FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of Report (Date of earliest event reported) November 26, 1996.
DCI Telecommunications, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 2-96976-D 84-1155-41
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) Number)
P.O. Box 320334, Fairfield, CT 06432
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(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 259-7713
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(Former name or former address, if changed since last report.)
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ITEM 2: Acquisition or Disposition of Assets
On November 26, 1996, DCI Telecommunications, Inc. entered into a stock
purchase agreement with Muller Media, Inc. (Muller), a New York corporation,
whereby DCI acquired 100% of the outstanding common stock of Muller in a stock
for stock purchase, with DCI exchanging one million two hundred thousand
(1,200,000) shares of common stock for all of the shares of Muller Media
capital stock. The DCI stock was valued at two dollars and fifty cents ($2.50)
per share.
The shares of both companies have been deposited with an escrow agent. DCI can
repurchase the shares, if Muller exercises a "put" option which commences on
the earlier of 120 days from December 27, 1996, unless an extension is
requested by DCI, which Muller Media cannot unreasonably withhold, or 14 days
after DCI has received an aggregate of $3,000,000 in net proceeds from the
sale of its capital stock. The selling stockholders have an option to keep
DCI stock or accept up to $3,000,000 in cash from DCI. DCI is in the process
of filing an S-1 Registration with respect to raising $7.5 million via a
convertible preferred issue.
The Stock Purchase Agreement is attached hereto and sets forth in detail the
final agreement between the parties.
The persons from whom the Muller stock was acquired are:
Robert Muller 80%
Daniel Mulholland 20%
The valuation was based on arms length negotiation. Mr. Robert Muller,
President of Muller Media, has been on the Board of Directors of DCI since
December 1994.
The physical property acquired consists primarily of furniture and office
equipment used in the company's headquarters. Muller is a distributor of
syndicated programming and motion pictures to the television and cable
industry. The registrant's intention is to continue to use such assets for the
same purpose.
It is impracticable to provide the required audited financial statements with
this Form 8K but the company expects to file such statements within 60 days of
this report. The company is voluntarily filing unaudited statements listed
below.
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ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS
Copy of Stock Purchase Agreement
Muller Media Balance Sheets
- June 30, 1996, December 31, 1995
Muller Media Statements of Operations
- Year Ended December 31, 1995, 6 months Ended June 30, 1996
Muller Media Statement of Cash Flow
- Year Ended December 31, 1995, 6 months Ended June 30, 1996
Pro Forma Consolidated Balance Sheet
Pro Forma Consolidated Statement of Operations
<PAGE>
STOCK PURCHASE AGREEMENT
Among
MULLER MEDIA,INC.,
ROBERT MULLER, and
DANIEL MULHOLLAND
and
DCI TELECOMMUNICATIONS, INC.
November 26, 1996
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT made this 26th day November, 1996 among MULLER MEDIA, INC., a
corporation organized under the laws of the State of New York (the "Company");
ROBERT MULLER ("Muller"); DANIEL MULHOLLAND ("Mulholland"; together with
Muller, the "Selling Stockholders") (the Company and the Selling Stockholders
are sometimes collectively referred to as the "Sellers"); and DCI
TELECOMMUNICATIONS, INC., a corporation organized under the laws of the State
of Colorado ("Purchaser").
A. The Company is engaged in the business of purchasing, selling, distributing,
licensing and otherwise dealing in the acquisition and transfer of motion
picture and other entertainment media and rights (collectively, the
"Business").
B. Purchaser desires to purchase, and the Selling Stockholders desire to sell,
all of the capital stock of the Company, as more fully set forth herein.
NOW THEREFORE, in consideration of the premises and of the mutual promises,
covenants, representations and warranties made in this Agreement, Purchaser,
the Company and the Selling Stockholders intending to be legally bound, hereby
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used herein, the following terms shall have the
following meanings, respectively:
"Accounts Receivable" shall mean all of the Company's accounts receivable
and notes receivable created or arising in respect of the sale of products,
services or other assets of the Business or otherwise.
"Affiliate" shall mean, as to any specified person, (a) any other person
controlling, controlled by or under common control with such specified person,
(b) any officer, director or partner of such specified person, (c) any other
person of which such specified person is an officer, employee, agent, director,
shareholder or partner or (d) any member of the Family Group of such specified
person or of any individual who is an Affiliate of such specified person by
reason of clause (a) or (b) of this definition. The term "control", with
respect to any person, means possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or a partnership interest,
<PAGE>
by contract or otherwise. "Family Group" means, as to any individual, such
individual's spouse, ancestors, lineal descendants and trusts for the benefit
of any of the foregoing, provided that all the income beneficiaries and
remainderman of any such trust are such individual's spouse, ancestors or
lineal descendants.
"Assets" shall mean, collectively, the Accounts Receivable, Cash, Equipment,
Intellectual Property and Information, Leasehold Improvements and Fixtures,
Prepaid Items, Leased Real Property and Rights and Other Property, all as
existing on the Closing Date.
"Cash" shall mean all of the Company's cash and cash equivalents.
"Closing" shall mean the consummation of the transactions contemplated to
occur hereunder on the Closing Date pursuant to Article III hereof.
"Closing Date" shall mean the fifth business day after the conditions to
Closing have been satisfied, or such other date and time as shall be mutually
agreed to in writing by the parties but not more than 30 days from date of
execution of this Agreement.
"Condition" shall mean the assets, liabilities, business, prospects,
operations, results of operations or condition (financial or otherwise) of the
Company or the Assets.
"Employment Agreement" shall mean, as the context may require, each of the
Employment Agreements between Purchaser and the Selling Stockholders,
respectively, in the forms attached hereto as Exhibits A-1 and A-2.
"Equipment" shall mean all of the Company's furniture, fixtures, machinery,
equipment, motor vehicles, office equipment, computers, tools and replacement
parts, wherever located (including without limitation all Equipment in the
possession of vendors or others), all as existing on the Closing Date.
"Escrow Agent" shall mean Whitman Breed Abbott & Morgan or Pavia & Harcourt,
as the context may require, in each case, acting in its capacity as escrow
agent under the Escrow Agreement.
"Escrow Agreement" shall mean the Escrow Agreement among the Company, the
Selling Stockholders, Purchaser and each of the Escrow Agents in the form
attached hereto as Exhibit B.
"Intellectual Property and Information" shall mean all the following assets
of the Company: patents, applications for patents, trademarks, trademark
registrations, applications for trademark registrations, trade names, service
marks, copyrights, computer programs, trade secrets, product related artwork
and know-how.
<PAGE>
"Leased Real Property" shall mean the real property leased by the Company
and located at 11 East 47th Street, New York, New York.
"Leasehold Improvements and Fixtures" shall mean all of the leasehold
improvements, fixtures and appurtenances owned by the Company and attached to
the Leased Real Property, all as existing on the Closing Date.
"Liabilities" shall mean any and all obligations or liabilities of the
Company of any nature whatsoever, express or implied, matured or unmatured,
disputed, liquidated, unliquidated, absolute, fixed or contingent, known or
unknown.
"Liens" shall mean mortgages, liens, pledges, claims, charges, security
interests, conditional sale agreements, license agreements, options,
imperfections of sale, tenancies or other rights, interests or encumbrances of
any nature whatsoever.
"Prepaid Items" shall mean all of the Company' prepaid expenses, including
but not limited to advances and deposits, all as existing on the Closing Date.
"Rights and Other Property" shall mean all of the Company's assets not
included in the Accounts Receivable, Cash, Equipment, Intellectual Property and
Information, Inventory, Leasehold Improvements and Fixtures, Prepaid Items and
Leased Real Property used or useful in carrying out the business of the
Company as it is currently conducted, including, without limitation, all of the
following which relate to such business: marketable securities, shares of
capital stock, partnership interests or other securities in any corporation,
partnership or other entity owned by the Company, the Company' rights under
agreements with third parties , executed originals of such agreements, rights
of offset, credits, claims against third parties for refunds, causes of action,
judgments, proceeds of insurance, going concern value, goodwill, rights in the
name "Muller Media" and any variation thereof, contract rights, purchase
orders, sales orders, warranties and licenses received from manufacturers and
sellers of Equipment and Inventory, vendor and customer records, shipping
records, franchises, licenses, permits, consents, approvals, certificates of
public convenience, waivers and authorizations, technical information,
telephone numbers, rights, files, books and records (whether in hard copy or
magnetic form), sales and product brochures and catalogs and other sales
literature and materials
"Shares" shall mean the capital stock of the Company outstanding on the
Closing Date.
<PAGE>
ARTICLE II
SALE AND PURCHASE OF SHARES; TRANSACTION CONSIDERATION
Section 2.1. Sale and Purchase of Shares. Subject to the terms and conditions
contained in this Agreement, at the Closing on the Closing Date, the Selling
Stockholders shall sell, assign, transfer and deliver to Purchaser and
Purchaser shall purchase from the Selling Stockholders, free and clear of all
Liens, all of the Shares. The Shares shall be delivered to Pavia & Harcourt,
as Escrow Agent, for deposit and disposition pursuant to the Escrow Agreement
it being understood however, that unless and until such Shares are released to
Purchaser in accordance with the terms of the Escrow Agreement, title thereto
shall remain with the Selling Stockholders.
Section 2.2. Transaction Consideration.
(a) At the Closing, Purchaser shall deliver to Whitman Breed Abbott &
Morgan, as Escrow Agent, for deposit and disposition pursuant to the Escrow
Agreement, 1,200,000 shares of unregistered, restricted Common Stock, $.0001
par value, of Purchaser ("DCI Shares") valued at a price of $2.50 per share
(the "Closing Consideration"), it being understood, however, that unless and
until such DCI Shares are released to Selling Stockholders in accordance with
the terms of the Escrow Agreement, title thereto shall remain with Purchaser.
