SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|X| Preliminary proxy statement
|_| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
|_| Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
DIMENSIONAL MEDICINE, INC.
(Name of Registrant as Specified in Its Charter)
DIMENSIONAL MEDICINE, INC.
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Items 22(a)(2) of Schedule A.
|_| $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which
transaction applies:
Common Stock, $.15 par value
(2) Aggregate number of securities to which transactions
applies:
32,533,460 shares of Common Stock
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
an aggregate $355,000, or approximately $.013 per
share, is to be paid for the 27,653,441 shares of
common stock held by the registrant's majority
shareholder; $.040 per share, or approximately
$195,000, is to be paid for the remaining 4,880,019
shares of the registrant's common stock.
(4) Proposed maximum aggregate value of transaction: an
aggregate $550,000
(5) Total fee paid: $110
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
L&V DRAFT 2/12/96
DIMENSIONAL MEDICINE, INC.
10901 BREN ROAD EAST
MINNETONKA, MN 55343
Dear Shareholder: _____________, 1996
You are cordially invited to attend a Special Meeting of Shareholders
of Dimensional Medicine, Inc. (the "Company"), which will be held on
____________, 1996 at a.m./ p.m., Central Standard Time, at the offices of the
Company at 10901 Bren Road East, Minnetonka, Minnesota.
The purpose of the Special Meeting is to consider and vote upon
approval of a Merger Agreement, dated as of February 5, 1996 (the "Merger
Agreement"), by and among the Company, Dynamic Healthcare Technologies, Inc.
("DHT"), DMI Acquisition Corp., a wholly owned subsidiary of DHT("Newco") and
National Computer Systems, Inc., the Company's principal shareholder ("NCS"),
pursuant to which the Company will be merged with and into Newco (the "Merger").
If the Merger is approved and is consummated, the Company will cease to exist
and the holders of the Company's common stock will receive an aggregate
$550,000, of which NCS, the holder of approximately 85% of the Company's
outstanding common stock, will be entitled to receive $355,000 or approximately
$.013 in exchange for each share of the Company's common stock, and the
remaining holders of the Company's common stock (the "Minority Shareholders")
will become entitled to receive in exchange for each share of Company common
stock they hold a cash payment of $.040, or approximately $195,000 in the
aggregate.
Enclosed is a Proxy Statement which describes the proposed Merger and
contains financial and other information relating to the Merger. You are urged
to read the Proxy Statement carefully.
The Board of Directors of the Company has concluded that the Merger is
in the best interests of the Company's shareholders and unanimously recommends
that you vote FOR the proposed Merger. NCS, which owns approximately 85% of the
outstanding shares of the common stock of the Company has, pursuant to the
Merger Agreement, agreed to vote all shares of such common stock held by it in
favor of the approval of the Merger (unless such vote would cause NCS to breach
its fiduciary duties under applicable law). NCS has indicated it intends to vote
in favor of the Merger, and, if NCS votes in such manner, approval of the Merger
is assured. In connection with the Company's approval of the Merger Agreement
the Board received the opinion of John G. Kinnard & Company, Incorporated that
both the aggregate consideration of $550,000 cash to be received for all
outstanding shares of common stock of the Company and the $.040 per share cash
to be received by the Minority Shareholders in connection with the Merger are
fair to the Minority Shareholders from a financial point of view.
We hope you will be able to attend the Special Meeting. Whether or not
you plan to attend, we urge you to complete, sign, date and return the
accompanying proxy in the enclosed business reply envelope to make certain that
your shares will be represented at the Special Meeting.
Promptly after the Merger, a Letter of Transmittal will be mailed to
all shareholders of record to use in surrendering their Company stock
certificates. Please retain your stock certificate until you receive a Letter of
Transmittal which will include instructions as to the procedure to be used in
sending your certificates.
Sincerely,
John P. Paumen
Chairman, President and
Chief Executive Officer
DIMENSIONAL MEDICINE, INC.
10901 BREN ROAD EAST
MINNETONKA, MN 55343
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD __________, 1996
----------------------------
Notice is hereby given that a Special Meeting of Shareholders of
Dimensional Medicine, Inc. (the "Company") will be held on ___________, _______,
1996 at ____ a.m./p.m. Central Standard Time at the offices of the Company at
10901 Bren Road East, Minnetonka, Minnesota, for the following purposes:
1. To approve the Merger Agreement, dated as of February 5,
1996 (the "Merger Agreement") by and among the Company, Dynamic
Healthcare Technologies, Inc. ("DHT"), DMI Acquisition Corp., a wholly
owned subsidiary of DHT ("Newco") and National Computer Systems, Inc.,
the Company's principal shareholder ("NCS"), pursuant to which the
Company will be merged with and into Newco (the "Merger"). Upon
consummation of the Merger, shares of the Company's common stock, par
value $.15 per share ("Common Stock") held by the Company's
shareholders will be converted into the right to receive an aggregate
$550,000 in cash, of which an aggregate $355,000, or approximately
$.013 per share, will be paid to NCS, and approximately $195,000, or
$.040 per share, will be paid to the Minority Shareholders and the
Company will cease to exist.
2. To transact such other business as may be properly brought
before the Special Meeting.
Only holders of record of shares of Company Common Stock outstanding at
the close of business on __________, 1996 will be entitled to notice of, and to
vote at, the Special Meeting and any adjournment or adjournments thereof. Prior
to the actual voting thereof, a proxy may be revoked by the person executing
such proxy by filing with the Secretary of the Company a written notice of
revocation, by a duly executed proxy bearing a later date or by voting in person
at the Special Meeting.
NCS, which owns approximately 85% of the outstanding shares of the
Common Stock has, pursuant to the Merger Agreement, agreed to vote all shares of
Common Stock held by it in favor of the approval of the Merger (unless such vote
would cause NCS to breach its fiduciary duties under applicable law). NCS has
indicated it intends to vote in favor of the Merger, and, if NCS votes in such
manner, approval of the Merger is assured.
Company shareholders have certain rights to dissent from the Merger and
to obtain payment for their shares pursuant to the provisions of Sections
302A.471 and 302A.473, of the Minnesota Business Corporation Act, copies of
which Sections are attached as Appendix C to the accompanying Proxy Statement.
By Order of the Board of Directors
John P. Paumen, Chairman, President and
Chief Executive Officer
Minnetonka, Minnesota
_________, 1996
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE MARK, SIGN AND DATE THE
ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
DIMENSIONAL MEDICINE, INC.
10901 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
--------------------
PROXY STATEMENT
--------------------
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of
Dimensional Medicine, Inc., a Minnesota corporation ("DMI" or the "Company"), in
connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Special Meeting of Shareholders of the Company to be held
at __________ a.m./p.m., Central Standard Time , on ____________________, 1996,
at the offices of the Company at 10901 Bren Road East, Minnetonka, Minnesota
55343, and at any adjournments or postponements thereof (the "Special Meeting").
The Special Meeting is being held for the purpose of voting upon the approval of
a Merger Agreement (the "Merger Agreement") providing for a merger transaction
(the "Merger") pursuant to which Newco will acquire the Company. The Merger
Agreement is attached to this Proxy Statement as Appendix A.
NCS, which owns approximately 85% of the outstanding shares of the
Common Stock has, pursuant to the Merger Agreement, agreed to vote all shares of
Common Stock held by it in favor of the approval of the Merger (unless such vote
would cause NCS to breach its fiduciary duties under applicable law). NCS has
indicated it intends to vote in favor of the Merger, and, if NCS votes in such
manner, approval of the Merger is assured.
The Company's directors and officers may solicit proxies from
shareholders by telephone or in person. Directors and officers will not receive
additional compensation for aiding in the solicitation. The cost of the
solicitation of proxies, if any, will be borne by the Company.
The close of business on __________, 1996 has been fixed as the record
date (the "Record Date") for the determination of shareholders entitled to
notice of, and to vote at, the Special Meeting and any adjournments thereof. On
the Record Date there were outstanding and entitled to vote 32,533,460 shares of
DMI Common Stock. Each share of Common Stock is entitled to one vote at the
Special Meeting. The shares of Common Stock shall continue to be transferable
until the effective time of the Merger.
All proxies that are properly executed and received in a timely manner
will be voted in accordance with the instructions noted thereon. Any properly
executed proxy which does not specify to the contrary will be voted in favor of
the approval of the Merger Agreement described herein. A shareholder giving a
proxy has the right to revoke it at any time before it is voted by filing with
the Secretary of the Company a written notice of revocation or a duly executed
later-dated proxy, or by attending the Special Meeting and voting in person.
The date of this Proxy Statement and the approximate date it will first
be mailed to shareholders is ____________________, 1996.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE TRANSACTIONS DESCRIBED IN THIS PROXY
STATEMENT OTHER THAN THOSE CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY DIMENSIONAL MEDICINE, INC. OR DYNAMIC HEALTHCARE TECHNOLOGIES, INC., OR THEIR
RESPECTIVE MANAGEMENTS OR AFFILIATES. EXCEPT AS OTHERWISE EXPRESSLY INDICATED,
ALL INFORMATION IS GIVEN AS OF THE DATE OF THIS PROXY STATEMENT.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information concerning the Company can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at Room
1400, Seven World Trade Center, 12th Floor, New York, New York 10048 and Suite
1400, Northwestern Atrium Center, 500 Madison Street, Chicago, Illinois 60604.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Annual Report on Form 10-K to Shareholders of the Company for the
fiscal year ended March 31, 1995 and the Company's Form 10-Q Quarterly Report
for the quarter ended December 31, 1995 accompany this Proxy Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. Documents relating to the Company
(excluding exhibits unless specifically incorporated therein) are available
without charge upon written or oral request to Mark D. Holman, Chief Financial
Officer, 10901 Bren Road East, Minnetonka, Minnesota 55343, telephone number
(612) 938-8280. In order to ensure timely delivery of the documents, any request
for documents from the Company should be made by _____________, 1996.
The following Company documents which have been filed by the Company
with the Commission are hereby incorporated by reference in this Proxy
Statement: (i) Annual Report on Form 10-K for the year ended March 31, 1995 and
(ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended July 30, 1995,
September 30, 1995 and December 31, 1995.
All documents filed by the Company pursuant to Sections 13(a) or 15(d)
of the Exchange Act after the date hereof and before the Special Meeting shall
be deemed to be incorporated herein by reference and to be a part hereof from
the date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained herein or in another subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Proxy Statement.
The information relating to the Company appearing in this Proxy
Statement does not purport to be comprehensive and should be read together with,
and is qualified in its entirety by, the information and financial statements
(including notes thereto) appearing in the documents incorporated herein by
reference.
ALL INFORMATION HEREIN REGARDING THE COMPANY AND ITS AFFILIATES HAS
BEEN FURNISHED BY THE COMPANY AND ALL INFORMATION IN THIS PROXY STATEMENT
REGARDING DHT AND ITS AFFILIATES HAS BEEN FURNISHED BY DHT. NO PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROXY STATEMENT IN CONNECTION WITH THE SOLICITATION OF PROXIES AND
OFFERING MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR NEWCO.
THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY, OR AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES, IN ANY
JURISDICTION IN WHICH SUCH SOLICITATION OR OFFER MAY NOT LAWFULLY BE MADE.
DIMENSIONAL MEDICINE, INC.
PROXY STATEMENT
TABLE OF CONTENTS
PAGE
INTRODUCTION.........................................................................1
AVAILABLE INFORMATION................................................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................................2
TABLE OF CONTENTS....................................................................4
SUMMARY..............................................................................5
GENERAL INFORMATION..................................................................9
Purpose of the Special Meeting..............................................9
Votes Required and Ownership................................................9
THE MERGER..........................................................................10
Background of the Merger...................................................10
Basis and Reasons for the Merger; Recommendation...........................13
Terms of the Merger Agreement..............................................14
Opinion of Investment Banker ..............................................16
Interests of Certain Persons in the Merger and Related Transactions........19
Employee Benefit Plans; Employment Agreements..............................19
Surrender of Stock Certificates............................................20
Deregistration of Company Common Stock.....................................20
Source of Funds............................................................20
Certain Federal Income Tax Consequences....................................21
Appraisal Rights...........................................................21
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT.......................25
PRICE RANGE OF COMMON STOCK, TRADING VOLUME AND DIVIDENDS...........................26
CAPITALIZATION......................................................................27
BUSINESS OF THE COMPANY.............................................................27
SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION.................................28
DESCRIPTION OF CAPITAL STOCK........................................................28
BUSINESS OF DHT.....................................................................28
EXPERTS.............................................................................28
SHAREHOLDER PROPOSALS...............................................................29
APPENDIX A - MERGER AGREEMENT .....................................................A-1
APPENDIX B - OPINION OF JOHN G. KINNARD & COMPANY, INCORPORATED....................B-1
APPENDIX C - TEXT OF MINNESOTA STATUTES SECTIONS...................................C-1
302A.471. Rights of dissenting shareholders..............................C-1
302A.473. Procedures for asserting dissenters' rights....................C-2
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement. This Summary does not contain a complete
statement of such information or of all material features of the proposed Merger
and is qualified in its entirety by reference to, and should be read in
conjunction with, the detailed information and financial statements contained
herein and in the appendices hereto. Capitalized terms used and not defined in
the following summary have the meaning set forth under "Introduction" above.
SPECIAL MEETING
A special meeting of shareholders of the Company will be held at the
offices of the Company at 10901 Bren Road East, Minnetonka, Minnesota 55343,
on________________, ________________________, 1996, at ______________ a.m./p.m.,
Central Standard Time, to consider and vote upon the proposed Merger.
DESCRIPTION OF MERGER
Company shareholders will be asked to consider and vote upon the Merger
Agreement by and between Newco, the Company and NCS, pursuant to which the
Company will be merged with and into Newco. If the Merger is approved and is
consummated, the Company will cease to exist and holders of Company Common Stock
will receive an aggregate $550,000, of which NCS, the holder of approximately
85% of the Company's outstanding Common Stock, will be entitled to receive
$355,000, or approximately $.013 in exchange for each share of Company Common
Stock it holds, and the remaining holders of the Company's Common Stock (the
"Minority Shareholders") will be entitled to receive $.040 in exchange for each
share of Company common stock they hold, or approximately $195,000 in the
aggregate. In addition, Newco shall retire existing indebtedness of DMI to NCS
represented by a promissory note dated March 31, 1995. Upon consummation of the
Merger, holders of Company Common Stock will have no continuing interest in the
future of the Company or Newco. See "THE MERGER - Terms of the Merger
Agreement."
SHAREHOLDER APPROVAL OF MERGER AGREEMENT
Under Minnesota law, the affirmative vote of at least a majority of the
outstanding shares of DMI Common Stock is required to approve and adopt the
Merger Agreement. NCS, which owns approximately 85% of the outstanding shares of
the Common Stock has, pursuant to the Merger Agreement, agreed to vote all
shares of Common Stock held by it in favor of the approval of the Merger (unless
such vote would cause NCS to breach its fiduciary duties under applicable law).
NCS has indicated it intends to vote in favor of the Merger, and, if NCS votes
in such manner, approval of the Merger is assured. See "GENERAL INFORMATION -
Votes Required and Ownership."
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors of DMI has unanimously approved the Merger
Agreement, having determined that the Merger is in the best interests of DMI and
its shareholders. Among the factors considered by the Board in approving the
Merger and the Merger Agreement and in making its recommendation were the $.040
per share to be paid in cash to the Company's Minority Shareholders and the
approximately $.013 per share to be paid in cash to NCS, the other terms of the
Merger, the current and anticipated competitive environment and market
conditions in the industry, the Board's knowledge of DMI's current and
anticipated business, financial condition and results of operations, and the
opinion of John G. Kinnard & Company, Incorporated that both the aggregate
consideration of $550,000 cash to be received for all outstanding shares of
common stock of the Company and the $.040 per share cash to be received by the
Minority Shareholders in connection with the Merger are fair to the Minority
Shareholders from a financial point of view. See "THE MERGER--Background of the
Merger" and "THE MERGER--Basis and Reasons for the Merger; Recommendation."
OPINION OF INVESTMENT BANKER
DMI's investment banker, John G. Kinnard & Company, Incorporated
("Kinnard") has rendered an opinion to the Board of Directors of DMI that both
the aggregate consideration of $550,000 cash to be received for all outstanding
shares of common stock of the Company and the $.040 per share cash to be
received by the Minority
Shareholders in connection with the Merger are fair to the Minority Shareholders
from a financial point of view. See "THE MERGER--Opinion of Investment Banker"
and the copy of such opinion annexed hereto as Appendix B.
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED TRANSACTIONS
At December 31, 1995, John P. Paumen, a member of the Board of
Directors of DMI, beneficially owned 62,361 shares, or 0.2% of all outstanding
Common Stock of the Company, excluding options (all of which have exercise
prices in excess of the per share cash consideration to be paid pursuant to the
Merger Agreement), and accordingly, has an interest in the Merger. Pursuant to
the Merger Agreement, approximately $2,495 will be paid with respect to the
shares of Common Stock beneficially owned by Mr. Paumen. Adrienne T. Tietz and
Mark D. Holman, the only other directors of the Company, do not beneficially own
any shares of Common Stock. However, Ms. Tietz is an executive officer of NCS,
the Company's majority shareholder, and Mr. Holman is an employee of NCS who
provides the services of Chief Financial Officer to the Company under a contract
between the Company and NCS. Pursuant to the Merger Agreement, NCS will receive
an aggregate $355,000, or approximately $.013 per share, for its shares of DMI
Common Stock. In connection with the Merger, Newco or DHT has agreed to (i) pay
to NCS the balance outstanding at the time of Closing under a promissory note
between the Company and NCS (estimated to be $602,000), (ii) obtain the release
of NCS from its guarantee of the Company's bank indebtedness, (iii) assume
guarantees provided by NCS of performance under certain customer service
contracts and (iv) obtain releases of NCS from certain customer and bank lease
commitments. In the event Newco or DHT is unable to secure the release of NCS
from such customer and bank lease commitments, Newco or DHT has agreed to
indemnify NCS against any losses relating to such commitments. See "THE MERGER -
Interests of Certain Persons in the Merger and Related Transactions" and
"BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT."
FINANCING THE MERGER
The source of funds for the transaction will come from DHT cash
resources. See BUSINESS OF DHT."
EFFECTIVE DATE
The Merger will become effective (the "Effective Date") when approved
by the Company's shareholders and upon the filing of documents necessary to
consummate the Merger with the Minnesota Secretary of State and the Florida
Secretary of State. The Effective Date is expected to be at 11:59 p.m., Central
Standard Time, on ____________________, 1996. Until the Effective Date, Company
shareholders will retain their equity interest in the Company and shares of
Common Stock shall continue to be transferable. At the Effective Date each
outstanding share of Common Stock held by Minority Shareholders, except those
shares held by shareholders who validly perfect appraisal rights, will be
converted into the right to receive $.040 in cash, without interest. At the
Effective Date, each outstanding share of Common Stock held by NCS will be
converted into the right to receive approximately $.013 in cash, or $355,000 in
the aggregate, without interest. See "THE MERGER - Terms of the Merger Agreement
- - Effective Date."
