As filed with the Securities and Exchange Commission On October 3, 1997
Registration No. 333-31579
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Post-Effective Amendment No 2
to
FORM S-1
Registration Statement Under the Securities Act of 1933
DCI Telecommunications, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 4899 84-1155-41
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(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Identification
incorporation) Classification Code Number)
Number)
611 Access Road, Stratford, CT 06497
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(Address of registrant's executive offices)
Registrant's telephone number, including area code: (203) 380-0910
------------------------
Joseph J. Murphy
President & CEO
611 Access Road
Stratford, CT 06497
(203) 380-0910
(Name, address, including zip code and telephone number,
including area code, of agent for service)
Copy to:
Anthony M. Macleod, Esq.
Whitman Breed Abbott & Morgan LLP
100 Field Point Road
Greenwich, CT 06830
203-862-2458
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: __
If this Form is filed to register additional securities in an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering: __
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: __
If delivery of the prospectus is expected to made pursuant to Rule 434
please check the following box: __
CALCULATION OF REGISTRATION FEE
TITLE OF EACH AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF
CLASS OF REGISTERED MAXIMUM MAXIMUM REGISTRATION
SECURITIES OFFERING AGGREGATE FEE
TO BE PRICE OFFERING
REGISTERED PER SHARE(1) PRICE
- ------------- ------------ --------- ---------- -----------
Common Stock, 2,174,865 $1.72 $3,740,768 $1,133
par value $.001
per share
1) Based on the average of the bid and asked price for the Common Stock on
June 30, 1997 on the OTC Bulletin Board pursuant to Rule 457(c).
<PAGE>
DCI TELECOMMUNICATIONS, INC.
CROSS REFERENCE SHEET
LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY PART 1
OF FORM S-1
Item No. Caption Location in Prospectus
- -------- --------- ----------------------
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus ............................ Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.................... Inside Front and Outside
Back Cover Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges..... Prospectus Summary;
The Company; Pro Forma
Financial Information
4. Use of Proceeds........................ Not Applicable
5. Determination of Offering Price......... Outside Front Cover Page;
Plan of Distribution
6. Dilution............................... Not Applicable
7. Selling Security Holders............... Selling Stockholders
8. Plan of Distribution................... Outside Front Cover Page;
Plan of Distribution
9. Description of Securities to be
Registered............................ Description of Capital
Stock
10. Interests of Named Experts and Counsel.. Not Applicable
11. Information with Respect to the
Registrant............................. Outside Front Cover Page;
Prospectus Summary;
The Company;
Capitalization;
Selected Consolidated
Financial Data; Common
Stock Price Range and
Dividends; Management's
Discussion and Analysis
of Financial Condition
and Results of
Operations; Business;
Management; Certain
Transactions;
Description of
Securities;
Consolidated Financial
Statements
12. Incorporation of Certain Information by
Reference.............................. Incorporation of
Certain Information
by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ Not Applicable
<PAGE>
DCI TELECOMMUNICATIONS, INC.
2,174,865 Shares of Common Stock
This Prospectus relates to 2,174,865 shares of Common Stock, $.001
par value (the "Common Stock") of DCI Telecommunications, Inc. (the
"Company") which may be offered from time to time by any or all of the
Selling Stockholders named herein (the "Selling Stockholders"). See "Selling
Stockholders." The Company will not receive any proceeds from the sale of
shares offered hereby. The Company estimates that the expenses of this
offering will be approximately $23,000, all of which will be paid by the
Company.
The Company is not aware of any underwriting arrangements with respect
to the offer and sale by the Selling Stockholders of the Common Stock. The
Company has been advised by the Selling Stockholders that they or their
successors may sell all or a portion of the shares offered hereby from time
to time on the OTC Bulletin Board, in privately negotiated transactions, or
otherwise, including sales through or directly to a broker or brokers. Sales
will be at prices and terms then prevailing or at prices related to the then
current market prices or at negotiated prices. In connection with any sales,
any broker or dealer participating in such sales may be deemed to be
underwriters within the meaning of the Securities Act of 1933. See "Plan of
Distribution".
The Common Stock is traded on the OTC Bulletin board under the
symbol "DCTC". On June 30,1997, the closing sale price of the Common
Stock, as reported by the OTC Bulletin Board was $1.72 per share. See
"Price Range of Common Stock and Dividends". The market for the Common Stock
must be considered limited and there can be no assurance that a meaningful
trading market will develop. Furthermore, prices quoted may not represent
the true value of the Common Stock.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AT PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 3, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "S.E.C."). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the S.E.C. at 450 Fifth Street
N.W. (Room 1024), Judiciary Plaza, Washington, DC 20549; as well as at the
Regional Offices of the S.E.C. located at Northwestern Atrium Center, 500
West Madison Street (Suite 1400), Chicago, Illinois 60661; and Seven World
Trade Center (13th Floor), New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the S.E.C. at
450 Fifth Street N.W., Washington, DC 20549 at prescribed rates.
The Company has filed with the S.E.C. in Washington, D.C., a Registration
Statement on Form S-1 under the Securities Act of 1933 (the "Act"), as
amended, with respect to the Common Stock offered hereby (the "Registration
Statement"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the S.E.C. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement, including the exhibits and
financial statements and schedules, if any, filed therewith or incorporated
therein by reference. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete,
and in each instance, reference is made to the copy of such contract or
other document files as an exhibit to the Registration Statement or
incorporated therein by reference, each statement being qualified in its
entirety by such reference. The Registration Statement, including the
exhibits thereto, may be inspected without charge at the S.E.C.'s principal
office in Washington, DC, and copies of any and all parts thereof may be
obtained from such office after payment of the fees prescribed by the
S.E.C.
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
the context indicates otherwise in this Prospectus (i) all references to
DCI or the "Company" refer to DCI Telecommunications, Inc., and (ii) all
references to Consolidated Financial Statements refer to the financial
statements of DCI.
THE COMPANY
DCI Telecommunications, Inc. (the "Company") is engaged through its
operating subsidiaries in long distance telecommunications, prepaid
cellular and Internet related products and services. The Company through
the acquisition of Crossmain Limited (since renamed DCI UK Limited), a
London based company, is involved in providing long distance telephone
service to businesses and individuals through a private leased line network
being established throughout Europe where deregulation in the
telecommunications industry is just now being implemented. A leased line
network from one country to another is one of the least expensive methods
for a small company to gain entry into the long distance business.
CardCall International Holdings, Inc. (and its subsidiaries CardCall UK and
CardCaller Canada), also acquired by the Company, develops and markets
standard prepaid phone cards as well as voice-activated prepaid phone cards
through an extensive and growing distribution network for its products and
services throughout Europe and Canada. A prepaid phone card permits the
holder of the card to place long distance and international calls from any
touch-tone phone, eliminating the need for coins and collect calls. The
card user, who has prepaid for telephone minutes, simply dials an 800
number which connects the user to one of the Company's switching
facilities. The caller is then prompted for his or her personal
identification number (PIN) and destination phone number. The call is then
routed through the Company's switch to the ultimate destination via a long
distance carrier.
The Company, through its Privilege Enterprises Limited subsidiary (PEL),
designs and markets corporate sponsored value-added phone cards (called
Privilege Cards) and specialized card-based membership programs to the
international consumer and commercial marketplaces. PEL has established a
merchant network of over 8,000 businesses in the United States who accept
the Privilege Card and offer the card holder some form of discount, free
gift or "privilege".
CardCaller Canada (CCC), a DCI subsidiary recently announced the launch of
its first prepaid cellular telephone. This new and exciting product was
developed in large part for the over 30% of applicants who are rejected for
cellular service due to either poor credit or no credit history. CCC is a
switch based reseller utilizing its own prepaid switching platform which
enables it to offer customized prepaid cellular service that is extremely
suitable for Canadian based users.
R&D Scientific, which is an operating division of the Company, has developed
a proprietary data monitoring system for a number of industries
including hospitals, blood banks, pharmaceutical companies and
government institutions. It assembles and sells a broad product line of
data acquisition and control devices for personal computers and has recently
introduced a wireless probe which allows the sending and receiving of digital
data over existing electrical wiring.
Muller Media, which is an operating division of 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 principally to major television and cable networks.
1
<PAGE>
The Company's corporate strategy takes into consideration the opportunities
the Internet may provide in the telecommunications area. In this regard,
the Company acquired CyberFax, Inc. which immediately gives the Company a
product which integrates a communication tool used world-wide with the
Internet. CyberFax software and hardware allows fax to fax transmission
over the Internet in real-time (not store and forward) with delays which
are virtually nil and with standard confirmation protocols.
The Company's growth plan is based on internal product development
supported by strategic acquisitions and joint ventures in the
telecommunications area which will immediately and significantly enhance
its product offerings, distribution channels, market penetration and
earnings.
The Company's principal executive offices are located at 611 Access Road,
Stratford, CT 06497, and its telephone number is (203) 380-0910.
2
<PAGE>
Summary Financial Information
(In thousands except per share data)
The summary financial data set forth below is derived from and should be
read in conjunction with the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. See "The Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Fiscal Year Ended March 31,
__________________________________
1997 1996 1995 1994 1993
Statements of Income Data: (a)
Revenues .............. $2,794 $1,842 $ 110 $ --- $ ---
Income (loss) from operations (372) (681) (1,021) ( 79) (342)
Net income (loss) ......... (373) (712) (1,095) (104) (844)
Earnings (loss) per share (b) ($0.07) ($0.36) ($1.95) ($1.30) ($13.10)
March 31,
1997 1996
Balance Sheet Data:
Working capital ............... $ 1,769 ($ 288)
Total assets ................. 10,734 2,607
Total long-term debt, including
current maturities 180 84
Total shareholders' equity ... 5,931 1,926
(a) Includes the results of purchased businesses from acquisition dates,
except for Travel Source which was treated as a pooling of interest.
(Data for Travel Source not available 1993-1995)
(b) Adjusted to reflect a one for twenty reverse stock split effected
January 25, 1995, a forty for one split effective March 7, 1996 and
a one for four hundred reverse split effected March 14, 1996
3
<PAGE>
RISK FACTORS
The purchase of shares of Common Stock involves a high degree of risk.
Prospective investors should carefully consider the following factors, in
addition to other information contained in this Prospectus, before
purchasing shares of Common Stock.
Limited Operating History; Lack of Profitable Operations; Negative Cash
Flow; Early Stage Company
Prospective investors have limited historical financial information about
the Company upon which to base an evaluation of the Company's performance.
Since inception, the Company has sustained substantial net losses and
negative cash flow, due primarily to start-up costs, interest expense and
charges for depreciation and amortization of capital expenditures to
develop its products. The Company expects to continue experiencing negative
cash flow through at least the third quarter of fiscal 1997, and may continue
to do so thereafter while it develops and expands its distribution channels
for existing and new products, even if additional individual products of
the Company become profitable and generate positive cash flow. Prospective
investors should be aware of the difficulties encountered by enterprises in
the early stages of development, particularly in light of the intense
competition characteristics of the industry in which the Company competes.
There can be no assurance that realization of the Company's business plan
will result in profitability or positive cash flow for the Company in
future years. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Business" and "Industry".
Need for Additional Financing for Growth
In order to finance capital expenditures and related expenses for growth
and system development, the Company will require substantial investment on
a continuing basis. The shares of Common Stock registered hereby have been
issued or are issuable in connection with acquisitions and services
relating to the growth and development of the Company. However, the Company
will need to obtain additional financing in order to continue to penetrate
its new and existing markets. If it does not obtain such financing, there
is no assurance that the additional funds necessary to complete the
development and expansion of the Company's distribution channels for its
card-based products and for other programs described herein will be
available on satisfactory terms and conditions, if at all. To the extent
that any future financing requirements are satisfied through the issuance
of equity securities, investors may experience significant dilution in the
net tangible book value per share of Common Stock. The amount and timing of
the Company's future capital requirements will depend upon a number of
factors, many of which are not within the Company's control, including
programming costs, capital costs, marketing expenses, staffing levels, and
competitive conditions. There can be no assurance that the Company's future
capital requirements will be met or will not increase as a result of future
acquisitions, if any. Failure to obtain any required additional financing
could adversely affect the growth of the Company and ultimately could have
a material adverse effect on the Company. See "Risk Factors " and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources".
Consumer Preferences and Industry Trends
The telecommunications industry market in which the Company operates, is
characterized by frequent introduction of new products and services, and is
subject to changing consumer preferences and industry trends, which may
adversely affect the Company's ability to plan for future design,
development and marketing of its products and services. These are also
characterized by rapidly changing technology and evolving industry
standards, often resulting in product obsolescence or short product life
cycles. The proliferation of new telecommunication technologies, including
personal communication services, cellular telephone products and services
and prepaid phone cards employing alternative technologies, may reduce
demand for prepaid phone cards generally as well as for phone cards
employing remote technology.
4
<PAGE>
Competition
The markets for telecommunication products and services throughout the
world are constantly being redefined as new products are brought to market
and existing product life cycles are shortened. The Company's success will
be highly dependent on anticipating and responding to the constant changes
and ensuring that it can continue to compete on the basis of price, service
and product offerings. The number of participants in the long distance,
prepaid phone and value added card industry is extensive. The Company's
long distance services in Europe and its global card based products compete
for corporate and consumer recognition with products and services which
have achieved significant international, national and regional consumer
loyalty. Many of these products and services are marketed by companies
which are well-established, have reputations for success in the development
and sale of products and services and have significantly greater financial,
marketing, distribution, personnel and other resources than the Company,
thereby permitting such companies to implement extensive advertising
and promotional campaigns, both generally and in response to efforts by
additional competitors, to enter into new markets and introduce new
products and services.
Risk of Litigation
Litigation in the telecommunication industry has been used as a competitive
tactic both by established companies seeking to protect their existing
positions in the market and by emerging companies attempting to gain access
to the market. In such litigation, complaints may be filed on a variety of
grounds, including antitrust, breach of contract, trade secret, patent or
copyright infringement, patent or copyright invalidity, and unfair business
practices. If the Company is forced to defend itself against such claims,
whether or not meritorious, the Company is likely to incur substantial
expense and diversion of management attention, and may encounter market
confusion and the reluctance of licensees and distributors to commit
resources to the Company's products.
Development of Markets
The Company's success depends on its ability to develop both domestic and
international markets for its products. There can be no assurances that the
Company will continue to market its products successfully or that a larger
market for its products will continue to develop.
Reliance on Key Distributors
In the near term, the Company's success in the prepaid phone card and
motion picture markets may depend on a number of large orders from a small
group of distribution companies, which creates a risk that the loss of any
one distributor may have a significant adverse impact on the Company's
financial results.
Management of Growth
The Company's ability to render quality services and to produce and market
large volumes of quality products at competitive prices depends on its
ability to implement and continually expand its operational and financial
systems, recruit additional employees and train, manage and motivate both
current and new employees. Furthermore, the Company must fully integrate
the existing operations of newly acquired operating businesses with the
Company's general business. Failure to effectively manage the growth of the
Company or the transition in officers of the Company would have a material
adverse effect on the business of the Company.
5
<PAGE>
Reliance on Key Personnel
The Company's businesses are managed by several key executive officers, the
loss of whom could have a material adverse effect on the Company. The
Company believes that its continued success will depend in large part on
its continued ability to attract and retain highly skilled and qualified
personnel. See "Management".
Dependence on Contractors for Manufacturing
The Company uses outside manufacturers for its card-based products and is
substantially dependent on the ability of its manufacturers to provide
adequate inventories of quality cards on a timely basis and on favorable
terms. The Company's manufacturers also produce phone cards for certain of
the Company's competitors, as well as other large customers, and there can
be no assurance that such manufacturers will have sufficient production
capacity to satisfy the Company's inventory or scheduling requirements
during any period of sustained demand. Although the Company believes that
its relationship with its manufacturers is satisfactory and that numerous
alternative sources for its cards are currently available, the loss of the
services of such manufacturers or substantial price increases imposed by
such manufacturers, would have a material adverse effect on the Company.
Failure or delay by such manufacturers in supplying cards to the Company on
favorable terms could also adversely affect the Company's operating margins
and the Company's ability to obtain and deliver products and services on a
timely and competitive basis.
Volatility of Stock Price
Factors such as announcements of the results of trials or the introduction
of new products by the Company or its competitors, market conditions in the
telecommunications and emerging growth sectors and rumors relating to the
Company or its competitors may have a significant impact on the market
price of the Common Stock. Furthermore, the stock market has experienced
volatility that has particularly affected the market prices of equity
securities of many emerging growth companies in the telecommunications
industry. This volatility has often been unrelated to the operating
performance of such companies. These market fluctuations could adversely
affect the price of the Common Stock.
Regulation
Long distance telecommunications services are subject to regulations within
the United States by the Federal Communications Commission (the "FCC"),
state regulatory authorities and comparable authorities in the various
foreign countries in which the Company operates. Among other things, these
regulatory authorities impose regulations governing the rates, terms and
conditions for interstate, intrastate and international telecommunications
services. Changes in existing laws and regulations, particularly relaxation
of existing regulations resulting in significantly increased price
competition, may have a significant impact on the Company's activities and
on the Company's operating results. The Company believes that it is in
substantial compliance with all material laws, rules and regulations
governing its operations and has obtained, or is in the process of
obtaining, all licenses, tariffs and approvals necessary for the conduct of
its business including all licenses needed for its European operations.
There can be no assurance, however, that the Company will be able to obtain
required licenses or approvals in the future or that the FCC, state or
country regulatory authorities will not require the Company to comply with
more stringent regulatory requirements. Adoption of new statutes and
regulations and expansion of the Company's operations into new geographic
markets could require the Company to alter methods of operation, at costs
which could be substantial, or otherwise limit the types of services
offered by the Company. There can be no assurance that the Company will be
able to comply with additional applicable laws, regulations and licensing
requirements.
6
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Reduced Liquidity Attendant to Penny Stock Status
S.E.C. rules impose additional sales practice requirments on broker-dealers
who recommend certain low priced "penny stocks" to persons other than
established customers and institutional accredited investors. For transactions
covered by these rules, the broker-dealer must make a determination that based
on the purchaser's financial situation, investment experience and investment
objectives, an investment in penny stocks is suitable for such purchaser and
that such purchaser (or his independent advisor) is capable of evaluating the
risks of transactions in penny stocks. The broker-dealer must also provide a
prospective purchaser of penny stocks with certain disclosure materials and
obtain the purchaser's written consent to the transaction prior to the sale.
Since the Common Stock currently is deemed to be "penny stock", an investor
may find it more difficult to dispose of, or to obtain accurate quotations
as to the market value of the securities offered hereby. An exemption from
"penny stock" status will be available, however as to the Common Stock if and
when the market price therefor exceeds $5.00 per share, the Company's net
tangible assets exceed $2,000,000 or the COmpany has average revnue of at
least $6,000,000 over the preceding three years. See "Market for Common
Stock and Dividend Policy".
Shares Eligible for Future Sale or Issuance
The Company has 9,227,961 shares of Common Stock outstanding at June 11,
1997 and 500,000,000 authorized shares of Common Stock available for
issuance, of which 10,000,000 shares are reserved for issuance pursuant to
the Company's employee stock option plan. The average exercise price per
share of the 9,871,706 outstanding options granted (2,869,300 employee and
7,002,406 CardCall International Holdings Shareholders) is $.20 per share.
Of the shares of Common Stock outstanding, 1,521,709 shares will be
available for public sale subject to (i) the limitations of Rule 144
promulgated under the Securities Act and (ii) the agreement of all directors,
officers and warrant holders and certain employees and other holders of
494,287 shares of Common Stock not to sell such shares for 360 days
following the date of this Prospectus without the consent of the Company.
In addition, existing stockholders of the Company holding approximately
2,639,742 shares of Common stock, which shares are included in the
9,227,961 shares referenced above, have been granted certain "piggyback"
registration rights with respect to such shares of Common Stock. Sales of
substantial amounts of the Common Stock in the public market, or the
availability of substantial amounts of the Common Stock for such sale,
could adversely affect the prevailing market price of the Common Stock.
Further, the authorized and unreserved shares of Common Stock available for
issuance may be issued from time to time upon authorization of the Board of
Directors, without further approval by the stockholders unless required
by applicable law. The issuance of such shares of Common Stock by the
Company could result in the dilution of the voting power of the shares.
See "Description of Capital Stock" and "Shares Eligible for Future Sale."
Ability to Pay Dividends
The Company has not paid dividends, and does not intend to pay any
dividends in the foreseeable future, since earnings, if any, are expected
to be retained for use in the development and expansion of the Company's
business.
7
<PAGE>
FORMATION OF THE COMPANY
DCI Telecommunications, Inc. (the "Company") was originally incorporated on
February 4, 1985 as ALFAB, Inc. and subsequently became Fantastic Foods
International, Inc. ("Fantastic Foods") after a reorganization in 1991.
Fantastic Foods on December 30, 1994 acquired the assets of Sigma
Telecommunications, Inc., valued at $140,000, in exchange for four hundred,
eighty thousand (480,000) shares of Fantastic Foods common stock valued at
$140,000. Concurrent with the merger, the name was changed to DCI
Telecommunications, Inc.
On January 5, 1995 the Company acquired certain assets of Sigma Industries,
Inc. (Alpha Products), totaling $672,400, in exchange for eight hundred,
fifty thousand (850,000) shares of the Company's common stock valued at
$672,400.
On June 19, 1995, the Company entered into an agreement to acquire the
common stock of R&D Scientific Corporation ("R&D") in a stock for stock
purchase, with the Company exchanging 106,250 shares for all of R&D's
outstanding stock. The stock of both companies is being held in escrow
pending certain cash infusion requirements. The Company was granted an
extension until December 31, 1997 to complete the cash infusion of
$150,000, of which $95,000 has already been infused, in order to
consummate the transaction with R&D. In consideration for the extension,
R&D has the right to terminate the purchase and sale contract at its sole
discretion prior to DCI making the cash infusion.
On November 5, 1996 the Company and P.L. Bettencourt and Associates (PLB)
executed an agreement providing for the acquisition of PLB, a sales
management and marketing firm, by the Company. PLB, upon acquisition was
renamed to Privilege Enterprises Limited (PEL).
On November 26, 1996, DCI entered into a stock purchase agreement with
Muller Media, Inc. ("Muller"), (a New York corporation that distributes
syndicated programming and motion pictures to the television and cable
industry) to acquire 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 common shares of
Muller. The DCI stock was valued at two dollars and fifty cents ($2.50) per
share ($3,000,000 in total). The shares of both companies have been
deposited with an escrow agent but are included in outstanding common stock
for the year ended March 31, 1997 based upon the intention of the Company.
DCI is required to repurchase the shares for $3,000,000, 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
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.
An extension was granted by Muller through July 15, 1997. The selling
stockholders also have an option to keep DCI stock or accept up to
$3,000,000 in cash from DCI.
On March 25, 1997, DCI Telecommunications, Inc. acquired The Travel Source
Limited, a Rhode Island corporation engaged in the travel agency business.
The transaction was a tax free exchange whereby DCI exchanged 29,412 shares
of its common stock for all of the stock of Travel Source Limited.
On April 9, 1997, the Company acquired CyberFax, Inc., a software and
hardware development company specializing in fax transmission over the
Internet. The transaction was a tax free stock for stock transaction with
DCI exchanging 400,000 shares of its common stock for all of the stock of
CyberFax, Inc.
On April 23, 1997 DCI acquired all of the outstanding shares of Crossmain
Ltd., a British corporation, for 4,285,714 options to purchase common stock
over a two year period subject to certain earning provisions to be obtained
by Crossmain.
8
<PAGE>
Crossmain is engaged in the business of providing long distance telecom-
munications throughout Europe via a private leased line network.
On June 17, 1997 the Company completed the acquisition of CardCall
International Holdings, Inc. ("CardCall") whereby DCI acquired all the
outstanding common shares and warrants of CardCall in exchange for a
maximum of 494,287 common DCI shares, 7,002,406 options to purchase DCI
stock at $.20 per share, and 741,432 warrants for DCI stock at $4.00 per
share. CardCall develops and markets prepaid phone cards and cellular
telephones.
9
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MARKET FOR COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is quoted on the OTC Bulletin Board. Its symbol
is "DCTC."
The bid quotations set forth represent prices between dealers and do not
include retail markups, markdowns or commissions and do not necessarily
represent actual transactions. These quotations were obtained from the
National Association of Securities Dealers.
1996 HIGH LOW
First quarter ended
June 30, 1995 $3.13 $ .40
Second quarter ended
September 30, 1995 $1.20 $ .40
Third quarter ended
December 31, 1995 $ .90 $ .20
Fourth quarter ended
March 31, 1996 $4.50 $ .10
1997
First quarter ended
June 30, 1996 $1.31 $ .13
Second quarter ended
September 30, 1996 $3.81 $ .84
Third quarter ended
December 31, 1996 $2.63 $1.00
Fourth quarter ended
March 31, 1997 $5.50 $1.56
1998
First quarter ended
June 30, 1997 $4.00 $1.37
At June 30, 1997, the bid and asked prices for the Company's Common Stock
as so reported were $1.63 and $1.72 respectively. On that date, the Company
had approximately 2,000 holders of record of its Common Stock.
The Company has outstanding options and warrants to purchase 9,871,706
shares and 881,432 shares, respectively, of Common Stock. As of June 11,
1997, the Company also had outstanding approximately 1,521,709 shares of
Common Stock the sale or other transfer or disposition of which was
restricted by the Securities Act. In the future, these shares may only be
sold in compliance with Rule 144, promulgated under the Securities act, by
the availability of an exemption from registration under the Securities Act
or by their registration thereunder. As of June 11, 1997, approximately
60,868 of these shares of Common Stock would have been eligible for sale
10
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under Rule 144. During the period commencing June 11, 1997 and ending June
11, 1998, an additional approximately 1,460,841 of such shares will become
eligible for sale under Rule 144. The balance of such shares will become
eligible for sale pursuant to Rule 144 upon the expiration of their
respective one-year holding periods. In addition, most of the current
holders of outstanding Common Stock, options and warrants have "piggy-back"
registration rights with respect to their securities should certain
conditions be satisfied. Sales of outstanding Common stock pursuant to Rule
144 or otherwise could materially affect the trading price of the Company's
Common stock. See "Risk Factors - Shares Eligible for Future Sale".
S.E.C. rules impose additional sales practice requirements on broker-
dealers who recommend certain low priced "penny stock" to persons other
than established customers and institutional accredited investors. For
transactions covered by these rules, the broker-dealer must make a
determination that based on the purchaser's financial situation, investment
experience and investment objectives, an investment in penny stocks is
suitable for such purchaser and that such purchaser (or his independent
advisor) is capable of evaluating the risks of transactions in penny
stocks. The broker-dealer must also provide a prospective purchaser of
penny stocks with certain disclosure materials and obtain the purchaser's
written consent to the transaction prior to the sale. The Common stock
currently is deemed to be "penny stock". Since broker-dealers must create
an extensive paper trail to sell penny stock, many investors are not
qualified to purchase penny stocks and classification as a penny stock
often carries negative connotations, an investor may find it more difficult
to dispose of, or to obtain accurate quotations as to the market value of
the securities offered hereby. An exemption from "penny stock" status will
be available, however, as to the Common stock if and when the market price
therefor exceeds $5.00 per share, the Company's net tangible assets exceed
$2,000,000 or the Company has average revenue of at least $6,000,000 over
the preceding three years.
To date, the Company has paid no cash dividends on its Common Stock. The
Company currently intends to retain all future earnings, if any, to fund
the development and growth of its business, and it therefore does not
anticipate paying any cash dividends in the foreseeable future.
11
<PAGE>
SELLING STOCKHOLDERS
The following table shows for each of the Selling Stockholders (i) the
number of shares of Common Stock beneficially owned by each of them as of
June 11, 1997 , (ii) the number of shares of Common Stock covered by this
Prospectus, and (iii) the number and the percentage of ownership of Common
Stock after the offering assuming all shares of Common Stock covered by
this Prospectus are sold.
Number of Number of
Number of Shares Shares
Shares Covered Owned
Registering Beneficially By This After Percentage
Stockholder Owned Prospectus Offering of Class
Robert Muller 981,053 960,000 21,053 .2
Dan Mulholland 240,000 240,000 0 0
Claude Dominique 200,000 200,000 0 0
Excalibur Ltd. 136,363 136,363 0 0
Partnership
Anthony Heller 295,454 295,454 0 0
Jefrob Glorich 40,909 40,909 0 0
Jay Smith 72,727 72,727 0 0
Donald Mactaggart 200,000 200,000 0 0
Lois Morris 14,706 14,706 0 0
Sandra Perry 14,706 14,706 0 0
Totals 2,195,918 2,174,865 21,053 .2
To the best of the Company's knowledge, none of the Selling
Stockholders has had any material relationship with the Company or any of
its affiliates within the past three years except for their purchase of the
Common Stock offered hereby and convertible preferred stock. The
Selling Stockholders acquired the Common Stock in private placements
as part of acquisitions by the Company. The Selling Stockholders' shares
are being registered pursuant to the exercise of demand registration
rights received in connection with the purchase of such shares.
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PLAN OF DISTRIBUTION
The shares may be sold by the Selling Stockholders, or by pledgees, donees,
transferees or other successors-in-interest. Such sales may be made on the
OTC Bulletin Board, in privately negotiated transactions, or otherwise, at
market prices or at negotiated prices. The shares may be sold by one or
more of the following methods: (a) a block trade in which the broker or
dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal in order to consummate the
transaction; (b) purchase by a broker or dealer as principal, and the
resale by such broker or dealer for its account pursuant to this
Prospectus, including resale to another broker or dealer; or (c) ordinary
brokerage transactions and transactions in which the broker solicits
purchasers. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Any
such brokers or dealers may receive commissions or discounts from the
Selling Stockholders in amounts to be negotiated immediately prior to the
sale. Such brokers or dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended. Any gain realized by such a broker or
dealer on the sale of shares which it purchases as a principal may be
deemed to be compensation to the broker or dealer in addition to any
commissions paid to the broker by the Selling Stockholders.
The Company will not receive any portion of the proceeds of the shares sold
by the Selling Stockholders. There is no assurance that any of the Selling
Stockholders will sell any or all of the shares of Common Stock covered by
this Prospectus.
The Selling Stockholders have advised the Company that during the time they
are engaged in distribution of Common Stock covered by this Prospectus,
they will comply with Rules 10b-5 and 10b-6 under the Exchange Act, and
pursuant thereto: (i) will not engage in any stabilization activity in
connection with the Company's securities; (ii) will furnish each broker
through which Common Stock covered by this Prospectus may be offered the
number of Copies of this Prospectus which are required by each broker; and
(iii) will not bid for or purchase any securities of the Company or attempt
to induce any person to purchase any of the Company's securities other than
as permitted under the Exchange Act. Selling Stockholders who may be an
"affiliated purchaser" of the Company as defined in Rule 10b-6 have been
further advised that pursuant to Exchange Act Release 34-23611 (September
11, 1986), they must coordinate their sales under this Prospectus with each
other and the Company for purposes of Rule 10b-6.
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CAPITALIZATION
The following table sets forth the cash, long-term debt and total
capitalization of the Company, as of June 30, 1997:
(unaudited)
June 30,1997
____________
Actual
Cash................. $1,082,158
Long-term debt....... 1,334,555
Convertible Preferred Stock
$1000 par value, 2,000,000
shares authorized, 1,302
outstanding.......... 1,302,000
Stockholders' equity:
9 1/4% Preferred Stock,
$100 par value;
5,000,000 shares authorized;
29,076 outstanding........... 305,000
Common Stock, $.0001 par value,
500,000,000 shares authorized;
9,003,074 shares issued
and outstanding............. 900
Additional paid-in capital 5,634,244
Deficit................. (421,205)
Unrealized Capital Loss ...... (5,495)
Treasury stock at cost ..... (13)
TOTAL SHAREHOLDERS
EQUITY $5,513,431
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UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED MARCH 31, 1997
The following table summarizes the unaudited pro forma results of
operations of the Company for the fiscal years ended March 31, 1997 and
1996, assuming the acquisitions of CardCall, R&D, Muller, PEL and Travel
Source had occurred on April 1, 1995. The unaudited pro forma financial
information presented is not necessarily indicative of the results of
operations that would have occurred had the acquisitions taken place on
April 1, 1995 or of future results of operations.
1997 1996
Net Sales $12,492,440 $ 7,905,300
Cost of Sales 10,994,141 6,278,948
Gross Margin 1,498,299 1,626,352
Selling,General and
Administrative Expenses 5,504,727 4,133,439
(Loss) from Operations (4,006,428) (2,507,087)
Interest Income 49,205 40,149
Interest Expense (63,742) (86,116)
Net (Loss) ($4,020,965) ($2,553,054)
(Loss) per Share ($.29) ($ .22)
Cash $ 1,479,122 $ 1,327,191
Accounts Receivable 5,389,496 2,149,381
Fixed Assets, Net 1,097,834 675,930
Intangible Assets 5,392,652 2,162,205
Other Assets 589,971 400,977
Total Assets $13,949,075 $ 6,715,684
========= ========
Accounts Payable and
Accrued Expenses $ 7,894,344 $ 3,201,400
Income Taxes 407,398 386,231
Due to Related Parties - 363,292
Long-Term Debt 236,624 176,529
Other Liabilities 148,366 323,157
Total Liabilities $ 8,686,732 $ 4,450,609
======== ========
CyberFax and Crossmain (DCI UK) have been omitted as their operations were
immaterial.
15
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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial data as of March 31, 1997,
1996 and 1995 are derived from the consolidated financial statements of DCI
Telecommunications, Inc., which have been audited by Schnitzer & Kondub
P.C., independent auditors, and are included elsewhere in this Prospectus.
Fiscal Year Ended March 31,
__________________________________
1997 1996 1995 1994 1993
(In thousands, except per share data)
Statements of Income Data: (a)
Revenues .............. $2,794 $1,842 $ 110 $ --- $ ---
Cost of Sales ......... 1,944 1,400 46 -- --
Gross Profit .......... 850 442 64 -- --
Operating Expenses:
Sales, General & Admin.. 1,222 1,123 1,085 79 342
Income (loss) from
operations ..... (372) (681) (1,021) ( 79) (342)
Net income (loss) ..... (373) (712) (1,095) (104) (844)
Earnings (loss)
per share (b)..... ($.07) ($.36) ($1.95) ($1.30) ($13.10)
March 31,
1997 1996
Balance Sheet Data:
Working capital ............... $ 1,769 ($ 288)
Total assets ................. 10,734 2,607
Total long-term debt, including
current maturities 180 84
Total shareholders' equity ... 5,931 1,926
(a) Includes the results of purchased businesses from acquisition dates,
except for Travel Source which was treated as a pooling of interest.
(Data for Travel Source not available 1993-1995).
(b) Adjusted to reflect a one for twenty reverse stock split effected
January 25, 1995, a forty for one split effected March 7, 1996 and a
one for four hundred reverse split effected March 14, 1996
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of DCI
Telecommunications, Inc. and its subsidiaries (collectively, the Company),
consolidated results of operations and financial condition for the two
years ended March 31, 1997. The discussion should be read in conjunction
with the Company's consolidated financial statements and accompanying
notes.
The Company, since its recent acquisitions, operates predominantly in the
telecommunications industry providing a broad range of communication
services. The Company's services include long distance, cellular as well
as Internet connections. Through continued investments and fiscal 1997
business acquisitions, the Company has expanded its business into rapidly
developing markets. References herein to the years 1997, 1996 and 1995
refer to the Company's fiscal years ended March 31.
Acquisition Agreements
The acquisitions of CardCall International, CyberFax and DCI UK Limited
will be accounted for under the purchase method of accounting under both
U.S. and United Kingdom generally accepted accounting principles. The
Company believes that CardCall International, operating with the combined
networks, financial resources, management, personnel and technical
expertise of the Company, CyberFax and DCI UK Limited, will be better able
to capitalize on the world wide growth opportunities in the
telecommunications industry. In addition, the Company expects these
companies will be able to derive significant advantages from the more
efficient utilization of their combined assets, management and personnel.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, (Privilege Enterprises Limited and The
Travel Source, Limited) and R&D Scientific and Muller Media since
acquisition dates, as if the stock purchase agreements with R&D and Muller
were completed.
Liquidity and Capital Resources
On December 30, 1994 and January 5, 1995 the Company acquired the assets of
Sigma Telecommunications and Alpha Products through the issue of 1,330,000
shares of common stock, and renamed the Company DCI Telecommunications,
Inc. The liabilities remaining from the former Fantastic Foods
International, Inc. at acquisition left the Company with negative working
capital and little financing capability. In June 1995 the Company acquired
R&D Scientific and in November 1996 acquired Muller Media, both through the
issue of common stock. The acquisitions, particularly Muller Media,
greatly improved the Company's financial position, and at March 31, 1997
the current ratio was a positive 1.9 to 1 and cash on hand was $1,300,000.
17
<PAGE>
However, cash used in operations was $745,000 and $311,000 in the years
ended March 31, 1997 and 1996 respectively. The Company was able to
overcome these shortfalls from the sale of common stock and proceeds from
the exercise of stock options.
Shortly after the close of fiscal year March 31, 1997, the Company
completed the acquisition of CardCall International, CyberFax and Crossmain
Ltd., which combined will require significant amounts of cash to finance
their expansion plans.
The Company is continuing to pursue long-term financing for its acquisition
and expansion program, and with its currently unleveraged position, will
most likely engage in debt financing. However, no assurance can be given
that additional financing will be available or, if available, that it will
be on acceptable terms. The ability to finance all new and existing
operations will be heavily dependent on external sources.
Consolidated Results of Operations
The following provides a discussion of the Company's consolidated results,
comprised of the Company and its wholly owned subsidiaries, (Privilege
Enterprises Limited, and The Travel Source, LTD) and R&D Scientific and
Muller Media as if the purchase agreements with R&D and Muller were
completed. References herein to the years 1997, 1996 and 1995 refer to the
Company's Fiscal Years ended March 31.
Results of Operations - 1997 Compared to 1996
1997 1996
Net Sales $2,793,948 $1,842,170
Net sales increased $951,778 or 52% in 1997 compared to 1996. The increase
is principally due to Muller Media sales since its acquisition in November
1996. Small increases in Technology Group (R&D Scientific and Alpha Products)
and Travel Agency sales also contributed to the increase.
