SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14-c of the Securities
Exchange Act of 1934
Check the appropriate box:
x Preliminary information statement Confidential, for use of the Commission
only (as permitted by Rule 14c-5(d) (2))
Definitive information statement
DELTA COMPUTEC INC
-------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
No fee required.
x Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:60
Common and Preferred
(2) Aggregate number of securities to which transaction applies:
18,468,850 Shares of Common, N0 (0) Shares of Preferred
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how It was determined):
$3,425,280.25
(4) Proposed maximum aggregate value of transaction:
$3,425,280.25
(5) Total fee paid:
$686.60 (1/50th of 1% of transaction: .01X .02 X $3,432,999.00 =
$686.60)
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a) (2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
None
(2) Form, Schedule or Registration Statement No.: Schedule 14C (Preliminary
Information Statement)
(3) Filing Party: Delta CompuTec Inc. (DCIS) (4) Date Filed: July 28, 1998
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INFORMATION STATEMENT
August 7, 1998
To shareholders of DELTA COMPUTEC, INC.
Relating to the Pending Merger with ALPHA MICRO MERGER CORP.("Alpha Micro Sub").
This Information Statement relates to the pending merger ("Merger") of
Delta Computec, Inc. ("DCI" or "the Company") with Alpha Micro Merger ("ALPHA
MICRO SUB"), a Delaware Corporation., a wholly owned subsidiary of Alpha
Microsystems, a California corporation. This Information Statement was first
mailed or delivered to shareholders on or about August 7, 1998.
On June 26, 1998, the Board of Directors of the Company approved the
Merger. The Merger is proposed to be approved by shareholders of the Company
holding at least two-thirds (2/3) of the votes, represented by the outstanding
common stock of the Company. The necessary votes to approve the Merger are held
by controlling shareholders. Accordingly, the merger as described herein will
not require that minority shareholders deliver their proxy. This Information
Statement is being furnished to shareholders solely to provide them with certain
information concerning the Merger in accordance with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
regulations promulgated thereunder including particularly Regulation 14C, and
Sections 623 and Article 9 of the Business Corporation Law of New York.
On July 2, 1998, the Company executed a Merger Agreement ("Agreement") with
ALPHA MICRO SUB. The Company anticipates that the Merger, as contemplated by the
Agreement, will be effectuated by August 31, 1998.
Notice is hereby given to the shareholders of DCI that a shareholders'
meeting shall be held on August 31, 1998 at DCI headquarters, 690 Portland
Avenue, Rochester, NY 14621, at 10:00 AM. Each shareholder has certain
appraisal rights pursuant to New York Business Corporation Law Section 623,
a copy of which is attached hereto as Attachment 3.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
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INDEX
INFORMATION STATEMENT
To Shareholders of DCI
SUMMARY................................................................4
PROPOSAL FOR MERGER OF DCI INTO ALPHA MICRO SUB........................4
LIST OF PARTIES TO THE TRANSACTION:....................................5
INFORMATION WITH RESPECT TO ALPHA MICROSYSTEMS.........................5
Alpha Microsystems...................................................5
Business...........................................................5
General Development of Business....................................6
CONSIDERATION FOR MERGER OF DCI INTO ALPHA MICRO SUB...................7
Company Debt Obligations.............................................7
Representations and Warranties.......................................7
Conditions to Closing................................................8
Conduct of Business by DCI Pending the Merger of DCI Into ALPHA
MICRO SUB.........................................................8
Fairness Opinion of Financial Advisors...............................8
THE PURPOSE AND METHODOLOGY OF THE MERGER..............................9
Voting and Beneficial Interests......................................9
Interest of Certain Persons in Matters to be Acted Upon............9
Voting Securities of DCI...........................................9
Securities Ownership of Certain Beneficial Owners and Management...9
INFORMATION WITH RESPECT TO DCI.......................................10
Technical Services..................................................10
Marketing...........................................................10
Legal Proceedings...................................................11
Market Information..................................................12
Management Discussion and Analysis..................................12
General...........................................................13
Management's Discussion and Analysis of Financial Condition and
Results of Operations 1997 Compared to 1996.....................14
No Material Changes..............................................14
Revenues.........................................................15
Costs and Expenses...............................................15
Selling, General and Administrative Expenses.....................15
Inventory and Product Obsolescence...............................15
Interest Expense.................................................15
Income Taxes.....................................................16
Year 2000........................................................16
New Accounting Standards Pronouncements..........................16
Comprehensive Income...........................................16
Inflation........................................................17
Voting and Beneficial Interests..................................17
Security Ownership of Certain Beneficial Owners and Management.18
Beneficial Ownership of Shares of DCI..........................18
Dividends........................................................18
Annual Report....................................................18
FORM 10-K......................................................18
FORMS 10-Q.....................................................18
HISTORICAL FINANCIAL INFORMATION......................................19
Financial Information About Industry Segments.......................19
Market Price and Dividends for the Company Common Equity and Related
Stockholder Matters.............................................19
Selected Financial Data.............................................19
Management's Discussion and Analysis of Financial Condition and
Results of Operation............................................19
Interim Financial Balance Sheet as at June 30, 1998..............19-20
Regulatory Requirements.............................................20
Quantitative and Qualitative Disclosures about market risk..........20
ACCOUNTING TREATMENT OF THE MERGER OF THE SHARES......................20
FEDERAL INCOME TAX CONSEQUENCES.......................................20
Attachment 1.....................................................21-59
Attachment 2.....................................................60-61
Attachment 3.....................................................62-65
Attachment 4........................................................66
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Summary
- -------
On June 26, 1998, the Board of Directors of Delta CompuTec Inc. ("DCI" or
"the Company") authorized the merger of all of the outstanding shares of DCI
into Alpha Micro Merger Corp, (ALPHA MICRO SUB), a Delaware corporation, and a
wholly- owned subsidiary of Alpha Microsystems ("ALPHA MICRO"), a California
corporation.
The Boards of Directors of ALPHA MICRO and DCI have determined that it is
in the best interests of their respective shareholders for ALPHA MICRO SUB to
merge with and into DCI upon the terms and subject to the conditions set forth
in the Merger Agreement ("Agreement") see Attachment 1.
In order to effectuate the transaction, ALPHA MICRO. has organized ALPHA
MICRO SUB as a wholly-owned subsidiary, and the parties have agreed, subject to
the terms and conditions set forth in the Agreement, to merge Alpha Micro Merger
Corp. (ALPHA MICRO SUB) with and into DCI so that DCI continues as the surviving
corporation. As a result, DCI will become a wholly-owned subsidiary of ALPHA
MICRO, and DCI's shareholders will have the right to receive the Purchase Price
(as hereinafter defined), subject to appraisal rights pursuant to the procedures
described in Section 623 of the New York Business Corporation Law.
As a stand alone company, DCI has been severely limited in terms of growth
due to a substantial negative net worth and a weak working capital position. In
October 1996, the former lending institution of DCI, National Canadian Finance
Corporation ("NCFC"), refused to advance additional funds to support DCI's
growth strategy. At that time the controlling shareholders of DCI, Joseph and
Joanne Lobozzo ("Lobozzos") agreed to purchase the secured debt from NCFC, and
therefore become the secured debtholders. By the summer of 1998 the Lobozzo debt
totaled approximately $4,775,000. At this point the Lobozzos were reluctant to
extend further credit to DCI due to its substantial negative net worth. However,
DCI has maintained a strategic position in the Wall Street financial arena with
tested Information Technology service and hardware expertise.
This expertise was especially attractive to ALPHA MICRO, which provides
similar services and hardware sales throughout the US, with limited presence in
the northeast and particularly in the NYC financial region. In the opinion of
DCI's board and PASCHALL and COMPANY ("PASCO") the financial advisors retained
by the Board of Directors of DCI, the value of the corporate assets would be
significantly higher to ALPHA MICRO than as a stand alone company, despite the
positive performance of DCI for the first six months of fiscal 1998 as shown in
the quarter ending April 30, 1998 10-Q. DCI's management continually face the
issues of paying interest on old debt that was required to fund losses incurred
by two discontinued subsidiaries, as noted in the 10-K for the year ending
October 31, 1997 incorporated herein by reference. The resulting working capital
shortfall constrained growth and strained human resources.
The board approached the Lobozzos and certain other controlling
shareholders, to explore the prudence of a merger with ALPHA MICRO. The Board of
Directors of DCI caused the Company to engage the services of PASCO in order to
determine if othe rsuitors were available. The Lobozzos and the other
controlling shareholders, after consulting with the board and PASCO for an
opinion, decided to ask the board to pursue negotiations with ALPHA MICRO with
the proviso that all minority shareholders' rights remain protected. In order to
effectuate a merger price per share that would give the minority shareholders a
price that was fair in the opinion of the board and PASCO, a two tiered merger
pay-out structure was designed.
Proposal for Merger of DCI Into ALPHA MICRO SUB
- -----------------------------------------------
In early 1998, DCI engaged PASCO as financial advisor to assist in the
potential merger of DCI. PASCO brought several targeted prospects to the board.
After serious consideration, the board chose ALPHA MICRO as the main prospect
for PASCO to pursue. After the merger price was negotiated the board felt that a
pro-rata distribution of proceeds would not be adequate and fair to the minority
shareholders. At this point, in order to protect their debt, the Lobozzos agreed
to a two tiered pay-out matrix and presented it to the board. The board approved
this matrix which allows for the minority shareholders to receive $.32 per
share, which is approximately eight times estimated per share earnings for
fiscal 1998, or four times the first six months actual earnings per share.
In order to move the merger forward the Lobozzos and another major
shareholder, John DiProsa agreed to receive approximately $.12 per share.
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List of Parties to the Transaction:
- -----------------------------------
COMPANY NAME: ALPHA MICROSYSTEMS, A CALIFORNIA CORPORATION AND
ALPHA MICRO MERGER CORP., A DELAWARE CORPORATION.
BUSINESS ADDRESS:
STREET 1: 2722 SOUTH FAIRVIEW STREET
CITY: SANTA ANA
STATE: CA
ZIP: 92704
BUSINESS PHONE: 714-957-8500
MAIL ADDRESS:
STREET : 2722 SOUTH FAIRVIEW STREET
CITY: SANTA ANA
STATE: CA
ZIP: 92704
COMPANY NAME: DELTA COMPUTEC INC, A NEW YORK CORPORATION.
BUSINESS ADDRESS:
STREET: 900 HUYLER STREET
CITY: TETERBORO
STATE: NJ
ZIP: 07608
BUSINESS PHONE: 800-477-8586
MAIL ADDRESS:
STREET: 690 PORTLAND AVENUE
CITY: ROCHESTER
STATE: NY
ZIP: 14621
PHONE: 716-342-8900
NAME: JOSEPH M. and JOANNE M. LOBOZZO
MAIL ADDRESS:
STREET: 690 PORTLAND AVENUE
CITY: ROCHESTER
STATE: NY
ZIP: 14621
PHONE: 716-342-8900
Information With Respect to Alpha Microsystems
- ----------------------------------------------
Alpha Microsystems
ALPHA MICRO makes information technology products (primarily
Internet/intranet software), and provides training, consulting, maintenance, and
networking services in the US and Canada. Its main software product,
AlphaCONNECT, is used for transferring Internet data to a variety of
applications - Microsoft Excel, WordPerfect, and Borland Paradox, among others
and for making self-updating Web pages. Hardware products include the Eagle
family of small business computer systems, which use ALPHA MICRO's proprietary
operating system, AMOS. About 4% of ALPHA MICRO's sales are to customers
outside the US.
Business
ALPHA MICRO is a California corporation with its principal offices located
at 2722 South Fairview Street, Santa Ana, California 92704 (telephone number
714-957-8500). ALPHA MICRO provides information technology products (including
products for the internet and intranet markets) and IT (Information Technology),
information services (including consulting, maintenance, support and networking)
to a variety of market segments. ALPHA MICRO provides these services through its
more than 55 locations throughout North America.
AlphaMicro's Annual Report on Form 10-K refers to various trademarks of
ALPHA MICRO and certain trademarks of other companies. All products and services
are trademarks or registered trademarks of their respective holders.
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General Development of Business
ALPHA MICRO, which was incorporated under California law on March 17, 1977,
is a supplier of Information Technology (IT) services and products. ALPHA MICRO
historically had two principal lines of business: (1) the sale of computer and
networking hardware and software products, and (2) the service of its own and
third-party hardware and software products as well as installation, training,
and consulting services
ALPHA MICRO has in the last several years focused its efforts on vertical
niche markets, the expansion of its IT services business and the development and
marketing of AlphaCONNECT, an internet and intranet technology. The movement
into vertical niche markets did provide additional IT service revenues. However,
the products were not sufficiently successful to warrant additional capital
commitments. A discussion of ALPHA MICRO's divestitures during the most recent
three years follows.
In fiscal 1996, ALPHA MICRO sold CV Systems to Veterinary Centers of
America ("VCA"), a major user of the product. The sale resulted from market
pressures from veterinary industry consolidation and ALPHA MICRO's belief that
it could apply its resources toward areas with greater growth potential. Also in
1996, ALPHA MICRO refocused its marketing strategy for PANDA, its food service
software product, and ALPHA MICRO evaluated additional development of Alpha2000,
its dental office software product, in an effort to economically enhance the
product's market acceptance. These efforts were unsuccessful and management
began evaluating these operations for potential disposition. In 1996, the
Company also finalized the sale of Alpha Microsystems Belgium, S.A. ("AMB") to a
member of the AMB management. Subsequent to this sale, ALPHA MICRO continued to
conduct its European operations directly through Alpha Microsystems Great
Britain Limited ("AMGB").
In fiscal 1997, ALPHA MICRO sold its remaining European operations, AMGB,
including Sabre Business Systems Limited, and its remaining verticle software
operations, PANDA & ALPHA HEALTH CARE.
On December 23, 1997, ALPHA MICRO acquired the telephone installation and
IT service business and certain related assets of Applied Cellular Technology,
Inc. for a purchase price estimated to be $2.6 million, of which $1.1 million
has been paid from ALPHA MICRO's cash reserves through February 22, 1998. All
amounts paid, and any future payments, are contingent on future annualized
revenues.
Subsequent to February 22, 1998, ALPHA MICRO acquired the ongoing IT
service contracts and certain related assets of M & J Technologies, Inc. ("M &
J") for an estimated purchase price of $950,000. The purchase price, which is
contingent on future annualized revenues, is to be paid over 18 months, with 50%
of the purchase price paid on the closing date of the acquisition.
These divestitures and acquisitions were consistent with ALPHA MICRO's
strategy to concentrate its resources on the IT services business and to develop
and launch the AlphaCONNECT internet and intranet technology and software
products. These divestitures along with ALPHA MICRO's efforts to grow the IT
services business, primarily through internal growth, repositioned ALPHA MICRO
in fiscal 1998, whereby IT service revenues accounted for 68.4% of total
revenues and product sales accounted for 31.6% of total revenues, as compared to
fiscal 1993, when IT service revenues accounted for 37.3% of total revenues and
product sales accounted for 62.7% of total revenues.
ALPHA MICRO in each of the last four years has sustained significant net
losses and negative operating cash flows. Also during this time ALPHA MICRO
divested certain operations, made significant investments in the development of
its internet technology, and downsized its hardware operations, contributing to
declines in net sales or results of operations. If ALPHA MICRO is to
successfully execute its strategies discussed below, it will need to obtain
outside financing and negotiate and successfully complete IT service business
acquisitions. ALPHA MICRO is currently negotiating with several lending and
investing institutions to finance its operating strategies and has received a
commitment from a bank for a replacement $3,000,000 debt facility, subject to
certain financial covenants and borrowing based requirements. While management
believes it will be able to obtain sources of capital on acceptable terms, no
assurances can be given that it will successfully do so.
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Consideration for Merger of DCI Into ALPHA MICRO SUB
- ----------------------------------------------------
Under the Agreement, DCI shares of common stock shall be converted into the
right to receive a portion of the purchase price of $3,432,999.00 less the
amount of any increase in the net shareholders deficit as determined in
accordance with GAAP, between May 28, 1998 and the Closing Date. The holders of
common stock other than certain controlling shareholders shall have the right to
receive $.32 per share subject to hold-backs as provided in section 1.5 (a) (I)
of the Agreement. The Lobozzos and another electing shareholder, John DiProsa,
shall receive approximately $.12 per share. The Lobozzo's three adult children
have each owned 300,000 shares of DCI common stock for a minimum of eighteen
(18) months (well before any discussions with ALPHA MICRO were initiated) and
will be treated as all other minority shareholders. The Lobozzos deny beneficial
ownership to these shares.
There are also 309,000 "in-the-money" options, none of which are owned by
the controlling shareholders, outstanding which will be exercised and converted
into the right to receive a portion of the purchase price in accordance with the
formula set forth above, i.e., $.32 per share, subject to hold-backs as provided
in section 1.5 (a) (I) of the Agreement.
A portion of the purchase price ($250,000 to $400,000) shall be held in
escrow and withheld from payments to be made to shareholders on a pro rata
basis. The escrow agent shall disburse the escrow funds to ALPHA MICRO SUB as
claims for indemnification under the Agreement are made. If a balance remains
after the indemnity period, the escrow agent shall disburse the funds to the
shareholders on a pro rata basis.
Company Debt Obligations
DCI has certain debt obligations to Joseph Lobozzo II and Joanne Lobozzo
and their three adult children, its controlling shareholders, which total
approximately $4,767,000, which includes $775,000 of new debt utilized to repay
NCFC for a secured note that they owned in the amount of $775,000. These debts
will be paid as part of the merger transaction. The Lobozzo's three adult
children hold $120,000 of the approximately $4,767,000 of debt. The Lobozzo's
hold the remaining approximately $4,647,000 of debt.
Representations and Warranties
Under the Agreement, DCI makes extensive representations and warranties
regarding DCI. Such representations and warranties include statements relative
to the financial condition of DCI as reflected in certain financial statements,
liabilities of DCI, agreements and contracts to which DCI is a party, tax
matters affecting DCI, compensation plans of DCI and compliance with various
laws and regulations (including environmental laws and regulations) applicable
to DCI. DCI considers the representations and warranties to be reasonable and
necessary to the accomplishment of the Merger.
Under the Agreement, DCI agrees to indemnify defend and hold harmless the
ALPHA MICRO Companies and their respective officers, directors, employees,
agents, advisors, representative, lenders and its and their respective
"affiliates" (as such terms are defined in rule 405 of the Securities Act of
1933, as amended) from and against any claim, liability, obligation, loss,
damage, assessment, judgment, cost and expense (including, without limitation,
reasonable attorney's and accountant's fees and cost and expenses reasonably
incurred in investigating, preparing, defending against or prosecuting any
litigation or claim, action, suit, proceeding or demand) of any kind or
character ("Losses") arising out of or in any manner incident, relating or
attributable to (i) any inaccuracy in any representation or breach of warranty
of DCI or Lobozzo contained in the Agreement or in any schedule, exhibit,
certificate, instrument or other document or agreement executed and delivered by
DCI in accordance with the Agreement; (ii) any failure by DCI or Lobozzo to
perform or observe any covenant, agreement or condition to be performed or
observed by it under the Agreement or under any schedule, exhibit, certificate,
instrument or other document or agreement executed by it in accordance with the
Agreement; and (iii) any Losses incurred in connection with a matter disclosed
on Schedule 3.07 if the Agreement or Schedule 3.13 in the Agreement in excess of
the amount recorded with respect to such matter on the Current Balance Sheet.
The obligation of the Shareholders to indemnify ALPHA MICRO as herein stated
shall survive the consummation of the transactions herein described for the
period set forth in Section 10.1 in the Agreement, as extended for periods of
dispute about whether a claim is justified; provide, however, recourse against
the shareholders is limited to an escrow fund established pursuant to the
Agreement. If claims are made in excess of the escrowed funds the shareholders
shall not be required to fund the short-fall. If claims are made in an amount
which is less than the escrowed funds the balance of the escrow funds will be
distributed to the shareholders pro rata after the indemnity period which ends
on December 31, 1999.
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Conditions to Closing
Closing of the Merger as contemplated under the Agreement is contingent
upon conditions deemed prudent by management of DCI. In particular, the closing
of the Merger is conditioned upon the distribution of this information statement
to DCI's shareholders and expiration of 20 calendar days after such
distribution. Effective with the closing of the Merger the certificate of
incorporation of ALPHA MICRO SUB immediately prior to the effective time of the
Merger shall become the certificate of incorporation of the surviving
corporation and the directors and officers of ALPHA MICRO SUB. immediately prior
to the effective time of the Merger shall become the initial directors of the
surviving corporation. Current shareholders of company stock will, without any
further action on their part, have their shares in DCI converted to a right to
receive a portion of the purchase price as set forth elsewhere in this
information statement and in the Agreement. DCI currently anticipates the
closing will occur on or about August 31, 1998.
Conduct of Business by DCI Pending the Merger of DCI Into ALPHA MICRO SUB
DCI has agreed only to take actions consistent with operating DCI in the
ordinary course of business and consistent with its past practice pending the
consummation of the Merger.
Fairness Opinion of Financial Advisors
PASCO was engaged by DCI to assist DCI in identifying and evaluating
potential candidates for a potential business combination with DCI. In
connection with this engagement, PASCO was requested to render an opinion as to
the fairness, from a financial point of view, of the consideration to be
received by DCI and its shareholders. Pursuant to the engagement letter, DCI
agreed to pay PASCO approximately $82,000 upon the closing of the Merger and has
also agreed to reimburse PASCO for reasonable expenses incurred. Since February
12, 1998 PASCO has received no fees from DCI for investment banking services
except for a small partial payment.
PASCO, as a customary part of its investment banking business, is engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, private placements and valuations
for estate, corporate and other purposes. PASCO regularly negotiates with
industry and business and securities of publicly owned companies in the
industry. The Board of Directors of DCI selected PASCO because of its expertise
with the computer service industry. In connection with its opinion, PASCO:
Reviewed certain publicly available financial statements to DCI;
Reviewed certain internal interim financial statements and other financial
and operating data concerning DCI prepared by management;
Discussed certain financial projections with management of DCI;
Discussed the past and current operations and financial condition as well
as prospects for DCI with management;
Compared the financial performance of DCI with that of certain other
comparable Companies;
Reviewed the financial terms, to the extent publicly available, of certain
comparable merger transactions and the valuations of targets as well as the
valuations of similar publicly traded companies;
Reviewed the reported prices and trading activity for the DCI common stock;
Participated in discussions and negotiations among representatives of DCI
and ALPHA MICRO and their financial and legal advisors;
Interviewed the legal representative of DCI to better understand the
negotiations between DCI and ALPHA MICRO;
Reviewed the Merger Agreement and certain related documents; and
Performed such other analyses and considered such other factors as we have
deemed appropriate.
