FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
Date of Report (Date of earliest event reported) July 22, 1998.
DCI Telecommunications, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 2-96976-D 84-1155041
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) Number)
611 Access Road, Stratford, CT 06497
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(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 380-0910
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(Former name or former address, if changed since last report.)
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Item 5. Other Events
On July 22, 1998, the Company announced the signing of a definitive
agreement to acquire privately owned Locus Corporation, of Fort Lee,
New Jersey. Locus is a global provider of prepaid phone cards,
international call back, long distance and Internet services. The
transaction, which is subject to financing involves a combination of
cash and stock with a total valuation of $25 million.
Item 5. Other Events
The following table shows the activity of options issued through July
22, 1998.
Number
of Options Unexersized
Name Granted Options Remaining
Joseph J. Murphy 772,727 572,727
Other Officers, Directors
and Employees 4,129,322 2,772,277
Whyteburg Limited 2,303,500 708,144
Other CardCall
Shareholders* 4,698,906 1,855,086
* See Schedule B in the 8K dated June 15, 1998 pertaining to the
CardCall International Holdings Acquisition
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Item 7. Financial Statements and Exhibits
Pro Forma Financial Statements
Copy of Stock Purchase Agreement.
<PAGE>
DCI Edge Locus
Twelve Months Twelve Months Ten Months
Ended Ended Ended
Mar. 31, 1998 Mar. 31, 1998 Apr. 30, 1998 Pro Forma
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(all numbers in thousands)
Net sales $8,117 $8,671 $22,547 $39,335
Cost of sales 6,614 7,781 20,023 34,419
Gross margin 1,503 890 2,524 4,917
Operating expenses 3,406 820 1,150 5,376
Earnings Before Interest
Taxes Depreciation
Amortization $(1,903) $70 $1,374 $(460)
Taxes - - 707 707
Interest expense (66) - - (66)
Interest income 67 - 12 79
Depreciation and
amortization 505 23 80 608
Net income (loss) $(2,408) $47 $598 $(1,763)
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Pro Forma Balance Sheet
(all numbers in thousands)
DCI Edge Locus Pro Forma
Assets
Current Assets
Cash $1,897 333 $1,712 $3,942
Accounts Receivable 2,312 617 3,193 6,122
Receivable from
Smartalk 650 - - 650
Investment 8,168 - - 8,168
Other 138 3 18 159
Total Current
Assets $13,166 $953 $4,923 $19,042
Property and Equipment 578 505 1,074 2,156
Accum. Depreciation 145 191 198 533
Net Property
& Equipment 433 314 876 1,623
Long term Receivables 929 - - 929
Other Assets 501 235 237 974
Goodwill 7,011 - - 7,011
Less Accum.
Amortization 370 8 - 378
Net 6,641 (8) - 6,633
Total Assets $21,671 $1,493 $6,036 $29,200
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LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable $4,939 1,100 5,916 11,955
Other 3,964 111 161 4,235
Total Current
Liabilities $8,903 $1,211 $6,076 $16,190
Long Term Liabilities 718 100 31 849
Long Term debt 35 100 - 135
Deferred Taxes 254 - - 254
Convertible Preferred
Stock 610 96 - 706
Total Long Term
Liabilities 1,617 296 31 1,944
Total Liabilities $10,520 $1,507 $6,107 $18,134
Preferred Stock 305 - - 305
Common Stock 1 11 101 113
Paid in Capital 12,856 250 - 13,106
Other (1,749) - - (1,749)
Unrealized capital loss (5) - - (5)
Retained Earnings (257) (275) (172) (704)
Total Equity $11,151 $(14) $(71) $11,066
TOTAL LIABILITIES
AND EQUITY $21,671 $1,493 $6,036 $29,200
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STOCK PURCHASE AGREEMENT
Among
LOCUS CORPORATION
LOCUS TELECOM, INC.
JASON CHON
J. P. LEE
and
JAMES JU
(the Sellers)
and
DCI TELECOMMUNICATIONS, INC.
(the Purchaser)
July 22, 1998
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STOCK PURCHASE AGREEMENT
AGREEMENT made this 22nd day of July, 1998 among LOCUS
CORPORATION, a corporation organized under the laws of the State of
New Jersey ("Locus"), LOCUS TELECOM, INC., a corporation organized
under the laws of the State of New Jersey ("LTI") (Locus and LTI are
hereinafter sometimes collectively referred to as the "Company") and
JASON CHON, J.P. LEE and JAMES JU (the "Selling Stockholders") (the
Company and the Selling Stockholders are sometimes collectively
referred to as the "Sellers") and DCI TELECOMMUNICATIONS, INC., a
corporation organized under the laws of the State of Colorado
("Purchaser").
WHEREAS:
A. The Company is engaged in the business of making,
selling, distributing and otherwise dealing in prepaid telephone
cards and other telecommunications service (collectively, the
"Business").
B. Purchaser desires to purchase, and the Selling
Stockholders desire to sell, all of the capital stock of the
Company, as more fully set forth herein.
NOW THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made in this Agreement, the Purchaser,
the Company and the Selling Stockholders hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used herein, the following
terms shall have the following meanings, respectively:
"Accounts Receivable" shall mean all of the Company's accounts
receivable and notes receivable arising from the sale of products,
services or other assets of the Business or otherwise.
"Affiliate" shall mean, as to any specified person, (a) any other
person controlling, controlled by or under common control
with such specified person, (b) any officer, director or partner of
such specified person, or (c) any other person of which such
specified person is an officer, employee, agent, director,
shareholder or partner. The term "control", with respect to any
person, means possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or a partnership
interest, by contract or otherwise.
"Assets" shall mean, collectively, the Accounts Receivable,
Cash, Equipment, Intellectual Property and Information,
Inventory, Leasehold Improvements and Fixtures, Prepaid Items, Leased
Real Property and Rights and Other Property, all as existing on the
Closing Date.
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"Cash" shall mean all of the Company's cash and cash
equivalents as determined in accordance with the audit of the Closing
Date Balance Sheet pursuant to Section 2.5 hereof.
"Closing" shall mean the consummation of the transactions
contemplated to occur hereunder on the Closing Date pursuant to
Article III hereof.
"Closing Date" shall mean the fifth business day after the
conditions to Closing have been satisfied, or such other date and
time as shall be mutually agreed to in writing by the parties.
"Condition" shall mean the assets, liabilities, business,
prospects, operations, results of operations or condition
(financial or otherwise) of any of the Company, the Business or
the Assets.
"Employment Agreement" shall mean the employment agreement between
Jason Chon and the Company in the form attached hereto as Schedule
1.2.
"Equipment" shall mean all of the Company's furniture,
fixtures, machinery, equipment, motor vehicles, office equipment,
computers, telephone switches and other telecommunications
facilities, tools and replacement parts, wherever located
(including without limitation all Equipment in the possession of
vendors or others), all of the Equipment on the date hereof being
listed on Schedule 1.3 hereof.
"Intellectual Property and Information" shall mean all the
following assets of the Company: patents, patent applications,
trademarks, trademark registrations, trademark registration
applications, trade names, service marks, copyrights, computer
programs, trade secrets, product related artwork and know-how.
"March 31, 1998 Financial Statements" shall mean the Balance
Sheet, Statement of Income and Retained Earnings, Statement of Cash
Flows and Notes thereto of the Company at March 31, 1998 attached
hereto as Schedule 1.4.
"Leased Real Property" shall mean the real property leased by
the Company and generally described on Schedule 1.5 attached
hereto.
"Leasehold Improvements and Fixtures" shall mean all of the
leasehold improvements, fixtures and appurtenances owned by the
Company and attached to the Leased Real Property on the date hereof
as listed on Schedule 1.6 hereof.
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"Liabilities" shall mean any and all obligations or liabilities of
the Company of any nature whatsoever, express or implied, disputed,
liquidated or unliquidated, absolute, fixed or contingent, known or
unknown.
"Non-Competition Agreement" shall mean the Non-Competition
Agreement between Jason Chon and the Company in the form attached
hereto as Schedule 1.7.
"Liens" shall mean mortgages, liens, pledges, claims, charges,
security interests, conditional sale agreements, license agreements,
options, imperfections of sale, tenancies or other rights, interests
or encumbrances of any nature whatsoever.
"Preliminary Financial Statements" shall mean a Balance Sheet,
Statement of Income and Retained Earnings, Statement of Cash Flows
and Notes thereto of the Company as of the last day of the month
preceding the month in which the Closing occurs (the "Preliminary
Balance Sheet Date") prepared in accordance with generally accepted
accounting principles consistently applied and in a manner consistent
with the Company's historical preparation of financial statements for
the Business.
"Prepaid Items" shall mean all of the Company's prepaid expenses,
including but not limited to advances and deposits, all as listed on
Schedule 1.8, attached hereto.
"Rights and Other Property" shall mean all of the Company's assets
not included in the Accounts Receivable, Cash, Equipment,
Intellectual Property and Information, Inventory, Leasehold
Improvements and Fixtures, Prepaid Items and Leased Real Property
used or useful in carrying out the Business, including, without
limitation, all of the following which relate to the Business:
interests or other securities in any corporation, partnership or
other entity owned by the Company, the Company' rights under the
agreements identified in Schedule 4.13, rights of offset, credits,
claims against third parties, causes of action, judgments, proceeds
of insurance, going concern value, goodwill, rights in the name
"Locus Corporation" and any variation thereof, contract rights,
purchase orders, sales orders, warranties and licenses received from
manufacturers and sellers of Equipment and Inventory, vendor and
customer records, shipping records, franchises, licenses, permits,
consents, approvals, certificates of public convenience, waivers and
authorizations, technical information, telephone numbers, rights,
files, books and records (whether in hard copy or magnetic form),
sales and product brochures and catalogs and other sales literature
and materials.
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"Shares" shall mean the all of the shares of capital stock of the
Company as identified on Schedule 1.9.
ARTICLE II
SALE AND PURCHASE OF SHARES; TRANSACTION CONSIDERATION
Section 2.1. Sale and Purchase of Shares. Subject to the
terms and conditions contained in this Agreement, at the Closing on
the Closing Date, the Selling Stockholder shall sell, assign,
transfer and deliver to Purchaser, and Purchaser shall purchase from
the Selling Stockholder, free and clear of all Liens, all of the
Shares.
