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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
COMMISSION FILE NUMBER 0-10558
ALPHA MICROSYSTEMS
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3108178
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2722 S. FAIRVIEW STREET, SANTA ANA, CA 92704
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 957-8500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
As of May 4, 1999, there were 11,593,882 shares of the registrant's Common Stock
outstanding.
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ALPHA MICROSYSTEMS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C>
PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31,
1999 (Unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations
(Unaudited) for the Three Months Ended March 31,
1999 and March 22, 1998 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Three Months Ended March 31,
1999 and March 22, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II-- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALPHA MICROSYSTEMS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, 1999 December 31,
(Unaudited) 1998
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,152 $ 4,930
Restricted cash 384 384
Accounts receivable, net of allowance for doubtful accounts
of $668 at March 31, 1999 and $700 at December 31, 1998 7,094 6,473
Prepaid expenses and other current assets 1,288 1,229
-------- --------
Total current assets 11,918 13,016
Property and equipment, net of accumulated depreciation of
of $9,539 at March 31, 1999 and $9,281 at December 31, 1998 4,030 3,776
Intangibles, net 9,266 9,097
Other assets 413 542
-------- --------
$ 25,627 $ 26,431
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 250 $ 250
Accounts payable 3,485 3,686
Accrued compensation 1,393 1,530
Deferred revenue 3,356 3,142
Other accrued liabilities 981 1,480
-------- --------
Total current liabilities 9,465 10,088
Long-term debt 674 741
Other long-term liabilities 113 105
Commitments and contingencies
Redeemable preferred stock, no par value; 2,501 and 15,001 issued and
outstanding at March 31, 1999 and December 31, 1998, respectively,
liquidation value $2,556 2,149 12,824
Shareholders' equity:
Redeemable preferred stock, no par value; 5,000,000 shares
authorized; 12,500 issued and outstanding at March 31, 1999,
liquidation value $12,781 10,694 --
Common stock, no par value; 40,000,000 shares authorized;
11,558,882 and 11,193,952 shares issued and outstanding at
March 31, 1999 and December 31, 1998, respectively 32,684 31,632
Warrants 1,764 1,764
Accumulated deficit (31,939) (30,739)
Accumulated other comprehensive income 23 16
-------- --------
Total shareholders' equity 13,226 2,673
-------- --------
$ 25,627 $ 26,431
======== ========
</TABLE>
See accompanying notes.
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ALPHA MICROSYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31, March 22,
1999 1998
--------- ---------
<S> <C> <C>
Net sales:
IT Services $ 8,391 $ 3,906
Product 1,214 1,229
-------- --------
Total net sales 9,605 5,135
-------- --------
Cost of sales:
IT Services 6,356 3,303
Product 888 942
-------- --------
Total cost of sales 7,244 4,245
-------- --------
Gross margin 2,361 890
Operating expenses:
Selling, general and administrative 2,861 1,733
Engineering, research and development 321 299
-------- --------
Total operating expenses 3,182 2,032
-------- --------
Loss from operations (821) (1,142)
Other (income) expense:
Interest income (40) (54)
Interest expense 27 9
Other expense (income), net 11 46
-------- --------
Total other (income) expense (2) 1
-------- --------
Loss before taxes (819) (1,143)
Income tax expense (benefit) -- (32)
-------- --------
Net loss $ (819) $ (1,111)
======== ========
Net loss attributable to common shares $ (1,201) $ (1,111)
======== ========
Basic and diluted net loss per share $ (0.10) $ (0.10)
======== ========
Number of shares used in computing
basic and diluted per share amounts 11,549 10,909
======== ========
</TABLE>
See accompanying notes.
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ALPHA MICROSYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 31, March 22,
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (819) $(1,111)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 420 487
Provision for losses on accounts receivable (23) 167
Other changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (598) (389)
Prepaid expenses and other current assets (19) (139)
Accounts payable and accrued liabilities (692) 369
Accrued compensation (137) 186
Deferred revenue 214 45
Other, net 31 130
------- -------
Net cash used in operating activities (1,623) (255)
------- -------
Cash flows from investing activities:
Acquisition of IT Services assets (196) (1,511)
Purchases of equipment (507) (366)
Capitalization of software development costs (64) (235)
Proceeds from sale of short-term investments -- 3,829
Other, net (12) 24
------- -------
Net cash (used in) provided by investing activities (779) 1,741
------- -------
Cash flows from financing activities:
Issuance of common stock 1,052 39
Line of credit, net -- 1,000
Principal repayments on debt (108) (43)
Payment of preferred stock dividend (306) --
Other, net (16) --
------- -------
Net cash provided by financing activities 622 996
Effect of exchange rate changes on cash and cash equivalents 2 (2)
------- -------
(Decrease) increase in cash and cash equivalents (1,778) 2,480
Cash and cash equivalents at beginning of period 4,930 1,157
------- -------
Cash and cash equivalents at end of period $ 3,152 $ 3,637
======= =======
</TABLE>
See accompanying notes.
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ALPHA MICROSYSTEMS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM ACCOUNTING POLICY
In the opinion of management of Alpha Microsystems (the "Company" or "Alpha
Micro"), the accompanying unaudited condensed consolidated financial statements
contain all adjustments necessary to fairly present the consolidated financial
position of the Company at March 31, 1999, and the consolidated results of its
operations for the three-month periods ended March 31, 1999 and March 22, 1998,
and its cash flows for the three-month periods ended March 31, 1999 and March
22, 1998. These condensed consolidated financial statements do not include all
disclosures normally presented annually under generally accepted accounting
principles and, therefore, they should be read in conjunction with the Company's
Transition Report on Form 10-K for the ten months ended December 31, 1998.
Certain prior period amounts have been reclassified to conform to the current
period presentation. The results of operations for the period ended March 31,
1999 are not necessarily indicative of the results to be expected for any future
period.
FISCAL YEAR
Historically, the Company's fiscal year ended in the month of February. On
December 17, 1998, the Company's Board of Directors approved a change in the
Company's fiscal year to a calendar year-end. The periods ended March 31, 1999
and March 22, 1998 include the same number of weeks.
REVENUE RECOGNITION
The Company recognizes revenue on its IT Services sales and post contract
customer support on a straight-line basis over the contract period and
recognizes revenue on its product sales on shipment. When significant
obligations remain after a product has been delivered, revenue is not recognized
until obligations have been completed or are no longer significant. The costs of
any insignificant obligations are accrued when the related revenue is
recognized. Revenue is recognized only when collection of the resulting
receivable is probable.
PER SHARE INFORMATION
Basic and diluted net loss per share is based on the weighted average common
shares outstanding during the periods presented and excludes the anti-dilutive
effects of options and warrants. The net loss has been adjusted to reflect
dividends earned and accretion related to redeemable preferred shares
outstanding, as shown below:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 31, March 22,
1999 1998
--------- ---------
<S> <C> <C>
Net loss $ (819) $(1,111)
Accretion on redeemable preferred stock (44) --
Dividends on redeemable preferred stock (338) --
------- --------
Net loss to common shareholders $(1,201) $(1,111)
======= =======
</TABLE>
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COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130") requires foreign currency translation adjustments to be
included in other comprehensive income. For the three months ended March 31,
1999 and March 22, 1998, total comprehensive loss amounted to $812,000 and
$1,109,000, respectively.
2. ACQUISITION OF DELTA COMPUTEC INC.
On September 1, 1998, the Company completed the acquisition of Delta CompuTec
Inc ("DCI"). DCI provides management and consulting services, as well as
services that include network design, installation and maintenance. The
Agreement and Plan of Merger ("Merger Agreement") provided for the payment of
$3.4 million in exchange for all of the outstanding shares of DCI at the time of
closing, and a net payment of DCI's then outstanding debt in the amount of $4.6
million. Under the Merger Agreement, DCI became a wholly-owned subsidiary of
Alpha Micro. The acquisition was accounted for as a purchase and is reflected in
the pro forma information below based upon available information and upon
certain assumptions that the Company believes are reasonable in the
circumstances. The Company's initial purchase price allocation is preliminary
and subject to change as the Company obtains all the information necessary to
complete the allocation process.
The pro forma financial information below reflects the acquisition of DCI and
the related purchase price financing through the sale of redeemable preferred
stock, warrants and term loan borrowings as if the acquisition occurred as of
December 22, 1997.
<TABLE>
<CAPTION>
Three months ended
-----------------------------
March 31, March 22,
1999 1998
--------- ---------
<S> <C> <C>
Revenue $ 9,605 $ 8,542
Net loss (819) (685)
Basic and diluted net loss per common share $ (0.10) $ (0.08)
</TABLE>
3. DIVESTITURE OF TELEPHONE INSTALLATION BUSINESS
Effective April 1, 1999, the Company sold its telephone installation business
for $650,000. As a result of this sale, the results of operations during the
second quarter ending June 30, 1999 is expected to include a gain of
approximately $150,000 to $250,000. The results from operations during the
quarter ended March 31, 1999 includes a net loss of $172,000 or $0.01 per share
on $560,000 of revenue related to this business. The results from operations
during the quarter ended March 22, 1998, includes net loss of $93,000 or $0.01
per share on $640,000 of revenue related to this business.
4. REDEEMABLE PREFERRED STOCK
During February 1999, the Company restructured $12.5 million liquidation value
of its outstanding $15.0 million liquidation value redeemable preferred stock.
The restructured redeemable preferred stock carry the same terms as the
originally issued redeemable preferred stock, except that each share is
automatically converted at maturity into one share of a new class of
non-redeemable preferred stock with a 40% annual dividend rate. Accordingly, the
restructured redeemable preferred stock is reflected as a component of
shareholders' equity on the balance sheet as of March 31, 1999. The remaining
originally issued redeemable preferred stock, not presented as a component of
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shareholders' equity, is being accreted over seven years to its redemption value
of $2.5 million.
5. CONTINGENCIES
The Company is currently involved in certain claims and litigation. The Company
does not consider any of these claims or litigation to be material. Management
has made provisions in the Company's financial statements for the settlement of
lawsuits for which unfavorable outcomes are both probable and estimable. In the
opinion of management, results of known existing claims and litigation will not
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
6. INDUSTRY SEGMENT INFORMATION
The Company operates in two business segments: the servicing of computer
systems, networks and related products and the manufacture and sale of computer
systems, software and related products. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies except that certain expenses, such as interest,
amortization of certain intangibles, special charges and general corporate
expenses are not allocated to the segments. In addition, certain assets
including cash and cash equivalents, deferred taxes and certain intangible
assets are held at corporate. The effect of capitalizing software costs is
included in the product segment.