(b) Commencing on the earlier of (i) 120 days from the Closing Date (or
such longer period as may be consented to in writing by the Selling
Stockholders, which consent shall not be unreasonably withheld) and (ii)
fourteen days after the date on which DCI has received an aggregate of
$3,000,000 in net proceeds from the sale of its capital stock after the Closing
Date, and ending on the later of (x) the tenth business day thereafter and (y)
if the date referred to in clause(ii) precedes the date referred to in clause
(i), the tenth business day after the Selling Stockholders have received
written notice that the conditions in clause (ii) above have been satisfied
(the "Option Period"), the Selling Stockholders shall have the option (the "Put
Option") to require DCI to repurchase DCI Shares representing the Closing
Consideration from them, pro rata in accordance with Schedule A, with an
aggregate value of up to $3,000,000. The Selling Stockholders must exercise
their Put Option by notice in writing to DCI prior to the expiration of the
Option Period. The per share price at which DCI repurchases such DCI Shares
from the Selling Stockholders shall equal the average closing price of DCI
Shares on NASDAQ or, if the DCI Shares are not then listed on NASDAQ, the
average of the closing bid and ask price of DCI Shares on the OTC Bulletin
Board, in each case for the two weeks preceding the date of exercise of the
option. If the aggregate value of the DCI Shares issued by DCI to the Selling
Stockholders as the Closing Consideration, determined in accordance with the
preceding sentence as of the date of exercise of the Put Option, is less than
$3,000,000, then DCI shall promptly issue to the Selling Stockholders, pro rata
<PAGE>
in accordance with Schedule A, that number of DCI Shares (the "Deferred Closing
Consideration") as is necessary to increase such aggregate value to equal
$3,000,000. Such Deferred Consideration shall be held by Whitman Breed Abbott &
Morgan, as Escrow Agent under and pursuant to the Escrow Agreement and shall
automatically and without further act, immediately become subject to the
exercised Put Option. The Deferred Closing Consideration and the Closing
Consideration are sometimes collectively referred to herein as the Transaction
Consideration. If the aggregate value of the DCI Shares issued by DCI to the
Selling Stockholders as the Closing Consideration, determined as set forth
above as of the date of the exercise of the Put Option, is more than
$3,000,000, then DCI shall purchase only such number of DCI Shares whose
aggregate value equals the $3,000,000 and any remaining DCI Shares shall be
transferred into the names of and delivered to the Selling Stockholders pro
rata in accordance with Schedule A.
(c) The closing of the Put Option shall be held on the tenth day after the
end of the Option Period, at which time the Selling Stockholders shall cause
Pavia & Harcourt, as Escrow Agent to deliver to DCI the DCI Shares with
respect to which the Put Option was exercised free and clear of all Liens and
DCI shall (i) pay the purchase price therefor in cash, certified or bank check,
or by wire transfer to the Selling Stockholders pro rata in accordance with
Schedule A, and (ii) cause Whitman Breed Abbott & Morgan, as Escrow Agent to
release the remaining DCI Shares to the Selling Stockholders, pro rata in
accordance with Schedule A. Upon the occurrence of the above, the Selling
Stockholders shall cause Pavia & Harcourt, as Escrow Agent to deliver all of
the Shares to DCI. Immediately upon occurrence of above, Purchaser shall
execute Employment Agreements and deliver to Selling Stockholders.
(d) If the Put Option is exercised by the Selling Stockholders with
respect to all of the DCI Shares constituting the Transaction Consideration and
DCI defaults in its obligation to purchase such Shares, then, the transaction
unwinds, and the parties shall have no further liability or obligation to each
other pursuant to this Agreement, except that if Purchaser has secured funds
but does not complete such purchase, Purchaser shall immediately pay to Seller
an amount equal to the reasonable out-of-pocket expenses including without
limitation reasonable attorneys' fees and expenses incurred by the Company and
the Selling Stockholders in connection with their efforts in consummating the
transactions contemplated hereby. If no funds are secured by the Purchaser,
then Purchaser is not responsible for any Seller expenses incurred other than
as set forth in Section 3.1(c). A closing of the transactions contemplated by
this Subsection (d) shall take place within ten (10) days of a default by DCI
as provided in the preceding sentence.
Sections 2.3, 2.4 and 2.5 intentionally left blank.
Section 2.6. Allocation of Transaction Consideration. Sellers and Purchaser
agree that the Transaction Consideration shall be allocated among the Shares in
<PAGE>
the manner determined by the tax advisors of the Seller and further agree that
each will report the federal income tax consequences of such purchase and sale
contemplated hereby in a manner consistent with such allocation.
ARTICLE III
CLOSING
Section 3.1. Closing.
(a) General. Unless otherwise agreed to by the parties hereto, the
closing under this Agreement (the "Closing") will be held at the offices of
Whitman Breed Abbott & Morgan, 100 Field Point Road, Greenwich, Connecticut
06830.
(b) Deliveries. At the Closing:
(i) Each of the Selling Stockholders will:
(a) Deliver to Pavia & Harcourt, as Escrow Agent Certificates
representing all of their Shares duly endorsed in
blank or accompanied by stock powers or other instruments of
transfer duly executed in blank, and such other instruments
of transfer, sale and assignment as shall be necessary to
vest in Purchaser good title to, or to assign and transfer
to Purchaser all of the Selling Stockholders' and the
Company's right, title and interest in the Shares and the
Assets; and
(b) Deliver to Purchaser all other agreements, certificates,
consents, approvals and documentary evidence required to be
delivered pursuant to Sellers' obligations hereunder and a
certificate confirming the accuracy of their representations
and warranties made in Article IV hereof.
(ii) Purchaser will pay to Whitman Breed Abbott & Morgan, as
Escrow Agent the Closing Consideration specified in Section 2.2,
and will deliver to Sellers such agreements, certificates,
consents, approvals and documentary evidence required to be
delivered pursuant to Purchaser's obligations hereunder and a
certificate confirming the accuracy of its representations and
warranties made in Article V hereof.
(c) Expenses. Unless otherwise specifically set forth in this
Agreement, the Sellers shall be responsible for the payment
of costs they have incurred and will incur in connection
with the execution and delivery of this Agreement and
<PAGE>
consummation of the transactions contemplated hereby and
Purchaser shall be responsible for the payment of costs it
has incurred and will incur in connection with the execution
and delivery of this Agreement and consummation of the
transactions contemplated hereby; provided, however, that
Purchaser shall be responsible for the payment of all costs
in connection with obtaining audited financial statements of
the Company and provided, further that any sales taxes,
property transfer taxes and similar or related taxes payable
in connection with the transfer of the Shares and Assets
shall be paid by the Selling Stockholders; provided further
that if any of the Sellers or Purchaser becomes subject to a
judicial proceeding which results in the invalidity or
rejection of, or a stay, injunction or similar order
continuing for more than ninety (90) days against this
Agreement or the transactions contemplated hereby or
consummated hereunder, then such party shall immediately
pay to the other an amount equal to the reasonable out-of-
pocket expenses, including without limitation, reasonable
attorney's fees and expenses incurred in connection with the
efforts of such other party respecting the transactions
contemplated hereby.
(d) Subsequent Documentation. Each party hereto shall at any
time and from time to time upon the request of any other
party hereto execute, acknowledge and deliver, or cause to
be executed, acknowledged and delivered, all such further
assignments and instruments of sale and transfer as may be
reasonably required for the better assigning, transferring
and confirming to such requesting party or its successors
and assigns, or for aiding and assisting such requesting
party or its successors and assigns in collecting and
reducing to possession, any or all of the DCI Shares, the
Shares or the Assets, as the case may be.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RESPECTING
THE COMPANY
Each of the Sellers represents and warrants with respect to itself to
Purchaser as follows:
Section 4.1. Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York.
<PAGE>
Section 4.2. Due Authorization. The execution and delivery of this Agreement
by each of the Sellers and the sale of the Shares and performance of the
obligations of each of the Sellers contemplated hereby, by the Escrow Agreement
and by the Employment Agreements have been duly and validly authorized by all
necessary corporate and shareholder action. Each of the Sellers has the right,
power and authority to enter into and perform this Agreement, the Escrow
Agreement and its respective Employment Agreement.
Section 4.3. Conflict with other Instruments: Absence of Restrictions. The
execution, delivery and performance of this Agreement, the Escrow Agreement and
the Employment Agreements by each of the Sellers, including without limitation
the transfer of the Shares by the Selling Stockholders to Purchaser, will not
contravene any provision of the Company's articles of incorporation or by-laws
and except as otherwise disclosed to Purchaser on or prior to the Closing Date,
will not result in a breach of, or constitute a default under, any agreement or
other document to which any of the Sellers is a party or by which any of the
Sellers is bound, or any decree, order or rule of any domestic or foreign court
or governmental agency or any provision of applicable law which is binding on
any of the Sellers or on any of the Assets, or result in the creation or
imposition of any mortgage, pledge, lien, charge, assessment, encumbrance,
claim or restriction of any nature on any of the Company, the Shares or the
Assets or give to others any interest or rights therein or create in any third
party the right to modify, terminate or accelerate (or to make a claim for
damages in respect of) any instrument or contract to which any of the Sellers
is a party or by which any of the Sellers is bound.
Section 4.4. Government and Third-Party Approvals. Except as disclosed to
Purchaser on or prior to the Closing Date, no consent by, approval or
authorization of or filing, registration or qualification with any federal,
state or local authority, or any foreign governmental authority, or any
corporation, person or other entity (including any party to any contract or
agreement with any of the Sellers) is required (i) for the execution, delivery
or performance of this Agreement, the Escrow Agreement or the Employment
Agreements by any of the Sellers, or (ii) in connection with the consummation
by the Sellers of the transactions contemplated hereby and thereby.
<PAGE>
Section 4.5. Title to Shares and Assets and Related Matters. The Selling
Stockholders have good, valid and marketable title to all of the Shares and the
Company has good, valid and marketable title to all of its assets constituting
the Assets, whether tangible or intangible, and whether consisting of real or
personal property and all such Shares and Assets are held free and clear of any
Liens except for Liens disclosed to Purchaser on or prior to Closing Date and
liens for current taxes and assessments not yet due and payable. The
instruments of transfer to be executed by the Selling Stockholders at the
Closing will be effective to transfer to Purchaser good and marketable title
to, and assign to Purchaser all of the Selling Stockholders' right, title and
interest in and to, the Shares free and clear of any Liens.