Section 2.2. Transaction Consideration. The total purchase price
for the Shares (the "Purchase Price") shall be consist of cash and
shares of the Purchaser's unregistered Common Stock (the "DCI
Shares") as follows:
(a) At Closing, Purchaser shall pay the Selling
Stockholder $10,000,000 in cash in immediately available funds in
accordance with wire transfer instructions to be furnished by the
Selling Stockholders at least one day before the Closing Date; and
(b) At Closing, Purchaser shall issue to the Selling
Stockholder 7,500,000 DCI Shares.
Section 2.3. Closing Date Financial Statements.
(a) Preliminary Financial Statements. No later than two
(2) business days prior to the Closing Date, the Company shall, at
its sole expense, deliver to Purchaser the Preliminary
Financial Statements, provided, however, that the Company shall not
be obligated to deliver Preliminary Financial Statements sooner than
the tenth day after the end of the month to which such Preliminary
Financial Statements pertain.
(b) Closing Date Financial Statements. The Company
shall, at its sole expense and within ten (10) days following the
Closing Date, deliver to Purchaser a Balance Sheet, Statement of
Income and Retained Earnings, Statement of Cash Flows and Notes
thereto of the Business as of the Closing Date (the "Closing Date
Financial Statements") prepared in accordance with generally
accepted accounting principles consistently applied.
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ARTICLE III
CLOSING
Section 3.1. Closing.
(a) General. Unless otherwise agreed to by the parties
hereto, the closing under this Agreement (the "Closing") will be
held at the offices of Whitman Breed Abbott & Morgan, 100 Field
Point Road, Greenwich, Connecticut 06830.
(b) Deliveries. At the Closing:
(i) the Selling Stockholder will deliver to Purchaser:
(A) Certificates representing all of his
Shares duly endorsed in blank or accompanied by stock powers or
other instruments of transfer duly executed in blank, and such
other instruments of transfer, sale and assignment as shall be
necessary to vest in Purchaser good title to, or to assign and
transfer to Purchaser all of the Selling Stockholder's and the
Company's right, title and interest in the Shares and the Assets;
(B) All other agreements, certificates,
consents, approvals and documentary evidence required to be
delivered pursuant to Sellers' obligations hereunder and a
certificate confirming the accuracy of their representations and
warranties made in Article IV hereof; and
(C) Executed originals or counterparts of the
Employment Agreement and the Non-Competition Agreement.
(ii) Purchaser will pay to the Selling Stockholder the
Purchase Price specified in Section 2.2 (a) and (b) and
will deliver to Sellers such agreements, certificates, consents,
approvals and documentary evidence required to be delivered pursuant
to Purchaser's obligations hereunder and a certificate confirming the
accuracy of its representations and warranties made in Article V
hereof.
(c) Expenses. The Purchaser and the Selling Stockholders
shall each be responsible for payment of their respective costs in
connection with the execution and delivery of this Agreement and
consummation of the transactions contemplated hereby, provided,
however, that any sales taxes, property transfer taxes and similar or
related taxes payable in connection with the transfer of the Shares
and Assets shall be paid by the Selling Stockholders.
(d) Subsequent Documentation. Each of the Sellers shall
at any time and from time to time upon the request of Purchaser
<PAGE>
execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, all such further assignments and
instruments of sale and transfer as may be reasonably required
for the better assigning, transferring and confirming to Purchaser or
its successors and assigns, or for aiding and assisting Purchaser or
its successors and assigns in collecting and reducing to possession,
any or all of the Shares or Assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RESPECTING
THE COMPANY
Each of the Sellers jointly and severally represents and
warrants to Purchaser as follows:
Section 4.1. Organization and Qualification. The Company is
a corporation duly organized, validly existing and in good
standing under the laws of the State of New Jersey, and is duly
qualified and in good standing as a foreign corporation authorized to
transact business and to own and lease property in each jurisdiction
in which the nature of the business conducted by it or the character
or location of the properties owned or leased by it requires such
qualification in order to avoid liability or disadvantage. All of
such jurisdictions are listed on Schedule 4.1.
Section 4.2. Due Authorization. The execution and delivery
of this Agreement by each of the Sellers and the sale of the
Shares and performance of the obligations of each of the Sellers
contemplated hereby and by the Employment and Non-Competition
Agreements (together, the "Seller Agreements") have been duly and
validly authorized by all necessary corporate and shareholder action.
Each of the Sellers has the right, power and authority to enter into
and perform this Agreement and the Seller Agreements, and this
Agreement constitutes, and the Seller Agreements will, upon their
execution, constitute, the valid and binding obligations of the
Sellers, enforceable against the Sellers in accordance with their
terms.
Section 4.3. Conflict with other Instruments: Absence of
Restrictions. The execution, delivery and performance of this
Agreement and of the Seller Agreements by each of the Sellers,
including without limitation the transfer of the Shares by the
Selling Stockholders to Purchaser, will not contravene any provision
of the Company's articles of incorporation or by-laws and will not
result in a breach of, or constitute a default under, any agreement
or other document to which any of the Sellers is a party or by which
any of the Sellers is bound, or any decree, order or rule of any
domestic or foreign court or governmental agency or any provision of
<PAGE>
applicable law which is binding on any of the Sellers or on any of
the Assets, or result in the creation or imposition of any mortgage,
pledge, lien, charge, assessment, encumbrance, claim or restriction
of any nature on any of the Company, the Shares or the Assets or give
to others any interest or rights therein or create in any third party
the right to modify, terminate or accelerate (or to make a claim for
damages in respect of) any instrument or contract to which any of the
Sellers is a party or by which any of the Sellers is bound. To
Sellers' best knowledge, the execution, delivery and performance of
this Agreement and of the Seller Agreements by each of the Sellers,
including without limitation the transfer of the Shares by the
Selling Stockholder to Purchaser, will not adversely affect
performance by third parties, or adversely change the obligations of
any of the Sellers, under any instrument or contract to which any of
the Sellers is a party or by which any of the Sellers is bound.
Section 4.4. Government and Third-Party Approvals. Except as
set forth on Schedule 4.4, To Sellers' best knowledge, except for
state and federal regulatory agency approvals of the change in
control of the Company, no consent by, approval or authorization of
or filing, registration or qualification with any federal, state or
local authority, or any foreign governmental authority, or any
corporation, person or other entity (including any party to any
contract or agreement with any of the Sellers) is required (i) for
the execution, delivery or performance of this Agreement or the
Seller Agreements by any of the Sellers, (ii) in connection with the
consummation by the Sellers of the transactions contemplated hereby
and thereby or (iii) in order to vest in Purchaser good and
marketable title in and to all of the Shares upon the Closing.
Section 4.5. Title to Shares and Assets and Related Matters. The
Selling Stockholders have good, valid and marketable title to
all of the Shares and the Company has good, valid and marketable
title to all of its assets constituting the Assets, whether
tangible or intangible, and whether consisting of real or
personal property and all such Shares and Assets are held free and
clear of any Liens except the Liens identified on Schedule 4.5 and
liens for current taxes and assessments not yet due and payable. The
instruments of transfer to be executed by the Selling Stockholders at
the Closing will be effective to transfer to Purchaser good and
marketable title to, and assign to Purchaser all of the Selling
Stockholders' right, title and interest in and to, the Shares free
and clear of any Liens.
Section 4.6. Other Representations Regarding Assets and Shares.
(a) Accounts Receivable. All of the Accounts Receivable
as of the Preliminary Financial Statement Date will be reflected
on the Preliminary Financial Statements and all of the Accounts
Receivable as of the Closing Date will be reflected on the
<PAGE>
Closing Date Financial Statements. The Accounts Receivable listed on
the Preliminary Financial Statements and/or on the Closing Date
Financial Statements (i) have arisen or will arise solely in the
ordinary course of business of the Company; and (ii) represent or
will represent, upon their creation, valid obligations due to the
Company and are enforceable or will, upon their creation, be
enforceable in accordance with their terms, provided that nothing
herein shall constitute or imply a guarantee of collectibility of the
Accounts Receivable. At the Purchaser's request, an aging of Accounts
Receivable will be provided to the Purchaser before Closing.
(b) Cash Accounts. Schedule 4.6(b) lists each bank and
mutual fund account and safe deposit box of the Company and each
person authorized to sign checks or withdraw funds from such
accounts and to have access to such safe deposit boxes.
(c) Equipment. The items of Equipment are, and on the
Closing Date will be, in good working order and fit for their
intended use exclude, ordinary wear and tear excepted. The Equipment
includes all of the motor vehicles and other machinery and equipment
currently used in the operation of the Business.
(d) Inventory. All raw materials and supplies held or owned
by the Company for use in the Business are fit for their intended use
and are in good and usable condition, and all product inventories
held or owned by the Company are in first class condition appropriate
for distribution and sale in the ordinary course of business.
(e) Leasehold Improvements. The Leasehold Improvements
are, and on the Closing Date will be, in good working order and
fit for their intended use, ordinary wear and tear excepted. The
Leasehold Improvements include all of the leasehold improvements,
fixtures and appurtenances currently used in operating the Business.
To Sellers' best knowledge, all of the Leasehold Improvements may be
removed by the current lessee from the premises on which they are
attached without giving rise to any obligation on the part of the
Company, as the lessee, to compensate the applicable landlord for any
diminution in the value of the leased premises as a result of such
removal.
(f) Real Property. Seller has previously delivered to
Purchaser copies of the Leases for the Leased Real Property.
With respect to the Leases for the Leased Real Property, no
breach or event of default on the part of Company, no breach or
event of default on the part of any other party thereto and no
event that, with the giving of notice or lapse of time, or both,
would constitute such breach or event of default has occurred and
is continuing unremedied or unwaived that could adversely affect
the Condition.
<PAGE>
To Seller's best knowledge, the buildings and improvements
constituting a part of the Leased Real Property, and the operation or
maintenance thereof as operated and maintained, do not contravene any
zoning or building law or ordinance or other administrative
regulation or violate any restrictive covenant or any provision of
federal, state or local or foreign law. There is no outstanding
notice of violation, order or citation against the Company under any
law, ordinance, governmental rule or regulation relating to any of
the Leased Real Property.
No real property is owned, leased, operated, occupied or used
by the Company in connection with the operation of the Business,
other than the Leased Real Property.
(g) Intellectual Property and Information. The
Intellectual Property and Information includes all of the
Company's industrial and intellectual property rights which are used
or useful in operating the Business. No claim is pending or
threatened to the effect that (i) the present or past operations
of the Business infringe upon or conflict with the asserted
rights of any other person in respect of any Intellectual Property
and Information or (ii) any Intellectual Property and Information is
invalid or unenforceable. No contract, agreement or understanding
with any party exists that would impede or prevent the ownership or
use by Purchaser of the entire right, title and interest of the
Company in and to the Intellectual Property and Information. None of
the patents, trademarks, trade names, service marks, copyrights,
computer programs or trade secrets included within the Intellectual
Property and Information infringes on the rights of third parties.