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Based on and subject to the foregoing, PASCO is of the opinion on the date
hereof that the valuation for the outside shares is fair from a financial point
of view. Based on PASCO's knowledge of the negotiations PASCO believes the value
for the Lobozzos and another controlling shareholder, John DiProsa, is fair as
well.
DCI has received PASCO's written opinion (see Attachment 2.)
The Purpose and Methodology of the Merger
- -----------------------------------------
In order to effectuate the transaction, ALPHA MICRO has organized ALPHA
MICRO SUB as a wholly-owned subsidiary, and the parties have agreed, subject to
the terms and conditions set forth in the Agreement, to merge ALPHA MICRO SUB
with and into DCI so that DCI continues as the surviving corporation. As a
result, DCI will become a wholly-owned subsidiary of ALPHA MICRO, and the
Shareholders will have the right to receive the Purchase Price (as hereinafter
defined).
On June 26, 1998, the Board of Directors of DCI authorized the merger of
all of the outstanding shares of DCI into ALPHA MICRO SUB. The Boards of
Directors of ALPHA MICRO and ALPHA MICRO SUB have determined that it is in the
best interests of their respective shareholders for ALPHA MICRO COMPANIES to
merge with DCI upon the terms and subject to the conditions set forth in the
Agreement (see Attachment 1 and SUMMARY above).
Voting and Beneficial Interests
Interest of Certain Persons in Matters to be Acted Upon
The Lobozzos jointly own 11,746,225 shares, not including shares owned by
JML Optical and the Lobozzo's Children. The remaining shareholders and
in-the-money optionees own the remaining 6,087,625 shares.
Voting Securities of DCI
As of July 24, 1998 there were outstanding 18,468,850 shares (including
309,000 in-the-money- options) of Class A Common Stock $.01 par value. Each
share of Class A stock for purposes of approving the Merger, is entitled to 1
vote. To be entitled to give written consent of approval of the Merger a
shareholder must have been a shareholder of record as of August 6, 1998. As of
August 6, 1998 the controlling shareholders who have beneficial ownership of
approximately 80% of the outstanding shares of DCI, have issued their full proxy
indicating their support for the Merger to ALPHA MICRO.
Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth as of October 31, 1997, certain information
concerning DCI's common shares held by: (i) each shareholder known by DCI to own
beneficially, or of record, more than 5% of the Company's common shares, the
onl`y voting class of the Company's securities; (ii) each director, and each
nominee for director, of DCI; and (iii) all directors and officers of DCI as a
group.
The Lobozzo's holdings are discussed elsewhere in this Information
Letter and therefore are not included in this table.
--------------------------------------------------------------------
Name and address Amount
Michael A. Julian
c/o JML Optical Industries, Inc. 48,000
690 Portland Avenue
Rochester, NY 14620
Michael E. McCusker
c/o JML Optical Industries, Inc. 35,000
690 Portland Avenue
Rochester, NY 14620
Alfred C. Engelfried
366 White Spruce Blvd. 50,000
Rochester, NY 14623
John DeVito 311,000
900 Huyler Street
Teterboro, NJ 07608
Willcox & Gibbs, Inc. 1,000,000
Edward J. Drohan 100,000
Frank J. Donnelly 35,000
Mary Metrick 5,000
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During Fiscal 1997, there was a change of control of The Company. As of
December 30, 1996, Lobozzo gave to his wife, Joanne Lobozzo, 74,875 common
shares, bringing the number of common shares owned by Joanne Lobozzo in her own
name to 94,875 common shares. This transaction was a portion of the transactions
in which Lobozzo engaged with regard to the 1,519,750 common shares then owned
by Mr. Lobozzo. In December of 1996, Lobozzo sold 635,000 common shares to John
DiProsa, who, as of the date of the transfer, became a holder of in excess of 5%
of the outstanding common shares of The Company. Following the exercise of the
Restated 1995 Lobozzo Options, Mr. DiProsa no longer held in excess of 5% of the
outstanding common shares of The Company.
Information With Respect To DCI
- -------------------------------
The Company operates in a very large market. While the Company's total
sales and revenues are a fractional percent of the dollars spent each year for
services and products related to Computer Systems, Data Communications and
LAN/WAN Networks, DCI, nevertheless, does have certain long-standing
relationships with major brokerage firms, banks, hospitals and pharmaceutical
companies. By refocusing on its core business The Company is seeking to expand
its existing relationships, has won several new accounts and is attempting to
enter into contracts with new customers.
Technical Services
DCI's core business is based on providing technical and maintenance
services in direct support of its customers' Computer Systems, Data
Communication Systems and LAN/WAN Networks. Broadly, these services include:
Network systems design
Network analysis and performance testing
Network management
Project management
Premise wiring
Installation services
Technical consulting services
Maintenance Services
Help desk support, and
Complete outsourcing responsibility for all or most of the above
Technical services are either charged at a pre-determined contractual price
or on the basis of labor and materials used. Maintenance services are generally
performed at a customer's site on an "on-call" basis, either pursuant to a
contract of a specified term and coverage ("Service Agreement") or, as in the
case of technical services, on a time and materials basis.
In Fiscal 1997, approximately 92% of DCI's total revenue was generated from
contractual Service Agreements. This compares to 89% in Fiscal 1996 and 87% in
Fiscal 1995. Technical services and maintenance are performed either at the
customer's site, at one of DCI's regional offices or at The Company's depot
facility located at Teterboro, New Jersey. Project-related technical services
are most often initiated through an authorization to proceed given by the
customer following a competitive bid process. A Service Agreement is initiated
by the customer, usually by telephoning DCI's National Response Center which
then dispatches a field engineer to diagnose the source of the problem and to
repair or to replace the malfunctioning component or equipment. The Company's
service personnel are sometimes permanently located at the customer's site in
order to ensure optimum response time to the customer's needs.
DCI maintains a significant inventory of spare parts in order to ensure
prompt servicing of its customers' requirements. This inventory is replenished
on a regular basis based on the number of different systems being supported,
past parts usage and anticipated future requirements.
Marketing
DCI markets its technical services by direct development of customers
through its sales force and senior management and by initiating and responding
with technical and price proposals when customer needs are specifically
identified. Unique to DCI's approach is its emphasis on custom-crafted solutions
which focus on creating the resources to meet a customer's specific needs
instead of attempting to modify customer needs to fit specific resources. DCI
has over twenty years experience in providing technical and maintenance
services.
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Legal Proceedings
In Fiscal 1996, an agreement was reached with the State of New York ("New
York State") relative to payment of New York State sales taxes for the period
from July, 1995 through April, 1996, in the amount of $349,000 plus interest.
The amounts related to this sales tax liability are reflected in the financial
statements as of October 31, 1996 and October 31, 1997, respectively, with
approximately $7,000 remaining to be paid as of the date of filing of the
Company's 1997 Form 10-K Report. No litigation or administrative proceeding was
commenced and all required payments to date as stipulated in the Agreement have
been made.
As a result of another sales tax audit, on January 10, 1997, New York State
asserted a claim, originally in the amount of approximately $125,000, excluding
any interest and penalties, against both DCI and Data Net Inc. (Data Net) a
subsidiary of DCI, for alleged sales taxes owed, for the period September, 1993
through May, 1996. DCI and Data Net disagreed with the findings and communicated
such disagreement in writing to New York State. DCI instituted efforts to obtain
documentation supporting the validity of its classification of certain sales
made by both entities as non-taxable. As of May 9, 1997, support for the
validity of classifying approximately 74% of such sales made by both entities as
non-taxable had been obtained and sent to New York State. New York State has
sent a revised determination of approximately $65,000, excluding any interest
and penalties. DCI is continuing to research its records for the remainder of
the affected sales. The Company and Data Net believe that, upon review of the
records to be submitted, New York State will reduce its claim accordingly. The
amount of the potential sales tax liability as of October 31, 1996 and 1997 is
reflected in the accompanying financial statements to the Fiscal 1997 Form 10-K.
As part of the decision to dissolve Data Net, Data Net was advised by New
York State that there were taxes due for three tax periods ended November 30,
1995, February 29, 1996 and May 31, 1996, respectively. The liabilities asserted
for the November 30, 1995 and February 29, 1996 periods consist of those
liabilities which had already been covered by the agreement with New York State
referred to in Paragraph A, above. As such, there is no independent liability
for those assessments as asserted in the notice from New York State received as
part of the Data Net dissolution, other than the amount remaining to be paid as
set forth in Paragraph A, above. The liability for the period ended May 31, 1996
was in the aggregate amount, principal, interest and penalty, of approximately
$108,000, and DCI and Data Net believe that this asserted liability is included
in the revised liability referred to in Paragraph B, above. DCI and Data Net
dispute the amount of the assessment, the interest assessed and the penalty
assessed and intend to contest all such assessments, and to discuss with New
York State the further information which they have obtained in an effort to
negotiate with New York State a further reduction in the assessment, a
commensurate reduction in the amount of interest and an abatement of the
penalty. DCI has reflected $71,000 of the potential liability in the
accompanying financial statements to the Fiscal 1997 Form 10-K.
On December 12, l997, the Company commenced a litigation ("Hamilton
Litigation") in New York State Supreme Court, Monroe County, against Hamilton
College and against one of Hamilton College's employees, seeking compensatory
and punitive damages based on several legal theories including: breach of
contract, quantum meruit, fraudulent inducement, account stated and tortious
interference with contractual relationships. The Hamilton Litigation arose from
claims of DCI that Hamilton College failed to pay for work performed by DCI, and
materials ordered by Hamilton College and installed by DCI, all in connection
with a contract ("Hamilton Contract") whereby DCI, through its Intronet
Division, installed at Hamilton College the infrastructure and electronics for a
campus-wide voice, data and telecommunications network. Among other matters, the
Hamilton Litigation alleges that DCI was fraudulently induced to enter into the
Hamilton Contract by inaccurate documents provided by Hamilton College, that
Hamilton College has failed to make certain payments which it was required to
make and has otherwise breached the Hamilton Contract, and that Hamilton College
has received the benefit of work and materials provided by DCI for which
Hamilton College has not paid. The Hamilton Litigation also alleges that
Hamilton College's employee who is named as a defendant deliberately and
maliciously interfered with DCI's efforts to complete the Hamilton Contract,
that DCI complained about the employee's actions, but that Hamilton College
ignored these complaints and in fact acquiesced in them, with the result that
DCI's contractual relationships were tortiously damaged. Before the commencement
of the Hamilton Litigation, one of DCI's subcontractors under the Hamilton
Contract, Marcy Excavation Company, Inc. ("Marcy"), had asserted claims against
Hamilton College and against the Company based on non-payment of statements
rendered for subcontracting work. Marcy had also filed a mechanic's lien
("Mechanic's Lien") against the College in Oneida County, New York (where
Hamilton College is located), and had commenced a litigation in Supreme Court,
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<PAGE>
Oneida County, New York against DCI's bonding company ("Marcy Litigation").
Neither Hamilton College nor DCI was named as a party to the Marcy Litigation.
In November, 1997, DCI and Marcy settled the claim by Marcy against DCI (but not
Marcy's claim against Hamilton College) in return for payments to be made to
Marcy by the Company. As part of the settlement, Marcy assigned to DCI all of
Marcy's claims against Hamilton College and assigned to DCI all of Marcy's
rights under the Mechanic's Lien. Marcy also agreed to discontinue the Marcy
Litigation at the time that Marcy received payment in full of the settlement
payment agreed to between Marcy and DCI. Hamilton has asserted counterclaims
against DCI for $100,000 for unspecified breaches of the Hamilton Contract and
for $10,000 for failure to cause Marcy to release the Mechanics Lien. As of the
date of this Information Statement DCI's management has entered into a
settlement with Hamilton College as follows:
DCI will be paid $167,730.94 as full settlement for its claim against
Hamilton for services performed of approximately $200,000.
Market Information
During the period ending October 31, 1995, the common shares of The Company
were traded on the over-the-counter NASDAQ market under the symbol "DCIS". As of
November 10, 1995, the common shares of The Company fell below the NASDAQ
minimum bid price guidelines and, to the best knowledge of management, since
then, have traded only on local OTC markets. There were approximately 450
holders of record of The Company's common shares at the end of Fiscal 1997 and
Fiscal 1996, respectively. As of January 28, 1998, there were approximately 450
holders of record of the Company's common shares The high and low bid prices of
the common shares during each quarter of Fiscal 1996 and Fiscal 1997 were as
follows:
Fiscal 1996 Asked and Bid Prices
Asked Bid
1st Quarter $0.08 $0.04
2nd Quarter $0.50 $0.28
3rd Quarter $0.25 $0.13
4th Quarter $0.10 $0.10
Fiscal 1997 Asked and Bid Prices
Asked Bid
1st Quarter $0.13 $0.13
2nd Quarter $0.13 $0.13
3rd Quarter $0.13 $0.08
4th Quarter $0.10 $0.08
As of January 28, 1998, the Company's common shares were quoted at.$.40
asked and $.20 bid. The over-the-counter market quotations described above
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
Stock prices on the business day preceding the announcement of the Merger,
i.e., July 2, 1998 and the day of the announcement, i.e., July 6, 1998 are as
follows:
On July 2, 1998, the date preceeding the merger announcement, the stock
activity was as follows:
Volume traded High Low Close
1,000 shares $.20 $.20 $.20
On July 6, 1998, the date of the merger announcement, the stock activity
was as follows:
Volume traded High Low Close
61,800 shares $.625 $.20 $.25
Management Discussion and Analysis
The following discussion should be read in conjunction with DCI's
Consolidated Financial Statements and related Notes thereto set forth on Year
End October 31, 1997 10K.
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General
DCI, by itself and through its wholly-owned subsidiary, SAI Delta, Inc.
("SAI/Delta"), provides a wide array of Computer System, Data Communication and
LAN/WAN technical services and products to a customer base which encompasses
many industries and geographic locations. DCI's customer base includes large
brokerage houses, banks, pharmaceutical companies major hospitals and long
distance carriers, located principally in the Northeast but reaching as far as
Florida and the West Coast. Technical services offered include, but are not
limited to, design, product procurement, installation, service, maintenance and
on-site technical management and consulting.
DELTA COMPUTEC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
1997 1996 1995
REVENUES:
Service revenues $12,299,133 $10,911,153 $ 8,965,335
Equipment sales 1,077,001 1,302,780 1,326,935
---------- ---------- ---------
Total revenues 13,376,134 12,213,933 10,292,270
COSTS AND OPERATING EXPENSES:
Service costs 8,400,639 7,524,523 6,569,363
Cost of equipment sold 836,848 1,155,711 1,301,499
Selling, general and administrative 3,005,243 2,878,456 2,255,858
--------- --------- ---------
Total costs and operating expenses 12,242,730 11,558,690 10,126,720
OTHER INCOME (EXPENSE), NET:
Interest expense (423,211) (87,241) (142,550)
Write-down of other assets - - (284,961)
Other, net - 18,202 - 1,459
Total other (expense) (405,009) (87,241) (426,052)
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND EXTRAORDINARY GAIN 728,395 568,002 (260,502)
INCOME TAXES(BENEFIT) 36,000 7,489 (130,000)
------- ------- --------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY GAIN 692,395 560,513 (130,502)
EXTRAORDINARY GAIN - 455,384 -
------- ------- --------
EARNINGS (LOSS) FROM
CONTINUING OPERATIONS 692,395 1,015,897 (130,502)
LOSS FROM DISCONTINUED OPERATIONS:
Loss from operations - (1,741,112) (3,632,417)
Loss on disposal (118,142) (102,375) -
Income taxes - - (1,333,000)
Net loss from discontinued
operations (118,142) (1,843,487) (4,965,417)
NET EARNINGS (LOSS) $574,253 $ (827,590) $(5,095,919)
EARNINGS (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS $ .05 $ .08 $ (.02)
EXTRAORDINARY ITEM - .07 -
DISCONTINUED OPERATIONS (.01) (.27) (.73)
---- ---- ----
GAIN/LOSS $ .04 $ (.12) $ (.75)
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Management's Discussion and Analysis of Financial Condition and Results
of Operations 1997 Compared to 1996
On March 8, 1996 the Company's wholly-owned subsidiary, Data Net,
terminated its business activities and ceased all of its operations.
Accordingly, Data Net's operating results for Fiscal 1995 and 1996 are included
in the loss from discontinued operations for those respective years, and the
prior year's income statement for Fiscal 1995 has been restated to exclude Data
Net's results. Management decided in the fourth quarter of Fiscal 1996 to
terminate operations of its Intronet Division in Waltham, Massachusetts and
closed the Intronet Division's office in December, 1996. Accordingly, the
Intronet Division's operating results for Fiscal 1995 and 1996 are also reported
in the loss from discontinued operations, and the prior year's income statement
for Fiscal 1995 has been similarly restated to exclude Intronet's results. The
financial results for continuing operations for all fiscal periods are for DCI's
core business operations, specifically those operations relating to providing
computer system, data communication and LAN/WAN technical services and products.
Operating results for Fiscal 1997 reflected net earnings from continuing
operations of $692,395 (5.2% of total revenues), or $.05 per common share on
14,741,548 weighted average common shares, compared with net earnings from
continuing operations of $560,513 (4.6% of total revenues) for Fiscal 1996, or
$.08 per share on 6,811,575 weighted average common shares, excluding a $455,384
extraordinary gain on purchase of debt, and a loss from continuing operations of
$130,502 (1.3%) for Fiscal 1995, or $.02 per share on 6,811,575 weighted average
common shares.
The improvement of $131,882, or 23.5%, in Fiscal 1997 earnings from
continuing operations over Fiscal 1996 was the net effect of: (1) a 12.7%
increase in service revenue and a 9.5% increase in total revenue, the latter
providing a $1,162,000 benefit; (2) a 2.0 percentage-point improvement in gross
margin as a percentage of total revenue, as the revenue mix between the more
profitable service revenue, compared to equipment sales, improved over the
proportionate revenue mix for Fiscal 1996; (3) a 1.1 percentage-point
improvement in selling, general and administrative expense as a percentage of
total revenue, the effect of higher sublease income plus lower professional fees
and recruitment costs; less (4) a $336,000 increase in interest expense, as
DCI's core operations incurred the full effect in Fiscal 1997 of debt service
costs attributable to discontinued operations, most of which debt service costs
had been allocated to discontinued operations in Fiscal 1996 and Fiscal 1995.
The turnaround in the financial performance of continuing operations for Fiscal
1996, with the results showing an improvement of $691,015 in earnings from
continuing operations over Fiscal 1995, included the combined impact of the
following: (1) a 21.7% increase in service revenue and an 18.7% increase in
total revenues; and (2) a 5.4 percentage-point improvement in gross margin,
partially offset by higher operating expenses from personnel costs and
professional fees. Operating results for continuing operations for Fiscal 1995
were negatively impacted by the continued detrimental effects of the Company's
cash flow and liquidity problems and non-recurring costs associated with
administrative staff turnover. In addition, DCI's operating results in Fiscal
1995 were adversely affected by: (1) a write-down in its spare parts inventory
for obsolescence charges of approximately $427,000; (2) a write-down of
approximately $285,000 in intangible assets pertaining to DCI's core business to
write off certain of these assets as well as to adjust the estimated realizable
economic benefit period on certain other items; and (3) the write-down of
approximately $1,202,000 in deferred tax assets. These write-downs aggregated
$1,914,000.
Management maintained the amount of the deferred tax assets, as included in
the Fiscal 1997 consolidated financial statements and as described in Note 5 to
the consolidated financial statements which are related to the Company's net
operating loss carry-forwards and associated tax benefits which can be utilized
in future periods, in order to set the carrying value of such assets at a
conservative amount. The total amount of such tax assets can be realized if the
Company is able to generate sufficient taxable income within the respective
carry forward ALPHA MICRO
No Material Changes
There have been no material changes in the companies affairs, operations or
financial position/structure since October 31, 1997.
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<PAGE>
Revenues
Total revenues from continuing operations were $13,376,134 in Fiscal 1997,
$12,213,933 for Fiscal 1996 and $10,292,270 in Fiscal 1995. Fiscal 1997 total
revenues were $1,162,201 (9.5%) over Fiscal 1996, which included the combined
benefit from new business generated during the year and the expansion of
business from some of DCI's existing customers. The increase of $1,921,663
(18.7%) in Fiscal 1996 resulted from new business and the renewal of business
from DCI's existing customer base, as management refocused its energies on the
Company's core business activities.
Service revenues were $12,299,133 (91.9% of total revenues) in Fiscal 1997,
$10,911,153 (89.3%) in Fiscal 1996 and $8,965,335 (87.1%) in Fiscal 1995. The
increases in service revenues in Fiscal 1997 and Fiscal 1996 over the preceding
fiscal years were $1,387,980 (12.7%) and $1,945,818 (21.7%), respectively. The
growth in service revenue in both fiscal years reflects the renewal of business
from DCI's existing customer base as well as new customers, as management
refocused its energies on DCI's core business activities.
Equipment sales were $1,077,001 (8.1% of total revenues) in Fiscal 1997,
$1,302,780 (10.7%) in Fiscal 1996 and $1,326,935 (12.9%) in Fiscal 1995,
representing decreases of $225,779 (17.3%) and $24,155 (1.8%) in purely
equipment sales, without any related service revenue, in Fiscal 1997 and Fiscal
1996, respectively, which decreases reflect management's decision to focus on
service and project revenue in developing the Company's core business.
Costs and Expenses
Service costs for Fiscal 1997, Fiscal 1996 and Fiscal 1995 were $ 8,400,639
(68.3% of service revenue), $7,524,523 (69.0%) and $6,569,363 (73.3%),
respectively. The improvement of approximately one percentage point and four
percentage points in service costs as a percentage of service revenue in Fiscal
1997 and 1996, respectively, reflected the benefit from the significant
increases in service revenue in both years.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for Fiscal 1997, Fiscal 1996
and Fiscal 1995 were $3,005,243 (22.5% of total revenues), $2,878,456 (23.6%)
and $2,255,858 (21.9%), respectively. Selling, general and administrative
expenses increased $126,787, or $4.4%, in Fiscal 1997 and $622,598, or 27.6%, in
Fiscal 1996, such increases reflecting higher personnel and associated benefit
costs, plus increased recruitment, professional and consulting fees in Fiscal
1996 over the prior fiscal year. The improvement in these costs as a percentage
of sales in Fiscal 1997 reflects the Company's ability to hold its increase in
this expense category to within its increase in total revenues.
Inventory and Product Obsolescence
In Fiscal 1995, DCI accounted for normal product obsolescence through
inventory reserves. The Company wrote down its spare parts by approximately
$427,000 for obsolescence. These charges were recognized during the fourth
quarter of Fiscal 1995. DCI reduced its inventory reserves by approximately
$29,000 in Fiscal 1997.