Section 4.6. Other Representations Regarding Assets and Shares.
(a) Real Property. With respect to the lease for the Leased Real
Property, no breach or event of default on the part of Company and to the
knowledge of Sellers, no breach or event of default on the part of any other
party thereto and no event that, with the giving of notice or lapse of time, or
both, would constitute such breach or event of default has occurred and is
continuing unremedied or unwaived that would adversely affect the Condition.
To the knowledge of Sellers, there is no outstanding notice of violation, order
or citation against the Company under any law, ordinance, governmental rule or
regulation relating to any of the Leased Real Property.
No real property is owned, leased, operated, occupied or used by the Company in
connection with the operation of the Business, other than the Leased Real
Property.
Section 4.6 (b)-(f) Intentionally Left Blank.
(g) Intellectual Property and Information. No claim is pending or, to the
knowledge of Sellers, threatened to the effect that (i) the present or past
operations of the Company infringe upon or conflict with the asserted rights of
any other person in respect of any Intellectual Property and Information or
(ii) any Intellectual Property and Information is invalid or unenforceable.
(h) Generally. The assets constituting the Assets constitute all of the
material assets of the Company used in carrying out the business of the Company
as it is currently conducted.
(i) Subsidiaries. The Company has no subsidiaries and has never had any
subsidiaries.
(j) Shares. All of the Shares are duly authorized, validly issued and
outstanding, fully paid and nonassessable. The Selling Stockholders are the
<PAGE>
record and beneficial owners of all of the hares as set forth in Schedule A,
free and clear of any and all Liens. The Shares are transferrable without
restriction. There are no agreements, commitments or restrictions relating to
the ownership or voting of any of the Shares.
(k) Options or Other Rights. There is no outstanding option, warrant,
call, commitment, subscription, conversion privilege or other agreement
requiring the issuance, sale, disposition, purchase or redemption of any shares
of stock or other securities of the Company (and there is no agreement or
commitment to issue any such option, warrant, call, subscription, conversion
privilege or other right). None of the shares of stock or other securities of
the Company are reserved for issuance for any purpose.
Sections 4.7 and 4.8 Intentionally left blank.
Section 4.9. Permits and Approvals. All licenses, permits, approvals,
authorizations, consents and registrations pertaining to the Assets and the
Company, are in full force and effect, and the Company is currently being
operated in compliance with the terms of each of the foregoing.
Section 4.10. Compliance with Law. Sellers have complied with each, and, to
the knowledge of Sellers, the Sellers are not in violation of, any, law,
ordinance or governmental rule or regulation to which the Company, or the
Assets are subject and, to the knowledge of Sellers, the Company has not failed
to obtain, any license, permit or authorization necessary to the ownership of
the Assets or the operation of the Company.
Section 4.11 Intentionally Left Blank.
Section 4.12. Litigation. Except as disclosed to Purchaser on or prior to the
Closing Date, no litigation, arbitration, investigation or other proceeding of
or before any court, arbitrator or governmental or regulatory official, body or
authority is pending or, to the knowledge of the Sellers, threatened against
Sellers with respect to the Company or any of the Assets, and the Sellers know
of no basis for any such litigation, arbitration, investigation or proceeding;
and the Sellers are not a party to or to the knowledge of Sellers, subject to
the provisions of any judgment, order, writ, injunction, decree or award of any
court, arbitrator or governmental or regulatory official, body or authority
which materially and adversely affects the Company or the Assets or their
operation.
Section 4.13 Intentionally Left Blank.
Section 4.14. Contracts, Leases, Etc. The Company is not, and, to the
knowledge of Sellers, no other party is in default in the performance,
observance or fulfillment of any obligation, covenant or condition contained in
any material contract to which the Company is a party and to the knowledge of
<PAGE>
Seller, no event has occurred which with or without the giving of notice or
lapse of time, or both, would constitute a default thereunder.
Section 4.15 Intentionally Left Blank.
Section 4.16. Taxes. The Company has duly and timely filed with the
appropriate governmental agencies (federal, state, local and foreign) all tax
and other returns required to be filed by it. The Company has paid, or has made
sufficient provision for the payment of, all taxes required (i) to be paid by
it for all fiscal and other applicable tax periods which have ended or (ii) to
be accrued for the portion of the current fiscal or other current applicable
tax period up to the day prior to the Closing Date. No deficiencies for any
taxes have been asserted in writing or assessed against the Company which
remain unpaid and which individually or in the aggregate are material to the
Condition.
Sections 4.17 and 4.18 Intentionally Left Blank.
Section 4.19. Overtime, Back Wage, Vacation, Discrimination, and Occupational
Safety Claims. Except as disclosed to Purchaser on or prior to the Closing
Date, to the knowledge of Sellers, there are no outstanding claims against the
Company (whether under federal, state or foreign law, under any employment
agreement, union labor contract or otherwise) asserted by any present or former
employee of the Company on account of or for (i) overtime pay, other than
overtime pay for work done during the current payroll period; (ii) wages or
salary for any period other than the current payroll period; (iii) any amount
of vacation pay or pay in lieu of vacation time, other than vacation time or
pay in lieu thereof earned in or in respect of the current fiscal year; or (iv)
any violation of any statute, ordinance or regulation relating to minimum wages
or maximum hours of work. To the knowledge of Sellers, no person or party has
asserted or threatened to assert any claims against the Company under or
arising out of any statute, ordinance or regulation relating to discrimination
or occupational safety in employment or employment practices (including,
without limitation, the Occupational Safety and Health Act of 1970, as amended,
the Fair Labor Standards Act, as amended, Title VII of the Civil Rights Act of
1964, as amended, or the Age Discrimination in Employment Act of 1967, as
amended).
Section 4.20. Pension and Other Employee Benefit Plans. As to each such
employee benefit plan maintained by the Company, each of the following is true:
(i) all amounts due from the Company as contributions to the date hereof have
been paid or accrued on their books; (ii) the Company and any Affiliated
Company (as hereinafter defined) have performed or satisfied all material
obligations required to be performed or satisfied by them under, and are not in
default under or in violation of, any such plan and, to the best of Sellers'
knowledge, no other party is in default thereunder or in violation thereof;
<PAGE>
(iii) the Company and any Affiliated Company are in compliance in all material
respects with the requirements (including reporting and disclosure requirements
applicable to them) prescribed by all statutes, orders or governmental rules or
regulations applicable to such plans; and (iv) there are no material actions,
suits or claims pending (other than routine claims for benefits) or, to
Sellers' knowledge, threatened, against any such plan or against the assets of
any such plan. For purposes
of this Section 4.20, "Affiliated Company" shall mean any member whether or not
incorporated) of a group which is part of a controlled group of corporations or
under common control (within the meaning of the regulations promulgated under
Section 414 of the Code) and of which the Company is a member.
Section 4.21. Contracts with Affiliates. Except as disclosed to Purchaser on
or prior to the Closing Date, there are no contracts, obligations or
arrangements between the Company and any Affiliate, director, officer,
shareholder or employee of the Company, or any Affiliate of any such person.
Section 4.22. Commission. Neither the Sellers nor anyone acting on their
behalf has made any agreement or taken any action which may cause anyone
claiming through Sellers to become entitled to a commission as a result of the
sale of the Shares or the consummation of the other transactions contemplated
by this Agreement or the Employment Agreements.
Section 4.23. Statements and Other Documents Not Misleading.
Neither this Agreement, nor any financial statement, document or other
instrument heretofore or hereafter furnished by Sellers to Purchaser in
connection with the transactions contemplated hereby contains or will contain
any untrue statement of any material fact or omits or will omit to state any
material fact required to be stated in order to make such statement, document
or other instrument not misleading. There is no fact known to Sellers which
would materially adversely affect the Condition which has not been set forth in
writing to Purchaser.
ARTICLE V
REPRESENTATIONS AND WARRANTIES RESPECTING PURCHASER
Purchaser represents and warrants to the Sellers as follows:
Section 5.1. Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado.
Section 5.2. Due Authorization. The execution and delivery of this Agreement,
the Escrow Agreement and the Employment Agreements by Purchaser and the
purchase of the Shares and performance of the obligations of Purchaser
contemplated hereby, by the Escrow Agreement and by the Employment Agreements
have been duly and validly authorized by all necessary corporate and
shareholder action. Purchaser has the corporate right, power and authority to
<PAGE>
enter into and perform this Agreement, the Escrow Agreement and the Employment
Agreements, and this Agreement, the Escrow Agreement and Employment Agreements
constitute, the valid and binding obligations of Purchaser, enforceable against
Purchaser in accordance with their terms.
Section 5.3. Conflict With Other Instruments. The execution, delivery and
performance of this Agreement, the Escrow Agreement and the Employment
Agreements by Purchaser will not contravene any provision of the certificate of
incorporation or by-laws of Purchaser and will not result in a breach of, or
constitute a default under, any agreement or other document to which Purchaser
is a party or by which Purchaser is bound, or any decree, order or rule of any
court or governmental agency or any provision of applicable law which is
binding on Purchaser.
Section 5.4. Government and Third-Party Approvals. No consent by, approval or
authorization of or filing, registration or qualification with any federal,
state or local authority, or any corporation, person or other entity (including
any party to any contract or agreement with Purchaser) is required for the
execution, delivery or performance of this Agreement, the Escrow Agreement or
the Employment Agreements by Purchaser or in connection with Purchaser's
consummation of the transactions contemplated hereby and thereby.
Section 5.5. Commission. Neither Purchaser nor anyone acting on its behalf
has made any agreement or taken any action which may cause anyone claiming
through Purchaser to become entitled to a commission as a result of the
purchase of the Shares or the consummation of the other transactions
contemplated by this Agreement or the Employment Agreements.
Section 5.6 Acquisition of Shares for Investment. Purchaser is acquiring the
Shares for investment and not with a view toward, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling such Shares.
Section 5.7 SEC Filings, Financial Statements.