(h) Generally. The Assets constitute all of the assets of
the Company used in carrying out the Business, and the Assets
constitute all of the assets set forth on the December 31, 1997
Financial Statements, the Preliminary Financial Statements and the
Closing Date Financial Statements (other than such assets as the
Company shall have disposed of since such dates in the ordinary
course of business consistent with past practices).
(i) Subsidiaries. The Company has no subsidiaries and
<PAGE>
has never had any subsidiaries. Locus and LTI are corporations which
are under the common control of the Selling Stockholders and are
therefore Affiliates of each other. Locus and LTI are also Affiliates
of LPI, an inactive Delaware corporation which is not included in the
transaction contemplated by this Agreement.
(j) Shares. All of the Shares are duly authorized,
validly issued and outstanding, fully paid and nonassessable.
The Selling Stockholders are the record and beneficial owners of all
of the Shares as set forth in Schedule 1.9, free and clear of any and
all Liens. The Shares are transferable without restriction. There
are no agreements, commitments or restrictions relating to the
ownership or voting of any of the Shares.
(k) Options or Other Rights. There is no outstanding
option, warrant, call, commitment, subscription, conversion
privilege or other agreement requiring the issuance, sale,
disposition, purchase or redemption of any shares of stock or
other securities of the Company (and there is no agreement or
commitment to issue any such option, warrant, call, subscription,
conversion privilege or other right). None of the shares of stock or
other securities of the Company are reserved for issuance for any
purpose.
Section 4.7. Conduct of Business. Between December 31, 1997 and
the date hereof, the Sellers have conducted the Business only in the
ordinary course and in a manner consistent with their past
practices.
Section 4.8. Absence of Liabilities. On December 31, 1997, the
Preliminary Financial Statement Date and the Closing Date the
Company had or will have no Liabilities except as and to the
extent reflected in the Financial Statements of such dates or in this
Agreement or in any Schedule hereto and except for potential federal
pay phone compensation liability for dial around calls and the
Universal Service Fund Fees which may be applicable to pay phone
companies and which has not been paid or reserved for in the
Financial Statements. The Company has no Liabilities and no basis
for any such Liability exists other than(i) any reflected in the
Financial Statements referred to herein, in this Agreement or in any
Schedule hereto or (ii) any arising since the date of the Financial
Statements in the ordinary course of business of the Company and in
compliance with the covenants and agreements herein contained.
Section 4.9. Permits and Approvals. To Sellers' best knowledge,
except for state and federal regulatory agency approvals of the
change in control of the Company, Schedule 4.9 contains a true and
correct description of all licenses, permits, approvals,
authorizations, consents and registrations pertaining to the
Business, the Assets and the Company, all of which are in full force
and effect, and the Business is currently being operated in
<PAGE>
compliance with the terms of each of the foregoing. Except as set
forth on Schedule 4.9, Purchaser will not be required, prior to or
following the Closing, to file, apply for or obtain any license,
permit, approval, authorization, consent or registration in order to
own and operate the Assets and the Business as currently owned and
operated by the Company.
Section 4.10. Compliance with Law. To Sellers' best knowledge,
Sellers have complied with each, and the Sellers are not in violation
of, any, law, ordinance or governmental rule or regulation to which
the Company, the Business or the Assets are subject, other than with
respect to the payment of pay phone compensation liability for dial
around calls and the Universal Service Fund Fees specified above. and
has not failed to obtain, or to adhere to the requirements of, any
license, permit or authorization necessary to the ownership of the
Assets or the operation of the Company or the Business.
Section 4.11. Litigation. Except as set forth on Schedule
4.11, no litigation, arbitration, investigation or other
proceeding of or before any court, arbitrator or governmental or
regulatory official, body or authority is pending or, to the
knowledge of the Sellers, threatened against Sellers with respect to
the Company, the Business or any of the Assets, and the Sellers know
of no basis for any such litigation, arbitration, investigation or
proceeding; and the Sellers are not a party to or subject to the
provisions of any judgment, order, writ, injunction, decree or award
of any court, arbitrator or governmental or regulatory official, body
or authority which affects the Company, the Business or the Assets or
their operation.
Section 4.12. Absence of Changes. Between December 31, 1997 and
the date hereof there has not been and between the date hereof and
the Closing Date there will not be:
(a) Any material change in the Condition, except changes
in the ordinary course of business, none of which individually or
in the aggregate has been or will be prior to the Closing
materially adverse to the Company, the Business or the Assets or
could materially affect the Condition;
(b) Any damage, destruction or loss, whether or not
covered by insurance or any other event or condition which has
had or would have a material adverse effect, in the aggregate, on the
Assets or on the Condition;
(c) Any sale or transfer of any of the assets of the
Company, except in the ordinary course of business;
(d) Any Lien created or suffered to be created by the
Sellers on any of the Assets;
<PAGE>
(e) Any declaration, setting aside or payment of any
dividends on any other distribution in respect of, or any direct
or indirect repurchase, redemption or other acquisition of any of
the capital stock of the Company;
(f) Any transaction entered into by or binding upon the
Company other than in the ordinary course, provided that the Company
may implement plans to purchase another switch for approximately
$250,000;
(g) Any claims (other than accounts payable, taxes and
claims of trade creditors incurred in the ordinary course of
business) relating to the Company, the Business or
the Assets not covered by applicable policies of liability
insurance within the maximum insurable limits of such policies;
(h) Any cancellation of contracts relating to the
Company; or
(i) Any material deterioration in the financial or
competitive prospects of the Company.
Section 4.13. Contracts, Leases, Etc. Except as listed and
described on Schedule 4.13 or any other Schedule attached hereto,
the Company is not a party to any written or oral:
(a) agreement or commitment with any present or former
shareholder, director, officer, employee or consultant or for the
employment of any person, including any consultant;
(b) agreement, commitment or arrangement with any labor
union or other representative of employees;
(c) agreement or commitment for the future purchase of,
or payment for, supplies or products, or for the performance of
services by a third party which involves in any one case Twenty-five
Thousand Dollars ($25,000.00) and is not cancelable on thirty (30)
days notice or less without penalty except that the Company may
implement plans to purchase another switch for approximately
$250,000;
(d) representative, distribution, purchase or sales
agency agreement, contract or commitment;
(e) lease under which the Company is either lessor or
lessee;
(f) note, debenture, mortgage, pledge, charge, security
agreement, bond, conditional sale agreement, equipment trust
agreement, letter of credit agreement, loan agreement or other
<PAGE>
contract or commitment for borrowing or lending of money
(including, without limitation, loans to or from officers,
directors or any member of their immediate families) agreement or
arrangements for a line of credit or guarantee, pledge or
undertaking of the indebtedness of any other person;
(g) agreement, contract or commitment for any capital
expenditure in excess of Twenty-five Thousand Dollars ($25,000.00),
except that the Company may purchase another switch for approximately
$250,000;
(h) agreement, contract or commitment limiting or
restraining it from engaging or competing in any lines of
business with any person;
(i) license, franchise, distributorship or other similar
agreement, including those which relate in whole or in part to
any patent, trademark, trade name, service mark or copyright or to
any ideas, technical assistance or other know-how;
(j) profit sharing, stock purchase, stock option,
pension, retirement, long-term disability, hospitalization,
insurance or similar material plans providing employee benefits;
(k) other agreement requiring payments or other
consideration by or from the Company in excess of Twenty-five
Thousand Dollars ($25,000.00) during the remainder of its term except
that the Company may implement plans to purchase another switch for
approximately $250,000; or
(l) other material agreement, contract or commitment not
made in the ordinary course of business.
(All of the foregoing agreements, contracts, commitments,
leases and other instruments, documents and undertakings being
called the "Contracts").
To Sellers' best knowledge, each of the Contracts is valid and
enforceable in accordance with its terms; the parties thereto are in
compliance with the provisions thereof; to Sellers' best knowledge,
no party is in default in the performance, observance or fulfillment
of any obligation, covenant or condition contained therein; no event
has occurred which with or without the giving of notice or lapse of
time, or both, would constitute a default thereunder; and to Sellers'
best knowledge the Company's rights under the Contracts will not be
affected by the purchase of the Shares by Purchaser and are
transferable by the Company to Purchaser without restriction (except
for the approvals and consents listed on Schedule 4.4). None of the
terms or provisions of any of the Contracts adversely affects the
Condition or includes a restriction on the Company's ability to
compete.
<PAGE>
Section 4.14. Relationship With Customers and Suppliers. The
Company has used its reasonable business efforts to maintain, and
currently maintains, good working relationships with all of its
customers and suppliers. Schedule 4.14 contains a list of the names
of each of the five (5) customers who, in the aggregate, for the
three (3) fiscal years ending December 31, 1995, 1996 and 1997, were
the largest dollar volume customers of products and services sold by
the Company. None of said customers has given the Company notice
terminating, canceling or threatening to terminate or cancel any
contract or with the Company. Schedule 4.14 also contains a list of
the five (5) suppliers of the Company who, in the aggregate, for the
three (3) fiscal years ending December 31, 1995, 1996 and 1997, were
the largest dollar volume suppliers of supplies used by Seller. None
of said suppliers has given the Company notice terminating, canceling
or threatening to terminate or cancel any contract or relationship.
Section 4.15. Taxes. Except for possible federal pay phone
compensation for dial around calls and Universal Service Fund fees
which may be applicable to phone companies, the Company has duly and
timely filed with the appropriate governmental agencies (federal,
state, local and foreign) all tax and other returns required to be
filed by it. The Company has paid, or has made sufficient provision
for the payment of, all taxes required (i) to be paid by it for all
fiscal and other applicable tax periods which have ended or (ii) to
be accrued for the portion of the current fiscal or other current
applicable tax period up to the day prior to the Closing Date. No
deficiencies for any taxes have been asserted in writing or assessed
against the Company which remain unpaid and which individually or in
the aggregate are material to the Condition.
Section 4.16. Insurance. Schedule 4.16 sets forth a list of
all policies or binders of fire, liability, product liability,
worker's compensation, vehicular or other insurance (including
all self-insurance programs) held or maintained by or on behalf of
the Company (specifying for each such insurance policy, except the
policies for worker's compensation and vehicular insurance, the
insurer, the policy number or covering note number with respect to
binders, and each pending claim thereunder of more than $5,000 and
setting forth the aggregate amounts paid out under each such policy
through the date hereof). To Sellers' best knowledge, such policies,
programs and binders are valid, in full force and effect and
sufficient to protect the Company, the Business and the Assets
against all insured hazards.
