LETTER OF INTENT
June 5, 1995
Designatronics Incorporated
2101 Jericho Turnpike
New Hyde Park, NY 11040-5416
Attention: Board of Directors
Gentlemen:
This letter outlines the basic terms on which Dyson, Dyson &
Dunn, Inc. ("DD&D"), or a new Delaware corporation to be formed by
affiliates of DD&D ("Purchaser"), would be willing to acquire the
stock of Designatronics Incorporated ("DI"). They are as follows:
1. Purchaser would form a New York corporation ("Merger
Company") which would be merged into DI. As a result of the
merger, Purchaser, as the sole shareholder of Merger Company, would
acquire all of the stock of DI, and DI's shareholders would receive
$6.00 per share in cash.
2. Except for paragraphs 8, 9 and 10, which are intended to
be binding, this is a non-binding letter of intent subject to the
negotiation and execution of a mutually acceptable definitive
Agreement and Plan of Merger among DI, Purchaser and Merger Company
("Merger Agreement"). The Merger Agreement would contain customary
representations and warranties and closing conditions, including:
(a) the approval of the merger by holders of 2/3rds of
the issued and outstanding shares of DI and the exercise of
dissenters' appraisal rights by holders of not more than 10%
of the outstanding shares;
(b) the accuracy in all material respects of the repre-
sentations and warranties of DI as at the closing time and no
material adverse change since the most recent financial state-ments
delivered to DD&D prior to the execution of the Merger Agreement;
(c) the receipt of a closing certificate signed by all
three officers of DI to the effects set forth in clause (b);
(d) the receipt of a legal opinion of DI general counsel
in a form to be attached to the Merger Agreement;
(e) the agreement of the three key officers of DI to con-
tinue to be employed by DI through December 31, 1997, at 110%
of their present salaries per their existing employment agree-
ments as amended and otherwise on terms to be agreed upon by
the parties, which terms will be substantially the same as
their present employment agreements as amended; and
Designatronics Incorporated
June 5, 1995
Page Two
(f) the consent of the landlord of DI's New Hyde Park
facilities to the change of control.
None of the representations or warranties would survive closing;
and the officers of DI would have no potential liability under the
closing certificate thereafter.
3. At the same time that the Merger Agreement is entered
into, DI's directors and officers and all of their spouses (except
Mrs. Buchsbaum) who own any stock of DI (collectively, the "Inside
Group") and DI would enter into a Support and Option Agreement (the
S/O Agreement") with Purchaser, pursuant to which:
(a) the Inside Group would (i) agree to vote all of their
stock in favor of the merger and (ii) grant Purchaser a lock-up option
to purchase a total of 250,000 shares at $6.00 per share; and
(b) DI would grant Purchaser a lock-up option on 250,000
shares (for a total of 500,000 shares) at $6.00 per share.
The options would expire (i) if the Merger Agreement were termi-nated because of
a material breach by Purchaser or (ii) 6 months after termination of the
Merger Agreement unless a Competing Tran-saction were announced within six
months. If a Competing Transac-tion were announced within six months, the
options could be exer-cised within 30 days after announcement, contingent
upon the Competing Transaction being closed. The option from DI could be
put to DI for a cash payment at the closing of the Competing
Transaction equal to the product of 250,000 times the difference
between $6.00 per share and the price per share in the Competing
Transaction. Members of the Inside Group could transfer shares
prior to the closing under the Merger Agreement so long as their
transferees agreed to be bound by the S/O Agreement to the same
extent as the transferor unless a transferee is a charitable
organization which cannot legally agree to do so.
4. If the Merger Agreement were terminated and Purchaser were
not in material breach, Purchaser would receive a termination fee
equal to $180,000, unless (a) DI were in material breach, (b) the
Inside Group and their transferees failed to vote all their shares
in favor of the merger, (c) the board of DI failed to recommend the
merger to the other shareholders in the proxy statement of DI, (d)
DI entered into an agreement (including an agreement in principle
or a letter of intent) to do a Competing Transaction, or (e) the
directors or shareholders of DI resolved to do a Competing Tran-saction.
If any of (a) through (e) happened before termination of
the Merger Agreement, the termination fee would be $360,000. In
addition, if DI paid or was obligated to pay a fee of $180,000 on
termination and a Competing Transaction were announced within six
months thereafter, another $180,000 would be payable to Purchaser.
Designatronics Incorporated
June 5, 1995
Page Three
On the other hand, if the Merger Agreement were terminated because
of the material breach by Purchaser, it would pay $360,000 to DI.
In either case, if a termination fee were payable to Purchaser or
DI, it would constitute liquidated damages, it would bear interest
at 12% per annum until paid, and the payor would pay reasonable
attorneys' fees and disbursements to the payee if the fee were not
paid when due.
