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
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
DOCUCON, INCORPORATED
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[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, par value $0.01 per share
2. Aggregate number of securities to which transaction applies:
3,512,989 Shares of Common Stock
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$ .14 per share
4. Proposed maximum aggregate value of transaction:
$491,818
5. Total fee paid:
$45.25
[ ] 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:
DOCUCON, INCORPORATED
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
MARCH 15, 2002
A special meeting (the "Special Meeting") of stockholders (the
"Stockholders") of Docucon, Incorporated (the "Company") will be held at 329 E.
Ramsey, San Antonio, Texas 78216, at 9:30 a.m., Central Standard Time, on
Friday, March 15, 2002:
A. DIGITAL VISION MERGER. At the Special Meeting, Stockholders will be
asked to consider and vote upon the following proposals to:
o Approve and adopt the Agreement and Plan of Merger, as amended, by
and among the Company, DocuconMerger, L.P., a wholly owned
subsidiary of the Company, and Digital Vision Systems, Inc. ("DVS").
o Authorize the Board of Directors to effectuate a reverse split of
one (1) share of the Company's common stock (the "Common Stock") for
fifteen (15) shares of the Company's issued and outstanding Common
Stock, to facilitate the merger with DVS.
o Amend the Company's Articles of Incorporation to change the
Company's name to "DVS Holdings, Inc."
o Elect five new directors to a seven-person Board of Directors. Two
of the current directors will continue in office, and five new
directors will be added by DVS.
o Approve and adopt the 2002 Non-Qualified Stock Option Plan.
B. OTHER BUSINESS. At the Special Meeting, the Stockholders may also
transact any other business that properly comes before the Special Meeting or
any adjournment or postponement of it. The Board of Directors is not aware of
any other business that will be presented for consideration at the Special
Meeting.
Stockholders of record at the close of business on January 2, 2002 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment
thereof.
If you cannot attend the Special Meeting in person, please date and
execute the accompanying proxy card and return it promptly to the Company. If
you attend the Special Meeting, you may revoke your proxy and vote in person if
you desire to do so, but attendance at the Special Meeting does not itself serve
to revoke your proxy.
RALPH BROWN
Secretary
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QUESTIONS AND ANSWERS
ABOUT THIS PROXY AND THE AGREEMENT WITH
DIGITAL VISION SYSTEMS, INC.
Q. WHO IS SOLICITING MY PROXY?
A. The Board of Directors of Docucon,
Incorporated (the "Company").
Q. WHERE AND WHEN IS THE SPECIAL MEETING OF STOCKHOLDERS?
A. 9:30 a.m., Central Standard Time, Friday, March 15, 2002, at 329 E.
Ramsey, San Antonio, Texas 78216.
Q. WHAT AM I VOTING ON?
A. The Board of Directors of the Company is seeking the authorization of the
Stockholders to (1) approve and adopt the Agreement and Plan of Merger, as
amended, by and among the Company, its wholly owned subsidiary and DVS;
(2) authorize the Board of Directors to effect a reverse split of one
share of Common Stock for fifteen (15) shares of the Company's issued and
outstanding Common Stock for the purpose of facilitating the merger with
DVS; (3) amend the Company's Articles of Incorporation to change the
Company's name to "DVS Holdings, Inc."; (4) elect five new directors to a
seven-person Board of Directors; and (5) approve and adopt the 2002
Non-Qualified Stock Option Plan.
Q. WHY SHOULD THE STOCKHOLDERS AUTHORIZE THE MERGER AND RELATED ACTIONS?
A. The Board of Directors of the Company has thoroughly considered the
advantages and disadvantages of merging with DVS at this time. The Board
believes that the merger may provide significant value to the Company and
its Stockholders by offering opportunities for growth using DVS' security
industry products and services and its related expertise. The proposed
merger would result in DVS' current stockholders owning approximately
92.5% of the Company. The Company's current Stockholders would own
approximately 7.5% of the Company after the merger. The number of shares
of Common Stock currently authorized by the Company's Articles of
Incorporation are insufficient to complete the merger without an increase
in the authorized shares of Common Stock, or in the alternative, a reverse
split of the Common Stock. The Board believes that a reverse split, or a
decrease in the number of shares of Common Stock outstanding, is the
preferable alternative because it may result in greater marketability and
liquidity of the Common Stock.
Q. WILL STOCKHOLDERS HAVE APPRAISAL RIGHTS?
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A. No. Stockholders of the Company will not have appraisal rights as a result
of this transaction.
Q. WHAT SHOULD STOCKHOLDERS DO NOW?
A. Stockholders should mail their signed and dated proxy card in the enclosed
envelope, as soon as possible, so that their shares will be represented at
the Company's Special Meeting of Stockholders.
Q. MAY STOCKHOLDERS CHANGE THEIR VOTE AFTER THEY HAVE MAILED A SIGNED PROXY
CARD?
A. Yes. Stockholders may change their vote in one of three ways at any time
before their proxies are used. First, Stockholders may revoke their
proxies by written notice. Second, Stockholders may complete new,
later-dated proxy cards. Third, Stockholders may attend the Special
Meeting of Stockholders and vote in person.
Q. HOW ARE SHARES HELD IN A BROKER'S NAME VOTED?
A. Brokers will vote shares nominally held in their name (or in what is
commonly called "street name") only if the beneficial Stockholder provides
the broker with written instructions on how to vote. Absent such
instructions, these shares will not be voted. Stockholders are urged to
instruct their brokers in writing to vote shares held in street name for
the proposed transaction.
Q. WHOM SHOULD STOCKHOLDERS CALL WITH QUESTIONS?
A. Company Stockholders who have questions about the transaction should call
Robert W. Schwartz, the Company's President and Chief Executive Officer at
(518) 786-7733 or RSCHWARTZ@SHGGROUP.COM.
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Disclosure Regarding Forward-Looking Statements
This proxy statement (the "Proxy Statement") contains forward-looking
statements including statements containing the words "believes," "anticipates,"
"expects," "intends" and words of similar import. These statements involve known
and unknown risks and uncertainties that may cause the Company's post-merger
actual results or outcomes to be materially different from those anticipated and
discussed herein. Important factors that the Company believes might cause such
differences include: (1) concentration of the Company's assets into one industry
segment; (2) the nature of the security industry (as defined herein); (3) the
impact of changing economic conditions; (4) the actions of competitors,
including pricing and new product introductions; and (5) those specific risks
that are discussed in the cautionary statements accompanying the forward-looking
statements in this Proxy Statement and in the risk factors detailed in the
Company's previous filings with the Securities and Exchange Commission (the
"Commission"). In assessing forward-looking statements contained herein,
Stockholders are urged to read carefully all cautionary statements contained in
this Proxy Statement and in those other filings with the Commission.
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DOCUCON, INCORPORATED
PROXY STATEMENT INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies (the "Proxy" or "Proxies") by and on behalf of the Board of Directors of
the Company for use at the Special Meeting of Stockholders to be held on March
15, 2002 or any adjournment thereof. This Proxy Statement, the Notice of Special
Meeting and the accompanying Proxy are being mailed to Stockholders on or about
February 15, 2002.
The Company's principal executive offices are located at 329 E. Ramsey,
San Antonio, Texas 78216. The Company's telephone number is (210) 342-1190.
As to all matters that may come before the Special Meeting, each
Stockholder will be entitled to one vote for each share of Common Stock of the
Company held at the close of business on January 2, 2002. The holders of a
majority of the shares of Common Stock of the Company presented in person or
by proxy and entitled to vote will constitute a quorum at the Special Meeting.
Abstentions and broker non-votes will be counted for purposes of determining
the presence of a quorum. On January 2, 2002, the record date for the Special
Meeting, there were 3,658,767 shares of Common Stock outstanding and seven (7)
shares of Series A Cumulative Convertible Preferred Stock (the "Series A
Preferred Stock") outstanding, each share of which is entitled to cast 8,333
votes as Common Stock. With respect to references herein to votes to be taken
at the Special Meeting of Stockholders, the term "Common Stock" shall include
the Company's Common Stock and the shares of Common Stock into which the
outstanding Series A Preferred Stock may be converted, and with respect to
which the holders of such Preferred Stock are entitled to vote. Thus, the
equivalent number of shares entitled to vote at the Special Meeting of
Stockholders is 3,798,767 (3,658,767 shares of Common Stock and 140,000 shares
of Common Stock obtainable upon conversion of Series A Preferred Stock).
The purposes of the Special Meeting of Stockholders are to:
o Approve and adopt the Agreement and Plan of Merger, as amended, by
and among the Company, DocuconMerger, L.P., a wholly owned
subsidiary of the Company, and DVS.
o Authorize the Board of Directors to effectuate a reverse split of
one (1) share of Common Stock for fifteen (15) shares of the
Company's issued and outstanding Common Stock, to facilitate the
merger with DVS.
o Amend the Company's Articles of Incorporation to change the
Company's name to "DVS Holdings, Inc."
o Elect five new directors to a seven-person Board of Directors. Two
of the current directors will continue in office, and five new
directors will be added by DVS.
o Approve and adopt the 2002 Non-Qualified Stock Option Plan.
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The Company is not currently aware of any other matters that will come before
the Special Meeting. The approval of a majority of the shares of Common Stock,
present in person or by proxy and entitled to vote at the Special Meeting, is
required for approval of each of the proposals (the "Proposal" or "Proposals")
set forth in this Proxy Statement. A quorum equal to a majority of the
outstanding Common Stock must be present in person or by proxy at the Special
Meeting in order to consider the Proposals.
All shares of Common Stock represented by properly executed Proxies that
are returned and not revoked will be voted in accordance with the instructions,
if any, given therein. If no instructions are provided in a Proxy, such Proxy
will be voted FOR each of the items proposed in this Proxy Statement.
Abstentions and broker non-votes will be counted as shares present for purposes
of establishing a quorum with respect to all the Proposals. Abstention votes
will be counted as having voted AGAINST any Proposal. Broker non-votes will not
be considered as either FOR or AGAINST votes with respect to any Proposal.
Enclosed also for use at the Special Meeting is a form of Proxy. A Stockholder
may revoke any such Proxy at any time before it is exercised either by giving
written notice to the Secretary of the Company of such revocation or submitting
a subsequently dated Proxy to the Company prior to the Special Meeting. A
Stockholder attending the Special Meeting may revoke his/her Proxy and vote in
person if he/she desires to do so, but attendance at the Special Meeting will
not of itself revoke the Proxy.