Section 4.17. Officers. Schedule 4.17 lists each of the
officers of the Company (collectively, the "Officers") and the
aggregate compensation as base annual salary, wages and bonuses paid
to each such Officer during the twelve months ended December 31,
1996, December 31, 1997 and the date on which the most recent salary
<PAGE>
increase went into effect for each of the Officers and the amount of
each such increase.
Section 4.18. Strikes, Picketing, etc: Overtime, Back Wage,
Vacation, Discrimination, and Occupational Safety Claims. There
has never been any strike, picketing, work stoppage or labor
dispute by any union or other group of employees of the Company,
and to the knowledge of the Company, no such action or dispute
has been threatened. There are no outstanding claims against the
Company (whether under federal, state or foreign law, under any
employment agreement, union labor contract or otherwise) asserted
by any present or former employee of the Company on account of or
for (i) wages, salary, overtime pay or vacation pay or pay in
lieu of vacation time, other than overtime pay for work done
during the current payroll period; or (ii) any violation of any
statute, ordinance or regulation relating to minimum wages or
maximum hours of work. No person or party has asserted or
threatened to assert any claims against the Company arising out
of any statute, ordinance or regulation relating to
discrimination or occupational safety in employment or employment
practices (including, without limitation, the Occupational Safety
and Health Act of 1970, as amended, the Fair Labor Standards Act,
as amended, Title VII of the Civil Rights Act of 1964, as
amended, or the Age Discrimination in Employment Act of 1967, as
amended).
Section 4.19. Pension and Other Employee Benefit Plans. There
is set forth or identified in Schedule 4.19 all of the plans,
funds, policies, programs, arrangements or understandings
sponsored or maintained by the Company which provide any employee
of the Company(or any dependent or beneficiary of any such
employee) with (i) retirement benefits; (ii) severance or
separation from service benefits; (iii) incentive, performance,
stock, share appreciation or bonus awards; (iv) health care
benefits; (v) disability income or wage continuation benefits;
(vi) supplemental unemployment benefits; (vii) life insurance,
death or survivor's benefits; (viii) accrued sick pay or vacation
pay; or (ix) any other type of material benefit offered under any
arrangement subject to characterization as an "employee benefit
plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and
not excepted by Section 4 of ERISA (the foregoing being
collectively called "Employee Benefit Plans"). None of such
Employee Benefit Plans is an "employee benefit pension plan" or a
"pension plan" as defined in Section 3(2) of ERISA. As to any
Employee Benefit Plan identified in Schedule 4.19, each of the
following is true: (i) all amounts due from the Company as
contributions to the date hereof have been paid or accrued on
<PAGE>
their books; (ii) the Company and any Affiliated Company (as
hereinafter defined) have performed or satisfied all material
obligations required to be performed or satisfied by them under,
and are not in default under or in violation of, any Employee
Benefit Plan and, to the best of Sellers' knowledge, no other
party is in default thereunder or in violation thereof; (iii) the
Company and any Affiliated Company are in compliance in all
material respects with the requirements (including reporting and
disclosure requirements applicable to them) prescribed by all
statutes, orders or governmental rules or regulations applicable
to the Employee Benefit Plans, including, but not limited to,
ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"); (iv) neither the Company nor any Affiliated Company or
any other "disqualified person" or "party in interest" (as
defined in section 4975 of the Code and section 3(14) of ERISA,
respectively) has engaged in any "prohibited transaction," as
such term is defined in section 4975 of the Code or section 406
of ERISA, which could subject any Employee Benefit Plan (or its
related trust), the Company or any Affiliated Company, Purchaser,
any shareholder, officer, director, partner or employee of the
Company, any Affiliated Company or Purchaser, or any trustee,
administrator or other fiduciary of any Employee Benefit Plan to
the tax or penalty imposed under section 4975 of the Code or
section 502(i) of ERISA; and (v) there are no material actions,
suits or claims pending (other than routine claims for benefits)
or, to the best of Sellers' knowledge, threatened, against any
Employee Benefit Plan or against the assets of any Employee
Benefit Plan. For purposes of this Section 4.19, "Affiliated
Company" shall mean any member (whether or not incorporated) of a
group which is part of a controlled group of corporations or
under common control (within the meaning of the regulations
promulgated under Section 414 of the Code) and of which the
Company is a member. The Company does not maintain or
participate in, and has never maintained or participated in, any
"multi-employer plans" as defined in Section 3(37) of ERISA.
Section 4.20. Contracts with Affiliates. There are no
contracts, obligations or arrangements between the Company and
any Affiliate, director, officer, shareholder or employee of the
Company, or any Affiliate of any such person.
Section 4.21. Commission. Neither the Sellers nor anyone
acting on their behalf has made any agreement or taken any action
which may cause anyone claiming through Sellers to become
entitled to a commission as a result of the sale of the Shares or
the consummation of the other transactions contemplated by this
Agreement except for Mr. Robert Cefale of R,C& A Group, whose
commission or finder's fee will be paid by the Selling
Stockholders.
<PAGE>
Section 4.22. Statements and Other Documents Not Misleading.
Neither this Agreement, including all Schedules, nor any other
financial statement, document or other instrument heretofore or
hereafter furnished by Sellers to Purchaser in connection with
the transactions contemplated hereby contains or will contain any
untrue statement of any material fact or omits or will omit to
state any material fact required to be stated in order to make
such statement, document or other instrument not misleading.
There is no fact known to Sellers which may materially adversely
affect the Condition which has not been set forth in this
Agreement or the Schedules.
Section 4.23. Acquisition of DCI Shares for Investment. The
Selling Stockholder is acquiring the DCI Shares for investment
and not with a view toward, or for sale in connection with, any
distribution thereof, nor with any present intention of
distributing or selling such shares.
Section 4.24. Financial Statements. Each of the financial
statements of the Company (including, in each case, any related
notes thereto) provided to Purchaser by the Sellers (including
without limitation the March 31, 1998 Financial Statements, the
Preliminary Financial Statements and the Closing Date Financial
Statements) was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes
thereto) and each fairly presented or will fairly present the
financial position of the Company as at the respective dates
thereof and the results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in
amount.
ARTICLE V
REPRESENTATIONS AND WARRANTIES RESPECTING PURCHASER
Purchaser represents and warrants to the Sellers as follows:
Section 5.1. Organization and Qualification. Purchaser is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Colorado, and is duly qualified
and in good standing as a foreign corporation authorized to
transact business and to own and lease property in each
jurisdiction in which the nature of the business conducted by it
or the character or location of the properties owned or leased by
it requires such qualification in order to avoid liability or
disadvantage. All of such jurisdictions are listed on Schedule
5.1.
<PAGE>
Section 5.2. Due Authorization. The execution and delivery
of this Agreement by Purchaser and the purchase of the Shares and
performance of the obligations of Purchaser contemplated hereby
have been duly and validly authorized by all necessary corporate
action. Purchaser has the corporate right, power and authority to
enter into and perform this Agreement, and this Agreement
constitutes the valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms.
Section 5.3. Conflict With Other Instruments: Absence of
Restrictions. The execution, delivery and performance of this
Agreement and of the Employment Agreement by Purchaser, including
without limitation the issuance of DCI Shares to the Selling
Stockholders, will not contravene any provision of the
certificate of incorporation or by-laws of Purchaser and will not
result in a breach of, or constitute a default under, any
agreement or other document to which Purchaser is a party or by
which Purchaser is bound, or any decree, order or rule of any
court or governmental agency or any provision of applicable law
which is binding on Purchaser or result in the creation or
imposition of any mortgage, pledge, lien, charge, assessment,
encumbrance, claim or restriction of any nature on the Purchaser
or give to others any interest or rights therein or create in any
third party the right to modify, terminate or accelerate (or to
make a claim for damages in respect of) any instrument or
contract to which the Purchaser is a party or by which the
Purchaser is bound. To Purchaser's best knowledge, the
execution, delivery and performance of this Agreement and of the
Employment Agreement by the Purchaser, including without
limitation the issuance of DCI Shares to the Selling
Stockholders, will not adversely affect performance by third
parties, or adversely change the obligations of the Purchaser,
under any instrument or contract to which the Purchaser is a
party or by which the Purchaser is bound.
Section 5.4. Government and Third-Party Approvals. To
Sellers' best knowledge, except for such state and federal
regulatory agency approvals as the Company and the Selling
Stockholders may determine are necessary for the change in
control of the Company, no consent by, approval or authorization
of or filing, registration or qualification with any federal,
state or local authority, or any corporation, person or other
entity (including any party to any contract or agreement with
Purchaser) is required (i) for the execution, delivery or
performance of this Agreement or the Seller Agreements by
Purchaser (ii) in connection with the Purchaser's consummation of
the transactions contemplated hereby and thereby or (iii) in
order to vest in Purchaser good and marketable title in and to
all of DCI Shares upon the Closing. Counsel for the Company shall
<PAGE>
determine what state regulatory approvals are necessary for the
change in control of the Company and shall opine in accordance
with Section 7.12(h) hereof that such approvals have been applied
for and will be obtained.
Section 5.5. Commission. Neither Purchaser nor anyone acting
on its behalf has made any agreement or taken any action which
may cause anyone claiming through Purchaser to become entitled to
a commission as a result of the purchase of the Shares or the
consummation of the other transactions contemplated by this
Agreement.
Section 5.6 Acquisition of Shares for Investment. Purchaser
is acquiring the Shares for investment and not with a view
toward, or for sale in connection with, any distribution thereof,
nor with any present intention of distributing or selling such
shares.
Section 5.7 SEC Filings, Financial Statements. (a) Purchaser
has made available to the Sellers all forms, reports and
documents filed with the Securities and Exchange Commission
("SEC") since March 1, 1998 and all amendments and supplements to
all such reports filed by the Company with the SEC (collectively,
the "DCI SEC Reports").
(b) Each of the financial statements (including, in each
case, any related notes thereto) contained in the DCI SEC Reports
was prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and
each fairly presented the financial position of Purchaser as at
the respective dates thereof and the results of its operations
and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are
not expected to be material in amount.
Section 5.8 DCI Shares. The DCI Shares to be issued pursuant
to this Agreement will be duly authorized, validly issued, fully
paid and nonassessable. The Selling Stockholders will, upon
consummation of the transactions contemplated hereby, be the
record and beneficial owners of all of the DCI Shares free and
clear of any and all Liens, subject to the provisions of Section
6.8 hereof regarding registration and registration rights and
further subject to the provisions of Section 9.3 hereof regarding
the voting of the DCI Shares.
