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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.-14a11(c) or
Section 240.14a-12
DESIGNATRONICS INCORPORATED
(Name of Registrant as Specified in Its Charter)
Designatronics Incorporated
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
or Item 22(a)(2) of Schedule 14A
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3)
[X] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which
transaction applies:
Common stock, par value $0.04 per share.
(2) Aggregate number of securities to which transaction
applies:
2,873,423 shares of common stock.
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
$6.00 (representing cash payment to be paid per
share on merger). The fee is $3,448.11 and is
determined pursuant to Rule 0-11(c)(i) which is
.0002 times the proposed maximum aggregate value of
the transaction.
(4) Proposed maximum aggregate value of transaction:
$17,240,538.
(5) Total Fee Paid: $3,448.11
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:_____________________________
(2) Form, Schedule or Registration Statement No.: ______
(3) Filing party:_______________________________________
(4) Date filed:_________________________________________
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DESIGNATRONICS INCORPORATED
2101 Jericho Turnpike, Box 5416
New Hyde Park, New York 11042-5416
Dear Fellow Shareholder: August 1, 1995
You are cordially invited to attend the Special Meeting of
shareholders of Designatronics Incorporated (the "Company") to be
held at 2101 Jericho Turnpike, New Hyde Park, New York on August 30,
1995, at 10:00 a.m., Eastern Standard Time. At this important
meeting you are beingasked to consider the approval and adoption of
the Agreement and Plan of Merger (the "Merger Agreement"), pursuant
to which DD&D-DI Merger Company, Inc. (the "Merger Company"), a
wholly-owned subsidiary of DD&D-DI Acquisition Company (the
"Purchaser"), will be merged (the "Merger") with and into the
Company.
As a consequence of the Merger, each share of common stock of
the Company (the "Shares") will be converted into the right to
receive $6.00 in cash, without interest, and shareholders of the
Company will no longer have an equity interest in the Company. The
accompanying Notice of Special Meeting of Shareholders and Proxy
Statement will provide you with a summary of the proposed Merger
and additional material describing it in detail. Please give this
information your prompt and careful attention.
The Board of Directors of the Company (the "Board") believes
that the proposed Merger is in the best interests of the Company
and its shareholders and has unanimously approved the proposed
Merger. The Board recommends that you vote in favor of approval
and adoption of the Merger Agreement.
The affirmative vote of holders of two thirds of the
outstanding Shares is required to approve the Merger Agreement. I,
together with other shareholders of the Company who own
approximately 755,547 Shares or 26.3% of the Shares currently
outstanding, have agreed to vote our shares in favor of the Merger.
Please complete, date, sign and return the enclosed proxy card
in the enclosed prepaid envelope, even if you plan to attend the
Special Meeting. If you attend the meeting, you may vote in person
if you wish, even though you have previously returned your proxy
card.
On behalf of the Company's Board, I extend our thanks and
appreciation to all shareholders for your support.
Sincerely,
/s/ Martin Hoffman
Martin Hoffman
President
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DESIGNATRONICS INCORPORATED
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 30, 1995
___________________
To the shareholders of
Designatronics Incorporated:
A special meeting of the shareholders (the "Special Meeting")
of Designatronics Incorporated (the "Company") will be held on
August 30, 1995 at 10:00 a.m. at the offices of the Company at 2101
Jericho Turnpike, Box 5416, New Hyde Park, New York 11042-5416.
The Special Meeting is called for the following purposes:
1. To vote to approve and adopt the Agreement and Plan of
Merger, dated as of July 6, 1995 (the "Merger
Agreement"), among the Company, DD&D-DI Acquisition
Company, a Delaware corporation (the "Purchaser"), and
DD&D-DI Merger Company, Inc., a New York corporation and
a wholly-owned subsidiary of the Purchaser (the "Merger
Company"), pursuant to which (a) the Merger Company will
be merged with and into the Company (the "Merger"), with
the Company, as the surviving corporation, becoming a
wholly-owned subsidiary of Purchaser, and (b) each
outstanding share of the Company's common stock, par
value $0.04 per share (the "Shares"), other than Shares
held in the treasury of the Company or Shares held by
shareholders of the Company who properly perfected their
appraisal rights under New York law, will be converted
into the right to receive $6.00 in cash per Share,
without interest thereon, in exchange for the Shares of
the Company and to take any action incident to the
foregoing; and
2. To transact such other business as may properly come
before the Special Meeting or any adjournments or
postponements thereof.
Information regarding the matters to be acted upon at the
Special Meeting is contained in the accompanying Proxy Statement.
The Merger Agreement sets forth the full terms and conditions of
the Merger and is attached as Appendix "A" to the Proxy Statement.
As a consequence of the Merger, shareholders of the Company will no
longer have an equity interest in the Company and will be entitled
to receive $6.00 per Share, without interest thereon, in exchange
for their Shares.
The Company's Board of Directors (the "Board") has unanimously
determined that the Merger is fair to, and in the best interests
of, the shareholders of the Company, and accordingly has adopted a
resolution approving the Merger Agreement.
The Board unanimously recommends that all shareholders of the
Company vote for the approval and adoption of the Merger Agreement.
Holders of record of the Company's Shares are entitled to
dissent from the Merger and to receive the payment determined in a
judicial proceeding if they comply with certain procedures
specified in the New York Business Corporation Law (the "NYBCL").
See "Appraisal Rights" in the accompanying Proxy Statement for a
more complete discussion thereof and Section 623 of the NYBCL
relating to dissenters' rights which is attached to the Proxy
Statement as Appendix "B".
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Holders of record of the Company's Shares at the close of
business on July 24, 1995 are entitled to notice of, and to vote
at, the Special Meeting and any adjournments or postponements
thereof. Sending in your proxy will not prevent your attending and
voting at the Special Meeting in person should you later decide to
do so.
By order of the board of directors of
DESIGNATRONICS INCORPORATED
/s/ Frank Buchsbaum
Dr. Frank Buchsbaum
Secretary
New Hyde Park, New York
Dated: August 1, 1995
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. HOWEVER,
WHETHER OR NOT YOU PLAN TO BE PERSONALLY PRESENT AT THE SPECIAL
MEETING, PLEASE COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD
AND MAIL IT PROMPTLY IN THE RETURN ENVELOPE. IF YOU LATER DESIRE
TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE THE VOTE ON
THE MERGER.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS
TIME. IF THE MERGER IS APPROVED AND THE CLOSING UNDER THE MERGER
AGREEMENT IS CONSUMMATED, SHAREHOLDERS WILL RECEIVE A LETTER OF
TRANSMITTAL AND RELATED INSTRUCTIONS.
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DESIGNATRONICS INCORPORATED
2101 Jericho Turnpike, Box 5416
New Hyde Park, New York 11042-5416
__________________________________
PROXY STATEMENT
__________________________________
This proxy statement (the "Proxy Statement") is being mailed
to shareholders of Designatronics Incorporated (the "Company") on
or about August 1, 1995 in connection with the solicitation of
proxies by the Board of Directors of the Company (the "Board") for
use at the Special Meeting of shareholders (the "Special Meeting")
of the Company to be held August 30, 1995 at 10:00 a.m. at the
offices of the Company at 2101 Jericho Turnpike, New Hyde Park, New
York 11042-5416 and at any or all adjournments or postponements
thereof. The Special Meeting has been called to consider and vote
upon an Agreement and Plan of Merger, dated as of July 6, 1995 (the
"Merger Agreement"), by and among the Company, DD&D-DI Acquisition
Company, a Delaware corporation (the "Purchaser"), and DD&D-DI
Merger Company, Inc., a New York corporation and a wholly-owned
subsidiary of the Purchaser (the "Merger Company"). Pursuant to
the Merger Agreement, the Merger Company will be merged with and
into the Company (the "Merger") and each outstanding share of
common stock of the Company, par value $0.04 per share (the
"Shares"), other than Shares held in the treasury of the Company or
Shares held by shareholders who properly perfect their appraisal
rights under New York law, will be converted into the right to
receive $6.00 in cash, without interest thereon, for the Shares of
the Company. See "Parties to the Merger", "Information Concerning
the Special Meeting", "The Merger" and "Appraisal Rights".
A proxy in the enclosed form may be revoked at any time prior
to it being voted at the Special Meeting by sending a subsequently
dated proxy or by giving written notice to the Company, in each
case to the attention of Dr. Frank Buchsbaum, Secretary, at the
address set forth above. Proxies will be voted in accordance with
directions specified thereon and otherwise in accordance with the
judgment of the persons designated as proxies. Shareholders who
attend the Special Meeting may withdraw their proxies at any time
before their Shares are voted by voting their Shares in person.
Proxies which are signed by shareholders but which lack any
specifications will be voted in favor of the Merger and shall be
deemed to confer authority on the appointed proxies to vote in
their discretion on other matters which properly come before the
Special Meeting.
Proxies are being solicited on behalf of the Company by its
Board. The cost of soliciting proxies, including the preparation
and assembly of the proxies and soliciting material, as well as the
costs of forwarding such material to beneficial owners of stock,
will be borne by the Company. Directors, officers and regular
employees of the Company may, without compensation, other than
their regular compensation, solicit proxies personally or by
telephone. In addition, the Company has retained Kissel-Blake Inc,
25 Broadway, New York, New York 10004, to solicit proxies at a cost
to the Company of $5,000 plus expenses.
The Board has received an opinion from Houlihan Lokey Howard
& Zukin , Inc. ("Houlihan Lokey") to the effect that the Merger is
fair to the Company's shareholders from a financial point of view.
See "The Merger - Fairness Opinion". The Board has unanimously
determined that the Merger is fair to, and in the best interests
of, the shareholders and, accordingly, has adopted a resolution
approving the Merger Agreement. The Board recommends that all
shareholders vote for the approval and adoption of the Merger
Agreement.
The date of this Proxy Statement is August 1, 1995.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Any statements contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for
purposes hereof to the extent that a statement contained herein (or
in any other subsequently filed document which also is incorporated
by reference herein) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded. A
description of documents incorporated by reference to this Proxy
Statement appears at page 32 of this Proxy Statement.
AVAILABLE INFORMATION
A description of available information concerning the Company
appears at page 31 of this Proxy Statement.
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TABLE OF CONTENTS
Page
PARTIES TO THE MERGER. . . . . . . . . . . . . . . . . . . . . .1
The Company . . . . . . . . . . . . . . . . . . . . . . . .1
The Purchaser . . . . . . . . . . . . . . . . . . . . . . .1
The Merger Company. . . . . . . . . . . . . . . . . . . . .1
INFORMATION CONCERNING THE SPECIAL MEETING . . . . . . . . . . .2
The Special Meeting . . . . . . . . . . . . . . . . . . . .2
Expenses; Solicitation of Proxies . . . . . . . . . . . . .2
Vote Required . . . . . . . . . . . . . . . . . . . . . . .3
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . .3
General . . . . . . . . . . . . . . . . . . . . . . . . . .3
Background of the Merger. . . . . . . . . . . . . . . . . .4
Effects of the Merger . . . . . . . . . . . . . . . . . . .4
Reasons for the Merger; Board's Recommendation. . . . . . .4
Fairness Opinion. . . . . . . . . . . . . . . . . . . . . .6
Interests of Certain Persons in the Merger. . . . . . . . .8
The Stock Option Plans . . . . . . . . . . . . . . . .8
Bonuses in Lieu of Options for Current Fiscal Year . .9
Divisional Vice Presidents' Bonus Plan . . . . . . . .9
The Employment Agreements. . . . . . . . . . . . . . .9
Indemnification. . . . . . . . . . . . . . . . . . . 10
Support of the Merger. . . . . . . . . . . . . . . . 11
Regulatory Filings and Approvals. . . . . . . . . . . . . 11
Antitrust Matters. . . . . . . . . . . . . . . . . . 11
Certain Federal Income Tax Consequences of the Merger . . 11
Accounting Treatment. . . . . . . . . . . . . . . . . . . 12
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . 13
Effect of the Merger; Merger Consideration. . . . . . . . 13
Payment for Shares. . . . . . . . . . . . . . . . . . . . 14
Transfer of Shares. . . . . . . . . . . . . . . . . . . . 15
Conditions to the Merger. . . . . . . . . . . . . . . . . 15
Agreements and Covenants between the Company and Purchaser17
Operational Covenants. . . . . . . . . . . . . . . . 17
Termination Fees . . . . . . . . . . . . . . . . . . 18
No Solicitation. . . . . . . . . . . . . . . . . . . 20
Regulatory Matters . . . . . . . . . . . . . . . . . 20
Other Agreements . . . . . . . . . . . . . . . . . . 21
Termination and Amendment . . . . . . . . . . . . . . . . 21
Amendment. . . . . . . . . . . . . . . . . . . . . . 21
Termination. . . . . . . . . . . . . . . . . . . . . 21
THE PURCHASE OPTIONS . . . . . . . . . . . . . . . . . . . . . 23
General . . . . . . . . . . . . . . . . . . . . . . . . . 23
Exercise of Purchase Options. . . . . . . . . . . . . . . 23
<PAGE>
Conditions to Delivery of Option Shares . . . . . . . . . 24
Expiration of Purchase Options. . . . . . . . . . . . . . 24
Right to Put DI Option. . . . . . . . . . . . . . . . . . 24
OWNERSHIP OF SHARES. . . . . . . . . . . . . . . . . . . . . . 25
5% Shareholders . . . . . . . . . . . . . . . . . . . . . 25
Shares Owned by Management. . . . . . . . . . . . . . . . 26
APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 27
RESTRICTION ON TRANSFER OF SHARES. . . . . . . . . . . . . . . 29
FINANCING THE MERGER . . . . . . . . . . . . . . . . . . . . . 29
MARKET PRICE FOR SHARES; DIVIDENDS . . . . . . . . . . . . . . 30
MANAGEMENTS DISCUSSION AND ANALYSIS AND SEGMENT INFORMATION. . 31
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . 31
PROCEDURE FOR SUBMISSION OF 1995 SHAREHOLDER PROPOSALS . . . . 31
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 31
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . 31
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . 32
INDEX TO FINANCIAL STATEMENTS OF THE COMPANY . . . . . . . . . 33
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . .F-1
APPENDICES
Appendix "A" - Merger Agreement
Appendix "B" - Section 623 of the New York Business
Corporation Law
Appendix "C" - Support/Option Agreement
Appendix "D" - Fairness Opinion and Bring Down Opinion
of Houlihan Lokey Howard & Zukin, Inc.
EXHIBITS
Exhibit "1" - The Company's Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1994
Exhibit "2" - The Company's Proxy Statement dated December
5, 1994
Exhibit "3" - The Company's Quarterly Report on Form 10-QSB
for the quarter ended May 31, 1995
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PARTIES TO THE MERGER
The Company
The Company was incorporated on September 7, 1960 in the State
of New York. The Company designs, manufactures and markets a wide
variety of mechanical and electro-mechanical components, and
designs and markets automation machinery, CAD/CAM systems and
off-the-shelf linear motion and rotary motion control components.
The Company's business consists of two segments, the manufacture
and distribution of mechanical and electro-mechanical components
(the "Mechanical Segment") and the manufacture and distribution of
automation components (the "Automation Segment"). The Mechanical
Segment is comprised of three operating divisions, the Stock Drive
Products division ("Stock Drive"), the Sterling Instrument division
("Sterling") and the Quality Transmission Component division
("QTC"). The Automation Segment consists of the Techno division
("Techno"). The Company's wholly-owned subsidiary, Designatronics
Foreign Sales Corp. ("DFSC"), conducts sales outside the United
States. The address of the Company's principal executive office is
2101 Jericho Turnpike, Box 5416, New Hyde Park, New York 11042-5416
and its telephone number at that address is (516) 328-3300.
For a more detailed description of the businesses of the
Company, including audited and unaudited financial information and
a description of recent developments involving the Company, see
"Available Information" and "Incorporation of Certain Documents by
Reference".
The Purchaser
Purchaser is a Delaware corporation formed to acquire all of
the outstanding Shares of the Company pursuant to the Merger and
was incorporated on July 3, 1995. Purchaser is an affiliate of
Dyson, Dyson & Dunn, Inc. ("DD&D"), a privately-held investment
company based in Chicago. The stock of Purchaser is owned by an
irrevocable trust established for the benefit of the shareholders
of DD&D and their descendants. DD&D's directors are the sole
trustees of that trust.
DD&D has agreed to pay up to $20,000,000 to finance the Merger
and related costs and expenses if other financing is not available
to Purchaser by the closing of the Merger (the "Closing Date").
Purchaser plans to finance this transaction by (1) selling its
common stock to one or more trusts affiliated with DD&D for up to
$10,000,000 and (2) borrowing up to $10,000,000 from one or more
banks.
The address of Purchaser's principal executive office is 980
N. Michigan Avenue, Suite 1400, Chicago, Illinois 60611 and its
telephone number at that address is (312) 644-7900.
The Merger Company
The Merger Company was formed in connection with the execution
and delivery of the Merger Agreement for the purpose of effecting
the Merger and is an affiliate of DD&D. The Merger Company has not
conducted any business activities since its incorporation on July
6,1995, other than in connection with the execution and delivery of
the Merger Agreement and the transactions contemplated thereby.
The address of the Merger Company's principal executive office is
980 N. Michigan Avenue, Suite 1400, Chicago, Illinois 60611 and its
telephone number at that address is (312) 644-7900.
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INFORMATION CONCERNING THE SPECIAL MEETING
The Special Meeting
The Special Meeting is scheduled to be held on August 30,
1995. At the Special Meeting, holders of Shares of the Company
will be asked to consider and vote upon a proposal adopted by the
Board to approve and adopt the Merger Agreement. The Merger
Agreement provides for the merger of the Merger Company with and
into the Company and the operation of the Company thereafter as a
wholly-owned subsidiary of the Purchaser. See "The Merger". A
copy of the Merger Agreement is attached as Appendix "A" to this
Proxy Statement and is incorporated herein by reference.
Each copy of this Proxy Statement mailed to shareholders is
accompanied by a form of proxy card which is solicited by the Board
for use at the Special Meeting and at any adjournments or
postponements thereof. Only holders of record on July 24, 1995
(the "Record Date") are entitled to receive notice of and to vote
at the Special Meeting. As of the close of business on July 24,
1995, there were 2,873,423 Shares outstanding and entitled to vote
at the Special Meeting. Each Share is entitled to one vote.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE
ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
When any proxy card is properly executed and returned, the
Shares represented thereby will be voted in accordance with the
directions indicated thereon, or if no direction is indicated, the
Shares will be voted in favor of the proposal described in this
Proxy Statement and in the discretion of the proxy holder on any
other matter voted upon at the Special Meeting. Any shareholder
giving a proxy has the power to revoke it at any time before the
Shares subject to such proxy are voted. Revocation of a proxy is
effective upon receipt by the Secretary of the Company of either
(i) a written instrument stating that such proxy is revoked or (ii)
a duly executed proxy card bearing a later date. Furthermore, a
shareholder giving a proxy may revoke it by attending the Special
Meeting and voting his or her Shares in person.
Any Shares which are not voted in favor of the proposal
described in this Proxy Statement (whether by abstentions, broker
non-votes or otherwise) will have the same effect as Shares voted
against such proposal.
It is not anticipated that any matter other than the Merger
will be brought before the Special Meeting. If other matters are
properly presented at the Special Meeting, proxies will be voted in
the discretion of the respective proxy holders.
Expenses; Solicitation of Proxies
In addition to solicitation by use of the mails, proxies may
be solicited by directors, officers and employees of the Company in
person or by telephone or other means of communication. Such
directors, officers and employees will not be additionally
compensated, but may be reimbursed for out-of-pocket expenses
incurred in connection with such solicitation. Arrangements also
will be made with custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of
shares held of record by such custodians, nominees and fiduciaries,
and the Company will reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection
therewith. In addition, Kissel-Blake Inc., 25 Broadway, New York
New York 10004, will assist in the solicitation of proxies by the
Company for a fee of $5,000, plus
<PAGE>
reimbursement of reasonable out-of-pocket expenses.
Vote Required
Approval and adoption of the Merger Agreement by the
shareholders of the Company requires the affirmative vote of two
thirds of the outstanding Shares pursuant to Section 903 of the New
York Business Corporation Law (the "NYBCL"). Abstentions and
broker non-votes will not be deemed an affirmative vote for the
approval and adoption of the Merger Agreement.
Holders of record of Shares on the Record Date are entitled to
one vote per share on the matter before the Special Meeting. The
presence, either in person or by properly executed proxy, of the
holders of a majority of the Shares outstanding on the Record Date
is necessary to constitute a quorum at the Special Meeting. For
additional information regarding Shares held by beneficial owners
of more than 5% of the Shares, by members of the Board and by
certain executive officers of the Company, see "Ownership of
Shares".
All four members of the Board, the remaining executive officer
of the Company and certain of their spouses (the "Individual
Parties") have each entered into a Support/Option Agreement, dated
July 6, 1995 (the "S/O Agreement") with the Purchaser. A copy of
the S/O Agreement is attached as Appendix "C" to this Proxy
Statement. Pursuant to the S/O Agreement, the Individual Parties
have severally agreed to vote all Shares owned by each of them in
favor of the Merger, which taken together comprise 755,547 Shares
or 26.3% of the Shares outstanding. The names of the Individual
Parties and Shares owned by each are set forth on the schedule
attached as Exhibit "A" to the S/O Agreement. See "The Merger -
Interests of Certain Persons in the Merger - Support of the
Merger".
THE MERGER
General
Set forth below is a description of certain terms and
conditions of the Merger, the Merger Agreement, certain agreements
relating to the Merger, including the S/O Agreement, and other
related documents. Such descriptions, and any other description of
the Merger, the Merger Agreement or the S/O Agreement, are
qualified in their entirety by reference to the copy of the Merger
Agreement attached as Appendix "A" to this Proxy Statement and the
S/O Agreement attached as Appendix "C" to this Proxy Statement.
The effective time of the Merger (the "Effective Time") will
be the time when the certificate of merger is filed with the
Department of State of New York (the "Department") in accordance
with the NYBCL and the Merger thereby becomes effective. Subject
to the terms and conditions of the Merger Agreement, it is
presently contemplated that the Effective Time will be one business
day after the Special Meeting.
To effect the Merger, a trust affiliated with DD&D recently
formed Purchaser, a Delaware corporation, and the Merger Company as
a wholly-owned subsidiary of Purchaser. Purchaser and the Merger
Company have not conducted any business activities since their
incorporation on July 3, 1995 and July 6, 1995, respectively, other
than in connection with the execution and delivery of the Merger
Agreement and the transactions contemplated thereby. Pursuant to
the terms of the Merger Agreement, at the Effective Time (i) the
Merger Company will be merged with and into the Company and will
cease to exist as a separate entity; (ii) the Company will be the
corporation surviving the Merger (the "Surviving Corporation") and
become a wholly-owned subsidiary of Purchaser; and (iii) each
outstanding Share (other than Shares held in the Treasury of the Company
<PAGE>
and Shares held by any shareholders who perfect their
appraisal rights pursuant to the NYBCL) will be converted into the
right to receive $6.00 in cash, without interest thereon.
Background of the Merger
During July 1994, the Company retained Ernst & Young LLP
("E&Y") as its financial advisor to assist the Company in exploring
possible ways to enhance shareholder value, including the possible
sale of the Company. Beginning in late October 1994, E&Y
approached 172 potential purchasers. The potential purchasers
approached by E&Y included domestic and foreign corporations and
financial investors. Of the 172 potential purchasers, 74
prospective acquirers signed a confidentiality agreement and
received information describing both the operation and financial
aspects of the Company. The Company received preliminary
indications of interest from 13 potential purchasers, including
DD&D, which was received on or about April 25, 1995. Based on the
preliminary indications of interest, the Company invited 6
potential buyers to visit the facilities and meet with management
for the purpose of gaining sufficient information to submit a
formal offer. DD&D's expression of interest indicated an
acquisition price of $6.00 per Share in cash, which was the highest
value of all of the expressions of interest.
On June 5, 1995, the Company and DD&D executed a letter of
intent (the "Letter of Intent"). In the Letter of Intent, the
Company agreed to cooperate with DD&D in connection with its due
diligence, and for a period of three months from the execution of
the Letter of Intent, to negotiate in good faith and not to solicit
any other offers to acquire the Company (a "Competing
Transaction"). The Company also agreed that if the Merger
Agreement was not entered into and the Company announced a
Competing Transaction within four months after the execution of the
Letter of Intent, the Company would pay a fee to DD&D of $120,000,
contingent upon closing of the Competing Transaction. The terms of
the Letter of Intent were superseded by the Merger Agreement.
Following the execution of the Letter of Intent, DD&D and its
legal and financial advisors were given access to additional
confidential information concerning the Company, conducted a due
diligence investigation of the Company and negotiated the terms of
the Merger Agreement and S/O Agreement. The Company, the Purchaser
and the Merger Company entered into the Merger Agreement on July 6,
1995. The terms of the Merger Agreement are described below under
the "Merger Agreement".
Effects of the Merger
Upon consummation of the Merger, the Company will become a
wholly-owned subsidiary of Purchaser, the Shares will cease to be
publicly traded and the registration of the Shares under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
will be terminated. Accordingly, the Company will no longer be
subject to the reporting requirements of the Exchange Act. As a
consequence of the Merger, shareholders of the Company will no
longer have an equity interest in the Company.
Reasons for the Merger; Board's Recommendation
The Board unanimously determined to approve the Merger
Agreement and recommend its approval to the shareholders of the
Company because the members of the Board believe the terms of the
Merger are fair to and in the best interests of the Company and its
shareholders. In reaching this determination, the Board considered
a number of factors, including:
<PAGE>
(a) the Board's familiarity with the Company's business,
operations and prospects;
(b) the fact that the $6.00 per Share represented a premium
of 12 1/2% to 33 1/3% over the market price (which was $5 1/4 high
to $4 1/2 low) of the Shares one day before public announcement,
which market price was at a 52 week high for the Shares, a premium
of 33 1/3% over the closing market price (which was $4 1/2) of the
Shares one week before the public announcement of the Letter of
Intent and a premium of 33 1/3% over the closing market price
(which was $4 1/2) of the Shares one month before the public
announcement of the Letter of Intent ( See "Market Prices for
Shares; Dividends");
(c) the fact that the Company issued a press release during
August of 1994, disclosing to the public that it had retained E&Y
as a financial advisor to assist the Company in exploring ways to
enhance shareholder value, including the possible sale of the
Company, and any other potential purchaser has had the opportunity
to make offers to acquire the Company before and after the Company
entered into the Letter of Intent (subject to the Company paying a
break-up fee), and no such indications of interest or offers have
been received at a price equal to or in excess of $6.00 per Share;
(d) the fact the Individual Parties, who owned an aggregate
of 755,547 Shares (or approximately 26.3% of the Shares
outstanding) as of July 6, 1995, were willing to enter in the S/O
Agreement pursuant to which they severally agreed to vote the
Shares owned or otherwise controlled by them in favor of the
approval and adoption of the Merger Agreement, it being noted by
the Board that the Individual Parties were being treated the same
as all other shareholders in the Merger;
(e) the fact that the Merger Agreement and the S/O Agreement
had been negotiated at arm's-length and the terms of such
agreements, including the provisions of the Merger Agreement
expressly permit the Company to terminate the Merger Agreement and
to enter into an agreement (including an agreement in principle or
letter of intent), with respect to any acquisition or proposed
acquisition by means of a merger, consolidation, sale of
substantial assets of the Company, tender or exchange offer, or
other acquisition of one-third or more of the Company's Shares (a
"Business Combination") with a third party, subject to the payment
to the Purchaser of a maximum of $360,000 (the "Break-Up Fee"); and
(f) the opinion of Houlihan Lokey that the $6.00 per Share to
be received by shareholders in the Merger was fair to the
shareholders of the Company from a financial point of view.
Although the Board did not attach specific weights to any of
the factors enumerated above, each was deemed to support the
Board's conclusion that the terms of the Merger were fair to and in
the best interests of the Company and its shareholders. The Board
also considered the fact that following the Merger, shareholders
would no longer have an equity interest in the Company. It
concluded that this fact should not detract from the Board's
determination with respect to the fairness of the Merger given the
lack of liquidity in the Shares over the past 52 weeks. The Board
also considered as supporting the Merger and its recommendation in
favor of the Merger the fact that the Break-Up Fee and no
solicitation provisions, with a fiduciary duty exception, would not
preclude a third party from making a proposal to acquire the
Company at a price greater than $6.00 per Share, recognizing that
such provisions would increase the effective price paid by any such
third party by approximately $0.125 per Share. The Board also took
into consideration the fact that the Purchaser was granted,
pursuant to the S/O Agreement, two options to acquire a total of
500,000 Shares of the Company's common stock. The Board noted that
the Purchaser would not have entered into the Merger Agreement
without the grant of these options. See "The Purchase Options" for
a more detailed description of these options.
<PAGE>
In accordance with the foregoing, the Board believes that the
Merger is in the best interests of the Company and the shareholders
and unanimously recommends that shareholders vote FOR approval and
adoption of the Merger Agreement.
Fairness Opinion
The Board has retained Houlihan Lokey to provide an opinion to
the Board as to the fairness of the consideration to be received by
the shareholders of the Company in connection with the Merger.
Houlihan Lokey is a nationally recognized specialty investment
banking firm and is continually engaged in the valuation of
businesses and their securities in connection with mergers and
acquisitions, private placements, leveraged transactions, public
financing and investment management services. Houlihan Lokey was
selected by the Company on the basis of its experience in the
valuation of securities in connection with investments, mergers and
acquisitions. Houlihan Lokey does not beneficially own nor has it
ever beneficially owned any equity interest in the Company.
On July 6, 1995, Houlihan Lokey advised the Board that the
$6.00 per Share to be received by the shareholders pursuant to the
Merger Agreement was fair to the shareholders pursuant to its
written fairness opinion (the "Fairness Opinion"). Houlihan Lokey
subsequently delivered its written fairness opinion to the same
effect dated the date of this Proxy Statement (the "Bring Down
Opinion"). Houlihan Lokey did not determine the amount to be
received by the shareholders of the Company for their Shares
pursuant to the Merger Agreement. The full text of Houlihan
Lokey's Fairness Opinion dated July 6, 1995 and its Bring Down
Opinion dated the date of this Proxy Statement, which sets forth
the assumptions made, procedures followed, matters considered and
the limits of the review of Houlihan Lokey are attached hereto as
Appendix "D" and are incorporated by reference herein.
Shareholders are urged to and should read the Fairness Opinion and
the Bring Down Opinion of Houlihan Lokey in their entirety.
In connection with their opinions, Houlihan Lokey reviewed,
among other things: the Letter of Intent; the Merger Agreement,
including all the exhibits thereto and the disclosure schedule; the
S/O Agreement; this Proxy Statement; Annual Reports to shareholders
for 1990 through 1994; Annual Reports on Forms 10-K and 10-KSB of
the Company for the fiscal years ended August 31, 1990 through
August 31, 1994; its Quarterly Reports on Form 10-QSB for the three
quarters ended May 31, 1995; and forecasted income statements
prepared by the Company's management with respect to the Company
for the years ended August 31, 1995 through 1997. Representatives
of Houlihan Lokey also met with certain members of the senior
management of the Company to discuss the operations, financial
condition, future prospects and projected operations and
performance of the Company, and met with representatives of the
Company's independent accounting firm, financial advisor and
counsel to discuss certain matters. In addition, Houlihan Lokey
reviewed the historical market prices and trading volume for the
Shares, reviewed certain other publicly available financial data
for certain companies that they deemed comparable to the Company,
and publicly available prices and premiums paid in other
transactions that they considered similar to the Merger, visited
certain facilities and business offices of the Company, and
conducted such other studies and analyses as they considered
appropriate.
Houlihan Lokey relied, without independent verification, upon
the accuracy and completeness of all of the financial and other
information reviewed by them for purposes of their opinions.
Houlihan Lokey did not make an independent evaluation or appraisal
of the assets and liabilities of the Company or any of its
subsidiaries and was not furnished with any such evaluation or
appraisal. In addition, Houlihan Lokey discussed with management
the status of, likelihood of recovery, and the amount and timing of
any recovery (including interest
<PAGE>
thereon) relating to the dispute
between Accusonic Systems Corp. (an inactive subsidiary of the
Company) and the Armed Services Board of Contract Appeals.
The terms of the retainer agreement with Houlihan Lokey are
set forth in a letter agreement dated June 6, 1995 between Houlihan
Lokey and the Company (the "Retainer Agreement"). Pursuant to the
terms of the Retainer Agreement, the Company will pay Houlihan
Lokey a fee of $50,000, of which $25,000 was paid at the retention
of Houlihan Lokey and the balance of which will be paid upon
delivery of the Bring Down Opinion. No portion of the fee is
contingent upon the consummation of the Merger or the conclusions
reached in the Fairness Opinion and Bring Down Opinion. In
addition, the Company has agreed to reimburse Houlihan Lokey for
their reasonable out-of-pocket expenses (which shall not exceed
$3,000 without the approval of the Company) and to indemnify
Houlihan Lokey against certain liabilities relating to or arising
out of their engagement, including liabilities under the federal
securities laws.
The following is a summary of the financial analyses utilized
by Houlihan Lokey in connection with providing its Fairness Opinion
to the Board on July 6, 1995 and its Bring Down Opinion dated the
date of this Proxy Statement, and does not purport to be a complete
statement of the analyses and procedures applied, the judgments
made or the conclusions reached, or a complete description of its
presentation. Houlihan Lokey believes, and so advised the Company,
that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors consider by it, without
considering all factors and analyses, could create an incomplete
view of the processes underlying its analyses and opinion.
Houlihan Lokey utilized substantially the same types of financial
analyses in preparing its Bring Down Opinion as it utilized in
providing its Fairness Opinion.
In determining the fairness of the Merger to the shareholders
of the Company from a financial point of view, Houlihan Lokey did
not reach its conclusion concerning the Merger by individually
evaluating all the factors considered or by evaluating the Merger
based upon the individual effects or consequences of anyone or a
group of factors. In view of the variety of factors considered in
its evaluation, Houlihan Lokey did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights
to the factors considered in reaching its determinations. Rather,
Houlihan Lokey considered all of the factors described below in the
aggregate and concluded, based on its consideration of these
factors in their totality, that the Merger is fair to the
shareholders of the Company from a financial point of view.
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analysis or a summary
description. Any estimates made by Houlihan Lokey are not
necessarily indicative of actual values, which may be significantly
more or less favorable than such estimates. Estimates of values of
companies do not purport to be appraisals or necessarily reflect
the prices at which companies may be sold, and are inherently
subject to uncertainty.
Houlihan Lokey reviewed information on publicly traded
companies engaged in the manufacture of electrical and electronic
components and mechanical devices and selected seven companies for
comparison to the Company. The seven companies selected were
Allied Devices Corp., American Electronic Components, Inc., Autocam
Corp., Bowmar Instrument Corp., Cherry Corp., Technitrol Inc., and
Vernitron Corp. The seven were selected on the basis of similarity
to the Company in terms of business lines, and asset and revenue
size. Houlihan Lokey compared the operating results and financial
condition of the Company with the seven publicly traded companies.
The analysis included various measures of size, profitability,
liquidity, financial leverage, capital adequacy, growth, and other
factors. The analysis also compared the Company's trading
multiples of revenues, earnings before interest and taxes ("EBIT"),
and earnings before interest, taxes, depreciation and
<PAGE>
amortization ("EBITDA") to the seven comparable public companies.
Houlihan Lokey also reviewed certain transactions involving
the acquisition of publicly traded manufacturing companies.
Houlihan Lokey reviewed fourteen transactions that occurred over
the period from January 1994 through April 1995. Houlihan Lokey
noted that in the transactions analyzed, the companies' operations
were not directly comparable to the Company because of differences
in types of products manufactured, size and financial condition.
Because a number of the transactions analyzed were not directly
comparable to the Company, or there was insufficient financial
information available regarding the acquisitions, Houlihan Lokey
also analyzed transactions involving the acquisition of a
controlling interest stake in a public company with an aggregate
transaction value of less than $30 million. Houlihan Lokey
analyzed the premium or discount paid to the unaffected stock price
of the acquired company. Houlihan Lokey analyzed fourteen
transactions that occurred over the period February 1994 through
May 1995.
Based upon the above analysis, Houlihan Lokey concluded that
the Merger was fair to the Company's shareholders from a financial
point of view on July 6, 1995 and on the date of this Proxy
Statement.
Interests of Certain Persons in the Merger
In considering the recommendation of the Board, shareholders
should be aware that certain members of management and the Board
have certain interests in the Merger that are in addition to the
interests of the shareholders generally and that may create
conflicts of interest.
The Stock Option Plans
The Merger Agreement requires that prior to the Effective Time
all of the options outstanding under the Company's 1993 Executive
Officer Incentive Stock Option Plan, 1993 Non-Employee Directors'
Stock Option Plan and the 1993 Incentive Stock Option Plan (the
"Option Plans") that were exercisable as of July 6, 1995 (the
"Exercisable Options") will be canceled in exchange for a cash
payment equal to (a) the excess of $6.00 per share over the
exercise price times (b) the number of Shares subject to each
option. The Company has no other outstanding option plans or
warrants with outstanding options or warrants. The only Exercisable
Options under the Option Plans are as indicated in Exhibit "C" to
the Merger Agreement and as specified below. Reference is made to
"Executive Compensation" in the Company's proxy statement dated
December 5, 1994, which is annexed hereto as Exhibit "2" and which
describes the 1993 Executive Officer Incentive Stock Option Plan
and the 1993 Non-Employee Directors' Stock Option Plan. The
following chart summarizes the payments to be made in the exchange
for the cancellation of the Exercisable Options:
1993 EXECUTIVE OFFICER INCENTIVE STOCK OPTION PLAN
Name Position with Company Dollar Value Number of Shares
Martin Hoffman CEO & President $49,125 31,500
Frank Buchsbaum Executive Vice President 49,125 31,500
Hitoshi Tanaka Senior Vice President 49,125 31,500
<PAGE>
1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Name Dollar Value Number of Shares
Joseph Rubenfeld $32,750 21,000
Sol Schwartz 32,750 21,000
1993 INCENTIVE STOCK OPTION PLAN
Name and Position(1) Dollar Value Number of Shares
George Klein $11,562.50 5,000
Robert Lindemann 11,562.50 5,000
Murray Ores 11,562.50 5,000
Daniel Raleigh 11,562.50 5,000
Barry Stormes 11,562.50 5,000
_________
(1) All of the foregoing are divisional vice presidents and not
directors or executive officers.
Bonuses in Lieu of Options for Current Fiscal Year
As soon as practicable after completion of the audit of the
financial statements of the Company for its fiscal year ending
August 31, 1995, Messrs. Hoffman, Buchsbaum, Tanaka, Schwartz and
Rubenfeld will be paid a bonus equal to $1.50 times the number of
Shares on which he would have been granted an option pursuant to
the Option Plans if (a) the Merger has not occurred, (b) the Option
Plans had not been terminated at the Effective Time and (c) the
Company had not incurred any expenses relating to the transactions
contemplated by the Merger.
Divisional Vice President Bonus Plan
Each of the Company's divisional vice presidents (who are not
deemed executive officers of the Company), namely, George Klein,
Robert Lindemann, Murray Ores, Daniel Raleigh and Barry Stormes,
will be entitled to a bonus for each of its next two fiscal years
of the Company commencing after August 31, 1995. The terms and
conditions of the bonus plan for the divisional vice presidents are
set forth in the Incentive Bonus Plan annexed as Exhibit "D" to the
Merger Agreement.
The Employment Agreements
It is a condition of the Merger Agreement that Martin Hoffman,
Frank Buchsbaum and Hitoshi Tanaka (the "Executive Officers") each
enter into an employment agreement in the form attached as Exhibit
"G", "H" and "I", respectively, to the Merger Agreement
(collectively the "Employment Agreements"), pursuant to which each
of them will agree to continue their employment with the Company
until December 31, 1997 under terms similar to their existing
employment agreements dated August 31, 1992, with certain specified
exceptions. Pursuant to the 1994 amendments to their existing
employment agreements, Messrs. Hoffman, Buchsbaum and Tanaka each
are entitled to a 10% raise in their annual compensation in their
Employment Agreements. Said compensation is payable to each for a
period of twelve months after the demise of such Executive Officer
and two years after the commencement of such Executive Officer's
disability, as defined in the Employment Agreements; provided
however, that such compensation shall not continue after December
31, 1998. Pursuant to their Employment Agreements, the Executive
Officers were also granted various benefits, including, but not
limited to, life insurance
<PAGE>
and health insurance.
As an additional incentive to the Executive Officers, and
because of the fact that the 1993 Executive Officer Incentive Stock
Option Plan is being terminated, the Company has agreed to pay to
each of Messrs. Hoffman, Buchsbaum and Tanaka a bonus for each of
the Company's fiscal years ending August 31, 1996 and 1997, equal
to the percent of EBIT set forth in the following table:
If EBIT is more than: Percent:
$1,368,000 but less
than $2,137,00.01 1.00%
$2,137,000 but less
than $2,565,000.01 1.33%
$2,565,000 but less
than $2,850,000.01 1.67%
$2,850,000 2.00%
For this purpose, "EBIT" means the Company's income from continuing
operations before interest expense, income taxes, extraordinary
items, salaries, fees and expenses payable to any officer or
director of the Purchaser, the Merger Company or any affiliate
thereof, other than an executive officer of the Company prior to
the Merger, any expenses related to the Merger and transactions
related thereto and bonuses as determined by the independent public
accounting firm that audits the financial statements of the Company
for its fiscal years ending August 31, 1996 and 1997. The bonus
for each fiscal year shall be payable immediately upon completion
of the audit of the Company's financial statements for such fiscal
year and receipt of a computation of EBIT for such year prepared by
such firm as part of their engagement.
Indemnification
Purchaser has agreed that from and after the Effective Time
the Company will indemnify and hold harmless each present and
former director and officer of the Company (the "Indemnified
Parties") against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred by any Indemnified
Party in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or
prior to the Effective Time, whether asserted or claimed prior to,
at or after the Effective Time, including any claim, action, suit,
proceeding or investigation relating to the Merger, to the fullest
extent permitted under the NYBCL (and the Company shall advance
expenses as incurred to the full extent permitted under the NYBCL,
provided that the Indemnified Party to whom the expenses are
advanced provides an undertaking reasonably acceptable to Purchaser
to repay all advances if it is ultimately determined that such
Indemnified Party was not entitled to indemnification). Purchaser
will cause the Company to purchase at the Closing a three-year tail
from the company that issued the present policy of directors and
officers' liability insurance maintained by the Company, estimated
to cost approximately $50,000.
Pursuant to their employment agreements, Messrs. Hoffman,
Buchsbaum and Tanaka have also been specifically indemnified to the
fullest extent permitted by law against any claims against them as
a result of their
<PAGE>
being heretofore or in the future an officer,
director or employee of the Company, and any action or proceeding
in connection with or relating to the Merger Agreement, this Proxy
Statement or the Merger. Furthermore, the Amended and Restated
By-Laws of the Company, which are annexed hereto as Exhibit "B" to
the Merger Agreement, also provide indemnification to the present
and former directors and officers of the Company to the fullest
extent permitted by law, including indemnification under any
agreement approved by the Board.
Support of the Merger
The Individual Parties, who own an aggregate of 755,547 Shares
(or 26.3% of the Shares outstanding) as of the date hereof, have
entered into the S/O Agreement, pursuant to which they have
severally agreed to vote the Shares owned or otherwise controlled
by them, as well as any new Shares acquired by them after the
execution of the S/O Agreement, in favor of the approval and
adoption of the Merger Agreement and the Merger and against any
proposal that would compete with or serve to interfere or inhibit
the timely consummation of the Merger. The S/O Agreement also
grants two separate options, one from the Individual Parties for
250,000 Shares and the other from the Company for 250,000 Shares,
to the Purchaser to acquire 500,000 Shares of the Company's common
stock, in the event the Merger Agreement is terminated and a
Competing Transaction is announced within six months thereafter.
See "The Purchase Options" for a more detailed description of these
options. See also "The Merger Agreement Regulatory Matters".
Regulatory Filings and Approvals
Antitrust Matters
Pursuant to the Merger Agreement, the Purchaser has
represented that, other than the filing of the Certificate of
Merger in compliance with the NYBCL, no notice or report to, filing
with, or authorization, consent or approval of, any public body or
authority is necessary for the execution, delivery and performance
by either the Purchaser or the Merger Company of the Merger
Agreement. The Purchaser further represented that no notification
is required under the Hart-Scott-Rodino Antitrust Improvement Act.
Certain Federal Income Tax Consequences of the Merger
The receipt of cash for Shares pursuant to the Merger will be
a taxable transaction for federal income tax purposes, and also may
be a taxable transaction under applicable state, local, foreign and
other tax laws.
In general, a shareholder will recognize a gain or loss equal
to the difference between such shareholder's tax basis in the
Shares sold and the amount of cash received in exchange therefor.
Such gain or loss will be capital gain or loss if the Shares are
capital assets in the hands of the shareholder and will be a
long-term capital gain or loss if the holding period for the Shares
is more than one year. Under present law, long-term capital gains
are taxable at a maximum rate of 28%.
The foregoing discussion does not address the federal income
tax consequences of the Merger to shareholders subject to special
tax treatment under the Internal Revenue Code, including, without
limitation, shareholders who acquired their Shares pursuant to the
exercise of an employee option or otherwise as compensation and
shareholders who are not citizens or residents of the United
States.
BECAUSE THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE DOES
NOT NECESSARILY SET FORTH ALL OF THE TAX CONSEQUENCES OF THE MERGER
THAT MAY BE
<PAGE>
RELEVANT TO A PARTICULAR SHAREHOLDER, SHAREHOLDERS
SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
OTHER TAX LAWS.
Accounting Treatment
The Merger will be accounted for as a "purchase" as that term
is used under generally accepted accounting principles for
accounting and financial reporting purposes.
<PAGE>
<PAGE>
THE MERGER AGREEMENT
The following description of the Merger Agreement is summary
in nature and is qualified in its entirety by reference to the
Merger Agreement which is attached as Appendix "A" to this Proxy
Statement and is incorporated herein by reference. All
shareholders are urged to read the Merger Agreement in its
entirety.
Effect of the Merger; Merger Consideration
Subject to the terms and conditions of the Merger Agreement,
at the Effective Time, the Merger Company shall be merged with and
into the Company in accordance with the NYBCL, the separate
corporate existence of the Merger Company shall cease, and the
Company shall be the Surviving Corporation. From and after the
Effective Time, without any other action, the Surviving Corporation
shall (a) possess all of the rights, privileges, immunities, powers
and purposes of each of the Company and the Merger Company, (b) own
all of the property, real and personal, tangible and intangible, of
each of the Company and the Merger Company, including the stock of
the Company's wholly-owned subsidiary, DFSC, and (c) assume and be
liable for all of the liabilities, obligations and penalties of
each of the Company and the Merger Company in the same manner as if
the Surviving Corporation had itself incurred them, all with the
effect set forth in Section 906 of the NYBCL.
Pursuant to the Merger, from and after the Effective Time: (a)
the Certificate of Incorporation of the Surviving Corporation shall
be restated in its entirety at the Effective Time to read
substantially as set forth in Exhibit "A" to the Merger Agreement
(together with such other technical revisions as are required by
the NYBCL); (b) the by-laws of the Surviving Corporation shall be
amended and restated in their entirety at the Effective Time to
read as set forth in Exhibit "B" to the Merger Agreement; (c) the
directors of the Merger Company immediately prior to the Effective
Time shall become the directors of the Surviving Corporation, to
serve for the term provided in the by-laws of the Surviving
Corporation, and the Purchaser plans to add Martin Hoffman as a
director of the Surviving Corporation promptly after the Effective
Time, with such other directors as the sole shareholder of the
Surviving Corporation shall elect at the Effective Time or at a any
time thereafter; and (d) the officers of the Company immediately
prior to the Effective Time shall be the officers of the Surviving
Corporation, except that Joseph M. Dunn shall become the Chairman
of the Board of the Surviving Corporation, with such additional
officers and other changes as the Board of Directors of the
Surviving Corporation shall determine from time to time.
Subject to the terms, conditions and procedures set forth in
the Merger Agreement, at the Effective Time of the Merger, each
Share outstanding immediately prior to the Merger (other than
Shares held by the Company as treasury stock and Shares as to which
appraisal rights are properly perfected and not withdrawn) will, by
virtue of the Merger, be converted into the right to receive $6.00
in cash, without interest. Except for such conversion rights, from
and after the Effective Time all such Shares, by virtue of the
Merger and without any action on the part of the holders, will no
longer be outstanding and will be canceled and retired and will
cease to exist. Each holder of a certificate formerly representing
a Share will thereafter cease to have any rights with respect to
such Share other than the right to receive the applicable
consideration for such Share upon the surrender of the certificate
or, if applicable, to require the Company to purchase such Shares
for their "fair value" pursuant to Section 623 of the NYBCL. See
"Appraisal Rights".
At the Effective Time, (a) each Share held by the Company as
treasury stock shall forthwith be canceled without payment of any
consideration therefor and without any conversion thereof; (b) each
share of common stock of the Merger Company then issued and
outstanding shall be converted into and become one validly issued,
<PAGE>
fully paid and non-assessable share of common stock of the
Surviving Corporation (accordingly, the Surviving Corporation shall
become a wholly-owned subsidiary of the Purchaser as a result of
the Merger); and (c) each Share (other than Shares as to which
appraisal rights are properly perfected and not withdrawn pursuant
to Section 623 of the NYBCL and treasury Shares shall be converted
into the right to receive, and shall be exchangeable for, $6.00 in
cash, without any interest thereon (the "Merger Price").
Payment for Shares
The Merger Agreement provides that prior to the Closing Date,
the Company will appoint a bank or trust company acceptable to
Purchaser to act as the exchange agent (the "Exchange Agent") for
the purpose of paying the Merger Price in exchange for certificates
representing Shares converted into the right to receive the Merger
Price (the "Exchanged Shares"). As soon as practicable after the
Effective Time, the Exchange Agent shall send a notice and
transmittal form reasonably satisfactory to Purchaser and the
Company to each holder of any certificates theretofore representing
Exchanged Shares. The notice and transmittal form shall advise the
holders of Exchanged Shares of the procedure for surrendering to
the Exchange Agent their certificates for payment of the Merger
Price. On the Closing Date, prior to the Effective Time,
Purchaser shall transmit to the Exchange Agent, by wire or other
appropriate means, in immediately available funds, sufficient funds
to pay the Merger Price for all Shares voted in favor of the
Merger. As and when additional funds are required by the Exchange
Agent for additional Shares tendered for payment in accordance with
the Merger Agreement, the Exchange Agent shall notify Purchaser by
facsimile, and Purchaser shall provide the funds, by wire or other
appropriate means, in immediately available funds, within two
business days after the receipt of such facsimile by Purchaser.
The Exchange Agent shall hold such funds in trust and deliver
such funds (in the form of checks of the Exchange Agent or wire
transfers if feasible for any amounts in excess of $500,000) in
accordance with the Merger Agreement and such additional terms as
may be agreed upon by the Exchange Agent, the Company and
Purchaser. Any portion of such funds which have not been paid to
the shareholders of the Company within six months after the
Effective Time shall promptly be paid over to the Surviving
Corporation, and thereafter any shareholders who have not
theretofore surrendered their stock certificates for payment of the
Merger Price pursuant to the Merger Agreement shall look only to
the Surviving Corporation for payment of the amount of cash to
which they are entitled as a result of the Merger.
Each holder of any certificates theretofore representing any
Exchanged Shares which are converted into the right to receive the
Merger Price, upon surrender to the Exchange Agent of such
certificates for cancellation along with a duly executed and
completed transmittal form, will be entitled to promptly receive
a check of (or wire transfer, if applicable, from) the Exchange
Agent representing cash in the amount equal to the Merger Price
times the number of Exchanged Shares represented by such
certificates, less any amount required to be withheld under
applicable laws or regulations ("Backup Withholding"). No interest
shall accrue or be paid on any portion of the Merger Price.
If any payment of the Merger Price (or any portion thereof) is
to be made to any person other than the person in whose name the
certificate surrendered in exchange for the payment is registered,
it shall be a condition of such payment that the certificate so
surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such
payment shall (a) pay to the Exchange Agent any transfer or other
taxes required by reason of such payment, or (b) establish to the
satisfaction of the Exchange Agent that such tax has been paid or
is not applicable. Notwithstanding the foregoing, neither the
Exchange Agent nor any party to the Merger Agreement shall be
liable to any person claiming the right to receive the Merger Price
for any cash delivered to any public official or agency pursuant to
any applicable abandoned property, escheat or similar law.
<PAGE>
In the event any certificate theretofore representing
Exchanged Shares has been lost, stolen or destroyed, the Exchange
Agent shall pay to the person claiming that such certificate has
been lost, stolen or destroyed the cash into which the Shares
theretofore represented by such certificate have been converted
pursuant to the Merger Agreement (less any required Backup
Withholding), upon receipt of (a) evidence of ownership of such
certificate and (b) appropriate indemnification, in each case
satisfactory to the Exchange Agent.
Transfer of Shares
At the Effective Time, the stock transfer books of the Company
as the Surviving Corporation shall be closed, and no transfer of
Shares shall be made thereafter, except as required to be permitted
by the provisions of the NYBCL.
Conditions to the Merger
The respective obligations of each party to effect the Merger
are subject to the fulfillment, at or prior to the Effective Time,
of each of the following conditions:
(a) Governmental Consents. Except for the filing
of the Certificate of Merger in compliance with the NYBCL, all
consents, authorizations, orders and approval of, and filings and
registrations with, any federal or state governmental commission,
board or other regulatory body that are required, if any, for the
consummation by each party to the Merger Agreement of the
transactions provided for in the Merger Agreement, shall have been
obtained or made;
(b) Shareholder Approval. The Merger Agreement and
all other matters necessary to effectuate the transactions provided
for therein, including the Merger, shall have been approved and
adopted by the requisite vote of the shareholders, in accordance
with the NYBCL and the Company's Certificate of Incorporation and
by-laws; and
(c) Prohibitions. No United States or state court
or any domestic governmental or regulatory authority, agency,
court, commission or other entity of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) which prohibits
consummation of the transactions contemplated by the Merger
Agreement.
The obligations of the Company to effect the Merger are
subject to the fulfillment by Purchaser and the Merger Company, at
or prior to the Effective Time, of each of the following
conditions:
(a) Representations and Warranties. The
representations and warranties set forth in Section 2.02 of the
Merger Agreement shall be true and correct in all material respects
as of the date of the Merger Agreement and as of the Effective
Time, as though made at and as of the Effective Time, except as
otherwise contemplated in the Merger Agreement, and the Company
shall have received a certificate in form and substance reasonably
satisfactory to the Company, dated the Closing Date to that effect,
and signed by the Chairman of the Board or Treasurer of Purchaser
(the "Purchaser Closing Certificate"), neither of whom shall have
any personal liability under any Purchaser Closing Certificate;
(b) Performance of Obligations. Purchaser and the
Merger Company shall have
<PAGE>
performed in all material respects their
obligations under the Merger Agreement required to be performed by
them prior to the Effective Time, and the Company shall have
received a Purchaser Closing Certificate to that effect;
(c) Initial Funding. Purchaser shall have provided the
Exchange Agent with the funds required pursuant to the Merger
Agreement to pay the Merger Price with respect to all Shares voted
in favor of the Merger; and
(d) Opinion of Purchaser's Counsel. At the Closing, the
Company shall receive a signed opinion of Purchaser's counsel,
dated the Closing Date and in the form of Exhibit "E" to the Merger
Agreement.
The obligations of Purchaser and the Merger Company to effect
the Merger are be subject to the fulfillment by the Company, at or
prior to the Effective Time, of each of the following conditions:
(a) Representations and Warranties. The representations
and warranties set forth in Section 2.01 of the Merger Agreement
shall be true and correct in all material respects as of the date
of the Merger Agreement and as of the Effective Time, as though
made at and as of the Effective Time, except as otherwise
contemplated in the Merger Agreement and Purchaser shall have
received a certificate in form and substance reasonably
satisfactory to the Purchaser to that effect, dated the Closing
Date, and signed by the President, Executive Vice President and
Senior Vice President of the Company (the "Company Closing
Certificate"), none of whom shall have any personal liability under
any Company Closing Certificate;
(b) Performance of Obligations. The Company shall have
performed in all material respects its obligations under the Merger
Agreement required to be performed by it prior to the Effective
Time, and the Purchaser shall have received a Company Closing
Certificate to that effect;
(c) Consents. The Company shall have obtained all
consents, waivers and approvals of third parties required, if any,
to avoid a default or violation of any contract, agreement or
lease or any other adverse consequence to the Company by reason of
the consummation of the Merger, but excluding such other consents,
waivers and approvals, if any, the failure of which to obtain is
not reasonably likely to have a material adverse effect, and
excluding the consent of any landlord of the Company and the
Company's lender, European American Bank ("the "Bank");
(d) New Employment Agreements. Purchaser shall have
received an Employment Agreement executed on the Closing Date by
Martin Hoffman in the form of Exhibit "F" to the Merger Agreement,
by Frank Buchsbaum in the form of Exhibit "G" to the Merger
Agreement, and by Hitoshi Tanaka in the form of Exhibit "H" of the
Merger Agreement;
(e) Dissenting Shares. Holders of no more than ten
percent (10%) of the Shares which are outstanding immediately prior
to the Effective Time shall not vote such Shares for the Merger and
shall deliver to the Company a written objection to the Merger in
the manner and within the time provided in Section 623 of the NYBCL
("Dissenting Shares"). See "Appraisal Rights"; and
<PAGE>
(f) Opinion of Company's Counsel. At the Closing,
Purchaser shall receive a signed opinion of the Company's general
counsel, dated the Closing Date and in the form of Exhibit "I" to
the Merger Agreement.