PROPOSALS BY STOCKHOLDERS
No proposals by Stockholders of the Company are to be presented at the
Special Meeting of Stockholders.
PROPOSAL 1: APPROVAL AND ADOPTION OF AGREEMENT AND PLAN OF MERGER
GENERAL
The Company's Board of Directors agreed to the terms of a letter of
intent, dated March 30, 2001, which proposed the corporate combination (the
"Merger") of DVS, a Nevada corporation, and the Company. On September 6, 2001,
the Company's Board of Directors entered into an amended letter agreement,
which amended the terms of the proposed Merger with DVS. The terms of the
Merger provide that the current stockholders of DVS will own approximately
92.5% of the combined entity. On December 28, 2001, the Board of Directors
approved the Agreement and Plan of Merger by and among DocuconMerger, L.P.,
DVS and Docucon, Incorporated (the "Merger Agreement").
REASONS FOR THE PROPOSAL
As a result of the sale of substantially all of its operating assets to
TAB Products Co. ("TAB"), the Company effectively became a "shell" company with
no revenues and continuing general and administrative expenses. The Company's
on-going activities have been related to efforts to realize value for its
remaining assets. If the Merger is
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consummated, the Company will be engaged in the security industry (further
described below).
DVS is a privately held Nevada corporation chartered in May 2000. DVS
manufactures and distributes video surveillance systems based upon digital
compression technology. DVS' software management systems and related digital
recording hardware are marketed worldwide for camera surveillance security
applications for retail, education, manufacturing, government and military
users, among others. More information about DVS products can be obtained on DVS'
web site at www.dvshq.com. DVS' point of contact and principal office address is
Phillip Michael (Mike) Hardy, President, 329 E. Ramsey, San Antonio, Texas 78216
and its telephone number is (210) 342-1190.
PLANS FOR FUTURE OPERATIONS AFTER THE MERGER
The Company's wholly owned subsidiary, DocuconMerger, L.P. will continue
business operations as a going concern.
Following the consummation of the Merger, the Company's Stockholders
will retain approximately 7.5% of the equity of the Company, subject to
further dilution for future issuance of equity securities. Former DVS
stockholders will own approximately 92.5% of the Company's equity, subject to
further dilution for future issuance of equity securities. The Merger will not
result in any changes in the rights of the Company's Stockholders.
BACKGROUND OF THE MERGER
As a result of the sale of substantially all of the Company's operating
assets to TAB, the Company has discontinued its operations. The Company's
on-going activities are related to its efforts to realize value, if any, from
its remaining assets, including the Company's publicly traded "shell."
On March 15, 2001, representatives of DVS and the Company met at DVS'
principal office in San Antonio, Texas, and reviewed the key strategic,
operating and financial elements of DVS. On March 30, 2001, DVS proposed that
DVS and the Company enter into the Merger. DVS and the Company then signed a
non-binding letter of intent regarding such proposed Merger.
On April 3, 2001, the Company publicly announced the terms of the letter
of intent as initially proposed, the Merger would result in DVS' current
stockholders ("DVS Stockholders") owning 90.5% of the Company and the
Company's Stockholders owning the remaining 9.5% of the Company's Common
Stock. Additionally, the Company's Stockholders would receive warrants for an
additional 2.0% of the combined entity, contingent upon future performance of
the Common Stock market price. Furthermore, in exchange for services performed
during negotiation, and for continuing to serve as Chief Executive Officer and
a director of the Company, Robert W. Schwartz, or his designee, would receive
0.6% of the 9.5% reserved
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for the Company's Stockholders. The Merger was further conditioned on DVS
obtaining $2.5 million in new capital and the Company having at least $150,000
in cash.
Beginning on April 1, 2001, in San Antonio, Texas, management of the
Company conducted a due diligence review and analysis of DVS. As a result of
such review, and subsequent changes in the financial position of DVS and the
Company, DVS proposed updated terms and various other matters to be contained
in a definitive merger agreement and plan of reorganization between DVS and
the Company. The Company called a meeting of the Board of Directors, to be
held on September 6, 2001, to consider the modified terms of the transaction.
The Board of Directors approved the changes to the terms of the letter of
intent and, on September 25, 2001, reported on Form 8-K that DVS Stockholders
would receive an increased number of shares of Common Stock of the Company,
such that DVS Stockholders would own 92.5% of the Company's Common Stock and
the Company's Stockholders would own the remaining 7.5% of the Company's
Common Stock. Further changes provided that the Company's Stockholders would
not receive any warrants; and Robert Schwartz would receive a reduced 0.5%
share to be allocated from the 7.5% interest received by the Company's
Stockholders. In calculating the foregoing percentages, it is assumed that
ownership percentages are determined by reference to fully-diluted, as if
converted shares of the Company's Common Stock outstanding for both the
Company and DVS. Through the Merger, DVS would become a wholly owned
subsidiary of the Company.
During the weeks following September 17, 2001, representatives of the
Company and DVS negotiated and drafted the Merger Agreement, which was
subsequently approved by the Boards of Directors of the Company and DVS.
THE COMPANY'S REASONS FOR THE MERGER
The decision of the Company's Board of Directors to approve the Merger
and the Letter Agreement followed months of exploration, research and analysis
of the advantages and disadvantages of merging with various companies,
including DVS. In making its recommendation to the Stockholders of the
Company, the Board of Directors considered a number of factors, including
those noted immediately below, which were determined by the Board to favor a
decision to consummate the Merger, and those set forth in the subsequent
paragraphs, which the Board determined did not favor a decision to consummate
the Merger:
(i) The Company's overall goals and future business plans are to realize
value for its remaining assets consisting principally of the
publicly traded "shell" corporation;
(ii) The current financial condition and future prospects for the
Company, especially in light of the Board's conclusion that the
Company's continued existence without revenue generating operations
may be jeopardized, and that the Board had considered filing for
bankruptcy;
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(iii) The very promising future of the security services industry and
management's expectations regarding probable trends in the market
valuation of companies in such industry;
(iv) The terms of the Merger, as reflected in the Agreement;
(v) The fact that costs associated with the Merger will be paid by DVS,
including but not limited to professional fees associated with the
preparation of the Merger Agreement and related agreements; and
(vi) The fact that no offer to purchase the "shell" exceeding that of DVS
had been received by the Company; although various indications of
interest had been expressed.
The Company's Board also considered the following potentially unfavorable
factors in its deliberations concerning the proposed Merger.
IF DVS IS NOT ABLE TO MANAGE ITS GROWTH EFFECTIVELY, ITS BUSINESS AND OPERATING
RESULTS COULD SUFFER.
DVS has grown rapidly over its short operating life and expects to
continue rapid growth in its operations. DVS' future success will depend in part
on its continued ability to manage growth effectively. As its operations
continue to expand worldwide, management issues are likely to become more
complex and challenging. DVS also expects to examine regularly opportunities to
acquire other companies or lines of business. Acquisitions present a number of
significant financial, operational and legal risks. It may also be difficult to
combine the operations of an acquired business with DVS' operations, without
suffering the loss of key personnel, customers or distributors. If DVS fails to
manage its growth effectively or experiences problems with any acquisitions, its
future operations and financial results will be adversely affected.
DVS' BUSINESS IS VULNERABLE TO RISKS ASSOCIATED WITH THE SALE OF COMPLEX,
TECHNICAL SYSTEMS.
DVS' business has, to a significant extent, been based on the sale of
complex technical systems typically used in an enterprise network environment.
DVS continues to emphasize these systems in its product development and
marketing plans. Users of these systems, such as government agencies or retail
companies, require systems that provide an exceptionally high level of
reliability. Such systems are typically more costly to design, build and
support. Contracts for large installations typically involve a lengthy and
complex bidding and selection process that involves third parties who actually
would be the bidding party. DVS' ability to obtain particular contracts may
depend on pricing and capabilities of these third parties. In addition, the
timing and scope of these opportunities as well as the pricing and margins
associated with any eventual contract award are difficult to forecast, and may
vary from transaction to transaction.
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BECAUSE THE MARKET FOR DVS' PRODUCTS IS CHARACTERIZED BY RAPIDLY CHANGING
TECHNOLOGY, DVS' CONTINUED SUCCESS WILL DEPEND ON ITS ABILITY TO ENHANCE ITS
EXISTING PRODUCTS AND TO INTRODUCE NEW PRODUCTS ON A TIMELY AND COST-EFFECTIVE
BASIS.
The market for DVS' products is characterized by rapidly changing
technology, frequent new product introductions and enhancements, and evolving
industry standards. DVS' continued success will depend to a significant extent
upon its ability to anticipate accurately the evolution of new products and
technologies and to enhance its existing products. It will also depend on its
ability to develop and introduce innovative new products that gain market
acceptance. DVS can make no assurances that it will continue to be successful in
selecting, developing, manufacturing and marketing new products or enhancing its
existing products on a timely or cost-effective basis. In addition, DVS'
products utilize complex hardware and software technology that performs critical
functions to highly demanding standards. The greater the complexity of DVS'
products, the greater is the risk of future performance problems or delays in
product introductions, which could damage DVS' business and financial results.
DVS EXPECTS TO HAVE SIGNIFICANT INTERNATIONAL SALES, WHICH SUBJECTS IT TO RISKS
INHERENT IN FOREIGN OPERATIONS.
A significant portion of DVS' future sales is expected to be to customers
outside of the United States. International transactions involve particular
risks, including political decisions affecting tariffs and trade conditions,
rapid and unforeseen changes in economic conditions in individual countries,
turbulence in foreign currency and credit markets, and increased costs resulting
from lack of proximity to the customer. DVS' products must be designed to meet
the regulatory standards of foreign markets, and any inability to obtain foreign
regulatory approvals could cause it to lose sales opportunities. In addition,
international sales frequently require special features and customization to
satisfy local market conditions, and certain international customers may require
longer payment terms than DVS typically provides.
Volatility in international currency exchange rates may have an impact on
DVS' operating results. DVS expects to have significant contracts payable in
foreign currencies. As a result of the unpredictable timing of purchase orders
and payments under these contracts, and other factors, it is often not
practicable for DVS to hedge effectively the risk of significant changes in
currency rates during the contract period. Since DVS may engage in currency
hedging only to a limited extent, if at all, its financial results can be
affected by the impact of currency fluctuations in any particular period, as
well as by the cost of any such hedging activities that DVS does perform.
DVS HAS AND EXPECTS TO CONTINUE TO MAKE INVESTMENTS IN NEW TECHNOLOGY.