1997 1996
Cost of Sales $1,943,704 $1,399,862
Cost of sales increased $543,842 or 39% in 1997. Cost of sales associated
with Muller Media sales for the four months since its acquisition amounted
to approximately $385,000. In addition, cost of sales for the Technology
Group increased $137,000 due to more salaries being allocated to cost of
sales in 1997.
1997 1996
Selling, General and Administrative $408,810 $416,141
Selling, General & Administrative expenses declined $7,604 in 1997.
Expenses increased approximately $170,000 as a result of several months of
activity from Muller and PEL (acquired in November 1996). However,
increased favorable debt settlements, lower director fees and various other
reductions entirely offset the Muller and PEL increases.
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<PAGE>
1997 1996
Salaries and Compensation $438,867 $383,510
Salaries increased $55,357 or 14% in 1997. Salaries of Muller and PEL
since their acquisition amounted to $176,830 but was significantly offset
due to the allocation of more salaries to cost of sales.
1997 1996
Professional and Consulting Fees $96,880 $130,962
Professional and consulting fees declined $34,082 or 26% in 1997.
Increased fees as a result of Muller and PEL activity since acquisition
totaled $40,874 and was offset by lower fees associated with debt
settlements and the expanded use of internal resources for administrative
responsibilities.
1997 1996
Amortization and Depreciation $277,737 $193,059
Amortization and depreciation increased $85,812 in 1997. A full year's
amortization of the R&D copyright (acquired June 1995) resulted in a
$57,500 increase, and amortization of Muller goodwill beginning in 1997
resulted in an additional $24,000.
Other Income and Expense
1997 1996
Interest (Expense) ($20,799) ($30,670)
Interest Income $19,571 $120
Interest expense declined $9,871 in 1997 due to the overall decline in
corporate debt. Interest income in 1997 is almost entirely due to Muller's
short term investments.
Results of Operations - 1996 Compared to 1995 (excluding Travel Source in
both years since 1995 not available).
1996 1995
Net Sales $ 814,016 $ 110,385
Net sales in 1996 amounted to $814,016 compared to only $110,385 in 1995.
Sales in 1996 include a full twelve months of telecommunications, data
acquisition and computer related sales as well as $544,404 medical systems
sales since the proposed acquisition of R&D Scientific on June 19, 1995.
Sales in 1995 reflect only three months of operations.
19
<PAGE>
Net sales in 1995 represents sales of data acquisition, telecommunications
components and collectible items since the acquisition of DCI and Alpha
Products, or the last quarter of 1995. There were no operations earlier in
the 1995 fiscal year.
1996 1995
Cost of Sales $ 476,243 $ 46,657
Cost of sales in 1996 reflects twelve months of telecommunication, data
acquisition and computer related costs and over nine months of R&D
Scientific costs, while 1995 costs reflects only three months of activity.
20
<PAGE>
1996 1995
Salaries and Compensation $ 338,217 $ 112,819
Salaries and compensation rose from $112,819 in 1995 to $338,217 in 1996
almost exclusively due to twelve months activity and the addition of R&D
Scientific versus only three months activity in 1995.
1996 1995
Selling, General and Administrative $ 365,250 $ 125,868
Selling, general and administrative expenses increased to $365,250 in 1996,
compared to $125,868 in 1995. The increase represents utilities, rent,
travel and other expenses associated with a full year of operations.
1996 1995
Professional and Consulting Fees $ 129,065 $ 768,631
Professional and consulting fees decreased from 1995 due to the high
settlement of legal issues in the year ending March 31, 1995. This
variance is also due to the inclusion in 1995 of stock related to Casino
Marketing employees (which was written off in the 1996 quasi
reorganization) and stock to the former president and others for services
to establish the Company.
1996 1995
Amortization and Depreciation $ 191,924 $ 77,401
Amortization and depreciation increased to $191,924 in 1996 from $77,401 in
1995. Amortization in 1996 includes twelve months of customer base totaling
$65,375 and ten months of R&D Scientific copyrights of $112,500.
Amortization in 1995 included only three months of customer base
amortization and $58,500 associated with Casino Marketing trademarks which
was written off in 1996.
1996 1995
Other Income and (Expense) ($ 30,670) ($ 74,494)
Net other expense declined $43,824 in 1996 compared to 1995, principally
due to the inclusion in 1995 of settlement expenses associated with the
former Fantastic Foods obligations. This was partially offset by $16,915
higher interest expense on notes and accounts payable in 1996.
21
<PAGE>
BUSINESS
DCI Telecommunications, Inc. (the "Company") is engaged, through its
operating subsidiaries, in long distance telecommunications, prepaid
cellular and Internet related products and services. The Company through
the acquisition of Crossmain Limited (since renamed DCI UK Limited), a
London based company, is involved in providing long distance telephone
service to businesses and individuals through a private leased line network
being established throughout Europe where deregulation in the
telecommunications industry is just now being implemented. A leased line
network from one country to another is one of the least expensive methods
for a small company to gain entry into the long distance business. DCI UK is
now providing long-distance service in the UK, Denmark and Spain.
CardCall International Holdings, Inc. (and its subsidiaries CardCall UK and
CardCaller Canada), also acquired by the Company, develops and markets
standard prepaid phone cards as well as voice-activated prepaid phone cards
through an extensive and growing distribution network for its products and
services throughout Europe and Canada. A prepaid phone card permits the
holder of the card to place long distance and international calls from any
touch-tone phone, eliminating the need for coins and collect calls. The
card user, who has prepaid for telephone minutes, simply dials an 800
number which connects the user to one of the Company's switching
facilities. The caller is then prompted for his or her personal
identification number (PIN) and destination phone number. The call is then
routed through the Company's switch to the ultimate destination via a long
distance carrier. The phone cards are sold through national distributors
in both the UK and Canada with 55,000 and 3,000 distribution points
respectively.
The Company, through its Privilege Enterprises Limited subsidiary (PEL),
designs and markets corporate sponsored value-added phone cards (called
Privilege Cards) and specialized card-based membership programs to the
international consumer and commercial marketplaces. PEL has established a
merchant network of over 8,000 businesses in the United States who accept
the Privilege Card and offer the card holder some form of discount, free
gift or "privilege". The Privilege Cards are distributed by corporate
sponsors and through membership groups.
CardCaller Canada (CCC), a DCI subsidiary recently announced the launch of
its first prepaid cellular telephone. This new and exciting product was
developed in large part for over 30% of applicants who are rejected for
cellular service due to either poor credit or no credit history. CCC is a
switch based reseller utilizing its own prepaid switching platform which
22
<PAGE>
enables it to offer customized prepaid cellular service that is extremely
suitable for Canadian based users. This product will be sold through CCC's
national network of distributors.
R&D Scientific has developed a proprietary data monitoring system for a
number of industries including hospitals, blood banks, pharmaceutical
companies and government institutions. It assembles and sells a broad
product line of data acquisition and control devices for personal computers
and has recently introduced a wireless probe which allows the sending and
receiving of digital data over existing electrical wiring.
Muller Media 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 principally to
major television and cable networks.
The Company's corporate strategy takes into consideration the opportunities
the Internet may provide in the telecommunications area. In this regard,
the Company acquired CyberFax, Inc. which immediately gives the Company a
product which integrates a communication tool used world-wide with the
Internet. CyberFax software and hardware allows fax to fax transmission
over the Internet in real-time (not store and forward) with delays which
are virtually nil and with standard confirmation protocols. CyberFax has
recently secured nine (9) memorandum of understanding with various Internet
Service Providers (ISP's) and telephone companies in China, Hong Kong and
Singapore who will be offering CyberFax's product to their already established
customer base.
The Company's growth plan is based on internal product development
supported by strategic acquisitions and joint ventures in the
telecommunications area which the Company believes will immediately and
significantly enhance its product offerings, distribution channels,
market penetration and earnings.
The Company has a growing distribution network for its products and services
throughout the United States and Europe for its products and services in
addition to owning telephone switching facilities in Canada and the
United Kingdom (UK).
INDUSTRY OUTLOOK
The long distance, cellular and Internet markets, both domestic and
international, are highly competitive and extremely price sensitive. The
Company believes that it can successfully compete in these markets due to
several factors including a) its expansion through already secured licenses
for its private leased line telephone network throughout Europe as deregulation
in the various countries commences; b) the planned purchase of telephone
switching equipment for implementation in prime locations throughout Europe;
c) its contracts and relationships with companies who provide very extensive
distribution channels throughout parts of Europe; d) its ability to take
advantage of the synergy between its various operating subsidiaries; e) its
agreements with over 8,000 merchants who honor the Company's Privilege
Card and; f) its substantial knowledge and understanding of the markets it
is seeking to penetrate.
23
<PAGE>
COMPANY STRATEGY
The Company's principal objective is to achieve continued growth by
providing a variety of products in the telecommunication area and creating
the infrastructure to deliver and support those products in a timely and
cost effective manner. The Company's sales effort will employ several
strategies commonly used for selling long distance and cellular telephone
services, card based products and Internet products and services. These
selling plans require a) the expansion of the Company's leased line network
b) the aggressive expansion of distribution channels, c) the implementation
of direct selling activities and d) the establishment of
strategic partnerships.
Expansion of Leased Line Network - As deregulation of the telecommunication
industry in Europe takes effect during 1997, the Company will continue to
expand its private leased line network throughout Europe in order to
enhance its ability to deliver long distance phone time throughout the more
than 20 countries in the European community. This private network allows
the Company to offer per minute long distance phone rates at a lower price
than those currently offered by government owned or sponsored telephone
companies who presently control the majority of phone traffic in Europe.
This network also gives the Company the ability to expand distribution of
its prepaid phone card products into those countries where Company
switching equipment is put into place.
Expansion of Distribution Channels - As the telecommunications market is
highly competitive, it is imperative that the Company continue its ongoing
efforts to add new distribution and sales channels for its products. The
Company will aggressively seek distribution outlets in countries in which
it currently has a presence and those which have been targeted for future
growth. These distribution outlets will include travel agencies, gift
shops, chain stores, tourist attractions, businesses (promotions),
publications and phone card resellers for its prepaid cellular and card
based products and Internet Service Providers (ISP's) for its Internet fax
product. In certain instances, businesses will be acquired which can
immediately add distribution channels and profitability to the Company.
Direct Sales - Direct sales will be accomplished through the Company's own
sales force made up of contract and commissioned sales personnel along with
independent agents to sell Company products and services. These selling
agents will be geographically placed to a) saturate program sales in a
region and b) provide wide-area coverage. This will allow servicing needs
for each of the programs to be supported by some level of direct sales
efforts. Sales personnel will be assigned based on either location or
target group industry. The Company will identify and establish
relationships with PBX dealers, national service organizations, non-
telecommunication sales organizations or any company with a history of
successful selling to an established customer base which generates
international calls (such as exporters). Additionally, the Company's sales
force will target large companies with multiple locations who can take full
advantage of the cost savings of fax over the Internet.
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<PAGE>
Strategic Partnerships - Partnerships will be developed with parties
who occupy strategic positions and have substantial market share
in the telecommunications industry in a specific territory and are capable
of marketing, selling and distributing Company products and services
in significant numbers.
MARKETS
According to the TeleGeography 1993 report, in cooperation with the
International Institute of Communications (IIC), the European
telecommunications market was $9.73 billion in 1992. At a conservative
growth rate of 11.4% per year, the estimated 1996 European market was
$15.77 billion making it the largest telecommunications calling area in the
world. The market is projected to maintain double digit growth over the
next ten years. By capturing only 1/2 of 1% (.005) of the European market in
the next two years, the Company will enjoy significant revenues in the
retail end-user market.
The sale of prepaid phone cards is predominantly aimed at callers who make
long distance telephone calls, both national and international, when they
are away from home or office. In the United States, the sale of these
cards has grown dramatically commencing in the early 1990's. A recent study
estimated sales in the U.S. to have grown from $20.0 million in 1990 to
over $1.0 billion in 1996. Projections indicate that sales could grow as
high as $5.0 billion by the year 2000. It is also expected that the growth
in prepaid phone card sales in the European markets will follow the
significant growth found in the U.S. during the past six years and recent
trends in Europe, particularly in the UK seem to justify these
expectations.
The Canadian market potential for prepaid cellular use is estimated to be
$50 million per year. The Company plans to utilize its current 3,000
distribution points in Canada to market the cellular phones as well as
expand its channels of distribution through car rental agencies and direct
marketing.
It is important to note that fax transmission makes up an extremely large
percentage of international long distance communications. While Email is a
tool which in some cases can be utilized in lieu of fax, a very large
majority of individuals and businesses throughout the world (particularly
outside North America) do not have Email capability or even access to a
personal computer. The Company is initially targeting 14 countries in which
it will implement its Internet fax product. International fax traffic
from/to these countries is estimated to be 3.25 billion minutes per year.
The Company's target is to secure 1% or 32.5 million of those minutes.
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Following is an abbreviated sample of the existing markets for Company
products:
Individuals and Businesses (in general): Any individual or business located
in a country in which the Company has established its leased line telephone
network is a potential customer for the Company. All persons or companies
who send international fax transmissions are possible customers for the
Company's Internet fax product. Companies which want to control their
cellular phone costs and eliminate cellular abuse or individuals who
have poor credit or no credit history are potential customers for
the Company's prepaid cellular product.
Travelers - Travel related companies were among the first to see prepaid
phone cards as an effective service for customers. Travel agents and
international traveler service organizations were quick to see the value of
a product that could allow clients to cheaply circumnavigate extremely high
hotel phone charges. Additionally, the Company's value added Privilege
Card is directed specifically to travelers who can not only take advantage
of the prepaid phone card features, but also the participating merchant
discounts as well.
Promotions - Presently, the biggest market for prepaid cards consists of
businesses that give away millions of cards for advertising and promotion
purposes, according to the Yankee Group. These cards usually have the
sponsoring company's logo prominently displayed on the card and usually
have a low denomination of minutes for the holders use. The Company's
Privilege Card also addresses this market particularly in developing
programs for sponsoring companies who's card can be used to secure
discounts at merchants related to the sponsoring company's business or
products.
General Retail - Prepaid phone cards can be found in many retail
establishments such as convenience stores, supermarkets, gift shops, etc.
These types of establishments, particularly in Europe, potentially provide
extensive distribution channels for prepaid cards. The cards are presented
in these businesses as a convenience item and are gradually becoming a
planned shopping item for customers who frequent these establishments.
MARKETING AND SALES
The Company will commence an aggressive marketing effort for all of the
products and services described. In order to successfully penetrate the
targeted areas, marketing activities currently being undertaken will be
expanded and improved. The Company will be presented as a full service
telecommunications company which owns its own equipment and can provide
high quality, reliable products and services at competitive prices.
Specific marketing activities include:
1. Advertising and promotional campaigns in the applicable targeted
countries to establish a significant telecommunications presence. The
advertising will be specific to the particular country and clearly describe
the benefits of Company products and services. A determination will be made
as to which products to market within a country by analyzing barriers to
entry, marketability of the product(s) and the return on investment to gain
entry and market share.
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2. Immediately expand distribution channels for prepaid phone cards in the
UK from 11,000 to 55,000 locations via already signed agreements with
National Lottery Enterprises and W.H. Smith PLC.
3. Install its private labeled prepaid phone card vending machines in high
traffic areas throughout the UK and eventually Europe, Canada and possible
the United States. The use of these machines increases the phone cards
profit margin to the Company by eliminating distributors commissions.
4. Utilize the Company's existing distribution channels in Canada to market
the prepaid cellular product.
5. Actively pursue distribution channels in the 29 countries in which the
Company's phone cards can be presently utilized. In certain instances, the
Company will evaluate an acquisition or joint venture where significant
distribution channels and profits can be gained in an expedient manner.
6. Secure publicity from industry publications and media such as
International Telephone Cards Magazine, Open World for Accessible Travel
Magazine, etc.
7. Participate in industry specific trade shows, especially in the
hospitality and travel industries.
8. Develop press releases for newly developed products and programs,
especially when highly recognizable corporate sponsorship is involved.
9. Implement Privilege Card Programs in Canada and the UK
A sample of products offered by the Company are:
LONG DISTANCE TELEPHONE SERVICE in Europe which allows subscribers to
utilize the Company's private leased line network (a combination of telephone
switching equipment and dedicated long distance phone lines) to place
international long distance phone calls at substantial savings over the
competition. As the Company owns (or will own) the switching equipment
(the equipment that routes the call to its ultimate destination along with
keeping track of all call information for billing purposes) at the various
termination points, phone calls can be completed via least cost routing.
Additionally, since the Company pays a flat rate monthly charge for
leasing the various dedicated phone lines, it can sell minutes at a
much lower price than companies which only resell minutes (i.e., they
don't control the lines or the switching equipment).
PREPAID PHONE CARDS which permit users to place local, long distance and
international calls from generally any public or private touch-tone type
telephone with the cost of the call made being debited from the card by
reference to a unique personal identification number (PIN) on each card.
These cards often display highly recognizable images on the front which the
Company has licensed. Currently, the Company's cards can be utilized in 29
countries throughout the world. The National Lottery AnyPhone Card is a
prepaid phone card designed specifically for sale at the over 33,000
locations in the UK where National Lottery Machines are present. Under
exclusive licensing, the AnyPhone Card displays the "National Lottery
AnyPhone" symbol on the front and wherever possible, the cards are
displayed close to the lottery machines.
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PRIVILEGE CARD PROGRAM is a full service, value added program where the
Company designs and develops a Privilege Card Program specifically for
companies. The sponsoring company determines how it wants to distribute the
cards to its customers (or potential customers). Once distributed, the
cardholder can present the card at any of the 8,000 merchants recruited by
the Company and he or she will receive a special discount, gift or
"privilege" from the participating merchant. The card also has prepaid
phone time for added value and convenience. An example of a specialized
program is the Travel Access Privilege Card designed specifically for the
more than 48 million handicapped travelers in the United States. This
membership based program, recently endorsed by the Society for the
Advancement of Travel for the Handicapped (SATH), provides the handicapped
traveler with valuable savings each time he or she stays at a handicap
friendly hotel, visits a handicap friendly restaurant, etc.
PREPAID CELLULAR was recently launched by the Company in Canada to address
the needs of the 30% of applicants who are rejected for cellular service
due to either poor credit or no credit history. There are a number of other
applications for prepaid cellular service including businesses seeking to
control costs, immigrants, students, truckers and tourists. This product is
currently being introduced in Toronto and a national roll-out is planned
for this summer.
PASS-A-FAX is the Company's proprietary software and hardware product which
allows a user to send a fax over the Internet in real time with delays of
only 1 to 5 seconds. When using the Pass-A-Fax system, an individual or
business will see no difference or be required to perform any additional
functions in order to send a long distance fax. For example, if the paper
is out at the receiving fax machine or if the machine is busy, the sender's
machine will know with virtually no delay. Anything a fax machine does
conventionally, it will continue to do utilizing the Internet and the Pass-
A-Fax system.
CUSTOMER SERVICE
The Company strives to provide superior customer service and believes that
personal contact with potential and existing customers is a significant
factor in customer acquisition and retention. The Company emphasizes
frequent contact with prospects and customers both by its direct sales
personnel and its field service representatives.
New customer accounts are processed at the Uxbridge, Massachusetts; London,
United Kindgom; Toronto and Montreal, Canada; New York City, New York;
Flanders, New Jersey and Kingston, Rhode Island offices. There, the
Company's provisioning staff is dedicated to providing new customers with a
smooth transition to its services.
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During 1996, no one customer accounted for more than 8% of the Company's
revenues. The Company believes that the loss of any single customer would
not have a material adverse effect on its results of operations.
ACQUISITIONS
DCI's strategy is to continue to supplement its growth through selective
acquisitions. The Company believes that in some instances it is faster and
less expensive to buy companies with customer bases rather than developing
a customer base through internal marketing or sales efforts. DCI believes
that many smaller firms are willing to sell their customer bases because
they have been unable to manage the growth of their enterprise or attract
the capital necessary to finance receivables and develop a management and
systems infrastructure. See "Management's Discussion and Analysis of
Financial condition and Results of Operations."
While acquisitions can offer important growth opportunities, assimilating
new businesses gives rise to certain risks. Where the Company does not
also acquire the sales channel associated with a customer base, there is
often a period of enhanced attrition risk as DCI's sales force becomes
familiar with its newly acquired customers and establishes relationships
with the appropriate customer contacts. The acquisition process also places
demands on the Company's senior management and its systems during periods
of rapid growth. There can be no assurance that there will not be adverse
consequences to the Company from its acquisition program.
GOVERNMENT REGULATION
Long distance telecommunication services in the United States are subject
to regulation by the FCC and by state regulatory authorities. In Canada and
Europe, each country has an equivalent regulatory authority who monitors
and controls the telecommunications industry. Among other things, these
regulatory authorities impose regulations governing the rates, terms, and
conditions for interstate, intrastate and international telecommunication
services. In the U.S., the federal law governing regulation of interstate
telecommunications is the Communications Act of 1934 (the "Communications
Act"), which applies to all "common carriers", including AT&T, MCI and
Sprint, as well as other entities which resell the transmission services
provided through the facilities of common carriers. In general, under the
Communications Act, common carriers are required to charge reasonable rates
and are prohibited from engaging in unreasonable practices in the provision
of their services. Common carriers are also prohibited from engaging in
unreasonable discrimination in their rates, charges and practices.
The Communications Act requires each common carrier to file tariffs with
the FCC. A tariff is a list of services offered, the terms under which the
services are offered, and the rates, or range of rates, charged for
services. Upon filing a tariff, the service provider is required to provide
the service at the rates and under the terms and conditions specified in
the tariff. Failure to file a tariff could result in fines and penalties.
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In addition to federal regulation, resellers of long distance services may
be subject to regulation by the various state regulatory authorities. The
scope of such regulation varies from state to state, with certain states
requiring the filing and regulatory approval of various certifications and
state tariffs.
The Company believes that it is in substantial compliance with all material
laws, rules, and regulations governing its operations and has obtained or
is in the process of obtaining all licenses, tariffs and approvals
necessary for the conduct of its business. In the future, legislation
enacted by Congress, court decisions relating to the telecommunications
industry, or regulatory actions taken by the FCC or the states or countries
in which it operates could adversely impact the business. Changes in
existing laws and regulations, particularly currently proposed relaxation
of existing regulations resulting in significantly increased price
competition, may have a significant impact on activities and operating
results. Adoption of new statutes and regulations could require the Company
to alter methods of operations, at costs which could be substantial, or
otherwise limit the types of services it offers.
COMPETITION
For each European country, long distance telephone competition can be
segmented into three basic groups:
a) Government owned or controlled phone companies (sometimes referred to
as PTT's) which historically have utilized the international calling rates
to subsidize the local telephone service. As PTT's have historically
offered very high rates and low quality service, the Company believes this
group will provide minimal competition in international calling;
b) Callback Companies offer lower rates than PTT's by rerouting calls
through the United States which presently has the lowest rates in the
world. The billing and operational process involved with callback is much
more complicated than "normal" long distance communications. A number of
companies entered into the callback market and were unsuccessful in making
the system work. As a result, callback is not a valid alternative for many
individuals and companies who are afraid of irregular or loss of service.
c) Lease Line Network Companies who lease private lines between countries
and sell minutes to individuals and businesses in the terminating
countries. This is the area in which the Company is presently involved by
building the infrastructure throughout Europe. DCI UK Limited has secured
the necessary licenses to begin the sale of minutes prior to total
deregulation in August, 1997. This gives the Company a significant head
start in quality and cost before the major players enter the market.
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In general, the telecommunications industry is characterized by frequent
introduction of new products and services and changing consumer
preferences. The markets for telecommunications products and services are
constantly being redefined as new products are brought to market and
existing product life cycles are shortened. The Company's success will be
highly dependent on anticipating and responding to the constant changes
taking place in the telecommunications industry and ensuring that it can
continue to compete on the basis of price, service and product offerings.
The number of participants in the prepaid phone card industry is extensive
and therefore no discussion of any one individual competitor is provided.
Within the segment of prepaid phone card providers, the Company could
occupy a unique position in the European market. Many of the existing
telecommunication companies in Europe market prepaid phone cards as a
secondary product to their core business which in many cases is
international callback. The Company strongly believes that it can have a
major impact on the European prepaid phone card market (as it did in the
UK). Additionally, by owning switching facilities, the Company can provide
the prepaid services at highly competitive rates.
At this time, the Company does not have a switching facility in the United
States and therefore cannot successfully compete against other
telecommunications companies based strictly on a per minute rate. The
Company is evaluating the benefits of either implementing or acquiring a
switching facility in the U.S. Until that decision is made, the Company has
determined that adding value above and beyond phone minutes to card based
programs brings price elasticity which translates into higher per card
profits along with enhancing its ability to penetrate markets via the
"membership has its benefits" route.
The Privilege Card programs compete with most other promotional programs
utilized by corporations, especially card based programs. Many of these
existing programs are marketed by companies which are well-established and
have significantly greater financial, marketing, distribution and personnel
resources than the Company. Two of the main competitors in the value added
program area are CUC International and Encore Marketing International, Inc.
There are a number of Internet fax services on the market at this time but
the majority utilize store and forward technology (either Email to fax or
fax to fax). Store and forward fax lacks the very essence of fax's success;
i.e. load paper, dial, start, confirm and complete the transaction. There
are a number of companies involved in store and forward technology
including Unitel, Mercury, ElectrSoft and LanOptics. The Company believes
that store and forward fax services are not a realistic replacement for
paper fax to fax in the context of general business communications as the
confirmation protocols for fax transmission and completion are not nearly
as straight forward as the real time fax service over the Internet provided
by the Company. Additionally, the Company's product is far less expensive
to implement than most of the competitions.
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MAJOR CUSTOMERS
Three customers accounted for approximately 43% and 49% of R&D Scientific
sales in 1997 and 1996. Four customers accounted for approximately 59% of
Muller Media sales in 1997.
MANUFACTURING
Upon completion of the design of the Company's card based products paper
production samples are produced which are used to create film production
samples which are delivered to a manufacturer for final printing. The
Company believes that its relationship with a number of card manufacturers
is satisfactory and that numerous sources for cards are currently
available if needed. The loss of the services of any one manufacturer or
substantial price increases imposed by such manufacturer would not have a
material adverse effect on the Company as alternate sources of supply are
readily available.
EMPLOYEES
As of the document date, the Company has 57 full-time employees, 26 part-
time employees and 4 professional consultants. The Company considers its
relations with its employees to be satisfactory. None of the employees are
represented by labor unions.
FACILITIES
The Company operates in eight locations including corporate headquarters
consisting of 1,600 square feet of leased space in Stratford, CT; 3,300
square feet of leased space in Uxbridge, MA for Privilege Enterprises Limited
which markets and sells the Privilege Card programs; 1,800 square feet of
leased office space in London, England, which is shared by DCI UK Limited
and CardCall UK which provides European long distance and prepaid phone
card sales respectively; 2,600 square feet of leased space in Toronto,
Canada for CardCaller Canada's prepaid phone card sales, marketing and
operations for the Canadian market; 1,200 square feet of leased space for
CyberFax, Inc. located in Montreal, Canada to perform research, development
and sales of its Internet fax product; 2,000 square feet of leased space
for Muller Media located in New York, New York which buys and sells licensing
rights to motion pictures for broadcast on local television and cable
networks; 6,000 square feet of space (3,000 owned, 1,500 leased with
option to purchase, 1,500 leased) in Flanders, NJ for R&D Scientific
and Alpha Products technology research, development and manufacturing;
1,000 square feet of leased space in Kingston, Rhode Island for The
Travel Source Limited which provides travel related services for the
Company's value added programs. The Company believes that its current
facilities are suitable and adequate for the next two years.
TRADEMARKS
The following are trademarks of the Company: PASS-A-FAX, PRIVILEGE CARD,
DCI PRIVILEGE CARD, ANYPHONE TELEPHONE CARD, ALPHA.NET, GREAT AMERICAN PET
CLUB, TRAVEL ACCESS PRIVILEGE CARD, DCI, COAST 2 COAST. None of these
trademarks have been registered with governmental authorities although
eight (8) trademarks are in the process of being filed or awaiting
governmental approval.
INFRINGEMENT CLAIMS
The Company does not believe that its products or services infringe on the
intellectual property rights of any other party.
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LEGAL PROCEEDINGS
On April 21, 1995 the Company was sued by Podoll & Podoll P.C., former
counsel to Fantastic Foods International, Inc. (DCI's predecessor) for
failure to pay on a Fantastic Foods note in the principal amount of
$60,000. In the quarter ended December 31, 1995, the Company received a
judgment against it in the amount of $60,000 plus accrued interest of
$27,459. A settlement has since been reached and the obligation has been
fully paid as of September 1, 1997.
The Company is involved from time to time in litigation incidental to its
businesses. The Company is not involved in any such litigation at this time
and believes that the outcome of any litigation that may occur during the
normal course of business will not have a material adverse effect on its
business.
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MANAGEMENT
Executive Officers and Directors
The present or nominated executive officers and directors of the Company,
their ages and positions with the Company are as follows:
Name Age Position with Company
Joseph J. Murphy 57 President, CEO, Director (1)
Larry Shatsoff 43 Vice President, COO, Director (3)
Charles Zwebner 50 President, CardCaller International
Michael Hilsenrath 38 President, CardCaller UK
Carter Hills 65 Director (2)
Richard Sheppard 51 President, R&D Scientific,
Director
John Adams 57 Vice President, R&D Scientific,
Director
Russell B. Hintz 52 Vice President, CFO
Daniel J. Murphy 27 Vice President, Financial Planning
Paul L. Bettencourt 51 President, Privilege
Enterprises Ltd.,Director
Lois S. Morris 46 CEO, The Travel Source
Limited, Director
(1) Chairman Nominating Committee
(2) Chairman Finance Committee
(3) Chairman Compensation Committee
Joseph J. Murphy has been President and CEO since January 1, 1995. Within
the past five years, he was President and CEO of Alpha Products. Prior to
that he was Executive Vice President, member of the Board of Directors, and
Chief Financial Officer for Aquarion Company, a New York Stock Exchange
Company. Formerly, Mr. Murphy was an officer in the United States Marine
Corps (1961-1964), a member of Price Waterhouse and chief financial
officer for Connecticut Energy Corporation. He was a member of the Board
of Directors of Boys/Girls Club of Bridgeport and served on the economic
advisory board for Fairfield University and Sudden Infant Death Syndrome
(SIDS) for Fairfield County. Presently, he is a member of the
FBI/Marine Corps Association. He holds a BBS and an MBA from Iona College.
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Larry Shatsoff is Vice President and Chief Operations Officer of the
Company. Within the past five years he has been Vice President and Chief
Operations officer for Alpha Products. Prior to that, he was Executive Vice
President of Kalon Systems (a data processing services company), Manager of
Information Systems for Aquarion Company., a New York Stock Exchange
Company. He graduated from Rider University (1975) with a BS in computer
science. Mr. Shatsoff has expertise in regulated tariffs, telecommunications
and computer systems and software.
Charles Zwebner is President CardCaller Canada. Mr. Zwebner founded
CardCaller Canada in 1992 and has since been involved in the design,
development and manufacturing of the first Canadian fixed amount pre-paid
multilingual telephone calling card.
Michael Hilsenrath is Chief Executive Officer, CardCaller United Kingdom.
Mr. Hilsenrath previously worked for Western Union Easylink as a consultant
to Cable and Wireless for 18 months and for 10 years as General Manager,
Voice and Fax Services. Since mid-1995, he has been involved with
international long distance re-sale start-ups in the Netherlands and
Belgium.
Richard Sheppard has been President of R&D Scientific since its inception
in 1989. Prior to that he was National Sales Manager for Automated
Microbiology Systems, Inc. and DMS Labs, a division of API Systems S.A.
He was also a Partner in Celltron Corp., where he developed a DNA sequencer
for cellular identification. Just prior to forming R&D Scientific,
he participated in the development of industrial application software.
John J. Adams is the Vice President of R&D Scientific. Mr. Adams is Vice
President of Marketing for R&D Scientific Corp. and founder and President
of Validation Services Corp. These companies are providers of computerized
regulatory compliance devices and services to the pharmaceutical industry.
Mr. Adams was previously President of Prevent Chemicals, Ltd., a publicly
traded manufacturer of specialty chemicals.
Carter H. Hills is a retired diplomat and a director since 1995. Mr. Hills
has extensive experience in economic development and management planning under
auspices of the Department of State and major international organizations.
Mr. Hills directed such programs in countries of the Near East and Vietnam and
served as financial adviser and delegate for the United States at key
international conferences. Mr. Hills holds B.A. degree from Columbia College
and an M.A. from Princeton University.
Paul Bettencourt, President of Privilege Enterprises Limited has 25 years
of experience in new business development, marketing plan creation, and
sales management. He was the think-tank of Bettencourt & Associates, and can
be credited for having conducted numerous industrial training programs for
both established and new business. Paul is advisor to the American Hotel
and Motel Association and a publishing consultant to segments of the
Defense Department.
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Russell B. Hintz is Vice President and Chief Financial Officer. He was
formerly Controller of Aquarion Company, a New York Stock Exchange Company,
and a Vice President of several of its wholly-owned subsidiaries, where he
was employed for over twenty years. Prior to that, he was employed for over
six years with T.M. Byxbee Co., a certified public accounting firm in
Hamden, Connecticut. He is a Certified Public Accountant, member of the
American Institute of Certified Public Accountants and the Connecticut Society
of Certified Public Accountants, and serves on the Board of Directors of
Visiting Nurse Services of Connecticut, Inc. He is a graduate of the
University of Connecticut.
Daniel J. Murphy is Vice President, Financial Planning. He has been with
DCI Telecommunications since its inception. Prior to his present position,
he was Vice President Investor Relations. Mr. Murphy graduated with a
Bachelor of Science Degree in Economics from the University of Connecticut.
Currently, he is enrolled in the MBA program at the University of
Connecticut.
Lois S. Morris is Chief Executive Officer of The Travel Source Limited. She
has 25 years experience in the travel industry in direct sales, conference
planning, incentive groups, special interest groups and direct marketing.
Ms. Morris is on the Board of Directors of the Ocean State Business School,
a member of the Town of Richmond, Rhode Island Economic Development
Commission and a volunteer for the Educational Mentor Program in Rhode
Island.
Board of Directors
The number of directors on the Board of Directors is currently fixed at
eight (8). The Board of Directors stands for re-election at each annual
meeting of stockholders. Officers are appointed by and serve at the
discretion of the Board of Directors.
The Audit Committee of the Board of Directors currently consists of four
members. The Audit Committee recommends the appointment of auditors and
oversees the accounting and internal audit functions of the Company.
The Compensation Committee of the Board of Directors currently consists of
four members. The Compensation Committee determines officers' salaries and
bonuses and administers the Company's stock option plans.
The Nominating Committee of the Board of Directors currently consists of
four members. The Nominating Committee recommends to the full Board of
Directors persons to be nominated to serve as directors.
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Executive Compensation
The following table sets forth the compensation paid or accrued, and the
stock plan awards granted by the Company for services rendered during the
fiscal years ended March 31, 1997 and 1996 to the Company's President.
Long Term
Annual Compensation Awards
Name & Principal Compensation Options Stock Awards All Other
Position Year Salary (# of Shares) (# of Shares) Compensation
Joseph J. Murphy 1997 $100,000 600,000 - -
CEO 1996 100,000* 5,872 - -
Option/SAR Grants in Last Fiscal Year
Individual Grants
(a) (b) (c) (d) (e)
% of Total Op-
tions/SARs Grant-
Options/SARS ed to Employees Exercise or Base
Name Granted (#) in Fiscal Year Price ($/Sh) Expiration Date
Joseph J.
Murphy
CEO 600,000 17.4 $.1875 4/12/01
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs$)
Shares Acquired Value Realized FY-End (#) at FY-End ($)
Name on Exercise (#) ($) Exercisable Exercisable
Joseph J.
Murphy
CEO -- -- 600,000 $2,287,500
The Company has no retirement, pension, profit-sharing or insurance plans
for officers or employees, other than an employee health insurance plan and
key man life insurance. The Company has not paid any cash compensation to a
director in his capacity as a director but may pay directors' fees in the
future.
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PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of Common Stock of
the Company as of June 11, 1997 by: (i) each of the Company's executive
officers and directors, (ii) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, and
(iii) all of the Company's officers and directors as a group:
Name of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
(i)Joseph J. Murphy 1,530,019 14.2%
Larry Shatsoff 442,150 4.1%
Richard Sheppard 355,625 (a) 3.3%
John J. Adams 215,312 2.0%
Carter H. Hills 252,000 2.3%
Paul Bettencourt 6,897 .1%
Lois Morris 14,706 .1%
Donald Mactaggart 200,000 1.9%
(ii) Robert Muller 1,298,000 (b) 12.1%
(iii) All executive officers and
directors as a group 3,016,709 (c) 28.1%
NOTES:
(a) Includes 95,625 shares to be received upon completion of acquisition of
R&D Scientific
(b) Includes 1,200,000 shares to be received upon completion of acquisition
of Muller Media
(c) Included in shares owned above are shares which the beneficial owner
has the right to acquire from options within sixty days as follows: J.
Murphy, 600,000 shares; L. Shatsoff, 350,000 shares; R. Sheppard, 260,000
shares; J. Adams, 185,000 shares; C. Hills, 100,000 shares
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CERTAIN TRANSACTIONS
Initial Capitalization
On December 30, 1994 and January 5, 1995, the Company issued a total of
1,330,000 Shares of its $0.0001 par value Common Stock to its Officers and
Directors as follows; its President and Director Mr. Joseph Murphy
(758,100); its Vice President and Director, Mr. Larry Shatsoff (73,150); to
its former Director, Mr. Robert Muller (19,950); its counsel, Mr. Philip
Baroff (325,850); to its former Director, Mr. George Berkowitz (46,550) and
its former Director Francis DeLoose (106,400) for the purchase of DCI
Telecommunications and Alpha Products, companies previously owned by these
individuals.
This issuance takes into consideration the initial number of shares which
were reversed on February 15, 1995, the reopener on March 8, 1996 and the
reverse split on March 12, 1996.