PAYMENT FOR SHARES; PAYING AGENT
Upon consummation of the Merger, Norwest Bank Minnesota, N.A. (the
"Paying Agent") will promptly distribute to each shareholder a Letter of
Transmittal and instructions for delivering their stock certificates to the
Paying Agent. Promptly after receipt of a properly executed Letter of
Transmittal, together with such holder's stock certificates, the Paying Agent
will distribute to each shareholder an amount of cash to which such holder is
entitled under the Merger Agreement. See "THE MERGER-- Surrender of Stock
Certificates."
CONDITIONS TO CONSUMMATION OF MERGER; REGULATORY APPROVALS
The obligations of the Company and Newco are each subject to the
satisfaction of certain conditions customary in transactions of this nature.
Upon successful satisfaction of all conditions, the Company and Newco will file
appropriate articles of merger with the respective Secretary of State in the
States of Minnesota and Florida. See "THE MERGER - Terms of the Merger Agreement
- -- Termination Rights; Conditions to the Merger."
RIGHTS OF DISSENTING SHAREHOLDERS
Company shareholders have the right to dissent from the Merger and,
subject to certain conditions provided for under Minnesota law, are entitled to
receive payment of the "fair value" of their Common Stock (herein "Appraisal
Rights"). Shareholders will be bound by the terms of the Merger unless they
dissent by complying with all of the requirements of Sections 302A.471 and
302A.473 of the Minnesota Business Corporation Act. Shareholders wishing to
dissent from the Merger must file with the Company, prior to the vote at the
Special Meeting, a written notice of any intention to demand the payment of fair
compensation for such shareholders' shares of Common Stock if the Merger is
effectuated, and such dissenting shareholders must not vote their shares in
favor of the Merger. Shareholders who fail to file such notice or vote in favor
of the Merger will be bound by the terms of the Merger. See "THE MERGER -
Appraisal Rights," Appendix C which is the full text of Sections 302A.471 and
302A.473 of the Minnesota Business Corporation Act.
FEDERAL INCOME TAX CONSEQUENCES OF MERGER
Cash paid to Company shareholders pursuant to the Merger or pursuant to
the exercise of Appraisal Rights will be a taxable transaction for federal
income tax purposes and may also be a taxable transaction under applicable
state, local and foreign tax laws. Shareholders are urged to consult their own
tax advisors. See "THE MERGER Certain Federal Income Tax Consequences."
BUSINESS OF THE COMPANY PENDING MERGER
The Company has agreed, pending consummation of the Merger, to conduct
its business in the ordinary course consistent with past practice and will use
its best efforts to maintain and preserve intact its business organization and
business relationships and to keep available the services of its present
officers and employees. The Company has also agreed to provide reasonable access
to its offices, properties, books and records to representatives of Newco in
connection with their evaluation of the business, assets and financial condition
and prospects of DMI. See "THE MERGER - Terms of the Merger Agreement - Business
of the Company Pending the Merger."
PRICE RANGE OF DMI COMMON STOCK
The Common Stock has been traded under the symbol "DIMM" in the
over-the-counter market since January 31, 1991. The price of the Common Stock
has ranged from $.01 to $.12 per share since January, 1995. On December 7, 1995,
the day immediately prior to the public announcement of the agreement between
DMI and Newco for the Merger, the closing sale price per share for the Common
Stock was $.03. The Board believes, based on the very small volume of trading in
the DMI Common Stock, that the historical trading prices are not representative
of the selling prices which could be expected for the sale of a large number of
shares of DMI Common Stock and expects that the anticipated selling price for a
large number of shares, independent of a transaction such as the Merger, would
be much lower than the historical prices. See "PRICE RANGE OF COMMON STOCK,
TRADING VOLUME AND DIVIDENDS."
BUSINESS OF THE COMPANY
DMI designs, develops and markets application software and imaging
workstations for the radiology medical market. The address of DMI's principal
executive offices is Dimensional Medicine, Inc., 10901 Bren Road East,
Minnetonka, Minnesota 55343 and its telephone number is (612) 938-8280. See
"BUSINESS OF THE COMPANY."
BUSINESS OF DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
DHT develops, markets, installs and supports clinical information
systems, document imaging solutions and DynamicVision(TM), on enterprise-wide,
multi-media software and servicer solutions that integrate health-related data
from many sources into a comprehensive electronic health record. Its principal
executive office is at 101 Southhall Lane, Suite 210, Maitland, Florida 32751.
Its telephone number is (407) 875-9991. See "BUSINESS OF DHT."
BUSINESS OF COMPANY SUBSEQUENT TO MERGER
If the Merger is consummated, the Company shall cease to exist and its
business will be conducted by Newco. See "BUSINESS OF THE COMPANY--Business of
the Company Subsequent to Merger."
GENERAL INFORMATION
PURPOSE OF THE SPECIAL MEETING
The Special Meeting is being held at __________ a.m./p.m., Central
Standard Time, on______________, 1996 at the offices of the Company at 10901
Bren Road East, Minnetonka, Minnesota 55343, to consider and act upon a proposal
to approve the Merger Agreement pursuant to which Newco will acquire the
Company.
The Company's Board of Directors has approved the Merger Agreement,
having determined that the acquisition of the Company by Newco is in the best
interests of the Company and its shareholders. The Board unanimously recommends
that shareholders vote FOR approval of the Merger Agreement.
Pursuant to and subject to the terms and conditions of the Merger
Agreement, on the Effective Date, NCS shall receive in exchange for its DMI
Common Stock, $355,000, or approximately $.013 per share, and each outstanding
share of DMI Common Stock held by the Minority Shareholders, except those shares
held by Minority Shareholders who validly perfect Appraisal Rights, will be
converted into the right to receive $.040 in cash, without interest, or
approximately $195,000 in the aggregate.
VOTES REQUIRED AND OWNERSHIP
Only holders of record of Company Common Stock at the close of business
on ________________, 1996 (the "Record Date"), are entitled to vote at the
Special Meeting. A quorum for purposes of conducting business at the Special
Meeting is a majority of the outstanding shares of Common Stock entitled to
vote. On the Record Date, the Company had outstanding 32,533,460 shares of
Common Stock entitled to vote at the Special Meeting. Each holder of Common
Stock on the Record Date is entitled to one vote for each share held. The
affirmative vote, in person or by proxy, of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Special Meeting is
required to approve and adopt the Merger Agreement.
Abstentions will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum and in tabulating
votes cast on proposals presented to shareholders, but as unvoted for purposes
of determining the approval of the matter. Consequently, an abstention will have
the same effect as a negative vote. If a broker indicates on the proxy that it
does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
NCS, the holder of approximately 85% of the outstanding DMI Common
Stock, has indicated it intends to vote FOR the Merger.
If the Merger is not consummated, the Company expects to continue to
seek merger or corporate partnering opportunities while operating generally in
accordance with the description of the business set forth under "BUSINESS OF THE
COMPANY" herein.
THE MERGER
BACKGROUND OF THE MERGER
On December 17, 1993, the shareholders of the Company approved the
issuance of (i) 27,533,441 shares of Common Stock to NCS resulting in NCS
holding approximately 85% of the then outstanding shares of the Company, and
(ii) 1,326,673 shares of Common Stock to the Company's Employee Stock Ownership
Plan (the "ESOP"), resulting in the ESOP holding approximately 5% of the then
outstanding shares of Common Stock, pursuant to an agreement with NCS which
provided for, among other things, the elimination of a significant portion of
the Company's outstanding indebtedness to NCS. At the closing, $4,857,000 was
outstanding and of this amount, only $1,105,000 was carried forward and
converted to a long-term note. This indebtedness resulted from the Company's
inability to repay trade accounts payable and notes payable to NCS. To that
point, the Company had operating losses and had struggled to meet its financial
obligations in every year since inception. A primary motivation for converting
the NCS indebtedness into Common Stock was to improve the Company's balance
sheet to facilitate sales and marketing efforts, which the Company believed had
been severely hampered by its financial position, and continuing uncertainty
about its ability to continue as a going concern.
Faced with continuing losses from operations and a continuing inability
to honor its repayment obligations to NCS, in May 1992, the Company engaged the
services of an investment banking firm to seek a strategic partner or investor
to acquire 80 to 90 percent of the Company, with the proceeds of such
acquisition to be used to repay the outstanding debt to NCS. During an
approximately one-year period of seeking such strategic partner or investor, the
investment banking firm approached approximately 40 to 50 entities, and the
Company had direct discussions with approximately 10 to 12 entities. By December
1993, none of the entities had offered acceptable proposals.
Subsequent to shareholder approval of the NCS debt restructuring and
stock issuance, the engagement of the investment banking firm was extended to
December 31, 1994, and the firm continued to seek purchasers or strategic
partners for the Company. By May 1994, a list of primary and secondary companies
had been targeted as potential purchasers or partners, and revised descriptive
materials had been forwarded and contacts initiated. By December 31, 1994, it
was the opinion of the Company's Board of Directors (the "Board") that the
efforts of the investment banking firm were unlikely to result in a firm
proposal from any of the potential partners or purchasers and the agreement with
the investment banking firm, in accordance with its terms, was allowed to
terminate with the exception of a provision in the agreement which permitted the
firm to receive a commission if the Company were to enter into a definitive
agreement or close a transaction on or before December 31, 1995.
Beginning in July 1995, the Board began contacting previously
identified and new potential purchasers to determine whether there was any
renewed interest in acquiring the Company. By the end of October 1995, two
companies submitted non-binding expressions of interest in pursuing transactions
with the Company, one from DHT to acquire all of the outstanding Common Stock
through a merger and the other from a company within the same general industry
(the "Other Company") to acquire all of the assets and certain of the
liabilities of the Company.
On November 2, 1995, the Board met to consider the proposals from DHT
and the Other Company. DHT proposed to acquire all of the NCS shares for an
aggregate purchase price of $300,000, or approximately $.01 per share, and the
shares held by all other shareholders (including the ESOP) (the "Minority
Shareholders") for approximately $.02 per share, in addition to prepaying or
assuming the remaining debt of the Company to NCS, reaching an agreement with
the Company's bank whereby the bank would release NCS from its corporate
guarantee of Company indebtedness, and agreements pursuant to which DHT would
assume commitments by NCS to service customers of the Company, and release of
NCS from certain lease commitments. The Other Company proposed to acquire all of
the assets of the Company and certain liabilities, including those associated
with NCS, with the result that, according to then current assumptions regarding
the Company's balance sheet, the Company's shareholders would all receive less
than $.01 per share. The Board reviewed the background of both proposals, the
viability and likelihood that the proposals could be consummated and other
factors related to DHT and the Other Company, the proposals and the resulting
impact on the Company's shareholders and on-going business. Concern was
expressed by the Board respecting both proposals and representatives of the
Company were directed to contact representatives of DHT and the Other Company to
further explore the proposals.
Between November 2 and November 21, 1995, representatives of the
Company communicated to the Other Company that the Directors were concerned that
without acquiring all of the liabilities, and following a liquidation of the
Company after a sale of all of the assets, there would insufficient proceeds
available for any distributions to shareholders. As a result of such
negotiations, the Other Company increased its offer to guarantee that the
Minority Shareholders would receive $42,250 in the aggregate, or $.008 per
share. The proposal contemplated that the Other Company would manage the
business pending the closing, that the Company would be prohibited from
discussing any further transactions with any other parties and would be
obligated to pay the Other Company $50,000 as a break-up fee if the Company were
to sell its business to another entity within the succeeding twelve (12) months
and required NCS to unconditionally agree to vote their shares in favor of the
transaction. The Board was concerned that the asset acquisition structure in the
proposal from the Other Company would result in excessive costs following the
transaction in winding up the business of the Company. Between November 2 and
November 21, 1995, representatives of the Company further investigated the
financial condition and background of DHT and encouraged both parties to
increase their proposed purchase prices.
On November 21, 1995, the Board met again to consider the two
proposals. Following review of both proposals, the Board decided to advise both
entities that they should make their best and final offer prior to the close of
business on November 22, 1995 and that the Board would meet again on November
24, 1995 to consider such final proposals and decide which to accept.
At the end of the day on November 22, 1995, the Other Company verbally
revised its proposal to reflect a merger transaction rather than an acquisition
of assets and to guarantee that the Minority Shareholders would receive an
aggregate $125,000, or $.025 per share and that NCS would receive $230,000, or
approximately $.008 per share. On November 24, 1996, the Board considered the
proposal from DHT and the Other Company, expressing concern that DHT had not
completed a pending recapitalization financing which would be necessary to fund
its proposal and observed that the aggregate price paid the Minority
Shareholders in the Other Company proposal was higher than the price paid by
DHT. As a result, the Board preliminarily concluded that it would be more
beneficial to the shareholders to accept the proposal from the Other Company and
requested that the Other Company revise its proposal in writing to reflect an
acceptable form of merger transaction rather than an acquisition of assets and
less than all of the liabilities. Subsequent to the meeting, representatives of
the Company communicated its conclusions to the Other Company and the Other
Company indicated it would submit a revised non-binding letter of intent.
On November 27, 1995, the Other Company furnished the Company a revised
non-binding letter of intent which reflected a merger transaction and included
conditions to consummation of the merger related to the minimum amount of assets
and maximum amount of liabilities of the Company, limitations on the amount of
expenses allowed in connection with the shareholder approval process, an
increase in the break-up fee from $50,000 to $100,000, a limited form of
fiduciary-out which would allow the Board to consider alternative offers which
yielded the shareholders more value for their stock and other terms which
representatives of the Company determined were unacceptable. Between November 27
and December 1, 1995, representatives of the Company negotiated with
representatives of the Other Company the terms of the non-binding letter of
intent without success in achieving terms which would have been deemed
acceptable to the Board. During this period, DHT indicated it would be willing
to revise its proposal to increase the consideration payable to Minority
Shareholders from $.02 per share to $.04 per share and retire the NCS debt at
closing and increase the cash payment to NCS from $300,000 to $355,000 (or
approximately $.013 per share). The Board also received confirmation from DHT's
investors that DHT was about to complete its proposed equity financing
transaction. On December 1, 1995, following negotiation with representatives of
the Company, the Other Company submitted its final proposal in the form of a
non-binding letter of intent which reflected an aggregate payment of $.025 to
Minority Shareholders, a $100,000 break-up fee, an exclusive dealing requirement
with a limited fiduciary-out for the Board and other provisions which had
previously been deemed unacceptable to the Board, although the condition with
respect to the minimum amount of assets and maximum amount of liabilities which
would be acceptable was eliminated.
On December 4, 1995, the Board met again to consider the final
proposals submitted by DHT and the Other Company and concluded that the proposal
by DHT was superior in terms of consideration to the shareholders and DHT's
willingness to execute a merger transaction with the maximum degree of
probability that it would be consummated. On December 5, 1995, the Board signed
a letter of intent with DHT on terms which provided for a merger between DHT and
the Company whereby NCS would receive an aggregate $355,000, or approximately
$.013 per share, the Minority Shareholders would receive approximately $195,000
or $.040 per share, and DHT would deposit $50,000 to be applied against the
aggregate purchase price. DHT agreed to (i) pay to NCS the balance outstanding
at the time of closing under a promissory note between the Company and NCS, (ii)
obtain the release of NCS from its guarantee of the Company's bank indebtedness,
(iii) assume guarantees of performance under certain customer service contracts
and (iv) obtain releases of NCS from certain customer and bank lease
commitments. The proposal did not require a break-up fee and was subject to a
number of conditions including Board approval of a definitive agreement and,
ultimately, shareholder approval of the merger.
Between December 6 and December 21, 1995, the Other Company expressed
to representatives of the Company its continuing desire to acquire the Company.
On December 11, 1995, the Other Company proposed a total cash payment of
$700,000 ($455,000 for the NCS shares and $245,000 for the minority shares).
Subsequently, on December 21, 1995, the Other Company proposed a total cash
payment of $745,000 ($360,000 for the NCS shares and $385,000 for the minority
shares). However, the communications were made in the form of non-binding
letters of intent and required additional due diligence investigation of the
Company prior to making a formal offer, notwithstanding repeated communications
from representatives of the Company that, given the executed letter of intent
with DHT and the prior unwillingness of the Other Company to revise its letter
of intent to reflect acceptable terms, the Company would not be in a position to
formally entertain any communication from the Other Company unless such
communication was in the form of a proposed definitive merger agreement. The
Board concluded that the price differential between the Other Company proposal
and the DHT proposal was not sufficiently large to justify pursuing the proposal
from the Other Company at the risk of jeopardizing the executed DHT agreement.
The Other Company did not submit a definitive merger agreement for consideration
by the Board.
BASIS AND REASONS FOR THE MERGER; RECOMMENDATION
The Board of Directors of the Company has unanimously approved the
Merger Agreement and believes that the Merger is in the best interests of the
shareholders of the Company. The Board of Directors unanimously recommends to
the shareholders that they vote FOR approval of the Merger Agreement. The Board
believes that the Company, its shareholders and employees will benefit from the
Merger.
In reaching these conclusions, the Board considered many factors
including, but not limited to, the following:
(i) the terms of the Merger Agreement, including the $.040 to be paid
per share to the Company's Minority Shareholders and the approximately $.013 to
be paid per share to NCS and the fact that such shareholders will have the
opportunity to dispose of all Common Stock for cash, particularly given the
Board's observation that the market for trading the Common Stock is very limited
in its volume capacity and that it is unlikely that an active market will
develop;
(ii) the current and anticipated competitive environment and market
conditions in the Company's industry and product markets, including (a) the
trend in the Company's industry towards consolidation making it increasingly
difficult for the Company, which has limited product offerings, to remain
competitive, (b) the Company's continuing decline in revenues and its inability
to meet not only existing debt obligations but business expenses in the ordinary
course, (c) the Company's lack of cash resources to fund necessary product
upgrades and modifications to retain current market share, and (d) the favorable
response of the Company's customers to DHT, its products offerings and its
management team;
(iii) the Company's book value per common share, its historical
earnings and cash flow, its scheduled debt repayment obligations and its
projected inability to meet those obligations;
(iv) the Company's persistently weak cash flow and its reliance on NCS
for indebtedness guarantees, customer service guarantees, trade credit and
corporate support and the stated historical position of NCS that it does not
intend to support the Company indefinitely;
(v) the alternatives to an acquisition of the Company that might be
available, including either attempting to remain as an independent company,
notwithstanding its financial obstacles, or filing for protection under the
federal bankruptcy laws;
(vi) the ability and willingness of DHT to consummate the Merger
promptly and the availability of sufficient cash to do so;
(vii) the ability of DHT to contribute to the future growth, viability
and success of the Company in a consolidating industry with customers requiring
greater depth and resources in order to enhance and service products;
(viii) the inadequate nature of the non-binding indication of interest
expressed by the Other Company, which was the only other party to express any
firm interest in acquiring the Company following over two years of search for a
strategic partner or purchaser, combined with the requirement of the Other
Company that DMI commit to a $100,000 "bust-up" fee, which would effectively
prohibit consideration and acceptance of any other proposals, including the DHT
proposal;
(ix) the opinion of Kinnard with respect to the fairness of both the
aggregate consideration of $550,000 cash to be received for all outstanding
shares of common stock of the Company and the $.040 per share cash to be
received by the Minority Shareholders in connection with the Merger. See
"Opinion of Investment Banker," below; and
(x) the interests of the Company's employees, customers, and creditors.