DVS believes that its investments will enable it to participate in
technology innovation opportunities in areas of interest to it without having to
dedicate the capital
11
and management resources that would be necessary for such participation through
its own internal research and development efforts.
DVS also intends to initiate relationships that may result in eventual
expansion of its product and marketing positions and potential acquisition
opportunities. DVS will seek to leverage its technological expertise and
establish relationships in the technology, business and financial communities in
order to identify and participate in special opportunities. Investments in new
technology, however, are subject to a number of risks associated with the
limited operating history of such ventures and the frequent absence of a proven
utility of the technology involved. While DVS does not regard its strategic
investment activities as a primary element of its overall business plan, it
expects to continue to allocate some of its liquid assets to such activities as
part of its long-term growth strategy.
DVS' FUTURE SUCCESS DEPENDS ON ITS EXISTING KEY PERSONNEL, THE LOSS OF WHOM
COULD ADVERSELY IMPACT ITS BUSINESS AND OPERATING RESULTS.
DVS' future success will depend, to a considerable extent, on the
contributions of senior management and key employees, some of whom are not
subject to employment agreements and/or would be difficult to replace.
DVS' future success depends also on its ability to attract and retain
qualified employees in all areas of its business. Competition for such personnel
is intense, particularly in the computer and communications industries. In order
to attract and retain talented and qualified personnel, and to provide
incentives for their performance, DVS has emphasized the award of stock options
as an important element of its compensation program.
DVS' BUSINESS AND OPERATING RESULTS MAY SUFFER FROM INCREASED EXPENDITURES IN
ITS OPERATIONS.
DVS has significantly increased expenditures in all areas of its
operations during the recent year, and plans to continue to make significant
investment in the growth of its operations during future periods. The
competitiveness of DVS' products and its ability to take advantage of future
growth opportunities will depend upon its ability to enhance the range of
features and capabilities of its existing product lines, develop new generations
of products and expand its marketing, sales and product support capabilities. In
many instances, DVS will have to make large expenditures for research and
development and product marketing in anticipation of future market requirements
that are uncertain and may undergo significant change prior to product
introduction. The success of DVS' efforts will depend, to a considerable extent,
on its ability to, in a timely manner, anticipate future market requirements and
successfully implement corresponding research and development and marketing
programs.
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THIRD PARTIES MAY INFRINGE UPON DVS' PROPRIETARY TECHNOLOGY AND DVS MAY INFRINGE
ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Although DVS uses what it believes to be customary and appropriate
measures to protect its technology, these measures may not prove to be
successful, and DVS' competitors may be able to develop independently similar
technology. DVS currently holds a limited number of preliminary United States
and foreign patents, and DVS periodically files additional applications for
patents on various features of its products. DVS can make no assurances that
claims allowed with respect to any current or future patents will prove to be
sufficiently broad to protect its technology. In addition, DVS can make no
assurances that its intellectual property rights will not be challenged,
invalidated or circumvented, or that any such rights will provide significant
benefits.
DVS has received, from time to time, communications from third parties,
including some of their competitors, alleging infringement of certain of such
parties' intellectual property rights. Although these types of communications
are common in the computer and telecommunications industries, and DVS has in the
past been able to obtain any necessary licenses on commercially reasonable
terms, DVS can offer no assurance that it would prevail in any litigation to
enjoin the sale of any of its products on the basis of such alleged
infringement, or that it would be able to license any valid patents on
reasonable terms.
THE TRADING PRICE OF THE COMPANY'S COMMON STOCK MAY BE VOLATILE.
The trading price of the Company's Common Stock may be affected by the
risk factors described in this Proxy Statement as well as prevailing economic
and financial trends and conditions in the public securities markets. Stock
prices of companies in technology businesses tend to exhibit a high degree of
volatility. Shortfalls in revenues or earnings from the levels anticipated by
the public markets could have an immediate and significant adverse effect on the
trading price of the Company's Common Stock in any given period. Such shortfalls
may result from events that are beyond the Company's immediate control, can be
unpredictable and, since a significant proportion of its sales during each
fiscal quarter often occurs in the latter stages of the quarter, may not be
discernible until the end of a financial reporting period. These factors can
contribute to the volatility of the trading price of the Company's Common Stock
regardless of its long-term prospects. The trading price of the Company's Common
Stock may also be affected by developments, including reported financial results
and fluctuations in trading prices of the shares of other publicly held
companies in the security industry in general, and in DVS' industry in
particular, which may not have any direct relationship with its business or
prospects.
The Company's Board of Directors did not believe that the foregoing
unfavorable factors were sufficient, either individually or collectively, to
outweigh potential advantages of the proposed Merger.
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INTEREST OF CERTAIN PERSONS IN THE MERGER
The Merger is not conditioned upon any employment arrangements between DVS
and the current executive officers of the Company. However, upon the closing of
the Merger, Mr. Robert W. Schwartz shall receive 0.5% of the Company's total
post-Merger stock. This stock shall be issued from the percentage (7.5%) of
stock to be held by the current Company Stockholders.
Additionally, two directors of the Company, Messrs. Edward Gistaro and
Chauncey Schmidt, and a former employee of the Company, Mr. Alan Hobgood,
shall receive a total of approximately 452,000 shares of the Company's Common
Stock, in settlement and resolution of amounts payable to each of them.
Messrs. Gistaro and Schmidt had previously advanced money to the Company, and
Mr. Hobgood is due amounts under a separation agreement. The Common Stock
issued to Messrs. Gistaro, Schmidt and Hobgood will be included within the
percentage (7.5%) of Common Stock to be received by the current Company
Stockholders in the Merger.
REGULATORY APPROVALS
Consummation of the Merger Agreement does not require any regulatory
approvals other than the federal filings required under applicable U. S.
securities laws in connection with this Proxy Statement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
THIS SECTION IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
TO THE COMPANY AND THE STOCKHOLDERS OF THE COMPANY FROM THE PROPOSED MERGER.
EXCEPT WHERE SPECIFICALLY NOTED, THIS SUMMARY DOES NOT APPLY TO STATE OR LOCAL
TAXES. THE SUMMARY IS BASED UPON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED,
JUDICIAL DECISIONS, UNITED STATES TREASURY DEPARTMENT REGULATIONS PROMULGATED
THEREUNDER, ADMINISTRATIVE RULINGS OF THE UNITED STATES TREASURY DEPARTMENT, AND
OTHER INTERPRETATIONS THEREOF, ANY OF WHICH COULD BE CHANGED AT ANY TIME. NO
RULING HAS BEEN OR WILL BE REQUESTED FROM THE INTERNAL REVENUE SERVICE WITH
RESPECT TO ANY CONSEQUENCES RESULTING FROM THE PROPOSED MERGER.
The proposed Reverse Merger will not have any federal income tax
consequences to the Company's Stockholders because no distributions will be made
to the Stockholders.
ACCOUNTING TREATMENT
As the terms of the Merger were finalized and announced subsequent to June
30, 2001, the Merger will be accounted for under the provisions of Statements of
Financial
14
Accounting Standards No.'s 141 BUSINESS COMBINATIONS (FAS 141) and FAS 142,
GOODWILL AND OTHER INTANGIBLE ASSETS. As such, the Merger is accounted for as a
purchase, and any resulting goodwill will not be amortized, but will be tested
for impairment under FAS 142 in future periods. For accounting purposes, DVS
will be treated as the acquirer.
EXPENSES AND OTHER FEES
DVS will bear all expenses in respect of the Merger, including any
professional fees.
SUMMARY OF THE AGREEMENT AND PLAN OF MERGER
The following is a brief summary of certain provisions of the Merger
Agreement.
THIS DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE
TEXT OF THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS PROXY
STATEMENT AS EXHIBIT A AND IS INCORPORATED HEREIN BY REFERENCE. THE TERMS NOT
OTHERWISE DEFINED IN THIS SUMMARY OR ELSEWHERE IN THIS PROXY STATEMENT HAVE
MEANING SET FORTH IN THE MERGER AGREEMENT. ALL STOCKHOLDERS ARE URGED TO
CAREFULLY READ THE MERGER AGREEMENT IN ITS ENTIRETY.
THE MERGER
Pursuant to the terms and conditions of the Merger Agreement, on the
closing date, DVS will merge with and into DocuconMerger, L.P.
("DocuconMerger"), a Texas limited partnership and wholly owned subsidiary of
the Company. The separate corporate existence of DVS shall cease and
DocuconMerger shall continue as the surviving entity of the Merger (the
"Surviving Entity"). All the property, rights, privileges, powers and franchises
of DVS and DocuconMerger shall vest in the Surviving Entity, and all debt,
liabilities, obligations, restrictions, disabilities and duties of each of DVS
and DocuconMerger shall become the debt, liabilities, obligations, restrictions
and duties of the Surviving Entity.
GENERAL PARTNER OF DOCUCONMERGER
DocuconSub, L.L.C., a Texas limited liability company and wholly owned
subsidiary of the Company ("DocuconSub") shall serve as the general partner of
DocuconMerger and after the Merger shall be the general partner of the Surviving
Entity. All rights and duties of DocuconSub shall be in accordance with the
Certificate of Limited Partnership and the Limited Partnership Agreement of
DocuconMerger and the Texas Revised Limited Partnership Act.
15
DIRECTORS AND OFFICERS OF DOCUCON
On the closing date, the Company's Board of Directors shall consist of
seven (7) members, divided into three (3) classes, who shall initially include
Robert W. Schwartz, Edward P. Gistaro and five (5) members appointed by DVS.
Members of the Board of Directors will be divided into three (3) classes: Class
1, Class 2 and Class 3. Class 1 directors shall serve until the 2003 annual
Stockholders' meeting, Class 2 directors shall serve until the 2004 annual
Stockholders' meeting and Class 3 directors shall serve until the 2005 annual
Stockholders' meeting. Upon election of Class 1, Class 2 and Class 3 directors
at, respectively, the 2003, 2004 and 2005 annual Stockholders' meetings, each
director shall thereafter serve a three (3) year term, at the conclusion of
which he or she may be reelected at the corresponding annual Stockholders'
meeting. The directors shall elect the Company's officers.