Director Compensation
Directors of the Company do not receive any compensation for their services
as such but are reimbursed for their reasonable expenses in attending
meetings of the Board of Directors. Each non-employee director (or entity
that he represents) has been granted a non-qualified option to purchase
200,000 shares. The options granted to Messr. Hills, have exercise prices
of $.1875 per share and were granted on April 12, 1996. In general, such
options become exercisable with respect to 25% of the shares five months
after the director begins service as a director and with respect to 25% of
the shares each month thereafter. The Company's 1995 Directors Stock Option
Plan provides that, in addition to an initial option for 5,000 shares, each
non-employee director will receive an option for 5,000 shares upon
completion of each full year of service on the Board of Directors, such
additional option to become exercisable with respect to 10% of the shares
each month.
Employment Agreements
The Company has executed employment agreements with Mr. Joseph Murphy,
Mr. Larry Shatsoff and Mr. Daniel Murphy. Such agreements contain
provisions for deferred salaries pending achievement of significant cash
flows in excess of general overhead and advertising expenses,
non-competition with the Company, incentive compensation plans, and a
comprehensive benefits package. The Company has no employment
agreements with its administrative staff but plans to enter into such
agreements with no less than eight prospective employees.
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Indemnification of Directors and Executive Officers and Limitation of
Liability
As permitted by the Colorado General Corporation Law, the Bylaws of the
Company provide that (i) the Company is required to indemnify its directors
and executive officers to the fullest extent permitted by the Colorado
General Corporation Law, (ii) the Company may indemnify its other officers,
employees and agents as set forth in the Colorado General Corporation Law,
(iii) to the fullest extent permitted by the Colorado General Corporation
Law, the Company is required to advance expenses, as incurred, to its
directors and executive officers in connection with a legal proceeding
(subject to certain exceptions), (iv) the rights conferred in the Bylaws
are not exclusive and (v) the Company is authorized to enter into
indemnification agreements with its directors, officers, employees and
agents.
The Company has entered into indemnification agreements with each of its
current directors and executive officers to give such directors and
officers additional contractual assurances regarding the scope of the
indemnification set forth in the Company's Bylaws and to provide additional
procedural protections. At present, there is no pending litigation or
proceeding involving a director, officer or employee of the Company
regarding which indemnification is sought, nor is the Company aware of any
threatened litigation that may result in claims for indemnification.
As permitted by the Colorado General Corporation Law, the Company's
Certificate of Incorporation includes a provision that eliminates the
personal liability of its directors for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under the Colorado General
Corporation Law regarding unlawful dividends or redemptions or (iv) for
any transaction from which the director derived an improper personal benefit.
Stock Option Plans
1995 Long-Term Performance Incentive Plan. The Board of Directors has
adopted and the stockholders of the Company have approved the 1995
Incentive Stock Option Plan (the "Incentive Plan"), which provides for the
grant to key employees of the Company of (i) both "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and stock options that are non-qualified for federal
income tax purposes, (ii) stock appreciation rights, (iii) restricted
stock, (iv) performance grants and (v) any other type of award deemed by
the Compensation Committee to be consistent with the purposes of the
Incentive Plan. The total number of shares of Common Stock which may be
granted pursuant to the Incentive Plan is 10,000,000, subject to certain
adjustments reflecting changes in the Company's capitalization. The
Incentive Plan is administered by the Compensation Committee of the Board
of Directors. The Compensation Committee determines which terms of awards
Directors are eligible to receive under the Employee Option Plan.
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The exercise price of incentive stock options is determined by the
Compensation Committee, but may not be less than 100% of the fair market
value of the Common Stock on the date of grant and the term of any such
option may not exceed 10 years from the date of grant. With respect to any
employee who owns stock representing more than 10% of the voting power of
the capital stock of the Company, the exercise price of any incentive stock
option may not be less than 110% of the fair market value of such shares on
the date of grant and the term of such option may not exceed five years
from the date of grant.
The exercise price of non-qualified stock options is determined by the
Compensation Committee on the date the option is granted and may be less
than, equal to, or greater than 100% of the fair market value of the Common
Stock on the date of grant, and the term of any such option may not exceed
10 years from the date of grant.
Options granted under the Incentive Plan are nontransferable, unless
otherwise specified in the award instrument, and, with certain exceptions
in the event of the death or disability of the participant, may be
exercised by the participant only during employment, subject to vesting
requirements established by the Compensation Committee.
Awards granted under the Incentive Plan will also generally vest upon a
proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation.
The Company has placed an annual limit on options of $100,000 per calendar
year for each employee. To the extent that the above limit is not used in
any calendar year, 50% of the excess for an individual may be carried over
for up to three years. As of March 31, 1997, 3,564,819 options have been
issued under the plan.
Outstanding options at March 31, 1997 were 2,869,300 with exercise prices
ranging from $.1875 to $.70 .
DESCRIPTION OF CAPITAL STOCK
General
Set forth below is a description of the material terms and provisions of
the equity securities of the Company. The following description does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Articles of Incorporation, as amended, of the Company (the
"Articles of Incorporation") and the By-Laws, as amended, of the Company
(the "By-Laws"). The Articles of Incorporation is an exhibit to the
Company's Annual Report on Form 10-K for the year ended March 31, 1996, as
amended by Amendment No. 1 on Form 10-K/A. The By-Laws is an exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995, and the Rights Plan is an exhibit to the Company's Registration
Statement on Form 8-A.
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<PAGE>
The Company is authorized to issue (i) 500,000,000 shares of Common Stock,
par value $.0001 per share; (ii) 9,000,000 shares of Preferred Stock,
par value $100 per share and (iii) 2,000,000 shares of Preferred Stock,
par value $1,000 per share, which may be issued in one or more series with
such voting powers, designations, preferences, rights, qualifications,
limitations and restrictions as shall be specified by the Board of
Directors. The Board of Directors may issue one or more series of
preferred stock with voting and conversion rights which could adversely
affect the voting power of the holders of Common Stock and the holders of
other series of Preferred Stock, and which could, among other things, have
the effect of delaying, deferring or preventing a change in control of the
Company.
As of June 11, 1997, 9,227,961 shares of Common Stock were issued and
outstanding.
Common Stock
Dividends
Holders of the Company's Common Stock are entitled to receive such
dividends as may be legally declared by the Board of Directors.
Voting Rights
Holders of Common Stock are entitled to one vote for each share held of
record. Except as discussed below, action of the stockholders may
generally be taken by the affirmative vote of a majority of the shares
present or represented at a duly called meeting at which a quorum is
present or represented.
Other Rights
Holders of Common Stock have no preemptive or subscription rights and have
no liability for further calls or assessments. All shares of Common Stock
are entitled to share ratably in the net assets of the Company upon
liquidation.
Preferred Stock
The Company has authorized but unissued shares of non-voting preferred
stock which may be issued in series with such preferences as determined by
the Board of Directors. At March 31, 1997, and 1996 the following issues of
preferred stock were outstanding:
Series C
On February 18,1997 the Company issued $1,500,000 of Series C non-voting
convertible preferred shares repayable on February 28, 1999. The shares are
convertible to common stock commencing 60 days from the issue date at the
lesser of $2.75 per share or 75% of the average closing bid price of the common
stock for the 5 days prior to conversion. If conversion takes place 90 days
42
<PAGE>
or more after the issue date, the shares are convertible to common stock
at the lesser of $2.75 or 70% of the average closing bid price of the common
stock for the 5 days prior to conversion. In connection with this
offering, 545,455 common shares were placed with an escrow agent to
facilitate any conversions. In addition, 140,000 warrants exercisable at
$3.625 for a period of three years from the issue date were granted
to these preferred shareholders.
DCI may repurchase the common stock issuable under the preferred stock
agreement described above within 90 days from date of issue at a price of
$3.67 per share or the average closing bid price of the common stock for
the 5 days prior to conversion.
Series D
On July 17, 1997 the Company issued $450,000 of Series D non-voting
convertible preferred shares repayable on February 28, 1999. The
shares are convertible to common stock 60 days from the issue date at
the lesser of $2.00 per share or 75% of the average closing bid price
of the common stock for the 5 days prior to conversion. If the conversion
takes place 90 days after the issue date, the shares are convertible to
common at the lesser of $2.00 or 70% of the average closing bid price
of the common stock for the 5 days prior to conversion. In addition,
42,189 warrants exercisable at $2.50 for a period of three years from
the issue date were granted to these preferred shareholders.
DCI may repurchase the common stock issuable under the preferred stock
agreement described above within 90 days from date of isse at a price of
$2.67 per share or the average closing bid price of the common stock for
the 5 days prior to conversion.
Series A
The holders of the Series A preferred shares are entitled to receive
dividends at 9.25% per annum at the time legally available.
Such dividends are cumulative from the date of purchase of the stock. The
preferred shares are non-voting and in the event of liquidation of the
Company the preferred shareholders are entitled to payment of an amount
equal to par value of the preferred shares before any distribution to
common and Series C preferred shareholders. The preferred shares are
convertible at the option of the holder, into 1/3 share of common stock
for each share of preferred stock through January 1, 1997. Upon conversion
shareholders were entitled to receive payment of any accrued but unpaid
dividends except for the final calendar quarter prior to conversion.
During the year ended March 31, 1996, the Company sold 15,000 shares of
Series A preferred stock for $40,000, and issued 11,326 shares of Series A
preferred stock for services rendered the Company.
There are no stated redemption terms associated with the Company's
preferred stock. No preferred stock dividends have been declared or paid in
the years ended March 31, 1997 and 1996.
The transfer agent and registrar for the Common Stock is Nevada Agency and
Trust Company, Reno, Nevada.
Shares Eligible for Future Sale
Upon consummation of this offering, there will be 9,227,961 shares of
Common Stock outstanding. Of these shares, 1,521,709 shares will be
"restricted securities" as defined in Rule 144 under the Securities Act
("Rule 144"). Of such shares, without consideration of the contractual
restrictions described below, approximately 60,868 shares would be
available for resale in the public market pursuant to Rule 144 (see below).
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of
Common Stock from the Company or any affiliate of the Company, the acquiror
43
<PAGE>
or subsequent holder thereof may sell, within any three-month period
a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock or the average weekly trading volume
of the Common Stock on all exchanges and/or reported through the automated
quotation system of a registered securities association during the four
calendar weeks preceding the date on which notice of the sale is filed
with the Securities and Exchange Commission. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements
and the availability of current public information about the Company. If
two years have elapsed since the later of the date of acquisition of
restricted shares of Common Stock from the Company or from any affiliate
of the Company and the acquiror or subsequent holder thereof is deemed
not to have been an affiliate of the Company at any time during the 90
days preceding a sale, such person would be entitled to sell such shares
under Rule 144(k) without regard to the limitations described above.
The Company has granted to stockholders holding, in the aggregate,
approximately 2,639,742 shares of Common Stock, certain "piggyback"
registration rights. With certain exceptions, the Company is obligated to
notify each holder of shares of Common Stock each time the Company proposes
to file a registration statement under the Securities Act and to use its
best efforts to include therein, to the maximum extent possible, any shares
of Common Stock requested to be registered by such holders in connection
with such registration statement. Holders of shares of Common Stock who
request such registration are required to pay their pro rata share of all
underwriting discounts and commissions applicable to the sale of the shares
of Common Stock so registered. The Company and each of the stockholders on
whose behalf registration is effected severally agree to indemnify each
other and each underwriter of the shares of Common Stock being registered
against certain liabilities, including liabilities under the Securities
Act.
44
<PAGE>
LEGAL OPINIONS
The legality of the Common Stock will be passed upon for the Company by
Attorney Mark C. Foster, Denver, Colorado. As of December 31, 1996,
Mr. Foster owned, directly or indirectly, zero (0) shares of the Company's
Common Stock.
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated in this Prospectus by reference from DCI's Annual
Report on Form 10-K for the year ended March 31, 1996 and 1997, have been
audited by Schnitzer & Kondub P.C., independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
45
<PAGE>
REPORT OF INDEPENDENT CERTIFYING ACCOUNTANT
Shareholders and Board of Directors
DCI Telecommunications, Inc.
We have audited the accompanying consolidated balance sheets of DCI
Telecommunications, Inc. as of March 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period ended March 31, 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respect, the financial position of DCI Telecommunications,
Inc. as of March 31, 1997 and 1996 and the results of its operations, and
its cash flows for each of the two years in the period ended March 31,
1997, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 3 the Company has not completed the purchase
and sale agreement with R&D Scientific Corporation and the stock purchase
agreement with Muller Media Inc.. Although management believes the
acquisitions of R&D Scientific Corporation and Muller Media Inc. will
occur, no assurance can be given that these acquisitions will occur. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
Schnitzer & Kondub, P.C.
- ------------------------
Schnitzer & Kondub, P.C.
Eastchester, New York
June 4, 1997
F-1
<PAGE>
DCI Telecommunications, Inc.
Consolidated Balance Sheets
March 31,
ASSETS 1997 1996
Current Assets:
Cash $1,314,081 $42,198
Investments 43,575 -
Accounts Receivable 2,286,430 141,510
Due from shareholders 14,160 98,503
Prepaid expenses 43,088 -
Inventory 27,685 27,169
Total Current Assets 3,729,019 309,380
Property and equipment 429,419 156,812
Less: accumulated depreciation 123,296 26,885
Net property and equipment 306,123 129,927
Investment in CardCall International
Holdings, Inc. 1,500,000 -
Accounts receivable 1,114,389 -
Deferred financing costs 175,242 -
Deposits 16,534 5,020
Other Assets - copyright 1,700,000 1,700,000
- customer base 653,752 653,752
- costs in excess of net assets acquired 1,989,823 -
4,343,575 2,353,752
Less: Accumulated amortization 450,923 191,547
Net other assets 3,892,652 2,162,205
Total Assets $10,733,959 $2,606,532
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ - $42,004
Notes and settlements payable 40,391 198,426
Accounts payable and accrued expenses 252,541 356,656
Participations payable 1,533,966 -
Income taxes payable 133,219 -
Total Current Liabilities 1,960,117 597,086
Participations payable 888,307 -
Long Term Debt 180,022 83,655
Deferred Income taxes 274,179 -
Redeemable, convertible preferred
stock $1,000 par and redemption value,
2,000,000 shares authorized, 1,500 shares
issued and outstanding 1,500,000 -
Total Liabilities 4,802,625 680,741
Commitments and Contingencies (Note 11)
Shareholders' Equity:
9.25% cumulative convertible, preferred
stock $100 par value, 5,000,000 shares
authorized, 29,076 shares issued and
outstanding 305,000 305,000
Common stock, $.0001 par value,
500,000,000 shares authorized,
8,037,368 and 2,405,426 shares issued
and outstanding 804 241
Paid in capital 6,122,152 1,738,415
Treasury Stock (13) (29)
Unrealized Capital Loss (5,495)
Retained earnings
subsequent to 12/31/95,
date of quasi-reorganization
(total deficit eliminated $4,578,587) (491,114) (117,836)
Total Shareholders' Equity 5,931,334 1,925,791
Total Liabilities and Shareholders' Equity $10,733,959 $2,606,532
See Accompanying Notes to Consolidated Financial Statements
F-2
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Operations
Year Ended March 31,
1997 1996
Net Sales $2,793,948 $1,842,170
Cost of Sales 1,943,704 1,399,862
Gross Profit 850,244 442,308
Selling, General & Administrative Expenses 408,810 416,141
Salaries and Compensation 438,867 383,510
Professional and Consulting Fees 96,880 130,962
Amortization and Depreciation 277,737 193,059
1,222,294 1,123,672
(Loss) from Operations (372,050) (681,364)
Other Income and (Expense):
Interest Expense (20,799) (30,670)
Interest Income 19,571 120
(1,228) (30,550)
Net (Loss) ($373,278) ($711,914)
Net (loss) per common share ($0.07) ($0.36)
Weighted average common shares outstanding 4,986,139 1,988,426
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1997 and 1996
Unrealized
Added Capital
Preferred Stock Common Stock Paid in Treas. Accum. (Losses)
Shares Amount Shares Amount Capital Stock Deficit Gains Total
------ ------- ------- ------ -------- ----- ------- --------- -------
Balances, April 1, 1995
2,750 $265,000 2,115,324 $212 $6,552,188 -- ($3,984,509) -- $2,832,891
Shares issued for options exercised
-- -- 16,819 2 235,372 -- -- -- 235,374
Shares issued for services
11,326 -- 46,150 4 298,133 -- -- -- 298,137
Shares issued for stock of R&D Scientific
-- -- 106,250 11 1,699,989 -- -- -- 1,700,000
Shares canceled - employment contracts
-- -- -- -- (781,237) (13) -- -- (781,250)
Shares sold
15,000 40,000 120,883 12 116,972 -- -- -- 156,984
Quasi reorganization - 12/31/95
-- -- -- -- (6,383,002) (16) 4,578,587 -- (1,804,431)
Net Loss
-- -- -- -- -- -- (711,914) -- (711,914)
Balances, March 31, 1996
29,076 $305,000 2,405,426 $241 $1,738,415 ($29) ($117,836) -- $1,925,791
Shares issued for options exercised
-- -- 678,700 $68 $140,736 -- -- -- $140,804
Shares issued for services
-- -- 176,211 18 93,402 -- -- -- 93,420
Shares issued for Stock of Muller Media
-- -- 1,200,000 120 2,999,880 -- -- -- 3,000,000
Shares issued for Stock of Bettencourt and Associates
-- -- 6,897 1 10,344 -- -- -- 10,345
Shares sold
-- -- 3,195,181 319 1,056,104 -- -- -- 1,056,423
Shares issued for settlements
-- -- 42,000 4 83,320 -- -- -- 83,324
Shares issued for investment in CardCall
-- -- 545,453 54 (54) -- -- -- 0
Shares cancelled
-- -- (212,500) (21) 5 16 -- -- 0
Change in unrealized capital losses
-- -- -- -- -- -- -- (5,495) (5,495)
Net Loss
-- -- -- -- -- -- (373,278) -- (373,278)
Balances March 31, 1997
29,076 $305,000 8,037,368 $804 $6,122,152 ($13) ($491,114) ($5,495) $5,931,334
See accompanying notes to consolidated financial statements
F-4
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Cash Flows
Cash Flows from Operating Activities: Year Ended March 31,
1997 1996
Net Loss ($373,278) ($711,914)
Adjustment to reconcile net loss to net
cash from (used in) operating activities:
Depreciation and amortization 277,737 193,059
Stock issued for services 11,120 266,671
Note and Account Settlements (146,819) (92,231)
Accrued Interest 5,600
Loss on property disposition 30,007
Changes in assets and liabilities:
(Increase) Decrease in:
Investments 526
Accounts Receivable 362,538 (86,388)
Inventory (516) 6,006
Deposits (1,214) (7,360)
Prepayments (27,623)
Deferred Financing Costs (175,242)
Increase (Decrease) in:
Accounts Payable and accrued expenses (254,928) 85,391
Contracts Payable (319,563)
Income taxes (97,511)
Total Adjustments: (371,495) 400,755
Net cash from (used in) operating
activities (744,773) (311,159)
Cash flows from (used in) investing activities:
Additions to property, plant & equipment (47,720) (3,595)
Cash acquired with acquisitions 878,586 22,807
Investment in CardCall
International (1,500,000)
Investment in Muller Media (98,962)
Net cash (used in) from investing
activities (768,096) 19,212
Cash flows from (used in) financing activities:
Proceeds from stock options 140,804 282,117
Proceeds from sale of stock 1,056,422 145,000
Bank overdraft (42,004) 11,936
Payment of notes payable (5,492) (2,454)
Proceeds from sale of Preferred Stock 1,500,000
Proceeds from notes 16,595
Note payable - shareholder 15,479 (50,000)
Due from Shareholders 119,543 (91,784)
Proceeds from affilates 12,043
Net cash (used in) from financing
activities 2,784,752 323,453
Net Increase in cash 1,271,883 31,506
Cash, Beginning of Year 42,198 10,692
Cash, End of Year $1,314,081 $42,198
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Cash Flows
Year Ended March 31,
1997 1996
Supplemental disclosures of cash flow information:
Cash Paid for Interest $21,000 $25,000
Non cash investing and financing transactions:
Acquisitions by stock issuance:
R&D Scientific $1,700,000
Muller Media $3,000,000
Bettencourt and Associates $10,345
Non cash settlements $165,624
Fixed Assets Acquired by Debt $107,195
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
DCI Telecommunications, Inc.
Notes to Consolidated Financial Statements
Years Ended March 31, 1997 and 1996
Note 1. Organization and Significant Accounting Policies
DCI Telecommunications, Inc. (the "Company") was originally incorporated on
February 4, 1985, as ALFAB, Inc. and subsequently became Fantastic Foods
International, Inc. ("Fantastic Foods") after a reorganization in 1991.
The shareholders of Fantastic Foods International, Inc. at a shareholders
meeting on December 30, 1994 approved the acquisition of the assets of
Sigma Telecommunications, Inc. in a stock for asset purchase, with
Fantastic Foods exchanging four hundred, eighty thousand (480,000) common
shares valued at $140,000 for the assets of Sigma Telecommunications, Inc.
which totaled $140,000. Concurrent with the merger, the name was changed
to DCI Telecommunications, Inc.
On January 5, 1995 the Board of Directors approved the acquisition of
certain assets of Sigma Industries, Inc. (Alpha Products) in a stock for
asset purchase with DCI exchanging eight hundred, fifty thousand (850,000)
common shares valued at $672,400 for the assets of Alpha Products, Inc.
which totaled $672,400. The above acquisitions were accounted for using
the purchase method of accounting.
The Company's Board of Directors approved a one-for twenty reverse split of
its common stock on January 25, 1995, a forty for one split on March 8,
1996 and a one for four hundred reverse split on March 14, 1996.
Accordingly, the financial statements and related footnotes have been
restated to reflect these transactions as of April 1, 1995.
In the year ended March 31,1997 the Company acquired The Travel Sources
Ltd. , a travel agency, and the assets of Paul Bettencourt Associates
(PEL), a value added marketing card company. (see note 2)
On June 19, 1995, DCI entered into an agreement to acquire the common stock
of R&D Scientific Corp. ("R&D"), (a New Jersey Corporation which develops
computer software programs) for 106,250 shares (to be adjusted on or before
December 31, 1997 for a value of $1,700,000). The shares are to be
exchanged subject to the condition that the Company make a cash infusion
requirement of $150,000 to R & D. Such shares remain in escrow but are
included in outstanding common stock for the years ended March 31, 1997 and
1996. The Company was granted an extension until December 31, 1997 to make
the cash infusion of $150,000, required by the agreement, in order to
consummate the transaction with R&D. In consideration for the extension,
R&D has the right to terminate the purchase and sale agreement at its sole
discretion prior to DCI making the cash infusion. As of March 31, 1997,
$85,000 of the cash infusion was made by the Company.
F-7
<PAGE>
The Company's financial statements include the operations of R&D from June
19, 1995, the date of the purchase and sale agreement. The financial
statements do not include any adjustments that might result from the
termination of the purchase and sale agreement.
On November 26, 1996, DCI entered into a stock purchase agreement with
Muller Media, Inc. ("Muller"), (a New York corporation that distributes
syndicated programming and motion pictures to the television and cable
industry) to acquire 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 common shares of
Muller. The DCI stock was valued at two dollars and fifty cents ($2.50) per
share ($3,000,000 in total). The shares of both companies have been
deposited with an escrow agent but are included in outstanding common stock
for the year ended March 31, 1997 based upon the intention of the Company.
DCI is required to repurchase the shares , for $3,000,000 , 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
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.
An extension was granted by Muller through July 15, 1997. The selling
stockholders also have an option to keep DCI stock or accept up to
$3,000,000 in cash from DCI.
The Company's financial statements include the operations of Muller from
November 26,1996, the date of the stock purchase agreement. The financial
statements do not include any adjustments that might result from the
termination of the stock purchase agreement or exercise of the option
described above.
In the year ended March 31, 1995, DCI entered into an agreement to purchase
Casino Marketing, Inc. In the year ended March 31, 1996, the Company
reversed $1,624,500 of the net remaining investment in trademarks
associated with Casino Marketing. Since the transaction with Casino
Marketing, Inc. was not consummated, all of the 162,500 shares of stock
issued for the trademarks, which had been held in escrow, were returned to
the Company and were canceled. Amortization recorded in the first two
quarters of 1996 totaling $117,000 was also reversed.
Quasi Reorganization
At the Annual Meeting of Shareholders on July 26, 1995, the shareholders
approved a quasi reorganization of the Company to adjust the carrying value
of assets and liabilities to their fair market value. The Company reduced
its inventory valuation by $63,182. The accumulated deficit of $4,578,587,
at December 31, 1995, the effective date of the reorganization, was
eliminated in full and charged to paid in capital. Retained earnings
(deficit) starting date is January 1, 1996.
F-8
<PAGE>
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, (Privilege Enterprises Limited and The
Travel Source, LTD.) and R&D Scientific and Muller as if the purchase and
sale agreement with R&D Scientific and stock purchase agreement with Muller
were completed. Material inter-company balances and transactions have been
eliminated in consolidation.
Cash
For purposes of the statement of cash flows, the Company considers cash as
cash held in operating accounts and all highly liquid investments with a
maturity of three months or less to be cash equivalents.
Cash includes $10,000 which is collateral for a $10,000 letter of credit
with a commercial bank that expires April 30, 1998.
The Company maintains its cash balances at several financial institutions.
Accounts at these institutions are secured by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured balances are approximately $840,000
at March 31, 1997.
Inventory
Inventory of $ 27,685, stated at the lower of cost or market (first in,
first out), consists of microchips, data acquisition and telecommunications
components.
Revenue Recognition
Revenue is recorded when goods are shipped or when services are rendered to
the customer. The Company utilizes the direct write off method for valuing
accounts receivable.
Revenues and expenses from the distribution of motion pictures and other
entertainment events are recognized in accordance with Financial Accounting
Standards No. 53. Revenues are recognized upon the commencement of the
television and cable station's license period. The related expense
incurred in the distribution of motion pictures and other entertainment
events is recognized as revenue is earned. The primary expense(cost of
sales) incurred in the distribution of motion pictures and other
entertainment events is the amount due the producers of the motion pictures
(reflected as participations payable in the financial statements).
Investments
The Company accounts for investments under Statement of Financial Accounting
Standards No. 115, which requires that fixed maturities and equity
securities that have readily determined fair values be segregated into
F-9
<PAGE>
categories based upon the Company's intention for those securities. Equity
securities are classified as available for sale and stated at fair value
with unrealized gains and losses, net of related deferred income taxes,
reported as a separate component of shareholders' equity.
Realized investment gains and losses, accounted for by the specific
identification method, are included in the statements of income.
Investment income is recognized when earned.
Property and Equipment
Property and equipment is stated at cost. Major additions are capitalized;
expenditures for repairs and maintenance are charged against operations.
Depreciation is calculated under the straight-line method over the
anticipated useful lives of the assets which range from 5 to 7 years.
Copyright
In connection with the purchase and sale agreement with R&D Scientific
Corp. on June 19, 1995, the Company acquires a copyright on R&D's Datatron
System for tamper proof data acquisition. The copyright is valued at
$1,700,000 which is being amortized over ten years. Accumulated
amortization at March 31, 1997 was $282,500.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired (Goodwill) of $1,989,823 represents
the consideration paid in excess of net assets acquired in the Muller Media
acquisition. Accumulated amortization at March 31, 1997 was $24, 000.
Goodwill is being amortized over 20 years.
Deferred Compensation
Certain officers of the Company received stock options as part of
compensation agreements entered into in 1995. The options were exercised in
1995 and the value of the options, based upon quoted market prices of the
Company's stock was being amortized over six years, the term of the
employment agreement. During the twelve months ended March 31, 1995 the
Company issued 125,000 shares of its $.0001 par value common stock for
services provided to the Company and under employment contracts.
Subsequent to March 31, 1996, the Company agreed to cancel the options and
shares with respect to such employment agreements. This transaction which
has the impact of reducing deferred compensation and paid in capital, by
$759,550 and $781,237, respectively was recorded as if the event took place
as of March 31, 1996. The shares, which are to be canceled, are shown as
treasury stock as of March 31, 1997.
Customer Base
The customer base, of $653,752, relates to the value of the customer list
acquired with the asset acquisition of Alpha Products and is being
amortized over ten years. Accumulated amortization at March 31, 1997 was
$144,423.
F-10
<PAGE>
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes." The Company
files a consolidated tax return with its subsidiaries. Muller and R& D
Scientific file separate tax returns based upon their individual financial
results.
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding. Common stock equivalents have not been considered as their
effect would be anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications and Restatements
Certain reclassifications and restatements have been made to prior years
financial statements to conform with the current years presentation and to
report the acquisition of The Travel Source, LTD as a pooling of interest.
Note 2. CardCall International Holdings Inc.
In 1997 DCI and CardCall International Holdings Inc. ("CardCall") entered
into discussions regarding the combination of the two companies. CardCall,
a Delaware corporation, is the parent company of CardCaller Canada Inc., a
Canadian corporation, and CardCall(UK) Limited incorporated under the laws
of the United Kingdom. CardCall is in the business of designing, developing
and marketing, through distributors, prepaid phone cards which provide the
cardholder access to long distance service through its switching facility.
In February 1997, the Company invested $1,500,000 in CardCall. The Company
raised this money through the issuance of DCI convertible preferred stock
to certain shareholders of CardCall as described in Note 8.
The investment is represented by two notes receivable of $300,000 and
$900,000 payable 120 days after demand. The $300,000 balance of the
investment are advances issued to CardCall without any stipulated
repayment terms.
F-11
<PAGE>
Subsequent to March 31, 1997 CardCall agreed to accept DCI's offer to
purchase all of the issued and outstanding common shares (8,238,125) and
warrants to purchase common shares of CardCall. In connection with this
transaction for each 100 shares of common stock of CardCall held by a
shareholder, DCI will issue 6 shares of common stock and a warrant to
purchase 9 shares of common stock for $4.00 per share on or before February
28, 2001.
In addition, each shareholder of CardCall may acquire 85 shares of DCI
common stock under a subscription agreement for each 100 shares of CardCall
held by such shareholder on or before July 31, 1997 at a purchase price of
$.20 per share.
Summarized unaudited financial data of CardCall at March 31,1997 and 1996
is as follows:
1997 1996
Net Sales $ 6,497,932 $ 4,345,595
Cost of Sales 6,873,153 3,916,140
Gross Margin (375,221) 429,455
Selling, General and
Administrative Expenses 3,398,661 1,940,492
(Loss) from Operations (3,773,882) (1,511,037)
Interest Expense 42,943 53,446
Net (Loss) ($ 3,816,825) ($ 1,564,483)
========= =========
Cash $ 165,041 $292,121
Accounts Receivable 1,988,677 358,800
Fixed Assets, Net 791,711 512,716
Other Assets 269,687 192,526
Total Assets $ 3,215,116 $1,356,163
========= ========
Accounts Payable and
Accrued Expenses $ 5,219,530 $1,413,695
Due to Related Parties 0 363,292
Long-Term Debt 56,652 92,874
Other Liabilities 107,975 82,727
Total Liabilities $ 5,384,157 $ 1,952,588
=========== ==========
The financial statements of CardCall were translated from the Canadian
dollar , for CardCall Canada Inc. and the British pound for CardCall(UK)
Limited to the United States dollar.
Note 3. Acquisitions
R&D Scientific Corporation
On June 19, 1995, DCI entered into an agreement to acquire the common stock
of R&D Scientific Corp. (R&D), a New Jersey Corporation, for 106,250 shares
(to be adjusted on or before December 31, 1997 for a value of $1,700,000).
The shares are to be exchanged subject to the condition that the Company
make a cash infusion requirement of $150,000 to R & D. Such shares remain
in escrow but are included in outstanding common stock for the years ended
March 31, 1997 and 1996. The Company was granted an extension until
December 31, 1997 to make the cash infusion of $150,000, required by the
agreement, in order to consummate the transaction with R&D. In
consideration for the extension, R&D has the right to terminate the
purchase and sale agreement at its sole discretion prior to DCI making the
cash infusion. As of March 31 1997, $85,000 of the cash infusion has been
made.
F-12
<PAGE>
The Company's financial statements include the operations of R&D from June
19, 1995, the date of the purchase and sale agreement. The financial
statements do not include any adjustments that might result from the
termination of the purchase and sale agreement. Summarized financial data
of R&D Scientific included in the financial statements since June 19, 1995,
date of purchase and sale agreement, is as follows:
March 31,
1997 1996
Net Sales $ 628,010 $ 544,404
Cost of Sales 403,653 352,164
Gross Profit 224,357 192,240
Selling, General & Administrative Expenses 163,518 116,082
Salaries and Compensation 90,000 36,567
Professional Fees 6,899 2,008
Depreciation 4,744 1,863
265,161 156,520
(Loss) Income from Operations ( 40,804) 35,720
Interest Expense 15,927 11,249
Net(Loss) Income ($ 56,731) $ 24,471
====== ======
Cash $ 16,640 $ 29,384
Accounts Receivable 110,123 90,925
Fixed Assets, Net 177,134 89,722
Other 1,770 7,446
Total Assets $ 305,667 $ 217,477
====== ======
Accounts Payable and Accrued Expenses $ 40,278 $ 68,640
Bank Note Payable 38,289 32,077
Long-Term Debt 166,006 84,380
Due to Shareholder -0- 7,909
Total Liabilities $ 244,573 $ 193,006
====== ======
Three customers accounted for approximately 43% and 49% of
sales in 1997 and 1996.
F-13
<PAGE>
Muller Media, Inc.
On November 26, 1996, DCI entered into a stock purchase agreement with
Muller Media, Inc. (Muller), a New York corporation, to acquire 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 capital stock. The DCI stock was
valued at two dollars and fifty cents ($2.50) per share ($3 million in
total).
The shares of both companies have been deposited with an escrow agent. DCI
must 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 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. An extension was granted by
Muller through July 15, 1997. The selling stockholders have an option to
keep DCI stock or accept up to $3,000,000 in cash from DCI. Muller is a
distributor of syndicated programming and motion pictures to the television
and cable industry. The acquisition has been accounted for as a purchase.
Summarized financial data of Muller included in the financial statements
since November 26, 1996, date of stock purchase agreement, is as follows:
1997
Net Sales $ 825,225
Cost of Sales 378,631
Gross Profit 446,594
Selling, General & Administrative Expenses 119,416
Salaries and Compensation 133,361
Professional Fees 23,348
Depreciation 2,106
278,321
Income from Operations 168,273
Interest Income 18,313
Net Income $ 186,586
======
Cash $ 936,973
Accounts Receivable 2,095,375
Investments 43,575
Fixed Assets, Net 26,608
Long-Term Accounts Receivable 1,114,389
Other 33,645
Total Assets $ 4,250,565
=======
Accounts Payable and Accrued Expenses $ 136,141
Participations Payable - Current 1,533,966
Income Taxes 132,819
Participations Payable - Long-Term 888,307
Deferred Income Taxes 274,179
Total Liabilities $ 2,965,412
=======
Four customers accounted for approximately 59% of sales in 1997.
F-14
<PAGE>
Privilege Enterprises Limited
On November 5, 1996, DCI acquired the assets of Paul Bettencourt Associates
in exchange for 6,897 shares of DCI stock valued at approximately $10,000.
Privilege Enterprises Limited ("PEL") a New Hampshire corporation, was
formed by the Company to continue the business of Bettencourt and
Associates. The acquisition has been accounted for as a purchase. PEL is
in the business of value added card based and other marketing programs.
The Travel Source, LTD.
On March 25 ,1997 the Company issued 29,412 shares of common stock for all
of the outstanding shares of The Travel Source LTD. ("Travel Source") a
travel agency. The acquisition has been accounted for as a pooling of
interests, and accordingly, the accompanying financial information has been
restated to include the accounts of Travel Source for all periods
presented. Since Travel Source was acquired on March 25,1997, all
operations were considered prior to date of acquisition. Net sales and net
(loss) earnings of the separate companies are as follows:
Years ended March 31,
1997 1996
Net Sales:
DCI $ 1,705,235 $ 814,016
Travel Source 1,088,713 1,028,154
Combined $ 2,793,948 $ 1,842,170
======== ========
Net(Loss) Earnings:
DCI ($ 390,679) ($ 717,353)
Travel Source 17,401 5,439
Combined ($ 373,278) ($ 711,914)
======== ========
Note 4. Pro Forma Financial Information (Unaudited)
The following table summarizes the unaudited pro forma results of
operations of the Company for the fiscal years ended March 31, 1997 and
1996, assuming the acquisitions of CardCall, R&D, Muller, PEL and Travel
Source had occurred on April 1, 1995. The unaudited pro forma financial
information presented is not necessarily indicative of the results of
operations that would have occurred had the acquisitions taken place on
April 1, 1995 or of future results of operations.
1997 1996
Net Sales $12,492,440 $ 7,905,300
Cost of Sales 10,994,141 6,278,948
Gross Margin 1,498,299 1,626,352
Selling, General & Admin Expenses 5,504,727 4,133,439
(Loss) from Operations (4,006,428) (2,507,087)
Interest Income 49,205 40,149
Interest Expense (63,742) (86,116)
Net (Loss) ($4,020,965) ($2,553,054)
(Loss) per Share ($ .29) ($ .22)
Cash $ 1,479,122 $ 1,327,191
Accounts Receivable 5,389,496 2,149,381
Fixed Assets, Net 1,097,834 675,930
Intangible Assets 5,392,652 2,162,205
Other Assets 589,971 400,977
Total Assets $13,949,075 $ 6,715,684
========= ========
Accounts Payable and Accrued Expenses $ 7,894,344 $ 3,201,400
Income Taxes 407,398 386,231
Due to Related Parties - 363,292
Long-Term Debt 236,624 176,529
Other Liabilities 148,366 323,157
Total Liabilities $ 8,686,732 $ 4,450,609
======== ========
F-15
<PAGE>
Note 5. Common Stock
During the year ended March 31,1997 the Company raised approximately
$1,056,000 in cash by issuing 3,195,181 common shares under Regulation 504
and 505 of the securities act.