(a) DCI has made available to the Sellers all forms, reports and documents
filed with the Securities and Exchange Commission ("SEC") since January 1, 1995
and all amendments and supplements to all such reports filed by the Company
with the SEC (collectively, the "DCI SEC Reports"). The DCI SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
<PAGE>
(b) Each of the financial statements (including, in each case, any related
notes thereto) contained in the DCI SEC Reports was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and each fairly presented the financial position of DCI as at the
respective dates thereof and the results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were not
or are not expected to be material in amount.
Section 5.8 DCI Shares. The DCI Shares to be issued pursuant to this
Agreement will be duly authorized, validly issued, fully paid and nonassessable
and free and clear of all Liens.
ARTICLE VI
CERTAIN COVENANTS AND OTHER MATTERS
Section 6.1. Corporate Examinations and Investigations. Between the date
hereof and the Closing Date, the Company agrees to cooperate (and to cause its
officers, employees, consultants, agents, attorneys and accountants to
cooperate) fully with Purchaser and with Purchaser's counsel, accountants and
representatives in the conduct of a due diligence investigation of the Company
from financial, legal, environmental, insurance, valuation, solvency and any
other perspectives and, in connection with such due diligence investigation, to
grant to Purchaser and such representatives access to the properties, records
and, with the prior consent of the Company (which shall not be unreasonably
withheld), employees, customers, creditors, vendors and suppliers of the
Company. If, upon any such such investigation, Purchaser learns of any
circumstances constituting a breach of any of the representations, warranties,
covenants or agreements of Sellers or otherwise adversely effect the business
of the Company, Purchaser's sole remedy shall be to notify Sellers in writing,
prior to the Closing Date, of its intention not to proceed with the Closing
and, unless Sellers agree in their sole discretion to correct any such breach
or adverse circumstances prior to the Closing Date and such breach or adverse
circumstances is in fact corrected to Purchaser's satisfaction, the
transactions contemplated hereby shall unwind and the parties shall have no
further liability or obligation to each other pursuant to this Agreement.
Section 6.2. Confidentiality Agreement. Unless otherwise agreed to in writing
by Sellers or, except as provided below, as otherwise required by law,
Purchaser agrees for itself, its agents and employees to (i) keep all
Proprietary Information (as hereafter defined) confidential and not to disclose
or reveal any Proprietary Information to any person other than its officers,
directors, partners, affiliates, employees, attorneys, accountants, other
agents and representatives who are participating in the evaluation of the
Company and the transactions contemplated hereby, provided that any such
persons shall first agree to be bound by the provisions of this Section 6.2 and
<PAGE>
(ii) not use the Proprietary Information for any purpose other than in
connection with the evaluation and/or consummation of the transactions
contemplated hereby and (iii) in the event of a disclosure of any Proprietary
Information required by law to notify Sellers in writing as promptly as
practicable prior to any such disclosure and to cooperate with Sellers to the
extent legally permissible in restraining any such disclosure. As used herein,
the term "Proprietary Information" means confidential information about the
Company furnished to Purchaser by Sellers or on Seller's behalf; provided,
however, that Proprietary Information shall not include information which (i)
is or becomes generally available to the public other than as a result of a
disclosure by Purchaser or any other person referenced above, in violation of
this Agreement, or (ii) was available to Purchaser on a non-confidential basis
prior to its disclosure by Sellers. The obligations of Purchaser under this
Section 6.2 shall continue in full force and effect, notwithstanding a
termination of this Agreement, unless and until the Shares are released to DCI
pursuant to and in accordance with the term of the Escrow Agreement. If the
Shares are not released to DCI pursuant to the Escrow Agreement, Purchaser
will, upon the request of Sellers, destroy or return to Sellers all Proprietary
Information which is in writing or can otherwise be destroyed or returned.
Section 6.3 Intentionally Left Blank.
Section 6.4. Consents, Further Assurances. Consistent with the terms and
conditions hereof, each party hereto will use its best efforts to execute and
deliver such other documents and take such other actions as reasonably
requested by the other party to fulfill the conditions precedent to the
obligation of the other party to consummate the purchase and sale of the Shares
or as the other party hereto may reasonably request in order to carry out this
Agreement and the transactions contemplated hereby. Purchaser and Sellers
shall use their best efforts and will cooperate with each other to the extent
reasonably necessary to obtain all consents, approvals and waivers, if any,
from third parties required to consummate the transactions contemplated hereby
or which, if not obtained, would materially adversely affect the Condition or
the operation of the Company or the Assets.
Section 6.5. Conduct of Business Prior to the Closing. Between
the date of this Agreement, and the termination of the escrow period provided
for in the Escrow Agreement:
(a) The Company shall conduct its business, operations, activities and
practices (including, without limitation, its maintenance and management of
Cash) in the usual and ordinary course, consistent with its past practices;
(b) The Sellers shall not take and shall use their best efforts not to
suffer or permit any action which would render untrue any of the
representations or warranties of Sellers herein contained, and Sellers shall
make all reasonable efforts not to omit to take any action the omission of
which would render untrue any such representation or warranty;
<PAGE>
(c) The Sellers shall use their best efforts to (i) preserve the
Company's business organization intact; (ii) keep available to the Company and
to Purchaser the present services of the Company's employees; (iii) preserve
for the Company and Purchaser the goodwill of the Company's suppliers and
customers and others with whom material business relationships exist; (iv)
maintain its tangible property in the same condition as it now exists, ordinary
wear and tear excepted; (v) maintain its insurance policies in full force and
effect; and (vi) maintain in full force and effect all agreements, licenses,
permits, authorizations and approvals necessary for the operation of the
Company;
(d) The Company shall not grant or otherwise make, or agree to grant or
otherwise make, any increase in the compensation payable or to become payable
by it to any employees other than in accordance with past practices;
(e) The Company shall not sell or dispose of any of its assets used or
useful in the operation of the business of the Company (otherwise than in the
ordinary course of business consistent with past practice);
(f) The Company shall not enter into any agreement not in the ordinary
course of business; and
(g) The Company shall not cancel, waive or modify any material claims or
rights owned by, or running in favor of, it, which claims or rights will be
transferred to Purchaser.
Section 6.6 Intentionally Left Blank.
Section 6.7. Notice to Purchaser. Sellers covenant and agree to provide
Purchaser with immediate notice of any occurrence prior to the Closing Date
which could adversely affect the Condition.
Section 6.8. No Voluntary Bankruptcy Filing. Sellers covenant and agree that
they will not cause the Company to institute any bankruptcy, reorganization,
arrangement or insolvency proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors on or prior to the termination of
the escrow period provided for in the Escrow Agreement.
Section 6.9. Restriction on Certain Discussions and Actions. Sellers agree
that until the termination of the escrow period provided for in the Escrow
Agreement they will refrain, and will direct and cause the officers, directors,
affiliates, employees, attorneys, accountants and other agents and
representatives of the Company to refrain, from taking any action, directly or
indirectly, to solicit, encourage, initiate or participate in any way in
discussions or negotiations with, or furnish any information with respect to
the Company or, the Assets to, any person or other entity (other than Purchaser
and its representatives) in connection with any possible or proposed sale of
<PAGE>
capital stock, sale of a substantial portion of the assets, merger or other
business combination involving the Company, or the acquisition of a substantial
equity interest in the Company, the Assets or any similar transaction
involving the Company, the Shares or the Assets. The Sellers agree that they
will not (without Purchaser's prior written consent) disclose this Agreement or
the matters referred to herein to any other prospective acquirer of the
Company, the Assets or the Shares until after the Closing Date.
Section 6.10 Intentionally Left Blank.
Section 6.11 Securities Law Restrictions on Transfers;
Registration Rights.
(a) The Selling Stockholders understand that the offer and/or sale of the
DCI shares constituting the Transaction Consideration (the "Registered Shares")
to the Selling Stockholders is going to be registered under the Securities Act
by reason of an S-1 Registration Statement and the Purchaser will use its best
efforts to effect the registration and the sale of such Registration Shares
with the intended method of disposition thereof, and pursuant thereto Purchaser
will as expeditiously as possible:
(1) Prepare and file with the Securities and Exchange Commission a
registration statement (which shall be, to the extent Purchaser is
permitted to do so under applicable rules promulgated by the Securities
and Exchange Commission, a short-form registration statement) with respect
to such Registerable Shares and use its best efforts to cause such
registration statement to become effective;
(2) Prepare and file with the Securities and Exchange Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not more than 30 days and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended method of distribution
by the sellers thereof set forth in such registration statement;
(3) Furnish to each seller of the Registerable Shares such number of
copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including
each preliminary prospectus, if any) and such other documents as such
seller may reasonably request in order to facilitate the disposition of
the Registerable Shares owned by such seller;
(4) Use its best efforts to register or qualify such Registerable
Shares under such jurisdiction (not to exceed five) as any seller
reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
<PAGE>
disposition in such jurisdictions of the Registerable Shares owned by such
seller provided that Purchaser will not be required to:
(i) qualify generally to do business in any
jurisdiction where it would not otherwise
be required to qualify but for this
subparagraph;
(ii) subject itself to taxation in any
jurisdiction where it would not otherwise
be subject to taxation but for this
subparagraph;
(iii)consent to general service of process
in any jurisdiction where it would
not otherwise be subject to process
but for this subparagraph;
(5) Notify each seller of such Registerable Shares, at any time when
a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statement made therein, in light of the circumstances under which they
were made, not misleading, and, at the request of any such seller,
Purchaser will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registerable
Shares, such prospectus will not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading;
(6) Enter into any such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
holders of the Registerable Shares being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of
such registered Registerable Shares;
(7) Make available for inspection by any underwriter participating
in any disposition pursuant to such registration statement, and any
attorney, accountant or other agent retained by such underwriter, all
financial and other records, pertinent corporate documents and properties
of Purchaser, and cause Purchaser's officers, directors, employees and
independent accountants to supply all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection
with such registration statement.