MERGER CONSIDERATION; CONVERSION OF SECURITIES
At the effective time, in accordance with the term of the Merger
Agreement, and as consideration for the Merger ("Merger Consideration"), all of
DVS' shares, issued and outstanding immediately prior to the closing date (the
"DVS Shares"), shall be canceled and converted into the right to receive 0.3737
("Exchange Ratio") shares of the Common Stock, $.01 par value, of the Company
("Docucon Shares"). The Exchange Ratio for the conversion of securities will be
calculated by reference to fully diluted, as if converted, common shares
outstanding for both Docucon and DVS, to result in a post-merger ownership by
DVS stockholders of 92.5% and the Company's Stockholders of 7.5% of Docucon
Shares. Docucon shall authorize a sufficient number of authorized but unissued
and unreserved shares of Docucon Shares to consummate the Merger. Each share
issued as a result of the Merger shall be a validly issued, fully paid and
non-assessable share of the Common Stock, $.01 par value, of Docucon.
THE CLOSING
Subject to the pre-Merger conditions as set forth in the Merger Agreement,
the Merger shall be consummated by filing Articles of Merger with the Secretary
of State of the State of Nevada and the Secretary of State of the State of
Texas. Immediately prior to filing the Articles of Merger, a closing will be
held the offices of Loeffler, Jonas & Tuggey, LLP, 755 East Mulberry Avenue,
Suite 200, San Antonio, Texas 78212.
REPRESENTATION AND WARRANTIES
The Merger Agreement contains various representations and warranties made
by DVS including, among others, representations and warranties related to; (i)
corporate organization and similar corporate matters; (ii) authorization and
enforceability; (iii) subsidiaries; (iv) consent and approval; (v) title to
assets; (vi) inventories; (vii) litigation and claims pending; (viii) compliance
with laws and regulations; (ix) absence of certain changes or events since
December 31, 2001; (x) title to intellectual property; (xi) contracts and
agreements; (xii) facilities; (xiii) insurance; (xiv) accounts receivable; (xv)
warranty obligations; (xvi) business records; (xvii) environmental matters;
(xviii) taxes;
16
(xix) employment benefit plans and other employee matters; and (xx) compliance
with law and accuracy to material facts and other information delivered to the
Company.
The Merger Agreement contains various representations and warranties made
by the Company including, among others, representations and warranties related
to (i) corporate organization and similar corporate matters; (ii) authorization
and enforceability; (iii) absence of violations of existing agreements; and (iv)
compliance with other instruments and laws.
PRE-MERGER COMMITMENTS AND COVENANTS OF DVS
In addition to those representations and warranties listed above, DVS has
also agreed to the following commitments and covenants pending closing; (i) DVS
will be funded with an additional $2.5 million in operating capital; (ii) DVS
will promptly notify the Company of any event of subsequent date that would
render any representation or warranty listed above untrue or inaccurate in any
material respect; (iii) DVS will also notify the Company of any material adverse
change in assets or the assumed liabilities or intellectual property, or the
financial condition of DVS' business. DVS has also agreed to conduct its
business in the ordinary course consistent with past practices and will use
reasonable commercial efforts to retain, protect and preserve the assets and
intellectual property of the business, including DVS' relationship with its
consultants, independent contractors, licensers, suppliers, vendors,
representatives, distributors, and other customers, all in the ordinary course
of business. Furthermore, until the closing, and upon reasonable notice, DVS
will allow representatives of the Company reasonable access to business records
and facilities relating to the assets. DVS shall use reasonable commercial
efforts to obtain any and all consents necessary for the effective assignment of
all the contracts to be assumed by DocuconMerger. DVS will also use reasonable
commercial efforts to satisfy or cause to be satisfied all the conditions
precedent to the closing of the Merger.
MUTUAL COVENANTS
Both the Company and DVS have agreed to (i) take all action and do all
things necessary in order to consummate and make effective the proposed Merger;
(ii) continue the enforceability and effect of the confidentiality agreement
entered into by the parties; (iii) make all necessary filings with respect to
the acquisition in accordance with the Securities Act, the Exchange Act and
applicable blue sky or similar securities laws; (iv) provide pre-Merger
notification or other appropriate filings with federal state or local
governmental bodies or applicable foreign government agencies; (v) obtain all
consents, waivers, approvals and authorization orders required in connection
with the authorization and execution of the Merger Agreement; (vi) cooperate and
provide information necessary for the preparation of all documents, agreements,
tax returns, and other instruments prior to the closing date and; (vii) use in
regard to the Merger their respective reasonable commercial efforts to carry out
the communications plan addressed to their respective customers, suppliers,
employees, investors and strategic partners.
17
CONDITIONS TO CLOSING
The respective obligations of each party to the Merger Agreement to be
performed at the closing, are subject to satisfaction of the following
conditions: (i) no order shall have been entered and not vacated by any court or
administrative agency of competent jurisdiction which enjoins or constrains the
Merger; (ii) all permits, authorizations, approvals and orders shall have been
obtained and be in full force and effect at the date of closing; (iii) there
shall be no litigation pending or threatened by any governmental entity in which
an injunction is or may be sought against the transaction or acquisition, or in
which the relief sought against any party to the Merger Agreement as a result of
the Merger Agreement in which, in the good faith and judgment of the board of
directors of either party, such adverse party has the probability of prevailing
and such relief would have a material adverse effect on such party; (iv) the
Merger Agreement and transaction contemplated thereby shall be approved by the
Company's Stockholders.
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to effect the transaction to be performed by
it at closing is subject to satisfaction of the conditions set forth below.
All representations and warranties of DVS shall be true and correct in
all material respects. All terms, covenants, and conditions of the Merger
Agreement shall have been duly complied with and performed in all material
respects. DVS will deliver the following items at closing: (i) an audited
balance sheet pertaining to DVS as of December 31, 2000 and an unaudited
interim financial statement as of September 30, 2001; (ii) a Secretary's
Certificate, (iii) an opinion of counsel; and (iv) all other documents
required under the Merger Agreement.
CONDITIONS TO OBLIGATIONS OF DVS
The obligation of DVS to effectuate the transaction is subject to
satisfaction, at or prior to closing, of the following additional conditions:
(i) all representations and warranties shall be true and correct in all material
respects; (ii) all terms, covenants and conditions of the Merger Agreement shall
be complied with at or before closing; (iii) approval by the Company's
Stockholders; (iv) an opinion of counsel; and (v) all other documents required
under the Merger Agreement.
POST-MERGER MATTERS
Following the Merger, DVS (having merged with and into DocuconMerger L.P.)
will continue its operations as a wholly owned subsidiary of the Company
for some period of time to be determined by the Company. The membership of
DVS' Board of Directors will remain unchanged as a result of the Merger. DVS'
Stockholders will become Stockholders of the Company, and their rights as
Stockholders of the Company will be governed by the Company's charter, the
Company's bylaws, and the laws of the State of Delaware.
18
The Company shall pay all taxes arising from or relating to the
transaction contemplated in the Merger Agreement, including ad valorem property
or similar taxes.
TERMINATION
The Merger Agreement may be terminated prior to closing either before or
after approval of the Stockholders by (i) mutual written consent of both
parties; (ii) if the closing shall not have occurred by March 31, 2002; (iii) if
a governmental entity and a court of competent jurisdiction issues a final and
non appealable order, decree or ruling permanently restraining or enjoining the
Merger; (iv) by other parties should Special Meeting of Stockholders have been
held and completed and the Company's Stockholders have taken a vote and not
elected to authorize the Board to implement a reverse split of the Company's
Common Stock; (v) by DVS if the representations and warranties of the Company
prove to be inaccurate; or (vi) by the Company if the representations and
warranties of DVS prove to be inaccurate.
EFFECT OF TERMINATION
In the event of any termination of the Merger Agreement, the proposed
Merger shall be abandoned and there shall be no liability on the part of either
party except for the material breach of any representation, warranty or covenant
that is within the control of the party in breach. All fees and expenses
incurred in connection with the Merger Agreement and the transaction
contemplated thereby shall be paid DVS.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties made by the parties to the Merger
Agreement shall survive the closing of the Merger and shall continue in full
force and effect until the first anniversary of the closing date.
INDEMNIFICATION
DVS and the Company have agreed to indemnify, defend and hold harmless
each other, their respective stockholders, officers, directors, employees,
attorneys, all subsidiaries and affiliates, and their respective officers,
directors, employees, and attorneys of such entities from, against any and all
losses, asserted against, relating to, imposed upon, resulting from, incurred by
reason of, based upon or rising out of the following: (i) the breach,
inaccuracy, falsity or incompleteness of any representation or warranty; (ii)
the breach or non performance of any covenant or agreement contained or made
pursuant to the Merger Agreement; (iii) any losses arising out of any oral
contract to which either party is a party and did not disclose such oral
contract to the other; (iv) any excluded liability; or (v) any breach by DVS of
the Merger Agreement.
19
MARKET PRICE DATA AND RELATED MATTERS
COMMON STOCK INFORMATION
The Company's Common Stock is quoted on the OTC Bulletin Board. The range
of high and low bid prices for the Common Stock is set below for the periods
indicated:
BY QUARTER ENDED PRICE
---------------- ------------------------
HIGH LOW
------ ------
FISCAL YEAR 1999:
FIRST QUARTER $ 0.97 $ 0.63
SECOND QUARTER 0.69 0.44
THIRD QUARTER 0.97 0.50
FOURTH QUARTER 0.75 0.41
FISCAL YEAR 2000:
FIRST QUARTER $ 0.44 $ 0.08
SECOND QUARTER 0.47 0.16
THIRD QUARTER 0.45 0.16
FOURTH QUARTER 0.69 0.28
FISCAL YEAR 2001:
FIRST QUARTER $ 0.09 $ 0.08
SECOND QUARTER 0.17 0.09
THIRD QUARTER 0.09 0.06
DIVIDENDS
NO COMMON STOCK DIVIDENDS. The Company has never paid cash dividends on
its Common Stock and intends to retain earnings, if any, for use in the
operation and expansion of its business. The amount of future dividends, if any,
will be determined by the Board of Directors based upon the Company's earnings,
financial condition, capital requirements, and other conditions.
DIVIDENDS IN ARREARS ON PREFERRED STOCK. Dividends accrue quarterly on
the Company's Series A Preferred Stock at the rate of 11% per annum of the
original issue price per share. Such dividends may be paid in cash or in
shares of the Common Stock in the sole discretion of the Board of Directors.
The Board of Directors has never declared dividends. Dividends in the amount
of approximately $300,000.00 are therefore now accrued. Prior to and as a
condition to closing the Merger, the Company will seek conversion of the
Series A Preferred Stock and satisfaction of accrued dividends, by issuance of
20,000 shares of Common Stock for each share of Series A Preferred Stock, to be
included within the percentage of Common Stock to be received by the current
Stockholders of the Company.