The Board approval and recommendation of the Merger were conditioned
upon receipt of an opinion of an investment banker with respect to the fairness
of the aggregate $550,000 to be received by DMI's shareholders and, in
particular, the $.040 to be received by the Minority Shareholders in the Merger.
DMI has received the opinion of Kinnard that both the aggregate consideration of
$550,000 cash to be received for all outstanding shares of common stock of the
Company and the $.040 per share cash to be received by the Minority Shareholders
in connection with the Merger are fair to the Minority Shareholders from a
financial point of view. See "Opinion of Investment Banker," below.
In view of the wide variety of factors considered in connection with
its evaluation of the Merger, the Board did not find it practicable to assign
relative weights to the specific factors considered in reaching its decision.
TERMS OF THE MERGER AGREEMENT
The following description of certain terms of the Merger Agreement is
only a summary and does not purport to be complete. This discussion is qualified
in its entirety by reference to the complete text of the Merger Agreement set
forth in Appendix A hereto.
The Merger Transactions. DHT incorporated Newco, a corporation in which
DHT holds all of the outstanding stock, solely for the purpose of effecting the
Merger. Newco is not currently engaged in any other business. Under the Merger
Agreement, Newco is to be merged with and into the Company, with Newco being the
surviving corporation. The Company will cease to exist. The Certificate of
Incorporation and By-Laws of Newco in effect at the time such merger becomes
effective shall become the Certificate of Incorporation and By-Laws of the
surviving corporation.
NCS, which owns approximately 85% of the outstanding shares of the
Common Stock has, pursuant to the Merger Agreement, agreed to vote all shares of
Common Stock held by it in favor of the approval of the Merger (unless such vote
would cause NCS to breach its fiduciary duties under applicable law). NCS has
indicated it intends to vote in favor of the Merger, and, if NCS votes in such
manner, approval of the Merger is assured.
Conversion of Common Stock. Shares of DMI Common Stock shall continue
to be transferable until the Effective Date. Pursuant to and subject to the
terms and conditions of the Merger Agreement, on the Effective Date each
outstanding share of Common Stock held by Minority Shareholders, except those
held by shareholders who validly perfect Appraisal Rights, will be converted
into the right to receive $.040 in cash, without interest. Each outstanding
share of Common Stock owned by NCS will on the Effective Date be converted into
the right to receive approximately $.013 in cash, or $355,000 in the aggregate,
without interest. See "BUSINESS OF THE COMPANY." The aggregate consideration
payable to DMI shareholders pursuant to the Merger Agreement is approximately
$550,000.
Effective Date. The Effective Date of the Merger, on which date the
closing of the Merger will occur and the conversion of the Common Stock will
become effective, will be the date set forth in the articles of merger as filed
with the Secretary of State of the States of Minnesota and Florida. This filing
will occur as soon as practicable following the approval of the Merger Agreement
by the shareholders of the Company and the satisfaction of other conditions
under the Merger Agreement. The Effective Date is currently expected to take
place at 11:59 p.m., Central Standard Time, on __________, 1996. Consummation of
the Merger is subject to certain conditions. See "Termination Rights; Conditions
to the Merger," below.
Representations; Warranties. The Company and Newco have each made
certain representations and warranties in the Merger Agreement with respect to,
among other things, their organization and good standing, due authorization and
authority to enter into and perform their respective obligations under the
Merger Agreement. The Company has also made representations and warranties with
respect to many aspects of the Company's financial condition, properties and
operations. NCS makes representations and warranties with respect to its due
authorization and authority to enter into and perform its obligations under the
Merger Agreement and its good and marketable title to the shares of DMI Common
Stock it owns, free and clear of claims or encumbrances of any kind. NCS has, to
its knowledge, also represented and warranted that the representations and
warranties of the Company are true. NCS has agreed to indemnify Newco against
certain losses with respect to such representation and warranties.
Termination Rights; Conditions to the Merger. The Merger Agreement
provides that the Merger may be abandoned at any time prior to the Effective
Date (whether before or after approval thereof by the shareholders of the
Company) by mutual written consent of the parties, or by the Company, on one
hand, or Newco, on the other hand, for the reasons set forth below.
Either the Company, on the one hand, or Newco, on the other hand, may
terminate the Merger Agreement, in which event the Merger will not take place,
in the event that (i) there has been a material misrepresentation, material
breach of warranty or violation of any material covenant on the part of the
other party in the representations, warranties and covenants contained in the
Merger Agreement; (ii) the Merger has not been consummated by May 15, 1996
(provided that a failure of the party seeking to terminate the Agreement to
fulfill any of its obligations under the Merger Agreement shall not have been
the reason that the Merger has not yet been consummated); (iii) any law or
regulation makes consummation of the Merger illegal or otherwise prohibited or
any judgment, injunction, order or decree enjoining the Company or Newco from
consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable; or (iv) the vote of the Company's
shareholders fails to adopt and approve the Merger Agreement.
The parties' obligations to effect the Merger are subject to various
conditions, including (i) approval of the Merger Agreement by holders of a
majority of the Common Stock of DMI; and (ii) absence of any provision of any
applicable law or regulation, and of any judgment, injunction, order or decree,
prohibiting the consummation of the Merger.
Conditions precedent to the obligations of Newco to effect the Merger
include: (i) the accuracy of certain representations and warranties of DMI and
NCS made in the Merger Agreement and the performance of certain covenants of DMI
and NCS contained in the Merger Agreement; (ii) the receipt of certain
certificates and legal opinions; and (iii) the receipt of consents, approvals or
waivers from third parties required to consummate the Merger.
Conditions precedent to the obligations of DMI and NCS to effect the
Merger include: (i) the accuracy of the representations and warranties of Newco
in the Merger Agreement and performance of certain covenants of Newco contained
in the Merger Agreement; (ii) the receipt of certain certificates and legal
opinions; (iii) payment of the balance outstanding under that certain promissory
note dated March 31, 1995 from the Company to NCS; (iv) receipt of an agreement
between Newco and Norwest Bank (the "Bank") releasing NCS from its guarantee of
the line of credit between DMI and the Bank; and (v) release of certain other
guaranties as described under "Interests of Certain Persons in the Merger and
Related Transactions," below.
The foregoing conditions may be waived by the party or parties affected
by such waiver.
Pursuant to the Merger Agreement, the Company has agreed not to
actively solicit offers from other parties that would result in the sale of all
or substantially all of its assets, its capital stock, its merger with or into
another entity or any other business combination.
Upon successful consummation of all conditions, the Company and Newco
will file appropriate articles of merger with the respective Secretary of State
in the States of Minnesota and Florida.
Amendments. The Merger Agreement may be amended or modified at any time
prior to the Effective Date, whether before or after the Special Meeting, with
the approval of the parties to the Merger Agreement.
Business of the Company Pending the Merger. The Company has agreed,
among other things, that pending consummation of the Merger, unless Newco agrees
otherwise, the Company shall conduct its business in the ordinary course
consistent with past practice and will use its best efforts to maintain and
preserve its business organization and business relationships and to keep
available the services of its present officers and employees. The Company has
further agreed that, pending consummation of the Merger, it will (i) provide
Newco with weekly written or telephonic reports relating to the Company's
business operations and (ii) enter into joint marketing activities with Newco.
The Company has also agreed, among other things, to afford to
representatives of Newco access to its offices, properties, books and records,
and to furnish promptly to Newco and its representatives all information
reasonably required by them to become familiar with the operations of the
Company. Newco has agreed to maintain the confidentiality of such information.
Escrow Arrangement. As a condition to entering into the Merger
Agreement, the Company required that DHT deposit $50,000 (the "Escrow Fund")
with Gibraltar Bank - FSB, Miami, Florida (the "Escrow Agent"). Pursuant to the
Letter of Intent dated December 4, 1995, as modified on January 30, 1996,
between DHT and the Company, the Escrow Fund shall be payable to the Company in
the event the Merger Agreement is terminated, provided the Company is not in
material breach of the Merger Agreement.
OPINION OF INVESTMENT BANKER
General. After completing the majority of the negotiations of the
Merger Agreement but prior to execution of the Merger Agreement, the Board of
Directors of the Company retained Kinnard to render its opinion with respect to
the fairness from a financial point of view of the cash consideration to be
received by the Company's Minority Shareholders pursuant to the Merger
Agreement. Kinnard was first contacted by the Company on October 31, 1995, at
which time it was informed about the pending transaction and was asked to submit
a proposed engagement letter for purposes of providing a fairness opinion in
connection with the pending transaction. Kinnard did not determine the amount of
the cash consideration to be received by the shareholders of the Company in the
Merger. In requesting Kinnard's opinion, the Board of Directors of the Company
did not give any special instructions to or impose any limitations upon the
scope of the investigation which Kinnard might wish to conduct to enable it to
give its opinion. Kinnard has delivered to the Company its written opinions,
respectively, dated February 5, 1996 and the date of this Proxy Statement, to
the effect that, based upon and subject to the matters set forth therein, as of
those dates, both the aggregate consideration of $550,000 cash to be received
for all outstanding shares of common stock of the Company and the $.040 per
share cash to be received by the Minority Shareholders in connection with the
Merger are fair to the Minority Shareholders from a financial point of view.
In preparing its opinion as to the fairness of the consideration to be
paid pursuant to the Merger from a financial point of view, Kinnard has, among
other things, reviewed and studied publicly available information regarding DMI,
the Merger Agreement and various other information provided by management of
DMI. Representatives of Kinnard have visited DMI's facilities and have discussed
the current business environment and the business and financial outlook for DMI
with management of DMI. Kinnard has analyzed the historical market prices and
earnings of the Common Stock, as well as profitability, rates of return,
capitalization, dividends and other relevant factors. Kinnard has also reviewed
the terms of selected relevant mergers and acquisitions and has analyzed the
general economic outlook of companies involved in the health care information
systems and product industries. Kinnard has relied without independent
verification upon the accuracy and completeness of all the financial and other
information reviewed by Kinnard for purposes of their opinion. Kinnard has not
made an independent appraisal of DMI's assets and expresses no opinion regarding
the liquidation value of DMI. In connection with the opinion of Kinnard, DMI did
not impose any limitation on the scope of Kinnard's investigation with respect
to the business and financial condition of DMI.
Kinnard is an investment banking firm engaged, among other things, in
the valuation of businesses and their securities in connection with mergers and
acquisitions, underwriting and secondary distributions of securities, private
placements and valuation for estate, corporation and other purposes. The Board
of Directors selected Kinnard to provide the opinion because of Kinnard's
experience in providing investment banking and financial advisory services.
Other than providing this opinion, Kinnard has not provided any investment
banking services on behalf of DMI. However, Kinnard has in the past performed
valuations relating to DMI exclusively for NCS.
THE FULL TEXT OF THE OPINION OF KINNARD DATED THE DATE OF THIS PROXY
STATEMENT IS ATTACHED HERETO AS APPENDIX B. THE FOLLOWING SUMMARY OF THE KINNARD
OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
KINNARD OPINION. DMI SHAREHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY
FOR A COMPLETE DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS OF THE REVIEW UNDERTAKEN. THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS OF THE REVIEW UNDERTAKEN CONTAINED IN THE OPINION DATED FEBRUARY 5, 1996
ARE SUBSTANTIALLY THE SAME AS THOSE CONTAINED IN THE OPINION DATED THE DATE OF
THIS PROXY STATEMENT AND ATTACHED HERETO AS APPENDIX B.
In arriving at its opinion, Kinnard reviewed, analyzed and relied upon
material that bears upon the financial and operating condition and prospects of
DMI and material prepared in connection with the Merger, and considered such
financial and other factors as it deemed appropriate under the circumstances,
including, among other things, the following: (i) a draft dated January 29, 1996
of the proposed Merger Agreement by and between DMI, DHT and Newco; (ii)
publicly available information on DMI, including annual and quarterly reports,
proxy statements, stock price and volume history and recent press releases;
(iii) financial projections prepared by DMI; (iv) the historical pricing and
trading activity for DMI; and (v) conducted such other studies, analyses and
inquiries as Kinnard deemed appropriate. Kinnard also held discussions with
senior management for DMI concerning its past and current business operations,
the background and rationale for the proposed Merger, the financial condition,
operating performance, balance sheet characteristics and prospects of the
business. In addition, in connection with rendering its opinion dated the date
of this Proxy Statement, Kinnard reviewed the executed Merger Agreement dated
February 5, 1996 and this Proxy Statement.
Kinnard believes that its analyses must be considered as a whole and
that selecting portions of its analyses without considering all factors and
analyses would create an incomplete view of the analyses and process underlying
their opinion. Any estimates contained therein are not necessarily indicative of
actual values, which may be significantly more or less favorable than as set
forth therein. No company or transaction used as a comparison in the analyses is
identical to DMI or to the Merger. Because such estimates are inherently subject
to uncertainty, neither the DMI Board, Kinnard or any other person assumes
responsibility for the accuracy of such estimates.
In preparing its opinion, Kinnard indicated it did not perform a
discounted cash flow analyses in view of the significant uncertainty concerning
the future financial solvency of DMI (considering DMI's projected inability to
make the scheduled payment on its promissory note due NCS in April 1996 and the
absence of free cash flow). Consequently, a discounted cash flow analyses was
not considered meaningful.
Kinnard reviewed the trading volume and trading price of the DMI Common
Stock on a daily and monthly basis since January 2, 1995. This analyses
indicated extremely sporadic and small trading volumes in the DMI Common Stock.
Throughout the period until the December 8, 1995 date of announcement of the
signing of a non-binding letter of intent with DHT relating to the proposed
Merger, the low trading price ranged from $.02 per share to $.10 per share and
the high trading price ranged from $.02 per share to $.12 per share, with an
average low of $.04 and an average high of $.04. Kinnard indicated that very
small shifts in price resulted in high percentage shifts, due to the low trading
values of the Company's Common Stock. Furthermore, given the lack of significant
volume and research coverage, Kinnard indicated the market was inefficient and
the price was not a good indicator of value. However, the analyses indicated
that the price paid Minority Shareholders was generally within the trading range
of the DMI Common Stock.
Kinnard reviewed selected transactions deemed relatively comparable to
the Merger, which were acquisitions of unprofitable businesses by publicly
traded companies where the transaction size was between $500,000 and $3,000,000.
The analyses of these 52 transactions included a comparison of the value of the
transaction (considered the payment for equity plus debt) as compared to the
target's sales (the "value/sales") and an analyses of the offering price (the
amount paid for the target's equity) as compared to the target's book value (the
"offering price/book value"). The analyses indicated a mean value/sales of
65.55% and a median value/sales of 42.25% and of a mean offering price/book
value of 2.2x and a median offering price/book value of 1.35x. The Merger
value/sales when considering the total offer to NCS and the Minority
Shareholders was 41.03% and the offering price/book value was 3.59x. When
considering the consideration paid to the Minority Shareholders, the value/sales
was 55.32%, well within the range of mean and median value/sales, and the
offering price/book value was 8.51x, well in excess of the mean and median
offering price/book value. Kinnard also screened for transactions in the health
care information industry, but determined that the transactions were not
relevant to the Merger because they either involved companies that were
significantly larger and financially stronger than DMI or were transactions
involving private companies where reliable financial information was not
available.
Kinnard also reviewed in connection with its analyses, various trends
in the industry which reflected a consolidating industry where customers were
demanding greater resources and services from suppliers and compared that trend
to DMI's declining sales, need for product upgrades, financial insecurity and
the adverse impact of limited product development and support. In connection
with the industry review, Kinnard also analyzed the financial performance and
market valuations for selected publicly traded companies which compete with the
Company in the health care information technology industry. All of theses
companies are significantly larger and financially stronger than the Company.
Kinnard also reviewed the process whereby DMI conducted a thorough search for a
purchaser or strategic partner which resulted in negotiations with two potential
purchasers and a final proposal which yielded the maximum consideration to the
Minority Shareholders available from potential acquirors. This process, combined
with an analysis of DMI's prospects without a sale or strategic partnering
arrangement (which indicated that a wind-down scenario of the Company's affairs
as prepared by DMI management would yield no consideration to the shareholders),
was an important justification for fairness, from a financial point of view, of
the Merger.
DMI has agreed to pay Kinnard a fee equal to $25,000, including $15,000
which has previously been paid and $10,000 being paid on the date of this Proxy
Statement. This fee was not contingent on the ability of Kinnard to render its
opinion relating to the Merger. DMI has agreed to reimburse Kinnard for its
reasonable out-of-pocket expenses. DMI has also agree to indemnify Kinnard
against certain liabilities to which Kinnard may become subject, including
liabilities under the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED TRANSACTIONS
As of December 31, 1995, John P. Paumen, a member of the Board of
Directors of DMI, beneficially owned 62,361 shares, or 0.2% of all outstanding
Common Stock of the Company, excluding options (all of which have exercise
prices in excess of the per share cash consideration to be paid pursuant to the
Merger Agreement), and accordingly, has an interest in the Merger. Pursuant to
the Merger Agreement, approximately $2,495 will be paid with respect to the
shares of Common Stock beneficially owned by Mr. Paumen. Adrienne T. Tietz and
Mark D. Holman, the only other directors of the Company, do not beneficially own
any shares of Common Stock. However, Ms. Tietz is an executive officer of NCS,
the Company's majority shareholder, and Mr. Holman is an employee of NCS who
provides the services of Chief Financial Officer to the Company under a Services
Agreement dated as of June 1, 1994, as amended, between the Company and NCS. The
directors will have no further association with DMI after the Merger.
As of December 31, 1995, NCS held 27,653,441 shares of Common Stock in
the aggregate, or 85% of all outstanding shares, and, accordingly, has a
significant interest in the Merger. Pursuant to the Merger Agreement, NCS will
receive an aggregate $355,000, or approximately $.013 per share, for its shares
of DMI Common Stock. In connection with the Merger, Newco or DHT has agreed to
(i) pay to NCS the balance outstanding at the time of closing under a promissory
note between the Company and NCS (estimated to be $602,000), (ii) obtain the
release of NCS from its guarantee of the Company's bank indebtedness in the
amount of $500,000, (iii) assume guarantees provided by NCS of performance under
certain customer service contracts and (iv) obtain releases of NCS from certain
customer and bank lease commitments. In the event Newco or DHT is unable to
secure the release of NCS from such customer and bank lease commitments, Newco
or DHT has agreed to indemnify NCS against any losses relating to such
commitments. See "Employee Benefit Plans; Employment Agreements," below and
"BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT."
EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS
All of the options granted under DMI's 1983 Employee Incentive Stock
Option Plan (the "1983 Plan") and DMI's 1987 Employee Incentive Stock Option
Plan (the "1987 Plan") and outstanding as of the Effective Date will be
terminated as of the Effective Date. At December 31, 1995, there were
outstanding under the 1983 Plan and 1987 Plan options to purchase 186,750 and
49,500 shares of Common Stock, respectively. The exercise prices of such options
range from $.25 to $.34 per share. As of December 31, 1995, all executive
officers and directors as a group (3 persons) held incentive stock options to
purchase 25,000 shares at an average exercise price of $.30 per share.