Agreements and Covenants between the Company and Purchaser
Operational Covenants
Pursuant to the Merger Agreement, the Company has agreed that,
except as expressly contemplated by the Merger Agreement or as
disclosed in the disclosure schedule which is annexed to the Merger
Agreement (the "Disclosure Schedule"), during the period from July
6, 1995 to the Effective Time, the businesses of the Company and
its wholly-owned subsidiary DFSC (DFSC and the Company are
collectively referred to as the "DI Companies") will be conducted
only in the ordinary and usual course consistent with past
practices (the "Ordinary Course"), and the DI Companies will use
all reasonable efforts to maintain and preserve their business
organizations, business prospects, employees and advantageous
business relationships, and that, except as contemplated in the
Merger Agreement or authorized in Section 2.01.29 of the Disclosure
Schedule, neither DI Company will take any of the following actions
or permit to occur any of the following events without the prior
written consent of the Chairman of the Board of the Purchaser,
which shall not be unreasonably withheld:
(a) except to allow the Company to comply with its
obligations under the Revolving Credit Agreement, dated as of
November 1, 1993 (the "Loan Agreement) between the Company and the
Bank, or in the Ordinary Course, pay, discharge or satisfy any
material debt, liability or obligation (whether accrued, absolute,
contingent or otherwise);
(b) except in favor of the Bank or in the Ordinary
Course, permit or allow any material assets (whether tangible or
intangible) to be subjected to any mortgage, pledge, lien, security
interest, encumbrance, restriction or charge;
(c) write off as uncollectible any notes or accounts
receivable or write down the value of any inventory other than in
immaterial amounts or in the Ordinary Course;
(d) cancel or waive any claims or rights of value or
sell, transfer, distribute or otherwise dispose of any material
assets, except in the Ordinary Course;
(e) dispose of or permit to lapse any rights in, to or
for the use of any intellectual property or disclose to any person
not an employee or otherwise dispose of any trade secret, process
or know-how not heretofore a matter of public knowledge, except in
the Ordinary Course or pursuant to judicial or administrative
process;
(f) grant any increase in the base compensation or other
payment to any director, officer or employee whether now or
hereafter payable or granted (other than increases in compensation
in the Ordinary Course) or grant any severance or termination pay
(other than severance pay in amounts consistent with the Company's
established severance pay practices), or enter into or vary the
terms of any employment agreement with any such person;
(g) except as to amounts budgeted as of July 6, 1995,
make any capital expenditure or commitment in excess in each case
of $50,000 for additions to property, plant or equipment, or
<PAGE>
lease or agree to lease any assets which, if they had been purchased,
would be reflected in the property, plant or equipment accounts of
the Company and for which total rental payments would exceed
$50,000;
(h) make any change in any method of accounting or
keeping its books of account or accounting practices other than as
disclosed in the Company's (a) Annual Report on Form 10-KSB for the
year ended August 31, 1994, (b) Annual Reports on Form 10-KSB or
Form 10-K for the years ended August 31, 1993 and 1992, (c)
Quarterly Reports on Form 10-QSB for the quarters ended November
30, 1994 and February 28, 1995, (d) proxy statements relating to
all of the Company's annual meetings of shareholders since August
31, 1992, and (e) other reports, registration statements and other
documents filed by the Company with the Securities and Exchange
Commission ("Commission") since August 31, 1992, in each case as
filed with the Commission (collectively, together with any other
reports, registration statements or other documents filed by the
Company with the Commission prior to the Closing and provided to
Purchaser, "SEC Filings");
(i) enter into or modify any material agreement outside
the Ordinary Course;
(j) authorize for issuance, issue, deliver or sell any
debt or equity securities or any options, warrants or other rights
to purchase any of the foregoing or any instruments or contracts
convertible into or exchangeable for any securities, or alter the
terms of any outstanding securities issued by it or, other than in
the Ordinary Course, increase its indebtedness for borrowed money;
(k) declare, pay or set aside for payment any dividend or
other distribution (whether in cash, stock, property or otherwise)
in respect of any of the Company's common stock, or redeem,
purchase or otherwise acquire any such common stock;
(l) amend its Certificate of Incorporation or by-laws or
the Certificate of Incorporation or by-laws of DFSC; and
(m) enter into, amend or modify any collective bargaining
agreement, employment agreement, employee benefit plan, severance
agreement, phantom stock, deferred compensation or similar
agreement, arrangement or plan.
Termination Fees
The Merger Agreement provides that in the event that the
Merger is not consummated and Purchaser is not in material breach
of any representation or warranty contained in Section 2.02 of the
Merger Agreement or any covenant contained in Article 1 or 3 of the
Merger Agreement and one or more of the events set forth below
occurs on or prior to the date of termination of the Merger
Agreement or within six (6) months thereafter, the Company shall
pay to Purchaser the sum of $180,000 (in the case of the events set
forth in clause (a) of this paragraph) or $360,000 (in the case of
the events set forth in clauses (b) - (g) of this paragraph), less
any amount that previously may have been paid by the Company
pursuant to clause (a) of this paragraph:
(a) either (1) the shareholders shall not have approved
the Merger at the Special Meeting, although the parties to the S/O
Agreement shall have voted for the Merger all of the
<PAGE>
Shares therein agreed to be voted for the Merger, or (2) more than ten
percent (10%) of the Shares issued and outstanding at the time of the
Special Meeting shall be Dissenting Shares, or (3) a material
adverse change of the kind contemplated by Subsection 4.03.03 of
the Merger Agreement shall have occurred but there shall be no
material breach of any of the representations or warranties of the
Company contained in Section 2.01 of the Merger Agreement;
(b) there is a material breach by the Company of (1) any
representation or warranty contained in Section 2.01 of the Merger
Agreement or (2) any covenant contained in Article 1 or 3 of the
Merger Agreement;
(c) the parties to the S/O Agreement shall not have voted
for the Merger all of the Shares therein agreed to be voted for the
Merger;
(d) the Company or its Board withdraws, modifies or
amends in any respect adverse to Purchaser its recommendation of
the Merger prior to or during the Special Meeting;
(e) the Company enters into a Business Combination;
(f) the Company enters into one or more agreements or
plans which, individually or in the aggregate, would result in the
sale or other disposition of more than 50% of its total assets or
earning power; or
(g) the directors or shareholders of the Company resolve
to take any action that would result in any of the foregoing or the
Company publicly announces any such action.
In no event will the aggregate amount payable by the Company
to Purchaser pursuant to the above paragraph exceed $360,000. If
any amount becomes payable to Purchaser pursuant to clause (a),
(b), (c) or (d) of the preceding paragraph, it shall be payable
immediately upon termination of the Merger Agreement. If any
amount (or if any additional amount) becomes payable to Purchaser
pursuant to clause (e) through (g) of the preceding paragraph, it
shall be payable at the time of the event mentioned in such clause.
If any such amount is not paid when it becomes due, it shall
thereafter bear interest at the rate of twelve percent (12%) per
annum until it is paid, and Purchaser shall be entitled to recover
all costs and expenses, including reasonable attorneys' fees and
disbursements, incurred in connection with the collection thereof.
The Company shall make any such payment as compensation and
liquidated damages for the loss suffered by Purchaser as a result
of the failure of the Merger to be consummated and to avoid the
difficulty of determining actual damages in that circumstance, and
such payment shall be the sole and exclusive remedy of Purchaser
against the Company and any of its shareholders, directors,
officers, employees, agents, advisors, affiliates or
representatives, regardless of the circumstances giving rise to
such payment. If Purchaser files an action or arbitration
proceeding against the Company to recover any such amount and
Purchaser fails to prevail, it shall pay all costs and expenses,
including reasonable attorneys' fees, incurred by the Company in
connection therewith. The rights, remedies and obligations set
forth in this paragraph shall survive termination of the Merger
Agreement. Notwithstanding the foregoing provisions of this
paragraph, no termination fee shall be payable to Purchaser if a
court injunction or other court action prevents the Merger from
being consummated.
The Merger Agreement also provides that in the event that (a)
the Merger is not consummated, (b) the Company is not in material
breach of any representation or warranty contained in Section 2.01
or any covenant
<PAGE>
contained in Article 1 or 3 of the Merger
Agreement, (c) no shareholder who signed the S/O Agreement is in
material breach of any provision thereof, and (d) Purchaser is in
material breach of any representation or warranty contained in
Section 2.02 or covenant contained in Article 1 or 3 or the Merger
Agreement, Purchaser shall pay to the Company the sum of $360,000
immediately upon termination of the Merger Agreement. If such
amount is not paid when it becomes due, it shall thereafter bear
interest at the rate of twelve percent (12%) per annum until paid,
and the Company shall be entitled to recover all costs and
expenses, including reasonable attorneys' fees and disbursements,
incurred in connection with the collection thereof. Purchaser
shall make any such payment as compensation and liquidated damages
for the loss suffered by the Company as a result of the failure of
the Merger to be consummated and to avoid the difficulty of
determining actual damages in that circumstance, and such payment
shall be the sole and exclusive remedy of the Company against
Purchaser and any of its shareholders, directors, officers,
employees, agents, advisors, affiliates or representatives,
regardless of the circumstances giving rise to such payment. If
the Company files an action or arbitration proceeding against
Purchaser to recover the amount payable under this paragraph and
the Company fails to prevail, the Company shall pay all costs and
expenses, including reasonable attorneys' fees, incurred by
Purchaser in connection therewith. The rights, remedies and
obligations set forth in this paragraph shall survive termination
of the Merger Agreement. Notwithstanding the foregoing provisions
of this paragraph, no termination fee shall be payable to the
Company if a court injunction or other court action prevents the
Merger from being consummated.
Simultaneously with the execution of the Merger Agreement,
Purchaser deposited $360,000 with Harris Trust Savings Bank, as
escrow agent, to secure the possible payment by it of the
Termination Fee as discussed in the preceding paragraph.
No Solicitation
Neither the Company nor any of its officers, directors,
Individual Parties who sign the S/O Agreement, employees,
representatives, agents or affiliates, shall, except as the
Company's Board determines in good faith, after consultation with
legal counsel, that it has an obligation to do otherwise in order
to comply with New York law: (a) directly or indirectly, encourage,
solicit, initiate contact with or participate in any way in any
discussions or negotiations with, or provide any information to, or
afford any access to the properties, books or records of the
Company to, or otherwise assist or facilitate any other person
(other than Purchaser or any affiliate of Purchaser) concerning any
Business Combination, or (b) enter into any understanding,
agreement or arrangement with any third party providing for a
Business Combination. The Company has agreed to promptly notify
Purchaser if any such information is requested from it or any such
negotiations or discussions are sought to be initiated with the
Company and shall promptly provide Purchaser with such information
with respect thereto as Purchaser may request. Notwithstanding
anything in the foregoing to the contrary, this provision of the
Merger Agreement will not prohibit any disclosure by the Company
that is required in any regulatory filing, including this Proxy
Statement, or otherwise required under applicable law. Nothing
shall restrict the Company from responding to a non-solicited
communication that it believes to be a bona fide proposal for a
Business Combination.
See "Agreements and Covenants between the Company and
Purchaser - Termination Fees" above for a description of the
circumstances in which the Company may be required to pay
liquidated damages to the Purchaser.
Regulatory Matters
Pursuant to the Merger Agreement, the Purchaser has
represented that, other than the filing of the
<PAGE>
Certificate of Merger in compliance
with the NYBCL, no notice or report to, filing
with, or authorization, consent or approval of, any public body or
authority is necessary for the execution, delivery and performance
by either the Purchaser or the Merger Company of the Merger
Agreement. The Purchaser further represented that no notification
is required under the Hart-Scott-Rodino Antitrust Improvement Act.
Purchaser and the Company will use their reasonable best efforts to
(a) obtain any consent, authorization, order or approval of any
governmental or regulatory body, (b) have declared effective or
approved all documents and notifications with the Commission and
other governmental regulatory bodies, including the NASD with
respect to NASDAQ, and (c) cause any United States or state court
or other governmental or regulatory body to lift, withdraw or
otherwise cause to cease to have effect any non-final, appealable
judgment, decree or other order which is in effect and prohibits
consummation of the transactions contemplated by the Merger
Agreement that, in the case of (a), (b) or (c) above, are or they
deem necessary or appropriate for the consummation of the Merger
and the transactions provided therein; and each of the Company and
Purchaser shall give the other all information reasonably requested
by such other party pertaining to it and its affiliates reasonably
necessary to enable such other party to take such actions.
Other Agreements
The Merger Agreement contains certain other agreements
including: (i) the Company, Purchaser and the Merger Company shall,
subject to the terms and conditions of the Merger Agreement, use
their reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to
consummate and make effective the Merger, including using their
reasonable best efforts to satisfy the conditions of the Merger
Agreement; (ii) the Company and Purchaser will use their reasonable
best efforts to obtain consents of all third parties and
governmental bodies necessary or, in the opinion of Purchaser,
desirable for the consummation of the transactions contemplated by
the Merger Agreement; and (iii) the respective obligations of the
parties to, (a) prepare and file the Proxy Statement, and (b) call
and hold the Special Meeting, (c) operate the Company's business in
the Ordinary Course prior to the Merger, (d) make news releases or
other public announcements with respect to the Merger only with the
consent of the other parties thereto.
Termination and Amendment
Amendment
The Company, Purchaser and the Merger Company have agreed that
at any time prior to the Effective Time, the Merger Agreement may
be amended, modified or supplemented only by written agreement of
the Company, Purchaser and the Merger Company duly authorized by
their respective Boards of Directors at any time prior to the
Effective Time; provided however, that, after the shareholders of
the Company shall have approved and adopted the Merger Agreement,
no such amendment, modification or supplement shall change the
amount or the form of the Merger Price to be delivered to the
shareholders as contemplated by the Merger Agreement or materially
adversely affect the rights of the shareholders without their
consent or approval.
Termination
The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the
shareholders:
(a) by mutual consent of the Company and Purchaser;
<PAGE>
(b) by Purchaser, upon written notice received by the Company
prior to the date the Proxy Statement is mailed to the shareholders
of the Company (the "Mailing Date"), to the effect that Purchaser
is terminating the Merger Agreement because of materially adverse
information discovered during its due diligence;
(c) by either the Company or Purchaser, upon written notice
to the other, if the Merger has not taken place by December 31,
1995;
(d) by either the Company or Purchaser, upon written notice
to the other, if the shareholders fail to approve the Merger at the
Special Meeting;
(e) by Purchaser, upon written notice to the Company, if more
than ten percent (10%) of the Shares issued and outstanding at the
time of the Special Meeting are Dissenting Shares;
(f) by either Purchaser or the Company, upon written notice
to the other, if the Company or its Board withdraws, modifies or
amends, in any respect that is adverse to Purchaser, its
recommendation of the Merger, so long as, in the case of
termination by the Company, it shall have proffered to Purchaser,
immediately prior to such termination, the amount owing by the
Company as Termination Fees pursuant to the Merger Agreement; or
(g) by either the Company or Purchaser, upon written notice
to the other, if the Company enters into a letter of intent,
agreement in principle or other agreement with any person (other
than Purchaser or its affiliates) relating to a Business
Combination, so long as, in the case of the termination by the
Company, it shall have proffered to Purchaser, immediately prior to
such termination, the amount owing by the Company as Termination
Fees pursuant to the Merger Agreement.
In the event of the termination of the Merger Agreement
pursuant to (a) through (g) above, the Merger Agreement shall
forthwith become void and there shall be no liability or obligation
on the part of Purchaser, Merger Company or the Company or their
respective officers, directors, employees, shareholders, agents,
advisors, affiliates or representatives under the Merger Agreement,
except for Termination Fees payable pursuant to the Merger
Agreement.
<PAGE>
<PAGE>
THE PURCHASE OPTIONS
The following description of the option provisions of the S/O
Agreement is summary in nature, and is qualified in its entirety by
reference to the S/O Agreement which is attached as Appendix "C" to
this Proxy Statement and is incorporated herein by reference. All
shareholders are urged to read the S/O Agreement in its entirety.
General
Pursuant to the S/O Agreement, Purchaser has been granted two
separate options, each for 250,000 Shares. The Individual Parties
have granted to Purchaser an irrevocable right to purchase (the "IP
Option") a total of 250,000 Shares (the "IP Option Shares") at a
purchase price of $6.00 per Share, with each Individual Party
granting the IP Option on the number of his or her Shares set forth
opposite his or her name in column three of Exhibit "A" to the S/O
Agreement. The Company has granted to Purchaser an irrevocable
right to purchase (the "DI Option") a total of 250,000 Shares (the
"DI Option Shares") at the Merger Price. Collectively the IP
Options and the DI Options are referred to as the "Purchase
Options"; the IP Option Shares and the DI Option Shares are
referred to as the "Option Shares"; and the Company, the Individual
Parties and their direct and indirect permitted transferees who or
which acquire any IP Option Shares are referred to as the
"Grantors" .
Exercise of Purchase Options
Purchaser may exercise the Purchase Options, in whole but not
in part, if any of the following events shall have occurred within
six months after the date on which the Merger Agreement shall have
been terminated pursuant to the Merger Agreement (the "Termination
Date"):
(a) a bona fide tender or exchange offer for 50% or more of
the then outstanding shares of the Company's common stock has been
made or has been publicly proposed to be made by another person;
(b) it has been publicly disclosed or Purchaser has learned
that any third party has purchased or otherwise acquired more than
50% of any class or series of capital stock of the Company, or has
been granted any option or right, conditional or otherwise, to
acquire more than 50% of any class or series of the Company's
capital stock; or
(c) it has been publicly disclosed or Purchaser has learned
that any third party has made (i) a bona fide proposal to the
Company or the Company's shareholders to acquire more than 50% of
any class or series of the Company's capital stock, or (ii) a bona
fide written proposal with respect to a Competing Transaction;
provided, however, that if an event described in clause (a), (b) or
(c) above has occurred within six months after the Termination Date
but the transaction referred to therein is not closed within six
months after the Termination Date, Purchaser's right to exercise
the Purchase Options shall be conditioned upon the transaction
described therein being closed. The Grantors agree to notify
Purchaser in writing of any event described in clause (a), (b) or
(c) above, as soon as practicable after the occurrence of such
event and of the date on which the transaction described in such
clause is scheduled to be closed as soon as practicable after the
scheduling thereof. At any time that Purchaser wishes to exercise
the Purchase Options, Purchaser shall send to the Company's office
a written notice (the date on which such notice is sent is referred
to as the "Notice Date") to the Grantors specifying (A) that it
intends to purchase the Option Shares and (B) a place and date not
earlier than three business days nor later than 20 business days
after the Notice Date for the closing (the "Option Closing") of
such purchase (the "Option
<PAGE>
Closing Date"). The Option Closing
shall be held on the Option Closing Date unless, on such date, the
following conditions are not satisfied, in which event the Option
Closing shall be held as soon as practicable following the
satisfaction of such conditions.
Conditions to Delivery of Option Shares
The obligation of the Grantors to deliver the Option Shares on
exercise of the Purchase Options is subject to the conditions that:
(a) no preliminary or permanent injunction or other order
issued by any federal or state court of competent jurisdiction in
the United States prohibiting the delivery of the Option Shares
shall be in effect (each of the Grantors has severally agreed not
to seek any such injunction or order);
(b) any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvement Act shall have expired or been terminated;
and
(c) Purchaser and Merger Company shall not be in material
breach of (or shall not have materially breached) any of their
representations or warranties contained in Article 2, or any of
their covenants contained in Article 3, of the Merger Agreement;
provided, however, that if the event giving rise to the right of
Purchaser to exercise the Purchase Options is a proposal described
in paragraph (a), (b) or (c) above under the preceding caption
"Exercise of Purchase Options", then the Option Closing shall be
conditioned upon the transaction contemplated by that proposal
being consummated, as such proposal may be modified from time to
time, and the Option Closing shall be held immediately prior to the
consummation of such transaction, even though that may occur more
than six months after the Termination Date.
Expiration of Purchase Options
The Purchase Options expire at the earliest of (a) the
Effective Time, (b) the mutual consent of the Grantors and
Purchaser, or (c) six months after the Termination Date; provided,
however, that if a proposal described in "Exercise of Purchase
Option" above is publicly disclosed within six months after the
Termination Date (or if Purchaser receives a written notice from
any Grantor of any such proposal within six months after the
Termination Date) and the Notice Date is within 30 days after such
public disclosure or written notice: (1) the Option Closing shall
be conditioned upon the transaction contemplated by that proposal
being consummated, as such proposal may be modified from time to
time; and (2) the Option Closing shall be held immediately prior to
the consummation of such transaction, even though that may occur
more than six months after the Termination Date.
Right to Put DI Option
If Purchaser exercises the Purchase Options and the event
giving rise to the right of Purchaser to exercise the Purchase
Options is a proposal described in paragraph (a), (b) or (c) under
the above caption entitled "Exercise of Purchase Options",
Purchaser may, at any time prior to the closing of the transaction
contemplated by that proposal, elect in a written notice to the
Company to put the DI Option to the Company immediately prior to
the closing of such transaction, contingent upon such transaction
being closed, for a price payable to Purchaser in cash equal to the
product of (a) the number of DI Option Shares times (b) the excess
of the Competing
<PAGE>
Transaction Price over the Purchase Price. As
used herein, "Competing Transaction Price" means the amount of cash
and the fair market value of all other consideration per Share to
be received by the shareholders at or as a result of the closing of
the Competing Transaction.
OWNERSHIP OF SHARES
5% Shareholders
The following table sets forth, except as stated in the notes
hereto, Shares beneficially owned by beneficial owners of more than
5% of the Shares as of July 24, 1995:
Name and Address of Amount and Nature of Percent of
Beneficial Owner: Beneficial Ownership Class
Sol Schwartz(1)(3)(4) 234,934 8.2%
143 Hewlett Neck Rd.
Woodmere, NY 11598
Joseph Rubenfeld(2)(3) 316,779 11.0%
3324 SW 57th Place
Ft. Lauderdale, FL 33312
Heartland Advisors, Inc. 319,500 11.1%
790 N. Milwaukee Street
Milwaukee, WI 53202
Sol and Gertrude Schwartz Unitrust - 218,000 7.6%
Stephen D. Solender Trustee -
UJA Federation (4)
130 East 59th Stret
Room 737
New York, NY 10022
_________
(1) Includes 13,765 Shares owned of record by his wife.
(2) Includes 117,714 Shares owned of record by his wife and 17,200
owned with his wife as joint tenants.
(3) Amount of Shares excludes options owned which will be canceled
in exchange for cash payments. See "The Merger - Interest of
Certain Persons in the Merger"
(4) A charitable irrevocable unitrust was created June 30, 1995 and
includes 218,000 Shares transferred from Sol Schwartz. The 218,000
Shares are not included in the Shares set forth above for Sol Schwartz
as neither Sol Schwartz nor Gertrude Schwartz has the power to vote,
or to direct the voting of, or the power to dispose or to direct the
disposition of such Shares. Gertrude Schwartz is Sol Schwartz's wife.
<PAGE>
Shares Owned by Management
The following table sets forth Shares beneficially owned by
management as July 24, 1995:
<TABLE>
<CAPTION>
Amount and Nature of
Percent of
Name and Address Office Beneficial Ownership
Class
<S> <C> <C>
<C>
Martin Hoffman(5) President and Director 81,000
2.8%
c/o the Company
2101 Jericho Turnpike
New Hyde Park, NY 11042
Dr. Frank Buchsbaum(1)(5) Executive Vice President 60,622
2.1%
c/o the Company and Director
2101 Jericho Turnpike
New Hyde Park, NY 11042
Sol Schwartz(2)(5)(6) Director 234,934
8.2%
143 Hewlett Neck Rd.
Woodmere, NY 11598
Joseph Rubenfeld(3)(5) Director 316,779
11.0%
3324 SW 57th Place
Ft. Lauderdale, FL 33312
Dr. Hitoshi Tanaka(4)(5) Senior Vice President 62,212
2.2%
c/o the Company
2101 Jericho Turnpike
New Hyde Park, NY 11042
___________________
(1) Excludes 45,900 Shares owned of record by his wife.
(2) Includes 13,765 Shares owned of record by his wife.
(3) Includes 117,714 Shares owned of record by his wife and 17,200
owned of record with his wife as joint tenants.
(4) Includes 1,000 Shares owned of record by his wife.
(5) Amount of Shares excludes options owned which will be canceled
in exchange for cash payments. See "The Merger - Interest of
Certain Persons in the Merger"
(6) See note (4) in the above table relating to 5% shareholders.
</TABLE>
All executive officers and directors as a group (5 persons) are the
beneficial owners of 755,547 Shares as of the date of this Proxy
Statement which represents 26.3% of the outstanding Shares of the
Company.
Since May 30, 1995, the directors transferred a total of 41,724 Shares
to their adult children and 328,023 Shares to various charities including
irrevocable trusts pursuant to which the directors are entitled to income,
however such directors do not have the power to vote, or to direct the voting
of, or the power to dispose or to direct the disposition of such Shares.
The Shares transferred are excluded from the ownership of Shares by
management. See also note (4) in the above table relating to 5%
shareholders.
<PAGE>
<PAGE>
APPRAISAL RIGHTS
The rights of shareholders who dissent in connection with the
Merger are governed by specific legal provisions contained in
Section 623 of the NYBCL, the text of which is attached as Appendix
"B" hereto. The description of appraisal rights contained in this
Proxy Statement is qualified in its entirety by reference to that
Section of the NYBCL.
If the Merger is consummated, shareholders who have fully
complied with the provisions of Section 623 of the NYBCL
("Dissenting Holders") have the right to require the Company, as
the Surviving Corporation, to pay them the fair value of their
Shares. Any Shares which are outstanding immediately prior to the
Effective Time and which are held by shareholders who (a) have not
voted such Shares in favor of the Merger and (b) have delivered to
the Company a written objection to the Merger in the manner and
within the time provided for in Section 623 of the NYBCL will not
be converted into the right to receive, and will not be
exchangeable for, the Merger Price, but instead the holders thereof
will be entitled to payment of the fair value of their Dissenting
Shares in accordance with Section 623 of the NYBCL. If, however,
(1) any holder of Dissenting Shares shall subsequently deliver a
written withdrawal of such holder's demand for the payment of the
fair value of his Dissenting Shares (with the written approval of
the Surviving Corporation if such withdrawal is not received by the
Surviving Corporation within 60 days after the Effective Time) at
any time prior to his acceptance in writing of an offer made by the
Surviving Corporation pursuant to paragraph (g) of such Section
623, or (2) if any holder fails to establish such holder's
entitlement to appraisal rights as provided in such Section 623, or
(3) if neither any holder of Dissenting Shares nor the Company, as
the Surviving Corporation, has instituted a special proceeding to
determine the rights of the holders of Dissenting Shares and to fix
the fair value of Dissenting Shares within the periods provided in
such Section 623, such holder or holders shall forfeit the right to
appraisal of such Shares and such Shares shall thereupon be deemed
to have been converted into the right to receive the Merger Price,
as of the Effective Time, without interest.
FAILURE TO TAKE ANY STEPS REQUIRED BY SECTION 623 OF THE NYBCL WILL
RESULT IN A TERMINATION OR WAIVER OF THE RIGHTS OF THE SHAREHOLDER
UNDER SECTION 623 OF THE NYBCL.
The required steps are summarized below:
1. A shareholder intending to enforce his right under
Section 623 shall file with the Company, before the taking of the
vote on the Merger, a written objection to the Merger. A proxy or
vote against adoption of the Merger does not constitute such a
demand. A shareholder electing to take such action must do so by
a separate written demand that shall include a notice of the
shareholder's election to dissent, name and residence address, the
number of shares as to which he dissents and a demand for payment
of the fair value of his shares if the Merger is approved by the
shareholders.
2. Any shareholder who voted for or consented in writing
to the Merger Agreement is deemed to have elected not to enforce
his right to receive payment of the fair value of his Shares.
3. Only a holder of record of Shares is entitled to
assert appraisal rights for the Shares registered in that holder's
name. The demand should be executed by or for the holder of
record, fully and correctly, as the holder's name appears on the
holder's stock certificates. If the Shares are owned of record in
a fiduciary capacity, such as by a trustee, guardian or custodian,
execution of the demand should be made in that capacity, and if the
Shares are owned of record by more than one person, as in
<PAGE>
a joint tenancy or tenancy in common, the demand should be executed by or
for all owners. An authorized agent, including one or two or more
joint owners, may execute the demand for appraisal for a holder of
record; however, the agent must identify the record owner or owners
and expressly disclose the fact that, in executing the demand, the
agent is acting as agent for the record owner or owners.
A record holder, such as a broker, who holds Shares as
nominee for the beneficial owners may exercise the holder's right
of appraisal with respect to the Shares held for all or less than
all of such beneficial owners. In such case, the written demand
should set forth the number of Shares covered by it. Where no
number of Shares is expressly mentioned, the demand will be
presumed to cover all Shares standing in the name of the record
owner.
4. A shareholder may not dissent as to less than all of
the Shares, as to which he has a right to dissent, held by him of
record, that he owns beneficially. A nominee or fiduciary may not
dissent on behalf of any beneficial owner as to less than all of
the Shares of such owner, as to which such nominee or fiduciary has
a right to dissent, held of record by such nominee or fiduciary.
5. Within 10 days after the date on which the
shareholders' vote authorizing the Merger was taken, the Company is
required to send notice as to the authorization of the Merger to
each Dissenting Holder who satisfied the foregoing conditions.
6. At the time of filing the notice of election to
dissent or within one month thereafter the Dissenting Holder shall
submit the certificates representing his Dissenting Shares to the
Company, or the Company's transfer agent, which shall forthwith
note conspicuously thereon that a notice of election to dissent has
been filed. Any Dissenting Holder who fails to submit his
certificates for such notation shall, at the option of the Company
exercised by written notice to him within 45 days from the date of
filing of such notice of election to dissent, lose his dissenter's
rights under Section 623 of the NYBCL,unless a court, for good
cause shown, shall otherwise direct.
7. Within 15 days after the Effective Time, the
Surviving Corporation shall make a written offer (the "Offer") by
registered mail to each Dissenting Holder to pay for his Dissenting
Shares at the Merger Price. Such offer shall be accompanied by a
statement setting forth the aggregate number of shares with
respect to which notices of election to dissent have been received
and the aggregate number of Dissenting Holders, in addition to: (a)
an advance payment to each Dissenting Holder who has submitted the
certificates representing his Dissenting Shares to the Company, the
Company's transfer agent or the Surviving Corporation if
appropriate, as provided in paragraph 6 above and paragraph (f) of
Section 623 of the NYBCL, of an amount equal to 80% of such offer
(or $4.80 per share); or (b) as to each Dissenting Holder who has
not yet submitted his certificates, a statement that an advance
payment to him of an amount equal to 80% of the amount of such
offer shall be made to him by the Surviving Corporation promptly
upon the submission of his certificates, as provided in paragraph
6 above and paragraph (f) of Section 623 of the NYBCL.
8. Every such payment or statement as to an advance
payment as provided in paragraph 7 above shall include advice to
the Dissenting Holder involved to the effect that acceptance of
such payment does not constitute a waiver of any dissenters's
rights, as required by paragraph (g) of such Section 623.
9. If, within 30 days after making of the Offer, the
Surviving Corporation and the Dissenting Holder agree upon the
price to be paid for his Shares, payment therefor shall be made
within 60 days
<PAGE>
after the making of such offer or the consummation
of the Merger, whichever is later, upon the surrender of the
certificates for any such Shares.
10. If the Dissenting Holder and the Surviving
Corporation do not agree upon the Offer within 30 days, the
Surviving Corporation shall within 20 days institute a special
proceeding in the supreme court in the judicial district in which
the office of the Surviving Corporation is located to determine the
rights of the Dissenting Holder and to fix the fair value of their
Dissenting Shares. If the Surviving Corporation fails to institute
such proceeding within such period of 20 days, any Dissenting
Holder may institute such proceeding for the same purpose not later
than 30 days after the expiration of such 20 day period. If such
proceeding is not instituted within such 30 day period, all
dissenter's rights shall be lost unless the supreme court, for good
cause shown, shall otherwise direct.
Any demands, notices, certificates or other documents required
to be delivered to the Company or the Surviving Corporation may be
sent to the Office of the Secretary, 2101 Jericho Turnpike, Box
5416, New Hyde Park, New York 11042-5416.
RESTRICTIONS ON TRANSFER OF SHARES
The Company is not aware of any restriction on the
transfer of any of its Shares except restrictions that may be
imposed upon shareholders who are deemed to be "affiliates" of the
Company as that term is defined in Rule 144 adopted by the SEC
under the Securities Act of 1933, as amended (the "Act"), and/or
those who received Shares in private transactions exempt from the
registration requirements of the Act, pursuant to Section 4(2) of
the Securities Act. Those shareholders who believe there is some
such restriction affecting their Shares should consult with their
own legal counsel as to the nature and extent of any appraisal
rights they may have.
FINANCING THE MERGER
Pursuant to the Merger Agreement, Purchaser has covenanted
(and will maintain at all times until the Closing or termination of
the Merger Agreement) that it will have a net worth of at least
$360,000; it has deposited that amount in cash in an escrow account
at Harris Trust and Savings Bank pursuant to an Escrow Agreement
among Purchaser, the Company and Harris Trust dated July 6, 1995.
Purchaser has also provided the Company with a binding commitment
from DD&D to provide up to $20,000,000 to pay all costs and
expenses required to consummate the transactions contemplated by
the Merger Agreement, including the payment of the Merger Price for
all of the Shares, contingent only upon the Closing occurring, if
other financing is not available to Purchaser by the Closing Date.
Purchaser has agreed that upon consummation of the Merger and the
completion of all financing obtained by the Purchaser in connection
with the transactions contemplated by the Merger Agreement, the
Company will have a minimum shareholder's equity of at least
$2,000,000, on a consolidated basis, determined in accordance with
generally accepted accounting principal consistently applied,
disregarding any goodwill or other intangible assets that may arise
in connection with the transactions contemplated by the Merger
Agreement.
<PAGE>
<PAGE>
MARKET PRICE FOR SHARES; DIVIDENDS
The Shares have been principally traded under the NASDAQ /
National Market System ("NMS") under the symbol DSGT since June 29,
1994. Prior thereto, the Company's common stock was traded on the
American Stock Exchange. The following table sets forth the high
and low sales prices for the Company's common stock as reported for
the calendar periods indicated.
Company
Shares
Fiscal Period ended August 31 High Low
1993
1st Quarter 1 3/4 1 5/16
2nd Quarter 3 15/16 1 1/2
3rd Quarter 3 7/16 2 9/16
4th Quarter 4 7/8 2 15/16
1994
1st Quarter 5 1/2 3 11/16
2nd Quarter 4 3/4 3 1/2
3rd Quarter 4 7/8 3 13/16
4th Quarter 5 4 1/8
1995
1st Quarter 4 7/8 4 1/8
2nd Quarter 4 7/8 4 3/8
3rd Quarter 5 4 1/2
4th Quarter (through
July 26, 1995) 6 1/8 4 1/2
On June 2, 1995, the last trading day before the public
announcement by the Company that it had entered into the Letter of
Intent, the high and low sales prices for the Shares on NASDAQ /
NMS were 5 1/4 and 4 1/2 respectively.
On July 6, 1995, the last trading day before the public
announcement by the Company that it had entered into the Merger
Agreement, the high and low sales prices for the Shares on NASDAQ
/ NMS were 5 3/4 and 5 1/4 respectively.
On July 26, 1995, the high and low sales prices for the Shares
on NASDAQ / NMS were 5 1/2 and 5 3/8 respectively.
Shareholders are advised to obtain current market quotations
for the Shares.
The approximated number of record holders of the Shares as of
July 24, 1995 was 707.
The terms of the Merger Agreement limit the Company's ability
to pay dividends and the Company's Revolving Credit Agreement with
the Bank dated as of November 9, 1993 which terminates on November 8,
<PAGE>
1996 (or November 8, 1997 if extended by the Company) prohibits
the declaration or payment of any cash dividends on the Company's
common stock. The Company has not paid any cash dividend since its
incorporation.
MANAGEMENTS DISCUSSION AND ANALYSIS AND SEGMENT INFORMATION
Reference is made to Item 6 of the Form 10-KSB for the fiscal
year ended August 31, 1994, Exhibit "1" and Managements Discussion
and Analysis of the financial condition and the results of
operations contained in the Form 10-QSB for the quarterly period
ended May 31, 1995. Reference is also made to Note (j) to the
financial statements contained in the Form 10-KSB for the fiscal
year ended August 31, 1994, which is attached hereto as Exhibit
"1", for segment information applicable to the Company.
EXPENSES
The Company, Purchaser and the Merger Company have agreed that
each party shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the Merger Agreement and the
transactions contemplated thereby, including the fees and expenses
of their own financial consultants, accountants and counsel.
INDEPENDENT AUDITORS
Representatives of Cornick, Garber & Sandler, LLP, the
Company's independent auditors are expected to be present at the
Special Meeting with the opportunity to make a statement if they
desire to do so, and shall be available to respond to appropriate
questions.
PROCEDURE FOR SUBMISSION OF 1995 SHAREHOLDER PROPOSALS
If the Merger is not consummated, the Company intends to hold
a 1995 Annual Meeting of shareholders. Any shareholder wishing to
include proposals in the proxy materials for such meeting must meet
the requirements of the rules of the Commission relating to
shareholders' proposals. Such proposals must be received by the
Secretary of the Company in writing at the principal executive
offices of the Company prior to September 30, 1995.
OTHER MATTERS
So far as the board of directors is aware, only the
aforementioned matters will be acted upon at the meeting. If any
other matters properly come before the meeting, it is intended that
the accompanying proxy may be voted on such other matters in
accordance with the best judgment of the person or persons voting
said proxy.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Exchange Act, and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Copies
of such reports, proxy statements and other information can be
obtained, at prescribed rates, from the Public Reference Section
of the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. In addition, such reports, proxy
statements and other information can be inspected and copied at the
public reference facilities referred to above and at the Regional
Offices of the Commission as follows: the New York Regional Office,
7 World Trade Center, New York, New York 10048; and the Chicago
Regional Office, Suite 1400, 500 West Madison Avenue, Chicago,
Illinois 60661.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the
Commission are incorporated in this Proxy Statement by reference:
1. the Company's Annual Report on Form 10-KSB for the fiscal
year ended August 31, 1994;
2. the Company's Proxy Statement dated December 5, 1994;
3. the Company's Quarterly Report on Form 10-QSB for the
quarter ended November 30, 1994;
4. the Company's Quarterly Report on Form 10-QSB for the
quarter ended February 28, 1995;
5. the Company's Quarterly Report on Form 10-QSB for the
quarter ended May 31, 1995; and
6. the Company's Current Reports on Form 8-K dated June 5,
1995.
The Company is delivering, without charge and without exhibits
thereto, to each shareholder receiving a copy of this Proxy
Statement, a copy of the Company's Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1994, the Company's Proxy
Statement dated December 5, 1994 and the Company's Quarterly Report
on Form 10-QSB for the quarter ended May 31, 1995 which are annexed
hereto as Exhibits "1", "2" and "3" respectively.
All documents filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date of this
Proxy Statement and prior to the Special Meeting shall be deemed to
be incorporated by reference into this Proxy Statement and to be a
part hereof from the date of filing of such documents.
This Proxy Statement incorporates documents by reference which
are not presented herein or delivered herewith. Copies of such
documents relating to the Company, other than exhibits to such
documents unless such exhibits are specifically incorporated by
reference therein, are available without charge, upon written or
oral request, from the Secretary of the Company, 2101 Jericho
Turnpike, Box 5416, New Hyde Park, New York 11042-5416, telephone
(516) 328-3300. In order to ensure timely delivery of such
documents, any request should be made seven days before the date of
the Special Meeting.
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF THE COMPANY
Page
CONSOLIDATED FINANCIAL STATEMENTS (AUDITED)
Independent Auditors' Report F-1
Balance Sheet as at August 31, 1994 F-2
Statements of Operations for each of the Two
Years in the Period Ended August 31, 1994 F-3
Statements of Changes in Shareholders' Equity for
each of the Two Years in the Period Ended
August 31, 1994 F-4
Statements of Cash Flows for each of the Two Years
in the Period Ended August 31, 1994 F-5, F-6
Notes to Financial Statements F-7 to F-19
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets as of May 31, 1995 and
August 31, 1994 F-20
Statements of Operations for the Third
Quarter and Nine Months ended
May 31, 1995 and 1994 F-21
Statements of Cash Flows for the Nine
Months ended May 31, 1995 and 1994 F-22
Notes to Financial Statements F-23
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Designatronics Incorporated
New Hyde Park, New York
We have audited the accompanying consolidated balance sheet of
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES as at August 31, 1994 and
the related consolidated statements of operations, shareholders'
equity and cash flows for each of the two years in the period then
ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require
that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the consolidated
financial position of Designatronics Incorporated and Subsidiaries
as at August 31, 1994 and the results of their
operations and their cash flows for each of the two years in the
period then ended, in conformity with generally accepted
accounting principles.
/s/Cornick, Garber & Sandler, LLP
CERTIFIED PUBLIC ACCOUNTANTS
Uniondale, New York
October 21, 1994
F-1
<PAGE>
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT AUGUST 31, 1994
<TABLE>
<CAPTION
ASSETS
<S> <C>
Current assets:
Cash $ 265,618
Accounts receivable, less $65,000
allowance for doubtful accounts 3,294,710
Inventories (Notes A and C) 8,209,236
Prepaid expenses 260,540
Deferred income taxes (Note F) 789,400
Total current assets 12,819,504
Property, plant and equipment, less accumulated
depreciation (Notes A and D) 1,505,743
Other assets 323,678
T O T A L $14,648,925
LIABILITIES
Current liabilities:
Accounts payable $ 715,188
Accrued salaries and wages 476,461
Accrued expenses and other current liabilities 1,097,785
Accrued severance costs (Note B) 422,081
Income taxes payable (Note F) 284,371
Total current liabilities 2,995,886
Deferred income taxes (Note F) 82,100
Other liabilities 13,572
Total liabilities 3,091,558
Commitments and contingencies (Notes E, G, H, I and K)
SHAREHOLDERS' EQUITY
(NOTE H)
Common stock, $.04 par value; authorized 5,000,000
shares; issued 2,985,511 shares 119,421
Additional paid-in capital 9,402,471
Retained earnings 2,266,829
11,788,721
Less 112,088 shares of treasury stock, at cost (231,354)
Total shareholders' equity 11,557,367
T O T A L $14,648,925
</TABLE>
The notes to financial statements are made a part hereof.
F-2
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended August 31,
1994 1993
<S> <C> <C>
Net sales $25,011,440 $23,650,398
Cost of sales 15,381,494 14,724,851
Gross profit 9,629,946 8,925,547
Selling, general and administrative expenses 7,473,455 7,056,277
Income before other income (expense),
income taxes and discontinued operations 2,156,491 1,869,270
Other income (expense):
Interest expense (47,298) (165,315)
Miscellaneous income (Note B) 110,849 193,022
Income from continuing operations
before income tax provision 2,220,042 1,896,977
Income tax provision (Note F) 800,000 693,000
Income from continuing operations 1,420,042 1,203,977
Gain on disposal of discontinued segment,
less $270,000 of income tax (Note B) 551,381
Income before extraordinary item 1,420,042 1,755,358
Extraordinary item:
Income tax benefit from utilization of
net operating loss carryforwards 824,000
NET INCOME $ 1,420,042 $ 2,579,358
Income per common share:
Continuing operations $.49 $.42
Discontinued operations .19
Extraordinary item .29
Net income $.49 $.90
Weighted average number of shares
outstanding (Note A) 2,873,435 2,866,972
</TABLE>
The notes to financial statements are made a part hereof.
F-3
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1994 AND 1993
<TABLE>
<CAPTION>
Additional Retained
Treasury Stock Total
Common Stock Paid-in Earnings
(At Cost) Shareholders'
Shares Amount Capital (Deficit)
Shares Amount Equity
<S> <C> <C> <C> <C> <C>
<C> <C>
BALANCE - AUGUST 31,
1992 2,955,511 $118,221 $9,358,671 $(1,732,571) 112,073
$(231,287) $ 7,513,034
Exercise of stock
options 30,000 1,200 43,800
45,000
Net income 2,579,358
2,579,358
BALANCE - AUGUST 31,
1993 2,985,511 119,421 9,402,471 846,787 112,073
(231,287) 10,137,392
Purchase of treasury stock 15
(67) (67)
Net income 1,420,042
1,420,042
BALANCE - AUGUST 31,
1994 2,985,511 $119,421 $9,402,471 $ 2,266,829 112,088
$(231,354) $11,557,367
</TABLE>
The notes to financial statements are made a part hereof.
F-4
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION
Year Ended August 31,
INCREASE (DECREASE) IN CASH 1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $1,420,042 $2,579,358
Adjustments to reconcile results of operations
to net cash effect of operating activities:
Provision for losses on accounts receivable 19,433 65,576
Gain on sale of fixed assets (1,238) (8,951)
Deferred income taxes 57,000 (336,000)
Depreciation and amortization 482,107 500,088
Reversal of accrued future losses of
discontinued segment (212,424)
Net changes in assets and liabilities:
Accounts receivable (522,539) 468,293
Inventories (608,887) 125,291
Prepaid expenses (35,810) 259,351
Other assets (4,512) (40,779)
Accounts payable (46,420) (398,527)
Accrued expenses, salaries and wages and
other current liabilities (433,827) (112,359)
Income taxes payable (136,933) 336,250
Total adjustments (1,231,626) 645,809
Net cash provided by
operating activities 188,416 3,225,167
</TABLE>
(Continued)
F-5
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-2-
<TABLE>
<CAPTION>
Year Ended August 31,
1994 1993
<S> <C> <C>
Cash flows from investing activities:
Expenditures for fixed assets $ (281,333) $ (454,731)
Proceeds from sale of equipment 18,000 22,600
Redemptions of temporary investments 424,334
Net cash used for investing
activities (263,333) (7,797)
Cash flows from financing activities:
Proceeds from exercise of stock options 45,000
Purchase of treasury stock (67)
Reduction of cash overdrafts (377,886)
Proceeds of long-term debt 886,012
Reduction of long-term debt and
other long-term liabilities (3,585,552)
Net cash used for financing
activities (67) (3,032,426)
NET INCREASE (DECREASE) IN CASH (74,984) 184,944
Cash - September 1 340,602 155,658
CASH - AUGUST 31 $ 265,618 $ 340,602
Supplemental disclosures of cash
flow information:
Cash paid during year for:
Interest $ 112,800 $ 108,380
Income taxes $ 880,148 $ 138,750
</TABLE>
The notes to financial statements are made a part hereof.
F-6
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which
are wholly-owned. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
Inventory Valuation:
Inventories are stated at lower of cost (first-in,
first-out) or market.
Depreciation and Amortization:
Depreciation is provided for financial accounting
purposes on the straight-line method at rates which are
designed to write off the assets over their estimated
useful lives. For income tax purposes, depreciation is
computed substantially by use of accelerated methods.
Leasehold improvements are amortized over the terms
of their applicable leases or their useful lives,
whichever is less.
Income Taxes:
The Company and its domestic subsidiaries file a
consolidated federal income tax return.
Effective September 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). Previously,
the Company had accounted for income taxes
under the provisions of Accounting Principles Board
Opinion No. 11. The adoption of SFAS 109 changed
the Company's method of accounting for income taxes
from the deferred method to the asset and liability
method. Under SFAS 109, deferred tax liabilities and
assets are determined based on the difference between
the financial statement carrying amounts and tax bases
of assets and liabilities using enacted tax rates in
effect in the years in which the differences are
expected to reverse. This change in accounting for income
taxes had no material effect on the net balance of the
Company's deferred income tax assets at September
1, 1993 or on its provision for income taxes for the
year ended August 31, 1994. The prior year's financial
statements have not been restated to apply the
provisions of SFAS No. 109; if such restatement were made,
the income tax benefit from the utilization of prior
year's carryforwards would not have been reported as an
extraordinary item but would have been reported as a
separate component of net income and income per share
on that year's statement of operations.
(Continued)
F-7
<PAGE>
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-2-
NOTE A - Summary of Significant Accounting Policies (Continued):
Income Taxes (Continued):
On January 1, 1985, the Company formed a wholly-owned
subsidiary which qualifies as a "Foreign Sales
Corporation" (FSC) under the Internal Revenue Code and,
accordingly, only a portion of such earnings is
subject to federal income tax. Distributions from the
FSC are subject to the 100% dividend exclusion for
federal income tax purposes.
Income Per Share:
Per share amounts are based on income for each year,
divided by the weighted average number of shares
outstanding during such year. The effect of outstanding
stock options was immaterial in both 1994 and 1993
and, accordingly, these options were not included in
the computations.
Research and Development Costs:
Research and development costs are charged to expense
in the year incurred. The amounts expensed for the
years ended August 31, 1994 and 1993 were approximately
$118,000 and $126,000, respectively.
Joint Venture:
In October 1985, the Company formed a joint venture
(Western Components Sales North, Inc.) for the
distribution of mechanical, electronic and electrical
components related to motion control and robotics. The
Company's investment in the venture was $50,000. The
Company recorded under the equity method its share
of the venture's income, which was approximately $600
and $2,000 for the two years ended August 31, 1994
and 1993, respectively. Such share of profits or
losses has been adjusted by 50% of intercompany profits
on sales to the joint venture of merchandise held in
its inventory at year end. The Company's share of
undistributed earnings of the joint venture amounts to
approximately $6,200 as of August 31, 1994. Sales
to the joint venture were $430,000 and $449,000 for the
two years ended August 31, 1994, respectively.
Accounts receivable includes approximately $87,000 due
from the joint venture at August 31, 1994.
(Continued)
F-8
<PAGE>
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-3-
NOTE B - Discontinued Business Segment:
In 1992, the Board of Directors approved a plan to
discontinue the electronic components segment of the
Company's business, which was comprised of the assets
and operations of its Accusonics Systems Corp.,
Automatic Coil Corp. and Automatic Accusonic Haiti
subsidiaries.
As part of the plan of discontinuation, the Company sold
the inventory and fixed assets of Accusonics
Systems Corp. for $287,615 in 1992, of which $60,000 was
paid in cash with the balance represented by
11% notes receivable over four years commencing in
September 1992. These notes are collateralized
by the assets of the purchaser. The uncollected
portion of the notes receivable, which aggregate
$172,864 at August 31, 1994, is not being reported as
income until received because the purchaser is a thinly
capitalized entity owned by certain former
employees of the Company and its ability to pay the notes is
dependent primarily on its future operations. Under
the terms of the notes, the uncollected balance
is due $106,538 in fiscal 1995 and $66,326 in
fiscal 1996. Other income on the statements of operations
includes approximately $75,000 in 1994 and
$31,000 in 1993, representing principal and interest received on
the notes.
Rather than gradually phase out the operations of
Automatic Coil Corp. as originally planned, in January
1993 its inventory and fixed assets were sold and its
operations ceased. This, together with the sale of other
assets and the settlement of certain liabilities on
terms more favorable than originally estimated, resulted in
a $551,381 net gain in fiscal 1993, comprised of the
following:
(Continued)
F-9
<PAGE>
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-4-
NOTE B - Discontinued Business Segment (Continued):
Earnings from Automatic Coil Corp.
operations from September 1, 1992
to January 22, 1993 $370,944
Reversal of loss from phaseout of
Automatic Coil Corp. operations
previously estimated and accrued 212,424
Gain from sales of assets and settlement
of liabilities 238,013
Total 821,381
Less related income tax effect 270,000
Total $551,381
In connection with the discontinuance of these
operations, the Company terminated the employment contracts
of its then President and Executive Vice President. In
accordance with their contracts, they are each being
paid $470,000 in severance benefits, plus $75,000 in
fringe benefits, the total of which was accrued at
August 31, 1992. Severance benefits payable at August
31, 1994 aggregating $267,000 are evidenced by
promissory notes which bear interest at the rate
charged by the Company's lending bank and are expected
to be paid in November 1994.
NOTE C - Inventories:
Inventories at August 31, 1994 are summarized as follows:
Raw materials $ 940,250
Work-in-process and semi-
finished components 531,801
Finished stock 6,737,185
Total $8,209,236
(Continued)
F-10
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-5-
NOTE D - Property and Equipment:
A summary of the costs and the related estimated lives
is as follows:
Estimated
Useful Life
(Years)
Machinery and equipment $3,845,220 8
Molds and tooling 658,380 3
Furniture and fixtures 787,162 8
Computer equipment 1,189,766 5
Leasehold improvements 1,019,752 5-10
Automotive equipment 217,668 4
Total 7,717,948
Less accumulated depreciation 6,212,205
Balance $1,505,743
NOTE E - Long-Term Debt:
The Company's three year revolving loan facility, which
expires in November 1996 and is renewable for an
additional year at the Company's option, provides for
borrowings up to $5,000,000. Interest is payable at
the Company's option at either the bank's prime lending
rate or at 2.1% above the LIBOR rate. The
Company also agreed to pay a facility fee of 1/4 of 1%
on the unused portion of the loan and an origination
fee of $5,000. The loan is unsecured, however, should
the Company not meet certain financial covenants,
the loan will become collateralized by all the assets
of the Company.
(Continued)
F-11
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-6-
NOTE E - Long-Term Debt (Continued):
The agreement provides, among other restrictions, that
the Company cannot declare or pay cash dividends
or borrow from other lenders. The agreement also
contains covenants, including those relating to the
maintenance of working capital and net tangible asset
levels, maintenance of working capital and debt to net
worth ratios, as well as restrictions regarding capital
expenditures.
NOTE F - Income Taxes:
Income taxes are comprised of the following:
Year Ended August 31,
1994 1993
Currently payable
Federal $621,000 $ 388,000
State 122,000 87,000
743,000 475,000
Deferred 57,000 (336,000)
Net provision $800,000 $ 139,000
Income taxes are included in the statement of
operations for the year ended August 31, 1993 as follows:
Charged to continuing
operations $ 693,000
Charged to discontinued
operations 270,000
Benefit from net operating
loss carryforwards re-
flected as extraordinary
income (824,000)
Net provision $ 139,000
(Continued)
F-12
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-7-
NOTE F - Income Taxes (Continued):
Temporary differences which give rise to a significant
portion of deferred tax assets and liabilities as at
August 31, 1994 are:
Deferred tax assets:
Allowance for estimated doubtful
accounts $ 25,000
Tax basis adjustments to
inventory 558,500
Accrued severance pay and benefits 40,900
Accrued vacation pay 82,900
Reserve on note receivable 66,700
Other 15,400
Total deferred tax assets $789,400
Deferred tax liability:
Accelerated versus straight-
line depreciation of
property and equipment $82,100
(Continued)
F-13
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-8-
NOTE F - Income Taxes (Continued):
The variation in the customary relationship between the
provision for income taxes and pretax income from
continuing operations is as follows:
Percentage of Pretax Income
Year Ended August 31,
1994 1993
Computed "expected" federal
income tax provision 34.0% 34.0%
Effect on federal income tax
of earnings of the FSC (1.8) (1.6)
State income taxes, net of federal
income tax benefits 3.6 4.0
Other .2 .1
Income tax provision 36.0% 36.5%
NOTE G - Commitments and Contingencies:
(1) Lease Commitments:
The Company rents manufacturing, warehouse and
office space under operating leases expiring at
various dates through September 2004. The Company
is obligated to pay all realty operating
expenses and real estate taxes in addition to the
annual rent. The minimum annual rentals are as
follows:
Year ending August 31:
1995 $ 379,000
1996 379,000
1997 383,000
1998 412,000
1999 418,000
Thereafter 2,207,000
Total $4,178,000
(Continued)
F-14
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-9-
NOTE G - Commitments and Contingencies (Continued):
(1) Lease Commitments (Continued):
Rent expense applicable to continuing operations
was as follows:
Year Ended August 31,
1994 1993
Real property $588,000 $600,000
Personal property 4,000
Total 588,000 604,000
Less sublease income (40,000) (39,000)
Net $548,000 $565,000
The Company is subleasing certain premises to the
new owners of its former Accusonics operation
to March 1996 at an annual rental of approximately
$40,000.
Certain operating leases were with an entity whose
principal owners are or were officers of the
Company. Payments relating to these leases were
$4,000 for the year ended August 31, 1993. During
the year ended August 31, 1993, the Company
purchased for $40,000 a machine that was previously
leased from the affiliate.
(2) Employment Agreements:
The Company's employment agreements with three
officers provide for aggregate annual salaries of
not less than $488,000 a year to be paid through
November 1995. These agreements provide that if
there is a change of control (as defined) in the
Company and the agreements are not extended, the
Company could be liable for lump-sum payments of
between $200,000 to $265,000 to each officer,
based on the price of the stock when the change in
control occurs.
