DRAFT -- 17 OCTOBER 1997
DATATREND SERVICES, INC.
1515 Washington Street
Braintree, Massachusetts 02184
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On November __, 1997
To the Stockholders of
Datatrend Services, Inc.
Notice is hereby given that a Special Meeting of Stockholders of
Datatrend Services, Inc. (the "Company") will be held at the Offices of
the Company, 1515 Washington Street, Braintree, Massachusetts on November
__, 1997 at 10:00 A.M. The purpose of the Meeting, as more fully set
forth in the accompanying Proxy Statement, is to approve the sale by the
Company of substantially all of the Company's operating assets pursuant to
the Asset Purchase Agreement dated as of September 8, 1997 between the
Company, the Company's wholly-owned operating subsidiary Datatrend, Inc.,
and Genco Management Company, a subsidiary of GENCO I, INC. and to
transact such other business as may properly come before the meeting or
any adjournments thereof.
Holders of record of the Company's Common Stock at the close of
business on October __, 1997 will be entitled to vote at the meeting. You
are cordially invited to attend the meeting. Whether or not you plan to
attend, please complete, date and sign the accompanying proxy and return
it promptly in the enclosed envelope to insure that your shares are
represented at the meeting. If you do attend, you may revoke any prior
proxy delivered hereunder and vote your shares in person if you wish to do
so. Any prior proxy delivered hereunder will automatically be revoked if
you execute the accompanying proxy or if you notify the Secretary of the
Company, in writing, prior to the Special Meeting of Stockholders.
By Order of the Board of Directors
Yitz Grossman, Secretary
Dated: November __, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED. ANY PERSON
GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME PRIOR TO ITS
EXERCISE AND IF PRESENT AT THE MEETING MAY WITHDRAW IT AND VOTE IN PERSON.
ATTENDANCE AT THE MEETING IS LIMITED TO STOCKHOLDERS, THEIR PROXIES AND
INVITED GUESTS OF THE COMPANY.
DRAFT -- 27 OCTOBER 1997
Datatrend Services, Inc.
1515 Washington Street
Braintree, MA 02184
PROXY STATEMENT
for
SPECIAL MEETING OF STOCKHOLDERS
To Be Held on November __, 1997
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of proxies to be voted at a Special
Meeting of Stockholders of the Company to be held at Datatrend, Inc., 1515
Washington Street, Braintree, Massachusetts at 10:00 A.M. on November __,
1997 and at any adjournments thereof. This proxy statement and the
accompanying proxy card are being mailed to all stockholders on or about
November __, 1997.
The shares represented by proxies that are received in the enclosed
form and properly filled out will be voted in accordance with the
specifications made thereon. In the absence of specific instructions,
proxies will be voted in accordance with the recommendations made herein
with respect to the proposals described in this Proxy Statement. The
principal proposal is to approve the sale of substantially all of the
Company's operating assets to Genco Management Company, a subsidiary of
GENCO I, INC. The Company's Board of Directors unanimously recommends
that stockholders vote in favor of this proposal and, unless contrary
instructions are given, the proxyholders will vote FOR the proposal. The
members of the Board of Directors currently own 1,083,800 shares of Common
Stock, representing 23% of the currently outstanding Common Stock of the
Company. Both members of the Board of Directors have indicated their
intention to vote in favor of the proposal.
Proxies may be revoked by stockholders by written notice received by
the Secretary of the Company at the address set forth above, at any time
prior to the exercise thereof. Stockholders of record at the close of
business on October ___, 1997 are entitled to notice of and to vote at the
Special Meeting or any adjournments thereof. The Company's only class of
voting securities is its Common Stock, par value $.01 per share, of which
4,712,795 shares were outstanding as of October __, 1997.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of October __, 1997
based upon the most recent information available to the Company for: (i)
each person who is known by the Company to own beneficially more than 5%
of the Company's outstanding Common Stock; (ii) each of the Company's
officers and directors; and (iii) all officers and directors of the
Company as a group:
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial
Name and Address Ownership Percentage
- -------------------------------- ----------------- ----------
<S> <C> <C>
Mark A. Hanson (1) 1,155,000 24.1%
1515 Washington Street
Braintree, MA 02184
Yitz Grossman (2) 420,800 8.2%
40 Fulton Street
New York, NY 10017
Joseph Stevens & Company LP (3) 250,000 5.0%
33 Maiden Lane
New York, NY 10038
All officers and directors as a
group (4 persons) (1)(2) 1,575,800 30.3%
<FN>
- --------------------
<F1> Includes currently exercisable options to purchase 75,000 shares.
<F2> Includes currently exercisable warrants to purchase 342,000 shares of
Common Stock and options to purchase 75,000 shares.
<F3> Consists of shares issuable upon exercise of warrants.
</FN>
</TABLE>
SALE OF ASSETS
On September 8, 1997 Datatrend Services, Inc. (the "Company") and
its principal operating subsidiary, Datatrend, Inc.
("Datatrend")(references to the "Company" herein shall include Datatrend
where relevant), entered into an Asset Purchase Agreement and a Management
and Administrative Services Agreement with Genco Management Company
("GMC"), a subsidiary of GENCO I, INC. ("Genco"). GMC's obligations under
both Agreements are guaranteed by Genco. The Asset Purchase Agreement
(the "Purchase Agreement") provides that Datatrend will sell substantially
all of its operating assets to GMC. This asset transfer will result in
the sale of all of the Company's computer equipment refurbishment and
returns management business (the "Asset Sale"). The Management and
Administrative Services Agreement (the "Management Agreement") provides
that GMC will operate the Company's business pending the closing of the
transactions contemplated by the Purchase Agreement. GMC and Datatrend
have already begun operating pursuant to the Management Agreement, and no
stockholder approval is being sought in connection with such agreement.
Stockholders are being asked to approve the Purchase Agreement. Closing
of the transactions contemplated by the Purchase Agreement are conditioned
upon stockholder approval thereof.
Had the closing of the Purchase Agreement (the "Closing"), been
effected as of June 30, 1997, the Company would have had on a pro forma
basis net assets of approximately $1,400,000, consisting principally of
cash and cash equivalents. The Company has continued to experience
operating losses since June 30, 1997. Therefore, the net assets of the
Company after the actual date of the Closing will probably be materially
lower than the proforma net assets as of June 30, 1997. After the
Closing, the Company will review strategic alternatives, including seeking
to acquire a new business. See "Operations of the Company after Closing."
The Asset Sale will not give rise to appraisal or similar rights of
dissenting stockholders.
SUMMARY OF THE PURCHASE AGREEMENT
The following summary of the terms of the Purchase Agreement does
not purport to be complete and is qualified in its entirety by reference
to the Purchase Agreement attached hereto as Annex A (excluding schedules
and exhibits).
The Purchaser
The purchaser of the assets, GMC, is a Pennsylvania corporation
which is a wholly-owned subsidiary of Genco. Genco is a Delaware
corporation incorporated in 1995 which is one of a group of related
companies engaged in the business of reverse logistics services or
processing returns of various types of merchandise. Genco and its related
entities have also developed computer software and techniques for use in
reverse logistics and warehouse automation services. GMC and Genco's
headquarters are in Pittsburgh, Pennsylvania.
Closing
The Closing is scheduled to occur as soon as possible after the
satisfaction of all conditions precedent, or at such other time as the
parties may agree. See "Conditions to Closing."
Purchase Price, Assumption of Liabilities
In consideration for the sale of the assets, GMC will pay at the
Closing a minimum of $1,000,000 and will assume various liabilities
including certain current recorded liabilities and certain future
liabilities relating to the ongoing operation of the business being
acquired by GMC. GMC will not assume liabilities relating to outstanding
litigation matters, employment and consulting contracts, and tax and other
matters. The purchase price will be increased by 50% of the amount by
which the difference between the assumed liabilities and acquired assets
(subject to various adjustments) is less than $2,500,000. The transaction
is terminable by GMC in the event that such difference exceeds $3,000,000.
GMC will also contribute to the Company all of Mark Hanson's shares of
Common Stock which GMC will acquire from Mr. Hanson pursuant to a separate
employment agreement. See "Interest of Company Management in the Sale of
Assets."
Assets Transferred
The Company is selling all of the assets used in connection with the
operation of its business (the "Assets") other than its inventory from
Jabil Circuits, its corporate books and records, and its software license
from Dynamics Software.
Representations and Warranties
Article II of the Purchase Agreement contains representations and
warranties by the Company customarily made by sellers in transactions of
this type, including, without limitation, those relating to: (i) the
absence of any material violation of law in connection with the Company's
operations; (ii) the accuracy of certain financial statements of the
Company; (iii) compliance with tax matters; (iv) the absence of
undisclosed material litigation; (v) the ownership, transferability and
condition of the Assets being transferred to the Buyer; and (vi) the
content and condition of the inventory of the Company.
Certain Covenants Prior to Closing
The Company has agreed, prior to Closing: (i) not to pay any
dividend or other distribution; (ii) not to sell any Assets other than in
the ordinary course of business; (iii) not to take any action that could
result in the acquisition of another business or substantial amount of
assets; (iv) to generally maintain the Company's business in its current
state, and (v) to afford Buyer and its representatives access at all
reasonable times to its businesses and properties for the purposes of
investigation of the Company's business and the Assets.
Other Agreements
Noncompetition and "No-raiding" Covenants. The Company has agreed
that, for a period of five years after Closing, it will not, directly or
indirectly, own, manage, operate or control or participate in any manner
in any business which is engaged in the business of computer refurbishment
and distribution or computer return management in North America. The
Company has also agreed for a period of three years not to hire any
current employee of the Company.
Employment and Stock Ownership of Mark Hanson. Datatrend has agreed
to release Mark Hanson, its President and Chief Executive Officer from his
employment agreement with the Company. An affiliate of GMC has entered
into an employment agreement with Mr. Hanson and will purchase from Mr.
Hanson all of the shares of Common Stock of the Company owned by him.
These shares will be contributed to the Company immediately after the
Closing. See "Interest of Company Management in the Sale of Assets."
Conditions to Closing
The obligations of the Company and GMC to cause the Purchase
Agreement to be consummated are subject to satisfaction of the following
conditions: (i) the approval by the Company's stockholders; (ii) no
government action or injunction which would render the transactions
contemplated by the Purchase Agreement illegal or otherwise materially
restricts consummation of such transactions; (iii) each of the other
parties' representations and warranties contained in the Purchase
Agreement shall be true and correct; (iv) each of the other parties shall
have performed or complied in all material respects with all agreements
and covenants required by the Purchase Agreement to be performed or
complied with by it on or prior to the Closing; and (v) all required
governmental consents, if any, shall have been obtained.
The obligations of GMC to consummate the transactions contemplated
by the Purchase Agreement are subject to additional conditions, including
the execution of GMC's employment agreement with Mr. Hanson.
The obligations of the Company to consummate the transactions
contemplated by the Purchase Agreement are subject to additional
conditions, including receipt of the opinion of its investment banker that
the transaction is fair to the Company's stockholders.
Indemnification, Limitation on Liability
The Company will indemnify, defend and hold harmless GMC from and
against any and all liabilities relating to certain representations and
warranties of the Company, failure by the Company to comply with its
obligations under the Purchase Agreement, any employee benefits, or any of
the liabilities being retained by the Company. The amount of any such
indemnity is limited to the total cash purchase price paid by GMC.
Termination
The Purchase Agreement may be terminated by either party in the
event that the closing does not occur by the first anniversary of the
execution of the Purchase Agreement, in the event of a breach of the other
party's obligations, representations, or warranties under the Purchase
Agreement, or if the Management Agreement is terminated. GMC may also
terminate the transaction if the difference between the assumed
liabilities and acquired assets (subject to various adjustments) exceeds
$3,000,000, or in the event of bankruptcy, or the discovery of material
potential liability under government regulatory schemes.
THE MANAGEMENT AGREEMENT
Datatrend and GMC also entered into a Management and Administrative
Services Agreement (the "Management Agreement") which provides that GMC
will operate the Company's business pending the closing of the
transactions contemplated by the Purchase Agreement. Among other matters,
GMC will handle personnel and facility matters and will oversee the
previously announced closure of the Company's Braintree facility. The
Management Agreement is terminable if the Purchase Agreement is terminated
and may also be terminated by GMC in certain circumstances including
bankruptcy, potential liability under government regulatory schemes, or
dispute by the Company of GMC's management decisions. GMC will receive a
monthly management fee of $2,500 and reimbursement of direct expenses
incurred by GMC. GMC is entitled to retain any operating profits
generated during the term of the Management Agreement and will reimburse
Datatrend for any operating losses incurred during such term. GMC is
obligated to contribute to the Company up to $500,000 to cover operating
losses and provide working capital during the term of the Management
Agreement.
REGULATORY REQUIREMENTS
To the best knowledge of the Company, there are no federal or state
regulatory requirements which must be complied with, nor are there any
such governmental consents or approvals that must be obtained in
connection with the transactions contemplated by the Purchase Agreement.
ACCOUNTING TREATMENT
The transactions contemplated by the Agreements will be accounted
for as a sale of assets.
FEDERAL INCOME TAX CONSEQUENCES
Federal Income Tax Consequences to Stockholders
The sale of the Assets to the Buyer will not have any Federal income
tax consequences to the Company's stockholders. If the Company is
liquidated and distributes its available cash, such distribution would be
a taxable transaction to the stockholder, and a gain or loss would be
realized by each stockholder equal to the difference between the proceeds
received and the basis of the stock owned by each stockholder. The
Company has no current plans to liquidate and distribute its cash. See
"Operation of the Company After the Closing."
The Federal income tax discussion set forth above is included for
general information only. The tax consequences to stockholders may vary
depending on the actions of the Company following consummation of the
Asset Sale. No information is provided herein as to state, local or
foreign tax consequences. Stockholders should consult their own tax
advisors to determine the particular Federal, state, local and foreign tax
consequences to them of the Asset Sale and subsequent actions of the
Company.
Federal Income Tax Consequences to the Company
The Company does not expect there to be any federal income tax
consequences as a result of the sale of Assets to the Buyer. The Company
had fully available net operating tax losses as of December 31, 1996 in
the amount of approximately $2.9 million and incurred a tax loss of
approximately $1.6 million for the six months ended June 30, 1997. This
results in a total net operating loss of approximately $4.5 million which
is available to be carried forward against taxable income in subsequent
years. There may be limitations in the use of the tax net operating loss
carry forwards that would arise if there are additional "ownership
changes" as described in sections 382 and 384 of the Internal Revenue Code
of 1986.
BACKGROUND AND REASONS FOR THE TRANSACTION
The Company's principal business is the resale of discontinued, end
of life, excess, and used microcomputers, peripherals, components, and
accessories. In the latter part of 1996, computer manufacturers announced
enhanced options and features that would be available in early 1997.
These announcements led to slower than expected sales volume for the 1996
holiday season and a significant reduction in the market value of
inventory on hand. Payment experience also led the Company to increase
its allowances for doubtful accounts. Operating losses for 1996 were
approximately $2,864,000. The Company continued to experience
difficulties in 1997 and had operating losses of approximately $1,621,000
in the six months ended June 30, 1997. In April 1997 the Company took
steps to reduce its operating expenses, including consolidating warehouse
and service facilities to its Memphis facility, and reducing workforce
costs. Despite these efforts, the Company's Board of Directors concluded
that it would be very difficult for the Company's business to continue as
an independent operation. By June 30, 1997 the Company had a working
capital deficit of $2,226,513.