<PAGE>
(8) In connection with any registration statement in which a holder
of Registerable Shares is participating, each such holder will furnish to
Purchaser in writing such information and affidavits as Purchaser
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will
indemnify Purchaser, its directors and officers and each person who
controls Purchaser (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any
untrue statement of material fact contained in the registration statement,
prospectus or preliminary prospectus or any statement thereof or
supplement thereto, or any omission of a material fact required to be
stated therein or necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading, but
only to the extent that such untrue statement or omission is contained in
any information or affidavit so furnished in writing by such holder;
provided that the obligation to indemnify as set forth herein will be
several, not joint and several, among such holders of Registerable Shares
and the liability of each such holder of Registerable Shares will be in
proportion to and limited to the net amount received by such holder from
the sale of the Registerable Shares pursuant to such registration
statement.
Section 6.12. Change of Control of Purchaser. Any business combination or any
other change or circumstance affecting Purchaser that is contemplated to take
place between the Closing Date and the closing of the Put Option whose
occurrence or existence would effectuate a change of control including a change
in the current decision making authority and the weight thereby of those
individuals currently on the Board of Directors of Purchaser, must first be
approved by Sellers in writing.
ARTICLE VII
CONDITIONS TO THE OBLIGATION OF PURCHASER
The obligation of Purchaser to proceed with the Closing under this Agreement is
subject to the satisfaction, on or prior to the Closing, of each of the
following conditions, each of which may be waived by Purchaser:
Section 7.1. Representations and Warranties True. The representations and
warranties of Sellers contained in this Agreement and any closing documents
delivered by Sellers in connection with this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects at the Closing Date as though made at such time, and Sellers
shall have delivered to Purchaser a certificate to that effect.
Section 7.2. Performance of Obligations. The obligations of the Sellers to be
performed by them on or before the Closing pursuant to the terms of this
<PAGE>
Agreement shall have been duly performed and complied with in all material
respects and, at the Closing, Sellers shall have delivered to Purchaser a
certificate to that effect.
Section 7.3. Consents. All consents, approvals and waivers from third parties
(including, without limitation, lenders) and government agencies required to
consummate the transactions contemplated hereby, shall have been obtained.
Section 7.4. Absence of Litigation. There shall not be any litigation or
proceeding, pending or threatened (including, without limitation, any
litigation or proceeding arising under antitrust or securities laws), to
restrain or invalidate the sale and purchase of the Shares or the other
transactions contemplated herein, and no action or proceeding shall be pending
or, to the knowledge of Sellers, threatened against Sellers or the Assets, at
law or in equity, before any federal or state court or governmental commission
or in arbitration or by or before any administrative agency, which action or
proceeding would materially adversely affect the Condition, nor shall any
judgments, consents, injunctions or any other judicial or administrative
mandates be outstanding against Sellers which would materially adversely affect
the Condition.
Section 7.5. Certified Resolutions. Purchaser shall have received a certified
copy of the resolutions of the Board of Directors and of the shareholders (if
necessary) of the Company authorizing and approving the execution and delivery
of this Agreement and the Escrow Agreement and the consummation of the
transactions contemplated herein and therein.
Section 7.6. Certificates of Good Standing; Tax Lien Certificates. Purchaser
shall have received a good standing certificate with respect to the Company
dated not more than ten (10) days prior to the Closing Date from the
appropriate governmental officials. Purchaser shall have received a tax
clearance certificate dated not more than thirty (30) days prior to the Closing
Date from the appropriate governmental officials in each jurisdiction where the
Business is conducted.
Sections 7.7 and 7.8 Intentionally Left Blank.
Section 7.9. Delivery of Specified Documents. Sellers shall have delivered
to Purchaser all of the documents and instruments specified in Section
3.1(b)(i) hereof, and shall have executed the Escrow Agreement in each case on
or prior to the Closing Date.
Section 7.10. Opinion of Counsel for Sellers. Sellers shall have delivered to
Purchaser an opinion or opinions of counsel dated the date of the Closing and
satisfactory to Purchaser and its counsel.
<PAGE>
ARTICLE VIII
CONDITIONS TO THE OBLIGATION OF SELLERS
The obligation of Sellers to proceed with the Closing under this Agreement is
subject to the satisfaction, on or prior to the Closing, of each of the
following conditions, each of which may be waived by Sellers:
Section 8.1. Representations and Warranties True. The representations and
warranties of Purchaser contained in this Agreement and any closing documents
delivered by Purchaser in connection with this Agreement shall have been true
and correct in all material respects when made and shall be true and correct in
all material respects at the Closing Date as though made at such time and, at
the Closing, Purchaser shall have delivered to Sellers a certificate to that
effect signed by its President.
Section 8.2. Performance of Obligations. Each of the obligations of Purchaser
to be performed by it on or before the Closing pursuant to the terms of this
Agreement shall have been duly performed and complied with in all material
respects and, at the Closing, Purchaser shall have delivered to Sellers a
certificate to that effect signed by its President.
Section 8.3. Consents. All consents, approvals and waivers from third parties
(including, without limitation, lenders) and government agencies required to
consummate the transactions contemplated hereby, shall have been obtained.
Section 8.4. Absence of Litigation. There shall not be any litigation or
proceeding, pending or threatened (including, without limitation, any
litigation or proceeding arising under antitrust or securities laws), to
restrain or invalidate the sale and purchase of the Shares or the other
transactions contemplated herein including without limitation, the issuance of
the DCI Shares to the Selling Stockholders and the subsequent repurchase of
same.
Section 8.5. Certified Resolutions. Sellers shall have received a certified
copy of the resolutions of the Board of Directors and of the shareholders (if
necessary) of Purchaser authorizing and approving the execution and delivery of
this Agreement, the Employment Agreements and the Escrow Agreement and the
consummation of the transactions contemplated herein and therein.
Section 8.6. Opinion of Counsel for Purchaser. Purchaser shall have delivered
to Sellers an opinion of its counsel, Whitman Breed Abbott & Morgan, dated the
date of the Closing and satisfactory to Seller and its counsel.
Section 8.7 Delivery of Specified Documents. Purchaser shall have delivered
to Sellers all of the documents and instruments specified in Section 3.1(b)(ii)
<PAGE>
hereof, and shall have executed the Escrow Agreement in each case on or prior
to the Closing Date.
ARTICLE IX
POST-CLOSING COVENANTS OF SELLERS
Sections 9.1 and 9.2 Intentionally Left Blank.
ARTICLE X
POST-CLOSING COVENANTS OF PURCHASER
Section 10.1. Books and Records of the Company. Following the transfer of
Shares to DCI under the Escrow Agreement, Purchaser agrees to permit Sellers
and their representatives to inspect the books and records of the Company
included in the Assets insofar as they relate to the period prior to the
release of the Shares to DCI under and pursuant to the Escrow Agreement during
regular business hours and at no expense to Purchaser in order for Seller and
such representatives to obtain information relevant to Sellers' tax returns,
third party claims or litigation involving Sellers, or as otherwise reasonably
required for the conduct of Sellers' business. Purchaser agrees to maintain
such books and records for a period of five (5) years after the Closing Date.
ARTICLE XI
SURVIVAL; INDEMNIFICATION; EXPENSES
Section 11.1. General Indemnification.
(a) Sellers agree to (i) indemnify, defend and hold harmless Purchaser,
and, (provided the Shares have been released to Purchaser under and pursuant to
the terms of the Escrow Agreement), the Company and each of the directors,
officers, employees, affiliates, agents and shareholders of Purchaser and
subject to the above proviso, the Company, from and against any and all losses,
damages, liabilities, costs and claims arising out of, based upon or resulting
from (x) any inaccuracy of any representation or warranty of Sellers which is
contained in or made pursuant to this Agreement (except as otherwise set forth
in Section 6.1 of this Agreement), the Escrow Agreement or its respective
Employment Agreement or any other agreement or instrument executed in
connection with the transaction contemplated hereby or thereby (y) any breach
by Seller of any of their agreements or obligations contained in or made
pursuant to this Agreement (except as otherwise set forth in Section 6.1 of
this Agreement) or any other such agreement, and (z) any Liability of Sellers
that, pursuant to a written instrument executed by Purchaser and acknowledged
and agreed to by Sellers is expressly not assumed by Purchaser ; and (ii)
reimburse Purchaser, and, (provided the Shares have been released to Purchaser
under and pursuant to the terms of the Escrow Agreement), the Company, and each
of the directors, officers, employees, affiliates, agents and shareholders of
<PAGE>
Purchaser and, subject to the above proviso, the Company, for any and all fees,
costs and expenses of any kind related thereto (including, without limitation,
any and all Legal Expenses (as defined below)). As used in this Section 11.1,
"Legal Expenses" of a person shall mean any and all reasonable and necessary
out-of-pocket fees, costs and expenses of any kind incurred by such person and
its counsel in investigating, preparing for, defending against or providing
evidence, producing documents or taking other action with respect to any
threatened or asserted claim. Notwithstanding the foregoing, it is acknowledged
and agreed that neither Selling Stockholder shall be liable for any inaccuracy
or breach of any representation, warranty or covenant of the other Selling
Stockholder or for any breach by such other Selling Stockholder of any of its
agreements or obligations or for any Liability of such other Selling
Stockholder and Purchaser and each such other indemnified party agrees to look
solely to such other Selling Stockholder in any such events.
(b) Purchaser hereby agrees to (i) indemnify, defend and hold harmless
the Selling Stockholders and, unless and until the Shares have been released to
Purchaser under and pursuant to the terms of the Escrow Agreement, the Company,
and each of the directors, officers, employees, affiliates, agents and
shareholders of the Selling Stockholders and, subject to the above condition,
the Company, from and against any and all losses, damages, liabilities, costs
and claims arising out of, based upon or resulting from (w) any inaccuracy of
any representation or warranty of Purchaser which is contained in or made
pursuant to this Agreement, the Escrow Agreement or the Employment Agreements
or any other agreement or instrument executed in connection with the
transactions contemplated hereby or thereby, (x) any breach by Purchaser of any
of its agreements or obligations contained in or made pursuant to this
Agreement or any other such agreement (except as otherwise provided in Section
2.2(d) of this Agreement, and (y) any liability of Sellers which Purchaser
assumes pursuant to this Agreement; and (ii) reimburse the Selling Stockholders
and, unless and until the Shares have been released to Purchaser under and
pursuant to the terms of the Escrow Agreement, the Company, and each of the
directors, officers, employees, affiliates, agents and shareholders of the
Selling Stockholders and, subject to the above condition, the Company for any
and all fees, costs and expenses of any kind related thereto (including,
without limitation, any and all Legal Expenses).