NOTE H - Shareholders' Equity:
Incentive Stock Option Plans:
In February 1993, the shareholders approved the
Company's 1993 incentive stock option plan, which
provides for the granting of options to key employees
to purchase up to 100,000 shares of common stock
at not less than fair market value at the date of
grant. Options may be exercised beginning one year from the
date of grant and may not exceed 10 years from the date
of grant. At August 31, 1994, options to purchase
25,000 shares at $3.69 a share are outstanding.
(Continued)
F-15
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-10-
NOTE H - Shareholders' Equity (Continued):
Incentive Stock Option Plans (Continued):
In January 1994, the shareholders' approved the 1993
Executive Officer Incentive Stock Option Plan. The
plan provides for the granting of options to purchase
up to 250,000 shares of common stock. Options are
automatically granted to each of three executive
officers if annual income per share from continuing
operations is $.29 or greater. The options to be
granted range between 15,000 and 18,750 shares annually
for each officer depending on the level of earnings.
Each option will be granted at the fair market value at
the date of grant and will expire 10 years from such
date. As at August 31, 1994, options to purchase 45,000
shares at $4.38 a share are outstanding. The options
expire in September 2003. Based upon fiscal 1994
earnings, on November 1, 1994, options to purchase
16,500 shares of common stock at $4.50 per share were
granted to each of the three executive officers based
upon fiscal 1994 earnings.
Non-Employee Directors' Stock Option Plan:
In January 1994, the shareholders approved the 1993
Non-Employee Directors' Stock Option Plan. The plan
provides for the granting of options to purchase up to
150,000 shares of common stock. Options are
automatically granted to non-employee directors in
varying amounts based upon income per share from
continuing operations being $.29 or greater and the
number of years served on the Board. Based upon these
factors, options to be granted will range between 2,000
to 12,500 shares annually to each non-employee
director. Each option will be granted at the fair
market value at the date of grant and expire ten years from
such date. As at August 31, 1994, options to purchase
20,000 shares at $4.38 a share are outstanding. The
options expire in September 2003. Based upon fiscal
1994 earnings, on November 1, 1994, options to
purchase 11,000 shares of common stock at $4.50 per
share were granted to two non-employee directors.
Non-Qualified Stock Option Plan:
In February 1993, the shareholders' approved the
Designatronics Incorporated Non-Qualified Stock Option
Plan. The plan provides for the granting of options to
purchase up to 100,000 shares of common stock to
attract and retain executive personnel and key
employees. Options are to be granted at the fair market value
on the date of grant. No options have been granted
under this plan.
(Continued)
F-16
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-11-
NOTE H - Shareholders' Equity (Continued):
Stock Repurchases:
In January 1994, the Board of Directors authorized
repurchases of the Company's stock. Any such
repurchases may not exceed the Company's book value per
share at the date of repurchase and are limited
to an aggregate of $200,000 a year.
NOTE I - Employee Benefit Plans:
The Company's noncontributory Simplified Employee
Pension Plan, which covers substantially all employees
other than employees covered by a union retirement
plan, provides for an annual contribution determined by
the Board of Directors. No contributions have been
authorized for the two years ended August 31, 1994.
The Company's 401(k) defined contribution pension plan
permits a matching contribution by the Company
equal to 50% of the first 2% of the employee's
voluntary contribution, limited to the maximum allowable
amount by the Internal Revenue Code. The Company made
matching contributions of approximately
$36,000 and $32,000 during the years ended August 31,
1994 and 1993, respectively. In addition, the
Company authorized an additional 2% and 1 1/2% bonus
contribution for calendar year 1994 and 1993,
respectively, resulting in additional expense of
approximately $79,000 and $67,000 for the respective fiscal
years then ended.
Contributions to multi-employer defined benefit pension
plans for union employees aggregated
approximately $150,000 and $149,000 for the years ended
August 31, 1994 and 1993, respectively.
NOTE J - Segment Information:
Through fiscal 1992, the Company operated in two
business segments, the mechanical components segment,
which manufactures and distributes a diverse line of
over 50,000 mechanical and electro-mechanical com-
ponents, and the electronics components segment, which
has been discontinued (see Note B). As a result of
the discontinuance of the electronics components
segment and the increased emphasis in fiscal 1993 and
1994 on the expansion of the Company's line of
automation components and systems, management now
believes that this class of products should be
considered a separate business segment.
Accordingly, the attached information (rounded to the
nearest $1,000) is presented for each of these
segments.
(Continued)
F-17
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-12-
NOTE J - Segment Information (Continued):
<TABLE>
<CAPTION
Mechanical Automation
1994 Components Components Consolidated
<S> <C> <C> <C>
Net sales $21,136,000 $3,875,000 $25,011,000
Operating profit $ 2,172,000 $ 382,000 $ 2,554,000
General corporate expenses (397,000)
Interest expense (47,000)
Other income 110,000
Income before provision
for income taxes $ 2,220,000
Identifiable assets $13,198,000 $1,369,000 $14,567,000
Capital expenditures $ 274,000 $ 7,000 $ 281,000
Depreciation and
amortization $ 452,000 $ 30,000 $ 482,000
1993
Net sales $20,124,000 $3,526,000 $23,650,000
Operating profit $ 1,958,000 $ 209,000 $ 2,167,000
General corporate expenses (298,000)
Interest expense (157,000)
Other income 185,000
Income before provision
for income taxes $1,897,000
Identifiable assets $12,542,000 $1,222,000 $13,764,000
Capital expenditures $ 455,000 $ 455,000
Depreciation and
amortization $ 466,000 $ 34,000 $ 500,000
</TABLE>
(Continued)
F-18
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-13-
NOTE K - Litigation:
In December 1993, an action was instituted against the
Company where the plaintiff is claiming
approximately $525,000 in damages related to equipment
sold by the Techno Division. The equipment had
a purchase price of approximately $11,000. The case
was dismissed for lack of jurisdiction but is currently
under appeal. The Company, based upon consultation
with its counsel, believes that it has meritorious
defenses.
F-19
<PAGE>
<PAGE>
PART I FINANCIAL INFORMATION
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
May 31, August 31,
1995 1994
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash $ 223 $ 266
Accounts receivable-net 4,057 3,295
Inventories (Lower of cost or 8,909 8,209
market, FIFO basis)
Deferred income taxes 778 789
Prepaid expenses 290 261
Total current assets 14,257 12,820
Property, plant and equipment-net 1,355 1,506
Other assets 323 323
Total Assets $ 15,935 $ 14,649
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 1,296 715
Accrued liabilities 1,389 1,575
Accrued severance costs 143 422
Income tax payable 124 284
Total current liabilities 2,952 2,996
Deferred income taxes 82 82
Other liabilities 17 14
Shareholders' Equity:
Common stock $.04 par value 119 119
Additional paid-in-capital 9,402 9,402
Retained Earnings 3,594 2,267
Less: Treasury Stock (231) (231)
Total shareholders' equity 12,884 11,557
Total Liabilities and $ 15,935 $ 14,649
Shareholders' Equity
F-20
<PAGE>
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands Except Share and per Share Data)
Three Months Ended Nine Months Ended
May 31, May 31,
1995 1994 1995 1994
Net sales $ 8,057 $ 6,889 $21,266 $18,652
Cost of sales 4,668 4,294 12,968 11,816
Gross Profit 3,389 2,595 8,298 6,836
Selling, general and 2,391 1,874 6,320 5,365
administrative expenses
Income from operations 998 721 1,978 1,471
Other expenses/(income)
Interest income 4 - 5 -
Interest expense - 9 - 39
Sundry (59) (40) (145) (141)
Income before provision for 1,061 752 2,128 1,573
income taxes
Provision for income taxes 397 281 801 591
Net Income $ 664 $ 471 $ 1,327 $ 982
Income per common share:
Net Income $0.23 $0.16 $0.46 $0.34
Weighted number of shares 2,873,423 2,873,438 2,873,423 2,873,438
outstanding (Note 4)
F-21
<PAGE>
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended
May 31,
1995 1994
Cash flow from operating activities:
Net Income $ 1,327 $ 982
Adjustments to reconcile net
income/(loss) to net cash
provided/(used) by operating
activities:
Depreciation and Amortization 350 348
Increase in accounts receivable (762) (744)
(Increase)/decrease in inventories (700) 3
Gain on sale of fixed assets (2)
Decrease in deferred taxes 11 1
Increase in prepaid expenses (29) (165)
Increase/(decrease) in accounts 581 (122)
payable
Decrease in accrued expenses (346) (197)
Accrued restructuring and severance (279) (783)
costs
Total adjustments (1,174) (1,661)
Net cash provided/(used) by operations 153 (679)
Cash flows from investing activities
Expenditures for fixed assets (205) (118)
Proceeds from sale of fixed assets 6 18
Increase in other assets (2)
Net cash (used) in investing (199) (102)
activities
Cash flows from financing activities
Increase in cash overdraft 238
Proceeds of long term debt 200
Other 3 2
Net cash provided by financing 3 440
activities
Net Decrease in cash (43) (341)
Cash and cash equivalents at beginning 266 341
of period
Cash and cash equivalents at end of 223 $ 0
period
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest $ 0 $ 117
Income taxes $ 961 $ 782
F-22
<PAGE>
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring items) necessary
to present fairly the financial position of Designatronics
Incorporated at May 31, 1995, and the results of its operations
and cash flows for the three and nine month periods ended May 31,
1995, and 1994. It is suggested that these condensed statements
be read in conjunction with the financial statements and the
notes included in the Company's latest annual report, on Form 10-
KSB, for the year ended August 31, 1994.
2. The results of operations for the nine month period ended May
31, 1995 are not necessarily indicative of the results to be
expected for the full year.
3. Inventories consist of the following (in thousands of
dollars):
May 31 August 31,
1995 1994
Raw materials $ 940 $ 940
Work in process 567 532
Finished goods 7402 6,737
Total $8,909 $8,209
Inventories
4. Earnings per share are based on earnings for each period
divided by the weighted average number of shares outstanding
during such period. The effect of outstanding stock options was
not material.
F-23
<PAGE>
APPENDIX AND EXHIBIT INDEX
APPENDICES
Appendix "A" - Agreement and Plan of Merger
Appendix "B" - Section 623 of the New York Business Corporation Law
Appendix "C" - Support/Option Agreement
Appendix "D" - Fairness Opinion and Bring Down Opinion of Houlihan
Lokey Howard & Zukin, Inc. dated July 6, 1995 and
August 1, 1995 respectively.
EXHIBITS
Exhibit "1" - The Company's Annual Report on Form 10-KSB for the fiscal
year ended August 31, 1994
Exhibit "2" - The Company's Proxy statement dated December 5, 1994
Exhibit "3" - The Company's Quarterly Report on Form 10-QSB for the
qarter ended May 31, 1995
<PAGE>
<PAGE>
APPENDIX "A"
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated
July 6, 1995, is among DESIGNATRONICS INCORPORATED, a New York
corporation ("DI" or the "Company"), DD&D-DI ACQUISITION COMPANY,
a Delaware corporation ("Purchaser"), and DD&D-DI MERGER COMPANY,
INC., a New York corporation ("Merger Company").
BACKGROUND AND CONTEXT
A. Purchaser owns all of the issued and outstanding shares of
capital stock of Merger Company, a corporation formed to effectuate
the merger contemplated by this Agreement (the "Merger").
B. The respective Boards of Directors of DI, Purchaser, and
Merger Company have approved the transactions contemplated by this
Agreement, including the Merger of Merger Company with and into DI
in accordance with applicable provisions of the New York Business
Corporation Law, as amended (the "NYBCL").
C. Purchaser has agreed to provide the cash required to pay
$6.00 per share to all of the Company's shareholders (the
"Shareholders") for all of the Company's issued and outstanding
shares of Common Stock, par value $.04 per share (the "Shares"), on the terms
and subject to the conditions contained in this Agreement.
D. Terms used but not previously defined in this Agreement
shall have the meanings set forth in Article 6 hereof.
TERMS AND CONDITIONS
To consummate the transactions contemplated by this Agreement,
including the Merger, and in consideration of the mutual covenants
contained herein, the parties to this Agreement (the "Parties")
hereby agree as follows:
ARTICLE 1
THE MERGER
1.01 Form and Consequences of the Merger. On the terms and
subject to the conditions contained herein, at the Effective Time
(a) Merger Company shall be merged with and into DI in accordance
with the NYBCL, (b) Merger Company's separate corporate existence
shall cease and (c) the Company shall be the surviving corporation
(the "Surviving Corporation"). From and after the Effective Time,
without any action other than the Merger, the Surviving Corporation
shall (1) possess all of the rights, privileges, immunities, powers
and purposes of each of the Company and Merger Company (the
"Constituent Corporations"), (2) own all of their property and
assets, real and personal, tangible and intangible, including the stock of
DESIGNATRONICS FOREIGN SALES CORP. ("DFSC"), and (3) assume and be
liable for all of their liabilities, obligations and penalties in
the same manner as if the Surviving Corporation itself had incurred
them, all with the effect set forth in Section 906 of the NYBCL.
<PAGE>
1.02 Consummation of Merger. Subject to the fulfillment or
waiver of the conditions set forth in Article 4 (the "Conditions"),
the transactions contemplated by this Agreement, other than the
Merger, shall be consummated at a closing (the "Closing") to be
held at the offices of Hollenberg Levin Solomon Ross & Belsky, LLP
("DI General Counsel"), 585 Stewart Avenue, Garden City, NY 11530,
at 9:00, A.M., on the first Business Day after the Special Meeting
referred to in Section 3.04 or, if later, on the first Business Day
after the day on which the last Condition is fulfilled or waived,
or at such other time or place or on such other date as Purchaser
and DI shall agree upon. The date on which the Closing occurs is
referred to herein as the "Closing Date." On the Closing Date, as
soon as practicable after the Closing, the Parties shall cause an
appropriate certificate of merger consistent with the provisions of
this Agreement, duly executed by each Constituent Corporation (the
"Certificate of Merger"), to be filed with the Department of State
of New York (the "Department") in accordance with the NYBCL.
1.03 Effective Time. The Merger shall be effective at the
time at which the Certificate of Merger is filed with the
Depart-ment (the "Effective Time").
1.04 Surviving Corporation. Pursuant to the Merger:
(a) the Company's certificate of incorporation shall be
restated in its entirety at the Effective Time to read
sub-stantially as set forth in Exhibit A hereto;
(b) the Company's by-laws shall be amended and restated
in their entirety at the Effective Time to read as set forth
in Exhibit B hereto;
(c) the officers of the Company at the Effective Time
shall be the officers of the Surviving Corporation, except
that Joseph M. Dunn shall become the Chairman of the Board of
the Surviving Corporation, and its Board of Directors may add
such other officers as its Board may elect from time to time; and
(d) the directors of Merger Company immediately prior to
the Effective Time shall become the directors of the Surviving
Corporation, to serve for the term provided for in the by-laws
of the Surviving Corporation, with such other directors as the
sole shareholder of the Surviving Corporation shall elect at
the Effective Time or at any time thereafter (Purchaser plans
to add Martin Hoffman as a director of the Surviving
Corporation promptly after the Effective Time).
1.05 Conversion of Shares. At the Effective Time, by virtue
of the Merger and without any further action on the part of any of
the Company, Merger Company, Purchaser or the holders of any shares
of capital stock of either Constituent Corporation, the shares of
<PAGE>
capital stock of each Constituent Corporation shall be converted or
cancelled as follows:
(a) each share DI holds as treasury stock (collectively
"Treasury Shares") shall be cancelled without the payment of
any consideration therefor and without any conversion thereof;
(b) each share of common stock of Merger Company issued
and outstanding shall be converted into and become one validly
issued, fully paid and non-assessable share of common stock of
the Surviving Corporation (accordingly, the Surviving
Corporation shall become a wholly-owned subsidiary of Purchaser as
a result of the Merger); and
(c) each Share issued and outstanding at the Effective
Time, other than Treasury Shares and Dissenting Shares, shall
be converted into the right to receive, and be exchangeable
for, $6.00 in cash, without interest, payable as provided in
Section 1.06 (the "Merger Price").
1.06 Surrender and Payment.
1.06.01 Designation of Exchange Agent. Prior to the
Closing, DI shall designate a bank or trust company acceptable to
Purchaser to act as the exchange agent (the "Exchange Agent") to
pay the Merger Price to holders of Shares exchangeable for the
Merger Price pursuant to Section 1.05(c) (the "Exchanged Shares")
in exchange for the certificates representing the Exchanged Shares.
DI shall bear the fees and expenses of the Exchange Agent.
1.06.02 Notice and Transmittal Form. As soon as
practicable after the Effective Time, the Exchange Agent shall
send a notice and transmittal form reasonably satisfactory to Purchaser
and DI to each holder of any certificates theretofore representing
Exchanged Shares. The notice and transmittal form shall advise the
holders of Exchanged Shares of the procedure for surrendering such
certificates to the Exchange Agent for payment of the Merger Price.
1.06.03 Payment Funds. On the Closing Date, prior to
the Effective Time, Purchaser shall transmit to the Exchange Agent,
by wire or other appropriate means, in immediately available funds,
all of the funds required to make the payments contemplated by
Section 1.05(c) with respect to all Shares voted in favor of the
Merger. As and when additional funds are required by the Exchange
Agent for additional Shares tendered for payment in accordance with
Subsection 1.06.04, the Exchange Agent shall notify Purchaser by
facsimile, and Purchaser shall provide the funds, by wire or other
appropriate means, in immediately available funds, within two
Business Days after the receipt of such facsimile by Purchaser.
The Exchange Agent shall agree to hold all such funds in trust and
deliver such funds (in the form of checks of the Exchange Agent or
wire transfers if feasible for any amounts in excess of $500,000)
<PAGE>
in accordance with this Section 1.06 and such additional terms as
may be agreed upon by Purchaser, DI and the Exchange Agent. Any
such funds which have not been paid pursuant to this Section 1.06
within six months after the Effective Time shall promptly be paid
over to the Surviving Corporation, and thereafter any Shareholders
who have not complied with this Section 1.06 shall look only to the
Surviving Corporation for payment of the amount of cash to which
they are entitled as a result of the Merger.
1.06.04 Surrender of Certificates. Each holder of any
certificates theretofore representing any Exchanged Shares, upon
surrender to the Exchange Agent of such certificates for
cancellation along with a duly executed and completed transmittal
form, will be entitled promptly to receive a check of (or wire transfer
from) the Exchange Agent representing cash in the amount equal to
the Merger Price times the number of Exchanged Shares represented
by such certificates, less the amount required to be withheld under
applicable laws or regulations ("Backup Withholding").
1.06.05 Payment to Transferees. If any payment of the
Merger Price (or any portion thereof) is to be made to any Person
other than the Person in whose name the certificate surrendered in
exchange for the payment is registered, it shall be a condition of
such payment that the certificate so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that
the Person requesting such payment shall (a) pay to the Exchange
Agent any transfer or other taxes required by reason of such
pay-ment or (b) establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not applicable. If any transfer
taxes are payable by reason of the payment of the Merger Price to
holders of record of Shares, Purchaser Companies agree that DI will
pay such transfer taxes.
1.06.06 Abandoned Property Laws. Notwithstanding the
foregoing, neither the Exchange Agent nor any Party shall be liable
to any Person claiming the right to receive the Merger Price for
any cash delivered to any public official or agency pursuant to any
applicable abandoned property, escheat or other law.
1.06.07 Lost Certificates. In the event any certificate
theretofore representing Exchanged Shares has been lost, stolen or
destroyed, the Exchange Agent shall pay to the Person claiming that
such certificate has been lost, stolen or destroyed the cash into
which the Shares theretofore represented by such certificate have
been converted as provided in Section 1.05(c) (less any required
Backup Withholding), upon receipt of (a) evidence of ownership of
such certificate and (b) appropriate indemnification, in each case
satisfactory to the Exchange Agent.
1.06.08 Interest. No interest shall accrue or be paid
on any portion of the Merger Price. If any interest is earned on
<PAGE>
any funds held by the Exchange Agent, such interest shall belong to
the Surviving Corporation.
1.07 Dissenting Shares.
1.07.01 General Provisions. Notwithstanding anything in
this Agreement to the contrary, any Shares which are outstanding
immediately prior to the Effective Time and which are held by
Persons ("Dissenting Holders") who (a) have not voted such Shares
in favor of the Merger and (b) have delivered to DI a written
objection to the Merger in the manner and within the time provided
for in Section 623 of the NYBCL ("Dissenting Shares") shall not be
converted into the right to receive, and shall not be exchangeable
for, the Merger Price, but instead the Dissenting Holders shall be
entitled to payment of the fair value of their Dissenting Shares in
accordance with Section 623 of the NYBCL; however, if
(1) any Dissenting Holder shall subsequently deliver a
written withdrawal of his demand for the payment of the fair
value of his Dissenting Shares (with the written approval of
the Surviving Corporation if such withdrawal is not received
by the Surviving Corporation within 60 days after the Effective
Time) at any time prior to his acceptance in writing of
an offer made by the Surviving Corporation pursuant to
paragraph (g) of such Section 623, or
(2) any Dissenting Holder shall fail to establish his
entitlement to appraisal rights as provided in such Section
623, or
(3) neither any Dissenting Holder nor the Surviving Cor-
poration has instituted a special proceeding to determine the
rights of the Dissenting Holders and to fix the fair value of
Dissenting Shares within the periods provided in such Section,
such holder or holders (as the case may be) shall forfeit the right
to the fair value of such Shares and such Shares shall thereupon be
deemed to have been converted into the right to receive the Merger
Price, and to have become exchangeable for the Merger Price, as of
the Effective Time, without interest.
1.07.02 Advance Payments for Dissenting Shares. Within
15 days after the Effective Time, the Surviving Corporation shall
make a written offer by registered mail to each Dissenting Holder
to pay for his Dissenting Shares at $6.00 per share. Such offer
shall be accompanied by:
(a) an advance payment to each Dissenting Holder who has
submitted the certificates representing his Dissenting Shares
to the Surviving Corporation, as provided in paragraph (f) of
Section 623 of the NYBCL, of an amount equal to 80% of such
offer (or $4.80 per share); or
<PAGE>
(b) as to each Dissenting Holder who has not yet submit-
ted his certificates, a statement that advance payment to him
of an amount equal to 80% of the amount of such offer shall be
made to him by the Surviving Corporation promptly upon
submission of his certificates, as provided in such paragraph (f).
Every such advance payment or statement as to advance payment shall
include advice to the Dissenting Holder involved to the effect that
acceptance of such payment does not constitute a waiver of any
dis-senters' rights, as required by paragraph (g) of such Section
623.
1.07.03 Notice of Dissents. The Company shall give
Purchaser prompt notice of any written objections, demands or other
communications received by the Company from any Dissenting Holders
or from any other Shareholders who object to the Merger. Purchaser
shall have the right to participate in all negotiations and
proceedings with respect to such objections and demands. DI shall
not, without the prior written consent of Purchaser, make any
payment (except to the extent that any such payment is made
pursuant to a court order) with respect to, or settle or offer to settle,
any such objections or demands.
1.07.04 Provisions Subject to NYBCL Section 623. The
foregoing provisions of this Section 1.07 are subject, in their
entirety, to the provisions of Section 623 of the NYBCL, a copy of
which shall be attached to the Proxy Statement. Purchaser will
make all payments required to be made to Dissenting Holders.
1.08 No Further Rights or Transfers. At the Effective Time,
each holder of any certificate(s) theretofore representing Shares
shall cease to have any rights as a shareholder and shall not be
deemed to be a shareholder of, or be entitled to any rights of a
shareholder with respect to, the Surviving Corporation, but
there-after shall have only those rights set forth in Sections
1.05, 1.06 and 1.07 hereof and in Section 623 of the NYBCL. At the Effective
Time, the stock transfer books of the Company shall be closed, and
no transfer of Shares shall be made thereafter, except as required
to be permitted by the provisions of the NYBCL.
1.09 Stock Options and Plans. All stock option plans of the
Company (the "Option Plans") will be terminated at the Closing; and
no additional options will be granted under any Option Plan prior
to the Closing or the termination of this Agreement pursuant to
Section 5.01. The Company has heretofore granted options to
pur-chase Shares ("Options") to its officers, directors and
employees named in Exhibit C hereto ("Optionholders") at the price per Share
("Exercise Price") and on the number of Shares specified in Exhibit
C hereto. At the Closing, all Options held by each Optionholder
will be cancelled in exchange for a cash payment equal to (a) the
excess of $6.00 per share over the Exercise Price times (b) the
number of Shares subject to each Option. Purchaser will provide DI
with all of the cash required to make the payments contemplated by
<PAGE>
this Section 1.09 at the Closing, by wire or other appropriate
means.
1.10 Bonuses in Lieu of Options for Current Year. As soon as
practicable after completion of the audit of the financial
statements of DI for its fiscal year ending August 31, 1995, each
officer, director and key employee named in Exhibit C hereto shall
be paid a bonus equal to $1.50 times the number of Shares on which
he would have been granted an option pursuant to the Option Plans
if (a) the Merger had not occurred, (b) the Option Plans had not
been terminated at the Closing and (c) the Company had not incurred
any expenses relating to the transactions contemplated by this
Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.01 Of the Company. DI hereby represents and warrants to
Purchaser and Merger Company as hereinafter set forth in this
Sec-tion 2.01. As used herein, "DI Companies" means DI and DFSC.
All exceptions to these representations and warranties are set forth in
the schedule attached hereto (the "Disclosure Schedule"). All of
these representations and warranties shall expire at the Effective
Time. None of the officers or directors of DI have any personal
liability with respect to any representations or warranties
hereinafter set forth in this Section 2.01. As used in this
Section 2.01, "Knowledge of DI" means the actual knowledge of the officers
and directors of DI and such other knowledge as they would have had
after a reasonable inquiry.
2.01.01 Organization and Authority. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of New York, and DFSC is a corporation
duly organized, validly existing and in good standing under the
laws of the Virgin Islands, in each case with full corporate power
and authority to own, lease and operate its properties and to carry
on its businesses as currently conducted. Each DI Company is duly
qualified and in good standing in each other jurisdiction in which
qualification is required for it to own or lease the properties or
to conduct the businesses it owns, leases or conducts therein,
consisting of the jurisdictions listed in Section 2.01.01 of the
Disclosure Schedule for each DI Company. DI has previously
provided DD&D's General Counsel with true, correct and complete
copies of the certificate of incorporation and by-laws of each DI Company,
as amended to the date hereof; all of the documents comprising each
DI Company's certificate of incorporation and by-laws, as amended
to the date hereof, are listed in such Section 2.01.01.
2.01.02 Affiliated Entities. Except as set forth in
Section 2.01.02 of the Disclosure Schedule, neither DI Company
owns, directly or indirectly, any capital stock or other securities
of any corporation, limited liability company, partnership, foreign
<PAGE>
company or other entity (herein an "Entity"), or has any direct or
indirect equity or ownership interest in any Entity. Each Entity
listed in Section 2.01.02 of the Disclosure Schedule (each a "Joint
Venture" and collectively the "Joint Ventures") is the type of
en-tity indicated in such Section, organized in its jurisdiction of
organization, as specified in such Section. If it is designated as
an "Inactive Subsidiary" in such Section, it has no material assets
or liabilities and it conducts no operations except as set forth in
Section 2.01.02 of the Disclosure Schedule. Section 2.01.02 of the
Disclosure Schedule specifies the percentage of all the shares or
other interests in each Entity owned by each DI Company; neither DI
Company has any duty or obligation to purchase any additional
shares or other interests therein, or to make any contributions to
capital or other payments thereto, except as specified in Section
2.01.02 of the Disclosure Schedule. The documents previously
provided to DD&D's General Counsel with respect to the Joint
Ventures are true and correct in all material respects.
2.01.03 Capitalization. The authorized capital stock of
DI consists of 5,000,000 shares of Common Stock, par value $.04 per
share, of which 2,873,423 shares are issued and outstanding as of
the date hereof. As of the date hereof:
(a) DI owns, both beneficially and of record, all of the
issued and outstanding shares of capital stock of DFSC ("DFSC
Shares");
(b) there are no outstanding options, warrants, rights,
contracts or scrip to purchase any Shares, other than the
Options listed in Exhibit C hereto, or to purchase any DFSC
Shares;
(c) there are no instruments, evidences of indebtedness,
debt or equity securities or contracts convertible into or
exchangeable for any Shares or DFSC Shares;
(d) except as expressly provided in this Agreement,
neither DI Company has any commitment of any kind to issue,
grant, sell or otherwise create any such options, warrants,
rights, contracts, scrip, instruments, evidences of indeb-tedness,
debt or equity securities or contracts; and
(e) except as expressly provided in this Agreement,
neither DI Company has granted, created or entered into any
agreement to grant or create any phantom stock or deferred
compensation, profit participation or other interests or
rights that have features similar to equity interests.
To the Knowledge of DI, each issued and outstanding Share and DFSC
Share has been duly authorized and validly issued and is fully paid
and non-assessable; all of such Shares were issued in compliance
with all applicable laws; and no Share or DFSC Share was issued in
<PAGE>
violation of, or is subject to, any preemptive or similar rights.
No changes in the number of outstanding Shares or DFSC Shares are
contemplated, except as expressly provided in this Agreement.
2.01.04 Authority. The Company has full corporate power
and authority (a) to enter into this Agreement and each Other DI
Document and (b) subject to the approval and adoption of the Merger
by the requisite vote of the Shareholders (which requisite vote is
two-thirds of all of the Shares) and the consents listed in Section
2.01.04 of the Disclosure Schedule, to carry out all of its duties
and obligations hereunder and thereunder. As used herein, "Other
DI Document" means each document other than this Agreement that has
been or will be executed and delivered by the Company in connection
with the Merger, this Agreement or the Closing, including the
Certificate of Merger, the Support Agreement, the Escrow Agreement
and the Employment Contracts. The execution and delivery by DI of this
Agreement and the Other DI Documents and DI's consummation of the
transactions provided for herein and therein have been duly
authorized by the Company's Board of Directors and, except for
approval of this Agreement by the requisite vote of the Shareholders and the
consents listed in such Section 2.01.04, no other corporate
proceedings or consents on the part of the Company are necessary
to authorize this Agreement and the Other DI Documents and the
transactions provided for herein and therein. Each of this
Agreement and each Other DI Document has been duly executed and
delivered by the Company or will be duly executed and delivered by
DI at the Closing and, subject to approval by the Shareholders,
this Agreement and each Other DI Document will be legal, valid and
binding obligations of the Company, enforceable against the Company
in accordance with their respective terms, subject to the
qualification, however, that the enforcement of the rights and
remedies created hereby and thereby is subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general application relating to or affecting
creditors' rights and to general equity principles. Purchaser
Companies waive any consent that may be required from European
American Bank or the Landlord.
2.01.05 No Conflicts. Except as disclosed in Section
2.01.05 of the Disclosure Schedule, neither the execution and
delivery of this Agreement or any Other DI Document by the Company,
nor the consummation of the transactions provided for herein and
therein, nor compliance by the Company with any of the provisions
hereof or thereof, will (a) violate, conflict with, or result in a
breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration, the loss of a material benefit or the creation of any
lien, claim, security interest, charge or encumbrance upon any of
the properties or assets of either DI Company or any Joint Venture
under any of the terms, conditions or provisions of (1) its certi-
<PAGE>
ficate of incorporation or by-laws, (2) any note, bond,
mortgage, indenture, deed of trust or other financing document, or (3) except
for such violations, conflicts, breaches, defaults, terminations,
accelerations of rights, losses of benefits or creations of liens,
claims, security interests, charges or encumbrances that would not
have a Material Adverse Effect, any license, permit, lease or other
agreement, instrument or obligation to which either DI Company or
any Joint Venture is a party, or by which any of them is bound or
any of their properties or assets may be subject, or (b) violate
any judgment, ruling, order, writ, injunction or decree in effect
as of the date hereof or any statute, rule or regulation applicable
to either DI Company or any Joint Venture or any of their assets.
As used herein, "Material Adverse Effect" means a material adverse
effect on the business, condition (financial or otherwise), results
of operations, or prospects of the DI Companies, taken as a whole.
The Joint Ventures will not be taken into account for this purpose.
2.01.06 No Governmental Approvals. Other than (a) the
filing of the Certificate of Merger in compliance with the NYBCL,
(b) the filings required by the Exchange Act, and (c) the filings
required by the rules and regulations of the NASD with respect to
NASDAQ, to the Knowledge of DI, no notice or report to,
registration, declaration or filing with, or authorization,
consent or approval of, any public body or authority is necessary for the
execution, delivery and performance by DI of this Agreement or any
Other DI Document.
2.01.07 SEC Filings. DI has previously made available
to Purchaser complete copies of the Company's (a) Annual Report on
Form 10-KSB for the year ended August 31, 1994 (the "Latest 10-K"),
(b) Annual Reports on Form 10-KSB or 10-K for the years ended
August 31, 1993 and 1992, (c) Quarterly Reports on Form 10-QSB for
the quarters ended November 30, 1994 and February 28, 1995, (d)
proxy statements relating to all of the Company's annual meetings
of shareholders since August 31, 1992, and (e) other reports,
registration statements and other documents filed by the Company
with the Commission since August 31, 1992, in each case as filed
with the Commission (collectively, together with any other reports,
registration statements or other documents filed by the Company
with the Commission prior to the Closing and provided to Purchaser
pursuant hereto, "SEC Filings"). Since August 31, 1992, the
Company has timely filed all reports, registration statements and
other documents required to be filed with the Commission under all
applicable laws and rules and regulations of the Commission, and
all such reports, registration statements and other documents have
complied, in all material respects, with all applicable
requirements of the Exchange Act or the Securities Act, as the
case may be. As of their respective dates, none of such reports,
registration statements or other documents contained or will
contain any untrue statement of a material fact or omitted or will omit to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
<PAGE>
under which they were made, not misleading.
2.01.08 Financial Statements. The audited consolidated
financial statements and unaudited interim financial statements of
the DI Companies contained or incorporated by reference in the SEC
Filings or delivered to Purchaser have been prepared in accordance
with GAAP applied on a consistent basis during the periods involved
and fairly present the consolidated financial position of the DI
Companies as at the dates thereof and the consolidated results of
their operations, changes in shareholders' equity and consolidated
cash flows for the periods set forth therein and, in the case of
the unaudited interim financial statements, reflect all adjustments
necessary to a fair statement of results for the interim periods
presented, subject to normal, recurring year-end audit adjustments,
none of which is material or is reasonably expected to be material
in the case of the unaudited interim financial statements for all
periods subsequent to August 31, 1994. All financial statements
referred to in this Subsection 2.01.08 are collectively called the
"Financial Statements."
2.01.09 Liabilities. Except as disclosed in the SEC
Filings, the Financial Statements or Section 2.01.09 of the
Disclosure Schedule, to the Knowledge of DI, neither DI Company
has any liabilities or obligations due or to become due, whether absolute,
accrued, contingent or otherwise, and there are no claims or causes
of action (including those relating to employee benefit plans, as
defined in Section 3(3) of ERISA, presently maintained or formerly
maintained by a DI Company), that have been or, to the Knowledge of
DI, are likely to be asserted against either DI Company, except as,
and only to the extent, reflected or reserved against on the
balance sheet as of August 31, 1994 included in the Latest 10-K or
in the notes thereto (the "Base Balance Sheet"), except for normal
and recurring current liabilities incurred since August 31, 1994 in
the ordinary and usual course of the businesses of the DI Companies
consistent with past practices (the "Ordinary Course") and except
for such other liabilities and obligations as are not, in the
aggregate, likely to have a Material Adverse Effect. DI makes no
representation or warranty concerning possible liabilities of DI
for late filings of Form 5500 with the IRS for 1990 through 1993.
2.01.10 Inventories. As of August 31, 1994, to the
Knowledge of DI, the inventories recorded on the Base Balance Sheet
were valued at the lower of cost or market (on a FIFO basis) in
accordance with GAAP consistently applied with the earlier
Financial Statements and consisted of a quantity, quality and
product mix usable or salable for their intended purposes in the Ordinary
Course within a period of time consistent with the Company's past
practices, and all excess, damaged and obsolete inventories were
written down to their net realizable value. The inventory
purchasing practices of the DI Companies have not changed
materially since August 31, 1994. Purchaser has had the opportunity to
review DI's calculations and printouts with regard to inventories.
<PAGE>
2.01.11 Receivables. Except as set forth in Section
2.01.11 of the Disclosure Schedule, to the Knowledge of DI, all
trade accounts, trade notes and other receivables of the DI
Companies reflected in the Base Balance Sheet represented sales in
the Ordinary Course and, to the extent not previously collected, are
collectable, subject to no valid counterclaims or set-offs, less
the allowances for doubtful accounts and sales returns, rebates and
other allowances set forth on the Base Balance Sheet (which were
established in accordance with GAAP consistently applied with the
earlier Financial Statements). The receivables valuation and
collection practices of the DI Companies have not changed
materially since August 31, 1994.
2.01.12 Status of DFSC. DFSC qualifies as an "FSC"
under the Code and all elections required for such qualification
have been timely made. Copies of its separate federal income tax
returns on Form 1120-FSC for the fiscal years ended August 31, 1990
through 1994 have been provided to Purchaser. In each case, those
returns were properly and accurately prepared in all material
respects. DFSC has paid all Taxes required to be paid by it to
any foreign jurisdiction; and DFSC has no assets other than accounts
receivable and no employees or offices. To the Knowledge of DI,
DFSC is in compliance in all material respects with all applicable
federal, state and local laws, rules and regulations relating to
the export of products and all applicable foreign laws, rules and
regulations relating to the import and sale of products.
2.01.13 Tax Returns and Audits. Except as disclosed in
Section 2.01.13 of the Disclosure Schedule:
(a) DI Companies have timely filed or timely requested an
extension to file all returns, information returns,
declarations, reports, estimates and statements relating to any
Taxes (collectively, "Returns") required to be filed by either of
them in respect of any Taxes (as defined below);
(b) all Taxes required to be shown on Returns required to
be filed by either DI Company (without regard to extensions)
have been paid in full or adequate provision has been made for
any such Taxes on the Base Balance Sheet in accordance with
GAAP;
(c) there are no outstanding audits, examinations, defi-
ciencies or refund litigation with respect to any Taxes of the
DI Companies or either of them; and
(d) all Taxes due with respect to completed and settled
examinations or concluded litigation relating to the DI
Companies have been paid in full or adequate provision has been
made for any such Taxes on the Company's consolidated balance
sheet in accordance with GAAP.
<PAGE>
As used herein, "Taxes" shall mean and include all taxes, charges,
fees, levies and other assessments, including all net income, gross
income, gross receipts, sales, use, ad valorem, transfer, property,
franchise, profits, license, withholding, payroll, employment,
excise, severance, stamp, occupation and other taxes, customs,
duties, fees, assessments and charges of any kind, together with
any interest and any penalties, additions to tax or additional
amounts, imposed by any taxing authority (domestic or foreign) on
either DI Company.
2.01.14 Conduct of Business. Except to the extent
disclosed in the SEC Filings or in Section 2.01.14 of the
Disclosure Schedule, since August 31, 1994, the DI Companies have
conducted their businesses in (and only in) the Ordinary Course
and the DI Companies have not experienced any change which individually
or in the aggregate has had or is reasonably likely to have a
Material Adverse Effect.
2.01.15 Litigation and Proceedings. Except as set forth
in the SEC Filings or Section 2.01.15 of the Disclosure Schedule,
(a) no claim, action, suit, arbitration, proceeding or governmental
investigation or inquiry is pending or, to the Knowledge of DI, is
threatened against or affecting either DI Company or its respective
assets or, to the Knowledge of DI, is pending or threatened against
any Joint Venture, and (b) no claim, action, suit, arbitration
proceeding or governmental investigation or inquiry has had or is
reasonably likely to have a Material Adverse Effect. Neither DI
Company nor, to the Knowledge of DI, any Joint Venture is a party
to or is bound by any order, judgment, decree, injunction or ruling
of any court or any governmental or administrative department,
commission, agency or instrumentality, any arbitrator or any other
Person that has had or is reasonably likely to have a Material
Adverse Effect.
2.01.16 Compliance with Laws. Except as disclosed in
the SEC Filings or Section 2.01.16 of the Disclosure Schedule, to
the Knowledge of DI, each DI Company has previously conducted and
is currently conducting its businesses in compliance with all
applicable laws, rules, regulations and requirements of each
jurisdiction in which any such business is carried on, except for
failures to comply which individually or in the aggregate have not
had and are not reasonably likely to have a Material Adverse
Effect. To the Knowledge of DI, no changes would be required in
the processes, properties, practices or procedures of the DI
Companies in order to comply with such laws, rules, regulations and
requirements, and neither DI Company has received any notice or
communication of any non-compliance with such laws, rules,
regulations and requirements that has not been cured.
2.01.17 Licenses and Permits. Except as disclosed in
Section 2.01.17 of the Disclosure Schedule, to the Knowledge of DI,
each DI Company has all governmental approvals, consents, licenses,
<PAGE>
registrations and permits necessary to carry on its businesses as
they are currently conducted, except where the failure to have any
such approval, consent, license, registration or permit is not
reasonably likely to have a Material Adverse Effect; and no event
has occurred which would allow revocation or termination of, or
would result in the impairment of its rights with respect to, any
such approval, consent, license, registration or permit, except to
the extent that such revocation, termination or impairment would
not have a Material Adverse Effect.
2.01.18 Title to Properties. Except as set forth in
Section 2.01.18 of the Disclosure Schedule, to the Knowledge of DI,
each DI Company has good and marketable title to or a valid,
binding and enforceable leasehold interest in all of its
respective properties and assets, real, personal and mixed, tangible and
intangible, including those reflected on the Base Balance Sheet
(except those subsequently disposed of in the Ordinary Course),
free and clear of all mortgages, liens, claims, pledges, charges,
encumbrances or title defects of a material nature. Neither DI
Company owns any real estate, other than a leasehold interest.
2.01.19 Leases. As used herein, "Material Leases" means
the New Hyde Park Leases, and "Facility" means the premises subject
to a New Hyde Park Lease. Except for the New Hyde Park Leases, DI
is not a party to any lease of real or personal property requiring
it to pay more than $25,000 per year in rent. DI has previously
provided DD&D's General Counsel with correct and complete copies of
both Material Leases, as amended to the date hereof. Except as set
forth in Section 2.01.19 of the Disclosure Schedule, to the
Know-ledge of DI:
(a) each Material Lease is in full force and effect, in
accordance with its terms, and no default (or event which,
with notice or the passage of time or both, would constitute
a default) has occurred thereunder by DI or the other party
thereto;
(b) each Facility is zoned in a manner that permits DI to
use it (and that will permit the Surviving Corporation to
continue to use it) for the same purposes and in the same way as
it is currently used by DI;
(c) the operation and construction of each Facility
complies with all applicable laws, covenants, easements and
restrictions;
(d) DI has received no notice of any proposed material
real estate tax increase for either Facility;
(e) DI has not received any notice from any insurance
company, board of fire underwriters or other body of any defects
or inadequacies in either Facility or any part thereof
<PAGE>
that could adversely affect the insurability of the Facility
or requesting the performance of any work or alteration with
respect to the Facility that has not been fully performed;
(f) no proceeding of any kind has been instituted or
threatened against or with respect to either Facility or
against DI or, to the Knowledge of DI, the Landlord with
respect to either Facility;
(g) all water, sewer, gas, electrical, telephone, drain-
age and other utilities required for the normal operation of
each Facility are in good working order and are adequate to
serve the current needs of the Facility;
(h) DI has obtained all licenses, permits, authorizations
and rights-of-way that are required from any Person to use the
Facilities as presently used by DI; and
(i) there are, with respect to either Facility, (1) no
outstanding contracts involving more than $175,000 for any
improvements, replacements or repairs, (2) no unpaid expenses
in excess of $175,000, (3) no mechanics' or materialmen's
liens, and (4) no outstanding service or similar contracts
that require the payment of more than $25,000 per year.
2.01.20 Contracts and Commitments. The Company has
previously made available to Purchaser correct and complete copies
of all written, and accurate and complete summaries of all oral,
contracts, agreements, commitments or arrangements (collectively,
"Material Contracts") to which either DI Company or, to the
Knowledge of DI, any Joint Venture is a party or by which any of
them is bound:
(a) which involve an employment agreement, consulting
agreement, termination or severance agreement or relate to
indebtedness in excess of $100,000;
(b) in which rights or obligations change upon a change
in control of the Company (including the Merger);
(c) which involve a partnership, joint venture or simi-
lar arrangement;
(d) which limit the freedom of either DI Company or, to
the Knowledge of DI, any Joint Venture to compete in any line
of business or with any Person in any area;
(e) which are agency, dealer, distributorship, sales
representative or other similar agreements entered into other
than in the Ordinary Course;
<PAGE>
(f) which involve or reasonably could be expected to in-
volve payments from either DI Company in excess of $25,000 or
have a term in excess of six months in duration or involve or
constitute a guaranty of any debt, liability or obligation of
any other Person; or
(g) which are material to any business of the DI Com-
panies and not entered into in the Ordinary Course.
Each Material Contract is in full force and effect and, to the
Knowledge of DI, no event or condition has occurred or exists, or
is alleged by any of the other parties thereto to have occurred or
exist, which constitutes or with the lapse of time or giving of
notice might constitute a default or a basis for acceleration or
termination under any Material Contract, except for such defaults
or bases for acceleration or termination as in the aggregate are
not reasonably likely to have a Material Adverse Effect.
2.01.21 Bank and Other Accounts. All bank, brokerage,
custodial, money market and other accounts and safe deposit boxes
of the DI Companies or which contain any assets of the DI Companies
are listed in Section 2.01.21 of the Disclosure Schedule. Such
Section reflects:
(a) the name of each bank, brokerage firm or other insti-
tution in which such account or box is maintained and the num-ber
of the account or box;
(b) the balance therein as of as of a recent designated
date or a brief description of the contents thereof; and
(c) the name of each individual authorized to sign
thereon or have access thereto and the title or position of
the individual.
If any material asset of either DI Company is not located at the
Facilities or in one of its safe deposit boxes, that is also
indicated in such Section.
2.01.22 Employee Relations. The Company has previously
made available to Purchaser correct and complete copies of all
labor and collective bargaining agreements to which the Company is
a party or by which it is bound. No unfair labor practice charges
or complaints are pending or, to the Knowledge of DI, threatened
against the Company with the National Labor Relations Board or any
similar state agency. There have been no material work stoppages
or other such controversies during the last five years and, to the
Knowledge of DI, none are threatened.
2.01.23 Employee Benefit Plans. For purposes of this
Subsection 2.01.23:
<PAGE>
(a) "Arrangement" means any material written personnel
policy (including vacation time, holiday pay and bonus
programs, moving expense reimbursement programs and sick leave),
salary reduction agreement, change-in-control agreement,
employment agreement, stock option plan, consulting agreement
or any other material written benefit program, contract or
agreement, (1) which currently is being maintained or, to the
extent there remains outstanding obligations or liabilities
with respect thereto, has at any time been maintained, for
employees of the Company or (2) to which the Company currently
makes or is required to make or, to the extent there remains
outstanding obligations or liabilities with respect thereto,
has at any time made or been required to make contributions;
(b) "Plan" includes each employee benefit plan as defined
in Section 3(3) of ERISA (other than a Multiemployer Plan) (1)
which currently is maintained for employees of the Company or
(2) to which the Company currently makes or is required to
make contributions;
(c) "Qualified Plan" means any Plan which is an employee
pension benefit plan as defined in Section 3(2) of ERISA and
which is intended to meet the qualification requirements of
Section 401(a) of the Code;
(d) "Title IV Plan" means any Qualified Plan that is a
defined benefit plan (as defined in Section 3(35) of ERISA)
and is subject to Title IV of ERISA; and
(e) "Multiemployer Plan" means any employee benefit plan
that is a "multiemployer plan" within the meaning of Section
3(37) of ERISA and to which the Company now has or ever had
any obligation to contribute.
Section 2.01.23 of the Disclosure Schedule sets forth a correct and
complete list of all Arrangements and Plans which are currently in
effect or with respect to which the Company has any contingent
liability, none of which constitutes a Title IV Plan. Except as
set forth in Section 2.01.23 of the Disclosure Schedule, to the
Knowledge of DI:
(1) each Arrangement and Plan is being administered in
material compliance with its terms and with all filing,
reporting, disclosure and other requirements of all applicable
statutes (including ERISA) and all regulations thereunder;
(2) no action is pending or threatened against the Com-
pany, or any officer, director or employee thereof, or any
fiduciary of any Arrangement or Plan with respect to any
Arrangement or Plan;
<PAGE>
(3) neither the Company, nor any officer, director or
employee of the Company, nor any fiduciary, has engaged in any
transaction in violation of Section 406(a) or (b) of ERISA or
which is a "prohibited transaction" (as defined in Section
4975(c)(1) of the Code) for which no exemption exists under
Section 408(b) of ERISA or Section 4975(d) of the Code or for
which no administrative exemption has been granted under
Section 408(a) of ERISA which, assuming the taxable period of
such transaction expired as of the date hereof, could subject
the Company to a tax or penalty imposed by either Section 4975
of the Code or Section 502(i) of ERISA;
(4) there have been no improper withdrawals, applications
or transfers of assets from any Plan or the trusts or other
funding media relating thereto, and no breaches of fiduciary
obligation with respect to the administering of any Plans or
trusts or other funding media relating thereto;
(5) each Qualified Plan (together with its related fund-
ing instrument) is intended to be qualified and tax exempt
under Sections 401 and 501 of the Code and is the subject of
a favorable IRS determination letter issued pursuant to Rev.
Proc. 93-39 with respect to such qualification and exemption;
(6) the Company has not received notice that any material
inquiry or investigation by the Department of Labor, the IRS
or the PBGC is pending relating to any Arrangement or Plan or
any trust related thereto or funding medium thereunder; and
(7) there are no Plans or Arrangements to which DI is a
party or by which it is bound and under which, as a result of
this Agreement or any transaction contemplated by this
Agreement, any director, officer, employee or other agent of the
Company or any other party claiming through any such Person
shall or may acquire rights with respect to any Plan or
Arrangement (including, without limitation, the creation,
increase or extension of new or existing rights), become
entitled to a distribution or payment with respect to any Plan
or Arrangement at a date earlier than if this Agreement had
not been signed or such transaction had not occurred, or
otherwise receive or become vested in rights or benefits with
respect to any Plan or Arrangement;
(8) the Company has made all contributions required in
connection with any Multiemployer Plan as of the date hereof
by the terms of the Multiemployer Plan or by the terms of any
collective bargaining agreement and it has no material
contingent liability with respect to any Multiemployer Plan; and
(9) the Company does not expect to terminate or withdraw
from (in a complete withdrawal as defined in Section 4203 of
ERISA or in a partial withdrawal as defined in Section 4205 of
<PAGE>
ERISA), any Multiemployer Plan, nor is the Company aware of
any withdrawal liability (as defined in Section 4201 of ERISA)
assessed against the Company with respect to any Multiemployer
Plan under Subtitle E of Title IV of ERISA.
2.01.24 Intellectual Property. Section 2.01.24 of the
Disclosure Schedule sets forth a correct and complete list of all
letters patent, patent applications, trade names, trademarks,
service marks, trademark registrations and applications, copyright
registrations and applications, and all agreements, licenses and
other rights with respect to any intellectual property, both
domestic and foreign, presently owned, possessed, used or held by
a DI Company or necessary for the conduct of any of its businesses
(the "Intellectual Property"). Except as set forth in such Section
2.01.24:
(a) DI Companies own or have binding, enforceable rights
to use the Intellectual Property;
(b) to the Knowledge of DI, neither the conduct of any
business of the DI Companies nor any of the products sold or
services provided by the DI Companies infringes upon or is
inconsistent with the rights of any other Person; and
(c) to the Knowledge of DI, neither the conduct of any
other Person's business nor the nature of any of the products
it sells or services it provides infringes upon or is
inconsistent with any Intellectual Property rights of DI Companies
except for such infringements or inconsistencies that have not
had and are not in the aggregate reasonably likely to have a
Material Adverse Effect.
2.01.25 Insurance. The Company has in effect insurance
coverage of such types and amounts as is believed to be adequate by
the Company to cover the perceived risks of its businesses, taking
into account availability and pricing of such insurance. There are
no defaults of the Company with respect to any such policies which
would in the aggregate be reasonably likely to result in a denial
of coverage, termination of policy or material increase in premium.
2.01.26 Proxy Statement. The proxy statement to be
mailed to the shareholders of the Company in connection with the
Special Meeting (the "Proxy Statement") and any amendment thereof
or supplement thereto (excluding any information supplied by
Purchaser or Merger Company for inclusion therein), when mailed
and at the time of the Special Meeting, shall not contain any untrue
statement of a material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
2.01.27 Interested Transactions. To the Knowledge of DI
and except as set forth in the SEC Filings or in Section 2.01.27 of
<PAGE>
the Disclosure Schedule, no director or officer of the Company and
no Shareholder owning more than five percent (5%) of the Shares (a)
owns, directly or indirectly, any interest in, or is a director,
officer, substantial stockholder or employee of, or consultant to,
any competitor, lessor, sublessee, supplier, customer or
distributor of either DI Company or is in any other way associated
with or involved in any businesses conducted by the DI Companies other than
in such capacity as a director, officer or shareholder of the
Company, (b) owns, directly or indirectly, in whole or in part,
any property, asset or right, tangible or intangible, which is
associated with any property, asset or right owned by the DI
Companies or which the DI Companies are presently operating or using or the
use of which is presently contemplated for its business, or (c) is
an official or employee of, or is otherwise connected with, any
labor organization having dealings with the Company.
2.01.28 Brokers and Finders. Except for Ernst & Young
LLP and Houlihan, Lokey, Howard & Zukin, Inc., neither DI nor any
of its officers, directors, shareholders or employees has employed
any broker, finder or financial advisor or incurred any liability
for any financial advisory fees, brokerage fees, commissions or
finders' fees, and no other broker or finder has acted for DI,
directly or indirectly, in connection with this Agreement or the
transactions provided for herein.
2.01.29 Since August 31, 1994. Except as indicated in
Section 2.01.29 of the Disclosure Schedule, since August 31, 1994:
(a) DI has not paid, declared or made any dividends or
other distributions on or with respect to its stock or
purchased, redeemed or otherwise acquired any of its stock;
(b) there has been no material adverse change in the
condition (financial or otherwise), assets, liabilities
(contingent or otherwise), business, operations, prospects,
facilities or profitability of DI;
(c) DI has not sold or otherwise disposed of any material
assets or incurred or become subject to any material
liabilities, contingent or otherwise, other than in the Ordinary
Course;
(d) DI has not paid or agreed to pay any bonuses or
granted or agreed to grant any raises to any of its employees
or established or agreed to establish or improve any Plans or
Arrangements for any of its employees;
(e) DI has not made any loans to any of its officers,
directors or Shareholders or to any Affiliate of any of its
officers, directors or Shareholders, other than advances in
the Ordinary Course;
<PAGE>
(f) DI has not entered into any contract, lease or
transaction or made any commitment, which contract, lease,
transaction or commitment is expected to be materially adverse
to DI or any of its businesses;
(g) DI has not written off any material receivable or
determined that any material receivable is uncollectible or
granted any material and unusual discount to any Person for
any other reason;
(h) DI has not executed any guaranty except in the Ordi-
nary Course or entered into or modified any loan or credit
agreement or any contract concerning any line or credit or
similar financing agreement or arrangement;
(i) no material damage or destruction has occurred to any
facility or material assets of DI, whether or not covered by
insurance; and
(j) no other event has occurred which reasonably might be
expected to have a Material Adverse Effect.
2.01.30 No Misleading Statements. The representations
and warranties of the Company set forth in this Section 2.01 and
the information provided in the Disclosure Schedule do not contain
any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements herein or therein,
in light of the circumstances under which they were made, not
mis-leading.
2.02 Of Purchaser and Merger Company. Purchaser and Merger
Company, jointly and severally, hereby represent and warrant to the
Company as hereinafter set forth in this Section 2.02. As used
herein, "Purchaser Company" means each of Purchaser and Merger
Company. All of these representations and warranties shall expire
at the Effective Time. None of the officers or directors of either
Purchaser Company will have any personal liability with respect to
any representations or warranties hereinafter set forth in this
Section 2.02.
2.02.01 Organization and Authority. Each Purchaser
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware in the case
of Purchaser and New York in the case of Merger Company, with full
power and authority to own, lease and operate its property and to
carry on its business as now being conducted. The copies of the
certificates of incorporation and by-laws of Purchaser Companies
heretofore delivered to the Company are correct and complete as of
the date of this Agreement.
2.02.02 Authorization. Purchaser Companies have full
corporate power and authority to enter into this Agreement and to
<PAGE>
carry out their obligations hereunder. The execution and delivery
of this Agreement and the consummation of the transactions provided
for herein have been duly authorized by their respective Boards of
Directors and by Purchaser as the sole shareholder of Merger
Company, and no other corporate proceedings on the part of either
Purchaser Company are necessary to authorize this Agreement and the
transactions provided for herein. This Agreement has been duly
executed and delivered by each Purchaser Company and is a legal,
valid and binding obligation of each Purchaser Company, enforceable
against each Purchaser Company in accordance with its terms,
subject to the qualification, however, that enforcement of the
rights and remedies created hereby is subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general application relating to or affecting creditors' rights and
to general equity principles.