Section 5.9. Absence of Changes. Between December 31, 1997
and the date hereof there has not been and between the date
hereof and the Closing Date there will not be:
<PAGE>
(a) Any adverse change in the Purchaser's financial
condition, except changes in the ordinary course of business,
none of which individually or in the aggregate has been or will
be prior to the Closing materially adverse to the Purchaser, its
business, assets or financial condition;
(b) Any damage, destruction or loss, whether or not
covered by insurance or any other event or condition which has
had or would have a material adverse effect, in the aggregate, on
the Purchaser's assets or on the Condition;
(c) Any sale or transfer of any of the Purchaser's
assets, except in the ordinary course of business;
(d) Any Lien created or suffered to be created by the
Purchaser on any of its assets;
(g) Any claims (other than accounts payable, taxes and
claims of trade creditors incurred in the ordinary course of
business) relating to the Purchaser, its business or its assets
not covered by applicable policies of liability insurance within
the maximum insurable limits of such policies, except as set
forth on Schedule 5.9 hereto;
(h) Any cancellation of contracts relating to the
Purchaser; or
(i) Any material deterioration in the financial or
competitive prospects of the Purchaser.
Section 5.10. Contracts with Affiliates. There are no
contracts, obligations or arrangements between the Company and
any Affiliate, director, officer, shareholder or employee of the
Purchaser, or any affiliate of any such person, except for
employment agreements and obligations pursuant to the Purchaser's
benefit and incentive plans.
Section 5.11. Statements and Other Documents Not Misleading.
Neither this Agreement, including all Schedules, nor any other
financial statement, document or other instrument heretofore or
hereafter furnished by Purchaser to Sellers in connection with
the transactions contemplated hereby contains or will contain any
untrue statement of any material fact or omits or will omit to
state any material fact required to be stated in order to make
such statement, document or other instrument not misleading.
There is no fact known to the Purchaser which may materially
adversely affect the financial condition of the Purchaser which
has not been set forth in this Agreement or the Schedules.
Section 5.12. Financial Statements. The March 31, 1998
<PAGE>
financial statements of the Purchaser provided to the Sellers
were prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be
indicated in the notes thereto) and fairly presented the
financial position of the Purchaser as at the date thereof and
the results of its operations and cash flows for the period
indicated.
ARTICLE VI
CERTAIN COVENANTS AND OTHER MATTERS
Section 6.1. Corporate Examinations and Investigations.
Between the date hereof and the Closing Date, the Company agrees
to cooperate (and to cause its officers, employees, consultants,
agents, attorneys and accountants to cooperate) fully with
Purchaser and with Purchaser's counsel, accountants and
representatives in the conduct of a due diligence investigation
of the Company from financial, legal, environmental, insurance,
valuation, solvency and any other perspectives and, in connection
with such due diligence investigation, to grant to Purchaser and
such representatives access to the properties, records and, with
the prior consent of the Company (which shall not be unreasonably
withheld), employees, customers, creditors, vendors and suppliers
of the Company. No investigation by Purchaser shall diminish any
of the representations, warranties, covenants or agreements of
Sellers under this Agreement or reduce Purchaser's right to
pursue such remedies at law or hereunder as it would otherwise
have in the absence of having conducted such investigation, nor
shall any investigation by the Sellers diminish any of the
representations, warranties, covenants or agreements of the
Purchaser under this Agreement or reduce the Sellers' rights to
pursue such remedies at law or hereunder as they would otherwise
have in the absence of having conducted such investigation.
Section 6.2. Consents, Further Assurances. Consistent with
the terms and conditions hereof, each party hereto will use its
best efforts to execute and deliver such other documents and take
such other actions as reasonably requested by the other party to
fulfill the conditions precedent to the obligation of the other
party to consummate the purchase and sale of the Shares or as the
other party hereto may reasonably request in order to carry out
this Agreement and the transactions contemplated hereby.
Purchaser and Sellers shall use their best efforts and will
cooperate with each other to the extent reasonably necessary to
obtain all consents, approvals and waivers, if any, from third
parties required to consummate the transactions contemplated
hereby or which, if not obtained, would materially adversely
affect the Condition or the operation of the Business or Assets.
<PAGE>
Section 6.3. Conduct of Business Prior to the Closing.
Between the date of this Agreement and the Closing:
(a) The Company shall conduct its business, operations,
activities and practices (including, without limitation, its
maintenance and management of Cash) in the usual and ordinary
course, consistent with its past practices;
(b) The Sellers shall not take, suffer or permit any
action which would render untrue any of the representations or
warranties of Sellers herein contained, and Sellers shall not
omit to take any action the omission of which would render untrue
any such representation or warranty;
(c) The Sellers shall preserve the Company's business
organization intact, keep available to the Company and to
Purchaser the present services of the Company's employees;
preserve for the Company and Purchaser the goodwill of the
Company's suppliers and customers and others with whom business
relationships pertaining to the Business exist; maintain its
tangible property in the same condition as it now exists,
ordinary wear and tear excepted; maintain its insurance policies
in full force and effect; and maintain in full force and effect
all agreements, licenses, permits, authorizations and approvals
necessary for the operation of the Business;
(d) The Company shall not grant or otherwise make, or
agree to grant or otherwise make, any increase in compensation
to any employees;
(e) The Company shall not sell or dispose of any of its
assets used or useful in the operation of the Business (otherwise
than in the ordinary course of business consistent with past
practice);
(f) The Company shall not enter into any agreement not
in the ordinary course of business; and
(g) The Company shall not cancel, waive or modify any
claims or rights owned by, or running in favor of, it, which
claims or rights will be transferred to Purchaser.
Section 6.4. Removal of Liens. The Company covenants and
agrees to cause all of the liens identified on Schedule 4.5
hereof to be removed from the Assets on or prior to the Closing
Date, unless otherwise consented to by Purchaser.
Section 6.5. Notice to Purchaser. Sellers covenant and agree
to provide Purchaser with immediate notice of any occurrence
which could adversely affect the Condition.
<PAGE>
Section 6.6. No Voluntary Bankruptcy Filing. Sellers covenant
and agree that they will not cause the Company to institute any
bankruptcy, reorganization, arrangement or insolvency proceedings
for relief under any bankruptcy or similar law or laws for the
relief of debtors on or prior to the Closing Date.
Section 6.7. Restriction on Certain Discussions and Actions.
Sellers agree that until the Closing Date they will refrain, and
will direct and cause the officers, directors, affiliates,
employees, attorneys, accountants and other agents and
representatives of the Company to refrain, from taking any
action, directly or indirectly, to solicit, encourage, initiate
or participate in any way in discussions or negotiations with, or
furnish any information with respect to the Company, the
Business, the Shares or the Assets to, any person or other entity
(other than Purchaser and its representatives) in connection with
any possible or proposed sale of capital stock, merger or other
business combination involving the Company, the Business or the
acquisition of a substantial equity interest in the Company, the
Business or the Assets or any similar transaction involving the
Business, the Shares or the Assets. The Sellers agree that they
will not (without Purchaser's prior written consent) disclose
this Agreement or the matters referred to herein to any other
prospective acquirer of the Company, the Business the Assets or
the Shares until after the Closing Date.
Section 6.8. Securities Law Restrictions on Transfers;
Registration Rights.
(a) The Selling Stockholders understand that the offer
and/or sale of the DCI Shares constituting the Purchase Price
(the "Registerable Shares") to the Selling Stockholders is not
required to be registered under the Securities Act by reason of a
private placement exemption for the offer and sale of such
shares. The Selling Stockholders further understand that by
virtue of the provisions of certain rules respecting "restricted
securities" promulgated under such federal and/or state laws,
unless such secondary distribution and/or resale is registered,
such DCI Shares which the Selling Stockholders are acquiring by
virtue of this Agreement must be held indefinitely and may not be
sold, transferred, pledged, hypothecated or otherwise encumbered
for value, unless and until such secondary distribution is
registered under the Securities Act and/or state securities laws
or unless an exemption from registration is available, in which
case the Selling Stockholders still may be limited as to the
amount of such shares that may be sold, transferred, pledged
and/or encumbered for value.
<PAGE>
(b) The Selling Stockholders agree that any certificates
evidencing such shares shall be stamped or otherwise imprinted
with a conspicuous legend to give notice of the securities law
transfer restrictions set forth herein and acknowledges that
Purchaser may cause stop transfer orders to be placed on any
Selling Stockholder's account.
(c) The Purchaser agrees to file a registration statement
on Form S-3 or the appropriate form upon request made by the
Selling Stockholders any time subsequent to the expiration of a
six month period after the Closing Date with respect to the
Registerable Shares. Such filing will be made by the Purchaser
not later than thirty (30) days after receipt of the Selling
Stockholders' request to file such registration hereunder.
(d) In addition to the registration rights accorded the
Selling Stockholders pursuant to Section 6.8(c) hereof, whenever
Purchaser proposes to register (either on its own behalf or on
behalf of holders of its equity securities) any of its equity
securities under the Securities Act (other than pursuant to
registrations of equity securities to be sold under one or more
of Purchaser's employee benefit plans on Form S-8), and the
registration form to be used may be used for a registration of
the Registerable Shares, Purchaser will give prompt written
notice to the Selling Stockholders of its intention to effect
such a registration and will include in such registration all
Registerable Shares with respect to which Purchaser has received
written request by the holder thereof for inclusion therein
within 15 days after the mailing of Purchaser's notice. Any
registrations requested pursuant to this Subsection are referred
to herein as "Piggyback Registrations."
(1) Priority on Primary Registrations.
If a Piggyback Registration is an underwritten
primary registration on behalf of Purchaser, and the managing
underwriters advise Purchaser in writing that, in their opinion,
the number of equity securities requested to be included in such
registration exceeds the number which can be sold in such
offering, Purchaser will include in such registration (i) first,
the equity securities Purchaser proposes to sell, (ii) second,
the Registerable Shares requested to be included in such
Piggyback Registration, pro rata among the holders of such
Registerable Shares based upon a fraction, with respect to each
holder, the numerator of which is the number of Registerable
Shares requested to be sold by such holder, and the denominator
of which is the number of Registerable Shares requested to be
included in such Piggyback Registration by all holders of the
Registerable Shares and (iii) third, any other equity securities
requested to be included in such registration.
<PAGE>
(2) Priority on Secondary Registrations.