(c) Promptly after receipt by any person entitled to indemnification
under this Section 11.1 (an "indemnified party") of notice of the commencement
of any action in respect of which the indemnified party will seek
indemnification hereunder, the indemnified party shall so notify in writing the
person(s) from whom indemnification hereunder is sought (collectively, the
"indemnifying party"), but any failure so to notify the indemnifying party
shall not relieve it from any liability that it may have to the indemnified
party under this Section 11.1 except to the extent that the indemnifying
party's ability to defend such claim is materially prejudiced by the failure to
give such notice. The indemnifying party shall be entitled to participate in
<PAGE>
the defense of such action and to assume control of such defense; provided,
however, that:
(i) the indemnified party shall be entitled to participate in the
defense of such claim and to employ counsel at its own expense to
assist in the handling of such claim;
(ii)the indemnifying party shall obtain the prior written approval of
the indemnified party before entering into any settlement of such
claim or ceasing to defend against such claim;
(iii)the indemnifying party shall not consent to the entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or
plaintiff to each indemnified party of a release from liability
in respect of such claim;
(iv)the indemnifying party shall not be entitled to control but shall
be entitled to participate at its own expense in the defense of,
and the indemnified party shall be entitled to have sole control
at the expense of the indemnifying party over, the defense or
settlement of any claim to the extent the claim either (A) seeks
an order, injunction or other equitable relief against the
indemnified party which, if successful, would materially and
adversely affect the business, operations, assets, condition or
prospects of the indemnified party, (B) involves a possible
imposition of any criminal liability or penalty or material civil
penatly or (C) involves a conflict of interest between the
indemnified and the indemnifying parties.
(d) After written notice by the indemnifying party to the indemnified
party of its election to assume control of the defense of any such
action, the indemnifying party shall not be liable to such indemnified
party hereunder for any Legal Expenses subsequently incurred by such
indemnified party in connection with the defense thereof except as
otherwise provided in Section 11.1 (c) (iv) above. If the indemnifying
party does not assume control of the defense of such claims as provided in
this Section 11.1, the indemnified party shall have the right to defend
such claim in such manner as it may deem appropriate at the cost and
expense of the indemnifying party, and the indemnifying party will
promptly reimburse the indemnified party therefor in accordance with this
Section 11.1.
(e) Any other provision hereof to the contrary notwithstanding, the
parties agree that the representations and warranties of the parties
contained in this Agreement and in any certificates, documents or
<PAGE>
instruments delivered pursuant to this Agreement and the indemnification
obligations of the parties set forth in this Article XI shall survive for
up to one year after the Closing Date, regardless of any investigation
made by either party prior to the date hereof or prior to the Closing Date
and regardless of the fulfillment of any condition to Closing set forth in
Section 7 or 8 hereof.
ARTICLE XII
TERMINATION
Section 12.1. Termination. This Agreement may be terminated prior to the
Closing as follows:
(i) at the election of Purchaser, if any one or more of the conditions set
forth in Article VII to its obligation to proceed with the Closing has not been
fulfilled on the Closing Date;
(ii) at the election of Sellers, if any one or more of the conditions set
forth in Article VIII to their obligation to proceed with the Closing has not
been fulfilled on the Closing Date;
(iii) at the election of Purchaser, if Sellers have breached, any
representation, warranty, covenant or agreement contained in this Agreement,
which breach cannot be or is not cured by the Closing Date;
(iv) at the election of Sellers, if Purchaser has breached, any
representation, warranty, covenant or agreement contained in this Agreement,
which breach cannot be or is not cured by the Closing Date;
(v) at the election of Purchaser or Sellers, if any legal proceeding is
commenced or threatened by any governmental or regulatory body or other person
(other than Purchaser or Sellers) directed against the consummation of the
Closing and either Purchaser or Seller, as the case may be, reasonably and in
good faith deem it impractical or inadvisable to proceed in view of such legal
proceeding or threat thereof, taking into account the potential expense and
delay likely to be involved;
(vi) at any time on or prior to the Closing Date, by mutual written
consent of Purchaser and Sellers; or
(vii) at the election of Purchaser or Sellers, if the Closing has not
occurred on or prior to 30 days from the execution of this Agreement; or
(viii) At the election of Purchaser in accordance with Section 6.1 of this
Agreement.
<PAGE>
If this Agreement so terminates, it shall become null and void and have no
further force and effect, except as provided in Section 12.2.
Section 12.2. Survival. If this Agreement is validly terminated pursuant to
Section 12.1 and the transactions contemplated hereby are not consummated as
described above, this Agreement shall become void and of no further force and
effect except that the indemnification obligations set forth in Article XI
shall survive for up to one year from the date of termination; provided,
however, that if this Agreement is validly terminated pursuant to Section 12.1
or if the transactions contemplated hereby (including the transfer of the
Shares to the Purchaser pursuant to the Escrow Agreement) are not consummated
for any reason, the provisions of Section 6.2 relating to the obligation of
Purchaser to keep confidential and not to use certain information obtained by
it from Sellers and to return documents and copies thereof to Sellers and the
provisions of Section 12.3 relating to responsibility for expenses shall
survive. No party hereto shall have any liability to any other party in
respect of a valid termination of this Agreement pursuant to Section 12.1,
except to the extent set forth above.
Section 12.3. Expenses if No Closing. If the Closing does not occur, then,
subject to Section 2.2(d) and Section 3.1(c) hereof all costs and expenses
incurred in connection with this Agreement shall be paid by the person
incurring such expenses, i.e., by Purchaser if incurred by Purchaser and by
Sellers if incurred by Sellers.
ARTICLE XIII
GENERAL
Section 13.1. No Tax Representations. Sellers and Purchaser agree that no
representation or warranty has been made by them as to the tax consequences of
the transactions contemplated by this Agreement or the results of the
allocation of the amount of, or the consideration comprising, the Transaction
Consideration, that each is engaging separate counsel with respect to such tax
consequences, and that each is assuming its own respective tax liability, if
any, arising out of this Agreement or the consummation of the transactions
contemplated hereunder.
Section 13.2. Regarding the Representations and Warranties.
(a) Independence. Each of the representations and warranties made by
Sellers in Article IV is independent of the other representations and
warranties made therein, and each of the representations and warranties made by
Purchaser in Article V is independent of the other representations and
warranties made therein.
<PAGE>
(b) Knowledge Qualification. Whenever a representation or warranty is
made herein based on the knowledge of Sellers or Purchaser (as the case may be)
such representation or warranty is made based on the actual knowledge of
Sellers or Purchaser (as the case may be).
Section 13.3. Binding Effect and Assignment. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by each of the parties and
their respective successors and assigns. This Agreement may not be assigned by
any of the parties hereto without the prior written consent of the other
parties hereto, except that Purchaser, without the consent of Sellers, may
assign any or all of its rights under this Agreement to an assignee of
Purchaser; provided that such assignment shall not relieve Purchaser of any of
its liabilities and obligations to Sellers hereunder.
Section 13.4. Waiver. Any term or provision of this Agreement may be waived
at any time by the party entitled to the benefit thereof by a written
instrument duly executed by such party.
Section 13.5. Dispute Resolution.
(a) Good-Faith Negotiations. If any dispute arises under this Agreement
(other than a dispute under Section 2.6) that is not settled promptly in the
ordinary course of business, the parties shall seek to resolve any such dispute
between them, first, by negotiating promptly with each other in good faith in
face-to-face negotiations. These face-to-face negotiations shall be conducted
by the respective designated senior management representative of each party.
If the parties are unable to resolve the dispute between them within twenty
(20) business days (or such period as the parties shall otherwise agree)
through these face-to-face negotiations, then any such disputes shall be
resolved in the following manner. For purposes of this Section 13.5, Sellers
shall be deemed to be a single "party."
(b) Binding Arbitration. All claims, disputes, controversies and other
matters in question between the parties to this Agreement, arising out of, or
relating to this Agreement, or the breach thereof (other than with respect to a
dispute under Section 2.6) and which cannot be resolved by the parties shall be
settled by binding arbitration in accordance with this Agreement and the
following procedure:
(i) Any arbitration shall be conducted in accordance with the
Commercial Rules of the American Arbitration Association then in effect.
Said rules shall apply to the conduct of such arbitration and, in
addition, each party shall have the right to take discovery of the other
party by any or all methods provided in the Federal Rules of Civil
Procedure. The arbitrators may upon request exclude any evidence not made
available to the other party pursuant to a proper discovery request from
being used in the arbitration proceeding.
<PAGE>
(ii) Either party shall serve upon the other party by certified mail
a written demand that the claim, dispute or controversy be arbitrated,
specifying in reasonable detail the nature of the dispute or claim to be
submitted to arbitration. The demand, which shall be effective upon
receipt and shall be made within a reasonable time after the claim,
dispute or controversy has arisen.
(iii) Within thirty (30) days after service of a demand for
arbitration, the parties shall attempt to agree upon a single arbitrator.
(iv) In the event the parties cannot agree upon a single arbitrator,
either party may request the American Arbitration Association ("AAA") to
appoint an arbitrator in accordance with its rules, subject to the
qualifications specified herein; except that if the parties fail to agree
upon an arbitrator from the persons named by the AAA or if for any reason
the appointment cannot be made from the lists submitted by the AAA, then
each party shall appoint an arbitrator within seven (7) days thereafter
and the third arbitrator shall be appointed by the AAA.
(v) The arbitration proceeding shall be held in New York, New York.
(c) Scope of Arbitration. The arbitrators shall have no power or
authority to add to or detract from the agreements of the parties. The
arbitrators shall have no authority to award punitive, exemplary,
consequential, special, indirect or incidental damages.
