999 and 1998, respectively. In
addition, Mr. Wasserman receives $2,000 per month as compensation for his
services as the secretary of the Company.
The law firm of Squire, Sanders & Dempsey L.L.P., which acquired the
practice of Kelly & Povich, P.C., received fees of approximately $295,000 and
$91,000 during the first half of fiscal 1999 and 1998, respectively. Mr. Kelly
is a member of the Company's Board of Directors.
The firm of Wareham Associates, Inc. provides management consulting and
executive recruiting services to the Company for which it received fees of
approximately $66,000 during the first half of fiscal 1999. No fees were paid to
Wareham Associates, Inc. during the first half of fiscal 1998.
In December 1998, the Company retired $440,625 in debt related to the
repurchase in March, 1998 of 352,500 shares of Intek Global common stock from
Simmonds Capital Limited in a private transaction.
Directors are compensated for services at the rate of $12,000 per year plus
$1,000 per board meeting and $500 per committee meeting. Committee chairpersons
receive an additional $2,000 per year.
The Company has entered into several related party borrowings with
Securicor (see note 8). Roger Wiggs and Michael Wilkinson, directors of the
Company, are also officers and directors of Securicor. Directors fees for
Messrs. Wiggs and Wilkinson are paid to Securicor plc.
(8) DEBT
Related Party Borrowings
In December 1997, the Company entered into a loan agreement ("December 1997
Facility") with Securicor replacing all prior loan agreements providing 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 Global common stock as a result of any transaction except the
direct or indirect transfer of the Intek Global 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. The December
1997 Facility contains a consolidated net worth covenant with which Securicor
waived compliance until April 2000. Absent such waiver, as of March 31, 1999,
the Company would not be in compliance with such covenant. The amount payable
under the December 1997 Facility totaled $33.7 million at March 31,
1999,consisting of original principal borrowings of $29.5 million,
F-41
<PAGE> 63
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
capitalized interest of approximately $1.2 million and accrued interest payable
of approximately $3.0 million.
In December 1998, the Company entered into an additional financing
arrangement ("December 1998 Facility") with Securicor providing the Company the
ability to borrow up to $25 million. Loans provided under this convertible
subordinated debt facility will accrue interest at the rate of 11.5 percent per
annum and will mature on December 31, 1999. The rate of conversion, if the
conversion feature is elected by Securicor, will be based on the market value of
Intek Global common stock over specified periods. At March 31, 1999, the amount
payable under the December 1998 Facility totaled $17.8 million, consisting of
original principal borrowings of $17.5 million and accrued interest payable of
approximately $0.3 million.
As a result of the above arrangements, as of March 31, 1999, related party
borrowings will be repaid as follows (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1999....................................................... $ 1,092
2000....................................................... 17,840
2001....................................................... 1,500
2002....................................................... 7,500
2003....................................................... 24,386
Thereafter................................................. --
-------
$52,318
=======
</TABLE>
During the first half of fiscal 1999 and 1998, interest expense for related
party borrowings totaled approximately $2,127,000, and $1,439,000, respectively.
Third Party Borrowings
In December 1997, Intek Global USA entered into a revolving credit facility
("Credit Facility") with a non-bank lender. The Credit Facility makes available
$5.0 million through December 1999. Borrowings under the Credit Facility are
secured by the assets of Intek Global USA and bear interest at 1.5% above the
lender's base rate (as defined). The Credit Facility contains, among other
covenants, a covenant relating to leverage, limitations on Intek Global USA's
ability to repay intercompany indebtedness and repayment provisions related to
change in control of Intek Global USA. The Company uses the Credit Facility for
issuance of letter of credit commitments on behalf of Intek Global USA, and for
borrowings for working capital. As of March 31, 1999, there was indebtedness
outstanding of approximately $2.3 million and letter of credit commitments of
$1.0 million under this Credit Facility.
In December 1997, Intek Global completed the acquisition of selected assets
of Wireless Plus. 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. The first installment of $1.5 million was paid in February 1999
consisting of principal in the amount of $1.3 million and accrued interest in
the amount of $0.2 million. As of March 31, 1999 the outstanding balance totaled
$1.3 million.
In March 1998, Intek Global repurchased 352,500 shares of Intek Global
common stock at $2.75 per share in a private transaction for a total of $969,375
(Note 7). The purchase price paid by the Company included notes in the aggregate
amount of $440,625. The notes were non-interest bearing and were repaid on
December 15, 1998.
In August 1998, the Company entered into a purchase agreement with ComTech.
The purchase price paid by the Company to ComTech included a three-year
promissory note in the amount of $408,039,
F-42
<PAGE> 64
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
bearing interest at the rate of 9%per annum. The note principal is payable in
two installments in fiscal 2000 and 2001.