Selected financial information for the Company's reportable segments for the
three months ended March 31, 1999 and March 22, 1998 follows:
<TABLE>
<CAPTION>
Corporate
(In thousands) IT Services Product Expenses Consolidated
----------- ------- ---------- ------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1999
Revenues from external customers $ 8,391 $ 1,214 $ -- $ 9,605
Segment income (loss) 1 (221) (599) (819)
THREE MONTHS ENDED MARCH 22, 1998
Revenues from external customers $ 3,906 $ 1,229 $ -- $ 5,135
Segment income (loss) (14) (591) (506) (1,111)
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain forward-looking statements
(as such term is defined in the private Securities Litigation Reform Act of 1995
(the "Reform Act") and information relating to the Company that are based on the
beliefs of the management of the Company as well as assumptions made by and
information currently available to the management of Alpha Micro, and the
Company intends that such forward-looking statements be subject to the safe
harbors created by the Reform Act. These forward looking statements include (i)
revenues to be recognized from contracts with major distributors; (ii) the
Company's ability to fund its acquisition strategy; (iii) the estimated gain
from the sale of the telephone installation business; and (iv) the discussion of
the Company's efforts, and management's expectations, relating to Year 2000
compliance.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of the Company. The forward-looking statements are dependent on a
number of factors, including (i) the economic and competitive environment of the
computer maintenance and information technology ("IT") support services industry
in general, and in the Company's specific market areas, (ii) its ability to
identify acquisition candidates, (iii) the Company's ability to successfully
integrate acquired operations with its existing operations, (iv) the Company's
ability to develop, produce, and market products and services that incorporate
new technology, that are priced competitively, and achieve significant market
acceptance, (v) whether the Company's products and IT Services will be
commercially successful or technically advanced due to the rapid improvements in
computer technology and resulting product obsolescence, (vi) changes in the cost
of IT Services (vii) the Company's ability to deliver commercial quantities of
new products in a timely manner, (viii) the Company's ability to manage risks
associated with its operating strategies, (ix) changes in the Company's
operating strategy and capital expenditure plans, (x) the Company's ability to
manage its expenses commensurate to its revenues, and (xi) the Company's ability
to achieve Year 2000 compliance and the level of incremental costs associated
therewith, that could be adversely impacted by, among other things, the
availability and cost of programming and testing resources, vendors' ability to
modify proprietary software, and unanticipated problems identified in the
ongoing compliance review and (xii) other factors. In addition, the business and
operations of the Company are subject to substantial risks that increase the
uncertainty inherent in the forward-looking information included herein. The
inclusion of such information should not be regarded as a representation by the
Company, or any other person that the objectives or plans of the Company will be
achieved.
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SUMMARY
The following table was derived from the Condensed Consolidated Statements of
Operations as a percentage of net sales for the three-month periods ended March
31, 1999 and March 22, 1998:
<TABLE>
<CAPTION>
Relationship to Net Sales
---------------------------
Three Months Ended
---------------------------
March 31, March 22,
1999 1998
--------- ---------
<S> <C> <C>
Net sales:
IT Services 87.4% 76.1%
Product 12.6 23.9
------ ------
Total net sales 100.0 100.0
Cost of sales 75.4 82.7
------ ------
Gross margin 24.6 17.3
Selling, general and administrative expense 29.8 33.7
Engineering, research and development
expense 3.3 5.8
Interest (income) expense, net (0.1) (0.9)
Other (income) expense, net 0.1 0.9
------ ------
Loss before taxes (8.5) (22.2)
Provision for income taxes -- (0.6)
------ ------
Net loss (8.5)% (21.6)%
====== ======
</TABLE>
FISCAL YEAR
Historically, the Company's fiscal year ended in the month of February. On
December 17, 1998, the Company's Board of Directors approved a change in the
Company's fiscal year to a calendar year-end. The periods ended March 31, 1999
and March 22, 1998 include the same number of weeks.
GENERAL
During February 1999, the Company restructured $12.5 million liquidation value
of its outstanding $15.0 million liquidation value redeemable preferred stock.
As a result of this restructuring, total shareholders' equity was increased
$10.7 million. The restructured redeemable preferred stock carry the same terms
as the preferred stock originally issued except that each share is automatically
converted at maturity into one share of a new class of non-redeemable preferred
stock with a 40% annual dividend rate. Accordingly, the restructured redeemable
preferred stock is reflected as a component of shareholders' equity on the
accompanying March 31, 1999 balance sheet. The remaining originally issued
redeemable preferred stock, not presented as a component of shareholders'
equity, will be accreted over seven years to its redemption value of $2.5
million.
Effective April 1, 1999, the Company sold its telephone installation business
for $650,000. As a result of this sale, the results of operations during the
second quarter ending June 30, 1999 is expected to include a gain of
approximately $150,000 to $250,000. The results from operations during the
quarter ended March 31, 1999 includes a net loss of $172,000 or $0.01 per share
on $560,000 of revenue related to this business. The results from operations
during the quarter ended March 22, 1998 includes a net loss of $93,000 or $0.01
per share on $640,000 of revenue related to this business. The results from
operations during the quarter ended March 22, 1998, includes net loss of $93,000
or $0.01
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per share on $640,000 of revenue related to this business.
The Company had negative earnings before interest, taxes, depreciation and
amortization ("EBITDA") of $415,000 (including a negative EBITDA of $167,000
from the telephone installation business), during the quarter ended March 31,
1999 compared to a negative EBITDA of $701,000 (including a negative EBITDA of
$64,000 from the telephone installation business) during the same period of the
prior year.
RESULTS OF OPERATIONS
Net Sales
Total net sales increased $4,470,000, or 87.0 percent, to $9,605,000 for the
three-month period ended March 31, 1999 from $5,135,000 for the three-month
period ended March 22, 1998. The increase in total net sales is due to increases
in IT Services revenues, primarily resulting from the acquisition of DCI.
IT Services Sales
IT Services revenue increased $4,485,000, or 114.8 percent, to $8,391,000 during
the most recent three-month period over the respective prior period. The
three-month revenue increase includes $3,999,000 from the DCI acquired
operations offset by a decrease of $150,000 attributable to non-core businesses.
The balance of the revenue increase during the three-month period of $636,000 is
attributable to organic growth.
Product Sales
Total product revenues during the comparable three-month periods declined
$15,000, or 1.2 percent, to approximately $1,214,000 from approximately
$1,229,000. This decline includes $86,000 of European product sales, offset by
an increase in domestic product sales of $71,000. No assurances can be made as
to future product sales levels whether domestic or international.
Gross Margin
Total gross margin for the Company for the first three months of 1999 increased
to 24.6 percent compared to 17.3 percent during the same period last year.
IT Services Gross Margin
IT Services gross margin increased to 24.3 percent for the three-month period
ended March 31, 1999 from 15.4 percent during the same period in the prior year.
The current quarter was positively effected by the increase in professional
on-site services revenues which have a significantly higher gross margin.
Off-setting this gross margin improvement were continuing increased direct
operating costs related to new IT Services contracts with major distributors,
for which the related services revenue has yet to achieve current capacity.
Further, a continuing shift from proprietary to third-party IT Services is
expected to continue to negatively impact gross margins in future periods.
Product Gross Margin
Product gross margin during the three-month period increased to 26.9% compared
to 23.4% for the comparable prior year period. The product gross margin increase
is also due to an increase in sales of the Company's proprietary AMOS products
combined with decreased operating expenses.
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Selling, General and Administrative
Selling, general and administrative expenses increased $1,128,000 to $2,861,000
for the three-month period ended March 31, 1999 compared to $1,733,000 for the
three-month period ended March 22, 1998. While total selling, general and
administrative expense decreased as a percentage of revenue, such expenses
increased due to additional general and administrative costs and goodwill
amortization associated with the DCI acquisition. The current quarter also
includes expenditures made in support of the Company's organic IT Services
growth plan and the development of the Company's new website.
Research and Development
Research and development expenses (which include engineering support and
services) incurred for the three-month period ended March 31, 1999 increased by
$22,000 to $321,000 from $299,000 during the same period in the prior year.
Research and development expenses as a percentage of product sales increased to
26.4 percent for the three months just ended from 24.3 percent during the
comparable period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999, the Company's working capital
decreased $475,000 from $2,928,000 at December 31, 1998 to $2,453,000. Net cash
generated from financing activities of $622,000 was offset by: $196,000 of cash
used for payments due for IT Services companies acquired in the prior year;
$64,000 of cash used for software capitalized, including the further development
of the Company's AlphaCONNECT technology; $507,000 of working capital to acquire
equipment, including the further implementation of the Company's new integrated
information system, and equipment purchases to support new service capabilities;
and the remaining decrease due primarily to cash used by operations.
The Company believes that its current cash position, augmented by future
operating activities, and working capital available through its Imperial Bank
revolving credit facility, will provide sufficient resources to finance its
working capital requirements through the next twelve months. Advances under the
bank facility are subject to availability based on eligible accounts receivable
and certain financial covenants, including tangible net worth, debt to tangible
net worth and quick ratio minimum requirements. In order to fund its acquisition
strategy, the Company expects that additional capital will be necessary. The
Company's agreement with Hampshire Equity Partners II, L.P. (formerly known as
ING Equity Partners II, L.P.) provides up to an additional $5 million as an
equity investment, subject to certain conditions. The Company is also pursuing
additional financing from other sources to support its acquisition strategy,
although there can be no assurances that any financing will be available on
acceptable terms. The Company's future capital requirements depend on a variety
of factors, including, but not limited to, the rate of decline in the
traditional proprietary business; the success, timing, and amount of investment
required to penetrate the Internet/intranet markets; service revenue growth or
decline; and potential acquisitions.
YEAR 2000 COMPLIANCE
Background
Most pre-1998 computers, software, and other equipment that utilize programming
code, contain calendar year data that is abbreviated to only two digits. As a
result of these design decisions, many of these systems could fail to operate or
fail to produce correct results if "00" is not interpreted to mean 2000. These
problems may not be fully recognized, either as to frequency or severity until
the year 2000 arrives. These problems are commonly referred to as the
"Millennium Bug" or "Year 2000 Problems".
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Assessment
The Year 2000 Problem affects certain of the computers, software, and other
equipment used, operated, or maintained by the Company. Accordingly, the Company
has undertaken a review of such computer programs and systems to attempt to
ascertain which are or will be Year 2000 compliant. The Company presently
believes that its necessary and essential computer systems, software and
equipment will be Year 2000 compliant in a timely manner. However, while the
estimated cost of these efforts are not expected to be material to the Company's
financial position or any year's results of operations, there can be no
assurance to this effect.
Software Sold to Customers
The Company has been engaged for some time in the process of identifying and
resolving potential Year 2000 Problems with the software products that it has
developed and currently markets. However, management believes that it is not
possible to determine with complete certainty if all Year 2000 Problems
affecting the Company's software products will be identified or corrected due to
the complexity of these products and the fact that these products interact with
other third-party vendor products and operate on computer systems that are not
under the Company's control.
Internal Infrastructure
The Company is engaged in reviewing its major computers, software applications,
and related equipment used in connection with its internal operations for Year
2000 Problems; however, the majority of the computer programs used by the
Company are off-the-shelf, recently developed programs from third-party vendors.
The Company is in the process of obtaining assurances from such vendors as to
the Year 2000 compliance of their products. Although some vendors make verbal
assurances of Year 2000 compliance, there can be no certainty that the systems
utilized by the Company will not be affected. The Company intends to continue
confirming with vendors, testing, replacing or enhancing its internal
applications to ensure that risks related to such software are minimized. This
process is expected to be completed in mid-1999.