Interest Expense
Interest expense reported in continuing operations for Fiscal 1997, Fiscal
1996 and Fiscal 1995 were $423,211 (3.2% of total revenues), $87,241 (0.7%) and
$142,550 (1.4%), respectively. Interest expense changed to continuing operations
increased by $335,970 in Fiscal 1997, as the Company's core operations incurred
the full effect in Fiscal 1997 of debt service costs attributable to
discontinued operations, most of which debt service costs had been allocated to
discontinued operations in Fiscal 1996 and Fiscal 1995. Interest expense
decreased by $55,309 and 39% in Fiscal 1996 due to the fact that the major
portion of DCI's borrowing requirements in Fiscal 1995 were related to the
negative cash flow from discontinued operations, which negative cash flows
abated in Fiscal 1996.
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<PAGE>
Income Taxes
There was an income tax provision of $1,245,000 recorded for Fiscal 1995
relating to the write-down in deferred tax assets. Income taxes are recognized
for the amount of taxes payable or refundable for the current tax year, and
deferred tax liabilities and assets for the future tax consequence of events
that have been recognized in The Company's consolidated financial statements or
tax returns. At October 31, 1995, The Company had accumulated approximately
$6,506,000 of operating loss carry-forwards for tax purposes which was primarily
the result of losses generated by its newly-acquired business units over the
three fiscal years ending October 31, 1993, 1994 and 1995, respectively. The
Company had recognized the tax benefit of these losses, in the form of deferred
tax assets on its balance sheet, through October 31, 1994. The Company
incorporated in its financial statements at October 31, 1995 reserves for the
valuation of previously recorded deferred tax assets in the amount of $2,997,000
at October 31, 1995.
At October 31,1997 the Company recorded a deferred tax asset of
approximately $2,225,000 reflecting the benefit of approximately $6,544,000 in
loss carry-forwards, which expire in varying amounts between 2001 and 2011.
Realization of this and other deferred assets is dependent on generating
sufficient taxable income in future periods. Management believes that sufficient
future income will exist to allow utilization of $150,000 of the deferred tax
asset. The Company will continue to assess, in future periods, the value of
these deferred tax assets which expire in varying amounts between the years 2001
and 2011. This assessment will include The Company's ability to project adequate
profits to utilize the operating loss carry-forwards.
Year 2000
DCI has conducted a review of its computer systems to identify those areas
that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Company currently believes, with
planned modifications to existing software and converting to new software, the
Year 2000 problem will not pose significant operational problems and is not
anticipated to be material to its financial position or results of operations in
any given year. The Company has received confirmation from vendors of certain
purchased software that current releases or upgrades, if installed, will
eliminate any issues.
New Accounting Standards Pronouncements
Comprehensive Income
The Company's lending agreement with its commercial Lenders, who are also
its principal shareholders and controlling persons, had been amended to, among
other matters, extend the term of the lending agreement to June 30, 1998. The
maximum amount of the lending agreement, as amended, and as restated, was
increased from $2,950,000 to (a) from October 1, 1997 through December 31, 1997,
$3,650,000 and (b) from January 1, 1998 through June 30, 1998, $3,350,000,
provided, as to the maximum loan amounts in (a) and (b), respectively, that the
Company meets its Operating Budget Targets (as defined in the Lobozzo Credit
Agreement) as agreed between DCI and its Board of Directors. If any loans are
ever made in excess of the available Borrowing Base (as defined in the Lobozzo
Credit Agreement), such excess amounts shall bear interest at 5% over the Prime
Rate. The Lenders and The Company have also revised the factors determining the
basis upon which receivables will be eligible for inclusion in the Borrowing
Base. The Company's management believes that this amended Lobozzo Credit
Agreement, as further extended in January, 1998 to November 1, 1998, will
provide DCI with necessary liquidity and cash resources through November 1,
1998. In January, 1998, the lending agreement with its commercial lenders was
further amended to extend the terms of the lending agreement from June 30, 1998
to November 1, 1998
Cash provided by operations in Fiscal 1997, 1996 and 1995 totaled $624,120,
$2,093,318 and $210,449, respectively. Net cash provided by operations of
$624,120 in Fiscal 1997 came from net earnings of $574,253, non-cash charges of
$685,319 and proceeds from accounts receivable, less reductions in accounts
payable and accrued expenses and deferred service revenue. Net cash provided by
operations of $2,093,318 in Fiscal 1996 was the result of non-cash charges plus
working capital provided from the effect of reductions in accounts receivable
and inventory, coupled with an increase in deferred service revenue, offset in
part by the net loss plus reductions in accounts payable and accrued expenses.
Net cash of $210,449 provided by operations in Fiscal 1995 was the result of
non-cash charges plus working capital provided from reductions in accounts
receivable and inventory, an increase in accounts payable and accrued
liabilities, deferred taxes and sales taxes payable, most of which was offset by
the net loss, which included a full year of losses for Data Net.
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<PAGE>
Working capital at October 31, 1997, 1996, 1995 was ($1,296,414),
($1,974,918) and ($3,827,646), respectively. The working capital deficit at
October 31, 1997 decreased $678,504 over October 31, 1996 due to reductions
principally in accounts payable, current portion of long-term debt, deferred
revenue and sales taxes payable, partly offset by reductions in accounts
receivable and prepaid expenses. The working capital deficit in Fiscal 1996
decreased $1,852,728 from Fiscal 1995, reflecting the decline in working capital
investment as a result of the termination of Data Net, additional deferred
revenue and accrued interest, offset in part by lower short-term borrowing.
Fiscal 1995's working capital decreased $6,496,967 from Fiscal 1994 due to a
$4,385,595 increase in short-term debt, additional trade debt and lower
investment in accounts receivable and inventories.
Cash (used) by investing activities in Fiscal 1997, 1996 and 1995 totaled
($790,618), ($1,082,106) and ($828,751), respectively. These cash outlays were
incurred for additions to field spare parts and capital expenditures, net of the
effect of writing off Data Net's fixed assets in Fiscal 1996.
Cash provided/(used) by financing activities in Fiscal 1997, 1996 and 1995
was $134,549, ($980,134) and $625,306, respectively. Funds of $209,539 were
provided in Fiscal 1997 by proceeds from shareholder loans, offset in part by
$75,000 used to pay subordinated debt. Funds used in Fiscal 1996 resulted from
payments on a bank note and notes payable, aggregating $1,519,264, less proceeds
from borrowings from a shareholder totaling $539,130. Funds of $637,806 were
provided in Fiscal 1995 by proceeds from shareholder loans and bank debt.
During 1996, the Company restructured its note payable to its then
commercial lender, NCFC, resulting in a non-cash reduction of the note payable,
such reduction totaling $1,544,661, and a corresponding increase in the amount
due to its principal shareholder.
Inflation
Generally, increases in material, subcontractors' and other service costs
have been offset by productivity improvements. DCI continues to monitor the
impact of inflation in order to minimize its effect through pricing strategies,
productivity improvements and cost reductions.
Voting and Beneficial Interests
As of October 31, 1997, Lobozzo had beneficial ownership of 14,749,575
common shares, or 75.42% of the common shares outstanding, either directly or
through control of JML, or beneficially through the shareholdings of his wife
and children (although Lobozzo disclaims beneficial ownership of the common
shares, and options, owned by his wife, and children). Lobozzo and Joanne M.
Lobozzo were jointly also the principal lender to DCI by various loan
agreements). In addition, as of October 31, 1996 and 1997, DCI had issued the
Second Amended and Restated 1992 Lobozzo Options to Lobozzo and to Joanne
Lobozzo which were exercisable into 1,304,350 common shares. If, as of October
31, 1997, the Second Amended and Restated 1992 Lobozzo Option Agreements were
fully exercised, Lobozzo and Joanne Lobozzo would then have had beneficial
ownership of 14,749,575 common shares, or 75.92% of the outstanding common
shares of DCI. DCI believes that Lobozzo was a control person of the Company as
of October 31, 1996 and October 31, 1997, as was Joanne Lobozzo at the latter
date, and that both Lobozzo and Joanne Lobozzo are control persons of DCI. The
change in control of the Company was reported in the February, 1997 Form 8-K
Report.
During December of 1996 Lobozzo sold 635,000 common shares to John DiProsa,
who, as of the date of the transfer, became a holder of in excess of 5% of the
outstanding common shares of The Company. Following the exercise of the Restated
1995 Lobozzo Options, Mr. DiProsa no longer held in excess of 5% of the
outstanding common shares of The Company.
In February, 1997, Lobozzo and Joanne Lobozzo each executed their Second
Restated May 1995 Lobozzo Option to purchase 5,720,238 and 5,720,237 common
shares, respectively. Following the February, 1997 transactions, Lobozzo and
Joanne Lobozzo each owned, respectively, 36.87% and 31.86% of the issued and
outstanding common shares of DCI. Lobozzo's shareholdings include 480,000 common
shares pledged to NCFC pursuant to the NCFC Restructuring. Lobozzo and Joanne
Lobozzo also each hold an amended Second Amended and Restated 1992 Lobozzo
Option Agreement to purchase 652,175 common shares. If the 480,000 pledged
common shares were returned to Lobozzo and divided equally with Joanne Lobozzo,
they would own, respectively, 36.52% (Lobozzo) and 34.30% (Joanne Lobozzo).
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As a result of these transactions, Lobozzo and Joanne Lobozzo are each
considered to be controlling persons of DCI.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of October 31, 1997, certain information
concerning DCI's common shares held by: (i) each shareholder known by DCI to own
beneficially, or of record, more than 5% of the Company's common shares, the
only voting class of the Company's securities; (ii) each director of DCI, other
than Joseph M. and Joanne M. Lobozzo whose ownership is listed in the
immediately preceding section..
Beneficial Ownership of Shares of DCI
Beneficial Owner Beneficial Ownership Number of Shares % of Shares
Michael A. Julian
c/o JML Optical Industries, Inc. 48,000 .26
690 Portland Avenue
Rochester, NY 14621
Michael E. McCusker
c/o JML Optical Industries, Inc. 35,000 .19
690 Portland Avenue
Rochester, NY 14621
Alfred C. Engelfried
366 White Spruce Blvd. 50,000 .27
Rochester, NY 14623
John DeVito 311,000 1.69
% DCI
Willcox & Gibbs, Inc. 1,000,000 5.48
Edward J. Drohan 100,000 .55
% DCI
Frank J. Donnelly 35,000 .19
% DCI
Mary Metrick 5,000 .027
% DCI
Dividends
No cash dividends have been declared on Company's shares for Fiscal.1997,
Fiscal 1996 or Fiscal 1995. DCI anticipates that, for the foreseeable future,
any earnings that may be generated from its operations will be used to reduce
debt and provide working capital. Payment of dividends are prohibited under the
terms of certain of DCI's loan agreements. In any event, the payment of
dividends in the future will depend upon DCI's financial condition, capital
requirements and earnings and such other factors as the Board of Directors may
deem relevant.
Therefore there are no dividends in the arrears. The effect of the proposed
Merger will be o convert the stockholders' interests into the right to receive
the purchase price set forth in the Agreement.
Annual Report
A copy of the Company's latest management letter from their auditors,
Deloitte & Touche LLP, audited annual report dated January 9, 1998 is attached
hereto as Attachment 4.
FORM 10-K
The Company Form 10-K filed in February, 1998 for its last fiscal year
ending October 31, 1997, which contains audited financial statements for that
year is incorporated herein by reference.
FORMS 10-Q
The Company FORMS 10-Q filed in March and June 1998 covering the first two
quarters since the filing of its latest FORM 10-K are incorporated herein by
reference.
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Historical Financial Information
- --------------------------------
Financial Information About Industry Segments
The amount of revenue, operating profit or loss and identifiable assets
attributable to each of the Company's industry segments for its last three
fiscal years are contained in Form 10-K filed for fiscal year ending October 31,
1997. The 10-K also includes a narrative description of the business done and
intended to be done by the Company and its subsidiaries focusing upon the
Company's dominant industry segment or each reportable industry segment about
which financial information was included in the Company financial statement.
Further, discussion of services rendered in the industry segment and related
information is included in the Form10-K, together with applicable financial
information about domestic operations. To the extent referenced herein, the Form
10-K is incorporated herein by reference. The applicable portions of the Form
10-K are found on pages 10, 14 and 19.
Market Price and Dividends for the Company Common Equity and Related Stockholder
Matters
Pages 17 - 18 of FORM 10-K filed for fiscal year ending October 31, 1997
referencing current and historical market price of and dividends on the
Company's common equity and related Stockholder matters are incorporated herein
by reference.
Selected Financial Data
Pages 19 through 20 and 28 through 32 of FORM 10-K filed for fiscal year
ending October 31, 1997 and starting on page 7 of FORM 10-Q for the period
ending January 31, 1998 and on pages 3-4 of FORM 10-Q for the period ending
April 30, 1998, containing comparative financial data of a five year period are
incorporated herein by reference. Selected Financial Data on a pro forma basis
is not material due to the cash nature of the transaction.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
Management's discussion of liquidity, capital resources and results of
operations are set forth on pages 20 - 25 of FORM 10-K for fiscal year ending
October 31, 1997 and starting on page 5 FORM 10-Q for the period ending January
31, 1998 and starting on page 6 of FORM 10-Q for the period ending April 30,
1998 which are incorporated herein by reference.
Interim Balance Sheet as at June 30, 1998
DCI, INC.
CONSOLIDATED BALANCE SHEET
as of June 30, 1998
DESCRIPTION
CURRENT ASSETS:
Cash 103,841
Accounts Receivable 1,993,388
Equipment Inventory 775,277
Prepaid Exp & Other Current Assets 496,622
Deferred Income Taxes Current 31,099
Total Current Assets 3,400,227
FIELD SPARE PARTS
Net of Accumulated Amortization 2,557,030
PROPERTY AND EQUIPMENT
Vehicles 95,517
Office Furniture & Equipment 237,933
Technical Equipment 131,893
Software 57,300
Leasehold Improvements 75,042
Total Property & Equipment 597,686
Less: Accumualted Depreciation (420,102)
TOTAL FIXED ASSETS 177,583
DEFERRED INCOME TAX NONCURRENT 150,000
OTHER ASSETS:
Goodwill 111,321
Other Assets 138,373
Total Other Assets 249,694
TOTAL ASSETS 6,534,534
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CURRENT LIABILITIES:
Accounts Payable 1,395,160
Notes Payable -
Sales Tax Payable 197,378
Deferred Service 1,356,113
Revenue
Accrued Expenses Payable
Payroll and Payroll Taxes 375,546
Interest 112,568
Other 144,368
Total Current Liabilities 3,581,133
LONG-TERM DEBT - NBC 750,000
NOTES PAYABLE - SHAREHOLDERS 3,257,500
GMAC - NOTE PAYABLE 18,666
SUBORDINATED DEBENTURES 600,001
Reserve For Discontinuance of Operations -
STOCKHOLDERS'
INVESTMENT:
Common Stock 182,521
Additional Paid-In Capital 4,801,698
Accumulated (Deficit) (7,163,367)
Current Earnings 506,383
Total Stockholders' Investment (1,672,766)
TOTAL LIABILITIES & EQUITY 6,534,534
Regulatory Requirements
There is no applicable federal or state requirements in connection with the
transaction.
Quantitative and Qualitative Disclosures about market risk
Quantitative and qualitative disclosure about market risks are set forth on
page 20of FORM 10-K filed for fiscal year ending October 31, 1997 and on page 12
of FORM 10-Q for the period ending January 31, 1998 and on page 20 of FORM 10-Q
for the period ending April 30, 1998 which are incorporated herein by reference.
Accounting treatment of the Merger of the Shares
- ------------------------------------------------
It is anticipated that the transaction will be considered a Statutory
Merger. "Pooling of Interest" under the Business Transaction Code of the State
of New York.
Federal Income Tax Consequences
- -------------------------------
Since this merger is considered a Statutory Merger there will be no tax
consequences. See Internal Revenue Service Code section 368.
20
<PAGE>
Attachment 1
MERGER AGREEMENT
This Merger Agreement (this "Agreement") is entered into as of July 2,
1998, by and among Alpha Microsystems, a California corporation ("Alpha Micro"),
a party to this Agreement but not to the Merger (as hereinafter defined); Alpha
Micro Merger Corp., a Delaware corporation and wholly-owned subsidiary of Alpha
Micro (sometimes hereinafter referred to as the "Alpha Micro Merger Sub," and
together with Alpha Micro, the "Alpha Micro Companies"); Delta CompuTec Inc., a
New York corporation ("DCI", and together with its subsidiaries the "Company");
and Joseph Lobozzo II and Joanne Lobozzo (collectively "Lobozzo" and
collectively with the other shareholders of the Company, the "Shareholders").
Certain other capitalized terms used herein are defined in Article XI and
throughout this Agreement. Lobozzo is executing this Agreement solely for the
purposes of making the representations contained in Article IV, making the
covenants contained in Section 6.7 and granting the proxy contained in Section
6.9, and agreeing to the provisions of Articles IX and X.
R E C I T A L S :
The Boards of Directors of Alpha Micro and DCI have determined that it
is in the best interests of their respective shareholders for Alpha Micro to
acquire the Company upon the terms and subject to the conditions set forth in
this Agreement. In order to effectuate the transaction, Alpha Micro has
organized Alpha Micro Merger Sub as a wholly-owned subsidiary, and the parties
have agreed, subject to the terms and conditions set forth in this Agreement, to
merge Alpha Micro Merger Sub with and into DCI so that DCI continues as the
surviving corporation. As a result, DCI will become a wholly-owned subsidiary of
Alpha Micro, and the Shareholders will have the right to receive the Purchase
Price (as hereinafter defined).
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
- ----------
1.1 The Merger. Subject to the terms and conditions of this Agreement
and in accordance with the Business Corporation Law of the State of New York
(the "New York Statute"), at the Effective Time (as defined below) Alpha Micro
Merger Sub shall be merged with and into DCI (the "Merger") pursuant to the
terms and conditions set forth in the Agreement of Merger annexed hereto as
Exhibit "A" (the "Agreement of Merger"). The terms and conditions of the
Agreement of Merger are incorporated herein by reference as if fully set forth
herein. As a result of the Merger, the separate corporate existence of Alpha
Micro Merger Sub shall cease and DCI shall continue as the surviving corporation
(the "Surviving Corporation").
1.2 The Closing. Subject to the terms and conditions of this
Agreement, the consummation of the Merger (the "Closing") shall take place as
promptly as practicable (and in any event within five (5) business days) after
satisfaction or waiver of the conditions set forth in Articles VII and VIII, by
delivery of documents through the parties' respective attorneys and the filing
of the Agreement of Merger, or such other time and place as the parties may
otherwise agree.
1.3 Filing of Articles of Merger. At the time of the Closing, the
parties shall cause the Merger to be consummated by filing a duly executed
Certificate of Merger with the Secretary of State of the State of New York, in
such form as Alpha Micro determines is required by and is in accordance with the
relevant provisions of the New York Statute (the date and time of such filing is
referred to herein as the "Effective Date" or "Effective Time").
1.4 Surviving Corporation's Certificate of Incorporation, Bylaws,
Directors and Officers.
(a) Certificate of Incorporation. The Certificate of
Incorporation of DCI shall be amended to be the Certificate of
Incorporation of Alpha Micro Merger Sub as in effect immediately prior
to the Effective Time, and as so amended shall be the Certificate of
Incorporation of the Surviving Corporation.
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<PAGE>
(b) Bylaws. The Bylaws of Alpha Micro Merger Sub as in effect
immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by the New
York Statute and the Certificate of Incorporation of the Surviving
Corporation.
(c) Directors and Officers. The directors of Alpha Micro Merger
Sub immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation, and the officers of the Company immediately
prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors
are duly elected or appointed, as the case may be, and qualified.
1.5 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of DCI, Alpha Micro, Alpha Micro
Merger Sub, or the Shareholders:
(a) Per Share Merger Consideration.
Each share of common stock, par value $.01 per share, of DCI
("Company Common Stock" or "Lobozzo Common Stock") issued and
outstanding immediately prior to the Effective Time, (other than any
Dissenting Shares) shall be converted into the right to receive a
portion of the Purchase Price calculated as follows:
(i) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time held by a
Shareholder other than Lobozzo or any other Electing Shareholder (as
defined herein) shall be converted into the right to receive Thirty
Two Cents ($.32) (the "Per Share Merger Price"), provided that there
shall be withheld from the Per Share Merger Price the pro rata portion
(based upon the total number of shares of Company Stock Outstanding
and Options and Warrants described in Paragraph (b) of this Section
1.5) of the Escrow Funds as calculated pursuant to this Section 1.5,
which amount shall be deposited into the escrow provided by Article IX
to fund the Shareholder's indemnification obligations pursuant to
Article X and any adjustment pursuant to Section 9.2 and be subject to
the terms of the Escrow Agreement attached hereto as Exhibit "B".
(ii) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time held by Lobozzo or
any other Electing Shareholder shall be converted into the right to
receive a portion of the Purchase Price equal to an amount (the
"Lobozzo Per Share Merger Price") calculated as follows:
(A) the sum of the Purchase Price plus the aggregate
exercise price of all Options included in Paragraph (b) of this
Section 1.5; less
(B) the aggregate of the amount payable to Shareholders
other than Lobozzo and Electing Shareholders pursuant to
Subparagraph (i) of this Section 1.5(a) plus the amount due
holders of Options and Warrants pursuant to Paragraph (b) of this
Section 1.5; divided by
(C) the number of outstanding shares of the Company as
of the Effective Time held by Lobozzo and Electing Shareholders;
provided that a portion (the "Escrowed Funds") of the amount that
would otherwise be payable as Lobozzo Per Share Merger Price shall be
deducted from the amount to be paid to Lobozzo and each Electing
Shareholder in accordance with each holder's pro rata interest (based
upon the total number of shares of Company Common Stock outstanding
and Options and Warrants described in Paragraph (b) of this Section
1.5) which amount shall be deposited into the escrow provided by
Article IX to fund the Shareholders' indemnification obligations
pursuant to Article X and any adjustment pursuant to Section 9.2 and
be subject to the terms of the Escrow Agreement attached hereto as
Exhibit "B".