2.02.03 No Violations. Neither the execution and
delivery of this Agreement by Purchaser Companies, nor the
consummation of the transactions provided for herein, nor compliance by
Purchaser Companies with any of the provisions hereof will (a)
violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or
result in
a right of termination or acceleration, or the creation of any
lien, claim, security interest, charge or encumbrance upon any of
the properties or assets of either Purchaser Company, under any of
the terms, conditions or provisions of (1) its certificate of
incorporation or by-laws, (2) any note, bond, mortgage, indenture,
deed of trust or other financing document, or (3) any license,
permit, lease, agreement or other instrument or obligation to which
either Purchaser Company is a party, or by which either of them is
bound or any of their properties or assets may be subject, or (b)
violate any judgment, ruling, order, writ, injunction or decree in
effect as of the date hereof or any statute, rule or regulation,
applicable to either Purchaser Company or any of their assets.
2.02.04 Consents. Other than the filing of the
Certificate of Merger in compliance with the NYBCL, no notice or
report to, filing with, or authorization, consent or approval of, any
public body or authority is necessary for the execution, delivery
and performance by either Purchaser Company of this Agreement. No
notification is required under the Hart-Scott-Rodino Act.
2.02.05 Proxy Statement. The information to be supplied
in writing by Purchaser Companies specifically for inclusion in the
Proxy Statement or in any amendment thereof or supplement thereto,
when mailed and at the time of the Special Meeting, shall not
contain any untrue statement of a material fact, or omit to state
any material fact necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading.
<PAGE>
2.02.06 Financing. Purchaser has (and will maintain at
all times until the Closing or termination of this Agreement) a net
worth of at least $360,000; it has deposited that amount in cash in
an escrow account at Harris Trust and Savings Bank pursuant to an
ESCROW AGREEMENT among Purchaser, DI and Harris Trust of even date
herewith (the "Escrow Agreement"). Purchaser has provided DI with
a binding commitment from DYSON, DYSON & DUNN, INC., a Delaware
corporation affiliated with Purchaser ("DD&D"), to provide up to
$20,000,000 to pay all costs and expenses required to consummate
the transactions contemplated by this Agreement, including the
payment of the Merger Price for all of the Shares, contingent only
upon the Closing occurring, if other financing is not available to
Purchaser by the Closing Date. Upon consummation of the Merger and
the completion of all financing obtained by Purchaser in connection
with the transactions contemplated by this Agreement, DI will have
a minimum shareholder's equity of at least $2,000,000, on a
consolidated basis, determined in accordance with GAAP
consistently applied, disregarding any goodwill or other intangible assets that
may arise in connection with the transactions contemplated by this
Agreement.
2.02.07 Solvency. DI will not be rendered insolvent, as
defined in Article 10 of the Debtor and Creditor Law of the State
of New York or any other applicable bankruptcy or insolvency law,
federal or state, by reason of any financing obtained by Purchaser
in connection with the transactions contemplated by this Agreement;
and the consummation of the Merger and any such financing will not
result in a violation of the Debtor and Creditor Law of the State
of New York or any other applicable bankruptcy or insolvency law,
federal or state.
2.02.08 Future Business Combination. Purchaser is not
negotiating for and has no present intention of causing the Company
to engage in a Business Combination (as defined herein) subsequent
to the Closing.
ARTICLE 3
CERTAIN ADDITIONAL COVENANTS
3.01 Conduct of the Company's Business. Except as expressly
contemplated by this Agreement or as disclosed in Section 2.01.29
of the Disclosure Schedule, during the period from the date of this
Agreement to the Effective Time, the Company covenants and agrees
that the businesses of DI Companies will be conducted only in the
Ordinary Course, that the Company will use all reasonable efforts
to maintain and preserve the business organizations, business
prospects, employees and advantageous business relationships of the
DI Companies, and that neither DI Company will take any of the
following actions or permit to occur any of the following events
without the prior written consent of the Chairman of the Board of
Purchaser, which shall not be unreasonably withheld:
<PAGE>
(a) except to allow the Company to comply with all of its
obligations under the Revolving Credit Agreement as in effect
on the date hereof or in the Ordinary Course, pay, discharge
or satisfy any material debt, liability or obligation (whether
accrued, absolute, contingent or otherwise);
(b) except in favor of EAB or in the Ordinary Course,
permit or allow any material assets (whether tangible or
intangible) to be subjected to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge;
(c) write off as uncollectible any notes or accounts
receivable or write down the value of any inventory other than
in immaterial amounts or in the Ordinary Course;
(d) cancel or waive any claims or rights of value or
sell, transfer, distribute or otherwise dispose of any
material assets, except in the Ordinary Course;
(e) dispose of or permit to lapse any rights in, to or
for the use of any Intellectual Property or disclose to any
Person not an employee or otherwise dispose of any trade
secret, process or know-how not theretofore a matter of public
knowledge, except in the Ordinary Course or pursuant to
judicial or administrative process;
(f) grant any increase in the base compensation or other
payment to any director, officer or employee, whether now or
hereafter payable or granted (other than increases in
compensation in the Ordinary Course) or grant any severance or
termination pay (other than for severance pay in amounts
consistent with the Company's established severance pay
practices), or enter into or vary the terms of any employment agreement
with any such person;
(g) except as to amounts budgeted as of the date hereof,
make any capital expenditure or commitment in excess in each
case of $50,000 for additions to property, plant or equipment,
or lease or agree to lease any assets which, if they had been
purchased, would be reflected in the property, plant or
equipment accounts of the Company and for which total rental
payments would exceed $50,000;
(h) make any change in any method of accounting or keep-
ing its books of account or accounting practices other than as
disclosed in the SEC Filings;
(i) enter into or modify any material agreement outside
the Ordinary Course;
(j) authorize for issuance, issue, deliver or sell any
debt or equity securities or any options, warrants or other
<PAGE>
rights to purchase any of the foregoing or any instruments or
contracts convertible into or exchangeable for any securities,
or alter the terms of any outstanding securities issued by it
or, other than in the Ordinary Course, increase its
indebtedness for borrowed money;
(k) declare, pay or set aside for payment any dividend or
other distribution (whether in cash, stock or property or
otherwise) in respect of any of the Company's Common Stock, or
redeem, purchase or otherwise acquire any such Common Stock;
(l) amend its Certificate of Incorporation or by-laws or
the certificate of incorporation or by-laws of DFSC or any
Joint Venture Documents;
(m) enter into, amend or modify any collective bargaining
agreement, employment agreement, severance agreement, phantom
stock, deferred compensation or similar agreement, Arrangement
or Plan.
At the Closing DI will adopt an Incentive Bonus Plan in the form of
Exhibit D attached hereto.
3.02 Access and Information. Upon reasonable notice, the
Company shall afford to Purchaser, and the Purchaser's accountants,
counsel and other representatives, reasonable access, during normal
business hours during the period prior to the Effective Time, to
all of the properties, books, contracts, commitments and records of
the Company. During such period, the Company shall furnish
prompt-ly to Purchaser all other information concerning the
business, properties and personnel of the Company as Purchaser may
reasonably request. No investigation pursuant to this Section 3.02 shall be
deemed to modify any representation or warranty made by the Company
in Section 2.01.
3.03 Proxy Statement. As soon as reasonably practicable
after the date hereof, the Company shall prepare and file the Proxy
Statement with the Commission. In connection with the foregoing,
(a) the Company will comply in all material respects with the
re-quirements of the Exchange Act applicable to the solicitation of
proxies for the Special Meeting (including any requirement to amend
or supplement the Proxy Statement) and (b) each Purchaser Company
shall furnish to the Company such information relating to it and
its Affiliates and the transactions contemplated by this Agreement
and such further and supplemental information as may be necessary
or as may be reasonably requested by the Company to ensure that the
statements regarding Purchaser Companies and their Affiliates and
such transactions contained in the Proxy Statement (as it may be
amended or supplemented) will not on the date such Proxy Statement
is mailed and on the date of the Special Meeting contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
<PAGE>
circumstances in which they were made, not misleading.
3.04 Meeting of Shareholders. The Company shall take all
action necessary in accordance with all applicable laws and its
Certificate of Incorporation and by-laws to convene a meeting of
the Shareholders (the "Special Meeting") as promptly as practicable
to consider and vote upon the approval and adoption of the Merger
and such other matters as may be necessary to effectuate the
transactions provided for herein. The Board of Directors of DI
(the "DI Board") has resolved to recommend such approval and adoption to
the Shareholders, and except as the DI Board determines, after it
receives a written opinion of outside counsel to the Company, that
it is required not to do so to satisfy its fiduciary duties, the DI
Board shall continue to recommend, and shall take all lawful action
to solicit proxies for and otherwise obtain, such approval and
adoption at the earliest practicable date. A copy of any such
written opinion shall be provided to Purchaser.
3.05 Regulatory Matters. Purchaser and the Company will use
their reasonable best efforts to (a) obtain any consent,
authoriza-tion, order or approval of any governmental or regulatory
body, (b) have declared effective or approved all documents and notifications
with the Commission and other governmental or regulatory bodies,
including the NASD with respect to NASDAQ, and (c) cause any United
States or state court or other governmental or regulatory body to
lift, withdraw or otherwise cause to cease to have effect any
non-final, appealable judgment, decree or other order which is in
effect and prohibits consummation of the transactions contemplated
by this Agreement that, in the case of (a), (b) or (c) above, are
or they deem necessary or appropriate for the consummation of the
Merger and the transactions provided for herein; and each of DI and
Purchaser shall give the other all information reasonably requested
by such other Party pertaining to it and its Affiliates reasonably
necessary to enable such other Party to take such actions.
3.06 Supplements to Disclosure Schedule. From time to time
prior to the Effective Time, the Company will promptly supplement
or amend the Disclosure Schedule with respect to any matter
hereafter arising which, if existing or occurring at the date of
this Agreement, would have been required to be set forth or described in
the Disclosure Schedule. However, no such supplement or amendment
of the Disclosure Schedule shall be deemed to cure any breach of
any representation or warranty made in Section 2.01 of this
Agree-ment unless Purchaser specifically agrees thereto in writing.
3.07 Additional Financial Statements. The Company shall
furnish Purchaser with unaudited financial statements for the
Company for monthly periods ending after April 30, 1995 and for quarterly
periods ending after February 28, 1995 and prior to the Closing
Date as soon as they become available, and such other financial
statements as Purchaser may reasonably request.
<PAGE>
3.08 No Solicitation. Neither the Company nor any of its
officers, directors, Shareholders who sign the Support Agreement,
employees, representatives, agents or Affiliates, shall, except as
the DI Board determines in good faith, after consultation with
legal counsel, that it has an obligation to do otherwise in order
to comply with New York law: (a) directly or indirectly, encourage,
solicit, initiate contact with or participate in any way in any
discussions or negotiations with, or provide any information to, or
afford any access to the properties, books or records of the
Company to, or otherwise assist or facilitate any Person or group
(other than Purchaser or an Affiliate of Purchaser) concerning any
acquisition or proposed acquisition by means of a merger,
consolidation, sale of substantial assets of DI, tender or
exchange offer, or other acquisition of one-third or more of the Company's
shares of voting stock to be outstanding after the closing or consummation
thereof (a "Business Combination"); or (b) enter into any
understanding, agreement or arrangement with any third party
providing for a Business Combination. The Company shall promptly notify
Purchaser if any such information is requested from it or if any
such negotiations or discussions are sought to be initiated with
the Company and shall promptly provide Purchaser with such
information with respect thereto as Purchaser may request.
Notwithstanding anything in the foregoing to the contrary, this
Section shall not prohibit any disclosure by the Company that is
required in any regulatory filing, including the Proxy Statement,
or that is otherwise required under applicable law. Nothing shall
restrict DI from responding to a non-solicited communication that
it believes to be a bona fide proposal for a Business Combination.
3.09 Best Efforts. Subject to the terms and conditions
herein provided, each of the Parties shall use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective
the transactions provided for in this Agreement, including using
their reasonable best efforts to satisfy the Conditions. The
Company and Purchaser will use their reasonable best efforts to
obtain consents of all third parties and governmental bodies
necessary or, in the opinion of Purchaser, desirable for the
consummation of the transactions contemplated by this Agreement.
3.10 Certain Notifications. At all times until the Effective
Time, each Party shall promptly notify the other in writing of the
occurrence of any event which will or may result in the failure to
satisfy any of the Conditions.
3.11 Indemnification. Purchaser agrees that from and after
the Effective Time the Company will indemnify and hold harmless
each present and former director and officer of the Company (the
"Indemnified Parties") against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") incurred by any
<PAGE>
Indemnified Parties in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing
or occurring at or prior to the Effective Time, whether asserted or claimed
prior to, at or after the Effective Time, to the full extent
permitted under the NYBCL (and the Company shall advance expenses
as incurred to the full extent permitted under the NYBCL, including
any claim, action, suit, proceeding or investigation relating to
this transaction, such as claims that this transaction is not fair
to the Shareholders, or the Proxy Statement, provided that the
Indemnified Party to whom the expenses are advanced provides an
undertaking reasonably acceptable to Purchaser to repay all such
advances if it is ultimately determined that such Indemnified Party
is not entitled to indemnification). Purchaser shall cause DI to
purchase at the Closing a three-year tail from the company that
issued the present policy of directors and officers' liability
insurance maintained by the Company. The provisions of this
Section 3.11 shall survive the Effective Time and shall be
enforceable by the beneficiaries of such indemnification rights.
3.12 News Releases. DI agrees that, except as otherwise
required by law, no news release or other public announcement with
respect to this Agreement or the transactions provided for herein
shall be made without the prior consent of Purchaser, which will
not be unreasonably withheld or delayed. Purchaser will not make
any such release or announcement without the prior consent of DI.
3.13 Payment of Expenses. Each Party shall bear and pay all
costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated hereby, including the fees and
expenses of its own financial consultants, accountants and counsel.
3.14 Shareholder List and Voting Results. The Company shall
deliver to Purchaser, as soon as practicable following the Special
Meeting, a list of the Shareholders, as of the date of the Special
Meeting, certified by the Company's transfer agent, and a list of
all Shareholders who voted for the Merger or objected in writing to
the Merger, including the number of Shares held by each, certified
by the Company's Secretary.
ARTICLE 4
CONDITIONS PRECEDENT TO THE MERGER
4.01 Conditions to Each Party's Obligations. The respective
obligations of each Party to effect the Merger shall be subject to
the fulfillment, at or prior to the Effective Time, of each of the
following conditions:
4.01.01 Governmental Consents. Except for the filing of
the Certificate of Merger in compliance with the NYBCL, all
con-sents, authorizations, orders and approvals of, and filings and
registrations with, any federal or state governmental commission,
<PAGE>
board or other regulatory body that are required for the
consummation by each Party of the transactions provided for herein
shall have been obtained or made.
4.01.02 Shareholder Approval. The Agreement and all
other matters necessary to effectuate the transactions provided for
herein, including the Merger, shall have been approved and adopted
by the requisite vote of the Shareholders, in accordance with the
NYBCL and the Company's Certificate of Incorporation and by-laws.
4.01.03 Prohibitions. No United States or state court
or governmental or regulatory authority, agency, court, commission
or other entity of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule,
regula-tion, judgment, decree, injunction or other order (whether
tempo-rary, preliminary or permanent) which prohibits consummation
of the
transactions contemplated by this Agreement.
4.02 Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger shall be subject to
the fulfillment, at or prior to the Effective Time, of each of the
following conditions:
4.02.01 Representations and Warranties. The
representations and warranties of Purchaser Companies set forth in
Section 2.02 shall be true and correct in all material respects as of the
date of this Agreement and as of the Effective Time, as though made
at and as of the Effective Time, except as otherwise contemplated
in this Agreement, and the Company shall have received a Purchaser
Closing Certificate to that effect. As used herein, "Purchaser
Closing Certificate" means a certificate in form and substance
reasonably satisfactory to Company, dated the Closing Date, and
signed by the Chairman of the Board or the Treasurer of Purchaser,
neither of whom shall have any personal liability under any
Pur-chaser Closing Certificate.
4.02.02 Performance of Obligations. Purchaser Companies
shall have performed in all material respects their obligations
required to be performed by them under this Agreement prior to the
Effective Time, and the Company shall have received a Purchaser
Closing Certificate to that effect.
4.02.03 Initial Funding. Purchaser shall have provided
the Exchange Agent with the funds required by the first sentence of
Subsection 1.06.03.
4.02.04 Opinion of Purchaser's Counsel. At the Closing,
DI shall receive a signed opinion of Purchaser's Counsel, dated the
Closing Date and in the form of Exhibit E hereto.
4.03 Conditions to Obligations of Purchaser Companies. The
obligations of Purchaser Companies to effect the Merger shall be
<PAGE>
subject to the fulfillment, at or prior to the Effective Time, of
each of the following conditions:
4.03.01 Representations and Warranties. The
representations and warranties of DI set forth in Section 2.01
shall be true and correct in all material respects as of the date of this
Agreement and as of the Effective Time, as though made at and as of
the Effective Time, except as otherwise contemplated in this
Agreement, and Purchaser shall have received a Company Closing
Certificate to that effect. As used herein, "Company Closing
Certificate" means a certificate in form and substance reasonably satisfactory
to Purchaser, dated the Closing Date, and signed by the President,
Executive Vice President and Senior Vice President of the Company,
none of whom shall have any personal liability under any Company
Closing Certificate.
4.03.02 Performance of Obligations. The Company shall
have performed in all material respects its obligations required to
be performed by it under this Agreement prior to the Effective
Time, and Purchaser shall have received a Company Closing
Certificate to that effect.
4.03.03 No Material Adverse Change. Since February 28,
1995, the date of the last quarterly financial statements received
by Purchaser prior to entering into this Agreement, there shall
have been no material adverse change in the businesses, condition
(financial or otherwise), results of operations or prospects of the
DI Companies, taken as a whole, and Purchaser shall have received
a Company Closing Certificate to that effect.
4.03.04 Consents. The Company shall have obtained all
consents, waivers and approvals of third parties required to avoid
a default or violation of any contract, agreement or lease or any
other adverse consequence to DI by reason of the consummation of
the Merger, excluding such consents, waivers and approvals, if any,
the failure of which to obtain is not reasonably likely to have a
Material Adverse Effect, and the consents of European American Bank
and the Landlord.
4.03.05 New Employment Contracts. Purchaser shall have
received an Employment Contract executed on the Closing Date by
Martin Hoffman in the form of Exhibit F hereto, by Frank Buchsbaum
in the form of Exhibit G hereto, and by Hitoshi Tanaka in the form
of Exhibit H hereto (collectively, the "Employment Contracts").
4.03.06 Dissenting Shares. No more than ten percent
(10%) of the Shares shall be Dissenting Shares.
4.03.07 Opinion of DI General Counsel. At the Closing,
Purchaser shall receive a signed opinion of DI General Counsel,
dated the Closing Date and in the form of Exhibit I hereto.
<PAGE>
ARTICLE 5
TERMINATION AND TERMINATION FEES
5.01 Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval
of the Merger by the Shareholders:
(a) by mutual consent of the Company and Purchaser;
(b) by Purchaser, upon written notice received by DI
prior to the Proxy Statement Mailing Date, to the effect that
Purchaser is terminating this Agreement because of materially
adverse information discovered during due diligence;
(c) by either the Company or Purchaser, upon written
notice to the other, if the Merger has not taken place by
December 31, 1995;
(d) by either the Company or Purchaser, upon written
notice to the other, if the Shareholders fail to approve the
Merger at the Special Meeting;
(e) by Purchaser, upon written notice to the Company, if
more than ten percent (10%) of the Shares issued and outstand-ing
at the time of the Special Meeting are Dissenting Shares;
(f) by either Purchaser or the Company, upon written
notice to the other, if the Company or its Board of Directors
withdraws, modifies or amends, in any respect that is adverse
to Purchaser, its recommendation of the Merger, so long as, in
the case of termination by the Company, it shall have proffered to
Purchaser, immediately prior to such termination, the
amount owing under Subsection 5.02.01; or
(g) by either the Company or Purchaser, upon written
notice to the other, if the Company enters into a letter of
intent, agreement in principle or other agreement with any
Person (other than Purchaser or its Affiliates) relating to a
Business Combination, so long as, in the case of termination
by the Company, it shall have proffered to Purchaser, immediately
prior to such termination, the amount owing under
Subsection 5.02.01.
In the event of the termination of this Agreement pursuant to this
Section 5.01, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of either Purchaser
Company or the Company or their respective officers, directors,
employees, shareholders, agents, advisors, Affiliates or other
representatives hereunder, except under Section 5.02.
<PAGE>
5.02 Termination Fees.
5.02.01 Payable to Purchaser. In the event that the
Merger is not consummated and Purchaser is not in material breach
of any representation or warranty contained in Section 2.02 or any
covenant contained in Article 1 or 3 and one or more of the events
set forth in clause (a) through (g) below occurs on or prior to the
date of termination of this Agreement or within six (6) months
thereafter, the Company shall pay to Purchaser the sum of $180,000,
in the case of any of the events set forth in clause (a) below, or
$360,000, in the case of any of the events set forth in clauses (b)
through (g) below, less any amount that previously may have been
paid by the Company pursuant to clause (a) below, it being agreed
that the amount, if any, payable pursuant to clause (a) below shall
become due and payable to Purchaser immediately upon termination of
this Agreement:
(a) either (1) the Shareholders shall not have approved
the Merger at the Special Meeting although the parties to the
Support Agreement shall have voted for the Merger all of the
Shares therein agreed to be voted for the Merger, or (2) more
than ten percent (10%) of the Shares issued and outstanding at
the time of the Special Meeting shall be Dissenting Shares, or
(3) a material adverse change of the kind contemplated by
Subsection 4.03.03 shall have occurred but there shall be no
material breach of any of the representations or warranties of
the Company contained in Section 2.01;
(b) there is a material breach by the Company of (1) any
representation or warranty contained in Section 2.01 and made
as of the date hereof or (2) any covenant contained in Article
1 or 3;
(c) the parties to the Support Agreement shall not have
voted for the Merger all of the Shares therein agreed to be
voted for the Merger;
(d) DI or its Board of Directors withdraws or modifies or
amends in any respect adverse to Purchaser its recommendation
of the Merger prior to or during the Special Meeting;
(e) DI enters into an agreement (including an agreement
in principle or letter of intent), other than with Purchaser
or one of its Affiliates, with respect to a Business
Combination;
(f) the Company enters into one or more agreements or
plans which, individually or in the aggregate, would result in
the sale or other disposition of more than 50% of its total
assets or earning power; or
(g) the directors or shareholders of the Company resolve
<PAGE>
to take any action that would result in any of the foregoing
or the Company publicly announces any such action.
In no event will the aggregate amount payable by the Company to
Purchaser pursuant to this Subsection 5.02.01 exceed $360,000. If
any amount becomes payable to Purchaser pursuant to clause (a),
(b), (c) or (d) of the preceding sentence, it shall be payable
immediately upon termination of this Agreement. If any amount (or
if any additional amount) becomes payable to Purchaser pursuant to
clause (e) through (g) of the preceding sentence, it shall be
payable at the time of the event mentioned in such clause. If any
such amount is not paid when it becomes due, it shall thereafter
bear interest at the rate of twelve percent (12%) per annum until
it is paid, and Purchaser shall be entitled to recover all costs
and expenses, including reasonable attorneys' fees and
disbursements, incurred in connection with the collection thereof.
The Company shall make any such payment as compensation and liquidated
damages for the loss suffered by Purchaser as a result of the
failure of the Merger to be consummated and to avoid the difficulty
of determining actual damages in that circumstance, and such
payment shall be the sole and exclusive remedy of Purchaser
against the Company and any of its shareholders, directors, officers,
employees, agents, advisors, Affiliates or other representatives
regardless of the circumstances giving rise to such payment. If
Purchaser files an action or arbitration proceeding against the
Company to recover the amount payable under this Subsection 5.02.01
and Purchaser fails to prevail, Purchaser shall pay all costs and
expenses, including reasonable attorneys' fees, incurred by the
Company in connection therewith. The rights, remedies and
obligations set forth in this Subsection 5.02.01 shall survive
termination of this Agreement. Notwithstanding the foregoing
provisions of this Subsection, no termination fee shall be payable hereunder
if a court injunction or other court action prevents the Merger
from being consummated.
5.02.02 Payable to the Company. In the event that (a)
the Merger is not consummated, (b) the Company is not in material
breach of any representation or warranty contained in Section 2.01
or any covenant contained in Article 1 or 3, (c) no Shareholder who
signed the Support Agreement (and no Permitted Transferee, as
defined therein) is in material breach of any provision thereof,
and (d) Purchaser is in material breach of any representation or
warranty contained in Section 2.02 or covenant contained in Article
1 or 3, Purchaser shall pay to DI the sum of $360,000 immediately
upon termination of this Agreement. If such amount is not paid
when it becomes due, it shall thereafter bear interest at the rate
of twelve percent (12%) per annum until paid, and the Company shall
be entitled to recover all costs and expenses, including reasonable
attorneys' fees and disbursements, incurred in connection with the
collection thereof. Purchaser shall make any such payment as
compensation and liquidated damages for the loss suffered by the
Company as a result of the failure of the Merger to be consummated and
<PAGE>
to avoid the difficulty of determining actual damages in that
circumstance, and such payment shall be the sole and exclusive
remedy of the Company against Purchaser and any of its shareholders,
directors, officers, employees, agents, advisors, Affiliates or
other representatives regardless of the circumstances giving rise
to such payment. If DI files an action or arbitration proceeding
against Purchaser to recover the amount payable under this
Subsection 5.02.02 and DI fails to prevail, DI shall pay all costs
and expenses, including reasonable attorneys' fees, incurred by
Purchaser in connection therewith. The rights, remedies and
obligations set forth in this Subsection 5.02.02 shall survive
termination of the Agreement. Notwithstanding the foregoing
provisions of this Subsection, no termination fee shall be payable hereunder if
a court injunction or other court action prevents the Merger from
being consummated.
ARTICLE 6
DEFINITIONS
6.01 Specific Definitions. When used in this Agreement, the
following terms shall have the following meanings (each of which,
where appropriate, shall be applicable to the singular as well as
the plural form of the defined term):
"Affiliate" means with respect to a specified Person (the
"First Person") (a) any Person that directly or indirectly through
one or more intermediaries controls, alone or through an affiliated
group, is controlled by, or is under common control with the First
Person, (b) any Person that is an officer, director, partner, or
trustee of, or serves in a similar capacity with respect to, the
First Person or of which the First Person is an officer, director,
partner, or trustee, or with respect to which the First Person
serves in a similar capacity, (c) any Person that directly or
indirectly is the beneficial owner of 5% or more of any class of
equity securities of, or otherwise has a substantial beneficial
interest in, the First Person or of which the First Person is
directly or indirectly the owner of 5% or more of any class of
equity securities or in which the First Person has a substantial
beneficial interest, or (d) any spouse, descendant, ancestor or
sibling of the First Person.
"Agreement" means this Agreement, as amended from time to
time.
"Arrangement" has the meaning set forth in Subsection
2.01.23.
"Backup Withholding" has the meaning set forth in
Subsec-tion 1.06.04.
"Base Balance Sheet" has the meaning set forth in
Subsec-tion 2.01.09.
<PAGE>
"Business Combination" has the meaning set forth in
Sec-tion 3.08.
"Business Day" means any day other than a Saturday,
Sun-day or legal holiday in New York.
"Certificate of Merger" has the meaning set forth in
Section 1.02.
"Closing" has the meaning set forth in Section 1.02.
"Closing Date" has the meaning set forth in Section 1.02.
"Code" means the Internal Revenue Code of 1986, as
amend-ed from time to time, and all regulations promulgated
thereunder.
"Commission" means the Securities Exchange Commission.
"Conditions" has the meaning set forth in Section 1.02.
"Constituent Corporations" has the meaning set forth in
Section 1.01.
"Costs" has the meaning set forth in Section 3.11.
"DD&D" has the meaning set forth in Subsection 2.02.06.
"DD&D's General Counsel" or "Purchaser's Counsel" means
William E. Barrows, Three First National Plaza, Suite 3750,
Chi-cago, Illinois 60602.
"Department" has the meaning set forth in Section 1.02.
"DFSC" has the meaning set forth in Section 1.01.
"DFSC Shares" has the meaning set forth in Subsection
2.01.03.
"DI" or the "Company" means DESIGNATRONICS INCORPORATED,
a New York corporation.
"DI Board" has the meaning set forth in Section 3.04.
"DI Companies" has the meaning set forth in Section 2.01.
"DI General Counsel" has the meaning set forth in Section
1.02.
"DI Officers" means the present officers of DI.
"Disclosure Schedule" has the meaning set forth in
Section 2.01.
<PAGE>
"Dissenting Holders" has the meaning set forth in
Subsec-tion 1.07.01.
"Dissenting Shares" has the meaning set forth in
Subsec-tion 1.07.01.
"EAB" means European American Bank.
"Effective Time" has the meaning set forth in Section
1.03.
"Employment Contracts" has the meaning set forth in
Sub-section 4.03.05.
"Entity" has the meaning set forth in Subsection 2.01.02.
"ERISA" means the Employee Retirement Security Act of
1974, as amended from time to time, and all regulations promulgated
thereunder.
"Escrow Agreement" has the meaning set forth in
Subsec-tion 2.02.06.
"Exchange Act" means the Securities Exchange Act of 1943,
as amended from time to time, an all rules and regulations
promulgated thereunder by the Commission.
"Exchange Agent" has the meaning set forth in Subsection
1.06.01.
"Exchanged Shares" has the meaning set forth in
Subsec-tion 1.06.01.
"Exercise Price" has the meaning set forth in Section
1.09.
"Facility" has the meaning set forth in Subsection
2.01.19.
"FIFO" means first-in, first-out.
"Financial Statements" has the meaning set forth in
Subsection 2.01.08.
"GAAP" means generally accepted accounting principles.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder.
"Inactive Subsidiary" has the meaning set forth in
Subsection 2.01.02.
<PAGE>
"Indemnified Parties" has the meaning set forth in
Section 3.11.
"Intellectual Property" has the meaning set forth in
Subsection 2.01.24.
"Joint Venture" has the meaning set forth in Subsection
2.01.02.
"Knowledge of DI" has the meaning set forth in Section
2.01.
"Landlord" means the landlord under the Material Leases.
"Latest 10-K" has the meaning set forth in Subsection
2.01.07.
"Management" means the officers and directors of DI.
"Material Adverse Effect" has the meaning set forth in
Subsection 2.01.05.
"Material Contracts" has the meaning set forth in
Subsection 2.01.20.
"Material Leases" has the meaning set forth in Subsection
2.01.19.
"Merger" means the merger contemplated by this Agreement.
"Merger Company" means DD&D-DI MERGER COMPANY, INC., a
New York corporation.
"Merger Price" has the meaning set forth in Section
1.05(c).
"Multiemployer Plan" has the meaning set forth in
Subsection 2.01.23.
"NASD" means the National Association of Securities
Dealers, Inc.
"NASDAQ" means the National Association of Securities
Dealers Automated Quotation System.
"New Hyde Park Leases" means the leases of the premises
occupied by the Company at 2101 Jericho Turnpike and 55 South
Denton Avenue, New Hyde Park, New York.
"NYBCL" means the New York Business Corporation Law, as
amended.
<PAGE>
"Options" has the meaning set forth in Section 1.09.
"Optionholders" has the meaning set forth in Section
1.09.
"Option Plans" has the meaning set forth in Section 1.09.
"Ordinary Course" has the meaning set forth in
Subsec-tion 2.01.09.
"Other DI Document" has the meaning set forth in
Subsec-tion 2.01.04.
"Parties" means the parties to this Agreement.
"Person" (whether capitalized or not) means any natural
or legal person, including any Entity, any trustee, executor or
other fiduciary, any government or governmental entity, agency,
department or instrumentality.
"Plan" has the meaning set forth in Subsection 2.01.23.
"Proxy Statement" has the meaning set forth in Subsection
2.01.26.
"Proxy Statement Mailing Date" means the date on which
the Proxy Statement is mailed to the Shareholders.
"Purchaser" means DD&D-DI ACQUISITION COMPANY, a Delaware
corporation.
"Purchaser Closing Certificate" has the meaning set forth
in Subsection 4.02.01.
"Purchaser Company" has the meaning set forth in Section
2.02.
"Qualified Plan" has the meaning set forth in Subsection
2.01.23.
"Revolving Credit Agreement" means that certain Revolving
Credit Agreement between EAB and the Company, as amended.
"Returns" has the meaning set forth in Subsection
2.01.13(a).
"SEC Filings" has the meaning set forth in Subsection
2.01.07.
"Securities Act" means the Securities Act of 1933, as
amended from time to time, an all rules and regulations
promulgated thereunder by the Commission.
<PAGE>
"Shares" means the issued and outstanding shares of the
Company's Common Stock, par value $.04 per share.
"Shareholders" means holders of Shares.
"Special Meeting" has the meaning set forth in Section
3.04.
"Support Agreement" means the SUPPORT/OPTION AGREEMENT,
of even date, among Purchaser, DI, Management and certain other
Shareholders, as amended.
"Surviving Corporation" means the Company as the survivor
in the Merger.
"Taxes" has the meaning set forth in Subsection 2.01.13.
"Title IV Plan" has the meaning set forth in Subsection
2.01.23.
"Treasury Shares" has the meaning set forth in Section
1.05(a).
6.02 Rules of Construction. This Agreement shall be
con-strued in accordance with the following rules:
(a) "herein", "hereby", "hereunder", "hereof" and other
equivalent words shall refer to this Agreement as an entirety
and not solely to the particular portion of this Agreement in
which any such word is used;
(b) the term "including" shall always be deemed to mean
"including, but not limited to";
(c) all accounting terms set forth herein shall have the
meanings specified by GAAP unless otherwise defined herein;
(d) wherever used herein, any pronoun or pronouns shall
be deemed to include both the singular and plural and to cover
all genders as appropriate; and
(e) the provisions of this Agreement shall be construed
as a whole, according to their fair meaning, without any
presumption that the terms of an agreement shall be more strictly
construed against one party because it prepared the agreement,
it being acknowledged that representatives of all the Parties
have participated in the preparation of this Agreement.
<PAGE>
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.01 Notices. All notices required or permitted to be given
under this Agreement shall be in writing and may be given by
certified or registered mail, postage prepaid, by hand delivery,
by facsimile, or by delivery through Federal Express or any other
private courier service. Such notices shall be mailed, delivered, or faxed
to the following addresses or facsimile numbers:
If to the Company, to:
Mr. Martin Hoffman, President
Designatronics Incorporated
2101 Jericho Turnpike, Box 5416
New Hyde Park, NY 11042-5416
Facsimile: (516) 326-8827
with a copy to:
Mr. Herbert W. Solomon
Hollenberg Levin Solomon Ross & Belsky, LLP
585 Stewart Avenue
Garden City, NY 11530
Facsimile: (516) 745-6642
If to Purchaser or Merger Company, to:
Mr. Joseph M. Dunn
Dyson, Dyson & Dunn, Inc.
980 N. Michigan Avenue, Suite 1400
Chicago, IL 60611
Facsimile: (312) 644-7901
with copies to:
Mr. Peter L. Dyson
Dyson, Dyson & Dunn, Inc.
566 Chestnut Street, Suite 7
Winnetka, IL 60093
Facsimile: (708) 441-5518
Mr. William E. Barrows
Three First National Plaza, Suite 3750
Chicago, IL 60606
Facsimile: (312) 558-7767
Notices shall be effective (a) if mailed with the proper postage
prepaid, three Business Days after the date of mailing, (b) if hand
delivered or delivered by private courier, on the date of delivery,
or (c) if transmitted by facsimile, on the date of transmission.
<PAGE>
7.02 Governing Law. The validity and effectiveness of this
Agreement shall be governed by and construed accordance with the
internal laws of the State of New York, without giving effect to
the provisions, policies or principles of any state law relating to
choice or conflict of laws.
7.03 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective
successors and assigns.
7.04 Counterparts. This Agreement may be executed in one or
more counterparts, each of which may bear the signatures of less
than all the Parties, but all of which together shall constitute
one agreement.
7.05 Entire Agreement. This Agreement, together with the
Exhibits hereto, the Disclosure Schedule, the Support Agreement and
the Escrow Agreement, constitutes the entire agreement among the
Parties with respect to the subject matter of this Agreement, and
no Party shall be bound by any communications between or among any
of them on the subject matter hereof except for the Disclosure
Schedule unless in writing and bearing a date subsequent to the
date of this Agreement. Except for the Support Agreement, the
Escrow Agreement and the Confidentiality Agreement previously
executed by DD&D for the benefit of the Company, any prior written
agreements shall, upon execution of this Agreement, be null and
void.
7.06 Severability. The Parties agree that if any term or
provision of this Agreement contravenes or is invalid under any
federal, state or local law, court decision, rule, ordinance or
regulation, this Agreement shall, as to the jurisdiction in which
such legal authority is promulgated or rendered, be construed as if
it did not contain the offending term or provision, and the
remaining provisions of this Agreement shall not be affected
thereby; provided, however, that if the removal of such offending term or
provision materially alters the burdens or benefits of any of the
Parties under this Agreement, the Parties agree to negotiate in
good faith such modifications to this Agreement as are appropriate
to insure that the burdens and benefits of each Party under such
modified Agreement are reasonably comparable to the burdens and
benefits originally contemplated and expected.
7.07 Captions. The captions herein are inserted for
convenience of reference only and shall not affect the
construction of
this Agreement.
7.08 Amendments. Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement
of the Parties duly authorized by their respective Boards of
Directors at any time prior to the Effective Time; provided,
however, that, after the approval and adoption of this Agreement by the
<PAGE>
Shareholders, no such amendment, modification or supplement shall
change the amount or the form of the consideration to be delivered
to the Shareholders as contemplated by this Agreement or materially
adversely affect the rights of the Shareholders without their
consent or approval.
7.09 Waiver, Remedies. At any time prior to the Effective
Time, the Parties, by action taken by their respective Boards of
Directors, may (a) extend the time for the performance of any of
the obligations or other acts of the Parties, (b) waive any
inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein;
provided, however, that no delay or failure on the part of any
Party to exercise any right, power, or privilege hereunder shall operate
as a waiver thereof, nor shall any waiver on the part of any Party
of any right, power, or privilege hereunder operate as a waiver of
any other right, power, or privilege hereunder, nor shall any
single or partial exercise of any right, power, or privilege
hereunder preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege hereunder. Any
agreement on the part of a Party to any such extension or waiver
shall be valid if set forth in an instrument in writing signed on
behalf of such Party by a duly authorized officer thereof.
IN WITNESS WHEREOF, the Parties have caused this
Agreement to be executed by their respective officers thereunto
duly authorized, all on the date first written above.
DESIGNATRONICS INCORPORATED DD&D-DI ACQUISITION COMPANY
By:/s/Martin Hoffman By:/s/Joseph M. Dunn
Martin Hoffman, President Joseph M. Dunn, Chairman
of the Board
DD&D-DI MERGER COMPANY, INC.
By:/s/Joseph M. Dunn
Joseph M. Dunn, Chairman
of the Board
<PAGE>
<PAGE>
EXHIBIT A TO AGREEMENT AND PLAN OF MERGER
SUBSTANCE OF NEW CHARTER PROVISIONS FOR DI
FIRST: The name of the Corporation is DESIGNATRONICS INCORPORATED.
SECOND: The purposes for which it is formed are to engage in any
lawful act or activity for which corporations may be organized
under the Business Corporation Law, provided that the Corporation
is not formed to engage in any act or activity which requires the
consent or approval of any state official, department, board,
agency or other body, without such consent or approval first being
obtained.
THIRD: The office of the Corporation is to be located in the
County of Nassau, State of New York.
FOURTH: The aggregate number of shares which the Corporation shall
have authority to issue is 1,000, par value $.01 per share.
FIFTH: The Secretary of State is designated as the agent of the
Corporation upon whom process against the Corporation may be
served. The post office address to which the Secretary of State
shall mail a copy of any process against the Corporation served
upon him is: United Corporate Services, Inc., 10 Bank Street,
White Plains, New York 10606.
SIXTH: The name and address of the registered agent which is to be
the agent of the Corporation upon whom process against it may be
served, are United Corporate Services, Inc., 10 Bank Street, White
Plains, New York 10606.
SEVENTH: The personal liability of directors to the Corporation or
its shareholders for damages for breach of duty in such capacity is
eliminated to the fullest extent permitted by law.
<PAGE>
<PAGE>
EXHIBIT B TO AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED
BY-LAWS OF
DESIGNATRONICS INCORPORATED
WHEREAS, on ___________, 1995, DESIGNATRONICS INCORPORATED, a
New York corporation (the "Corporation"), was merged with DD&D-DI
MERGER COMPANY, a New York corporation, pursuant to a certificate
of merger filed on such date with the Department of State of the
State of New York (the "Certificate of Merger"); and
WHEREAS, the Corporation is the Surviving Corporation and the
Certificate of Merger provides that, immediately after the merger,
the by-laws of the Surviving Corporation shall be amended and
re-stated in their entirety to read as follows:
ARTICLE 1
OFFICES
Section 1.01 The principal office of the Corporation shall be
located at 2101 Jericho Turnpike, New Hyde Park, New York
11042-5416, or such other place as the Board of Directors of the
Corpo-ration (the "Board") may from time to time determine.
Section 1.02 The Corporation may have such other offices at
such places, within or without the State of New York, as the Board
may from time to time determine or the business of the Corporation
may require.
ARTICLE 2
MEETINGS OF SHAREHOLDERS
Section 2.01 Meetings of the Corporation's shareholders (the
"Shareholders") for the election of its directors (the "Directors")
and other purposes shall be held at such place as may be fixed by
the Board from time to time and specified in the notice of the
meeting or a duly executed waiver of notice.
Section 2.02 Annual meetings of the Shareholders ("Annual
Meetings"), commencing with 1996, shall be held on such day as may
be fixed by the Board, at such time as the Board may desire, at
which the Shareholders shall elect the Directors and transact such
other business as may come before the Annual Meeting.
Section 2.03 Written notice of each Annual Meeting, stating
the place, date and hour of the Annual Meeting, shall be given not
less than ten or more than fifty days before the date of the
meeting, either personally or by mail or facsimile, by or at the
direction of the Board, to each Shareholder of record entitled to
vote at such Annual Meeting.
Section 2.04 Special meetings of the Shareholders ("Special
Meetings") may be held at such time and place as may be fixed by
<PAGE>
the Board and stated in the notice of the Special Meeting or a duly
executed waiver of notice.
Section 2.05 A Special Meeting, for any purpose or purposes,
may be called by the Board or by the holders of not less than half
of the shares entitled to vote at the Special Meeting.
Section 2.06 Written notice of each Special Meeting, stating
the place, date and hour of the meeting and the purpose or purposes
for which it is called, shall be given, either personally or by
mail or facsimile, not less than ten or more than fifty days before
the date of the meeting, to each Shareholder of record entitled to
vote at the Special Meeting.
Section 2.07 The business transacted at any Special Meeting
of the Shareholders shall be related to the purpose or purposes set
forth in the notice of the Special Meeting.
ARTICLE 3
QUORUM AND VOTING OF STOCK
Section 3.03 Holders of a majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum
at all meetings of the Shareholders for the transaction of business
except as otherwise provided by Section 608 of the Business
Corporation Law of the State of New York, as amended (the "Law"),
or by the Corporation's certificate of incorporation, as amended (the
"Certificate of Incorporation"). If, however, such a quorum shall
not be present or represented at any meeting of the Shareholders,
the Shareholders present, in person or represented by proxy, shall
have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until such a quorum shall
be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be
tran-sacted which might have been transacted at the original
meeting.
Section 3.02 If a quorum is present, the affirmative vote of
a majority of the shares represented at the meeting shall be the
act of the Shareholders, unless the vote of a greater or lesser
number of shares is required by the Law.
Section 3.03 Each outstanding share having voting power shall
be entitled to one vote on each matter submitted to a vote at any
meeting of Shareholders. A Shareholder may vote, either in person
or by proxy executed in writing by the Shareholder or by his duly
authorized attorney-in-fact.
Section 3.04 The Board, in advance of any meeting of the
Shareholders, may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so
appointed, the person presiding at a Shareholders' meeting may,
and, on the request of any Shareholder entitled to vote thereat,
<PAGE>
shall appoint one or more inspectors. In case any person appointed
as inspector fails to appear or act, the vacancy may be filled by
the Board in advance of the meeting or at the meeting by the person
presiding thereat. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict
impartiality and according to the best of his or her ability.
Section 3.05 Whenever Shareholders are required or permitted
to take any action by vote, the action may be taken without a
meeting on written consent, setting forth the action so taken,
signed by the holders of all outstanding shares entitled to vote thereon.
ARTICLE 4
DIRECTORS
Section 4.01 The number of Directors shall be four or such
other number as may be fixed from time to time by the Board or the
Shareholders. Directors shall be at least eighteen years of age
and need not be residents of the State of New York or Shareholders.
The Directors shall be elected at each Annual Meeting, except as
hereinafter provided, and each Director elected shall serve until
the next succeeding Annual Meeting and until his or her successor
shall have been elected and qualified.
Section 4.02 Any or all of the Directors may be removed, with
or without cause, at any time by the vote of the Shareholders at a
Special Meeting called for that purpose or by a unanimous written
consent of the Shareholders.
Section 4.03 Newly created directorships resulting from an
increase in the Board and all vacancies occurring in the Board may
be filled by election at an Annual Meeting or at a Special Meeting
called for that purpose or by the affirmative vote of a majority of
the Board. However, if the number of Directors then in office is
less than a quorum, such newly created directorships and vacancies
may be filled by a vote of a majority of the Directors in office.
A Director elected to fill a vacancy or a newly created director-
ship shall hold office until the next Annual Meeting and until his
or her successor shall have been elected and qualified.
Section 4.04 The business and affairs of the Corporation
shall be managed by the Board which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not
by statute or the Certificate of Incorporation or by these by-laws
directed or required to be exercised or done by the Shareholders.
Section 4.05 The Directors may keep the minute books and the
accounting or financial books of the Corporation, except such as
are required by the Law to be kept within the state, outside the
State of New York, at such place or places as they may from time to
time determine.
<PAGE>
Section 4.06 The Board, by the affirmative vote of a majority
of the Directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish
reasonable compensation of all Directors and Officers for services
to the Corporation as Directors, Officers or otherwise.
ARTICLE 5
MEETINGS OF THE BOARD OF DIRECTORS
Section 5.01 Meetings of the Board, regular or special, may
be held either within or without the State of New York.
Section 5.02 After each Annual Meeting, the first meeting of
the newly elected Board shall be held at such time and place as
shall be fixed by the vote of the Shareholders at the Annual
Meet-ing; and no notice of such meeting shall be necessary to the
newly
elected Directors in order legally to constitute the meeting,
pro-vided a quorum shall be present, or it may convene at such
place
and time as shall be fixed by the consent in writing of all the
Directors.
Section 5.03 Regular meetings of the Board may be held upon
such notice, or without notice, and at such time and at such place
as shall from time to time be determined by the Board.
Section 5.04 Special meetings of the Board may be called by
the Chairman of the Board or any two Directors on two days' notice
to each Director, either personally or by mail or by facsimile.
Section 5.05 Notice of a meeting need not be given to any
Director who submits a signed waiver of notice whether before or
after the meeting, or who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice. Neither
the business to be transacted at, nor the purpose of, any regular
or special meeting of the Board need be specified in the notice or
waiver of notice of such meeting.
Section 5.06 Three of the Directors shall constitute a quorum
for the transaction of business unless a greater or lesser number
is required by law or by the Certificate of Incorporation. The
vote of a majority of the Directors present at any meeting at which
a quorum is present shall be the act of the Board, unless the vote
of a greater number is required by the Law or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of
Directors, the Directors present may adjourn the meeting from time
to time, without notice other than announcement at the meeting,
until a quorum shall be present.
Section 5.07 Unless otherwise restricted by the Certificate
of Incorporation, members of the Board may participate in a meeting
of the Board by means of a conference telephone or similar
communications equipment by means of which all persons participating in
<PAGE>
the meeting can hear each other; and such participation in
a meeting shall constitute presence in person at the meeting.
Section 5.08 Any action required or permitted to be taken at
a meeting of the Directors may be taken without a meeting if a
consent in writing to the adoption of a resolution authorizing the
action so taken, shall be signed by all of the Directors entitled
to vote with respect to the subject matter thereof.
ARTICLE 6
NOTICES
Section 6.01 Whenever, under the provisions of the statutes
or the Certificate of Incorporation or of these by-laws, notice is
required to be given to any Director or Shareholder, it shall not
be construed to mean personal notice, but such notice may be given
in writing, by mail, addressed to such Director or Shareholder, at
his or her address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United
States mail. Notice to Directors or Shareholders may also be given
by facsimile.
Section 6.02 Whenever any notice of a meeting is required to
be given under the provisions of the statutes or under the
Certificate of Incorporation or these by-laws, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent
to the giving of such notice.
ARTICLE 7
OFFICERS
Section 7.01 The officers of the Corporation (the "Officers")
shall be chosen by the Board and shall consist of a Chairman of the
Board (the "Chairman"), a President, an Executive Vice President as
long as Frank Buchsbaum is an Officer and thereafter if determined
by the Board, a Senior Vice President as long as Hitoshi Tanaka is
an Officer and thereafter if determined by the Board, a Secretary.
a Treasurer and such other Vice Presidents and such Assistant
Sec-retaries or Assistant Treasurers as the Board may elect from
time
to time.
Section 7.02 The Board at its first meeting after each Annual
Meeting shall choose a Chairman from among the Directors, a
President, an Executive Vice President and a Senior Vice President
if required or determined by the Board, one or more other Vice
Presidents, a Secretary and a Treasurer, and such Assistant
Secretaries and Assistant Treasurers as the Board my elect. Any two or more
offices may be held by the same person, except the offices of
President and Secretary.
<PAGE>
Section 7.03 The Board may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the Board.
Section 7.04 The salaries of all Officers and agents of the
Corporation shall be fixed by the Board.
Section 7.05 The Officers shall hold office until their
successors are chosen and qualify. Any Officer elected or
appointed by the Board may be removed at any time by the affirmative vote of
a majority of the Board. Any vacancy occurring in any office of
the Corporation may be filled by the Board.
Section 7.06 The Chairman of the Board shall preside at all
meetings of the Directors and the Shareholders. He shall advise
the Shareholders and the Board on general business strategies
involving the Corporation. He shall have the authority to execute
all bonds, notes, mortgages, contracts, leases, agreements and
other instruments and documents on behalf of the Corporation,
except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof
shall be expressly delegated by the Board to some other officer or
agent of the Corporation.
Section 7.07 The President shall be the chief executive and
chief operating officer of the Corporation. He shall have general
and active management of the business of the Corporation and shall
see that all orders and resolutions of the Board are carried into
effect. He shall serve on the Board at the pleasure of the
Shareholders and shall periodically report to the Board on the
progress of the businesses of the Corporation. He shall have the authority
to execute all contracts, leases, agreements and other instruments
and documents relating to the operations of the Corporation, except
where required or permitted by law to be otherwise signed and
exe-cuted and except where the signing and execution thereof shall
be
expressly delegated by the Board to some other officer or agent of
the Corporation.
Section 7.08 The Vice Presidents, including the Executive
Vice President and the Senior Vice President, in the order
determined by the Board from time to time, shall, in the absence
or disability of the President, perform the duties and exercise the
powers of the President and shall perform such other duties and
have such other powers as the Board, the Chairman of the Board or
the President may from time to time prescribe. The Executive Vice
President and the Senior Vice President shall each supervise all
key employees of the Corporation placed under their supervision
from time to time.
Section 7.09 The Secretary shall attend all meetings of the
Board and the Shareholders and record all the proceedings of such
<PAGE>
meetings in a book to be kept for that purpose. He shall give, or
cause to be given, notice of all meetings of the Shareholders and
special meetings of the Board and shall perform such other duties
as may be prescribed by the Board or the Chairman of the Board,
under whose supervision he shall be. He shall have custody of the
corporate seal of the Corporation and he, or an Assistant Secre-
tary, shall have the authority to affix the same to any instrument
requiring it and, when so affixed, it may be attested by his
signature or by the signature of such Assistant Secretary. The
Board may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature.
Section 7.10 The Assistant Secretary or, if there be more
than one, the Assistant Secretaries in the order determined by the
Board, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the
Board or the Chairman of the Board may from time to time prescribe.
Section 7.11 The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects
in the name and to the credit of the Corporation in such deposito-
ries as may be designated by the Board. He shall be the chief
financial officer of the Corporation and shall disburse the funds
of the Corporation as may be ordered by the Board, taking proper
vouchers for such disbursements, and shall render to the Board at
its regular meetings, or when the Board so requires, an account of
all his transactions as Treasurer and of the financial condition of
the Corporation. He shall work with the independent public
accountants retained by the Board from time to time to audit the
financial statements of the Corporation and prepare its tax
returns. If required by the Board, he shall give the Corporation a bond in
such sum and with such surety or sureties as shall be satisfactory to
the Board for the faithful performance of the duties of his office
and for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books,
records, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corpora-
tion.
Section 7.12 The Assistant Treasurer, or, if there shall be
more than one, the Assistant Treasurers in the order determined by
the Board, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the
Board or the Chairman of the Board may from time to time prescribe.
<PAGE>
ARTICLE 8
SHARES
Section 8.01 The shares of the Corporation shall be repre-
sented by certificates. Certificates shall be signed by the
Chairman of the Board and the Secretary or an Assistant Secretary
or the Treasurer or an Assistant Treasurer of the Corporation.
Section 8.02 The Board may direct a new certificate to be
issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed. When
authorizing such issue of a new certificate, the Board, in its discretion and
as a condition precedent to the issuance thereof, may prescribe
such terms and conditions as it deems expedient, and may require
such indemnities as it deems adequate, to protect the Corporation
from any claim that may be made against it with respect to any such
certificate alleged to have been lost or destroyed.
Section 8.03 Upon surrender to the corporation or the
transfer agent of the Corporation of a certificate representing
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, a new certificate shall be
issued to the person entitled thereto, and the old certificate
cancelled and the transaction recorded upon the books of the
Corporation.
Section 8.04 For the purpose of determining the Shareholders
entitled to notice of or to vote at any meeting of Shareholders or
any adjournment thereof, or to express consent to or dissent from
any proposal without a meeting, or for the purpose of determining
Shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action,
the Board may fix, in advance, a date as the record date for any
such determination of Shareholders. Such date shall not be more
than fifty nor less than ten days before the date of any meeting
nor more than fifty days prior to any other action. When a
determination of Shareholders of record entitled to notice of or
to vote at any meeting of Shareholders has been made as provided in this
Section, such determination shall apply to any adjournment thereof,
unless the Board fixes a new record date for the adjourned meeting.
Section 8.05 The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner,
and to hold liable for calls and assessments a person registered on
its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided
by the laws of New York.
<PAGE>
Section 8.06 A list of Shareholders as of the record date,
certified by the Officer responsible for its preparation or by a
transfer agent, shall be produced at any meeting upon the request
thereat or prior thereto of any Shareholder. If the right to vote
at any meeting is challenged, the inspectors of election, or person
presiding thereat, shall require such list of Shareholders to be
produced as evidence of the right of the persons challenged to vote
at such meeting and all persons who appear from such list to be
Shareholders entitled to vote thereat may vote at such meeting.
ARTICLE 9
GENERAL PROVISIONS
Section 9.01 Subject to the provisions of the Certificate of
Incorporation relating thereto, if any, dividends may be declared
by the Board at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in shares of the capital stock or in
the Corporation's bonds or its property, including the shares or
bonds of other corporations subject to any provisions of law and of
the Certificate of Incorporation.
Section 9.02 Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends
such sum or sums as the Directors from time to time, in their sole
and absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interest of
the Corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
Section 9.03 All checks or demands for money and notes of the
Corporation shall be signed by such Officer or Officers or such
other person or persons as the Board may from time to time
desig-nate.
Section 9.04 The fiscal year of the Corporation shall end on
August 31 until changed by a resolution of the Board.
Section 9.05 The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the
words "Corporate Seal, New York". The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or in any
manner reproduced.
ARTICLE 10
INDEMNIFICATION
Section 10.01 The Corporation shall indemnify the present and
former Directors and Officers (collectively, the "Indemnified
Persons" and separately, an "Indemnified Person") to the fullest
extent permitted by the Law. Accordingly, if any Indemnified
<PAGE>
Person is made, or is threatened to be made, a party to an action
or proceeding other than one by or in the right of the Corporation
to procure a judgment in its favor (any such action or proceeding
is referred to herein as a "Third Party Action"), whether civil or
criminal, including an action by or in the right of any other
corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other
enterprise, which any Director or Officer served in any capacity
at the request of the Corporation (any such corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise is
referred to herein as "Another Entity"), by reason of the fact that
he or she, or his or her testator or intestate, was a Director or
Officer of the Corporation, the Corporation shall indemnify such
Indemnified Person against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorney's fees
actually and necessarily incurred as a result of such Third Party
Action, or any appeal therein, if such Director or Officer acted in
good faith, for a purpose which he or she reasonably believed to be
in, or, in the case of service for Another Entity, not opposed to,
the best interests of the Corporation and, in criminal actions or
proceedings, in addition, had no reasonable cause to believe that
his or her conduct was unlawful.