In April 1997 the Company made inquiries regarding raising funds
through a private placement and approached several potential buyers of the
Company's business. The Board of Directors also explored the possibility
of seeking protection under the bankruptcy laws but concluded that this
would decrease the Company's ability to continue its business. The
inquiries continued through May 1997 and on June 3, 1997 the Company
received a proposed letter of intent from Genco Distribution System, Inc.
The letter of intent proposed that Genco would acquire most of the
Company's assets in exchange for the assumption of certain liabilities and
a payment of $4,000,000 with adjustments based upon changes from the
Company's 1996 financial statements. During June 1997, the Company
explored this offer and other potential purchasers. By the beginning of
July 1997, the Company's management concluded that no offers would be
forthcoming other than Genco's. On July 21, 1997, Genco's attorney wrote
to Mr. Yitz Grossman of the Company's Board of Directors to summarize
Genco's offer, which, as a result of further discussions with the Company,
now included the proposal that Genco would manage the Company's business
pending conclusion of a sale of assets. The proposed cash consideration
was significantly reduced from that included in the June 3 proposal due to
the Company's continued losses during 1997.
During late July and early August 1997, the Company and Genco
engaged in extensive negotiations resulting in agreement in principle that
the cash consideration would be $1,000,000 subject to increase if the
liabilities to be assumed by Genco were below $2,500,000. During the
remainder of August 1997, the Company and Genco negotiated definitive
agreements which were executed as of September 8, 1997.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company believes that the consummation
of the Purchase Agreement is in the best interests of the Company and its
stockholders, and unanimously recommends that the stockholders of the
Company vote to approve the Agreement. The Board of Directors believes
that the purchase price for the Assets is fair and equitable to the
Company and its stockholders. Prior to approving the Asset Sale, the
Board had not established a range of values for the Asset Sale. In
recommending that stockholders approve the Purchase Agreement, the Board
considered:
(a) Arms-length Negotiations. That the Purchase Agreement
was the result of arms-length negotiations between the Company and
Genco. In the Board's opinion, Genco was desirous of obtaining the
Assets. Accordingly, the Board believes its negotiations were at
arms length and produced a fair price.
(b) Recent Operating Results and Limited Prospects for
Profitable Operations. The $2,864,000 net operating loss incurred
by the Company for the year ended December 31, 1996, the $1,621,000
net loss incurred by the Company during the six months ended June
30, 1997 and the anticipated continuing operating losses combined
with the Board's belief that the Company would not be able to
operate profitably before depleting substantially all of its
remaining assets. As a result, the Board believes that the sale of
the Assets for the Purchase Price is in the Company's best interest.
(c) Lack of Strategic Alternatives. The lack of strategic
alternatives available to the Company in view of the Company's
declining operating results and competitive market conditions, and
efforts to seek other potential candidates without success. The
Company has sought strategic alternatives, and has received no
offers other than Genco's. Based upon the Company's unsuccessful
pursuit of strategic alternatives since April 1997 and deteriorating
financial condition, the Board believes that it had exhausted its
identified realistic strategic alternatives and that the Company
would be unable to attract debt or equity investments or enter into
a merger or other business combination that the Board believed would
be in the best interests of the Company and its stockholders.
(d) Existence of Cash Assets. The existence of cash and
cash equivalents after completion of the Asset Sale and the
potential use of such cash for possible future strategic
alternatives and combinations with other operating companies. If
the Company were to further delay the Asset Sale, its continuing
operating losses would reduce its cash positions, and it would, most
likely, receive less for a later sale of the Assets. While the
Board did not set any minimum level, it was desirous of having a
sufficient amount of cash to be able to pursue an attractive
acquisition.
(e) Fairness Opinion. The advice of A. S. Goldmen & Co.,
Inc., the Company's financial advisor, that the consideration to be
received by the Company in connection with the sale of the Assets
is fair, from a financial point of view, to the Company. See
"Opinion of Financial Advisor."
The Board considered the continuing losses and lack of prospects as
well as the prior unsuccessful efforts to sell or merge the Company to be
the most important factors in approving the Asset Sale and recommending
that stockholders approve it.
OPINION OF FINANCIAL ADVISOR
In connection with recommending that stockholders approve the Asset
Sale, the Board of Directors received the opinion of A. S. Goldmen & Co.,
Inc. ("ASG") that the consideration to be received under the Agreements,
which were negotiated by GMC and the Company, is fair from a financial
point of view to the Company. ASG's opinion is directed only to the
fairness from a financial point of view of the transaction, does not
address any other aspect of the transaction, and does not constitute a
recommendation to any stockholder as to how such stockholder should vote
at the Meeting.
ASG is an investment banking firm which engages in, among other
things, structuring, negotiating and evaluating financial terms of mergers
and acquisitions and in providing investment analysis to its clients and
advising them with respect to the purchase of securities. The Board
selected ASG because of its reputation, expertise and familiarity with the
Company. Among other factors, ASG had previously prepared a fairness
opinion for the Company with regard to its acquisition of Datatrend in
1995.
In arriving at its Opinion, ASG made such reviews, analyses and
inquiries as it deemed necessary and appropriate under the circumstances.
Among other things, ASG: (i) reviewed the Company's annual reports on Form
10-K for the two fiscal years ended December 31, 1996 and quarterly
reports on Form 10-Q for the three and six month periods ended March 31
and June 30, 1997, which the Company's management has identified as being
the most current financial statements available; (ii) reviewed copies of
the Purchase Agreement and the Management Agreement; (iii) met with
certain members of the senior management of the Company to discuss the
operations, financial condition, future prospects and projected operations
and performance of the Company; (iv) reviewed forecasts and projections
prepared by the Company's management with respect to the Company; (v)
reviewed the historical market prices and trading volume for the Company's
publicly traded securities; and (vi) conducted such other studies,
analyses and inquiries as they deemed appropriate.
ASG did not independently verify the accuracy and completeness of
the information supplied to them by the Company. ASG did not make any
physical inspection or independent appraisal of any of the properties or
assets of the Company. ASG's opinion is necessarily based on business,
economic, market and other conditions as they existed and could be
evaluated by them at the date of the Opinion. Other than set forth above,
no limitations were imposed by the Company on the scope of ASG's
investigation, and no special instructions were given to ASG, for the
purpose of rendering the fairness opinion.
In its analysis, ASG made numerous assumptions with respect to the
Company, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the
control of the Company. In addition, analysis of the value of businesses
or securities can not purport to be appraisals or to reflect the prices at
which businesses or securities actually may be sold. Accordingly, such
analysis is inherently subject to substantial uncertainty.
ASG did not produce any written reports (except for the fairness
opinion), studies, documents, talking papers, or background materials for
the Company's Board of Directors. The preparation of a fairness opinion
is a complex analytical process involving various determinations as to the
most appropriate and relevant methods of financial analyses and
application of those methods to the particular circumstances and,
therefore, is not readily susceptible to summary description. In arriving
at its opinion, ASG did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor. Factors
which appeared to be of particular importance included the Company's
history of losses, the likelihood that such losses would continue,
declining revenues and cash reserves, increases in allowances for doubtful
accounts, and the delisting of the Company's securities from trading on
NASDAQ due to failure to maintain the required minimum equity standards.
The foregoing does not purport to be a complete description of the
written Opinion of ASG or of the analysis undertaken by ASG, and is
qualified in its entirety by the full text thereof which is included as
Annex B to the Proxy Statement. Such Opinion sets forth the principal
assumptions made, matters considered, and the limitations on, and the
scope of the review by, ASG in rendering its opinion. Stockholders are
urged to read Annex B in its entirety.
INTEREST OF COMPANY MANAGEMENT IN THE SALE OF ASSETS
As indicated above, the Purchase Agreement contemplates that Mark
Hanson, the Company's President and Chief Executive Officer, will resign
from the Company and will join GMC upon the Closing of the sale of the
Assets. An affiliate of GMC has entered into an employment agreement with
Mr. Hanson which provides for the purchase of Mr. Hanson's shares of
Common Stock of the Company for $535,000 plus additional payments
contingent on performance of the Datatrend business after it is acquired
by GMC. The initial term of the employment agreement is three years
commencing at the Closing at an annual base salary of $150,000. See
"Security Ownership of Certain Beneficial Owners and Management" and
"Summary of the Purchase Agreement -- Employment and Stock Ownership of
Mark Hanson." Mr. Hanson approved the Asset Sale in order to assure the
technical validity of the resolutions relating to the Agreements because
the Board consists of only two members. Since the Agreements contemplated
that Mr. Hanson would enter into an employment agreement with Genco, Mr.
Hanson noted that he otherwise abstained from deliberations in his
capacity as a director on the resolutions relating to the approval of the
Agreements. See also "Operation of the Company After Closing --
Consulting Agreement."
OPERATION OF THE COMPANY AFTER CLOSING
On a proforma basis, assuming that the Closing had occurred as of
June 30, 1997 and that all liabilities not assumed by GMC were paid, the
Company would have had net assets of approximately $1,400,000 consisting
almost exclusively of cash and cash equivalents, and would have no
operating business. The Company has continued to experience operating
losses since June 30, 1997. Therefore, the net assets of the Company
after the actual date of the Closing will probably be materially lower
than the proforma net assets as of June 30, 1997. The Company has
commitments under the lease of its Braintree, Massachusetts facility of
approximately $30,000 per month through December 31, 1997. The Company is
currently negotiating for an early termination of such lease. If the
Company is successful in such negotiations, its available cash will be
reduced and its ongoing expenses, while searching for an acquisition, will
also be reduced. Excluding such lease commitments, the Company
anticipates ongoing general and administrative expenses until it
consummates a business combination of approximately $22,000 per month,
including the consulting fees referred to below under "Consulting
Agreement."
Upon the Closing, Mr. Hanson will resign as a director. The Board
of Directors has elected Mr. Irving Bader to replace Mr. Hanson, with Mr.
Bader's election effective upon Mr. Hanson's resignation. Thereafter the
Board will consist of Mr. Bader and Mr. Yitz Grossman. Mr. Bader has been
Director of Adaptive Physical Education with the New York City Board of
Education since 1973 and has also been an Adjunct Professor of Physical
Education at Brooklyn College since 1980. Mr. Bader is Mr. Grossman's
father-in-law.
The Company's Board of Directors currently intends to seek to
acquire, merge, consolidate or otherwise combine with an operating
business. To date, the Board has not identified any potential acquisition
candidate nor has it decided upon the type of entity which it will seek to
acquire. There can be no assurance that the Company will be able to
acquire or combine with any business, or that such business will be
profitable. The Company will be relying on the Board to identify
potential candidates. As of this time, no decision has been made to hire
an investment banker to assist the Board. In addition, it is possible
that members of the Board or their affiliates may receive fees in
connection with any acquisition or business combination. Such fees, if
any, will be on terms no less favorable to the Company than are paid to
investment bankers generally.
Pending an acquisition or business combination, the Company's cash
will be invested as management of the Company deems prudent, which may
include, but will not be limited to, certificates of deposit, mutual
funds, money-market accounts, stocks, bonds or United States Government or
municipal securities, provided, however, that the Company will attempt to
invest the net proceeds in an manner which will not result in the Company
being deemed to be an investment company under the Investment Company Act
of 1940. In this regard, while the foregoing investments are intended to
be temporary (i.e., for the period during which the Company is determining
its future course of action), any such investments deemed by the
Securities and Exchange Commission not to be temporary, may result in the
Company being required to register as an investment company, which could
result in increased legal and accounting compliance costs for the Company.
While the Board currently believes that pursuing an acquisition or
business combination is in the stockholders' best interest, it may
subsequently decide to pursue other options available to the Company, such
as investing the Company's cash in marketable securities or liquidating
the Company. Such other options will only be considered if the Board
determines that it cannot successfully acquire, merge, consolidate or
otherwise combine with an operating business.
In the event that the Company proposes to engage primarily in the
business of investing or trading in securities, or otherwise its cash in
investment securities having a value in excess of 40% if its total assets
(exclusive of Government Securities, certificates of deposit and other
cash items), the Company may be deemed an investment company and therefore
may be required to register under and become subject to the Investment
Company Act of 1940.
Consulting Agreement
The Company has entered into a consulting agreement with Target
Capital Corp. dated January 1995 for a term of three years. The consulting
agreement automatically renews for a term of an additional three years if
Target Capital Corp. is able to assist the Company in rasing certain
specified amounts of equity capital over the initial three year term.
Target Capital Corp. is wholly-owned by Mr. Grossman, a director and
officer of the Company. Under this Agreement, Target Capital is entitled
to annual consulting fees in the amount of $100,000 per year. The Closing
of the Asset Sale will make it more likely that Mr. Grossman's company
will collect the consulting fees, of which $75,000 were owed as of June
30, 1997.
VOTE REQUIRED
Under Delaware law, the affirmative vote of a majority of the votes
cast at the Special Meeting is required to approve the Asset Sale. The
current members of the Board of Directors presently hold voting authority
for Common Stock representing approximately 23% of the total number of
votes eligible to be cast at the Special Meeting. The members of the
Board of Directors have indicated their intention to vote affirmatively on
the Asset Sale.
EXPENSE OF SOLICITATION
The cost of soliciting proxies, which also includes the preparation,
printing and mailing of this Proxy Statement, will be borne by the
Company. Solicitation will be made by the Company primarily through the
mail. The Company may also retain the services of a proxy solicitation
firm. The Company has not made any arrangements to do so as of the date
of this Proxy Statement, and does not presently have estimates as to the
cost of such services. Directors, officers and regular employees of the
Company may solicit proxies personally, by telephone or telegram. The
Company will request brokers and nominees to obtain voting instructions of
beneficial owners of stock registered in their names and will reimburse
them for any expenses incurred in connection therewith.
FINANCIAL STATEMENTS
Unaudited Proforma Condensed Financial Statements as of and for the
six months ended June 30, 1997 are being delivered with this Proxy
Statement to the Company's stockholders as Annex C. The Company has
continued to experience operating losses since June 30, 1997. Therefore,
the net assets, stockholders' equity and other financial statement indicia
of value of the Company after the actual date of the Closing will probably
be materially lower than the proforma information as of June 30, 1997.
OTHER MATTERS
The Board of Directors knows of no matters that are expected to be
presented for consideration at the Special Meeting which are not described
herein. However, if other matters properly come before the Meeting, it is
intended that the persons named in the accompanying proxy will vote
thereon in accordance with their best judgment.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
November __, 1997
By Order of the Board of Directors
Yitz Grossman, Secretary
LIST OF ANNEXES
Annex A Asset Purchase Agreement dated as of September 8, 1997, by and
among Datatrend Services, Inc., Datatrend, Inc., GENCO I, INC.,
and Genco Management Company.
Annex B Fairness Opinion of A. S. Goldmen & Co., Inc.
Annex C Unaudited Proforma Condensed Financial Statements as of and for
the six months ended June 30, 1997.