Employees participating in the DMI Employee Stock Ownership Plan and
Trust (the "ESOP Plan") will also receive cash payments in connection with the
Merger. The total cash amount payable to all employees upon termination of the
ESOP Plan is estimated to be $65,067, including approximately $2,414 payable to
executive officers and directors as a group.
Except as described above and in "Interests of Certain Persons in the
Merger and Related Transactions.", no director or officer of DMI has any
material direct or indirect interest in the Merger. For additional information
regarding DMI stock options, see Note 5 to the Company's Financial Statements
included in the Company's annual report on Form 10-K which accompanies this
Proxy Statement.
SURRENDER OF STOCK CERTIFICATES
As soon as practicable after the Effective Date, Norwest Bank
Minnesota, N.A. (the "Paying Agent") will mail a transmittal form (a "Letter of
Transmittal") to each holder of DMI Common Stock of record at the close of
business on the Effective Date, advising such holder of the procedures for
surrendering to the Paying Agent any such certificates for exchange. If payment
is to be made to a person other than the person in whose name the certificate is
registered, the person requesting such payment shall pay any transfer or other
taxes required by reason of such payment in a name other than that of the
registered holder or must establish to the satisfaction of the Paying Agent that
such tax either has been paid or is not applicable.
The Paying Agent will not accept unsurrendered certificates formerly
representing Common Stock more than six months after the Effective Date.
Following such period, Newco, as the surviving corporation of the Merger, upon
proper surrender to it of any unsurrendered certificates and other required
documents, will pay to the record holder of such shares the consideration to be
paid in the Merger. If any certificates representing any such shares are not
surrendered prior to three years after the Effective Date (or immediately prior
to such earlier date on which any payment in respect thereof would otherwise
escheat to or become the property of any governmental unit or agency), the
payment in respect of such certificates shall, to the extent permitted by
applicable law, become the property of Newco, free and clear of all claims or
interest of any person previously entitled thereto.
No interest will accrue or be paid on the cash payable upon the
surrender of such certificates. From and after the Effective Date, the holders
of certificates evidencing ownership of shares of Common Stock will cease to
have any rights with respect to such shares, except the right to receive the
consideration to be paid in the Merger and any rights provided by law. See
"Appraisal Rights," below.
Upon the surrender and exchange of certificates by a shareholder, the
holder will be paid, without interest thereon, the amount of cash to which such
holder is entitled under the Merger Agreement, less only any amount required to
be withheld under applicable backup withholding federal income tax regulations.
See "Certain Federal Income Tax Consequences," below. Certificates should not be
surrendered until the Letter of Transmittal is received.
DEREGISTRATION OF COMPANY COMMON STOCK
If the Merger is consummated, DMI Common Stock will no longer be traded
on the over-the-counter market. After the Effective Date, DMI will undertake to
deregister the Common Stock under the Securities Exchange Act of 1934.
SOURCE OF FUNDS
The funds for the transaction will come from the cash resources of DHT.
See "BUSINESS OF
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash by a DMI shareholder pursuant to the Merger or
pursuant to the exercise of Appraisal Rights will be a taxable transaction for
such shareholder for federal income tax purposes and may also be a taxable
transaction under applicable state, local and foreign tax laws. The following
summarizes the federal income tax consequences, under currently applicable law,
to a shareholder who is a citizen or resident of the United States or is
otherwise subject to United States federal income taxation on a net income basis
other than (i) a shareholder who acquired Common Stock pursuant to the exercise
of stock options or otherwise as compensation; (ii) shareholders who own Common
Stock under special circumstances, such as shareholders that hedge their
investment in Common Stock, pursuant to options in that stock or otherwise; and
(iii) shareholders subject to special tax rules, such as financial institutions,
tax-exempt organizations, insurance companies, dealers in stock or securities,
and foreign corporations and individuals who are not citizens or residents of
the United States.
A shareholder will recognize gain or loss equal to the difference, if
any, between the amount of cash to be received pursuant to the Merger or
pursuant to the exercise of Appraisal Rights and the adjusted tax basis of the
shares of Common Stock exchanged. To the extent that the shares of Common Stock
exchanged are held as capital assets, any such gain or loss will be
characterized as a capital gain or loss for federal income tax purposes. If the
shares were held for more than one year, any such capital gain or loss will be a
long-term capital gain or loss. Any capital gains recognized pursuant to the
Merger will be subject to tax. Currently, the maximum federal capital gains tax
rate is 28% for individuals and 35% for corporations. Any long-term capital
losses recognized by a shareholder pursuant to the Merger will be allowed to
offset any long-term capital gains recognized by that shareholder during the
taxable year. Individual shareholders also may offset up to $3,000 of their
ordinary taxable income, if any, by any capital losses recognized during the
taxable year. Individual shareholders may carryover indefinitely any excess
capital losses incurred to future taxable years. Corporate shareholders may
carry any excess capital losses back to the three preceding taxable years and
forward to the five succeeding taxable years.
Under the backup withholding rules contained in the Internal Revenue
Code and its regulations, DMI or the Paying Agent may be required to withhold
20% of the gross amount of any payments to certain shareholders. In order to
avoid such backup withholding, each shareholder (other than corporations and
other persons exempt from such backup withholding) should provide the Paying
Agent with the shareholder's taxpayer identification number (i.e., social
security number or employer identification number) in accordance with the
instructions included in the Letter of Transmittal.
THE ABOVE DISCUSSION WITH RESPECT TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER IS FOR GENERAL INFORMATIONAL PURPOSES ONLY.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE TAX
CONSEQUENCES THAT MAY BE RELEVANT TO THEM IN CONNECTION WITH THE MERGER AND
PURSUANT TO THE EXERCISE OF APPRAISAL RIGHTS, AS WELL AS THE APPLICATION TO THEM
OF ANY STATE, LOCAL, FOREIGN, OR OTHER TAX LAWS.
APPRAISAL RIGHTS
Pursuant to Sections 302A.471 and 302A.473 (the "Sections") of the
Minnesota Business Corporation Act, holders of DMI Common Stock are entitled to
assert Appraisal Rights in connection with the Merger and obtain payment of the
"fair value" of their DMI Common Stock, provided that such shareholders comply
with the requirements of the Sections. The following is a summary of the
statutory procedures to be followed by holders of DMI Common Stock electing to
exercise their Appraisal Rights in order to perfect such right under the
Sections and is qualified in its entirety by reference to the Sections, the full
text of which is annexed to this Proxy Statement as Appendix D. The Sections
should be reviewed carefully by DMI shareholders who wish to assert their
Appraisal Rights or who wish to preserve the right do so, since failure to
comply with those procedures will result in the loss of such Appraisal Rights.
Holders of DMI Common Stock who elect to exercise Appraisal Rights must
satisfy each of the following conditions: (i) such holders must file with DMI
before the taking of the vote with respect to the Merger written notice of their
intention to demand payment of the fair value of their shares of DMI Common
Stock (this written notice must be in addition to and separate from any proxy or
vote against the Merger; neither voting against nor a failure to vote for the
Merger will constitute such a notice within the meaning of the Sections); and
(ii) such holders must not vote in favor of the Merger (a failure to vote will
satisfy this requirement, but a vote in favor of the Merger, by proxy or in
person, will constitute a waiver of such holder's Appraisal Rights and will
nullify any previously filed written notice of intent to demand payment). DMI
WILL CONSIDER A PROXY THAT IS RETURNED BY A DMI SHAREHOLDER WITHOUT INDICATING A
DIRECTION AS TO HOW IT SHOULD BE VOTED AS CONSTITUTING SUCH A WAIVER. Minority
Shareholders who fail to comply with either of these conditions will be entitled
to receive $.040 per share in cash as provided in the Merger Agreement, but will
have no Appraisal Rights with respect to their shares.
All written notices should be addressed to: Dimensional Medicine, Inc.,
10901 Bren Road East, Minnetonka, Minnesota 55343, Attention: Secretary, and
filed before the taking of the vote on the Merger at the Special Meeting and
should be executed by, or with the consent of, the holder of record. The notice
must reasonably inform DMI of the identity of the shareholder and the intention
of such shareholder to demand Appraisal Rights. In the notice the shareholder's
name should be stated as it appears on the stock certificates. A notice may be
made by a beneficial owner of shares only if a written consent of the
shareholders of record is submitted to DMI at the time of or prior to the
assertion of the right to appraisal.
A shareholder may not assert Appraisal Rights as to less than all of
the shares of DMI Common Stock registered in such shareholders's name, unless
such shareholder asserts such rights with respect to all the shares of DMI
Common Stock beneficially owned by another person (or persons) and discloses the
name and address of such other person (or persons). In that event, such
shareholder's rights shall be determined as if the shares of DMI Common Stock as
to which such shareholder has asserted Appraisal Rights and his or her other
shares of DMI Common Stock were registered in the names of different
shareholders. Accordingly, if shares of DMI Common Stock are owned of record in
fiduciary capacity, such as by a trustee, guardian or custodian, execution of a
notice of intent to demand payment must be made for all shares of DMI Common
Stock held of record by the fiduciary unless the fiduciary executes the notice
with respect to all the shares of DMI Common Stock held on behalf of one or more
of the beneficiaries and discloses the name and address of each person for whom
the fiduciary is asserting Appraisal Rights.
Similarly, a record owner, such as a broker, who holds shares of DMI
Common Stock as a nominee for others, may exercise Appraisal Rights with respect
to the shares of DMI Common Stock held for one or more beneficial owners, while
not exercising such rights for other beneficial owners, so long as the nominee
exercises the Appraisal Rights with respect to all the shares of DMI Common
Stock held by the nominee on behalf of each beneficial owner for whom the
nominee has exercised the Appraisal Rights and discloses the name and address of
such beneficial owner for whom the Appraisal Rights have been asserted. If the
shares of DMI Common Stock are owned of record by more than one person, as in a
joint tenancy or tenancy in common, such demand should be executed by or for all
joint tenants.
After a vote approving the Merger, DMI will give written notice to each
shareholder who has filed a written notice of intent to demand appraisal and who
did not vote in favor of the Merger setting forth the address to which a demand
for payment and stock certificates must be sent by such shareholder in order to
obtain payment, the date by which they must be received and any restrictions on
transfer of uncertified shares that will apply after the demand for payment is
received. This notice shall also include a form for demanding payment to be
completed by the shareholder and a request for certification of the date on
which the shareholder (or the person on whose behalf the shareholder is
asserting Appraisal Rights) acquired beneficial ownership of the shares of DMI
Common Stock. Shareholders who fail to demand payment or deposit their stock
certificates as required by the notice within 30 days after the notice is given
will irrevocably forfeit their Appraisal Rights and will be bound by the terms
of the Merger.
If a demand for payment and deposit of stock certificates is duly made
by a shareholder with DMI as required by the notice, then upon the Effective
Date or the receipt of the demand, whichever is later, DMI will remit to the
shareholder an amount which DMI estimates to be the fair value of the shares of
DMI Common Stock, with interest, if any, accompanied by: (1) DMI's balance sheet
and statement of income for a fiscal year ending not more than 16 months before
the effective date of the Merger, together with the latest available interim
financial statements; (2) an estimate by DMI of the fair value of the shares and
a brief description of the method used to reach the estimate; and (3) a copy of
the Sections, and a brief description of the procedures to be followed in
demanding supplemental payment. For the purpose of a shareholder's Appraisal
Rights under the Sections, "fair value" means the value of the shares of DMI
Common Stock immediately before the Effective Date and "interest" means interest
commencing five days after the Effective Date up to and including the date of
payment at the rate of 5% per annum (the rate provided under Minnesota law for
interest on verdicts and judgments).
DMI may withhold such remittance with respect to shares of DMI Common
Stock for which the shareholder demanding payment (or person on whose behalf
such shareholder acts) was not the beneficial owner on December 8, 1995, the
date of the first public announcement of the Merger (the "Public Announcement
Date"). Following the Effective Date, DMI shall mail to such shareholder the
materials described in the preceding paragraph, a statement of the reason for
withholding the remittance, and an offer to pay the amount listed in the
materials, upon receipt of such shareholder's agreement to accept that amount in
full satisfaction. If such shareholder believes that DMI's offer is for less
than the fair value of the shares of DMI Common Stock, with interest, if any,
such shareholder must give written notice to DMI of his or her own estimate of
the fair value of the shares of DMI Common Stock, with interest, if any, and
demand payment of this amount. This demand must be mailed to DMI within 30 days
after the mailing of DMI's offer. If the shareholder fails to make this demand
within the 30-day time period, such shareholder shall be entitled only to the
amount offered by DMI.
If a shareholder who became a beneficial owner of shares of DMI Common
Stock on or prior to the Public Announcement Date believes the payment received
from DMI is less than the fair value of the shares of DMI Common Stock, with
interest, if any, such shareholder must give written notice to DMI of his or her
own estimate of the fair value of the shares of DMI Common Stock, with interest,
if any, within 30 days after the date of DMI's remittance and demand payment of
the difference between his or her estimate and DMI's remittance. If the
shareholder fails to give written notice of such estimate to DMI within the
30-day time period, such shareholder will be entitled only to the amount
remitted by DMI.
If DMI and the shareholder (including both a shareholder who purchased
shares of DMI Common Stock prior to the Public Announcement Date and a
shareholder who purchased shares of DMI Common Stock after the Public
Announcement Date who have complied with their respective demand requirements)
cannot settle the shareholder's demand within 60 days after DMI receives the
shareholder's estimate of the fair value of his or her shares of DMI Common
Stock, then DMI shall file an action in a court of competent jurisdiction in
Hennepin County, Minnesota, requesting that the court determine the fair value
of DMI Common Stock with interest, if any. All shareholders whose demands are
not settled within the applicable 60-day settlement periods shall be made
parties to this proceeding.
After notice to the shareholder, the court shall institute proceedings
to determine the fair value of the shares of DMI Common Stock. The court may
appoint one or more persons as appraisers to receive evidence and make
recommendations to the court. Dissenting shareholders will be entitled to
discovery on the same basis as any other party to a civil action. The court
shall determine the fair value of the shares of DMI Common Stock, taking into
account any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion, sees fit to use. The
fair value of the shares of DMI Common Stock as determined by the court is
binding on all shareholders. If the court determines that the fair value of the
shares of DMI Common Stock is in excess of DMI's estimate of the fair value of
the shares of DMI Common Stock, then the court will enter a judgment in favor of
the dissenting shareholders in an amount by which the value determined by the
court exceeds DMI's estimated value, plus interest.
Costs of the court proceeding shall be determined by the court and
assessed against DMI, except that part or all of these costs may be assessed
against shareholders whose actions in demanding supplemental payments are found
by the court to be arbitrary, vexatious or not in good faith.
If the court finds that DMI did not substantially comply with the
Sections, the court may assess the fees and expenses, if any, of attorneys or
experts as the court deems equitable against DMI. Such fees and expenses may
also be assessed against any party if the court finds that such party has acted
arbitrarily, vexatiously or not in good faith with respect to the rights
provided by the Sections. In addition, the court may award, in its discretion,
fees and expenses to attorneys for the dissenting shareholders out of the amount
awarded to such shareholders.
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of December 31, 1995 (except as
otherwise indicated), certain information regarding beneficial ownership of DMI
Common Stock by each person known to DMI to be the beneficial owner of more than
5% of the outstanding Common Stock, by each director of DMI and by all directors
and officers as a group. Except as otherwise indicated, the shareholders listed
in the table have full voting and investment powers with respect to the shares
indicated.
Name of Beneficial Owner Number of Shares Percent of
or Identity of Group Beneficially Owned Outstanding Shares
---------------------------- ------------------ ------------------
National Computer Systems, Inc.(1) 27,653,441 85.0%
Dimensional Medicine, Inc.
Employee Stock Ownership Plan
and Trust(1) 1,626,673(2) 5.0%
John P. Paumen 87,361(3) .3%
Adrienne T. Tietz(4) -- --
Mark D. Holman(5) -- --
All Directors and Executive 87,361(6) .3%
Officers as a Group (3 persons)
- -------------------------------
(1) The address for National Computer Systems, Inc. is: 11000 Prairie Lakes
Drive, Eden Prairie, Minnesota 55344. The address for the ESOP is: c/o
Dimensional Medicine, Inc., 10901 Bren Road East, Minnetonka, MN 55343.
(2) Represents the total number of shares held by the Trust all of which
have been allocated to participants.
(3) Includes 60,361 shares allocated to Mr. Paumen under the DMI Employee
Stock Ownership Plan and Trust and 25,000 shares which may be purchased
within sixty days from the date hereof pursuant to the exercise of
stock options.
(4) Excludes any shares held by NCS of which Ms. Tietz is an executive
officer.
(5) Excludes any shares held by NCS of which Mr. Holman is an employee.
(6) Includes 60,361 shares allocated to directors and officers as a group
under the DMI Employee Stock Ownership Plan and Trust and 25,000 shares
which may be purchased by directors and officers as a group within
sixty days from the date hereof pursuant to the exercise of stock
options.
PRICE RANGE OF COMMON STOCK, TRADING VOLUME AND DIVIDENDS
The Common Stock of DMI has been traded in the over-the-counter market
under the symbol "DIMM" since January 31, 1991. The following table sets forth
the average trading volume for the Common Stock for the periods indicated:
AVERAGE AVERAGE
DAILY WEEKLY
TRADING VOLUME
CALENDAR 1994
First Quarter......................................................... 575 2,880
Second Quarter........................................................ 525 2,635
Third Quarter......................................................... 1,750 8,745
Fourth Quarter........................................................ 1,150 5,760
CALENDAR 1995
First Quarter......................................................... 782 3,910
Second Quarter........................................................ 2,435 12,170
Third Quarter......................................................... 1,080 5,405
Fourth Quarter (through December 31, 1995)............................ 4,550 22,735
On December 7, 1995, the day immediately prior to the public
announcement of the agreement between DMI and Newco, the closing sale price for
the Common Stock was $.03. On _________, 1996, the closing sale price for the
Common Stock was $________.
Based on the nominal trading in DMI Common Stock, the Company does not
believe that the market price accurately reflects the price of the shares for
more than a few shares traded in a single transaction. The last sale transaction
known to the Company occurred on January 11, 1996, and involved the sale of 500
shares of its Common Stock at a price of $.01 per share. The Board believes,
based on the very small volume of trading in the DMI Common Stock, that the
historical trading prices are not representative of the selling prices which
could be expected for sale of a large number of shares of DMI Common Stock and
expects that the anticipated selling price for a large number of shares
independent of a transaction such as the Merger, would be much lower than the
historical prices.
DMI has never paid dividends on the Common Stock.