In the year ended March 31, 1995, the Company established an incentive
stock option plan reserving 10,000,000 shares of common stock for certain
employees, officers and directors. The exercise price must be at least the
fair market value of the stock on the date of the grant, and the term of
each option granted will not be more than ten years from the date of the
grant. Where options are granted to stockholders owning more than 10% of
the outstanding common stock, the exercise price must be at least 110% of
the fair market value of the stock, and the term is limited to 5 years. The
Company has placed an annual limit on options of $100,000 per calendar year
for each employee. To the extent that the above limit is not used in any
calendar year, 50% of the excess for an individual may be carried over for
up to three years. Summarized information regarding stock options
outstanding and exercisable at March 31,1997 is as follows:
Number of shares Average price
Outstanding at April 1,1995 -0- -0-
Granted 114,819 $ .70
Exercised (16,819) $ 1.40
Outstanding at March 31,1996 98,000 $ .58
Granted 3,450,000 $ .19
Exercised (678,700) $ .19
Outstanding at March 31,1997 2,869,300 $ .20
========
Note 6. Investments
At March 31, 1997, the Company has classified all of its equity securities
as available-for-sale and, accordingly, has reported the securities at
approximate market value, with unrealized gains and losses, net of
applicable income taxes, excluded from operations and reported as a
separate component of stockholder's equity as follows:
Marketable securities, at cost $ 49,070
Unrealized loss 5,495
Market value $ 43,575
======
Marketable securities consist of bond mutual funds. No sales of
securities took place during the year ended March 31, 1997.
Note 7. Accounts Receivable
Included in the 1997 trade receivables are contracts receivable of Muller
totaling $ 2,074,375. Muller also has media contracts receivable with
payment terms over one year totaling $1,114,389. In addition, Muller has
license agreements totaling approximately $1,494,000 whose license period
will begin after March 31, 1997, and therefore, not reflected in the
financial statements. One of Muller Media's major producers has a security
interest in certain contracts totaling $1,965,600 as of March 31, 1997.
F-16
<PAGE>
Note 8. Preferred Stock
The Company has authorized but unissued shares of non-voting preferred
stock which may be issued in series with such preferences as determined by
the Board of Directors. At March 31, 1997, and 1996 the following issues of
preferred stock were outstanding:
Series C
On February 18,1997 the Company issued $1,500,000 of Series C non -voting
convertible preferred shares repayable on February 28, 1999. The shares are
convertible to common stock 60 days from the issue date at the lesser of
$2.75 per share or 75% of the average closing bid price of the common stock
for the 5 days prior to conversion. If the conversion takes place 90 days
after the issue date, the shares are convertible to common stock at the
lesser of $2.75 or 70% of the average closing bid price of the common stock
for the 5 days prior to conversion. In connection with this offering,
545,455 common shares were placed with an escrow agent to facilitate any
conversions. In addition, 140,000 warrants exercisable at $3.625 for a
period of three years from the issue date were granted to these preferred
shareholders.
DCI may repurchase the common stock issuable under the preferred stock
agreement described above within 90 days from date of issue at a price of
$3.67 per share or the average closing bid price of the common stock for
the 5 days prior to conversion.
Series A
The holders of the preferred shares are entitled to receive dividends at
9.25% per annum at the time legally available. Such dividends are
cumulative from the date of purchase of the stock. The preferred shares are
non-voting and in the event of liquidation of the Company the preferred
shareholders are entitled to payment of an amount equal to par value of the
preferred shares before any distribution to other shareholders. The
preferred shares may be converted at the option of the holder, into 1/3
share of common stock for each share of preferred stock through January 1,
1997. Upon conversion shareholders are entitled to receive payment of any
accrued but unpaid dividends except for the final calendar quarter prior
to conversion.
During the year ended March 31, 1996, the Company sold 15,000 shares of
Series A preferred stock for $40,000, and issued 11,326 shares of Series A
preferred stock for services rendered the Company.
There are no stated redemption terms associated with the Company's
preferred stock. No preferred stock dividends have been declared or paid in
the years ended March 31, 1997 and 1996.
F-17
<PAGE>
Note 9. Long Term Debt
Long-term debt consists of the following:
March 31,
1997 1996
Mortgage with a bank on an office condominium owned
by R&D Scientific. The mortgage note bears interest
at the bank's prime rate plus 2% adjusted annually
with a lifetime cap of 16%. The note is payable in
monthly installments of principal and interest of
$833 with a balloon payment for the balance of the
note due in April 2020. $ 82,807 $ 84,380
Mortgage with a bank on an office condominium owned
by R&D Scientific. The mortgage note bears interest
at 10.51%. The note is payable in monthly
nstallments of principal and interest of $803 and is
due in March 2022. 84,883 -0-
Equipment financing note bearing interest at 17.17%
secured by the equipment purchased, payable in
monthly installments of $132 due in March, 2000. 3,620 -0-
Equipment financing note bearing interest at 17.17%
secured by the equipment purchased, payable in monthly
installments of $661 due in December,1999. 16,875 -0-
188,185 84,380
less current portion of long-term debt 8,163 725
$ 180,022 $ 83,655
====== ======
Aggregate annual principal payments are as follows;
1998 $8,163: 1999 $9,667: 2000, $8,300: 2001, $2,304: 2002,$2,632 : 2003
and thereafter $157,119.
F-18
<PAGE>
Note 10. Related Party Transactions
During the year ended March 31, 1996, certain officers and shareholders
made cash advances to the Company. $7,909 of the advances remain unpaid at
March 31, 1996 and are included in accounts payable.
Also, during the years ended March 31, 1997 and 1996, the Company made
payments for liabilities on behalf of certain officers and shareholders.
These payments are being repaid to the Company primarily by cash payments
and salary reductions. The amount due from the officers and shareholders
was $14,160 and $98,503, at March 31, 1997 and March 31, 1996,
respectively.
Note 11. Commitments and Contingencies
(a) Leases
The Company is presently negotiating several operating lease agreements for
office space. Aggregate annual minimum future rental payments under current
leases are $ 66,264, in 1998: $ 45,000, in 1999: and $ 11,250, in 2000.
Rent expense was $92,867 and $37,464, in the years ended March 31, 1997 and
1996, respectively.
(b) Employment Agreements
The Company has employment contracts with certain key employees which
provide for minimum annual compensation of $388,000 in 1998 and 1999, plus
annual increases based on the consumer price index.
(c) Litigation
On April 21, 1995 the Company was sued for $81,000 by Podoll & Podoll PC,
former counsel to Fantastic Foods International, Inc., DCI's predecessor.
The suit alleges failure to pay on a Fantastic Foods note dated February
13, 1993 in the principal amount of $60,000 with interest at 10% per annum.
On November 7, 1995, the District Court issued a summary judgment in favor
of Podoll & Podoll for $60,000 plus $27,459 accrued interest, with interest
continuing to accrue at 18% until paid. In April 1996, Podoll & Podoll
had seized certain assets of the Company's office furniture and equipment
with a book value of approximately $30,000 which was recognized as a loss
in the 1996 financial statements. This litigation was settled in the year
ended March 31,1997 by the assumption of the debt by the chief executive
officer of the Company. As of May 31, 1997, $65,000 of the debt was paid.
In addition to the aforementioned litigation, the Company is party to legal
actions arising during the normal course of business.
In the opinion of management, the ultimate outcome of the above litigation
will have no material effect on the financial position of the Company.
(d) Common and Preferred Stock
During the fiscal years ended March 31, 1996 and 1997, the Company issued
shares of its common and preferred stock. These shares were not registered
under the Securities Act of 1933 based on the exemption from registration
thereunder provided by section 4 (2), thereof for offerings not involving a
public offering.
F-19
<PAGE>
(e) Letter of credit
The Company has a $10,000 letter of credit with a bank for purposes of
doing business as a travel agent with the airlines. The letter of credit
expires in April of 1998 and is secured by $10,000 in a savings account.
Note 12. Notes and Settlements Payable
Amounts due at March 31, 1997 and 1996 consist of the following:
1997 1996
Current portion of long-term debt $ 8,163 $ 725
Note payable - stockholder -0- 50,000
In connection with a judgment of $119,000
against the Company for liability incurred while
it was operating as Fantastic Foods. The Company
entered into a settlement agreement to pay the
claimant $80,000 and issue 60,000 shares of common
stock. In the year ended March 31,1997 an additional
40,000 common shares were issued to settle the judgment.
Note payable - Vendor -0- 87,578
This represents a judgment of $60,000 against
the Company for liability incurred while it was
operating as Fantastic Foods. The amount includes
interest and costs of $27,578 which is accruing at
18% per annum. This judgment was settled in the year ended
March 31,1997 by the assumption of the debt by the
chief executive officer of the Company
Note Payable - Bank 32,228 32,077
Amount outstanding at March 31, 1996 under a
$50,000 line of credit of R&D Scientific bearing
interest at 10.42%. The line of credit is secured by the
assets of R&D Scientific and is personally guaranteed by
a shareholder and officer of R&D Scientific.
Settlement of claims for compensation
and expense reimbursement by former
employees and affiliated persons -0- 28,046
$ 40,391 $ 198,426
====== ======
Note 13. Employee Benefit Plans
The Company and its subsidiaries and R & D Scientific, do not have employee
pension plans. Muller maintains a defined contribution plan for its
employees. Pension expense was $10,000 since the date of the stock
purchase agreement with Muller.
Note 14. Property and Equipment
Property and equipment consist of:
March 31,
1997 1996
Buildings $ 182,410 $ 91,585
Computer Equipment and Software 87,348 49,804
Furniture and Fixtures 159,661 15,423
429,419 156,812
Accumulated Depreciation (123,296) ( 26,885)
$306,123 $129,927
====== ======
F-20
<PAGE>
Note 15. Income Taxes
In February 1992, the Financial Accounting Standards Board issued SFAS 109,
effective for fiscal years beginning after December 15, 1992 with early
adoption encouraged. This statement established financial accounting and
reporting standards for the effect of deferred income taxes using the
liability approach as compared to the concept of matching tax expense to
pre-tax income (deferred method) required under previous accounting
standards. In addition, under previous accounting standards, the tax
benefit of utilizing operating loss carryforwards was reflected as an
extraordinary item.
Deferred tax assets and liabilities are determined utilizing the enacted
tax rates applicable to the period the temporary differences are expected
to be paid or recovered. Accordingly, the current period tax provision can
be affected by the enactment of new tax rates. The statement requires a
valuation allowance reducing the deferred tax asset if it is more likely
than not that some portion of the asset will not be realized. DCI and its
wholly-owned subsidiaries has a net operating loss carry-forward of
approximately $ 1,310,000 as of March 31,1997 which expires through 2012.
A deferred tax benefit has not been recorded with respect to the net
operating loss carry-forward.
The deferred tax liability reported on the accompanying balance sheets
apply to Muller Media, Inc. For income tax reporting Muller uses the
installment method of accounting. This method recognizes revenue and the
related expense over the installments paid by the television stations to
Muller, usually over twelve to thirty six months. Deferred income taxes
have been recorded for the excess of financial statement income over
taxable income.
Note 16. Segment Information
The following table shows sales , operating (loss) earnings and other
financial information by industry segment for the year ended March 31,1997.
The Company operated only in the technology segment in the year ending
March 31, 1996.
Media Consumer Technology Corporate Consolidated
Sales $ 825,225 $ 1,123,697 $ 845,026 $ 0 $ 2,793,94
Operating(Loss) $ 168,273 ($ 54,293) ($25,772) ($460,258) ($ 372,050)
Earnings
Identifiable
Assets $6,216,388 $ 95,481 $2,318,666 $2,103,424 $10,733,959
Depreciation $ 2,106 $ 352 $ 6,594 $ 9,309 $ 18,361
Capital Expendistures 0 $ 17,141 $ 114,833 $ 23,851 $155,825
The Company's operations are classified into three business segments as
follows:
Media - Includes the national distribution and syndication of feature
films and programs to the broadcast and cable T.V. industry.
Technology - Includes the design and production of tamperproof software
used in the healthcare industry.
Consumer - Includes the distribution of value added consumer discount cards
and a travel agency.
In the Media segment four customers accounted for approximately 59% of
sales in 1997 and five customers comprise approximately ($2,123,000) 67%
of accounts receivable at March 31,1997.
In the Technology segment three customers accounted for approximately 43%
and 49% of sales in 1997 and 1996.
Note 17. Subsequent Events
On April 9,1997 the Company acquired , for 400,000 shares of common stock,
all of the outstanding shares of CyberFax, Inc., a Canadian corporation
engaged in the business of providing real time fax capabilities on the
Internet.
On April 23,1997 the Company acquired, all of the outstanding shares of
Crossmain Ltd., a British corporation, for 4,285,714 options to purchase
common stock over a two year period subject to certain earning provisions
to be obtained by Crossmain. Crossmain is engaged in the business of
providing long distance telecommunications throughout Europe via a private
leased line network which is the least expensive method of establishing a
telecommunications presence in the European market. Crossmain was renamed
DCI UK Ltd.
F-21
<PAGE>
REPORT OF INDEPENDENT CERTIFYING ACCOUNTANT
Shareholders and Board of Directors
DCI Telecommunications, Inc.
We have audited the accompanying consolidated balance sheet of DCI
Telecommunications, Inc. as of March 31, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of
the two years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respect, the financial position of DCI Telecommunications,
Inc. as of March 31, 1996 and the results of its operations, and its cash
flows for each of the two years in the period ended March 31, 1996, in
conformity with generally accepted accounting principles.
As discussed in notes 2,3, and 12, the Company has not completed the
purchase and sale agreement with R&D Scientific Corporation and is
arranging long term financing for future operations. Although management
believes the acquisition of R&D Scientific Corporation and the long term
financing will occur, no assurance can be given that these events will
occur. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Schnitzer & Kondub, P.C.
Greenwich, Connecticut
June 30, 1996
F-22
<PAGE>
DCI TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS March 31, 1996
Current Assets:
Cash $29,520
Accounts Receivable - trade 139,551
- shareholders 98,503
Deposits 3,520
Inventory 27,169
Total Current Assets 298,263
Property and Equipment 142,161
Less: Accumulated depreciation 13,379
Net property and equipment 128,782
Other Assets - copyrights 1,700,000
- customer base 653,752
2,353,752
Less: Accumulated amortization 191,547
Net other assets 2,162,205
Total Assets $2,589,250
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $42,004
Notes and settlements payable 198,426
Accounts payable 326,419
Accrued expenses 8,500
Total Current Liabilities 575,349
Long Term Debt 84,380
Commitments and Contingencies (Note 8)
Shareholders' Equity:
9.25% cumulative convertible, preferred stock
$100 par value, 9,000,000 shares authorized,
29,076 shares issued and outstanding; 305,000
Common stock, $.0001 par value,
500,000,000 shares authorized,
2,376,014 shares issued and outstanding 238
Paid in capital 1,658,618
Subscriptions for common stock 69,800
Treasury Stock (29)
Retained earnings (Deficit) (since 12/31/95) (104,106)
Total Shareholders' Equity 1,929,521
Total Liabilities and Shareholders' Equity $2,589,250
See Accompanying Notes to Consolidated Financial Statements
F-23
<PAGE>
DCI TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended March 31,
1996 1995
Net Sales $814,016 $110,385
Cost of Sales 476,243 46,657
Gross Profit 337,773 63,728
Selling, General & Administrative 365,250 125,868
Expenses
Salaries and Compensation 338,217 112,819
Professional Fees 55,497 228,055
Consulting Fees 73,568 540,576
Amortization and Depreciation 191,924 77,401
1,024,456 1,084,719
Income (Loss) from Operations (686,683) (1,020,991)
Other Income and (Expense):
Settlement Expenses - (61,411)
Interest Expense (30,670) (13,755)
Other - 672
(30,670) (74,494)
Net (Loss) ($717,353) ($1,095,485)
Net (loss) per common share ($0.37) ($1.95)
Weighted average common shares
outstanding 1,959,014 562,245
See Accompanying Notes to Consolidated Financial Statements
F-24
<PAGE>
DCI TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
Cash Flows from Operating Activities: 1996 1995
Net Loss ($717,353) ($1,095,485)
Adjustment to reconcile net loss to net
cash provided by (used in) operating Activities:
Depreciation and amortization 191,924 77,401
Stock issued for services 266,671 815,597
Note and Account Settlements (92,231) 60,000
Accrued Interest 5,600 11,200
Loss on property disposition 30,007 -
Changes in assets and liabilities:
(Increase) Decrease in:
Accounts Receivable (86,529) (5,682)
Accounts Receivable - Shareholders (91,784) (6,719)
Inventory 6,006 39,376
Deposits (7,360) (10,000)
Increase (Decrease) in:
Accounts Payabe 119,249 49,474
Accrued Expenses (29,579) 31,979
Total Adjustments: 311,974 1,062,626
Net cash provided by (used in)
operating activities (405,379) (32,859)
Cash flows from (used in) investing activities:
Additions to property, plant, equipment (3,145) -
Cash acquired with investment in R&D 22,807 -
Net cash provided by (used in)
investing activities 19,662 -
Cash flows from (used in) financing activities:
Proceeds from stock options 282,117 -
Proceeds from sale of stock 145,000 -
Bank overdraft 11,936 30,068
Payment of notes payable (2,454) (40,560)
Proceeds from notes 16,595 -
Note payable - shareholder (50,000) 50,000
Proceeds from affiliates 12,043 43,500
Repayments to affiliates - (50,219)
Net cash provided by (used in)
financing activities 415,237 32,789
Net Increase (Decrease) in cash 29,520 (70)
Cash, Beginning of Year 0 70
Cash, End of Year $29,520 $0
See Accompanying Notes to Consolidated Financial Statements
F-25
<PAGE>
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1995 and 1996
Added Common
Preferred Stock Common Stock Paid in Stock Treas. Accum.
Shares Amount Shares Amount Capital Subscr. Stock Deficit Total
------ ------- ------- ------ -------- ----- ------- --------- -------
Balances April 1, 1994
2,750 $265,000 77,638 $8 $2,137,278 $69,800 -- ($2,869,855) ($397,769)
Shares issued for officers advances
-- -- 7,684 1 76,846 -- -- -- 76,847
Shares Issued for services and emplyment contracts
-- -- 420,590 42 1,646,025 -- -- -- 1,646,067
Shares issued for assets of Sigma Industries
-- -- 850,000 85 672,315 -- -- -- 672,400
Shares issued for assets of Sigma Telecommunications
-- -- 480,000 48 139,952 -- -- -- 140,000
Shares issued for stock of Casino Marketing
-- -- 250,000 25 1,799,975 -- -- -- 1,800,000
Net loss
-- -- -- -- -- -- -- (1,095,485) (1,095,485)
Balances, March 31, 1995
2,750 $265,000 2,085,912 $209 $6,472,391 $69,800 ($3,965,340) $2,842,060
Shares issued for options exercised
-- -- 16,819 2 235,372 -- -- -- 235,374
Shares issued for services
11,326 -- 46,150 4 298,133 -- -- -- 298,137
Shares issued for stock of R&D Scientific
-- -- 106,250 11 1,699,989 -- -- -- 1,700,000
Shares canceled - employment contracts
-- -- -- -- (781,237) -- (13) -- (781,250)
Shares sold
15,000 40,000 120,883 12 116,972 -- -- -- 156,984
Quasi reorganization - 12/31/95
-- -- -- -- (6,383,002) -- (16) 4,578,587 (1,804,431)
Net Loss
-- -- -- -- -- -- -- (717,353) (717,353)
Balances, March 31, 1996
29,076 $305,000 2,376,014 $238 $1,658,618 $69,800 ($29) ($104,106) $1,929,521
See accompanying notes to consolidated financial statements
F-26
<PAGE>
DCI Telecommunications, Inc.
Notes to Consolidated Financial Statements
Years Ended March 31, 1996 and 1995
Note 1: Organization and Significant Accounting Policies
DCI Telecommunications, Inc. (the "Company") was originally incorporated on
February 4, 1985 as ALFAB, Inc. and subsequently became Fantastic Foods
International, Inc. ("Fantastic Foods") after a reorganization in 1991. The
shareholders of Fantastic Foods International, Inc. at a shareholders
meeting on December 30, 1994 approved the acquisition of the assets of
Sigma Telecommunications, Inc. in a stock for asset purchase, with
Fantastic Foods exchanging four hundred, eighty thousand (480,000) common
shares valued at $140,000 for the assets of Sigma Telecommunications, Inc.
which totaled $140,000. Concurrent with the merger, the name was changed to
DCI Telecommunications, Inc.
On January 5, 1995 the Board of Directors approved the acquisition of
certain assets of Sigma Industries, Inc. (Alpha Products) in a stock for
asset purchase with DCI exchanging eight hundred, fifty thousand (850,000)
common shares valued at $672,400 for the assets of Alpha Products, Inc.
which totaled $672,400. The above acquisitions were accounted for using
the purchase method of accounting.
The operating results of all companies have been included in the financial
statements from the date of acquisition.
On June 19, 1995, DCI entered into an agreement to acquire the common stock
of R&D Scientific Corp. ("R&D") for 106,250 shares (valued at $1,700,000).
The shares are to be exchanged based upon a cash infusion requirement of
$150,000 to be made by the Company. Such shares remain in escrow but are
included in outstanding common stock for the year ended March 31, 1996
based upon the intention of the Company. The Company was granted an
extension until August 31, 1996 to make the cash infusion of $150,000,
required by the agreement, in order to consummate the transaction with R&D.
In consideration for the extension, R&D has the right to terminate the
purchase and sale agreement at its sole discretion prior to DCI making the
cash infusion. As of July 5, 1996, the cash infusion of $150,000 has not
been made and R&D has not terminated the purchase and sale agreement.
The Company's financial statements include the operations of R&D from June
19, 1995, the date of the purchase and sale agreement. The financial
statements do not include any adjustments that might result from the
termination of the purchase and sale agreement.
The Company's Board of Directors approved a one-for twenty reverse split of
its common stock on January 25, 1995, a forty for one split on March 8,
1996 and a one for four hundred reverse split on March 14, 1996.
Accordingly, the financial statements and related footnotes have been
restated to reflect these transactions as of April 1, 1994.
F-27
<PAGE>
Quasi Reorganization
At the Annual Meeting of Shareholders on July 26, 1995, the shareholders
approved a quasi reorganization of the Company to adjust the carrying value
of assets and liabilities to their fair market value.. As part of the
reorganization, the Company wrote off $1,624,500 of the net remaining
investment in trademarks associated with Casino Marketing. Since the
transaction was not consummated, all of the 162,500 shares of stock issued
for the trademarks, which had been held in escrow, were returned to the
Company and are held in treasury. Amortization recorded in the first two
quarters of 1996 totaling $117,000 was also reversed. In addition, the
Company also reduced its inventory valuation by $63,182. The accumulated
deficit at December 31, 1995, the effective date of the reorganization, was
charged to paid in capital. Retained earnings (deficit) starting date is
January 1, 1996.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and R&D Scientific as if the purchase and sale agreement with R&D was
completed. Material inter-company balances and transactions have been
eliminated in consolidation.
Cash
For purposes of the statement of cash flows, the Company considers cash as
cash held in operating accounts and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Accounts Receivable and Revenue Recognition
Revenue is recorded when goods are shipped or when services are rendered to
the customer. Accounts receivable are presented net of zero allowance for
doubtful accounts at March 31, 1996.
March 31, 1996
Accounts Receivable - Trade $139,551
- Shareholders 98,503
$238,054
Inventory
Inventory of $27,169, stated at the lower of cost or market, consists of
microchips, data acquisition and telecommunications components.
Property and Equipment
Property and equipment is stated at cost. Major additions are capitalized;
expenditures for repairs and maintenance are charged against earnings.
Depreciation is calculated under the straight-line method over the
anticipated useful lives of the assets which range from 5 to 7 years.
F-28
<PAGE>
Copyright
In connection with the purchase and sale agreement with R&D Scientific
Corp. on June 19, 1995, the Company will acquire a copyright on R&D's
Datatron System for tamper proof data acquisition. The copyright is valued
at $1,700,000 which is being amortized over ten years. Accumulated
amortization at March 31, 1996 was $112,500.
Deferred Compensation
Certain officers of the Company received stock options as part of
compensation agreements entered into in 1995. The options were exercised in
1995 and the value of the options, based upon quoted market prices of the
Company's stock was being amortized over six years, the term of the
employment agreement.
Subsequent to March 31, 1996, the Company agreed to cancel the options and
shares with respect to such employment agreements. This transaction which
has the impact of reducing deferred compensation and paid in capital, by
$759,550 and $781,237, respectively was recorded as if the event took place
as of March 31, 1996. The shares, to be canceled, are shown as treasury
stock as of March 31, 1996.
Customer Base
The customer base relates to the value of the customer list acquired with
the asset acquisition of Alpha Products and is being amortized over ten
years. Accumulated amortization at March 31, 1996 was $79,047.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes."
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding. Common stock equivalents have not been considered as their
effect would be anti-dilutive.
F-29
<PAGE>
Reclassifications
Certain reclassifications have been made to prior years financial
statements to conform with the current years presentation.
Note 2. R&D Scientific Corp.
On June 19, 1995, DCI Telecommunications, Inc. entered into a stock
purchase and sales agreement with R&D Scientific Corp., a New Jersey
corporation, whereby DCI will acquire 100% of the outstanding common stock
of R&D in a stock for stock purchase, with DCI exchanging one million seven
hundred thousand (1,700,000) shares of common stock for one hundred (100)
shares of R&D capital stock. DCI stock was valued at one dollar ($1.00) per
share, and six months from closing, if DCI stock is selling for less than
$1.00 per share, DCI will give R&D additional shares to bring the total
purchase back to $1,700,000. At the six month anniversary date, the price
of DCI shares was less than $1.00, and the Company issued 40,800,000
additional shares to R&D shareholders. At March 31, 1996, the number of
common shares, adjusted for stock splits, associated with this transaction
is 106,250. This action triggered an anti-dilutive provision of DCI
requiring the issuance of 792,337,859 common shares to shareholders of
record on June 19, 1995. This was accounted for as a forty for one stock
split. Following these transactions, the Company effected a one for four
hundred reverse split which was approved by the shareholders on February
29, 1996.
The shares are to be exchanged based upon a $150,000 cash infusion by DCI
to R&D. Such shares are in escrow but are included in outstanding common
stock as of March 31, 1996 for financial statement presentation.
F-30
<PAGE>
Summarized financial data of R&D Scientific included in the financial
statements since June 19, 1995, date of purchase and sale agreement, is as
follows:
Net Sales $ 544,404
Cost of Sales 352,164
Gross Profit 192,240
Selling, General &
Administrative Expenses 118,090
Salaries and Compensation 36,567
Depreciation 1,863
156,520
Income from Operations 35,720
Interest Expense 11,249
NET INCOME $ 24,471
Cash $ 29,384
Accounts Receivable 90,925
Fixed Assets, Net 89,722
Other 7,446
TOTAL ASSETS $ 217,477
Accounts Payable $ 66,140
Bank Note Payable 32,077
Accrued Expenses 2,500
Long Term Debt 84,380
Due to Shareholder 7,909
TOTAL LIABILITIES $ 193,006
Three customers accounted for approximately 49% of sales in 1996.
F-31
<PAGE>
Note 3. Basis of Presentation
The accompanying financial statements have been prepared on a "going
concern" basis which contemplates the realization of assets and the
liquidation of liabilities in the ordinary course of business.
During the periods presented, the Company did not generate positive cash
flow from operations and there can be no assurance that the deficiency will
not continue. In addition to generating profits and positive cash flow from
internal operations, management's plans include acquisitions of profitable
operating companies by the issuance of stock and obtaining long-term
financing with financial institutions. However, no assurance can be given
that the acquisitions or long term financing will occur.
Note 4: Pro Forma Financial Information
The following table summarizes the unaudited pro forma results of
operations of the Company for the fiscal years ended March 31, 1996 and
1995, assuming the acquisitions of Alpha Products, Sigma Telecommunications
and R&D Scientific had occurred on April 1, 1994.
Fiscal Year
Ended
March 31,
1996 1995
Revenues......................... $914,843 $2,047,008
Net loss......................... (841,505) (1,168,322)
Net loss per common share........ ( .43) ( .65)
The pro forma financial information presented above is not necessarily
indicative of the results of operations that would have occurred had the
acquisitions taken place on April 1, 1994 or of future results of
operations.
Note 5: Common Stock
In the year ended March 31, 1995, the Company established an incentive
stock option plan reserving 10,000,000 shares of common stock for certain
employees, officers and directors. The exercise price must be at least the
fair market value of the stock on the date of the grant, and the term of
each option granted will not be more than ten years from the date of the
grant. Where options are granted to stockholders owning more than 10% of
the outstanding common stock, the exercise price must be at least 110% of
the fair market value of the stock, and the term is limited to 5 years.
F-32
<PAGE>
The Company has placed an annual limit on options of $100,000 per calendar
year for each employee. To the extent that the above limit is not used in
any calendar year, 50% of the excess for an individual may be carried over
for up to three years. As of March 31, 1996, 98,000 options have been
issued under the plan.
Outstanding options at March 31, 1996 with exercise prices from $.50 to
$1.50 were 264,666.
During the twelve months ended March 31, 1995 the Company issued 363,591
shares of its $.0001 par value common stock for services provided to the
Company and under employment contracts. Subsequent to March 31, 1996 the
Company agreed to cancel the shares with respect to such employment
agreements. The deferred compensation asset and paid in capital relating to
the share issuance were reduced by $759,550 and $781,250 and the shares
have been reflected as treasury stock in the March 31, 1996 financial
statements. The Company also converted $76,847 of officer advances to 7,685
shares of common stock at the rate of $1.00 per share. Additionally, during
December 1994 the Company issued 57,000 shares of common stock pursuant to
the Company's stock bonus plan established on June 1, 1994. The shares so
issued were valued at the market prices at the time the shares were issued.
Note 6: Preferred Stock
The Company has authorized but unissued shares of non-voting preferred
stock which may be issued in series with such preferences as determined by
the Board of Directors.
The preferred stock is redeemable at the option of the Board of Directors
45 days after written notice at par value plus accrued dividends. There are
no stated redemption terms associated with the Company's preferred stock.
The holders of the preferred shares are entitled to receive dividends at
9.25% per annum at the time legally available. Such dividends are
cumulative from the date of purchase of the stock. The preferred shares are
non-voting and in the event of liquidation of the Company the preferred
shareholders are entitled to payment of an amount equal to par value of the
preferred shares before any distribution to other shareholders. The
preferred shares may be converted at the option of the holder, into 1/3
share of common stock for each share of preferred stock through January 1,
1997. Upon conversion shareholders are entitled to receive payment of any
accrued but unpaid dividends except for the final calendar quarter prior
to conversion.
During the year ended March 31, 1996, the Company sold 15,000 shares of
Series A preferred stock for $40,000.
11,326 shares of Series A preferred stock were issued for services to the
Company in the year ended March 31, 1996.
No preferred stock dividends have been declared or paid in the years ended
March 31, 1996 and 1995.
F-33
<PAGE>
Note 7. Long-Term Debt
Long -term debt consists of a $85,000 mortgage with a bank on the office
condominium owned by R&D Scientific. The mortgage note bears interest at
the bank's prime rate plus 2% adjusted with a lifetime cap of 16%. The note
is payable in monthly installments of principal and interest of $833 with a
balloon payment for the balance of the note due in April 2020.
Aggregate annual principal payments are as follows; 1997-2001 $725 per
annum, 2002 and thereafter $80,755.
Note 8. Commitments and Contingencies
(a) Leases
The Company is presently negotiating an operating lease agreement for
office space. R&D Scientific has an operating lease for office and assembly
space which expires July 30, 1996. Minimum future rental payments under the
leases are $3,020 per month. Rent expense was $37,464 and $9,232, in the
years ended March 31, 1996 and 1995.
(b) Employment Agreements
The Company has employment contracts with certain key employees which
provide for minimum annual compensation of $190,000 in 1996, 1997 and 1998,
plus annual increases based on the consumer price index.
(c) Litigation
On April 21, 1995 the Company was sued for $81,000 by Podoll & Podoll PC,
former counsel to Fantastic Foods International, Inc., DCI's predecessor.
The suit alleges failure to pay on a Fantastic Food note dated February 13,
1993 in the principal amount of $60,000 with interest at 10% per annum. On
November 7, 1995, the District Court issued a summary judgment in favor of
Podoll & Podoll for $60,000 plus $27,459 accrued interest, with interest
continuing to accrue at 18% until paid. No payments have been made, and
subsequent to March 31, 1996 Podoll & Podoll had seized certain assets of
the Company's office furniture and equipment with a book value of
approximately $30,000 which was recognized as a loss in the 1996 financial
statements.
In addition to the aforementioned litigation, the Company is party to legal
actions arising during the normal course of business.
In the opinion of management, the ultimate outcome of the above litigation
will have no material effect on the financial position of the Company.
On February 7, 1996 the Company instituted suits against two principles of
Christopher Winston & Company for violating their duty of good faith and
fair dealing in dumping stock on the market after advising a reverse split.
The damage claimed is eleven million dollars.
F-34
<PAGE>
(d) Common and Preferred Stock
Prior to January 1, 1995, Fantastic Foods issued shares of common and
preferred stock without registration under the Securities Act of 1933.
Although the Company believes that the sales did not involve a public
offering of its securities and that the Company did comply with the "safe
harbor" exceptions from registration under section 4(2), it could still be
liable for rescission of the sales if such exceptions were found not to
apply.
Note 9. Notes and Settlements Payable
Amounts due at March 31, 1996 consist of the following:
1996
Current portion of long-term debt $ 725
Note payable - stockholder 50,000
In connection with a judgment of $119,000
against the Company for liability incurred while
it was operating as Fantastic Foods. The Company
entered into a settlement agreement to pay the
claimant $80,000 and issue 600,000 shares of common
stock. As of March 31, 1996, $30,000 was paid in accordance
with the payment schedule. 40,000 common shares
were issued to settle the second half of the second
installment due March 15, 1996. The balance of the loan is
due in $20,000 installments by June 15, 1996 and
August 15, 1996.
Note payable - Vendor 87,578
This represents a judgment of $60,000 against
the Company for liability incurred while it was
operating as Fantastic Foods. The amount includes
interest and costs of $27,578 which is accruing at
18% per annum. Subsequent to year end, the vendor
seized certain fixed assets of the Company
(with a book value of approximately $30,000) which
was recognized as a loss in the March 31, 1996
financial statements.
F-35
<PAGE>
Note Payable - Bank 32,077
Amount outstanding at March 31, 1996 under a
$50,000 line of credit of R&D Scientific bearing
interest at 10.42%. The line of credit is secured by the
assets of R&D Scientific and is personally guaranteed by
a shareholder and officer of R&D Scientific.
Settlement of claims for compensation
and expense reimbursement by former
employees and affiliated persons 28,046
$198,426
Note 10. Related Party Transactions
During the year ended March 31, 1995, Company's officers and direct
relatives advanced and loaned $93,500 to the Company. To facilitate the
transactions, 5,000 shares of common stock were issued.
During the year ended March 31, 1996, certain officers and shareholders
made cash advances to the Company. $7,909 of the advances remain unpaid at
March 31, 1996 and are included in accounts payable.
Also, during the year ended March 31, 1996 the Company made payments for
liabilities on behalf of certain officers and shareholders These payments
are being repaid to the Company primarily by salary reductions. The amount
due from the officers and shareholders was $98,503 at March 31, 1996.
Note 11: Property and Equipment
Property and equipment consist of:
March 31, 1996
Building $ 91,585
Computer Equipment and Software 43,196
Furniture & Fixtures 7,380
142,161
Accumulated Depreciation (13,379)
$128,782
Note 12: Subsequent Events
a) On April 16, 1996, the Company signed an agreement with Franklin Telecom
Corporation of Westlake Village, California, whereby DCI receives a 50%
ownership of Franklin Datacom Inc., a wholly-owned subsidiary of Franklin
Telecom upon raising an agreed upon amount of "bridge financing". It is the
intent of the parties to rename this subsidiary "FNet" and finance its
growth through an Initial Public Offering (IPO).
FNet is a provider of a comprehensive range of Internet access options,
applications and consulting services to businesses, professionals and on-
line service providers.
After completion of the bridge financing, DCI and Franklin Telecom will
exchange shares with each other, with the goal of cross ownership in the 10-
15% range, to facilitate a possible future merger.
b) Subsequent to March 31, 1996 the Company raised approximately $396,000
through a Regulation D offering.
F-36
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SECURITIES OFFERED HEREBY TO
ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
________________________________________________
TABLE OF CONTENTS
PAGE
Prospectus Summary 1
Risk Factors 4
Formation of the Company 8
Market for Common Stock and Dividend Policy 10
Selling Stockholders 12
Plan of Distribution 13
Capitalization 14
Selected Financial Data 16
Management's Discussion and Analysis of Financial 17
Business 22
Legal Proceedings 33
Management 34
Principal Stockholders 38
Certain Transactions 39
Indemnification for Securities Act Liabilities 40
Description of Capital Stock 41
Legal Opinions 45
Experts 45
Financial Statements F-1
DCI TELECOMMUNICATIONS, INC.
COMMON STOCK
____________________________________________________
PROSPECTUS
October 3, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
As this is a registration of shares only, the expenses involved are limited
in nature and are as follows:
Estimated Legal fees associated with the Registration Statement: $20,000
Estimated Accounting fees associated with the Registration Statement: $2,500
Total: $22,500
II-1
<PAGE>
ITEM 14. Indemnification of Directors and Officers.
Article X of the By-laws of the Company contains the following
indemnification provisions:
(a) Any person made a party to any action, suit or proceeding, by reason
of the fact that he, his testator or intestate representative is or was a
director, officer or employee of the Corporation, or of any Corporation
in which he served as such at the request of the Corporation, shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred by him in connection
with the defense of such action, suit or proceedings, or in connection
with any appeal therein, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding, or in connection
with any appeal therein that such officer, director or employee is liable
for negligence or misconduct in the performance of his duties.
(b) The foregoing right of indemnification shall not be deemed exclusive
of any other rights to which any officer or director or employee may be
entitled apart from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be
entitled shall be fixed by the Board of Directors, except that in any
case where there is no disinterested majority of the Board available, the
amount shall be fixed by arbitration pursuant to the then existing rules
of the American Arbitration Association.