ANNEX A
ASSET PURCHASE AGREEMENT
This Agreement, dated as of the 8th day of September, 1997, by and
among each of Genco Management Company, a Pennsylvania corporation
("Purchaser"), Datatrend, Inc., a Massachusetts corporation (the "Seller"),
Datatrend Services, Inc., a Delaware corporation which owns all of the
issued and outstanding shares of common stock of the Seller ("DSI") and
GENCO, INC., a Pennsylvania corporation which owns all of the outstanding
shares of capital stock of Purchaser ("Genco") (the "Agreement")
W I T N E S S E T H:
WHEREAS, the Seller desires to sell and transfer, and the Purchaser
desires to purchase and acquire, in exchange for the consideration
hereinafter specifically set forth, all, or substantially all, of the assets
of the Seller relating to the Seller's business of computer refurbishment
and distribution and computer returns management services (the "Business")
upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of, and subject to, the premises and
mutual agreements contained herein, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE I
Sale and Purchase
1.1. The Assets. At the Closing (as hereinafter defined) the Seller
will sell, transfer, assign, convey and deliver to the Purchaser, and the
Purchaser will purchase, acquire and accept from the Seller, all of the
Seller's right, title and interest in and to the assets of the Seller
relating to the Business, excluding only those assets delineated in Section
1.3 hereof (all of such assets, property and business to be acquired by the
Purchaser are hereinafter collectively referred to as the "Acquired
Assets"), upon the terms and subject to the conditions hereinafter set
forth. The Acquired Assets shall include, without limitation, the
following:
(a) all notes, trade and other accounts receivable, royalties,
deferred charges, advance payments, prepaid items and rights of offset and
credits (other than income tax credits) relating to the Business (the
"Accounts");
(b) all property, plant and equipment listed on Schedule 1.1(b),
including but not limited to all fee simple, possessory and leasehold
interests of the Seller in any and all land, leaseholds, easements, rights
of way, licenses, railroad and other use agreements (including, without
limitation, rights arising under all options to purchase, or lease, rights
of first refusal and the like), certain office computer and telephone
equipment, machinery, equipment, tools, motor vehicles, transportation and
packing and delivery equipment and supplies, furniture and fixtures (the
"Equipment and Supplies");
(c) all computers, peripherals, components and accessories
constituting the Seller's inventory associated with the Business, (the
"Inventory");
(d) all contracts and contract rights, including but not limited to
all contractual and other rights and licenses under outstanding purchase
orders, supply agreements, sales orders, agreements pursuant to which the
Seller is to be indemnified, permits, leases, joint venture agreements,
restrictive covenant agreements running in favor of the Seller,
representative agreements, dealer agreements, export agent agreements,
consulting agreements, confidentiality agreements, development agreements,
assignment agreements and all other contracts (the "Contracts"), all as more
particularly described on Schedule 1.1(d) hereof;
(e) all customer lists, supplier lists, engineering data, customer
records, patents, trade names (including but not limited to the name
"Datatrend"), trademarks, all other intellectual property rights and
intangible assets associated with the Business ("Intangible Assets"); and
(f) all cash on hand and in all checking, savings, investment and
other similar accounts of the Seller.
1.2. Transfer of Acquired Assets. To the extent that any of the
Acquired Assets are non-assignable or non-transferable to the Purchaser, or
non-assignable or non-transferable without the consent of a third party, or
shall be subject to any option by any third party (a list of all of such
assets, and relevant particulars with respect hereto, is set forth on
Schedule 1.2(a) hereto), this Agreement shall not constitute a contract to
assign or a transfer of the same (unless such consent is obtained or option
waived) if an attempted assignment or transfer would constitute a breach
thereof. If the Seller shall have failed to procure a required consent to
any assignment or transfer or waiver of such option, with respect to any of
the assets listed on Schedule 1.2(a) (the "Consent Assets") prior to the
Closing (as hereinafter defined), the Seller shall use commercially
reasonable efforts (which shall not include the obligation to pay money) to
make the use and benefit of such Consent Assets available to the Purchaser
to the same extent, as nearly as may be possible, as if such impediment to
the assignment or transfer did not exist. The Purchaser shall assume and
pay, discharge, perform or otherwise satisfy all debts, obligations and
liabilities of the Seller which arise after the date of the Closing with
respect to those contracts the use and benefit of which shall have been made
available to the Purchaser pursuant to this Section 1.2.
1.3. Assets Not Purchased by Purchaser. The parties hereto agree
that, notwithstanding anything to the contrary contained herein, the
Purchaser shall not purchase, directly or indirectly, any right, title or
interest in, and to, the assets listed on Schedule 1.3 to this Agreement
(hereinafter collectively referred to as the "Excluded Assets").
1.4. Consideration. Subject to the provisions of this Section
1.4 and section 9.3 hereof, the consideration for the Acquired Assets shall
be One Million Dollars ($1,000,000) as adjusted (the Cash "Purchase Price"),
which shall be paid by cash wire transfer at the Closing (as hereinafter
defined), together with the assumption of liabilities of the Seller as
provided in Section 1.5 hereof. The Cash Purchase Price shall be subject to
adjustment as follows:
(a) Initial Balance Sheet. Within 45 days following the execution of
this Agreement, the Seller shall cause to be prepared a balance sheet (the
"Initial Balance Sheet") which reflects the assets of Seller (excluding the
Excluded Assets) at the date of execution of this Agreement and only the
liabilities of Seller at the date of execution of this Agreement (the "Base
Liabilities") which would have been Assumed Liabilities had the Closing
occurred on such date. The Initial Balance Sheet shall be prepared in
accordance with the valuation and accounting practices and procedures
described in Schedule 1.4(a) hereof (the "Agreed Upon Procedures"). The
Agreed Upon Procedures shall provide, among other things, that the lease for
the Seller's Braintree, Massachusetts facility shall be reflected as a
liability on the Initial Balance Sheet as a discontinued operation and that
the leasehold improvements to such facility shall be excluded as assets on
the Initial Balance Sheet. The Initial Balance Sheet shall become final and
binding upon the parties unless the Purchaser gives written notice of a
disagreement (a "Notice of Disagreement") to the Seller and DSI within ten
(10) days following receipt thereof. If a Notice of Disagreement is
received by the Seller and DSI, then the Initial Balance Sheet shall become
final and binding upon the parties on the earlier of (i) the date the
parties hereto resolve in writing any differences they may have with respect
to any matter specified in a Notice of Disagreement and (ii) the date any
Disputed Matters (as hereinafter defined) are finally resolved in writing by
the Arbitrator (as hereinafter defined). Any such Notice of Disagreement
shall state in reasonable detail the nature of any disagreement so asserted
and the amount in dispute. During a period of ten (10) business days
following the receipt by the Seller and DSI of a Notice of Disagreement, the
Seller and DSI and the Purchaser shall attempt to resolve in writing any
differences that they may have with respect to any matter specified in the
Notice of Disagreement. If at the end of such ten (10) business-day period,
the Seller, DSI and the Purchaser have failed to reach written agreement
with respect to all such matters, then all such matters as specified in any
Notice of Disagreement as to which such written agreement has not been
reached (the "Disputed Matters") shall be submitted to and reviewed by an
arbitrator ("Arbitrator"), which shall be an accounting firm which is a
member of the SEC Practice Section and the Private Companies Section of the
Division of Firms of the American Institute of Certified Public Accountants
having an office in Pennsylvania and having no other relationship with any
party hereto during the past five (5) years. The identity of the Arbitrator
shall be determined mutually by the independent public accountants of the
Seller and the Purchaser's independent public accountants; and if such
accountants cannot agree as to the selection of the Arbitrator, then each
accounting firm shall select one nominee and the parties shall choose the
Arbitrator by lot. The Arbitrator shall consider only the Disputed Matters
and shall be instructed to act promptly to resolve all Disputed Matters and
its decision shall be final and binding upon the Seller, DSI and the
Purchaser. The fees and expenses of the Arbitrator with respect to all
Disputed Matters shall be allocated between the Seller and the Purchaser in
the same proportion that the aggregate amount of all Disputed Matters is
resolved by the Arbitrator in favor of or against the Seller, DSI and the
Purchaser. As used herein, the term "Initial Balance Sheet" shall refer to
the Initial Balance Sheet in the form in which it becomes final in
accordance with the foregoing procedures.
(b) Final Balance Sheet. Within five (5) days prior to the Closing,
the Purchaser shall prepare and deliver to the Seller and DSI a balance
sheet as of the date of the Initial Balance Sheet (the "Draft Final Balance
Sheet") but which adjusts the asset side of the Initial Balance Sheet to
reflect the liquidation of the assets reflected on the Initial Balance Sheet
(such assets as so adjusted being hereinafter referred to collectively as
the "Adjusted Assets"). The Draft Final Balance Sheet shall be prepared in
accordance with the Agreed Upon Procedures. The Negative Amount means the
amount by which the Base Liabilities exceed the Adjusted Assets. If the
Negative Amount is $2,500,000 or less, the Cash Purchase Price shall be
increased by fifty percent (50%) of the amount by which the $2,500,000
exceeds the Negative Amount. If the Negative Amount exceeds $3,000,000,
then the Purchaser may, by notice given not more than four (4) days after
the Draft Final Balance Sheet is prepared, at its sole option, elect to
terminate this Agreement as provided in Section 9.16 hereof.
(c) The Draft Final Balance Sheet shall become final and binding upon
the
parties unless the Seller or DSI gives written notice of a disagreement (a
"Notice Disagreement") to the Purchaser within thirty (30) days following
receipt thereof. If a Notice of Disagreement is received by the Purchaser,
then the Draft Final Balance Sheet shall become final and binding upon the
parties on the earlier of (i) the date the parties hereto resolve in writing
any differences they may have with respect to any matter specified in a
Notice of Disagreement and (ii) the date any Disputed Matters (as
hereinafter defined) are finally resolved in writing by the Arbitrator (as
hereinafter defined). Any such Notice of Disagreement shall state in
reasonable detail the nature of any disagreement so asserted and the amount
in dispute. During a period of ten (10) business days following the receipt
by the Purchaser of a Notice of Disagreement, the Seller and DSI and the
Purchaser shall attempt to resolve in writing any differences that they may
have with respect to any matter specified in the Notice of Disagreement. If
at the end of such ten (10) business-day period, the Seller, DSI and the
Purchaser have failed to reach written agreement with respect to all such
matters, then all such matters as specified in any Notice of Disagreement as
to which such written agreement has not been reached (the "Disputed
Matters") shall be submitted to and reviewed by an arbitrator
("Arbitrator"), which shall be an accounting firm which is a member of the
SEC Practice Section and the Private Companies Section of the Division of
Firms of the American Institute of Certified Public Accountants having an
office in Pennsylvania and having no other relationship with any party
hereto during the past five (5) years. The identity of the Arbitrator shall
be determined mutually by the independent public accountants of the Seller
and the Purchaser's independent public accountants; and if such accountants
cannot agree as to the selection of the Arbitrator, then each accounting
firm shall select one nominee and the parties shall choose the Arbitrator by
lot. The Arbitrator shall consider only the Disputed Matters and shall be
instructed to act promptly to resolve all Disputed Matters and its decision
shall be final and binding upon the Seller, DSI and the Purchaser. The fees
and expenses of the Arbitrator with respect to all Disputed Matters shall be
allocated between the Seller and the Purchaser in the same proportion that
the aggregate amount of all Disputed Matters is resolved by the Arbitrator
in favor of or against the Seller, DSI and the Purchaser. As used herein,
the term "Final Balance Sheet" shall refer to the Draft Final Balance Sheet
in the form in which it becomes final in accordance with the foregoing
procedures.
Within five (5) business days following the establishment of the Final
Balance Sheet, the Purchaser, if applicable, shall pay to DSI any additional
amounts owed based upon the Negative Amount as reflected therein. If the
Final Balance Sheet indicates that the Purchaser paid to DSI more than owed
to DSI under Section 1.4(b) above, DSI shall refund to the Purchaser the
amount of such overpayment within five (5) days after the establishment of
the Final Balance Sheet.
1.5. Liabilities Assumed by the Purchaser. Purchaser hereby,
effective as of the Closing, assumes and agrees to discharge, in accordance
with their terms, only (a) the trade accounts payable, accrued expenses,
notes payable and long-term debt and other liabilities of the Seller which
are reflected in the Initial Balance Sheet or in the Closing Date Balance
Sheet, (b) all future obligations and liabilities of Seller under the
Contracts, (c) all warranty obligations with respect to products sold by the
Business from and after the commencement of the term of the Management and
Administrative Services Agreement, dated as of September 8, 1997, by and
between the Purchaser and the Seller (the "Management Services Agreement"),
(d) up to $5,000 in warranty claims for products sold by the Business prior
to the commencement of the term of the Management Services Agreement, (e)
claims made by third-party purchasers of products from the Business for
periods prior to the commencement of the term of the Management Services
Agreement, up to a maximum of $5,000 and (f) additional liabilities, other
than Retained Liabilities (as hereinafter defined), in addition to those
described in (a) through (e) of this Section 1.5, in an amount not to exceed
the lesser of (i) $500,000 and (ii) the amount by which $3,000,000 exceeds
the Negative Amount. The liabilities of Seller which are assumed by
Purchaser as aforesaid are referred to herein as the "Assumed Liabilities".
The Assumed Liabilities specifically exclude, (i) any litigation or claims
arising out of or in connection with the Business (except for those arising
out of any efforts by the Seller to collect the Accounts) including the
warranty claims and third-party claims not expressly assumed by the
Purchaser as provided above; (ii) any litigation or claims arising out of or
in connection with this Agreement; (iii) any obligations arising under or in
connection with existing employment agreements or other arrangements between
the Seller or DSI and their respective employees, specifically including
those with John Bulman and James Hendricks, (iv) the consulting agreement by
and between the Seller and DSI and Target Capital Corporation; (v) any
liabilities arising out of the operation of the Business prior to the
Closing relating to violations of any federal, state or local laws or
regulations relating to environmental or occupational health and safety
matters; and (vi) any liabilities for federal, state and local taxes,
assessments, reassessments, governmental charges, penalties, interest and
fines relating to the Business arising or accruing prior to the date of the
Management Services Agreement. The Closing Date Balance Sheet shall be
prepared by the Purchaser in accordance with the Agreed Upon Procedures, and
a draft Closing Date Balance Sheet shall be delivered to the Seller and DSI
at least two (2) business days prior to the Closing Date. Other than the
Assumed Liabilities, Purchaser is not assuming and shall not otherwise
become liable for any debts, liabilities and obligations of Seller or the
Business, whether now asserted or unasserted, known or unknown, fixed or
contingent. All liabilities not assumed by the Purchaser in accordance with
this Section 1.5 are hereinafter referred to collectively as the "Retained
Liabilities".
ARTICLE II
Representations and Warranties of the Seller and DSI
The Seller and DSI hereby jointly and severally represent and warrant
to the Purchaser as follows:
2.1. Organization and Authority. Each of the Seller and DSI (a) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, (b) has full corporate power
and authority to own and lease its assets and to carry on its business as
and where such assets are now owned or leased and where such business is now
conducted and to be conducted to the Closing Date (as hereinafter defined),
and (c) is duly licensed or qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the
character of the property or assets now owned or leased by it or the nature
of the business now conducted by it require it to be so licensed and
qualified. Schedule 2.1(a) is a true and complete list of each jurisdiction
in which the Seller and DSI are qualified to do business as a foreign
corporation. The copy of the certificate of incorporation and by-laws of
the Seller, each of which is attached hereto as Schedule 2.1(b), and the
copy of the certificate of incorporation and by-laws of DSI, each of which
is attached hereto as Schedule 2.1(c), is complete and correct and there are
no dissolution, liquidation or bankruptcy proceedings pending, contemplated
by or, to the knowledge of the Seller or DSI, threatened against, either the
Seller or DSI.