20
<Page>
Unaudited Pro Forma Combined
Condensed Financial Statements of DVS and Docucon
The following unaudited pro forma combined condensed financial statements give
effect to the merger as a purchase of Docucon Incorporated ("Docucon") by
Digital Vision Systems, Inc. ("DVS"). For accounting purposes, DVS has been
treated as the acquirer; accordingly, the net assets of Docucon have been
adjusted to their estimated fair values based upon a preliminary purchase price
allocation.
The unaudited pro forma combined condensed balance sheet at September 30, 2001
gives effect to the Merger as if it occurred on September 30, 2001. The
unaudited pro forma combined condensed statements of operations for the year
ended December 31, 2000 and the nine months ended September 30, 2001 give effect
to the Merger as if it had occurred on January 1, 2000.
Certain financing transactions are required as a prerequisite to the Merger. The
unaudited pro forma combined condensed balance sheet at September 30, 2001 was
prepared based upon the unaudited historical balance sheets of DVS and Docucon,
adjusted for certain financing transactions as if such transactions occurred on
September 30, 2001. The unaudited pro forma combined condensed statement of
operations for the year ended December 31, 2000 was prepared based upon the
audited historical statements of operations of DVS and Docucon, adjusted for
certain financing transactions as if such transactions had occurred on January
1, 2000. The unaudited pro forma combined condensed statement of operations for
the nine months ended September 30, 2001 was prepared based upon the unaudited
historical statements of operations of DVS and Docucon, adjusted for certain
financing transactions as if such transactions had occurred on January 1, 2000.
The unaudited pro forma combined condensed financial statements should be
read in conjunction with the historical financial statements of DVS and
Docucon. Certain amounts in the Docucon financial statements have been
reclassified to conform to DVS' presentation.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of the actual results of operations or financial position
that would have occurred had the Merger and the above-described financing and
merger transactions of DVS and Docucon occurred on the dates indicated, nor are
they necessarily indicative of future operating results or financial position.
P-1
<Page>
Unaudited Pro Forma Combined Condensed Balance Sheet of
DVS and Docucon
September 30, 2001
<Table>
<Caption>
DVS AND
HISTORICAL OTHER MERGER DOCUCON
--------------------------------- PRO FORMA PRO FORMA PRO FORMA
DVS DOCUCON ADJUSTMENTS ADJUSTMENTS COMBINED
---------------- ---------------- -------------- -------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 16,210 $ 83,484 $ 700,000 (a) $ - $ 770,294
(29,400) (c)
Accounts receivable 260,434 - - - 260,434
Inventories 164,021 - - - 164,021
Prepaid expenses and other
assets - 16,009 - - 16,009
-------------------------------------------------- ---------------- -----------------
Total current assets 440,665 99,493 670,600 - 1,210,758
Property and equipment, net 135,871 66,597 - (53,931) (g) 148,537
Intellectual property, net 1,004,021 - - - 1,004,021
Goodwill - - - 2,033,024 (h) 2,033,024
Restricted cash and other assets 11,655 266,495 (256,495) (b) - 21,655
-------------------------------------------------- ---------------- -----------------
Total assets $ 1,592,212 $ 432,585 $ 414,105 $ 1,979,093 $ 4,417,995
================================================== ================ =================
</Table>
P-2
<Page>
Unaudited Pro Forma Combined Condensed Balance Sheet of
DVS and Docucon (continued)
September 30, 2001
<Table>
<Caption>
DVS AND
HISTORICAL OTHER MERGER DOCUCON
--------------------------------- PRO FORMA PRO FORMA PRO FORMA
DVS DOCUCON ADJUSTMENTS ADJUSTMENTS COMBINED
---------------- ---------------- -------------- -------------- ---------------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued
expenses $ 546,372 $ 368,584 $ (210,495) (b) $ 100,000 (i) $ 766,595
(37,866) (c)
Related party notes payable 400,000 108,334 (108,334) (c) - 400,000
-------------------------------------------------- ---------------- -----------------
Total current liabilities 946,372 476,918 (356,695) 100,000 1,166,595
Liability for preferred stock
subscribed but not issued 1,400,000 - - - 1,400,000
Stockholders' equity (deficit):
Preferred stock - 7 (7) (d) - -
Common stock 7,500 36,588 4,524 (c) 20,542 (j) 30,876
1,400 (d)
(39,678) (e)
Additional paid-in capital 946,500 10,231,240 2,400,000 (a) 1,858,551 5,232,920
112,276 (c) (10,375,003) (k)
19,678 (d)
39,678 (e)
Stockholder note receivable - - (1,800,000) (a) (1,800,000)
Common stock to be issued 750,000 - - - 750,000
Retained earnings (deficit) (2,324,160) (10,307,932) (46,000) (b) 10,375,003 (l) (2,324,160)
(21,071) (d)
Treasury stock (134,000) (4,236) 100,000 (a) - (38,236)
-------------------------------------------------- ---------------- -----------------
Total stockholders' equity
(deficit) (754,160) (44,333) 770,800 1,879,093 1,851,400
-------------------------------------------------- ---------------- -----------------
Total liabilities and
stockholders' equity
(deficit) $ 1,592,212 $ 432,585 $ 414,105 $ 1,979,093 $ 4,417,995
================================================== ================ =================
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
</Table>
P-3
<Page>
Unaudited Pro Forma Combined
Condensed Statement of Operations of DVS and Docucon
Nine Months Ended September 30, 2001
<Table>
<Caption>
DVS AND
HISTORICAL OTHER MERGER DOCUCON
---------------------------- PRO FORMA PRO FORMA PRO FORMA
DVS DOCUCON ADJUSTMENTS ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
Net sales $ 515,934 $ - $ - $ - $ 515,934
Operating expenses:
Cost of sales 211,829 - - - 211,829
Depreciation and amortization 170,683 6,750 - (3,583) (m) 173,850
Selling, general and
administrative 1,060,645 235,268 - - 1,295,913
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,443,157 242,018 - (3,583) 1,681,592
------------ ------------ ------------ ------------ ------------
Operating loss from continuing
operations (927,223) (242,018) - 3,583 (1,165,658)
Other income (expense), net (7,594) 5,908 - - (1,686)
------------ ------------ ------------ ------------ ------------
Loss from continuing operations (934,817) (236,110) - 3,583 (1,167,344)
Preferred stock dividend - (14,438) 14,438 (f) - -
------------ ------------ ------------ ------------ ------------
Net loss from continuing
operations applicable to
common stockholders $ (934,817) $ (250,548) $ 14,438 $ 3,583 $ (1,167,344)
============ ============ ============ ============ ============
Basic and diluted loss from
continuing operations per
common share $ (0.15) $ (0.07) $ - $ (0.18) $ (0.40)
============ ============ ============ ============ ============
Weighted average shares
outstanding 6,047,619 3,658,767 (2,373,930) (4,413,924) 2,918,532
============ ============ ============ ============ ============
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
</Table>
P-4
<Page>
Unaudited Pro Forma Combined
Condensed Statement of Operations of DVS and Docucon
Year Ended December 31, 2000
<Table>
<Caption>
DVS AND
HISTORICAL OTHER MERGER DOCUCON
---------------------------- PRO FORMA PRO FORMA PRO FORMA
DVS DOCUCON ADJUSTMENTS ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
Net sales $ 44,955 $ - $ - $ - $ 44,955
Operating expenses:
Cost of sales 24,029 - - - 24,029
Depreciation and amortization 44,362 15,381 - (11,159) (m) 48,584
Selling, general and
administrative 1,065,907 865,457 - - 1,931,364
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,134,298 880,838 - (11,159) 2,003,977
------------ ------------ ------------ ------------ ------------
Operating loss from continuing
operations (1,089,343) (880,838) - 11,159 (1,959,022)
Other income (expense), net (300,000) (107,477) - - (407,477)
------------ ------------ ------------ ------------ ------------
Loss from continuing operations (1,389,343) (988,315) - 11,159 (2,366,499)
Preferred stock dividend - (19,250) 19,250 (f) - -
------------ ------------ ------------ ------------ ------------
Net loss from continuing
operations applicable to
common stockholders $ (1,389,343) $ (1,007,565) $ 19,250 $ 11,159 $ (2,366,499)
============ ============ ============ ============ ============
Basic and diluted loss from
continuing operations per
common share $ (0.23) $ (0.28) $ - $ (0.31) $ (0.82)
============ ============ ============ ============ ============
Weighted average shares
outstanding 6,000,000 3,598,767 (2,317,930) (4,384,100) 2,896,737
============ ============ ============ ============ ============
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
</Table>
P-5
<Page>
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of DVS and Docucon
OTHER PRO FORMA ADJUSTMENTS
The unaudited pro forma combined condensed financial statements of DVS and
Docucon reflect pro forma adjustments for certain transactions that are
required as a condition to the Merger, as if such transactions had occurred
at September 30, 2001 for purposes of the unaudited pro forma combined
condensed balance sheet as of September 30, 2001 and at January 1, 2000 for
purposes of the unaudited pro forma combined condensed statement of
operations for the year ended December 31, 2000 and the nine months ended
September 30, 2001. A summary of these transactions is as follows:
DVS TRANSACTION
In January 2002, DVS entered into a transaction with an unrelated third party to
issue 1,000,000 shares of DVS common stock in exchange for $700,000 cash and an
unsecured five-year note receivable of $1,800,000, payable quarterly with
interest at 7.0%. Shares were issued from treasury stock. This transaction was
completed as a condition of the Merger with Docucon, and the transaction is
reflected in the "Other Pro Forma Adjustments" column.
DOCUCON TRANSACTIONS
In 2000, Docucon sold substantially all of its operating assets to Tab Products,
Co. ("TAB"). A portion of the proceeds from the sale were placed in escrow for
the settlement of certain liabilities subject to a claims resolution process
detailed in the asset purchase agreement. During 2001, Docucon and TAB entered
into an extended period of good-faith negotiation resulting in TAB making a
settlement offer on October 19, 2001, which was accepted tentatively by Docucon
on November 1, 2001. The terms of the settlement include a release of
approximately $194,000 plus all accrued interest on the initial $250,000 escrow
sum to Docucon, less the sum of approximately $150,000 payable to TAB on certain
accounts receivable transferred to TAB under the TAB Asset Purchase Agreement,
and a release of approximately $46,000 to TAB for related expenses, labor costs,
and legal fees, which would result in an adjustment to the gain on disposal of
discontinued operations. The remaining $10,000 of the escrow funds shall remain
in escrow for an additional six-month period for remaining open issues with the
Department of Labor ("DOL") as claimed by TAB. This settlement, as well as the
use of released cash to pay down existing liabilities, is reflected in the
"Other Pro Forma Adjustments" column.