If a Piggyback Registration is an underwritten
secondary registration on behalf of holders of Purchaser's equity
securities, and the managing underwriters advise DCI in writing
that, in their opinion, the number of equity securities requested
to be included in such registration exceeds the number which can
be sold in such offering, Purchaser will include in such
registration (i) first, the equity securities to be sold in the
secondary offering by the holders of Purchaser's equity
securities, (ii) second, the Registerable Shares requested to be
included in such Piggyback Registration, pro rata among the
holders of such Registerable Shares based upon a fraction, with
respect to each holder, the numerator of which is the number of
Registerable Shares requested to be sold by such holder, and the
denominator of which is the number of Registerable Shares
requested to be included in such Piggyback Registration by all
holders of Registerable Shares, and (iii) third, any other equity
securities requested to be included in such registration.
(3) Expenses of Piggyback Registrations.
Purchaser shall pay all expenses incident to
Piggyback Registrations, including, without limitation, all
registration and filing fees, fees and expenses of compliance
with securities or blue sky laws, printing expenses, messenger
and delivery expenses, and fees and disbursements of counsel for
Purchaser and all independent, certified public accountants,
underwriters (excluding discounts and commissions) and any other
persons retained by Purchaser in connection with such Piggyback
Registrations. The holders of the Registerable Shares requesting
the Piggyback Registration(s) will be required to pay their pro
rata share of any underwriter and/or brokerage commissions,
attributable to the inclusion of the Registerable Shares in the
Piggyback Registration(s).
(4) Other Registrations.
If Purchaser has previously filed a
registration statement with respect to the Registerable Shares
pursuant to a Piggyback Registration and if such previous
registration has not been withdrawn or abandoned, Purchaser will
not file or cause to be effective any other registration
statement with respect to any of its equity securities or
securities convertible or exchangeable into or exercisable for
its equity securities under the Securities Act (except with
respect to securities to be sold under any of Purchaser's
employee benefit plans registered on Form S-8), whether
on its own behalf or at the request of any holder or holders of
such securities, until a period of at least three months has
elapsed from the effective date of such Piggyback Registration.
<PAGE>
(5) Holdback Agreement.
(i) The Selling Stockholder holder agrees
not to effect any public sale or distribution of equity
securities of Purchaser, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven
days prior to and the ninety day period beginning on the
effective date of any underwritten Piggyback Registration (except
as part of such underwritten Registration), unless the
underwriters managing the registered Piggyback public offering
otherwise agree. This restriction shall not apply in the case of
Registerable Shares which have been registered previously in a
Piggyback Registration.
(ii) Purchaser agrees not to effect any public
sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the ninety day
period beginning on the effective date of any underwritten
Piggyback Registration (except as part of such underwritten
registration or with respect to sale of its securities under any
employee benefit plan pursuant to registration on Form S-8),
unless the underwriters managing the registered Piggyback public
offering otherwise agree.
(e) Purchaser's registration obligations under this
Agreement are "best efforts" obligations only and shall in no
event obligate Purchaser to effectuate a shelf registration of
the Registerable Shares under Rule 415. Whenever any Selling
Stockholder has requested that the Registerable Shares be
registered pursuant to the provisions of this Agreement,
Purchaser will use its best efforts to file a registration
statement on Form S-3 or the appropriate form with respect to the
Registerable Shares, and to obtain such approvals or file such
notices as may be required by applicable law in connection with
the issuance, registration or listing of the Registerable Shares,
provided that Purchaser will not be required to:
(i) qualify to do business in any jurisdiction
where it would not otherwise be required
to qualify but for this subparagraph;
(ii) subject itself to taxation in any
jurisdiction where it would not otherwise
be subject to taxation but for this
subparagraph;
(iii)consent to general service of process
in any jurisdiction where it would
not otherwise be subject to process
but for this subparagraph.
<PAGE>
6.9 Tag-Along Rights. The Purchaser shall not approve nor
recommend to its stockholders any transfer of shares of the
common stock of the Purchaser (a "Transfer") whereby the
transferee, together with the transferee's affiliates, shall
obtain a majority of the then outstanding shares of common stock
of the Purchaser, unless the transferee also offers to purchase
at the same time all of the DCI Shares held by the Selling
Stockholders at the same price per Share and upon the same other
terms and conditions applicable to the Transfer. The term "price
per Share" set forth in the preceding sentence shall be deemed to
include any form of payment, compensation or financial benefit
payable directly or indirectly to a stockholder in consideration
for or in connection with the transfer of common stock pursuant
to a Transfer, provided, however, that payment of reasonable
compensation for services to be actually rendered after the sale
shall not be included.
ARTICLE VII
CONDITIONS TO THE OBLIGATION OF PURCHASER
The obligation of Purchaser to proceed with the Closing under
this Agreement is subject to the satisfaction, on or prior to the
Closing, of each of the following conditions, each of which may
be waived by Purchaser:
Section 7.1 Board Approval. This Agreement and the
transactions contemplated hereby and the Non-Competition and
Employment Agreements shall have been approved by the Board of
Directors of the Purchaser.
Section 7.2. Representations and Warranties True. The
representations and warranties of Sellers contained in this
Agreement and the information contained in the Schedules to this
Agreement and any closing documents delivered by Sellers in
connection with this Agreement shall have been true and correct
in all respects when made and shall be true and correct in all
respects at the Closing Date as though made at such time, and
Sellers shall have delivered to Purchaser a certificate to that
effect. In the event that any fact or circumstance pertaining to
a representation or warranty of the Sellers contained in this
Agreement is not true and correct as of the scheduled Closing
Date and the breach of such representation or warranty can be
corrected by action of the Sellers, the Sellers shall have a
period of thirty (30) days after notice from the Purchaser to
cure such breach.
<PAGE>
Section 7.3. Performance of Obligations. The obligations of
the Sellers to be performed by them on or before the Closing
pursuant to the terms of this Agreement shall have been duly
performed and complied with in all respects and, at the Closing,
Sellers shall have delivered to Purchaser a certificate to that
effect.
Section 7.4. Consents. All consents, approvals and waivers
from third parties (including, without limitation, lenders) and
government agencies required to consummate the transactions
contemplated hereby, as specified on Schedule 4.4, or requested
by Purchaser in connection with the consummation of the
transactions contemplated hereby, shall have been obtained. In
the event that the Sellers have not obtained approvals of all
necessary state regulatory agencies for a change in control of
the Company prior to Closing, the Purchaser shall accept an
opinion from counsel for the Company pursuant to Section 7.12(h)
hereof stating that all such approvals as may be necessary have
been applied for and will be granted.
Section 7.5. Absence of Litigation. There shall not be any
litigation or proceeding, pending or threatened (including,
without limitation, any litigation or proceeding arising under
antitrust or securities laws), to restrain or invalidate the sale
and purchase of the Shares or the other transactions contemplated
herein, and no action or proceeding shall be pending or, to the
knowledge of Sellers, threatened against Sellers or the Assets,
at law or in equity, before any federal or state court or
governmental commission or in arbitration or by or before any
administrative agency, which action or proceeding would
materially adversely affect the Condition, nor shall any
judgments, consents, injunctions or any other judicial or
administrative mandates be outstanding against Sellers which
would materially adversely affect the Condition.
Section 7.6. Certified Resolutions. Purchaser shall have
received a certified copy of the resolutions of the Board of
Directors and of the shareholder (if necessary) of the Company
authorizing and approving the execution and delivery of this
Agreement and the consummation of the transactions contemplated
herein and therein.
Section 7.7. Certificates of Good Standing; Tax Lien
Certificates. Purchaser shall have received a good standing
certificate with respect to the Company dated not more than ten
(10) days prior to the Closing Date from the appropriate
governmental officials. Purchaser shall have received a tax
clearance certificate dated not more than thirty (30) days prior
to the Closing Date from the appropriate governmental officials
in each jurisdiction where the Business is conducted.
<PAGE>
Section 7.8. Execution of Certain Agreements. Chon shall
have executed and delivered Employment and Non-Competition
Agreements in the forms contained in Schedules 1.2 and 1.7,
respectively.
Section 7.9. Delivery of Specified Documents. Sellers shall
have delivered to Purchaser all of the documents and instruments
specified in Section 3.1(b)(i) hereof on or prior to the Closing
Date.
Section 7.10. Financing. Purchaser shall have obtained a
financing in the amount of $10 million upon terms and conditions
satisfactory to the Company and its investment bankers within
ninety (90) days after the date this Agreement has been executed.
Purchaser shall use its best efforts to obtain such financing,
but shall not be obligated to accept financing on terms and
conditions which are commercially or competitively unreasonable,
including terms and conditions relating to interest rates, future
financings and acquisitions, or security interests. The Sellers
will cooperate fully with the Purchaser in the Purchaser's
efforts to obtain financing, including the provision of the
Company's financial statements, forecasts and projections to
potential lenders. The Purchaser will keep the Sellers
reasonably informed as to the status of its financing efforts.
Section 7.11. Opinion of Counsel for Sellers. Sellers shall
have delivered to Purchaser an opinion or opinions of counsel
dated the date of the Closing and satisfactory to Purchaser and
its counsel, to the effect that:
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of New Jersey and Seller is duly qualified and in good standing
as a foreign corporation authorized to transact business and to
own and lease property in each jurisdiction in which the nature
of the business conducted by it or the character or location of
the properties owned or leased by it requires such qualification
in order to avoid liability or disadvantage;
(b) Each of the Sellers has the right, power and
authority to enter into this Agreement, and to perform its
obligations under this Agreement, and the Selling Stockholders
have the right, power and authority to sell, assign, transfer,
convey and deliver the Shares and enter into the Non-Competition
and Employment Agreements and to perform their respective
obligations thereunder;
(c) The execution and delivery by Sellers of this
Agreement and the Non-Competition and Employment Agreements and
the performance by Sellers of the transactions contemplated
<PAGE>
hereunder and thereunder have been duly authorized by all
necessary corporate action, including shareholder approval, and
do not and will not contravene any provisions of the Company's
articles of incorporation or by-laws or any instrument or
agreement to which any of the Sellers is a party or which is
binding on the assets of the Company; and this Agreement and the
Non-Competition and Employment Agreements have been duly executed
and represent the valid and binding obligations of Sellers,
enforceable against Sellers, in accordance with their terms,
subject to bankruptcy, reorganization, moratorium, insolvency or
other laws and decisions affecting creditors' rights generally
and to general equity principles;
(d) The instruments of transfer delivered by the Selling
Stockholders to Purchaser at the Closing have been duly
authorized and executed by and are binding and enforceable
against the Selling Stockholders in accordance with their
respective terms, subject to bankruptcy, reorganization,
moratorium, insolvency or other laws and decisions affecting
creditors' rights generally and to general equity principles, and
are effective to transfer and convey good and marketable title to
and assign all of the Selling Stockholders' right, title and
interest in and to the Shares, free and clear of all Liens;
(e) The execution and delivery by Sellers of this
Agreement and the Non-Competition and Employment Agreements and
the performance by Sellers of the transactions contemplated
hereunder and thereunder do not conflict with any law, statute,
regulation or court or administrative order;
(f) Such counsel has not been engaged by Sellers to
devote substantive attention in the form of legal representation
of Sellers with respect to any order, notice, claim, litigation,
proceeding or investigation by or before any court or
governmental agency pending against or directly affecting
Sellers;
(g) Such counsel has no knowledge, without having
undertaken an independent investigation, of any action or
proceeding instituted or threatened by or before any court or
other governmental body to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement, and
the Non-Competition and Employment Agreements or the transactions
contemplated hereby or thereby; and
(h) All consents, permits or approvals as may be
necessary from any federal or state regulatory agency for the
change in control of the Company upon consummation of the
transactions contemplated by this Agreement have been applied for
and obtained, or if not yet obtained as of the Closing Date, will
<PAGE>
be obtained unconditionally in due course thereafter and further
that the transactions contemplated by this Agreement will not be
prevented or invalidated if consummated prior to the issuance of
any such approval.