II-2
<PAGE>
ITEM 15. Recent Sales of Unregistered Securities.
The following shares of common stock were sold via a Regulation D offering.
No underwriters were utilized and all sales were made to qualified investors
with no relation to the Company.
Number of Offering
Period of Sale Shares Price Per Share
March 1996 thru May 1996 1,403,915 $ .30
June 1996 thru August 1996 156,667 $ .60
September 1996 thru October 1996 60,612 $1.35
November 1996 thru December 1996 918,328 $ .30
November 1996 thru December 1996 125,000 $ .60
January 1997 thru February 1997 174,502 $ .30
Total: 2,839,024
The following shares of common stock where issued in private placements in
connection with certain acquisitons by the Company.
November 5, 1996
Acquisition of Paul Bettencourt & Associates 6,897 $ 1.45
March 25, 1997
Acquisiton of Travel Source Ltd. 29,412 $ 3.40
March 31, 1997
Acquisition of CardCall International Holding 494,287 $ 1.00
4 Year Warrants 741,431 $ 4.00
April 9, 1997
Aquisition of CyberFax 400,000 $ 2.50
The following convertible preferred shares were sold to qualified investors
with no relation to the Company.
February 18, 1997 - Series C 1,500 $ 1,000
3 Year Warrants attached to Series C 140,000 $ 3.625
July 17, 1997 - Series D 45 $10,000
3 Year Warrants attached to Series D 42,189 $ 2.50
II-3
<PAGE>
ITEM 16. Exhibits.
(a) (1) and (2) The response to this portion is submitted as a separate
Section of this report commencing on page F-1.
(a) (3) and (c) Exhibit (numbered in accordance with Item 601 of Regulation
S-K)
Exhibit
No. Description
- ------- -----------
3.1 Articles of Incorporation (1)
3.2 By-Laws (1)
5.1 Opinion of Mark C. Foster, Attorney at Law (*)
10.1 DCI Telecommunications July 26, 1995 Stock Option Plan(*)
10.2 Employment Agreement, dated February 1, 1995 between the Company
and Joseph J. Murphy (*)
10.3 Employment Agreement, dated February 1, 1995 between the Company
and Larry Shatsoff (*)
10.4 Employment Agreement, dated February 1, 1995 between the Company
and Daniel J. Murphy (*)
10.5 Acquisition of P.L. Bettencourt and Associates, dated November 5,
1996 by the Company (2)
10.6 Stock Purchase Agreement, dated November 26, 1996 between Muller
Media, Inc., Robert Muller, and Daniel Mulholland (3)
10.7 Acquisition of CyberFax, Inc., dated April 9, 1997, by
the Company (4)
10.8 Acquisition of The Travel Source Limited, Inc., dated March 25,
1997, by the Company (5)
10.9 Acquisition of Crossmain Limited, dated April 23, 1997, by the
Company (5)
10.10 Acquisition of CardCall International Holdings, dated March 31,
1997, by the Company (6)
10.11 Issuance of $1,500,000 of Series C, Non-voting, Convertible
Preferred Stock (5)
II-4
<PAGE>
10.12 Issuance of $450,000 of Series D, Non-voting, Convertible
Preferred Stock (*)
10.13 Certificate of Designation of Rights and Preferences of the
Class A Preferred Shares Series C of DCI Telecommunications,
Inc. (*)
10.14 Certificate of Designation of Rights and Preferences of the
Class A Preferred Shares Series D of DCI Telecommunications,
Inc. (*)
10.15 Common Stock Purchase Warrant Agreement between the Company
and Anthony Heller (*)
10.16 Common Stock Purchase Warrant Agreement between the Company
and William Hechter (*)
10.17 Common Stock Purchase Warrant Agreement between the Company
and Jefrob Glorich, Ltd. (*)
10.18 Common Stock Purchase Warrant Agreement between the Company
and Jay A. Smith (*)
10.19 Common Stock Purchase Warrant Agreement between the Company
and Excalibur Limited Partnership (*)
10.20 Common Stock Purchase Warrant Agreement between the Company
and Excalibur Limited Partnership (*)
10.21 Common Stock Purchase Warrant Agreement between the Company
and Jay A. Smith (*)
10.22 Common Stock Purchase Warrant Agreement between the Company
and Jefrob Glorich, Ltd. (*)
16.1 Change in Certifying Accountant (7)
21.1 Subsidiaries (*)
23.1 Consent of Independent Accountants (*)
- --------------------------------------------------------------------
(*) Filed herewith
(1) Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-18 (File 2-96976-D)
(2) Incorporated by reference to the Company's Form 8-K filed on
November 13, 1996
(3) Incorporated by reference to the Company's Form 8-K filed on January 7,
1997
(4) Incorporated by reference to the Company's Form 8-K filed on April 18,
1997
(5) Incorporated by reference to the Company's fiscal 1997 Form 10-K.
(6) Incorporated by reference to the Company's Form 8-K filed on September
23, 1997
(7) Incorporated by reference to the Company's Form 8-K filed on June 28,
1995.
II-5
<PAGE>
ITEM 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
of 1993 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Company hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Company under Rule 424(b) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as
of the time the SEC declared it effective.
(2) That for purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement for the securities offered in the
Registration Statement and the offering of the securities at that time shall
be deemed to be the intial bona fide offering of those securities.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF
THE REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED DULY AUTHORIZED
IN THE CITY OF STRATFORD, STATE OF CONNECTICUT, ON October 3, 1997.
DCI Telecommunications, Inc.
/s/ Joseph J. Murphy
----------------------------
Joseph J. Murphy
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES LISTED ON OCTOBER 3, 1997.
/s/ Joseph J. Murphy /s/ Larry Shatsoff
-------------------- ------------------
Joseph J. Murphy Larry Shatsoff
President and Chief Vice President and
Executive Officer, Director Chief Operations Office, Director
/s/ Russell B. Hintz /s/ John Adams
-------------------- -------------------
Russell B. Hintz John Adams
Vice President and Vice President and
Chief Financial Officer Chief Marketing Officer, Director
/s/ Paul Bettencourt /s/ Richard Sheppard
--------------------- --------------------
Paul Bettencourt Richard Sheppard
President PEL, President R&D Scientific,
Director Director
/s/ Carter Hills /s/ Lois S. Morris
--------------------- ---------------------
Carter Hills Lois S. Morris
Director President Travel Source Limited,
Director
II-7
<PAGE>
EXHIBITS
To
REGISTRATION STATEMENT
FORM S-1
Under
The Securities Act of 1933
DCI TELECOMMUNICATIONS, INC.
<PAGE>
DCI TELECOMMUNICATIONS, INC. FORM S-1
FILE NUMBER 2-96976-D
INDEX TO EXHIBITS
Exhibit No. Description Page Number
- ----------- ----------- -----------
3.1 Articles of Incorporation (1) N.A.
3.2 By-Laws (1) N.A.
5.1 Opinion of Mark C. Foster, Attorney at Law (*)
10.1 DCI Telecommunications July 26, 1995 Stock Option
Plan(*)
10.2 Employment Agreement, dated February 1, 1995 between
the Company and Joseph J. Murphy (*)
10.3 Employment Agreement, dated February 1, 1995 between
the Company and Larry Shatsoff (*)
10.4 Employment Agreement, dated February 1, 1995 between
the Company and Daniel J. Murphy (*)
10.5 Acquisition of P.L. Bettencourt and Associates, dated
November 5, 1996 by the Company (2) N.A.
10.6 Stock Purchase Agreement, dated November 26, 1996
between Muller Media, Inc., Robert Muller, and
Daniel Mulholland (3) N.A.
10.7 Acquisition of CyberFax, Inc., dated April 9, 1997, by
the Company (4) N.A.
10.8 Acquisition of The Travel Source Limited, Inc., dated
March 25, 1997, by the Company (5) N.A.
10.9 Acquisition of Crossmain Limited, dated April 23,
1997, by the Company (5) N.A.
10.10 Acquisition of CardCall International Holdings,
dated March 31, 1997, by the Company (6) N.A.
10.11 Issuance of $1,500,000 of Series C, Non-voting,
Convertible Preferred Stock (5) N.A.
10.12 Issuance of $450,000 of Series D, Non-voting,
Convertible Preferred Stock (*)
<PAGE>
10.13 Certificate of Designation of Rights and Preferences
of the Class A Preferred Shares Series C of DCI
Telecommunications, Inc. (*)
10.14 Certificate of Designation of Rights and Preferences
of the Class A Preferred Shares Series D of DCI
Telecommunications, Inc. (*)
10.15 Common Stock Purchase Warrant Agreement between
the Company and Anthony Heller (*)
10.16 Common Stock Purchase Warrant Agreement between
the Company and William Hechter (*)
10.17 Common Stock Purchase Warrant Agreement between
the Company and Jefrob Glorich, Ltd. (*)
10.18 Common Stock Purchase Warrant Agreement between
the Company and Jay A. Smith (*)
10.19 Common Stock Purchase Warrant Agreement between
the Company and Excalibur Limited Partnership (*)
10.20 Common Stock Purchase Warrant Agreement between
the Company and Excalibur Limited Partnership (*)
10.21 Common Stock Purchase Warrant Agreement between
the Company and Jay A. Smith (*)
10.22 Common Stock Purchase Warrant Agreement between
the Company and Jefrob Glorich, Ltd. (*)
16.1 Change in Certifying Accountant (7) N.A.
21.1 Subsidiaries (*)
23.1 Consent of Independent Accountants (*)
- --------------------------------------------------------------------
(*) Filed herewith
(1) Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-18 (File 2-96976-D)
(2) Incorporated by reference to the Company's Form 8-K filed on
November 13, 1996
(3) Incorporated by reference to the Company's Form 8-K filed on January 7,
1997
(4) Incorporated by reference to the Company's Form 8-K filed on April 18,
1997
(5) Incorporated by reference to the Company's fiscal 1997 Form 10-K.
(6) Incorporated by reference to the Company's Form 8-K filed on September
23, 1997
(7) Incorporated by reference to the Company's Form 8-K filed on June 28,
1995.
<PAGE>
EXHIBIT 5.1
OPINIONS RE LEGALITY
--------------------
Mark C. Foster
Attorney At Law
1601 Arapahoe Street
Suite 1200
Denver, Colorado 80202
August 25, 1997
DCI Telecommunications, Inc.
611 Access Road
Stratford, CT 06497
Re: DCI Telecommunications, Inc.
Registration Statement on Form S-1
Gentlemen:
I have acted as special counsel for DCI Telecommunications, Inc, a Colorado
corporation (the "Company"), in connection with the filing of a Registration
Statement on Form S-1 (the "Registration Statement"), under the Securities
Act of 1933, as amended (the "Act"), with respect to the proposed
registration by the Company of 2,174,865 shares of its Common Stock, par
value $.001 per share (the "Common Stock").
I have reviewed originals or copies, certified or otherwise identified
to my satisfaction, of the Certificate of Incorporation and By-Laws of the
Company, each as amended, and such other documents, corporate records,
certificates of public officials and instruments as I have considered
necessary or advisable for the purpose of this opinion. I have assumed the
authenticity of all documents submitted to me as originals and the conformity
to original documents of all documents submitted to me as copies. I have
not independently verified such information and assumptions.
I am a member of the Bar of the State of Colorado and I express no
opinion as to the law of any jurisdiction.
Subject to the foregoing and based on such examination and review, I am
of the opinion that:
1. The Company is a corporation organized and existing in good standing
under the laws of the State of Colorado; and
2. The 2,174,865 shares of Common Stock proposed to be offered by the
Company, when issued and delivered, will be duly authorized, validly
issued, fully paid and non-assessable.
<PAGE>
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me contained under the
heading "Legal Matters" in the Prospectus forming a part of the Registration
Statement. In giving the foregoing consent, I do not thereby admit that
I am in the category of persons whose consent is required under Section 7
of the Act, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very Truly Yours,
Mark C. Foster
-----------------
Mark C. Foster
<PAGE>
EXHIBIT 10.1
-------------
DCI TELECOMMUNICATIONS
Stock Option Plan
Effective as of July 26, 1995
1. Purpose
The purpose of the DCI TELECOMMUNICATION (DCI) Stock Option Plan is
to attract and retain persons of ability as employees of DCI and its
subsidiaries, motivate and reward good performance, encourage such
employees to continue to exert their best efforts on behalf of the
Company and its subsidiaries and provide further opportunities for
stock ownership by such employees in order to increase their
proprietary interest in DCI by providing incentive awards to Key
Employees (including officers and directors who are also employees),
whose responsibilities and decisions directly affect the performance
of the Company and its subsidiaries. Such incentive awards may
consist of Common Stock of DCI, or at the discretion of the
Committee, other shares of stock of the Company convertible into such
Common Stock, subject to such restrictions as the Committee may
determine or as provided herein, performance units or stock
appreciation rights payable in such stock or cash, or incentive or
non-qualified stock options to purchase such stock, or any
combination of the foregoing, as the Committee may determine.
2. Definitions
When used herein, the following terms shall have the following
meanings:
2.1 "Award" shall mean an Option, which may be designated an
Incentive Stock Option or a Non-statutory Stock Option, in each case
as granted pursuant to the Plan.
2.2 "Award Agreement" shall mean a Stock Option Agreement.
2.3 "Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive
the benefits specified under the Plan in the event of a Participant's
death.
2.4 "Board" shall mean the Board of Directors of the Corporation.
2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.6 "Committee" shall mean the committee, if any, appointed by the
Board in accordance with Section 4 of the Plan.
<PAGE>
2.7 "Common Stock" shall mean the Common Stock, .0001 par value, of
the Corporation.
2.8 "Corporation" shall mean DCI Telecommunications, Inc. a Colorado
corporation, and its Subsidiaries.
2.9 "Disability" shall mean the condition of a Participant who is
unable to perform his or her substantial and material job duties due
to injury or sickness or such other condition as the Board or
Committee may determine in its sole discretion/engage in substantial
gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not
less than twelve (12) months.
2.10 "Eligible Employee" shall mean an individual who is employed
(within the meaning of Code Section 3401 and the regulations
thereunder) by the Corporation.
2.11 "Event" shall mean any of the following:
(a) Any person or entity (or group of affiliated persons or entities)
acquiring in one or more transactions, whether before or after the
effective date of the Plan, ownership of more than 50 percent of the
outstanding Shares of stock entitled to vote in the election of
directors of the Corporation; or
(b) The dissolution or liquidation of the Corporation or a
reorganization, merger, or consolidation of the Corporation with one
or more entities, as a result of which the Corporation is not the
surviving entity, or a sale of all or substantially all of the assets
of the Corporation as an entirety to another entity. The Corporation
shall be deemed the surviving entity if its shareholders own more
than fifty percent (50%.) of the outstanding Shares of stock of all
classes entitled to vote after such reorganization, merger or
consolidation.
For purposes of this definition, ownership does not include ownership
(i) by a person owning such Shares merely of record (such as a member
of a securities exchange, a nominee or a securities depository
system) (ii) by a person as a bona fide pledgee of Shares prior to a
default and determination to exercise powers as an owner of the
shares, (iii) by a person who is not required to file statements on
Schedule 13D by virtue of Rule 13-d(b) of the Securities and Exchange
Commission under the Exchange Act, or (iv) by a persons who owns or
holds Shares as an underwriter acquired in connection with an
underwritten offering pending and for purposes of resale.
<PAGE>
2.12 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
2.13 "Exercise Price" shall mean the price per Share of Common Stock
determined by the Board or the Committee, at which an Award may be
exercised.
2. 14 "Fair Market Value" shall mean the price per Share of Common
Stock, determined as follows:
(i) If the Shares are traded on an exchange, the price at which
Shares traded at the close of business on the date of valuation; or
(ii) If the Shares are traded over-the-counter on the NASDAQ System,
the closing price if one is available, or the mean between the bid
and asked prices on said System at the close of business on the date
of valuation; or
(iii) If neither (i) nor (ii) above applies, the fair market value
as determined by the Board or the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
2.15 "Incentive Stock Option" shall mean an option described in
Section 422A(b) of the Code.
2.16 "Non-statutory Stock Option" shall mean an option not described
in Section 422 (b), 422A (b) , 423 (b) or 424 (b) of the Code.
2.17 "Option" shall mean either an Incentive Stock Option or a Non-
statutory Stock Option granted pursuant to the Plan.
2.18 "Participant" shall mean an Eligible Employee who has received
an Award under the Plan.
2.19 "Plan" shall mean the DCI Telecommunications, Inc. Stock
Option Plan, as it may be amended from time to time.
2.20 "Purchase Price" shall mean the Exercise Price times the number
of Shares with respect to which an Award is exercised.
2.21 "Retirement" shall mean the voluntary termination of employment
by an Employee upon the attainment of age sixty-five and the
completion of not less than twenty (20) years of service with the
Corporation or a Subsidiary.
2.22 "Share" shall mean one (1) share of common Stock adjusted in
accordance with Section 8.5 of the Plan (if applicable) .
2.23 "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
<PAGE>
2.24 "Subsidiary" shall mean any corporation at least fifty percent
(50%) of the total combined voting power of which is owned by the
Corporation or by another Subsidiary.
2.25 "Tax Date" shall have the meaning set forth in Section 9.3
hereof.
III. EFFECTIVE DATE
The Plan was adopted by the Corporation's shareholders and by the
Board on December 30, 1994. The effective date of the Plan shall be
December 30, 1994 (the "Effective Date").
IV. ADMINISTRATION
The Plan shall be administered by the Board in compliance with Rule
16b-3 of the Securities Exchange Act of 1934 ("Rule 16b-3") or by a
Committee appointed by the Board which Committee shall be constituted
to permit the Plan to comply with Rule 16b-3, and which shall consist
of not less than two (2) members. The Board shall appoint one of the
members of the Committee, if there be one, as Chairman of the
Committee. If a Committee has been appointed, the Committee at which
a quorum is present, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of
the Committee. The Board, or the Committee if there be one, shall
from time to time at its discretion select the Eligible Employees and
consultants who are to be granted Awards, determine the number of
Shares to be applicable to such award, and designated any Options as
Incentive Stock Options or Non-statutory Stock Options, except that
no Incentive Stock Option may be granted to a non-employee director
or a non-employee consultant. A member of the Board or a Committee
member shall in no event participate in any determination relating to
Awards held by or to be granted to such Board or Committee member;
however, a member of the Board or Committee member shall be entitled
to receive Awards approved by the shareholders in accordance with the
provisions of Rule 16b-3. The interpretation and construction by the
Board, or by the Committee if there be one, of any provision of the
Plan or of any Award granted thereunder shall be final. No member of
the Board or Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any
award granted thereunder. In addition to any right of indemnification
provided by the Articles of Incorporation or Bylaws of the
Corporation, such person shall be indemnified and held harmless by
the Corporation from any loss, cost, liability or expense that may be
imposed upon or reasonably incurred by him in connection with any
claim, suit, action or proceeding to which he may be a party by
reason of any action or omission under the Plan.
<PAGE>
V. PARTICIPATION
5.1 Eligibility. Subject to the terms and conditions of Section 5.2
below, the Participants shall be such persons as the shareholders may
approve or as the Committee may select from among the following
classes of persons: (i) Employees of the Corporation or of a
Subsidiary (who may be officers, whether or not they are directors)
and (ii) Consultants, vendors, customers, and others expected to
provide significant services to the Corporation or a Subsidiary.
For purposes of this Plan, a participant who is a director or a
consultant, vendor, customer, or other provider of significant
services to the Corporation or a Subsidiary shall be deemed to be an
Eligible Employee, and service as a director, consultant, vendor
customer, or other provider of significant services to the
Corporation or a subsidiary shall be deemed to be employment, except
that no Incentive Stock Option may be granted to a non-employee
director or non-employee consultant, vendor, customer, or other
provider of significant services to the Corporation or a Subsidiary
other than upon a vote of a majority of disinterested directors
finding that the value of the services rendered or to be rendered to
the Corporation or a Subsidiary by such non-employee director or non-
employee consultant, vendor, customer, or other provider of services
is at least equal to the value of the Awards granted.
5.2 Ten Percent Shareholder. An Eligible Employee who owns more
than ten percent (10%) of the total combined voting power of all
classes of outstanding stock of the Corporation, its parent or any
of its Subsidiaries shall not be eligible to receive an Award for an
Incentive Stock Option unless (i) the Exercise Price of the Shares
subject to such Award is at least one hundred ten percent (110%) of
the Fair Market Value of such Shares on the date of grant; and (ii)
such Award by its terms is not exercisable after the expiration of
five (5) years from the date of grant.
5.3 Stock Ownership. For purposes of Section 5.2 above, in
determining stock ownership an Eligible Employee shall be considered
as owning the stock owned, directly or indirectly, by or for his
brothers, sisters, spouses, ancestors and lineal descendants. Stock
owned, directly or indirectly, by or for a corporation, partnership,
estate or trust shall be considered as being owned proportionately by
or for its shareholders, partners or beneficiaries. Stock with
respect to which such Eligible Employee holds an Award shall not be
counted.
5.4 Outstanding Stock. For purposes of Section 5.2 above,
"outstanding stock" shall include all stock actually issued and
outstanding immediately after the grant of the Award to the
participant. "Outstanding stock" shall not include Shares authorized
for issue under outstanding Options or Purchase Rights held by the
participant or by any other person.
<PAGE>
VI. STOCK SUBJECT TO THE PLAN
The stock subject to Awards under the Plan shall be Shares of the
Corporation's authorized but unissued or reacquired Common Stock.
The aggregate number of Shares which may be issued as Awards or upon
exercise of Awards under the Plan shall not exceed Ten Million
(10,000,000) Shares. The number of Shares subject to unexercised
Options (plus the number of Shares previously issued under the Plan)
shall not at any time exceed the number of Shares available for
issuance under the Plan. In the event that any unexercised Option,
or any portion thereof, for any reason expires or is terminated, the
unexercised or unvested Shares allocable to such option may again be
made subject to any Award. Any Shares withheld by the Corporation
pursuant to Section 9.3 shall not be deemed to be issued. The number
of withheld Shares shall be deducted from the applicable Award and
shall not entitle the participant to receive additional Shares. The
limitations established by this Article VI shall be subject to
adjustment in the manner provided in Section 8.5 hereof upon the
occurrence of an event specified therein.
VII. OPTIONS
7.1 Stock Option Agreements. Options shall be evidenced by written
stock option agreements in such form as the Committee shall from time
to time determine. Such agreements shall comply with and be subject
to the terms and conditions set forth below.
7.2 Number of Shares. Each Option shall state the number of Shares
to which it pertains and shall provide for the adjustment thereof in
accordance with the provisions of Section 8.5 hereof.
7.3 Exercise Price. Each Option shall state the Exercise Price
thereof. The Exercise Price in the case of any Incentive Stock
Option shall not be less than the Fair Market Value on the date of
grant and, in the case of any option granted to an Optionee described
in Section 5.2 hereof, shall not be less than one hundred ten percent
(110%) of the Fair Market Value on the date of grant. The Exercise
Price in the case of any Non-statutory Stock Option shall not be less
than eighty-five percent (85%) of the Fair Market Value on the date
of grant.
7.4 Medium and Time of Payment. The Purchase Price shall be payable
in full in United States dollars upon the exercise of the option;
provided, however, that if the applicable Stock Option Agreement so
provides that Purchase Price may be paid (i) by the surrender of
Shares in good form for transfer, owned by the Participant and having
a Fair Market Value on the date of exercise equal to the Purchase
Price, or in any combination of cash and Shares, as long as the sum
of the cash so paid and the Fair Market Value of the Shares so
surrendered equal the Purchase Price, ii) by cancellation of
indebtedness owned by the Corporation to the Participant, (iii) with
<PAGE>
a full recourse promissory note executed by the Participant, or (iv)
any combination of the foregoing. The interest rate and other terms
and conditions of such note shall be determined by the Committee.
The Committee may require that the Participant pledge his or her
Shares to the Corporation for the purpose of securing the payment of
such note. In no event shall the stock certificates representing
such Shares be released to the Participant until such note shall be
paid in full.
7.5 Term and Nontransferability of Option. Each option shall state
the time or times which all or part thereof becomes exercisable.
No option shall be exercisable after the expiration of ten (10) years
from the date it was granted, and no Option granted to a Participant
described in Section 5.2 hereof shall be exercisable after the
expiration of five (5) years from the date it was granted. During
the lifetime of the Participant, the Option shall be exercisable only
by the Participant and shall not be assignable or transferable. In
the event of the Participant's death, the Option shall not be
transferable by the Participant other than by will or the laws of
descent and distribution.
7.6 Modification, Extension and Renewal of Option. Within the
limitations of the Plan, the Committee may modify, extend or renew
outstanding Options or accept the cancellation of outstanding Options
(to the extent no previously exercised) for the granting of new
Options in substitution therefor. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the
Participant, alter or impair any rights or obligations under any
Option previously granted.
7.7 Limitation on Grant of Incentive Stock Options. In the case of
Incentive Stock Options granted hereunder, the aggregate Fair Market
value (determined as of the date of the grant thereof) of the Shares
with respect to which Incentive Stock Options become exercisable by
any Participant for the first time during any calendar year (under
this Plan and all other plans maintained by the Corporation, its
parent or its Subsidiaries) shall not exceed One Hundred Thousand
Dollars ($100,000). The Board or Committee may, however, with the
Participant's consent authorize an amendment to the Incentive Stock
option which renders it a Non-statutory Stock Option.
7.8 Other Provisions. The Stock Option Agreements authorized under
the Plan may contain such other provisions not inconsistent with the
terms of the Plan (including, without limitation, restrictions
upon the exercise of the Option) as the Committee shall deem
advisable.
7.9 Specific Awards Approved by the Shareholders. Subject to the
approval by the vote of the shareholders and the Board of Directors
<PAGE>
on December 30, 1994, the individuals whose names are set forth in
Exhibit "A", a copy of which is attached hereto and incorporated
herein by this reference, shall be deemed granted Non-statutory Stock
Options as of the Effective Date, in the amounts and for the amount
indicated opposite their respective names, and in accordance with the
vesting schedule set forth therein, all in accordance with the
provisions set forth in this Article VII of the Plan. The provisions
of this Section 7.9 shall not be amended more than once every six (6)
months, other than to comport with changes in the Internal Revenue
Code, the Employee Retirement Income Security Act, or the rules
thereunder, and are intended to be construed in accordance with the
provisions pertaining to "formula awards" under Paragraph (c) (2)
(ii) of Rule 16b-3.
VIII. RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND BENEFICIARIES
8.1 Employee Status. Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under the Plan
to an Eligible Employee or to Eligible Employees generally.
8.2 No Employment Contract. Nothing contained in the Plan (or in
the Award Agreements or in any other documents related to the Plan or
to Awards) shall confer upon any Eligible Employee or any participant
any right to continue in the employee of the Corporation or
constitute any contract or agreement of employment, or interfere in
any way with the right of the Corporation to reduce such person's
compensation or to terminate the employment of such Eligible Employee
or participant, with or without cause, but nothing contained in the
Plan or any document related thereto shall affect any other
contractual right of any Eligible Employee or Participant. Nothing
contained in the Plan (in the Award Agreements or in any other
documents related to the Plan or the Awards) shall confer upon any
director of the Corporation any right to continue as a director of
the Corporation.
8.3 No Transferability. Awards may be exercised only by, and
amounts payable or Shares issuable pursuant to an Award shall be paid
only to or registered only in the name of, the Participant or, in the
event of the Participant's death, to the Participant's Beneficiary
or, in the event of the Participant's Disability, to the
Participant's Personal Representative or, if there is none, to the
Participant. Other than by will or the laws of descent and
distribution, no right or benefit under the Plan or any Awards,
including, without limitation, any Option or share of Restricted
Stock that has not vested, shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge and any such attempted action shall be void and
no such right or benefit shall be in any manner, liable for, or
subject to, debts, contract, liabilities, engagements or torts of any
Eligible Employee, participant or Beneficiary, in any case except as
may otherwise be expressly required by applicable law. The Board or
<PAGE>
the Committee shall disregard any attempt at transfer, assignment or
other alienation prohibited by the preceding sentence and shall pay
or deliver such cash or Shares of Common Stock in accordance with the
provisions of the Plan. Notwithstanding the foregoing, the Board or
the Committee may authorize exercise by or transfers or payments to a
third party in a specific case or more generally; provided, however,
with respect to any option or similar right (including any stock
appreciation right) such discretion may only be exercised to the
extent that applicable rules under Section 16 of the Exchange Act
would so permit without disqualifying the Plan from certain benefits
thereunder.
8.4 Plan Not Funded. No Participant, Beneficiary or other person
shall have any right, title or interest in any fund or in any
specific asset (including Shares of Common Stock) of the Corporation
by reason of any Award granted hereunder. There shall be no funding
of any benefits which may become payable hereunder. Neither the
provisions of the Plan (or of any documents related hereto), nor the
creation or adoption of the plan, nor any action taken pursuant to
the provisions of the Plan shall create, or be construed to create, a
trust of any kind or a fiduciary relationship between the Corporation
and any Participant, Beneficiary. To the extent that a Participant,
a Beneficiary or other person acquires a right to receive an Award
hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Corporation. Awards payable under
the Plan shall be paid in Shares of Common Stock or from the general
assets of the Corporation, and no special or separate fund or deposit
shall be established and no segregation of assets or Shares shall be
made to assure payment of such Awards.
8.5 Adjustment Upon Recapitalizations and Corporate Changes. If the
outstanding Shares of Common Stock are changed into or exchanged for
cash or a different number or kind of Shares of securities of the
Corporation, or if the outstanding Shares of the Common Stock are
increased, decreased, exchanged for, or otherwise changed, or if
additional Shares or new or different Shares or securities are
distributed with respect to the outstanding Shares of the Common
Stock through a reorganization or merger in which the corporation is
the surviving entity or through a combination, consolidation,
recapitalization, reclassification, stock split, stock dividend,
reverse stock split, stock consolidation or other capital change or
adjustment, and appropriate adjustment shall be made in the number
and kind of Shares of other consideration that is subject to or may
be delivered under the Plan and pursuant to outstanding Awards. A
corresponding adjustment to the consideration payable with respect to
Awards granted prior to any such change and to the price, if any, to
be paid in connection with Restrict Stock Awards shall also . be made
as appropriate. Corresponding adjustments shall be made with respect
to Stock Appreciation Rights related to Options to which they are
<PAGE>
related. In addition, the Board or the Committee may grant such
additional rights in the foregoing circumstances as the Board or the
Committee deems to be in the best interest of any Participant and the
Corporation in order to preserve for the Participant the benefits of
an Award.
8.6 Termination of Employment, Except by Death, Disability or
Retirement. If a Participant ceases to be an Employee for any reason
other than his or her Death, Disability or Retirement, such
Participant shall have the right, subject to the restrictions of
Section 8.3 above, to exercise any Award at any time within three (3)
months after termination of employment, but only to the extent that,
at the date of termination of employment, the Participant's right to
exercise such Award had accrued pursuant to the terms of the
applicable agreement and had not previously been exercised; provided,
however, that if the Participant was terminated for cause (as defined
in the applicable agreement) any Award not exercised in full prior to
such termination shall be canceled. For this purpose, the employment
relationship shall be treated as continuing intact while the
Participant is on military leave, sick leave or other bona fide leave
of absence (to be determined in the sole discretion of the Board or
the Committee). The foregoing notwithstanding, in the case of an
Incentive Stock option, employment shall not be deemed to continue
beyond the ninetieth (90th) day after the Participant's reemployment
rights are guaranteed by statute or by contract.
8.7 Death of Participant. If a Participant dies while an Employee,
or after ceasing to be an Employee but during the period while he or
she could have exercised the Award under this Section 8.7, and has
not fully exercised the Award, then the Award may be exercised in
full at any time within twelve (12) months after the Participant's
death (but not later than the date of termination fixed in the
applicable agreement), by the executors or administrators of his or
her estate or by any persons or persons who have acquired the Award
directly from the Participant by bequest or inheritance, but only to
the extent that, at the date of death, the Participant's right to
exercise such Award had accrued and had not been forfeited pursuant
to the terms of the applicable agreement and had not previously been
exercised.
8.8 Disability of Participant. If a Participant ceases to be an
Employee by reason of disability, such Participant shall have the
right to exercise the Award at any time within twelve (12) months
after termination of employment (but not later than the termination
date fixed in the applicable agreement), but only to the extent that,
at the date of termination of employment, the Participant's right to
exercise such Award had accrued pursuant to the terms of the
applicable agreement and had not previously been exercise.
<PAGE>
8.9 Retirement of Participant. If a Participant ceases to be
Employee by reason of Retirement, such Participant shall have the
right to exercise the Award at any time within three (3) months after
termination of employment (but not later than the termination date
fixed in the applicable agreement), but only to the extent that, at
the date of termination of employment, the participant's right to
exercise such Award had accrued pursuant to the terms of the
applicable agreement and had not previously been exercised.
8.10 Rights as a Stockholder. A participant, or a transferee of a
Participant, shall have no rights as a stockholder with respect to
any Shares covered by his or her Award until the date of the issuance
of a stock certificate for such Shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities
or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is issued,
except as provided in Section 8.5 hereof.
8.11 Deferral of Payments. The Board or the Committee may approve
the deferral of any payments that may become due under the Plan. Such
deferrals shall be subject to any conditions, restrictions or
requirements as the Board or the Committee may determine.
IX. MISCELLANEOUS
9.1 Termination, Suspension and Amendment. The Board or the
Committee may, at any time, suspend, amend, modify or terminate the
Plan (or any part thereof) and may, with the consent of a
Participant, authorize such modifications of the terms and conditions
of such Participant's Award as it shall deem advisable; provided
that, except as permitted under the provisions of Section 8.5 hereof,
no amendment or modification of the Plan may be adopted without
approval by a majority of the Shares of the Common Stock represented
(in person or by proxy) at a meeting of stockholders at which a
quorum is present and entitled to vote thereat, if such amendment or
modification would:
(i) materially increase the benefits accruing to Participants under
the Plan within the meaning of Rule 16b-3 under the Exchange Act or
any successor provision;
(ii) materially increase the aggregate number of Shares which may be
delivered pursuant to Awards granted under the Plan; or
(iii) materially modify the requirements of eligibility of
participation in the Plan.
Neither adoption of the Plan nor the provisions hereof shall limit
the authority of the Board to adopt other plans or to authorize other
payments of compensation and benefits under applicable law. No
<PAGE>
Awards under the Plan may be granted or amended during any suspension
of the Plan or after its termination. The amendment, suspension or
termination of the Plan shall not, without the consent of the
Participant, alter or impair any rights or obligations pertaining to
any Awards granted under the plan prior to such amendment, suspension
or termination.
9.2 No Fractional Shares. No Award or installment thereof shall be
exercisable except in respect of whole shares, and fractional share
interests shall be disregarded.
9.3 Tax Withholding. As required by law, federal, state or local
taxes that are subject to the withholding of tax at the source shall
be withheld by the Corporation as necessary to satisfy such
requirements. The Corporation is entitled to require deduction from
other compensation payable to each Participant or, in the
alternative: (i) the Corporation may require the Participant to
advance such sums; or (ii) if a Participant elects, the Corporation
may withhold (or require the return of) Shares having the Fair Market
Value equal to the sums required to be withheld. If the Participant
elects to advance such sums directly, written notice of that election
shall be delivered prior to such exercise and, whether pursuant to
such election or pursuant to a requirement imposed by the
Corporation, payment in cash or by check of such sums for taxes shall
be delivered with ten (10) days after the exercise date. If the
Participant elects to have the Corporation withhold Shares (or be
entitled to the return of Shares) having a Fair Market Value equal to
the sums required to. be withheld, the value of the Shares to be
withheld (or returned) will be equal to the Fair Market Value on the
date the amount of tax to be withheld (or subject to return) is to be
determined (the "Tax Date") .
9.4 Limitations on the Corporation's Obligations. The Corporation
shall not be obligated to issue Shares and/or distribute cash to the
participant upon any Award exercise until such payment has been
received or Shares have been withheld, unless withholding (or offset
against a cash payment) as of or prior to the exercise date is
sufficient to cover all such sums due or which may be due with
respect to such exercise. In addition, the Board or the Committee
may grant to a Participant a cash bonus in any amount required by
federal, state or local tax law to be withheld with respect to an
Award.
9.5 Compliance with Laws. The Plan, the granting of Awards under
the Plan, the Stock Option Agreements and Stock Purchase Agreements
and the delivery of Options, Shares and Awards (and/or the payment of
money or Common Stock) pursuant thereto and the extension of any
loans hereunder are subject to such additional requirements as the
Board or the Committee may impose to assure or facilitate compliance
with all applicable federal and state laws, rules and regulations
<PAGE>
(including, without limitation, securities laws and margin
requirements) and to such approvals by any regulatory or governmental
agency which may be necessary or advisable in connection therewith.
In connection with the administration of the Plan or the grant of any
Award, the Board or the Committee may impose such further limitations
or conditions as in its option may be required or advisable to
satisfy, or secure the benefits of, applicable regulatory
requirements (including those rules promulgated under Section 16 of
the Exchange Act or those rules that facilitate exemption from or
compliance with the Securities Act or the Exchange Act), the
requirements of any stock exchange upon 'which such Shares or Shares
of the same class are then listed, and any blue sky or other
securities laws applicable to such shares.
9.6 Governing Laws. The Plan and all Awards granted under the Plan
and the documents evidencing Awards shall be governed by, and
construed in accordance with, the laws of the State of Colorado.
9.7 Securities Law Requirements.
(a) Legality of Issuance. The issuance of any Shares upon the
exercise of any Option and the grant of any Option shall be
contingent upon the following:
(i) In the event the Corporation registers any of its Shares, the
Corporation and the Participant shall take all action required at the
Corporation's expense to register the Shares under the Securities Act
of 1933, as amended (the "Securities Act") , and to qualify the
Option and the Shares under any and all applicable state securities
or "blue sky" laws or regulations, or to perfect an exemption from
the respective registration and qualification requirements thereof;
(ii) any applicable listing requirement of any stock exchange on
which the Common Stock is listed shall have been satisfied; and
(iii) any other applicable provision of state or federal law shall
have been satisfied.