P-6
<Page>
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of DVS and Docucon
(continued)
OTHER PRO FORMA ADJUSTMENTS (CONTINUED)
Prior to the Merger, Docucon is required to settle certain liabilities and
notes payable to former employees and related parties outstanding at September
30, 2001 totaling approximately $146,200 through the payment of approximately
$29,400 cash and the issuance of 452,425 shares of Docucon common stock with a
fair value of approximately $116,800. These liabilities were to be paid out of
the remaining proceeds of the TAB settlement, after winding down the business.
The proposed settlement, and its result on earnings per share available to
common stockholders, is reflected in the "Other Pro Forma Adjustments" column.
Prior to the Merger, Docucon is required to convert all preferred shares
outstanding to common stock. Docucon will exchange all outstanding shares
(seven shares) of its preferred stock for common stock at a ratio of 20,000
shares of common stock per share of preferred stock, resulting in the
issuance of 140,000 additional shares of Docucon common stock. The shares
issued in excess of the original conversion ratio of 8,333 shares of common
stock per share of preferred stock (58,331 common shares in total) have been
treated as a stock dividend and recorded at the fair value of Docucon's stock
as a reduction of retained earnings (deficit). This exchange, which is
required by the Agreement and Plan of Merger, and its result on earnings per
share available to common stockholders, is reflected in the "Other Pro Forma
Adjustments" column.
Prior to the Merger, Docucon expects to effectuate a fifteen (15) to one (1)
Reverse Split of its stock to be able to issue shares of stock under its
authorization in the articles of incorporation. The Reverse Split will be voted
on along with the Merger, as further described in the Proxy. The Reverse Split,
and its result on earnings per share available to common stockholders, is
reflected in the "Other Pro Forma Adjustments" column.
"Other Pro Forma Adjustments" to the unaudited pro forma combined condensed
balance sheet at September 30, 2001 are as follows:
DVS TRANSACTION:
<Table>
(a) Reflects the private placement of 1,000,000 shares of DVS
common stock in a $2.5 million transaction (issued from
treasury shares), as follows:
Assets: $ 700,000
Cash received
P-7
<Page>
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of DVS and Docucon
(continued)
OTHER PRO FORMA ADJUSTMENTS (CONTINUED)
DVS TRANSACTION (CONTINUED):
Liabilities and stockholders' equity (deficit):
Additional paid-in capital ($2.50 per share x 1,000,000
shares, less cost of treasury shares) $ 2,400,000
Five-year, interest-bearing note receivable, shown net of
stockholders' equity (deficit) (1,800,000)
Shares issued out of treasury stock ($.10 cost per share x
1,000,000) 100,000
DOCUCON TRANSACTIONS:
(b) Reflects release of restricted cash in the TAB settlement, net
of $10,000 retained, as described above, as follows:
Assets:
Release of restricted cash $ (256,495)
Liabilities and stockholders' equity (deficit):
Payment of outstanding liabilities, including $150,000 to TAB (210,495)
Release of escrow to TAB ($46,000) under settlement (46,000)
(c) Reflects reduction of outstanding related party notes payable and
other liabilities which were to be paid out of the remaining proceeds
of the TAB settlement, after winding down the business. The
liabilities will be settled, as described above, as follows:
Assets:
Cash paid
$ (29,400)
Liabilities and stockholders' equity (deficit):
Reduction of accrued liabilities (37,866)
Reduction of related party notes payable (108,334)
Par value of common shares issued (452,425 x $.01) 4,524
Additional paid-in capital ($146,200, less cash paid and par
value of shares issued) 112,276
P-8
<Page>
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of DVS and Docucon
(continued)
OTHER PRO FORMA ADJUSTMENTS (CONTINUED)
DOCUCON TRANSACTIONS (CONTINUED):
(d) Reflects conversion of 7 shares of Docucon preferred stock into
140,000 shares of common, as follows:
Liabilities and stockholders' equity (deficit):
Reduction of par value of preferred stock $ (7)
Increase in par value of common stock for 140,000 shares
converted at $.01 per share 1,400
Increase in paid-in capital for the stock dividend, less the
difference in par value on conversion 19,678
Reduction of retained earnings (deficit) for fair value of
shares given in excess of the original conversion ratio
and treated as a stock dividend (21,071)
(e) Reflects reverse stock split in 15:1 ratio, reducing shares
outstanding from 4,251,192 to 283,413, as follows:
Liabilities and stockholders' equity (deficit):
Reduction of par value for stock split $ (39,678)
Increase to additional paid-in capital 39,678
</Table>
P-9
<Page>
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of DVS and Docucon
(continued)
OTHER PRO FORMA ADJUSTMENTS (CONTINUED)
"Other Pro Forma Adjustments" to the unaudited combined condensed statements of
operations for the nine months ended September 30, 2001 and the year ended
December 31, 2000 are as follows:
<Table>
<Caption>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
2001 2000
------------------------------------------
DOCUCON TRANSACTIONS:
(f) Reflects elimination of preferred stock
dividend requirement in the calculation of net
income (loss) applicable to common stockholders $ 14,438 $ 19,250
</Table>
PRO FORMA MERGER ADJUSTMENTS
The Merger Agreement provides for the exchange of DVS shares of common stock
into shares of Docucon common stock, subsequent to the fifteen (15) to one (1)
Reverse Split, at a ratio of .3737 shares of Docucon common stock for each share
of DVS common stock, including shares in treasury. For accounting purposes, DVS
is the acquirer, and the value of the transaction is based on the estimated
value of DVS shares exchanged in the Merger, based on the most recent private
placement offer contemplated in these pro forma financial statements as part of
the "Other Pro Forma Adjustments." As the terms of the Merger were finalized and
announced subsequent to June 30, 2001, the Merger will be accounted for under
the provisions of Statements of Financial Accounting Standards Nos. 141,
"Business Combinations" (FAS 141), and 142, "Goodwill and Other Intangible
P-10
<Page>
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of DVS and Docucon
(continued)
PRO FORMA MERGER ADJUSTMENTS (CONTINUED)
Assets" (FAS 142). As such, the Merger is accounted for as a purchase, and any
resulting goodwill will not be amortized but will be tested for impairment under
FAS 142 in future periods. These pro forma financial statements do not reflect
any amortization for any period presented in accordance with FAS 141 and 142.
In accordance with the Terms of the Merger, Robert W. Schwartz was to receive
shares representing .5% of the shares held by former Docucon stockholders
immediately prior to the Merger as compensation for his services in negotiating
the Merger. As such, subsequent to the Reverse Split, Schwartz will receive
1,424 shares of common stock, which will be included in the number of shares
used to compute the estimated purchase price.
The unaudited pro forma combined condensed financial statements of DVS and
Docucon reflect the Merger, as follows:
<Table>
Docucon common shares outstanding September 30, 2001......... 3,658,767
Plus:
Pro forma conversion of notes payable and certain
liabilities for common shares.......................... 452,425
Pro forma conversion of preferred shares to common........ 140,000
---------------------
4,251,192
Effect of 15:1 reverse stock split........................... DIVIDED BY 15
---------------------
Docucon shares outstanding after reverse split............... 283,413
Shares issued to Robert Schwartz in accordance with the
terms of the Merger....................................... 1,424
---------------------
Docucon shares outstanding prior to the Merger............... 284,837
Estimated value per share:
Share price of the most recent DVS private placement...... $ 2.50
Divided by share conversion ratio......................... .3737
----------------
Value per share of Docucon stock.......................... $ 6.69
---------------------
Estimated value of common stock issued....................... 1,905,560
Estimated transaction costs.................................. 100,000
---------------------
Total estimated purchase price............................... $ 2,005,560
=====================
</Table>
P-11
<Page>
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of DVS and Docucon
(continued)
PRO FORMA MERGER ADJUSTMENTS (CONTINUED)
For purposes of these statements the total estimated purchase price was
allocated as follows:
<Table>
Total estimated purchase price........................... $ 2,005,560
Plus liabilities assumed at September 30, 2001:
Accounts payable and accrued expenses................. 120,223
Less fair value of net assets received:
Fair value of other current assets.................... $ 70,093
Fair value of restricted cash......................... 10,000
Fair value of property and equipment.................. 12,666
-----------------
Net identifiable assets received...................... (92,759)
---------------------
Estimated purchase price allocated to goodwill........... $ 2,033,024
=====================
</Table>
"Pro Forma Merger Adjustments" to the unaudited pro forma combined condensed
balance sheet at September 30, 2001 are as follows:
<Table>
(g) Adjustment to the fair value of property and equipment $ (53,931)
(h) Fair value of goodwill, based on fair value of net equity issued, net
of fair value of acquired assets and liabilities $ 2,033,024
(i) Liability for estimated transaction costs of $100,000 $ 100,000
(j) Adjustment to par value of common stock for Docucon shares issued,
after shares issued in exchange for DVS shares and including shares
issued to Robert Schwartz, less par value of DVS stock $ 20,542
(k) Adjustment to additional paid-in capital for fair value of shares
issued, net of book value of assets received, adjustment to par value,
and elimination of retained earnings (deficit) of Docucon, after other
pro forma adjustments (c), (d), and (e) $ 1,858,551
(l) Elimination of Docucon retained earnings (deficit), after other pro
forma adjustments (b) and (c) $ 10,375,003
</Table>
P-12
<Page>
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of DVS and Docucon
(continued)
PRO FORMA MERGER ADJUSTMENTS (CONTINUED)
"Pro Forma Merger Adjustments" to the unaudited combined condensed statements of
operations for the nine months ended September 30, 2001 and the year ended
December 31, 2000 are as follows:
<Table>
<Caption>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2000
--------------------- ---------------------
DOCUCON TRANSACTIONS:
(m) Adjustment to Docucon depreciation expense
based on fair value of property and equipment
acquired, depreciated over estimated useful
life of three years $ (3,583) $ (11,159)
</Table>
Pro forma combined basic and diluted share information of DVS and Docucon and
earnings per share for the periods ended September 30, 2001 and December 31,
2000 are as follows (DVS shares are assumed to be outstanding since January 1,
2000 for purposes of the calculation, although the inception date is May 5,
2000):
<Table>
<Caption>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2000
--------------------- ---------------------
Docucon historical weighted average
shares outstanding 3,658,767 3,598,767
Plus Docucon shares issued, other pro
forma adjustments 592,425 592,425
--------------- ---------------
4,251,192 4,191,192
Adjusted for pro forma 15:1 reverse
split DIVIDED BY 15 DIVIDED BY 15
--------------- ---------------
283,413 279,413
Plus shares issued to Robert Schwartz 1,424 1,424
--------------- ---------------
Docucon pro forma weighted average
shares outstanding 284,837 280,837
</Table>
P-13
<Page>
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of DVS and Docucon
(continued)
<Table>
<Caption>
PRO FORMA MERGER ADJUSTMENTS (CONTINUED)
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------------------- -------------------------------
DVS historical weighted average shares
outstanding 6,047,619 6,000,000
Plus DVS shares issued, other pro
forma adjustments 1,000,000 1,000,000
--------------- ---------------
DVS pro forma weighted average shares
outstanding 7,047,619 7,000,000
Decrease in weighted average common
stock outstanding to account for
Docucon stock given in the merger
at the share conversion number of
0.3737 for each share of DVS common
stock (4,413,924) (4,384,100)
--------------- ---------------
DVS pro forma weighted average shares
outstanding, as converted 2,633,695 2,615,900
--------------- ---------------
Pro forma combined weighted average
shares outstanding 2,918,532 2,896,737
=============== ===============
</Table>
Pro forma combined earnings of DVS and Docucon per share are as follows:
<Table>
<Caption>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2000
--------------------- ---------------------
Pro forma combined net loss from continuing operations $ (1,167,344) $ (2,366,499)
Pro forma combined weighted average shares outstanding 2,918,532 2,896,737
--------------------- ---------------------
Pro forma basic and diluted loss from continuing operations
per share $ (0.40) $ (0.82)
===================== =====================
</Table>
P-14
<Page>
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of DVS and Docucon
(continued)
OTHER SIGNIFICANT TRANSACTIONS
Prior to the Merger, DVS expects to settle the $1,400,000 liability for
preferred stock subscribed but not issued outstanding at September 30, 2001
through the issuance of 1,400,000 shares of DVS common stock. As the stock's
approximate fair value is $3,500,000, DVS expects to recognize an extraordinary
loss on extinguishment of $2,100,000. As this transaction is not required as a
condition of the Merger, it has not been included in the unaudited pro forma
combined condensed financial statements of DVS and Docucon. Had it been
included, it would have increased pro forma combined weighted average shares
outstanding by 523,180 shares and decreased pro forma basic and diluted loss
from continuing operations per share by $.06 and $.13 per share for the nine
months ended September 30, 2001 and the year ended December 31, 2000,
respectively.