SEL has an overdraft agreement of 2.0 million pounds sterling
(approximately U.S. $3.2 million) with a bank. Borrowings under the Agreement
are unsecured at an adjustable rate of 1% over the prevailing U.K. base rate for
borrowings up to the agreement limit. Borrowings in excess of the agreement
limit are at 23%. The rate at March 31, 1999 was 6.5%. The Company uses the
overdraft Facility for borrowings for working capital. As of March 31,
1999,there was indebtedness of approximately $3.7 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 $367,000 at March 31, 1999.
As a result of the above agreements, as of March 31, 1999, third party
borrowings will be repaid as follows ($'s in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1999........................................................ $3,659
2000........................................................ 3,952
2001........................................................ 350
2002........................................................ 83
2003........................................................ 3
Thereafter.................................................. --
------
$8,047
======
</TABLE>
(9) COMMITMENTS
Site Leases
The Company has entered into site leases for the housing of radio base
station equipment and antenna systems related to the Intek Global USA network.
These leases may vary in term from monthly to 5 years with provisions for
subsequent extensions upon the mutual agreement of the parties. In addition, the
Company has lease commitments for office space, vehicles and office equipment.
As of March 31, 1999, total future minimum lease payments are as follows ($'s in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1999........................................................ $1,777
2000........................................................ 1,891
2001........................................................ 1,174
2002........................................................ 381
2003........................................................ 162
Thereafter.................................................. 237
------
$5,622
======
</TABLE>
Purchase Commitments
As of March 31, 1999, Intek Global USA had a purchase commitment with its
main supplier of radios to purchase approximately $1.4 million of inventory, and
a second commitment with another supplier of radios for contract manufacturing
totaling approximately $1.0 million.
(10) LEGAL PROCEEDINGS
A discussion of the Company's pending litigation is contained in its
quarterly report filed on Form 10-Q for the quarter ended December 31, 1998.
F-43
<PAGE> 65
Facsimile copies of the Letters of Transmittal, properly completed and duly
executed, will be accepted. The Letters of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each shareholder
of the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Depositary at one of its addresses set forth below:
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By First Class Mail: By Overnight Delivery: By Hand:
P.O. Box 3301 85 Challenger Road 120 Broadway, 13th Floor
South Hackensack, New Jersey Mail Drop - Reorg New York, New York 10271
07606 Ridgefield Park, New Jersey Attn: Reorganization
Attn: Reorganization 07660 Department
Department Attn: Reorganization
Department
</TABLE>
<TABLE>
<S> <C> <C>
By Facsimile Transmission: To Confirm Facsimile
(For Eligible Institutions Transmission Only, Call:
Only) (201) 296-4860
(201) 296-4293
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at the respective addresses and telephone numbers
set forth below. Requests for additional copies of this Offer to Purchase and
the Letter of Transmittal may be directed to the Information Agent. Shareholders
may also contact their brokers, dealers, commercial banks or trust companies for
assistance concerning the Offer.
The Information Agent for the Offer is
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
CALL TOLL FREE (800) 322-2885
The Dealer Manager for the Offer is:
LAZARD FRERES & CO. LLC
30 Rockefeller Plaza
New York, NY 10020
(212) 632-6717 (call collect)
request and at the expense of us
<PAGE> 1
REVISED LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
INTEK GLOBAL CORPORATION
PURSUANT TO THE OFFER TO PURCHASE DATED AS OF
JUNE 16, 1999,
AS AMENDED BY
THE FIRST SUPPLEMENT TO THE OFFER TO PURCHASE DATED AS OF
AUGUST 2, 1999
OF
IGC ACQUISITION CORP.
A WHOLLY-OWNED SUBSIDIARY OF
SECURITY SERVICES PLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 NOON, NEW YORK CITY TIME,
ON MONDAY, AUGUST 16, 1999, UNLESS THE OFFER IS EXTENDED.
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By First Class Mail: By Overnight Delivery: By Hand:
P.O. Box 3301 85 Challenger Road 120 Broadway, 13th Floor
South Hackensack, New Jersey 07606 Mail Drop -- Reorg New York, New York 10271
Attn: Reorganization Department Ridgefield Park, New Jersey 07660 Attn: Reorganization Department
Attn: Reorganization Department
By Facsimile Transmission: To Confirm Facsimile Transmission Only, Call:
(For Eligible Institutions Only) (201) 296-4860
(201) 296-4293
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth below. Requests for additional copies of the First Supplement to the
Offer to Purchase and the revised Letter of Transmittal may be directed to the
Information Agent. Stockholders may also contact their brokers, dealers,
commercial banks or trust companies for assistance concerning the Offer.