Systems Other than Information Technology Systems
In addition to computers and related systems, the operation of office and
facilities equipment, such as fax machines, photocopiers, telephone switches,
security systems, elevators, and other common devices may be affected by the
Year 2000 Problem. The Company is currently assessing the potential effect of,
and costs of, remediating the Year 2000 Problem on its office and facilities
equipment. The Company estimates that the total cost to the Company of
completing any required modifications, upgrades, or replacements of these
internal systems will not have a material adverse effect on the Company's
business or results of operations and anticipates that this process will be
completed by mid-1999. These estimates are being monitored and will be revised
as additional information becomes available.
Suppliers
The Company has initiated communications with third-party suppliers of products
or services used, operated, or maintained by the Company to identify and, to the
extent possible, to resolve issues involving any Year 2000 Problems. However,
the Company has limited or no control over the actions of these third-party
suppliers. Thus, while the Company expects that it will not be impacted by any
significant Year 2000 Problems experienced by its suppliers, there can be no
assurance that its suppliers will resolve any or all Year 2000 Problems with
these systems before the occurrence of a material disruption to the business of
the Company or any of its customers. Any failure of these third parties to
resolve Year 2000 Problems with their systems in a timely manner could have a
material adverse effect on the Company's business, financial condition, and
results of operation.
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Most Likely Consequences of Year 2000 Problems
The Company expects to identify and resolve the Year 2000 Problems that could
materially adversely affect its business operations. However, management
believes that it is not possible to determine with complete certainty that all
Year 2000 Problems affecting the Company have been or will be identified or
corrected. The number of devices that are affected and the interactions among
these devices are simply too numerous. In addition, accurate predictions of Year
2000 Problem-related failures that will occur or the severity, duration, or
financial consequences of such failures cannot be made. As a result, management
expects that the Company could likely suffer the following consequences:
1. a number of operational inconveniences and inefficiencies for the Company
and its clients that may consume management's time and attention as well as
financial and human resources normally devoted to its ordinary business
activities; and
2. a lesser number of serious system failures that may require significant
efforts by the Company or its customers to prevent or alleviate material
business disruptions.
Costs
The Company has thus far performed the analysis described above using existing
personnel. The Company does not separately track internal costs incurred in
connection with analysis, investigation and implementation of Year 2000
compliance plans. The Company has not made any material expenditure to address
the Year 2000 Problem and at present does not anticipate that it will be
required to make any such material expenditures in the future.
Contingency Plans
The Company is currently in the process of developing contingency plans to be
implemented as part of its efforts to identify and correct Year 2000 Problems
affecting its internal systems. The Company expects to complete its contingency
plans by the end of the second quarter of 1999. Depending on the systems
affected, these plans could include accelerated replacement of affected
equipment or software, short- to medium-term use of backup equipment and
software, increased work hours for Company personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000 Problems that
arise, development of manual workarounds for information systems, and similar
approaches. If the Company is required to implement any of these contingency
plans, it could have a material adverse effect on the Company's financial
condition and results of operations.
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<PAGE> 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index.
(b) A Current Report on Form 8-K was filed by the Company on March 17, 1999
announcing the engagement of investment bankers.
A Current Report on Form 8-K was filed by the Company on March 19, 1999
announcing the establishment of the Record Date for the Annual Meeting
of Shareholders.
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<PAGE> 16
SIGNATURES
Pursuant to the requirements 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.
ALPHA MICROSYSTEMS
(Registrant)
Date: May 14, 1999 By:/s/ Douglas J. Tullio
-------------------------
Chairman, CEO and President
Date: May 14, 1999 By:/s/ Jeffrey J. Dunnigan
-------------------------
Vice President and
Chief Financial Officer
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<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description of Documents
- ------ ------------------------
<S> <C>
2.11 Agreement of Purchase and Sale by and between Alpha Technology
Interconnect, Inc. and ADSI Telecom Services, Inc. dated March
31, 1999
27 Financial Data Schedule
</TABLE>
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<PAGE> 1
EXHIBIT 2.11
AGREEMENT OF PURCHASE AND SALE
This Agreement is made and entered into effective as of the 31st
day of March, 1999 by and between ALPHA TECHNOLOGY INTERCONNECT, INC., a
Delaware corporation ("Seller") and ADSI TELECOM SERVICES, INC., a Pennsylvania
corporation ("Buyer"), with respect to the following facts:
R E C I T A L S :
A. Seller, as assignee of its parent ALPHA MICROSYSTEMS, a
California corporation ("Alpha Micro"), purchased an ongoing business relating
to installing and servicing telephone systems pursuant to that certain agreement
(the "ATI Purchase Agreement") dated December 23, 1997 by and between Alpha
Microsystems, a California corporation, and Advanced Telecomm of Pittsburgh, a
Pennsylvania Business Trust, Advance Telecomm of Butler, Inc., a Pennsylvania
corporation, Advanced Telecomm of Washington, D.C., Inc., a Pennsylvania
corporation, and Advanced Telecomm of Maryland, Inc., a Pennsylvania corporation
and Applied Cellular Technology, Inc., a Missouri corporation. (Advanced
Telecomm of Pittsburgh, a Pennsylvania Business Trust, Advance Telecomm of
Butler, Inc., a Pennsylvania corporation, Advanced Telecomm of Washington, D.C.,
Inc., a Pennsylvania corporation, and Advanced Telecomm of Maryland, Inc., a
Pennsylvania corporation and Applied Cellular Technology, Inc., a Missouri
corporation are herein referred to as the "ATI Group").
B. Seller desires to sell the business it acquired pursuant to
the ATI Purchase Agreement and has operated continuously thereafter (the
"Business") to Buyer, and Buyer desires to acquire from Seller the Business, in
accordance with the terms and conditions set forth herein.
A G R E E M E N T
In consideration of their respective representations, warranties
and agreements contained herein, the parties hereto agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
1.01 Accounts Payable. The term "Accounts Payable" herein shall
mean any and all monies or amounts that may be due vendors, suppliers or other
entities that have furnished goods and services to Seller.
1.02 Agreement. The term "Agreement" herein will refer to this
"Agreement of Purchase and Sale."
1.03 Alpha Micro. The term "Alpha Micro" herein will refer to
Alpha Microsystems.
1.04 ATI Group. The term "ATI Group" is defined in Recital "A".
1.05 ATI Purchase Agreement. The term "ATI Purchase Agreement" is
defined in Recital "A".
1.06 Assumed Obligations. The term "Assumed Obligations" herein
is defined in Section 2.02.
1.07 Business. The term "Business" herein is defined in Recital
"B".
1.08 Buyer. The term "Buyer" herein will refer to ADSI Telecom
Services, Inc., a Pennsylvania corporation.
1.09 Closing or Closing Date. The term "Closing" or "Closing
Date" herein is as defined in Section 6.02 hereof.
1.10 Contracts. The term "Contracts" herein shall mean the
Leases, Licenses and other agreements listed on Exhibit "D".
1.11 Customer List. The term "Customer List" herein is defined in
Section 2.04 hereof.
1.12 Employees. The term "Employees" herein is defined in Section
3.10 hereof.
1.13 Leased Premises. The term "Leased Premises" herein shall
refer to the premises (or portions thereof) occupied prior to the Closing by
Seller located at 4909 Library Road, Bethel Park, PA 15102; 509 Taylor Street,
New Castle, PA 16101; and 12401-B Kiln Court, Beltsville, MD 20705 pursuant to
License Agreements and at 4609 Old Gettysburg Road, Mechanicsburg, PA 17055
pursuant to a Lease Agreement.
1.14 Leases. The term "Leases" herein is defined in Section 3.08
hereof.
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<PAGE> 3
1.16 Purchase Price. The term "Purchase Price" herein is defined
in Section 2.02 hereof.
1.17 Seller. The term "Seller" herein refers to Alpha Technology
Interconnect, Inc.
1.18 Service Business. The term "Service Business" herein is
defined in Recital "B".
1.19 Service Assets. The term "Service Assets" herein is defined
in Section 2.01 hereof.
1.20 Service Contracts. The term "Service Contracts" will refer
to all contracts pursuant to which Seller agreed prior to Closing to provide
maintenance and repair services for telephone systems, which are not covered by
any manufacturer's warranty.
1.21 Spare Parts Inventory. The term "Spare Parts Inventory"
herein shall mean all spare parts owned by Seller.
1.22 Tools and Equipment. The term "Tools and Equipment" herein
is defined in Section 3.06 hereof.
1.23 Vehicles. The term "Vehicles" herein will refer to those
vehicles listed on Exhibit "E" which are leased by Seller and any other vehicles
on order to replace them.
1.24 Warranty Contracts. The term "Warranty Contracts" herein
will refer to all contracts pursuant to which Seller agreed prior to Closing to
provide maintenance and repair services for telephone systems which may or may
not be covered by a manufacturer's warranty, which will be assigned to and
assumed by Buyer pursuant hereto, subject to the ATI Group's obligation to
provide at no cost to Buyer all parts required for repairs thereunder.
ARTICLE II
PURCHASE AND SALE
2.01 Purchase and Sale. At the Closing, and subject to all of the
other terms and conditions set forth herein (including those set forth in the
following sentence), Seller shall sell, transfer, convey and assign to Buyer,
and Buyer shall purchase from Seller, its entire right, title and interest in
and to all of the assets of Seller used in the Business, including but not
limited to the Spare Parts, the Tools and Equipment listed on Exhibit "C", the
Customer List and associated goodwill, the Contracts listed on Exhibit "D", all
of Seller's right, title and interest to use the name "ATI", the Warranty
Contracts and the Service Contracts and all receivables due Seller or Alpha
Micro from the ATI Group (collectively, the "Service Assets"). Notwithstanding
the foregoing, (i) Buyer acknowledges that the ATI Group shall be entitled after
the Closing to continue to use the Customer List solely for their own use in
their business of selling new telephone systems or services; and (ii) Seller
shall be entitled to retain (and the Service Assets
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<PAGE> 4
shall not include) (A) the router used to facilitate communications with Alpha
Micro, (B) the accounts receivable of Seller (including billings sent in March
for April 1999), other than those due from the ATI Group and all other amounts
prepaid for maintenance services; (C) any cash or cash equivalents; (D) except
as specifically set forth herein, Seller's books and records, and (E) the
Altigen CTI phone system (including hardware and software) used by Seller. The
entirety of the Service Assets shall be conveyed free and clear of all liens,
trusts, encumbrances, charges, claims, security interests, community property or
other interests, conditional sales agreements and all other restrictions, other
than any which attached prior to Seller's purchase of the Business from the ATI
Group.
2.02 Purchase Price. Buyer shall deliver to Seller Six Hundred
Fifty Thousand Dollars ($650,000) ("Purchase Price") for the Business.