Prior to the Merger, DVS expects to issue 500,000 shares of common stock to
settle its obligation for common stock to be issued related to an agreement to
acquire intellectual property. As this transaction is not required as a
condition of the Merger, it has not been included in the unaudited pro forma
combined condensed financial statements of DVS and Docucon. Had it been
included, it would have increased pro forma combined weighted average shares
outstanding by 186,850 shares and decreased pro forma basic and diluted loss
from continuing operations per share by $.02 and $.05 per share for the nine
months ended September 30, 2001 and the year ended December 31, 2000,
respectively.
P-15
<Page>
DIGITAL VISION SYSTEMS, INC.
Financial Statements
PERIOD FROM INCEPTION (MAY 5, 2000) TO DECEMBER 31, 2000 AND NINE MONTHS ENDED
SEPTEMBER 30, 2001 (UNAUDITED) WITH REPORT OF INDEPENDENT AUDITORS
<Page>
Digital Vision Systems, Inc.
Financial Statements
Period From Inception (May 5, 2000) to December 31, 2000
and Nine Months Ended September 30, 2001 (Unaudited)
CONTENTS
<Table>
Report of Independent Auditors ..........................................................................1
Financial Statements
Balance Sheets ..........................................................................................2
Statements of Operations ................................................................................4
Statements of Stockholders' Deficit .....................................................................5
Statements of Cash Flows ................................................................................6
Notes to Financial Statements ...........................................................................7
</Table>
<Page>
Report of Independent Auditors
Board of Directors and Stockholders
Digital Vision Systems, Inc.
We have audited the accompanying balance sheet of Digital Vision Systems, Inc.
(the Company) as of December 31, 2000, and the related statements of operations,
stockholders' deficit, and cash flows for the period from inception (May 5,
2000) to December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digital Vision Systems, Inc. at
December 31, 2000, and the results of its operations and its cash flows for the
period from inception (May 5, 2000) through December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company does not have significant revenues and has sustained an operating loss,
has an accumulated deficit in stockholders' equity, and has a working capital
deficiency. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. (Management's plans in regard to these matters
are also described in Note 1.) The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
San Antonio, Texas
October 31, 2001, except for Note 11, as to
which the date is January 25, 2002
1
<Page>
Digital Vision Systems, Inc.
Balance Sheets
<Table>
<Caption>
DECEMBER 31 SEPTEMBER 30
2000 2001
-------------------------------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 1,517 $ 16,210
Accounts receivable:
Trade, net of allowance for doubtful accounts of $-0-
and $58,093 at December 31, 2000 and September 30,
2001, respectively 29,970 260,434
Employees 20,741 -
Inventory 53,828 164,021
Prepaid expenses 20,063 -
-------------------------------------------
Total current assets 126,119 440,665
Property and equipment 126,130 178,597
Less accumulated depreciation 11,276 42,726
-------------------------------------------
Net property and equipment 114,854 135,871
Other assets:
Intellectual property, net of accumulated amortization
of $33,086 and $171,986 at December 31, 2000 and
September 30, 2001, respectively 392,921 1,004,021
Deposits 11,655 11,655
-------------------------------------------
404,576 1,015,676
-------------------------------------------
Total assets $ 645,549 $ 1,592,212
===========================================
</Table>
2
<Page>
<Table>
<Caption>
DECEMBER 31 SEPTEMBER 30
2000 2001
-------------------------------------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable:
Trade $ 100,370 $ 387,492
Employee - 36,382
Accrued expenses 34,522 122,498
Related party notes payable - 400,000
-------------------------------------------
Total current liabilities 134,892 946,372
Noncurrent liabilities:
Liability for preferred stock subscribed but not
issued, net of subscription receivable 1,300,000 1,400,000
Stockholders' deficit:
Common stock, $.001 par value; 100,000,000 shares
authorized, 7,500,000 shares issued and 6,000,000
and 6,160,000 shares outstanding at December 31,
2000 and September 30, 2001, respectively 7,500 7,500
Additional paid-in capital 742,500 946,500
Common stock to be issued - 750,000
Less cost of treasury stock, 1,500,000 and 1,340,000
shares at December 31, 2000 and September 30, 2001,
respectively (150,000) (134,000)
Accumulated deficit (1,389,343) (2,324,160)
-------------------------------------------
Total stockholders' deficit (789,343) (754,160)
-------------------------------------------
Total liabilities and stockholders' deficit $ 645,549 $ 1,592,212
===========================================
</Table>
SEE ACCOMPANYING NOTES.
3
<Page>
Digital Vision Systems, Inc.
Statements of Operations
<Table>
<Caption>
PERIOD FROM
INCEPTION NINE MONTHS
(MAY 5, 2000) TO ENDED
DECEMBER 31 SEPTEMBER 30
2000 2001
--------------------------------------------
(UNAUDITED)
Sales $ 44,955 $ 515,934
Operating expenses:
Cost of goods sold 24,029 211,829
Sales and marketing 545,637 369,147
General and administrative 520,270 691,498
Depreciation 11,276 31,783
Amortization 33,086 138,900
--------------------------------------------
Total operating expenses 1,134,298 1,443,157
--------------------------------------------
Loss from operations (1,089,343) (927,223)
Other expense:
Interest 300,000 7,594
--------------------------------------------
Net loss $ (1,389,343) $ (934,817)
============================================
Basic and diluted net loss per share of common stock $ (.23) $ (.15)
Weighted average shares outstanding used in computing
basic and diluted loss per share of common stock 6,000,000 6,047,619
</Table>
SEE ACCOMPANYING NOTES.
4
<Page>
Digital Vision Systems, Inc.
Statements of Stockholders' Deficit
<Table>
<Caption>
COMMON STOCK
-----------------------------------------------------------------
ISSUED TREASURY STOCK
------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ------------- -------------- ----------------
Balance at May 5, 2000
(inception) - $ - - $ -
Common stock issued for
property and services 4,500,000 4,500 - -
Shares returned to treasury - - 1,500,000 (150,000)
Common stock issued with
preferred shares subscribed
but not issued 3,000,000 3,000 - -
Net loss - - - -
--------------- ------------- -------------- ----------------
Balance at December 31, 2000 7,500,000 7,500 1,500,000 (150,000)
Common stock issued for cash
(Unaudited) - - (150,000) 15,000
Common stock issued for
services (Unaudited) - - (10,000) 1,000
Common stock to be issued
(Unaudited) - - - -
Net loss (Unaudited) - - - -
--------------- ------------- -------------- ----------------
Balance at September 30, 2001
(Unaudited) 7,500,000 $ 7,500 1,340,000 $ (134,000)
=============== ============= ============== ================
<Caption>
ADDITIONAL COMMON TOTAL
PAID-IN STOCK TO BE ACCUMULATED STOCKHOLDERS'
CAPITAL ISSUED DEFICIT DEFICIT
----------------- ---------------- ------------------ -----------------
Balance at May 5, 2000
(inception) $ - $ - $ - $ -
Common stock issued for
property and services 445,500 - - 450,000
Shares returned to treasury - - - (150,000)
Common stock issued with
preferred shares subscribed
but not issued 297,000 - - 300,000
Net loss - - (1,389,343) (1,389,343)
----------------- ---------------- ------------------ -----------------
Balance at December 31, 2000 742,500 - (1,389,343) (789,343)
Common stock issued for cash
(Unaudited) 185,000 - - 200,000
Common stock issued for
services (Unaudited) 19,000 - - 20,000
Common stock to be issued
(Unaudited) - 750,000 - 750,000
Net loss (Unaudited) - - (934,817) (934,817)
----------------- ---------------- ------------------ -----------------
Balance at September 30, 2001
(Unaudited) $ 946,500 $ 750,000 $ (2,324,160) $ (754,160)
================= ================ ================== =================
</Table>
SEE ACCOMPANYING NOTES.
5
<Page>
Digital Vision Systems, Inc.