DELIVERY OF THIS REVISED LETTER OF TRANSMITTAL TO AN ADDRESS, OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE
NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS REVISED LETTER OF TRANSMITTAL SHOULD BE
READ CAREFULLY BEFORE THIS REVISED LETTER OF TRANSMITTAL IS COMPLETED.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ----------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARES TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF NUMBER OF
CERTIFICATE SHARES REPRESENTED SHARES
NUMBER(S)* BY CERTIFICATE(S)* TENDERED**
<S> <C> <C> <C>
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Total Shares
- ----------------------------------------------------------------------------------------------------------------------
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares represented by any certificates delivered to the
Depositary are being tendered. See Instruction 4.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
This revised Letter of Transmittal is to be used either if certificates for
Shares (as defined below) are to be forwarded herewith or if delivery of Shares
is to be made by book-entry transfer to the Depositary's account at The
Depository Trust Company ("DTC") (a "Book-Entry Transfer Facility") pursuant to
the book-entry transfer procedure described under "The Tender
Offer -- Procedures for Accepting the Offer and Tendering Shares" in the Offer
to Purchase (as defined below). DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER
FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Stockholders whose certificates evidencing Shares ("Share Certificates")
are not immediately available or who cannot deliver their Share Certificates and
all other documents required hereby to the Depositary prior to the Expiration
Date (as defined under "The Tender Offer -- Terms of the Offer" in the Offer to
Purchase) or who cannot complete the procedure for delivery by book-entry
transfer on a timely basis and who wish to tender their Shares must do so
pursuant to the guaranteed delivery procedure described under "The Tender
Offer -- Procedures for Accepting the Offer and Tendering Shares" in the Offer
to Purchase. See Instruction 2.
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
Check box of applicable book-entry transfer facility:
[ ] The Depository Trust Company
Account No. at
Transaction Code No.
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution which Guaranteed Delivery
IF DELIVERY IS BY BOOK-ENTRY TRANSFER, CHECK BOX OF APPLICABLE BOOK-ENTRY
TRANSFER FACILITY:
[ ] The Depository Trust Company
Account No. at
Transaction Code No.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
2
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to IGC Acquisition Corp., a Delaware
corporation ("Purchaser") and a wholly owned subsidiary of Security Services
plc, a public limited company incorporated under the laws of England and Wales,
the above-described shares (the "Shares") of common stock, par value $.01 per
share, of Intek Global Corporation, a Delaware corporation (the "Company"), upon
the terms and subject to the conditions set forth in Purchaser's Offer to
Purchase dated as of June 16, 1999, as amended by the First Supplement to the
Offer to Purchase dated as of August 2, 1999 (collectively, the "Offer to
Purchase"), and this revised Letter of Transmittal (which, together with any
amendments or supplements thereto or hereto, collectively constitute the
"Offer"), receipt of which is hereby acknowledged. The undersigned understands
that Purchaser reserves the right to transfer or assign, in whole or from time
to time in part, to one or more of its affiliates, the right to purchase all or
any portion of the issued and outstanding Shares tendered pursuant to the Offer.
Upon the terms of the Offer, subject to, and effective upon, acceptance for
payment of, and payment for, the Shares tendered herewith in accordance with the
terms of the Offer, the undersigned hereby sells, assigns and transfers to, or
upon the order of, Purchaser all right, title and interest in and to all the
Shares that are being tendered hereby and all dividends, distributions and
rights declared, paid or distributed in respect of such Shares on or after June
9, 1999 (collectively, "Distributions"), and irrevocably constitutes and
appoints the Depositary the true and lawful agent and attorney-in-fact of the
undersigned with respect to such Shares and all Distributions, with full power
of substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (i) deliver Share Certificates evidencing such
Shares and all Distributions, or transfer ownership of such Shares and all
Distributions on the account books maintained by a Book-Entry Transfer Facility,
together, in either case, with all accompanying evidences of transfer and
authenticity, to or upon the order of Purchaser, (ii) present such Shares and
all Distributions for transfer on the books of the Company and (iii) receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Shares and all Distributions, all in accordance with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and all Distributions, that when such Shares are accepted for
payment by Purchaser, Purchaser will acquire good, marketable and unencumbered
title thereto and to all Distributions, free and clear of all liens,
restrictions, charges and encumbrances, and that none of such Shares and
Distributions will be subject to any adverse claim. The undersigned will, upon
request, execute any additional documents deemed by the Depositary or Purchaser
to be necessary or desirable to complete the sale, assignment and transfer of
the Shares tendered hereby and all Distributions.
In addition, the undersigned shall remit and transfer promptly to the
Depositary for the account of Purchaser all Distributions in respect of the
Shares tendered hereby, accompanied by appropriate documentation of transfer,
and pending such remittance and transfer or appropriate assurance thereof,
Purchaser shall be entitled to all rights and privileges as owner of each such
Distribution and may withhold the entire purchase price of the Shares tendered
hereby, or deduct from such purchase price, the amount or value of such
Distribution as determined by Purchaser in its sole discretion.
All authority conferred or agreed to be conferred pursuant to this revised
Letter of Transmittal shall be binding upon the successors, assigns, heirs,
executors, administrators and legal representatives of the undersigned and shall
not be affected by, and shall survive, the death or incapacity of the
undersigned. Except as stated in the Offer to Purchase, this tender is
irrevocable.