(b) Restrictions on Transfer. Regardless of whether the offering
and sale of Shares under the Plan has been registered under the
Securities Act or has been registered or qualified under the
securities laws of any state, the Corporation may impose restrictions
on the sale, pledge or other transfer of such Shares (including the
placement of appropriate legends on stock certificates) if, in the
judgment of the Corporation and its counsel, such restrictions are
necessary or desirable in order to achieve compliance with the
provisions of the Securities Act, the securities laws of any state or
any other law. In the event that the sale of Shares under the Plan
<PAGE>
is not registered under the Securities Act but an exemption is
available which required an investment representation or other
representation each Participant shall be required to represent that
such Shares are being acquired for investment, and not with a view to
the sale or distribution thereof, and to make such other
representations as are deemed necessary or appropriate by the
Corporation and its counsel. Any determination by the Corporation
and its counsel in connection with any of the matters set forth in
this Section 9.8(b) shall be conclusive and binding on all persons.
Stock certificates evidencing Shares acquired under the Plan pursuant
to an unregistered transaction shall bear the following restrictive
legend and such other restrictive legends as are required or deemed
advisable under the provisions of any applicable law:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT").
ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT IS IN EFFECT AS TO SUCH TRANSFER
OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH REGISTRATION IS
UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE SECURITIES
ACT."
(c) Registration or Qualification of Securities. The Corporation
may, but shall not be obligated to register or qualify the issuance
of Awards and/or the sale of Shares under the Securities Act or any
other applicable law. The Corporation shall not be obligated to take
any affirmative action in order to cause the issuance of Awards or
the sale of Shares under the Plan to comply with any law.
(d) Exchange of Certificates. If, in the opinion of the Corporation
and its counsel, any legend placed on a stock certificate
representing Shares issued under the Plan is no longer required, the
holder of such certificate shall be entitled to exchange such
certificate for a certificate representing the same number of Shares
but lacking such legend.
9.8 Execution. To record the adoption of the Plan in the form set
forth above by the Board effective as of July 26, 1995, the
Corporation has caused this Plan to be executed in the name and on
behalf of the Corporation where provided below by an officer of the
Corporation thereunto duly authorized.
DCI Telecommunications, Inc.
By: Joseph J. Murphy
---------------------------------------
Joseph J. Murphy, President
ATTEST:
Philip Baroff
- --------------------------------
Philip Baroff, Secretary
<PAGE>
EXHIBIT 10.2
------------
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of February 1,
1995 by and between DCI Telecommunications, Inc., a Colorado
corporation having its principal place of business at 303 Linwood
Avenue, Fairfield, Connecticut 06430 (the "Employer"), and Joseph J.
Murphy, an individual having a mailing address of 41 Riders Lane,
Fairfield, Connecticut 06430 (the "Employee").
W I T N E S S E T H:
WHEREAS the Employer is engaged in the promotion, marketing and
sales of telecommunications-related merchandise; and
WHEREAS the Employee possesses sales, management and marketing
experience related to the type of business and activities in which
the Employer is now engaged; and
WHEREAS the Employee desires to be employed by the Employer and
the Employer desires to employ the Employee, upon the terms and
conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the covenants and promises
contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Employer and the Employee agree as follows:
1. Employment. The Employer hereby employs the Employee and the
Employee hereby accepts employment from the Employer, upon the terms
and conditions set forth in this Agreement.
2. Term. The term of this Agreement shall commence on February
1, 1995, and shall end on February 1, 2001. This Agreement shall be
renewed automatically on February 1 of each year thereafter for one (1)
additional year term, unless and until terminated as provided in
Section 10 hereof.
3. Scope of Duties. During the term of this Agreement, the
Employee shall be employed as the President and Chief Executive Officer
of the Employer. The Employee shall have general control of the
responsibility for the day to day operations of the Employer relating
to the general administration of the business, financial matters,
development of new business and sales of products of the business.
Such control and responsibility shall include, without limitation, the
power to hire and discharge sales, accounting, and administrative
employees who are not Officers or Directors of the Employer, to
disburse funds, and to do all other acts necessary or appropriate to
operate the business of the Employer.
<PAGE>
4. Scope of Service. During the term of this Agreement, the
Employee shall devote substantially all of his attention, energies, and
best efforts to the business of the Employer, and shall perform all of
the duties that are required of him pursuant to the express terms of
this Agreement. During the term of this Agreement, the Employee shall
not, directly or indirectly, alone or as a member of any partnership,
firm, corporation, association or other entity, or as an officer,
director, employee or consultant of any corporation or other entity, be
engaged in or concerned with any other business activity, whether or
not such business activity is pursued for gain or profit or for other
pecuniary advantage which shall compete with the Employer in the
promotion, marketing and sales of telecommunications-related
merchandise. Employee will be allowed to continue to provide services
to Sigma Industries, Inc., and to serve on boards of directors of non-
profit organizations, engage in charitable activities and deliver
lectures which do not directly compete with, or directly benefit
competitors of the Employer. The foregoing shall not, however, be
construed as preventing the Employee from investing his personal assets
in such form or manner as will not require any services on his part in
the operation of affairs of the companies or enterprises in which such
investments are made. The Employee shall maintain his principal office
at the office of the Employer.
5. Compensation. As compensation for services rendered by the
Employee to the Employer, the Employer shall pay the Employee during
the term of this Agreement the following amounts:
(a) Base Salary.
(i) For the remainder of calendar year 1995 and until
December 31, 1995, the Employee shall receive a base salary equal
to One Hundred Thousand Dollars ($100,000.00) per annum, payable
in equal weekly installments ("Base Salary").
(ii) The amount of the Employee's Base Salary in all
subsequent years during the term of this Agreement, and renewals
thereof, will be increased on January 1 of each year. During the
term of this Agreement and all renewals thereof, the then, current
Base Salary shall be increased as of each January 1, beginning
January 1, 1996, by a rate equivalent to any percentage increase
in the Consumer Price Index for the twelve month period occurring
prior to the date of the scheduled change, plus five percent (5%).
As used in this section, the Consumer Price Index shall mean (i)
the "CONSUMER PRICE INDEX FOR URBAN WAGE EARNERS AND CLERICAL
WORKERS", currently published by the Bureau of Labor Statistics of
the United States Department of Labor for the Greater New York
Metropolitan Area on a bi-monthly basis, or (ii) if the
publication of the Consumer Price Index shall be discontinued,
and/or the Consumer Price Index is published more or less
frequently at the time any of the foregoing determinations are
made, the comparable index most clearly reflecting diminution of
the real value of the Base Salary and/or the publication periods
most comparable to those specified above. In the event of a
<PAGE>
change in the base for the Consumer Price Index, the numerator of
the fraction referred to above shall be appropriately adjusted to
reflect continued use of the base period in effect at the time of
its adoption for use hereunder. At the request of either party
hereto, the other from time to time shall execute an appropriate
instrument supplemental to this Agreement evidencing the then
current Base Salary payable by the employer hereunder.
(b) Stock Purchase Incentive.
In addition to the Base Salary, employer shall issue to
employee at the price of $.01 per share 700,000 registered shares
of the company
6. Withholdings. All compensation, including any incentive
bonus, paid to the Employee under this Agreement shall be subject to
applicable withholdings for federal, state, and local income taxes,
FICA, and all other applicable withholdings required by law.
7. Vacation. In each calendar year during the term hereof, the
Employee shall be entitled to an annual paid vacation of four (4)
weeks. Vacation shall be taken upon reasonable advance notice to the
Employer, and at such times not to interfere with the proper operation
of Employer's business or the Employee's responsibility under this
Agreement. Unused vacation shall be carried over from year to year,
and the Employee shall be entitled to the value of any unused vacation
time remaining upon the expiration or earlier termination of this
Agreement. Employee shall not request more than two (2) weeks vacation
consecutively, at one time.
8. Employee Benefits. During the term of this Agreement the
Employee shall be entitled to participate in, and to receive, any and
all benefit plans and bonuses for which he is now or hereafter
eligible, including, but not limited to, the following:
(a) Life insurance and disability, health, dental and welfare
plans of the Employer;
(b) Any and all retirement plans established by the Employer
pursuant to the terms of said plan, including, but not limited to,
Thrift Plans, ESOP's and 401(k) plans; and
(c) Any other benefits which officers or employees of the
Employer may be entitled to at any time during this Agreement.
9. Expenses.
(a) The Employer shall reimburse the Employee for all reasonable
expenses incurred by the Employee in connection with the rendering of
services under this Agreement including, without limitation, reasonable
<PAGE>
travel and entertainment, Employee's attorneys fees incurred in
preparation and review of this Agreement and reasonable legal fees in
any litigation or proceeding results in a settlement or judgment at
least partly in favor of the Employee.
(b) The Employer's obligation to reimburse the Employee for such
reasonable expenses is conditioned upon the employee submitting
itemized statements, bills, receipts, or other evidence of expenditure,
in a form reasonably satisfactory to the Employer. Reimbursement for
any authorized expenses shall be made by the Employer within thirty
(30) days after the Employer's receipt of such itemized statements,
bills, receipts, or other evidence of expenditure from the Employee.
10. Termination.
(a) Termination for cause. The Employer, acting through its
Board of Directors, may terminate this Agreement only for cause by
written notice to the Employee. For the purposes of this Agreement,
the term "cause" shall include only the following acts: (1) any
serious, willful act of infidelity or breach of any fiduciary duty owed
by the Employee to the Employer; or (2) any mental or physical
disability suffered by the Employee which makes it impossible for the
Employee to perform his duties under this Agreement for a period of one
hundred eighty (180) consecutive days; or (3) the Employee's failure,
not caused by physical or mental disability, to perform his duties and
responsibilities as required under the express terms of this Agreement.
(b) Voluntary termination by employee. This Agreement may be
terminated by the Employee with or without cause upon sixty (60) days
written notice to the Employer prior to the end of the then-effective
term of this Agreement, in which case such termination shall be
effective upon the expiration of the then-effective term of this
Agreement, as set forth in Section 2 hereof.
In the event that this Agreement is terminated by the Employee for
any of the following reasons (collectively, "Employee Cause"), the
Employee shall be entitled to Severance Benefits described in Section
11 below:
(i) The Employee is not reelected or appointed to his current
position, or the material reduction of the Employee's duties and
responsibilities;
(ii) The Employee is assigned to provide services to the Employer
outside of Fairfield County, Connecticut;
(iii) The Employer is liquidated, dissolved, consolidated, merged
or sold, or a controlling interest in the common stock of the Employer
is transferred from the current owner(s) thereof;
<PAGE>
(iv) The Employee's salary and/or benefits are reduced from those
set forth in Sections 5 and 9 hereof; or
(v) Any material breach of any other obligation of the Employer
hereunder.
(c) Physician statement. Prior to terminating the Employee by
reason of the existence of any condition of mental or physical
disability, as stated in paragraph (a) of this Section 11, the Employer
shall first obtain a written statement from an attending competent in
the area relating to Employee's illness or condition, stating that in
the physician or psychotherapist's professional opinion, the Employee
is unable to perform his duties and responsibilities in a manner
contemplated by this representative refuses or fails to consent to an
examination of the Employee for the purpose of obtaining the written
statement required herein, then the necessity of obtaining such
statement shall be deemed waived by the Employee.
(d) Termination upon death of employee. This Agreement shall
terminate upon the Employee's death. Upon such termination Employee's
estate shall be entitled to receive Base Salary plus any adjustments
due to the Employee to the last day of the calendar month in which
death occurs and any unpaid incentive bonus for that month which may
become due by reason of collection after Employee's death.
11. Severance. In the event that this Agreement is either (i)
terminated by the Employer for any reason other than the willful
misconduct of the Employee, or (ii) terminated by the Employee for
Employee Cause, then the Employer shall pay Employee the following:
(a) A severance bonus from the general funds of the Employer,
consisting of:
(i) The present value of the Employee's salary, less amounts the
Employee would have paid for under the benefits set forth in
Section 8 hereof for the greater of the unexpired term of
this Agreement or two (2) years;
(ii) At the Employee's election, either the payment of the present
value as a lump sum, or payment in any form and manner
provided for in the Employer's retirement plan, of the
pension benefits which the Employee would have received at
the end of the term hereof, calculated on the assumptions of
full vesting and compensation for the unexpired portion of
the term hereof at the rate in effect at the time of
termination;
(iii) The present value of payments the Employer would have made
during the unexpired portion of the term hereof to any ESOP
and Thrift Plan for the Employee; and
<PAGE>
(iv) A termination payment equal to ten percent (10%) of the gross
amount of any billings in excess of three million Dollars
invoiced and collected in the previous year.
The severance bonus due under this paragraph 11(a) shall be paid
to the Employee in a single lump sum within thirty (30) days after the
termination of the Employee;
(b) The Employee's then-effective Base Salary for a period of six
(6) months or until Employee obtains new employment, to be paid to the
Employee on the dates when such salary would have been payable had such
employment not been terminated; and
(c) reasonable expenses pursuant to paragraph 9 of this Agreement
for a period of six (6) months for health and life insurance in the
amounts and coverages existing at the time of termination for a period
of one year or until Employee obtains new coverage in the course of new
employment.
12. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may
not assign any of his rights or delegate any of his duties or
obligations under this Agreement.
13. Entire Agreement. This Agreement contains the entire
agreement of the parties regarding the subject matter hereof. This
Agreement may not be amended or modified except by a writing executed
by both the Employer and the Employee.
14. Severability. All agreements and covenants contained in this
Agreement are severable, and in the event any of them are held to be
invalid, then this Agreement shall be interpreted as if such invalid
agreements or covenants were not contained herein.
15. Governing Law. This Agreement shall be governed, construed,
and interpreted by and in accordance with the laws of the Sate of
Connecticut.
16. Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original, and all
collectively constituting the same instrument.
17. Notices. All notices required or permitted under this
Agreement shall be in writing and shall de deemed "given" when
personally delivered or when mailed registered or certified mail,
postage prepaid, to the respective addresses of the parties stated in
the preamble to this Agreement.
18. Binding Agreement. The provisions, covenants and agreement
<PAGE>
contained herein will inure to the benefit of, and be binding upon, the
parties hereto and the respective heirs, executors, administrators,
successors, legal representatives and assigns.
19. Waiver of Breach. The waiver by either party of a breach or
violation of any provisions of this Agreement shall not operate as, or
be construed to be, a waiver of any subsequent breach thereof.
IN WITNESS WHEREOF, the parties have executed this employment
agreement on the day and year first above written.
DCI Telecommunications, Inc.
(Employer)
Grace P. Murphy By: Larry Shatsoff
- --------------- ------------------------
Witness Larry Shatsoff, its duly
authorized Vice President
Grace P. Murphy Joseph J. Murphy
- ---------------- ----------------------------
Witness Joseph J. Murphy, Jr.
(Employee)
<PAGE>
EXHIBIT 10.3
------------
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of February 1,
1995 by and between DCI Telecommunications, Inc., a Colorado
corporation having its principal place of business at 303 Linwood
Avenue, Fairfield, Connecticut 06430 (the "Employer"), and Larry
Shatsoff, an individual having a mailing address of 39 Hansen Farms
Road, North Haven, Connecticut 06473 (the "Employee").
W I T N E S S E T H:
WHEREAS the Employer is engaged in the promotion, marketing and
sales of telecommunications-related merchandise; and
WHEREAS the Employee possesses sales, management and marketing
experience related to the type of business and activities in which
the Employer is now engaged; and
WHEREAS the Employee desires to be employed by the Employer and
the Employer desires to employ the Employee, upon the terms and
conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the covenants and promises
contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Employer and the Employee agree as follows:
1. Employment. The Employer hereby employs the Employee and the
Employee hereby accepts employment from the Employer, upon the terms
and conditions set forth in this Agreement.
2. Term. The term of this Agreement shall commence on February
1, 1995, and shall end on February 1, 2001. This Agreement shall be
renewed automatically on February 1 of each year thereafter for one (1)
additional year term, unless and until terminated as provided in
Section 10 hereof.
3. Scope of Duties. During the term of this Agreement, the
Employee shall be employed as the Vice President of the Employer. The
Employee shall have general control of the responsibility for the day
to day operations of the Employer relating to the general
administration of the business, financial matters, development of new
business and sales of products of the business. Such control and
responsibility shall include, without limitation, the power to hire and
discharge sales, accounting, and administrative employees who are not
Officers or Directors of the Employer, to disburse funds, and to do all
other acts necessary or appropriate to operate the business of the
Employer.
4. Scope of Service. During the term of this Agreement, the
Employee shall devote substantially all of his attention, energies, and
best efforts to the business of the Employer, and shall perform all of
the duties that are required of him pursuant to the express terms of
this Agreement. During the term of this Agreement, the Employee shall
not, directly or indirectly, alone or as a member of any partnership,
firm, corporation, association or other entity, or as an officer,
director, employee or consultant of any corporation or other entity, be
engaged in or concerned with any other business activity, whether or
not such business activity is pursued for gain or profit or for other
pecuniary advantage which shall compete with the Employer in the
promotion, marketing and sales of telecommunications-related
merchandise. Employee will be allowed to continue to provide services
to Sigma Industries, Inc., and to serve on boards of directors of non-
profit organizations, engage in charitable activities and deliver
lectures which do not directly compete with, or directly benefit
competitors of the Employer. The foregoing shall not, however, be
construed as preventing the Employee from investing his personal assets
in such form or manner as will not require any services on his part in
the operation of affairs of the companies or enterprises in which such
investments are made. The Employee shall maintain his principal office
at the office of the Employer.
5. Compensation. As compensation for services rendered by the
Employee to the Employer, the Employer shall pay the Employee during
the term of this Agreement the following amounts:
(a) Base Salary.
(i) For the remainder of calendar year 1995 and until
December 31, 1995, the Employee shall receive a base salary equal
to Ninety Thousand Dollars ($90,000.00) per annum, payable in
equal weekly installments ("Base Salary").
(ii) The amount of the Employee's Base Salary in all
subsequent years during the term of this Agreement, and renewals
thereof, will be increased on January 1 of each year. During the
term of this Agreement and all renewals thereof, the then, current
Base Salary shall be increased as of each January 1, beginning
January 1, 1996, by a rate equivalent to any percentage increase
in the Consumer Price Index for the twelve month period occurring
prior to the date of the scheduled change, plus five percent (5%).
As used in this section, the Consumer Price Index shall mean (i)
the "CONSUMER PRICE INDEX FOR URBAN WAGE EARNERS AND CLERICAL
WORKERS", currently published by the Bureau of Labor Statistics of
the United States Department of Labor for the Greater New York
Metropolitan Area on a bi-monthly basis, or (ii) if the
publication of the Consumer Price Index shall be discontinued,
and/or the Consumer Price Index is published more or less
frequently at the time any of the foregoing determinations are
made, the comparable index most clearly reflecting diminution of
the real value of the Base Salary and/or the publication periods
most comparable to those specified above. In the event of a
change in the base for the Consumer Price Index, the numerator of
the fraction referred to above shall be appropriately adjusted to
reflect continued use of the base period in effect at the time of
its adoption for use hereunder. At the request of either party
hereto, the other from time to time shall execute an appropriate
instrument supplemental to this Agreement evidencing the then
current Base Salary payable by the employer hereunder.
(b) Stock Purchase Incentive.
In addition to the Base Salary, employer shall issue to
employee at the price of $.01 per share 60,000 registered shares
of the company
6. Withholdings. All compensation, including any incentive
bonus, paid to the Employee under this Agreement shall be subject to
applicable withholdings for federal, state, and local income taxes,
FICA, and all other applicable withholdings required by law.
7. Vacation. In each calendar year during the term hereof, the
Employee shall be entitled to an annual paid vacation of four (4)
weeks. Vacation shall be taken upon reasonable advance notice to the
Employer, and at such times not to interfere with the proper operation
of Employer's business or the Employee's responsibility under this
Agreement. Unused vacation shall be carried over from year to year,
and the Employee shall be entitled to the value of any unused vacation
time remaining upon the expiration or earlier termination of this
Agreement. Employee shall not request more than two (2) weeks vacation
consecutively, at one time.
8. Employee Benefits. During the term of this Agreement the
Employee shall be entitled to participate in, and to receive, any and
all benefit plans and bonuses for which he is now or hereafter
eligible, including, but not limited to, the following:
(a) Life insurance and disability, health, dental and welfare
plans of the Employer;
(b) Any and all retirement plans established by the Employer
pursuant to the terms of said plan, including, but not limited to,
Thrift Plans, ESOP's and 401(k) plans; and
(c) Any other benefits which officers or employees of the
Employer may be entitled to at any time during this Agreement.
9. Expenses.
(a) The Employer shall reimburse the Employee for all reasonable
expenses incurred by the Employee in connection with the rendering of
services under this Agreement including, without limitation, reasonable
travel and entertainment, Employee's attorneys fees incurred in
preparation and review of this Agreement and reasonable legal fees in
any litigation or proceeding results in a settlement or judgment at
least partly in favor of the Employee.
(b) The Employer's obligation to reimburse the Employee for such
reasonable expenses is conditioned upon the employee submitting
itemized statements, bills, receipts, or other evidence of expenditure,
in a form reasonably satisfactory to the Employer. Reimbursement for
any authorized expenses shall be made by the Employer within thirty
(30) days after the Employer's receipt of such itemized statements,
bills, receipts, or other evidence of expenditure from the Employee.
10. Termination.
(a) Termination for cause. The Employer, acting through its
Board of Directors, may terminate this Agreement only for cause by
written notice to the Employee. For the purposes of this Agreement,
the term "cause" shall include only the following acts: (1) any
serious, willful act of infidelity or breach of any fiduciary duty owed
by the Employee to the Employer; or (2) any mental or physical
disability suffered by the Employee which makes it impossible for the
Employee to perform his duties under this Agreement for a period of one
hundred eighty (180) consecutive days; or (3) the Employee's failure,
not caused by physical or mental disability, to perform his duties and
responsibilities as required under the express terms of this Agreement.
(b) Voluntary termination by employee. This Agreement may be
terminated by the Employee with or without cause upon sixty (60) days
written notice to the Employer prior to the end of the then-effective
term of this Agreement, in which case such termination shall be
effective upon the expiration of the then-effective term of this
Agreement, as set forth in Section 2 hereof.
In the event that this Agreement is terminated by the Employee for
any of the following reasons (collectively, "Employee Cause"), the
Employee shall be entitled to Severance Benefits described in Section
11 below:
(i) The Employee is not reelected or appointed to his current
position, or the material reduction of the Employee's duties and
responsibilities;
(ii) The Employee is assigned to provide services to the Employer
outside of Fairfield County, Connecticut;
(iii) The Employer is liquidated, dissolved, consolidated, merged
or sold, or a controlling interest in the common stock of the Employer
is transferred from the current owner(s) thereof;
(iv) The Employee's salary and/or benefits are reduced from those
set forth in Sections 5 and 9 hereof; or
(v) Any material breach of any other obligation of the Employer
hereunder.
(c) Physician statement. Prior to terminating the Employee by
reason of the existence of any condition of mental or physical
disability, as stated in paragraph (a) of this Section 11, the Employer
shall first obtain a written statement from an attending competent in
the area relating to Employee's illness or condition, stating that in
the physician or psychotherapist's professional opinion, the Employee
is unable to perform his duties and responsibilities in a manner
contemplated by this representative refuses or fails to consent to an
examination of the Employee for the purpose of obtaining the written
statement required herein, then the necessity of obtaining such
statement shall be deemed waived by the Employee.
(d) Termination upon death of employee. This Agreement shall
terminate upon the Employee's death. Upon such termination Employee's
estate shall be entitled to receive Base Salary plus any adjustments
due to the Employee to the last day of the calendar month in which
death occurs and any unpaid incentive bonus for that month which may
become due by reason of collection after Employee's death.
11. Severance. In the event that this Agreement is either (i)
terminated by the Employer for any reason other than the willful
misconduct of the Employee, or (ii) terminated by the Employee for
Employee Cause, then the Employer shall pay Employee the following:
(a) A severance bonus from the general funds of the Employer,
consisting of:
(i) The present value of the Employee's salary, less amounts the
Employee would have paid for under the benefits set forth in
Section 8 hereof for the greater of the unexpired term of
this Agreement or two (2) years;
(ii) At the Employee's election, either the payment of the present
value as a lump sum, or payment in any form and manner
provided for in the Employer's retirement plan, of the
pension benefits which the Employee would have received at
the end of the term hereof, calculated on the assumptions of
full vesting and compensation for the unexpired portion of
the term hereof at the rate in effect at the time of
termination;
(iii) The present value of payments the Employer would have made
during the unexpired portion of the term hereof to any ESOP
and Thrift Plan for the Employee; and
(iv) A termination payment equal to ten percent (10%) of the gross
amount of any billings in excess of three million Dollars
invoiced and collected in the previous year.
The severance bonus due under this paragraph 11(a) shall be paid
to the Employee in a single lump sum within thirty (30) days after the
termination of the Employee;
(b) The Employee's then-effective Base Salary for a period of six
(6) months or until Employee obtains new employment, to be paid to the
Employee on the dates when such salary would have been payable had such
employment not been terminated; and
(c) reasonable expenses pursuant to paragraph 9 of this Agreement
for a period of six (6) months for health and life insurance in the
amounts and coverages existing at the time of termination for a period
of one year or until Employee obtains new coverage in the course of new
employment.
12. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may
not assign any of his rights or delegate any of his duties or
obligations under this Agreement.
13. Entire Agreement. This Agreement contains the entire
agreement of the parties regarding the subject matter hereof. This
Agreement may not be amended or modified except by a writing executed
by both the Employer and the Employee.
14. Severability. All agreements and covenants contained in this
Agreement are severable, and in the event any of them are held to be
invalid, then this Agreement shall be interpreted as if such invalid
agreements or covenants were not contained herein.
15. Governing Law. This Agreement shall be governed, construed,
and interpreted by and in accordance with the laws of the Sate of
Connecticut.
16. Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original, and all
collectively constituting the same instrument.
17. Notices. All notices required or permitted under this
Agreement shall be in writing and shall de deemed "given" when
personally delivered or when mailed registered or certified mail,
postage prepaid, to the respective addresses of the parties stated in
the preamble to this Agreement.
18. Binding Agreement. The provisions, covenants and agreement
contained herein will inure to the benefit of, and be binding upon, the
parties hereto and the respective heirs, executors, administrators,
successors, legal representatives and assigns.
19. Waiver of Breach. The waiver by either party of a breach or
violation of any provisions of this Agreement shall not operate as, or
be construed to be, a waiver of any subsequent breach thereof.
IN WITNESS WHEREOF, the parties have executed this employment
agreement on the day and year first above written.
DCI Telecommunications, Inc.
(Employer)
Daniel J. Murphy By: Joseph J. Murphy
- ----------------------- ---------------------
Witness Joseph J. Murphy, its duly
authorized President
Russell B. Hintz Larry Shatsoff
- ---------------- ------------------
Witness Larry Shatsoff
(Employee)
<PAGE>
EXHIBIT 10.4
------------
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of February 1,
1995 by and between DCI Telecommunications, Inc., a Colorado
corporation having its principal place of business at 303 Linwood
Avenue, Fairfield, Connecticut 06430 (the "Employer"), and Daniel J.
Murphy, an individual having a mailing address of 70 Olcott Way,
Ridgefield, Connecticut 06877 (the "Employee").
W I T N E S S E T H:
WHEREAS the Employer is engaged in the promotion, marketing and
sales of telecommunications-related merchandise; and
WHEREAS the Employee possesses sales, management and marketing
experience related to the type of business and activities in which
the Employer is now engaged; and
WHEREAS the Employee desires to be employed by the Employer and
the Employer desires to employ the Employee, upon the terms and
conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the covenants and promises
contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Employer and the Employee agree as follows:
1. Employment. The Employer hereby employs the Employee and the
Employee hereby accepts employment from the Employer, upon the terms
and conditions set forth in this Agreement.
2. Term. The term of this Agreement shall commence on February
1, 1995, and shall end on February 1, 2001. This Agreement shall be
renewed automatically on February 1 of each year thereafter for one (1)
additional year term, unless and until terminated as provided in
Section 10 hereof.
3. Scope of Duties. During the term of this Agreement, the
Employee shall be employed as the Vice President of Corporate
Relations. The Employee shall have general control of the
responsibility for the day to day operations of the Employer relating
to the general administration of the business, financial matters,
development of new business and sales of products of the business.
Such control and responsibility shall include, without limitation, the
power to hire and discharge sales, accounting, and administrative
employees who are not Officers or Directors of the Employer, to
disburse funds, and to do all other acts necessary or appropriate to
operate the business of the Employer.
4. Scope of Service. During the term of this Agreement, the
Employee shall devote substantially all of his attention, energies, and
best efforts to the business of the Employer, and shall perform all of
the duties that are required of him pursuant to the express terms of
this Agreement. During the term of this Agreement, the Employee shall
not, directly or indirectly, alone or as a member of any partnership,
firm, corporation, association or other entity, or as an officer,
director, employee or consultant of any corporation or other entity, be
engaged in or concerned with any other business activity, whether or
not such business activity is pursued for gain or profit or for other
pecuniary advantage which shall compete with the Employer in the
promotion, marketing and sales of telecommunications-related
merchandise. Employee will be allowed to serve on boards of directors
of non-profit organizations, engage in charitable activities and
deliver lectures which do not directly compete with, or directly
benefit competitors of the Employer. The foregoing shall not, however,
be construed as preventing the Employee from investing his personal
assets in such form or manner as will not require any services on his
part in the operation of affairs of the companies or enterprises in
which such investments are made. The Employee shall maintain his
principal office at the office of the Employer.
5. Compensation. As compensation for services rendered by the
Employee to the Employer, the Employer shall pay the Employee during
the term of this Agreement the following amounts:
(a) Base Salary.
(i) For the remainder of calendar year 1995 and until
December 31, 1995, the Employee shall receive a base salary equal
to Thirty-two Thousand Dollars ($32,000.00) per annum, payable in
equal weekly installments ("Base Salary").
6. Withholdings. All compensation, including any incentive
bonus, paid to the Employee under this Agreement shall be subject to
applicable withholdings for federal, state, and local income taxes,
FICA, and all other applicable withholdings required by law.
7. Vacation. In each calendar year during the term hereof, the
Employee shall be entitled to an annual paid vacation of four (4)
weeks. Vacation shall be taken upon reasonable advance notice to the
Employer, and at such times not to interfere with the proper operation
of Employer's business or the Employee's responsibility under this
Agreement. Unused vacation shall be carried over from year to year,
and the Employee shall be entitled to the value of any unused vacation
time remaining upon the expiration or earlier termination of this
Agreement. Employee shall not request more than two (2) weeks vacation
consecutively, at one time.
8. Employee Benefits. During the term of this Agreement the
Employee shall be entitled to participate in, and to receive, any and
all benefit plans and bonuses for which he is now or hereafter
eligible, including, but not limited to, the following:
(a) Life insurance and disability, health, dental and welfare
plans of the Employer;
(b) Any and all retirement plans established by the Employer
pursuant to the terms of said plan, including, but not limited to,
Thrift Plans, ESOP's and 401(k) plans; and
(c) Any other benefits which officers or employees of the
Employer may be entitled to at any time during this Agreement.
9. Expenses.
(a) The Employer shall reimburse the Employee for all reasonable
expenses incurred by the Employee in connection with the rendering of
services under this Agreement including, without limitation, reasonable
travel and entertainment, Employee's attorneys fees incurred in
preparation and review of this Agreement and reasonable legal fees in
any litigation or proceeding results in a settlement or judgment at
least partly in favor of the Employee.
(b) The Employer's obligation to reimburse the Employee for such
reasonable expenses is conditioned upon the employee submitting
itemized statements, bills, receipts, or other evidence of expenditure,
in a form reasonably satisfactory to the Employer. Reimbursement for
any authorized expenses shall be made by the Employer within thirty
(30) days after the Employer's receipt of such itemized statements,
bills, receipts, or other evidence of expenditure from the Employee.
10. Termination.
(a) Termination for cause. The Employer, acting through its
Board of Directors, may terminate this Agreement only for cause by
written notice to the Employee. For the purposes of this Agreement,
the term "cause" shall include only the following acts: (1) any
serious, willful act of infidelity or breach of any fiduciary duty owed
by the Employee to the Employer; or (2) any mental or physical
disability suffered by the Employee which makes it impossible for the
Employee to perform his duties under this Agreement for a period of one
hundred eighty (180) consecutive days; or (3) the Employee's failure,
not caused by physical or mental disability, to perform his duties and
responsibilities as required under the express terms of this Agreement.
(b) Voluntary termination by employee. This Agreement may be
terminated by the Employee with or without cause upon sixty (60) days
written notice to the Employer prior to the end of the then-effective
term of this Agreement, in which case such termination shall be
effective upon the expiration of the then-effective term of this
Agreement, as set forth in Section 2 hereof.
In the event that this Agreement is terminated by the Employee for
any of the following reasons (collectively, "Employee Cause"), the
Employee shall be entitled to Severance Benefits described in Section
11 below:
(i) The Employee is not reelected or appointed to his current
position, or the material reduction of the Employee's duties and
responsibilities;
(ii) The Employee is assigned to provide services to the Employer
outside of Fairfield County, Connecticut;
(iii) The Employer is liquidated, dissolved, consolidated, merged
or sold, or a controlling interest in the common stock of the Employer
is transferred from the current owner(s) thereof;
(iv) The Employee's salary and/or benefits are reduced from those
set forth in Sections 5 and 8 hereof; or
(v) Any material breach of any other obligation of the Employer
hereunder.
(c) Physician statement. Prior to terminating the Employee by
reason of the existence of any condition of mental or physical
disability, as stated in paragraph (a) of this Section 10, the Employer
shall first obtain a written statement from an attending competent
in the area relating to Employee's illness or condition, stating that
in the physician or psychotherapist's professional opinion, the
Employee is unable to perform his duties and responsibilities in a
manner contemplated by this representative refuses or fails to consent
to an examination of the Employee for the purpose of obtaining the
written statement required herein, then the necessity of obtaining such
statement shall be deemed waived by the Employee.
(d) Termination upon death of employee. This Agreement shall
terminate upon the Employee's death. Upon such termination Employee's
estate shall be entitled to receive Base Salary plus any adjustments
due to the Employee to the last day of the calendar month in which
death occurs and any unpaid incentive bonus for that month which may
become due by reason of collection after Employee's death.
11. Severance. In the event that this Agreement is either (i)
terminated by the Employer for any reason other than the willful
misconduct of the Employee, or (ii) terminated by the Employee for
Employee Cause, then the Employer shall pay Employee the following:
(a) A severance bonus from the general funds of the Employer,
consisting of:
(i) The present value of the Employee's salary, less amounts the
Employee would have paid for under the benefits set forth in
Section 8 hereof or the greater of the unexpired term of this
Agreement or two (2) years;
(ii) At the Employee's election, either the payment of the present
value as a lump sum, or payment in any form and manner
provided for in the Employer's retirement plan, of the
pension benefits which the Employee would have received at
the end of the term hereof, calculated on the assumptions of
full vesting and compensation for the unexpired portion of
the term hereof at the rate in effect at the time of
termination;
(iii) The present value of payments the Employer would have made
during the unexpired portion of the term hereof to any ESOP
and Thrift Plan for the Employee; and
(iv) A termination payment equal to ten percent (10%) of the gross
amount of any billings in excess of three million Dollars
invoiced and collected in the previous year.
The severance bonus due under this paragraph 11(a) shall be paid
to the Employee in a single lump sum within thirty (30) days after the
termination of the Employee;
(b) The Employee's then-effective Base Salary for a period of six
(6) months or until Employee obtains new employment, to be paid to the
Employee on the dates when such salary would have been payable had such
employment not been terminated; and
(c) reasonable expenses pursuant to paragraph 8 of this Agreement
for a period of six (6) months for health and life insurance in the
amounts and coverages existing at the time of termination for a period
of one year or until Employee obtains new coverage in the course of new
employment.
12. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may
not assign any of his rights or delegate any of his duties or
obligations under this Agreement.
13. Entire Agreement. This Agreement contains the entire
agreement of the parties regarding the subject matter hereof. This
Agreement may not be amended or modified except by a writing executed
by both the Employer and the Employee.
14. Severability. All agreements and covenants contained in this
Agreement are severable, and in the event any of them are held to be
invalid, then this Agreement shall be interpreted as if such invalid
agreements or covenants were not contained herein.
15. Governing Law. This Agreement shall be governed, construed,
and interpreted by and in accordance with the laws of the Sate of
Connecticut.
16. Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original, and all
collectively constituting the same instrument.
17. Notices. All notices required or permitted under this
Agreement shall be in writing and shall de deemed "given" when
personally delivered or when mailed registered or certified mail,
postage prepaid, to the respective addresses of the parties stated in
the preamble to this Agreement.
18. Binding Agreement. The provisions, covenants and agreement
contained herein will inure to the benefit of, and be binding upon, the
parties hereto and the respective heirs, executors, administrators,
successors, legal representatives and assigns.
19. Waiver of Breach. The waiver by either party of a breach or
violation of any provisions of this Agreement shall not operate as, or
be construed to be, a waiver of any subsequent breach thereof.
IN WITNESS WHEREOF, the parties have executed this employment
agreement on the day and year first above written.
DCI Telecommunications, Inc.
(Employer)
Larry Shatsoff By: Joseph J. Murphy
- -------------- ------------------
Witness Joseph J. Murphy, its duly
authorized President
Heather D. Murphy Daniel J. Murphy
- ----------------- -----------------
Witness Daniel J. Murphy
(Employee)
<PAGE>
Exhibit 10.12
-------------
On July 17, 1997 the Company issued $450,000 of Series D non-voting
convertible preferred shares repayable on February 28, 1999. The
shares are convertible to common stock 60 days from the issue date at
the lesser of $2.00 per share or 75% of the average closing bid price
of the common stock for the 5 days prior to conversion. If the conversion
takes place 90 days after the issue date, the shares are convertible to
common at the lesser of $2.00 or 70% of the average closing bid price
of the common stock for the 5 days prior to conversion. In addition,
42,189 warrants exercisable at $2.50 for a period of three years from
the issue date were granted to these preferred shareholders.