CAPITALIZATION
The capitalization of DMI at December 31, 1995 was as follows:
Liabilities:
Current Liabilities ......................................... $ 2,423,638
Note Payable to National Computer Systems, Inc. ............. 601,831
Other note payable .......................................... 282,686
Capital lease obligations ................................... 31,602
Shareholders' equity (deficit):
Common Stock, $.15 par value per share; authorized 50,000,000
shares; issued and outstanding 32,533,460 shares ........... 4,880,019
Additional paid-in capital .................................. 8,633,407
Retained earnings deficit (deduction) ....................... (13,360,070)
------------
Total shareholders' equity ................................ 153,356
------------
Total capitalization ...................................... $ 3,493,113
============
This table should be read in conjunction with the financial statements
and notes thereto appearing in the Company's Annual Report on Form 10-K for the
year ended March 31, 1995, a copy of which accompanies this Proxy Statement.
BUSINESS OF THE COMPANY
The Company, incorporated in Minnesota in July 1982, is engaged in the
design, development and marketing of imaging workstations and information
systems marketed under the trade names Maxiview(R) and Maxifile(R) to radiology
departments of large hospitals and independent diagnostic imaging centers.
The Maxiview(R) is the Company's imaging and graphics workstation (the
"Workstation") with two-and three- dimensional image processing capabilities
targeted at specific medical applications. The Workstation is packaged as a
stand-alone system with the main components of the latest model consisting of a
host computer, graphics memory, magnetic tape and hard disk drives for mass
storage devices and a high-resolution color CRT monitor. The Workstation is
designed to aid a physician in observing interrelationships of soft tissue and
bone, locating lesions and tumors more precisely, and performing spatial,
volumetric and surface measurements.
The Maxifile(R) radiology information system is the Company's software
system that was designed to automate the clerical and administrative functions
in the radiology department. The Maxifile(R) system consists of modules and
sub-systems that include, among others, patient scheduling and processing,
statistical reporting for management and quality control, film management and
patient billing.
The Company markets its products through a direct sales staff of two
full-time salespersons, and draws upon other Company personnel and resources as
necessary.
For more information concerning the Company, shareholders are urged to
read the Company's latest annual report on Form 10-K and latest quarterly report
on Form 10-Q which accompany this Proxy Statement and the documents of the
Company incorporated by reference in this Proxy Statement. See "Available
Information," "Incorporation of Certain Documents by Reference," and "Selected
Financial Data and Management's Discussion."
SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION
The Company's Annual Report on Form 10-K for the year ended March 31,
1995, a copy of which accompanies this Proxy Statement, includes Selected
Financial Data for each of the five years in the period ended March 31, 1995 and
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Shareholders are referred to the Selected Financial Data and
Management's Discussion and Analysis of the Results of Operations and Financial
Condition which are specifically incorporated in this Proxy Statement by
reference.
DESCRIPTION OF CAPITAL STOCK
The Articles of Incorporation of DMI, as amended, authorize the
issuance of 50,000,000 shares of Common Stock, $.15 par value per share, of
which 32,533,460 shares were issued and outstanding as of ________________,
1996.
The holders of Common Stock currently are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds legally
available therefor. No cash dividends have been paid on the Common Stock since
its inception. On any liquidation of DMI, after payment of all indebtedness, the
assets of DMI will be distributed pro rata to the holders of the Common Stock.
If the shareholders of DMI approve the Merger Agreement, DMI Minority
Shareholders will no longer have such rights, but only the right to receive
$.040 in cash (approximately $.013 in the case of NCS). Holders of the Common
Stock have no preemptive rights and are entitled to one vote for each share held
on each matter submitted to a vote of shareholders. Cumulative voting for the
election of directors is not permitted. At ___________, 1996, DMI had _____
shareholders of record.
BUSINESS OF DHT
DHT, a publicly traded company (NASDAQ OTC: DHTI), develops, markets,
installs and services software products for the health care information systems
industry. The Company currently derives its revenues from application software
licenses (34%), software support and maintenance (49%), and computer system
equipment sales and support (17%).
Newco, which is 100% owned by DHT, was organized for purposes of the
Merger and has not conducted any business since its incorporation.
The principal executive offices of Newco and DHT are located at 101
Southhall Lane, Suite 210, Maitland, Florida 32751, and its telephone number is
(407) 875-9991.
EXPERTS
The financial statements of DMI appearing in the Annual Report on Form
10-K of DMI for the year ended March 31, 1995 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing. Representatives of Ernst &
Young are expected to be present at the Special Meeting and will be available to
respond to appropriate questions and will have the opportunity to make a
statement if so desired.
SHAREHOLDER PROPOSALS
If the Merger is not approved, it is expected that the Common Stock of
DMI will continue to be registered under Section 12(g) of the Securities
Exchange Act of 1934. The rules of the Securities Exchange Commission permit
shareholders of a public company, after timely notice to DMI, to present
proposals for shareholder action in DMI's proxy statement where such proposals
are consistent with applicable law, pertain to matters appropriate for
shareholder action and are not properly omitted by company action in accordance
with the proxy rules. If the Merger were not consummated, DMI expects that its
next Annual Meeting of Shareholders would be held on or about May 15, 1997 and
proxy materials in connection with such meeting would be expected to be mailed
on or about April 15, 1997. If the Merger is not consummated, shareholder
proposals prepared in accordance with the proxy rules must be received by DMI on
or before December 16, 1996.
APPENDIX A
CONFORMED COPY
MERGER
AGREEMENT
BY AND AMONG
DMI ACQUISITION CORP.,
a Florida corporation ("Newco"),
DYNAMIC HEALTHCARE TECHNOLOGIES, INC..
a Nebraska corporation ("DHT"),
NATIONAL COMPUTER SYSTEMS, INC.,
a Minnesota corporation ("NCS")
and
DIMENSIONAL MEDICINE INC.,
a Minnesota corporation (the "Corporation")
Dated
February 5, 1996
PAGE A-1
ARTICLE 1
THE MERGER
1.1 The Merger............................................................................................ A-5
1.2 Dissenter Rights...................................................................................... A-6
ARTICLE 2
CLOSING
2.1 The Closing........................................................................................... A-6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Corporation..................................................... A-6
(a) Organization and Good Standing............................................................... A-6
(b) Articles of Incorporation, Bylaws and Corporate Minutes...................................... A-6
(c) Capitalization of Corporation................................................................ A-6
(d) Authority.................................................................................... A-7
(e) Insolvency Proceedings....................................................................... A-7
(f) Governmental Authorities..................................................................... A-7
(g) Balance Sheet and No Material Changes........................................................ A-7
(h) Accounts Receivable.......................................................................... A-8
(i) Absence of Undisclosed Liabilities........................................................... A-8
(j) Changes...................................................................................... A-8
(k) Title and Related Matters.................................................................... A-9
(l) Patents and Trademarks....................................................................... A-9
(m) Tax Matters................................................................................. A-10
(n) Broker...................................................................................... A-10
(o) Disclosure.................................................................................. A-10
(p) Agreements; Action.......................................................................... A-11
(q) Litigation and Proceedings.................................................................. A-11
(r) Insurance................................................................................... A-11
(s) Illicit Activities.......................................................................... A-12
(t) Claims...................................................................................... A-12
(u) Reports..................................................................................... A-12
(v) Governmental Approvals...................................................................... A-12
(w) Employees and Employer Benefit Plans........................................................ A-13
(x) Labor Relations............................................................................. A-13
(y) Fees, Commissions and Royalties............................................................. A-13
(z) Environmental Matters....................................................................... A-13
(aa) FDA Regulation.............................................................................. A-13
(bb) Subsidiaries................................................................................ A-14
(cc) Software.................................................................................... A-14
PAGE A-2
3.2 Representations and Warranties of NCS................................................................ A-14
(a) Representations and Warranties of the Corporation........................................... A-14
(b) Authority................................................................................... A-14
(c) Share Ownership............................................................................. A-14
3.3 Representations and Warranties of Newco.............................................................. A-14
(a) Organization and Good Standing.............................................................. A-15
(b) Authority................................................................................... A-15
(c) Disclosure.................................................................................. A-15
(d) No Brokerage................................................................................ A-15
ARTICLE 4
COVENANTS
4.1 Access............................................................................................... A-15
4.2 Conduct of Business.................................................................................. A-15
4.3 Negative Covenants................................................................................... A-16
4.4 Satisfaction of Conditions........................................................................... A-16
4.5 Consents............................................................................................. A-16
4.6 Voting............................................................................................... A-16
4.7 Tax Sharing Agreement................................................................................ A-16
4.8 Employee Benefit Plans............................................................................... A-17
4.9 Confidentiality...................................................................................... A-17
4.10 No Solicitation...................................................................................... A-17
4.11 Covenants of the Corporation......................................................................... A-17
ARTICLE 5
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions Precedent to the Obligations of Newco..................................................... A-17
(a) Representations True at Closing............................................................. A-18
(b) Compliance with Conditions of Agreement..................................................... A-18
(c) Lack of Material Adverse Change............................................................. A-18
(d) Compliance Certificate from Corporation..................................................... A-18
(e) Board and Shareholder Approval.............................................................. A-18
(f) Secretary's Certificate from Corporation.................................................... A-18
(g) Secretary's Certificate from NCS............................................................ A-18
(h) Compliance Certificate from NCS............................................................. A-18
(i) Opinion of Counsel.......................................................................... A-18
(j) Information................................................................................. A-18
(k) Employee Benefit Plans...................................................................... A-18
(l) Service Agreement........................................................................... A-19
(m) Security Interest........................................................................... A-19
(n) General Assignment.......................................................................... A-19
(o) Absence of Litigation or Claim.............................................................. A-19
(p) All Proceedings to be Satisfactory.......................................................... A-19
(q) Consents.................................................................................... A-19
PAGE A-3
5.2 Conditions Precedent to Obligations of Corporation and NCS........................................... A-19
(a) Representations True at Closing............................................................. A-19
(b) Compliance with Conditions of Agreement..................................................... A-19
(c) Norwest Bank................................................................................ A-19
(d) Lease Commitment............................................................................ A-19
(e) Promissory Note............................................................................. A-20
(f) Opinion of Counsel.......................................................................... A-20
(g) Customer Support Agreements................................................................. A-20
(h) Compliance Certificate from Newco........................................................... A-20
(i) Secretary's Certificate from Newco.......................................................... A-20
(j) Absence of Litigation or Claim.............................................................. A-20
(k) All Proceedings to be Satisfactory.......................................................... A-20
(l) Fairness Opinion and Shareholders Approval.................................................. A-20
ARTICLE 6
INDEMNIFICATION
6.1 Indemnification...................................................................................... A-21
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 Survival of Representations and Warranties........................................................... A-22
7.2 Notices.............................................................................................. A-22
7.3 Notification of Certain Matters...................................................................... A-24
7.4 Termination.......................................................................................... A-24
7.5 Knowledge............................................................................................ A-25
7.6 No Assignment........................................................................................ A-25
7.7 Severability......................................................................................... A-25
7.8 Governing Law........................................................................................ A-25
7.9 Schedules............................................................................................ A-25
7.10 Incorporation and Amendment.......................................................................... A-25
7.11 Remedies............................................................................................. A-25
7.12 Waiver............................................................................................... A-25
7.13 Headings............................................................................................. A-25
7.14 Further Action....................................................................................... A-25
7.15 Counterparts......................................................................................... A-25
7.16 Venue................................................................................................ A-25
7.17 Public Announcements................................................................................. A-26
PAGE A-4
MERGER AGREEMENT
THIS AGREEMENT is made and entered into as of 5th February, 1996, by
and among DMI ACQUISITION CORP., a Florida corporation ("Newco"), DYNAMIC
HEALTHCARE TECHNOLOGIES, INC., a Nebraska corporation ("DHT"), NATIONAL COMPUTER
SYSTEMS, INC., a Minnesota corporation ("NCS") and DIMENSIONAL MEDICINE INC., a
Minnesota corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation has 50,000,000 shares of common stock (the
"Common Stock"), $.15 par value per share, authorized, of which 32,533,460
shares are issued and outstanding;
WHEREAS, NCS owns 27,653,441 shares of Common Stock constituting 85% of
the issued and outstanding Common Stock (the "Majority Shares");
WHEREAS, Newco is a newly formed Florida corporation and a wholly owned
subsidiary of DHT.
WHEREAS, the parties hereto each desire that the Corporation be merged
with and into Newco and that the holders of the Common Stock of the Corporation
shall receive in exchange for such shares the consideration set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and the mutual
representations, warranties, covenants and agreements contained herein and for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions set forth herein,
the Corporation will be merged with and into Newco (the "Merger"), and in
accordance with the Florida Business Corporation Act ("FBCA") and the Minnesota
Business Corporation Act ("MBCA") the separate corporate existence of the
Corporation shall cease and Newco shall be the surviving corporation in the
Merger. An Agreement and Plan of Merger in accordance with the FBCA (the
"Florida Agreement of Merger"), in the form attached hereto as Exhibit "A," and
an Agreement and Plan of Merger in accordance with the MBCA (the "Minnesota
Agreement of Merger"), in the form attached hereto as Exhibit "B" (the Minnesota
Agreement of Merger and the Florida Agreement of Merger may be referred to
herein collectively, as the "Agreement of Merger") shall be executed and
delivered concurrently with the Closing. Pursuant to the terms contained in the
Agreement of Merger, the consideration paid for (a) the shares of the
Corporation's Common Stock owned by NCS shall be cash in the amount of $355,000;
and (b) the remaining 4,880,019 outstanding shares of the Corporation's Common
Stock shall be $.04 per share or an aggregate of $195,000. The Agreement of
Merger provides for the terms of the Merger, the mode of carrying the same into
effect and the manner of converting the Corporation's Common Stock into the
consideration set forth therein. The "Effective Date" shall be the date set
forth as such in the Florida Agreement of Merger and the Minnesota Agreement of
Merger. On the "Effective Date," each and every share of the Corporation's
Common Stock and other capital stock of the Corporation, if any, and any and all
options, warrants or other commitments to purchase
PAGE A-5
or acquire shares of the capital stock of the Corporation shall be cancelled,
terminated and of no further force or effect.
1.2 DISSENTER RIGHTS. In the event a shareholder of the Corporation
exercises such shareholder's right to dissent to the Merger, pursuant to
applicable state law, the Corporation shall promptly notify Newco in writing of
such exercise of dissenter's rights. The Corporation shall not settle,
compromise, or pay any dissenter rights without the prior written consent of
Newco and consultation therewith.
ARTICLE 2
CLOSING
2.1 THE CLOSING. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at Miami, Florida at 10:00 a.m.
in the offices of Cohen, Berke, Bernstein, Brodie, Kondell & Laszlo, P.A. at
2601 South Bayshore Drive, 19th Floor, Miami, Florida, or any other place agreed
to by the parties, within forty-eight (48) hours after the approval of the
Merger by the Corporation's shareholders and all other closing conditions are
met. Such shareholder approval will be sought at the earliest date practicable
but in no event later than May 15, 1996. Executed documents may be held in
escrow, as the parties agree, pending the satisfaction of any conditions to
close. The date of the Closing shall be referred to as the "Closing Date".
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The Corporation,
hereby makes the following representations and warranties to Newco:
(a) ORGANIZATION AND GOOD STANDING. The Corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota; the Corporation has all requisite corporate power,
franchises, licenses and authority to own, lease and operate its business as it
is being conducted; and the Corporation is duly qualified to do business in all
states where the character of the property owned or leased by it or the nature
of its activities make such qualification necessary, except for those
jurisdictions where the failure to be so qualified would not, individually or in
the aggregate, have a material adverse effect on the properties, operations,
business or financial condition of the Corporation, as set forth on Schedule
3.1(a) hereto;
(b) ARTICLES OF INCORPORATION, BYLAWS AND CORPORATE MINUTES.
Copies of the Articles of Incorporation and Bylaws of the Corporation and all
amendments and restatements thereto delivered to Newco are true, correct and
complete copies thereof and have not been amended since such delivery.
(c) CAPITALIZATION OF CORPORATION. (i) The authorized and
outstanding capital stock of the Corporation is as follows:
PAGE A-6
NUMBER OF SHARES SHARES
AUTHORIZED CLASS OF STOCK PAR VALUE OUTSTANDING
50,000,000 Common $.15 32,533,460
Except as described on Schedule 3.1(c) hereto, there are not
currently outstanding, any subscriptions, warrants, or options or other
commitments (including conversion or preemptive rights), with respect to the
purchase or acquisition from the Corporation of any shares of its capital stock.
As of the Effective Date all such subscriptions, warrants, options or other
commitments shall be cancelled, terminated and of no further force or effect.
(d) AUTHORITY. The Corporation has all requisite legal and
corporate power necessary to execute, deliver and perform this Agreement and to
carry out the transactions contemplated hereby. The execution, delivery and
performance of this Agreement shall not (i) result in the breach or violation of
any term or provision of or constitute a default under or conflict with any term
or provision of the Corporation's Articles of Incorporation, as amended, or
By-Laws, as amended, or any material contract, agreement, lease, commitment,
license, franchise, permit, authorization or concession to which the Corporation
is a party or by which the Corporation is bound, or constitute an event which
with notice, lapse of time, or both, would result in any such breach, violation
or default, or (ii) result in the violation by the Corporation of any statute,
rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or
award, or constitute an event which with notice, lapse of time, or both, would
result in any such violation. The execution, delivery and performance of the
obligations of Corporation under this Agreement has been duly and effectively
authorized by the Corporation's Board of Directors and will be on the Closing
Date duly and effectively authorized by the Corporation's Board of Directors and
shareholders, and no further corporate authority therefor or approval thereof is
required by law.
(e) INSOLVENCY PROCEEDINGS. No insolvency proceedings,
including bankruptcy, receivership, reorganization, composition or arrangement
with creditors, are pending or, to the Corporation knowledge and belief
threatened against Corporation except as disclosed herein. Furthermore, the
Corporation shall not institute any such action, in any form whatsoever, prior
to Closing, unless specifically consented to by Newco in writing.
(f) GOVERNMENTAL AUTHORITIES. Except as identified on Schedule
3.1(f), the Corporation is not required to submit any notice, report or other
filing to any governmental or regulatory agency, nor is any notice or report
required to be obtained by the Corporation in connection with the execution or
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
(g) BALANCE SHEET AND NO MATERIAL CHANGES.
(1) Corporation has heretofore furnished Buyer with its Form
10-K for the year ended March 31, 1995, containing the audited financial
statements of the Corporation including the Corporation's balance sheets as of
March 31, 1995 and March 31, 1994 (the "Balance Sheet"), and the related
statements of operations, shareholders' equity and cash flows, for the period
ended March 31, 1995, audited by Ernst & Young, LLP, certified public
accountants, and its Form 10-Q for the quarter ended December 31, 1995,
containing internally prepared unaudited balance sheets and income statements
dated as of December 31, 1995, copies of which are attached hereto as Schedule
3.1(g)) (collectively, the "Financial Statements"). The Financial Statements,
including the footnotes thereto to the extent appended, except as indicated
therein, have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently followed through the periods indicated.