ARTICLE VIII
CONDITIONS TO THE OBLIGATION OF SELLERS
The obligation of Sellers to proceed with the Closing under
this Agreement is subject to the satisfaction, on or prior to the
Closing, of each of the following conditions, each of which may
be waived by Sellers:
Section 8.1. Board or Shareholder Approval. This Agreement
and the transactions contemplated hereby shall have been approved
by the Company's Board of Directors or the Selling Stockholder.
Section 8.2. Representations and Warranties True. The
representations and warranties of Purchaser contained in this
Agreement and the information in the Schedules to this Agreement
and any closing documents delivered by Purchaser in connection
with this Agreement shall have been true and correct in all
respects when made and shall be true and correct in all respects
at the Closing Date as though made at such time and, at the
Closing, Purchaser shall have delivered to Sellers a certificate
to that effect signed by its President. In the event that any
fact or circumstance pertaining to a representation or warranty
of the Purchaser contained in this Agreement is not true and
correct as of the scheduled Closing Date and the breach of such
representation or warranty can be corrected by action of the
Purchaser, the Purchaser shall have a period of thirty (30) days
after notice from Seller to cure such breach.
Section 8.3. Performance of Obligations. Each of the
obligations of Purchaser to be performed by it on or before the
Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all respects and, at the
Closing, Purchaser shall have delivered to Sellers a certificate
to that effect signed by its President.
Section 8.4. Absence of Litigation. There shall not be any
litigation or proceeding, pending or threatened (including,
without limitation, any litigation or proceeding arising under
antitrust or securities laws), to restrain or invalidate the sale
and purchase of the Shares or the other transactions contemplated
herein which would, in the judgment of Sellers, made in good
faith, involve expense or lapse of time that would be materially
adverse to the interests of Seller.
<PAGE>
Section 8.5. Opinion of Counsel for Purchaser. Purchaser
shall have delivered to Sellers an opinion of its counsel,
Whitman Breed Abbott & Morgan, dated the date of the Closing and
satisfactory to Seller and its counsel, to the effect that:
(a) Purchaser is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of Colorado;
(b) The execution and delivery by Purchaser of this
Agreement and the performance by it of the transactions
contemplated hereunder have been duly authorized by all necessary
corporate action, do not and will not contravene any provisions
of Purchaser's articles of incorporation or by-laws and represent
the valid and binding obligations of Purchaser enforceable in
accordance with their respective terms, subject to bankruptcy,
reorganization, moratorium, insolvency or other laws and
decisions affecting the rights of creditors generally and to
general equity principles; and
(c) Such counsel has no knowledge, without having
undertaken an independent investigation, of any action or
proceeding instituted or threatened by or before any court or
other governmental body to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the
transactions contemplated hereby.
ARTICLE IX
POST-CLOSING COVENANTS OF SELLERS
Section 9.1. Books and Records of Sellers. Following the
Closing, Sellers agree to permit Purchaser and its
representatives to inspect the books and records of the Company
not included in the Assets or the Business insofar as they relate
to the Assets or the Business during regular business hours and
at no expense to Sellers in order for Purchaser and such
representatives to obtain information relevant to the Closing
Date Financial Statements and to Purchaser's tax returns, third
party claims or litigation involving Purchaser, or as otherwise
reasonably required for the conduct of Purchaser's business.
Section 9.2. Voting of DCI Shares. The Selling Stockholders
agree that they will vote all shares of DCI Common Stock owned or
controlled by them in accordance with the recommendations of
management of DCI up to and including the second anniversary of
the Closing Date, provided, however, that the Selling
Stockholders may vote their DCI Shares in their own discretion
with respect to any proposal to:
<PAGE>
(a) take any action that would materially and
adversely alter or change the rights, preferences
or privileges of DCI Common Stock; or
(b) increase or decrease the total authorized
number of shares of DCI Common Stock.
Section 9.4 Pursuit of Regulatory Approvals. The Sellers
will at their expense continue to pursue the approval of any
state and federal regulatory agency as may be necessary for the
change in control of the Company if such approval has not been
granted as of the Closing Date.
ARTICLE X
POST-CLOSING COVENANTS OF PURCHASER
Section 10.1. Books and Records of the Company. Following
the Closing, Purchaser agrees to permit Sellers and their
representatives to inspect the books and records of the Company
included in the Assets insofar as they relate to the period prior
to Closing during regular business hours and at no expense to
Purchaser in order for Sellers and such representatives to obtain
information relevant to the Closing Date Balance Sheet and to
Sellers' tax returns, third party claims or litigation involving
Sellers, or as otherwise reasonably required for the conduct of
Sellers' business. Purchaser agrees to maintain such books and
records for a period of five (5) years after the Closing Date.
10.2 Board Representation. The Selling Stockholder shall be
entitled to serve on the Purchaser's Board of Directors
commencing with the first meeting of such Board following the
Closing Date, and the Selling Stockholder shall continue to be
entitled to serve on such Board for so long as either the
Employment Agreement or the Non-Competition Agreement shall
remain in effect or the Selling Stockholder continues to own at
least 1,500,000 DCI Shares.
ARTICLE XI
SURVIVAL; INDEMNIFICATION; EXPENSES
Section 11.1. General Indemnification.
(a) The Selling Stockholders jointly and severally agree
to (i) indemnify, defend and hold harmless Purchaser, the Company
and each of their directors, officers, employees, affiliates,
<PAGE>
agents and shareholders from and against any and all losses,
damages, liabilities, costs and claims arising out of, based upon
or resulting from (x) any inaccuracy of any representation or
warranty of Sellers which is contained in or made pursuant to
this Agreement, and (y) any breach by any Selling Stockholder of
any of their agreements or obligations contained in or made
pursuant to this Agreement, and (ii) reimburse Purchaser, the
Company and each of their directors, officers, employees,
affiliates, agents and shareholders for any and all fees, costs
and expenses of any kind related thereto (including, without
limitation, any and all Legal Expenses, as defined below). As
used in this Section 11.1, "Legal Expenses" of a person shall
mean any and all reasonable out-of-pocket fees, costs and
expenses of any kind incurred by such person and its counsel in
investigating, preparing for, defending against or providing
evidence, producing documents or taking other action with respect
to any threatened or asserted claim.
(b) Purchaser hereby agrees to (i) indemnify, defend and
hold harmless the Selling Stockholders from and against any and
all losses, damages, liabilities, costs and claims arising out
of, based upon or resulting from (w) any inaccuracy of any
representation or warranty of Purchaser which is contained in or
made pursuant to this Agreement, (x) any breach by Purchaser of
any of its agreements or obligations contained in or made
pursuant to this Agreement, and (y) any liability of Sellers
which Purchaser assumes pursuant to this Agreement; and (ii)
reimburse the Selling Stockholders for any and all fees, costs
and expenses of any kind related thereto (including, without
limitation, any and all Legal Expenses).
(c) Promptly after receipt by any person entitled to
indemnification under this Section 11.1 (an "indemnified party")
of notice of the commencement of any action in respect of which
the indemnify party will seek indemnification hereunder, the
indemnified party shall so notify in writing the person(s) from
whom indemnification hereunder is sought (collectively, the
"indemnifying party"), but any failure so to notify the
indemnifying party shall not relieve it from any liability that
it may have to the indemnified party under this Section 11.1
except to the extent that the indemnifying party's ability to
defend such claim is materially prejudiced by the failure to give
such notice. The indemnifying party shall be entitled to
participate in the defense of such action and to assume control
of such defense; provided, however, that:
(i) the indemnified party shall be entitled to
participate in the defense of such claim and to employ counsel at
its own expense to assist in the handling of such claim;
<PAGE>
(ii) the indemnifying party shall obtain the
prior written approval of the indemnified party before entering
into any settlement of such claim or ceasing to defend against
such claim, if, pursuant to or as a result of such settlement or
cessation, injunctive or other equitable relief would be imposed
against the indemnified party;
(iii) the indemnifying party shall not consent to
the entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the
claimant or plaintiff to each indemnified party of a release from
liability in respect of such claim; and
(iv) the indemnifying party shall not be
entitled to control but shall be entitled to participate at its
own expense in the defense of, and the indemnified party shall be
entitled to have sole control at its own expense over, the
defense or settlement of any claim to the extent the claim seeks
an order, injunction or other equitable relief against the
indemnified party which, if successful, could materially
interfere with the business, operations, assets, condition or
prospects of the indemnified party.
(d) After written notice by the indemnifying party to
the indemnified party of its election to assume control of the
defense of any such action, the indemnifying party shall not be
liable to such indemnified party hereunder for any Legal Expenses
subsequently incurred by such indemnify party in connection with
the defense thereof. If the indemnifying party does not assume
control of the defense of such claims as provided in this
Section 11.1, the indemnified party shall have the right to
defend such claim in such manner as it may deem appropriate at
the cost and expense of the indemnifying party, and the
indemnifying party will promptly reimburse the indemnified party
therefor in accordance with this Section 11.1. The reimbursement
of fees, costs and expenses required by this Section 11.1 shall
be made by periodic payments during the course of the
investigation or defense, as and when bills are received or
expenses incurred.