Section 10.02 The termination of any Third Party Action by
judgment, settlement, conviction or upon a plea of nolo contendere,
or its equivalent, shall not in itself create a presumption that
any Director or Officer did not act, in good faith, for a purpose
which he or she reasonably believed to be in, or, in the case of
service for Another Entity, not opposed to, the best interests of
the Corporation or that he or she had reasonable cause to believe
that his or her conduct was unlawful.
Section 10.03 In addition, if any Indemnified Person is made,
or threatened to be made, a party to an action by or in the right
of the Corporation to procure a judgment in its favor (a "Corporate
Action") by reason of the fact that he or she, or his or her
testa-tor or intestate, is or was a Director or Officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer of Another Entity, the Corporation shall
indemnify such Indemnified Person against judgments, fines,
amounts paid in settlement and reasonable expenses, including attorney's fees
actually and necessarily incurred in connection with the defense or
settlement of such Corporate Action, or any appeal therein, if such
Director or Officer acted in good faith, for a purpose which he or
she reasonably believed to be in, or, in the case of service for
Another Entity, not opposed to, the best interests of the Corpora-
tion, except that no indemnification under this Section shall be
made in respect to (1) a threatened or a pending Corporate Action
which is settled or otherwise disposed of, or (2) any claim, issue
or matter as to which such Indemnified Person shall have been
adjudged to be liable to the Corporation, unless and only to the
extent that the court in which such Corporate Action was brought,
<PAGE>
or, if no Corporate Action was brought, any court of competent
jurisdiction, determines upon application that, in view of all the
circumstances of the case, the Indemnified Person is fairly and
reasonably entitled to indemnity for such portion of the settlement
amount and expenses as the court deems proper.
Section 10.04 For purposes of this Article, the Corporation
shall be deemed to have requested an Indemnified Person to serve an
employee benefit plan where the performance by such Person of his
or her duties to the Corporation also imposes duties on, or
otherwise involves services by, such Person to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an Indemni-
fied Person with respect to an employee benefit plan pursuant to
applicable law shall be considered fines; and action taken or
omitted by an Indemnified Person with respect to an employee
benefit plan in the performance of such Person's duties for a purpose
reasonably believed by such Person to be in the interest of the
participants and beneficiaries of the plan shall be deemed for a
purpose which is not opposed to the best interests of the
Corporation.
Section 10.05 An Indemnified Person who has been successful,
on the merits or otherwise, in the defense of any civil or criminal
action or proceeding of the character described in Section 10.01 or
10.03 shall be entitled to indemnification as authorized in this
Article. Except as provided in the preceding sentence, any
indemnification under this Article, unless ordered by a court
under Section 724 of the Law, shall be made by the Corporation, only if
authorized in the specific case:
(1) by the Board acting by a quorum consisting of Direc-
tors who are not parties to such action or proceeding upon a
finding that the Director or Officer has met the standard of
conduct set forth in Section 10.01 or 10.03;
(2) if a quorum under clause (1) is not obtainable or,
even if obtainable, a quorum of disinterested Directors so
directs:
(A) by the Board upon an opinion in writing of in-
dependent legal counsel that indemnification is proper in
the circumstances because the applicable standard of
conduct has been met by such Director or Officer; or
(B) by the Shareholders upon a finding that the Di-
rector or Officer has met the applicable standard of
conduct set forth in this Article.
Section 10.06 Expenses incurred in defending a civil or
criminal action or proceeding of the type described in Section
10.01 or 10.03 shall be paid by the Corporation in advance of the final
disposition of such action or proceeding upon receipt of an under-
<PAGE>
taking by or on behalf of the Indemnified Person to repay
such expenses in case the Person receiving such advancement is
ultimately found, under the procedure set forth in this Section, not to be
entitled to indemnification or, where indemnification is granted,
to the extent the expenses so advanced by the Corporation exceed
the indemnification to which he or she is entitled; provided,
however, that no indemnification advancement shall be made under
this Section in any circumstance where it appears:
(1) that the indemnification would be inconsistent with
the law of incorporation of a foreign corporation which
prohibits or otherwise limits such indemnification;
(2) that the indemnification would be inconsistent with
a provision of the Certificate of Incorporation, a by-law, a
resolution of the Board or the Shareholders, an agreement or
other proper corporate action, in effect at the time of the
accrual of the alleged cause of action asserted in the
threatened or pending action or proceeding in which the
expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification; or
(3) if there has been a settlement approved by the court
that the indemnification would be inconsistent with any
condition with respect to indemnification expressly imposed by the
court approving the settlement.
Section 10.07 If any provision of Section 10.01 through 10.06
is inconsistent with the Law, as in effect from time to time, the
provisions of the Law shall control. In addition to indemnifica-
tion pursuant to the provisions of this Article, indemnification
may be awarded by a court pursuant to Section 724 of the Law. The
Corporation may, but shall not be obligated to, provide insurance
to indemnify Directors and Officers in instances in which they may
be indemnified by the Corporation under the foregoing provisions of
this Article.
Section 10.08 The Corporation will not amend the foregoing
provisions of this Article 10 without the prior written consent of
Sol Schwartz, Joseph Rubenfeld, Martin Hoffman, Frank Buchsbaum,
and Hitoshi Tanaka at any time prior to January 1, 2000, in any
manner that might be considered adverse by any of them. The
Corporation will purchase the three-year tail to its directors'
and officers' liability insurance policy contemplated by the AGREEMENT
AND PLAN OF MERGER, dated July 6, 1995, among the Corporation,
DD&D-DI ACQUISITION COMPANY and DD&D-DI MERGER COMPANY, INC.
Indemnification shall be authorized to the extent provided in any
agreement approved by the Board of Directors of the Corporation,
and nothing in these By-Laws shall adversely affect any of the
indemnity rights granted in any such agreement.
<PAGE>
ARTICLE 11
AMENDMENTS
Section 11.01 Except as provided in Section 10.08, these
by-laws may be amended or repealed, or new by-laws may be adopted,
at any meeting of Directors or any meeting of Shareholders at which a
quorum is present or represented, by the vote of a majority of the
Directors or the holders of a majority of the shares entitled to
vote in an election of Directors, provided notice of the proposed
alteration, amendment or repeal be contained in the notice of such
meeting.
<PAGE>
<PAGE>
EXHIBIT C TO AGREEMENT AND PLAN OF MERGER
Optionholder # of Shares Date of Grant Exercise Price
Martin Hoffman 15,000 09/14/93 $4.375
Martin Hoffman 16,500 11/01/93 $4.50
Frank Buchsbaum 15,000 09/14/93 $4.375
Frank Buchsbaum 16,500 11/01/93 $4.50
Hitoshi Tanaka 15,000 09/14/93 $4.375
Hitoshi Tanaka 16,500 11/01/93 $4.50
Sol Schwartz 10,000 09/14/93 $4.375
Sol Schwartz 11,000 11/01/93 $4.50
Joseph Rubenfeld 10,000 09/14/93 $4.375
Joseph Rubenfeld 11,000 11/01/93 $4.50
George Klein 5,000 07/14/93 $3.6875
Robert Lindemann 5,000 07/14/93 $3.6875
Murray Ores 5,000 07/14/93 $3.6875
Daniel Raleigh 5,000 07/14/93 $3.6875
Barry Stormes 5,000 07/14/93 $3.6875
<PAGE>
<PAGE>
EXHIBIT D TO AGREEMENT AND PLAN OF MERGER
INCENTIVE BONUS PLAN
DESIGNATRONICS INCORPORATED, a New York corporation ("DI"),
hereby adopts the following plan:
1. This incentive bonus plan is for the benefit of the five
divisional vice presidents of DI, namely, George Klein, Robert
Lindemann, Murray Ores, Daniel Raleigh and Barry Stormes (each of
whom is referred to herein as a "VP").
2. Pursuant to this plan, each VP shall be entitled to a
bonus for each fiscal year of DI commencing after August 31, 1995,
equal to one-fifth of the following percent of EBIT for such year:
If EBIT is more than: Percent:
$1,368,000 but less
than $2,137,000.01 1.50%
$2,137,000 but less
than $2,565,000.01 2.00%
$2,565,000 but less
than $2,850,000.01 2.50%
$2,850,000 3.00%
3. As used herein, "EBIT" means DI's income from continuing
operations before interest expense, income taxes, extraordinary
items, salaries, fees and expenses payable to any officer, director
or affiliate of DD&D-DI ACQUISITION COMPANY, any expenses related
to the merger into DI of DD&D-DI MERGER COMPANY, INC. and
transactions related thereto, and bonuses payable hereunder or to
Martin Hoffman, Frank Buchsbaum or Hitoshi Tanaka, all as determined by
the independent public accounting firm that audits the financial
statements of DI. The bonus for each such fiscal year shall be
payable immediately upon completion of the audit of DI's financial
statements for such fiscal year and receipt of a computation of
EBIT for such year prepared by such firm as part of their
engagement.
4. DI may not modify, amend or terminate this plan until
after the payment of all bonuses hereunder for its fiscal years
ending August 31, 1996 and 1997.
5. A VP is entitled to a bonus hereunder for a fiscal year
only if he is in the employment of DI on the last day of the
fiscal year; provided, however, that if he dies or becomes
disabled during a fiscal year and, in the case of disability, he continues
to be disabled (or is well and continues to be employed by DI) at
the end of the fiscal year, he shall be entitled to his full bonus
hereunder for the fiscal year.
<PAGE>
<PAGE>
EXHIBIT E TO AGREEMENT AND PLAN OF MERGER
OPINION OF WILLIAM E. BARROWS
[Type on letterhead of William E. Barrows]
[Date the Closing Date]
DESIGNATRONICS INCORPORATED,
a New York corporation ("DI")
2101 Jericho Turnpike
New Hyde Park, NY 11042-5416
RE: DD&D-DI ACQUISITION COMPANY,
a Delaware corporation ("AC"),
and DD&D-DI MERGER COMPANY, INC.,
a New York corporation ("MC")
Gentlemen:
This opinion is being delivered at the Closing under the AGREEMENT
AND PLAN OF MERGER, dated JuLY 6, 1995 (the "Agreement"), among DI,
AC and MC. I have represented AC and MC in connection with the
negotiation of the Agreement and the transactions closed thereunder
today, including the merger of MC with and into DI (the "Merger")
pursuant to the Agreement. Terms used but not defined in this
opinion have the meanings set forth in the Agreement.
This opinion is being delivered to satisfy the Condition set forth
in Section 4.02.04 of the Agreement. As a basis for this opinion,
I have conducted such review, research and examination as I have
deemed necessary, including a review of the items listed in Annex
A hereto.
I have assumed the authenticity of all documents submitted to me as
originals, the genuineness of all signatures, the legal capacity of
natural persons, the conformity to originals of all documents
sub-mitted to me as copies, the due organization and existence of
DI,
its power and authority to enter into all documents to which it is
a party, and the valid execution and delivery of the Agreement and
the Certificate of Merger on behalf of DI.
Based on the foregoing and subject to the qualifications
herein-after set forth, it is my opinion that, as of the date
hereof:
1. AC is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. MC is a
corporation duly organized, validly existing and in good standing
under the laws of the State of New York. Each Purchaser Company
has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its businesses as now being
conducted.
<PAGE>
DESIGNATRONICS INCORPORATED
[Closing Date]
Page Two
2. The authorized capital stock of MC consists of 1,000
shares of Common Stock, par value $.01 per share (the "MC Shares"),
all of which were issued and outstanding immediately prior to the
Merger. Each outstanding MC Share has been duly authorized and
validly issued and is fully paid and non-assessable and is owned
both of record and beneficially by AC, free and clear of all liens,
encumbrances, equities, options and claims.
3. Each Purchaser Company has full corporate power and
authority to enter into the Agreement and to carry out all of its
duties and obligations thereunder. The execution and delivery of
the Agreement and the consummation of the transactions provided for
therein, including the Merger, have been duly authorized by each
Purchaser Company's Board of Directors and by AC as the sole
share-holder of MC, and no other corporate actions or proceedings
on the
part of either Purchaser Company are necessary to authorize it to
enter into the Agreement and to consummate the transactions
pro-vided for therein.
4. The Agreement has been duly executed and delivered by each
Purchaser Company and is a legal, valid and binding agreement of
each Purchaser Company. The Certificate of Merger has been duly
executed and delivered by MC and is a legal, valid and binding
certificate of MC.
5. Neither the execution and delivery of the Agreement, nor
the consummation of the transactions provided for therein, nor
compliance with any of the provisions thereof, will (a) violate,
conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or
result in a right of termination or acceleration, the loss of a
material benefit or the creation of any lien, claim, security
interest, charge or encumbrance upon any of the properties or
assets of either Purchaser Company under any of the terms,
conditions or provisions of (1) its certificate of incorporation
or by-laws or (2) to my knowledge, any note, bond, mortgage,
indenture, deed of trust, other financing document, lease,
agreement, instrument or obligation to which either Purchaser Company is a
party or by which it is bound or to which any of its properties or
assets is subject, or (b) to my knowledge, violate any judgment,
ruling, order, writ, injunction or decree in effect as of the date
hereof or any statute, rule or regulation applicable to either
Purchaser Company or any of its assets.
6. Other than the filing of the Certificate of Merger in
compliance with the NYBCL, no notice or report to, registration,
declaration or filing with, or authorization, consent or approval
of, any public body or authority is necessary for the execution,
<PAGE>
DESIGNATRONICS INCORPORATED
[Closing Date]
Page Three
delivery and performance by either Purchaser Company of the
Agreement, including the consummation of the Merger.
The opinions expressed herein are subject to the following
qualifications, assumptions and limitations:
A. My opinion is qualified with regard to matters of
enforceability to the extent that enforcement may be subject to:
(i) bankruptcy, insolvency, reorganization, receivership,
fraudulent transfer and conveyance, moratorium or other similar
laws now or hereafter in effect relating to or limiting the enforcement of
creditors' rights generally; (ii) principles of equity; and (iii)
with respect to any provisions purporting to provide
indemnification for liabilities under securities laws, principles
of public policy which may preclude their enforcement.
B. Insofar as my opinion relates to the existence and
good standing of Purchaser Companies, I have relied upon
certificates of the Secretary of State of Delaware and the
Department of State of New York, no further investigation having been
performed by me.
C. I am a member of the Bar of the State of Illinois and
I do not purport to express any opinion herein concerning any law
other than the laws of the State of Illinois, the federal laws of
the United States of America and the General Corporation Law of the
State of Delaware. No opinion is expressed with respect to the
laws of any other state or jurisdiction. Insofar as the law of any
other jurisdiction (including the State of New York) is applicable
to any part of this opinion, this opinion assumes that the laws of
such other jurisdiction are identical to the laws of the State of
Illinois. I undertake no responsibility to advise you of any
changes in law after the date hereof that would alter the scope or
substance of the opinions herein expressed.
D. This opinion is rendered solely for your benefit in
connection with the transactions contemplated by the Agreement and
may not be relied upon by you for any other purpose, or furnished
to, used, circulated, quoted or relied on by any other person for
any purpose, without my prior written consent in each instance.
Very truly yours,
William E. Barrows
<PAGE>
<PAGE>
EXHIBIT F TO AGREEMENT AND PLAN OF MERGER
EMPLOYMENT CONTRACT
THIS AGREEMENT, dated this ___ day of _______, 1995, is by and
between DESIGNATRONICS INCORPORATED, a New York corporation with
principal offices at 2101 Jericho Turnpike, New Hyde Park, New York
11040 (the "Company") and MARTIN HOFFMAN, residing at 260 Dune
Road, West Hampton Beach, New York 11978, (the "Executive").
W I T N E S S E T H
WHEREAS, the Executive has been employed by the Company for
thirty-eight (38) years, since 1957, during which period he has
acquired intimate knowledge of the Company and its operations and
affairs and has become a key executive officer of the Company; and
WHEREAS, on the date hereof, DD&D-DI ACQUISITION COMPANY, a
Delaware corporation ("Purchaser"), acquired all of the issued and
outstanding shares of Common Stock of the Company, par value $.04
per share, pursuant to an AGREEMENT AND PLAN OF MERGER, dated July
6, 1995 (the "Merger Agreement"), among the Company, Purchaser and
its wholly-owned subsidiary, DD&D-DI MERGER COMPANY, INC., a New
York corporation which is being merged into the Company on the date
of this Agreement (terms defined in the Merger Agreement are used
in this Agreement with the same meanings); and
WHEREAS, as a condition to the Closing under the Merger
Agree-ment, and contingent upon the Closing and the Merger
occurring, the
Executive is entering into this Agreement as a material inducement
to Purchaser to proceed with the Closing; and
WHEREAS, this Agreement supersedes the existing EMPLOYMENT
CONTRACT, dated August 31, 1992, between the Company and the
Exe-cutive, as heretofore amended (the "Existing Agreement");
NOW, THEREFORE, in consideration of the mutual promises of the
parties to each other and the performance by Purchaser of its
obli-gations under the Merger Agreement, it is agreed as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and
the Executive hereby accepts employment upon the terms and
conditions hereinafter set forth. The Company, as used throughout
this Agreement, shall mean and include the Company and any
subsidiaries of the Company.
2. TERM. The term of the Executive's employment under this
Agreement (the "Term") shall commence on the date hereof and shall
continue thereafter until December 31, 1997.
3. DUTIES. The Executive is engaged as an executive of the
<PAGE>
Company, namely, its President, Chief Executive Officer and Chief
Financial Officer, and will serve in that capacity during the Term.
He will perform all duties incident to his office, as provided in
the Company's By-Laws and in the same manner as he has performed
during the past two (2) years. If he is elected as a director or
officer of any subsidiary of the Company, he will serve in that
capacity or in those capacities without any further compensation;
but nothing contained herein shall be construed as requiring the
Company to cause the election or appointment of the Executive as
any such director or officer of any subsidiary of the Company.
4. COMPENSATION.
4.1 SALARY. For all services rendered by the Executive
under this Agreement, the Company shall pay the Executive a salary
of $204,904 per year payable weekly (which sum is 110% of the
Executive's current salary and which increase is pursuant to the
Amendment dated March 22, 1994 to the Existing Agreement).
4.2 BONUS. As additional incentive to the Executive, the
Company shall pay the Executive:
(a) a bonus for its fiscal year ending August 31, 1995,
computed in the manner and payable at the time provided for in
section 1.10 of the Merger Agreement; and
(b) a bonus for each of its fiscal years ending August
31, 1996 and 1997, equal to the percent of EBIT set forth in
the following table:
If EBIT is more than: Percent:
$1,368,000 but less
than $2,137,00.01 1.00%
$2,137,000 but less
than $2,565,000.01 1.33%
$2,565,000 but less
than $2,850,000.01 1.67%
$2,850,000 2.00%
As used herein, "EBIT" means the Company's income from continuing
operations before interest expense, income taxes, extraordinary
items, salaries, fees and expenses payable to any officer or
director of the Purchaser, the Merger Company or any affiliate
thereof, other than an executive officer of the Company prior to
the Merger, any expenses related to the Merger and transactions
<PAGE>
related thereto and bonuses as determined by the independent public
accounting firm that audits the financial statements of the Company
for its fiscal years ending August 31, 1996 and 1997. The bonus
for each such fiscal year shall be payable immediately upon
completion of the audit of the Company's financial statements for
such fiscal year and receipt of a computation of EBIT for such year
prepared by such firm as part of their engagement.
4.3 OTHER BENEFITS. The salary and bonuses provided
for in subparagraphs 4.1 and 4.2 shall be in addition to any
pension or retirement benefits, director's fees or salary increases
to which the Executive may become entitled in the future at the
discretion of the Company (collectively, "Benefits"); and the
existence of this Agreement shall not be deemed in any way to
preclude the Executive from receiving any additional Benefits nor
to oblige the Company to provide any such additional Benefits.
5. SALARY CONTINUATION PROVISIONS. The salary of the
Executive as in effect on the date of his death or his total or
partial disability shall continue to be paid by the Company in
full, as if he continued to be employed:
(a) for twelve (12) months after his death, to the
Executive's children, Neal Hoffman, Barrie Stachel and Tracey
Diamond per stirpes, or such other designee as the Executive
designates, by letter in writing to the Company; provided,
however, that in no event shall his salary continue under this
clause (a) after December 31, 1998; and
(b) during the entire period of his total or partial
disability; provided, however, that his salary shall not
continue for more than two (2) years after his disability
began, and in no event shall his salary continue under this
clause (b) after December 31, 1998.
For purposes of this Agreement, (A) "total disability" shall mean
that the Executive is totally disabled and unable to carry out his
duties hereunder, and (B) "partial disability" shall mean that the
Executive is partially disabled, permitting only a limited schedule
of duties at the offices of the Company.
6. EXTENT OF SERVICES. The Executive shall not, during the
Term, during normal business hours, engage in any business activity
whether or not such business activity is pursued for gain, profit
or pecuniary advantage; but this provision shall not be construed
as preventing the Executive from investing his personal assets in
businesses which do not compete with the Company in such form or
manner as will not require any services on his part in the
operation of the affairs of the companies in which such investments
are made and in which his participation is solely that of an
<PAGE>
investor.
7. VACATIONS. The Executive shall be entitled to reasonable
vacations during each year of his employment hereunder which shall
be at such time or times as may be consistent with the business
needs of the Company and to be based upon the policies described in
the Company's present Employee Handbook. The Executive, from time
to time, may be absent on various Mondays and Fridays during the
summer and such absence shall not be considered vacation days or
shall otherwise be prohibited under this Agreement.
8. INSURANCE. The Company may, at its election and for its
benefit, insure the Executive against disability or death; and the
Executive shall submit to such physical examination and supply such
information as may be required in connection therewith. The
Company shall be the sole beneficiary of such insurance.
9. DISABILITY. In the event the Executive is totally
disabled and unable to carry out his duties, he shall be relieved
of his duties hereunder, but he shall consult with the other
officers, directors or key employees of the Company, to the extent
reasonably possible, concerning the business and affairs of the
Company, during the disability. At the termination of the
disability, the Company shall reinstate the Executive to his prior
position, unless it has hired a replacement. The Company agrees
not to hire a replacement for the first three (3) months of the
Executive's disability. If a replacement has been hired, the
Company shall not be obligated to reinstate the Executive to his
prior position before the disability, but shall continue to pay the
Executive his compensation and provide him with all other benefits
under this Agreement. The Executive need not perform further
duties under this Agreement if a replacement has been hired.
10. BENEFITS. In addition to the benefits set forth in this
Agreement, the Executive shall be entitled to participate in all
benefits made available to the employees of the Company generally,
which shall be included in the definition of Benefits as defined in
Section 4 of this Agreement and as described below and elsewhere in
this Agreement.
10.1 LIFE INSURANCE. The Company shall continue to pay the
life insurance on the Executive during the Term, which payments
shall not exceed $18,000 per annum, in the same manner as paid
during the two years preceding the date of this Agreement. The
Executive shall receive a lump sum of $18,000, each year for five
(5) years after the termination of this Agreement, whether
termination is voluntary or involuntary and even if for just cause
<PAGE>
by the Company, which payments shall not exceed $90,000. Death of
the Executive shall terminate any further payments effective with
the date of death. The first payment to the Executive, after
termination, shall be made to the Executive within 90 days after
the termination of the Executive and such date will establish the
anniversary date for all subsequent annual payments.
10.2 HEALTH INSURANCE. The executive shall be entitled to
receive the benefits of the Company's health care plan provided to
its non-union employees without cost to the Executive during the
term of this Agreement and for five (5) years after termination,
whether termination is voluntary or involuntary, because of death
and even if for just cause by the Company and irrespective of
whether the Executive has any dependents.
10.3 ELECTION IN LIEU OF HEALTH CARE PLAN BENEFITS. After
termination of this Agreement, the Company may elect to make a
payment of $6,500 per annum for the remainder of the five (5) years
following termination in lieu of providing the Company's health
care plan, if the Company cannot provide such health care plan
insurance due to rejection by its underwriters or the cost to cover
the Executive exceeds $6,500 per annum, or the Executive, for any
reason, may elect to receive $6,500 per annum in lieu of the
Company providing such benefits. The Company or the Executive
shall send written notice, certified mail return receipt requested
at least ninety (90) days prior to an election to make payments in
lieu of providing such health care plan insurance benefits.
Payments under the foregoing shall be in accordance with the Health
Care Plan, or annually in a lump sum, whereas the first payment
shall be within ninety (90) days after the election by the Company
or the Executive. The first payment after the date of such election
shall establish the anniversary date for all subsequent annual
payments.
11. USE OF CAR. The Executive shall be entitled to the use
of a car that the Company leases or purchases, comparable, at
least, to the present car being provided under the Existing
Agreement, with all expenses thereon, including gas, maintenance,
repairs and insurance, to be paid by the Company until two (2)
years from the date of any scheduled, involuntary or voluntary
termination of this Agreement and even if termination is for just
cause. The Executive shall have the option to purchase such car at
its book value or to take over the lease at the end of the
foregoing described period. In accordance with the foregoing, in
the event that this Agreement shall not be renewed, the Executive
shall still be entitled to the car in accordance with this Section
11.
<PAGE>
<PAGE>
12. RESTRICTIVE COVENANTS.
12.1 DISCLOSURE OF INFORMATION. The Executive recognizes
and acknowledges that the Company's trade secrets, customers lists
and other proprietary, secret or confidential information, as such
secrets, lists and information exist from time to time, are
valuable, special and unique assets of the Company, invaluable to
its businesses, access to and knowledge of which are essential to
the performance of the Executive's duties hereunder and the success
of the Company. The Executive will not, at any time during or
after the Term, disclose such secrets, lists or information, in
whole or in part, to any Person, for any reason or purpose
whatsoever; nor shall the Executive make any use of any of such
assets for his own purposes or for the benefit of any Person (other
than the Company), under any circumstances, at any time during or
after the Term. As used herein "Covenants" means the covenants
contained in this Section and in Section 12.3 below.
12.2 PERIOD. For the Period (as hereinafter defined) after
the termination of his employment with the Company, the Executive
shall comply with the Covenants set forth in Section 12.3 below,
unless such termination by the Company of the Executive is
wrongful, including if the Company terminates this Agreement
without just cause. As used herein, "Period" means the one (1) year
starting on the date of termination of the Executive's employment;
provided, however, that the Period shall continue so long as the
Company continues to pay the Executive's salary pursuant to Section
5(b) above.
12.3 OTHER COVENANTS. The Executive will not, directly or
indirectly, alone or together or with any other person or persons
("Person"), at any time during the Period:
(a) own, manage, operate, control, lend to or invest in,
or engage or participate in the ownership, management,
operation, control or financing of, or become an officer,
director, shareholder, member, partner, manager, employee,
consultant, advisor, agent, independent contractor,
distributor, sales person or representative of, any Person, such as
Berg, Pic and Allied Devices, who or which designs,
manufactures, sells, markets, distributes or otherwise deals in or
with small mechanical drive components substantially through
catalogs; or
(b) attempt to induce any such customer to purchase or
otherwise acquire any competing product from any Person other
than the Company or to cease purchasing products from the
Company or to curtail its purchases from the Company or to
reduce, rescind or postpone any purchase order at any time
given to the Company; or
<PAGE>
(c) attempt to induce any officer, employee, consultant,
agent, independent contractor, distributor, sales person or
representative of the Company to terminate his, her or its
relationship with the Company or to simultaneously represent
any competitor of the Company.
The parties do not intend by the reference in clause (a) to "Berg,
Pic, and Allied Devices" to limit the universe of possible
competitors to those three (3) companies, but rather the parties
are simply attempting to define the type of business from which
Purchaser has an interest in protecting the Company against
competition, namely, a business that sells products that compete
with or can be used as substitutes for products referred to in the
latest edition of DI's catalogs prepared prior to termination of
employment. As used herein:
(1) "Berg" means W.M. Berg Inc., the principal offices
of which are located at 510 Ocean Avenue, East Rockaway, NY 11518;
(2) "Pic" means PIC Design, the principal offices of
which are located at Benson Road, Middlebury, CT 06762;
(3) "Allied Devices" means Allied Devices Corp., the
principal offices of which are located at 2365 Melbourne Avenue,
Baldwin, NY 11510.
12.4 DEFINITION OF COMPANY. For purposes of the provisions
of this Section 12, "Company" shall include all present and future
Affiliates of the Company, including DESIGNATRONICS FOREIGN SALES
CORP., WESTERN COMPONENT SALES CORP. and ACCELLENT TECHNOLOGY LTD.,
and all of their respective divisions, arms, and branches, wherever
located, all over the world.
12.5 REASONABLENESS OF COVENANTS. The Executive acknowledges
that the Period (indefinite in the case of Section 12.1 and a
minimum of one year in the case of Section 12.3) and the
geographical area (the world) of the Covenants, and all of the
other provisions of this Section 12, are fair and reasonable, in light of
the facts that: (1) the Executive has participated in the
management of the Company for many years, and over the years he has
developed close personal relationships with all material employees
and many sales repre-sentatives and other independent contractors
and agents of and consultants to the Company, as well as many of
its material customers and suppliers; (2) the Executive has an
intimate know-ledge of the Company's businesses and affairs; and
(3) the customers of the Company and its suppliers are located all
over the world.
12.6 EQUITABLE REMEDIES. The Executive acknowledges that any
<PAGE>
breach of any Covenant could result in substantial and irreparable
damages to the Company and that the amount of such damages would be
difficult, if not impossible, to calculate or ascertain in monetary
terms. Accordingly, the Executive agrees that, in the event of any
such breach or a threatened breach of any Covenant, the Company may
seek and obtain a preliminary, temporary or permanent injunction,
restraining order or other relief in equity, without providing any
bond or other security and without proving any actual damages. The
Company's right to injunctive or other relief in equity shall be in
addition to all other rights and remedies the Company may otherwise
have, at law, in equity, or otherwise, in the event of any breach
or threatened breach of any Covenant by the Executive. The
Company's right to injunctive or other relief in equity may be
exercised, at its option, prior or subsequent to, contemporaneous
with, or in lieu of any other rights or remedies the Company may
have by reason of a breach of any such Covenant.
12.7 PUBLIC STOCK EXCEPTION. Nothing contained in this
Section 12 shall prohibit the Executive and his Affiliates,
collectively, from owning, holding or purchasing less than five
percent (5%) of the outstanding shares of any class of capital
stock, warrant or debt investment listed on a national securities
exchange, registered under Section 12(g) of the Securities Exchange
Act of 1934 and quoted on NASDAQ, or traded on the pink sheets.
12.8 THIRD PARTY BENEFICIARIES. The Executive acknowledges
that during the Period:
(a) Purchaser, the Company, or an Affiliate of Purchaser
or the Company, may form one or more new Affiliates to engage
in one or more of the businesses of the Company or some aspect
of one or more of such businesses; and
(b) Purchaser, the Company, or an Affiliate of Purchaser
or the Company, may sell the one or more of the businesses of
the Company, in whole or in part, to one or more successors,
by means of a sale of assets or stock, a merger or
consolidation, or otherwise.
The Executive agrees that each such Affiliate and successor of the
Company or Purchaser shall be a third party beneficiary entitled to
all of the rights and remedies of the Company under the provisions
of this Section 12. The provisions of the preceding sentence are
not intended to, and shall not, expand the scope of any Covenant
contained in this Section 12. The foregoing is subject to the
Executive's rights under Section 19 of this Agreement.
13. WAIVERS. The waiver by any party, including any third
party beneficiary, of (a) any right or remedy hereunder or (b) any
<PAGE>
failure to perform or breach by any other party shall not be deemed
a waiver of (1) any other right or remedy or (2) any other failure
or breach by such other party, whether of the same or a similar
nature or otherwise. No waiver shall be effective unless it is set
forth in a writing executed by or on behalf of the waiving party or
third party beneficiary. No written waiver shall be deemed to be
a continuing waiver unless specifically stated therein; and each
waiver shall operate only as to the specific provision waived and
shall not constitute a waiver of such provision for the future or
as to any failure or breach other than that specifically waived.
14. SEVERABILITY. Each provision of this Agreement shall be
governed by, and is intended to be fully enforceable in accordance
with, the laws of the State of New York, applicable to a contract
entered into and performed solely in the State of New York. If,
however, for any reason, any provision of this Agreement is held to
be invalid or unenforceable under New York law, to any extent, such
provision shall be enforceable to the fullest extent possible under
New York law, and all other valid and enforceable provisions of
this Agreement shall remain in full force and effect, and to that
end each provision of this Agreement shall be severable in nature.
Without limiting the generality of the preceding sentence, if any
provision in Section 12 is held to be invalid or unenforceable to
any extent, because it is too broad or because it covers a period
or a geographical area that is determined to be unreasonable, such
provision shall not be determined to be invalid or unenforceable,
but rather it shall be reformed by the court to cover the maximum
enforceable period, area, and other provisions (not greater than
those contained in Section 12) as shall be valid and enforceable
under New York law, it being the intention of the parties to this
Agreement to provide the Company with the broadest possible
protection under the provisions of Section 12 of this Agreement.
15. NOTICES. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and if sent
by certified mail, return receipt requested, to his residence in
the case of Executive, or in the case of the Company to c/o each of
the following addresses:
Mr. Joseph M. Dunn
980 N. Michigan Avenue, Suite 1400
Chicago, IL 60611
Mr. Peter L. Dyson
566 Chestnut Street, Suite 7
Winnetka, IL 60093
16. NOTICE TO NEGOTIATE. Both the Company and the Executive
agree on a non-binding basis to give to the other at least six (6)
<PAGE>
months prior to the expiration date of this Agreement if they do
not wish to renew this Agreement on terms to be negotiated.
17. INDEMNIFICATION. To fullest extent permitted by law:
17.1 The Company shall indemnify the Executive for all claims,
losses, damages, judgments and costs, including reasonable
attorneys' fees that the Executive may incur as a result of his
being heretofore or in the future an officer, director or employee
of the Company or an affiliate thereof.
17.2 The Executive shall also be indemnified by the Company
for all claims, losses, damages, judgments and costs, including
reasonable attorneys' fees if he is made, or threatened to be made,
a party to an action or proceeding in connection with the Merger
Agreement, the proxy statement (the "Proxy")in connection with the
Merger Agreement and/or any and all causes of action relating to
the Merger Agreement, Proxy or any matters relating to the Merger.
17.3 The Company shall pay in full, at the inception of this
Agreement, for a directors and officers insurance policy "tail" for
the Executive to be effective for a period of three (3) years from
the date of this Agreement that will provide the Executive with the
same coverage as heretofore provided by the Company as well as
coverage under Section 17.2 applicable to the period to and
including the Effective Time.
18. RELOCATION BY THE COMPANY. In the event the Company
relocates its operations, for any reason, to a place more than a
thirty-five (35) mile radius from 2101 Jericho Turnpike, New Hyde
Park, New York 11042-5416, the Executive shall not be required to
perform any further services under this Agreement, but the
Executive shall continue to be entitled to receive his full
compensation and Benefits as provided in this Agreement. The
Executive, subject to his availability, agrees to consult with the
Company at the request of the Company by telephone.
19. BUSINESS COMBINATION BY THE COMPANY. If the Company
engages in a Business Combination before December 31, 1997 without
the approval of the Executive then the Executive shall not be
required to perform any further services under this Agreement, but
the Executive shall continue to be entitled to receive his full
compensation and Benefits as provided in this Agreement.
20. ENTIRE AGREEMENT. This document contains the entire
agreement of the parties. It may not be changed orally but only by
an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or
discharge is sought.
<PAGE>
21. PRIOR AGREEMENTS. This Agreement shall supersede all
prior employment agreements between the Executive and the Company,
including, specifically, the Existing Agreement, which is hereby
terminated without further liability by either party hereto to the
other party to this Agreement.
22. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
23. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled
by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association at its offices in Nassau
County, New York, and judgment upon the award rendered by the
Arbitrators may be entered in any court having jurisdiction
thereof.
24. BINDING AGREEMENT. This Agreement shall be binding upon
the heirs, successors and assigns of each of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
DESIGNATRONICS INCORPORATED
By:__________________________ _______________________________
Joseph M. Dunn, Chairman Martin Hoffman
of the Board
<PAGE>
<PAGE>
EXHIBIT G TO AGREEMENT AND PLAN OF MERGER
EMPLOYMENT CONTRACT
THIS AGREEMENT, dated this ___ day of ______, 1995, is by and
between DESIGNATRONICS INCORPORATED, a New York corporation with
principal offices at 2101 Jericho Turnpike, New Hyde Park, New York
11040 (the "Company") and FRANK BUCHSBAUM, residing at 6 Sutton
Place, Manhasset, New York 11030, (the "Executive").
W I T N E S S E T H
WHEREAS, the Executive has been employed by the Company for
twenty-six (26) years, since 1969, during which period he has
acquired intimate knowledge of the Company and its operations and
affairs and has become a key executive officer of the Company; and
WHEREAS, on the date hereof, DD&D-DI ACQUISITION COMPANY, a
Delaware corporation ("Purchaser"), acquired all of the issued and
outstanding shares of Common Stock of the Company, par value $.04
per share, pursuant to an AGREEMENT AND PLAN OF MERGER, dated July
6, 1995 (the "Merger Agreement"), among the Company, Purchaser and
its wholly-owned subsidiary, DD&D-DI MERGER COMPANY, INC., a New
York corporation which is being merged into the Company on the date
of this Agreement (terms defined in the Merger Agreement are used
in this Agreement with the same meanings); and
WHEREAS, as a condition to the Closing under the Merger
Agree-ment, and contingent upon the Closing and the Merger
occurring, the
Executive is entering into this Agreement as a material inducement
to Purchaser to proceed with the Closing; and
WHEREAS, this Agreement supersedes the existing EMPLOYMENT
CONTRACT, dated August 31, 1992, between the Company and the
Exe-cutive, as heretofore amended (the "Existing Agreement");
NOW, THEREFORE, in consideration of the mutual promises of the
parties to each other and the performance by Purchaser of its
obli-gations under the Merger Agreement, it is agreed as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and
the Executive hereby accepts employment upon the terms and
conditions hereinafter set forth. The Company, as used throughout
this Agreement, shall mean and include the Company and any
subsidiaries of the Company.
2. TERM. The term of the Executive's employment under this
Agreement (the "Term") shall commence on the date hereof and shall
continue thereafter until December 31, 1997.
3. DUTIES. The Executive is engaged as an executive of the
<PAGE>
Company, namely, its Executive Vice President and Secretary, and
will serve in that capacity during the Term. He will perform all
duties incident to his office, as provided in the Company's By-Laws
and in the same manner as he has performed during the past two (2)
years. If he is elected as a director or officer of any subsidiary
of the Company, he will serve in that capacity or in those
capacities without any further compensation; but nothing contained
herein shall be construed as requiring the Company to cause the
election or appointment of the Executive as any such director or
officer of any subsidiary of the Company.
4. COMPENSATION.
4.1 SALARY. For all services rendered by the Executive
under this Agreement, the Company shall pay the Executive a salary
of $204,904 per year payable weekly (which sum is 110% of the
Executive's current salary and which increase is pursuant to the
Amendment dated March 22, 1994 to the Existing Agreement).
4.2 BONUS. As additional incentive to the Executive, the
Company shall pay the Executive:
(a) a bonus for its fiscal year ending August 31, 1995,
computed in the manner and payable at the time provided for in
section 1.10 of the Merger Agreement; and
(b) a bonus for each of its fiscal years ending August
31, 1996 and 1997, equal to the percent of EBIT set forth in
the following table:
If EBIT is more than: Percent:
$1,368,000 but less
than $2,137,00.01 1.00%
$2,137,000 but less
than $2,565,000.01 1.33%
$2,565,000 but less
than $2,850,000.01 1.67%
$2,850,000 2.00%
As used herein, "EBIT" means the Company's income from continuing
operations before interest expense, income taxes, extraordinary
items, salaries, fees and expenses payable to any officer or
director of the Purchaser, the Merger Company or any affiliate
thereof, other than an executive officer of the Company prior to
the Merger, any expenses related to the Merger and transactions
<PAGE>
related thereto and bonuses as determined by the independent public
accounting firm that audits the financial statements of the Company
for its fiscal years ending August 31, 1996 and 1997. The bonus
for each such fiscal year shall be payable immediately upon
completion of the audit of the Company's financial statements for
such fiscal year and receipt of a computation of EBIT for such year
prepared by such firm as part of their engagement.
4.3 OTHER BENEFITS. The salary and bonuses provided
for in subparagraphs 4.1 and 4.2 shall be in addition to any
pension or retirement benefits, director's fees or salary increases
to which the Executive may become entitled in the future at the
discretion of the Company (collectively, "Benefits"); and the
existence of this Agreement shall not be deemed in any way to
preclude the Executive from receiving any additional Benefits nor
to oblige the Company to provide any such additional Benefits.
5. SALARY CONTINUATION PROVISIONS. The salary of the
Executive as in effect on the date of his death or his total or
partial disability shall continue to be paid by the Company in
full, as if he continued to be employed:
(a) for twelve (12) months after his death, to the
Executive's daughter, Lisa Pollack, or such other designee as
the Executive designates, by letter in writing to the Company;
provided, however, that in no event shall his salary continue
under this clause (a) after December 31, 1998; and
(b) during the entire period of his total or partial
disability; provided, however, that his salary shall not
continue for more than two (2) years after his disability
began and in no event shall his salary continue under this
clause (b) after December 31, 1998.
For purposes of this Agreement, (A) "total disability" shall mean
that the Executive is totally disabled and unable to carry out his
duties hereunder, and (B) "partial disability" shall mean that the
Executive is partially disabled, permitting only a limited schedule
of duties at the offices of the Company.
6. EXTENT OF SERVICES. The Executive shall not, during the
Term, during normal business hours, engage in any business activity
whether or not such business activity is pursued for gain, profit
or pecuniary advantage; but this provision shall not be construed
as preventing the Executive from investing his personal assets in
businesses which do not compete with the Company in such form or
manner as will not require any services on his part in the
operation of the affairs of the companies in which such investments
are made and in which his participation is solely that of an
<PAGE>
investor.
7. VACATIONS. The Executive shall be entitled to reasonable
vacations during each year of his employment hereunder which shall
be at such time or times as may be consistent with the business
needs of the Company and to be based upon the policies described in
the Company's present Employee Handbook. The Executive, from time
to time, may be absent on various Mondays and Fridays during the
summer and such absence shall not be considered vacation days or
shall otherwise be prohibited under this Agreement.
8. INSURANCE. The Company may, at its election and for its
benefit, insure the Executive against disability or death; and the
Executive shall submit to such physical examination and supply such
information as may be required in connection therewith. The
Company shall be the sole beneficiary of such insurance.
9. DISABILITY. In the event the Executive is totally
disabled and unable to carry out his duties, he shall be relieved
of his duties hereunder, but he shall consult with the other
officers, directors or key employees of the Company, to the extent
reasonably possible, concerning the business and affairs of the
Company, during the disability. At the termination of the
disability, the Company shall reinstate the Executive to his prior
position, unless it has hired a replacement. The Company agrees
not to hire a replacement for the first three (3) months of the
Executive's disability. If a replacement has been hired, the
Company shall not be obligated to reinstate the Executive to his
prior position before the disability, but shall continue to pay the
Executive his compensation and provide him with all other benefits
under this Agreement. The Executive need not perform further
duties under this Agreement if a replacement has been hired.
10. BENEFITS. In addition to the benefits set forth in this
Agreement, the Executive shall be entitled to participate in all
benefits made available to the employees of the Company generally,
which shall be included in the definition of Benefits as defined in
Section 4 of this Agreement and as described below and elsewhere in
this Agreement.
10.1 LIFE INSURANCE. The Company shall continue to pay the
life insurance on the Executive during the Term, which payments
shall not exceed $18,000 per annum, in the same manner as paid
during the two years preceding the date of this Agreement. The
Executive shall receive a lump sum of $18,000, each year for five
(5) years after the termination of this Agreement, whether
termination is voluntary or involuntary and even if for just cause
by the Company, which payments shall not exceed $90,000. Death of
the Executive shall terminate any further payments effective with
<PAGE>
the date of death. The first payment to the Executive, after
termination, shall be made to the Executive within 90 days after
the termination of the Executive and such date will establish the
anniversary date for all subsequent annual payments.
10.2 HEALTH INSURANCE. The executive shall be entitled to
receive the benefits of the Company's health care plan provided to
its non-union employees without cost to the Executive during the
term of this Agreement and for five (5) years after termination,
whether termination is voluntary or involuntary, because of death
and even if for just cause by the Company and irrespective of
whether the Executive has any dependents.
10.3 ELECTION IN LIEU OF HEALTH CARE PLAN BENEFITS. After
termination of this Agreement, the Company may elect to make a
payment of $6,500 per annum for the remainder of the five (5) years
following termination in lieu of providing the Company's health
care plan, if the Company cannot provide such health care plan
insurance due to rejection by its underwriters or the cost to cover
the Executive exceeds $6,500 per annum, or the Executive, for any
reason, may elect to receive $6,500 per annum in lieu of the
Company providing such benefits. The Company or the Executive
shall send written notice, certified mail return receipt requested
at least ninety (90) days prior to an election to make payments in
lieu of providing such health care plan insurance benefits.
Payments under the foregoing shall be in accordance with the Health
Care Plan, or annually in a lump sum, whereas the first payment
shall be within ninety (90) days after the election by the Company
or the Executive. The first payment after the date of such election
shall establish the anniversary date for all subsequent annual
payments.
11. USE OF CAR. The Executive shall be entitled to the use
of a car that the Company leases or purchases, comparable, at
least, to the present car being provided under the Existing
Agreement, with all expenses thereon, including gas, maintenance,
repairs and insurance, to be paid by the Company until two (2)
years from the date of any scheduled, involuntary or voluntary
termination of this Agreement and even if termination is for just
cause. The Executive shall have the option to purchase such car at
its book value or to take over the lease at the end of the
foregoing described period. In accordance with the foregoing, in
the event that this Agreement shall not be renewed, the Executive
shall still be entitled to the car in accordance with this Section
11.
12. RESTRICTIVE COVENANTS.
12.1 DISCLOSURE OF INFORMATION. The Executive recognizes
<PAGE>
and acknowledges that the Company's trade secrets, customers lists
and other proprietary, secret or confidential information, as such
secrets, lists and information exist from time to time, are
valuable, special and unique assets of the Company, invaluable to
its businesses, access to and knowledge of which are essential to
the performance of the Executive's duties hereunder and the success
of the Company. The Executive will not, at any time during or
after the Term, disclose such secrets, lists or information, in
whole or in part, to any Person, for any reason or purpose
whatsoever; nor shall the Executive make any use of any of such
assets for his own purposes or for the benefit of any Person (other
than the Company), under any circumstances, at any time during or
after the Term. As used herein "Covenants" means the covenants
contained in this Section and in Section 12.3 below.
12.2 PERIOD. For the Period (as hereinafter defined) after the
termination of his employment with the Company, the Executive shall
comply with the Covenants set forth in Section 12.3 below, unless
such termination by the Company of the Executive is wrongful,
including if the Company terminates this Agreement without just
cause. As used herein, "Period" means the one (1) year starting on
the date of termination of the Executive's employment; provided,
however, that the Period shall continue so long as the Company
continues to pay the Executive's salary pursuant to Section 5(b)
above.
12.3 OTHER COVENANTS. The Executive will not, directly or
indirectly, alone or together or with any other person or persons
("Person"), at any time during the Period:
(a) own, manage, operate, control, lend to or invest in,
or engage or participate in the ownership, management,
operation, control or financing of, or become an officer,
director, shareholder, member, partner, manager, employee,
consultant, advisor, agent, independent contractor,
distributor, sales person or representative of, any Person, such as
Berg, Pic and Allied Devices, who or which designs,
manufactures, sells, markets, distributes or otherwise deals in or
with small mechanical drive components substantially through
catalogs; or
(b) attempt to induce any such customer to purchase or
otherwise acquire any competing product from any Person other
than the Company or to cease purchasing products from the
Company or to curtail its purchases from the Company or to
reduce, rescind or postpone any purchase order at any time
given to the Company; or
(c) attempt to induce any officer, employee, consultant,
agent, independent contractor, distributor, sales person or
<PAGE>
representative of the Company to terminate his, her or its
relationship with the Company or to simultaneously represent
any competitor of the Company.
The parties do not intend by the reference in clause (a) to "Berg,
Pic, and Allied Devices" to limit the universe of possible
competitors to those three (3) companies, but rather the parties
are simply attempting to define the type of business from which
Purchaser has an interest in protecting the Company against
competition, namely, a business that sells products that compete
with or can be used as substitutes for products referred to in the
latest edition of DI's catalogs prepared prior to termination of
employment. As used herein:
(1) "Berg" means W.M. Berg Inc., the principal offices
of which are located at 510 Ocean Avenue, East Rockaway, NY 11518;
(2) "Pic" means PIC Design, the principal offices of
which are located at Benson Road, Middlebury, CT 06762;
(3) "Allied Devices" means Allied Devices Corp., the
principal offices of which are located at 2365 Melbourne Avenue,
Baldwin, NY 11510.
12.4 DEFINITION OF COMPANY. For purposes of the provisions
of this Section 12, "Company" shall include all present and future
Affiliates of the Company, including DESIGNATRONICS FOREIGN SALES
CORP., WESTERN COMPONENT SALES CORP. and ACCELLENT TECHNOLOGY LTD.,
and all of their respective divisions, arms, and branches, wherever
located, all over the world.
12.5 REASONABLENESS OF COVENANTS. The Executive acknowledges
that the Period (indefinite in the case of Section 12.1 and a
minimum of one year in the case of Section 12.3) and the
geographical area (the world) of the Covenants, and all of the
other
provisions of this Section 12, are fair and reasonable, in light of
the facts that: (1) the Executive has participated in the
management of the Company for many years, and over the years he has
developed close personal relationships with all material employees
and many sales repre-sentatives and other independent contractors
and agents of and consultants to the Company, as well as many of
its material customers and suppliers; (2) the Executive has an
intimate know-ledge of the Company's businesses and affairs; and
(3) the customers of the Company and its suppliers are located all
over the world.
12.6 EQUITABLE REMEDIES. The Executive acknowledges that any
breach of any Covenant could result in substantial and irreparable
damages to the Company and that the amount of such damages would be
<PAGE>
difficult, if not impossible, to calculate or ascertain in monetary
terms. Accordingly, the Executive agrees that, in the event of any
such breach or a threatened breach of any Covenant, the Company may
seek and obtain a preliminary, temporary or permanent injunction,
restraining order or other relief in equity, without providing any
bond or other security and without proving any actual damages. The
Company's right to injunctive or other relief in equity shall be in
addition to all other rights and remedies the Company may otherwise
have, at law, in equity, or otherwise, in the event of any breach
or threatened breach of any Covenant by the Executive. The
Company's right to injunctive or other relief in equity may be
exercised, at its option, prior or subsequent to, contemporaneous
with, or in lieu of any other rights or remedies the Company may
have by reason of a breach of any such Covenant.
12.7 PUBLIC STOCK EXCEPTION. Nothing contained in this
Section 12 shall prohibit the Executive and his Affiliates,
collectively, from owning, holding or purchasing less than five
percent (5%) of the outstanding shares of any class of capital
stock, warrant or debt investment listed on a national securities
exchange, registered under Section 12(g) of the Securities Exchange
Act of 1934 and quoted on NASDAQ, or traded on the pink sheets.
12.8 THIRD PARTY BENEFICIARIES. The Executive acknowledges
that during the Period:
(a) Purchaser, the Company, or an Affiliate of Purchaser
or the Company, may form one or more new Affiliates to engage
in one or more of the businesses of the Company or some aspect
of one or more of such businesses; and
(b) Purchaser, the Company, or an Affiliate of Purchaser
or the Company, may sell the one or more of the businesses of
the Company, in whole or in part, to one or more successors,
by means of a sale of assets or stock, a merger or
consolidation, or otherwise.
The Executive agrees that each such Affiliate and successor of the
Company or Purchaser shall be a third party beneficiary entitled to
all of the rights and remedies of the Company under the provisions
of this Section 12. The provisions of the preceding sentence are
not intended to, and shall not, expand the scope of any Covenant
contained in this Section 12. The foregoing is subject to the
Executive's rights under Section 19 of this Agreement.
13. WAIVERS. The waiver by any party, including any third
party beneficiary, of (a) any right or remedy hereunder or (b) any
failure to perform or breach by any other party shall not be deemed
a waiver of (1) any other right or remedy or (2) any other failure
<PAGE>
or breach by such other party, whether of the same or a similar
nature or otherwise. No waiver shall be effective unless it is set
forth in a writing executed by or on behalf of the waiving party or
third party beneficiary. No written waiver shall be deemed to be
a continuing waiver unless specifically stated therein; and each
waiver shall operate only as to the specific provision waived and
shall not constitute a waiver of such provision for the future or
as to any failure or breach other than that specifically waived.
14. SEVERABILITY. Each provision of this Agreement shall be
governed by, and is intended to be fully enforceable in accordance
with, the laws of the State of New York, applicable to a contract
entered into and performed solely in the State of New York. If,
however, for any reason, any provision of this Agreement is held to
be invalid or unenforceable under New York law, to any extent, such
provision shall be enforceable to the fullest extent possible under
New York law, and all other valid and enforceable provisions of
this Agreement shall remain in full force and effect, and to that
end each provision of this Agreement shall be severable in nature.
Without limiting the generality of the preceding sentence, if any
provision in Section 12 is held to be invalid or unenforceable to
any extent, because it is too broad or because it covers a period
or a geographical area that is determined to be unreasonable, such
provision shall not be determined to be invalid or unenforceable,
but rather it shall be reformed by the court to cover the maximum
enforceable period, area, and other provisions (not greater than
those contained in Section 12) as shall be valid and enforceable
under New York law, it being the intention of the parties to this
Agreement to provide the Company with the broadest possible
protection under the provisions of Section 12 of this Agreement.
15. NOTICES. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and if sent
by certified mail, return receipt requested, to his residence in
the case of Executive, or in the case of the Company to c/o each of
the following addresses:
Mr. Joseph M. Dunn
980 N. Michigan Avenue, Suite 1400
Chicago, IL 60611
Mr. Peter L. Dyson
566 Chestnut Street, Suite 7
Winnetka, IL 60093
16. NOTICE TO NEGOTIATE. Both the Company and the
Executive agree on a non-binding basis to give to the other at
least six (6) months prior to the expiration date of this Agreement
if they do not wish to renew this Agreement on terms to be
negotiated.
<PAGE>
17. INDEMNIFICATION. To fullest extent permitted by law:
17.1 The Company shall indemnify the Executive for all claims,
losses, damages, judgments and costs, including reasonable
attorneys' fees that the Executive may incur as a result of his
being heretofore or in the future an officer, director or employee
of the Company or an affiliate thereof.
17.2 The Executive shall also be indemnified by the Company
for all claims, losses, damages, judgments and costs, including
reasonable attorneys' fees if he is made, or threatened to be made,
a party to an action or proceeding in connection with the Merger
Agreement, the proxy statement (the "Proxy")in connection with the
Merger Agreement and/or any and all causes of action relating to
the Merger Agreement, Proxy or any matters relating to the Merger.
17.3 The Company shall pay in full, at the inception of this
Agreement, for a directors and officers insurance policy "tail" for
the Executive to be effective for a period of three (3) years from
the date of this Agreement that will provide the Executive with the
same coverage as heretofore provided by the Company as well as
coverage under Section 17.2 applicable to the period to and
including the Effective Time.
18. RELOCATION OF THE COMPANY. In the event the Company
relocates its operations, for any reason, to a place more than a
thirty-five (35) mile radius from 2101 Jericho Turnpike, New Hyde
Park, New York 11042-5416, the Executive shall not be required to
perform any further services under this Agreement, but the
Executive shall continue to be entitled to receive his full
compensation and Benefits as provided in this Agreement. The
Executive, subject to his availability, agrees to consult with the
Company at the request of the Company by telephone.
19. BUSINESS COMBINATION. If the Company engages in a
Business Combination before December 31, 1997 without the approval
of the Executive then the Executive shall not be required to
perform any further services under this Agreement, but the
Executive shall continue to be entitled to receive his full
compensation and Benefits as provided in this Agreement.
20. ENTIRE AGREEMENT. This document contains the entire
agreement of the parties. It may not be changed orally but only by
an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or
discharge is sought.
21. PRIOR AGREEMENTS. This Agreement shall supersede all
prior employment agreements between the Executive and the Company,
including, specifically, the Existing Agreement, which is hereby
<PAGE>
terminated without further liability by either party hereto to the
other party to this Agreement.
22. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
23. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled
by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association at its offices in Nassau
County, New York, and judgment upon the award rendered by the
Arbitrators may be entered in any court having jurisdiction
thereof.
24. BINDING AGREEMENT. This Agreement shall be binding upon
the heirs, successors and assigns of each of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
DESIGNATRONICS INCORPORATED
By:__________________________ _______________________________
Joseph M. Dunn, Chairman Frank Buchsbaum
of the Board
<PAGE>
<PAGE>
EXHIBIT H TO AGREEMENT AND PLAN OF MERGER
EMPLOYMENT CONTRACT
THIS AGREEMENT, dated this ___ day of _______, 1995, is by and
between DESIGNATRONICS INCORPORATED, a New York corporation with
principal offices at 2101 Jericho Turnpike, New Hyde Park, New York
11040 (the "Company") and HITOSHI TANAKA, residing at 235 Second
Street, Fanwood, New Jersey 07023, (the "Executive").