2.2. Absence of Conflict. Neither the execution nor the delivery of
this Agreement by the Seller or DSI, the compliance by the Seller or DSI
with the terms and conditions of this Agreement nor the consummation by the
Seller or DSI of the transactions contemplated hereby will (a) conflict with
any of the terms, conditions and provisions of the certificate of
incorporation or by-laws of either the Seller or DSI; (b) violate any
provision of, or require any consent, authorization or approval under, any
law or administrative regulation or any judicial, administrative or
arbitration order, award, judgment, writ, injunction or decree applicable
to, or any governmental permit or license issued to, the Seller or DSI or
(c) conflict with, result in a breach of, constitute a default or event of
default under (whether by notice or the lapse of time, or both) or
accelerate or permit the acceleration of, the performance required by, or
require any consent, authorization or approval under, any indenture,
mortgage, lien, charge, agreement or instrument to which either the Seller
or DSI is a party or by the terms of which either the Seller or DSI or their
respective properties and assets may be bound.
2.3. Validity and Enforceability of Agreement. Each of the Seller
and DSI has the corporate power and authority to execute, deliver and,
subject to the approval of the stockholders of DSI, carry out the terms and
provisions of this Agreement in accordance with its terms. This Agreement
has been duly authorized, executed and delivered by each of the Seller and
DSI pursuant to action taken by the Boards of Directors of the Seller and
DSI and constitutes a valid and binding obligation of each of the Seller and
DSI enforceable in accordance with its terms.
2.4. Financial Statements. Except as set forth on Schedule 2.4(a)
attached hereto, since January 1, 1995, DSI has filed with the U.S.
Securities and Exchange Commission ("SEC") all material forms, statements,
reports and documents (including all exhibits, amendments and supplements
thereto) required to be filed by it under each of the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the respective rules and
regulations thereunder, all of which, as amended if applicable, complied in
all material respects with all applicable requirements of the appropriate
act and the rules and regulations thereunder. DSI has previously delivered
to the Purchaser copies of its (a) Annual Report on Form 10-K for the fiscal
years ended December 31, 1996 and December 31, 1995, as filed with the SEC,
(b) proxy and information statements relating to (i) all meetings of its
stockholders (whether annual or special) and (ii) actions by written consent
in lieu of a stockholders meeting from January 1, 1995 until the date
hereof, and (c) all other reports, including quarterly reports, or
registration statements filed by the Company with the SEC since January 1,
1995 (other than Registration Statements filed on Form S-8) and (the
documents referred to in clauses (a), (b) and (c) are collectively referred
to as the "SEC Reports"). Except as set forth in Schedule 2.4(a) attached
hereto, as of their respective dates, the SEC Reports did not contain any
untrue statement of a material fact or omit to state a materiel fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The audited consolidated financial statements and unaudited interim
consolidated financial statements of DSI included in such reports
(collectively, the "DSI Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes
thereto) and fairly present the financial position of DSI and its
subsidiaries, including the Seller, as of the dates thereof and the results
of their operations and changes in financial position for the periods then
ended, subject, in the case of the unaudited interim financial statements,
to normal year-end and audit adjustments and any other adjustments described
therein.
2.5. Assets. Except as listed on Schedule 2.5 ("Permitted Liens"),
Seller has, and shall have as of the Closing, good, valid and marketable
title to all of the Acquired Assets, free and clear of all liens,
encumbrances and claims of third parties. The Seller further represents and
warrants that there are no options, conditional rights or other agreements
or arrangements of any kind to purchase or acquire from the Seller any of
the Acquired Assets except purchase orders for Inventory received in the
ordinary course of business. Purchaser acknowledges that the equipment,
inventory and other tangible property which are included in the Acquired
Assets are being sold on an as-is where-is basis, AND THAT ALL WARRANTIES OF
MERCHANTABILITY AND FITNESS ARE EXPRESSLY EXCLUDED. No representation or
warranty is made hereunder regarding the applicability or effect of bulk
sales laws to this transaction.
2.6. Real Property. Schedule 2.6(a) contains a complete and correct
list and legal description of all real properties, buildings and structures
owned, leased or licensed, in whole or in part, by the Seller. All leases
for real property leased by or to the Seller are valid and enforceable (and
a correct and complete copy of each has been delivered to the Purchaser).
Such leases have not been amended or modified and neither the Seller, nor,
to the knowledge of the Seller or DSI, the other party or parties to such
leases are in default with respect thereto, nor has any event which, with
the passage of time or giving of notice, or both, could constitute such a
default occurred. The Seller owns no real property. The Seller has
enforceable leasehold interests in all real property and buildings used by
the Seller with respect to the Business.
2.7. Contracts. Other than as listed on Schedule 1.1(d) and purchase
and sales contracts entered into in the ordinary course of business, the
Seller is not a party to any written or, to the knowledge of Seller or DSI,
oral contract with respect to the Business. The Seller has performed all
material obligations required to be performed by it through the date hereof
under all of the agreements relating to the Business to which the Seller is
a party or pursuant to the terms of which the Seller may be bound. Each of
the other parties to the agreements to which the Seller is a party or
pursuant to the terms of which the Seller may be bound has, to the knowledge
of the Seller and DSI, in all material respects performed all the
obligations required to be performed by it thereunder. Neither the Seller
nor DSI received any written notice of the intention of any party to any
Contract to terminate any such Contract. Each such Contract is valid,
binding and enforceable in accordance with its terms and is in full force
and effect with no default, and no event has occurred which, with the
passage of time, or the giving of notice, or both, could constitute such a
default by the Seller, nor is there a dispute in existence with respect
thereto.
2.8. Customers and Suppliers. Neither the Seller nor DSI is aware
of any change, or threat of any change, in the relations of the Seller with
any sales agent, sales representative, sales distributor or salaried
employee of the Seller. Neither the Seller nor DSI has received any written
notice or, to the knowledge of the Seller, any other notice, of any material
dispute, of any kind, between the Seller and any of its significant
suppliers or any written notice of any material dispute between the Seller
and any of its significant customers and none of its significant suppliers
or significant customers has, either in writing or otherwise, advised the
Seller or DSI that it intends to cease its purchases from or sales to the
Seller. For purposes of this Section 2.8, "significant customers" and
"significant suppliers" shall mean the ten largest customers or suppliers
based on revenues from products sold to, or purchased from, the Seller.
2.9. Compliance with Laws. Except as set forth on Schedule 2.9, the
Seller is in compliance, in all material respects, with all foreign,
federal, state or local statutes, laws, regulations and orders including,
but not limited to, all health, labor, employment, environmental, fire,
safety, pollution, zoning and building laws and ordinances with respect to
the operation, ownership and affairs of the Business. The Seller has
received no written or, to the knowledge of the Seller or DSI, other notice
that the Acquired Assets do not comply, in any material respect, with all
applicable federal, state or local laws, regulations and standards, and
there are no judgments, orders, writs, notices, decrees or injunctions of
any court, governmental commission, regulatory body, department, board,
agency or instrumentality, domestic or foreign, presently in effect issued
against the Seller with respect to the Business or the products or services
of the Business, including any such orders or notice relating to
environmental or occupational health or safety matters.
2.10. Governmental Licenses and Permits. Schedule 2.10(a) hereto
specifically identifies all licenses, permits and variances, including those
relating to environmental matters (collectively, the "Permits") from any
federal, state, local or municipal authority (each a "Governmental
Authority" and collectively, "Governmental Authorities") relating in whole
or in part, or directly or indirectly, to the Business of the Seller, to
which the Seller is a party or pursuant to the terms of which the Seller or
its properties and assets may be bound. The Seller possesses all Permits
necessary in accordance with applicable law with respect to the Business.
All of the Permits are in full force and effect, the Seller is not is in
violation of any of the Permits and no proceeding is pending or, to the
knowledge of the Seller or DSI, threatened, to revoke or limit in any way
any such Permit. Except as set forth in Schedule 2.10(b), the consummation
of the transaction contemplated hereby will not result in a violation or
termination of any of the Permits.
2.11. Insurance. The Seller has provided the Purchaser with true,
complete and correct copies of all non-employee benefit related insurance
policies or fidelity or surety bonds maintained by or on behalf of the
Seller with respect to the Business. Except as set forth on Schedule 2.11,
all such insurance policies are in full force and effect and will remain in
effect to the Closing (as hereinafter defined), and no written or other
notification of cancellation or non-renewal of any such insurance policies
has been received.
2.12 Patents and Trademarks. The Seller does not own any patents,
patent applications, trademarks, service marks, tradenames, copy-rights,
know-how or trade secrets, applications for registration thereof, licenses
or rights, and no such rights are necessary to the present conduct of the
Business. To the knowledge of the Seller and DSI, the Business is being
carried on without conflict with trade secrets, registered patents, patent
applications, licenses, trademarks, service marks, copyrights, business
names or tradenames of others. There is no claim or, to the knowledge of
the Seller or DSI, threatened claim alleging any violation by the Seller in
the course of conducting the Business of any trade secret or secrets of
others, nor has the Seller misappropriated trade secrets of any other person
or entity in connection with or in any way related to the Business. No
employee of the Seller is obligated pursuant to the terms of any contract,
agreement or understanding or subject to any other obligation, judgment,
decree or order of any court or administrative agency that would interfere
with the use of the technology included in the current products and
processes of the Seller or the Business. No employee of the Business has
executed a proprietary information, secrecy, non-disclosure, confidentiality
or like agreement with the Seller.
2.13. Employees. Schedule 2.13(a) is a list of all employment,
compensation (including any "golden parachute," severance or similar
agreements), confidentiality, non-competition, assignment of invention and
consulting agreements or arrangements currently in effect by and between the
Seller and any person who is now employed or engaged by the Seller, whether
written or oral, and a list of each current employee of the Seller. The
Seller is not in default with respect to any obligation to any of its
employees, including but not limited to those under the instruments or
arrangements noted on Schedule 2.13(a), and the Seller has no outstanding
commitment or agreement to effect any general wage or salary increase or
bonus or any increase in fringe benefits for any of its employees. The
Seller has not made any agreement or arrangement with, or promise to, any
director, officer, employee or shareholder of the Seller regarding future
compensation or payments or fringe benefits of any kind except as
specifically noted on Schedule 2.13(a).
2.14. Litigation and Claims. Other than as set forth on Schedule
2.14(a), there has not been, at any time in the two (2) year period ending
on the date hereof, and is not now, any action, suit, claim, proceeding,
investigation, order, ruling, judgment, notice or decree in any court or by,
or before, any Governmental Authority or before any arbitrator, or
otherwise, of any kind, pending or, to the knowledge of Seller or DSI,
threatened against the Seller or to which the Seller is a party or by which
the Acquired Assets are bound.
2.15. INTENTIONALLY OMITTED
2.16. Taxes. Other than as set forth on Schedule 2.16(a), all
required federal, state and local tax returns of the Seller required to have
been completed and filed for all taxable years up to and including December
31, 1996, have been filed and all payments shown thereon to be due and all
assessments, reassessments, governmental charges, penalties, interest and
fines due and payable have been timely paid. The federal, state and local
tax returns filed by the Seller accurately reflect the income, credits,
deductions and losses of the Seller with respect to which such filing was
made. The Seller has paid, or fully reserved for payment on its books and
records, all required property, sales, excise and ad valorem taxes owed for,
or attributable to, all periods prior to, the date hereof.
With respect to the Business, other than as set forth on Schedule
2.16(b): (i) there is no (nor has there been any request for) agreement,
waiver or consent providing for an extension of time with regard to the
assessment of any tax, levy or impost with respect to the Seller and no
power of attorney granted by the Seller with respect to any tax matters;
(ii) there is no investigation, audit, claim, demand, deficiency, or
additional assessment pending or, to the knowledge of Seller or DSI,
threatened against, or with respect to, any tax, duty, levy or impost nor is
there any factual or legal basis therefore; and (iii) the Seller is not a
party to, is not bound by, or has no obligation under any tax sharing, tax
indemnity or similar agreement.
2.17. Customer Lists. Except as set forth on Schedule 2.17, the
Seller has the right to use, free and clear of any claims or rights of
others, all of the customer and mailing lists owned or used by the Seller.
2.18. Brokers or Finders. The Seller is not obligated, directly or
indirectly, to any person for investment banking, brokerage or finders'
fees, agents' commissions or any similar charges in connection with this
Agreement or the transaction contemplated hereby.
2.19. Transactions with Affiliates. Schedule 2.19 includes a list of
all outstanding loans made by the Seller to any employee of the Business.
2.20. Company Products. Except as set forth on Schedule 2.20, there
are no statements, citations or decisions issued by any Governmental
Authority within the past five (5) years that any product manufactured,
marketed or distributed by the Business (a "Company Product") is, in whole
or in part, defective or fails to meet any standard promulgated by any such
Governmental Authority or Underwriters' Laboratories, Inc.
2.21. Books and Records. The books and records of the Business
accurately reflect, in all material respects, the business, operations and
affairs of the Business, including but not limited to the accurate and
timely reflection thereon of any and all material transactions between the
Seller and any of its shareholders, officers, directors or affiliates,
including DSI.
2.22. Employee Benefit Plans. Schedule 2.22(a) is a true and
complete list of all pension, retirement, disability, medical, dental or
other health, life insurance or death benefit, profit sharing, deferred
compensation, vacation, sick, holiday or other paid leave, severance and
fringe benefit plans or arrangements (the "Plans") maintained, or
contributed to, by the Seller with respect to past or present employees of
the Seller or an ERISA Affiliate (as hereinafter defined) or their
dependents or other affiliated parties, including but not limited to any
"employee benefit plans" (as defined in Section 3(3) of ERISA), welfare
plans and pension plans (as defined in Sections 3(1) and 3(2), respectively,
of ERISA) employment contracts which are maintained by the Seller or an
ERISA Affiliate (as hereinafter defined) in respect of, or which otherwise
cover, any current or former employees of the Seller and any eligible
beneficiaries and contingent beneficiaries of said current and former
employees. For purposes of this Agreement, an "ERISA Affiliate" means each
trade or business (whether or not incorporated) which, together with the
Seller would be treated as a single employer under Sections 4001(b)(l) or
4001 (a)(14) of ERISA or Sections 414 (b), (c), (m), (n) or (o) of the
Internal Revenue Code of 1986, as amended (the "Code").
2.23. Compliance with Various Laws. Except as set forth on Schedule
2.23(a), each of the Plans and any related trust agreement, annuity
contract, insurance contract or funding instrument, is currently, and has
been in the past, in compliance in all material respects with all applicable
laws, orders, notices, rules and regulations including, but not limited to,
ERISA and the Code. Each of the Plans which is an "employee benefit pension
plan," as defined in Section 3(2) of ERISA, and which is intended to be a
qualified plan under Code Section 401(a), and any related trust called for
under the Code which is intended to be exempt from tax under Code Section
501(a), has been issued a favorable determination letter by the Internal
Revenue Service of the Department of the Treasury (the "Service") and no
event has occurred or condition exists which could adversely affect such
determination letter, except as otherwise set forth on Schedule 2.23(a).