DCI may repurchase the common stock issuable under the preferred stock
agreement described above within 90 days from date of isse at a price of
$2.67 per share or the average closing bid price of the common stock for
the 5 days prior to conversion.
<PAGE>
EXHIBIT 10.13
-------------
CERTIFICATE OF DESIGNATION
OF RIGHTS AND PREFERENCES OF THE
CLASS A PREFERRED SHARES SERIES C OF
DCI TELECOMMUNICATIONS INC.
PURSUANT TO THE GENERAL CORPORATION LAW
OF THE STATE OF COLORADO
We, being respectively the President and Acting
Secretary of DCI Telecommunications Inc. a corporation
organized and existing under and by virtue of the General
Corporation Law of the State of Colorado (hereinafter the
"Corporation"), DO HEREBY CERTIFY:
FIRST:
That pursuant to authority expressly granted and vested in
the Board of Directors of said Corporation by the provisions
of the Certificate of Incorporation, said Board of Directors
adopted the following resolution setting forth the
designations, powers, preferences and rights of its Class A
Preferred Shares - Series C:
RESOLVED: That the designations, powers, preferences and
rights of the Class A Preferred Shares - Series C be, and hereby are,
as set forth below:
1. Number of Shares of Class A Preferred Shares - Series C.
Of the 9,000,000 shares of authorized and unissued Class A
Preferred Shares, $.01 par value per share ("Preferred
Shares") of the Corporation, one thousand, five hundred
(1,500) shares shall be designated and known as "Series C
Convertible Preferred Shares."
2. Voting.
(a) Except as provided by law, by the provisions of
Subparagraph 2(b) below, holders of Series C Convertible
Preferred Shares shall not have the right to vote on any
matter affecting the Corporation.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series C
Convertible Preferred Shares so as to affect adversely the
Series C Convertible Preferred Shares, without the written
consent or affirmative vote of the holders of at least a
majority of the then outstanding shares of Series C
Convertible Preferred Shares to be affected by amendment,
alteration or repeal, given in writing or by vote at a
meeting, consenting or voting (as the case may be)
separately as a class. For this purpose, without limiting
the generality of the foregoing, the authorization or
issuance of any series of Preferred Shares with preference
or priority over or on a parity with the Series C
Convertible Preferred Shares as to the right to receive
either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall not be
deemed to affect adversely the designated class of Series C
Convertible Preferred Shares.
3. Not Used
4. Not Used
5. Liquidation.
In the event of a voluntary or involuntary dissolution,
liquidation, or winding up of the Corporation, the holders
of shares of Series C Convertible Preferred Shares shall be
entitled to receive out of the assets of the Corporation
legally available for distribution to holders of its capital
stock, before any payment or distribution shall be made to
holders of Common Stock or any other class of stock ranking
junior to Series C Convertible Preferred Shares, an amount
per Shares equal to $1,000 (the "Stated Value"). If upon
such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to
be distributed among the holders of Series C Convertible
Preferred Shares shall be insufficient to permit payment to
the holders of Series C Convertible Preferred Shares of the
amount distributable as aforesaid, then the entire assets of
the Corporation to be so distributed shall be distributed
ratably among the holders of Series C Convertible Preferred
Shares. Upon any such liquidation, dissolution or winding up
of the Corporation, after the holders of Series C
Convertible Preferred Shares shall have been paid in full
the amounts to which they shall be entitled, the remaining
net assets of the Corporation may be distributed to the
holders of stock ranking on liquidation junior to the Series
C Convertible Preferred Shares. Written notice of such
liquidation, dissolution or winding up, stating a payment
date, the amount of the liquidation payments and the place
where said liquidation payments shall be payable, shall be
given by mail, postage prepaid or by telex or facsimile to
non-U. S. residents, not less than 10 days prior to the
payment date stated therein, to the holders of record of
Series C Convertible Preferred Shares, such notice to be
addressed to each such holder at its address as shown by the
records of the Corporation. For purposes hereof, the Common
Stock shall rank on liquidation junior to the Series C
Convertible Preferred Shares.
6. Restrictions.
The Corporation will not modify the terms of the Series C
Convertible Preferred Shares at any time when shares of
Series C Convertible Preferred Shares are outstanding,
without the approval of the holders of at least a two-thirds
majority of the then outstanding shares of Series C
Convertible Preferred Shares given in writing or by vote at
a meeting, consenting or voting (as the case may be)
separately as a series, except where the vote or written
consent of the holders of a greater number of shares of the
Corporation is required by law or by the Corporation's
Certificate of Incorporation, as amended.
7. Optional Conversion.
If the Corporation has not issued a Redemption Notice and
subject to the Corporations right to redeem Series C
Convertibel Preferred shares, the holders of shares of
Series C Convertible Preferred Shares shall have the
following conversion rights:
(a) Right to Convert: Conversion Price. Subject to the
terms, conditions, and restrictions of this Paragraph 7, the
holder of any share or shares of Series C Convertible
Preferred Shares shall have the right to convert each such
share of Series C Convertible Preferred Shares (except that
upon any liquidation of the Corporation, the right of
conversion shall terminate at the close of business on the
business day fixed for payment of the amount distributable
on the Series C Convertible Preferred Shares) into a number
of shares of Common Stock equal to the Stated Value of such
share or shares of Series C Convertible Preferred Shares
divided by the lesser of (i) 75% of the average closing bid
price of the Common Stock (the "Average Closing Price"), as
reported by the Nasdaq SmallCap Market or NASDAQ Electronic
Bulletin Board during the period of five trading days
immediately preceding the date of conversion (the
"Conversion Date"), or after 90 days from the Closing Date,
70% of the average closing bid price of the Common Stock
(the "Average Closing Price"), as reported by the Nasdaq
SmallCap Market or NASDAQ Electronic Bulletin Board during
the period of five trading days immediately preceding the
date of conversion (the "Conversion Date"), or (ii) $2.75
(the "Maximum Conversion" price). The conversion price as
calculated pursuant to this clause shall be referred to as
the "Conversion Price".
(b) Conversion Dates. The holder of any share or shares of
Series C Convertible Preferred Shares may not convert any of
such shares for a period of at least fifty-nine (59)
calendar days following the Closing Date.
(c) Conversion Notice. The right of conversion shall be
exercised by the holder thereof by telecopying an executed
and completed written notice substantially in the form of
Exhibit B (the "Conversion Notice") to the Corporation that
the holder elects to convert a specified number of shares of
Series C Convertible Preferred Shares representing a
specified Stated Value thereof into Common Stock and by
delivering by express courier the original Conversion Notice
and a certificate or certificates of Preferred Shares being
converted to the Corporation at its principal office (or
such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the
holders of the Series C Convertible Preferred Shares),
together with a statement of the name or names (with
address) in which the certificate or certificates for shares
of Common Stock shall be issued. The business date
indicated on a Conversion Notice which is telecopied to and
received by the Corporation in accordance with the
provisions hereof shall be deemed a Conversion Date. The
Conversion Notice shall include therein the Stated Value of
shares of Series C Convertible Preferred Shares to be
converted, and a calculation (i) of the Average Closing
Price, (ii) the Conversion Price, and (iii) the number of
shares of Common Stock to be issued in connection with such
conversion. The Corporation shall have the right to review
the calculations included in the Conversion Notice, and
shall provide notice of any discrepancy or dispute therewith
within three business days of the receipt thereof.
(d) Issuance of Certificates - Time Conversion Effected.
Promptly, but in no event more than three business days,
after the receipt of the Conversion Notice referred to in
Subparagraph 7(c) and surrender of the certificate or
certificates for the share or shares of Series C Convertible
Preferred Shares to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to
the holder, registered in such name or names as such holder
may direct, a certificate or certificates for the number of
whole shares of Common Stock into which such shares of
Series C Convertible Preferred Shares are converted. To the
extent permitted by law, such conversion shall be deemed to
have been effected as of the close of business on the date
on which such Conversion Notice shall have been received by
the Corporation, and at such time the rights of the holder
of such share or shares of Series C Convertible Preferred
Shares shall cease, and the person or persons in whose name
or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the
shares represented thereby. Issuance of shares of Common
Stock issuable upon conversion which are requested to be
registered in a name other than that of the registered
holder shall be subject to compliance with all applicable
federal and state securities laws.
(e) Fractional Sharess: Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Series
C Convertible Preferred Shares into Common Stock. All
fractional shares shall be rounded down to the nearest whole
share. In case the number of shares of Series C Convertible
Preferred Shares represented by the certificate or
certificates surrendered pursuant to Subparagraph 7(a)
exceeds the number of shares converted, the Corporation
shall, upon such conversion, execute and deliver to the
holder, at the expense of the Corporation, a new certificate
or certificates for the number of shares of Series C
Convertible Preferred Shares represented by the certificate
or certificates surrendered which are not to be converted.
(f) Reorganization or Reclassification. If any capital
reorganization or
reclassification of the capital stock of the Corporation
shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of
a share or shares of Series C Convertible Preferred Shares
shall thereupon have the right to receive, upon the basis
and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore
receivable upon the conversion of such share or shares of
Series C Convertible Preferred Shares, such shares of stock,
securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares
of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such
conversion had such reorganization or reclassification not
taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the
conversion rights) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or
assets thereafter deliverable upon the exercise of such
conversion rights.
(g) Adjustments for Splits, Combinations, etc, The
Conversion Price and the number of shares of Common Stock
into which the Series C Convertible Preferred Shares shall
be convertible shall be adjusted for stock splits,
combinations, or other similar events. Additionally, an
adjustment will be made in the case of an exchange of Common
Stock, consolidation or merger of the Corporation with or
into another corporation or sale of all or substantially all
of the assets of the Corporation in order to enable the
holder of Series C Convertible Preferred Shares to acquire
the kind and the number of shares of stock or other
securities or property receivable in such event by a holder
of the Series C Convertible Preferred Shares of the number
of shares that might otherwise have been issued upon the
conversion of the Series C Convertible Preferred Shares. No
adjustment to the Conversion Price will be made for
dividends (other than stock dividends), if any, paid on the
Common Stock or for securities issued for fair value.
8. Not Used
9. Redemption of Series C Convertible Preferred Shares.
(a) Right to Redeem Series C Convertible Preferred Shares.
At any time, prior to receiving a Conversion Notice and from
time to time, the Corporation may, in its sole discretion,
but shall not be obligated to, redeem, in whole or in part,
the then issued and outstanding shares of Series C
Convertible Preferred Shares, by paying to the Holder an
amount (the "Redemption Price") for each share of Common
Stock that would be issuable to the Holder had the Holder
submitted a Conversion Notice to the Corporation on the date
that Corporation issues the Notice of Redemption referred to
in subparagraph 9(b). The Redemption Price prior to the
90th day after the Closing Date shall be the lesser of (a)
$3.67 or (b) the average closing bid price of the Common
Stock (the "Average Closing Price"), as reported by the
Nasdaq SmallCap Market or NASDAQ Electronic Bulletin Board
during the period of five trading days immediately preceding
the date of the issuance of the Notice of Redemption by the
Corporation.). The Redemption Price after the 90th day
after the Closing Date shall be the lesser of (a) $3.92 or
(b) the average closing bid price of the Common Stock (the
"Average Closing Price"), as reported by the Nasdaq SmallCap
Market or NASDAQ Electronic Bulletin Board during the period
of five trading days immediately preceding the date of the
issuance of the Notice of Redemption by the Corporation.
(b) Notice of Redemption. The Corporation shall provide each
holder of record of the Series C Convertible Preferred
Shares with written notice of redemption substantially in
the form of Exhibit B-1 (the "Redemption Notice") not less
than 5 business days prior to any date stipulated by the
Corporation for the redemption of the Series C Convertible
Preferred Shares (the "Redemption Date"). The Redemption
Notice shall contain (i) the Redemption Date, (ii) the
number of shares of Series C Convertible Preferred Shares to
be redeemed from the holder to whom the Redemption Notice is
delivered, (iii) instructions for surrender to the
Corporation of the certificate or certificates representing
the shares of Series C Convertible Preferred Shares to be
redeemed, and (iv) specification by the Corporation of the
number of shares of Series C Convertible Preferred Shares to
be redeemed as provided in this Paragraph 9, and (v) the
Redemption Price.
(c) Surrender of Certificates: Payment of Redemption Price.
On or before the Redemption Date, each holder of the shares
of Series C Convertible Preferred Shares to be redeemed
shall surrender the required certificate or certificates
representing such shares to the Corporation, in the manner
and at the place designated in the Redemption Notice, and
upon such surrender, the Redemption Price for such shares
shall be paid by the Corporation within 2 business days via
wire transfer to the order of the person whose name appears
on such certificate or certificates as the owner thereof,
and each such surrendered certificate shall be cancelled and
retired. If a certificate is surrendered and all the shares
evidenced thereby are not being redeemed, the Corporation
shall issue new certificates to be registered in the names
of the person(s) whose name(s) appear(s) as the owners on
the respective surrendered certificates and deliver such
certificate to such person(s).
10. Notices.
In case at any time:
(a) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other pro
rata distribution to the holders of its Common Stock; or
(b) the Corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of
stock of any class or other rights; or
(c) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or
a consolidation or merger of the Corporation with or into,
or a sale of all or substantially all its assets to, another
entity or entities; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation
shall give, by first class mail, postage prepaid, or by
telex or facsimile or by recognized overnight delivery
service to non-U.S. residents, addressed to each holder of
any shares of Series C Convertible Preferred Shares at the
address of such holder as shown on the books of the
Corporation, (i) at least 10 days' prior to written notice
of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend,
distribution or subscription rights or for determining
rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and (ii) in the case of any such
reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least 10
days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing
clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto
and (ii) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case
may be.
11. Shares to be Reserved.
The Corporation, upon the effective date of this Certificate
of Designation, has a sufficient number of shares of Common
Stock available to reserve for issuance upon the conversion
of all outstanding shares of Series C Convertible Preferred
Shares, pursuant to the terms and conditions set forth in
Paragraph 7. The Corporation will at all times reserve and
keep available out of its authorized Common Stock, solely
for the purpose of issuance upon the conversion of Series C
Convertible Preferred Shares as herein provided, such number
of shares of Common Stock as shall then be issuable upon the
conversion of all outstanding shares of Series C Convertible
Preferred Shares. The Corporation covenants that all shares
of Common Stock which shall be so issued shall be duly and
validly issued. The Corporation will take all such action as
may be so taken without violation of any applicable law or
regulation, or of any requirement of any national securities
exchange upon which the Common Stock may be listed. The
Corporation will not take any action which results in any
adjustment of the conversion rights if the total number of
shares of Common Stock issued and issuable after such action
upon conversion of the Series C Convertible Preferred Shares
would exceed the total number of shares of Common Stock then
authorized by the Corporation's Certificate of
Incorporation, as amended.
12. No Reissuance of Series C Convertible Preferred Shares.
Shares of Series C Convertible Preferred Shares which are
converted into shares of Common Stock as provided herein
shall not be reissued.
13. Issue Tax.
The issuance of certificates for shares of Common Stock upon
conversion of Series C Convertible Preferred Shares shall be
made without charge to the Holder for any United States
issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may
be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other
than that of the holder of the Series C Convertible
Preferred Shares which is being converted.
14. Closing of Books.
The Corporation will at no time close its transfer books
against the transfer of any Series C Convertible Preferred
Shares or of any shares of Common Stock issued or issuable
upon the conversion of any shares of Series C Convertible
Preferred Shares in any manner which interferes with the
timely conversion of such Series C Convertible Preferred
Shares, except as may otherwise be required to comply with
applicable securities laws.
15. Definition of Common Stock.
As used in this Certificate of Designation, the term "Common
Stock" shall mean and include the Corporation's authorized
Common Stock, as constituted on the date of filing of these
terms of the Series C Convertible Preferred Shares, and
shall also include any capital stock of any class of the
Corporation thereafter authorized which shall neither be
limited to a fixed sum or percentage of par value in respect
of the rights of the holders thereof to participate in
dividends nor entitled to a preference in the distribution
of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the corporation; provided that
the shares of Common Stock receivable upon conversion of
shares of Series C Convertible Preferred Shares shall
include only shares designated as Common Stock of the
Corporation on the date of filing of this instrument, or in
case of any reorganization, reclassification, or stock split
of the outstanding shares thereof, the stock, securities or
assets provided for in Paragraph 7 hereof.
16. Amendments.
No provision of these terms of the Series C Convertible
Preferred Shares may be amended, modified or waived without
the written consent or affirmative vote of the holders of at
least a majority of the then outstanding shares of Series C
Convertible Preferred Shares.
SECOND:
That said determination of the designation, preferences and
relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof,
relating to the Class A Preferred Shares - Series C was duly
made by the Board of Directors pursuant to the provisions of
the Corporation's Certificate of Incorporation and in
accordance with the provisions of the General Corporation
Law of the State of Colorado.
IN WITNESS HEREOF, this Certificate has been signed by
Joseph J. Murphy, President and Larry Shatsoff Acting
Secretary, this 18th day of February, 1997.
Joseph J. Murphy
- -----------------------------------
Joseph J. Murphy, President
Larry Shatsoff
- -----------------------------------
Larry Shatsoff, Acting Secretary
EXHIBIT B
CONVERSION NOTICE
_________________, 199_
DCI Telecommunications, Inc.
P.O. Box 320334
Fairfield, CT, USA
06432
Dear Sir or Madam:
The undersigned, ____________________(the
"Subscriber"), does hereby give notice that it wishes to
convert $____________ of Preferred Shares (the "Preferred
Shares") registered in the name of _______________,
held by it into shares of Common Stock, of DCI
Telecommunications, Inc., which have been reserved for
issuance upon such conversion.
Date of Conversion:
__________________________
(each original Preferred Share to be converted and this
Notice of Conversion must be received by the
Transfer Agent within three (3) business days
following the Conversion Date)
Conversion Price:
__________________________
Lesser of 75% of Applicable (5 day) Average
Closing Bid Price (or 70% after 90 days from Closing Date)
or $2.75
Stated Value of Preferred Shares to be Converted
by this Conversion:
__________________________
Number of shares of Common Stock to be received
by Subscriber:
__________________________
(Stated Value of converted Preferred Shares divided by
Conversion Price.
__________________________
Subscriber
EXHIBIT B-1
REDEMPTION NOTICE
_________________, 199_
DCI Telecommunications, Inc.
P.O. Box 320334
Fairfield, CT, USA
06432
Dear Sir or Madam:
DCI Telecommunications Inc. (the "Corporation"), does
hereby give notice that it wishes to redeem $____________ of
Preferred Shares (the "Preferred Shares") registered in the
name of _______________,
held by you.
Date of Redemption:
__________________________
Redemption Price:
__________________________
Face Value of Preferred Shares to be Redeemed
by this Redemption:
__________________________
Redemption amount payable to Subscriber:
__________________________
__________________________
DCI Telecommunications Inc.
<PAGE>
EXHIBIT 10.14
-------------
CERTIFICATE OF DESIGNATION
OF RIGHTS AND PREFERENCES OF THE
CLASS A PREFERRED SHARES SERIES D OF
DCI TELECOMMUNICATIONS INC.
PURSUANT TO THE GENERAL CORPORATION LAW
OF THE STATE OF COLORADO
We, being respectively the President and Acting
Secretary of DCI Telecommunications Inc. a corporation
organized and existing under and by virtue of the General
Corporation Law of the State of Colorado (hereinafter the
"Corporation"), DO HEREBY CERTIFY:
FIRST:
That pursuant to authority expressly granted and vested in
the Board of Directors of said Corporation by the provisions
of the Certificate of Incorporation, said Board of Directors
adopted the following resolution setting forth the
designations, powers, preferences and rights of its Class A
Preferred Shares - Series D:
RESOLVED: That the designations, powers, preferences and
rights of the Class A Preferred Shares - Series D be, and hereby are,
as set forth below:
1. Number of Shares of Class A Preferred Shares - Series D.
Of the 9,000,000 shares of authorized and unissued Class A
Preferred Shares, $.01 par value per share ("Preferred
Shares") of the Corporation, four hundred and fifty (450)
shares shall be designated and known as "Series D
Convertible Preferred Shares."
2. Voting.
(a) Except as provided by law, by the provisions of
Subparagraph 2(b) below, holders of Series D Convertible
Preferred Shares shall not have the right to vote on any
matter affecting the Corporation.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series D
Convertible Preferred Shares so as to affect adversely the
Series D Convertible Preferred Shares, without the written
consent or affirmative vote of the holders of at least a
majority of the then outstanding shares of Series D
Convertible Preferred Shares to be affected by amendment,
alteration or repeal, given in writing or by vote at a
meeting, consenting or voting (as the case may be)
separately as a class. For this purpose, without limiting
the generality of the foregoing, the authorization or
issuance of any series of Preferred Shares with preference
or priority over or on a parity with the Series D
Convertible Preferred Shares as to the right to receive
either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall not be
deemed to affect adversely the designated class of Series D
Convertible Preferred Shares.
3. Not Used
4. Not Used
5. Liquidation.
In the event of a voluntary or involuntary dissolution,
liquidation, or winding up of the Corporation, the holders
of shares of Series D Convertible Preferred Shares shall be
entitled to receive out of the assets of the Corporation
legally available for distribution to holders of its capital
stock, before any payment or distribution shall be made to
holders of Common Stock or any other class of stock ranking
junior to Series D Convertible Preferred Shares, an amount
per Shares equal to $1,000 (the "Stated Value"). If upon
such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to
be distributed among the holders of Series D Convertible
Preferred Shares shall be insufficient to permit payment to
the holders of Series D Convertible Preferred Shares of the
amount distributable as aforesaid, then the entire assets of
the Corporation to be so distributed shall be distributed
ratably among the holders of Series D Convertible Preferred
Shares. Upon any such liquidation, dissolution or winding up
of the Corporation, after the holders of Series D
Convertible Preferred Shares shall have been paid in full
the amounts to which they shall be entitled, the remaining
net assets of the Corporation may be distributed to the
holders of stock ranking on liquidation junior to the Series
D Convertible Preferred Shares. Written notice of such
liquidation, dissolution or winding up, stating a payment
date, the amount of the liquidation payments and the place
where said liquidation payments shall be payable, shall be
given by mail, postage prepaid or by telex or facsimile to
non-U. S. residents, not less than 10 days prior to the
payment date stated therein, to the holders of record of
Series D Convertible Preferred Shares, such notice to be
addressed to each such holder at its address as shown by the
records of the Corporation. For purposes hereof, the Common
Stock shall rank on liquidation junior to the Series D
Convertible Preferred Shares.
6. Restrictions.
The Corporation will not modify the terms of the Series D
Convertible Preferred Shares at any time when shares of
Series D Convertible Preferred Shares are outstanding,
without the approval of the holders of at least a two-thirds
majority of the then outstanding shares of Series D
Convertible Preferred Shares given in writing or by vote at
a meeting, consenting or voting (as the case may be)
separately as a series, except where the vote or written
consent of the holders of a greater number of shares of the
Corporation is required by law or by the Corporation's
Certificate of Incorporation, as amended.
7. Optional Conversion.
If the Corporation has not issued a Redemption Notice and
subject to the Corporations right to redeem Series D
Convertibel Preferred shares, the holders of shares of
Series D Convertible Preferred Shares shall have the
following conversion rights:
(a) Right to Convert: Conversion Price. Subject to the
terms, conditions, and restrictions of this Paragraph 7, the
holder of any share or shares of Series D Convertible
Preferred Shares shall have the right to convert each such
share of Series D Convertible Preferred Shares (except that
upon any liquidation of the Corporation, the right of
conversion shall terminate at the close of business on the
business day fixed for payment of the amount distributable
on the Series D Convertible Preferred Shares) into a number
of shares of Common Stock equal to the Stated Value of such
share or shares of Series D Convertible Preferred Shares
divided by the lesser of (i) 75% of the average closing bid
price of the Common Stock (the "Average Closing Price"), as
reported by the Nasdaq SmallCap Market or NASDAQ Electronic
Bulletin Board during the period of five trading days
immediately preceding the date of conversion (the
"Conversion Date"), or after 90 days from the Closing Date,
70% of the average closing bid price of the Common Stock
(the "Average Closing Price"), as reported by the Nasdaq
SmallCap Market or NASDAQ Electronic Bulletin Board during
the period of five trading days immediately preceding the
date of conversion (the "Conversion Date"), or if the
registration of the Common Stock with the SEC is not
effective until after 90 days from the Closing Date, 65% of
the average closing bid price of the Common Stock (the
"Average Closing Price"), as reported by the Nasdaq SmallCap
Market or NASDAQ Electronic Bulletin Board during the period
of five trading days immediately preceding the date of
conversion (the "Conversion Date"), or (ii) $2.00 (the
"Maximum Conversion" price). The conversion price as
calculated pursuant to this clause shall be referred to as
the "Conversion Price".
(b) Conversion Dates. The holder of any share or shares of
Series D Convertible Preferred Shares may not convert any of
such shares for a period of at least fifty-nine (59)
calendar days following the Closing Date.
(c) Conversion Notice. The right of conversion shall be
exercised by the holder thereof by telecopying an executed
and completed written notice substantially in the form of
Exhibit B (the "Conversion Notice") to the Corporation that
the holder elects to convert a specified number of shares of
Series D Convertible Preferred Shares representing a
specified Stated Value thereof into Common Stock and by
delivering by express courier the original Conversion Notice
and a certificate or certificates of Preferred Shares being
converted to the Corporation at its principal office (or
such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the
holders of the Series D Convertible Preferred Shares),
together with a statement of the name or names (with
address) in which the certificate or certificates for shares
of Common Stock shall be issued. The business date
indicated on a Conversion Notice which is telecopied to and
received by the Corporation in accordance with the
provisions hereof shall be deemed a Conversion Date. The
Conversion Notice shall include therein the Stated Value of
shares of Series D Convertible Preferred Shares to be
converted, and a calculation (i) of the Average Closing
Price, (ii) the Conversion Price, and (iii) the number of
shares of Common Stock to be issued in connection with such
conversion. The Corporation shall have the right to review
the calculations included in the Conversion Notice, and
shall provide notice of any discrepancy or dispute therewith
within three business days of the receipt thereof.
(d) Issuance of Certificates - Time Conversion Effected.
Promptly, but in no event more than three business days,
after the receipt of the Conversion Notice referred to in
Subparagraph 7(c) and surrender of the certificate or
certificates for the share or shares of Series D Convertible
Preferred Shares to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to
the holder, registered in such name or names as such holder
may direct, a certificate or certificates for the number of
whole shares of Common Stock into which such shares of
Series D Convertible Preferred Shares are converted. To the
extent permitted by law, such conversion shall be deemed to
have been effected as of the close of business on the date
on which such Conversion Notice shall have been received by
the Corporation, and at such time the rights of the holder
of such share or shares of Series D Convertible Preferred
Shares shall cease, and the person or persons in whose name
or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the
shares represented thereby. Issuance of shares of Common
Stock issuable upon conversion which are requested to be
registered in a name other than that of the registered
holder shall be subject to compliance with all applicable
federal and state securities laws. If Common Stock is not
delivered to the holder within 5 business days after the
receipt of the Conversion Notice referred to in Subparagraph
7(c) and surrender of the certificate or certificates for
the share or shares of Series D Convertible Preferred Shares
being converted, the Corporation shall pay to the holder an
amount equal to 1 per cent of the purchase price of the
Convertible Preferred Shares being converted for each
business day from the above-mentioned fifth business day
until the day that said Common Stock is delivered. This
payment is due and payable on the first day of each calendar
month after the above-mentioned fifth business day for the
number of business days in the prior month that the Common
Stock has not been delivered beyond the fifth business day
from the Conversion Date.
(e) Fractional Shares: Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Series
D Convertible Preferred Shares into Common Stock. All
fractional shares shall be rounded down to the nearest whole
share. In case the number of shares of Series D Convertible
Preferred Shares represented by the certificate or
certificates surrendered pursuant to Subparagraph 7(a)
exceeds the number of shares converted, the Corporation
shall, upon such conversion, execute and deliver to the
holder, at the expense of the Corporation, a new certificate
or certificates for the number of shares of Series D
Convertible Preferred Shares represented by the certificate
or certificates surrendered which are not to be converted.
(f) Reorganization or Reclassification. If any capital
reorganization or
reclassification of the capital stock of the Corporation
shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of
a share or shares of Series D Convertible Preferred Shares
shall thereupon have the right to receive, upon the basis
and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore
receivable upon the conversion of such share or shares of
Series D Convertible Preferred Shares, such shares of stock,
securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares
of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such
conversion had such reorganization or reclassification not
taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the
conversion rights) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or
assets thereafter deliverable upon the exercise of such
conversion rights.
(g) Adjustments for Splits, Combinations, etc, The
Conversion Price and the number of shares of Common Stock
into which the Series D Convertible Preferred Shares shall
be convertible shall be adjusted for stock splits,
combinations, or other similar events. Additionally, an
adjustment will be made in the case of an exchange of Common
Stock, consolidation or merger of the Corporation with or
into another corporation or sale of all or substantially all
of the assets of the Corporation in order to enable the
holder of Series D Convertible Preferred Shares to acquire
the kind and the number of shares of stock or other
securities or property receivable in such event by a holder
of the Series D Convertible Preferred Shares of the number
of shares that might otherwise have been issued upon the
conversion of the Series D Convertible Preferred Shares. No
adjustment to the Conversion Price will be made for
dividends (other than stock dividends), if any, paid on the
Common Stock or for securities issued for fair value.
8. Not Used
9. Redemption of Series D Convertible Preferred Shares.
(a) Right to Redeem Series D Convertible Preferred Shares.
At any time, prior to receiving a Conversion Notice and from
time to time, the Corporation may, in its sole discretion,
but shall not be obligated to, redeem, in whole or in part,
the then issued and outstanding shares of Series D
Convertible Preferred Shares, by paying to the Holder an
amount (the "Redemption Price") for each share of Common
Stock that would be issuable to the Holder had the Holder
submitted a Conversion Notice to the Corporation on the date
that Corporation issues the Notice of Redemption referred to
in subparagraph 9(b). The Redemption Price prior to the
90th day after the Closing Date shall be the lesser of (a)
$2.67 or (b) the average closing bid price of the Common
Stock (the "Average Closing Price"), as reported by the
Nasdaq SmallCap Market or NASDAQ Electronic Bulletin Board
during the period of five trading days immediately preceding
the date of the issuance of the Notice of Redemption by the
Corporation.). The Redemption Price after the 90th day
after the Closing Date shall be the lesser of (a) $2.86 or
(b) the average closing bid price of the Common Stock (the
"Average Closing Price"), as reported by the Nasdaq SmallCap
Market or NASDAQ Electronic Bulletin Board during the period
of five trading days immediately preceding the date of the
issuance of the Notice of Redemption by the Corporation. In
the event that the registration of the Common Stock with the
SEC is not effective until after 90 days from the Closing
Date, the Redemption Price shall be the lesser of (a) $3.07
or (b) the average closing bid price of the Common Stock
(the "Average Closing Price"), as reported by the Nasdaq
SmallCap Market or NASDAQ Electronic Bulletin Board during
the period of five trading days immediately preceding the
date of the issuance of the Notice of Redemption by the
Corporation.
(b) Notice of Redemption. The Corporation shall provide each
holder of record of the Series D Convertible Preferred
Shares with written notice of redemption substantially in
the form of Exhibit B-1 (the "Redemption Notice") not less
than 5 business days prior to any date stipulated by the
Corporation for the redemption of the Series D Convertible
Preferred Shares (the "Redemption Date"). The Redemption
Notice shall contain (i) the Redemption Date, (ii) the
number of shares of Series D Convertible Preferred Shares to
be redeemed from the holder to whom the Redemption Notice is
delivered, (iii) instructions for surrender to the
Corporation of the certificate or certificates representing
the shares of Series D Convertible Preferred Shares to be
redeemed, and (iv) specification by the Corporation of the
number of shares of Series D Convertible Preferred Shares to
be redeemed as provided in this Paragraph 9, and (v) the
Redemption Price.
(c) Surrender of Certificates: Payment of Redemption Price.
On or before the Redemption Date, each holder of the shares
of Series D Convertible Preferred Shares to be redeemed
shall surrender the required certificate or certificates
representing such shares to the Corporation, in the manner
and at the place designated in the Redemption Notice, and
upon such surrender, the Redemption Price for such shares
shall be paid by the Corporation within 2 business days via
wire transfer to the order of the person whose name appears
on such certificate or certificates as the owner thereof,
and each such surrendered certificate shall be cancelled and
retired. If a certificate is surrendered and all the shares
evidenced thereby are not being redeemed, the Corporation
shall issue new certificates to be registered in the names
of the person(s) whose name(s) appear(s) as the owners on
the respective surrendered certificates and deliver such
certificate to such person(s).
10. Notices.
In case at any time:
(a) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other pro
rata distribution to the holders of its Common Stock; or
(b) the Corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of
stock of any class or other rights; or
(c) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or
a consolidation or merger of the Corporation with or into,
or a sale of all or substantially all its assets to, another
entity or entities; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation
shall give, by first class mail, postage prepaid, or by
telex or facsimile or by recognized overnight delivery
service to non-U.S. residents, addressed to each holder of
any shares of Series D Convertible Preferred Shares at the
address of such holder as shown on the books of the
Corporation, (i) at least 10 days' prior to written notice
of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend,
distribution or subscription rights or for determining
rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and (ii) in the case of any such
reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least 10
days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing
clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto
and (ii) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case
may be.
11. Shares to be Reserved.
The Corporation, upon the effective date of this Certificate
of Designation, has a sufficient number of shares of Common
Stock available to reserve for issuance upon the conversion
of all outstanding shares of Series D Convertible Preferred
Shares, pursuant to the terms and conditions set forth in
Paragraph 7. The Corporation will at all times reserve and
keep available out of its authorized Common Stock, solely
for the purpose of issuance upon the conversion of Series D
Convertible Preferred Shares as herein provided, such number
of shares of Common Stock as shall then be issuable upon the
conversion of all outstanding shares of Series D Convertible
Preferred Shares. The Corporation covenants that all shares
of Common Stock which shall be so issued shall be duly and
validly issued. The Corporation will take all such action as
may be so taken without violation of any applicable law or
regulation, or of any requirement of any national securities
exchange upon which the Common Stock may be listed. The
Corporation will not take any action which results in any
adjustment of the conversion rights if the total number of
shares of Common Stock issued and issuable after such action
upon conversion of the Series D Convertible Preferred Shares
would exceed the total number of shares of Common Stock then
authorized by the Corporation's Certificate of
Incorporation, as amended.
12. No Reissuance of Series D Convertible Preferred Shares.
Shares of Series D Convertible Preferred Shares which are
converted into shares of Common Stock as provided herein
shall not be reissued.
13. Issue Tax.
The issuance of certificates for shares of Common Stock upon
conversion of Series D Convertible Preferred Shares shall be
made without charge to the Holder for any United States
issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may
be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other
than that of the holder of the Series D Convertible
Preferred Shares which is being converted.
14. Closing of Books.
The Corporation will at no time close its transfer books
against the transfer of any Series D Convertible Preferred
Shares or of any shares of Common Stock issued or issuable
upon the conversion of any shares of Series D Convertible
Preferred Shares in any manner which interferes with the
timely conversion of such Series D Convertible Preferred
Shares, except as may otherwise be required to comply with
applicable securities laws.
15. Definition of Common Stock.
As used in this Certificate of Designation, the term "Common
Stock" shall mean and include the Corporation's authorized
Common Stock, as constituted on the date of filing of these
terms of the Series D Convertible Preferred Shares, and
shall also include any capital stock of any class of the
Corporation thereafter authorized which shall neither be
limited to a fixed sum or percentage of par value in respect
of the rights of the holders thereof to participate in
dividends nor entitled to a preference in the distribution
of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the corporation; provided that
the shares of Common Stock receivable upon conversion of
shares of Series D Convertible Preferred Shares shall
include only shares designated as Common Stock of the
Corporation on the date of filing of this instrument, or in
case of any reorganization, reclassification, or stock split
of the outstanding shares thereof, the stock, securities or
assets provided for in Paragraph 7 hereof.
16. Amendments.
No provision of these terms of the Series D Convertible
Preferred Shares may be amended, modified or waived without
the written consent or affirmative vote of the holders of at
least a majority of the then outstanding shares of Series D
Convertible Preferred Shares.
SECOND:
That said determination of the designation, preferences and
relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof,
relating to the Class A Preferred Shares - Series D was duly
made by the Board of Directors pursuant to the provisions of
the Corporation's Certificate of Incorporation and in
accordance with the provisions of the General Corporation
Law of the State of Colorado.
IN WITNESS HEREOF, this Certificate has been signed by
Joseph J. Murphy, President and Larry Shatsoff Acting
Secretary, this 17th day of July, 1997.
___________________________________
Joseph J. Murphy, President
___________________________________
Larry Shatsoff, Acting Secretary
EXHIBIT B
CONVERSION NOTICE
_________________, 199_
DCI Telecommunications, Inc.
P.O. Box 320334
Fairfield, CT, USA
06432
Dear Sir or Madam:
The undersigned, ____________________(the
"Subscriber"), does hereby give notice that it wishes to
convert $____________ of Preferred Shares (the "Preferred
Shares") registered in the name of _______________,
held by it into shares of Common Stock, of DCI
Telecommunications, Inc., which have been reserved for
issuance upon such conversion.
Date of Conversion:
__________________________
(each original Preferred Share to be converted and this
Notice of Conversion must be received by the
Transfer Agent within three (3) business days
following the Conversion Date)
Conversion Price:
__________________________
Lesser of 75% of Applicable (5 day) Average
Closing Bid Price (or 70% after 90 days from Closing Date,
or
65% if registration is not effective within 90 days from
Closing Date)
or $2.00
Stated Value of Preferred Shares to be Converted
by this Conversion:
__________________________
Number of shares of Common Stock to be received
by Subscriber:
__________________________
(Stated Value of converted Preferred Shares divided by
Conversion Price.
__________________________
Subscriber
EXHIBIT B-1
REDEMPTION NOTICE
_________________, 199_
DCI Telecommunications, Inc.