Additionally, Buyer shall assume and be obligated for all obligations of Seller
relating to the Business (the "Assumed Obligations"), including but not limited
to:
(a) All amounts due the ATI Group by Seller or Alpha Micro
whatsoever, including but not limited to amounts due pursuant to the ATI
Purchase Agreement and any documents executed in connection therewith
(including but not limited to amounts due under any and all Subleases,
License Agreements, common facility expense agreements, as return of
security deposits under the Contracts, for the purchase of spare parts
and as commissions);
(b) All obligations and liabilities of Seller or Alpha
Micro under the Warranty Contracts and the Service Contracts; and
(c) All obligations and liabilities of Seller and/or Alpha
Micro under the Contracts accruing on or after the Closing Date.
Notwithstanding the foregoing, Buyer shall not assume or be
liable (i) for any current Accounts Payable of the Business except as expressly
set forth above.
2.03 Payment of Purchase Price. The Purchase Price shall be
delivered by Buyer's delivery, on Seller's behalf, of the Purchase Price to the
ATI Group in full without offset or reduction of any kind, in such manner as is
acceptable to the ATI Group.
2.04 Delivery of Customer List. At the Closing Seller shall
deliver to Buyer its complete customer list (the "Customer List") which shall
consist of two parts: (1) the names and addresses of all customers to whom it
has sold or leased (or the known lessees to whom purchasers from it have leased)
telephone systems or components since it purchased the Business, together with
the names and addresses of customers it received from the ATI Group when it
purchased the Business; and (2) a list of each Warranty Contract and Service
Contract in effect as of the Closing Date which includes the customers' names,
addresses, phone numbers and contract identification numbers.
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<PAGE> 5
2.05 Taxes. Buyer agrees to be responsible for any and all sales
taxes arising from its purchase of the Service Assets. Personal property taxes
shall be prorated between Buyer and Seller as of the Closing Date. [Buyer shall
be responsible for filing necessary tax returns and reports with respect to such
taxes, excepting that Seller shall file all returns for 1998 and for the stub
period of 1999 prior to the Closing.
2.06 Allocation of Purchase Price: Reporting Requirements. For
tax purposes the parties hereby agree to (a) allocate the Purchase Price
hereunder (which for purposes of such allocation shall include all liabilities
being assumed by Buyer) in accordance with Exhibit "B" hereto, and (b) timely
file Internal Revenue Service Form 8594, Asset Acquisition Statement, and
otherwise report the transactions set forth herein in accordance with such
allocation and with the provisions of Internal Revenue Code Section 1060 and
comparable provisions of state law.
2.07 Delivery of Possession. At the Closing, Seller shall deliver
possession of the Service Assets to Buyer at the Leased Premises. Title and risk
of loss in and to the Service Assets shall pass to and be vested in Buyer
effective at the time of the Closing.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLER
As an inducement to Buyer to enter into this Agreement, Seller
represents and warrants to Buyer and as to covenants agrees with Buyer that,
effective on the date hereof and on the Closing Date:
3.01 Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Alpha Micro is a corporation duly organized, validly existing and in good
standing under the laws of the State of California.
3.02 Authority. All corporate or other action necessary to
authorize and approve this Agreement has been taken, and this Agreement
constitutes a valid and binding agreement, enforceable against Seller and Alpha
Micro in accordance with its terms, and no authorizations, consents or
approvals, whether of governmental bodies, shareholders or otherwise, are
necessary in order to enable Seller and Alpha Micro to enter into and perform
this Agreement. Consummation of the transactions herein contemplated, and the
fulfillment of the terms of this Agreement will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
of the property or assets of Seller pursuant to the terms of, or result in the
acceleration of any obligations or payment of a penalty under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which Seller is a party or by which Seller may be bound or to which any of the
property or assets of Seller is subject, the Certificate of Incorporation or
Bylaws of Seller, any agreement of the shareholders, or any statute or any
order, decree, judgment, rule or regulation applicable to Seller of any court or
of any regulatory authority or other governmental body having jurisdiction over
Seller.
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<PAGE> 6
3.03 Spare Parts Inventory. Seller shall deliver to Buyer at the
Closing the Spare Parts Inventory free and clear of any liens or encumbrances.
Such Spare Parts Inventory is accepted by Buyer on an AS IS WHERE IS basis.
3.04 Customer List. The Customer List delivered to Buyer pursuant
to Section 2.05 above includes as to Part 1, a true, complete and correct list
of the names, addresses and telephone numbers of all customers to which Seller
has provided Services whether by contract or on a time and materials basis since
it acquired the Business from the ATI Group as well as the list of customers
supplied to Seller by the ATI Group.
3.05 Warranty Contracts and Service Contracts.
(a) Seller shall deliver a list (certified by Seller and
acknowledged by Buyer) of all existing verbal and written Warranty
Contracts (showing manufacturer warranty and contract expiration date)
and Service Contracts (showing expiration date) of Seller pursuant to
which Seller provides Services to customers which extend beyond the
Closing Date and which shall be assigned to and assumed by Buyer. Seller
has committed no breach and has received no notice of default which is
presently in effect under any Warranty Contract or Service Contract, nor
does Seller have actual knowledge of any event which has occurred which,
with notice or passage of time, could give rise to any such default. All
the Warranty Contracts and Service Contracts, together with any
amendments or modifications thereto, were duly authorized and executed
and are enforceable in accordance with their terms, except that Seller
does not represent and warrant as to matters which may relate to (a) the
enforceability as may be limited by applicable insolvency, bankruptcy,
reorganization, moratorium or other similar laws related to or affecting
creditors' rights generally, or (b) enforceability in any court of any
equitable remedies, specific performance and injunctive relief which are
subject to the discretion of the court before which any proceeding
therefor is brought (regardless of whether such enforceability is
considered a proceeding at law or equity). To the best of Seller's
knowledge, there is no reason to believe that any customer who is a
party to any such Service Contract is unable or unwilling to perform its
obligations under such contract.
(b) Seller will deliver to Buyer at the Closing the
original or a full, true and correct copy of each of the written
Warranty Contracts and Service Contracts, all proposed but not yet
executed contracts, and all modifications and amendments to the
foregoing, in existence on the Closing Date.
(c) Seller has no actual knowledge of any request for or
need for service under any Warranty Contract or Service Contract which
has not been performed prior to the Closing, other than routine service
calls.
(d) Seller shall indemnify and hold Buyer harmless from
and against any actions and/or claims based upon the negligence of
Seller in the performance of such Warranty Contracts prior to the date
of Closing, other than any claims or actions which
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<PAGE> 7
arise out of or are related to that telephone system provided by the ATI
Group to Advantage Equity, Inc.
3.06 Tools and Equipment. Attached as Exhibit "C" is a complete
listing of the tools and equipment (including test equipment) used by Seller in
its Service Business (the "Tools and Equipment"), all of which shall be
transferred to Buyer on the Closing Date, free of any liens or encumbrances,
unless otherwise designated on Exhibit "C". The said Tools and Equipment shall
be transferred to Buyer and Buyer accepts them on an AS IS WHERE IS basis.
3.07 Vehicles. The vehicles subject to the leases assumed by
Buyer are delivered on an AS IS WHERE IS basis.
3.08 Contracts. Attached as Exhibit "D" is a complete listing of
(i) the leases for vehicles ("Vehicles") used by Seller in its Service Business;
and the leases for all other personal property used by Seller in its Service
Business (collectively the "Leases"); (ii) the licenses for offices and other
facilities used by Seller for its Service Business, and (iii) all other
contracts (other than Warranty Contracts and Service Contracts and the ATI
Purchase Agreements) to which Seller is a party or under which Seller is
obligated ((i), (ii) and (iii) collectively the "Contracts"). Seller will
deliver to Buyer upon the Closing the original or a full, true and correct copy
of each Contract listed on Exhibit "D", including all modifications and
amendments thereto. Seller has, to the best knowledge of Seller, committed no
breach, and Seller has received no notice of default which is presently in
effect under any Contract, nor does Seller have knowledge of any event which has
occurred which, with notice or passage of time, could give rise to any such
default. Also set forth on Exhibit "D" is a complete list of all security
deposits paid by Seller or, to Seller's knowledge, the ATI Group with respect to
the Contracts, all of which are fully refundable upon termination of the
respective Contract. Seller has caused no damages to the leased premises or the
leased equipment which would entitle the lessor under such Leases to deduct any
amounts from such security deposits. Buyer shall reimburse Seller for the
security deposits so designated on Exhibit "D" as of the Closing.
3.09 Employees. Attached hereto as Exhibit "F" is a list of all
of Seller's employees ("Employees") who are presently employed by Seller. Buyer
agrees to offer employment to each of such Employees. Seller is not a party to
any labor agreement with respect to its employees with any labor organization,
union, group or association.
3.10 Litigation. There are no actions, suits, investigations or
proceedings by, against, involving or relating to Seller in which service of
process has been made, nor to the best of Seller's knowledge are there any
claims, actions, suits, investigations or proceedings contemplated, pending or
against, involving or relating to Seller, at law or in equity (other than that
claim which has been asserted only against the ATI Group arising out of that
telephone system provided by the ATI Group to Advantage Equity, Inc.), or before
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, in which any claim has been made
against the Service Assets and there has been no garnishment, attachment or writ
of executions issued with reference to any of the Service Assets.
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<PAGE> 8
3.11 Judgments, Decrees and Orders in Restraint of Business.
Seller is not a party or subject to any judgment, decree or order entered in any
suit or proceeding brought by any governmental agency or by any other person
enjoining the Seller in respect of any of its business practices or the
acquisition or disposition of any property or the conduct of its business in any
area.
3.12 Title to Service Assets. Seller has good and marketable
title to the Service Assets free and clear of all liens, claims and
encumbrances, including covenants, conditions and restrictions.
3.13 Tax Returns and Liabilities. Within the times and in the
manner prescribed by law, Seller has filed all Federal, state and local tax
returns required by law in connection with the business of Seller and has paid
or has made provision for the taxes due and payable in connection therewith.
3.14 Compliance with Laws Regulating Environmental Quality. The
properties which are the subject of the Licenses are, and at all times have
been, operated, used and occupied by Seller in compliance with all Environmental
Laws (as defined herein) and have been operated, used and occupied by Seller in
a manner which will not give rise to any liability under any Environmental Laws.
Seller has not received any notice at any time that it is or was claimed to be
in violation of or in non-compliance with any conditions of any permit or
Environmental Laws or that any of the current or past uses, operations or
conduct at the properties are or were in violation of or in non-compliance with
any conditions of any permit or Environmental Laws. To Seller's knowledge, there
is not now pending or threatened, nor any basis known to Seller for, any action,
claim, investigation, lawsuit, proceeding or order involving the properties
which are the subject of the Leases, under any Environmental Laws or otherwise
with respect to the use, storage, presence, generation, manufacture or handling
of any Hazardous Substance (as defined herein) at the properties.