Except as set forth on Schedule 2.23(b), all material reports, notices,
descriptions and applications relating to the Plans required by any law,
ordinance, rule, regulation or government agency have been timely filed
and/or distributed as required thereby. Except as set forth on Schedule
2.23(c), all contributions required to be made by the Plans on or before the
date hereof have been, and all contributions required to be made before the
Closing, with respect to such Plans under the terms of such plans, ERISA,
the Code or by contract or other applicable law and all insurance premiums
will be timely paid. Except as set forth in Schedule 2.23(c), there are no
claims for benefits under any employee benefit plan, nor will there be, as
of the Closing, any such claim other than to the extent either funded under
a related trust, annuity contract, insurance contract or funding instrument
or fully and completely reserved against on: (i) the books and records of
the Seller at the close of business on the business day next preceding the
Closing; or (ii) the Initial Balance Sheet. With respect to each of the
Plans, neither the Seller, nor, to the knowledge of the Seller and DSI, any
Plan fiduciary, has engaged in any material transaction in violation of
Section 406(a) or (b) of ERISA (for which no exemption exists) or any
"prohibited transaction" as defined in Section 4975(c)(1) of the Code (for
which no exemption exists). Neither the Seller nor DSI has any knowledge of
any pending or threatened claims or lawsuits with respect to any of the
Plans.
2.24. Excise Tax Liability. Neither the Seller nor any of its ERISA
Affiliates has any excise tax liability under Code Sections 4971, 4972,
4976, 4979 or 4980B, and neither the Seller nor DSI is aware of any
circumstances which would give rise to such excise tax liability.
2.25 Certain Exclusions. Purchaser has made due diligence
investigations in respect of Seller's Assets and Purchaser is concurrently
herewith entering into the Management Services Agreement to manage the
Business. No representation or warranty is made hereunder as to any matter
on which Purchaser has actual knowledge. Except as set forth in Section 4.3,
Seller shall have no liability in respect of representations or warranties
made under this Agreement, it being understood that the sole consequence of
any misrepresentation or breach of warranty shall be the resulting right of
Purchaser, in accordance with the provisions of Section 9.16, not to close
the transactions contemplated hereby. In no event shall any fact or
circumstance which arises from any act or omission by Purchaser ,under the
Management Services Agreement or otherwise, constitute a breach of a
representation or warranty hereunder. Seller makes no representation or
warranty whatsoever except as expressly set forth in this Agreement. Seller
shall be deemed to have "knowledge" only of matters known to Mark Hanson or
John Bulman.
ARTICLE III
Representations and Warranties of the Purchaser.
The Purchaser and Genco hereby jointly and severally warrant to the
Seller as follows:
3.1. Organization and Authority. Each of Genco and Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. The copy of the articles of
incorporation, and by-laws of each of Purchaser and Genco attached hereto as
Schedule 3.1 is complete and correct, and there are no dissolution,
liquidation or bankruptcy proceedings pending, contemplated by or threatened
against the Purchaser or Genco.
3.2. Absence of Conflict. Neither the execution nor delivery by the
Purchaser or Genco, the compliance by the Purchaser or Genco with the terms
and conditions of this Agreement nor the consummation by the Purchaser or
Genco of the transactions contemplated hereby will (i) conflict with any of
the terms, conditions or provisions of the articles of incorporation, like
constituent instruments, regulations or other constituent instruments of the
Purchaser or Genco, (ii) violate any provision of, or require, other than as
set forth on Schedule 3.2, any consent, authorization or approval under any
law or administrative regulation or any judicial, administrative or
arbitration order, award, judgment, writ, injunction or decree applicable
to, or any governmental permit or license issued to, the Purchaser or Genco
or (iii) conflict with, result in a breach of, constitute a default or event
of default under (whether by notice or lapse of time, or both) or
accelerate, or permit the acceleration of, the performance required by, or
require any consent, authorization or approval under, any indenture,
mortgage, lien, lease, agreement or instrument to which the Purchaser or
Genco is a party or by which the Purchaser or Genco may be bound.
3.3. Power and Authority. Each of the Purchaser and Genco has the
power to execute, deliver and carry out the terms and provisions of this
Agreement in accordance with its terms. This Agreement has been duly
authorized, executed and delivered by the Purchaser and Genco and
constitutes a valid and binding obligation of the Purchaser and Genco
enforceable in accordance with its terms.
3.4. Sufficient Funds. The Purchaser has, and will have as of the
Closing (as hereinafter defined), the financial capability to purchase the
Acquired Assets and satisfy the Assumed Liabilities on the terms and
conditions contained in this Agreement. The financial information regarding
the Purchaser and Genco heretofore provided to the Seller or DSI accurately
reflects, in all material respects, the financial condition of the
Purchaser.
3.5. Brokers or Finders. The Purchaser is not obligated, directly or
indirectly, to any person for investment banking, brokerage or finders'
fees, agents' commissions or any similar charges in connection with the
Agreement or the transactions contemplated hereby.
3.6. Certain Exclusions. Seller and DSI made due diligence
investigations in respect of Purchaser and Seller is concurrently herewith
entering into the Management Services Agreement to engage Purchaser to
manage the Business. No representation or warranty is made hereunder as to
any matter on which Seller or DSI has actual knowledge. Except as set forth
in Section 4.3, Purchaser shall have no liability in respect of
representations or warranties made under this Agreement, it being understood
that the sole consequence of any misrepresentation or breach of warranty
shall be the resulting right of Seller and DSI, in accordance with the
provisions of Section 9.16, not to close the transactions contemplated
hereby. In no event shall any fact or circumstance which arises from any
act or omission by Seller or DSI ,under the Management Services Agreement or
otherwise, constitute a breach of a representation or warranty hereunder.
Purchaser makes no representation or warranty whatsoever except as expressly
set forth in this Agreement. Purchaser shall be deemed to have "knowledge"
only of matters known to Herbert S. Shear or Larry Schoeneberger.
ARTICLE IV
Covenants of the Seller and DSI
The Seller and DSI hereby jointly and severally covenant and agree as
follows:
4.1. Confidentiality. From and after the date hereof and until the
termination of this Agreement pursuant to Section 9.16 hereof, the Seller
and DSI will hold in confidence, and will cause all of its affiliates to
hold in confidence, all knowledge or information of a confidential nature
which is related to the Business (including, but not limited to, customer
lists and intellectual property rights) and not disclose, publish or use the
same provided, however, that the foregoing restrictions shall not apply to
any portion of the foregoing which (a) becomes generally available to the
public, in any manner or form, through no fault, action or omission of the
Seller or DSI, (b) is independently developed by the Seller or DSI if they
previously had not had any access to the foregoing knowledge or information,
(c) is released for disclosure, with Purchaser's express prior written
consent, (d) is required to be disclosed by a Governmental Authority or
otherwise required by law or in order to establish rights under this
Agreement or any other agreements referred to herein or (e) is necessary to
be disclosed in order to comply with applicable law. In the event of any
such disclosure, the Seller and DSI shall furnish to the Purchaser as much
advance notice with respect thereto as is reasonably possible in order that
the Purchaser may seek a protective order with respect to disclosure or take
such other and further action as may, in the opinion of the Purchaser, be
considered by the Purchaser to be desirable in order to preclude or limit
disclosure thereof.
4.2. Non-Competition.
(a) From and after the Closing (as hereinafter defined), and for the
next succeeding five (5) years (the "Restricted Period"), neither Seller nor
DSI, nor any subsidiary or affiliate of the Seller or DSI, shall, directly
or indirectly, or in whole or in part, (i) engage in the business of
computer refurbishment and distribution or computer return management in
North America, South America and Western Europe (the "Competitive Activity")
or (ii) become interested in any person engaged in such Competitive Activity
in any capacity including, but not limited to, as a partner, shareholder,
principal, agent, representative, supplier, trustee, employee or consultant;
provided, however, that the foregoing shall not prohibit either the Seller
or DSI or any subsidiary or affiliate thereof from owning up to 2% of the
issued and outstanding capital stock of any corporation whose shares are
listed for trading on the, the New York Stock Exchange, the American Stock
Exchange, NASDAQ National Market or other publicly recognized stock
exchange.
(b) From and after the Closing, until the third anniversary thereof,
neither Seller nor DSI shall, without the express prior written consent of
the Purchaser, directly or indirectly, hire or employ or engage as
independent contractor any present employee of the Seller or DSI, with
respect to the Business, or directly or indirectly hire or encourage, in any
way, any employee of the Purchaser or the Business hired by the Purchaser to
leave such employment.
From and after the date of this Agreement until the earlier to occur
of the Closing or the 180th day after the termination of this Agreement,
neither Purchaser nor Genco nor any of their affiliates will directly or
indirectly (i) disclose or use any confidential or proprietary information
regarding Buyers of the products and services offered by the Business, or
(ii) conduct any business whatsoever with any Buyer or (iii) hire or
otherwise retain any person who was at any time during the one-year period
preceding the date of this Agreement an employee or consultant to Seller;
provided, however, that this clause (iii) shall be void and have no further
effect in the event of a termination of this Agreement pursuant to the
second paragraph of Section 9.16(c) hereof. Except as provided in this
paragraph, GMC and its affiliates shall have no other obligations to
Datatrend with respect to confidentiality and non-competition.
(c) The parties hereto acknowledge that any breach or threatened
breach of any of the covenants contained herein would cause irreparable harm
to the aggrieved party and that money damages would not, alone, provide an
adequate remedy to the aggrieved party. The aggrieved party shall have all
of the rights and remedies available under law, or in equity, to a party
enforcing any such covenants, each of such rights and remedies to be
independent of the other and severally enforceable including, but not
limited to, the right to have such covenants enforced by any court of
competent jurisdiction including, but not limited to, through temporary
injunctive relief, temporary restraining order and/or permanent injunctive
relief, all without requirement for the posting or provision of any bond or
other security, which requirements are hereby expressly waived by the Seller
and DSI. No violating party, nor any affiliate or subsidiary thereof, shall
raise as a defense to the granting of any such relief that the person
requesting any such relief has an adequate remedy at law.
(d) Each of the parties hereto acknowledges and agrees that the
covenants set forth herein are reasonable in duration and scope and in all
other respects. If any court determines that any such covenants, or any
part thereof, are invalid or unenforceable, the remaining covenants shall
not thereby be affected and they shall be given full effect, without regard
to the invalid portions. If any court determines that all or any part of
the covenants contained herein are unenforceable because of the duration or
scope of such provision, such court is requested to reduce the duration or
scope of such provision, as the case may be, so that, in its reduced form,
such provisions shall then be enforceable.
(e) The parties hereto intend to and do hereby confer jurisdiction to
enforce the covenants contained herein upon the courts of any jurisdiction
within the United States. If the courts of any one or more of such
jurisdictions hold such covenants unenforceable by reason of the breadth of
their scope, or otherwise, it is the intention of the parties that such
determination not preclude, or in any way affect, the right of the Purchaser
to the relief provided above in the courts of any other jurisdiction within
the United States as to breaches of such covenant in such other respective
jurisdictions, such covenants as they relate to each jurisdiction being, for
this purpose, severable and independent covenants.
4.3. Indemnification of the Purchaser. From and after the Closing
(as hereinafter defined), the Seller and DSI shall jointly and severally
indemnify, defend and hold harmless the Purchaser, and its affiliates,
officers, directors, agents, representatives and employees (hereinafter
collectively referred to as the "Purchaser Indemnified Parties"), from and
against any and all liabilities, loss, cost, damage, expense, fines or
penalties (including, but not limited to, the reasonable fees, costs and
expenses of counsel incurred by the Purchaser with respect to the
investigation of any breaches of warranties, representations or covenants of
the Seller or DSI or of any Retained Liabilities) arising, in whole or in
part, out of (i) any misrepresentation or breach of any representation or
warranty of the Seller or DSI under Section 2.3, the first sentence of
Section 2.5, and Section 2.16, (ii) the failure of the Seller or DSI to
comply with any of the covenants or agreements of the Seller or DSI
contained herein, (iii) the benefit plans and other benefits of employees of
the Seller or DSI up to and including the Closing Date (as hereinafter
defined) and (iv) any Retained Liabilities (each a "Loss").
4.4. Accounts Receivable. Except for receivables which are not
included in the Acquired Assets, from and after the Closing (as hereinafter
defined), the Seller does hereby agree to remit, or cause to be remitted,
free and clear of any liens, claims, charges or encumbrances, of whatever
nature, to the Purchaser, or as may be directed by the Purchaser, any and
all payments received by or on behalf of the Seller with respect to products
or services of the Business which were sold or rendered prior to the Closing
(as hereinafter defined), within five (5) days of receipt thereof by the
Seller, or any financial or other intermediary by or on behalf of the
Seller. Any such sum not so received by the Purchaser within five (5) days
of receipt therein by the Seller shall bear interest, until so received by
the Purchaser, from and after such fifth day after receipt by the Seller, at
the prime rate as may be announced from time to time by National City Bank
(the "Prime Rate"), plus three percent (3%). The foregoing provision shall
not apply to the Returned Assets (as hereinafter defined).
If, within thirty (30) days following the Closing, the Purchaser has
been unable to liquidate certain of the Acquired Assets (consisting only of
Accounts or Inventory) by such date and does not wish to take any further
action to liquidate, the Purchaser shall notify the Seller in writing and
shall assign and transfer such assets back to the Seller (the "Returned
Assets"). The Purchaser shall thereafter have no further right, title or
interest in and to the Returned Assets or the proceeds thereof, all of which
shall belong exclusively to the Seller.
4.5. Permits. The Seller, prior to the Closing, will complete the
appropriate applications for transfer of the Permits which are transferable
and to take any other action which may be necessary or appropriate or which
may be reasonably requested by the Purchaser to effect, prior to the Closing
(as hereinafter defined), the transfer of the Permits and the Environmental
Permits. The foregoing provisions
4.6. Change of Name. Immediately following the Closing (as
hereinafter defined) the Seller shall change its name to a name not similar
in any way to Datatrend and shall thereupon promptly advise, the Purchaser
in writing that the same has been accomplished and provide a copy of all
significant documentation with respect thereto to the Purchaser.
4.7. Vesting in Datatrend Pension Benefit Plans. Each employee of
Datatrend shall be fully vested in his or her accrued benefit under each of
the Plans listed on Schedule 2.28(a) which is an employee pension benefit
plan, within the meaning of Section 3(2) of ERISA, upon the Closing Date and
the Seller shall amend each such pension benefit plan as necessary to vest
such employees as of the Closing Date.