(d) Payment Dispute. In case of any dispute as to the amount of any
payment, the part not in dispute shall be promptly paid.
(e) Expenses of Arbitration. The expenses of arbitration shall be borne
equally by Purchaser and the Selling Stockholders unless the arbitrators
determine that one of the parties has not proceeded in good faith with respect
to the matters submitted for arbitration, in which case such party shall bear
fully the expenses of arbitration.
Section 13.6. Notices. All notices, requests, demands, waivers, consents,
approvals, or other communications which are required or permitted hereunder
shall be in writing and shall be delivered personally, sent by reputable
overnight courier service (such as Federal Express), sent by telecopier, or
sent by registered or certified mail, return receipt requested, postage
prepaid, to the addresses set forth below:
If to Purchaser:
DCI Telecommunications, Inc.
PO Box 320334
Fairfield, CT 06432-0334
Telecopier: (203) 375-8953
<PAGE>
With a copy to:
David P. Tuttle
Whitman Breed Abbott & Morgan
100 Field Point Road
Two Greenwich Plaza
Greenwich, Connecticut 06830
Telecopier: (203) 869-1951
If to Sellers:
Muller Media, Inc.
11 East 47th Street
New York, New York 10017-1919
Attn: Robert Muller
Telecopier: (212) 317-0102
With a copy to:
Jordan E. Ringel, Esq.
Pavia & Harcourt
600 Madison Avenue
New York, New York 10022
Telecopier: (212) 980-3185
or to such other address or telecopier number as the party entitled to receive
such notice may, from time to time, specify in writing to the other party.
Section 13.7. Governing Law. This Agreement shall be governed as to its
validity, interpretation and effect by the laws of the State of New York.
Section 13.8. No Third-Party Beneficiaries. Notwithstanding anything to the
contrary contained herein, no provision of this Agreement is intended to
benefit any person other than the signatories hereto nor shall any such
provision be enforceable by any other person.
Section 13.9. Severability. Any provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
Section 13.10 Intentionally Left Blank.
Section 13.11. Section Headings. All section headings herein have been
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
<PAGE>
Section 13.12. Contents of Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the transaction
contemplated hereby and shall not be amended or terminated except by a written
instrument duly executed by each of the parties hereto. Any and all prior or
contemporaneous agreements or understandings between the parties regarding the
subject matter hereof are superseded in their entirety by this Agreement.
Section 13.13. Counterparts. This Agreement may be executed in two or more
fully executed counterparts, each of which shall be deemed an original, but all
of such counterparts together shall constitute but one and the same instrument.
Section 13.15. Press Releases. Prior to the Closing, except as may be
required by law, (i) Purchaser shall not issue a press release or make any
other public announcement concerning this Agreement or its subject matter
without advance written approval thereof by Sellers, and (ii) Sellers shall not
issue a press release or make any other public announcement concerning this
Agreement or its subject matter without advance written approval thereof by
Purchaser.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
written above.
MULLER MEDIA, INC.
By: Robert Muller
Name: Robert Muller
Title: President
Robert Muller
-------------
ROBERT MULLER
Daniel Mulholland
_________________
DANIEL MULHOLLAND
<PAGE>
DCI TELECOMMUNICATIONS, INC.
By: Joseph J. Murphy
Name: Joseph J. Murphy
Title: President & CEO
<PAGE>
SCHEDULE A
Robert Muller - 80%
Daniel Mulholland - 20%
<PAGE>
Muller Media, Inc.
Balance Sheet
June 30, 1996
ASSETS
CURRENT ASSETS:
Cash in banks and equivalents $ 992,872
Marketable securities 44,101
Contracts receivable 1,305,614
Prepaids & miscellaneous receivable 23,358
----------
2,365,945
Contracts receivable - non-current 343,457
Furniture and fixtures 33,287
Security deposit 10,300
----------
$2,752,989
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable 26,663
Participations payable 1,109,465
Income taxes currently payable 140,202
----------
1,276,330
Participations payable - non-current 294,921
Deferred income taxes 246,029
----------
1,817,280
STOCKHOLDER'S EQUITY:
Capital stock 1,000
Retained earnings 934,709
----------
935,709
$2,752,989
See accountant's compilation report and notes to financial statements
<PAGE>
Muller Media, Inc.
Statement of Income and Retained Earnings
For the Six Months Ended June 30, 1996
Revenue $ 1,486,127
Costs related to revenue:
Participations 872,696
-----------
Net Revenue 613,431
Selling, General & Administrative Expenses:
Officers salary 95,000
Other salaries 59,365
Payroll taxes and fringe benefits 15,882
Sales commissions 59,949
Selling and promotion 45,209
Rent 14,000
Office 19,388
Telephone 12,014
Professional Fees 8,618
Insurance 2,416
Miscellaneous taxes 504
Depreciation 5,452
-----------
Total expenses 337,797
Income before investment income
and income taxes 275,634
Investment Income 22,151
-----------
Income before income taxes 297,785
Income Taxes 146,102
-----------
Net Income 151,683
Retained earnings- beginning of year 787,995
Unrealized losses on marketable securities (4,969)
-----------
Retained earnings - end of year $ 934,709
See accountant's compilation report and notes to financial statements.
<PAGE>
Muller Media, Inc.
Statement of Cash Flows
For the Six Months Ended June 30, 1996
Cash flows from operating activities:
Net Income $ 151,683
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 5,452
(Increase) decrease in:
Contracts receivable (98,277)
Prepaids and miscellaneous receivable (22,508)
Security deposits (7,500)
Increase (decrease) in:
Accounts payable (98,320)
Participations payable 173,221
Income taxes payable 120,221
Deferred revenue (109,050)
----------
Net cash provided by operating activities 114,922
----------
Cash (used in) investing activities:
Purchase of furniture and equipment (4,731)
----------
Net increase in cash and equivalents 110,191
Cash and equivalents - beginning of period 882,681
----------
Cash and equivalents - end of period $ 992,872
----------
Supplemental information:
Income taxes paid $ 25,881
----------
See accountant's compilation report and notes to financial statements
<PAGE>
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies of Muller Media, Inc. (the
Company) is presented to assist in understanding the Company's financial
statements. The accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements.
Business Activity
The Company packages motion pictures and other entertainment events for
distribution to United States television and cable stations.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of ninety days or less to be
cash equivalents.
Concentration of Credit Risk
Financial Instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash in financial institutions exceeding
Federally insured limits amounting to approximately $793,000.
Revenue Recognition
Revenue from the distribution of motion pictures and other entertainment events
is recognized upon commencement of the station's license period. The Company,
as of September 6, 1996, had executed license agreements totaling approximately
$2,695,000, whose license period will begin after June 30, 1996.
The related participation expense is recorded as the revenue is recognized.
In addition, the Company advances participations to producers of motion
pictures and entertainment events. These advances are charged to operations by
amortizing them over their estimated revenue streams.
Deferred Income Taxes
For income tax reporting, the Company uses the installment method. This method
recognizes revenue and their related expenses over the installments paid by the
television stations to the Company usually over twenty-four to thirty-six
months. Deferred income taxes have been recorded for the excess of financial
statement revenue and the related expenses over the installment method used for
income tax purposes:
<PAGE>
Furniture and Equipment
Furniture and equipment are carried at cost. Depreciation of furniture and
equipment is provided using the straight-line method at rates based on the
estimated useful lives of five to seven years.
NOTE 2 - FURNITURE AND EQUIPMENT
Furniture and equipment as of June 30, 1996 consisted of:
Furniture and equipment $102,176
Less: Accumulated depreciation 68,889
-------
NET 33,287
NOTE 3 - MARKETABLE SECURITIES
Cost and fair value of marketable securities at June 30, 1996 are as follows:
Marketable securities - at cost $49,069
Unrealized losses (4,969)
-------
Fair value at June 30, 1996 $44,100
NOTE 4 - LOAN PAYABLE - BANK
In August, 1995 the Company paid off its bank loan and renegotiated its credit
arrangement with the bank by establishing a credit line of $150,000 bearing
interest at 1% over the bank's prime interest rate.
The bank has a security interest in all of the personal property of the
Company.
The credit line is guaranteed by Mr. Robert Muller. Mr. Muller owns 100% of the
outstanding capital stock of the Company. As of June 30, 1996 the Company has
not borrowed any funds from the bank.
NOTE 5 - LEASE COMMITMENT
In July, 1996 the Company began to conduct its operations from a facility that
is leased under a three year agreement expiring in June, 1999. There is an
option to renew the lease for an additional two years at an increased annual
rental.
The annual rent under this lease is $45,000. In addition the lease has an
escalation clause relating to real estate taxes. Rent expense for the six
months ended June 30, 1996 was $14,000.
<PAGE>
NOTE 6 - PROFIT SHARING PLAN
The Company has a profit sharing plan wherein it can contribute up to 15% of
covered compensation per year. The Company made no contribution to the plan as
of June 30, 1996.
<PAGE>
Muller Media, Inc.
Balance Sheet
December 31, 1995
ASSETS
CURRENT ASSETS:
Cash in banks and equivalents $ 882,681
Marketable securities 49,070
Contracts receivable 1,271,315
Miscellaneous receivable 850
----------
2,203,916
Contracts receivable - non-current 279,479
Furniture and fixtures 34,008
Security deposit 2,800
----------
$2,520,203
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable 124,983
Participations payable 1,050,288
Income taxes currently payable 6,390
Deferred revenue 109,050
----------
1,290,711
Participations payable - non-current 180,877
Deferred income taxes 259,620
----------
1,731,208
STOCKHOLDER'S EQUITY:
Capital stock 1,000
Retained earnings 787,995
----------
788,995
$2,520,203
See accountant's compilation report and notes to financial statements
<PAGE>
Muller Media, Inc.