PAGE A-7
The Financial Statements fairly represent the financial
condition of the Corporation as of the date thereof and, except as indicated
therein, reflects all claims against and all debts and liabilities of the
Corporation required to be reported under GAAP, fixed or contingent, as of the
respective date thereof and the related statements of income, statements of cash
flow, shareholders' equity and changes in financial position fairly present the
results of the operations of the Corporation and the changes in the
Corporation's financial position for the period indicated. Since the Balance
Sheet date, except as disclosed on any schedule hereto there has been (i) no
material adverse change in the assets or liabilities, or in the business or
condition of the Corporation, financial or otherwise, or the result of
operations of the Corporation, whether as a result of any legislative or
regulatory change, revocation of any license or right to do business, casualty,
labor, Act of God or other public force or otherwise, and (ii) no change in the
assets or liabilities or in the business or condition of the Corporation,
financial or otherwise, or in the results of operations or prospects of the
Corporation, except in the ordinary course of business; and (iii) no factor or
condition exists or, to the Corporation's knowledge and belief, is contemplated
or threatened, which might cause such a change in the future except as disclosed
on any schedule hereto, and (iv) no dividends or other distributions have been
paid or made upon any shares of capital stock of the Corporation nor have any
shares of capital stock of the Corporation been redeemed, retired, purchased or
acquired for value by the Corporation.
(h) ACCOUNTS RECEIVABLE. Except as otherwise set forth in
Schedule 3.1(h), none of the accounts receivable of the Corporation are subject
to any stated claim of offset, recoupment, setoff or counterclaim, and the
Corporation has no knowledge of any facts or circumstances giving rise to such
claim. Furthermore, except as set forth on Schedule 3(h), no such account
receivable is contingent upon the performance by the Corporation of any
obligation or contract. Except as otherwise set forth in Schedule 3.1(h), no
person has any lien on such receivables or any part thereof, no agreement for
deduction, free goods, discount or other deferred price has been made with
respect to any of such accounts receivable.
(i) ABSENCE OF UNDISCLOSED LIABILITIES. The Corporation
represents and covenants that there are not presently, nor were there as of the
dates of the Financial Statements, any liabilities or commitments, accrued
absolute, contingent or otherwise, of the Corporation, except liabilities or
commitments (i) reflected on the Financial Statements; (ii) liabilities or
commitments incurred by the Corporation in the ordinary course of its business
since the date of the Financial Statements which in the aggregate do not exceed
$15,000; or (iii) liabilities and commitments identified in this Agreement or
any schedule or exhibit hereto.
(j) CHANGES. Since Balance Sheet date, except as disclosed in
Schedule 3.1(j), there has not been:
(1) any change in the assets, liabilities, condition
(financial or otherwise), affairs, earnings, business,
operations, or prospects of the Corporation except for changes
in the ordinary course of business which have not been, either
individually or in the aggregate, materially adverse;
(2) any change in the liabilities or obligations of
the Corporation, contingent or otherwise, whether due or to
become due, whether by way of guaranty, endorsement,
indemnity, warranty, or otherwise, except current liabilities
incurred in the ordinary course of business, none of which
materially and adversely affects the business, prospects,
condition, affairs, properties or assets of the Corporation;
(3) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the
properties, operation or business of the Corporation;
PAGE A-8
(4) any waiver by the Corporation of a valuable right
or of a material debt owed to it;
(5) any loans made by the Corporation to its
employees, officers, or directors other than advances of
expenses made in the ordinary course of business;
(6) any declaration or payment of any dividend or
other distribution of the assets of the Corporation or any
direct or indirect redemption, purchase or acquisition of any
securities of the Corporation;
(7) any labor organization activity or organized
labor trouble;
(8) any sale, transfer, or lease of any of the
Corporation's assets except in the ordinary course of business
or any mortgage or pledge of or lien imposed upon any of the
Corporation's assets;
(9) to the best of the Corporation's knowledge, any
other event or condition of any character which has materially
and adversely affected the business, prospects, condition,
affairs, operations, properties or assets of the Corporation;
(10) any increase in compensation of any of its
existing officers, or the rate of pay of its employees as a
group, except as part of regular compensation increases in the
ordinary course of business;
(11) the resignation or termination of John Paumen,
John McGibbon, Valerie McGibbon, Clark Zumbach, Mark Blatzheim
or Ken Waldbillig;
(12) any change in the accounting methods or
practices followed by the Corporation;
(13) any issuance of any stock, bonds, or other
securities of the Corporation or options, warrants, or rights
or agreements or commitments to purchase or issue such
securities or grant such options, warrants or rights; or
(14) any agreement by the Corporation to do or enter
into any of the foregoing.
(k) TITLE AND RELATED MATTERS. Schedule 3.1 (k) is a true and
correct listing of all categories and the net book value of all tangible
property (real and personal) owned or leased by the Corporation which are not
set forth on the Financial Statements. The Corporation has good and marketable
title to all of the assets free and clear of all mortgages, liens, pledges,
charges and encumbrances, easements, liabilities, or any other adverse claims of
every kind or character, except as so indicated on Schedule 3.1(k). All of the
assets necessary for the operation of the Corporation's business, including real
and personal property and leasehold interests, of the Corporation are in good
and satisfactory working condition.
(l) PATENTS AND TRADEMARKS. Schedule 3.1(l) contains a true
and correct list of all registered patents, patent applications, trademarks,
trade names, copyrights, intellectual properties or service marks owned by or
registered in the name of the Corporation. Furthermore, except as shown on
Schedule 3.1(l), there are no material unregistered patents, patent
applications, trademarks, tradenames, copyrights, intellectual properties or
servicemarks owned by the Corporation. Except as shown on Schedule
PAGE A-9
3.1(l), there are no outstanding claims, liens, encumbrances, options, licenses,
or agreements of any kind relating to the foregoing, nor is the Corporation
bound by or party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, tradenames, copyrights, trade
secrets, licenses, information, proprietary rights and processes of any other
person or entity. To its best knowledge and belief, the Corporation has
sufficient title and ownership of all patents, licenses, trademarks,
servicemarks, trade names, copyrights to conduct its business as now operated
without any conflict with or infringement of the rights of others. To the
knowledge and belief of the Corporation, the Corporation has not infringed or
violated in any way any valid patent, trademark, trade name or copyright of
others, nor has the Corporation received any notice, claim or protest respecting
any such violation or infringement. The Corporation is not aware that any of its
employees is obligated under any contract (including licenses, covenants, or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such employee's best efforts to promote the interests of the
Corporation or that would conflict with the Corporation's business as currently
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Corporation's business by the employees of the Corporation,
nor the conduct of the Corporation's business as currently conducted, will, to
the Corporation's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Corporation does not believe it is or will be necessary to utilize any
inventions of any of its employees (or people it currently intends to hire) made
prior to their employment by the Corporation.
(m) TAX MATTERS. Except as set forth on Schedule 3.1(m), the
Corporation has filed or caused to be filed, within the times and within the
manner prescribed by law, all Federal, state, local and foreign tax returns and
reports heretofore required to be filed by it, and has no current extensions for
the filing of any such returns or reports, or delinquent liabilities. To the
Corporation's best knowledge and belief, such returns and reports reflect
accurately all tax liability of the Corporation for the periods covered thereby.
All Federal, state, local and foreign income, profits, franchise, sales, use,
occupancy, excise and other taxes and assessments (including interest and
penalties) payable by, or due from, the Corporation (including for this purpose
any subsidiary of the Corporation, for such taxable period or periods in which
such former subsidiary was an affiliated group as defined in Section 1504(a) of
the Internal Revenue Code of 1986, as amended, of which the Corporation was a
member) has been fully paid or adequately disclosed and fully provided for in
the books and financial statements of the Corporation. No examination of any tax
return of the Corporation is currently in progress or has been noticed except as
set forth on Schedule 3.1(m). There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any tax return of the
Corporation.
(n) BROKER. No agent, broker or other person acting pursuant
to authority of Corporation is entitled to any commission or finder's fee in
connection with the transactions contemplated by this Agreement, except as
disclosed on Schedule 3.1(n).
(o) DISCLOSURE. No representation, statement or information
which has been or shall be made or furnished by the Corporation to Newco,
including but not limited to those contained in this Agreement and the schedules
hereto and/or any other schedules, listings or other written information
furnished by Corporation, contains, or shall contain, any untrue statement of
material fact or omits or shall omit any material fact necessary to make the
information contained in such representation, or information, in light of the
circumstances under which they were made not misleading.
PAGE A-10
(p) AGREEMENTS; ACTION.
(1) Except as listed on Schedule 3.1(p) hereto, there
are no agreements, understandings, instruments, contracts, or proposed
transactions between the Corporation and the NCS.
(2) Except as listed on Schedule 3.1(p) hereto, there
are no agreements, understandings, instruments, contracts, proposed transactions
to which the Corporation is a party or by which it is bound which (a) involve
obligations (contingent or otherwise) of, or payments to the Corporation in
excess of, $15,000, (b) are material to the conduct and operations of the
Corporation's business or properties, including, without limitation, the license
of any patent, copyright, trade secret, or other proprietary rights to or from
the Corporation or provisions restricting or affecting the development,
manufacture, or distribution of the Corporation's products or services, (c)
involve any employment or consulting arrangement, whether written or oral,
between the Corporation and any person or (d) provide for the grant to any
person of a right to cause the Corporation to register any securities of the
Company for sale.
(3) Since the date of the Financial Statements,
except as listed on Schedule 3.1(p) hereto, the Corporation has not (a) declared
or paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock, (b) incurred any
indebtedness for money borrowed or any other liabilities individually in excess
of $15,000 or, in the case of indebtedness and/or liabilities individually less
than $15,000, in excess of $15,000 in the aggregate, (c) made any loans or
advances to any person, other than ordinary advances for travel expenses, or (d)
sold, exchanged, or otherwise disposed of any of its assets or rights, other
than the sale of its inventory in the ordinary course of business.
(4) For the purposes of subsections (2) and (3)
above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts, and proposed transactions involving the same person or entity
(including persons or entities the Corporation has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
(5) The Corporation is not a party to any indenture,
loan or credit agreement or any lease or other agreement or instrument or
subject to any charter or corporate restriction which has a material adverse
effect on the Corporation or limits or restricts the ability of the Corporation
to carry out its obligations under this Agreement. The Corporation is not in
material default in any respect in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any agreement or
instrument material to its business to which it is a party.
(q) LITIGATION AND PROCEEDINGS. There is no suit, arbitration
or legal proceeding or investigation pending or, to the Corporation's knowledge
and belief any threatened or contemplated suit, arbitration, legal proceeding or
investigation, either administrative or judicial, relating to the Corporation or
its business, the contracts set forth on Schedule 3.1(p) hereto or the
transactions contemplated by this Agreement which if determined or resolved
adversely to the Corporation may reasonably be expected to have a materially
adverse effect on the properties, operations, business or financial condition of
the Corporation, except as set forth and described in Schedule 3.1(q). The
Corporation is not, to its best knowledge and belief, the subject of any
investigation or proceeding by any governmental body relating to its business.
The Corporation is not subject to, nor in default of, any indictment, order or
award of any court, arbitrator or governmental body, domestic or foreign,
relating to its business.
(r) INSURANCE. The insurance policies owned by the Corporation
are valid and enforceable in accordance with their terms and are now
outstanding, duly in force, and provide adequate
PAGE A-11
insurance for the Corporation's business and the Corporation's assets. Schedule
3.1(r) sets forth a list of all insurance policies owned by the Corporation, the
identity of the insurance company, the type and amount of coverage, the
expiration dates of the policies, the parties insured, and the amount of
premiums for the respective policies.
(s) ILLICIT ACTIVITIES. Neither Corporation nor, to the
Corporation's best knowledge and belief, any of the Corporation's directors,
officers or employees have, in connection with the operation of its business:
(i) Made any illegal political contributions from
the Corporation's assets; or
(ii) Been involved in the disbursement or receipt of
corporate funds outside the normal systems of accountability; or
(iii) Made or received payments, whether directly or
indirectly, to or from foreign or domestic governments, officials, employees or
agents for purposes other than the satisfaction of lawful obligations, or been
involved in any transaction that has as its intended effect the transfer of the
Corporation's assets in the manner described; or
(iv) Been involved in the improper or inaccurate
recording of payments and receipts on the books of the Corporation or any other
matters of a similar nature involving disbursements of the Corporation's assets.
(t) CLAIMS. Schedule 3.1(t) contains a true and complete list
of all claims in excess of Five Thousand Dollars ($5,000.00) which have been
asserted in respect of the Corporation's business since January 1, 1992, with
respect to any express or implied representation, warranty, agreement or
guarantee made (or claimed to have been made), or imposed, or asserted to be
imposed by operation of law, in connection with any product or service provided
by, or sold in the course of, the Corporation's business, and a summary
description of the status or disposition of each such claim. All of such claims
were and are covered under the professional liability insurance policies,
self-insurance programs or reserves of the Corporation.
(u) REPORTS. The Corporation has furnished an accurate and
complete copy of each registration statement, report and proxy statement filed
by the Corporation with the Securities and Exchange Commission (the
"Commission") since December 31, 1992 (collectively, the "SEC Reports"). None of
such SEC Reports contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Since December 31, 1992, the Corporation has filed all
required forms, reports and documents with the Commission required to be filed
by it pursuant to the Securities Act of 1933, as amended (the "Securities Act")
and the Exchange Act of 1934, as amended (the "Exchange Act"), all of which
complied at the time of filing in all material respects with all applicable
requirements of the Securities Act and the Exchange Act.
(v) GOVERNMENTAL APPROVALS. The Corporation has, to its best
knowledge and belief, taken all necessary actions to provide that in the conduct
of its business, the use and occupancy by the Corporation of all facilities and
properties upon which the operations of its business are conducted and the
products developed or services provided in the conduct of its business is and
shall continue to be in compliance in all respects with all Federal, state,
county, local or other governmental statutes and ordinances, and with all rules
and regulations of all Federal, state, county, local and other governmental
agencies and bodies, applicable to it, and to the conduct of its business where
non-compliance may
PAGE A-12
reasonable be expected to have a material adverse effect on the properties,
operations, business or financial condition of the Corporation.
(w) EMPLOYEES AND EMPLOYER BENEFIT PLANS. The Corporation has
no employee benefit plan of any kind or nature except as set forth on Schedule
3.1(w).
(x) LABOR RELATIONS. There has not been, nor is there
threatened, any strike, slowdown, picketing or work stoppage by any union
against the Corporation's premises or products, any secondary boycott with
respect to the Corporation or its products, any lockout by the Corporation of
any of its employees or any other labor trouble or other occurrence, event or
condition of a similar character affecting, or which may affect, the operations
or conditions of the Corporation.
(y) FEES, COMMISSIONS AND ROYALTIES. Corporation has no
relationship with any distributor, agent, employee or other representative
anywhere in the world which is entitled to fees, commissions, royalties or any
other payments as a result of the sale of the Corporation's securities,
products, services, or pursuant to its on going business, except as disclosed in
Schedule 3.1(y);
(z) ENVIRONMENTAL MATTERS. The Corporation has, to its best
knowledge and belief, all governmental licenses and permits necessary in order
to conduct its business and where the failure to have such permit or license
would have a materially adverse effect on the properties, operations, business
or financial condition of the Corporation, including any such licenses or
permits required for the storage, treatment and disposal of any materials
defined as "hazardous substances" under the Federal Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA") and similar state laws: (i)
to or at any location other than a site lawfully permitted to receive such
hazardous waste, hazardous substances or other material which may constitute an
environmental hazard for such purposes, (ii) to or at any location designated
for remedial action pursuant to CERCLA or any similar state laws, or (iii) not
in contravention of any environmental laws, regulations, ordinances or rules.
The Corporation has not discharged, dumped, buried, spilled or otherwise
released any hazardous substances, or any other material which may constitute an
environmental hazard, into or on any property or facility which the Corporation
owns, leases or operates, including the soil, surface water and ground water, in
violation of any environmental laws, regulations, ordinances or rules. To the
Corporation's knowledge and belief, no inspection, audit, or other investigation
has been conducted as to the quality of the air, surface or sub-surface
conditions at any property or facility which the Corporation owns, leases or
operates, by any person, including governmental agencies. The Corporation has
not received (i) any notice that any person, including governmental agencies,
proposes to carry out an inspection, audit or other investigation of or at any
property or facility which the Corporation owns, leases or operates, (ii) any
notice that conditions at any such property or facility are in violation of any
environmental laws, regulations, ordinances or rules, or (iii) any notice
(including requests for information) from any person, including governmental
agencies, asserting that the Corporation is or may be a "potentially responsible
party" or otherwise liable with respect to a remedial action or the payment of
response costs at a waste storage, treatment or disposal facility, pursuant to
CERCLA or any similar state laws.
(aa) FDA REGULATION. Except as provided in Schedule 3.1(aa),
the Corporation's business as presently conducted, complies with all applicable
regulations promulgated by the United States Food and Drug Administration (the
"FDA") when noncompliance may reasonably be expected to have a materially
adverse effect on the properties, operation, business or financial condition of
the Corporation. The Corporation has filed with and received approval from the
FDA with respect to 510(k) Reports relating to the Corporation's products
marketed under the name "Maxiview" "Maxfile" and "Powerstation," respectively.
PAGE A-13
(bb) SUBSIDIARIES. Except as listed on Exhibit 3.1(bb) hereto,
the Corporation does not presently own or control directly or indirectly any
interest in any other corporation, association, or other business entity.
(cc) SOFTWARE. The Corporation has complete and exclusive
right, title, and interest in and to all tangible and intangible property rights
existing in the software listed on Schedule 3.1(cc) hereto (the "Software"). The
Software has either been acquired or developed by the Corporation entirely
through its own efforts for its own account and the Software is free and clear
of all liens, claims, co-ownership rights of any kind or nature, encumbrances,
or equities whatsoever of any third party except as set forth on Schedule
3.1(cc). The Software does not infringe any patent, copyright, or trade secret
of any third party; the Software is fully eligible for protection under
applicable copyright law and has not been forfeited to the public domain; and
the source code and system specifications for the Software have been maintained
in confidence or when disclosed been subject to a confidentiality agreement. All
personnel, including employees, agents, consultants, and contractors, who have
contributed to or participated in the conception and development of the Software
either (1) have been party to a for-hire relationship with the Corporation that
has accorded the Corporation full, effective, and exclusive original ownership
of all tangible and intangible property thereby arising with respect to the
Software, or (2) have executed appropriate instruments of assignment in favor of
the Corporation as assignee that have conveyed to the Corporation full,
effective, and exclusive ownership of all tangible and intangible property
thereby arising with respect to the Software. There are no agreements or
arrangements in effect with respect to the marketing, distribution, licensing,
or promotion of the Software by any independent salesperson, distributor,
sublicensor, or other remarketer or sales organization except as set forth on
Schedule 3.1(cc).
3.2 REPRESENTATIONS AND WARRANTIES OF NCS. NCS makes the following
representations and warranties to Newco:
(a) REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. To
NCS's knowledge, the representations and warranties of the Corporation are true
and correct.