For purposes of this Section 3.14, "Environmental Laws" shall
mean any federal, state, regional, county, municipal, local laws, statutes,
rules, ordinances, regulations and codes, as well as policies, orders, decrees,
judgments, permits, directives, guidances, cleanup standards, injunctions and
binding interpretations issued, promulgated, approved or entered thereunder,
relating to pollution or protection of the environment, including, but not
limited to, those relating to the release or threatened release of Hazardous
Substances into the environment or otherwise relating to the presence,
manufacture, transfer, generation, production, refinement, pumping, processing,
distribution, use, treatment, storage, transport or handling of Hazardous
Substances.
For purposes of this Section 3.14, "Hazardous Substance" shall
mean any toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste, industrial substance or waste,
petroleum or petroleum-derived substance or waste, infectious or mutagenic or
carcinogenic substance or waste, radioactive substance or waste, or any
constituent of any such substance or waste, which is regulated under or defined
by any Environmental Law.
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<PAGE> 9
3.15 Brokers or Finders. Seller has not entered into any
agreement or incurred any obligation, directly or indirectly, for the payment of
any broker's commissions or finder's fees in connection with this transaction.
3.16 Name. Seller uses the name "ATI Communications" with respect
to the Business. Neither Seller nor any of its affiliates has a federal or state
registration or pending registration which includes the name "ATI". Seller has
not granted the right to any other entity or person to use the name "ATI". No
proceedings have been instituted against or notices received by any Seller
alleging that Seller's use of the name "ATI" infringes upon or otherwise
violates any rights of a third party.
3.17 Survival of Representations and Warranties. The
representations and warranties contained in this Agreement by Seller shall
survive the Closing Date and shall terminate and expire on the close of business
on the first anniversary of the Closing Date and shall be of no force or effect
thereafter, except with respect to any claim with respect thereto under Section
8.01 of this Agreement, written notice of which shall have been delivered to
Seller on or prior to the first anniversary of the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this Agreement, Buyer
represents and warrants to Seller and Alpha Micro, and as to covenants agrees
with Seller, as follows:
4.01 Incorporation. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Pennsylvania.
4.02 Authority. This Agreement constitutes a valid and binding
agreement, enforceable against Buyer in accordance with its terms, and no
authorizations, consents or approvals not already obtained, whether of
governmental bodies or otherwise, are necessary in order to enable Buyer to
enter into and perform this Agreement. Consummation of the transactions herein
contemplated, and the fulfillment of the terms of this Agreement will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the property or assets of Buyer pursuant to
the terms of, or result in the acceleration of any obligations or payment of a
penalty under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which Buyer is a party or by which Buyer may be bound
or to which any of the property or assets of Buyer is subject, the Certificate
of Incorporation or Bylaws of Buyer, or any statute or any order, decree,
judgment, rule or regulation applicable to Buyer of any court or of any
regulatory authority or other governmental body having jurisdiction over Buyer.
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<PAGE> 10
4.03 Judgments, Decrees and Orders in Restraint of Business.
Buyer is not a party or subject to any judgment, decree or order entered in any
suit or proceeding brought by any governmental agency or any other person
enjoining the Buyer in respect of any of its business practices or the
acquisition or disposition of any property or the conduct of its business in any
area.
4.04 Brokers or Finders. Buyer has not entered into any agreement
or incurred any obligation, directly or indirectly, for the payment of any
broker's commissions or finder's fees in connection with this Agreement.
4.05 Survival of Representations and Warranties. The
representations and warranties contained in this Agreement by Buyer shall
survive the Closing Date and shall terminate and expire on the close of business
on the first anniversary of the Closing Date and shall be of no force or effect
thereafter, except with respect to any claim with respect thereto under Section
8.01(b) of this Agreement, written notice of which shall have been delivered to
Buyer on or prior to the first anniversary of the Closing Date.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.01 Conditions Precedent to the Performance of Seller's
Obligations. The obligations of Seller to sell the Service Assets pursuant to
this Agreement are subject, at the option of Seller, to the fulfillment on or
before the Closing Date of each of the following conditions:
(a) Compliance with Terms. At the Closing Date, all of the
terms, conditions and agreements herein to be complied with and
performed by Buyer at or before the Closing Date shall have been
complied with or performed in all material respects.
(b) Accuracy of Representations and Warrants. Seller shall
not have acquired information that there is any material error,
misstatement or omission in any of the representations or warranties
made herein by Buyer. The representations and warranties made by Buyer
in this Agreement shall be correct and complete at and as of the Closing
Date, with only those exceptions which have been approved in writing by
Seller.
(c) Delivery of Required Items. Buyer shall have delivered
all items set forth in Section 7.02 below.
(d) Transaction Legal. There shall be no order, decree or
ruling by any court or governmental agency or threat thereof or any
other fact or circumstance which might prohibit or render illegal the
transactions contemplated by this Agreement.
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<PAGE> 11
5.02 Conditions Precedent to the Performance of Buyer's
Obligations. The obligations of Buyer to purchase the Service Assets pursuant to
this Agreement are subject to the fulfillment on or before the Closing Date of
each of the following conditions:
(a) Compliance with Terms. At the Closing Date, all of the
terms, conditions and agreements herein to be complied with and
performed by Seller at or before the Closing Date shall have been
complied with or performed in all material respects.
(b) Warranty Contracts and Service Contracts. Buyer shall
have received copies of all of the Warranty Contracts and Service
Contracts, and all modifications and amendments thereof.
(c) Spare Parts Inventory, Vehicles, Tools and Equipment.
Buyer shall have been given reasonable access to conduct an inventory
and inspection of the Spare Parts Inventory, Vehicles, Tools and
Equipment.
(d) Accuracy of Representations and Warranties. Buyer
shall not have acquired information that there is any material error,
misstatement or omission in any of the representations or warranties
made herein by Seller. The representations and warranties made by Seller
in this Agreement shall be correct and complete at and as of the Closing
Date, subject only to those exceptions which have been approved in
writing by Buyer, in its sole and absolute discretion.
(e) Delivery of Required Items. Seller shall have
delivered all items set forth in Section 7.01 below.
(f) Transaction Legal. There shall be no order, decree or
ruling by any court or governmental agency or threat thereof or any
other fact or circumstance which might prohibit or render illegal the
transactions contemplated by this Agreement.
(g) Approval of Exhibits. The form and contents of each of
the Exhibits and related deliveries shall be satisfactory to Buyer.
ARTICLE VI
TERMINATION
6.01 Termination. Anything herein to the contrary
notwithstanding, this Agreement may be terminated and abandoned at any time:
(a) by mutual written consent of Buyer and Seller;
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<PAGE> 12
(b) by Buyer, on the Closing Date, if any one or more of
the conditions precedent to its obligations herein shall not have been
fulfilled or waived in writing by Buyer; and
(c) by Seller, on the Closing Date, if any one or more of
the conditions precedent to its obligations herein shall not have been
fulfilled or waived in writing by Seller.
If this Agreement is terminated pursuant to any of the foregoing
provisions, this Agreement shall become wholly void and of no effect, and there
shall be no liability on the part of either Buyer to Seller, Seller to Buyer, or
their respective boards of directors as a result of such termination (except
such liability arising pursuant to the indemnification provisions of Article
VIII for, among other things, breach of covenants, representations and
warranties and existence of suits and other actions), and in such event each
party shall bear all expenses incurred by it in connection with this Agreement
and any transactions in connection therewith.
6.02 Closing. Provided that all of the conditions to Closing have
been fully satisfied, the transactions contemplated by this Agreement shall be
deemed consummated effective at 12:01 a.m. on April 1, 1999 (the "Closing
Date"), or at such other place or time as shall be mutually agreed upon in
writing between Buyer and Seller (the "Closing").
ARTICLE VII
DELIVERIES AT CLOSING
7.01 Deliveries of Seller. At the Closing, Seller shall deliver
to Buyer all of the following:
(a) Bill of Sale. Originally executed Bill of Sale for the
Certain Assets of Seller in form and content as set forth in Exhibit "G"
attached hereto.
(b) Blanket Assignment and Assumption. Originally executed
blanket assignment by Seller to Buyer and assumption by Buyer of all
right, title and interest to the Warranty Contracts, the Service
Contracts and the Contracts in the form of Exhibit "H" as well as such
other assignments (including specific License Assignments) which Buyer
or Seller reasonably believes are necessary to vest in Buyer all of
Seller's right, title and interest in and to (and obligations associated
with) under the Service Assets.
(c) Customer List. True and correct copies of the Customer
List as of the Closing Date.
(d) Warranty and Service Contracts. The original of each
Warranty and Service Contract and any amendments thereto.
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<PAGE> 13
(e) Settlement Agreement and General Release. A Settlement
Agreement and General Release in the form of Exhibit "I" executed by
Seller and Alpha Micro.
7.02 Deliveries of Buyer. At the Closing, Buyer shall deliver to
Seller:
(a) Purchase Price. Written confirmation by and a receipt
from the ATI Group that Six Hundred Fifty Thousand Dollars ($650,000)
has been delivered by Buyer, on Seller's behalf, to the ATI Group, in a
manner acceptable to the ATI Group, in full satisfaction of the amounts
remaining due the ATI Group by Buyer.
(b) Consents. Consent of the lessors of the Leased
Premises which are the subject of the Licenses, to the extent required.
(c) Settlement Agreement and General Release. A Settlement
Agreement and General Release in the form of Exhibit "I" executed by the
ATI Group.
(d) Blanket Assignment and Assumption. Originally executed
blanket assignment by Seller to Buyer and assumption by Buyer of all
right, title and interest to the Warranty Contracts, the Service
Contracts and the Contracts in the form of Exhibit "H" as well as such
other assignments (including specific License Assignments) which Buyer
or Seller reasonably believes are necessary to vest in Buyer all of
Seller's right, title and interest in and to (and obligations associated
with) the Service Assets.
(e) Security Deposits. Buyer's check in the amount of the
security deposits to be reimbursed to Seller pursuant to Section 3.08.
7.03 Delivery to Escrow. Seller and Buyer shall each deliver each
of the items designated in Sections 7.01 and 7.02 above (excepting the Customer
List and the original copies of the Warranty Contracts and Service Contracts,
which will be delivered to Buyer at the Leased Premises) to the escrowholder
designated in the Escrow Agreement.
ARTICLE VIII
POST-CLOSING COVENANTS:
8.01 Indemnification by Buyer and Seller.
(a) Indemnification by Seller. Seller hereby agrees to
indemnify and hold Buyer, its officers, directors, employees, agents,
advisers, affiliates' parent and associates ("Buyer Indemnified Party")
harmless, from all loss, liability and expense (including reasonable
attorneys' fees and expenses in connection with the contest of any claim
and interest on any claim paid by Buyer), which Buyer may incur or
sustain by reason of the fact that (i) Seller should breach or fail to
comply with any of the terms, conditions, covenants or agreements or any
exhibits attached hereto or any of them
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<PAGE> 14
contained herein, (ii) any representations or warranties made by Seller
in this Agreement, the Exhibits, or in any certificates, lists or
documents delivered pursuant hereto should prove to be false or
erroneous, or (iii) any action, arbitration, suit, proceeding,
compromise, settlement, assessment or judgment arising out of or
incidental to any of the matters indemnified against in this Section
8.01(a); provided, however, that Seller shall not be obligated to
indemnify Buyer and hold it harmless with respect to any settlement of a
claim to which Seller has not consented.