For the purposes hereof, the "Purchase Price" shall equal Three
Million Four Hundred Thirty Two Thousand Nine Hundred Ninety Nine Dollars
($3,432,999) less the amount of any increase in the Net Shareholders'
Deficit (excluding adjustments for the provision for income taxes as they
relate to net operating losses and any from reduction in the Company's
accounts payable attributable to the compromise or other write-off by the
22
<PAGE>
payee, but including in the calculation of the Net Shareholders' Deficit on
the Closing Date all direct transaction costs (including attorneys' fees
and fees due Paschel & Co.) between May 28, 1998, and the Closing Date (as
hereinafter defined) (which increase in the Net Shareholders' Deficit shall
be considered in the calculation of the threshold recovery amount as
described in Section 10.2(d) and to the extent, when considered with other
Losses, it does not exceed such threshold recovery amount shall not be
subtracted). "Net Shareholders' Deficit" shall mean the net shareholders
deficit as determined in accordance with GAAP. Not later than two (2)
business days prior to the Closing, the Company shall deliver to Alpha
Micro a certificate (the "Pre-Closing Certificate") executed by the Chief
Financial Officer of the Company, and reasonably acceptable to Alpha Micro,
which Pre-Closing Certificate shall set forth a good faith estimate of the
amount of the Net Shareholders' Deficit. In connection with the preparation
of the Pre-Closing Certificate, the Company shall make available to Alpha
Micro and its advisors the Chief Financial Officer of the Company and all
work papers, schedules, memoranda and other documents and information
prepared or reviewed by the Company in the preparation of the Pre-Closing
Certificate as may be necessary for the verification of the calculations
set forth in the Pre-Closing Certificate.
For the purposes hereof, an "Electing Shareholder" shall mean a
shareholder who has executed prior to the Merger an agreement in a form
reasonably acceptable to Alpha Micro whereby such Electing Shareholder
agrees to receive as full consideration for such Electing Shareholder's
shares of Company Common Stock the Lobozzo Per Share Merger Consideration.
The Escrowed Funds shall equal Two Hundred Fifty Thousand Dollars
($250,000) plus an additional amount equal to the following: One Hundred
Fifty Thousand Dollars ($150,000) less any reduction in the Company's
accounts payable subsequent to May 31, 1998 and prior to the Closing Date
attributable to the compromise or other write-off by the Payee which (i)
relates to an account payable more than sixty (60) days outstanding, (ii)
is acknowledged and agreed to in writing by the payee, and (iii) is
approved by Alpha Micro as not having an adverse impact on the Company's
relationship with a continuing vendor.
(b) Options and Warrants. Each Option and Warrant issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof be canceled
at the Effective Time and shall (subject to Section 1.7) entitle the holder
thereof to receive an amount, if greater than zero, equal to the Per Share
Merger Price multiplied by the number of shares of Company Common Stock
acquirable immediately prior to the Effective Time through the exercise of
such Option or Warrant, less the aggregate exercise price for all shares of
Company Common Stock issuable upon the exercise of such Option or Warrant,
provided that there shall be withheld from the Per Share Merger Price
payable with respect to such Option and Warrant the pro rata portion (based
upon the total number of shares of Company Stock Outstanding and Options
and Warrants described in this Paragraph (b)) of the Escrow Funds as
calculated pursuant to this Section 1.5, which amount shall be deposited
into the escrow provided by Article IX to fund the Shareholder's
indemnification obligations pursuant to Article X and any adjustment
pursuant to Section 9.2 and be subject to the terms of the Escrow Agreement
attached hereto as Exhibit "B"..
(c) Treasury Stock. Each share of Company Common Stock held
in the treasury of the Company or by any direct or indirect Subsidiary
of the Company immediately prior to the Effective Time, if any, shall
be canceled.
(d) Alpha Micro Merger Corp Stock. Each share of common
stock of Alpha Micro Merger Corp issued and outstanding at the
Effective Time shall be converted into one share of the common stock
of the Surviving Corporation.
(e) Rights as Shareholders. The Shareholders of DCI's Common
Stock will cease to have any rights as shareholders of DCI, except
such rights, if any, as they may have pursuant to the New York
Statute.
1.6 Delivery of Purchase Price. At the Effective Time, the
Shareholders shall deliver the certificates representing all issued and
outstanding shares of Company Common Stock to Alpha Micro for cancellation, and
Alpha Micro shall deliver the Purchase Price in the following manner: (i) Alpha
Micro shall deliver to the Escrow Agent the Escrowed Funds, to be held as a
source of funds for the indemnification obligations of the Shareholders pursuant
23
<PAGE>
to Article X; and (ii) Alpha Micro shall deliver the remainder of the Purchase
Price to an entity designated by DCI (which shall be subject to Alpha Micro's
reasonable approval) (the "Paying Agent"), in cash, to be distributed to the
Shareholders (each Shareholder having the right to receive a portion of the
Purchase Price based on the number of shares of DCI Common Stock owned by the
respective Shareholder on the Effective Date and as calculated and set forth in
Section 1.5 above).
1.7 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, each share of DCI Common Stock issued and outstanding
immediately prior to the Effective Time and which is held by any holder of such
shares who has not voted for approval of this Agreement and the transactions
contemplated hereby or consented thereto in writing, and who has properly
demanded appraisal rights with respect thereto in accordance with Section 623 of
the New York Statute (the "Dissenting Shares"), shall not be converted into, or
be exchangeable for the right to receive, the applicable Per Share Merger Price,
but holders of such shares shall be entitled to receive payment of the appraised
value of such Dissenting Shares in accordance with the provisions of Section 623
of the New York Statute, unless and until the holder of any such shares
withdraws his or her demand for such appraisal in accordance with the New York
Statute or otherwise loses his or her right to such appraisal. If a holder of
Dissenting Shares shall properly withdraw his or her demand for appraisal or
shall otherwise lose his or her right to such appraisal, then, as of the
Effective Time or the occurrence of such event, whichever last occurs, each of
such holder's Dissenting Shares shall cease to be Dissenting Shares and shall be
deemed to have been converted into and to have become exchangeable for the right
to receive the applicable Per Share Merger Price, without any interest thereon
but subject to the obligation of such holder to participate in the escrow under
the Escrow Agreement based on such holder's Pro Rata Interest pursuant to
Section 1.5(a). The Company shall give Alpha Micro prompt notice of any written
demands for appraisal of any shares of Company Common Stock, attempted
withdrawals of such demands, and any other instruments served pursuant to the
New York Statute received by the Company relating to Shareholders' rights of
appraisal.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ALPHA MICRO
- ---------------------------------------------
As a material inducement to the Shareholders to enter into this
Agreement and to consummate the transactions contemplated hereby, Alpha Micro
represents and warrants to the Company and the Shareholders, as of the date of
execution of this Agreement and as of the Effective Time:
2.1 Corporate Status. Alpha Micro is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Alpha Micro Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Alpha
Micro Merger Sub is a wholly-owned subsidiary of Alpha Micro.
2.2 Corporate Power and Authority. Each of the Alpha Micro
Companies has the corporate power and authority to execute and deliver this
Agreement, to perform its respective obligations hereunder and to consummate the
transactions contemplated hereby. Each of the Alpha Micro Companies has taken
all action necessary to authorize its execution and the delivery of this
Agreement, the performance of its respective obligations hereunder and the
consummation of the transactions contemplated hereby.
2.3 Enforceability. This Agreement has been duly executed and
delivered by each of the Alpha Micro Companies and constitutes a legal, valid
and binding obligation of each of the Alpha Micro Companies, enforceable against
each of the Alpha Micro Companies in accordance with its terms, except as the
same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
- ---------------------------------------------
As a material inducement to each of the Alpha Micro Companies to
enter into this Agreement and to consummate the transactions contemplated
hereby, the Company represents and warrants to the Alpha Micro Companies, as of
the date of execution of this Agreement and as of the Closing Date:
24
<PAGE>
3.1 Corporate Status. DCI is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
and has the requisite power and authority to own or lease its properties and to
carry on its business as now being conducted. DCI is qualified to transact
business as a foreign corporation in California, Connecticut, Georgia, Illinois,
Louisiana, Maryland, Massachusetts, Ohio, Pennsylvania, Texas and New Jersey,
and the nature of its properties or the conduct of its business does not require
qualification in any other state. DCI has fully complied with all of the
requirements of any statute governing the use and registration of fictitious
names, and has the legal right to use the names under which it operates its
business. There is no pending or threatened proceeding for the dissolution,
liquidation, insolvency or rehabilitation of DCI.
3.2 Subsidiaries. Schedule 3.2 lists each subsidiary
("Subsidiary") of DCI and each other corporation, partnership, joint venture or
other business entity in which DCI, directly or indirectly, own any outstanding
voting securities of or other interests in, or controls, together a description
of the interest therein, the state of incorporation, and each state in which
such Subsidiary is qualified to transact business. Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its formation, and has the requisite power and authority to own
or lease its properties and to carry on its business as now being conducted or
proposed to be conducted. Each Subsidiary is qualified to transact business as a
foreign corporation in those states where the nature of its properties and the
conduct of its business requires qualification. Each Subsidiary has fully
complied with all of the requirements of any statute governing the use and
registration of fictitious names, and has the legal right to use the names under
which it operates its business. There is no pending or threatened proceeding for
the dissolution, liquidation, insolvency or rehabilitation of any Subsidiary or
other entity described on Schedule 3.2 except as set forth on Schedule 3.2.
3.3 Power and Authority. DCI has the power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. DCI has taken all action
necessary to authorize the execution and delivery of this Agreement, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby, excepting the approval of the Shareholders
which will be obtained prior to Closing.
3.4 Enforceability. This Agreement has been duly executed and
delivered by DCI, and constitutes the legal, valid and binding obligation of
DCI, enforceable against it in accordance with its terms, except as the same may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity.
3.5 Capitalization. DCI has authorized an aggregate of 20,000,000
shares of Company common stock $.01 par value and 5,000,000 shares of preferred
stock, and 18,200,050 shares of Common Stock and no shares of preferred stock
are issued and outstanding. All of the issued and outstanding shares of each of
the Subsidiaries listed on Schedule 3.2 are owned by DCI. All of the issued and
outstanding shares of capital stock of DCI and its Subsidiaries and the
securities of any other entity in which the Company has an interest (i) have
been duly authorized and validly issued, and once exchanged for the Per Share
Merger Price or Lobozzo Per Share Merger Price, as the case may be, no person or
entity shall be entitled to require that payment be made with respect to such
shares except as contemplated by Section 1.5(a) hereof, (ii) were issued in
compliance with all applicable state and federal securities laws, and (iii) were
not issued in violation of any preemptive rights or rights of first refusal. No
preemptive rights or rights of first refusal exist with respect to the shares of
capital stock of DCI or its Subsidiaries and no such rights arise by virtue of
or in connection with the transactions contemplated hereby. There are no
outstanding or authorized rights, options, warrants, convertible securities,
subscription rights, conversion rights, exchange rights or other agreements or
commitments of any kind that could require DCI or its Subsidiaries to issue or
sell any shares of their respective capital stock (or securities convertible
into or exchangeable for shares of its capital stock) except as listed on
Schedule 3.5. There are no outstanding stock appreciation, phantom stock profit
participation or other similar rights with respect to DCI or its Subsidiaries
except as listed on Schedule 3.5. There are no proxies, voting rights or other
agreements or understandings with respect to the voting or transfer of the
capital stock of DCI or its Subsidiaries. DCI is not obligated to redeem or
otherwise acquire any of its outstanding shares of capital stock.
25
<PAGE>
3.6 Commission Reports. Except for delinquent filings prior to
fiscal 1997, DCI has duly and timely made all required filings with the
Securities and Exchange Commission under the Securities Act of 1933 and the
Securities Exchange Act of 1934, each as amended, and all of the reports, forms
and documents so filed complied in all material respects with all applicable
requirements. DCI has heretofore delivered to Alpha Micro accurate and complete
copies of the reports, proxy statements and registration statements which have
been filed with the Securities and Exchange Commission since January 1, 1993,
all of which are listed on Schedule 3.6. None of such reports, proxy statements
or registration statements contained any untrue statements of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial statements and
schedules of DCI contained in such public reports (or incorporated therein by
reference) were prepared in accordance with GAAP applied on a consistent basis,
except as noted therein, and fairly present the consolidated financial condition
and results of operations of DCI and its subsidiaries as at the respective dates
thereof and for the periods indicated therein, subject (in the case of interim
unaudited financial statements) to normal year-end audit adjustments, none of
which are material.
3.7 Loss Contingencies and Other Non-Accrued Liabilities. Except
as described on the Schedule 3.7, the Company does not have (i) any loss
contingencies which are not required by GAAP to be accrued; (ii) any loss
contingencies involving an unasserted claim or assessment which are not required
by GAAP to be disclosed because the potential claimants have not manifested to
the Company an awareness of a possible claim or assessment; or (iii) any
categories of known liabilities or obligations which are not required by GAAP to
be accrued. For purposes of this Agreement, "loss contingency" shall have the
meaning accorded to it by GAAP.
3.8 No Violation. The execution and delivery of this Agreement by
DCI, the performance by DCI of its obligations hereunder and the consummation by
DCI of the transactions contemplated by this Agreement will not (i) contravene
any provision of the articles of incorporation or bylaws of DCI, (ii) violate or
conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon or enforceable
against the Company, (iii) conflict with, result in any breach of, or constitute
a default (or an event which would, with the passage of time or the giving of
notice or both, constitute a default) under, or give rise to a right to
terminate, amend, modify, abandon or accelerate, any contract which is
applicable to, binding upon or enforceable against the Company, (iv) result in
or require the creation or imposition of any Lien upon or with respect to any of
the property or assets of the Company, or (v) excepting with respect to the
filing and recordation of appropriate merger documents as required by the New
York Statute, and except as to the approval of a majority of DCI's shareholders,
require the consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, any court or tribunal or any other
Person.
3.9 Representations and Covenants Regarding Corporate Records of
DCI and its Subsidiaries. The copies of the articles of incorporation and bylaws
of DCI and its Subsidiaries which were provided to Alpha Micro are true,
accurate and complete and reflect all amendments thereto, and DCI and its
Subsidiaries shall not amend the [articles of incorporation or] bylaws prior to
the Closing Date. The minute books for DCI and its Subsidiaries have been or
shall be delivered to Alpha Micro for review within four (4) days from the date
of this Agreement, and shall be true and correct in all material respects as of
the date of such review. The Company shall promptly provide to Alpha Micro
copies of all subsequent entries therein prior to the Closing Date. Upon
delivery to Alpha Micro, the minute books of DCI and its Subsidiaries shall be
true and correct and will contain the true signatures of the Persons purporting
to have signed them. All material corporate actions taken by DCI and its
Subsidiaries have been or will be as of the date of delivery of the minute books
duly authorized or ratified. All accounts, books, ledgers and official and other
records of DCI and its Subsidiaries have been fully, properly and accurately
kept and completed in all material respects, and there are no material
inaccuracies or discrepancies of any kind contained therein.
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3.10 Interim Financial Statements. DCI has delivered to Alpha
Micro financial statements for the periods ending April 30, 1998 and May 31,
1998 (the "Interim Financial Statements"). The Interim Financial Statements
fairly present the financial position of the Company at each of the balance
sheet dates and the results of operations for the periods covered thereby, and
have been prepared in accordance with GAAP consistently applied throughout the
periods indicated. The Interim Financial Statements of the Company fully and
fairly reflect all of its transactions, properties, assets and liabilities.
There are no extraordinary or material non-recurring items of income or expense
during the periods covered by the Interim Financial Statements (except as may be
expressly stated in the notes thereto) and the balance sheets included in the
Interim Financial Statements do not reflect any write-up or revaluation
increasing the book value of any assets, except as specifically disclosed in the
notes thereto. The Interim Financial Statements reflect all adjustments
necessary for a fair presentation of the financial information contained
therein.
3.11 Changes Since May 31, 1998 (the "Current Balance Sheet
Date"), and for the Period Between May 28, 1998 and May 31, 1998. Except as set
forth on Schedule 3.11, since the Current Balance Sheet Date, and as separately
stated, for the period May 28, 1998 through May 31, 1998, the Company has not
(i) issued any capital stock or other securities; (ii) made any distribution of
or with respect to its capital stock or other securities or purchased or
redeemed any of its securities; (iii) paid any bonus to or increased the rate of
compensation of any of its officers or salaried employees or amended any other
terms of employment of such Persons; (iv) sold, leased or transferred any of its
properties or assets other than in the ordinary course of business consistent
with past practice; (v) made or obligated itself to make capital expenditures
out of the ordinary course of business consistent with past practice; (vi) made
any payment in respect of its liabilities other than in the ordinary course of
business consistent with past practice; (vii) incurred any obligations or
liabilities (including any indebtedness) or entered into any transaction or
series of transactions involving in excess of $20,000 in the aggregate outside
of the ordinary course of business, except for this Agreement and the
transactions contemplated hereby; (viii) suffered any theft, damage, destruction
or casualty loss, not covered by insurance and for which a timely claim was
filed, in excess of $10,000 in the aggregate; (ix) suffered any extraordinary
losses (whether or not covered by insurance); (x) waived, canceled, compromised
or released any rights having a value in excess of $10,000 in the aggregate
except as approved in writing by Alpha Micro; (xi) made or adopted any change in
its accounting practice or policies; (xii) made any adjustment to its books and
records other than in respect of the conduct of its business activities in the
ordinary course consistent with past practice; (xiii) entered into any
transaction with any Affiliate other than intercompany transactions in the
ordinary course of business consistent with past practice; (xiv) entered into
any employment agreement; (xv) terminated, amended or modified any agreement
involving an amount in excess of $10,000; (xvi) imposed any security interest or
other Lien on any of its assets other than in the ordinary course of business
consistent with past practice; (xvii) except consistent with past practices,
delayed paying any accounts payable which are due and payable except to the
extent being contested in good faith; (xviii) made or pledged any charitable
contribution in excess of $5,000; (xix) entered into any other transaction or
been subject to any event which has or may have a Material Adverse Effect on the
Company; or (xx) agreed to do or authorized any of the foregoing, except as
expressly contemplated herein.
3.12 Liabilities of the Company. The Company does not have any
liabilities or obligations, whether accrued, absolute, contingent or otherwise,
except (i) to the extent reflected or taken into account in the Current Balance
Sheet and not heretofore paid or discharged, (ii) liabilities described on
Schedule 3.7, (iii) liabilities incurred in the ordinary course of business
consistent with past practice since the Current Balance Sheet Date (none of
which relates to breach of contract, breach of warranty, tort, infringement or
violation of law, or which arose out of any action, suit, claim, governmental
investigation or arbitration proceeding), (iv) normal accruals,
reclassifications, and audit adjustments which would be reflected on an audited
financial statement and which do not exceed in the aggregate $25,000, and (v)
liabilities incurred in the ordinary course of business prior to the Current
Balance Sheet Date which, in accordance with GAAP consistently applied, were not
recorded thereon. Other than set forth on Schedule 3.12, the Company will have
no outstanding indebtedness for borrowed money at the Effective Time, including
principal and accrued but unpaid interest, and including payments on capitalized
equipment leases. The amount of the Company's outstanding indebtedness to
Lobozzo (whether pursuant to outstanding debentures, the existing credit
agreement or otherwise), will be no more than Three Million Nine Hundred Ninety
Two Thousand and One Dollars ($3,992,001), as of the Effective Time, except as
permitted pursuant to Section 6.10.
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3.13 Litigation. Except as set forth on Schedule 3.13, there is
no action, suit, or other legal or administrative proceeding or governmental
investigation pending, threatened, anticipated or contemplated before any court,
administrative agency, arbitration panel, mediator or other body which matter is
against, by or affecting the Company, or any of its properties or assets, or
which questions the validity or enforceability of this Agreement or the
transactions contemplated hereby, and there is no basis for any of the
foregoing. The Company has not been charged with, nor is the Company under
investigation with respect to any charge concerning or in violation of, any
provisions of federal, state or local law or administrative regulations in
respect of its business and operations. There are no outstanding judgments,
orders, writs, injunctions, decrees or stipulations issued by any court or
federal ,state or local Governmental Authority in any proceeding to which the
Company is or was a party which have not been complied with in full or which
continue to impose any material obligations on the Company.
3.14 Environmental Matters.
(a) The Company and its former subsidiaries and predecessors
are and have at all times been in full compliance with all Environmental
Laws (as defined in clause (h) below) governing their business, operations,
properties and assets, including, without limitation: (i) all requirements
relating to the Discharge (as defined in clause (h) below) and/or Handling
(as defined in clause (h) below) of Hazardous Substances (as defined in
clause (h) below) or other Waste (as defined in clause (h) below); (ii) all
requirements relating to notice, record keeping and reporting; (iii) all
requirements relating to obtaining and maintaining Licenses (as defined in
clause (h) below) for the ownership of their properties and assets and the
operation of their businesses as presently and previously conducted,
including Licenses relating to the Handling and Discharge of Hazardous
Substances and other Waste; and (iv) all applicable writs, orders,
judgments, injunctions, governmental communications, directives, decrees,
informational requests or demands issued pursuant to, or arising under, any
Environmental Laws.
(b) There are no non-compliance orders, warning letters,
notices of violation or the like (collectively "Notices"), claims, suits,
actions, judgments, penalties, fines, or investigations or proceedings
(administrative, judicial or otherwise) (collectively "Proceedings")
pending or threatened against or involving the Company or any of its former
subsidiaries, or the business, operations, properties, or assets of any or
all of the foregoing, initiated by any Governmental Authority or third
party with respect to any Environmental Laws or Licenses issued to the
Company or any of its former subsidiaries in connection with, related to or
arising out of (i) the ownership by the Company or such subsidiaries of
their properties or assets or (ii) the operation of their businesses, which
have not been resolved to the satisfaction of the initiating Governmental
Authority or third party in a manner that would impose any obligation,
burden or liability on Alpha Micro or the Surviving Corporation in the
event that the transactions contemplated by this Agreement are consummated,
or which could have a Material Adverse Effect on Alpha Micro or the
Surviving Corporation, including, without limitation: (i) Notices or
Proceedings related to the Company and/or any of its former subsidiaries
being a potentially responsible party under any applicable Environmental
Laws; (ii) Notices or Proceedings in connection with any federal or state
environmental cleanup site, or in connection with any real property or
premises where the Company and/or any of its former subsidiaries has
conducted its business or operations or has transported, transferred or
disposed of other Waste; (iii) Notices or Proceedings relating to the
Company and/or any of its former subsidiaries being responsible to
undertake any removal, response or remedial actions or clean-up actions of
any kind; or (iv) Notices or Proceedings related to the Company and/or any
of its former subsidiaries being liable under any Environmental Laws for
personal injury, property damage, natural resource damage, or clean up
obligations.