5. As soon as practicable after the execution of the Merger
Agreement, DI would file preliminary proxy materials with the SEC,
call a special meeting of its shareholders, and mail definitive
proxy materials to its shareholders for the meeting. Before the
mailing, Purchaser would (a) put $360,000 in escrow to secure any
termination fee it might have to pay and (b) give DI reasonably
acceptable commitments to Purchaser for the balance of the funds
required to consummate the merger.
6. The closing would occur on the first business day after
the meeting of DI's shareholders at which the merger was approved,
subject to the conditions to closing to be contained in the Merger
Agreement. At the closing, Purchaser would also cash out all stock
options held by officers, directors and key employees of DI for the
difference between $6.00 per share and the option price times the
number of shares subject to the options. In addition, upon receipt
of DI's audited financial statements for its fiscal year ending
August 31, 1995, another cash payment would be made to DI's
officers and directors equal to the number of shares on which they
would have been granted options if the merger had not occurred
times the excess of $6.00 per share over the average price of DI
stock on NASDAQ during May, 1995, or approximately $4.50 per share.
Finally, DI would adopt a bonus program for its officers and five
divisional vice presidents, commencing with its fiscal year ending
August 31, 1996, on terms discussed for the three officers and
substantially lesser terms for the five divisional vice presidents.
7. At closing, DI would adopt an indemnification by-law for
its present officers and directors, including Messrs. Rubenfeld and
Schwartz, indemnifying them to the maximum extent permitted by the
New York Business Corporation Law. In addition, DI would purchase
a 3-year tail from the company that issued the present D&O policy
of DI for the benefit of the present officers and directors of DI.
8. You will instruct the officers, key employees, attorneys
and accountants of DI to cooperate with representatives of DD&D in
connection with such additional due diligence as they may desire to
conduct before closing, including, but not limited to, an environ-
mental review of the facilities of DI in New Hyde Park, New York,
a review of its tax returns, related work papers, Forms 5500 and
any possible additional penalties that might become due in respect
thereto, and a review of the case pending against DI in Indiana.
Designatronics Incorporated
June 5, 1995
Page Four
9. For a period of three months after the execution of this
letter of intent, we agree with each other to negotiate in good
faith, and you agree not to solicit any other offer to acquire DI.
If DI receives an unsolicited offer for more than $6.00 per share,
it may discuss the offer with the offeror, provide it with infor-
mation concerning DI and accept such offer subject to DD&D's right
of first refusal. If the Merger Agreement is not entered into and
DI announces a Competing Transaction within four months after the
date of this letter, DI will pay DD&D a fee of $120,000, contingent
upon closing of the Competing Transaction, on the date of such
closing. If such fee becomes payable to DD&D, it will constitute
liquidated damages and bear interest at 12% per annum until paid,
and DI will pay reasonable attorneys' fees and disbursements to
DD&D if the fee is not paid when due. As used herein, "Competing
Transaction" shall mean any acquisition of DI by means of a merger,
consolidation, sale of substantial assets of DI, tender or exchange
offer, or other acquisition of one-third or more of DI's shares of
voting stock to be outstanding after the closing or consummation
thereof. If DI receives an offer for a Competing Transaction, it
will give DD&D a right of first refusal to match such offer within
7 days after DD&D receives written notice of all material terms
thereof.
10. It is not anticipated that the Merger Agreement would
contain an out for environmental matters since DD&D has already
retained an expert to conduct an environmental review of DI's
facilities and Purchaser will not enter into the Merger Agreement
before it has received a satisfactory report from this expert. In
addition, since DD&D has sufficient funds to consummate the merger
without outside financing, the Merger Agreement would not contain
a financing contingency. Also, all obligations of DI hereunder,
including its obligation to pay a fee pursuant to paragraph 9,
shall terminate if it is unable to obtain on oral fairness opinion
in customary form with respect to the transaction contemplated by
this letter by June 30, 1995; provided, however, that if an offer
for a Competing Transaction is received before that date, the fee
provided for in paragraph 9 shall be payable as provided therein.
If this letter of intent is acceptable to you, please sign a
copy and fax it back to DD&D. We understand that you will then
make an appropriate public announcement this morning. By the close
of business today we will each send to the other by Federal Express
for delivery tomorrow morning a manually signed copy of this letter
of intent. In reliance upon this letter of intent it is understood
that we will each incur substantial expenses negotiating the Merger
and S/O Agreements and in conducting due diligence.
Designatronics Incorporated
June 5, 1995
Page Five
Very truly yours, Accepted on June 5, 1995
DYSON, DYSON & DUNN, INC. DESIGNATRONICS INCORPORATED
By /s/ Joesph M. Dunn By /s/Martin Hoffman
Joseph M. Dunn Martin Hoffman