The undersigned hereby irrevocably appoints Nigel Griffiths and Stephen
Lyell, and each of them, as the attorneys and proxies of the undersigned, each
with full power of substitution, to vote in such manner as each such attorney
and proxy or his substitute shall, in his sole discretion, deem proper and
otherwise act (by written consent or otherwise) with respect to all the Shares
tendered hereby which have been accepted for payment by Purchaser prior to the
time of such vote or other action and all Shares and other securities issued in
Distributions in respect of such Shares, which the undersigned is entitled to
vote at any meeting of stockholders of the Company (whether annual or special
and whether or not an adjourned or postponed meeting) or consent in lieu of any
such meeting or otherwise. This proxy and power of attorney is coupled with an
interest in the Shares tendered hereby, is irrevocable and is granted in
consideration of, and is effective upon, the acceptance for payment of such
Shares by Purchaser in accordance with other terms of the Offer. Such acceptance
for payment shall revoke all other proxies and powers of attorney granted by the
undersigned at any time with respect to such Shares (and all Shares and other
securities issued in Distributions in respect of such Shares), and no subsequent
proxy or power of attorney shall be given or written consent executed (and if
given or executed, shall not be effective) by the undersigned with respect
thereto. The undersigned understands that, in order for Shares to be deemed
validly tendered, immediately upon Purchaser's acceptance of such Shares for
payment, Purchaser must be able to exercise full voting and other rights with
respect to such Shares, including, without limitation, voting at any meeting of
the Company's stockholders then scheduled.
3
<PAGE> 4
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in the Offer to Purchase under "The Tender
Offer -- Procedures for Accepting the Offer and Tendering Shares" and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer. Purchaser's acceptance of such Shares for payment
will constitute a binding agreement between the undersigned and Purchaser upon
the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions", please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased or
not tendered in the name(s) of the registered holder(s) appearing above under
"Description of Shares Tendered". Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions", please mail the check for the
purchase price of all Shares purchased and all Share Certificates evidencing
Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered". In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price of all Shares purchased
and return all Share Certificates evidencing Shares not purchased or not
tendered in the name(s) of, and mail such check and Share Certificates to, the
person(s) so indicated. Unless otherwise indicated herein in the box entitled
"Special Payment Instructions", please credit any Shares tendered hereby and
delivered by book-entry transfer, but which are not purchased by crediting the
account at the Book-Entry Transfer Facility designated above. The undersigned
recognizes that Purchaser has no obligation, pursuant to the Special Payment
Instructions, to transfer any Shares from the name of the registered holder(s)
thereof if Purchaser does not purchase any of the Shares tendered hereby.
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares or Share
Certificates evidencing Shares not tendered or not purchased to be issued in the
name of someone other than the undersigned, or if Shares tendered hereby and
delivered by book-entry transfer are to be returned by credit to an account at
one of the Book-Entry Transfer Facilities other than that designated above.
Mail [ ] Check [ ] Share Certificate(s) to:
Name
- ---------------------------------------------
(PLEASE PRINT)
Address
- -------------------------------------------
- ------------------------------------------------------
(ZIP CODE)
- ------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE W-9 ON REVERSE SIDE)
[ ] Credit Shares delivered by book-entry transfer and not purchased to the
account set forth below:
Check appropriate box:
[ ] DTC
------------------------------------------------------
ACCOUNT NUMBER
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Share Certificates evidencing Shares not purchased are to be mailed
to someone other than the undersigned, or to the undersigned at an address other
than that shown under "Description of Shares Tendered".
Mail [ ] Check [ ] Share Certificate(s) to:
Name
- ---------------------------------------------
(PLEASE PRINT)
Address
- -------------------------------------------
- ------------------------------------------------------
(ZIP CODE)
- ------------------------------------------------------
TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER
4
<PAGE> 5
(SEE SUBSTITUTE W-9 ON REVERSE SIDE)
- --------------------------------------------------------------------------------
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
- --------------------------------------------------------------------------------
SIGNATURE(S) OF OWNER(S)
Dated
- ------------------, 199
(Must be signed by registered holder(s) exactly as name(s) appear(s) on Share
Certificates or on a security position listing by a person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please provide the following information and see
Instruction 5).
Name(s)
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
- --------------------------------------------------------------------------------
(SEE SUBSTITUTE W-9 ON REVERSE SIDE)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED; SEE INSTRUCTIONS 1 AND 5)
Name of Firm
- --------------------------------------------------------------------------------
Authorized Signature
- --------------------------------------------------------------------------------
Dated
- ------------------, 1999
FOR USE BY FINANCIAL INSTITUTIONS ONLY.
FINANCIAL INSTITUTIONS: PLACE MEDALLION GUARANTEE IN SPACE BELOW.
5
<PAGE> 6
TABLE 1
PAYER: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- Taxpayer Identification For All Accounts
FORM W-9 No. -- Enter your taxpayer identification ----------------------------------
DEPARTMENT OF THE TREASURY number in the appropriate box. For most ----------------------------------
INTERNAL REVENUE SERVICE individuals and sole proprietors, this is Social Security Number
your social security number. For other ----------------------------------
entities, it is your Employer Identification Employer Identification Number
Number. If you do not have a number, see How
to Obtain a TIN in the enclosed
Guidelines.