(b) Indemnification by Buyer. Buyer hereby agrees to
indemnify and hold Seller, its officers, directors, employees, agents,
advisers, affiliates' parent and associates ("Seller Indemnified
Party"), harmless from all loss, liability and expense (including
reasonable attorneys' fees and expenses in connection with the contest
of any claim and interest on any claim paid by Seller), which Seller may
incur or sustain by reason of the fact that (i) Buyer should breach or
fail to comply with any of the terms, conditions, covenants or
agreements or any exhibits attached hereto, or any of them contained
herein, (ii) any representations or warranties made by Buyer in this
Agreement should prove to be false or materially erroneous, (iii) any
claims, actions, suits, investigations or proceedings, pending or
threatened, are or have been made or commenced by, against, involving or
arising out of the Assumed Obligations (iv) all claims, actions, suits,
investigations or proceedings, pending or threatened, are or have been
made or commenced by, against, involving or arising out of the operation
by Buyer of the Service Business of Seller acquired hereunder, or the
sale, transfer or other disposition by Buyer of all or any part of the
Service Assets, from and after the Closing Date, except, in each case,
if such liability arises in connection with the breach of any of the
representations, warranties, covenants or agreements made by Seller in
this Agreement, any Schedule or Exhibit hereto or any certificate or
instrument delivered in connection herewith, (v) any attempt (whether or
not successful) by any person to cause or require a Seller Indemnified
Party to pay or discharge any debt, obligation or liability of Seller
assumed by Buyer pursuant to this Agreement, notwithstanding the
Closing, (vi) any action, suit, proceeding, compromise, settlement,
assignment, judgment or arbitration arising out of or incidental to any
of the matters indemnified against in this Section 8.01(b); and (vii)
any claims or actions which arise out of or are related to that
telephone system provided by the ATI Group to Advantage Equity, Inc.;
provided, however, that Buyer shall not be obligated to indemnify a
Seller Indemnified Party and hold it harmless under this Section 8.01(b)
with respect to any settlement of a claim to which Buyer has not
consented, if such consent has not been unreasonably withheld.
(c) Right to Defend, Etc. If the facts giving rise to any
such indemnification shall involve any actual claim or demand by any
third party against a Buyer Indemnified Party or a Seller Indemnified
Party (referred to hereinafter as an "Indemnified Party"), the
indemnifying parties shall be entitled to notice of and entitled
(without prejudice to the right of any Indemnified Party to participate
at its own expense through counsel of its own choosing) to defend or
prosecute such claim at their expense and through counsel of their own
choosing if they give written notice of their intention to
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<PAGE> 15
do so no later than the time by which the interests of the Indemnified
Party would be materially prejudiced as a result of its failure to have
received such notice; provided, however, that if the defendants in any
action shall include both the indemnifying parties and Indemnified
Party, and the Indemnified Party shall have reasonably concluded that
counsel selected by the indemnifying parties have a conflict of interest
because of the availability of different or additional defenses, the
Indemnified Party shall have the right to select separate counsel to
participate in the defense of such action on its own behalf, at the
expense of the indemnifying parties. The Indemnified Party shall
cooperate fully in the defense of such claim and shall make available to
the indemnifying parties pertinent information under its control
relating thereto.
(d) Indemnification Basket. Notwithstanding anything
contained herein, neither party shall be entitled to indemnification for
any breach of a representation or warranty hereunder unless the
aggregate of all amounts to which such party shall be entitled hereunder
exceeds Twenty-Five Thousand Dollars ($25,000), in which case such party
shall be entitled to an amount by which its damages exceed such amount.
ARTICLE IX
CONDUCT OF BUSINESS PENDING THE CLOSING
9.01 The Seller covenants and agrees that, prior to the Closing
Date or the earlier termination of this Agreement pursuant to Section 6.01
hereof, unless the Buyer shall otherwise agree in writing or as otherwise
expressly permitted by this Agreement:
(a) Preservation of Business. The business of Seller shall
be conducted only in the ordinary course of business and consistent with
past practice, and the Seller shall use commercially reasonable efforts
to maintain and preserve its business, assets, prospects, employees,
customers and other advantageous business relationships. Without
limiting the generality of the foregoing, Seller shall (i) maintain the
Service Assets in substantially their current state of repair, excepting
normal wear and tear, (ii) through the Closing Date, maintain insurance
covering the Service Assets of the same nature and level as that in
effect on the date hereof, and (iii) make timely payments on Accounts
Payable and perform other obligations of the Seller (including under the
Warranty Contracts, the Service Contracts and the Contracts) in
accordance with the Seller's past practice.
(b) Preservation of Assets. Seller shall not do any of
the following: (i) issue, sell, pledge, dispose of or encumber any
capital stock of the Seller; (ii) except in the ordinary course of
business, sell, pledge, dispose of or encumber any of the Service
Assets; (iii) whether or not in the ordinary course of business, sell,
pledge, dispose of or encumber any material portion of the Service
Assets; or (iv) authorize or propose any of the foregoing, or enter into
any contract, agreement, commitment or arrangement to do any of the
foregoing.
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<PAGE> 16
ARTICLE X
GENERAL PROVISIONS
10.01 Notification of Changes. Each party will promptly notify
the other in writing of the existence or happening of any material fact, event
or occurrence which may tend to alter the accuracy or completeness of any
representation or warranty contained in this Agreement.
10.02 Notices. Except as otherwise expressly provided herein, any
notice herein required or permitted to be given shall be in writing and shall be
personally served or sent by overnight courier, by registered mail or certified
mail, postage prepaid, or by prepaid telex, telecopy or telegram and shall be
deemed to have been given when such writing is received by the intended
recipient thereof. For the purposes hereof, the addresses of the parties hereto
(until notice of a change thereof served as provided in this Section 10.02)
shall be as follows:
If to Seller: Alpha Microsystems
2722 South Fairview Street
Santa Ana, California 92704
Attn: Chief Financial Officer
Fax No.: (714) 641-7678
With a copy to: Allen, Matkins, Leck, Gamble & Mallory LLP
515 South Figueroa Street, 7th Floor
Los Angeles, California 90071
Attn: Debra Dison Hall, Esq.
Fax No.: (213) 620-8816
If to Buyer: ADSI Telecom Services, Inc.
c/o Advanced Telecommunications, Inc.
1811 Center Point Circle, #111
Naperville, IL 60563
Attn: James Shaver
Fax No.: (630) 505-4272
With copies to:
Merra, Kanakis, Creme & Mellor, P.C.
60 Main Street
Nashua, NH 03060
Attn: Paul D. Creme, Esq.
Fax No.: (603) 883-0750
and Applied Cellular Technology, Inc.
400 Royal Palm Way, Suite 410
Palm Beach, FL 33480
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<PAGE> 17
Attn: Scott R. Silverman
Fax No.: (561) 366-0002
10.03 Entire Agreement. This Agreement, together with the
Exhibits hereto, constitutes the entire understanding between the parties with
respect to the subject matter hereof, superseding all negotiations, prior
discussions and preliminary agreements. This Agreement may not be changed except
in writing executed by Buyer and Seller.
10.04 Payment of Expenses. Buyer and Seller shall each be
responsible to pay all of its own respective expenses as incurred in connection
with this Agreement, the transactions contemplated hereby, the negotiations
leading to the same and the preparations made for carrying the same into effect,
and no party shall be liable or responsible for the fees or expenses incurred by
any other party.
10.05 Arbitration. Any matter arising under, relating to or
concerning this Agreement (except as expressly set forth in this Section 10.05)
shall be resolved by final and binding arbitration by the local office of the
JAMS/Endispute ("JAMS") closest to Buyer or if JAMS is unavailable, by an
organization of similar nature agreed upon by Buyer and Seller. Such arbitration
shall be conducted according to the JAMS Rules of Practice and Procedure then in
effect, except that the parties shall be entitled only to such discovery as
permitted by C.C.P. Section 1283.05 and any amendment thereto, or successor
statute. Any party may seek to compel the other to comply with the terms of this
Section 10.05 by petition to any court of general jurisdiction. The prevailing
party in any proceeding to enforce this Section 10.05 shall be entitled to the
Court's order for payment of attorneys' fees and costs in connection with said
proceeding. In the case of a judgment on an arbitrator's award, any party may
seek to have the arbitrator's award entered by any court having jurisdiction
thereof. The prevailing party in any arbitration shall be entitled to have
included as part of the arbitrator's award the attorneys' fees and costs
incurred by such prevailing party in connection with the arbitration, including
amounts advanced.
Buyer and Seller agree that in the case of any dispute in which
extraordinary relief may be available, then and only then, a court of competent
jurisdiction shall be presented with, and make a determination of, the propriety
of granting and enforcing such extraordinary relief, upon such conditions as the
court shall determine as proper, and the provisions of this Section 10.05
Arbitration shall not be applicable.
10.06 Attorneys' Fees. Should any litigation be commenced between
the parties hereto or their representatives concerning any provision of this
Agreement or the rights and duties of any person or entity in relation thereto,
the party prevailing in such litigation shall be entitled, in addition to such
other relief as may be granted, to an award of all actual attorneys' fees and
costs incurred in such litigation, without regard to any schedule or rule of
court purporting to restrict such an award, including, without limitation,
actual attorneys' fees, costs and expenses incurred in connection with (i)
enforcing, perfecting and executing such judgment, (ii) post-judgment motions;
(iii) contempt proceedings; (iv) garnishment, levee, and debtor and third-party
examinations; (v) discovery; and (vi) bankruptcy litigation.
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<PAGE> 18
10.07 Waiver. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or be construed as a further or continuing waiver of any
such term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
10.08 Captions. The captions of the Sections of this Agreement
are for convenience only and shall not be considered or referred to in resolving
questions or interpretation.
10.09 Counterparts. This Agreement may be executed in one or more
counterparts and counterparts signed in the aggregate by Buyer and Seller shall
constitute a single original instrument.
10.10 Assignment. This Agreement shall not be assignable by any
party without the consent of the other party. Notwithstanding the foregoing,
Buyer may assign this Agreement in whole or in part, to any subsidiary,
affiliate or parent corporation or any successor of Buyer by merger,
consolidation or acquisition of a substantial portion of its assets. In the case
of any such assignment, Buyer shall continue to remain liable for its
obligations hereunder.
10.11 Severability. If any term or provision of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
found to be invalid, void or unenforceable, the remaining provisions and any
application thereof shall, nevertheless, continue in full force and effect
without being impaired or invalidated in any way.
10.12 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall be binding upon and shall inure to the
benefit of the parties hereto, their personal representatives, heirs, executors,
administrators, successors and/or assigns.
10.13 Further Actions. Each of the parties hereto agrees to take
any and all actions reasonably necessary in order to carry out the provisions of
this Agreement.
10.14 Gender and Number. As used in this Agreement, the masculine
gender includes the feminine and neuter, the feminine gender includes the
masculine and neuter, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
10.15 Time. Time is of the essence in each provisions of this
Agreement of which time is an element.