W I T N E S S E T H
WHEREAS, the Executive has been employed by the Company for
nineteen (19) years, since 1975, during which period he has
acquired intimate knowledge of the Company and its operations and
affairs and has become a key executive officer of the Company; and
WHEREAS, on the date hereof, DD&D-DI ACQUISITION COMPANY, a
Delaware corporation ("Purchaser"), acquired all of the issued and
outstanding shares of Common Stock of the Company, par value $.04
per share, pursuant to an AGREEMENT AND PLAN OF MERGER, dated July
6, 1995 (the "Merger Agreement"), among the Company, Purchaser and
its wholly-owned subsidiary, DD&D-DI MERGER COMPANY, INC., a New
York corporation which is being merged into the Company on the date
of this Agreement (terms defined in the Merger Agreement are used
in this Agreement with the same meanings); and
WHEREAS, as a condition to the Closing under the Merger
Agreement, and contingent upon the Closing and the Merger
occurring, the Executive is entering into this Agreement as a material
inducement to Purchaser to proceed with the Closing; and
WHEREAS, this Agreement supersedes the existing EMPLOYMENT
CONTRACT, dated August 31, 1992, between the Company and the
Exe-cutive, as heretofore amended (the "Existing Agreement");
NOW, THEREFORE, in consideration of the mutual promises of the
parties to each other and the performance by Purchaser of its
obli-gations under the Merger Agreement, it is agreed as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and
the Executive hereby accepts employment upon the terms and
conditions hereinafter set forth. The Company, as used throughout
this Agreement, shall mean and include the Company and any
subsidiaries of the Company.
2. TERM. The term of the Executive's employment under this
Agreement (the "Term") shall commence on the date hereof and shall
continue thereafter until December 31, 1997.
3. DUTIES. The Executive is engaged as an executive of the
<PAGE>
Company, namely, its Senior Vice President, and will serve in that
capacity during the Term. He will perform all duties incident to
his office, as provided in the Company's By-Laws and in the same
manner as he has performed during the past two (2) years. If he is
elected as a director or officer of any subsidiary of the Company,
he will serve in that capacity or in those capacities without any
further compensation; but nothing contained herein shall be
construed as requiring the Company to cause the election or
appointment of the Executive as any such director or officer of any
subsidiary of the Company.
4. COMPENSATION.
4.1 SALARY. For all services rendered by the Executive
under this Agreement, the Company shall pay the Executive a salary
of $146,054 per year payable weekly (which sum is 110% of the
Executive's current salary and which increase is pursuant to the
Amendment dated March 22, 1994 to the Existing Agreement).
4.2 BONUS. As additional incentive to the Executive, the
Company shall pay the Executive:
(a) a bonus for its fiscal year ending August 31, 1995,
computed in the manner and payable at the time provided for in
section 1.10 of the Merger Agreement; and
(b) a bonus for each of its fiscal years ending August
31, 1996 and 1997, equal to the percent of EBIT set forth in
the following table:
If EBIT is more than: Percent:
$1,368,000 but less
than $2,137,00.01 1.00%
$2,137,000 but less
than $2,565,000.01 1.33%
$2,565,000 but less
than $2,850,000.01 1.67%
$2,850,000 2.00%
As used herein, "EBIT" means the Company's income from continuing
operations before interest expense, income taxes, extraordinary
items, salaries, fees and expenses payable to any officer or
director of the Purchaser, the Merger Company or any affiliate
thereof, other than an executive officer of the Company prior to
the Merger, any expenses related to the Merger and transactions
<PAGE>
related thereto and bonuses as determined by the independent public
accounting firm that audits the financial statements of the Company
for its fiscal years ending August 31, 1996 and 1997. The bonus
for each such fiscal year shall be payable immediately upon
completion of the audit of the Company's financial statements for
such fiscal year and receipt of a computation of EBIT for such year
prepared by such firm as part of their engagement.
4.3 OTHER BENEFITS. The salary and bonuses provided
for in subparagraphs 4.1 and 4.2 shall be in addition to any
pension or retirement benefits, director's fees or salary increases
to which the Executive may become entitled in the future at the
discretion of the Company (collectively, "Benefits"); and the
existence of this Agreement shall not be deemed in any way to
preclude the Executive from receiving any additional Benefits nor
to oblige the Company to provide any such additional Benefits.
5. SALARY CONTINUATION PROVISIONS. The salary of the
Executive as in effect on the date of his death or his total or
partial disability shall continue to be paid by the Company in
full, as if he continued to be employed:
(a) for twelve (12) months after his death to the
Executive's estate, or such other designee as the Executive
designates, by letter in writing to the Company; provided,
however, that in no event shall his salary continue under this
clause (a) after December 31, 1998; and
(b) during the entire period of his total or partial
disability; provided, however, that his salary shall not
continue for more than two (2) years after his disability
began and in no event shall his salary continue under this
clause (b) after December 31, 1998.
For purposes of this Agreement, (A) "total disability" shall mean
that the Executive is totally disabled and unable to carry out his
duties hereunder, and (B) "partial disability" shall mean that the
Executive is partially disabled, permitting only a limited schedule
of duties at the offices of the Company.
6. EXTENT OF SERVICES. The Executive shall not, during the
Term, during normal business hours, engage in any business activity
whether or not such business activity is pursued for gain, profit
or pecuniary advantage; but this provision shall not be construed
as preventing the Executive from investing his personal assets in
businesses which do not compete with the Company in such form or
manner as will not require any services on his part in the
operation of the affairs of the companies in which such investments
are made and in which his participation is solely that of an
investor.
<PAGE>
7. VACATIONS. The Executive shall be entitled to reasonable
vacations during each year of his employment hereunder which shall
be at such time or times as may be consistent with the business
needs of the Company and to be based upon the policies described in
the Company's present Employee Handbook.
8. INSURANCE. The Company may, at its election and for its
benefit, insure the Executive against disability or death; and the
Executive shall submit to such physical examination and supply such
information as may be required in connection therewith. The
Company shall be the sole beneficiary of such insurance.
9. DISABILITY. In the event the Executive is totally
disabled and unable to carry out his duties, he shall be relieved
of his duties hereunder, but he shall consult with the other
officers, directors or key employees of the Company, to the extent
reasonably possible, concerning the business and affairs of the
Company, during the disability. At the termination of the
disability, the Company shall reinstate the Executive to his prior
position, unless it has hired a replacement. The Company agrees
not to hire a replacement for the first three (3) months of the
Executive's disability. If a replacement has been hired, the
Company shall not be obligated to reinstate the Executive to his
prior position before the disability, but shall continue to pay the
Executive his compensation and provide him with all other benefits
under this Agreement. The Executive need not perform further
duties under this Agreement if a replacement has been hired.
10. BENEFITS. In addition to the benefits set forth in this
Agreement, the Executive shall be entitled to participate in all
benefits made available to the employees of the Company, which
shall be included in the definition of Benefits as defined in
Section 4 of this Agreement and as described below and elsewhere in
this Agreement.
10.1 LIFE INSURANCE. The Company shall continue to pay the
life insurance on the Executive, which payments shall not exceed
$5,175 per annum, in the same manner as paid during the two years
preceding the date of this Agreement. The Executive shall receive
the sum of $5,175 in a lump sum, payable on the same date as
heretofore paid by the Company toward life insurance after the
termination of this Agreement, whether termination is voluntary or
involuntary and even if for just cause by the Company for a maximum
of three (3) years, not to exceed $15,525. Death of the Executive
shall terminate any further payments effective with the date of
death. The first payment to the Executive, after termination, shall
be made to the Executive within 90 days after the termination of
the Executive and such date will establish the anniversary date for
all subsequent annual payments.
<PAGE>
10.2 HEALTH INSURANCE. The Executive shall be entitled to
receive the benefits of the Company's health care plan provided to
its non-union employees without cost to the Executive during the
term of this Agreement.
11. RESTRICTIVE COVENANTS.
11.1 DISCLOSURE OF INFORMATION. The Executive recognizes
and acknowledges that the Company's trade secrets, customers lists
and other proprietary, secret or confidential information, as such
secrets, lists and information exist from time to time, are
valuable, special and unique assets of the Company, invaluable to
its businesses, access to and knowledge of which are essential to
the performance of the Executive's duties hereunder and the success
of the Company. The Executive will not, at any time during or
after the Term, disclose such secrets, lists or information, in
whole or in part, to any Person, for any reason or purpose
whatsoever; nor shall the Executive make any use of any of such
assets for his own purposes or for the benefit of any Person (other
than the Company), under any circumstances, at any time during or
after the Term. As used herein "Covenants" means the covenants
contained in this Section and in Section 12.3 below.
11.2 PERIOD. For the Period (as hereinafter defined) after
the termination of his employment with the Company, the Executive
shall comply with the Covenants set forth in Section 11.3 below,
unless such termination by the Company of the Executive is
wrongful, including if the Company terminates this Agreement
without just cause. As used herein, "Period" means the one (1) year
starting on the date of termination of the Executive's employment;
provided, however, that the Period shall continue so long as the
Company continues to pay the Executive's salary pursuant to Section
5(b) above.
11.3 OTHER COVENANTS. The Executive will not, directly or
indirectly, alone or together or with any other person or persons
("Person"), at any time during the Period:
(a) own, manage, operate, control, lend to or invest in,
or engage or participate in the ownership, management,
operation, control or financing of, or become an officer,
director, shareholder, member, partner, manager, employee,
consultant, advisor, agent, independent contractor,
distributor, sales person or representative of, any Person, such as
Berg, Pic, and Allied Devices, who or which designs,
manufactures, sells, markets, distributes or otherwise deals in or
with small mechanical drive components substantially through
catalogs; or
(b) attempt to induce any such customer to purchase or
otherwise acquire any competing product from any Person other
than the Company or to cease purchasing products from the
<PAGE>
Company or to curtail its purchases from the Company or to
reduce, rescind or postpone any purchase order at any time
given to the Company; or
(c) attempt to induce any officer, employee, consultant,
agent, independent contractor, distributor, sales person or
representative of the Company to terminate his, her or its
relationship with the Company or to simultaneously represent
any competitor of the Company.
The parties do not intend by the reference in clause (a) to "Berg,
Pic, and Allied Devices" to limit the universe of possible
competitors to those three (3) companies, but rather the parties
are simply attempting to define the type of business from which
Purchaser has an interest in protecting the Company against
competition, namely, a business that sells products that compete
with or can be used as substitutes for products referred to in the
latest edition of DI's catalogs prepared prior to termination of
employment. As used herein:
(1) "Berg" means W.M. Berg Inc., the principal offices
of which are located at 510 Ocean Avenue, East Rockaway, NY 11518;
(2) "Pic" means PIC Design, the principal offices of
which are located at Benson Road, Middlebury, CT 06762;
(3) "Allied Devices" means Allied Devices Corp., the
principal offices of which are located at 2365 Melbourne Avenue,
Baldwin, NY 11510.
11.4 DEFINITION OF COMPANY. For purposes of the provisions
of this Section 11, "Company" shall include all present and future
Affiliates of the Company, including DESIGNATRONICS FOREIGN SALES
CORP., WESTERN COMPONENT SALES CORP. and ACCELLENT TECHNOLOGY LTD.,
and all of their respective divisions, arms, and branches, wherever
located, all over the world.
11.5 REASONABLENESS OF COVENANTS. The Executive acknowledges
that the Period (indefinite in the case of Section 11.1 and a
minimum of one year in the case of Section 11.3) and the
geographical area (the world) of the Covenants, and all of the
other
provisions of this Section 11, are fair and reasonable, in light of
the facts that: (1) the Executive has participated in the
management of the Company for many years, and over the years he has
developed close personal relationships with all material employees
and many sales representatives and other independent contractors
and agents of and consultants to the Company, as well as many of
its material customers and suppliers; (2) the Executive has an
intimate know-ledge of the Company's businesses and affairs; and
(3) the customers of the Company and its suppliers are located all
over the world.
<PAGE>
11.6 EQUITABLE REMEDIES. The Executive acknowledges that any
breach of any Covenant could result in substantial and irreparable
damages to the Company and that the amount of such damages would be
difficult, if not impossible, to calculate or ascertain in monetary
terms. Accordingly, the Executive agrees that, in the event of any
such breach or a threatened breach of any Covenant, the Company may
seek and obtain a preliminary, temporary or permanent injunction,
restraining order or other relief in equity, without providing any
bond or other security and without proving any actual damages. The
Company's right to injunctive or other relief in equity shall be in
addition to all other rights and remedies the Company may otherwise
have, at law, in equity, or otherwise, in the event of any breach
or threatened breach of any Covenant by the Executive. The
Company's right to injunctive or other relief in equity may be
exercised, at its option, prior or subsequent to, contemporaneous
with, or in lieu of any other rights or remedies the Company may
have by reason of a breach of any such Covenant.
11.7 PUBLIC STOCK EXCEPTION. Nothing contained in this
Section 12 shall prohibit the Executive and his Affiliates,
collectively, from owning, holding or purchasing less than five
percent (5%) of the outstanding shares of any class of capital
stock, warrant or debt investment listed on a national securities
exchange, registered under Section 12(g) of the Securities Exchange
Act of 1934 and quoted on NASDAQ, or traded on the pink sheets.
11.8 THIRD PARTY BENEFICIARIES. The Executive acknowledges
that during the Period:
(a) Purchaser, the Company, or an Affiliate of Purchaser
or the Company, may form one or more new Affiliates to engage
in one or more of the businesses of the Company or some aspect
of one or more of such businesses; and
(b) Purchaser, the Company, or an Affiliate of Purchaser
or the Company, may sell the one or more of the businesses of
the Company, in whole or in part, to one or more successors,
by means of a sale of assets or stock, a merger or
consolidation, or otherwise.
The Executive agrees that each such Affiliate and successor of the
Company or Purchaser shall be a third party beneficiary entitled to
all of the rights and remedies of the Company under the provisions
of this Section 11. The provisions of the preceding sentence are
not intended to, and shall not, expand the scope of any Covenant
contained in this Section 11. The foregoing is subject to the
Executive's rights under Section 19 of this Agreement.
12. TERMINATION.
12.1 Except as otherwise provided in Section 5 of this
<PAGE>
Agreement, in the event this Agreement shall be terminated by the
Company for any reason whatsoever during the Term, the Executive
shall receive such compensation and Benefits as may be then in
effect on the date of such termination for the duration of the Term
or such longer period as provided in Section 5 of this Agreement.
12.2 In the event there is no renewal of this Agreement, for
any reason, the Executive shall be entitled to receive severance
pay equal to one (1) year's Salary, with Benefits payable as
provided in this Agreement, or such longer period as provided in
this Agreement.
13. WAIVERS. The waiver by any party, including any third
party beneficiary, of (a) any right or remedy hereunder or (b) any
failure to perform or breach by any other party shall not be deemed
a waiver of (1) any other right or remedy or (2) any other failure
or breach by such other party, whether of the same or a similar
nature or otherwise. No waiver shall be effective unless it is set
forth in a writing executed by or on behalf of the waiving party or
third party beneficiary. No written waiver shall be deemed to be
a continuing waiver unless specifically stated therein; and each
waiver shall operate only as to the specific provision waived and
shall not constitute a waiver of such provision for the future or
as to any failure or breach other than that specifically waived.
14. SEVERABILITY. Each provision of this Agreement shall be
governed by, and is intended to be fully enforceable in accordance
with, the laws of the State of New York, applicable to a contract
entered into and performed solely in the State of New York. If,
however, for any reason, any provision of this Agreement is held to
be invalid or unenforceable under New York law, to any extent, such
provision shall be enforceable to the fullest extent possible under
New York law, and all other valid and enforceable provisions of
this Agreement shall remain in full force and effect, and to that
end each provision of this Agreement shall be severable in nature.
Without limiting the generality of the preceding sentence, if any
provision in Section 10 is held to be invalid or unenforceable to
any extent, because it is too broad or because it covers a period
or a geographical area that is determined to be unreasonable, such
provision shall not be determined to be invalid or unenforceable,
but rather it shall be reformed by the court to cover the maximum
enforceable period, area, and other provisions (not greater than
those contained in Section 10) as shall be valid and enforceable
under New York law, it being the intention of the parties to this
Agreement to provide the Company with the broadest possible
protection under the provisions of Section 10 of this Agreement.
15. NOTICES. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and if sent
<PAGE>
by certified mail, return receipt requested, to his residence in
the case of Executive, or in the case of the Company to c/o each of
the following addresses:
Mr. Joseph M. Dunn
980 N. Michigan Avenue, Suite 1400
Chicago, IL 60611
Mr. Peter L. Dyson
566 Chestnut Street, Suite 7
Winnetka, IL 60093
16. NOTICE TO NEGOTIATE. Both the Company and the Executive
agree on a non-binding basis to give to the other at least six (6)
months prior to the expiration date of this Agreement if they do
not wish to renew this Agreement on terms to be negotiated.
17. INDEMNIFICATION. To fullest extent permitted by law:
17.1 The Company shall indemnify the Executive for all claims,
losses, damages, judgments and costs, including reasonable
attorneys' fees that the Executive may incur as a result of his
being heretofore or in the future an officer, director or employee
of the Company or an affiliate thereof.
17.2 The Executive shall also be indemnified by the Company
for all claims, losses, damages, judgments and costs, including
reasonable attorneys' fees if he is made, or threatened to be made,
a party to an action or proceeding in connection with the Merger
Agreement, the proxy statement (the "Proxy")in connection with the
Merger Agreement and/or any and all causes of action relating to
the Merger Agreement, Proxy or any matters relating to the Merger.
17.3 The Company shall pay in full, at the inception of this
Agreement, for a directors and officers insurance policy "tail" for
the Executive to be effective for a period of three (3) years from
the date of this Agreement that will provide the Executive with the
same coverage as heretofore provided by the Company as well as
coverage under Section 17.2 applicable to the period to and
including the Effective Time.
18. RELOCATION BY THE COMPANY. In the event the Company
relocates its operations, for any reason, to a place more than a
thirty-five (35) mile radius from 2101 Jericho Turnpike, New Hyde
Park, New York 11042-5416 or the Executive's residence, the
Executive shall not be required to perform any further services
under this Agreement, but the Executive shall continue to be
entitled to receive his full compensation and Benefits as provided
in this Agreement. The Executive, subject to his availability,
<PAGE>
agrees to consult with the Company at the request of the Company by
telephone.
19. BUSINESS COMBINATION BY THE COMPANY. If the Company
engages in a Business Combination before December 31, 1997 without
the approval of the Executive then the Executive shall not be
required to perform any further services under this Agreement, but
the Executive shall continue to be entitled to receive his full
compensation and Benefits as provided in this Agreement.
20. ENTIRE AGREEMENT. This document contains the entire
agreement of the parties. It may not be changed orally but only by
an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or
discharge is
sought.
21. PRIOR AGREEMENTS. This Agreement shall supersede all
prior employment agreements between the Executive and the Company,
including, specifically, the Existing Agreement, which is hereby
terminated without further liability by either party hereto to the
other party to this Agreement.
22. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
23. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled
by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association at its offices in Nassau
County, New York, and judgment upon the award rendered by the
Arbitrators may be entered in any court having jurisdiction
thereof.
24. BINDING AGREEMENT. This Agreement shall be binding upon
the heirs, successors and assigns of each of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
DESIGNATRONICS INCORPORATED
By:__________________________ _______________________________
Joseph M. Dunn, Chairman Hitoshi Tanaka
of the Board
<PAGE>
<PAGE>
EXHIBIT I TO AGREEMENT AND PLAN OF MERGER
OPINION OF DI GENERAL COUNSEL
[Type on letterhead of Hollenberg, Levin,
Solomon, Ross & Belsky, LLP]
[Date the Closing Date]
DD&D-DI ACQUISITION COMPANY,
a Delaware corporation ("AC")
c/o DYSON, DYSON & DUNN, INC.
980 N. Michigan Ave., Suite 1400
Chicago, Illinois 60611
RE: DESIGNATRONICS INCORPORATED,
a New York corporation ("DI")
Ladies and Gentlemen:
This opinion is being delivered at the Closing under the AGREEMENT
AND PLAN OF MERGER, dated July 6, 1995 (the "Agreement"), among DI,
AC and DD&D-DI MERGER COMPANY, INC. a New York corporation ("MC").
We are general counsel to DI; and we have represented DI in
connection with the negotiation of the Agreement and the
transactions closed thereunder today, including the merger of MC
with and
into DI (the "Merger") pursuant to the Agreement. Terms used but
not defined herein have the meanings set forth in the Agreement.
This opinion is being delivered to satisfy the Condition set forth
in Section 4.03.07 of the Agreement. As a basis for this opinion,
we have conducted such review, research and examination as we have
deemed necessary, including a review of the items listed on Annex
A attached hereto. We have assumed that no changes have occurred
since the date of each item listed on Annex A and that each of said
items are true and correct as of the date hereof.
We have assumed the authenticity of all documents submitted to us
as originals, the genuineness of all signatures, the legal capacity
of natural persons, the conformity to originals of all documents
submitted to us as copies and, with respect to AC and MC, their due
organization, existence and capacity to enter into all documents to
which they are parties and the valid execution and delivery of the
Agreement by AC and MC and the Certificate of Merger by MC. We
have assumed that AC and MC have complied with all of the terms and
conditions required to be complied with by them under the
Agreement.
<PAGE>
We advise that we are not involved in the day to day affairs of the
Company and did not serve as counsel to DI prior to 1992.
Based on the foregoing and subject to the qualifications
hereinafter set forth, it is our opinion that, as of the date
hereof:
1. DI is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York. DFSC is
a corporation duly organized, validly existing and in good standing
under the laws of the Virgin Islands. Each DI Company has all
requisite corporate power and authority to own, lease and operate
its properties and to carry on its businesses as now being
conducted.
2. DI is duly qualified and in good standing as a foreign
corporation in the state of California.
3. The restated certificate of incorporation in the form of
Exhibit A and the amended and restated by-laws in the form of
Exhibit B to the Certificate of Merger, as filed today with the
Department, will become the certificate of incorporation and
by-laws of DI at the Effective Time.
4. To our knowledge:
a) The authorized capital stock of DI consists of
5,000,000 shares of Common Stock, par value $.04 per share (the
"Shares"), of which 2,873,423 were issued and outstanding
immediately prior to the Merger;
b) each outstanding Share has been duly authorized and
validly issued and is fully paid and non-assessable;
c) the Shares have been duly and validly registered
pursuant to Section 12(g) of the Exchange Act; and
d) such registration is in full force and effect;
5. [ADD ONE OF THE FOLLOWING SENTENCES: To our knowledge no
Shareholder has filed a written objection to the Merger with DI,
together with a demand for the payment of the fair value of his
Shares, in accordance with Section 623 of the NYBCL. - OR - Holders
of _________ Shares have filed written objections to the Merger
with DI, together with demands for the payment of the fair value of
their Shares, in accordance with Section 623 of the NYBCL.]
6. DI has full corporate power and authority to enter into
the Agreement and the Certificate of Merger and to carry out all of
<PAGE>
its duties and obligations thereunder. The execution and delivery
of the Agreement and the Certificate of Merger and the consummation
of the transactions provided for therein, including the Merger,
have been duly authorized by DI's Board of Directors and the
requisite vote of its Shareholders, and no other corporate actions
or proceedings on the part of DI are necessary to authorize it to
enter into the Agreement or the Certificate of Merger or to
consummate the transactions provided for therein.
7. Each of the Agreement and the Certificate of Merger has
been duly executed and delivered by DI and is a legal, valid and
binding agreement or certificate of DI. The Certificate of Merger
is in proper form for filing pursuant to the NYBCL and to effect
the Merger under the NYBCL as contemplated by the Agreement.
8. Except as disclosed in Section 2.01.05 of the Disclosure
Schedule and to our knowledge neither the execution and delivery of
the Agreement, nor the consummation of the transactions provided
for therein, nor compliance with any of the provisions thereof,
will (a) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration,
the loss of a material benefit or the creation of any lien, claim,
security interest, charge or encumbrance upon any of the properties
or assets of DI under any of the terms, conditions or provisions of
(1) its certificate of incorporation or by-laws or (2) any note,
bond, mortgage, indenture, deed of trust, other financing document,
lease, agreement, instrument or obligation to which DI is a party
or by which it is bound or to which any of its properties or assets
is subject, or (b) violate any judgment, ruling, order, writ,
injunction or decree in effect as of the date hereof or any
statute, rule or regulation applicable to DI or any of its assets.
9. Other than (a) the filing of the Certificate of Merger in
compliance with the NYBCL, (b) the filings required by the Exchange
Act, and (c) the filings required by the rules and regulations of
the NASD with respect to the NASDAQ, all of which filings have been
made on or before the date hereof, to our knowledge no notice or
report to, registration, declaration or filing with, and no
authorization, consent or approval of, any public body or authority
is necessary for the execution, delivery and performance by DI of
the Agreement or the execution and filing of the Certificate of
Merger by DI, including the consummation of the Merger. We have
assumed, based upon representations by AC and MC that no
notification is required under the Hart-Scott-Rodino Antitrust
Improvements Act.
<PAGE>
10. To our knowledge, except as set forth in the SEC Filings
or in Section 2.01.15 of the Disclosure Letter, no action, suit,
arbitration proceeding or governmental investigation or inquiry is
pending against either DI Company.
11. The Special Meeting was duly and properly called and
convened in compliance with all requirements of the Exchange Act,
the NYBCL and the certificate of incorporation and by-laws of DI.
Notice of the Special Meeting was given to each Shareholder of
record as of the record date for the Special Meeting, along with
the Proxy Statement, the Agreement and all of the other Exhibits to
the Proxy Statement. Holders of ____________ Shares voted in favor
of the Merger at the Special Meeting. Thus, the plan of merger
contained in the Agreement was adopted by the vote of holders of
more than two-thirds of all outstanding Shares entitled to vote
thereon and the Merger has been duly approved by the Shareholders.
12. The Proxy Statement (excluding any information supplied
by Purchaser or Merger Company for inclusion therein), when mailed
and at the time of the Special Meeting, complied as to form in all
material respects with all applicable provisions of the Exchange
Act, including the rules and regulations promulgated thereunder.
Although we participated in the preparation of the Proxy Statement
and have reviewed and discussed the contents thereof with
representatives of DI, with the independent certified public
accountants of
DI, and with you and your counsel, we have not verified, and assume
no responsibility for, the accuracy, completeness or fairness of
the statements contained in the Proxy Statement. No facts have
come to our attention, however, that would lead us to believe that
the Proxy Statement (other than the financial statements, financial
data and supporting schedules included therein or omitted therefrom
as to which we express no belief), at the time mailed to the
Shareholders, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
The opinions expressed herein are subject to the following
qualifications, assumptions and limitations:
A. Our opinion is qualified with regard to matters of
enforceability to the extent that enforcement may be subject to:
(i) bankruptcy, insolvency, reorganization, receivership,
fraudulent transfer and conveyance, moratorium or other similar
laws now or hereafter in effect relating to or limiting the
enforcement of creditors' rights generally; (ii) principles of
equity; and (iii) with respect to any provisions purporting to
provide indemnification for liabilities under securities laws,
<PAGE>
principles of public policy which may preclude their enforcement.
B. Insofar as our opinion relates to the existence and
good standing of the DI Companies, we have relied upon certificates
of the Department of State of New York and the Virgin Islands,
respectively, and certificates of good standing from the state of
California and no further investigation has been performed by us.
C. We have relied upon the affidavit of Continental
Stock Transfer & Trust Company ("Continental") dated ___________
with regards to the giving of Notice of the Special Meeting to each
shareholder of DI and we have further relied upon the results of
the proxies submitted at the Special Meeting as provided to us by
Continental and no further investigation has been performed by us
relative to these matters.
D. We are members of the Bar of the State of New York
and we do not purport to express any opinion herein concerning any
law other than the laws of the State of New York and the federal
laws of the United States of America.
E. This opinion is rendered solely for your benefit in
connection with the transactions contemplated by the Agreement and
may not be relied upon by you for any other purpose, or furnished
to, used, circulated, quoted or relied on by any other person for
any purpose, without our prior written consent in each instance.
Very truly yours,
HOLLENBERG LEVIN SOLOMON
ROSS & BELSKY, LLP
<PAGE>
<PAGE>
ANNEX A
1. Good standing certificate of DI
2. Good standing certificate of DFSC
3. Certificate of qualification in California of DFSC
4. (correspondence from transfer agent)
5. 1994 certified financial statement of DI
6. Charter documents of DI
7. By-laws of DI
8. Representations by DI in merger agreement
9. Certificate of officers
10. United Corporate Services searches
11. Affidavit of mailing and results of meeting from transfer
agent
12. Disclosure schedule
13. Schedule of Dissenters provided by DI
14. Anything else
<PAGE>
<PAGE>
DISCLOSURE SCHEDULE
This Disclosure Schedule is delivered in accordance with
Section 2.01 of the Agreement and Plan of Merger (the "Merger
Agreement") dated as of July 6, 1995 among Designatronics
Incorporated ("DI" or the "Company"), DD&D-DI Acquisition Company
(the "Purchaser") and DD&D-DI Merger Company (the "Merger Company").
All terms defined in the Merger Agreement are used in this
Disclosure Schedule with the same meanings.
The listing of any particular item in a Section shall be
applicable to all other Sections, where relevant, whether such item
is listed in such Section or not.
Section 2.01.01 Organization and Authority.
1. DI. The jurisdictions that DI is duly qualified and in good
standing in which qualification is required for it to own or lease
the properties or to conduct the businesses it owns, leases or
conducts therein are as follows:
a. New York
b. California
2. DFSC. The jurisdiction that DFSC is duly qualified and in
good standing in which qualification is required for it to own or
lease the properties or to conduct the businesses it owns, leases
or conducts therein is as follows:
a. Virgin Islands
3. DI has previously provided William Barrows with the following
documents:
a. Certified copy (as of May 24, 1995) of the Certificate of
Incorporation of DI filed with the Department of State on September
7, 1960.
b. Certified copy (as of May 24, 1995) of the Certificate of
Amendment of the Certificate of Incorporation of DI filed with the
Department of State on March 8, 1960.
c. Certified copy (as of May 24, 1995) of the Certificate of
Amendment of the Certificate of Incorporation of DI filed with the
Department of State on December 29, 1964.
<PAGE>
d. Certified copy (as of May 24, 1995) of the Certificate of
Amendment of the Certificate of Incorporation of DI filed with the
Department of State on April 26, 1967.
e. Certified copy (as of May 24, 1995) of the Certificate of
Amendment of the Certificate of Incorporation of DI filed with the
Department of State on January 3, 1968.
f. Certified copy (as of May 24, 1995) of the Certificate of
Amendment of the Certificate of Incorporation of DI filed with the
Department of State on March 8, 1983.
g. Certified copy (as of May 24, 1995) of the Certificate of
Change of the Certificate of Incorporation of DI filed with the
Department of State on January 9, 1995.
h. Certified copy (as of May 24, 1995) of the Certificate of
Merger of Perfect Gear and Instrument Corp. into DI filed with the
Department of State on November 14, 1974.
i. Certified copy (as of May 24, 1995) of the Certificate of
Merger of Perfect Gear and Instrument Corp. into DI filed with the
Department of State on April 23, 1979.
j. Long-form Good Standing Certificate of DI dated May 22,
1995.
k. New York State Tax Status Certificate for DI dated May
24, 1995.
l. State of California Foreign Good Standing Certificate
dated May 26, 1995 for DI.
m. Certified copy (as of May 24, 1995) of the Articles of
Incorporation of DFSC filed with the government of the Virgin
Islands on November 28, 1984.
n. Certified copy (as of May 24, 1995) of the Certificate of
Amendment of the Articles of Incorporation of DFSC filed in the
Office of the Lieutenant Governor on March 16, 1985.
o. Good Standing Certificate of DFSC dated May 24, 1995.
p. Copies of the by-laws of DI.
q. Copies of the by-laws of DFSC.
<PAGE>
Section 2.01.02 Affiliated Entities.
1. Entities owned by or in which DI has an interest in.
a. Technic Machinery & Equipment Corp. - organized under the
laws of the State of New York. There are 200 issued and outstanding
shares owned by Phillip Anzelone. DI has an option to acquire such
shares until October 31, 1996 for $25,000, pursuant to a written
agreement dated October 31, 1991, as amended. No representations or
corporate documents are given as to this entity.
b. DFSC - organized under the laws of the Government of the
Virgin Islands.
c. Western Component Sales North Inc. ("WCS") - DI owns 50%
of the issued and outstanding shares of capital stock of WCS
pursuant to a written agreement dated November 1, 1985. No
representations or corporate documents are given as to this entity.
d. Stock Owned by DI in Exchange for Cancellation of Debt.
-
A schedule of these items have been delivered to William Barrows.
No representations or corporate documents are given as to these
entities.
e. The following are Inactive Subsidiaries and no
representations are made (regarding their tax status or otherwise)
or corporate documents are given with respect to such Inactive
Subsidiaries.
i. Automatic Coil Haiti Inc. - organized under the laws
of the Republic of Haiti. Wholly owned subsidiary of DI. Euro
Techno Inc. is a wholly owned subsidiary of Automatic Coil Haiti.
ii. Accusonic Systems Corp. - organized under the laws
of the State of New York. Wholly owned subsidiary of DI. Pursuant
to the Asset Sale by Accusonic Systems Corp. to Global Market
Development, Inc. on June 18, 1992, DI is receiving payments, which
payments are currently being made.
iii. Automatic Coil Corp. - organized under the laws of
the State of Florida. Wholly owned subsidiary of DI.
iv. Sommer Automatic U.S.A. Corp. - organized under the
laws of the State of New York. Wholly owned subsidiary of DI.
v. Isel U.S.A. Corp. - organized under the laws of the
State of New York. Wholly owned subsidiary of DI.
<PAGE>
f. There are negotiations with Spaja Gear to obtain an
interest in such company. Currently, no agreement has been signed.
2. Entity owned by DFSC.
a. Accellent Technology Ltd. - organized under the laws of
Hong Kong. DFSC owns 21% of the outstanding shares of capital
stock of ATL and has an option to acquire up to 50% of the
outstanding shares of capital stock of ATL. No representations or
corporate documents are given as to this entity.
Section 2.01.04 Authority.
1. European American Bank ("EAB") - Section 8.06 of the
$5,000,000 Revolving Credit Agreement dated as of November 9, 1993
among DI and EAB requires DI to obtain consent from EAB before
engaging in a merger or consolidation.
2. Agreement of Lease (2101 Jericho Turnpike) - Paragraph 47 of
the Rider to the Lease dated October 16, 1984 between Terminal
Industrial Park Inc. (the "Owner"), and DI states that any
transfer, whether by sale or by operation of law, of fifty (50%)
per cent of the capital stock of DI shall be deemed an assignment
of the lease. DI may assign the lease, provided that the Owner has
consented thereto in writing, which consent will not be
unreasonably withheld.
See 2.01.06 below.
Section 2.01.05 No Conflicts.
See 2.01.04 above.
Section 2.01.06 No Governmental Approval.
A premerger advance notification of a merger acquisition may
be needed to be given to the Federal Trade Commission and the
Antitrust Division of the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act.
Section 2.01.09 Liabilities.
United States of America v. Designatronics, Inc. - An action
was commenced by the United States of America ("USA") on April 13,
1995 in the United States District Court for the Eastern District
of New York pursuant to the Employment Retirement Income Security
Act, and the Federal Debt Collection Procedures Act. The Company
and USA entered into a Stipulation of Settlement (the "Settlement")
<PAGE>
on June 2, 1995. Pursuant to the Settlement, USA will forego
pursuing the action with prejudice in consideration of the Company
paying the sum of $40,000 to the United States Department of
Treasury. The action and Settlement only relate to the late filing
of 1989. The Company also had late filings in 1990, 1991, 1992 and
1993 and no representations are made that such late filings will
not result in further liabilities to the Company.
Section 2.01.13 Tax Returns and Audits.
1. New York State Sales Tax Audit - pending for the period of
March 1, 1991 through March 1, 1994.
2. New York State Tax Audit - pending for 1991, 1992 and 1993.
3. Florida Property Tax Audit - pending for 1993.
4. Federal Tax Audit - there will be an audit for 1992 and 1993.
The Company believes it will receive a real estate tax refund
on its New Hyde Park leases. On June 28, 1995, DI received a net
refund of $125,624.41 with respect to 55 South Denton Avenue, New
Hyde Park, New York.
No representation is given as to the outcome of the audits or
the amount of any real estate tax refund.
Section 2.01.15 Litigation and Proceedings.
1. See Section 2.01.09 of this letter regarding USA v.
Designatronics Incorporated.
2. Lite Machines Corp. v. Techno, Inc., and Designatronics, Inc.
- This matter is being handled by Laszynski & Moore in Lafayette,
Indiana, for the Company. Purchaser should discuss this matter
with such firm for any and all details regarding this case.
3. Accusonic Systems Corp. prosecuted an appeal to the Armed
Services Board of Contract Appeals pursuant to the Contract
Disputes Act of 1978. This matter is being handled by the law
offices of Walter H. Fleischer in Washington, D.C., for the
Company. Purchaser should discuss this matter with such firm for
any and all details regarding this matter. There is an agreement
between Accusonic and Specialty Plastic Products, Inc. where the
parties have agreed to split the proceeds from a recovery by way of
settlement or decision.
4. The Company received a letter from the Prudent Speculator Fund
<PAGE>
(a shareholder of DI) on June 17, 1995. Such shareholder stated
that it felt that the Company was being sold too cheaply and that
could result in a class action against the Company.
No representation is given as to the outcome of any of the
foregoing litigation, except that the Company has paid the $40,000
required to be paid in connection with USA v. Designatronics
Incorporated.
Section 2.01.18 Title to Properties.
1. There has been delivered to William Barrows a Zoning and
Certificate of Occupancy report dated June 9, 1995 from Abstracts
Incorporated under title # ST-13056 for 55 S. Denton Avenue and
2101 Jericho Turnpike, New Hyde Park, New York, and no
representations are made with respect to or beyond such report.
2. There has been delivered to William Barrows a Last Owner, Open
Lien, Judgment, Open Mortgage and Deed and Lease Search dated June
22, 1995 from Abstracts Incorporated under title # ST-1309A and
ST-1309B for 55 S. Denton Avenue and 2101 Jericho Turnpike, New
Hyde
Park, New York, and no representations are made with respect to or
beyond such report.
Section 2.01.19 Leases.
There is a sublease of approximately 5,380 square feet made
June 1, 1992 by and between DI and Global Market Development, Inc.
applicable to the premises at 2101 Jericho Turnpike, New Hype Park,
New York. Rent has been increased to $3,402.85 per month by verbal
agreement.
Section 2.01.20 Contracts and Commitments.
The Company has provided William Barrows with the names of
twenty-two (22) sales representatives. Terms of their agreements
are available on file with DI.
The Company has also provided William Barrows with the
retainer agreement with Houlihan Lokey Howard & Zukin dated June 6,
1995 and the agreement with Ernst & Young dated July 1, 1994.
Section 2.01.21 Bank and Other Accounts.
The following chart sets forth all bank, brokerage, custodial,
money market and other accounts and safe deposit boxes of the DI
Companies or which contain any assets of the DI Companies, as of
June 16, 1995:
<PAGE>
<TABLE>
<CAPTION>
BANK NAME ACCOUNT ACCOUNT ACCOUNT ACCOUNT
NAME NUMBER BALANCE TYPE
SIGNATORIES(1)
<S> <C> <C> <C> <C> <C>
European Designatronis, Inc 061-05119-9 $486,393.29 Checking Martin
Hoffman
American Bank Frank
Buchsbaum
("E.A.B") Hitoshi
Tanaka
Victor
Francois
Mel
Slepian
E.A.B. Designatronics Inc.
Payroll Account 061-5120-7 0.00 Checking Martin
Hoffman
Frank
Buchsbaum
Hitoshi
Tanaka
Victor
Francois
Mel
Slepian
E.A.B. Designatronics Foreign
Sales Corporation 061-05124-9 35,741.02 Checking Martin
Hoffman
Frank
Buchsbaum
Hitoshi
Tanaka
Victor
Francois
Mel
Slepian
Lasalle
National Bank Designatronics Inc. -
Control Disbursement
Account 90-08914-3 0.00 Checking Martin
Hoffman
Frank
Buchsbaum
Hitoshi
Tanaka
Victor
Francois
Mel
Slepian
The Bank of
New York Designatronics Inc. -
Freight Account 040-6006488 5,068.41 Checking Hitoshi
Tanaka
Victor
Francois
Robert
Lindemann
John
Ahern
Arlene
Farquahar
Prudential
Mutual Fund
Services
("Prudential") Designatronics 401(k)
Match Forfeiture
Account 1-9900010071 11,395.24(2) Money Market Martin
Hoffman
Frank
Buchsbaum
Hitoshi Tanaka
Victor
Francois
Prudential Designatronics 401(k)
Profit Sharing
Forfeiture Account 1-9900109650 14,651.46(2) Money Market
Martin Hoffman
Frank
Buchsbaum
Hitoshi Tanaka
Victor Francois
_____________
(1) All accounts, to the Knowledge of DI, require two (2)
signatures.
(2) As of May 31, 1995.
</TABLE>
Section 2.01.22 Employee Relations.
There has been one work stoppage about five (5) years ago that
lasted about one week.
DI has delivered to William Barrows the Collective Bargaining
Agreements, as amended, with respect to Perfect Gear, Sterling
<PAGE>
Instruments and Stock Drive Products. The Collective Bargaining
Agreements are dated November 2, 1990 and were extended by written
agreement on November 2, 1992 and June 6, 1995.
Section 2.01.23 Employee Benefit Plans.
The following sets forth a list of all Arrangements and Plans
which are currently in effect or with respect to which the Company
has any contingent liability:
1. Designatronics Inc. Benefits and Policies Handbook - sets
forth the Company's policies regarding vacation time, holiday pay
and bonus programs, moving expense reimbursement and sick leave.
A copy of this handbook has been delivered to William Barrows.
2. 1993 Incentive Stock Option Plan - approved by the
shareholders of the Company in February, 1993. A copy of this plan
has been
delivered to William Barrows.
3. 1993 Executive Officer Incentive Stock Option Plan - approved
by the shareholders of the Company in January, 1994. A copy of
this plan has been delivered to William Barrows.
4. 1993 Non-Employee Directors' Stock Option Plan - approved by
the shareholders of the Company in January, 1994. A copy of this
plan has been delivered to William Barrows.
5. The Designatronics Incorporated Non-Qualified Stock Option
Plan - approved by the shareholders of the Company in February,
1993. A copy of this plan has been delivered to William Barrows.
6. Simplified Employee Pension Plan - covers substantially all
employees, other than employees covered by a union retirement plan,
and provides for an annual contribution determined by the Board of
Directors of the Company. No contributions have been made under
this plan for at least the last six (6) years.
7. 401(k) - defined contribution pension plan which permits a
matching contribution by the Company equal to 50% of the first 2%
of the employee's voluntary contribution, limited to the maximum
allowable amount by the Internal Revenue Code. In addition, a year
end bonus may be made upon approval by the board of directors.
8. Employment Agreements.
a. Martin Hoffman - Employment Contract dated August 31,
1992, as amended. A copy of this agreement with the amendments to
date has been delivered to William Barrows.
<PAGE>
b. Frank Buchsbaum - Employment Contract dated August 31,
1992, as amended. A copy of this agreement with the amendment to
date has been delivered to William Barrows.
c. Hitoshi Tanaka - Employment Contract dated August 31,
1992, as amended. A copy of this agreement with the amendment to
date has been delivered to William Barrows.
9. Severance Agreements.
a. Sol Schwartz - Severance Agreement dated August 31, 1992,
as modified on August 31, 1993 and June 2, 1994.
b. Joseph Rubenfeld - Severance Agreement dated August 31,
1992, as modified on August 31, 1993 and June 2, 1994.
Copies of the severance agreements with the modifications to
date have been delivered to William Barrows.
See Section 2.01.09 of this Disclosure Schedule regarding USA v.
Designatronics Incorporated.
Section 2.01.24 Intellectual Property.
1. The Company has the following trademarks:
a. SDP (1252711) - registered October 4, 1983. An Affidavit
of Use and Renewal was accepted on May 31, 1989.
b. Sterling (1254310) - registered October 18, 1983. An
Affidavit of Use and Renewal was accepted on May 31, 1989.
c. Super-Plast (1045304) - registered August 3, 1976. An
Affidavit of Use and Renewal was accepted on December 7, 1981.
d. True-Metric (1182715) - registered December 22, 1981. An
Affidavit of Use and Renewal was accepted on December 8, 1987.
2. The Company has the following Assumed Names:
a. Quality Transmission Components - Certificate of Assumed
Name, pursuant to Section 130 of the General Business Law, was
filed with the Department of State on July 13, 1993.
b. Sterling Instruments - Certificate of Assumed Name,
pursuant to Section 130 of the General Business Law, was filed with
the Department of State on February 9, 1994.
<PAGE>
c. Stock Drive Products - Certificate of Assumed Name,
pursuant to Section 130 of the General Business Law, was filed with
the Department of State on February 9, 1994.
d. Techno - Certificate of Assumed Name, pursuant to Section
130 of the General Business Law, was filed with the Department of
State on May 22, 1992.
No representation is made as to the ownership or the
enforceable rights of the preceding trademarks and assumed names of
the Company.
Section 2.01.29 Since August 31, 1994.
(a) In January of 1994, the Company's Board of Directors
authorized repurchases of the Company's stock. No stock has been
repurchased by the Company since August 31, 1994.
(b) No material adverse changes.
(c) DI may purchase two (2) Hitachi CNC machines or similar
equipment, which aggregate approximately $300,000. Furthermore, DI
may purchase automobiles for non-officer employees for up to a
total of $40,000.
(d) There is an understanding to give non-executive employees
a 4% raise (in aggregate) in July, 1995 and an understanding for
which the Company has been accruing 2% for its 401(k) profit
sharing plan to be applied in January, 1996.
Martin Hoffman, Frank Buchsbaum and Hitoshi Tanaka
received raises effective September 1, 1994 for $5,776.16 each.
These individuals also received a bonus of $10,000 each in October,
1994.
<PAGE>
<PAGE>
APPENDIX "B"
Section 623. Procedure to enforce shareholder's right to receive
payment for shares
(a) A shareholder intending to enforce his right under a section
of this chapter to receive payment for his shares if the proposed
corporate action referred to therein is taken shall file with the
corporation, before the meeting of shareholders at which the action
is submitted to a vote, or at such meeting but before the vote,
written objection to the action. The objection shall include a
notice of his election to dissent, his name and residence address,
the number and classes of shares as to which he dissents and a
demand for payment of the fair value of his shares if the action
is taken. Such objection is not required from any shareholder to
whom the corporation did not give notice of such meeting in
accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date,
which term as used in this section means the date on which the
shareholders' vote authorizing such action was taken, or the date
on which such consent without a meeting was obtained from the
requisite shareholders, the corporation shall given written notice
of such authorization or consent by registered mail to each
shareholders who filed written objection or from whom written
objection was not required, excepting any shareholder who voted for
or consented in writing to the proposed action and who thereby is
deemed to have elected not to enforce his right to receive payment
for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who
elects to dissent shall file with the corporation a written notice
of such election, stating his name and residence address, the
number and classes of shares as to which he dissents and a demand
for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or
consolidation of domestic and foreign corporations) or from a share
exchange under paragraph (g) of section 913 (Share exchanges) shall
file a written notice of such election to dissent within twenty
days after the giving to him of a copy of the plan of merger or
exchange or an outline of the material features thereof under
section 905 or 913.
(d) A shareholder may not dissent as to less than all of the
shares, as to which he has a right to dissent, held by him of
record, that he owns beneficially. A nominee or fiduciary may not
dissent on behalf of any beneficial owner as to less than all of
the shares of such owner, as to which such nominee or fiduciary has
a right to dissent, held of record by such nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder
shall cease to have any of the rights of a shareholder except the
right to be paid the fair value of his shares and any other rights
under this section. A notice of election may be withdrawn by the
shareholder at any time prior to his acceptance in writing of an
offer made by the corporation, as provided in paragraph (g), but in
no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a
timely offer, as provided in paragraph (g), the time for
withdrawing a notice of election shall be extended until sixty days
from the date an offer is made. Upon expiration of such time,
withdrawal of a notice of election shall require the written
consent of the corporation. In order to be effective, withdrawal
of a notice of election must be accompanied by the return to the
corporation of any advance payment made to the shareholder as
provided in paragraph (g). If a notice of election is withdrawn,
or the corporate action is rescinded, or a court shall determine
that the shareholder is not entitled to receive payment for his
shares, or the shareholder shall otherwise lose his dissenter's
rights, he shall not have the right to receive payment for his
shares and he shall be reinstated to all his rights as a
shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to
payment of any intervening dividend or other distribution or, if
any such rights have expired or any such dividend or distribution
other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as
determined by the board as of the time of such expiration or
completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or
within one month thereafter the shareholder of shares
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represented by certificates shall submit the certificates representing his
shares to the corporation, or to its transfer agent, which shall
forthwith note conspicuously thereon that a notice of election has
been filed and shall return the certificates to the shareholder or
other person who submitted them on his behalf. Any shareholder of
shares represented by certificates who fails to submit his
certificates for such notation as herein specified shall, at the
option of the corporation exercised by written notice to him within
forty-five days from the date of filing of such notice of election
to dissent, lose his dissenter's rights unless a court, for good
cause shown, shall otherwise direct. Upon transfer of a
certificate bearing such notation, each new certificate issued
therefor shall bear a similar notation together with the name of
the original dissenting holder of the shares and a transferee shall
acquire no rights in the corporation except those which the
original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within
which shareholders may file their notices of election to dissent,
or within fifteen days after the proposed corporate action is
consummated, whichever is later (but in no case later than ninety
days from the shareholder's authorization date), the corporation
or, in the case of a merger or consolidation, the surviving or new
corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his
shares at a specified price which the corporation considers to be
their fair value. Such offer shall be accompanied by a statement
setting forth the aggregate number of shares with respect to which
notices of election to dissent have been received and the aggregate
number of holders of such shares. If the corporate action has been
consummated, such offer shall also be accompanied by (1) advance
payment to each such shareholder who has submitted the certificates
representing his shares to the corporation, as provided in
paragraph (f), of an amount equal to eighty percent of the amount
of such offer, or (2) as to each shareholder who has not yet
submitted his certificates a statement that advance payment to him
of an amount equal to eighty percent of the amount of such offer
will be made by the corporation promptly upon submission of his
certificates. If the corporate action has not been consummated at
the time of the making of the offer, such advance payment or
statement as to advance payment shall be sent to each shareholder
entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment
shall include advice to the shareholder to the effect that
acceptance of such payment does not constitute a waiver of any
dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon
the consummation of such action. Such offer shall be made at the
same price per share to all dissenting shareholders of the same
class, or if divided into series, of the same series and shall be
accompanied by a balance sheet of the corporation whose shares the
dissenting shareholder holds as of the latest available date, which
shall not be earlier than twelve months before the making of such
offer, and a profit and loss statement or statements for not less
than a twelve month period ended on the date of such balance sheet
or, if the corporation was not in existence throughout such twelve
month period, for the portion thereof during which it was in
existence. Notwithstanding the foregoing, the corporation shall
not be required to furnish a balance sheet or profit and loss
statement or statements to any shareholder to whom such balance
sheet or profit and loss statement or statements were previously
furnished, nor if in connection with obtaining the shareholders'
authorization for or consent to the proposed corporate action the
shareholders were furnished with a proxy or information statement,
which included financial statements, pursuant to Regulation 14A or
Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer,
the corporation making the offer and any shareholder agree upon the
price to be paid for his shares, payment therefor shall be made
within sixty days after the making of such offer or the
consummation of the proposed corporate action, whichever is later,
upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the corporation fails
to make such offer within such period of fifteen days, or if it
makes the offer and any dissenting shareholder or shareholders fail
to agree with it within the period of thirty days thereafter upon
the price to be paid for their shares:
(1) The corporation shall, within twenty days after the
expiration of whichever is applicable of the two periods
last mentioned, institute a special proceeding in the
supreme court in the judicial district in which the
office of the corporation is located to determine the
rights of dissenting shareholders and to fix the fair
value of their shares. If, in the case of merger or
consolidation, the
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surviving or new corporation is a
foreign corporation without an office in this state, such
proceeding shall be brought in the county where the
office of the domestic corporation, whose shares are to
be valued, was located.
(2) If the corporation fails to institute such
proceeding within such period of twenty days, any
dissenting shareholder may institute such proceeding for
the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding
is not instituted within such thirty day period, all
dissenter's rights shall be lost unless the supreme
court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as
provided in paragraph (g), have agreed with the
corporation upon the price to be paid for their shares,
shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their
shares. The corporation shall serve a copy of the
petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner
provided by law for the service of a summons, and upon
each nonresident dissenting shareholder either by
registered mail and publication, or in such other manner
as is permitted by law. The jurisdiction of the court
shall be plenary and exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the
court to make such determination, is entitled to receive
payment for his shares. If the corporation does not
request any such determination or if the court finds that
any dissenting shareholder is so entitled, it shall
proceed to fix the value of the shares, which, for the
purposes of this section, shall be the fair value as of
the close of business on the day prior to the
shareholders' authorization date. In fixing the fair
value of the shares, the court shall consider the nature
of the transaction giving rise to the shareholders' right
to receive payment for shares and its effects on the
corporation and its shareholders, the concepts and
methods then customary in the relevant securities and
financial markets for determining fair value of shares of
a corporation engaging in a similar transaction under
comparable circumstances and all other relevant factors.
The court shall determine the fair value of the shares
without a jury and without referral to an appraiser or
referee. Upon application by the corporation or by any
shareholder who is a party to the proceeding, the court
may, in its discretion, permit pretrial disclosure,
including, but not limited to, disclosure of any expert's
reports relating to the fair value of the shares whether
or not intended for use at the trial in the proceeding
and notwithstanding subdivision (d) of section 3101 of
the civil practice law and rules.
(5) The final order in the proceeding shall be entered
against the corporation in favor of each dissenting
shareholder who is a party to the proceeding and is
entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for
interest at such rate as the court finds to be equitable,
from the date the corporate action was consummated to the
date of payment. In determining the rate of interest,
the court shall consider all relevant factors, including
the rate of interest which the corporation would have had
to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for
his shares was arbitrary, vexatious or otherwise not in
good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own
costs and expenses, including the fees and expenses of
its counsel and of any experts employed by it.
Notwithstanding the foregoing, the court may, in its
discretion, apportion and assess all or any part of the
costs, expenses and fees incurred by the corporation
against any or all of the dissenting shareholders who are
parties to the proceeding, including any who have
withdrawn their notices of election as provided in
paragraph (e), if the court
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finds that their refusal to
accept the corporate offer was arbitrary, vexatious or
otherwise not in good faith. The court may, in its
discretion, apportion and assess all or any part of the
costs, expenses and fees incurred by any or all of the
dissenting shareholders who are parties to the proceeding
against the corporation if the court finds any of the
following: (A) that the fair value of the shares as
determined materially exceeds the amount which the
corporation offered to pay; (B) that no offer or
required advance payment was made by the corporation; (C)
that the corporation failed to institute the special
proceeding within the period specified therefor; or (D)
that the action of the corporation in complying with its
obligations as provided in this section was arbitrary,
vexatious or otherwise not in good faith. In making any
determination as provided in clause (A), the court may
consider the dollar amount or the percentage, or both, by
which the fair value of the shares as determined exceeds
the corporate offer.
(8) Within sixty days after final determination of the
proceeding, the corporation shall pay to each dissenting
shareholder the amount found to be due him, upon
surrender of the certificates for any such shares
represented by certificates.
(i) Shares acquired by the corporation upon the payment of the
agreed value therefor or of the amount due under the final order,
as provided in this section, shall become treasury shares or be
canceled as provided in section 515 (Reacquired shares), except
that, in the case of a merger or consolidation, they may be held
and disposed of as the plan of merger or consolidation may
otherwise provide.
(j) No payment shall be made to a dissenting shareholder under
this section at a time when the corporation is insolvent or when
such payment would make it insolvent. In such event, the
dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such
event be deemed withdrawn with the written consent of the
corporation; or
(2) Retain his status as a claimant against the
corporation and, if it is liquidated, be subordinated to
the rights of creditors of the corporation, but have
rights superior to the non-dissenting shareholders, and
if it is not liquidated, retain his right to be paid for
his shares, which right the corporation shall be obliged
to satisfy when the restrictions of this paragraph do not
apply.
(3) The dissenting shareholder shall exercise such
option under subparagraph (1) or (2) by written notice
filed with the corporation within thirty days after the
corporation has given him written notice that payment for
his shares cannot be made because of the restrictions of
this paragraph. If the dissenting shareholder fails to
exercise such option as provided, the corporation shall
exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty
days.
(k) The enforcement by a shareholder of his right to receive
payment for his shares in the manner provided herein shall exclude
the enforcement by such shareholder of any other right to which he
might otherwise be entitled by virtue of share ownership, except as
provided in paragraph (e), and except that this section shall not
exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any
notice to be given by a corporation to a shareholder under this
section shall be given in the manner provided in section 605
(Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or
consolidation of domestic and foreign corporations).