(c) Except as set forth on Schedule 3.14, neither the
Company nor any of its former subsidiaries has Handled or Discharged, nor
has it allowed or arranged for any third party to Handle or Discharge,
Hazardous Substances or other Waste to, at or upon: (i) any location other
than a site lawfully permitted to receive such Hazardous Substances or
other Waste; (ii) any real property currently or previously owned or leased
by the Company and/or any of its former subsidiaries; or (iii) any site
which, pursuant to any Environmental Laws, (A) has been placed on the
National Priorities List or its state equivalent, or (B) the Environmental
Protection Agency or the relevant state agency or other Governmental
Authority has notified the Company and/or any of its former subsidiaries
that such Governmental Authority has proposed or is proposing to place on
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the National Priorities List or its state equivalent. There has not
occurred, nor is there presently occurring, a Discharge, or threatened
Discharge, of any Hazardous Substance on, into or beneath the surface of
or, to the knowledge of the Company, adjacent to, any real property
currently or previously owned or leased by the Company and/or any of its
former subsidiaries in an amount requiring a notice or report to be made to
a Governmental Authority or in violation of any applicable Environmental
Laws. The Company and/or any of its former subsidiaries did not Discharge
any Hazardous Substance on, into or beneath the surface of any real
property adjacent to any real property currently or previously owned or
leased by the Company or on which the Company and/or any of its former
subsidiaries performed any of its business operations.
(d) Schedule 3.14 identifies the operations and activities,
and locations thereof, which have been conducted or are being conducted by
the Company or any of its former subsidiaries on any real property
currently or previously owned or leased by the Company or any of its former
subsidiaries or on which the Company and/or any of its former subsidiaries
performed any of its business operations which have involved the Handling
or Discharge of Hazardous Substances.
(e) Neither the Company nor any of its former subsidiaries
owns, operates or uses, nor have any of them owned, operated, or used, any
Aboveground Storage Tanks (as defined in clause (h) below) or Underground
Storage Tanks (as defined in clause (h) below), and there are not now nor
have there ever been any Aboveground Storage Tanks or Underground Storage
Tanks on or beneath any real property currently or previously owned or
leased by the Company nor any of its former subsidiaries that are or were
required to be registered under applicable Environmental Laws.
(f) Schedule 3.14 identifies (i) all environmental audits,
assessments, investigations or occupational health studies undertaken by
the Company or its agents or, to the knowledge of the Company, undertaken
by any Governmental Authority, or any third party, relating to or affecting
the Company and/or any of its former subsidiaries or any real property
currently or previously owned or leased by the Company or any of its former
subsidiaries or on which the Company and/or any of its former subsidiaries
performed any of its business operations; (ii) the results of any ground
water, soil, air and/or asbestos testing and/or monitoring undertaken by
the Company and/or any of its former subsidiaries or its agents or, to the
knowledge of the Company, undertaken by any Governmental Authority or any
third party, relating to or affecting the Company and/or any of its former
subsidiaries or any real property currently or previously owned or leased
by the Company or any of its former subsidiaries or on which the Company
and/or any of its former subsidiaries performed any of its business
operations which indicate the presence of Hazardous Substances; (iii) all
material written communications between the Company and/or any of its
former subsidiaries and any Governmental Authority and/or third party
arising under or related to Environmental Laws; and (iv) all outstanding
citations issued under OSHA, or similar state or local statutes, laws,
ordinances, codes, rules, regulations, orders, rulings, or decrees,
relating to or affecting either the Company and/or any of its former
subsidiaries or any real property currently or previously owned or leased
by the Company and/or any of its former subsidiaries.
(g) To the best of the Company's knowledge, there are not,
and have not been, any asbestos containing materials in, on, under, about
or as part of any of the properties (including, without limitation, the
improvements thereto and the personal property thereon and/or thereat)
which the Company and/or its former subsidiaries or predecessors, or any of
them, owned and/or at which they, or any of them, operated; nor do any of
the assets of the Company and/or its former subsidiaries or predecessors
contain, nor have they ever contained, asbestos containing materials; nor
are asbestos containing materials used or otherwise been part of the
business or operations of the Company or its former subsidiaries or
predecessors, nor have they ever been.
(h) For purposes of this Section 3.14, the following terms
shall have the meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning ascribed
to such term in Section 6901 et seq., as amended, of RCRA (defined below),
or any applicable state or local statute, law, ordinance, code, rule,
regulation, order, ruling, or decree governing Aboveground Storage Tanks.
"Discharge" or "Discharged" means any manner of spilling,
leaking, dumping, discharging, releasing or emitting, as any of such terms
may further be defined in any Environmental Law, into any medium including,
without limitation, ground water, surface water, soil or air.
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"Environmental Laws" means all federal, state, regional or
local statutes, laws, rules, regulations, codes, orders, plans,
injunctions, decrees, rulings, and changes or ordinances or judicial or
administrative interpretations thereof, or similar laws of foreign
jurisdictions where the Company conducts business, whether currently in
existence or hereafter enacted or promulgated, any of which govern (or
purport to govern) or relate to pollution, protection of the environment,
public health and safety, air emissions, water discharges, hazardous or
toxic substances, solid or hazardous waste or occupational health and
safety, as any of these terms are or may be defined in such statutes, laws,
rules, regulations, codes, orders, plans, injunctions, decrees, rulings and
changes or ordinances, or judicial or administrative interpretations
thereof, including, without limitation: the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the
Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. ss.9601, et
seq. (collectively "CERCLA"); the Solid Waste Disposal Act, as amended by
the Resource Conservation and Recovery Act of 1976 and subsequent Hazardous
and Solid Waste Amendments of 1984, 42 U.S.C. ss.6901 et seq. (collectively
"RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C.
ss.1801, et seq.; the Clean Water Act, as amended, 33 U.S.C.ss.1311, et
seq.; the Clean Air Act, as amended (42 U.S.C. ss.7401-7642); the Toxic
Substances Control Act, as amended, 15 U.S.C. ss.2601 et seq.; the Federal
Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. ss.
136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act
of 1986 as amended, 42 U.S.C. ss. 11001, et seq. (Title III of SARA)
("EPCRA"); and the Occupational Safety and Health Act of 1970, as amended,
29 U.S.C. ss.651, et seq. ("OSHA").
"Handle," "Handling" or "Handled" means any manner of
generating, accumulating, storing, treating, disposing of, transporting,
transferring, labeling, handling, manufacturing or using, as any of such
terms may further be defined in any Environmental Law, of any Hazardous
Substances or Waste.
"Hazardous Substances" shall be construed broadly to include
any toxic or hazardous substance, material, or waste, and any other
contaminant, pollutant or constituent thereof whether liquid, solid,
semi-solid, sludge and/or gaseous, including without limitation chemicals,
compounds, by-products, pesticides, asbestos containing materials,
petroleum or petroleum products, and polychlorinated biphenyls, the
presence of which requires investigation, remediation and/or monitoring
under any Environmental Laws or which are or become defined, designated,
identified, regulated, listed or controlled by, under or pursuant to any
Environmental Laws, including, without limitation, RCRA, CERCLA, the
Hazardous Materials Transportation Act, the Toxic Substances Control Act,
the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA, or any
similar state statute, or any future amendments to, or regulations
implementing such Environmental Laws, statutes, laws, ordinances, codes,
rules, regulations, orders, rulings, or decrees, or which has been or shall
be determined or interpreted at any time by any Governmental Authority to
be a hazardous or toxic substance regulated under any other statute, law,
regulation, order, code, rule, order, or decree.
"Licenses" means all licenses, certificates, permits,
approvals and registrations.
"Underground Storage Tank" shall have the meaning ascribed
to such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule, regulation,
order, ruling, or decree governing Underground Storage Tanks.
"Waste" shall be construed broadly to include agricultural
wastes, biomedical wastes, biological wastes, bulky wastes, construction
and demolition debris, garbage, household wastes, industrial solid wastes,
liquid wastes, recyclable materials, sludge, solid wastes, special wastes,
used oils, white goods, and yard trash as those terms are defined under any
applicable Environmental Laws.
3.15 Real Estate.
(a) The Company does not own any real property.
(b) Schedule 3.15 sets forth a list of all leases, licenses
or similar agreements (the "Leases") to which the Company is a party
(copies of which have previously been furnished to Alpha Micro), in each
case, setting forth (i) the lessor and lessee thereof and the date and term
of each of the Leases, (ii) the legal description, including street
address, of each property covered thereby, and (iii) a brief description of
the principal improvements and buildings thereon (the "Leased Premises").
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The Leases are in full force and effect and have not been amended, and as
of the Effective Time the Company is not, in default or breach under any
such Lease, and to the knowledge of the Company, no other party to any such
Lease is in default or breach under any such Lease. No event has occurred
which, with the passage of time or the giving of notice or both, would
cause a material breach of or default under any of such Leases by the
Company, or, to the knowledge of the Company, by any other party
thereunder, or which would entitle the lessor under any of the Leases to
damages.
3.16 Good Title to and Condition of Assets.
(a) The Company has good and marketable title to all of its
Assets (as hereinafter defined), free and clear of any Liens or
restrictions on use, except as set forth on Schedule 3.16. For purposes of
this Agreement, the term "Assets" means all of the properties and assets of
the Company, other than the Leased Premises, whether personal or mixed,
tangible or intangible, wherever located.
(b) The Fixed Assets (as hereinafter defined) currently in
use or necessary for the business and operations of the Company are in good
operating condition, normal wear and tear excepted. For purposes of this
Agreement, the term "Fixed Assets" means all vehicles, machinery,
equipment, tools, supplies, leasehold improvements, furniture and fixtures
used by or located on the premises of the Company or set forth on the
Current Balance Sheet or acquired by the Company since the Current Balance
Sheet Date. Schedule 3.16 lists the vehicles owned, leased or used by the
Company, setting forth the make, model, vehicle identification number, and
year of manufacture, and for each vehicle, whether it is owned or leased,
and if owned, the name of any lienholder and the amount of the Lien, and if
leased, the name of the lessor and the general terms of the lease.
3.17 Compliance with Laws.
(a) The Company is and has been in compliance with all laws,
regulations and orders applicable to it, its business and operations (as
conducted by it now and in the past), the Assets and the Leased Premises
and any other properties and assets (in each case owned or used by it now
or in the past). Except for certain delinquent SEC filings described in
Section 3.6 above, the Company has not been cited, fined or otherwise
notified since June 1, 1996 of any asserted past or present failure to
comply with any laws, regulations or orders and no proceeding with respect
to any such violation is pending or threatened.
(b) Neither the Company, nor any of its employees or agents,
has made any payment of funds in connection with the business of the
Company which is prohibited by law, and no funds have been set aside to be
used in connection with the business of the Company for any payment
prohibited by law.
(c) The Company is and at all times has been in full
compliance with the terms and provisions of the Immigration Reform and
Control Act of 1986, as amended (the "Immigration Act"). With respect to
each Employee (as defined in 8 C.F.R. 274a.1(f)) of the Company for whom
compliance with the Immigration Act is required, the Company has on file a
true, accurate and complete copy of (i) each Employee's Form I-9
(Employment Eligibility Verification Form) and (ii) all other records,
documents or other papers prepared, procured and/or retained by the Company
pursuant to the Immigration Act. The Company has not been cited, fined,
served with a Notice of Intent to Fine or with a Cease and Desist Order,
nor has any action or administrative proceeding been initiated or
threatened against the Company, by the Immigration and Naturalization
Service by reason of any actual or alleged failure to comply with the
Immigration Act.
(d) The Company is not subject to any Contract, decree or
injunction which restricts the continued operation of any business of the
Company or the expansion thereof to other geographical areas, customers and
suppliers or lines of business.
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3.18 Labor and Employment Matters. Schedule 3.18 sets forth the
name, current rate of compensation of the employees of the Company. Except as
set forth on Schedule 3.18, the Company is not a party to or bound by any
collective bargaining agreement or any other agreement with a labor union, and
there has been no effort by any labor union during the twenty-four (24) months
prior to the date hereof to organize any employees of the Company into one or
more collective bargaining units. There is no pending or threatened labor
dispute, strike or work stoppage which affects or which may affect the business
of the Company or which may interfere with its continued operations. Neither the
Company nor any agent, representative or employee thereof has within the last
twenty-four (24) months committed any unfair labor practice as defined in the
National Labor Relations Act, as amended, and there is no pending or threatened
charge or complaint against the Company by or with the National Labor Relations
Board or any representative thereof. There has been no strike, walkout or work
stoppage involving any of the employees of the Company during the twenty-four
(24) months prior to the date hereof. The Company is not aware that any
executive or key employee or group of employees has any plans to terminate his,
her or their employment with the Company as a result of the Merger or otherwise.
The Company has complied with applicable laws, rules and regulations relating to
employment, civil rights and equal employment opportunities, including but not
limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, and the
Americans with Disabilities Act, as amended.
3.19 Employee Benefit Plans.
(a) Schedule 3.19 attached hereto contains a complete and
accurate list of all Employee Plans. Complete and accurate copies of (i)
all Employee Plans which have been reduced to writing, (ii) written
summaries of all unwritten Employee Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, (iv) all
annual reports filed on IRS Form 5500, 5500C or 5500R for the last three
(3) plan years for each Employee Plan, (v) all reports by independent
auditors for the last three (3) plan years, (vi) the most recent
determination letters and all rulings, exemptions and waivers issued by the
Internal Revenue Service ("IRS"), Department of Labor, or Pension Benefit
Guaranty Corporation ("PBGC"), (vii) a description setting forth the amount
of any liability of the Company as of the Closing Date for payments more
than thirty (30) days past due with respect to each Welfare Plan or Pension
Plan which covers or has covered employees or former employees of the
Company, (viii) union contracts pursuant to which the Company has
established or maintains an Employee Plan, (ix) minutes or other records of
meetings of Employee Plan fiduciaries held in the past three (3) years, and
(x) all amendments to any of the foregoing, and all written interpretations
or descriptions of any of the foregoing which have been distributed to the
Company's employees have been delivered to Alpha Micro. Each Employee Plan
has been administered in accordance with its terms and the Company has met
its obligations with respect to such Employee Plan and has timely made all
required contributions thereto. The Company and all Employee Plans are in
compliance with the currently applicable provisions of ERISA, the Code, the
regulations thereunder, and other applicable law.
(b) Except as set forth on Schedule 3.19, the Company has no
knowledge of investigations by any governmental entity, termination
proceedings or other claims (other than routine claims for benefits), suits
or proceedings against or involving any Employee Plan or asserting any
rights or claims to benefits under any Employee Plan that could give rise
to any material liability.
(c) Schedule 3.19 sets forth each Pension Plan which is
intended to be qualified under Section 401(a) of the Code. Each Pension
Plan listed on Schedule 3.19 and each related trust agreement, annuity
contract or other funding instrument which covers or has covered employees
or former employees of the Company or any ERISA Affiliate is qualified and
tax exempt under the provisions of Code Sections 401(a) (or 403(a), as
appropriate) and 501(a), and has been so qualified during the period from
its adoption to date.
(d) Neither the Company nor any ERISA Affiliate currently
maintains, or has ever maintained, an Employee Plan subject to Section 412
of the Code or Title IV of ERISA.
(e) Except as set forth on Schedule 3.19, neither the
Company nor any ERISA Affiliate currently contributes, or has ever
contributed, to a Multi-employer Plan.
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(1) Except as set forth on Schedule 3.19, neither the
Company nor any ERISA Affiliate has, at any time, withdrawn from a
Multi-employer Plan in a "complete withdrawal" or a "partial
withdrawal" as defined in Sections 4203 and 4205 of ERISA,
respectively, so as to result in a liability, contingent or otherwise
(including, but not limited to, the obligations pursuant to an
agreement entered into in accordance with Section 4204 of ERISA), of
the Company or any ERISA Affiliate.
(2) All contributions required to be made by the Company or
any ERISA Affiliate to each Multi-employer Plan have been made when
due.
(3) If, as of the Closing Date, the Company (and all ERISA
Affiliates) were to withdraw from all Multi-employer Plans to which it
(or any of them) has contributed or been obligated to contribute, it
(and they) would incur no liabilities to such plans under Title IV of
ERISA, except to the extent specified on Schedule 3.19.
(4) To the best of the Company's knowledge, with respect to
each Multi-employer Plan: (i) no such Multi-employer Plan has been
terminated or has been in reorganization under ERISA so as to result,
directly or indirectly, in any liability, contingent or otherwise, of
the Company or any ERISA Affiliate under Title IV of ERISA; (ii) no
proceeding has been initiated by any Person (including the PBGC) to
terminate any Multi-employer Plan; (iii) the Company and the ERISA
Affiliates have no reason to believe that any Multi-employer Plan will
be terminated or will be reorganized under ERISA; and (iv) the Company
and the ERISA Affiliates do not expect to withdraw from any
Multi-employer Plan.
(f) Except as set forth on Schedule 3.19, there are no unfunded
obligations under any Employee Plan providing benefits after termination of
employment to any employee of the Company (or to any beneficiary of any
such employee), including but not limited to retiree health coverage,
pensions and deferred compensation, but excluding continuation of health
coverage required to be continued under Section 4980B of the Code and
insurance conversion privileges under state law.
(g) Except as set forth on Schedule 3.19, no act or omission has
occurred and no condition exists with respect to an Employee Plan
maintained by the Company that could subject the Company to any material
fine, penalty, tax liability or Lien of any kind imposed under (i) Sections
404, 406, 502(c), 502(i) or 502(l) of ERISA, (ii) Sections 412, 511, 4971,
4972, 4975, 4976, 4977, 4978, 4978B, 4979, 4979A or 4980B of the Code, or
(iii) Title IV of ERISA.
(h) Except as set forth on Schedule 3.19, no Employee Plan is
funded by, associated with, or related to a "voluntary employee's
beneficiary association" within the meaning of Section 501(c)(9) of the
Code.
(i) Except as set forth on Schedule 3.19, no Employee Plan, plan
documentation or agreement, summary plan description or other written
communication distributed generally to employees by its terms prohibits the
Company from amending or terminating any such Employee Plan.
(j) No complete or partial termination of any Employee Plan has
occurred for which affected participants were not fully vested in their
accrued benefits.
(k) Any bonding required by ERISA has been obtained and is in
full force and effect.
(l) With respect to each trust established by the Company which
intended to qualify as a voluntary employee benefit association under
Section 501(c)(9) of the Code, the Company does not have and does not
expect to have any liability (whether absolute or contingent, whether in
the nature of penalties, excise tax, additional contributions, or
otherwise) with respect to the funding or operation thereof, and the
Company does not expect the trust to have any unrelated business income tax
(whether absolute or contingent). The Company has either received a ruling
or determination from the IRS that such trust is exempt from taxation under
Section 501(c)(9) of the Code or has applied to the IRS for such a ruling
or determination.
(m) The consummation of this transaction will not entitle any
employee of the Company to severance pay, unemployment compensation or any
similar payment.
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(n) All required filings, including all filings required to be
made with the United States Department of Labor, IRS and the PBGC have been
timely filed.
(o) Each Welfare Plan which covers or has covered employees or
former employees of the Company and which is a "group health plan," as
defined in Section 607(1) of ERISA, has been operated in material
compliance with provisions of Part 6 of Title I of ERISA and Section 4980B
of the Code at all times.
(p) There is no contract, agreement, plan or arrangement covering
any employee or former employee of the Company (with respect to their
relationship with such entities) that, individually or collectively,
provides for the payment by the Company of any amount (i) that is not
deductible under Section l62(a)(l) or 404 of the Code or (ii) that is an
"excess parachute payment" pursuant to Section 280G of the Code.
(q) Each Employee Plan, related trust agreement, annuity contract
or other funding instrument which covers or has covered employees or former
employees of the Company is legally valid and binding and in full force and
effect.
(r) Neither the Company nor any ERISA Affiliate has any announced
plan or legally binding commitment to create any additional Employee Plans
which are intended to cover employees or former employees of the Company or
to amend or modify any existing Employee Plan which covers or has covered
employees or former employees of the Company.
(s) No event has occurred in connection with which the Company or
any ERISA Affiliate or any Employee Plan, directly or indirectly, could be
subject to any material liability (i) under any statute, regulation or
governmental order relating to any Employee Plans, or (ii) pursuant to any
obligation of the Company or any ERISA Affiliate to indemnify any Person
against liability incurred under, any such statute, regulation or order as
they relate to the Employee Plans.
3.20 Insurance. The Company is covered by valid, outstanding and
enforceable policies of insurance covering its respective properties, assets and
businesses against risks of the nature normally insured against by corporations
in the same or similar lines of business and in coverage amounts typically and
reasonably carried by such corporations (the "Insurance Policies"). Such
Insurance Policies are in full force and effect, and all premiums due thereon
have been paid. As of the Effective Time, each of the Insurance Policies will be
in full force and effect. None of the Insurance Policies will lapse or terminate
as a result of the transactions contemplated by this Agreement. The Company has
complied with the provisions of such Insurance Policies. Schedule 3.20 contains
(i) a complete and correct list of all Insurance Policies and all amendments and
riders thereto (copies of which have been provided to Alpha Micro) and (ii) a
detailed description of each pending claim under any of the Insurance Policies
for an amount in excess of $10,000 that relates to loss or damage to the
properties, assets or businesses of the Company. The Company has not failed to
give, in a timely manner, any notice required under any of the Insurance
Policies to preserve its rights thereunder and has no knowledge of facts which
would give rise to retroactive premium adjustments.
3.21 Receivables. All of the Receivables (as hereinafter defined)
are valid and legally binding, represent bona fide transactions and arose in the
ordinary course of business of the Company. All of the Receivables are good and
collectible receivables, and will be collected in full in accordance with the
terms of such receivables (and in any event within six months following the
Closing), without setoff or counterclaims, subject to the allowance for doubtful
accounts, if any, set forth on the Current Balance Sheet as reasonably adjusted
since the date of the Current Balance Sheet in the ordinary course of business
consistent with past experience. For purposes of this Agreement, the term
"Receivables" means all receivables of the Company, including all trade account
receivables arising from the provision of services, sale of inventory, notes
receivable, and insurance proceeds receivable.
3.22 Licenses and Permits. The Company possesses all licenses and
required governmental or official approvals, permits or authorizations
(collectively, the "Permits") for its businesses and operations, including with
respect to the operation of each of the Owned Properties and Leased Premises.
All such Permits are valid and in full force and effect, the Company is in full
compliance with the respective requirements thereof, and no proceeding is
pending or threatened to revoke or amend any of them. None of such Permits is or
will be impaired or in any way affected by the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
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3.23 Adequacy of the Assets; Relationships with Suppliers;
Affiliated Transactions. The Assets, Leased Premises and Intellectual Property
constitute, in the aggregate, all of the assets and properties necessary for the
conduct of the business of the Company in the manner in which and to the extent
to which such business is currently being conducted and proposed to be
conducted. No current supplier to the Company of items essential to the conduct
of its business has threatened to terminate its business relationship with it
for any reason. The Company does not have any direct or indirect interest in any
customer, supplier or competitor of the Company, or in any Person from whom or
to whom the Company leases real or personal property.