10.16 Construction. This Agreement shall be construed in
accordance with its plain meaning and not against either party.
10.17 Choice of Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws (as opposed to conflicts of law
provisions) of the State of Pennsylvania.
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
"BUYER" "SELLER"
ADSI TELECOM SERVICES, INC., ALPHA TECHNOLOGY INTERCONNECT, INC., a
an Pennsylvania corporation Delaware corporation
By: By:
-------------------------- ------------------------------------
Its: Its:
--------------------- -------------------------------
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<PAGE> 20
LIST OF EXHIBITS
Exhibit "A" Escrow Agreement
Exhibit "B" Allocation of Purchase Price
Exhibit "C" Tools & Equipment
Exhibit "D" Contracts and Security Deposits
Exhibit "E" Vehicles
Exhibit "F" Employees
Exhibit "G" Bill of Sale
Exhibit "H" Blanket Assignment
Exhibit "I" Settlement Agreement and General Release
<PAGE> 21
EXHIBIT "A"
TO: ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP
Re: AGREEMENT OF PURCHASE AND SALE by and between ALPHA
TECHNOLOGY INTERCONNECT, INC., a Delaware corporation
("Seller") and ADSI TELECOM SERVICES, INC., a
Pennsylvania corporation ("Buyer")
Ladies and Gentlemen:
As you know Buyer and Seller have entered into that certain
Agreement of Purchase of Sale effective as of March 31, 1999 (the "Purchase
Agreement") which provides that Buyer will purchase the Business (as defined in
the Purchase Agreement) from Seller. In accordance with Section 7.03 of the
Purchase Agreement, this letter will constitute escrow instructions with respect
to the closing contemplated in this transaction (the "Instructions"). You are
authorized and instructed to perform and comply with the conditions set forth
below. Capitalized terms not otherwise defined herein shall have the meaning set
forth in the Purchase Agreement.
1 Deliveries of Seller At the Closing, Seller shall deliver to
you each of the following documents, fully executed and notarized, as
appropriate (collectively the "Seller's Deliverables"):
(a) Bill of Sale Four (4) originals of Bill of Sale for
the Certain Assets of Seller in form and content as set forth in Exhibit
"G" attached to the Purchase Agreement.
(b) Blanket Assignment and Assumption Four (4) originals
of the blanket assignment by Seller to Buyer and assumption by Buyer of
all right, title and interest to the Warranty Contracts, the Service
Contracts and the Contracts in the form of Exhibit "H" attached to the
Purchase Agreement.
(c) Settlement Agreement and General Release Four (4)
originals of the Settlement Agreement and General Release in the form of
Exhibit "I" attached to the Purchase Agreement executed by Seller and
Alpha Micro.
2 Deliveries of Buyer At the Closing, Buyer shall deliver to you
each of the following, fully executed and notarized, as appropriate
(collectively the "Buyer's Deliverables"):
(a) Purchase Price Written confirmation by and a receipt
from the ATI Group that Six Hundred Fifty Thousand Dollars ($650,000)
has been delivered by Buyer, on Seller's behalf, to the ATI Group, in a
manner acceptable to the ATI Group, in full satisfaction of the amounts
remaining due the ATI Group by Buyer.
<PAGE> 22
(b) Consents Consent of the lessors of the Leased Premises
which are the subject of the Licenses, to the extent Buyer has
determined required.
(c) Settlement Agreement and General Release Four (4)
originals of the Settlement Agreement and General Releases in the form
of Exhibit "I" attached to the Purchase Agreement executed by the ATI
Group.
(d) Blanket Assignment and Assumption Four (4) originals
of the blanket assignment by Seller to Buyer and assumption by Buyer of
all right, title and interest to the Warranty Contracts, the Service
Contracts and the Contracts in the form of Exhibit "H" attached to the
Purchase Agreement.
(e) Reimbursement of Security Deposits. Buyer's check
payable to Seller in the amount of Four Thousand Dollars ($4,000).
3 Disbursements
Provided all of these instructions have been or will be met
concurrently and upon your receipt of the fax confirmations contemplated by
Paragraph 4, you are authorized to deliver the Seller's Deliverables to Buyer
and the Buyer's Deliverables to Seller.
4 Closing You shall close this transaction as soon as
practicable when and only when:
(a) you have received all of the documents referred to in
Paragraphs 2 and 3;
(b) you have received fax confirmation from Douglas J.
Tullio or Jeffrey J. Dunnigan at Alpha Microsystems that the conditions to
closing have been satisfied; and
(c) you have received fax confirmation from James Shaver
of Buyer or Paul D. Creme that the conditions to closing have been satisfied.
5 Failure to Close. If this transaction is not completed on or
before April 2, 1999, you shall return all documents submitted to you hereunder
to the party who so submitted them.
"BUYER" "SELLER"
ADSI TELECOM SERVICES, INC., ALPHA TECHNOLOGY INTERCONNECT, INC.,
an Pennsylvania corporation a Delaware corporation
By: By:
-------------------------- -----------------------------------
Its: Its:
--------------------- -------------------------------
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<PAGE> 23
EXHIBIT G
BILL OF SALE
This BILL OF SALE ("Bill of Sale") is executed and delivered this
1st day of April, 1999, by ALPHA TECHNOLOGY INTERCONNECT, INC., a Delaware
corporation ("Seller"), with reference to that certain Agreement of Purchase and
Sale, dated March 1, 1999 (the "Purchase Agreement") by and between Seller and
ADSI TELECOM SERVICES, INC., an Illinois corporation ("Buyer"), wherein Buyer
agreed to purchase the Service Assets (as defined in the Purchase Agreement)
from Seller. This Bill of Sale is executed and delivered in accordance with and
in furtherance of the foregoing provisions of the Agreement. Capitalized terms
not otherwise defined herein shall have the meaning set forth in the Purchase
Agreement.
1. For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Seller, Seller hereby grants,
bargains, sells, transfers, conveys, assigns, sets over and delivers to and
vests in Buyer all of Seller's right, title and interest in and to all of the
Service Assets (as defined in the Purchase Agreement) (the "Personal Property").
Notwithstanding the foregoing, (i) Buyer acknowledges that the ATI Group shall
be entitled after the date hereof to continue to use the Customer List solely
for their own use in their business of selling new telephone systems or
services; and (ii) Seller shall be entitled to retain (and the Service Assets
shall not include) (A) the router used to facilitate communications with Alpha
Micro, (B) the accounts receivable of Seller (including billings sent in March
for April 1999), other than those due from the ATI Group and all other amounts
prepaid for maintenance services; (C) any cash or cash equivalents; (D) except
as specifically set forth herein, Seller's books and records, and (E) the
Altigen CTI phone system (including hardware and software) used by Seller.
2. The Personal Property is hereby acquired by Buyer "as-is"
without any representation or warranty of any kind or nature of Seller, express,
implied or statutory, as to the nature of or title to the Personal Property or
its fitness for Buyer's intended use of same.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale as of
the date first above written.
"Seller" ALPHA TECHNOLOGY INTERCONNECT, INC.,
a Delaware corporation
--------------------------------------------
Name:
-------------------------------------
Its:
--------------------------------------
<PAGE> 24
EXHIBIT H
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is
entered into as of this 1st day of April, 1999, by and between ALPHA TECHNOLOGY
INTERCONNECT, INC., a Delaware corporation ("Assignor") and ADSI TELECOM
SERVICES, INC., an Illinois corporation ("Assignee"), pursuant to that certain
Agreement of Purchase and Sale, dated March 31, 1999 (the "Purchase Agreement")
by and between Assignor and Assignee. Capitalized terms used herein and not
otherwise defined have the meanings set forth in the Purchase Agreement.
1. Assignment. For good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged by Assignor, Assignor hereby
grants, sells, assigns, transfers, conveys and delivers unto Assignee and its
successors and assigns all of Assignor's rights, title and interest in, to and
under the contracts and agreements to which Assignor is a party in connection
with all of the assets of Assignor used in the Business, including but not
limited to the Contracts listed on Exhibit "D" attached to the Purchase
Agreement, the Warranty Contracts and the Service Contracts and the ATI Purchase
Agreement, as each of the foregoing contracts and agreements has been modified,
amended, supplemented and/or extended as of the date hereof (collectively the
"Assigned Contracts").
2. Assumption. In consideration of the foregoing assignment and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged by Assignee, Assignee hereby accepts said assignment upon
the terms and subject to the conditions set forth in this Agreement and the
Purchase Agreement. Assignee hereby covenants with Assignor that Assignee and
its successors and assigns will from and after the date hereof assume and agree
to keep, perform and fulfill, or cause to be kept, performed and fulfilled, all
of the terms, covenants, conditions and obligations contained in each of the
Assigned Contracts which, by the terms thereof, are imposed upon Assignor and
which accrue from and after the date hereof, but excluding any obligation for
any breach of any Assigned Contract occurring prior to the date hereof.
3. Notices. Assignor agrees that within five (5) business days
after receiving any notice from any party to an Assigned Contract relating to
performance of Assignor's or Assignee's obligations under such Assigned
Contract, Assignor shall send a copy of the same to the Assignee at the address
for Assignee set forth in the Purchase Agreement, or to any other address which
Assignee may designate from time to time.
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
"Assignor" ALPHA TECHNOLOGY INTERCONNECT, INC.,
a Delaware corporation
By:
---------------------------------
Name:
--------------------------
Title:
--------------------------
"Assignee" ADSI TELECOM SERVICES, INC.,
an Illinois corporation
By:
---------------------------------
Name:
--------------------------
Title:
--------------------------
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<PAGE> 26
EXHIBIT "I"
SETTLEMENT AGREEMENT AND GENERAL RELEASE
This Settlement Agreement and General Release (the "Agreement")
is made and entered into effective this 1st day of April, 1999, by and between
Alpha Microsystems, a California corporation, Alpha Technology Interconnect,
Inc. ("Alpha Sub"), a subsidiary of Alpha Microsystems, (Alpha Microsystems and
Alpha Sub collectively "Alpha Micro"), and Advanced Telecomm of Pittsburgh, a
Pennsylvania Business Trust, Advanced Telecomm of Butler, Inc., a Pennsylvania
corporation, Advanced Telecomm of Washington, D.C., Inc., a Pennsylvania
corporation, and Advanced Telecomm of Maryland, Inc., a Pennsylvania corporation
(collectively doing business as "ATI Communications") and Applied Cellular
Technology, Inc., a Missouri corporation (collectively "ATI"). Alpha Micro and
ATI may be jointly referred to herein as "Parties".
R E C I T A L S:
WHEREAS, Alpha Micro and ATI entered into an Agreement of
Purchase and Sale (the "Alpha Purchase Agreement") or about December 23, 1997
wherein and whereby Alpha Sub purchased from ATI the right, title and interest
in a service business which Alpha Sub has continued to operate (the "Business")
upon specific terms and conditions, each of which are set forth with
particularity in the Purchase and Sale agreement between the Parties.