Statement of Income and Retained Earnings
For the Year Ended December 31, 1995
Revenue $ 1,164,861
-----------
Costs related to revenue:
Participations 635,464
Amortization of distribution rights
and advances to producers 73,619
-----------
709,083
Net Revenue 455,778
Selling, General & Administrative Expenses:
Officers salary 230,000
Other salaries 58,014
Payroll taxes and fringe benefits 60,380
Sales commissions 113,108
Selling and promotion 103,306
Rent 33,600
Office 32,632
Telephone 10,185
Professional Fees 12,103
Insurance 8,287
Interest 3,991
Miscellaneous taxes 1,512
Depreciation 11,387
-----------
678,505
Loss before investment income
and income taxes (222,727)
Investment Income 38,605
-----------
Loss before income taxes (184,122)
Tax benefit from carryback of
net operating loss (71,660)
-----------
Net Loss (112,462)
Retained earnings- beginning of year 900,457
-----------
Retained earnings - end of year $ 787,995
See accountant's compilation report and notes to financial statements.
<PAGE>
Muller Media, Inc.
Statement of Cash Flows
For the Year Ended December 31, 1995
Cash flows from operating activities:
Net Loss $ (112,462)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 11,387
(Increase) decrease in:
Contracts receivable 1,003,221
Miscellaneous receivable 23,668
Distribution rights and advances to producers 35,544
Increase (decrease) in:
Accounts payable 80,878
Participations payable (644,035)
Income taxes payable (113,920)
Deferred revenue 109,050
----------
Net cash provided by operating activities 393,331
----------
Cash flows from investing activities:
Purchase of furniture and equipment and
net cash (used in) investing activities (35,378)
----------
Cash flows from financing activities:
Decrease in loan receivable - officer 15,416
Reduction of bank loan (59,689)
----------
Net cash (used in) financing activities (44,273)
Net increase in cash and equivalents 313,680
Cash and equivalents - beginning of year 569,001
----------
Cash and equivalents - end of year $ 882,681
----------
Supplemental information:
Income taxes paid $ 21,760
----------
Interest Paid $ 3,991
See accountant's compilation report and notes to financial statements
<PAGE>
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Muller Media, Inc. (the
Company) is presented to assist in understanding the Company's financial
statements. The accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements.
Business Activity
The Company packages motion pictures and other entertainment events for
distribution to United States television and cable stations.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of ninety days or less to be
cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash in financial institutions exceeding
Federally insured limits amounting to approximately $683,000.
Revenue Recognition
Revenue from the distribution of motion pictures and other entertainment events
is recognized upon commencement of the station's license period. The Company,
as of April 26, 1996, had executed license agreements totaling approximately
$3,734,000, whose license period will begin after December 31, 1995.
The related participation expense is recorded as the revenue is
recognized.
In addition, the Company advances participations to producers of motion
pictures and entertainment events. These advances are charged to operations by
amortizing them over their estimated revenue streams.
Deferred Income Taxes
For income tax reporting, the Company uses the installment method. This method
recognizes revenue and their related expenses over the installments paid by the
television stations to the Company, usually over twenty-four to thirty-six
months. Deferred income taxes have been recorded for the excess of financial
statement revenue and the related expenses over the installment method used for
income tax purposes.
<PAGE>
Furniture and Equipment
Furniture and equipment are carried at cost. Depreciation of furniture and
equipment is provided using the straight-line method at rates based on the
estimated useful lives of three to seven years.
NOTE 2 - FURNITURE AND EQUIPMENT
Furniture and equipment as of December 31, 1995 consisted of:
Furniture and equipment $97,445
Less: Accumulated depreciation 63,437
-------
NET $34,008
NOTE 3 - LOAN PAYABLE - BANK
In August, 1995 the Company paid off its bank loan and renegotiated its credit
arrangement with the bank by establishing a credit line of $150,000 bearing
interest at 1% over the bank's prime interest rate. The credit line will be
reviewed by the bank annually.
The bank has a security interest in all of the personal property of the
Company.
The loan is guaranteed by Mr. Robert Muller. Mr. Muller owns 100% of the
outstanding capital stock of the Company. As of December 31, 1995 the Company
has not borrowed any funds from the bank.
NOTE 4 - DEFERRED REVENUE
Deferred revenue, totaling $109,050, as of December 31, 1995 consists of down
payments on contracts whose license periods begin after December 31, 1995.
NOTE 5 - LEASE COMMITMENT
The Company began renting office space in New York City on a month to month
basis on a lease which expired in April, 1995. The total rent expense for 1995
was $33,600.
The Company plans to move to a new location in New York City sometime in the
Summer of 1996. Current lease negotiations are now
underway.
NOTE 6 - PROFIT SHARING PLAN
The Company has a profit sharing plan wherein it can contribute up to 15% of
covered compensation per year. The contribution for the year ended December 31,
1995 was $42,000.
<PAGE>
DCI Telecommunications, Inc.
Pro Forma Consolidated Balance Sheet
(to include acquisition of Muller Media, Inc.
PAGE 1 of 2
Muller Media
DCI Year Ended Pro
Year Ended (unaudited) Adj.(a) Forma
ASSETS -------------- ------------- ----------- ---------
March 31, 1996 June 30, 1996
Current Assets:
Cash $ 29,520 $ 992,872 $1,022,392
Accts Receive
- trade 139,551 1,305,614 1,445,165
- shareholders 98,503 -- 98,503
Deposits &
marketable
securities 3,520 54,401 57,921
Miscellaneous -- 23,358 23,358
Inventory 27,169 -- 27,169
-------- --------- ----------
Total Current
Assets 298,263 2,376,245 2,674,508
-------- --------- ----------
Contracts
Receivable
non-Current -- 343,457 343,457
-------- --------- ----------
Property &
Equipment 142,161 102,176 244,337
Less: Accum.
Deprec. 13,379 68,889 82,268
Net Property
& Equipment 128,782 33,287 162,069
-------- --------- ----------
Other Assets
- Goodwill -- -- 2,064,291 2,064,291
- Copyrights 1,700,000 -- 1,700,000
- Customer Base 653,752 -- 653,752
-------- --------- ----------
2,353,752 2,752,989 4,418,043
Less: Accum.
Amort. 191,547 -- 191,547
-------- --------- ----------
Net Other Assets 2,162,205 -- 2,064,291 4,226,496
-------- --------- ---------- ----------
TOTAL ASSETS $2,589,250 $2,752,989 $2,064,291 $7,406,530
-------- --------- ---------- ----------
<PAGE>
DCI Telecommunications, Inc.
Pro Forma Consolidated Balance Sheet
(to include acquisition of Muller Media, Inc.
PAGE 2 of 2
Muller Media
LIABILITIES & DCI Year Ended Pro
SHAREHOLDERS Year Ended (unaudited) Adj.(a) Forma
EQUITY -------------- ------------- ----------- ---------
March 31, 1996 June 30, 1996
Current Liabilities:
Bank overdraft $ 42,004 -- $ 42,004
Notes &
settlements payable 198,426 -- 198,426
Accounts payable 326,419 26,663 353,082
Participations
payable -- 1,109,465 1,109,465
Accrued expenses & taxes 8,500 140,202 148,702
-------- --------- ----------
Total Current Liab 575,349 1,276,330 1,851,679
-------- --------- ----------
Participations payable-
non-current -- 294,921 294,921
Long Term Debt 84,380 -- 84,380
Deferred Income Taxes -- 246,029 246,029
Commitments & Conting. -- -- --
Shareholders' Equity:
9.25% cumul.convert.,
prefer.stock $100 par
value,9,000,000 shares
authorized, 29,076
issued/outstanding; 305,000 -- 305,000
Common stock, $.0001
par value 500,000,000
shares authorized
2,376,014 issued &
outstanding 238 1,000 (880)(B) 358
Paid in Capital 1,658,618 -- 2,999,880 4,658,498
Subscriptions for
common stock 69,800 -- 69,800
Treasury Stock (29) -- (29)
Retained earnings (deficit)
(since 12/31/95) (104,106) 934,709 (934,709) (104,106)
Total Shareholders'
Equity 1,929,521 935,709 2,064,291 4,929,521
----------- --------- ---------- ----------
Total Liab. &
Shareholders' Equity $2,589,250 $2,752,989 $2,064,291 $7,406,530
(A) Record purchase price of Muller & eliminate Muller equity at acquisition.
(B) Eliminate Muller stock (1000) and record new stock issued (120).
<PAGE>
DCI Telecommunications, Inc.
Pro Forma Consolidated Statement of Operations
(to include acquisition of Muller Media, Inc.
Muller Media
DCI Year Ended Pro
Year Ended (unaudited) Adj.(a) Forma
-------------- ------------- ----------- ---------
March 31, 1996 June 30, 1996
Net Sales $814,016 $2,108,746 $2,922,762
Cost of Sales 476,243 1,214,824 1,691,067
------- ----------- -----------
Gross Profit 337,773 893,922 1,231,695
------- ----------- -----------
Selling, General
& Admin Expenses 365,250 348,177 713,427
Salaries & Comp. 338,217 326,079 664,296
Professional Fees 55,497 15,868 71,365
Consulting Fees 73,568 -- 73,568
Amort. & Depr. 191,924 54,700 103,214 349,838
--------- ----------- -------- -----------
1,024,456 744,824 103,214 1,872,494
--------- ----------- -------- -----------
Income (Loss)
from Operations (686,683) 149,098 (103,214) (640,799)
---------- ----------- -----------
Other Inc. & (Expense):
Interest Expense (30,670) (1,667) (32,337)
Interest Income -- 45,543 45,543
---------- ----------- -----------
(30,670) 43,876 13,206
---------- ----------- -----------
Net Inc.(Loss)
before Inc. Taxes (717,353) 192,974 (103,214) (627,593)
Income Taxes -- (105,310) 105,310 --
---------- ----------- -----------
Net Income(Loss) ($717,353) $ 87,664 $ 2,096 ($627,593)
Net (loss) per
common share ($0.37) ($0.20)
---------- -----------
---------- -----------
Weighted average
common shares
outstanding 1,959,014 3,159,014
---------- -----------
(a) Amortize goodwill over 20 years
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DCI Telecommunications, Inc.
Joseph J. Murphy
___________________________
Joseph J. Murphy
President
Date: January 7, 1997