3.24 Intellectual Property. The Company has full legal right,
title and interest in and to all trademarks, service marks, copyrights,
know-how, patents, trade secrets, proprietary computer software, data bases and
compilations, licenses (including licenses for the use of computer software
programs), and other intellectual property used in the conduct of its business
(the "Intellectual Property"). The business of the Company as presently
conducted, and the unrestricted conduct and the unrestricted use and
exploitation of the Intellectual Property, does not infringe or misappropriate
any rights held or asserted by any Person, and no Person is infringing on the
Intellectual Property. No payments are required for the continued use of the
Intellectual Property, excepting to the extent reflected in contracts listed on
Schedule 3.25. None of the Intellectual Property has ever been declared invalid
or unenforceable, or is the subject of any pending or threatened action for
opposition, cancellation, declaration, infringement, or invalidity,
unenforceability or misappropriation or like claim, action or proceeding.
3.25 Contracts. Schedule 3.25 contains a list of all executory
contracts, plans, undertakings and commitments (whether oral or written) to
which the Company is a party or by which it is bound (collectively, the
"Contracts"), and any proposals or bids, including but not limited to the
following (including with respect to each oral agreement, a summary of all
material terms of such oral agreement):
(a) employment contracts;
(b) labor or union contracts;
(c) distribution, franchise, license, sales, agency or
advertising contracts;
(d) contracts or commitments relating to commission arrangements
with others;
(e) contracts with suppliers;
(f) leases for personal property;
(g) service and consulting contracts, showing names and
addresses of such customers and the equipment subject to
service under the service contracts, and amounts and periods
prepaid; and
(h) reseller agreements and certifications.
True copies of all of the Contracts, including all amendments and
supplements thereto, as well as all proposed but not yet executed contracts,
have been or will be prior to the Effective Time made available to Alpha Micro.
The Company will deliver to Alpha Micro at the Closing the original or a full,
true and correct copy of each of the written Contracts, and all modifications
and amendments to the foregoing, in existence on the Closing Date.
All of the Contracts are valid and in full force and effect.
Except as set forth on Schedule 3.25, all of the Contracts are fully assignable
without the consent of the other party thereto. The Company has duly performed
all of its obligations under the Contracts to the extent those obligations to
perform have accrued, and no default or breach under any Contracts by the
Company or any other party has occurred which remains uncured, nor is the
Company aware of any event which has occurred which, with notice or passage of
time, could give rise to any such default. To the best of the Company's
knowledge, there is no reason to believe that any customer who is a party to any
Contract is unable or unwilling to perform its obligations under such contract.
The Company is not aware of any request for or need for service under any
service contract which has not been performed prior to the Closing, except as
set forth on Schedule 3.25.
With respect to equipment leases, the Company has caused no
damages to the leased equipment which would entitle the lessor under any such
Lease to damages.
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3.26 Customers. The customer list delivered to Alpha Micro
contains a complete and accurate list of the names and addresses of all
customers who have purchased products or services from the Company within the
last three (3) years. Schedule 3.26 sets forth (i) the twenty (20) largest
customers of the Company in terms of revenues during the Company's last fiscal
year, showing the approximate total sales in dollars by the Company to each of
these customers during such fiscal year. No single customer (including
affiliates of the Company) represents more than ten percent (10%) of the
Company's revenues. Except as listed on Schedule 3.26, since the Current Balance
Sheet Date, there has been no adverse change in the business relationship of the
Company with any customer or supplier which would have a Material Adverse Effect
on the business taken as a whole. Except as disclosed on Schedule 3.26, neither
Lobozzo nor John Devito has received any direct or indirect communication that
any material customer with whom the Company presently has a contract intends to
terminate, not renew or materially reduce the present level of services obtained
from the Company.
3.27 Accuracy of Information Furnished by the Company. No
representation, statement or information made or furnished by the Company to
Alpha Micro or any of Alpha Micro's representatives, including those contained
in this Agreement and the various Schedules attached hereto and the other
information and statements referred to herein and previously furnished by the
Company, contains or shall contain any untrue statement of a material fact or
omits or shall omit any material fact necessary to make the information
contained therein not misleading. The Company has provided Alpha Micro with
access to true, accurate and complete copies of all documents listed or
described in the various Schedules attached hereto.
3.28 Bank Accounts; Business Locations. Schedule 3.28 sets forth
all accounts of the Company with any bank, broker or other depository
institution, and the names of all Persons authorized to withdraw funds from each
such account.
3.29 Names; Prior Acquisitions. All names under which the Company
does business as of the date hereof are specified on Schedule 3.29. Except as
set forth on Schedule 3.29, the Company has not changed its name or used any
assumed or fictitious name, or been the surviving entity in a merger, acquired
any business or changed its principal place of business or chief executive
office, within the past three (3) years.
3.30 No Commissions. Except for that contract by and between DCI
and Paschal & Co. described on Schedule 3.25, the Company has not incurred any
obligation for any finder's or broker's or agent's fees or commissions or
similar compensation in connection with the transactions contemplated hereby.
3.31 National Canada Finance Corp. The Company has obtained the
written agreement that the quarterly premium payments associated with the
Company's debt to National Canada Finance Corp. shall not exceed Twenty Five
Thousand Dollars ($25,000) in the aggregate, and that no other amounts shall be
due National Canada Finance Corp. excepting outstanding principal and accrued
interest under the Amended and Restated Promissory Note dated October 10, 1996.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LOBOZZO
- -----------------------------------------
As a material inducement to each of the Alpha Micro Companies to
enter into this Agreement and to consummate the transactions contemplated
hereby, Lobozzo represents and warrants to the Alpha Micro Companies, as of the
date of execution of this Agreement and as of the Effective Time:
4.1 Lobozzo Shares. Joseph Lobozzo II and Joanne Lobozzo own
those shares represented by share certificates as set forth on Schedule 4.1.
Lobozzo owns in the aggregate 14,300,000 shares of Company Common Stock of DCI.
Except as described on Schedule 4.1, neither Joseph Lobozzo II nor Joanne
Lobozzo has any rights to acquire any other shares of DCI.
4.2 Enforceability. This Agreement has been duly executed and
delivered by Joseph Lobozzo II and Joanne Lobozzo, and constitutes the legal,
valid and binding obligation of Joseph Lobozzo II and Joanne Lobozzo,
enforceable it in accordance with its terms, except as the same may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
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4.3 No Violation. The execution and delivery of this Agreement by
Joseph Lobozzo II and Joanne Lobozzo, the performance by Joseph Lobozzo II and
Joanne Lobozzo of each of his or her obligations hereunder and the consummation
by them of the transactions contemplated by this Agreement will not (i) violate
or conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon or enforceable
against either Joseph Lobozzo II or Joanne Lobozzo, (ii) conflict with, result
in any breach of, or constitute a default (or an event which would, with the
passage of time or the giving of notice or both, constitute a default) under any
Contract which is applicable to, binding upon or enforceable against either
Joseph Lobozzo II or Joanne Lobozzo.
4.4 Outstanding Loans. The amounts shown on Schedule 4.4 as owed
to Lobozzo accurately reflect all amounts owed Joseph Lobozzo II and/or Joanne
Lobozzo as of the date of this Agreement, and as supplemented, as of the
Effective Date.
4.5 Management. Lobozzo is not aware that any executive or key
employee or group of employees has any plans to terminate his, her or their
employment with the Company as a result of the Merger or otherwise.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
- --------------------------------------
5.1 Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, between the date of this Agreement and the
Effective Time, the business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of business,
consistent with past practice. The Company shall use commercially reasonable
efforts to preserve intact its business organization, to keep available the
services of its current officers, employees and consultants, and to preserve its
present relationships with customers, suppliers and other Persons with which it
has significant business relations. By way of amplification and not limitation,
the Company shall not, between the date of this Agreement and the Effective
Time, directly or indirectly, do or propose or agree to do any of the following
without the prior written consent of Alpha Micro:
(a) amend or otherwise change its articles of incorporation
or bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, encumber, or, authorize
the issuance, sale, pledge, disposition, grant or encumbrance of any
shares of its capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest in the
Company, except with respect to options already granted under the
Company's Stock Option Plan, and provided hereunder that nothing
herein shall preclude the Company from effecting on its books
transfers by its shareholders other than Lobozzo, and further provided
that Lobozzo shall be permitted to transfer up to 292,000 shares of
the Company Common Stock held by Lobozzo to John DeVito and certain
other employees of the Company designated by Lobozzo;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its
capital stock;
(e) acquire (including, without limitation, for cash or
shares of stock, by merger, consolidation, or acquisition of stock or
assets) any interest in any corporation, partnership or other business
organization or division thereof or any assets, or make any investment
either by purchase of stock or securities, contributions of capital or
property transfer, or, except in the ordinary course of business,
consistent with past practice, purchase any property or assets, (ii)
incur any indebtedness for borrowed money (other than to Lobozzo,
provided that the amount owed Lobozzo as of the Effective Date,
whether pursuant to outstanding debentures, the existing credit
agreement or otherwise, shall not exceed Three Million Nine Hundred
Ninety Two Thousand One Dollars ($3,992,001), other than as permitted
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by Section 6.10; issue any debt securities or assume, guarantee or
otherwise as an accommodation become responsible for, the obligations
of any Person or entity, or make any loans or advances, (iv) sell,
dispose of or encumber any of its assets, tangible or intangible,
except in the ordinary course of business consistent with past
practice, or (v) enter into any Contract other than in the ordinary
course of business, consistent with past practice;
(f) increase the compensation payable or to become payable
to its officers or employees, or, except as presently bound to do,
grant any severance or termination pay to, or enter into any
employment or severance agreement with, any of its directors, officers
or other employees, or establish, adopt, enter into or amend or take
any action to accelerate any rights or benefits which any collective
bargaining, bonus, profit sharing, trust, compensation, stock option,
restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust,
fund, policy or arrangement for the benefit of any directors, officers
or employees except as disclosed on Schedule 5.1(f);
(g) take any action other than in the ordinary course of
business and in a manner consistent with past practice with respect to
accounting policies or procedures;
(h) pay, discharge or satisfy any existing claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) due persons or entities other than Lobozzo,
other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of due and
payable liabilities reflected or reserved against in its financial
statements, as appropriate, or liabilities incurred after the date
hereof in the ordinary course of business and consistent with past
practice, or pay, discharge or satisfy any existing claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) due persons or entities other than Lobozzo
other than as permitted by Section 6.10;
(i) increase or decrease prices charged to its customers,
except for previously announced price changes, or take any other
action which might reasonably result in any material increase in the
loss of customers through non-renewal or termination of service
contracts or other causes; or
(j) agree, in writing or otherwise, to take or authorize any
of the foregoing actions or any action which would make any
representation or warranty in Article III untrue or incorrect.
ARTICLE VI
ADDITIONAL AGREEMENTS
- ---------------------
6.1 Further Assurances. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
6.2 Cooperation. Each of the parties agrees to cooperate with the
other in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation or the rules of Nasdaq in connection with the
transactions contemplated by this Agreement and to use their respective best
efforts to agree jointly on a method to overcome any objections by any
Governmental Authority to any such transactions.
6.3 Access to Information. From the date hereof to the Effective
Time, the Company shall (and shall cause its directors, officers, employees,
auditors, counsel and agents) to afford Alpha Micro and Alpha Micro's officers,
employees, auditors, counsel and agents reasonable access at all reasonable
times to its properties, offices, other facilities, to its officers and
employees and to all books and records, and shall furnish such Persons with all
financial, operating and other data and information as may be requested,
provided that all information afforded Alpha Micro in connection with such
access shall continue to be subject to the provisions of the Letter Agreement
between the Company and Alpha Micro dated May 29, 1998 relating to confidential
information. No information provided to or obtained by Alpha Micro shall affect
any representation or warranty in this Agreement.
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6.4 Notification of Certain Matters. The Shareholders shall give
prompt notice to Alpha Micro of the occurrence or non-occurrence of any event
which would likely cause any representation or warranty contained herein to be
untrue or inaccurate, or any covenant, condition, or agreement contained herein
not to be complied with or satisfied.
6.5 Confidentiality; Publicity. Except as may be required by law
or as otherwise permitted or expressly contemplated herein, no party hereto or
their respective Affiliates, employees, agents and representatives shall
disclose to any third party this Agreement or the subject matter or terms hereof
without the prior consent of the other parties hereto. No press release or other
public announcement related to this Agreement or the transactions contemplated
hereby shall be issued by any party hereto without the prior approval of the
other parties, except that either party may make such public disclosure which it
believes in good faith to be required by law or by the terms of any listing
agreement with or requirements of a securities exchange (in which case such
party shall consult with an officer of the other prior to making such
disclosure).
6.6 No Other Discussions. Neither the Company or Lobozzo or their
respective employees, agents and representatives will (i) initiate, encourage
the initiation by others of discussions or negotiations with third parties or
respond to solicitations by third persons relating to any merger, sale or other
disposition of any substantial part of the assets, business or properties of the
Company (whether by merger, consolidation, sale of stock or otherwise) or (ii)
enter into any agreement or commitment (whether or not binding) with respect to
any of the foregoing transactions. The Company and/or Lobozzo will immediately
notify Alpha Micro if any third party attempts to initiate any solicitation,
discussion or negotiation with respect to any of the foregoing transactions.
Neither Alpha Micro nor its employees, agents and representatives will, prior to
the Merger, (i) initiate, encourage the initiation by others of discussions or
negotiations with third parties or respond to solicitations by third persons
relating to any merger, sale or other disposition of any substantial part of the
assets, business or properties of the Company (whether by merger, consolidation,
sale of stock or otherwise) or (ii) prior to the Merger, enter into any
agreement or commitment (whether or not binding) with respect to any of the
foregoing transactions. In the event this Agreement is terminated pursuant to
the provisions of Section 12.1(a), (c) or (d), Alpha Micro shall disclose to
Lobozzo if any other person or entity has attempted to initiate any
solicitation, discussion or negotiation with respect to any of the foregoing
transactions
6.7 Restrictive Covenants. In order to assure that Alpha Micro
will realize the benefits of the Merger, Joseph Lobozzo II and Joanne Lobozzo
hereby each agree with Alpha Micro that they execute and deliver at the Closing
a Covenant Not To Compete in the form of Exhibit "C" hereto pursuant to which
they will agree that neither Joseph Lobozzo II nor Joanne Lobozzo will, for a
period of four years from the Effective Time:
(a) directly or indirectly, alone or as a partner, joint
venturer, officer, director, employee, consultant, agent, independent
contractor or shareholder of any company or business, engage in any
business activity in any county in which the Company presently
conducts business which is directly or indirectly in competition with
the business conducted by the Company at the Effective Time; provided,
however, that, the beneficial ownership of less than five percent (5%)
of the shares of stock of any corporation having a class of equity
securities actively traded on a national securities exchange or
over-the-counter market shall not be deemed, in and of itself, to
violate the prohibitions of this Section;
(b) directly or indirectly (i) induce any Person which is a
customer of the Company at the Effective Time to patronize any
business directly or indirectly in competition with the business
conducted by the Company; (ii) canvass, solicit or accept from any
Person which is a customer of the Company, any such competitive
business; or (iii) request or advise any Person which is a customer of
the Company at the Effective Time to withdraw, curtail or cancel any
such customer's business with the Company or its successors;
(c) directly or indirectly employ, or knowingly permit any
company or business directly or indirectly controlled by him, to
employ, any Person who was employed by the Company at or within the
prior six months, or in any manner seek to induce any such Person to
leave his or her employment; and
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(d) directly or indirectly, at any time following the
Effective Time, in any way utilize, disclose, copy, reproduce or
retain in his possession the Company's proprietary rights or records,
including, but not limited to, any of its customer lists.
Joseph Lobozzo II and Joanne Lobozzo agree and acknowledge that
the restrictions contained in this Section are reasonable in scope and duration
and are necessary to protect Alpha Micro after the Effective Time. The parties
agree and acknowledge that the breach of this Section will cause irreparable
damage to Alpha Micro and upon breach of any provision of this Section, Alpha
Micro shall be entitled to injunctive relief, specific performance or other
equitable relief; provided, however, that, this shall in no way limit any other
remedies which Alpha Micro may have (including, without limitation, the right to
seek monetary damages).
6.8 Trading in Alpha Micro Common Stock. Except as otherwise
expressly consented to in writing by Alpha Micro, from the date of this
Agreement until the Effective Time, neither the Company nor Lobozzo will
directly or indirectly purchase or sell (including short sales) any shares of
Alpha Micro Common Stock in any transactions effected on Nasdaq or otherwise.
6.9 Lobozzo Vote. Joseph Lobozzo II and Joanne Lobozzo, in
executing this Agreement, as shareholders of the Company approve the Merger and
the transactions contemplated hereby, and agree (i) not to sell, transfer or
otherwise assign or encumber the shares of Company Stock owned by either of them
except as permitted by Section 5.1(b) hereof and (ii) to vote in favor of the
Merger and the transactions contemplated hereby at a special shareholders'
meeting called for such purpose. Concurrently with the execution of this
Agreement, Joseph Lobozzo II and Joanne Lobozzo shall deliver to Alpha Micro an
irrevocable proxy to vote each of their shares of Company Common Stock in favor
of the Merger.
6.10 Lobozzo Loans. Neither the Company nor Lobozzo shall permit
any increase in the amount of the Company's outstanding indebtedness to Lobozzo
(whether pursuant to outstanding debentures, the existing credit agreement or
otherwise) to increase to more than Three Million Nine Hundred Ninety Two
Thousand and One Dollars ($3,992,001), provided that such amount may increase to
up to Four Million One Hundred Ninety Two Thousand and One Dollars ($4,192,001)
with John DeVito's written approval, and in excess of Four Million One Hundred
Ninety Two Thousand and One Dollars ($4,192,001) with Alpha Micro's prior
written approval. Subsequent to the execution of this Agreement, neither the
Company nor Lobozzo shall permit any repayment of any amount owed Lobozzo unless
the amount due Lobozzo by the Company exceeds Three Million Nine Hundred Ninety
Two Thousand and One Dollars ($3,992,001). Alpha Micro agrees that it will cause
the Surviving Corporation to pay, immediately after (but on the same day as) the
Closing, all amounts owed by the Company to Lobozzo, which shall not exceed at
the Effective Time the amounts permitted as set forth herein.
6.11 Surviving Corporation. Alpha Micro shall not permit the
Surviving Corporation to be dissolved prior to the first anniversary of the
Merger.
6.12 Operation of Business. The Company shall not incur any debt
or subdebt not recorded on the Company's May 31, 1998 balance sheet in excess of
the approximately Twenty Thousand Dollars ($20,000) incurred in connection with
the acquisition of certain equipment in June 1998 except as permitted pursuant
to Section 6.10.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE ALPHA MICRO COMPANIES
- ----------------------------------------------------------
The obligations of the Alpha Micro Companies to effect the Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
following conditions, any or all of which may be waived in whole or in part by
the Alpha Micro Companies:
7.1 Accuracy of Representations and Warranties and Compliance
with Obligations. The representations and warranties of the Company and Lobozzo
contained in this Agreement shall be true and correct at and as of the Effective
Time with the same force and effect as though made at and as of that time except
(i) for changes specifically permitted by or disclosed on any schedule to this
Agreement, and (ii) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
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date. The Company and Lobozzo shall have performed and complied with all of
their respective obligations required by this Agreement to be performed or
complied with at or prior to the Effective Time. The Company and Lobozzo shall
have delivered to the Alpha Micro Companies a certificate, dated as of the
Effective Date, duly signed (in the case of the Company, by its President),
certifying that such representations and warranties of the certifying party are
true and correct and that all such obligations have been complied with and
performed.
7.2 No Material Adverse Change or Destruction of Property.
Between the date hereof and the Effective Time, (i) there shall have been no
Material Adverse Change to the Company, and (ii) none of the properties and
assets of the Company shall have been damaged by fire, flood, casualty, act of
God or the public enemy or other cause (regardless of insurance coverage for
such damage) which damages may have a Material Adverse Effect thereon, and there
shall have been delivered to the Alpha Micro Companies a certificate to that
effect, dated the Effective Date and signed by or on behalf of the Company.
7.3 Corporate Certificate. The Company shall have delivered to
the Alpha Micro Companies (i) copies of the articles of incorporation and bylaws
of DCI and each of its Subsidiaries as in effect immediately prior to the
Effective Time, (ii) copies of resolutions adopted by the Board of Directors of
the Company authorizing the transactions contemplated by this Agreement, and
(iii) a certificate of good standing of the Company issued by the Secretary of
State of the State of New York as of a date not more than two days prior to the
Effective Date, certified in the case of subsections (i) and (ii) of this
Section as of the Effective Date by the Secretary of the Company as being true,
correct and complete.
7.4 Opinion of Counsel. The Alpha Micro Companies shall have
received an opinion dated as of the Effective Date from counsel for the Company
in the form of Exhibit "D".
7.5 Consents. The Company shall have received consents to the
transactions contemplated hereby and waivers of rights to terminate or modify
any material rights or obligations of the Company from any Person from whom such
consent or waiver is required under any Contract or instrument, or who, as a
result of the transactions contemplated hereby, would have such rights to
terminate or modify such Contracts or instruments, either by the terms thereof
or as a matter of law, other than those listed on Schedule 7.5.
7.6 No Adverse Litigation. Other than the election of appraisal
rights by fewer than ten (10%) of the Shareholders, there shall not be pending
or threatened any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit, invalidate or collect
damages arising out of the Merger or any other transaction contemplated hereby,
and which, in the judgment of Alpha Micro, makes it inadvisable to proceed with
the Merger and other transactions contemplated hereby.
7.7 Financing. Alpha Micro shall have obtained financing from ING
pursuant to that commitment letter dated June __, 1998.
7.8 Shareholder Approval; Dissenters' Rights. The shareholders of
DCI shall have approved the transactions contemplated herein and holders of no
more than ten percent (10%) of the Company Common Stock shall have elected
dissenter's rights.
7.9 Shareholder Loans. The amount owed by the Company to Lobozzo
(whether by loan, debenture or otherwise) shall not exceed $3,992,000 except as
permitted pursuant to Section 6.10.
7.10 Changes in Balance Sheet. As of the Closing Date:
(i) the Company's unearned prepaid revenue shall not have
increased since May 31, 1998,
(ii) the outstanding balance of the Company's accounts
payable shall not exceed the amount of its accounts payable on May 31,
1998, and
(iii) the Company shall not have incurred any debt or
subdebt not recorded on the Company's May 31, 1998 balance sheet in
excess of the approximately Twenty Thousand Dollars ($20,000) incurred
in connection with the acquisition of certain equipment in June 1998.