(b) AUTHORITY. NCS has all requisite legal and corporate power
necessary to execute, deliver and perform this Agreement and to carry out the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement shall not (i) result in the breach or violation of any term or
provision of or constitute a default under or conflict with any term or
provision of NCS's Articles of Incorporation, as amended, or By-Laws, as
amended, or any material contract, agreement, lease, commitment, license,
franchise, permit, authorization or concession to which NCS is a party or by
which NCS is bound, or constitute an event which with notice, lapse of time, or
both, would result in any such breach, violation or default, or (ii) result in
the violation by NCS of any statute, rule, regulation, ordinance, code, order,
judgment, writ, injunction, decree or award, or constitute an event which with
notice, lapse of time, or both, would result in any such violation. The
execution, delivery and performance of the obligations of NCS under this
Agreement has been, and will be on the Closing Date, duly and effectively
authorized by NCS and no further corporate authority therefor or approval
thereof is required by law.
(c) SHARE OWNERSHIP. NCS is not a party or subject to any
agreement or understanding, and there is no agreement or understanding between
any persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to the Majority Shares. NCS is the lawful owner
of, and has good and marketable title to the Majority Shares, free and clear of
any mortgages, pledges, claims, liens, charges or encumbrances of any kind.
3.3 REPRESENTATIONS AND WARRANTIES OF NEWCO. Newco makes the following
representations and warranties to the Corporation and NCS:
PAGE A-14
(a) ORGANIZATION AND GOOD STANDING. Newco is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nebraska and is duly qualified to do business in all states where its
activities make such qualification necessary.
(b) AUTHORITY. Newco has full power and has taken all
corporate action necessary to execute, deliver and perform this Agreement and to
carry out the transactions contemplated hereby. The execution, delivery and
performance of this Agreement shall not (i) result in the breach or violation of
any term or provision of or constitute a default under or conflict with any term
or provision of its Articles of Incorporation, as amended, or By-Laws, as
amended, or any material contract, agreement, lease, commitment, license,
franchise, permit, authorization, or concession to which it is a party or by
which it is bound, or constitute an event which with notice, lapse of time, or
both, would result in any such breach, violation or default, or (ii) result in
the violation by it of any statute, rule, regulation, ordinance, code, order,
judgment, writ, injunction, decree or award, or constitute an event which with
notice, lapse of time, or both, would result in any such violation. The
execution, delivery and performance of the obligations of Newco under this
Agreement has been duly and effectively authorized by Newco's Board of Directors
and no further corporate authority therefor or approval thereof is required by
law. This Agreement constitutes a valid and binding agreement of Newco.
(c) DISCLOSURE. No representation, statement or information
which has been or shall be made to Corporation or NCS in or pursuant to this
Agreement or in connection with preparation of materials for submission to the
Corporation's shareholders contains or shall contain any untrue statement of a
material fact or omits or shall omit to state a material fact necessary to make
the statements contained therein, in the light of the circumstances under which
they were made, not misleading.
(d) NO BROKERAGE. Newco has not employed any broker or finder
or has incurred or will incur any broker's, finder's or similar fees,
commissions or expenses in connection with the transactions contemplated by this
Agreement.
ARTICLE 4
COVENANTS
4.1 ACCESS. The Corporation shall give to Newco, from and after the
date of execution of the Agreement until the Closing, access to its premises
during normal business hours in order to enable Newco to inspect its business.
The Corporation shall make available for review all information in its
possession reasonably requested by Newco which is related to its business. The
Corporation shall also permit Newco to meet with and question their independent
certified public accountants and other advisors. The parties acknowledge that
said activities shall be conducted during normal business hours and shall not
disrupt or interfere with the conduct of the Corporation's business.
4.2 CONDUCT OF BUSINESS. From the date hereof, until Closing, the
Corporation shall: (a) provide Newco with weekly written or telephonic reports
relating to the Corporation's business operations and with such information as
Newco reasonably requests in writing, telephonically or at a meeting, (b) enter
into joint marketing activities with Newco in accordance with the terms of a
letter agreement attached hereto as Exhibit "E" pursuant to which Newco shall
receive thirty (30%) percent of all net licensing fees, (c) operate and conduct
its business in a reasonable diligent manner and in the ordinary course
consistent with past custom and practice; (d) use best efforts to maintain and
safeguard its properties; (c) use best efforts to preserve intact its
organization and personnel; (e) use best efforts to preserve intact its
relationships with vendors, customers and others having business relations with
them; (f) carry insurance, including liability
PAGE A-15
insurance, in character and amount in accordance with past custom and practice;
(g) notify Newco of any lawsuits, claims, proceedings or investigations that are
instituted against them, their officers or directors, or, to their knowledge,
threatened against them, their officers or directors; and (h) use reasonable
best efforts to comply in all material respects with all material laws, rules,
regulations and governmental authorities applicable to it and to the conduct of
its business.
4.3 NEGATIVE COVENANTS. The Corporation covenants and agrees that, from
the date hereof until the Closing Date, it shall not without the prior written
consent of Newco or DHT, where such consent may be granted or withheld at the
sole discretion of Newco or DHT, (a) make any changes to its Articles of
Incorporation or By-Laws; (b) borrow money without the consent of Newco; (c)
sell, transfer, assign, mortgage, pledge, encumber, or permit the creation of
any lien or security interest with respect to, any assets or properties; (d)
make any material investment or expenditure of a capital nature greater than
$15,000; (e) enter into any material contracts or commitments for greater than
$15,000; (f) hire additional management personnel earning an annual salary
greater than $25,000 or terminate existing management employees as identified in
Section 3.1(j)(ii) herein; (g) enter into any joint venture, licensing,
partnership or other similar agreement with any party or modify, assign or
hypothecate any existing agreements; (h) declare any dividends or make other
distributions with respect to its capital stock; (i) authorize, issue, sell or
exchange any debt or equity securities, or any stock options or warrants; (j)
make loans, advances or prepayments or extend credit to any of its shareholders,
officers or directors except current credit agreements; or (k) sell, discount
for cash or factor accounts receivable or enter into similar transactions.
4.4 SATISFACTION OF CONDITIONS. The parties hereto shall use their best
efforts to satisfy all conditions precedent to the Closing on or prior to the
Closing Date.
4.5 CONSENTS. The parties shall obtain all material consents,
assignments or approvals of third parties which may be required to any and all
of the transactions contemplated hereby. The Corporation shall use its best
efforts to prepare, file with the U.S. Securities and Exchange and distribute to
shareholders a proxy statement, and all other documents relating thereto, and
hold a shareholders' meeting relating to the approval of the transaction
contemplated by this Agreement as soon as reasonably possible. All disclosure in
such documents relating to Newco and the transactions contemplated by this
Agreement shall be subject to Newco's approval. The Corporation shall use its
best efforts to obtain shareholder approval of the Merger.
4.6 VOTING. NCS shall vote the Majority Shares in favor of all
transactions necessary to accomplish the Merger between the Corporation and
Newco and the transactions contemplated by this Agreement, provided, however,
NCS shall not be obligated to vote in favor of the Merger if and only if NCS
reasonably determines, in good faith and after full and advised consideration,
that such vote in favor of the Merger would cause NCS to breach its fiduciary
duties under applicable law.
4.7 TAX SHARING AGREEMENT. Within forty-five (45) days after the
Closing Date, NCS shall deliver to Newco a final computation reflecting the
amount owed as of the Closing Date to the Corporation or to NCS pursuant to the
Tax Sharing Agreement, effective as of December 20, 1993. Newco shall have a
period of ten (10) days to agree or disagree with such computation. If Newco
disagrees with such computation, an independent third party mutually agreed upon
by Newco and NCS shall compute the amount owed and such determination shall be
binding upon NCS and Newco. The amount owed for the period ending January 31,
1996 shall be paid within ten (10) days of determination. The remainder which is
associated with NCS's tax year ending January 31, 1997 shall be paid upon NCS's
filing of its tax return for the fiscal year ending January 31, 1997.
PAGE A-16
4.8 EMPLOYEE BENEFIT PLANS. Commencing on the Closing Date, the
Corporation's employees shall be entitled to participate in Newco's employee
benefit plans. For purposes of participating in such plans the Corporations
employees shall be deemed to have been employees of Newco as of their actual
employment commencement date with the Corporation, however, for purposes of this
Section 4.8, in no event shall such date be deemed to be less than one (1) year
prior to the Closing Date nor shall any employee be deemed to have been employed
by the Corporation for more than five (5) years.
4.9 CONFIDENTIALITY. The parties to this Agreement will each hold, and
will use its best efforts to cause its respective officers, directors,
employees, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
Corporation, Newco and DHT furnished in connection with the transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (i) previously known on a nonconfidential basis by such
party, (ii) in the public domain through no fault of any party hereto, or (iii)
later lawfully acquired by a party hereto from sources other than a party
hereto, provided that any party hereto may disclose such information to its
officers, directors, employees, consultants, advisors and agents, lenders and
other investors in connection with the transactions contemplated by this
Agreement so long as such persons are informed by such party of the confidential
nature of such information and are directed by such party to treat such
information confidentially. The obligation of each party hereto to hold any such
information in confidence shall be satisfied if it exercises the same care with
respect to such information as it would take to preserve the confidentiality of
its own similar information. If this Agreement is terminated, such confidences
shall be maintained and each party hereto will, and will use its best efforts to
cause its officers, directors, employees, consultants, advisors and agents to,
destroy or deliver upon request, all documents and other materials, and all
copies thereof, obtained by such party or on its behalf from such other party
hereto in connection with this Agreement that are subject to such confidence.
4.10 NO SOLICITATION. In consideration of the efforts and expenses
incurred by Newco and DHT to effect the consummation of the transactions
contemplated herein, the Corporation covenants and agrees that from the date
hereof, it shall not initiate, solicit or seek, directly or indirectly, by any
means or in any form or manner whatsoever, to enter any transaction with a third
party which may result in the sale of all or substantially all of its assets,
the sale of its capital stock, its merger with or into another entity or any
business combination. Furthermore, the Corporation agrees that in the event, not
as a result of its solicitation or initiation, it engages discussions or
negotiations, oral or written, with a third party to engage in a transaction
which may result in the sale of all or substantially all of its assets, the sale
of its capital stock, its merger with or into another entity or any other
business combination, it shall immediately notify Newco and keep Newco apprised
of the progress of such discussions and/or negotiations, and shall promptly
provide Newco true, correct and complete copies of all correspondence and
documents related thereto.
4.11 COVENANTS OF THE CORPORATION. Sections 4.1, 4.2, 4.3 and 4.8 are
solely the responsibility of the Corporation.
ARTICLE 5
CONDITIONS PRECEDENT TO CLOSING
5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF NEWCO. The obligation of
Newco to complete the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing of each of the following
conditions:
PAGE A-17
(a) REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of the Corporation and NCS contained in this Agreement and all
schedules attached hereto, shall be true and correct in all material respects at
and as of the date hereof and they shall be true and correct in all material
respects at and as of the Closing Date with the same force and effect as though
made at and as of that time.
(b) COMPLIANCE WITH CONDITIONS OF AGREEMENT. The Corporation
and NCS shall have performed and complied in all material respects with all
material obligations required by this Agreement as a condition precedent to
Closing.
(c) LACK OF MATERIAL ADVERSE CHANGE. There shall not have been
any material adverse change in the condition, financial or otherwise, of the
Corporations business or in the ability to continue to conduct the business in
the usual and ordinary course.
(d) COMPLIANCE CERTIFICATE FROM CORPORATION. The President of
the Corporation, shall deliver to Newco at the Closing a certificate confirming
the matters specified in Sections 5.1(a) and (b) as they relate to the
Corporation.
(e) BOARD AND SHAREHOLDER APPROVAL. The Board of Directors and
shareholders of the Corporation shall have approved the Merger, Agreement of
Merger, this Agreement and the transactions contemplated hereby.
(f) SECRETARY'S CERTIFICATE FROM CORPORATION. A certificate,
dated as of the Closing Date, of the Secretary of the Corporation certifying
that: (i) attached is a true and correct copy of the Articles of Incorporation
and Bylaws of the Corporation as then in effect; (ii) attached is a true and
correct copy and the resolutions adopted by the Board of Directors and
shareholders of the Corporation approving the Merger, Merger Agreement, this
Agreement and the transactions contemplated hereby; and (iii) to the incumbency
and specimen signatures of each officer of the Corporation executing this
Agreement and the other agreements and certificates contemplated thereby.
(g) SECRETARY'S CERTIFICATE FROM NCS. A certificate, dated as
of the Closing Date, of the Secretary of NCS certifying that (i) this Agreement
and the transactions contemplated hereby have been duly authorized by NCS and
(ii) to the incumbency and specimen signatures of each officer of NCS executing
this Agreement and the other agreements and certificates contemplated hereby.
(h) COMPLIANCE CERTIFICATE FROM NCS. An officer of NCS shall
deliver to Newco at Closing a certificate confirming the matters specified in
Sections 5.1(a) and (b) as they relate to NCS.
(i) OPINION OF COUNSEL. Newco shall have received from
Lindquist and Vennum, PLLP, counsel for NCS and Corporation, an opinion, dated
as of the Closing, in the form attached hereto as Exhibit "C."
(j) INFORMATION. Newco shall have received all information
reasonably requested by it relating to the business of the Corporation.
(k) EMPLOYEE BENEFIT PLANS. The Corporation shall have
arranged to have terminated all employee benefit plans of any kind or nature,
and any and all rights or obligations relating thereto, simultaneous with the
Closing or as soon thereafter as practicable except with respect to the
Corporation's 401(K) plan and Employee Stock Ownership Plan in connection with
which all benefits thereunder shall be frozen prior to the Closing Date.
PAGE A-18
(l) SERVICE AGREEMENT. The Service Agreement, effective June
1, 1994, between the NCS and the Corporation, and all right and obligations
relating thereto, shall be terminated.
(m) SECURITY INTEREST. NCS shall have terminated all security
interests relating to the Corporation's assets, tangible or intangible, and
filed all appropriate termination statements with filing offices.
(n) GENERAL ASSIGNMENT. NCS shall deliver to Newco a general
assignment in a form reasonably satisfactory to Newco and NCS counsel with
respect to any interest it may have in the Corporation's patents, patent
applications, trademarks, tradenames, service marks or Software. The general
assignment shall not include any trademarks, tradenames or service marks
identifying or referring to NCS or its business.
(o) ABSENCE OF LITIGATION OR CLAIM. Neither Corporation or NCS
shall have become aware or received notice of any threatened, pending or
commenced litigation, arbitration, administrative hearing or investigation,
termination of any material contract, or other action seeking to prevent, or
having a potential material detrimental effect upon Newco in connection with,
the consummation of the transactions contemplated by this Agreement, nor shall
such action(s) have been pending, commenced or threatened.
(p) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and
other proceedings to be taken by the Corporation in connection with the
transactions contemplate by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Newco and its counsel,
and Newco and its counsel shall have received all such counterpart originals or
certified or other copies of such documents as they reasonably may request.
(q) CONSENTS. Corporation shall have obtained all material
consents required to be obtained by it in connection with the consummation of
the transactions contemplated by this Agreement.
5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF CORPORATION AND NCS. The
obligation of Corporation and NCS to consummate the transactions contemplated
herein shall be subject to the fulfillment at or prior to the Closing of each of
the following conditions:
(a) REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of Newco contained in this Agreement shall be true and correct in all
material respects at and as of the date hereof, and they shall be true and
correct in all material respects at and as of the Closing Date with the same
force and effect as though made at and as of that time. Newco shall have
performed and complied with all of its obligations required by this Agreement to
be performed or complied with at or prior to the Closing.
(b) COMPLIANCE WITH CONDITIONS OF AGREEMENT. Newco shall have
performed and complied in all material respects with its obligations required by
this Agreement.
(c) NORWEST BANK. Newco or DHT shall have entered into an
agreement with Norwest Bank ("Bank") with respect to that certain Line of Credit
between the Corporation, as maker, and the Bank, as payee, upon terms
satisfactory to NCS, whereby the Bank shall release and hold harmless the NCS
under its guarantee of such Letter of Credit. Newco agrees to pay down the
amount outstanding under the Letter of Credit if necessary to release and hold
harmless the NCS from such guarantee.
(d) LEASE COMMITMENT. Newco or DHT shall have entered into
agreements with certain parties to assume the customer and bank lease
commitments set forth on Schedule 5.2(d), upon terms
PAGE A-19
satisfactory to NCS, relating to representations and warranties on agreements
between the Corporation and its customers and leasing company whereby NCS is
currently the guarantor.
(e) PROMISSORY NOTE. Newco or DHT shall have paid to NCS the
balance outstanding at time of Closing, in satisfaction of all amounts due under
that certain promissory note dated March 31, 1995 by and between the
Corporation, as maker, and NCS, as payee.
(f) OPINION OF COUNSEL. Corporation and NCS shall have
received from Cohen, Berke, Bernstein, Brodie, Kondell & Laszlo, P.A., counsel
for Newco, an opinion, dated as of the Closing, in the form attached hereto as
Exhibit "D."
(g) CUSTOMER SUPPORT AGREEMENTS. Newco or DHT shall have used
its best efforts to assume the customer standby support agreements between NCS
and customers of the Corporation listed on Schedule 5.2(d) hereto.
(h) COMPLIANCE CERTIFICATE FROM NEWCO. The President of Newco
shall deliver to the Corporation and NCS at the Closing a certificate confirming
the matters specified in Sections 5.2(a) and (b).
(i) SECRETARY'S CERTIFICATE FROM NEWCO. A certificate, dated
as of the Closing Date, of the Secretary of Newco certifying that: (i) attached
is a true and correct copy of the Articles of Incorporation and Bylaws of Newco
as then in effect; (ii) attached is a true and correct copy and the resolutions
adopted by the Board of Directors and shareholders of Newco approving the
Merger, Merger Agreement, this Agreement and the transactions contemplated
hereby; and (iii) to the incumbency and specimen signatures of each officer of
Newco, executing this Agreement and the other agreements and certificates
contemplated hereby.
(j) ABSENCE OF LITIGATION OR CLAIM. Newco shall not have
become aware or received notice of any threatened, pending or commenced
litigation, arbitration, administrative hearing or investigation, termination of
any material contract, or other action seeking to prevent, or having a potential
detrimental effect upon the Corporation or NCS in connection with, the
consummation of the transactions contemplated by this Agreement, nor shall such
action(s) have been pending, commenced or threatened.
(k) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and
other proceedings to be taken by Newco in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Corporation, NCS and their
respective counsel, and the Corporation, NCS and their respective counsel shall
have received all such counterpart originals or certified or other copies of
such documents as they reasonably may request.
(l) FAIRNESS OPINION AND SHAREHOLDERS APPROVAL. The fairness
opinion of John G. Kinnard and Company, Inc. shall be satisfactorily updated
concurrent with mailing the proxy material to the shareholders and the
shareholders of the Corporation shall have duly approved the Merger.
PAGE A-20
ARTICLE 6
INDEMNIFICATION
6.1 INDEMNIFICATION.
(a) Subject to subsection (d) below, NCS shall indemnify Newco
and hold it harmless against any loss, liability, damage, deficiency or expense
(including reasonable legal expenses and costs as incurred) (collectively,
"Losses") which Newco may suffer, sustain or become subject to, directly or
indirectly, as a result of or in connection with the breach or inaccuracy by NCS
of its representations or warranties contained in Section 3.2 of this Agreement.