4.8. Operation of Business Prior to the Closing Date. From and after
the date of the Agreement and until the Closing (as hereinafter defined) the
Seller shall, absent the express prior written consent of the Purchaser, (i)
not pay any dividend or other distribution of any kind, whether directly or
indirectly, to its stockholder;(ii) maintain insurance against loss to the
properties and assets of and such other insurance with respect to their
properties and assets as has heretofore been maintained; (iii) not permit
the Business to sell (other than sales in the ordinary course of business
consistent with this Agreement), dispose of or encumber or enter into any
agreement for the sale, disposition or encumbrance of all, or any part of,
the properties or assets of the Business, except for the Permitted Liens;
(iv) not to enter into any employment contract or increase any employees
compensation other than in accordance with the terms of this Agreement; (v)
not acquire or agree to acquire by merging or consolidation with, or by
purchasing any substantial portion of the assets of, or by any other manner,
any business or corporation, partnership, association, or other business
organization or division thereof or otherwise acquire or agree to acquire
any assets other than in the ordinary course of business consistent with
past practice and the Agreement; (vi) comply with all foreign, federal,
state, and local laws, ordinances, rules, regulations and orders applicable
to the Business and to the conduct of its business; (vii) immediately advise
the Purchaser, in writing, of the threat or commencement of any dispute,
claim, action, suit, proceeding, arbitration or governmental investigation
against the Seller; (viii) not enter into any new real property leases or
extend existing real property leases, except on a month-to-month basis; (iv)
seek to continue to maintain existing business relationships with suppliers
and customers to the extent that such relationships are beneficial to the
Business; (v) keep its books of account, records and files in the ordinary
course and in accordance with existing practices; and (vi) not commit itself
to take, or omit to take, any action volatile, directly or indirectly, or in
whole or in part, of this Agreement.
4.9. Best Efforts. The Seller and DSI shall use their best efforts
to satisfy the conditions precedent contained in Sections 7.1 and 7.2. In
addition, the Seller shall use their reasonable best efforts to cooperate in
promptly providing to the Purchaser information reasonably requested by the
Purchaser in connection with its due diligence inquiries and in preparing
the Proxy Statement (as hereinafter defined).
4.10 Insurance. From and after the Closing, Seller and DSI shall
maintain directors and officers liability insurance for the benefit of Mark
A. Hanson, upon such terms and in such amounts as were in effect immediately
prior to the Closing until the first anniversary of the Closing.
ARTICLE V
Covenants of the Purchaser and Genco
The Purchaser and Genco jointly and severally covenant and agree as
follows:
5.1. Best Efforts. The Purchaser and Genco shall use its reasonable
best efforts to satisfy the conditions precedent contained in Section 6.4.
In addition, each of the Purchaser and Genco shall use its reasonable best
efforts to cooperate in promptly providing to the Seller information
requested by the Seller for the purpose of preparing the Proxy Statement (as
hereinafter defined).
ARTICLE VI
Additional Agreements
Section 6.1. Access to Information.
(a) The Seller and DSI shall afford to the Purchaser and its
accountants, counsel, financial advisors and other representatives (the
"Purchaser Representatives"), full access during normal business hours
throughout the period prior to the Closing to all of their respective
properties, books, contracts, commitments and records (including, but not
limited to), and, during such period, shall furnish promptly to the
Purchaser and the Purchaser Representatives: (i) a copy of each report,
schedule and other document filed or received by any of them with the SEC in
connection with the transactions contemplated by this Agreement or which may
have a material effect on their respective businesses, properties or
personnel; and (ii) such other information concerning their respective
businesses, properties and personnel as the Purchaser or the Purchaser
Representatives, shall reasonably request; provided that no investigation
pursuant to this Section 6.1 shall amend or modify any representations or
warranties made herein or the conditions to the obligations of the
respective parties to consummate the transactions contemplated hereby.
(b) The Seller and DSI shall promptly advise the Purchaser in writing
of any change or the occurrence of any event after the date of this
Agreement having, or which, insofar as can reasonably be foreseen, in the
future may have, any material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of the Seller or DSI.
Section 6.2. Proxy Statement. The parties acknowledge and agree that
this Agreement and the transactions contemplated hereby shall be submitted
to the stockholders of DSI for their approval as provided in Section 6.3 of
this Agreement. In connection with the solicitation of proxies from DSI's
stockholders for such approval, DSI shall prepare and file with the SEC as
soon as is reasonably practicable after the date hereof (and in no event
later than September 30, 1997), a proxy statement prepared in accordance
with Section 14(a) of the Exchange Act and Regulation 14A thereunder (the
"Proxy Statement"). DSI shall provide the Purchaser with the opportunity to
review and comment upon those sections of the Proxy Statement that pertain
to the Purchaser or the transactions contemplated by this Agreement before
it is filed with the SEC. The information provided and to be provided by
DSI and the Seller for use in the Proxy Statement shall be true and correct
in all material respects without omission of any material fact which is
required to make such information not false or misleading as of the date
thereof and in light of the circumstances under which given or made. Prior
to the date of approval of the transactions contemplated hereby by the
stockholders of DSI, each of DSI and the Seller shall correct promptly any
information provided by it to be used specifically in the Proxy Statement
that shall have become false or misleading in any material respect and shall
take all steps necessary to file with the SEC and have cleared by the SEC
any amendment or supplement to the Proxy Statement so as to correct the same
and to cause the Proxy Statement as so corrected to be disseminated to the
stockholders of DSI to the extent required by applicable law.
Section 6.3. Stockholders' Approval. DSI shall, as promptly as
practicable, submit this Agreement and the transactions contemplated hereby
for the approval of its stockholders at a meeting of stockholders and,
subject to the fiduciary duties of the Board of Directors of DSI under
applicable law, shall use its reasonable best efforts to obtain stockholder
approval and adoption (the "DSI Stockholders' Approval") of this Agreement
and the transactions contemplated hereby. Such meeting of stockholders
shall be held as soon as permissible following the date upon which the Proxy
Statement has been cleared by the SEC and the definitive Proxy Statement has
been filed with the SEC in accordance with Regulation 14A promulgated by the
SEC under the Exchange Act. Subject to the fiduciary duties of the Board of
Directors of the Company under applicable law, DSI shall, through its Board
of Directors, recommend to its stockholders approval of the transactions
contemplated by this Agreement. DSI (i) acknowledges that a breach of its
covenant contained in this Section 6.3(a) to use its best efforts to convene
a meeting of its stockholders and call for a vote thereat with respect to
the approval of this Agreement and the transactions contemplated hereby will
result in irreparable harm to the Purchaser which will not be compensable in
money damages and (ii) agrees that such covenant shall be specifically
enforceable and that specific performance and injunctive relief shall be a
remedy properly available to the Purchaser for a breach of such covenant.
Section 6.4. Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto shall use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement, including
using its reasonable efforts to obtain all necessary or appropriate waivers,
consents and approvals to effect all necessary registrations, filings and
submissions, and to lift any injunction or other legal bar to the
transactions contemplated hereby (and, in such case, to proceed with such
transactions as expeditiously as possible); subject, however, to the
requisite vote of the stockholders of DSI. Reference is made to Section 9.3
for certain limitations on the operation of this Section.
(b) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, each party
shall have the right, at its own expense, to participate therein, and no
other party will settle any such litigation without the consent of each
party hereto, which consent will not be unreasonably withheld.
Section 6.5. Public Statements. The parties shall consult with each
other prior to issuing any press release or any written public statement
with respect to this Agreement or the transactions contemplated hereby and
shall not issue any such press release or written public statement prior to
such consultation; however, DSI shall be permitted to issue such public
statements as are required by applicable laws, including, but not limited
to, a report on Form 8-K, and shall promptly furnish to the Purchaser a copy
of any such public statements.
Section 6.6. Notification of Certain Matters. Each of the Seller,
DSI and the Purchaser agrees to give prompt notice to each other of, and to
use their respective reasonable best efforts to prevent or promptly remedy:
(i) the occurrence or failure to occur, or the impending or threatened
occurrence or failure to occur, of any event that would be likely to cause
any of its representations or warranties in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing Date; and (ii) any material failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 6.6 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
ARTICLE VII
Conditions of Closing
The respective obligations set forth herein of the Seller and the
Purchaser to consummate the transactions contemplated hereby shall be
subject to the fulfillment, on or before the Closing Date (as hereinafter
defined), in the case of the obligations of the Purchaser, of the conditions
set forth in Sections 7.1 and 7.2 and, in the case of the obligations of the
Seller, of the conditions set forth in Sections 7.1 and 7.3.
7.1. Conditions to Obligation of Seller and Purchaser.
(a) No Orders. There shall be in force no order or decree
restraining, enjoining, prohibiting, invalidating or otherwise preventing
the consummation of the transactions contemplated by this Agreement.
(b) No Litigation. There shall not be instituted or pending any
action, proceeding, investigation, application or counterclaim by or before
any Governmental Authority or any court: (i) challenging or seeking to make
illegal, delay or otherwise directly or indirectly restrain or prohibit the
Purchaser's acquisition of all, or any portion of, the Acquired Assets; or
(ii) seeking to prohibit or limit the ownership or operation by the
Purchaser of any portion of the business or assets of the Seller comprising
the Acquired Assets.
(c) Consents and Approvals. Any and all consents, orders, permits,
licenses, qualifications, authorizations or approvals from any and all
Governmental Authorities and any other third parties required for the
consummation of the transactions pursuant to this Agreement shall have been
duly obtained.
(d) DSI Stockholders' Approval. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the requisite
vote of the stockholders of DSI under applicable law.
7.2. Condition to Obligations of the Purchaser.
(a) Representations and Warranties of the Seller and DSI; Performance
of Covenants. The representations and warranties of the Seller and DSI
shall be true and correct in all material respects when made and as of the
Closing (as hereinafter defined) with the same force and effect as though
made at and as of such date. The Seller and DSI shall have complied in all
material respects with all covenants and conditions contained herein
required to be performed or complied with by the Seller and DSI at or before
the Closing (as hereinafter defined).
(b) Opinion of Counsel for the Seller and DSI. Purchaser shall have
received
from counsel to the Seller and DSI, an opinion, dated the Closing Date (as
hereinafter defined), in the form attached hereto as Exhibit 1 hereto.
(c) Permits, Consents. Any and all consents by Governmental
Authorities
or third parties that are required for the consummation of the transactions
contemplated hereby will have been obtained, in form reasonably satisfactory
to the Purchaser.
(d) Title. On the Closing Date (as hereinafter defined) the
Purchaser shall receive evidence satisfactory to the Purchaser that the
Acquired Assets are free and clear of any and all Liens, (except for
Permitted Liens).
(e) Settlement of Accounts. Purchaser shall have received evidence
or assurance satisfactory to Purchaser, in its sole discretion, of the
settlement or compromise of those accounts payable of Seller set forth on
Schedule 7.2 hereto.
(f) Employment Agreement. The Seller and Mark A. Hanson shall have
terminated the employment agreement, dated as of January 30, 1995, by and
between the Seller and Mr. Hanson, and the Seller and DSI shall have
released Mr. Hanson from all obligations under said agreement, including
specifically those provided in Section 5 of the employment agreement,
pursuant to a release satisfactory in form and substance to the Purchaser
(the "Hanson Release"). Purchaser and Mark A. Hanson hereby agree at the
Closing to execute and deliver an employment agreement in form satisfactory
to the Purchaser ("Employment Agreement"), which shall provide, among other
things, for the purchase by the Purchaser from Mr. Hanson of the shares of
common stock of DSI owned by Mr. Hanson at the time of the Closing.
Purchaser hereby agrees to contribute such shares of DSI common stock to DSI
immediately following the Closing.
7.3. Conditions to Obligations of the Seller and DSI.
(a) Representations and Warranties of the Purchaser; Performance of
Covenants. The representations and warranties of the Purchaser contained
herein shall be true and correct in all material respects when made and as
of the Closing Date (as hereinafter defined) with the same force and effect
as though made at and as of such time. The Purchaser shall have complied in
all material respects with all covenants and conditions contained herein
required to be performed or complied with by the Purchaser at or before the
Closing Date (as hereinafter defined).
(b) Opinion of Counsel for the Purchaser. The Seller and DSI shall
have received from Thorp Reed & Armstrong, counsel for the Purchaser, an
opinion, dated the Closing Date (as hereinafter defined), in the form
attached hereto as Exhibit 2.
7.4. Permits, Consents, etc. Any and all consents relating to
agreements and the transactions contemplated hereby and required to be
obtained by the Seller or DSI on or before the Closing Date (as hereinafter
defined), pursuant to this Agreement shall have been duly obtained, in form
reasonably satisfactory to the Purchaser.
7.5 Fairness Opinion. Seller shall have received the opinion of its
investment banker that the transaction contemplated hereby is fair to the
shareholders of DSI.
ARTICLE VIII
The Closing
The Closing shall be held at the offices of Thorp Reed & Armstrong,
One Riverfront Center, Pittsburgh, Pennsylvania 15222, as soon as is
possible after the satisfaction of all conditions precedent or at such other
time or place as may be reasonably agreed upon by the Purchaser, the Seller
and DSI (herein referred to as the "Closing" or the "Closing Date").
8.1. Documents to be delivered by the Seller and DSI. In addition to,
and without limiting any of the other provisions of this Agreement, the
Seller agrees to deliver to the Purchaser at the Closing:
(a) the opinion of counsel consistent with Section 7.2(b) hereof;
(b) a bill of sale in the form attached hereto as Exhibit 3 and such
and other instruments of conveyance as are, in the opinion of counsel for
the Purchaser, necessary and desirable in order to effect transfer of the
Acquired Assets to Purchaser;
(c) a certificate, dated the Closing Date, certifying to the
fulfillment of the conditions set forth in Section 7.2(a), signed by the
President and Secretary of each of the Seller and DSI in the form attached
hereto as Exhibit 4.
(d) all governmental, administrative or regulatory consents and
approvals required pursuant to the terms hereof;
(e) the Hanson Release; and
(f) such other consents, approvals, agreements, certificates and
documents as the Purchaser or its counsel may reasonably request.
8.2. Documents to be delivered by the Purchaser. In addition to, and
without limiting any of the other provisions of the Agreement, the Purchaser
agrees to deliver to the Seller and to take the following action at the
Closing:
(a) opinion of counsel consistent with Section 7.3(b) hereof;
(b) the Purchase Price to DSI in accordance with Section 1.4 hereof;
(c) an instrument of assumption with respect to the Assumed
Liabilities in the form attached hereto as Exhibit 5;
(d) a certificate, dated at the Closing Date, certifying to the
fulfillment of the conditions set forth in Section 7.3(b), signed by the
President and Secretary of the Purchaser in the form of Exhibit 6;
(e) all governmental, administrative or regulatory consents and
approvals required pursuant to the terms hereof;
(f) the Employment Agreement; and
(g) such other consents, approvals, agreements, certificates and
other documents as the Seller, DSI or their counsel may reasonably request.
ARTICLE IX
Miscellaneous
9.1. Further Assurance. From time to time, at the Purchaser's
request (whether at or after the Closing Date), and without further
consideration, the Seller will execute and deliver such further instruments
of conveyance and transfer as the Purchaser may reasonably request in order
to assist the Purchaser in the collection or reduction to possession of any
of the Acquired Assets. From and after the Closing, the Purchaser shall be
constituted as the true and lawful attorney of the Seller, with full power
of substitution, in the name of the Seller but for the benefit and at the
expense of the Purchaser, (i) to collect for the account of the Purchaser
all items to be sold or transferred or intended to be sold and transferred
to the Purchaser as provided herein and, (ii) to institute and prosecute all
proceedings which the Purchaser may reasonably deem necessary in order to
collect or enforce any right or title of any kind in or to the Acquired
Assets and to defend or compromise any and all actions, suits or proceedings
in respect of any of the Acquired Assets.