WHEREAS, disputes have arisen between the Parties with respect to
their duties and obligations under the Alpha Purchase Agreement, including
claims by each party against the other as to alleged breaches of the Alpha
Purchase Agreement. The claims, and cross claims, of each party were identified
in a series of letters between the respective counsel for the Parties exchanged
during January, 1999.
WHEREAS, Alpha Micro and ATI have now agreed to settle all
disputes between them with respect to the facts, relationships, and transactions
that give rise to claims and contentions, and to release each other from all
claims that each has or might have against the other with respect to said
allegations and contentions to avoid the expenses, hazards, and uncertainties of
litigation.
NOW, THEREFORE, in consideration of mutual covenants and
agreements contained herein, and other good and sufficient consideration and
intending to be legally bound, the parties hereto agree as follows:
<PAGE> 27
AGREEMENT
1. CONSIDERATION.
A. Alpha Micro agrees to transfer, assign and convey to ADSI Telecom
Services, Inc. ("ADSI"), pursuant to that Purchase and Sale Agreement by and
between them dated as of this same date (the "ADSI Purchase Agreement"), all
right, title and interest of Alpha Micro in the Business and ADSI has agreed
pursuant to such Purchase and Sale Agreement to assume all unpaid obligations of
Alpha Micro to ATI, excepting the obligation of Alpha Sub to make a payment to
ATI of Six Hundred Fifty Thousand Dollars ($650,000) that was due December 31,
1998 pursuant to Section 2.03(b) (the "Second Payment") of the Alpha Purchase
Agreement. Alpha Micro has agreed as part of the Closing that ADSI shall deliver
the purchase price in the amount of Six Hundred Fifty Thousand Dollars
($650,000) due Alpha Micro pursuant to the ADSI Purchase Agreement to ATI in
satisfaction of the Second Payment upon the closing of the transactions
contemplated by the ADSI Purchase Agreement.
B. ATI consents to the assignment by Alpha Micro to ADSI of all its
rights pursuant to the Alpha Purchase Agreement and the assumption by ADSI of
all remaining obligations of Alpha Micro pursuant to the Alpha Purchase
Agreement and agrees that effective upon the closing of the transfer, assignment
and conveyance by Alpha Micro to ADSI of the Business and the delivery of the
Second Payment to ATI (the "Closing"), ATI shall release, forgive and discharge
Alpha Micro from all duties and obligations of Alpha Micro, which currently
exist, or may in the future exist, arising out of the Purchase and Sale
agreement.
2. MUTUAL RELEASES.
A. Release of Claims by Alpha Micro.
Upon the Closing, Alpha Micro, for itself and on behalf of his
agents, representatives, assigns, officers, directors, employees, attorneys,
divisions, affiliates, parents, subsidiaries, successors and predecessors,
fully, finally and forever releases, waives and discharges ATI, its past and
present agents, representatives, assigns, officers, directors, employees,
attorneys, divisions, affiliates, parents, subsidiaries, successors and
predecessors, of and from any and all claims, including, without limitation,
claims relating to the matters referred to in the Recitals above, including,
without limitation, claims of breach of contract, negligence, breach of
fiduciary and other duty, fraud or misrepresentation, and any and all demands,
actions, cause of action, obligations, damages and liabilities of every nature
whatsoever, whether matured or contingent, whether known or unknown, suspected
or claimed, which Alpha Micro had in the past, now has, or claims to now have
against ATI, relating directly or indirectly to the matters referred to in the
Recitals above.
B. Release of Claims By ATI.
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<PAGE> 28
Upon the Closing, ATI, for itself and on behalf of his agents,
representatives, assigns, officers, directors, employees, attorneys, divisions,
affiliates, parents, subsidiaries, successors and predecessors, fully, finally
and forever releases, waives and discharges Alpha Micro, its past and present
agents, representatives, assigns, officers, directors, employees, attorneys,
divisions, affiliates, parents, subsidiaries, successors and predecessors, of
and from any and all claims, including, without limitation, claims relating to
the matters referred to in the Recitals above, including, without limitation,
claims of breach of contract, negligence, breach of fiduciary and other duty,
fraud or misrepresentation, and any and all demands, actions, cause of action,
obligations, damages and liabilities of every nature whatsoever, whether matured
or contingent, whether known or unknown, suspected or claimed, which ATI had in
the past, now has, or claims to now have against Alpha Micro, relating directly
or indirectly to the matters referred to in the Recitals above.
3. EXPRESS WAIVER OF UNKNOWN CLAIMS.
Alpha Micro, upon the advice of, and following consultation with
counsel of its choice, and ATI, upon advice of, and following consultation with
counsel of its choice, hereby waive any and all rights which they now have, or
in the future may have, conferred upon them by virtue of the provisions of
Section 1542 of the California Code of Civil Procedure, and any equivalent
provisions which may exist in other jurisdictions, which provide:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM, MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
4. ASSUMPTION OF RISK OF DIFFERENT FACTS.
The Parties hereto each acknowledge that they may hereafter
discover facts different from or in addition to those they now know or believe
to be true with respect to the claims, demands, causes of action, obligations,
damages, and liabilities of any nature whatsoever that are the subject of the
Releases set forth in Paragraph 2 of this Agreement, and they each expressly
agree to assume the risk of the possible discovery of additional or different
facts, and agree that this Agreement shall be and remain effective in all
respects regardless of such additional or different facts.
5. NO ASSIGNMENT.
Alpha Micro and ATI each hereby represent and warrant that
neither has heretofore assigned or transferred, or purported to assign or
transfer, to any person, corporation or other entity, any claim or cause of
action released hereunder. Alpha Micro and ATI each
-28-
<PAGE> 29
agree to indemnify the other, and its respective successors, against any
liability, loss, damage, cost and expense, including attorneys' fees, arising
out of any breach of the aforesaid representation and warranty.
6. COSTS OF SUIT.
In the event that a suit is brought to enforce any of the
provisions of this Agreement, the prevailing party or parties shall be entitled
to recover their attorneys' fees, expenses and costs of suit actually incurred.
7. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which
shall be deemed an original and each counterpart shall have the same effect as
if all Parties had executed the same counterpart.
8. REPRESENTATION IN SETTLEMENT.
Each party to this Agreement has been represented in negotiations
for, and in the preparations of this Agreement, by independent counsel. Each
Party hereby acknowledges that it has had this Agreement fully explained to him
by his counsel and is fully aware of its contents and legal effect prior to
execution of this Agreement.
9. NO RELIANCE ON REPRESENTATION BY OTHERS.
Each party to this Agreement represents that it has relied on its
own investigation and judgment in regard to all matters contained herein,
including the consequences of this transaction as a result of application of any
federal or state tax law, that it has not relied on any representation made by
any other party, that this Agreement is entered into by it of its own volition,
and that it entered into this Agreement free of any duress, coercion, or undue
influence.
10. ENTIRE AGREEMENT.
This Agreement contains the entire understanding between and
among the Parties with regard to this settlement as herein set forth. There are
no representations, warranties, agreements, arrangements, undertakings, oral or
written, between and or among the Parties hereto relating to this Agreement
which are not fully expressed herein. The Parties acknowledge that there are
collateral and related agreements reflected in the transfer of the business to
ADSI, which are not covered by this settlement.
11. MODIFICATIONS.
This Agreement may not be altered, amended, modified or otherwise
changed in any respect or particular whatsoever, except by writing duly executed
by all of the Parties affected by such modification or by their authorized
representatives. Any modification or waiver
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<PAGE> 30
of any one provision shall not constitute a waiver or modification of any other
provision not expressly waived or modified.
12. NO ADMISSION OF LIABILITY.
This Agreement is a compromise of disputed claims among and
between the Parties, liability for which is expressly denied by each party, and
it is not to be construed as an admission of liability by either party.
13. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of
the Parties hereto and their respective successors, assigns, shareholders,
partners, affiliated and related entities, officers, directors, agents,
employees, and representatives.
14. GOVERNING LAW.
This Agreement shall be interpreted in accordance with and
governed in all respects by the laws of the State of Pennsylvania.
15. AUTHORITY.
By execution of this Agreement, each party warrants that:
(a) This Agreement is executed on behalf of a valid and
subsisting legal entity;
(b) Such entity has full right and authority to undertake
the actions contemplated by this Agreement;
(c) The execution of this Agreement has been duly and
properly authorized by the party on whose behalf said Agreement is executed in
accordance with all applicable laws, regulations, agreements, and procedures
governing the authority of such person or entity to execute this Agreement on
behalf of such party; and
(d) The consent of all persons or entities whatsoever
necessary to the due execution of this Agreement has been obtained.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the dates which appear opposite their signatures.
-30-
<PAGE> 31
ALPHA MICROSYSTEMS,
a California corporation
DATED: April 1, 1999
By:
-------------------------------------
Its:
------------------------------
ALPHA TECHNOLOGY INTERCONNECT, INC.,
a Delaware corporation
DATED: April 1, 1999
By:
-------------------------------------
Its:
------------------------------
ADVANCED TELECOMM OF PITTSBURGH,
a Pennsylvania Business Trust
DATED: April 1, 1999
By:
-------------------------------------
Its:
------------------------------
ADVANCED TELECOMM OF BUTLER, INC.,
a Pennsylvania corporation
DATED: April 1, 1999 By:
-------------------------------------
Its:
------------------------------
-31-
<PAGE> 32
ADVANCED TELECOMM OF WASHINGTON, D.C., INC.,
a Pennsylvania corporation
By:
-------------------------------------
Its:
------------------------------
DATED: April 1, 1999
ADVANCED TELECOMM OF MARYLAND, INC.,
a Pennsylvania corporation
By:
-------------------------------------
Its:
------------------------------
DATED: April 1, 1999
APPLIED CELLULAR TECHNOLOGY, INC.,
a Missouri corporation
By:
-------------------------------------
DATED: April 1, 1999 Its:
------------------------------
-32-
<PAGE> 33
APPROVED AS TO FORM:
ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP
By:
------------------------------------
Marvin E. Garrett
DATED: April 1, 1999 Attorneys for Alpha Microsystems
MERRA, KANAKIS, CREME & MELLOR, P.C.
By:
------------------------------------
DATED: April 1, 1999 Paul D. Creme
Attorneys for ATI
-33-
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,152
<SECURITIES> 0
<RECEIVABLES> 7,762
<ALLOWANCES> 668
<INVENTORY> 0
<CURRENT-ASSETS> 11,918
<PP&E> 13,569
<DEPRECIATION> 9,539
<TOTAL-ASSETS> 25,627
<CURRENT-LIABILITIES> 9,465
<BONDS> 0
12,843
0
<COMMON> 32,684
<OTHER-SE> (30,152)
<TOTAL-LIABILITY-AND-EQUITY> 25,627
<SALES> 1,214
<TOTAL-REVENUES> 9,605
<CGS> 888
<TOTAL-COSTS> 7,244
<OTHER-EXPENSES> 3,182
<LOSS-PROVISION> (23)
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (819)
<INCOME-TAX> 0
<INCOME-CONTINUING> (819)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (819)
<EPS-PRIMARY> (0.10)
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