Note: If the account is in more than one
name, see the chart on page 2 of the enclosed
Guidelines to determine what number to enter.
--------------------------------------------
------------------------------------------------------------------------------------
Payer's Request for PART II FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING (SEE ENCLOSED GUIDELINES)
Identification No.
- -----------------------------------------------------------------------------------------------------------------------
Certification. -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be
issued to me), and either (a) I have mailed or delivered an application to receive a taxpayer identification
number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend
to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer
identification number within sixty (60) days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number;
(2) I am not subject to backup withholding either because (a) I am exempt from backup withholding, or (b) I have not
been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding; and
(3) Any other information provided on this form is true, correct and complete.
You must cross item (2) above if you have been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your tax return and you have not received a notice from
the IRS advising you that backup withholding has terminated.
----------------------------------------------------------------------------------------------------------------------
SIGNATURE DATE-------------------, 1999
-------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. All signatures on this revised Letter of
Transmittal must be guaranteed by a firm which is a member of the Medallion
Signature Guarantee Program, or by any other "eligible guarantor institution",
as such term is defined in Rule 17Ad-15 promulgated under the Securities
Exchange Act of 1934, as amended (each of the foregoing being referred to as an
"Eligible Institution"), unless (i) this revised Letter of Transmittal is signed
by the registered holder(s) of the Shares (which term, for purposes of this
document, shall include any participant in a Book-Entry Transfer Facility whose
name appears on a security position listing as the owner of Shares) tendered
hereby and such holder(s) has (have) completed neither the box entitled "Special
Payment Instructions" nor the box entitled "Special Delivery Instructions" on
the reverse hereof or (ii) such Shares are tendered for the account of an
Eligible Institution. See Instruction 5.
2. Delivery of Revised Letter of Transmittal and Share Certificates. This
revised Letter of Transmittal is to be used either if Share Certificates are to
be forwarded herewith or if Shares are to be delivered by book-entry transfer
pursuant to the procedure set forth under "The Tender Offer -- Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase. Share
Certificates evidencing all physically tendered Shares, or a confirmation of a
book-entry transfer into the Depositary's account at a Book-Entry Transfer
Facility of all Shares delivered by book-entry transfer as well as a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and any
other documents required by this revised Letter of Transmittal, must be received
by the Depositary at one of its addresses set forth herein prior to the
Expiration Date (as defined in "The Tender Offer -- Terms of the Offer" in the
Offer to Purchase). If Share Certificates are forwarded to the Depositary in
multiple deliveries, a properly completed and duly executed Letter of
Transmittal must accompany each such delivery. Stockholders whose Share
Certificates are not immediately available, who cannot deliver their Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date or who cannot complete the procedure for delivery by book-entry
transfer on a timely basis may tender their Shares pursuant to the guaranteed
delivery procedure described in under "The Tender Offer -- Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase. Pursuant to
such procedure: (i) such tender must be made by or through an Eligible
Institution; (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by Purchaser, must be
received by the Depositary prior to the Expiration Date; and (iii) the Share
Certificates evidencing all physically delivered Shares in proper form for
transfer by delivery, or a confirmation of a book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility of all Shares delivered
by book-entry transfer, in each case together with a Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and any other documents required by this revised Letter of
Transmittal, must be received by the Depositary within three New York Stock
Exchange, Inc. trading days after the date of execution of such Notice of
Guaranteed Delivery, all as described under "The Tender Offer -- Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS REVISED LETTER OF TRANSMITTAL, SHARE
CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY
BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING
STOCKHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this revised Letter of
Transmittal (or a facsimile hereof), all tendering stockholders waive any right
to receive any notice of the acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule and attached hereto.
7
<PAGE> 8
4. Partial Tenders (not applicable to stockholders who tender by book-entry
transfer). If fewer than all the Shares evidenced by any Share Certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of Shares which are to be tendered in the box entitled "Number of Shares
Tendered". In such cases, new Share Certificate(s) evidencing the remainder of
the Shares that were evidenced by the Share Certificates delivered to the
Depositary herewith will be sent to the person(s) signing this revised Letter of
Transmittal, unless otherwise provided in the box entitled "Special Delivery
Instructions" on the reverse hereof, as soon as practicable after the expiration
or termination of the Offer. All Shares evidenced by Share Certificates
delivered to the Depositary will be deemed to have been tendered unless
otherwise indicated.
5. Signatures on Revised Letter of Transmittal; Stock Powers and
Endorsements. If this revised Letter of Transmittal is signed by the registered
holder(s) of the Shares tendered hereby, the signature(s) must correspond with
the name(s) as written on the face of the Share Certificates evidencing such
Shares without alteration, enlargement or any other change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
persons, all such persons must sign this revised Letter of Transmittal.