9.2. Survival. Except as otherwise provided in this Section 9.2, the
representations and warranties of the parties contained herein, or any
document, statement or certificate furnished, or to be furnished, to any
party in connection with and pursuant to the Agreement shall terminate
effective upon the Closing. Notwithstanding the foregoing, (i) those
representations and warranties contained in Sections 2.3 and the first
sentence of Section 2.5 shall survive forever the Closing and (ii) those
representations and warranties relating to the tax liability of the Seller
or DSI with respect to the Business (which include, without limitation, of
the generality of the foregoing, Section 2.16 hereof) shall survive the
Closing until the expiration of the applicable statute of limitations
periods.
9.3. Expenses. (a) Except as hereinafter provided, the Seller and
DSI will pay all costs and expenses attributable to the performance of and
compliance with all agreements and conditions contained in this Agreement to
be performed or complied with by either the Seller or DSI. The Purchaser
will pay all costs and expenses attributable to the performance of and
compliance with all agreements and conditions contained in this Agreement to
be performed or complied with by the Purchaser.
(b) Notwithstanding anything to the contrary provided herein, the
Purchaser agrees that it shall pay the following costs and expenses:
(i) legal fees payable to counsel to the Seller and DSI in
connection with the negotiation of this Agreement and the Management
Services Agreement, based upon actual time and disbursements expended
by such counsel, up to a maximum of $30,000, which fees are to be paid
as monthly invoices are rendered by such counsel;
(ii) legal fees payable to counsel to the Seller and DSI in
connection with the preparation of the Proxy Statement, based on
actual time and disbursements expended by such counsel, until this
Agreement is terminated as provided in Section 9.16 hereof, which fees
are to be paid as monthly invoices are rendered by such counsel; and
(iii) fees of an investment banker or other financial advisor
to the Seller and DSI relating to the preparation and rendering of a
fairness opinion with respect to the transactions contemplated by this
Agreement, up to a maximum of $30,000, and, if such fees are
anticipated to be in excess of $30,000, the Purchaser shall not be
obligated to advance the amount of such excess unless it has consented
in advance to such expenditure.
The total amount of the foregoing fees and expenses advanced by the
Purchaser shall be deducted from the amount of the Purchase Price to be paid
by the Purchaser at Closing; provided, however, that with respect to the
amount of legal fees paid pursuant to clause 9.3(a)(ii) above, only up to
$137,500 of the total amount shall be so deducted. In addition, the
Purchaser may, but shall not be required to, make advances to the Seller and
DSI in connection with the defense of any litigation of the type described
in Section 6.4 hereof. The amount of any such advances, up to a maximum of
$75,000, shall be deducted from the Purchase Price paid by the Purchaser at
the Closing, but any amounts in excess of $75,000 shall not be so deducted.
In the event that this Agreement is terminated prior to the Closing, the
Seller and DSI shall not be obligated to the Purchaser for the foregoing
amounts. Notwithstanding anything contained herein to the contrary, unless
advanced by Purchaser in accordance with this Section 9.3, Seller and DSI
shall not be required to incur any expenses in connection with the defense
of any litigation of the type described in Section 6.4 hereof.
9.4. Notice of Proceeding. Prior to the Closing, Purchaser, Seller
and DSI shall, upon becoming aware of any order or decree or any complaint
praying for an order or decree restraining, enjoining or seeking substantial
damages in connection with the consummation of this Agreement or the
transactions contemplated by this Agreement, or upon receiving any notice
from any Governmental Authority of its intention to institute an
investigation into, or institute a suit or proceedings restraining or
enjoining, the consummation of this Agreement or such transactions, or to
nullify or render ineffective this Agreement or such transactions, if
consummated, promptly notify the other party hereto, in writing, of such
order, decree, complaint or notice.
9.5. Governing Law. The Agreement shall be governed by, and
construed in accordance with the internal laws, and not the law of
conflicts, of the Commonwealth of Pennsylvania.
9.6. Entire Agreement, Modification and Waiver. This Agreement,
including the Exhibits and Schedules hereto, constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties and there are no
warranties, representations or other agreements, express or implied, made to
any party by any other party in connection with the subject matter hereof
except as may be set forth herein. To the fullest extent permitted by
applicable law, unless otherwise expressly provided herein, no supplement,
modification, waiver or termination of the Agreement shall be binding unless
executed, in writing, by the parties to be bound thereby. No waiver of any
provision of the Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
9.7. Notices. All notices, consents, requests, reports, demands or
other communications hereunder shall be in writing and may be delivered
personally, by registered or certified mail or by facsimile transmission.
If to Purchaser:
Herbert S. Shear
President and Chief Executive Officer
Genco Management Company
100 Papercraft Park
Pittsburgh, Pennsylvania 15238
Fax Number: (412) 826-0856
With a copy to:
James K. Goldberg, Esq.
Thorp, Reed & Armstrong
One Riverfront Center
Pittsburgh, Pennsylvania 15222-4895
Fax Number: (412) 394-2555
If to the Seller or DSI:
c/o Yitz Grossman
Director
Datatrend Services, Inc.
1515 Washington Street
Braintree, Massachusetts 02184
Fax Number: _________________
With a copy to:
Oscar D. Folger, Esq.
521 Fifth Avenue, 24th Floor
New York, New York 10175
Fax Number: (212) 697-7833
or to such other address or such other person as the addressee party shall
have last designated by notice to the other party. Notices given by
registered or certified mail or by facsimile transmission shall be deemed to
have been given three (3) days after being deposited in the mail or with the
telegraph company with postage or other charges pre-paid. All other notices
shall be deemed to have been given when received.
9.8. Counterparts. This Agreement may be executed in as many
counterparts as may be deemed necessary and convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but
one and the same instrument.
9.9. Headings. The article and section headings in this Agreement
are for convenience of reference only and shall not be deemed to alter or
affect the meaning or interpretation of any provision hereof.
9.10. Record Retention. The Seller and DSI hereto agree to retain,
for a period of five (5) years from and after the Closing Date, and to make
available to Purchaser's agents, counsel, employees or representatives, all
the books, records and documents (including records with respect to accounts
receivable and accounts payable) (the "Records") relating to the Seller or
the Business which existed on the date preceding the Closing Date and which
were in its possession. From and after the Closing Date, upon reasonable
written request, the Seller shall furnish or cause to be furnished to the
Purchaser and its representatives, employees, counsel and accounts access,
during normal business hours and upon reasonable prior written request, the
Records relating to periods prior to the Closing Date, and shall permit such
persons to examine and copy at such persons' sole cost and expense, such
Records to the extent reasonably requested as is reasonably necessary for
financial reporting and accounting matters, the preparation and filing of
any returns, reports or forms, the defense of any claim or assertion or
other appropriate commercial purposes. Prior to the disposal or destruction
of the records by the Seller or DSI, the Seller or DSI, as the case may be,
shall notify the Purchaser and give the Purchaser an opportunity to obtain
such Records.
9.11. Indemnity Claim. After the Closing, the Purchaser, the Seller
and DSI shall promptly give notice to each other after either of them
obtains knowledge of any claim, obligation, liability or action for which
indemnification may be sought hereunder or prompt written notice of the
commencement of any legal proceeding for which indemnification may be sought
hereunder, whichever occurs first, provided that the failure to give such
notice shall not adversely affect any right of indemnification under the
Agreement absent any material prejudice to the rights of the indemnifying
party. The indemnifying party shall be entitled to control the defense of
any such legal proceeding, retain counsel reasonably satisfactory to the
indemnified party, at the sole expense of the indemnifying party, and the
indemnified party shall cooperate with the indemnifying party in the defense
of such claim and shall have the right, but not the obligation, to
participate in the defense at its own expense. If the indemnifying party
elects not to direct such defense, the indemnified party shall have the
right, at its own discretion, to direct such defense at the indemnifying
party's sole expense. The indemnifying party shall have the right to
compromise or settle (for money damages only), with the indemnified party's
prior written approval, any claim or litigation regarding which it is
required to indemnify. If the indemnified party refuses to approve any
compromise or settlement recommended by the indemnifying party which would
have concluded such claim or litigation but for the indemnified party's
failure to give approval, the indemnifying party's liability to the
indemnified party hereunder with respect to such claim or litigation shall
not exceed the amount which the indemnifying party would have paid pursuant
to the proposed compromise or settlement.
9.12. Limitation.
(a) The obligations to indemnify and hold harmless pursuant to
Sections 4.3 and 9.2 hereof shall survive the consummation of the
transactions contemplated by this Agreement, provided that no party
providing indemnification hereunder shall be obligated to provide such
indemnification unless such party shall have received written notice thereof
from the party seeking indemnification within the applicable survival time
period therefor as set forth in Section 9.2. In no event, however, shall
the amount of Losses under Section 4.3 hereof as to which the Purchaser
shall be entitled to indemnification exceed the total cash purchase price
paid by the Purchaser pursuant to Section 1.4 hereof.
(b) The amount of any indemnifiable Losses (including environmental
indemnifiable Losses) will be net of any amount recovered by the indemnified
party under insurance policies covering such indemnified party (unless such
amounts received thereunder is subject to retroactive billing or recapture
by the insurer). The indemnified party shall use its reasonable efforts,
but shall be under no obligation to commence litigation with respect
thereto, to recover any amounts available under insurance policies covering
such indemnifiable Losses, shall advise the indemnifying party of the
results of such efforts and make available to the indemnifying party a copy
of any and all material documentation with respect to the efforts of the
indemnified party with respect to this subsection and the response, or
responses, of any insurance companies with respect thereto.
9.13. Cooperation. The parties hereto agree to cooperate with
one another in a reasonable manner so as to facilitate: (i) effective
communications to employees of the Seller as to the treatment to be afforded
to them under the various employment compensation programs and policies of
the Purchaser; and (ii) the timely filing of required government reports.
9.14. Gender and Number. Any personal pronouns used in the Agreement
shall include the other gender, whether used in the masculine, feminine or
neuter gender, and the singular shall include the plural and vice versa,
whenever and as often as may be appropriate.
9.15. Severability. If any provision of the Agreement or the
application thereof shall be invalid, illegal or unenforceable the remainder
of this Agreement shall remain in full force and effect and each court
making any such determination is requested to amend such provision in order
that it may, in such amended version, be enforceable.
9.16. Termination.
(a) Each of the parties does hereby agree that in the event that the
Closing shall not have occurred by the close of business on the first
anniversary of the date of this Agreement, for any reason (time being of the
essence with respect to the terms, covenants, representations and warranties
herein), other than in the event that the failure to so consummate this
transaction is based upon a breach by any party of its obligations under
this Agreement, any party hereto may, at its sole discretion, terminate this
Agreement. In addition, any party hereto may, at its sole discretion,
terminate this Agreement upon the termination of the Management Services
Agreement for any reason.
(b) In addition to the foregoing rights of termination, either the
Seller or DSI may terminate this Agreement in the event of: (i) a breach by
the Purchaser of any material representation, warranty or covenant made by
the Purchaser in this Agreement or the failure by the Purchaser to perform
any material obligation of the Purchaser hereunder; or (ii) a determination
by the Board of Directors of DSI or the Seller, in the good faith exercise
of their fiduciary duties, that the transactions contemplated by this
Agreement are not in the best interests of the Seller or DSI or the
stockholders of either of them, subject to the provisions of Section
9.16(e)(i) hereof.
(c) In addition to the right of termination set forth in Section
9.16(a) above, the Purchaser may terminate this Agreement (i) in the event
of a breach by the Seller of DSI of any material representation, warranty or
covenant made by the Seller or DSI hereunder or the failure of the Seller or
DSI to perform any material obligation hereunder; or (ii) if, as a result of
the Purchaser's due diligence inquiry with respect to the Seller and DSI,
the Purchaser reasonably determines that the representations and warranties
of the Seller and DSI are not true and correct in any material respect; or
(iii) if the Draft Final Balance Sheet prepared in accordance with Section
1.4 hereof shows that the Negative Amount exceeds $3,000,000; or (iv) if the
Purchaser becomes aware of any potential liability under any federal, state
or local law, regulation, order, decree or ordinance regulating
environmental or occupational health and safety matters, which liability is
significantly likely to occur, and, if occurring, would have a material
adverse effect on the Business.
In addition, the Purchaser shall have the right to terminate this
Agreement immediately if (i) the Seller or DSI shall commence any cause,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to either of them, or seeking to adjudicate either of
them a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to their debts, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for the Seller or DSI
or for all or any substantial part of the assets of the Seller or DSI; or
(ii) the Seller or DSI shall make a general assignment for the benefit of
creditors; or (iii) there shall be commenced against the Seller or DSI any
case, proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or (iv) there shall be commenced
against the Seller or DSI any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets, which results in the
entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within thirty (30) days from
the entry thereof; or (v) the Seller or DSI shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clauses (i), (ii), (iii) or (iv) above.
(d) Any party who elects to terminate this Agreement as permitted
herein shall promptly notify the other parties in writing of its intention
to terminate.
(e) In the event of a termination of this Agreement as provided
herein, the parties shall have no further obligations hereunder, except as
follows:
(i) In the event of a termination by the Seller or DSI pursuant
to Section 9.16(b)(ii) hereunder, the Seller and DSI shall pay to the
Purchaser an amount equal to all expenses incurred by the Purchaser in
connection with the transactions contemplated hereby, including but
not limited to those described in Section 9.3(b) hereof, plus the
amounts of all Advances (as defined in the Management Services
Agreement) made by the Purchaser to the Seller pursuant to the
Management Services Agreement plus the sum of $1,000,000.00. Such
amount shall be payable in cash or by the issuance of such number of
shares of DSI common stock as would, upon such issuance, constitute a
majority of the issued and outstanding common stock of DSI.
(ii) In the event of a termination by the Purchaser or by
Seller or DSI for any reason other than the applicability of Section
9.16(a) or 9.16(c)(iii) or (iv), or a breach by the Purchaser of a
representation, warranty or covenant made by it hereunder, then the
Seller and DSI shall reimburse the Purchaser for any amounts paid by
the Purchaser to counsel to the Seller and DSI in connection with the
transactions contemplated by this Agreement. Such counsel shall have
no obligation or liability whatsoever to reimburse any party for any
amount.
(iii) Any amounts payable by the Seller and DSI to the
Purchaser under this Section 9.16(e) shall be payable within ten (10)
days after demand is made therefor by the Purchaser. Any amounts not
so paid within such period shall bear interest until so paid at the
Prime Rate announced by National City Bank, Pittsburgh, Pennsylvania,
plus three percent (3%) and costs of collection.
(f) Reference is made to Section 4.2 for certain confidentiality and
non-compete provisions which shall apply after termination of this
Agreement.
9.17. Guaranty. By countersigning this Agreement, Genco guarantees
the obligations of GMC hereunder. This is a guaranty of payment, not of
collection. Datatrend shall not be required to proceed first against GMC
before proceeding against Genco on this guaranty.
9.18. Arbitration. Any dispute, controversy or claim arising out of
or relating to this Agreement, or a breach hereof, except for matters
covered by Sections 4.1 and 4.2 hereof, shall be settled by arbitration in
Pittsburgh, Pennsylvania, before a panel of arbitrators selected by the
American Arbitration Association ("AAA") and in accordance with the
Commercial Arbitration Rules of AAA, and judgment upon the award may be
enforced in any court having jurisdiction thereof. The fees and costs of
such arbitration, together with the fees and costs of the attorneys for the
parties, shall be apportioned between the parties by the arbitrators.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
Datatrend, Inc.