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7.11 Lien Releases. Lobozzo and National Canada Finance Corp.
shall have delivered into an escrow acceptable to Alpha Micro UCC lien releases
to be delivered to Alpha Micro upon payment of the outstanding debt to them, and
no other UCC Financing Statements shall be effective other than with respect to
equipment purchases as contemplated by Article III.
7.12 Minority Shareholder Claims. The Company shall have provided
to Alpha Micro releases from each minority shareholder who has previously
asserted claims against the Company.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS
- -----------------------------------------------------------------
The obligations of DCI and its shareholders to effect the Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
following conditions, any or all of which may be waived in whole or in part by
the Company:
8.1 Accuracy of Representations and Warranties and Compliance
with Obligations. The representations and warranties of Alpha Micro contained in
this Agreement shall be true and correct at and as of the Effective Time with
the same force and effect as though made at and as of that time except (i) for
changes specifically permitted by or disclosed pursuant to this Agreement, and
(ii) that those representations and warranties which address matters only as of
a particular date shall remain true and correct as of such date. The Alpha Micro
Companies shall have performed and complied with all of their obligations
required by this Agreement to be performed or complied with at or prior to the
Effective Time. The Alpha Micro Companies shall have delivered to the Company
and the Shareholders a certificate, dated as of the Effective Date, and signed
by an executive officer, certifying that such representations and warranties are
true and correct and that all such obligations have been complied with and
performed.
8.2 No Order or Injunction. No court of competent jurisdiction or
other governmental body shall have issued or entered any order or injunction
restraining or prohibiting the transactions contemplated hereby, which remains
in effect at the time of Closing.
8.3 Shareholder Approval. The shareholders of DCI shall have
approved the transactions contemplated herein.
ARTICLE IX
ESCROW
- ------
9.1 Escrow. The Escrowed Funds shall be placed in escrow with a
bank acceptable to both parties(the "Escrow Agent") and invested by the Escrow
Agent in direct obligations of the United States Government with maturities of
ninety-one (91) days or less (such funds together with interest thereon the
"Escrow Amount"). The Escrow Amount is subject to adjustment pursuant to Section
9.2 and to indemnification claims pursuant to Article X. The Escrow Amount shall
be held by the Escrow Agent until December 31, 1999 in accordance with the terms
of an Escrow Agreement to be executed among Lobozzo, the Alpha Micro Companies
and the Escrow Agent at Closing in the form of Exhibit "B" (the "Escrow
Agreement").
9.2 Reductions to the Escrowed Funds.
(a) Net Shareholders' Deficit. To the extent the actual Net
Shareholders' Deficit shall subsequently be determined to be greater
than the Net Shareholders' Deficit as set forth in the Pre-Closing
Certificate (in each case calculated in accordance with Section
1.5(a)), Alpha Micro shall be entitled to reimbursement of the
difference on a dollar for dollar basis from the Escrowed Funds and
Joseph Lobozzo II, as the representative of the Shareholders (the
"Shareholders' Representative), shall give written instructions to the
Escrow Agent to distribute to Alpha Micro the amount of such
difference.
(b) Obligations to Indemnify Pursuant to Article X. Alpha
Micro shall be entitled to reimbursement from the Escrowed Funds for
any amounts which the Alpha Micro Companies are entitled to
indemnification pursuant to Article X, and Alpha Micro's right to
reimbursement pursuant to Article X shall be limited solely to the
Escrowed Funds.
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(c) Procedure for Reimbursement. To the extent Alpha Micro
believes it is entitled to any amount from the Escrowed Funds, it
shall give notice together with supporting documentation for its claim
to the Shareholders' Representative and the Escrow Agent. If no
objection is received from the Shareholders Representative within
thirty (30) days the Escrow Agent shall reimburse Alpha Micro the
amount claimed from the Escrowed Funds. If Alpha Micro and the
Shareholders' Representative are unable to resolve any disagreement
with respect to a claim of Alpha Micro for reimbursement from the
Escrowed Funds, they shall submit to binding arbitration in Paramus,
New Jersey (or such other location as the parties may mutually agree),
in the case of a claim pursuant to Section 9.1(a) using a nationally
recognized accounting firm selected in accordance with the terms of
the Escrow Agreement, or using the American Arbitration Association in
the case of any other claim. The cost of such arbitration proceeding
shall be shared equally by Alpha Micro and the Shareholders and the
Shareholders' share of such amount shall be paid solely from the
Escrowed Funds. The proceedings shall be conducted in accordance with
the rules of the American Arbitration Association. Alpha Micro agrees
to cause the Company to afford the Shareholders' Representative access
to all books and records of the Company reasonably necessary to
evaluate any claim of Alpha Micro for reimbursement.
ARTICLE X
INDEMNIFICATION
- ---------------
10.1 Survival of Representations and Warranties. The respective
representations and warranties contained in this Agreement or in any Schedule
hereto shall survive the Closing Date and continue through December 31, 1999.
10.2 Indemnification.
(a) The Shareholders agree to indemnify, defend and hold
harmless the Alpha Micro Companies and their respective officers,
directors, employees, agents, advisors, representatives, lenders and
its and their respective "affiliates" (as such term is defined in Rule
405 of the Securities Act of 1933, as amended) from and against any
claim, liability, obligation, loss, damage, assessment, judgment, cost
and expense (including, without limitation, reasonable attorney's and
accountant's fees and costs and expenses reasonably incurred in
investigating, preparing, defending against or prosecuting any
litigation or claim, action, suit, proceeding or demand) of any kind
or character ("Losses") arising out of or in any manner incident,
relating or attributable to (i) any inaccuracy in any representation
or breach of any warranty of the Company or Lobozzo contained in this
Agreement or in any schedule, exhibit, certificate, instrument or
other document or agreement executed and delivered by the Company in
accordance with this Agreement; (ii) any failure by the Company or
Lobozzo to perform or observe any covenant, agreement or condition to
be performed or observed by it under this Agreement or under any
schedule, exhibit, certificate, instrument or other document or
agreement executed by it in accordance with this Agreement; and (iii)
any Losses incurred in connection with a matter disclosed on Schedule
3.07 or Schedule 3.13 in excess of the amount recorded with respect to
such matter on the Current Balance Sheet. The obligation of the
Shareholders to indemnify Alpha Micro as herein stated shall survive
the consummation of the transactions herein described for the period
set forth in Section 10.1, as extended for periods of dispute about
whether a claim is justified.
(b) Alpha Micro agrees to indemnify, defend and hold
harmless the Shareholders and the officers, directors and advisors of
DCI from and against any Losses arising out of or in any manner
incident relating or attributable to (i) any inaccuracy in any
representation or breach of any warranty of the Alpha Micro Companies
contained in this Agreement or in any Schedule, Exhibit, certificate,
instrument or other document or agreement executed and delivered by
the Alpha Micro Companies in accordance with this Agreement; (ii) any
failure by the Alpha Micro Companies to perform or observe any
covenant, agreement or condition to be performed or observed by them
under this Agreement or under any Schedule, Exhibit, certificate,
instrument or other document or agreement executed by it in accordance
with this Agreement; or (iii) the failure of the Surviving Corporation
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to fully pay and discharge any duty of the Company in accordance with
its terms to the extent due after the Closing Date. The obligation of
Alpha Micro to indemnify the Shareholders as herein stated shall
survive the consummation of the transactions herein described for the
applicable period set forth in Section 10.1, as extended for periods
of dispute about whether a claim is justified.
(c) If Alpha Micro believes that a matter has occurred that
entitles it to indemnification under this Article X or the
Shareholders believe that a matter has occurred that entitles them to
indemnification under this Article X, Alpha Micro or the Joseph
Lobozzo II as the Shareholders' Representative, as the case may be
(the "Indemnified Party"), shall give prompt written notice to the
party or parties against whom indemnification is sought (each of whom
is referred to herein as an "Indemnifying Party") describing such
matter in reasonable detail. The Indemnified Party shall be entitled
to give such notice prior to the establishment of the amount of its
Losses and to supplement its claim from time to time thereafter by
further notices as they are established. The Indemnifying Party shall
send a written response to such claim for indemnification within
thirty (30) days after receipt of the claim stating its acceptance or
objection to the indemnification claim, and explaining its position
with respect thereto in reasonable detail. If such Indemnifying Party
does not respond within such thirty (30) day period, it will be deemed
to have accepted the Indemnified Party's indemnification claim as
specified in the notice given by the Indemnified Party. If the
Indemnifying Party gives a timely objection notice, then the parties
will negotiate in good faith to attempt to resolve the dispute. Upon
the expiration of an additional thirty (30) day period from the date
of the objection notice or such longer period to which the Indemnified
and Indemnifying Parties may agree, such dispute shall be submitted to
arbitration in Paramus, New Jersey (or such other location as the
parties may mutually agree) to a member of the American Arbitration
Association mutually appointed by the Indemnified and Indemnifying
Parties (or, in the event the Indemnified and Indemnifying Parties
cannot agree on a single such member, to a panel of three (3) members.
The decision rendered in any arbitration shall be final, binding and
conclusive on the parties. Judgment upon the award by the
arbitrator(s) may be entered in any court having jurisdiction.
(d) Amounts recoverable by Alpha Micro hereunder from the
Escrowed Funds shall be paid in accordance with the Escrow Agreement.
Alpha Micro may not recover from the Shareholders under this Section
10.2 any increase in Negative Net Worth or Losses until the aggregate
amount thereof exceeds Fifty Thousand Dollars ($50,000.00), but in
such event shall be entitled to recover the amount of its Losses in
excess of $50,000 to a maximum of the amount of the Escrowed Funds
remaining in the Escrow. For example, if the aggregate of all Losses
equals $500,000 and there is $400,000 in Escrowed Funds, Alpha Micro
shall be entitled to all $400,000 of the Escrowed Funds.
10.3 Adjustment to Merger Consideration. All payments for
Indemnifiable Damages made pursuant to this Article shall be treated as
adjustments to the consideration granted in the Merger under Section 1.5 hereof.
ARTICLE XI
DEFINITIONS
- -----------
For purposes of this Agreement, the following terms shall have
the meanings specified below:
11.1 "Affiliate". shall have the meaning ascribed in Rule 405 of
the Securities Act of 1933, as Amended.
11.2 "Agreement" shall have the meaning given in the Preamble.
11.3 "Agreement of Merger" shall have the meaning given in
Section 1.1 hereof.
11.4 "Alpha Micro Companies" shall have the meaning given in the
Preamble.
11.5 "Assets" shall have the meaning given in Section 3.16(a)
hereof.
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11.6 "CERCLA" shall mean the Comprehensive Environmental Response
Compensation and Liability Act of 1980 (42 U.S.C. ss. 9601 et seq.), as amended
by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. ss.9601,
et seq.
11.7 "Closing" shall have the meaning given in Section 1.2
hereof.
11.8 "Closing Date" shall mean the date on which the Closing
occurs.
11.9 "Code" shall mean the Internal Revenue Code of 1986, as it
may be amended from time to time.
11.10 "Company" shall have the meaning given in the Preamble.
11.11 "Company Common Stock" shall have the meaning given in
Section 1.5(a) hereof.
11.12 "Contracts" Shall have the meaning given in Section 3.25
hereof.
11.13 "Current Balance Sheet" shall mean the Balance Sheet of the
Company as of May 31, 1998.
11.14 "Current Balance Sheet Date" shall have the meaning given
in Section 3.11 hereof.
11.15 "DCI" shall have the meaning given in the Preamble.
11.16 "DCI Stock" shall mean "Company Common Stock."
11.17 "Dissenting Shares" shall have the meaning given in Section
1.7 hereof.
11.18 "Effective Date" or "Effective Time" shall have the meaning
given in Section 1.3 hereof.
11.19 "Electing Shareholders" shall have the meaning given in
Section 1.5.
11.20 "Employee Plans" shall mean all Benefit Arrangements,
Multi-employer Plans, Pension Plans and Welfare Plans.
11.21 "EPCRA" shall mean the Emergency Planning and Community
Right to Know Act.
11.22 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
11.23 ERISA Affiliate" shall mean any entity which is (or at any
relevant time was) a member of a "controlled group of corporations" or
"affiliated service group" with or under "common control" with the Company
(prior to the Closing Date) or Alpha Micro Companies as defined in Section
414(b), (c), (m) or (o) of the Code.
11.24 "Escrow Agent" shall have the meaning given in Section 9.1
hereof.
11.25 "Escrow Agreement" shall have the meaning given in Section
9.1 hereof.
11.26 "Escrow Amount" shall have the meaning given in Section 9.1
hereof.
11.27 "Escrowed Funds" shall have the meaning given in Section
1.5(a)(ii) hereof.
11.28 "Facility" shall mean each parcel of real property, each
building, structure, installation, equipment, pipe or pipeline, well, pit, pond,
lagoon, impoundment, ditch, landfill, storage container, motor vehicle, rolling
stock and any and every part thereof, currently owned, leased or operated by the
Company.
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11.29 "FIFRA" shall mean the Federal Insecticide, Fungicide, and
Rodenticide Act, as amended, 7 U.S.C. ss. 136-136y ("FIFRA").
11.30 "Fixed Assets" shall have the meaning given in Section
3.16(b) hereof.
11.31 "GAAP" means generally accepted accounting principles in
effect in the United States of America from time to time.
11.32 "Governmental Authority" means any nation or government,
any state, regional, local or other political subdivision thereof, and any
entity or official exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including but not
limited to any self regulatory authority such as NASD.
11.33 "Immigration Act" shall mean the Immigration Reform and
Control Act of 1986.
11.34 "Indemnified Party" shall have the meaning given in Section
10.2(c) hereof.
11.35 "Indemnifying Party" shall have the meaning given in
Section 10.2(c) hereof.
11.36 "Insurance Policies" shall have the meaning given in
Section 3.20 hereof.
11.37 "Intellectual Property" shall have the meaning given in
Section 3.24 hereof.
11.38 "Interim Financial Statements" shall have the meaning given
in Section 3.10.
11.39 "IRS" shall mean the Internal Revenue Service.
11.40 "Leased Premises" shall have the meaning given in Section
3.15(b) hereof.
11.41 "Leases" shall have the meaning given in Section 3.15(a)
hereof.
11.42 "Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but not limited to, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code or comparable law or any jurisdiction in connection
with such mortgage, pledge, security interest, encumbrance, lien or charge).
11.43 "Lobozzo" shall have the meaning given in the Preamble.
11.44 "Lobozzo Per Share Merger Price" shall have the have the
meaning given in Section 1.5(a) hereof.
11.45 "Losses" shall have the meaning given in Section 10.2(a)
hereof.
11.46 "Material Adverse Change (or Effect)" means a change (or
effect), in the condition (financial or otherwise), properties, assets,
liabilities, rights, obligations, operations, business or prospects which change
(or effect) individually or in the aggregate, is materially adverse to such
condition, properties, assets, liabilities, rights, obligations, operations,
business or prospects.
11.47 "Merger" shall have the meaning given in Section 1.1
hereof.
11.48 "Multi-employer Plan" shall mean any "multi-employer plan"
as defined in Section 4001(a)(3) of ERISA (i) which Company maintains,
administers, contributes to or is required to contribute to, or, within the past
six (6) years, maintained, administered, contributed to or was required to
contribute to and (ii) which covers any employee or former employee of Company
(with respect to their relationship with Company).
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11.49 "Net Shareholders' Deficit" shall have the meaning as given
in Section 1.5(a) hereof.
11.50 "New York Statute" shall mean the Business Corporation Law
of the State of New York.
11.51 "Notices" shall have the meaning given in Section 3.14(b)
hereof.
11.52 "OSHA" shall mean the Occupational Safety and Health Act.
11.53 "Option" shall mean each option, warrant or other right to
acquire, directly or indirectly through conversion of convertible securities
purchasable through exercise of such option, warrant or other right, shares of
Company Common Stock.
11.54 "Paying Agent" shall have the meaning given in Section 1.6
hereof.
11.55 "PBGC" shall mean the Pension Benefit Guaranty Corporation.
11.56 "Pension Plan" shall mean any "employee pension benefit
plan" as defined in Section 3(2) of ERISA (other than a Multi-employer Plan or a
defined benefit plan subject to Title IV of ERISA or Section 412 of the Code)
(i) which the Company maintains, administers, contributes to or is required to
contribute to, or, within the five (5) years prior to the Closing Date,
maintained, administered, contributed to or was required to contribute to and
(ii) which covers any employee or former employee of the Company Pension Plan.
11.57 "Per Share Merger Price" shall have the meaning given in
Section 1.5(a) hereof.
11.58 "Permits" shall have the meaning given in Section 3.22
hereof,
11.59 "Person" means an individual, partnership, corporation,
business trust, joint stock company, estate, trust, unincorporated association,
joint venture, Governmental Authority or other entity, of whatever nature.
11.60 "Pre-Closing Certificate" shall have the meaning given in
Section 1.5(a) hereof.
11.61 "Proceedings" shall have the meaning given in Section
3.14(b) hereof.
11.62 "Purchase Price" shall have the meaning given in Section
1.5(a) hereof.
11.63 "RCRA" shall mean the Solid Waste Disposal Act, as amended
by the Resource Conservation and Recovery Act of 1976 and subsequent Hazardous
and Solid Waste Amendments of 1984, 42 U.S.C. ss.6901 et seq.
11.64 "Receivables" shall have the meaning in Section 3.21
hereof.
11.65 "SARA" shall mean the Superfund Amendment and
Reauthorization Act.
11.66 "Shareholders' Representative" shall mean Joseph Lobozzo
II.
11.67 "Shareholders" shall have the meaning given in the
Preamble.
11.68 "Stock Option Plan" shall mean The Delta CompuTec Inc.
Incentive Stock Option Plan and the Delta CompuTec 1985 Stock Option Plan.
11.69 "Subsidiary" shall have the meaning given in Section 3.2
hereof.
11.70 "Surviving Corporation" shall have the meaning given in
Section 1.1 hereof.
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11.71 "System" shall have the meaning given in Section 3.25
hereof.
11.72 "Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect to any Taxes;
and
11.73 "Taxes" means all taxes, fees or other assessments,
including, but not limited to, income, excise, property, sales, franchise,
intangible, withholding, social security and unemployment taxes imposed by any
federal, state, local or foreign governmental agency, and any interest or
penalties related thereto.
11.74 "Welfare Plan" shall mean any "employee welfare benefit
plan" as defined in Section 3(1) of ERISA (i) which the Company maintains,
administers, contributes to or is required to contribute to, and (ii) which
covers any employee or former employee of the Company.
11.75 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the
defined meanings when used in any certificates, reports or other
documents made or delivered pursuant hereto or thereto, unless the
context otherwise requires.
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) All matters of an accounting nature in connection with
this Agreement and the transactions contemplated hereby shall be
determined in accordance with GAAP applied on a basis consistent with
prior periods, where applicable.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the
neuter and feminine, where the context so permits.
ARTICLE XII
TERMINATION
- -----------
12.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written consent of all of the parties hereto
at any time prior to the Closing; or
(b) by Alpha Micro in the event of a material breach by the
Company or Lobozzo of any provision of this Agreement; or
(c) by DCI in the event of a material breach by Alpha Micro
of any provision of this Agreement; or
(d) by either Alpha Micro or DCI if the Closing shall not
have occurred by August 31, 1998, unless DCI has not held its
shareholders meeting by August 26, 1998 to seek the approval of the
transactions contemplated herein, in which case either Alpha Micro or
DCI shall have the right to terminate this Agreement if the Closing
does not occur within five (5) business days of such meeting,
providing in either case that the party electing to terminate the
Agreement is not in default of any of its obligations hereunder.
12.2 Effect of Termination. Except for the provisions of Article
X hereof, which shall survive any termination of this Agreement, in the event of
termination of this Agreement pursuant to Section 12.1, this Agreement shall
forthwith become void and of no further force and effect and the parties shall
be released from any and all obligations hereunder; provided, however, that
nothing herein shall relieve any party from liability for the willful breach of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
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ARTICLE XIII
GENERAL PROVISIONS
- ------------------
13.1 Notices. Except as otherwise expressly provided herein, any
notice herein required or permitted to be given shall be in writing and shall be
personally served or sent by overnight courier, by registered mail or certified
mail, postage prepaid, or by prepaid telex (if such transmission is confirmed by
delivery by certified or registered mail (first-class postage prepaid) or
guaranteed overnight delivery), telecopy or telegram and shall be deemed to have
been given when such writing is received by the intended recipient thereof. For
the purposes hereof, the addresses of the parties hereto (until notice of a
change thereof served as provided in this Paragraph 13.1) shall be as follows:
If to Alpha Micro: Alpha Microsystems
2722 South Fairview Street
Santa Ana, California 92704
Attn: Chief Financial Officer
Fax No.: (714) 641-7678
With a copy to: Allen, Matkins, Leck, Gamble &
Mallory LLP
515 South Figueroa Street, 8th Floor
Los Angeles, California 90071
Attn: Debra Dison Hall, Esq.
Fax No.: (213) 620-8816
If to Alpha Micro Merger Sub: Alpha Microsystems
2722 South Fairview Street
Santa Ana, California 92704
Attn: Chief Financial Officer
Fax No.: (714) 641-7678
With a copy to: Allen, Matkins, Leck, Gamble &
Mallory LLP
515 South Figueroa Street, 8th Floor
Los Angeles, California 90071
Attn: Debra Dison Hall, Esq.
Fax No.: (213) 620-8816
If to the Company: Delta CompuTec Inc.
900 Huyler Street
Teterboro, New Jersey
Attn: Joseph Lobozzo II
With a copy to: Harris Beach & Wilcox
The Granite Building
130 East Main Street
Rochester, NY 14604-1687
Attn: Shawn Griffin
Fax No.: (716) 232-1573
If to Lobozzo Joseph Lobozzo II
690 Portland Avenue
Rochester, New York 14621
Fax No.:
Notice shall be deemed given on the date sent if sent by overnight delivery or
facsimile transmission and on the date delivered (or the date of refusal of
delivery) if sent by certified or registered mail.
13.2 Entire Agreement. This Agreement (including the Exhibits and
Schedules attached hereto) and other documents delivered at the Closing pursuant
hereto, contains the entire understanding of the parties in respect of its
subject matter and supersedes all prior agreements and understandings (oral or
written) between or among the parties with respect to such subject matter. The
Exhibits and Schedules constitute a part hereof as though set forth in full
above.
13.3 Expenses. Except as otherwise provided herein, the parties
shall pay their own fees and expenses, including their own counsel fees,
incurred in connection with this Agreement or any transaction contemplated
hereby.