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<PAGE>
APPENDIX "C"
SUPPORT/OPTION AGREEMENT
THIS SUPPORT/OPTION AGREEMENT (this "Agreement"), dated July
6, 1995, is by and among DD&D-DI ACQUISITION COMPANY, a Delaware
corporation ("Purchaser"), DESIGNATRONICS INCORPORATED, a New York
corporation ("DI"), and the individuals named in Exhibit A hereto
("Individual Parties"), each of whom owns the number of shares of
Common Stock of DI, par value $.04 per share, set forth opposite
his or her name in column two of Exhibit A hereto.
BACKGROUND AND CONTEXT
A. Immediately after the execution and delivery of this
Agreement by DI and the Individual Parties, Purchaser and DD&D-DI
MERGER COMPANY, INC., a New York corporation ("Merger Company"),
executed and delivered an AGREEMENT AND PLAN OF MERGER with DI (the
"Merger Agreement"), providing for the Merger of Merger Company
with and into DI. As a result of the Merger, DI will become a
wholly-owned subsidiary of Purchaser, and Purchaser will provide
the funds required to pay $6.00 per Share in cash for all of the
Shares. Terms used but not defined in this Agreement shall have
the meanings set forth in the Merger Agreement.
B. To induce Purchaser to enter into the Merger Agreement and
to provide the funds required to consummate the Merger, DI and the
Individual Parties are entering into this Agreement, whereby, among
other things:
(1) the Individual Parties agree to (a) vote all of their
Shares (constituting 26.4% of all of the issued and
outstand-ing Shares) in favor of the Merger and (b) grant Purchaser
an
option to purchase a total of 250,000 Shares; and
(2) DI agrees to grant Purchaser an option to purchase
another 250,000 Shares (for a total of 500,000 Shares, all of
which are referred to herein as the "Option Shares"), on the
terms and subject to the conditions set forth in Article 2.
TERMS AND CONDITIONS
To induce Purchaser to enter into the Merger Agreement and to
incur substantial expense in connection with the transactions
contemplated thereby, DI and each Individual Party severally
agrees with Purchaser as follows:
ARTICLE 1
SUPPORT PROVISIONS
1.01 Certain Definitions. As used herein:
(a) "Competing Transaction" means any transaction, in-
cluding a merger or consolidation, a tender or exchange offer,
or a purchase of stock or assets, pursuant to which a Third
Person would acquire (1) beneficial ownership of more than
<PAGE>
half of the Shares outstanding immediately after the closing
of such transaction, (2) all or a substantial part (more than
50%) of the operating assets of DI disregarding its accounts
receivable and inventories if they are not acquired, or (3)
control over DI, by the ownership of voting securities, by
contract or otherwise;
(b) "Third Person" means any Person other than (1)
Purchaser and its Affiliates, (2) any Permitted Transferee, or
(3) any "group" as defined in Section 13(d)(3) of the Exchange
Act which includes Purchaser or any of its Affiliates;
(c) "Person" means any natural or legal person, including
any corporation, general or limited partnership, limited
liability company, foreign company, joint venture, bank, trust
company, association or other legal entity, any trustee,
executor, administrator, custodian, fiduciary, attorney-in-fact,
guardian or agent, in his, her or its capacity as such, any
not-for-profit corporation, public or private foundation or
charitable organization, and any government or governmental
official, agency, department or instrumentality, federal,
state, county, local or foreign;
(d) "Shares" means not only the Shares, as defined in the
Merger Agreement, but any other securities that may be issued,
distributed or granted on or with respect to the Shares if the
issuance, distribution or granting of such other securities
has not been approved in writing by Purchaser, including any
stock dividends on Shares, securities issued in connection
with any recapitalization of Shares or other securities that
(1) any Member of the Inside Group may beneficially own from
time to time and (2) could be voted in favor of the Merger;
(e) "security" has the meaning set forth in Section 2(1)
of the Securities Act, and "Securities Act" means the Securi-ties
Act of 1933, as amended;
(f) "beneficially owns" has the meaning set forth in Rule
13d-3 promulgated under the Exchange Act, and "Exchange Act"
means the Securities Exchange Act of 1934, as amended;
(g) "Shareholder" means any Person who beneficially owns
any Shares;
(h) "Permitted Transferee" means any Person to whom or
which any Shares are transferred pursuant to Section 3.02;
(i) "Section" or "Article" means a Section or Article of
this Agreement unless another document, statute or regulation
is mentioned; and
<PAGE>
(j) "Member of the Inside Group" means (1) each Indi-
vidual Party, as long as he or she beneficially owns any
Shares, (2) each Permitted Transferee who acquires any Shares
pursuant to the provisions of Article 3, and (3) each Person
who acquires (or becomes the beneficial owner of) any Shares
in violation of any provision of this Agreement.
All definitions set forth in this Agreement shall be applicable to
the singular and plural form of the defined term.
1.02 Covenant to Vote, Etc. Each Individual Party, in his or
her capacity as a Shareholder only, severally covenants and agrees:
(a) to vote all of his or her Shares in favor of (1) the
Merger and (2) all other actions, if any, that are necessary,
desirable, appropriate or proposed for or in connection with
the consummation of the Merger;
(b) to vote all of his or her Shares in the manner which
is most favorable to the consummation of the Merger, not only
at the Special Meeting but also at any other meeting, special,
annual or other, of the Shareholders if DI holds any other
meeting of the Shareholders, by consent if DI solicits written
consents from, or otherwise seeks a vote of, the Shareholders
with respect to any Competing Transaction or with respect to
any other matter which may be inconsistent with the purpose
and intent of this Agreement or the Merger Agreement, may
contradict any of the provisions of this Agreement or the
Merger Agreement, or may make it more difficult, or less
desirable, for Purchaser to consummate the Merger; and
(c) not to (1) voluntarily dispose of any of his or her
Shares except as permitted by the provisions of Article 3, or
(2) grant any Third Person any option or right to acquire any
of his or her Shares, or (3) vote any of his or her Shares (or
grant any Third Person any proxy, right or power to vote any
of his or her Shares) in any manner which is, or which
reasonably might be expected to be, inconsistent with any of the
provisions of, or with the purpose and intent of, this
Agreement or the Merger Agreement, or in favor of the election of
any new DI Directors or any amendment to DI's certificate of
incorporation or by-laws, or (4) solicit or encourage any
Third Person to offer or propose to enter into, or to take any
steps toward or in furtherance of, a Competing Transaction.
The covenants contained in this Section 1.02 (the "Support
Cove-nants") shall continue unless and until the Merger is
consummated
or the Merger Agreement is terminated in accordance with its terms,
whichever occurs first, and shall have no effect on the actions of
any Individual Party in his capacity as a director of DI.
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1.03 Binding on Successors and Assigns. The Support
Covenants shall run with all Shares beneficially owned by the
Individual Parties and shall be binding upon any Permitted
Transferee and any other Person who acquires any of such Shares, or beneficial
ownership of any of such Shares, from any Member of the Inside
Group in a transaction in which such Member violates any provision
of this Agreement.
ARTICLE 2
OPTION PROVISIONS
2.01 Grant of Options. Subject to the terms and conditions
set forth in this Article 2:
(a) the Individual Parties hereby grant to Purchaser an
irrevocable right to purchase (the "IP Option") a total of
250,000 (adjusted as set forth in Section 2.06) Shares (the
"IP Option Shares") at a purchase price of $6.00 per Share (as
adjusted as set forth in Section 2.06) (the "Purchase Price"),
with each Individual Party granting the IP Option on the number
of his or her Shares set forth opposite his or her name in
column three of Exhibit A hereto; and
(b) DI hereby grants to Purchaser an irrevocable right to
purchase (the "DI Option") a total of 250,000 (adjusted as set
forth in Section 2.06) Shares (the "DI Option Shares") at the
Purchase Price.
As used herein: (1) "Purchase Options" means the IP Option and the
DI Option; (2) "Option Shares" means the IP Option Shares and the
DI Option Shares; and (3) "Grantors" means DI, the Individual
Parties and their direct and indirect Permitted Transferees who or
which acquire any IP Option Shares.
2.02 Exercise of Option. Purchaser may exercise the Purchase
Options in accordance with the provisions of this Section 2.02, in
whole but not in part, if any of the following events shall have
occurred within six months after the date on which the Merger
Agreement shall have been terminated pursuant to Section 5.01
thereof (the "Termination Date"):
(a) a bona fide tender or exchange offer for 50% of more
of the then outstanding shares of DI's Common Stock shall have
been made or publicly proposed to be made by any Third Person;
(b) it shall have been publicly disclosed or Purchaser
shall have learned that any Third Person shall have purchased
or otherwise acquired more than 50% of any class or series of
capital stock of DI (including DI's Common Stock), or shall
have been granted any option or right, conditional or
otherwise, to acquire more than 50% of any class or series of DI's
capital stock (including DI's Common Stock); or
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(c) it shall have been publicly disclosed or Purchaser
shall have learned that any Third Person shall have made (1)
a bona fide proposal to DI or DI shareholders to acquire more
than 50% of any class or series of DI's capital stock
(including DI's Common Stock), or (2) a bona fide written proposal
with respect to a Competing Transaction;
provided, however, that if an event described in clause (a), (b) or
(c) shall have occurred within six months after the Termination
Date but the transaction referred to therein is not closed within
six months after the Termination Date, Purchaser's right to
exercise the Purchase Options shall be conditioned upon the
transaction described therein being closed. The Grantors agree to notify
Purchaser in writing of any event described in clause (a), (b) or
(c) of the preceding sentence as soon as practicable after the
occurrence of such event and of the date on which the transaction
described in such clause is scheduled to be closed as soon as
practicable after the scheduling thereof. At any time that
Purchaser wishes to exercise the Purchase Options, Purchaser shall
send to DI's office at 2101 Jericho Turnpike, New Hyde Park, New
York 11042-5416, a written notice to the Grantors (the date on
which such notice is sent is hereinafter referred to as the "Notice
Date") specifying (A) that it intends to purchase the Option Shares
and (B) a place and date not earlier than three Business Days nor
later than 20 Business Days after the Notice Date for the closing
(the "Option Closing") of such purchase (the "Option Closing
Date"). The Option Closing shall be held on the Option Closing
Date specified in such notice unless, on such date, the conditions
set forth in Section 2.03 below are not satisfied, in which event
the Option Closing shall be held as soon as practicable following
the satisfaction of such conditions.
2.03 Conditions to Delivery of Option Shares. The obligation
of the Grantors to deliver the Option Shares on exercise of the
Purchase Options is subject to the conditions that:
(a) no preliminary or permanent injunction or other order
issued by any federal or state court of competent jurisdiction
in the United States prohibiting the delivery of the Option
Shares shall be in effect (each of the Grantors hereby agrees
severally not to seek any such injunction or order);
(b) any applicable waiting periods under the Hart-Scott-
Rodino Act shall have expired or been terminated; and
(c) Purchaser and Merger Company shall not be in material
breach of (or shall not have materially breached) any of their
representations or warranties contained in Article 2, or any
of their covenants contained in Article 3, of the Merger
Agreement;
<PAGE>
provided, however, that if the event giving rise to the right of
Purchaser to exercise the Purchase Options is a proposal described
in clause (a), (b) or (c) of Section 2.02 above, then the Option
Closing shall be conditioned upon the transaction contemplated by
that proposal being consummated, as such proposal may be modified
from time to time, and the Option Closing shall be held immediately
prior to the consummation of such transaction, even though that may
occur more than six months after the Termination Date.
2.04 Expiration of Purchase Options. The Purchase Options
shall expire at the earliest of (a) the Effective Time, (b) the
termination of the Merger Agreement by mutual consent in writing of
DI and Purchaser or (c) six months after the Termination Date;
provided, however, that if a proposal described in clause (a), (b)
or (c) of Section 2.02 above is publicly disclosed within six
months after the Termination Date (or if Purchaser receives a
written notice from any Grantor of any such proposal within six
months after the Termination Date) and the Notice Date is within 30
days after such public disclosure or written notice, (1) the Option
Closing shall be conditioned upon the transaction contemplated by
that proposal being consummated, as such proposal may be modified
from time to time, and (2) the Option Closing shall be held
immediately prior to the consummation of such transaction, even
though that may occur more than six months after the Termination
Date. Prior to the Expiration Date, none of the Grantors will take
any action that would have the effect of preventing, inhibiting or
interfering with the exercise of the Purchase Options by Purchaser
or the Grantors from delivering any of the Option Shares to
Purchaser upon exercise of the Purchase Options or otherwise from
performing their obligations under this Article 2.
2.05 Payment of Purchase Price and Delivery of Certificates.
The Purchase Price for any Option Shares acquired hereunder shall
be payable in immediately available funds at the Option Closing.
At the Option Closing, in exchange for the Purchase Price:
(a) each Grantor other than DI shall deliver to Purchaser
the certificates representing the DI Option Shares being sold
by such Grantor, duly endorsed or accompanied by duly executed
stock powers with the signature of such Grantor guaranteed by
a national bank or a New York Stock Exchange member; and
(b) DI shall deliver to Purchaser a certificate repre-
senting the DI Option Shares, duly executed and delivered on
behalf of DI.
2.06 Adjustment upon Changes in Capitalization. In the event
of any change in the number of issued and outstanding shares of DI
Common Stock by reason of any stock dividend, split-up,
recapitalization, merger or other change in corporate or capital
structure of DI that would have the effect of diluting Purchaser's rights
hereunder, the type and number of shares of DI Common Stock subject to
<PAGE>
the Purchase Options, and the purchase price per Share, as the case
may be, shall be adjusted appropriately so as to restore Purchaser
to its rights hereunder. None of the Grantors will take any other
action that would materially reduce the value of the Purchase
Options to Purchaser.
2.07 Right to Put DI Option. Notwithstanding the foregoing
provisions of this Article 2, if Purchaser exercises the Purchase
Options and the event giving rise to the right of Purchaser to
exercise the Purchase Options is a proposal described in clause
(a), (b) or (c) of Section 2.02 above, Purchaser may, at any time
prior to the closing of the transaction contemplated by that
pro-posal, elect in a written notice to DI to put the DI Option to
DI immediately prior to the closing of such transaction, contingent
upon such transaction being closed, for a price payable to
Purchaser in cash equal to the product of (a) the number of DI
Option Shares times (b) the excess of the Competing Transaction Price over
the Purchase Price. As used herein, "Competing Transaction Price"
means the amount of cash and the fair market value of all other
consideration per Share to be received by the Shareholders at or as
a result of the closing of the Competing Transaction.
ARTICLE 3
PERMITTED TRANSFERS
3.01 Definition of Permitted Transferee. As used herein,
"Permitted Transferee" means, with respect to each Member of the
Inside Group, any one or more of the following:
(a) the spouse and descendants of such Member;
(b) any trust or custodianship (including any custodian-
ship under any Uniform Gift to Minors Act) established for the
sole benefit of such Member or his or her spouse or any of the
descendants of such Member or his or her spouse or any
combination thereof;
(c) the personal representative of such Member upon his
or her death for purposes of the administration of his or her
estate or upon his or her incompetency for purposes of the
protection of his or her assets;
(d) any transferee of Shares from the estate of such
Member after his or her death; and
(e) any charitable organization supported by such Mem-
ber.
3.02 Permitted Transfers. Any Member of the Inside Group may
transfer Shares ("Transferred Shares") to any Permitted Transferee
of such Member, provided that, prior to the proposed transfer and
as a condition precedent to the effectiveness of such transfer,
<PAGE>
such Permitted Transferee executes and delivers to Purchaser an
agreement in writing, in form and substance reasonably satisfactory
to Purchaser, pursuant to which such Permitted Transferee:
(a) agrees to be bound by all of the terms of this Agree-
ment with respect to the Transferred Shares, including all of
the Support Covenants, to the same extent as such Member; and
(b) if such Member does not retain a sufficient number of
Shares to satisfy his, her or its obligations under Article 2,
agrees that a specified number of the Transferred Shares shall
be IP Option Shares, which specified number, when added to the
number of Shares retained by such Member, shall be sufficient
to satisfy his, her or its obligations under Article 2 in the
event that Purchaser exercises the Purchase Options.
Notwithstanding the foregoing provisions of this Section 3.02, if
any Permitted Transferee is a charitable organization and it
cannot, in the written opinion of its counsel, which opinion shall
be reasonably acceptable to Purchaser, legally agree to be bound by
all of the terms of this Agreement with respect to the Transferred
Shares to the same extent as the Member of the Inside Group
desiring to transfer Shares to such Permitted Transferee, then such
Permitted Transferee need not be bound by this Agreement to the
same extent as such Member; but (1) it shall be bound by this
Agreement with respect to the Transferred Shares to the maximum
extent legally possible and (2) this sentence shall not adversely
affect the rights of Purchaser with respect to the IP Option.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.01 Representations of Individual Parties. Each Individual
Party severally represents and warrants to Purchaser that:
(a) this Agreement has been duly executed and delivered
by such Individual Party and constitutes a valid and legally
binding obligation of him or her, enforceable against him or
her in accordance with its terms;
(b) such Individual Party is not subject to or obligated
under any provision of any contract or instrument which would
be breached or violated by his or her execution, delivery or
performance of this Agreement;
(c) no authorization, consent or approval of, or any
filing with, any third party or public body or authority is
necessary for consummation by him or her of the transactions
contemplated by this Agreement or the performance of his or
her duties or obligations hereunder;
<PAGE>
(d) as of the date of this Agreement, such Individual
Party owns, both beneficially and of record, all of the Shares
set forth opposite his or her name in the second column of
Exhibit A to this Agreement, and good and marketable title to
all such Shares, free and clear of any lien, claim,
encumbrance, proxy, voting agreement or trust, or other agreement
or instrument of any kind that is inconsistent with or would
be violated by his or her compliance with the provisions
hereof; and
(e) to the actual knowledge of such Individual Party,
the Shares listed in the second column of Exhibit A to this
Agreement are all of the Shares beneficially owned by the
Individual Parties, but do not include any Shares owned by
their children or the wife of Frank Buchsbaum.
4.02 Representations of DI. DI represents and warrants to
Purchaser that:
(a) DI has full corporate power and authority to enter
into and perform this Agreement;
(b) the execution and delivery of this Agreement and the
consummation of the transactions provided for herein have been
duly authorized by all necessary corporate action on the part
of DI;
(c) this Agreement has been duly executed and delivered
by DI and constitutes a legal, valid and binding agreement of
DI, enforceable against DI in accordance with its terms,
subject to the qualification, however, that enforcement of the
rights and remedies created hereby is subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general application relating to or
affecting creditors rights and to general equity principles;
(d) DI has taken or will take on the date hereof all
necessary corporate action to authorize and reserve for
issuance upon exercise of the DI Option 250,000 authorized but
unissued shares of Common Stock of DI, and DI will take all
necessary corporate action to authorize and reserve for
issuance all additional shares of DI Common Stock or other
securities that may be issued on exercise of the DI Option;
(e) the shares of DI Common Stock to be issued upon the
exercise of the DI Option, when paid for as provided herein,
will be duly authorized, validly issued, fully paid and
non-assessable with no personal liability attached to the
ownership thereof and, except as may arise out of obligations of
Purchaser, will be free and clear of all claims, liens,
encumbrances, security interests and charges of any kind
whatsoever and shall not be subject to any preemptive rights; and
<PAGE>
(f) the execution and delivery of this Agreement and the
consummation of the transactions provided for herein (1) do
not violate, conflict with or result in a breach of any
provision of the certificate of incorporation or by-laws of DI,
(2) do not violate any statute, rule, regulation, judgment,
ruling, order, writ, injunction or decree of any public body
or authority by which DI or any of its properties or assets is
bound, and (3) do not require any consent, approval or notice
under, or result in a violation or breach of, conflict with
any provision of, constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, and will not
result in the acceleration of the maturity or performance of
any obligations under, or result in the creation or imposition
of any liens upon any properties, assets or business of DI
under, any agreement, instrument or obligation.
4.03 Expiration. The representations and warranties set
forth above shall expire at the Effective Time if the Merger is
consummated, and if not, one year after the Option Closing if the
Purchase Options are exercised, and if not, when the Purchase
Options expire.
ARTICLE 5
MISCELLANEOUS PROVISIONS
5.01 Notices. All notices required or permitted to be given
under this Agreement shall be in writing and may be given by
certified or registered mail, postage prepaid, by hand delivery,
by facsimile, or by delivery through Federal Express or any other
private courier service. Such notices shall be mailed, delivered, or faxed
to the following addresses or facsimile numbers:
If to DI or the other Grantors, to:
Mr. Martin Hoffman, President
Designatronics Incorporated
2101 Jericho Turnpike, Box 5416
New Hyde Park, NY 11042-5416
Facsimile: (516) 326-8827
with a copy to:
Mr. Herbert W. Solomon
Hollenberg Levin Solomon Ross & Belsky, LLP
585 Stewart Avenue
Garden City, NY 11530
Facsimile: (516) 745-6642
<PAGE>
If to Purchaser, to:
Mr. Joseph M. Dunn
Dyson, Dyson & Dunn, Inc.
980 N. Michigan Avenue, Suite 1400
Chicago, IL 60611
Facsimile: (312) 644-7901
with copies to:
Mr. Peter L. Dyson
Dyson, Dyson & Dunn, Inc.
566 Chestnut Street, Suite 7
Winnetka, IL 60093
Facsimile: (708) 441-5518
and
Mr. William E. Barrows
Three First National Plaza, Suite 3750
Chicago, IL 60606
Facsimile: (312) 558-7767
Notices shall be effective (a) if mailed with the proper postage
prepaid, three Business Days after the date of mailing, (b) if hand
delivered or delivered by private courier, on the date of delivery,
or (c) if transmitted by facsimile, on the date of transmission.
The parties hereto agree that Mr. Martin Hoffman will act as the
agent of the Grantors solely for purposes of receiving notices
hereunder on their behalf. He agrees to promptly send any notice
he receives on their behalf to the other Grantors.
5.02 Governing Law. The validity and effectiveness of this
Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York, without giving effect to
the provisions, policies or principles of any state law relating to
choice or conflict of laws.
5.03 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
re-spective executors, administrators, successors and assigns.
5.04 Counterparts. This Agreement may be executed in one or
more counterparts, each of which may bear the signatures of less
than all the parties hereto, but all of which together shall
constitute one agreement.
5.05 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter of
this Agreement, and no party shall be bound by any communications
between or among any of them on the subject matter hereof unless in
writing and bearing a date subsequent to the date hereof.
<PAGE>
5.06 Severability. The parties hereto agree that if any term
or provision of this Agreement contravenes or is invalid under any
federal, state or local law, court decision, rule, ordinance or
regulation, this Agreement shall, as to the jurisdiction in which
such legal authority is promulgated or rendered, be construed as if
it did not contain the offending term or provision, and the
remaining provisions of this Agreement shall not be affected
thereby; provided, however, that if the removal of such offending term or
provision materially alters the burdens or benefits of any of the
parties under this Agreement, the parties agree to negotiate in
good faith such modifications to this Agreement as are appropriate
to insure that the burdens and benefits of each party under such
modified agreement are reasonably comparable to the burdens and
benefits originally contemplated and expected.
5.07 Captions. The captions herein are inserted for
con-venience of reference only and shall not affect the
construction of this Agreement.
5.08 Amendments. This Agreement may be amended, modified or
supplemented only by written agreement of all parties hereto; but
provisions that affect only the rights and obligations of Purchaser
and DI may be amended by an agreement between them.
5.09 Waiver, Remedies. No delay or failure on the part of
any party to exercise any right, power, or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part
of any party of any right, power, or privilege hereunder operate as
a waiver of any other right, power, or privilege hereunder, nor
shall any single or partial exercise of any right, power, or
privilege hereunder preclude any other or further exercise thereof
or the exercise of any other right, power, or privilege hereunder.
Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing
signed by or on behalf of such party.
5.10 Specific Performance. The parties hereto acknowledge
and agree that Purchaser would not have an adequate remedy at law
and would be irreparably harmed in the event that any of the
provisions of this Agreement were not performed by the other
parties in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that Purchaser shall be entitled to
injunctive relief to prevent breaches of this Agreement by the
other parties and to specifically enforce the terms and provisions
hereof, in addition to any other remedy to which Purchaser may be
entitled at law or in equity.
5.11 Rules of Construction. This Agreement shall be
construed in accordance with the following rules:
(a) "herein", "hereby", "hereunder", "hereof" and other
equivalent words shall refer to this Agreement as an entirety
<PAGE>
and not solely to the particular portion of this Agreement in
which any such word is used;
(b) the term "including" shall always be deemed to mean
"including, but not limited to";
(c) wherever used herein, any pronoun or pronouns shall
be deemed to include both the singular and plural and to cover
all genders as appropriate; and
(d) the provisions of this Agreement shall be construed
as a whole, according to their fair meaning, without any
presumption that the terms of an agreement shall be more strictly
construed against one party because it prepared the agreement,
it being acknowledged that representatives of all the parties
have participated in the preparation of this Agreement.
IN WITNESS WHEREOF, each of Purchaser and DI has caused
this Agreement to be executed and delivered by an officer thereunto
duly authorized and all of the Individual Parties have executed and
delivered this Agreement on the date first written above.
DD&D-DI ACQUISITION COMPANY DESIGNATRONICS INCORPORATED
By: /s/ Joseph M. Dunn By: /s/ Martin Hoffman
Joseph M. Dunn, Chairman Martin Hoffman,
of the Board President
/s/ Martin Hoffman /s/ Frank Buchsbaum
Martin Hoffman Frank Buchsbaum
/s/ Hitoshi Tanaka /s/ Rumi Tanaka
Hitoshi Tanaka Rumi Tanaka
/s/ Sol Schwartz /s/ Gertrude Schwartz
Sol Schwartz Gertrude Schwartz
/s/ Joseph Rubenfeld /s/ Beatrice Rubenfeld
Joseph Rubenfeld, individually Beatrice Rubenfeld, indivi-
and as joint tenant with Beatrice dually and as joint tenant
Rubenfeld with Joseph Rubenfeld
<PAGE>
<PAGE>
EXHIBIT A TO SUPPORT/OPTION AGREEMENT
Individual Party # of Shares Owned # of Option Shares
Martin Hoffman 81,000 27,500
Frank Buchsbaum 60,622 20,000
Sol Schwartz 221,169 72,500
Gertrude Schwartz 13,765 5,000
Joseph Rubenfeld 175,086 57,500
Beatrice Rubenfeld 127,714 42,500
Mr. and Mrs. Rubenfeld, 17,200 5,000
as joint tenants
Hitoshi Tanaka 61,212 20,000
Rumi Tanaka 1,000
<PAGE>
<PAGE>
APPENDIX "D"
HOULIHAN LOKEY HOWARD & ZUKIN
A SPECIALTY INVESTMENT BANKING FIRM
31 West 52nd Street, 11th Floor
New York, New York 10019-6118
Tel 212.582.5000 Fax 212.582.7405
July 6, 1995
To The Board of Directors
Designatronics Inc.
Gentlemen:
We understand that Designatronics Inc. (the "Company") has signed
a letter of intent to be acquired by Dyson, Dyson & Dunn, Inc. (the
"Purchaser"), or a new corporation to be formed by the Purchaser,
for a total consideration of $6.00 per share in cash. Such
transaction and other related transactions are referred to herein
collectively as the "Transaction".
You have requested our opinion (the "Opinion") as to the matters
set forth below. The Opinion does not address the Company's
underlying business decision to effect the Transaction. We have
not been requested to, and did not, solicit third party indications
of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the
Transaction or advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews,
analyses and inquiries as we have deemed necessary and appropriate
under the circumstances. Among other thing, we have:
1. reviewed the Company's annual reports to shareholders and
on Form 10-K for the fiscal years ended August 31, 1990
through August 31, 1994, and quarterly reports on Form
10-QSB for the three quarters ended May 31, 1995, which
the Company's management has identified as being the most
current financial statements available;
2. reviewed copies of the following agreements:
(i) Letter of Intent, dated June 5, 1995;
(ii) Agreement and Plan of Merger among Designatronics,
Purchaser, and Merger Company ("Merger Agreement"),
draft dated June 29, 1995;
(iii) Support/Option Agreement, draft dated June 29,
1995;
(iv) Disclosure Schedule to the Merger Agreement; and
(v) Employment Agreements for Messrs. Hoffman,
Buchsbaum and Tanaka (Exhibits F, G and H to the
Merger Agreement);
<PAGE>
3. met with certain members of the senior management of the
Company to discuss the operations, financial condition,
future prospects and projected operations and performance
of the Company, and met with representatives of the
Company's independent accounting firm, financial advisors
and counsel to discuss certain matters;
4. visited certain facilities and business offices of the
Company;
5. reviewed forecasted income statements prepared by the
Company's management with respect to the Company for the
years ended August 31, 1995 through 1997;
6. reviewed the historical market prices and trading volume
for the Company's publicly traded securities;
7. reviewed certain other publicly available financial data
for certain companies that we deem comparable to the
Company, and publicly available prices and premiums paid
in other transactions that we consider similar to the
Transaction; and
8. conducted such other studies, analyses and inquiries as
we have deemed appropriate.
We have relied upon and assumed, without independent verification,
that the forecasted income statements provided to us have been
reasonably prepared and reflect the best currently available
estimates of the future financial results and condition of the
Company, and that there has been no material change in the assets,
financial condition, business or prospects of the Company since the
date of the most recent financial statements made available to us.
In addition we have discussed with management the status of,
likelihood of recovery, and the amount and timing of any recovery
(including interest thereon) relating to the dispute between
Accusonic Systems Corp. and the Armed Services Board of contract
Appeals.
We have not independently verified the accuracy and completeness of
the information supplied to us with respect to the Company and do
not assume any responsibility with respect to it. We have not made
any physical inspection or independent appraisal of any of the
properties or assets of the Company. Our opinion is necessarily
based on business, economic, market and other conditions as they
exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our
opinion that the consideration to be received by the public
stockholders of the Company in connection with the Transaction is
fair to them from a financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
/s/ Houlihan, Lokey, Howard & Zukin, Inc.
<PAGE>
HOULIHAN LOKEY HOWARD & ZUKIN
A SPECIALTY INVESTMENT BANKING FIRM
31 West 52nd Street, 11th Floor
New York, New York 10019-6118
Tel 212.582.5000 Fax 212.582.7405
August 1, 1995
To The Board of Directors
Designatronics Inc.
Gentlemen:
We understand that Designatronics Inc. (the "Company") has signed
a letter of intent to be acquired by Dyson, Dyson & Dunn, Inc. (the
"Purchaser"), or a new corporation to be formed by the Purchaser,
for a total consideration of $6.00 per share in cash. Such
transaction and other related transactions are referred to herein
collectively as the "Transaction".
You have requested our opinion (the "Opinion") as to the matters
set forth below. The Opinion does not address the Company's
underlying business decision to effect the Transaction. We have
not been requested to, and did not, solicit third party indications
of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the
Transaction or advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews,
analyses and inquiries as we have deemed necessary and appropriate
under the circumstances. Among other thing, we have:
1. reviewed the Company's annual reports to shareholders and
on Form 10-K for the fiscal years ended August 31, 1990
through August 31, 1994, and quarterly reports on Form
10-QSB for the three quarters ended May 31, 1995, which
the Company's management has identified as being the most
current financial statements available;
2. reviewed copies of the following agreements:
(i) Letter of Intent, dated June 5, 1995;
(ii) Agreement and Plan of Merger among Designatronics,
Purchaser, and Merger Company ("Merger Agreement"),
dated July 6, 1995;
(iii)Support/Option Agreement, dated July 6, 1995;
(iv) Disclosure Schedule to the Merger Agreement; and
(v) Employment Agreements for Messrs. Hoffman,
Buchsbaum and Tanaka (Exhibits F, G and H to the
Merger Agreement);
3. reviewed the Preliminary Proxy Statement, dated July
18, 1995;
<PAGE>
4. met with certain members of the senior management of the
Company to discuss the operations, financial condition,
future prospects and projected operations and performance
of the Company, and met with representatives of the
Company's independent accounting firm, financial advisors
and counsel to discuss certain matters;
5. visited certain facilities and business offices of the
Company;
6. reviewed forecasted income statements prepared by the
Company's management with respect to the Company for the
years ended August 31, 1995 through 1997;
7. reviewed the historical market prices and trading volume
for the Company's publicly traded securities;
8. reviewed certain other publicly available financial data
for certain companies that we deem comparable to the
Company, and publicly available prices and premiums paid
in other transactions that we considered similar to the
Transaction; and
9. conducted such other studies, analyses and inquiries as
we have deemed appropriate.
We have relied upon and assumed, without independent verification,
that the forecasted income statements provided to us have been
reasonably prepared and reflect the best currently available
estimates of the future financial results and condition of the
Company, and that there has been no material change in the assets,
financial condition, business or prospects of the Company since the
date of the most recent financial statements made available to us.
In addition we have discussed with management the status of,
likelihood of recovery, and the amount and timing of any recovery
(including interest thereon) relating to the dispute between
Accusonic Systems Corp. and the Armed Services Board of Contract
Appeals.
We have not independently verified the accuracy and completeness of
the information supplied to us with respect to the Company and do
not assume any responsibility with respect to it. We have not made
any physical inspection or independent appraisal of any of the
properties or assets of the Company. Our opinion is necessarily
based on business, economic, market and other conditions as they
exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our
opinion that the consideration to be received by the public
stockholders of the Company in connection with the Transaction is
fair to them from a financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
/s/ Houlihan, Lokey, Howard & Zukin, Inc.
<PAGE>
<PAGE>
EXHIBIT "1"
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended August 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ..............to...................
Commission file number 0-2931
DESIGNATRONICS INCORPORATED
(Name of small business issuer in its charter)
New York 11-1972961
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21O1 Jericho Turnpike
New Hyde Park, New York 11040-5416
(Address of principal executive offices)(Zip Code)
Registrant's telephone number (516) 328-3300
Securities registered pursuant to Section 12(b) of the Exchange
Act:
None
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock $.04 par value
Check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B not contained in this
<PAGE>
form, and no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State registrant's revenues for its most recent fiscal year.
$25,011,440
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of November 1, 1994 was $7,586,105.
The foregoing was calculated by treating officers, directors and 5%
shareholders of the registrant as affiliates and is based on the
closing price on that date which was $4.50.
The number of shares of the registrant's $.04 par value common
stock outstanding as of November 1, 1994 was 2,873,423 shares
(exclusive of treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE
Part III which includes Item 9 (Directors, Executive Officers,
Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act), Item 10 (Executive Compensation), Item 11 (Security
Ownership of Certain Beneficial Owners and Management), and Item 12
(Certain Relationships and Related Transactions) will be
incorporated in the Company's Proxy Statement to be filed within
120 days of August 31, 1994 and are incorporated herein by
reference.
Index Schedule is contained on page 17.
Page 1 of ____ pages.
PAGE
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
(a) Business Development:
Designatronics Incorporated (the "Company") was incorporated on
September 7, 1960 in the state of New York. The Company designs,
manufactures and markets a wide variety of mechanical and electro-mechanical
components, and designs and markets automation
machinery, CAD/CAM systems and off the shelf linear motion and
rotary motion control components. The Company's business consists
of two segments, the manufacture and distribution of mechanical and
electro-mechanical components (the "Mechanical Segment") and the
manufacture and distribution of automation components (the
"Automation Segment"). The Mechanical Segment is comprised of
three operating divisions. The Stock Drive Products Division
("Stock Drive"), the Sterling Instrument Division ("Sterling") and
the Quality Transmission Component Division ("QTC"). The
Automation Segment consists of one division, the Techno Division
("Techno"). The Company's wholly owned subsidiary, Designatronics
Foreign Sales Corp. ("DFS"), conducts sales outside of the United
States of America. In addition, the Company also operates Western
Component Sales Division ("Western") as a selling entity in
California.
(b) Business of Issuer:
(1) Mechanical Segment
The Company manufactures and/or supplies a diverse line of more
than 50,000 different standard commercial and precision grade
electro-mechanical and mechanical components and a wide range of
custom designed electro-mechanical and mechanical components.
Stock Drive Division
Commercial drive components are manufactured or supplied by Stock
Drive and comprise a line of over 30,000 standard small commercial
drive components marketed principally through catalogs and are
generally available from stock for immediate delivery. Stock
Drive's range of standard components include gears, pulleys, belts,
shafts, fasteners, and vibration mounts, many of which are
manufactured or supplied in both inch and metric sizes. In
addition, Stock Drive manufactures custom-designed components.
Approximately fifty (50%) percent of Stock Drive's products are
manufactured in-house. Stock Drive makes components from a variety
of metals and alloys including steel, aluminum and brass, as well
as from plastics. A number of specialty processes required to
manufacture the division's components, such as chemical plating,
anodizing, and heat treatment, are subcontracted to outside
vendors. Stock Drive supplies components primarily to original
equipment manufacturers in many different industries, such as
medical electronics, telecommunications, plant maintenance, and
office equipment. The components generally represent only a small
fraction of the customer's total product
<PAGE>
cost. The division's largest customers are in the office equipment
and medical industries.
Sterling Division
Sterling designs, manufactures and distributes a wide array of
precision mechanical and electro-mechanical components. Sterling's
line includes over 20,000 standard components such as precision
gears, differentials, speed reducers, and clutches which are
marketed principally through the Company's catalog library and are
generally available from stock for immediate delivery. Sterling
also designs and manufactures components to customer
specifications. The division's major customers are in the
communications, avionics and medical industries. Although many of
Sterling's' products are sold to the same client base as Stock
Drive products, Sterling's products are subject to more rigorous
specifications and stricter quality control procedures, and often
fulfil a more critical role in a customer's product. Furthermore,
the Sterling product line sometimes requires detailed engineering
and highly skilled machining to exacting specifications.
Approximately 85% of Sterling's products are manufactured in-house
and the remainder are manufactured by external suppliers. The
division makes components from a variety of metals and alloys,
including stainless steel, aluminum, and brass. As with Stock
Drive, a number of specialty processes required to manufacture the
division's components such as chemical plating, anodizing, and heat
treatment are subcontracted to outside vendors.
Quality Transmission Components Division
The Company established QTC to market larger size power
transmission components during fiscal year 1994. QTC is presently
in the initial stage of operations.
Production
Stock Drive and Sterling maintain extensive manufacturing
facilities. Each division produces a diverse line of standard and
customized drive components using a wide array of metal and plastic
fabricating equipment, ranging from conventional engine lathes to
precision gear cutting machinery and sophisticated 4-axis Computer
Numeric Controlled ("CNC") technology milling machines. This broad
manufacturing capability allows the Divisions to maintain tighter
control over product quality and production costs. It facilitates
just-in-time deliveries of customer orders and improves overall
project management operations.
Stock Drive and Sterling offer over 12,000 different plastic parts
that are available from stock. Stock Drive believes that it offers
one of the largest varieties of small plastic drive components
available in the United States. In plastics, Stock Drive has
ultrasonic welding capability, makes its own tools, and owns and
designs the molds.
Since 1980, Stock Drive and Sterling have been enhancing their
manufacturing capabilities with an emphasis on speed and quality.
The Divisions have achieved better control over production through
quality management and automation of their facilities using
advanced CAD/CAM technology. As
<PAGE>
a result, Stock Drive and Sterling
now operate highly sophisticated CNC technology milling machines,
and 100% of their turning machinery is computer controlled. The
CNC milling equipment utilizes statistical process control
procedures, and "X" chart and histogram documentation are made
available to customers upon request. Stock Drive and Sterling
internally produce most of their manufacturing tooling and
fixtures, as well as the CAM programs that control CNC-equipped
machinery. The Divisions utilize state-of-the-art CAD/CAM hardware
and software to produce engineering drawings, analyze design
parameters, and optimize applications. CAM systems are used to
program CNC machines and develop cost-effective production
processes. Quality assurance standards are implemented in
accordance with ISO 9000 principles, and accreditation for ISO 9000
is anticipated during the 1995 fiscal year.
Stock Drive and Sterling employ a high quality engineering staff,
which allows the divisions to offer customers substantial expertise
in various design, production and application engineering
disciplines. The divisions' engineers frequently work closely with
customers' design engineers from inception of a design through the
pre-production and production stages, often supplying off-the-shelf
components for engineering prototypes. This strategy often
results in selection of Stock Drive and Sterling as the preferred
supplier for specific parts when the customer commences full
production. Quite often, customers may require customized products
which are modifications or extensions of standard lines tailored to
their specific requirements. These non-standard products can be
fabricated to customer specifications from stock blanks or custom
designed by Stock Drive and Sterling's engineering and tool making
departments.
The divisions employ concurrent engineering to link the sales,
production and purchasing departments throughout the product
development process, resulting in designs that satisfy all
application and cost criteria. Customers benefit from concurrent
engineering through higher quality products, reduced development
costs, and shortened time-to delivery.
Stock Drive and Sterling employ computers to store and manage the
voluminous amounts of design and application information generated
by the engineering department. The Company is currently developing
a program to allow customers to tap this database by downloading
vectorized isometric drawings of Stock Drive/Sterling products
directly into their CAD systems.
Raw materials for Stock Drive and Sterling are readily available
through major plastic producers, fabricators, and steel and metal
distributors. The Company expects that necessary raw materials
will continue to be available in the foreseeable future.
Furthermore, the Divisions have good relationships with all of
their major suppliers, and no one supplier is responsible for more
than 7% of their cost of goods sold.
<PAGE>
<PAGE>
Automation Segment
Techno Division
Techno supplies low cost CNC products primarily to small to mid-size companies.
The majority of products sold by Techno are
manufactured outside of the United States. Techno also supplies
pneumatic activated components and certain other electronics,
components and software manufactured by other companies. Techno's
products comprise off-the-shelf linear motion, rotary motion
control, and CAD/CAM components and systems. The division's
products are available in many sizes and are used in a wide variety
of industrial applications. In addition to hardware, Techno
provides software that can be used to assemble integrated systems
that can be operated from a personal computer. Such systems
provide for low cost desk-top manufacturing, and allow small to
mid-size companies to automate using methods that represent an
efficient, cost-effective alternative to full turnkey systems. In
addition, Techno has a consulting and product development group
that focuses on customizing software and developing new
applications for the division's products. For example, the
division has recently developed and is currently selling products
intended for the woodworking, sign making, and plastic industries.
Techno's products are primarily used for industrial automation,
CAD/CAM, and customized applications. The Company's components and
systems can be employed for automation of basic industrial
processes such as milling, routing, dispensing, inspection, and
engraving. CAD/CAM systems supplied by the Division can provide a
cheap and efficient means for prototyping new products and
performing operations such as sign making and engraving. Customers
can also purchase individual components such as gantries,
controllers, and software to create customized applications for a
broad range of purposes. A wide variety of products and prototypes
have been created using Techno systems and components, including
such things as catamarans, windsurfers, religious articles, chairs,
control panels and shoe molds.
New products for the division are developed by outside suppliers as
well as by Techno. Techno recently added to its product line the
newly-developed Da Vinci XYZ table, a compact PC-driven CNC
production center that utilizes built in drive electronics. The Da
Vinci's compact size makes it suitable for small businesses doing
engraving or routing and also for educational purposes. In
addition, Techno recently entered into a strategic alliance with
another company which allows it to market CASmate-Pro software.
When combined with current Techno equipment, the software allows
the Company to offer complete sign-making or engraving systems.
<PAGE>
<PAGE>
(2) Sales of the Company's products are generated principally by
circulation of the Company's catalogs and brochures, the efforts of
manufacturers' representatives and a small number of Company
salesmen, including Company executives. The Company has combined
the marketing of commercial products marketed by Stock Drive and
Sterling in a 2,500 page publication designated as the Component
Library Series which consists of multi-interrelated volumes and
which describes the principal products of these two divisions.
Comprehensive engineering data and illustrations supply design
ideas, continuous updates keep technical reference sections
current. All catalogs have extensive code numbers and alphabetical
indexes to make searching easy. Techno markets its products on a
direct basis through catalogs and through selected representatives
and distributors.
The Company's products are sold to approximately 15,000 active
accounts that are principally original equipment manufacturers and
their suppliers. In addition, the Company displays its products at
various industry-wide trade shows. A recent innovation for Stock
Drive and Sterling is the acceptance of credit card payments by
Visa, MasterCard and American Express.
Western sells the above products on the west coast of the United
States of America.
The following table sets forth information relating to export sales
for the Company's last three fiscal years for its continuing
operations:
Amount of export
Year ended sales for continuing
August 31, operations (in $000)
1994 2,430
1993 1,993
1992 1,723
(3) The Company has not made any public announcement about any new
products or segment which would require the investment of a
material amount of the assets of the Company or that otherwise is
material.
(4) The Company operates in a highly competitive industry and
competes with companies whose resources are smaller as well as
larger than its own. The Company believes that pricing, quality
control standards, and availability of products from stock are
instrumental to maintaining its competitive position in the
industry.
The major competitors to Stock Drive and Sterling in mechanical
electro-mechanical components are W.M. Berg Inc. ("Berg"), based in
New York; Precision Industrial Corp. ("PIC"), based in Connecticut,
and Allied Devices Corp., based in New York. Berg is a subsidiary
of BTR Plc, a large U.K. industrial company. Berg, PIC and Allied
Devices Corp. market their products through a catalog. The Company
believes that none of its major competitors in mechanical and electro-
<PAGE>
mechanical components offer their customers a catalog
library which is comparable to the Company's Component Library
Series.
The business engaged in by the Techno Division is subject to
competition from many other Companies and because such competition
is fragmented and overlapping the Company is unable to identify its
direct competition.
(5) The Company has a variety of sources for obtaining raw
materials with which to manufacture and market its products.
(6) No single customer of the Company's products accounted for
more than 10 percent of consolidated net sales.
(7) Patents, licenses and franchises are not material to the
Company. The Company considers the trade names "Stock Drive
Products", "Sterling Instruments" and "Techno" important to its
operations.
(8) The Company believes that it does not require government
approval of any of its principal products or services.
(9) The Company does not believe that existing or probable
governmental regulations will have a material effect upon its
business.
(10) Research and Development expenditures were $118,000 in fiscal
1994 and $126,000 in fiscal 1993.
(11) Compliance with existing federal, state and local provisions
dealing with protection of the environment is not expected to have
a material effect upon the Company's capital expenditures, earnings
and competitive position.
(12) As of August 31, 1994, the Company employed approximately 250
persons of which approximately 90% are employed on a full-time
basis.
<PAGE>
<PAGE>
ITEM 2 - PROPERTIES
Listed below are the principal plants and executive offices of the
Company and its subsidiaries material in its business. All plants
and offices are occupied on a lease basis:
<TABLE>
<CAPTION>
Expiration
Approximate Use of Date of
Location Square Feet Premises Lease
<S> <C> <C> <C>
2101 Jericho Turnpike 40,000(1) Executive Offices, March 2004
New Hyde Park, NY 11040 Manufacturing,
and Warehousing
55 S. Denton Avenue 48,750 Office and September 2004
New Hyde Park, NY 11040 Manufacturing
_________________
</TABLE>
(1) Approximately 5,400 square feet of these premises are
subleased.
In the opinion of the Company, its properties are adequate, well
maintained, are in sound operating condition, and contain all the
equipment and facilities necessary to support its programs at
present and future anticipated needs.
<PAGE>
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
Accusonic Systems Corp., ("Accusonic") a wholly owned subsidiary of
the Company whose operations have heretofore been discontinued,
filed a Notice of Appeal and Complaint on January 19, 1989 with the
Armed Services Board of Contract Appeals disputing the decision of
the contracting officer of the Defense Logistic Agency. The
dispute involves a ruling by the contracting officer denying
Accusonic the right to perform certain sub-assembly operations at
the plant previously utilized by the Company in Haiti. Accusonic
seeks recovery of approximately $1,500,000 in damages. A trial has
been held recently on this matter and the Company is awaiting a
decision. If the Company is successful, a further trial will be
held to determine damages. No opinion is given regarding the
resolution of this matter or the recovery of any damages.
During December, 1993 Lite Machines Corp. instituted an action in
the Superior Court of Tippecanoe County, Indiana against
Designatronics, Inc. and Techno, Inc., allegedly a division of
Designatronics, Inc., concerning the purchase of a Master CAM 3-0
Replicator System which plaintiff purchased in April, 1991 from
defendants alleged dealer at a cost of $11,396 and which plaintiff
began using in June of 1991. Plaintiff alleges that it suffered
more than $524,510 in damages alleging that the system performed
defectively and inadequately and not as represented and alleges
damages as a result of negligence, breach of express warranty,
breach of implied warranty of merchantability and of fitness for a
particular purpose. On July 12, 1994 the action was dismissed for
lack of jurisdiction and such dismissal is being appealed by
plaintiff. If such appeal is successful the action would be
restored and if not, plaintiff may seek to bring action in another
state. The Company believes that it has meritorious defenses to
the plaintiff's claim, if the action is restored or otherwise
brought and that the claim would not have a material adverse effect
upon the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended August 31, 1994.
<PAGE>
<PAGE>
Executive Officers of Registrant:
Information about the executive officers of the Company as of the
date of this report is set forth below:
First Elected
Offices and an Officer of
Name Age(1) Positions Held the Company
Martin Hoffman 60 President, Treasurer, 1963
Chief Executive Officer,
Chief Financial Officer
and Director
Dr. Frank Buchsbaum 70 Executive Vice 1971
President, Secretary
and Director
Dr. Hitoshi Tanaka 54 Senior Vice President 1979
______________
(1) Age is as of August 31, 1994.
All of the above Executive Officers have been elected to serve
until the next annual meeting of the Board of Directors scheduled
for January 1995 or until their respective successors are elected
and qualified.
There are no family relationships between any Executive Officers
and Directors.
Each of the Executive Officers listed above has served the Company
in various executive capacities on a full time basis for the past
five years.
<PAGE>
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Company's Common Stock, $.04 par value, has been traded on
NASDAQ/NMS under the symbol DSGT since June 29, 1994. Prior
thereto the Company's Common Stock was traded on the American Stock
Exchange. The following table sets forth the high and low sales
prices of the Company's Common Stock as reported during the
calendar periods indicated.
Fiscal Years
ended August 31, Period High Low
1993 1st Quarter 1 3/4 1 5/16
2nd Quarter 3 15/16 1 1/2
3rd Quarter 3 7/16 2 9/16
4th Quarter 4 7/8 2 15/16
1994 1st Quarter 5 1/2 3 11/16
2nd Quarter 4 3/4 3 1/2
3rd Quarter 4 7/8 3 13/16
4th Quarter 5 4 1/8
(b) The approximate number of holders of the Company's Common
Stock, $.04 par value, as of November 9, 1994 was 740.
(c) The Company has not paid any cash dividends since its
inception.
The Company entered into a Revolving Credit Agreement with European
American Bank dated as of November 9, 1993 which terminates on
November 8, 1996 (or November 8, 1997 if extended by the Company)
and which prohibits the declaration or payment of any cash
dividends on the Company's Common Stock.
<PAGE>
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) Not applicable.
(b) Management's Discussion and Results of Operations
Results of Operations
1994 and 1993
(a) Sales
Consolidated Net Sales for fiscal 1994 were $25,011,000 as compared
to $23,650,000 for fiscal 1993, representing an increase of
$1,361,000 or 5.8%. In fiscal 1994, sales for the Mechanical
Component segment increased 5% to $21,136,000 as compared to
$20,124,000 in fiscal 1993. The Company attributes this increase
to its combined catalog library which has continued to expand its
customer base by approximately 300 new customers per month. Sales
for the Automation Components segment increased 9.9% to $3,875,000
as compared to $3,526,000 in the prior year. This increase is
attributed to expanded marketing efforts through the use of new
catalogs and attendance at various trade shows and conventions.
See Note (J) of the Notes to Financial Statements for additional
information pertaining to the above Segments.
Export sales for fiscal 1994 were $2,430,000, which represents an
increase of $437,000 or 21.9% from fiscal 1993 of $1,993,000.
This increase can be attributed to the escalation of the Company's
international marketing efforts.
(b) Gross Profit Margins
The Company's consolidated gross profit margin was 38.5% in fiscal
1994 compared to 37.7% in fiscal 1993. The gross profit margin for
the Mechanical Components segment increased to 38.0% in the current
fiscal year as compared to 37.5% in fiscal 1993, primarily due to
the ongoing cost control efforts of management. The gross profit
margin for the Automation Components segment increased to 41.1% as
compared to 39.1% in the prior year. The increase was principally
due to operating efficiencies as a result of increased sales as
discussed above.
(c) Selling, General & Administrative Expenses
Selling, general and administrative expenses, as a percentage of
sales, remained relatively constant at 29.9% in the current fiscal
year as compared to 29.8% in the prior fiscal year.
(d) Interest Expense
Interest expense decreased significantly in both dollars and as a
percent of sales as the Company's cash requirements were funded
from operating activities.
<PAGE>
(e) Other Income
Sundry other income decreased $82,000 in fiscal 1994 as compared to
fiscal 1993. The principle reasons for the decrease was a non-recurring
insurance recovery of $63,000 received in fiscal 1993,
and a decrease in royalties received from mailing lists to $26,000
as compared to $43,000 in fiscal 1993. The foregoing were offset
by Note payments of $75,000 from Global Market Development Co.
("Global") received in fiscal 1994 compared to $31,200 received in
the prior year. The note payments are recurring to the extent that
they will be received until the expiration date of agreements
signed with the Company. However, Global is a thinly capitalized
entity owned by certain former employees of the Company and as such
its ability to pay the notes is dependent primarily on its future
operations. The amounts due from Global over the remaining life of
the notes are as follows:
September 1, 1994 to August 31, 1995 = $120,288
September 1, 1995 to August 31, 1996 = $ 70,344
(f) Income Taxes
The effective tax rate on income for 1994 was 36.0% as compared to
36.5% for the fiscal year ended August 31, 1993. The variation in
rate is principally due to the tax effect of foreign sales.
Liquidity and Capital Resources
The Company's working capital position at August 31, 1994 was
$9,824,000 compared to $8,108,000 at August 31, 1993. The
Company's current ratio is 4.3:1 as compared to 3.2:1 in the prior
year.
A significant portion of the Company's working capital is invested
in inventory and accounts receivable. The Company, during fiscal
year ended August 31, 1994, funded its investment in these assets
from cash generated from operating activities. Excess cash
generated from such activities was used to reduce the Company's
borrowing under its revolving line of credit and other current
liabilities. On November 10, 1994 the Company paid $275,000 in
full payment of amounts due under severance agreements with Sol
Schwartz and Joseph Rubenfeld, directors and former executives of
the Company. Future cash requirements are expected to be generated
from either operating activities or borrowings from the Company's
revolving credit facilities.
On November 9, 1993, the Company entered into a three year
revolving loan facility, renewable for an additional year at the
Company's option, whereby it may borrow up to $5,000,000. Interest
is payable at the Company's option at either the banks prime
lending rate or at 2.1% above the LIBOR rate. The Company also
agreed to pay a facility fee of 1/4 of 1% on the unused portion of
the loan. The loan is unsecured, however, should the Company not
meet certain financial covenants, the loan will become
collateralized by all the assets of the Company. There is no
outstanding loan balance as of August 31, 1994.
The Company does not have any material capital commitments beyond
August 31, 1994.
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
See Financial Statements annexed hereto.
ITEM 8 - CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
<PAGE>
<PAGE>
PART III
Item 10 (Directors and Executive Officers of the Registrant), Item
11 (Executive Compensation), Item 12 (Security Ownership of Certain
Beneficial Owners and Management), and Item 13 (Certain
Relationships and Related Transactions) will be incorporated in the
Company's Proxy Statement to be filed within 120 days of August 31,
1994 and are incorporated herein by reference.
<PAGE>
<PAGE>
Item 13 - Exhibits and Reports on Form 8-K
(a) (1) The following exhibits are incorporated by reference to
the Company's Form 10-K for the fiscal year ended August 31,
1992:
(3.1) Articles of Incorporation as amended to date
(3.2) By-Laws as amended to date
(4) Specimen Common Stock Certificate (identified as 3.3)
(4.1) 1984 Incentive Stock Option Plan
(10.1) Lease for premises at 55 South Denton
Avenue, New Hyde Park, NY
(10.2) Lease for premises at 2101 Jericho
Turnpike, New Hyde Park, NY
(10.3) Employment Agreement of Martin Hoffman
dated as of August 31, 1992 (identified
as 10.8)
(10.4) Employment Agreement of Frank Buchsbaum
dated as of August 31, 1992 (identified
as 10.9)
(10.5) Employment Agreement of Hitoshi Tanaka
dated as of August 31, 1992 (identified
as 10.10)
(10.6) Severance Agreement of Sol Schwartz dated
as of August 31, 1992 (identified as
10.11)
(10.7) Severance Agreement of Joseph Rubenfeld
dated as of August 31, 1992 (identified
as 10.12)
(b) (2) The following exhibits are incorporated by reference to
the Company's Form 10-Q for the quarter ending February 28,
1993:
(4.2) 1993 Incentive Stock Option Plan approved
by shareholders February 1993
(4.3) Non-qualified Stock Option Plan approved
by shareholders February 1993
(c) (3) The following exhibits are incorporated by reference to
the Company's Form 10K for the fiscal year ending August 31,
1993:
<PAGE>
(4.4) 1993 Non-Employee Directors' Stock Option
Plan approved by shareholders January
1994
(4.5) 1993 Executive Officers Stock Option Plan
approved by shareholders January 1994
(10.1.1) Amendment dated April 19, 1993 for lease for
premises at 55 South Denton Avenue, New Hyde
Park, New York
(10.2.1) Amendment dated April 19, 1993 for lease for
premises at 2101 Jericho Turnpike, New Hyde
Park, New York
(10.8) Revolving Credit Agreement dated as of
November 9, 1993 with European American
Bank
(21) Subsidiaries
(d) (4) The following exhibits are annexed hereto:
(10.3.1) Amendment made as of August 31, 1993 to
Employment Agreement dated as of August 31,
1992 with Martin Hoffman.