If any of the Shares tendered hereby are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this revised Letter of Transmittal is signed by the registered holder(s)
of the Shares tendered hereby, no endorsements of Share Certificates or separate
stock powers are required, unless payment is to be made to, or Share
Certificates evidencing Shares not tendered or not purchased are to be issued in
the name of, a person other than the registered holder(s), in which case, the
Share Certificate(s) evidencing the Shares tendered hereby must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution.
If this revised Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on such
Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this revised Letter of Transmittal or any Share Certificate or stock
power is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Purchaser of such person's authority so to act
must be submitted.
6. Stock Transfer Taxes. Except as otherwise provided in this Instruction
6, Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or Share
Certificate(s) evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), the amount of any
stock transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such other person
will be deducted from the purchase price of such Shares purchased, unless
evidence satisfactory to Purchaser of the payment of such taxes, or exemption
therefrom, is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATES EVIDENCING THE
SHARES TENDERED HEREBY.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this revised Letter of Transmittal or
if such check or any such Share
8
<PAGE> 9
Certificate is to be sent to someone other than the person(s) signing this
revised Letter of Transmittal or to the person(s) signing this revised Letter of
Transmittal but at an address other than that shown in the box entitled
"Description of Shares Tendered" on the reverse hereof, the appropriate boxes on
the reverse of this revised Letter of Transmittal must be completed.
Stockholders delivering Shares tendered hereby by book-entry transfer may
request that Shares not purchased be credited to such account maintained at a
Book-Entry Transfer Facility as such stockholder may designate in the box
entitled "Special Payment Instructions" on the reverse hereof. If no such
instructions are given, all such Shares not purchased will be returned by
crediting the account at the Book-Entry Transfer Facility designated on the
reverse hereof as the account from which such Shares were delivered.
8. Questions and Requests for Assistance or Additional Copies. Questions
and requests for assistance may be directed to the Information Agent or the
Dealer Manager at their respective addresses or telephone numbers set forth
below. Additional copies of the Offer to Purchase, this revised Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent or from brokers, dealers, commercial banks or trust companies.
9. Substitute Form W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided above, and to certify, under penalty of
perjury, that such number is correct and that such stockholder is not subject to
backup withholding of federal income tax. If a tendering stockholder has been
notified by the Internal Revenue Service that such stockholder is subject to
backup withholding, such stockholder must cross out item (2) of the
Certification box of the Substitute Form W-9, unless such stockholder has since
been notified by the Internal Revenue Service that such stockholder is no longer
subject to backup withholding. Failure to provide the information on the
Substitute Form W-9 may subject the tendering stockholder to 31% federal income
tax withholding on the payment of the purchase price of all Shares purchased
from such stockholder. If the tendering stockholder has not been issued a TIN
and has applied for one or intends to apply for one in the near future, such
stockholder should write "Applied For" in the space provided for the TIN in Part
I of the Substitute Form W-9, and sign and date the Substitute Form W-9. If
"Applied For" is written in Part I and the Depositary is not provided with a TIN
within 60 days, the Depositary will withhold 31% on all payments of the purchase
price to such stockholder until a TIN is provided to the Depositary.
IMPORTANT: THIS REVISED LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF)
PROPERLY COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE
GUARANTEES AND SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL
OTHER REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION
DATE (AS DEFINED IN THE OFFER TO PURCHASE).
IMPORTANT TAX INFORMATION
Under the federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with such stockholder's correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 below. If such stockholder is an individual, the TIN is such
stockholder's social security number. If the Depositary is not provided with the
correct TIN, the stockholder may be subject to a $50 penalty imposed by the
Internal Revenue Service, and payments that are made to such stockholder with
respect to Shares purchased pursuant to the Offer may be subject to backup
withholding of 31%. If a stockholder makes a false statement that results in no
imposition of backup withholding, and there is no reasonable basis for such
statement, a $500 penalty may also be imposed by the Internal Revenue Service.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a statement, signed under penalties of
perjury, attesting to such individual's exempt status. Forms of such statements
can be obtained from the Depositary. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions. A stockholder
9
<PAGE> 10
should consult his or her advisor as to such stockholder's qualification for
exemption from backup withholding and the procedure for obtaining such
exemption.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct TIN by
completing the form below certifying that the TIN provided on Substitute Form
W-9 is correct (or that such stockholder is awaiting a TIN), and that (i) such
stockholder has not been notified by the Internal Revenue Service that he is
subject to backup withholding as a result of a failure to report all interest or
dividends or (ii) the Internal Revenue Service has notified such stockholder
that such stockholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are held in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance on
which number to report. If the tendering stockholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future, the stockholder should write "Applied For" in the space provided for the
TIN in Part I, and sign and date the Substitute Form W- 9. If "Applied For" is
written in Part I and the Depositary is not provided with a TIN within 60 days,
the Depositary will withhold 31% of all payments of the purchase price to such
stockholder until a TIN is provided to the Depositary.