P.O. Box 320334
Fairfield, CT, USA
06432
Dear Sir or Madam:
DCI Telecommunications Inc. (the "Corporation"), does
hereby give notice that it wishes to redeem $____________ of
Preferred Shares (the "Preferred Shares") registered in the
name of _______________,
held by you.
Date of Redemption:
__________________________
Redemption Price:
__________________________
Face Value of Preferred Shares to be Redeemed
by this Redemption:
__________________________
Redemption amount payable to Subscriber:
__________________________
__________________________
DCI Telecommunications Inc.
<PAGE>
EXHIBIT 10.15
-------------
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO
ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE
REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE
COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM
SUCH REGISTRATION.
DCI TELECOMMUNICATIONS, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance.
In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by DCI
Telecommunications, Inc., a Colorado corporation (the
"Company"), Anthony Heller or registered assigns (the
"Holder") is hereby granted the right to purchase at any
time until 5:00 pm, New York City time, on February 28, 2000
(the "Expiration Date"), 37,333 fully paid and
nonassessable shares of the Company's Common Stock (the
"Common Stock") at an initial exercise price of $3.625 per
share (the "Exercise Price"), subject to further adjustment
as set forth in Section 6 hereof.
2. Exercise of Warrants.
(a) This Warrant is exercisable at the Exercise Price per
share of Common Stock payable hereunder, payable in cash or
by certified or official bank check, upon surrender of this
Warrant with the annexed Notice of Exercise Form duly
executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, the Holder shall be
entitled to receive a certificate or certificates for the
shares of Common Stock so purchased.
(b) This Warrant shall not be exerciseable until all of the
Class A Preferred Shares - Series C issued pursuant to the
Subscription Agreement have been either converted or
redeemed.
3. Reservation of Shares.
The Company hereby agrees that at all times during the term
of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of
this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant.
Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in
the case of mutilation) upon surrender and cancellation of
this Warrant, the Company will executive and deliver a new
Warrant of like tenor and date and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against
the Company except to the extent set forth herein.
6. Protection Against Dilution
6.1. Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6,
the Holder shall be entitled to purchase such number of
additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is
entitled to purchase pursuant to this Warrant,
multiplied by (ii) the adjusted purchase price per
share, to equal (iii) the dollar amount of the total
number of shares of Common Stock Holder is entitled to
purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2. Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend,
reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the
provisions of this Section 6 shall be applied as if
such capital adjustment event had occurred immediately
prior to the date of this Warrant and the original
purchase price had been fairly allocated to the stock
resulting from such capital adjustment; and in other
respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so
as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be
deemed a stock dividend to the extent of the bargain
purchase element of the rights.
7. Transfer to Comply with the Securities Act: Registration
Rights
(a) This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been
issued to the Holder for investment and not with a view to
the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares
or any other security issued or issuable upon exercise of
this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration
statement under the Act relating to such security or an
opinion of counsel satisfactory to the Company that
registration is not required under the Act. Each
certificate for the Warrant, the Warrant Shares and any
other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form
and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this
Section.
(b) The Company shall cause the Warrant Shares to be
registered with the Securities and Exchange Commission on an
effective registration statement on Form S-3 or another
available form (the "Registration Statement"), pursuant to
the Act, by the 180th calendar day from the date this
Warrant was issued (the "Original Issuance Date"). In the
event that such Registration Statement is not declared
effective before the 181st calendar day following the
Original Issuance Date (the "Regulation S Date"), the Holder
may elect to utilize the resale safe harbor of Rule 904
pursuant to Regulation S under the Act, if the Holder is
eligible to use such Rule, and the Holder may sell the
Warrant Shares under the provisions of Regulation S. If the
Holder so elects, the Holder must certify to the Corporation
that the representations and warranties set forth in
Paragraphs 3 and 8 of the Subscription Agreement dated
February 18th 1997, between the Holder and the Corporation
are true and correct as of the Regulation S Date. If the
Holder elects to resell the Warrant Shares pursuant to
Regulation S, the Company shall provide the necessary
opinion(s) of counsel to enable the Holder, if qualified, to
make such resales pursuant to Regulation S.
8. Notices
Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express
mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission, or, if mailed, two days
after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
DCI Telecommunications, Inc.
P.O. Box 320334, Fairfield
CT, USA, 06432
Attn: Chief Financial Officer
(ii) if to the Holder, to:
c/o Jay Smith
CIBC Wood Gundy
200 King Street West
Toronto, Ontario
M5H 3X8
Any party may give notice in accordance with this Section to
the other parties designated other address or person for
receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement
This Warrant may be amended or supplemented only by an
instrument in writing signed by the parties hereto. This
Warrant of even date herewith contains the full
understanding of the parties hereto with respect to the
subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings
other than expressly contained herein and therein.
10. Governing Law.
This Warrant shall be deemed to be a contract made under the
laws of the State of Colorado and for all purposes shall be
governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed
entirely within such State.
11. Counterparts
This Warrant may be executed in any number of counterparts
and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
12. Descriptive Headings
Descriptive headings of the several Sections of this Warrant
are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 18th of February, 1997.
DCI Telecommunications, Inc.
By: Joseph J. Murphy
------------------
Joseph J. Murphy, President and CEO
Attest:
Larry Shatsoff
------------------------------
Larry Shatsoff, Acting Secretary
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the
right, represented by the Warrant Certificate dated as of
____________, 1997, to purchase _________ shares of the
Common Stock, of DCI Telecommunications, Inc. and tenders
herewith payment in accordance with Section 1 of said Common
Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated: _________________________________
By: ____________________________________
<PAGE>
EXHIBIT 10.16
-------------
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO
ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE
REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE
COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM
SUCH REGISTRATION.
DCI TELECOMMUNICATIONS, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance.
In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by DCI
Telecommunications, Inc., a Colorado corporation (the
"Company"), William Hechter or registered assigns (the
"Holder") is hereby granted the right to purchase at any
time until 5:00 pm, New York City time, on February 28, 2000
(the "Expiration Date"), 10,266 fully paid and
nonassessable shares of the Company's Common Stock (the
"Common Stock") at an initial exercise price of $3.625 per
share (the "Exercise Price"), subject to further adjustment
as set forth in Section 6 hereof.
2. Exercise of Warrants.
(a) This Warrant is exercisable at the Exercise Price per
share of Common Stock payable hereunder, payable in cash or
by certified or official bank check, upon surrender of this
Warrant with the annexed Notice of Exercise Form duly
executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, the Holder shall be
entitled to receive a certificate or certificates for the
shares of Common Stock so purchased.
(b) This Warrant shall not be exerciseable until all of the
Class A Preferred Shares - Series C issued pursuant to the
Subscription Agreement have been either converted or
redeemed.
3. Reservation of Shares.
The Company hereby agrees that at all times during the term
of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of
this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant.
Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in
the case of mutilation) upon surrender and cancellation of
this Warrant, the Company will executive and deliver a new
Warrant of like tenor and date and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against
the Company except to the extent set forth herein.
6. Protection Against Dilution
6.1. Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6,
the Holder shall be entitled to purchase such number of
additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is
entitled to purchase pursuant to this Warrant,
multiplied by (ii) the adjusted purchase price per
share, to equal (iii) the dollar amount of the total
number of shares of Common Stock Holder is entitled to
purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2. Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend,
reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the
provisions of this Section 6 shall be applied as if
such capital adjustment event had occurred immediately
prior to the date of this Warrant and the original
purchase price had been fairly allocated to the stock
resulting from such capital adjustment; and in other
respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so
as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be
deemed a stock dividend to the extent of the bargain
purchase element of the rights.
7. Transfer to Comply with the Securities Act: Registration
Rights
(a) This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been
issued to the Holder for investment and not with a view to
the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares
or any other security issued or issuable upon exercise of
this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration
statement under the Act relating to such security or an
opinion of counsel satisfactory to the Company that
registration is not required under the Act. Each
certificate for the Warrant, the Warrant Shares and any
other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form
and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this
Section.
(b) The Company shall cause the Warrant Shares to be
registered with the Securities and Exchange Commission on an
effective registration statement on Form S-3 or another
available form (the "Registration Statement"), pursuant to
the Act, by the 180th calendar day from the date this
Warrant was issued (the "Original Issuance Date"). In the
event that such Registration Statement is not declared
effective before the 181st calendar day following the
Original Issuance Date (the "Regulation S Date"), the Holder
may elect to utilize the resale safe harbor of Rule 904
pursuant to Regulation S under the Act, if the Holder is
eligible to use such Rule, and the Holder may sell the
Warrant Shares under the provisions of Regulation S. If the
Holder so elects, the Holder must certify to the Corporation
that the representations and warranties set forth in
Paragraphs 3 and 8 of the Subscription Agreement dated
February 18th 1997, between the Holder and the Corporation
are true and correct as of the Regulation S Date. If the
Holder elects to resell the Warrant Shares pursuant to
Regulation S, the Company shall provide the necessary
opinion(s) of counsel to enable the Holder, if qualified, to
make such resales pursuant to Regulation S.
8. Notices
Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express
mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission, or, if mailed, two days
after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
DCI Telecommunications, Inc.
P.O. Box 320334, Fairfield
CT, USA, 06432
Attn: Chief Financial Officer
(ii) if to the Holder, to:
c/o Jay Smith
CIBC Wood Gundy
200 King Street West
Toronto, Ontario
M5H 3X8
Any party may give notice in accordance with this Section to
the other parties designated other address or person for
receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement
This Warrant may be amended or supplemented only by an
instrument in writing signed by the parties hereto. This
Warrant of even date herewith contains the full
understanding of the parties hereto with respect to the
subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings
other than expressly contained herein and therein.
10. Governing Law.
This Warrant shall be deemed to be a contract made under the
laws of the State of Colorado and for all purposes shall be
governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed
entirely within such State.
11. Counterparts
This Warrant may be executed in any number of counterparts
and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
12. Descriptive Headings
Descriptive headings of the several Sections of this Warrant
are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 18th of February, 1997.
DCI Telecommunications, Inc.
By: Joseph J. Murphy
------------------
Joseph J. Murphy, President and CEO
Attest:
Larry Shatsoff
------------------------------
Larry Shatsoff, Acting Secretary
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the
right, represented by the Warrant Certificate dated as of
____________, 1997, to purchase _________ shares of the
Common Stock, of DCI Telecommunications, Inc. and tenders
herewith payment in accordance with Section 1 of said Common
Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated: _________________________________
By: ____________________________________
<PAGE>
EXHIBIT 10.17
-------------
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO
ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE
REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE
COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM
SUCH REGISTRATION.
DCI TELECOMMUNICATIONS, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance.
In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by DCI
Telecommunications, Inc., a Colorado corporation (the
"Company"), Jefrob Glorich Ltd. or registered assigns (the
"Holder") is hereby granted the right to purchase at any
time until 5:00 pm, New York City time, on February 28, 2000
(the "Expiration Date"), 13,067 fully paid and
nonassessable shares of the Company's Common Stock (the
"Common Stock") at an initial exercise price of $3.625 per
share (the "Exercise Price"), subject to further adjustment
as set forth in Section 6 hereof.
2. Exercise of Warrants.
(a) This Warrant is exercisable at the Exercise Price per
share of Common Stock payable hereunder, payable in cash or
by certified or official bank check, upon surrender of this
Warrant with the annexed Notice of Exercise Form duly
executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, the Holder shall be
entitled to receive a certificate or certificates for the
shares of Common Stock so purchased.
(b) This Warrant shall not be exerciseable until all of the
Class A Preferred Shares - Series C issued pursuant to the
Subscription Agreement have been either converted or
redeemed.
3. Reservation of Shares.
The Company hereby agrees that at all times during the term
of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of
this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant.
Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in
the case of mutilation) upon surrender and cancellation of
this Warrant, the Company will executive and deliver a new
Warrant of like tenor and date and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against
the Company except to the extent set forth herein.
6. Protection Against Dilution
6.1. Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6,
the Holder shall be entitled to purchase such number of
additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is
entitled to purchase pursuant to this Warrant,
multiplied by (ii) the adjusted purchase price per
share, to equal (iii) the dollar amount of the total
number of shares of Common Stock Holder is entitled to
purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2. Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend,
reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the
provisions of this Section 6 shall be applied as if
such capital adjustment event had occurred immediately
prior to the date of this Warrant and the original
purchase price had been fairly allocated to the stock
resulting from such capital adjustment; and in other
respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so
as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be
deemed a stock dividend to the extent of the bargain
purchase element of the rights.
7. Transfer to Comply with the Securities Act: Registration
Rights
(a) This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been
issued to the Holder for investment and not with a view to
the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares
or any other security issued or issuable upon exercise of
this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration
statement under the Act relating to such security or an
opinion of counsel satisfactory to the Company that
registration is not required under the Act. Each
certificate for the Warrant, the Warrant Shares and any
other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form
and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this
Section.
(b) The Company shall cause the Warrant Shares to be
registered with the Securities and Exchange Commission on an
effective registration statement on Form S-3 or another
available form (the "Registration Statement"), pursuant to
the Act, by the 180th calendar day from the date this
Warrant was issued (the "Original Issuance Date"). In the
event that such Registration Statement is not declared
effective before the 181st calendar day following the
Original Issuance Date (the "Regulation S Date"), the Holder
may elect to utilize the resale safe harbor of Rule 904
pursuant to Regulation S under the Act, if the Holder is
eligible to use such Rule, and the Holder may sell the
Warrant Shares under the provisions of Regulation S. If the
Holder so elects, the Holder must certify to the Corporation
that the representations and warranties set forth in
Paragraphs 3 and 8 of the Subscription Agreement dated
February 18th 1997, between the Holder and the Corporation
are true and correct as of the Regulation S Date. If the
Holder elects to resell the Warrant Shares pursuant to
Regulation S, the Company shall provide the necessary
opinion(s) of counsel to enable the Holder, if qualified, to
make such resales pursuant to Regulation S.
8. Notices
Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express
mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission, or, if mailed, two days
after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
DCI Telecommunications, Inc.
P.O. Box 320334, Fairfield
CT, USA, 06432
Attn: Chief Financial Officer
(ii) if to the Holder, to:
c/o Jay Smith
CIBC Wood Gundy
200 King Street West
Toronto, Ontario
M5H 3X8
Any party may give notice in accordance with this Section to
the other parties designated other address or person for
receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement
This Warrant may be amended or supplemented only by an
instrument in writing signed by the parties hereto. This
Warrant of even date herewith contains the full
understanding of the parties hereto with respect to the
subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings
other than expressly contained herein and therein.
10. Governing Law.
This Warrant shall be deemed to be a contract made under the
laws of the State of Colorado and for all purposes shall be
governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed
entirely within such State.
11. Counterparts
This Warrant may be executed in any number of counterparts
and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
12. Descriptive Headings
Descriptive headings of the several Sections of this Warrant
are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 18th of February, 1997.
DCI Telecommunications, Inc.
By: Joseph J. Murphy
------------------
Joseph J. Murphy, President and CEO
Attest:
Larry Shatsoff
------------------------------
Larry Shatsoff, Acting Secretary
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the
right, represented by the Warrant Certificate dated as of
____________, 1997, to purchase _________ shares of the
Common Stock, of DCI Telecommunications, Inc. and tenders
herewith payment in accordance with Section 1 of said Common
Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated: _________________________________
By: ____________________________________
<PAGE>
EXHIBIT 10.18
--------------
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO
ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE
REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE
COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM
SUCH REGISTRATION.
DCI TELECOMMUNICATIONS, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance.
In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by DCI
Telecommunications, Inc., a Colorado corporation (the
"Company"), Jay A. Smith or registered assigns (the
"Holder") is hereby granted the right to purchase at any
time until 5:00 pm, New York City time, on February 28, 2000
(the "Expiration Date"), 18,667 fully paid and
nonassessable shares of the Company's Common Stock (the
"Common Stock") at an initial exercise price of $3.625 per
share (the "Exercise Price"), subject to further adjustment
as set forth in Section 6 hereof.
2. Exercise of Warrants.
(a) This Warrant is exercisable at the Exercise Price per
share of Common Stock payable hereunder, payable in cash or
by certified or official bank check, upon surrender of this
Warrant with the annexed Notice of Exercise Form duly
executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, the Holder shall be
entitled to receive a certificate or certificates for the
shares of Common Stock so purchased.
(b) This Warrant shall not be exerciseable until all of the
Class A Preferred Shares - Series C issued pursuant to the
Subscription Agreement have been either converted or
redeemed.
3. Reservation of Shares.
The Company hereby agrees that at all times during the term
of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of
this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant.
Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in
the case of mutilation) upon surrender and cancellation of
this Warrant, the Company will executive and deliver a new
Warrant of like tenor and date and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against
the Company except to the extent set forth herein.
6. Protection Against Dilution
6.1. Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6,
the Holder shall be entitled to purchase such number of
additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is
entitled to purchase pursuant to this Warrant,
multiplied by (ii) the adjusted purchase price per
share, to equal (iii) the dollar amount of the total
number of shares of Common Stock Holder is entitled to
purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2. Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend,
reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the
provisions of this Section 6 shall be applied as if
such capital adjustment event had occurred immediately
prior to the date of this Warrant and the original
purchase price had been fairly allocated to the stock
resulting from such capital adjustment; and in other
respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so
as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be
deemed a stock dividend to the extent of the bargain
purchase element of the rights.
7. Transfer to Comply with the Securities Act: Registration
Rights
(a) This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been
issued to the Holder for investment and not with a view to
the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares
or any other security issued or issuable upon exercise of
this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration
statement under the Act relating to such security or an
opinion of counsel satisfactory to the Company that
registration is not required under the Act. Each
certificate for the Warrant, the Warrant Shares and any
other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form
and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this
Section.
(b) The Company shall cause the Warrant Shares to be
registered with the Securities and Exchange Commission on an
effective registration statement on Form S-3 or another
available form (the "Registration Statement"), pursuant to
the Act, by the 180th calendar day from the date this
Warrant was issued (the "Original Issuance Date"). In the
event that such Registration Statement is not declared
effective before the 181st calendar day following the
Original Issuance Date (the "Regulation S Date"), the Holder
may elect to utilize the resale safe harbor of Rule 904
pursuant to Regulation S under the Act, if the Holder is
eligible to use such Rule, and the Holder may sell the
Warrant Shares under the provisions of Regulation S. If the
Holder so elects, the Holder must certify to the Corporation
that the representations and warranties set forth in
Paragraphs 3 and 8 of the Subscription Agreement dated
February 18th 1997, between the Holder and the Corporation
are true and correct as of the Regulation S Date. If the
Holder elects to resell the Warrant Shares pursuant to
Regulation S, the Company shall provide the necessary
opinion(s) of counsel to enable the Holder, if qualified, to
make such resales pursuant to Regulation S.
8. Notices
Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express
mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission, or, if mailed, two days
after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
DCI Telecommunications, Inc.
P.O. Box 320334, Fairfield
CT, USA, 06432
Attn: Chief Financial Officer
(ii) if to the Holder, to:
c/o Jay Smith
CIBC Wood Gundy
200 King Street West
Toronto, Ontario
M5H 3X8
Any party may give notice in accordance with this Section to
the other parties designated other address or person for
receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement
This Warrant may be amended or supplemented only by an
instrument in writing signed by the parties hereto. This
Warrant of even date herewith contains the full
understanding of the parties hereto with respect to the
subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings
other than expressly contained herein and therein.
10. Governing Law.
This Warrant shall be deemed to be a contract made under the
laws of the State of Colorado and for all purposes shall be
governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed
entirely within such State.
11. Counterparts
This Warrant may be executed in any number of counterparts
and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
12. Descriptive Headings
Descriptive headings of the several Sections of this Warrant
are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 18th of February, 1997.
DCI Telecommunications, Inc.
By: Joseph J. Murphy
------------------
Joseph J. Murphy, President and CEO
Attest:
Larry Shatsoff
------------------------------
Larry Shatsoff, Acting Secretary
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the
right, represented by the Warrant Certificate dated as of
____________, 1997, to purchase _________ shares of the
Common Stock, of DCI Telecommunications, Inc. and tenders
herewith payment in accordance with Section 1 of said Common
Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated: _________________________________
By: ____________________________________
<PAGE>
EXHIBIT 10.19
-------------
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO
ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE
REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE
COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM
SUCH REGISTRATION.
DCI TELECOMMUNICATIONS, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance.
In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by DCI
Telecommunications, Inc., a Colorado corporation (the
"Company"), Excalibur L.P. or registered assigns (the
"Holder") is hereby granted the right to purchase at any
time until 5:00 pm, New York City time, on February 28, 2000
(the "Expiration Date"), 60,667 fully paid and
nonassessable shares of the Company's Common Stock (the
"Common Stock") at an initial exercise price of $3.625 per
share (the "Exercise Price"), subject to further adjustment
as set forth in Section 6 hereof.
2. Exercise of Warrants.
(a) This Warrant is exercisable at the Exercise Price per
share of Common Stock payable hereunder, payable in cash or
by certified or official bank check, upon surrender of this
Warrant with the annexed Notice of Exercise Form duly
executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, the Holder shall be
entitled to receive a certificate or certificates for the
shares of Common Stock so purchased.
(b) This Warrant shall not be exerciseable until all of the
Class A Preferred Shares - Series C issued pursuant to the
Subscription Agreement have been either converted or
redeemed.
3. Reservation of Shares.
The Company hereby agrees that at all times during the term
of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of
this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant.
Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in
the case of mutilation) upon surrender and cancellation of
this Warrant, the Company will executive and deliver a new
Warrant of like tenor and date and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against
the Company except to the extent set forth herein.
6. Protection Against Dilution
6.1. Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6,
the Holder shall be entitled to purchase such number of
additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is
entitled to purchase pursuant to this Warrant,
multiplied by (ii) the adjusted purchase price per
share, to equal (iii) the dollar amount of the total
number of shares of Common Stock Holder is entitled to
purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2. Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend,
reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the
provisions of this Section 6 shall be applied as if
such capital adjustment event had occurred immediately
prior to the date of this Warrant and the original
purchase price had been fairly allocated to the stock
resulting from such capital adjustment; and in other
respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so
as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be
deemed a stock dividend to the extent of the bargain
purchase element of the rights.
7. Transfer to Comply with the Securities Act: Registration
Rights
(a) This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been
issued to the Holder for investment and not with a view to
the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares
or any other security issued or issuable upon exercise of
this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration
statement under the Act relating to such security or an
opinion of counsel satisfactory to the Company that
registration is not required under the Act. Each
certificate for the Warrant, the Warrant Shares and any
other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form
and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this
Section.
(b) The Company shall cause the Warrant Shares to be
registered with the Securities and Exchange Commission on an
effective registration statement on Form S-3 or another
available form (the "Registration Statement"), pursuant to
the Act, by the 180th calendar day from the date this
Warrant was issued (the "Original Issuance Date"). In the
event that such Registration Statement is not declared
effective before the 181st calendar day following the
Original Issuance Date (the "Regulation S Date"), the Holder
may elect to utilize the resale safe harbor of Rule 904
pursuant to Regulation S under the Act, if the Holder is
eligible to use such Rule, and the Holder may sell the
Warrant Shares under the provisions of Regulation S. If the
Holder so elects, the Holder must certify to the Corporation
that the representations and warranties set forth in
Paragraphs 3 and 8 of the Subscription Agreement dated
February 18th 1997, between the Holder and the Corporation
are true and correct as of the Regulation S Date. If the
Holder elects to resell the Warrant Shares pursuant to
Regulation S, the Company shall provide the necessary
opinion(s) of counsel to enable the Holder, if qualified, to
make such resales pursuant to Regulation S.
8. Notices
Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express
mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission, or, if mailed, two days
after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
DCI Telecommunications, Inc.
P.O. Box 320334, Fairfield
CT, USA, 06432
Attn: Chief Financial Officer
(ii) if to the Holder, to:
c/o Jay Smith
CIBC Wood Gundy
200 King Street West
Toronto, Ontario
M5H 3X8
Any party may give notice in accordance with this Section to
the other parties designated other address or person for
receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement
This Warrant may be amended or supplemented only by an
instrument in writing signed by the parties hereto. This
Warrant of even date herewith contains the full
understanding of the parties hereto with respect to the
subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings
other than expressly contained herein and therein.
10. Governing Law.
This Warrant shall be deemed to be a contract made under the
laws of the State of Colorado and for all purposes shall be
governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed
entirely within such State.
11. Counterparts
This Warrant may be executed in any number of counterparts
and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
12. Descriptive Headings
Descriptive headings of the several Sections of this Warrant
are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 18th of February, 1997.
DCI Telecommunications, Inc.
By: Joseph J. Murphy
------------------
Joseph J. Murphy, President and CEO
Attest:
Larry Shatsoff
------------------------------
Larry Shatsoff, Acting Secretary
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the
right, represented by the Warrant Certificate dated as of
____________, 1997, to purchase _________ shares of the
Common Stock, of DCI Telecommunications, Inc. and tenders
herewith payment in accordance with Section 1 of said Common
Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated: _________________________________
By: ____________________________________
<PAGE>
EXHIBIT 10.20
--------------
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO
ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE
REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE
COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM
SUCH REGISTRATION.
DCI TELECOMMUNICATIONS, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance.
In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by DCI
Telecommunications, Inc., a Colorado corporation (the
"Company"), Excalibur Limited Partneship or registered assigns (the
"Holder") is hereby granted the right to purchase at any
time until 5:00 pm, New York City time, on July 31st, 2000
(the "Expiration Date"), 15,938 fully paid and
nonassessable shares of the Company's Common Stock (the
"Common Stock") at an initial exercise price of $2.50 per
share (the "Exercise Price"), subject to further adjustment
as set forth in Section 6 hereof.
2. Exercise of Warrants.
(a) This Warrant is exercisable at the Exercise Price per
share of Common Stock payable hereunder, payable in cash or
by certified or official bank check, upon surrender of this
Warrant with the annexed Notice of Exercise Form duly
executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, the Holder shall be
entitled to receive a certificate or certificates for the
shares of Common Stock so purchased.
(b) This Warrant shall not be exerciseable until all of the
Class A Preferred Shares - Series C issued pursuant to the
Subscription Agreement have been either converted or
redeemed.
3. Reservation of Shares.
The Company hereby agrees that at all times during the term
of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of
this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant.
Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in
the case of mutilation) upon surrender and cancellation of
this Warrant, the Company will executive and deliver a new
Warrant of like tenor and date and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against
the Company except to the extent set forth herein.
6. Protection Against Dilution
6.1. Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6,
the Holder shall be entitled to purchase such number of
additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is
entitled to purchase pursuant to this Warrant,
multiplied by (ii) the adjusted purchase price per
share, to equal (iii) the dollar amount of the total
number of shares of Common Stock Holder is entitled to
purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2. Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend,
reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the
provisions of this Section 6 shall be applied as if
such capital adjustment event had occurred immediately
prior to the date of this Warrant and the original
purchase price had been fairly allocated to the stock
resulting from such capital adjustment; and in other
respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so
as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be
deemed a stock dividend to the extent of the bargain
purchase element of the rights.
7. Transfer to Comply with the Securities Act: Registration
Rights
(a) This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been
issued to the Holder for investment and not with a view to
the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares
or any other security issued or issuable upon exercise of
this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration
statement under the Act relating to such security or an
opinion of counsel satisfactory to the Company that
registration is not required under the Act. Each
certificate for the Warrant, the Warrant Shares and any
other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form
and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this
Section.
(b) The Company shall cause the Warrant Shares to be
registered with the Securities and Exchange Commission on an
effective registration statement on Form S-3 or another
available form (the "Registration Statement"), pursuant to
the Act, by the 90th calendar day from the date this Warrant
was issued (the "Original Issuance Date")..
8. Notices
Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express
mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission, or, if mailed, two days
after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
DCI Telecommunications, Inc.
P.O. Box 320334, Fairfield
CT, USA, 06432
Attn: Chief Financial Officer
(ii) if to the Holder, to:
William Hechter
205 Vesta Drive
Toronto, Canada
M5P 3A1
Any party may give notice in accordance with this Section to
the other parties designated other address or person for
receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement
This Warrant may be amended or supplemented only by an
instrument in writing signed by the parties hereto. This
Warrant of even date herewith contains the full
understanding of the parties hereto with respect to the
subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings
other than expressly contained herein and therein.
10. Governing Law.
This Warrant shall be deemed to be a contract made under the
laws of the State of Colorado and for all purposes shall be
governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed
entirely within such State.
11. Counterparts
This Warrant may be executed in any number of counterparts
and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
12. Descriptive Headings
Descriptive headings of the several Sections of this Warrant
are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 17th day of July, 1997.
DCI Telecommunications, Inc.
By: Joseph J. Murphy
----------------
Joseph J. Murphy, President and CEO
Attest:
Larry Shatsoff
--------------
Larry Shatsoff, Acting Secretary
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the
right, represented by the Warrant Certificate dated as of
____________, 1997, to purchase _________ shares of the
Common Stock, of DCI Telecommunications, Inc. and tenders
herewith payment in accordance with Section 1 of said Common
Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated: _________________________________
By: ____________________________________
<PAGE>
EXHIBIT 10.21
-------------
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO
ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE
REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE
COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM
SUCH REGISTRATION.
DCI TELECOMMUNICATIONS, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance.
In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by DCI
Telecommunications, Inc., a Colorado corporation (the
"Company"), Jay A. Smith or registered assigns (the
"Holder") is hereby granted the right to purchase at any
time until 5:00 pm, New York City time, on July 31st, 2000
(the "Expiration Date"), 15,938 fully paid and
nonassessable shares of the Company's Common Stock (the
"Common Stock") at an initial exercise price of $2.50 per
share (the "Exercise Price"), subject to further adjustment
as set forth in Section 6 hereof.
2. Exercise of Warrants.
(a) This Warrant is exercisable at the Exercise Price per
share of Common Stock payable hereunder, payable in cash or
by certified or official bank check, upon surrender of this
Warrant with the annexed Notice of Exercise Form duly
executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, the Holder shall be
entitled to receive a certificate or certificates for the
shares of Common Stock so purchased.
(b) This Warrant shall not be exerciseable until all of the
Class A Preferred Shares - Series C issued pursuant to the
Subscription Agreement have been either converted or
redeemed.
3. Reservation of Shares.
The Company hereby agrees that at all times during the term
of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of
this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant.
Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in
the case of mutilation) upon surrender and cancellation of
this Warrant, the Company will executive and deliver a new
Warrant of like tenor and date and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against
the Company except to the extent set forth herein.
6. Protection Against Dilution
6.1. Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6,
the Holder shall be entitled to purchase such number of
additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is
entitled to purchase pursuant to this Warrant,
multiplied by (ii) the adjusted purchase price per
share, to equal (iii) the dollar amount of the total
number of shares of Common Stock Holder is entitled to
purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2. Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend,
reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the
provisions of this Section 6 shall be applied as if
such capital adjustment event had occurred immediately
prior to the date of this Warrant and the original
purchase price had been fairly allocated to the stock
resulting from such capital adjustment; and in other
respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so
as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be
deemed a stock dividend to the extent of the bargain
purchase element of the rights.
7. Transfer to Comply with the Securities Act: Registration
Rights
(a) This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been
issued to the Holder for investment and not with a view to
the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares
or any other security issued or issuable upon exercise of
this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration
statement under the Act relating to such security or an
opinion of counsel satisfactory to the Company that
registration is not required under the Act. Each
certificate for the Warrant, the Warrant Shares and any
other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form
and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this
Section.
(b) The Company shall cause the Warrant Shares to be
registered with the Securities and Exchange Commission on an
effective registration statement on Form S-3 or another
available form (the "Registration Statement"), pursuant to
the Act, by the 90th calendar day from the date this Warrant
was issued (the "Original Issuance Date")..
8. Notices
Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express
mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission, or, if mailed, two days
after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
DCI Telecommunications, Inc.
P.O. Box 320334, Fairfield
CT, USA, 06432
Attn: Chief Financial Officer
(ii) if to the Holder, to:
Jay A. Smith
200 King Street West
Toronto, Canada
M5H 3T4
Any party may give notice in accordance with this Section to
the other parties designated other address or person for
receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement
This Warrant may be amended or supplemented only by an
instrument in writing signed by the parties hereto. This
Warrant of even date herewith contains the full
understanding of the parties hereto with respect to the
subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings
other than expressly contained herein and therein.
10. Governing Law.
This Warrant shall be deemed to be a contract made under the
laws of the State of Colorado and for all purposes shall be
governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed
entirely within such State.
11. Counterparts
This Warrant may be executed in any number of counterparts
and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
12. Descriptive Headings
Descriptive headings of the several Sections of this Warrant
are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 17th day of July, 1997.
DCI Telecommunications, Inc.
By: Joseph J. Murphy
----------------
Joseph J. Murphy, President and CEO
Attest:
Larry Shatsoff
--------------
Larry Shatsoff, Acting Secretary
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the
right, represented by the Warrant Certificate dated as of
____________, 1997, to purchase _________ shares of the
Common Stock, of DCI Telecommunications, Inc. and tenders
herewith payment in accordance with Section 1 of said Common
Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated: _________________________________
By: ____________________________________
<PAGE>
EXHIBIT 10.22
-------------
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO
ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE
REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE
COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM
SUCH REGISTRATION.
DCI TELECOMMUNICATIONS, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance.
In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by DCI
Telecommunications, Inc., a Colorado corporation (the
"Company"), Jefrob Glorich Ltd. or registered assigns (the
"Holder") is hereby granted the right to purchase at any
time until 5:00 pm, New York City time, on July 31st, 2000
(the "Expiration Date"), 10,313 fully paid and
nonassessable shares of the Company's Common Stock (the
"Common Stock") at an initial exercise price of $2.50 per
share (the "Exercise Price"), subject to further adjustment
as set forth in Section 6 hereof.
2. Exercise of Warrants.
(a) This Warrant is exercisable at the Exercise Price per
share of Common Stock payable hereunder, payable in cash or
by certified or official bank check, upon surrender of this
Warrant with the annexed Notice of Exercise Form duly
executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, the Holder shall be
entitled to receive a certificate or certificates for the
shares of Common Stock so purchased.
(b) This Warrant shall not be exerciseable until all of the
Class A Preferred Shares - Series C issued pursuant to the
Subscription Agreement have been either converted or
redeemed.
3. Reservation of Shares.
The Company hereby agrees that at all times during the term
of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of
this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant.
Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in
the case of mutilation) upon surrender and cancellation of
this Warrant, the Company will executive and deliver a new
Warrant of like tenor and date and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against
the Company except to the extent set forth herein.
6. Protection Against Dilution
6.1. Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6,
the Holder shall be entitled to purchase such number of
additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is
entitled to purchase pursuant to this Warrant,
multiplied by (ii) the adjusted purchase price per
share, to equal (iii) the dollar amount of the total
number of shares of Common Stock Holder is entitled to
purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2. Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend,
reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the
provisions of this Section 6 shall be applied as if
such capital adjustment event had occurred immediately
prior to the date of this Warrant and the original
purchase price had been fairly allocated to the stock
resulting from such capital adjustment; and in other
respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so
as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be
deemed a stock dividend to the extent of the bargain
purchase element of the rights.
7. Transfer to Comply with the Securities Act: Registration
Rights
(a) This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been
issued to the Holder for investment and not with a view to
the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares
or any other security issued or issuable upon exercise of
this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration
statement under the Act relating to such security or an
opinion of counsel satisfactory to the Company that
registration is not required under the Act. Each
certificate for the Warrant, the Warrant Shares and any
other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form
and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this
Section.
(b) The Company shall cause the Warrant Shares to be
registered with the Securities and Exchange Commission on an
effective registration statement on Form S-3 or another
available form (the "Registration Statement"), pursuant to
the Act, by the 90th calendar day from the date this Warrant
was issued (the "Original Issuance Date")..
8. Notices
Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express
mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission, or, if mailed, two days
after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
DCI Telecommunications, Inc.
P.O. Box 320334, Fairfield
CT, USA, 06432
Attn: Chief Financial Officer
(ii) if to the Holder, to:
Jay A. Smith
200 King Street West
Toronto, Canada
M5H 3T4
Any party may give notice in accordance with this Section to
the other parties designated other address or person for
receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement
This Warrant may be amended or supplemented only by an
instrument in writing signed by the parties hereto. This
Warrant of even date herewith contains the full
understanding of the parties hereto with respect to the
subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings
other than expressly contained herein and therein.
10. Governing Law.
This Warrant shall be deemed to be a contract made under the
laws of the State of Colorado and for all purposes shall be
governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed
entirely within such State.
11. Counterparts
This Warrant may be executed in any number of counterparts
and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
12. Descriptive Headings
Descriptive headings of the several Sections of this Warrant
are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 17th day of July, 1997.
DCI Telecommunications, Inc.
By: Joseph J. Murphy
----------------
Joseph J. Murphy, President and CEO
Attest:
Larry Shatsoff
--------------
Larry Shatsoff, Acting Secretary
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the
right, represented by the Warrant Certificate dated as of
____________, 1997, to purchase _________ shares of the
Common Stock, of DCI Telecommunications, Inc. and tenders
herewith payment in accordance with Section 1 of said Common
Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated: _________________________________
By: ____________________________________
<PAGE>
Exhibit 21.1
------------
State of Names Under
Subsidiary Name Incorporation Which They Do Business
--------------- ------------- ----------------------
Privilege Enterprises Limited New Hampshire
The Travel Source Limited Rhode Island
CardCaller International Holdings Delaware CardCall UK
CardCaller Canada
CyberFax, Inc. Montreal, Canada
DCI UK Limited Laws of the
United Kingdom
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of DCI Telecommunications, Inc.
We hereby consent to the inclusion in this Registration Statement on Form S-1
(No. 333-31579) of our reports dated June 4, 1997 appearing on page F-1 of
DCI Telecommunication's Annual Report on Form 10-K for the year ended
March 31, 1997. We also consent to the references to our firm in the
Registration Statement.
Schnitzer & Kondub, P.C.
- ------------------------
Schnitzer & Kondub, P.C.
Eastchester, New York
July 14, 1997