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13.4 Amendment; Waiver. This Agreement may not be modified,
amended, supplemented, canceled or discharged, except by written instrument
executed by all parties. No failure to exercise, and no delay in exercising, any
right, power or privilege under this Agreement shall operate as a waiver, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude the exercise of any other right, power or privilege. No waiver of any
breach of any provision shall be deemed to be a waiver of any preceding or
succeeding breach of the same or any other provision, nor shall any waiver be
implied from any course of dealing between the parties. No extension of time for
performance of any obligations or other acts hereunder or under any other
agreement shall be deemed to be an extension of the time for performance of any
other obligations or any other acts. The rights and remedies of the parties
under this Agreement are in addition to all other rights and remedies, at law or
equity, that they may have against each other.
13.5 Binding Effect; Assignment. The rights and obligations of
this Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other Person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned by the Company or Lobozzo without the prior
written consent of Alpha Micro, nor may it be assigned by Alpha Micro without
the prior written consent of the Company and Lobozzo.
13.6 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which together
shall constitute one and the same instrument.
13.7 Interpretation. When a reference is made in this Agreement
to an article, section, paragraph, clause, schedule or exhibit, such reference
shall be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
schedules. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Time shall be of the essence in this Agreement.
13.8 Governing Law; Severability. This Agreement shall be
construed in accordance with and governed for all purposes by the laws of the
State of California applicable to contracts executed and to be wholly performed
within such State. If any word, phrase, sentence, clause, section, subsection or
provision of this Agreement as applied to any party or to any circumstance is
adjudged by a court to be invalid or unenforceable, the same will in no way
affect any other circumstance or the validity or enforceability of any other
word, phrase, sentence, clause, section, subsection or provision of this
Agreement. If any provision of this Agreement, or any part thereof, is held to
be unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall have
the power to reduce the duration and/or area of such provision, and/or to delete
specific words or phrases, and in its reduced form, such provision shall then be
enforceable and shall be enforced.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first above written.
ALPHA MICROSYSTEMS,
a California corporation
By:
Douglas J. Tullio, President
ALPHA MICRO MERGER CORP.,
a Delaware corporation
By:
Douglas J. Tullio, President
DELTA COMPUTEC INC.,
a New York corporation
By:
Its:
------------------------------------
JOSEPH LOBOZZO II, individually
-------------------------------------
JOANNE LOBOZZO, individually
50
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LIST OF EXHIBITS AND SCHEDULES
Exhibits to Merger Agreement
Exhibit A - Agreement of Merger
Exhibit B - Escrow Agreement
Exhibit C - Covenant Not to Compete
Exhibit D - Opinion
Disclosure Schedules
Schedule 3.2 - List of Subsidiaries
Schedule 3.5 - Exceptions Related to Capitalization
Schedule 3.6 - Securities & Exchange Commission List
Schedule 3.7 - Loss Contingencies
Schedule 3.11 - Changes Since May 31, 1998 and for the Period Between May
28, 1998 and May 31, 1998
Schedule 3.12 - Liabilities
Schedule 3.13 - Litigation
Schedule 3.14 - Environmental Matters
Schedule 3.15 - Leases
Schedule 3.16 - Vehicles and Assets
Schedule 3.18 - Employee Compensation
Schedule 3.19 - Employee Plans
Schedule 3.20 - Insurance
Schedule 3.25 - Contracts
Schedule 3.26 - Customers
Schedule 3.28 - Accounts
Schedule 3.29 - Names
Schedule 4.1 - Lobozzo Shares
Schedule 4.4 - Lobozzo Loans
Schedule 5.1(f) - Salary Increases
Schedule 7.5 Consents
51
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EXHIBIT "A"
AGREEMENT OF MERGER
To be in form necessary to reflect the terms of the Merger Agreement
and in compliance with Applicable Law.
52
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EXHIBIT "B"
ESCROW AGREEMENT
To be in form necessary to reflect the terms of the
Merger Agreement.
53
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EXHIBIT "C"
COVENANT NOT TO COMPETE
To be in form necessary to reflect the terms of the
Merger Agreement.
54
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EXHIBIT "D"
1. Each of DCI and its subsidiaries is duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified to conduct business and is in good
standing as a foreign corporation in each jurisdiction listed in Schedules
3.1 and 3.2 respectively of the Merger Agreement. Each of DCI and its
subsidiaries has the necessary power and authority to own, lease and
operate their properties and to conduct their business as presently
conducted.
2. DCI has the requisite power and authority to enter into the
Merger Agreement and the other documents contemplated thereby and to
perform its obligations thereunder, and to consummate the transactions
contemplated thereby. The Merger Agreement and each document contemplated
thereby have been duly executed and delivered by DCI and constitute the
legal, valid and binding obligation of DCI, enforceable against DCI in
accordance with their terms. The execution and delivery of the Merger
Agreement and the documents contemplated thereby and the consummation by
DCI of the transactions contemplated thereby have been duly approved by the
board of directors and the shareholders of DCI, and all corporate action by
DCI required in order to authorize the execution and delivery of the Merger
Agreement and the consummation of the transactions contemplated thereby has
been duly and validly taken.
3. No authorization, consent, order, permit or approval of, or
filing with, any governmental authority, or, to our actual knowledge upon
reasonable investigation, any other person, is required for the execution
and delivery of the Merger Agreement by DCI or the consummation by DCI of
the transactions contemplated thereby, except those set forth in the
Agreement and the Schedules thereto.
4. Neither the execution and delivery of the Merger Agreement or
any of the documents contemplated thereby by DCI nor the compliance by DCI
with any of the provisions thereof will (a) violate or conflict with the
Articles of Incorporation or Bylaws of DCI, or (b) violate any judgment,
ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to DCI or any of its properties or assets.
5. The authorized capital stock of DCI consists of 20,000,000
shares of voting common stock of which 18,468,850 are issued and
outstanding on the date hereof, and 5,000,000 shares of preferred stock, of
which zero are issued and outstanding on the date hereof. All such
outstanding shares have been dully authorized and validly issued and,
excepting to the extent the consideration paid was less than par value, are
fully paid and nonassessable. Except as set forth in Schedule __ to the
Merger Agreement, there are no outstanding warrants, options or rights
(including conversion or preemptive rights) to subscribe for or purchase
any capital stock or other securities of DCI or any of its subsidiaries.
6. To our actual knowledge, except as set forth on Schedule 3.13
to the Merger Agreement, there is no action, suit, proceeding at law or in
equity or investigation by any person or entity, or any arbitration or any
administrative or other proceeding by or before any governmental or other
instrumentality or agency, pending or to our actual knowledge threatened
against or affecting DCI or any of its properties or rights which could
reasonably be expected to (i) materially and adversely affect the right or
ability of DCI to carry on its business as now conducted; (ii) materially
and adversely affect the financial condition or properties of DCI; or (iii)
question the validity of the Merger Agreement or any of the transactions
contemplated thereby.
7. The payment of a lower price per share for each share owned by
the Lobozzos than the price per share payable to the other shareholders of
DCI in the Merger as provided in the Merger Agreement does not violate any
New York statute, law, regulation, rule or order.
8. The Termination Agreements executed by [name employees]
terminating their Employment Contracts have been duly executed and
delivered by each party thereto and are enforceable in accordance with
their terms.
55
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MERGER AGREEMENT
by and among
ALPHA MICROSYSTEMS,
a California corporation,
ALPHA MICRO MERGER CORP.,
a Delaware corporation,
DELTA COMPUTEC INC.,
a New York corporation,
and
JOSEPH LOBOZZO II AND JOANNE LOBOZZO
July 2, 1998
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TABLE OF CONTENTS
Page
ARTICLE I THE MERGER................................................... 21
1.1 The Merger......................................................... 21
1.2 The Closing........................................................ 21
1.3 Filing of Articles of Merger....................................... 21
1.4 Surviving Corporation's Certificate of Incorporation, Bylaws,
Directors and Officers......................................... 21
1.5 Conversion of Securities........................................... 22
1.6 Delivery of Purchase Price......................................... 23
1.7 Dissenting Shares.................................................. 24
ARTICLE II REPRESENTATIONS AND WARRANTIES OF ALPHA MICRO................ 24
2.1 Corporate Status................................................... 24
2.2 Corporate Power and Authority...................................... 24
2.3 Enforceability..................................................... 24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 24
3.1 Corporate Status................................................... 23
3.2 Subsidiaries....................................................... 23
3.3 Power and Authority................................................ 23
3.4 Enforceability..................................................... 23
3.5 Capitalization..................................................... 23
3.6 Commission Reports................................................. 26
3.7 Loss Contingencies Other Non-Accrued Liabilities................... 26
3.8 No Violation....................................................... 26
3.9 Representations and Covenants Regarding Corporate Records of the
DCI and its Subsidiaries....................................... 26
3.10 Interim Financial Statements...................................... 27
3.11 Changes Since May 31, 1998 (the "Current Balance Sheet Date"), and
for the Period Between May 28, 1998 and May 31, 1998........... 27
3.12 Liabilities of the Company........................................ 27
3.13 Litigation........................................................ 28
3.14 Environmental Matters............................................. 28
3.15 Real Estate....................................................... 30
3.16 Good Title to and Condition of Assets............................. 31
3.17 Compliance with Laws.............................................. 31
3.18 Labor and Employment Matters...................................... 32
3.19 Employee Benefit Plans............................................ 32
3.20 Insurance......................................................... 34
3.21 Receivables....................................................... 34
3.22 Licenses and Permits.............................................. 34
3.23 Adequacy of the Assets; Relationships with Customers and Suppliers;
Affiliated Transactions........................................ 35
3.24 Intellectual Property............................................. 35
3.25 Contracts......................................................... 35
3.26 Customers......................................................... 36
3.27 Accuracy of Information Furnished by the Company.................. 36
3.28 Bank Accounts; Business Locations................................. 36
3.29 Names; Prior Acquisitions......................................... 36
3.30 No Commissions.................................................... 36
3.31 National Canada Finance Finance................................... 36
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF LOBOZZO.................... 36
4.1 Lobozzo Shares..................................................... 36
4.2 Enforceability..................................................... 36
4.3 No Violation....................................................... 37
4.4 Outstanding Loans.................................................. 37
4.5 Management......................................................... 37
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER....................... 37
5.1 Conduct of Business by the Company Pending the Merger.............. 37
ARTICLE VI ADDITIONAL AGREEMENTS........................................ 38
6.1 Further Assurances................................................. 38
6.2 Cooperation........................................................ 38
6.3 Access to Information.............................................. 38
6.4 Notification of Certain Matters.................................... 38
6.5 Confidentiality; Publicity......................................... 39
6.6 No Other Discussions............................................... 39
6.7 Restrictive Covenants.............................................. 39
6.8 Trading in Alpha Micro Common Stock................................ 40
6.9 Lobozzo Vote....................................................... 40
6.10 Lobozzo Loans..................................................... 40
6.11 Surviving Corporation............................................. 40
6.12 Operation of Business............................................. 40
57
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ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE ALPHA MICRO COMPANIES... 40
7.1 Accuracy of Representations and Warranties and Compliance with
Obligations.................................................... 40
7.2 No Material Adverse Change or Destruction of Property.............. 41
7.3 Corporate Certificate.............................................. 41
7.4 Opinion of Counsel................................................. 41
7.5 Consents........................................................... 41
7.6 No Adverse Litigation.............................................. 41
7.7 Financing.......................................................... 41
7.8 Shareholder Approval; Dissenters' Rights........................... 41
7.9 Shareholder Loans.................................................. 41
7.10 Changes in Balance Sheet.......................................... 41
7.11 Lien Releases..................................................... 42
7.12 Minority Shareholder Claims....................................... 42
ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS.............................................. 42
8.1 Accuracy of Representations and Warranties and Compliance with
Obligations.................................................... 42
8.2 No Order or Injunction............................................. 42
8.3 Shareholder Approval............................................... 42
ARTICLE IX ESCROW....................................................... 42
9.1 Escrow............................................................. 42
9.2 Reductions to the Escrowed Funds................................... 42
ARTICLE X INDEMNIFICATION.............................................. 43
10.1 Survival of Representations and Warranties........................ 43
10.2 Indemnification................................................... 43
10.3 Adjustment to Merger Consideration................................ 44
ARTICLE XI DEFINITIONS.................................................. 44
11.1 Affiliate......................................................... 44
11.2 Agreement......................................................... 44
11.3 Agreement of Merger............................................... 44
11.4 Alpha Micro Companies............................................. 44
11.5 Assets............................................................ 44
11.6 CERCLA............................................................ 45
11.7 Closing........................................................... 45
11.8 Closing Date...................................................... 45
11.9 Code.............................................................. 45
11.10 Company.......................................................... 45
11.11 Company Common Stock............................................. 45
11.12 Contracts........................................................ 45
11.13 Current Balance Sheet............................................ 45
11.14 Current Balance Sheet Date....................................... 45
11.15 DCI.............................................................. 45
11.16 DCI Stock........................................................ 45
11.17 Dissenting Shares................................................ 45
11.18 Effective Date or Effective Time................................. 45
11.19 Electing Shareholders............................................ 45
11.20 Employee Plans................................................... 45
11.21 EPCRA............................................................ 45
11.22 ERISA............................................................ 45
11.23 ERISA Affiliate.................................................. 45
11.24 Escrow Agent..................................................... 45
11.25 Escrow Agreement................................................. 45
11.26 Escrow Amount.................................................... 45
11.27 Escrowed Funds................................................... 45
11.28 Facility......................................................... 45
11.29 FIFRA............................................................ 46
11.30 Fixed Assets..................................................... 46
11.31 GAAP............................................................. 46
11.32 Governmental Authority........................................... 46
11.33 Immigration Act.................................................. 46
11.34 Indemnified Party................................................ 46
11.35 Indemnifying Party............................................... 46
11.36 Insurance Policies............................................... 46
11.37 Intellectual Property............................................ 46
11.38 Interim Financial Statements..................................... 46
11.39 IRS.............................................................. 46
11.40 Leased Premises.................................................. 46
11.41 Leases........................................................... 46
11.42 Lien............................................................. 46
11.43 Lobozzo.......................................................... 46
11.44 Lobozzo Per Share Merger Price................................... 46
11.45 Losses........................................................... 46
11.46 Material Adverse Change (or Effect).............................. 46
11.47 Merger........................................................... 46
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11.48 Multi-employer Plan.............................................. 46
11.49 Net Shareholders' Deficit........................................ 47
11.50 New York Statute................................................. 47
11.51 Notices.......................................................... 47
11.52 OSHA............................................................. 47
11.53 Option........................................................... 47
11.54 Paying Agent..................................................... 47
11.55 PBGC............................................................. 47
11.56 Pension Plan..................................................... 47
11.57 Per Share Merger Price........................................... 47
11.58 Permits.......................................................... 47
11.59 Person........................................................... 47
11.60 Pre-Closing Certificate.......................................... 47
11.61 Proceedings...................................................... 47
11.62 Purchase Price................................................... 47
11.63 RCRA............................................................. 47
11.64 Receivables...................................................... 47
11.65 SARA............................................................. 47
11.66 Shareholders' Representative..................................... 47
11.67 Shareholders..................................................... 47
11.68 Stock Option Plan................................................ 47
11.69 Subsidiary....................................................... 47
11.70 Surviving Corporation............................................ 47
11.71 System........................................................... 48
11.72 Tax Return....................................................... 48
11.73 Taxes............................................................ 48
11.74 Welfare Plan..................................................... 48
11.75 Other Definitional Provisions.................................... 48
ARTICLE XII TERMINATION.................................................. 48
12.1 Termination....................................................... 48
12.2 Effect of Termination............................................. 48
ARTICLE XIII GENERAL PROVISIONS.......................................... 49
13.1 Notices........................................................... 49
13.2 Entire Agreement.................................................. 49
13.3 Expenses.......................................................... 49
13.4 Amendment; Waiver................................................. 50
13.5 Binding Effect; Assignment........................................ 50
13.6 Counterparts...................................................... 50
13.7 Interpretation.................................................... 50
13.8 Governing Law; Severability....................................... 50
59
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Attachment 2
July 28, 1998
Board of Directors
Delta CompuTec, Inc
366 White Spruce Blvd.
Rochester, New York 14623
Members of the Board:
We understand that Delta CompuTec, Inc. ("DCI" or the "Company") and Alpha Micro
Merger Corporation a wholly owned subsidiary of Alpha Microsystems, Inc. ("Alpha
Micro"), have entered into a Merger Agreement dated as of July 1, 1998 (the
"Agreement"), which provides, among other things, for Alpha Micro to acquire
each outstanding and issued share of DCI, other than treasury shares for $.32
per share (estimated to be 6,087,625 shares, "Outside Shares.") This purchase
price does not include the shares owned by Joe Lobozzo, Joanne Lobozzo and John
DiProsa estimated to be 12,381,225 ("control shares") which will be purchased
for $.12 per share.
You have asked for our opinion as to whether the purchase is fair from a
financial point of view to the Outside Shareholders of DCI.
For purposes of the opinion set forth herein, we have:
Reviewed certain publicly available financial statements of DCI;
Reviewed certain internal interim financial statements and other
financial and operating data concerning DCI prepared by management;
Discussed certain financial projections with management of DCI;
Discussed the past and current operations and financial condition as
well as prospects for DCI with management;
Compared the financial performance of DCI with that of certain other
comparable companies;
Reviewed the financial terms, to the extent publicly available, of
certain comparable merger transactions and the valuations of targets
as well as the valuations of similar publicly traded companies;
Reviewed the reported prices and trading activity for the DCI common
stock;
Participated in discussions and negotiations among representatives of
DCI and Alpha Micro and their financial and legal advisors;
Interviewed the legal representative of DCI to better understand the
negotiations between DCI and Alpha Micro;
Reviewed the Merger Agreement and certain related documents; and
Performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for purposes of this opinion.
We have not made any independent valuation or appraisal of the assets or
liabilities of DCI, nor have we been furnished with any such appraisals. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of the date hereof.
We have acted as financial advisor to the Board of Directors of DCI in
connection with this transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of DCI. We express no opinion and make no recommendation as to how the
Board of Directors of DCI should vote in connection with the Merger Agreement.
It is further understood that we express no opinion and make no recommendation
as to how the stockholders of DCI should vote in the stockholders meeting' in
connection with the Merger.
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Based on and subject to the foregoing, we are of the opinion on the date hereof
that the valuation for the outside shares is fair from a financial point of
view. Based on our knowledge of the negotiations we believe the value for the
inside shareholders is fair as well.
Very truly yours,
PASCHALL and COMPANY
/s/ N. Price Paschall
----------------------
By: N. Price Paschall
President
61
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Attachment 3
New York State Business Corporation Law Section 623
Procedure to enforce shareholder's right to receive payment for shares
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his/her shares.
(c) Within twenty days after the giving notice to him, any shareholder from
whom written objection was not required and who elects to dissent shall file
with the corporation a written notice of such election, stating his name and
residence address, the number and classes of shares as to which he dissents and
a demand for payment of the fair value of his shares. Any shareholder who elects
to dissent from a merger under section 905 (Merger of subsidiary corporation) or
paragraph (c) of section 907 (Merger or consolidation of domestic and foreign
corporations) or from a share exchange under paragraph (g) of section 913 (Share
exchanges) shall file a written notice of such election to dissent within twenty
days after the giving to him of a copy of the plan of merger or exchange or an
outline of the material features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation, In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than iii cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
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(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting Ii older of the
shares and a transferee shall acquire no rights in the corporation except those
which the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
share-holder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
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(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a special
proceeding in the supreme court in the judicial district in which the office of
the corporation is located to determine the rights of dissenting shareholders
and to fix the fair value of their shares. If, in the case of merger or
consolidation, the surviving or new corporation is a foreign corporation without
an office in this state, such proceeding shall be brought in the county where
the office of the domestic corporation, whose shares are to be valued, was
located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such proceeding
for the same purpose not later than thirty days after the expiration of such
twenty day period. If such proceeding is not instituted within such thirty day
period, all dissenter's rights shall be lost unless the supreme court, for good
cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting shareholder
who is a resident of this state in the manner provided by law for the service of
a summons, and upon each nonresident dissenting shareholder either by registered
mail and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is entitled
to receive payment for his shares. If the corporation does not request any such
determination or if the court finds that any dissenting shareholder is so
entitled, it shall proceed to fix the value of the shares, which, for the
purposes of this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the fair value
of the shares, the court shall consider the nature of the transaction giving
rise to the shareholder's right to receive payment for shares and its effects on
the corporation and its shareholders, the concepts and methods then customary in
the relevant securities and financial markets for determining fair value of
shares of a corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the fair
value of the shares without a jury and without referral to an appraiser or
referee. Upon application by the corporation or by any shareholder who is a
party to the proceeding, the court may, in its discretion, permit pretrial
disclosure, including, but not limited to, disclosure of any expert's reports
relating to the fair value of the shares whether or not intended for use at the
trial in the proceeding and notwithstanding subdivision (d) of section 3101 of
the civil practice law and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined
(6) The final order shall include an allowance for interest at such rate as
the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary , vexatious or otherwise
not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed by
it. Notwithstanding the forgoing, the court may, in its discretion, apportion
and assess all or any part of the cost, expenses and fees incurred by the
corporation against any or all of the dissenting shareholders who are parties to
the proceeding, including any who have withdrawn their notices of election as
provided in paragraph (e), if the court finds that their refusal to accept the
corporate offer was arbitrary, vexatious or otherwise not in good faith. The
court may, in its discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by any or all of the dissenting shareholders who are
parties to the proceeding against the corporation if the court finds any of the
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer or
required advance payment was made by the corporation; (C) that the corporation
failed to institute the special proceeding period specified therefor; or (D)
that the action of the corporation in complying with its obligations as provided
in this section was arbitrary, vexatious or otherwise not in good faith. In
making any determination as provided in clause (A), the court may consider the
dollar amount or the percentage, or both, by which the fair value of the shares
as determined exceeds the corporate offer.
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(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be due
him, upon surrender of the certificates for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation, but
have rights superior to the non-dissenting share-holders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this paragraph
do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment for
his shares cannot be made because of the restrictions of this paragraph. If the
dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for
his shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
(1) Except as otherwise expressly provided in this section, any notice to
be given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
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Attachment 4
Deloitte & Touche LLP
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Delta Computec Inc.
Rochester, New York
We have audited the accompanying consolidated balance sheets of Delta
Computec Inc. and subsidiaries of October 31, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' investment
(deficit) and cash flows for each of the three years in the period ended October
31, 1997. Our audits also included the financial statement schedule listed in
the Index at Item 8. These financial statements and financial statement schedule
are the responsibility of the company's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based on our audits.
We conducted out audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Delta Computec Inc. and
subsidiaries as of October 31, 1997 and 1996, and the results of their operation
and their cash flows for each of the three years in the period ended October 31,
1997 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
January 9, 1998
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