10
<PAGE> 1
PRESS RELEASE
FOR IMMEDIATE RELEASE
Contact: MacKenzie Partners, Inc.
Edith A. Lohman
(212) 675-0524
IGC Acquisition Corp. Extends Expiration Date in Tender Offer for Intek
Global Corporation
NEW YORK, NEW YORK, August 2, 1999 - IGC Acquisition Corp., a wholly-owned
subsidiary of Security Services plc, announced today that it has extended the
expiration date for its tender offer for the outstanding common stock of Intek
Global Corporation (NASDAQ: IGLC) from midnight on August 3, 1999 to noon, New
York City time, on August 16, 1999. The price being offered in the tender offer
is $3.0125 per share, net to the seller in cash, without interest thereon and
less any required transfer and withholding taxes. IGC Acquisition Corp. is
distributing today a supplement to its June 16, 1999 Offer to Purchase. The
supplement reflects certain previously amended terms of the tender offer and
contains certain additional information relating to the tender offer.
IGC Acquisition Corp. has been advised by the depositary for the tender
offer that, as of 5:00 p.m., New York City time, on July 30, 1999, 12,046,116
shares of Intek Global Corporation common stock (representing 73.6% of the
16,373,996 outstanding shares of Intek Global Corporation not owned by
affiliates of IGC Acquisition) had been validly tendered and not withdrawn
pursuant to the tender offer.
###
<PAGE> 1
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER, dated as of
July 30, 1999 (this "AMENDMENT"), is made by and among Intek Global Corporation,
a Delaware corporation (the "COMPANY"), Security Services plc, a public limited
company incorporated under the laws of England and Wales ("PARENT"), and IGC
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("MERGER SUB").
WHEREAS, the Company, Parent and Merger Sub are parties to that
certain Agreement and Plan of Merger, dated as of June 9, 1999 (the "MERGER
AGREEMENT"), which provided for certain transactions, including the commencement
of an offer to purchase any and all of the outstanding shares of common stock,
par value $.01 per share, of the Company (the "SHARES"), by Merger Sub (the
"OFFER") and, following the consummation of the Offer, the merger of Merger Sub
with and into the Company (the "MERGER") with the Company becoming a wholly
owned subsidiary of Parent, all subject to the terms and conditions set forth in
the Merger Agreement;
WHEREAS, the Company, Securicor plc, a public limited company
incorporated under the laws of England and Wales and the ultimate parent of
Parent ("SECURICOR"), and the Company's directors have been named as defendants
in three class action lawsuits in connection with the transactions contemplated
by the Merger Agreement (the "PENDING ACTIONS");
WHEREAS, counsel to the Company, Securicor, the Company's directors,
and the plaintiffs in the Pending Actions (the "PLAINTIFFS") have executed and
delivered a Memorandum of Understanding, dated as of July 8, 1999 (the
"MEMORANDUM OF UNDERSTANDING"), providing for, among other things, the
settlement of the Pending Actions and, in connection therewith, an increase in
the consideration payable in the Offer and the Merger and an extension of the
expiration date of the Offer;
WHEREAS, the Memorandum of Understanding provides that the Merger
Agreement will be amended in certain respects, including to increase the
consideration payable in the Offer and the Merger and to extend the expiration
date of the Offer;
WHEREAS, the Memorandum of Understanding provides that the
expiration date of the Offer would be extended to July 29, 1999 and the parties
to the Memorandum of Understanding subsequently agreed to extend the expiration
date of the Offer to August 16, 1999;
WHEREAS, Section 11.3(a) of the Merger Agreement provides that the
approval of the Independent Committee (as defined in the Merger Agreement) is
required for the amendment of the Merger Agreement;
<PAGE> 2
WHEREAS, by unanimous written consent, the Independent Committee
approved this Amendment amending the Merger Agreement (the Merger Agreement, as
amended by this Amendment, being referred to herein as the "AMENDED MERGER
AGREEMENT"), and the transactions contemplated by the Amended Merger Agreement
and determined that the Offer and the Merger pursuant to the Amended Merger
Agreement are fair to, and in the best interests of, the holders of Shares
(other than Parent and its affiliates) and that the Merger Consideration (as
defined in the Amended Merger Agreement) is fair to the holders of Shares (other
than Parent and its affiliates) and resolved to recommend the approval of the
Amended Merger Agreement to the Board of Directors of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
1. CERTAIN DEFINED TERMS. Terms used herein with their initial
letters capitalized, and not otherwise defined herein, shall have the respective
meanings given such terms in the Merger Agreement.