With respect to claims for breaches of representations or warranties contained
in this Agreement, or in any agreement relating to or contemplated hereby, NCS
shall be liable with respect to any Losses regardless of when finally
ascertained, provided written notice is given by Newco pursuant to Paragraph(d)
below. Notwithstanding the foregoing, the representations and warranties of NCS
and the indemnification obligation of NCS contained in this Agreement shall
terminate and expire six (6) months from the Closing Date. Furthermore, the
maximum aggregate amount which NCS may be liable for pursuant to its
indemnification obligation contained in this Agreement shall be $355,000.
(b) Subject to subsection (d) below, Newco shall indemnify the
Corporation and NCS and hold them harmless against any Losses which they may
suffer, sustain or become subject to, as the result of or in connection with (i)
the breach by Newco of any representation or warranty of Newco contained in this
Agreement, or in any agreement relating to or contemplated hereby, or (ii) the
breach by Newco of any covenant or agreement of Newco contained in this
Agreement or in any agreement relating to or contemplated hereby. With respect
to claims for breaches of representation and warranties contained in this
Agreement, or in any agreement relating to or contemplated hereby, Newco will be
liable with respect to any Losses, regardless of when finally ascertained, if
written notice of a claim for such breach is given by Corporation or NCS to
Newco pursuant to paragraph (c) below.
(c) Subject to subsection (d) below, Newco and DHT shall
indemnify NCS and hold it harmless against any Losses (including without
limitation, any cost or expenses associated with performance of standby support
obligations) which it may suffer, sustain, incur or become subject to, as a
result of or in connection with, any claim, demand or other requirement made or
asserted against NCS from and after the Closing Date, under, pursuant to or
arising out of any standby support agreement or other similar agreement between
NCS and any customer of the Corporation, as listed on Schedule 5.2(d) hereto,
pursuant to which NCS guarantees, agrees to provide for or agrees to perform in
place of, the performance of the Corporation, (collectively, "Standby Support
Agreements"). Notwithstanding subsection (d) below, NCS shall be entitled at its
option, but not obligated, to perform the requirements of any Standby Support
Agreement, upon customer demand until and unless Newco provides performance
which is satisfactory to the customer as confirmed by the customer in writing,
and all expense of such performance, if any, in addition to any other Losses
resulting from such claim, shall be subject to the indemnity provided in this
Section 6.1(c).
(d) Any party making a claim for indemnification under this
Section 6.1 (an "Indemnitee") shall notify the indemnifying party (an
"Indemnitor") of the claim in writing promptly after discovering the claim or
receiving written notice of a claim against it (if by a third party), describing
the
PAGE A-21
claim, the amount thereof (if known and quantifiable), and the basis thereof.
Any claim for indemnification under this Section 6.1 to the extent such claim
can be reasonably quantified, must be for a minimum amount of $15,000 or when
the amount of such claim is aggregated with other claims for indemnification
brought under this Section 6.1 equals or exceeds $15,000. An Indemnitor shall be
entitled to participate in the defense of such action at its expense, and at its
option (subject to the limitations set forth below) shall be entitled to assume
control of such defense with reputable counsel; provided, that prior to
Indemnitor assuming control of such defense it or they shall first verify to the
Indemnitee in writing that such Indemnitor shall be fully responsible for such
claim and that it will provide the full indemnification required hereunder to
Indemnitee with respect to such claim, including payment thereof and performance
thereunder; and provided further, that:
(i) The Indemnitee shall be entitled to participate
in the defense of such claim and to employ counsel of its choice for such
purpose, the fees and expenses of such separate counsel which shall be borne by
Indemnitee. Notwithstanding the foregoing, the fees and expenses of such
separate counsel incurred prior to the date the Indemnitor's counsel effectively
assumes control of such defense shall be borne by the Indemnitor; and
(ii) The Indemnitee shall be entitled to assume
control of such defense and shall bear the fees and expenses of counsel retained
by the Indemnitor if, upon petition by Indemnitee, the appropriate court rules
that the Indemnitor failed or is failing to vigorously prosecute or defend such
claim; and
(iii) The Indemnitor shall not be entitled to control
the defense of any claim to the extent that the claim seeks an injunction or
equitable relief against Indemnitee which, if successful, could materially
interfere with the business of the Indemnitee. If the Indemnitor, with the
consent of the Indemnitee, shall control the defense of any such claim, the
Indemnitor shall obtain the prior written consent of the Indemnitee (which shall
not be unreasonably withheld) before entering into any settlement of a claim or
ceasing to defend such claim, if pursuant to or as a result of such settlement
or cessation, injunction or other equitable relief will be imposed against the
Indemnitee.
(iv) If the claim is the result of an asserted breach
of any warranty, representation or covenant, and such claim is material, then
the costs of defense of such claim shall be borne by the Indemnitor on a current
basis if so requested by Indemnitee.
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Unless limited herein
to the contrary, all representations, warranties, covenants and other agreements
contained herein or appended hereto shall survive the execution and delivery of
this agreement and the Closing, irrespective of any investigation made by or on
behalf of either party.
7.2 NOTICES. All notices which are permitted or required under this
Agreement shall be in writing and delivered personally or by certified mail,
postage prepaid, addressed as follows, or to such other person or address as may
be designated by written notice by one party to another:
PAGE A-22
If to NEWCO: DMI ACQUISITION CORP.
101 Southhall Lane, Suite 210
Maitland, Florida 32751
Attn: Mitchel J. Laskey, President
With a copy to: Richard N. Bernstein, Esq.
Cohen, Berke, Bernstein,
Brodie, Kondell & Laszlo, P.A.
Terremark Centre, 19th Floor
2601 South Bayshore Drive
Miami, Florida 33133
If to DHT: Dynamic Healthcare Technologies, Inc.
101 Southhall Lane, Suite 210
Maitland, Florida 32751
Attn: Mitchel J. Laskey, President
With a copy to: Richard N. Bernstein, Esq.
Cohen, Berke, Bernstein,
Brodie, Kondell & Laszlo, P.A.
Terremark Centre, 19th Floor
2601 South Bayshore Drive
Miami, Florida 33133
If to CORPORATION: DIMENSIONAL MEDICINE, INC.
10901 Bren Road East
Minnesota, MN 55343
Attn: John Paumen, President
With a Copy to: John Houston, Esq.
Lindquist & Vennum, P.L.L.P.
4200 IDS Center
Minneapolis, MN 55402
If to NCS: NATIONAL COMPUTER SYSTEMS, INC.
11000 Prairie Lakes Drive
Eden Prairie, Minnesota 55354
Attn: Ms. Adrienne Tietz
With a Copy to: Mr. Michael C. Brewer, Esq.
National Computer Systems, Inc.
11000 Prairie Lakes Drive
Eden Prairie, Minnesota 55354
Notices shall be deemed delivered when delivered personally or when mailed by
prepaid certified or registered mail with return receipt requested, or air
courier which provides for evidence of delivery.
PAGE A-23
The addresses set forth above shall be conclusive for all
purposes unless and until written notice of a change of address shall be sent to
the parties herein.
7.3 NOTIFICATION OF CERTAIN MATTERS. Corporation and NCS shall give
prompt notice to Newco of:
(a) any notice of, or other written communication relating to,
any default or event which with notice or lapse of time or both, would become a
default, received by Corporation, NCS or any affiliate, subsequent to the date
of this Agreement and prior to the date of closing, under any contract,
agreement or instrument to which Corporation is a party;
(b) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement;
(c) any written communication from any third party, or any
oral communication from any third party which Corporation or NCS reasonably
believes is the precursor of a written communication challenging the legality or
fairness of this Agreement or threatening any action or proceeding in respect to
this Agreement with a view to preventing the consummation of this transaction;
and
(d) the occurrence of any event or the failure of any event to
occur that results in a breach of any representation or warranty of Corporation
or NCS or a failure of Corporation or NCS to comply with any covenant, condition
or agreement contained herein.
(e) Any notice of the exercise of dissenter's rights by any
Corporation stockholder.
7.4 TERMINATION. This Agreement may be terminated and the Merger may be
abandoned at anytime prior to the Closing (notwithstanding any approval of this
Agreement by the shareholders of the Corporation):
(a) by mutual written consent of the Corporation and Newco;
(b) by either the Corporation or Newco, if there has been a
material misrepresentation, material breach of warranty or violation of any
material covenant on the part of the other party in the representations,
warranties and covenants contained herein;
(c) by either the Corporation or Newco, if the Closing has not
occurred by May 15, 1996; provided that no party may terminate this Agreement
pursuant to this clause if such party's failure to fulfill any of its
obligations under this Agreement shall have been the reason the Closing shall
not have occurred on or before said date;
(d) by either the Corporation or Newco, if there shall be any
law or regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining the
Corporation or Newco from consummating the Merger is entered and such judgment,
injunction, order or decree shall become final and non-appealable;
(e) by either the Corporation and Newco, if the Corporation's
shareholders shall have voted on and failed to adopt and approve this Agreement
and the Merger.
PAGE A-24
7.5 KNOWLEDGE. In the context of this Agreement, where the standard of
knowledge is applied with respect to any representation or warranty on the part
of the Corporation, this shall mean the knowledge of John Paumen, Mark Holman or
Adrienne Tietz. In the context of this Agreement, where the standard of
knowledge is applied with respect to any representation or warranty on the part
of NCS, this shall mean the knowledge of Adrienne Tietz.
7.6 NO ASSIGNMENT. This Agreement may not be assigned by either party
without the prior written consent of the other party.
7.7 SEVERABILITY. Any provision of this Agreement which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
7.8 GOVERNING LAW. This Agreement is deemed to have been made in the
State of Florida and its interpretations, its construction and the remedies for
its enforcement or breach are to be applied pursuant to, and in accordance with,
the laws of the State of Florida for contracts made and to be performed in that
State.
7.9 SCHEDULES. It is acknowledged and agreed that all schedules to this
Agreement are an integral part hereof and are incorporated, in total, by
reference fully as a part of this Agreement in all respects. Any schedule or
exhibit which is not attached hereto at the time of the execution of this
Agreement shall be exchanged at or prior to the time of Closing, and shall be
subject to review and approval by the parties hereto and agreed to by them.
7.10 INCORPORATION AND AMENDMENT. This writing constitutes the entire
agreement of the parties superseding and extinguishing all prior agreements or
understandings, representations or warranties, relating to the subject matter
hereof. This Agreement may not be modified, amended or terminated except by
written agreement specifically referring to this Agreement signed by the parties
hereto.
7.11 REMEDIES. Newco, and Corporation and NCS agree that any dispute
arising among the parties hereto shall be settled by a court of competent
jurisdiction in accordance with applicable law and that the parties shall be
free to petition the court for all appropriate legal and/or equitable remedies
inclusive of specific performance and injunctive relief.
7.12 WAIVER. No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party giving such waiver,
and no such waiver shall be deemed a waiver of any subsequent breach or default
of the same or similar nature.
7.13 HEADINGS. The paragraph headings contained herein are for the
purpose of convenience only and are not intended to define or limit the contents
of said paragraphs.
7.14 FURTHER ACTION. Each party hereto shall take such further action
and shall execute and deliver such further documents as may be reasonably
requested by the other party in order to carry out the provisions and purposes
of this Agreement.
7.15 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall be deemed one original.
7.16 VENUE. The parties hereto mutually agree that proper venue with
respect to any dispute arising hereunder, related hereto and connected herewith
shall be Seminole County, Florida.
PAGE A-25
7.17 PUBLIC ANNOUNCEMENTS. No party shall, without the prior written
consent from the other parties, issue any press release or furnish any written
statement to the Corporation's employees or to the public concerning the
transactions contemplated by this Agreement.
[THE BOTTOM OF THIS PAGE INTENTIONALLY BLANK]
PAGE A-26
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
THE CORPORATION:
DIMENSIONAL MEDICINE INC., a Minnesota
corporation
By: /s/ John P. Paumen
John P. Paumen, President
NCS:
NATIONAL COMPUTER SYSTEMS, INC., a Minnesota
corporation
By: /s/ Adrienne T. Tietz
Adrienne T. Tietz, Vice President
NEWCO:
DMI ACQUISITION CORP., a Florida corporation
By: /s/ Mitchel J. Laskey
Mitchel J. Laskey, President
DHT:
DYNAMIC HEALTHCARE TECHNOLOGIES, INC., a
Nebraska corporation
By: /s/ Mitchel J. Laskey
Mitchel J. Laskey, President
PAGE A-27
APPENDIX B
OPINION OF JOHN G. KINNARD & COMPANY, INCORPORATED
February 5, 1996
Board of Directors
Dimensional Medicine, Inc.
10901 Bren Road East
Minnetonka, Minnesota 55343
Dear Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the minority holders of the common stock of Dimensional Medicine, Inc.
("DMI" or the "Company") other than National Computer Systems, Inc. ("NCS") (the
"Minority Shareholders") of the consideration which is proposed to be paid to
such holders pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") by and among DMI, DMI Acquisition Corp., a wholly owned subsidiary
of Dynamic Healthcare Technologies, Inc. ("Newco"), and NCS, the Company's
principal shareholder, pursuant to which the Company will be merged with and
into Newco (the "Merger"). Pursuant to the Merger Agreement, the total
outstanding shares of common stock of DMI will be converted into the right to
receive, in aggregate, $550,000 cash; of this $550,000 consideration, each share
of DMI common stock held by Minority Shareholders will be converted into the
right to receive $0.040 cash and each share of DMI common stock held by NCS will
be converted into the right to receive approximately $0.013 cash.
John G. Kinnard & Company, Incorporated ("Kinnard"), as part of its investment
banking activities, is accustomed to valuing virtually all types of securities
and to advising the directors, officers and shareholders of both public and
private companies with respect to the fairness of the terms of investments,
mergers and acquisitions. Kinnard is independent with respect to the Merger and
did not act as financial advisor to DMI regarding the terms of the Merger.
In connection with this opinion we have reviewed and analyzed, among other
things, certain historical and projected financial information on the Company;
visited the corporate offices of the Company; and held discussions with senior
management and the directors of DMI regarding the past and current business
operations, financial condition, and future prospects for the Company. We
reviewed a draft copy of the Proxy Statement relating to the special meeting of
shareholders of DMI and a draft copy of the Merger Agreement.
We reviewed the historical reported market prices and trading activity of the
common stock of DMI. We compared financial and stock market information on DMI
to similar information for certain publicly traded companies providing health
care information and imaging products. We reviewed,
PAGE B-1
to the extent publicly available, the terms of selected relevant merger and
acquisition transactions; analyzed the general economic outlook of companies in
the health care information technology industry; and performed other studies and
analyses as we considered appropriate.
In preparing our opinion, we relied upon the accuracy and completeness of all
information provided or otherwise made available to us by DMI, and we did not
independently verify such information. We did not make an independent appraisal
of the assets of DMI and we do not express an opinion regarding the liquidation
value of the Company.
Based upon the foregoing, and other matters that we consider relevant, it is our
opinion that, as of the date hereof, both the aggregate consideration of
$550,000 cash to be received for all outstanding common shares of DMI and the
$0.040 per share cash to be received by the Minority Shareholders in connection
with the Merger are fair to the Minority Shareholders from a financial point of
view.
Very truly yours,
/s/ John G. Kinnard & Company, Incorporated
JOHN G. KINNARD & COMPANY, INCORPORATED
PAGE B-2
APPENDIX C
PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT
RELATING TO RIGHTS OF DISSENTING STOCKHOLDERS
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
Subdivision 1. Actions creating rights. A shareholder of a corporation
may dissent from, and obtain payment for the fair value of the shareholder's
shares in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in that
it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of
the shares to acquire shares, securities other than shares, or rights
to purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting
rights; except that an amendment to the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B,
to which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares will
be acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their shares.
PAGE C-1
Subd. 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may
assert dissenters' rights with respect to shares held on behalf of the
beneficial owner, and shall be treated as a dissenting shareholder under the
terms of this section and section 302A.473, if the beneficial owner submits to
the corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
Subd. 3. Rights not to apply. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
Subd. 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
Subdivision 1. Definitions. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1 or
the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective
date of the corporate action referred to in section 302A.471, subdivision 1, up
to and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting
at which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved by
the shareholders, a shareholder who wishes to exercise dissenters' rights must
file with the corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the shares owned by the shareholder
and must not vote the shares in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders
PAGE C-2
who have complied with subdivision 3 and to all shareholders entitled to dissent
if no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates
of certificated shares must be sent in order to obtain payment and the
date by which they must be received;
(2) Any restrictions on transfer of uncertificated shares that
will apply after the demand for payment is received;
(3) A form to be used to certify the date on which the
shareholder, or the beneficial owner on whose behalf the shareholder
dissents, acquired the shares or an interest in them and to demand
payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subd. 5. Payment; return of shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation estimates
to be the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of
income for a fiscal year ending not more than 16 months before the
effective date of the corporate action, together with the latest
available interim financial statements;
(2) An estimate by the corporation of the fair value of the
shares and a brief description of the method used to reach the
estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph
(a) from a person who was not a shareholder on the date the action dissented
from was first announced to the public or who is dissenting on behalf of a
person who was not a beneficial owner on that date. If the dissenter has
complied with subdivisions 3 and 4, the corporation shall forward to the
dissenter the materials described in paragraph (a), a statement of the reason
for withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction. The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel all
transfer restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time.
PAGE C-3
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by registered
or certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, see fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
PROXY
DIMENSIONAL MEDICINE, INC.
SPECIAL MEETING OF SHAREHOLDERS -- MAY ___, 1996
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John P. Paumen and Mark D. Holman, or
either of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of stock of Dimensional Medicine, Inc. ("DMI") which the undersigned
would be entitled to vote at the Special Meeting of Shareholders to be held on
May ___, 1996, or at any adjournment or adjournments thereof, hereby revoking
all former proxies.
(1) Proposal to approve the Merger Agreement with Dynamic Healthcare
Technologies, Inc. ("DHT") pursuant to which DMI will be merged with
and into DMI Acquisition Corp., a wholly owned subsidiary of DHT and
shares of DMI's common stock held by DMI's shareholders will be
converted into the right to receive an aggregate $550,000 in cash, of
which an aggregate $355,000, or approximately $.013 per share, will be
paid to NCS, and approximately $195,000, or $.040 per share, will be
paid to the minority shareholders, as set forth in the Merger Agreement
and as described in the Proxy Statement accompanying this Proxy.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) In their discretion, on such other business as may properly come before
the Special Meeting or any adjournment or adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED AND RETURNED WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE,
THE PROXY WILL BE VOTED "FOR" PROPOSAL (1).
Dated: _________________________________
Signed: _________________________________
(Signature of Shareholder)
_________________________________
(Signature of Shareholder)
Please vote, date and sign this proxy
exactly as your name is printed hereon.
When signing as attorney, executor,
administrator, trustee, guardian, etc.
give full title as such. If the stock is
held jointly, each owner should sign. If
a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.