(10.3.2) Amendment dated March 22, 1994 to Employment
Agreement dated as of August 31, 1992 with
Martin Hoffman.
(10.4.1) Amendment made as of August 31, 1993 to
Employment Agreement dated as of August 31,
1992 with Frank Buchsbaum.
(10..4.2) Amendment dated March 22, 1994 to Employment
Agreement dated as of August 31, 1992 with
Frank Buchsbaum.
(10.5.1) Amendment dated March 22, 1994 to Employment
Agreement dated as of August 31, 1992 with
Hitoshi Tanaka.
(10.6.1) Amendment made as of August 31, 1993 to
Severance Agreement dated August 31, 1992 with
Sol Schwartz.
(10.7.1) Amendment made as of August 31, 1993 to
Severance Agreement dated August 31, 1992 with
Joseph Rubenfeld.
(b) No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DESIGNATRONICS INCORPORATED
/s/ Martin Hoffman
Dated: November 18, 1994 MARTIN HOFFMAN
President, Treasurer,
Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
/s/ Martin Hoffman
Dated: November 18, 1994 MARTIN HOFFMAN, Director
/s/ Frank Buchsbaum
Dated: November 18, 1994 FRANK BUCHSBAUM, Director
/s/ Sol Schwartz
Dated: November 18, 1994 SOL SCHWARTZ, Director
/s/ Joseph Rubenfeld
Dated: November 18, 1994 JOSEPH RUBENFELD, Director
<PAGE>
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1994
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
INDEX
Page
Independent Auditors' Report F-1
Consolidated Financial Statements:
Balance Sheet as at August 31, 1994 F-2
Statements of Operations for each of the Two
Years in the Period Ended August 31, 1994 F-3
Statements of Changes in Shareholders' Equity for
each of the Two Years in the Period Ended
August 31, 1994 F-4
Statements of Cash Flows for each of the Two Years
in the Period Ended August 31, 1994 F-5, F-6
Notes to Financial Statements F-7 to F-19
<PAGE>
<PAGE>
Independent Auditors' Report
Board of Directors and Shareholders
Designatronics Incorporated
New Hyde Park, New York
We have audited the accompanying consolidated balance sheet of
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES as at August 31, 1994 and
the related consolidated statements of operations, shareholders' equity
and cash flows for each of the two years in the period then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the consolidated financial position of
Designatronics Incorporated and Subsidiaries as at August 31, 1994 and
the results of their operations and their cash flows for each of the two
years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ Cornick, Garber & Sandler, LLP
CERTIFIED PUBLIC ACCOUNTANTS
Uniondale, New York
October 21, 1994
F-1
<PAGE>
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT AUGUST 31, 1994
ASSETS
Current assets:
Cash $ 265,618
Accounts receivable, less $65,000
allowance for doubtful accounts 3,294,710
Inventories (Notes A and C) 8,209,236
Prepaid expenses 260,540
Deferred income taxes (Note F) 789,400
Total current assets 12,819,504
Property, plant and equipment, less accumulated
depreciation (Notes A and D) 1,505,743
Other assets 323,678
T O T A L $14,648,925
LIABILITIES
Current liabilities:
Accounts payable $ 715,188
Accrued salaries and wages 476,461
Accrued expenses and other current liabilities 1,097,785
Accrued severance costs (Note B) 422,081
Income taxes payable (Note F) 284,371
Total current liabilities 2,995,886
Deferred income taxes (Note F) 82,100
Other liabilities 13,572
Total liabilities 3,091,558
Commitments and contingencies (Notes E, G, H, I and K)
SHAREHOLDERS' EQUITY
(NOTE H)
Common stock, $.04 par value; authorized 5,000,000
shares; issued 2,985,511 shares 119,421
Additional paid-in capital 9,402,471
Retained earnings 2,266,829
11,788,721
Less 112,088 shares of treasury stock, at cost (231,354)
Total shareholders' equity 11,557,367
T O T A L $14,648,925
The notes to financial statements are made a part hereof.
F-2
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended August 31,
1994 1993
Net sales $25,011,440$23,650,398
Cost of sales 15,381,494 14,724,851
Gross profit 9,629,946 8,925,547
Selling, general and administrative expenses 7,473,455 7,056,277
Income before other income (expense),
income taxes and discontinued operations 2,156,491 1,869,270
Other income (expense):
Interest expense (47,298) (165,315)
Miscellaneous income (Note B) 110,849 193,022
Income from continuing operations
before income tax provision 2,220,042 1,896,977
Income tax provision (Note F) 800,000 693,000
Income from continuing operations 1,420,042 1,203,977
Gain on disposal of discontinued segment,
less $270,000 of income tax (Note B) 551,381
Income before extraordinary item 1,420,042 1,755,358
Extraordinary item:
Income tax benefit from utilization of
net operating loss carryforwards 824,000
NET INCOME $ 1,420,042$ 2,579,358
Income per common share:
Continuing operations $.49 $.42
Discontinued operations .19
Extraordinary item .29
Net income $.49 $.90
Weighted average number of shares
outstanding (Note A) 2,873,435 2,866,972
The notes to financial statements are made a part hereof.
F-3
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1994 AND 1993
<TABLE>
<CAPTION>
Additional Retained
Treasury Stock Total
Common Stock Paid-in Earnings
(At Cost) Shareholders'
Shares Amount Capital (Deficit) Shares
Amount Equity
<S> <C> <C> <C> <C> <C>
<C> <C>
BALANCE - AUGUST 31,
1992 2,955,511 $118,221 $9,358,671 $(1,732,571)
112,073 $(231,287) $ 7,513,034
Exercise of stock
options 30,000 1,200 43,800
45,000
Net income 2,579,358
2,579,358
BALANCE - AUGUST 31,
1993 2,985,511 119,421 9,402,471 846,787
112,073 (231,287) 10,137,392
Purchase of treasury stock 15
(67) (67)
Net income 1,420,042
1,420,042
BALANCE - AUGUST 31,
1994 2,985,511 $119,421 $9,402,471$ 2,266,829
112,088 $(231,354) $11,557,367
</TABLE>
The notes to financial statements are made a part hereof.
F-4
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended August 31,
INCREASE (DECREASE) IN CASH 1994 1993
Cash flows from operating activities:
Net income $ 1,420,042 $2,579,358
Adjustments to reconcile results of operations
to net cash effect of operating activities:
Provision for losses on accounts receivable 19,433 65,576
Gain on sale of fixed assets (1,238) (8,951)
Deferred income taxes 57,000 (336,000)
Depreciation and amortization 482,107 500,088
Reversal of accrued future losses of
discontinued segment (212,424)
Net changes in assets and liabilities:
Accounts receivable (522,539) 468,293
Inventories (608,887) 125,291
Prepaid expenses (35,810) 259,351
Other assets (4,512) (40,779)
Accounts payable (46,420) (398,527)
Accrued expenses, salaries and wages and
other current liabilities (433,827) (112,359)
Income taxes payable (136,933) 336,250
Total adjustments (1,231,626) 645,809
Net cash provided by
operating activities 188,416 3,225,167
(Continued)
F-5
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-2-
Year Ended August 31,
1994 1993
Cash flows from investing activities:
Expenditures for fixed assets $ (281,333) $ (454,731)
Proceeds from sale of equipment 18,000 22,600
Redemptions of temporary investments 424,334
Net cash used for investing
activities (263,333) (7,797)
Cash flows from financing activities:
Proceeds from exercise of stock options 45,000
Purchase of treasury stock (67)
Reduction of cash overdrafts (377,886)
Proceeds of long-term debt 886,012
Reduction of long-term debt and
other long-term liabilities (3,585,552)
Net cash used for financing
activities (67) (3,032,426)
NET INCREASE (DECREASE) IN CASH (74,984) 184,944
Cash - September 1 340,602 155,658
CASH - AUGUST 31 $ 265,618 $ 340,602
Supplemental disclosures of cash
flow information:
Cash paid during year for:
Interest $ 112,800 $ 108,380
Income taxes $ 880,148 $ 138,750
The notes to financial statements are made a part hereof.
F-6
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are
wholly-owned. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Inventory Valuation:
Inventories are stated at lower of cost (first-in, first-out) or market.
Depreciation and Amortization:
Depreciation is provided for financial accounting purposes
on the straight-line method at rates which are designed to
write off the assets over their estimated useful lives.
For income tax purposes, depreciation is computed substantially by use
of accelerated methods. Leasehold improvements are amortized
over the terms of their applicable
leases or their useful lives, whichever is less.
Income Taxes:
The Company and its domestic subsidiaries file a consolidated federal
income tax return.
Effective September 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). Previously, the Company had
accounted for income taxes under the provisions of Accounting
Principles Board Opinion No. 11. The adoption of SFAS
109 changed the Company's method of accounting for income
taxes from the deferred method to the asset and liability
method. Under SFAS 109, deferred tax liabilities and
assets are determined based on the difference between the
financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse.
This change in accounting for income taxes had no material
effect on the net balance of the Company's deferred income
tax assets at September 1, 1993 or on its provision for
income taxes for the year ended August 31, 1994. The prior
year's financial statements have not been restated to apply
the provisions of SFAS No. 109; if such restatement were
made, the income tax benefit from the utilization of prior
year's carryforwards would not have been reported as an
extraordinary item but would have been reported as a
separate component of net income and income per share on
that year's statement of operations.
(Continued)
F-7
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-2-
NOTE A - Summary of Significant Accounting Policies (Continued):
Income Taxes (Continued):
On January 1, 1985, the Company formed a wholly-owned
subsidiary which qualifies as a "Foreign Sales Corporation"
(FSC) under the Internal Revenue Code and, accordingly,
only a portion of such earnings is subject to federal
income tax. Distributions from the FSC are subject to the
100% dividend exclusion for federal income tax purposes.
Income Per Share:
Per share amounts are based on income for each year,
divided by the weighted average number of shares outstanding
during such year. The effect of outstanding stock
options was immaterial in both 1994 and 1993 and, accordingly,
these options were not included in the computations.
Research and Development Costs:
Research and development costs are charged to expense in
the year incurred. The amounts expensed for the years
ended August 31, 1994 and 1993 were approximately $118,000
and $126,000, respectively.
Joint Venture:
In October 1985, the Company formed a joint venture
(Western Components Sales North, Inc.) for the distribution
of mechanical, electronic and electrical components related
to motion control and robotics. The Company's investment
in the venture was $50,000. The Company recorded under the
equity method its share of the venture's income, which was
approximately $600 and $2,000 for the two years ended
August 31, 1994 and 1993, respectively. Such share of
profits or losses has been adjusted by 50% of intercompany
profits on sales to the joint venture of merchandise held
in its inventory at year end. The Company's share of
undistributed earnings of the joint venture amounts to
approximately $6,200 as of August 31, 1994. Sales to the
joint venture were $430,000 and $449,000 for the two years
ended August 31, 1994, respectively. Accounts receivable
includes approximately $87,000 due from the joint venture
at August 31, 1994.
(Continued)
F-8
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-3-
NOTE B - Discontinued Business Segment:
In 1992, the Board of Directors approved a plan to
discontinue the electronic components segment of the
Company's business, which was comprised of the assets and
operations of its Accusonics Systems Corp., Automatic Coil
Corp. and Automatic Accusonic Haiti subsidiaries.
As part of the plan of discontinuation, the Company sold
the inventory and fixed assets of Accusonics Systems Corp.
for $287,615 in 1992, of which $60,000 was paid in cash
with the balance represented by 11% notes receivable over
four years commencing in September 1992. These notes are
collateralized by the assets of the purchaser. The uncol-
lected portion of the notes receivable, which aggregate
$172,864 at August 31, 1994, is not being reported as
income until received because the purchaser is a thinly
capitalized entity owned by certain former employees of the
Company and its ability to pay the notes is dependent
primarily on its future operations. Under the terms of the
notes, the uncollected balance is due $106,538 in fiscal
1995 and $66,326 in fiscal 1996. Other income on the
statements of operations includes approximately $75,000 in
1994 and $31,000 in 1993, representing principal and
interest received on the notes.
Rather than gradually phase out the operations of Automatic
Coil Corp. as originally planned, in January 1993 its
inventory and fixed assets were sold and its operations
ceased. This, together with the sale of other assets and
the settlement of certain liabilities on terms more
favorable than originally estimated, resulted in a $551,381
net gain in fiscal 1993, comprised of the following:
(Continued)
F-9
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-4-
NOTE B - Discontinued Business Segment (Continued):
Earnings from Automatic Coil Corp.
operations from September 1, 1992
to January 22, 1993 $370,944
Reversal of loss from phaseout of
Automatic Coil Corp. operations
previously estimated and accrued 212,424
Gain from sales of assets and settlement
of liabilities 238,013
Total 821,381
Less related income tax effect 270,000
Total $551,381
In connection with the discontinuance of these operations,
the Company terminated the employment contracts of its then
President and Executive Vice President. In accordance with
their contracts, they are each being paid $470,000 in
severance benefits, plus $75,000 in fringe benefits, the
total of which was accrued at August 31, 1992. Severance
benefits payable at August 31, 1994 aggregating $267,000
are evidenced by promissory notes which bear interest at
the rate charged by the Company's lending bank and are
expected to be paid in November 1994.
NOTE C - Inventories:
Inventories at August 31, 1994 are summarized as follows:
Raw materials $ 940,250
Work-in-process and semi-
finished components 531,801
Finished stock 6,737,185
Total $8,209,236
(Continued)
F-10
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-5-
NOTE D - Property and Equipment:
A summary of the costs and the related estimated lives is
as follows:
<TABLE>
<CAPTION>
Estimated
Useful Life
(Years)
<S> <C> <C>
Machinery and equipment $3,845,220 8
Molds and tooling 658,380 3
Furniture and fixtures 787,162 8
Computer equipment 1,189,766 5
Leasehold improvements 1,019,752 5-10
Automotive equipment 217,668 4
Total 7,717,948
Less accumulated depreciation 6,212,205
Balance $1,505,743
</TABLE>
NOTE E - Long-Term Debt:
The Company's three year revolving loan facility, which
expires in November 1996 and is renewable for an additional
year at the Company's option, provides for borrowings up to
$5,000,000. Interest is payable at the Company's option at
either the bank's prime lending rate or at 2.1% above the
LIBOR rate. The Company also agreed to pay a facility fee
of 1/4 of 1% on the unused portion of the loan and an
origination fee of $5,000. The loan is unsecured, however,
should the Company not meet certain financial covenants,
the loan will become collateralized by all the assets of
the Company.
(Continued)
F-11
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-6-
NOTE E - Long-Term Debt (Continued):
The agreement provides, among other restrictions, that the
Company cannot declare or pay cash dividends or borrow from
other lenders. The agreement also contains covenants,
including those relating to the maintenance of working
capital and net tangible asset levels, maintenance of
working capital and debt to net worth ratios, as well as
restrictions regarding capital expenditures.
NOTE F - Income Taxes:
Income taxes are comprised of the following:
Year Ended August 31,
1994 1993
Currently payable
Federal $621,000 $ 388,000
State 122,000 87,000
743,000 475,000
Deferred 57,000 (336,000)
Net provision $800,000 $ 139,000
Income taxes are included in the statement of operations
for the year ended August 31, 1993 as follows:
Charged to continuing
operations $ 693,000
Charged to discontinued
operations 270,000
Benefit from net operating
loss carryforwards re-
flected as extraordinary
income (824,000)
Net provision $ 139,000
(Continued)
F-12
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-7-
NOTE F - Income Taxes (Continued):
Temporary differences which give rise to a significant
portion of deferred tax assets and liabilities as at August
31, 1994 are:
Deferred tax assets:
Allowance for estimated doubtful
accounts $ 25,000
Tax basis adjustments to
inventory 558,500
Accrued severance pay and benefits 40,900
Accrued vacation pay 82,900
Reserve on note receivable 66,700
Other 15,400
Total deferred tax assets $789,400
Deferred tax liability:
Accelerated versus straight-
line depreciation of
property and equipment $82,100
(Continued)
F-13
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-8-
NOTE F - Income Taxes (Continued):
The variation in the customary relationship between the
provision for income taxes and pretax income from
continuing operations is as follows:
Percentage of Pretax Income
Year Ended August 31,
1994 1993
Computed "expected" federal
income tax provision 34.0% 34.0%
Effect on federal income tax
of earnings of the FSC (1.8) (1.6)
State income taxes, net of federal
income tax benefits 3.6 4.0
Other .2 .1
Income tax provision 36.0% 36.5%
NOTE G - Commitments and Contingencies:
(1) Lease Commitments:
The Company rents manufacturing, warehouse and office
space under operating leases expiring at various dates
through September 2004. The Company is obligated to
pay all realty operating expenses and real estate taxes
in addition to the annual rent. The minimum annual
rentals are as follows:
Year ending August 31:
1995 $ 379,000
1996 379,000
1997 383,000
1998 412,000
1999 418,000
Thereafter 2,207,000
Total $4,178,000
(Continued)
F-14
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-9-
NOTE G - Commitments and Contingencies (Continued):
(1) Lease Commitments (Continued):
Rent expense applicable to continuing operations was
as follows:
Year Ended August 31,
1994 1993
Real property $588,000 $600,000
Personal property 4,000
Total 588,000 604,000
Less sublease income (40,000) (39,000)
Net $548,000 $565,000
The Company is subleasing certain premises to the new
owners of its former Accusonics operation to March 1996
at an annual rental of approximately $40,000.
Certain operating leases were with an entity whose
principal owners are or were officers of the Company.
Payments relating to these leases were $4,000 for the
year ended August 31, 1993. During the year ended
August 31, 1993, the Company purchased for $40,000 a
machine that was previously leased from the affiliate.
(2) Employment Agreements:
The Company's employment agreements with three officers
provide for aggregate annual salaries of not less than
$488,000 a year to be paid through November 1995.
These agreements provide that if there is a change of
control (as defined) in the Company and the agreements
are not extended, the Company could be liable for lump-
sum payments of between $200,000 to $265,000 to each
officer, based on the price of the stock when the
change in control occurs.
NOTE H - Shareholders' Equity:
Incentive Stock Option Plans:
In February 1993, the shareholders approved the Company's
1993 incentive stock option plan, which provides for the
granting of options to key employees to purchase up to
100,000 shares of common stock at not less than fair market
value at the date of grant. Options may be exercised
beginning one year from the date of grant and may not
exceed 10 years from the date of grant. At August 31,
1994, options to purchase 25,000 shares at $3.69 a share
are outstanding.
(Continued)
F-15
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-10-
NOTE H - Shareholders' Equity (Continued):
Incentive Stock Option Plans (Continued):
In January 1994, the shareholders' approved the 1993
Executive Officer Incentive Stock Option Plan. The plan
provides for the granting of options to purchase up to
250,000 shares of common stock. Options are automatically
granted to each of three executive officers if annual
income per share from continuing operations is $.29 or
greater. The options to be granted range between 15,000
and 18,750 shares annually for each officer depending on
the level of earnings. Each option will be granted at the
fair market value at the date of grant and will expire 10
years from such date. As at August 31, 1994, options to
purchase 45,000 shares at $4.38 a share are outstanding.
The options expire in September 2003. Based upon fiscal
1994 earnings, on November 1, 1994, options to purchase
16,500 shares of common stock at $4.50 per share were
granted to each of the three executive officers based upon
fiscal 1994 earnings.
Non-Employee Directors' Stock Option Plan:
In January 1994, the shareholders approved the 1993 Non-
Employee Directors' Stock Option Plan. The plan provides
for the granting of options to purchase up to 150,000
shares of common stock. Options are automatically granted
to non-employee directors in varying amounts based upon
income per share from continuing operations being $.29 or
greater and the number of years served on the Board. Based
upon these factors, options to be granted will range
between 2,000 to 12,500 shares annually to each non-
employee director. Each option will be granted at the fair
market value at the date of grant and expire ten years from
such date. As at August 31, 1994, options to purchase
20,000 shares at $4.38 a share are outstanding. The
options expire in September 2003. Based upon fiscal 1994
earnings, on November 1, 1994, options to purchase 11,000
shares of common stock at $4.50 per share were granted to
two non-employee directors.
Non-Qualified Stock Option Plan:
In February 1993, the shareholders' approved the
Designatronics Incorporated Non-Qualified Stock Option
Plan. The plan provides for the granting of options to
purchase up to 100,000 shares of common stock to attract
and retain executive personnel and key employees. Options
are to be granted at the fair market value on the date of
grant. No options have been granted under this plan.
(Continued)
F-16
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-11-
NOTE H - Shareholders' Equity (Continued):
Stock Repurchases:
In January 1994, the Board of Directors authorized
repurchases of the Company's stock. Any such repurchases
may not exceed the Company's book value per share at the
date of repurchase and are limited to an aggregate of
$200,000 a year.
NOTE I - Employee Benefit Plans:
The Company's noncontributory Simplified Employee Pension
Plan, which covers substantially all employees other than
employees covered by a union retirement plan, provides for
an annual contribution determined by the Board of
Directors. No contributions have been authorized for the
two years ended August 31, 1994. The Company's 401(k)
defined contribution pension plan permits a matching
contribution by the Company equal to 50% of the first 2% of
the employee's voluntary contribution, limited to the
maximum allowable amount by the Internal Revenue Code. The
Company made matching contributions of approximately
$36,000 and $32,000 during the years ended August 31, 1994
and 1993, respectively. In addition, the Company
authorized an additional 2% and 1 1/2% bonus contribution
for calendar year 1994 and 1993, respectively, resulting in
additional expense of approximately $79,000 and $67,000 for
the respective fiscal years then ended.
Contributions to multi-employer defined benefit pension
plans for union employees aggregated approximately $150,000
and $149,000 for the years ended August 31, 1994 and 1993,
respectively.
NOTE J - Segment Information:
Through fiscal 1992, the Company operated in two business
segments, the mechanical components segment, which
manufactures and distributes a diverse line of over 50,000
mechanical and electro-mechanical components, and the
electronics components segment, which has been discontinued
(see Note B). As a result of the discontinuance of the
electronics components segment and the increased emphasis
in fiscal 1993 and 1994 on the expansion of the Company's
line of automation components and systems, management now
believes that this class of products should be considered
a separate business segment.
Accordingly, the attached information (rounded to the
nearest $1,000) is presented for each of these segments.
(Continued)
F-17
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-12-
NOTE J - Segment Information (Continued):
<TABLE>
<CAPTION>
Mechanical Automation
1994 Components Components Consolidated
<S> <C> <C> <C>
Net sales $21,136,000 $3,875,000 $25,011,000
Operating profit $ 2,172,000 $ 382,000 $ 2,554,000
General corporate expenses (397,000)
Interest expense (47,000)
Other income 110,000
Income before provision
for income taxes $ 2,220,000
Identifiable assets $13,198,000 $1,369,000 $14,567,000
Capital expenditures $ 274,000 $ 7,000 $ 281,000
Depreciation and
amortization $ 452,000 $ 30,000 $ 482,000
1993
Net sales $20,124,000 $3,526,000 $23,650,000
Operating profit $ 1,958,000 $ 209,000 $ 2,167,000
General corporate expenses (298,000)
Interest expense (157,000)
Other income 185,000
Income before provision
for income taxes $ 1,897,000
Identifiable assets $12,542,000 $1,222,000 $13,764,000
Capital expenditures $ 455,000 $ 455,000
Depreciation and
amortization $ 466,000 $ 34,000 $ 500,000
</TABLE>
(Continued)
F-18
<PAGE>
DESIGNATRONICS INCORPORATED
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-13-
NOTE K - Litigation:
In December 1993, an action was instituted against the
Company where the plaintiff is claiming approximately
$525,000 in damages related to equipment sold by the Techno
Division. The equipment had a purchase price of
approximately $11,000. The case was dismissed for lack of
jurisdiction but is currently under appeal. The Company,
based upon consultation with its counsel, believes that it
has meritorious defenses.
F-19
PAGE
<PAGE>
EXHIBIT "2"
DESIGNATRONICS INCORPORATED
2101 Jericho Turnpike, Box 5416, New Hyde Park,
New York 11042-5416
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of the stockholders of Designatronics
Incorporated (the "Company") will be held on January 11, 1995 at
10:00 a.m. at the offices of the Company at 2101 Jericho Turnpike,
Box 5416, New Hyde Park, New York 11042-5416. The meeting is
called for the following purposes:
ELECTION OF DIRECTORS
The election of four directors to hold office for the term
specified in the annexed Proxy Statement or until the election and
qualification of their respective successors.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
To ratify the appointment of Cornick, Garber & Sandler, LLP,
Certified Public Accountants, as independent auditors for the
fiscal year ending August 31, 1995.
TRANSACTION OF OTHER BUSINESS
To transact such other business as may properly come before the
meeting or any adjournments thereof.
Stockholders of record at the close of business on November 22,
1994 are entitled to notice of, and to vote at, this meeting.
Sending in your proxy will not prevent your attending and voting at
the meeting in person should you later decide to do so.
The accompanying form of proxy is solicited by the board of
directors of the Company. Reference is made to the enclosed proxy
statement for further information with respect to the business to
be transacted at the meeting.
If you do not expect to attend the meeting in person, please sign
and date the enclosed proxy and mail it promptly in the enclosed
envelope.
By order of the board of directors.
Dated: December 5, 1994
DR. FRANK BUCHSBAUM
Secretary
<PAGE>
<PAGE>
DESIGNATRONICS INCORPORATED
2101 Jericho Turnpike, Box 5416
New Hyde Park, New York 11042-5416
__________________________________
PROXY STATEMENT
__________________________________
The proxy statement mailed to stockholders commencing December 5,
1994 is furnished in connection with the solicitation of proxies by
the board of directors of Designatronics Incorporated (the
"Company") in connection with the annual meeting of stockholders
(the "Annual Meeting") of the Company to be held January 11, 1995
at 10:00 a.m. at the offices of the Company at 2101 Jericho
Turnpike, Box 5416, New Hyde Park, New York 11042-5416. Proxies
will be voted in accordance with directions specified thereon and
otherwise in accordance with the judgment of the persons designated
as proxies. Any proxy on which no direction is specified will be
voted in favor of the action described in the proxy statement.
A proxy in the enclosed form may be revoked at any time, prior to
it being voted at the Annual Meeting by sending a subsequently
dated proxy or by giving written notice to the Company, in each
case to the attention of Dr. Frank Buchsbaum, Secretary, at the
address set forth above. Stockholders who attend the meeting may
withdraw their proxies at any time before their shares are voted by
voting their shares in person.
The expense of the solicitation of proxies for the meeting,
including the cost of preparing, assembling and mailing the notice,
proxy and proxy statement, the handling and tabulation of proxies
received and the charges of brokerage houses and other
institutions, nominees or fiduciaries in forwarding such documents
of the proxy material to beneficial owners, will be paid by the
Company. In addition to the mailing of the proxy material, such
solicitation may be made in person or by telephone and telegraph by
directors, officers or regular employees of the Company. It is
estimated that the total cost of proxy solicitations by the Company
will not exceed $2,500.
The matters to be considered at this Annual Meeting will be the
election of directors for the ensuing year and the ratification of
the appointment of Cornick, Garber & Sandler, LLP, Certified Public
Accountants as independent auditors. The Company is aware of no
other matters to be presented for action at the meeting.
<PAGE>
<PAGE>
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Company's voting securities consist solely of common stock $.04 par
value ("Common Stock"). Holders of Common Stock at the close of business
on November 22, 1994 will be entitled to vote. Each share of Common Stock
entitles the holder to one (1) vote on each matter to be voted upon. On
the record date there were outstanding 2,873,423 shares of Common Stock,
exclusive of treasury shares.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names of each of the directors of the
Company, the number of shares of Common Stock owned by each, together with
certain other information with respect to them. Each of the following has
been nominated for re-election. All of the following information is as of
November 22, 1994:
Principal Occupation Shares of Percent
Business Experience Director Stock Owned of
Name Age Past Five (5) Years Since Beneficially Class
Martin 61 President, Treasurer, 1967 134,349(1) 4.6%
Hoffman and Chief Executive
Officer of the Company
since August 31, 1992;
Chief Financial Officer;
Senior Vice President
prior to August 31, 1992.
Dr. 71 Executive Vice- 1973 196,704(1)(2) 6.8%
Frank President since
Buchsbaum August 31, 1992;
prior thereto
Senior Vice-
President; Secre-
tary since February
4, 1992.
Sol 69 Until August 31, 1960 473,934(3)(4) 16.4%
Schwartz 1992 President
and Chief Executive
Officer of the
Company.
Joseph 67 Until August 31, 1960 415,321(3)(5) 14.3%
Rubenfeld 1992 Executive
Vice President
and Treasurer.
<PAGE>
__________________
(1) Messrs. Hoffman and Buchsbaum each hold options to acquire
31,500 shares granted under the Company's 1993 Executive
Officer Incentive Stock Option Plan.
(2) Includes 45,900 shares owned of record by his wife.
(3) Messrs. Schwartz and Rubenfeld each hold options to acquire
21,000 shares granted under the Company's 1993 Non-Employee
Director Stock Option Plan.
(4) Includes 13,765 shares owned of record by his wife.
(5) Includes 144,076 shares owned of record by his wife.
All executive officers and directors as a group (5 persons) are the
beneficial owners of 1,324,122 shares as of November 22, 1994 which
represents 44.0% of the outstanding shares of the Company.
ELECTION OF DIRECTORS
The bylaws of the Company provide that the number of the directors
of the Company shall be a minimum of three (3) and a maximum of
nine (9) until otherwise determined by an amendment to the bylaws.
The board of directors has chosen and designated the above four (4)
nominees. At the Annual Meeting, four (4) directors are to be
elected.
Five (5) meetings of the board of directors were held during the
fiscal year ended August 31, 1994. No director attended fewer than
seventy-five (75%) percent of such meetings.
The Company has an audit committee consisting of Messrs. Schwartz,
Rubenfeld, and Hoffman. The purpose of the Audit Committee is to
provide general oversight of audit, legal compliance, and potential
conflict of interest matters. Two meetings of the Audit Committee
took place during the fiscal year ended August 31, 1994. The
Company does not have a nominating or compensation committee.
Proxies in the enclosed form will be voted for the nominees named
above. Authority may be withheld for any nominee. Under SEC
rules, boxes and a designated blank space are provided on the proxy
card for shareholders to mark if they wish withhold authority to
vote for one or more nominees for director. In addition,
stockholders may nominate additional nominees as candidates for the
position as director. Although the board of directors does not
anticipate that any nominee will be unavailable for election, in
the event of such occurrence, the proxy will be voted for such
substitute, if any, as the board of directors may designate.
Proxies will not vote for a greater number of persons than the
number of nominees named.
<PAGE>
STATEMENT PURSUANT TO SECTION 726(d) BUSINESS CORPORATION LAW
The Company has obtained from the National Union Fire Insurance
Company of Pittsburgh, Pa. a Directors and Officers Insurance and
Company Reimbursement Policy for the period October 18, 1993 to
October 18, 1994. The policy has been renewed with the same
company for the period October 18, 1994 to October 18, 1995, but a
copy of the new policy has not yet been received by the Company.
Each policy provides for annual coverage of $4,000,000 aggregate
for all claims for directors and officers liability. Coverage is
in accordance with the terms of the policies and is subject to
various exceptions contained therein. The insurance is on a claims
made basis. The premium paid for this insurance by the Company was
$18,000 for the policy expiring in 1994 and $18,000 for the policy
expiring in 1995. This statement is delivered pursuant to the
Business Corporation Law of the State of New York and Section
726(d) thereof.
PRINCIPAL HOLDERS OF SECURITIES
The following sets forth the ownership with respect to each person
known to own beneficially more than 5% of the Company's Common
Stock as of November 22, 1994:
Name and address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership(1) of Class
Common Stock Sol Schwartz 473,934 shares 16.4%
$.04 par value 143 Hewlett Neck Rd. direct and beneficial
Woodmere, NY 11598
Common Stock Joseph Rubenfeld 415,321 shares 14.3%
$.04 par value 3324 SW 57th Place direct and beneficial
Ft. Lauderdale, FL 33312
Common Stock Dr. Frank Buchsbaum 196,704 shares 6.8%
$.04 par value 6 Sutton Place direct and beneficial
North Hills, NY 11030
_________________
(1) See footnotes to table under "Directors and Executive Officers".
<PAGE>
EXECUTIVE COMPENSATION
Summary
The following pages describe the components of the total
compensation of the CEO of the Company and the Company's most
highly compensated executive officers, other than the CEO, whose
total annual salary exceeds $100,000. The principal components of
such individuals' current cash compensation are the annual base
salary and stock options included in the Summary Compensation
Table, and termination consideration payable to the CEO and another
named executive officer in accordance with their employment
agreements, as described more fully below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
Other
Name and Annual All
Other
Principal Compen- Options/
Compensa-
Position Year Salary($) sation($)(a) SARs(#) tion
($)(a)(b)
<S> <C> <C> <C> <C> <C>
Martin 1994 177,224 2,071 15,000 232,489
Hoffman 1993 172,845 1,890 -0- 146,529
CEO, Pres- 1992 165,975 10,000
ident, CFO
and Treas-
urer
Dr. Frank 1994 177,262 2,071 15,000 232,856
Buchsbaum 1993 172,633 2,071 -0- 146,896
Executive 1992 164,485 10,000
Vice Presi-
dent and
Secretary
Dr. Hitoshi 1994 125,655 2,071 15,000 1,587
Tanaka 1993 119,919 2,071 -0- 1,485
Senior Vice 1992 105,955 10,000
President
______________
(a) Pursuant to the transitional provisions of applicable rules
of the Securities and Exchange Commission, amounts of Other
Annual Compensation and All Other Compensation are excluded
for 1992.
(b) Reference is made to the discussion on page 7, under
"Employment Agreements".
</TABLE>
<PAGE>
Stock Options
The following table contains information relating to stock options.
The Company believes that significant purchases of Common Stock by
its executives through the commitment of personal financial
resources is necessary for the Company's success. Accordingly, the
Company sponsors programs designed to encourage executives to
purchase Common Stock.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
[Individual Grants]
Name Options/SARs Percent of total Exercise Expiration
(#) options/SARs or base Date
granted to price
employees in ($/Sh)
fiscal year
Martin Hoffman 15,000 33.3% $4 3/8 09/13/03
Frank Buchsbaum 15,000 33.3% $4 3/8 09/13/03
Hitoshi Tanaka 15,000 33.3% $4 3/8 09/13/03
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
Value of
Number of Unexercisable
Unexercised In-The-Money
Shares Options/SARs Options/SARs at
Name Acquired on Value at FY-End (#) FY-End ($)
Exercise(#) Realized ($) Exercisable/ Exercisable/
Unexercisable Unexercisable
Martin Hoffman -0- -0- 15,000/-0- 3,750/-0-
Frank Buchsbaum -0- -0- 15,000/-0- 3,750/-0-
Hitoshi Tanaka -0- -0- 15,000/-0- 3,750/-0-
Severance Agreements
On August 31, 1992, the Company entered into separate severance
agreements with Sol Schwartz and Joseph Rubenfeld (the "Severance
Agreements") regarding the Company's termination of their
employment agreements of October 8, 1990 (the "1990 S&R Employment
Agreements"). In consideration for the premature termination of
the 1990 S&R Employment Agreements on August 31, 1992 and the
deferral of Messrs. Schwartz and Rubenfeld's severance pay, the
Company agreed
<PAGE>
to pay each of them severance pay ("Severance Pay")
in the amount of $470,000. The first $188,000 was payable to each
as of August 31, 1992, and was paid during October, 1992, and the
balance was payable to each pursuant to the terms of the Severance
Agreements and was paid to each $141,000 during November, 1993 and
$141,000 during November, 1994. The Company is also to continue to
pay up to $18,000 annually for each individual's life insurance and
in addition $6,500 for medical insurance for five (5) years until
August 31, 1997. At the mutual consent of the individual and the
Company, the individual may be employed as a consultant by the
Company at the rate of $750 per day plus expenses. Messrs.
Schwartz and Rubenfeld are also each entitled to use of a car and
associated expenses until August 31, 1995 with expenses paid
thereon by the Company. For the year ended August 31, 1994, Mr.
Schwartz and Mr. Rubenfeld were paid the sums of $7,500 and $6,675,
respectively, for consulting fees.
Employment Agreements
On August 31, 1992 the Company entered into separate employment
agreements (the "1992 Employment Agreements") with Martin Hoffman
as president, treasurer, Chief Executive Officer, and Chief
Financial Officer of the Company, and Dr. Frank Buchsbaum as
executive vice-president and secretary of the Company which expire
on December 1, 1995. The 1992 Employment Agreements terminated
their previous employment agreements with the Company of October 8,
1990 (the "1990 H&B Employment Agreements"). In consideration of
the termination of the 1990 H&B Employment Agreements on August 31,
1992, past services and the elimination from the 1992 Employment
Agreements of Messrs. Hoffman and Buchsbaum's right to severance
pay, the Company agreed to pay each Messrs. Hoffman and Buchsbaum
a termination consideration ("Termination Consideration") in the
amount of $351,000. The first $140,400 of the Termination
Consideration was payable to each as of August 31, 1992, and was
paid during October, 1992, and the balance of the Termination
Consideration of $210,600 was paid to each during November, 1993.
Messrs. Hoffman and Buchsbaum shall each receive a salary of
$186,276 during fiscal year 1995 (increased from the amount of
$180,500 during the 1994 fiscal year) annually plus any pension or
retirement benefits, bonuses, directors' fees, stock options or
salary increase to which each is entitled, in the discretion of the
Company. Said compensation is payable for a period of twelve (12)
months after the demise of either individual, provided, however,
that such compensation shall not continue after May 31, 1996. The
Company is also to continue to pay up to $18,000 annually for each
individual's life insurance and in addition $6,500 for medical
insurance during the term of the 1992 Employment Agreements and for
five (5) years thereafter. Messrs. Hoffman and Buchsbaum are each
entitled to the use of a car provided by the Company during the
term of the 1992 Employment Agreements, and for a term of two (2)
years from the date of termination of the 1992 Employment
Agreements.
On August 31, 1992 an agreement was also entered into with Dr.
Hitoshi Tanaka, a senior vice president of the Company, for a term
ending on December 31, 1995. Dr. Tanaka is to be paid a salary at
the rate of $132,776 (increased from the amount of $127,000 during
the 1994 fiscal year) annually plus any pension or retirement
benefits, bonuses, stock options or salary increase to which he is
entitled in the discretion of the Company. In the event that Dr.
Tanaka's agreement is not renewed or he leaves the Company
voluntarily or involuntarily he is entitled to one (1) year of
severance pay.
<PAGE>
During March, 1994 amendments were entered into with Messrs.
Hoffman, Buchsbaum and Tanaka of their employment agreements. The
amendments provide that if there is a sale of the Company (as
defined), each agrees to accept an extension of their employment
contract for two additional years. During such extension their
compensation is to be increased by 10% above that amount being paid
immediately prior to the extension. If there is a sale and an
extension of employment is not offered, then a lump sum payment is
to be made to each as follows:
Sale Price Payment
$5.50 to 5.99 $200,000
$6.00 to 6.99 $216,600
$7.00 to 7.99 $233,000
$8.00 or greater $265,000
Executive Officer Stock Option Plan
On January 12, 1994 the Company's shareholders approved the 1993
Executive Officer Stock Option Plan. The 1993 Executive Officer
Plan authorizes the grant of 250,000 shares subject to adjustment
as provided therein. Options are granted in accordance with a
formula on November 1st of each year, except September 14, 1993
initially, to those persons named as executive officers in the
Company's annual report on Form 10-KSB as filed with the Securities
and Exchange Commission for the two (2) fiscal years preceding the
date that options are automatically granted. No shares will be
issued if income per share is less than $0.29. If income per share
is $0.29 or greater, but not more than $0.45 the number of shares
to each eligible executive officer is 15,000; if income per share
is $0.45 or greater but not more than $0.54 the number of shares is
16,500; if income per share is $0.54 or greater but not more than
$0.60 the number of shares is 18,000 and if income per share is
$0.60 or greater the number of shares is 18,750. The 1993
Executive Officer Plan terminates September 13, 2003. The term of
each option shall be ten (10) years. The term of each option may
not exceed ten (10) years. Options granted under the 1993
Executive Officer Plan may not be granted at less than 100% of fair
market value at the time of the grant. Options granted to
employees who own more than 10% of the Company's outstanding Common
Stock will be granted at not less than 110% of fair market value
for a term of five (5) years. The aggregate fair market value of
stock for which options are exercisable during any calendar year by
an individual is limited to $100,000, but the value may exceed
$100,000 for which options may be granted to an individual.
Payment of the exercise price for options under the 1993 Executive
Officer Plan is to be made in cash or by the exchange of Common
Stock having equivalent value. No disposition of the shares
received upon exercise of an option granted under the 1993
Executive Officer Plan shall be made within two (2) years from the
date of the grant of the option and the shares must be held for a
minimum of one (1) year. In the event of any change of the
outstanding Common Stock by reason of a stock split, stock
dividend, combination, reclassification or exchange of shares,
recapitalization, merger, consolidation or other similar event, the
number of shares available for options and the number of shares
subject to outstanding options and the price thereof shall be
proportionately adjusted. The following options have been granted
under the 1993 Executive Officer Plan to date:
<PAGE>
NUMBER OF DATE OF EXPIRATION
GRANTEE SHARES GRANT PRICE DATE
1. Martin Hoffman 15,000 09/14/93 $4 3/8 09/13/03
2. Frank Buchsbaum 15,000 09/14/93 4 3/8 09/13/03
3. Hitoshi Tanaka 15,000 09/14/93 4 3/8 09/13/03
4. Martin Hoffman 16,500 11/01/94 4 1/2 10/31/04
5. Frank Buchsbaum 16,500 11/01/94 4 1/2 10/31/04
6. Hitoshi Tanaka 16,500 11/01/94 4 1/2 10/31/04
Non-Employee Directors' Stock Option Plan
Directors of the Company are not presently compensated for serving
in such capacity, except to the extent that they participate in the
1993 Non-Employee Directors' Stock Option Plan which was approved
by the Company's shareholders on January 12, 1994. The 1993 Non-
Employee Directors' Plan authorizes the grant of 150,000 shares
subject to adjustment as provided therein. Options are granted in
accordance with a formula on November 1st of each year, except
September 14, 1993 initially, to non-employee directors who have
served as directors for not less than two (2) years. Options
granted are based upon length of service and for length of service
greater than two but not more than five years the number of shares
is 2,000; for greater than five but not more than ten the number of
shares is 2,500; for greater than ten but not more than fifteen the
number of shares is 5,000; for greater than fifteen but not more
than twenty the number of shares is 7,500; and for greater than
twenty years the number of shares is 10,000. No shares will be
issued if income per share is less than $0.29. If income per
shares is $0.29 or greater, but not more than $0.45 the number of
shares is multiplied by 1.0; if income per share is $0.45 or
greater but not more than $0.54 the number of shares is multiplied
by 1.1; if income per share is $0.54 or greater but not more than
$0.60 the number of shares is multiplied by 1.2 and if income per
shares is $0.60 or greater the number of shares is multiplied by
1.25. The 1993 Non-Employee Directors' Plan terminates September
13, 2003. The term of each option shall be ten (10) years.
Options granted under the 1993 Non-Employee Directors' Plan may not
be granted at less than 100% of fair market value at the time of
the grant. Payment of the exercise price for options under the
1993 Non-Employee Directors' Plan is to be made in cash or by the
exchange of Common Stock having equivalent value. With the
exception of death in which case there is an extended period of
three (3) months to exercise the option. The optionholder must be
a non-employee director of the Company at the time of the exercise
of the option. A non-employee director is defined as a director
who is not an employee of the Company and who is not compensated by
the Company other than $1,000 for actual attendance at a board of
directors meeting, expenses for attending such meetings, or
consultant fees. In the event of any change of the outstanding
Common Stock by reason of a stock split, stock dividend,
combination, reclassification or exchange of shares,
recapitalization, merger, consolidation or other similar event, the
number of shares available for options and the number of shares
subject to outstanding options and
<PAGE>
the price thereof shall be
proportionately adjusted. The following options have been granted
under the 1993 Non-Employee Directors' Plan:
NUMBER OF DATE OF EXPIRATION
GRANTEE SHARES GRANT PRICE DATE
1. Sol Schwartz 10,000 09/14/93 $4 3/8 09/13/03
2. Joseph Rubenfeld 10,000 09/14/93 4 3/8 09/13/03
3. Sol Schwartz 11,000 11/01/94 4 1/2 10/31/04
4. Joseph Rubenfeld 11,000 11/01/94 4 1/2 10/31/04
Employee Benefit Plans
See Note I of Notes to Financial Statements for the year ended
August 31, 1994 regarding employee benefit plans.
In February 1993, the shareholders approved the Company's 1993
incentive stock option plan, which provides for the granting of
options to key employees to purchase up to 100,000 shares of common
stock at not less than fair market value at the date of grant.
Options may be exercised beginning one year from the date of grant
and may not exceed 10 years from the date of grant. At August 31,
1994, options to purchase 25,000 shares at $3.69 a share are
outstanding. No options were granted or exercised during the
fiscal year ended August 31, 1994 and none of the options are held
by any executive officers or directors of the Company.
In February 1993, the shareholders approved the Company's non-qualified
stock option plan authorizing the grant of options to
purchase up to 100,000 shares of common stock. No options have
been granted under this plan.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who
beneficially own more than ten percent of the Company's Common
Stock, to file initial reports of ownership and reports of changes
in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than 10% beneficial
shareholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to
the Company and written representations from the Company's
executive officers and directors, the Company believes that during
the fiscal year ended August 31, 1994, all Section 16(a) filing
requirements applicable to its executive officers, directors and
greater than 10% beneficial owners were complied with.
<PAGE>
CERTAIN TRANSACTIONS
See "Executive Compensation" regarding payment of Severance Pay and
Termination Consideration to certain officers and directors of the
Company.
PROPOSAL TO RATIFY APPOINTMENT
OF INDEPENDENT AUDITORS
The board of directors of the Company has appointed the firm of
Cornick, Garber & Sandler, LLP as the Company's independent
auditors for the fiscal year ending August 31, 1995. The board of
directors will propose ratification of the appointment of Cornick,
Garber & Sandler, LLP. Cornick, Garber & Sandler, LLP has no
financial interest of any kind in the Company and has had no
connection with the Company at any time in the past except for the
professional relationship between auditor and client.
The affirmative vote of the holders of a majority of the Common
Stock of the Company represented at the Annual Meeting will be
required for approval of the auditors. In accordance with New York
State law, abstentions are not counted in determining the votes
cast in connection with the selection of auditors. If such
approval is not obtained, selection of independent auditors will be
reconsidered by the board of directors.
Representatives of Cornick, Garber & Sandler, LLP are expected to
be present at the stockholders meeting with the opportunity to make
a statement if they desire to do so, and shall be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR RATIFICATION
OF THE APPOINTMENT OF CORNICK, GARBER &
SANDLER, LLP, AS INDEPENDENT AUDITORS.
PROCEDURE FOR SUBMISSION OF 1995 STOCKHOLDER PROPOSALS
Proposals by stockholders for inclusion in the next annual meeting
proxy statement must be received prior to September 30, 1995.
Proposals should be addressed to the Secretary of Designatronics
Incorporated, 2101 Jericho Turnpike, Box 5416, New Hyde Park, New
York 11042-5416 and should be sent by certified mail, receipt
requested. All such proposals are subject to the applicable rules
and requirements of the Securities and Exchange Commission.
<PAGE>
OTHER MATTERS
So far as the board of directors is aware, only the aforementioned
matters will be acted upon at the meeting. If any other matters
properly come before the meeting, it is intended that the
accompanying proxy may be voted on such other matters in accordance
with the best judgment of the person or persons voting said proxy.
By order of the board of directors.
Dated: December 5, 1994
DR. FRANK BUCHSBAUM
Secretary
<PAGE>
EXHIBIT "3"
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1995
COMMISSION FILE #0-2931
DESIGNATRONICS INCORPORATED
(Exact name of small business issuer as specified in its charter)
NEW YORK 11-1972961
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
2101 JERICHO TPKE., NEW HYDE PARK, NY 11040
(Address of principal executive offices and zip code)
(516) 328-3300
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for
the past 90 days. YES X NO .
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding at June 30, 1995
Common Stock, par value 2,873,423(Excluding 112,088
$.04 per share shares held as treasury).
<PAGE>
DESIGNATRONICS INCORPORATED
TABLE OF CONTENTS
Part I Financial Information: Page No.
Item 1 Financial Statements
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of the
Financial Condition and Results of Operations 7
Part II Other Information:
Item 5 Other Events 8
Item 6. Exhibits and Reports on Form 8-K 8
<PAGE>
PART I FINANCIAL INFORMATION
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
May 31, August 31,
1995 1994
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash $ 223 $ 266
Accounts receivable-net 4,057 3,295
Inventories (Lower of cost or 8,909 8,209
market, FIFO basis)
Deferred income taxes 778 789
Prepaid expenses 290 261
Total current assets 14,257 12,820
Property, plant and equipment-net 1,355 1,506
Other assets 323 323
Total Assets $ 15,935 $ 14,649
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 1,296 715
Accrued liabilities 1,389 1,575
Accrued severance costs 143 422
Income tax payable 124 284
Total current liabilities 2,952 2,996
Deferred income taxes 82 82
Other liabilities 17 14
Shareholders' Equity:
Common stock $.04 par value 119 119
Additional paid-in-capital 9,402 9,402
Retained Earnings 3,594 2,267
Less: Treasury Stock (231) (231)
Total shareholders' equity 12,884 11,557
Total Liabilities and $ 15,935 $ 14,649
Shareholders' Equity
<PAGE>
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands Except Share and per Share Data)
Three Months Ended Nine Months Ended
May 31, May 31,
1995 1994 1994
Net sales $ 8,057 $ 6,889 $21,266 $18,652
Cost of sales 4,668 4,294 12,968 11,816
Gross Profit 3,389 2,595 8,298 6,836
Selling, general and 2,391 1,874 6,320 5,365
administrative expenses
Income from operations 998 721 1,978 1,471
Other expenses/(income)
Interest income 4 - 5 -
Interest expense - 9 - 39
Sundry (59) (40) (145) (141)
Income before provision for 1,061 752 2,128 1,573
income taxes
Provision for income taxes 397 281 801 591
Net Income $ 664 $ 471 $ 1,327 $ 982
Income per common share:
Net Income $0.23 $0.16 $0.46 $0.34
Weighted number of shares 2,873,423 2,873,438 2,873,423 2,873,438
outstanding (Note 4)
<PAGE>
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended
May 31,
1995 1994
Cash flow from operating activities:
Net Income $ 1,327 $ 982
Adjustments to reconcile net
income/(loss) to net cash
provided/(used) by operating
activities:
Depreciation and Amortization 350 348
Increase in accounts receivable (762) (744)
(Increase)/decrease in inventories (700) 3
Gain on sale of fixed assets (2)
Decrease in deferred taxes 11 1
Increase in prepaid expenses (29) (165)
Increase/(decrease) in accounts 581 (122)
payable
Decrease in accrued expenses (346) (197)
Accrued restructuring and severance (279) (783)
costs
Total adjustments (1,174) (1,661)
Net cash provided/(used) by operations 153 (679)
Cash flows from investing activities
Expenditures for fixed assets (205) (118)
Proceeds from sale of fixed assets 6 18
Increase in other assets (2)
Net cash (used) in investing (199) (102)
activities
Cash flows from financing activities
Increase in cash overdraft 238
Proceeds of long term debt 200
Other 3 2
Net cash provided by financing 3 440
activities
Net Decrease in cash (43) (341)
Cash and cash equivalents at beginning 266 341
of period
Cash and cash equivalents at end of 223 $ 0
period
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest $ 0 $ 117
Income taxes $ 961 $ 782
<PAGE>
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring items) necessary
to present fairly the financial position of Designatronics
Incorporated at May 31, 1995, and the results of its operations
and cash flows for the three and nine month periods ended May 31,
1995, and 1994. It is suggested that these condensed statements
be read in conjunction with the financial statements and the
notes included in the Company's latest annual report, on Form 10-
KSB, for the year ended August 31, 1994.
2. The results of operations for the nine month period ended May
31, 1995 are not necessarily indicative of the results to be
expected for the full year.
3. Inventories consist of the following (in thousands of
dollars):
May 31 August 31,
1995 1994
Raw materials $ 940 $ 940
Work in process 567 532
Finished goods 7402 6,737
Total $8,909 $8,209
Inventories
4. Earnings per share are based on earnings for each period
divided by the weighted average number of shares outstanding
during such period. The effect of outstanding stock options was
not material.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
(a) Sales
Net sales increased 17.0% for the third quarter period ended May
31, 1995, and 14.0% on a year-to-date basis as compared to the
respective prior year periods. Sales for the Mechanical Component
segment increased 14.0% to $6,767,000, in the third quarter, and
15.6% to $18,105,000, on a year-to-date basis, as compared to the
fiscal 1994 figures. This continued increase in sales shows the
positive effects of the Company's' combined catalog library and
its continued expansion of the customer base. Sales for the
Automation Components segment increased 35.0% to $1,290,000 in
the third quarter, and 5.5%, to $3,161,000, on a year-to-date
basis, as compared to the fiscal 1994 figures. The current
quarter increase in Automation Components sales reflects the new
marketing approach which was developed by the company in the
first quarter of the current fiscal year.
Export sales, for the third quarter, increased 11% to $673,000,
and 2.5% on a year-to-date basis, to $1,777,000, as compared to
the prior year figures.
(b) Gross Profit Margins
The Company's consolidated gross profit margin for the third
quarter and year-to-date periods ended May 31, 1995 were 42.1%
and 39.0%, as compared to the prior year figures of 37.7% and
36.7% respectively. The gross profit margin for the Mechanical
Components segment increased to 39.0% for the year-to-date period
compared to 35.7% in fiscal 1994. The increased gross profit
margin for the mechanical component segment was due to a more
favorable product mix. The gross profit margin for the Automation
Components segment decreased to 39.4% as compared to 41.8% in the
prior year. This change can be attributed to the increased import
costs due to the decreased value of the dollar oversees.
(c) Selling, General and Administrative Expenses
Selling, general and administrative expenses, as a percentage of
sales, were 29.7% for the current quarter and year-to-date basis,
as compared to 27.2% and 28.8% for the respective prior year
periods.
(d) Income Taxes
The effective tax rate for the third quarter and year to date
periods ended May 31, 1995, were unchanged at 37.4 and 37.6% as
compared to the prior year periods, respectively.
Financial Condition
The Company's working capital position as of May 31, 1995 was
$11,305,000 as compared to $9,824,000 as of the year ended August
31, 1994. The current ratio at May 31, 1995 is 4.8:1 and was
4.3:1 at August 31, 1994.
Net cash provided by operations was $153,000 for the year-to-date
period ended May 31, 1995. The major uses of cash were: 1)
payments due under severance contracts of $297,000, 2) the
increase in accounts receivable of $762,000, 3) the decrease in
accrued expenses of $579,000 and 4) the increase in inventory of
$700,000. The total use of cash was partially offset by cash
provided from an increase in accounts payable of $581,000.
The Company has a $5,000,000 three year revolving loan facility
with European American Bank which expires on November 8, 1996,
and is renewable for an additional year at the Company's option.
As of May 31, 1995, there was no balance outstanding.
The Company estimates capital expenditures will not exceed
$750,000 in the current fiscal year and does not have any
material commitments beyond August 31, 1995.
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Events
On June 5, 1995, Designatronics Incorporated (the "Company")
entered into a letter of intent with Dyson, Dyson & Dunn, Inc.
(DD&D). The letter of intent outlines certain basic terms
pursuant to which DD&D, or a Delaware corporation to be formed by
DD&D ("Purchaser"), will acquire all of the outstanding stock of
the Company. Purchaser would form a New York corporation (the
"Merger Company") to be merged into the Company. As a result of
the merger, Purchaser as the sole shareholder of the Merger
Company, would acquire all of the stock of the Company and each
shareholder of the Company would receive $6.00 per share in cash.
The letter of intent is non-binding and is subject to the entry
of a mutually acceptable definitive Agreement and Plan of Merger
and other conditions.
Item 6. Exhibits and Reports on Form 8-K
a) 10.9 The Letter of Intent between DD&D and the Company
dated June 5, 1995, is incorporated by reference to the Form 8-K
stated below.
b) On June 13, 1995, a Form 8-K was filed with respect to
Item 5, Other Events, which described the prospective merger
stated above.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto
duly authorized.
DESIGNATRONICS INCORPORATED
Date: June 30, 1995 /s/ Martin Hoffman
Martin Hoffman, President,
Chief Executive Officer
and Chief Financial
Officer
Date: June 30, 1995 /s/ Frank Buchsbaum
Frank Buchsbaum, Exec.
Vice President