By: /s/ Mark A. Hanson
--------------------------------
Name: Mark A. Hanson
--------------------------------
Title: CEO & President
--------------------------------
Date: 8 Sept 1997
--------------------------------
Datatrend Services, Inc.
By: /s/ Mark A. Hanson
--------------------------------
Name: Mark A. Hanson
--------------------------------
Title: CEO & President
--------------------------------
Date: 8 Sept 1997
--------------------------------
Genco Management Company
By: /s/ Herbert S. Shear
--------------------------------
Name: Herbert S. Shear
--------------------------------
Title: President
--------------------------------
Date: 9/8/97
--------------------------------
Genco, Inc.
By: /s/ Herbert S. Shear
--------------------------------
Name: Herbert S. Shear
--------------------------------
Title: President
--------------------------------
Date: 9/8/97
--------------------------------
ANNEX B
A. S. GOLDMEN & COMPANY
Investment Banking
99 Wood Avenue South
Iselin, New Jersey 08830
(908) 548-2800
(800) 548-8180
FAIRNESS OPINION
October 6, 1997
Board of Directors
DataTrend Services, Inc.
1515 Washington Street
Braintree, MA 02184
Dear Members of the Board of Directors:
We understand that DataTrend Services, Inc. ("DSI") and Genco
Management Company ("GMC") have entered into an Asset Purchase Agreement
and a Management and Administrative Services Agreement with Genco
Management Company ("GMC"), a subsidiary of GENCO I, Inc. ("Genco").
GMC's obligations under both Agreements are guaranteed by Genco.
The Agreements are summarized below.
The Asset Purchase Agreement (the "Purchase Agreement") provides
that DataTrend will sell substantially all of its operating assets to GMC.
This asset transfer will result in the sale of all of the Company's
computer equipment refurbishment and returns management business. In
consideration for the sale of such assets, GMC will pay at the closing a
minimum of $1,000,000 and will assume various liabilities including
current operation of the business being acquired by GMC. GMC will not
assume liabilities relating to outstanding litigation matters, employment
and consulting contracts, and tax and other matters. The purchase price
will be increased by 50% of the amount by which the differences between
the assumed liabilities and acquired assets (subject to various
adjustments) is less than $2,500,000. The transaction is terminable by
GMC in the event that such difference exceeds $3,000,000. The closing of
the transaction is subject to approval of the Company's stockholders and
other terms and conditions.
DataTrend and GMC also entered into a Management and Administrative
Services Agreement (the "Management Agreement") which provides that GMC
will operate the Company's business pending the closing of the
transactions contemplated by the Purchase Agreement. Among other matters,
GMC will handle personnel and facility decisions and will oversee the
previously announced closure of the Company's Braintree facility. The
Management Agreement is terminable if the Purchase Agreement is terminated
and may also be terminated by GMC in certain circumstances including
bankruptcy, potential liability under government regulatory schemes, or
dispute by the Company of GMC's management decisions. GMC will receive a
monthly management fee of $2,500 and reimbursement of direct expenses
incurred by GMC. GMC is entitled to retain any operating profits
generated during the term of the Management Agreement and will reimburse
DataTrend for any operating losses incurred during such term. GMC is
obligated to contribute to the Company up to $500,000 to cover operating
losses and provide working capital during the term of the Management
Agreement.
You have requested our opinion of the Agreements with respect to
fairness, from a financial point of view, to DSI and DSI's shareholders.
A. S. Goldmen & Co., Inc. is customarily engaged in the valuation of
business and their securities in connection with mergers & acquisitions,
private placements, shareholder transactions, estate and gift taxes,
litigation, and for other purposes.
In connection with rendering our opinion we have, among other
things:
(1) Reviewed the Asset Purchase Agreement (the "Purchase
Agreement") and the Management and Administrative Services
Agreement (the "Management Agreement") between DSI and GMC;
(2) Analyzed financial information with respect to DSI, including
audited financial statements as of and for the two years ended
December 31, 1995 and December 31, 1996 contained in the
Form 10-K, unaudited financial statements contained in the
Forms 10-Q for the periods ended March 31, 1997 and
June 30, 1997;
(3) Held discussions with certain members of DSI's, senior
management and member of the Board of Directors concerning the
past and current operations, financial condition, and business
prospects of the Company;
(4) Reviewed and analyzed all Company press releases concerning
continuous losses from operations for the fiscal year ended
December 31, 1996 and for the periods ended March 31, 1997 and
June 30, 1997;
(5) Reviewed the historical market prices of DSI common stock;
(6) Reviewed the composition of ownership of DSI's common stock;
(7) Reviewed the financial terms of the Purchase Agreement;
(8) Considered the financial terms of certain other business
combinations and other transactions that have recently been
effectuated; and
(9) Considered such other information, financial studies, and
analyses as we deemed relevant, and performed such analyses,
studies, and investigations as we deemed appropriate.
A. S. Goldmen & Co., Inc. has assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by us. With respect to any projections, we assumed that they
have been reasonably prepared on bases reflecting the best currently
available estimates and judgements of the future financial performance of
DSI. We have also assumed without independent verification that DSI owns
and has adequate legal protection for all material tangible assets and
intellectual property that it purports to own, and that key agreements to
which DSI purports to be a party are valid and enforceable. We have not
reviewed the transactions from a tax basis. Accordingly, we do not make
any warranties, nor do we make any representations with respect to the
aforementioned items.
We have not performed an appraisal of the assets, liabilities, or
intellectual property of DSI, nor have we been furnished with any such
valuations or appraisals. We have assumed that the assessments of
management have been made in good faith and reflect the best currently
available management judgements as to matters covered. Our opinion is
necessarily based upon economic, market, and other conditions as in effect
on, and the information made available to us as of, the date of this
letter. Our opinion is limited to the fairness of the Purchase Agreement
and the Management Agreement as of the date hereof, from a financial point
of view. We make no representations with respect to the business decision
to effect the Agreements or any other terms of the transaction. This
opinion does not represent our opinion as to what the value of DSI is of
the date of this letter.
We understand that in considering the Agreements, the Board of
Directors of DSI has considered a wide range of financial and nonfinancial
factors, many of which are beyond the scope of this letter. This letter
is not intended to substitute for the Board's exercise of its own business
judgement in reviewing the Agreements.
Based upon and subject to the foregoing considerations, it is our
opinion as financial advisors to DSI that the Purchase Agreement and
Management Agreement are fair from a financial point of view to DSI and to
DSI's shareholders.
The foregoing opinion is to be used for the information and
assistance of DSI. Accordingly, it is understood and agreed that no
person other than DSI and its officers, directors and shareholders shall
be allowed to use or rely upon this opinion.
Very truly yours,
A. S. GOLDMEN & CO., INC.
By: Stuart Winkler
Managing Director
ANNEX C
Datatrend Services, Inc. and Subsidiary
Proforma Consolidated Balance Sheets
Unaudited
As of June 30, 1997
<TABLE>
<CAPTION>
Assets
------
As Reported Adjustments Proforma
<S> <C> <C> <C>
Current Assets
Cash and Cash equivalents $ 371,898 $ 1,202,402 $1,574,300
Accounts Receivable, trade, net of allowance for
doubtful accounts of $1,386,816 in 1997 and $1,485,548
in 1996 2,994,297 (2,994,297) -
Inventories 6,087,217 (6,087,217) -
Deferred Tax Asset 100,000 - 100,000
Other Current Assets 191,330 - 191,330
-----------------------------------------
Total Current Assets $ 9,744,742 $ (7,879,112) $1,865,630
-----------------------------------------
Property and Equipment, at Cost
Furniture and Fixtures 175,946 (175,946) -
Warehouse Equipment 354,532 (354,532) -
Leasehold Improvements 183,771 (183,771) -
Computer Equipment 137,408 (137,408) -
-----------------------------------------
$ 851,657 $ (851,657) $ -
Accumulated Depreciation (382,396) 382,396 -
-----------------------------------------
Property and Equipment, Net $ 469,261 $ (469,261) $ -
-----------------------------------------
Other Assets $ 69,949 $ - $ 69,949
-----------------------------------------
Total Assets $10,283,952 $ (8,348,373) $1,935,579
=========================================
</TABLE>
See Accompanying Notes to the Financial Statements
Datatrend Services, Inc. and Subsidiary
Proforma Consolidated Balance Sheets
Unaudited
As of June 30, 1997
<TABLE>
<CAPTION>
Liabilities and Stockholders' (Deficit) Equity
----------------------------------------------
As Reported Adjustments Proforma
<S> <C> <C> <C>
Current Liabilities
Notes Payable, Financial Institutions $ - $ - $ -
Notes Payable, Others - - -
Accounts Payable 11,275,018 (10,719,734) 555,284
Accrued Expenses 669,095 (669,095) -
Capital Leases, Short Term 27,142 (27,142) -
-----------------------------------------
Total Current Liabilities $11,971,255 $(11,415,971) $ 555,284
-----------------------------------------
Long Term Liabilities
Capital Leases 30,000 (30,000) -
-----------------------------------------
Stockholders' (Deficit) Equity
Common Stock
$.01 Par value; 30,000,000 shares authorized,
4,715,795 shares issued and outstanding at June 30,
1997 and December 31, 1996 respectively $ 47,138 $ - 47,138
Additional Paid in Capital 2,343,606 - 2,343,606
(Accumulated Deficit) Retained Earnings (4,108,047) 3,632,598 (475,449)
Treasury Stock - (535,000) (535,000)
-----------------------------------------
Total (Deficit) Stockholders Equity $(1,717,303) $ 3,097,598 $1,380,295
-----------------------------------------
Total Liabilities and Stockholders' (Deficit) $10,283,952 $ (8,348,373) $1,935,579
=========================================
</TABLE>
See Accompanying Notes to the Financial Statements
Datatrend Services, Inc. and Subsidiary
Proforma Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1997
As Reported Adjustments Proforma
<S> <C> <C> <C>
Sales $18,597,383 $ - $18,597,383
Cost of Sales $17,512,705 $ - $17,512,705
----------------------------------------------
Gross Profit $ 1,084,678 $ - $ 1,084,678
Service Revenue $ 1,809,035 $ - $ 1,809,035
----------------------------------------------
Total $ 2,893,713 $ - $ 2,893,713
----------------------------------------------
Operating Expenses $ 4,508,097 $ - $ 4,508,097
----------------------------------------------
Operating Income (Loss) $(1,614,384) $ - $(1,614,384)
----------------------------------------------
Other Income and (Expense)
Interest and Other Income 14,129 - $ 14,129
Interest Expense (21,094) - $ (21,094)
----------------------------------------------
Total Other Income and (Expense) $ (6,965) $ - $ (6,965)
----------------------------------------------
Income (Loss) From Continuing Operations $(1,621,349) $ - $(1,621,349)
Before Provision for Income Taxes
Income Tax Expense (Benefit)
Income Tax Expense $ - $ -
----------------------------------------------
Income (Loss) from Continuing Operations $(1,621,349) $ - $(1,621,349)
Income (Expenses) From Discontinued Operations - 3,632,598 $ 3,632,598
----------------------------------------------
Net Income (Loss) $(1,621,349) $3,632,598 $ 2,011,249
----------------------------------------------
Weighted Average Number of Shares 4,712,795 - 4,712,795
Earnings (Loss) Per Share
Continuing Operations $ (0.34) $ - $ (0.34)
Discontinued Operations $ - $ 0.77 $ 0.77
----------------------------------------------
Net $ (0.34) $ 0.77 $ 0.43
==============================================
</TABLE>
See Accompanying Notes to the Financial Statements
Datatrend Services, Inc. and Subsidiary
Pro forma Consolidated Statement of Stockholders' (Deficit) Equity
Unaudited
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
Common Stock
---------------------- Paid In Accumulated
Shares Par Value Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 4,712,795 47,138 2,343,606 (2,486,698) (95,954)
Net Loss for the Period Ended June 30, 1997 - - (1,621,349) (1,621,349)
----------------------------------------------------------------
Balance June 30, 1997 4,712,795 47,138 2,343,606 (4,108,047) (1,717,303)
----------------------------------------------------------------
Proforma Adjustments - - - 3,632,598 3,632,598
----------------------------------------------------------------
Proforma Balance June 30, 1997 4,712,795 47,138 2,343,606 (475,449) 1,915,295
================================================================
</TABLE>
See Accompanying Notes to the Financial Statements
Datatrend Services, Inc. and Subsidiary
Consolidated Statement of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Six Months Ended June 30
1997
-------------------------------------------
As Reported Adjustments Proforma
<s <C> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss) (1,621,349) 3,632,598 2,011,249
Adjustments to Net Income
Add Depreciation and Amortization 90,779 - 90,779
Changes in Operating Assets and Liabilities 2,950,592 (2,307,315) 643,277
-------------------------------------------
Cash Provided (Used) by Operations $ 1,420,022 $ 1,325,283 $ 2,745,305
-------------------------------------------
Cash Flows from Investing Activities
Acquisition of Property and Equipment (42,559) $ - (42,559)
Other Assets 75,241 - 75,241
Proceeds from Sale of Fixed Assets - 469,261 469,261
-------------------------------------------
Cash Provided (Used) by Investing Activities $ 32,682 $ 469,261 $ 501,943
-------------------------------------------
Cash Flows from Financing Activities
Payments on Notes Payable (1,806,214) - (1,806,214)
Capital Lease Obligations (14,000) (57,142) (71,142)
-------------------------------------------
Cash Provided (Used) by Financing
Activities $(1,820,214) $ (57,142) $(1,877,356)
-------------------------------------------
Net (Decrease) Increase in Cash $ (367,510) $ 1,737,402 $ 1,369,892
Cash, Beginning of the Period $ 739,408 $ - 739,408
-------------------------------------------
Cash, End of the Period $ 371,898 $ 1,737,402 $ 2,109,300
===========================================
</TABLE>
See Accompanying Notes to the Financial Statements
[FORM OF PROXY]
DATATREND SERVICES, INC.
Special Meeting of Stockholders -- November __, 1997
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Mark A. Hanson and Yitz Grossman,
and each of them, proxies with full power of substitution, to vote all
Common Shares of Datatrend Services, Inc., owned by the undersigned at the
Special Meeting of Stockholders of Datatrend Services, Inc., to be held on
November __, 1997 and at any adjournments thereof, hereby revoking any
proxy heretofore given. The undersigned instructs such proxies to vote:
PROPOSAL TO APPROVE THE SALE OF SUBSTANTIALLY ALL OF THE ASSETS OF
THE COMPANY TO GENCO MANAGEMENT COMPANY
FOR _______ AGAINST _______ ABSTAIN _______
Management recommends voting FOR the Proposal.
Either of the proxies or their respective substitutes, who shall be
present and acting shall have and may exercise all the powers hereby
granted.
THE COMMON SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE
PROPOSAL UNLESS CONTRARY INSTRUCTIONS ARE GIVEN. Said proxies will use
their discretion with respect to any other matters which properly come
before the meeting.
Dated: , 1997
________________________________
________________________________
(Please date and sign exactly as
name appears on the mailing
envelope. For joint accounts,
each joint owner should sign.
Executors, administrators,
trustees, etc., should also so
indicate when signing.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE SIGN
AND RETURN THE PROXY IN THE ENCLOSED ENVELOPE.