2. AMENDMENTS TO THE MERGER AGREEMENT.
a. OFFER PRICE. The first sentence of Section 1.1(a) of the
Merger Agreement is hereby amended by deleting therefrom the reference to the
$2.75 purchase price to be offered in the Offer and replacing such reference
with $3.0125.
b. EXPIRATION DATE. The following sentence is hereby added to
Section 1.1(a) of the Merger Agreement, such sentence to appear after the
existing fifth sentence of Section 1.1(a) (which fifth sentence reads "The
initial scheduled expiration date of the Offer shall be the date that is 20
business days following the date of commencement of the Offer."): "The initial
scheduled expiration date of the Offer is hereby extended from July 14, 1999 to
August 16, 1999." The existing fourth sentence of Section 1.1(a) (which fourth
sentence reads "The Offer shall expire at midnight on the expiration date.") is
hereby deleted.
c. SECTION 2.2(a). Section 2.2(a) of the Merger Agreement is
hereby amended by deleting therefrom the reference to the $2.75 into which
Shares will be converted in the Merger and replacing such reference with
$3.0125.
d. RECITALS. The reference to "42,303,038 Shares" set forth in
the first "Whereas" clause in the Merger Agreement is hereby deleted and the
following is inserted in its place: "42,311,038 Shares".
e. SECTION 4.5. The reference to "42,303,038 Shares" set forth
in the second sentence of Section 4.5 of the Merger Agreement is hereby deleted
and the following is inserted in its place: "42,311,038 Shares". The reference
to "4,135,666 Shares" set forth in the third sentence of Section 4.5 of the
Merger Agreement is hereby deleted and the following is inserted in its place:
"4,425,500 Shares".
3. COMPANY ACTION. The Company hereby consents to the Offer pursuant
to the terms of the Amended Merger Agreement and represents that, by unanimous
written consent, the Independent Committee approved this Amendment and the
transactions contemplated by the Amended Merger Agreement and determined that
the Offer and the Merger pursuant to the Amended Merger Agreement are fair to,
and in the best interests of, the holders of Shares (other than Parent and its
affiliates) and that the Merger Consideration is fair to the holders of Shares
(other than Parent and its affiliates) and resolved to recommend the approval of
the Amended Merger Agreement to the Board of Directors of the Company.
2
<PAGE> 3
4. COMPANY CORPORATE AUTHORIZATION; REQUIRED VOTE. The Company
hereby represents and warrants to Parent and Merger Sub as follows:
a. The execution, delivery and performance by the Company of
this Amendment and the consummation by the Company of the transactions
contemplated hereby are within the Company's corporate powers and, except for
any required approval by the Company's stockholders in connection with the
consummation of the Merger, have been duly authorized by all necessary corporate
action, including, without limitation, action by the Board of Directors of the
Company. This Amendment has been duly executed and delivered by the Company and
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except as may be limited by
bankruptcy, insolvency, fraudulent transfer and other similar laws affecting
creditors' rights generally and by equitable principles of general
applicability.
b. The affirmative vote of the holders of a majority of the
outstanding Shares is the only vote of the holders of any class or series of the
Company's capital stock (under applicable law or otherwise) necessary to approve
the Amended Merger Agreement, the Merger pursuant to the terms specified
therein, and the transactions contemplated thereby.
5. PARENT AND PURCHASER CORPORATE AUTHORIZATION. Parent and Merger
Sub hereby represent and warrant to the Company as follows:
a. The execution, delivery and performance by Parent and
Merger Sub of this Amendment and the consummation by Parent and Merger Sub of
the transactions contemplated hereby are within the corporate powers of Parent
and Merger Sub and have been duly authorized by all necessary corporate action.
b. The Board of Directors of each of Parent and Merger Sub has
approved this Amendment and the transactions contemplated hereby.
c. This Amendment has been duly executed and delivered by each
of Parent and Merger Sub and constitutes a valid and binding agreement of each
of Parent and Merger Sub enforceable against each of them in accordance with its
terms, except as may be limited by bankruptcy, insolvency, fraudulent transfer
and other similar laws affecting creditors' rights generally and by equitable
principles of general applicability.
6. PARTIES IN INTEREST. This Amendment shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Amendment,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Amendment.
7. GOVERNING LAW. This Amendment shall be construed in accordance
with and governed by the law of the State of Delaware applicable to agreements
entered into and to be performed wholly within such state.
3
<PAGE> 4
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Amendment shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
9. ENTIRE AGREEMENT. The Merger Agreement, this Amendment and the
Confidentiality Agreement dated January 19, 1999 between Parent and the Company
constitute the entire agreement among the parties with respect to the subject
matter of the Amended Merger Agreement and supersede all other prior agreements
and understandings, both oral and written, between the parties with respect to
the subject matter hereof and thereof.
10. CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
INTEK GLOBAL CORPORATION
By: /s/ Robert J. Shiver
-------------------------------
Name: Robert J. Shiver
Title: Chief Executive Officer
SECURITY SERVICES PLC
By: /s/ Nigel Griffiths
-------------------------------
Name: Nigel Griffiths
Title: Director
IGC ACQUISITION CORP.
By: /s/ C. Grice McMullan, Jr.
-------------------------------
Name: C. Grice McMullan, Jr.
Title: Chairman of the Board and
President
5