(e) Any other provision hereof to the contrary
notwithstanding, the parties agree that the representations and
warranties of the parties contained in this Agreement and in any
certificates, documents or instruments delivered pursuant to this
Agreement shall survive for a period of one year after the
Closing Date, regardless of any investigation made by either
party prior to the date hereof or prior to the Closing Date and
regardless of the fulfillment of any condition to Closing set
forth in Article 7 or 8 hereof.
<PAGE>
(f) No indemnification amount shall be payable
hereunder by a party unless and until the aggregate
indemnification liability of such party shall exceed $250,000 and
such indemnification liability shall include only the amount in
excess of such $250,000.
ARTICLE XII
TERMINATION
Section 12.1. Termination. This Agreement may be
terminated prior to the Closing as follows:
(i) at the election of Purchaser, if any condition
set forth in Article VII to its obligation to proceed with the
Closing has not been fulfilled on the Closing Date;
(ii) at the election of Sellers, if any condition
set forth in Article VIII to their obligation to proceed with the
Closing has not been fulfilled on the Closing Date;
(iii) at the election of Purchaser, if Sellers
have materially breached (which shall mean involving a cost in
excess of $250,000) any representation, warranty, covenant or
agreement contained in this Agreement, which breach cannot be or
is not cured by the Closing Date;
(iv) at the election of Sellers, if Purchaser has
materially breached (which shall mean involving a cost in excess
of $250,000) any representation, warranty, covenant or agreement
contained in this Agreement, which breach cannot be or is not
cured by the Closing Date;
(v) at the election of Purchaser or Sellers, if
any legal proceeding is commenced or threatened by any
governmental or regulatory body or other person (other than
Purchaser or Sellers) against the consummation of the Closing and
either Purchaser or Seller, as the case may be, reasonably and in
good faith deem it impractical or inadvisable to proceed in view
of such legal proceeding or threat thereof, taking into account
the potential expense and delay likely to be involved;
(vi) at any time on or prior to the Closing Date,
by mutual written consent of Purchaser and Sellers; or
<PAGE>
(vii) at the election of Purchaser or Sellers, if
the Closing has not occurred on or prior to December 31, 1998.
If this Agreement so terminates, it shall become null and
void and have no further force and effect, except as provided in
Section 12.2.
Section 12.2. Survival. If this Agreement is validly
terminated pursuant to Section 12.1 and the transactions
contemplated hereby are not consummated as described above, this
Agreement shall become void and of no further force and effect;
provided, however, that if Purchaser terminates this Agreement
because any of the conditions contained in Sections 7.1, 7.2, or
7.11 have not been satisfied or if Sellers terminate this
Agreement because any of the conditions contained in Sections
8.1, 8.2 or 8.3 have not been satisfied then the terminating
party shall have the right to pursue all of its legal remedies
for breach of contract and damages; provided further that if this
Agreement is validly terminated pursuant to Section 12.1 and the
transactions contemplated hereby are not consummated as described
above the provisions of any confidentiality agreement between the
parties relating to the obligation of Purchaser to keep
confidential and not to use certain information obtained by it
from Sellers and to return documents and copies thereof to
Sellers and the provisions of Section 12.3 relating to
responsibility for expenses shall survive. No party hereto shall
have any liability to any other party in respect of a valid
termination of this Agreement pursuant to Section 12.1, except to
the extent set forth above.
Section 12.3. Expenses if No Closing. If the Closing does
not occur and the transactions contemplated hereby are not
consummated, then, subject to the right of a non-defaulting party
to recover costs and expenses from a defaulting party pursuant to
Section 12.2, subject to the proviso in Section 3.1(c) hereof and
subject to the provisions of Section 6.3(a) through (d) hereof,
all costs and expenses incurred in connection with this Agreement
shall be paid by the person incurring such expenses, i.e., by
Purchaser if incurred by Purchaser and by Sellers if incurred by
Sellers.
<PAGE>
ARTICLE XIII
GENERAL
Section 13.1. No Tax Representations. Sellers and Purchaser
agree that, except as specifically provided herein, no
representation or warranty has been made by them as to the tax
consequences of the transactions contemplated by this Agreement
or the results of the allocation of the amount of, or the
consideration comprising, the Purchase Price, that each is
engaging separate counsel with respect to such tax consequences,
and that each is assuming its own respective tax liability, if
any, arising out of this Agreement or the consummation of the
transactions contemplated hereunder.
Section 13.2. Regarding the Representations and Warranties.
(a) Independence. Each of the representations
and warranties made by Sellers in Article IV is independent of
the other representations and warranties made therein, and each
of the representations and warranties made by Purchaser in
Article V is independent of the other representations and
warranties made therein.
(b) Knowledge Qualification. Whenever a
representation or warranty is made herein based on the knowledge
of Sellers or Purchaser (as the case may be) such representation
or warranty is made based on the actual or constructive knowledge
of Sellers or Purchaser (as the case may be) and on the knowledge
which Sellers or Purchaser (as the case may be) would have if it
(they) had conducted a diligent inquiry into the subject matter
of the representation or warranty.
Section 13.3. Binding Effect and Assignment. This Agreement
shall be binding upon and inure to the benefit of and be
enforceable by each of the parties and their respective
successors and assigns. This Agreement may not be assigned by
any of the parties hereto without the prior written consent of
the other parties hereto, except that Purchaser, without the
consent of Sellers, may assign any or all of its rights under
this Agreement to an assignee of Purchaser; provided that such
assignment shall not relieve Purchaser of any of its liabilities
and obligations to Sellers hereunder.
Section 13.4. Waiver. Any term or provision of this
Agreement may be waived at any time by the party entitled to the
benefit thereof by a written instrument duly executed by such
party.
<PAGE>
Section 13.5. Dispute Resolution.
(a) Good-Faith Negotiations. If any dispute
arises under this Agreement that is not settled promptly in the
ordinary course of business, the parties shall seek to resolve
any such dispute between them, first, by negotiating promptly
with each other in good faith. If the parties are unable to
resolve the dispute between them within twenty (20) business days
(or such period as the parties shall otherwise agree) through
such negotiations, then any such disputes shall be resolved in
the following manner.
(b) Binding Arbitration. All claims, disputes,
controversies and other matters in question between the parties
to this Agreement, arising out of, or relating to this Agreement,
or the breach thereof and which cannot be resolved by the parties
shall be settled by binding arbitration held in New York, New
York and conducted in accordance with the Commercial Rules of the
American Arbitration Association ("AAA") then in effect. The
parties shall endeavor to agree upon a single arbitrator as to
any claim, dispute or controversy involving less than $250,000.
Any party may insist on three arbitrators for any claim, dispute
or controversy involving more than $250,000. In addition, each
party shall have the right to take discovery of the other party
by any or all methods provided in the Federal Rules of Civil
Procedure. The arbitrator or arbitrators may upon request
exclude any evidence not made available to the other party
pursuant to a proper discovery request from being used in the
arbitration proceeding.
(c) Scope of Arbitration. The arbitrator or
arbitrators shall have no power or authority to add to or detract
from the agreements of the parties. The arbitrator or
arbitrators shall have no authority to award punitive, exemplary,
consequential, special, indirect or incidental damages.
(d) Expenses of Arbitration. The expenses of
arbitration shall be borne equally by Purchaser and the Selling
Stockholders.
Section 13.6. Notices. All notices, requests, demands,
waivers, consents, approvals, or other communications which are
required or permitted hereunder shall be in writing and shall be
delivered personally, sent by reputable overnight courier service
(such as Federal Express), sent by telecopier, or sent by
registered or certified mail, return receipt requested, postage
prepaid, to the addresses set forth below:
<PAGE>
If to Purchaser: Philip Baroff, Esq.
DCI Telecommunications, Inc.
611 Access Road
Stratford, Connecticut 06497
Telecopier: 203-380-0915
With a copy to: Anthony M. Macleod, Esq.
Whitman Breed Abbott & Morgan
100 Field Point Road
Greenwich, Connecticut 06830
Telecopier: 203-869-1951
If to Sellers: Mr. Jason Chon
Locus Corporation
2160 North Central Road
Fort Lee, New Jersey 07024
Telecopier: 201-947-6108
With a copy to: Kenneth I. Schaner, Esq.
Swidler & Berlin
3000 K Street N.W., Suite 400
Washington, D.C. 20007-5116
Telecopier: 202-424-7645
or to such other address or telecopier number as the party
entitled to receive such notice may, from time to time, specify
in writing to the other party.
<PAGE>
Section 13.7. Governing Law. This Agreement shall be
governed as to its validity, interpretation and effect by the
laws of the State of Connecticut.
Section 13.8. No Third-Party Beneficiaries. Notwithstanding
anything to the contrary contained herein, no provision of this
Agreement is intended to benefit any person other than the
signatories hereto nor shall any such provision be enforceable by
any other person.
Section 13.9. Severability. Any provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.
Section 13.10. Schedules. All Schedules referred to in this
Agreement are intended to be and are specifically incorporated by
reference herein.
Section 13.11. Section Headings. All section headings
herein have been inserted for convenience of reference only and
shall in no way modify or restrict any of the terms or provisions
hereof.
Section 13.12. Contents of Agreement. This Agreement sets
forth the entire understanding of the parties hereto with respect
to the transaction contemplated hereby and shall not be amended
or terminated except by a written instrument duly executed by
each of the parties hereto. Any and all prior or contemporaneous
agreements or understandings between the parties regarding the
subject matter hereof are superseded in their entirety by this
Agreement.
Section 13.13. Counterparts. This Agreement may be executed
in two or more fully executed counterparts, each of which shall
be deemed an original, but all of such counterparts together
shall constitute but one and the same instrument.
Section 13.15. Press Releases. Prior to the Closing, except
as may be required by law, (i) Purchaser shall not issue a press
release or make any other public announcement concerning this
Agreement or its subject matter without advance approval thereof
by Sellers, and (ii) Sellers shall not issue a press release or
make any other public announcement concerning this Agreement or
its subject matter without advance approval thereof by Purchaser.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first written above.
LOCUS CORPORATION
By______________________________
Jason Chon
President
________________________________
JASON CHON
________________________________
J.P.LEE
_________________________________
JAMES JU
DCI TELECOMMUNICATIONS, INC.
By______________________________
Joseph J. Murphy
President
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
DCI Telecommunications, Inc.
Joseph J. Murphy
__________________________
Joseph J. Murphy
President
Date: July 26, 1998