Statements of Cash Flows
<Table>
<Caption>
PERIOD FROM
INCEPTION NINE MONTHS
(MAY 5, 2000) TO ENDED
DECEMBER 31 SEPTEMBER 30
2000 2001
-------------------------------------------
(UNAUDITED)
OPERATING ACTIVITIES
Net loss $ (1,389,343) $ (934,817)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 44,362 170,683
Noncash expense for stock issued for services 300,000 20,000
Interest on liability for preferred stock subscribed
but not issued 300,000 -
Changes in operating assets and liabilities:
Accounts receivable, trade (29,970) (230,464)
Accounts receivable, employees (20,741) 20,741
Inventory (53,828) (110,193)
Prepaid expenses (20,063) 20,063
Accounts payable 100,370 323,504
Accrued expenses 34,522 87,976
-------------------------------------------
Net cash used in operating activities (734,691) (632,507)
INVESTING ACTIVITIES
Purchase of property and equipment (126,130) (52,800)
Purchase of intellectual property license (426,007) -
Net change in deposits (11,655) -
-------------------------------------------
Net cash used in investing activities (563,792) (52,800)
FINANCING ACTIVITIES
Net proceeds from preferred stock subscribed but not issued 1,300,000 100,000
Proceeds from related party notes payable - 400,000
Cash proceeds from sale of stock - 200,000
-------------------------------------------
Net cash provided by investing activities 1,300,000 700,000
-------------------------------------------
Net increase in cash and cash equivalents 1,517 14,693
Cash and cash equivalents at beginning of period - 1,517
-------------------------------------------
Cash and cash equivalents at end of period $ 1,517 $ 16,210
===========================================
</Table>
SEE ACCOMPANYING NOTES.
6
<Page>
Digital Vision Systems, Inc.
Notes to Financial Statements
December 31, 2000 and September 30, 2001 (Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Digital Vision Systems, Inc. (the Company) is a start-up company that designs,
develops, manufactures, markets, and supports digital video recording systems
and related management software, which is considered one segment for reporting
purposes. The Company's products are used by a broad range of security
management departments in retail, education, financial institutions, government,
and other public and commercial organizations worldwide. The Company operates
from one location in San Antonio, Texas. Manufacture of the proprietary
components and maintenance of the software are currently accomplished at the San
Antonio headquarters offices. The Company was incorporated in the state of
Nevada on May 5, 2000 and began shipping product in September 2000 to customers
around the globe.
BASIS OF PRESENTATION
The Company does not have significant revenues and has sustained operating
losses and expects such losses to continue over at least the next few years.
Management has continued to finance the Company through the issuance of
preferred and common stock to new and existing investors, and through revenues
from product sales. The Company's ability to continue as a going concern will be
dependent upon successful execution of the planned financings and ultimately
upon achievement of profitable operations. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
INTERIM FINANCIAL INFORMATION
The financial statements for the nine months ended September 30, 2001 are
unaudited. In the opinion of management, the statements have been prepared on
the same basis as the audited financial statements and include all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position and the results of
operations for the periods presented. Operating results for any interim period
are not necessarily indicative of results for the full fiscal year or any future
period.
7
<Page>
Digital Vision Systems, Inc.
Notes to Financial Statements (continued)
December 31, 2000 and September 30, 2001 (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company recognizes revenue when each of the following four criteria are met:
1) a contract or sales arrangement exists; 2) products have been shipped or
services have been rendered; 3) the price of the products or services is fixed
or determinable; and 4) collectibility is reasonably assured.
Product sales are recognized upon the shipment of products to the customer.
Commissions earned are recognized when customer orders are placed with product
suppliers. Customers may return products in the event of product defect or
inaccurate order fulfillment. The Company estimates returns based on historical
experience and expectations related to returns, which have been minimal to date.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
ninety days or less to be cash equivalents.
INVENTORY
Inventories consist of component parts and finished goods, which are valued at
the lower of cost (first-in, first-out) or market.
8
<Page>
Digital Vision Systems, Inc.
Notes to Financial Statements (continued)
December 31, 2000 and September 30, 2001 (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided utilizing the straight-line method over the estimated
useful lives of the respective assets (three to seven years). Leasehold
improvements are being amortized over the life of the lease. Additions and
improvements that extend the useful life of an asset are capitalized. Repairs
and maintenance are charged to expense as incurred.
LONG-LIVED ASSETS
Impairment losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amount. The Company
evaluates impairments by using negative cash flows, technological obsolescence,
or other unfavorable conditions as indicators of impairment. Impairment losses
are also recorded for long-lived assets that are expected to be disposed of.
NET LOSS PER SHARE
Basic earnings per share (EPS) is computed by dividing income (loss) available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. As the Company had a net
loss at December 31, 2000, diluted EPS equals basic EPS as potentially dilutive
common stock equivalents, which consist of options, and warrants are
antidilutive in loss periods.
INTELLECTUAL PROPERTY
Intellectual property includes hardware and software that was purchased by the
Company from Cieffe Snc di Colciago Fabrizio & C. (Cieffe), as described in Note
9. With this purchase the Company also obtained the associated trademarks of the
hardware and the intellectual property rights of the software. This property is
being amortized over the estimated life of the software, which has been
determined to be five years.
(Unaudited)
Subsequent to December 31, 2000, the Company obtained additional intellectual
property from an employee in exchange for a commitment to issue stock, as
described in Note 7. This property is being amortized over its estimated
useful life of five years.
9
<Page>
Digital Vision Systems, Inc.
Notes to Financial Statements (continued)
December 31, 2000 and September 30, 2001 (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company complies with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred income
tax assets and liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in future
taxable or deductible amounts, based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred income
tax assets to the amounts expected to be realized.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes the use of
the fair value-based method of accounting for stock-based compensation
arrangements, under which compensation cost is determined as of the grant date
and is recognized over the periods in which the related services are rendered.
SFAS 123 also permits companies to elect to continue using the intrinsic value
accounting method specified in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), to account for stock-based
compensation related to option grants to employees and directors. The Company
accounts for its stock-based award plans in accordance with APB 25, and related
interpretations, under which compensation expense is recorded to the extent that
the current market price of the underlying stock exceeds the exercise price.
Awards granted to nonemployees for goods and services are accounted for using
the Black-Scholes method prescribed by SFAS 123 in accordance with Emerging
Issues Task Force Consensus No. 96-18, "Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services." These awards are subject to periodic revaluation
over their vesting terms. Any compensation is recognized over the vesting
period, which is generally the performance period of the related contract.
ADVERTISING
The Company expenses advertising costs as they are incurred. Advertising expense
was approximately $145,000 in 2000.
10
<Page>
Digital Vision Systems, Inc.
Notes to Financial Statements (continued)
December 31, 2000 and September 30, 2001 (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS Nos. 141 and
142, "Business Combinations" and "Goodwill and Other Intangibles." SFAS 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under SFAS 142, effective the first quarter of
the year ending December 31, 2002, goodwill is no longer subject to amortization
over its estimated useful life. Rather, goodwill is subject to at least an
annual assessment for impairment applying a fair value-based test. Additionally,
an acquired intangible asset should be separately recognized if the benefit of
the intangible asset is obtained through contractual or other legal rights, or
if the intangible asset can be sold, transferred, licensed, rented, or
exchanged, regardless of the acquirer's intent to do so. The adoption of SFAS
No. 142 is not expected to have a material impact on the Company's financial
position or results of operations.
The Financial Accounting Standards Board issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." The provisions of SFAS 144
supersede SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," and will take effect in fiscal 2003
for the Company. At that time, the Company will ensure existing policies are
consistent with the provisions of SFAS 144.
Management does not anticipate that the adoption of any other recent
pronouncements will have a significant effect on earnings or the financial
position of the Company.
3. INVENTORY
Inventory consists of the following:
<Table>
<Caption>
DECEMBER 31 SEPTEMBER 30
2000 2001
--------------------------------------
(UNAUDITED)
Component parts $ 22,088 $ 122,993
Finished goods 31,740 41,028
--------------------------------------
$ 53,828 $ 164,021
======================================
</Table>
11
<Page>
Digital Vision Systems, Inc.
Notes to Financial Statements (continued)
December 31, 2000 and September 30, 2001 (Unaudited)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 2000:
<Table>
Leasehold improvements $ 22,060
Furniture and equipment 99,578
Computer software 4,492
--------------------
126,130
Less accumulated depreciation 11,276
--------------------
$ 114,854
====================
</Table>
5. COMMITMENTS
The Company leases office space under a noncancelable operating lease expiring
in 2001. Rentals are subject to escalation for increases in property taxes,
insurance, and various other expenses. Future minimum rental payments of the
Company under existing operating lease agreements at December 31, 2000 are
approximately $28,000 through December 31, 2001. Rental expense was
approximately $24,000 for the year ended December 31, 2000.
6. LIABILITY FOR PREFERRED STOCK SUBSCRIBED BUT NOT ISSUED
In August 2000 the Company sold a subscription for preferred stock, common
stock, and common stock warrants in exchange for $1,400,000 cash. At December
31, 2000, the Company has received $1,300,000 of the amount subscribed with
the remaining amount received subsequent to year-end. Investors were issued
3,000,000 shares of common stock and nine warrants exercisable for 750,000
shares of common stock. As preferred stock was not yet authorized under the
Company's Articles of Incorporation, the Company remained obligated to the
investors for the full amount of cash received. As such, the $1,300,000
received at December 31, 2000 has been classified as a noncurrent liability,
pending the authorization and issuance of 6,139,364 shares of preferred
stock. A portion of the proceeds were allocated to the common stock issued
based on the estimated fair value of the common stock issued of $300,000 and
the warrants based on an estimated fair value of $0. The difference between
the cash proceeds and the fair value of common stock and warrants was
recorded as interest.
12
<Page>
Digital Vision Systems, Inc.
Notes to Financial Statements (continued)
December 31, 2000 and September 30, 2001 (Unaudited)
7. COMMON STOCK
The Company has authorized the issuance of 100,000,000 shares of common stock
with a par value of $.001. Effective December 31, 2000, 7,500,000 shares are
issued; 6,000,000 shares are outstanding; and 1,500,000 shares are held in
treasury. The Company issued 1,500,000 shares to the escrow agent pending
completion of its transaction with Cieffe (which have subsequently been returned
to treasury) and 3,000,000 shares pursuant to the subscription agreement for
preferred stock. An additional 3,000,000 shares were issued to officers and
employees of the Company for services, resulting in compensation expense of
$300,000 based on the estimated value of services provided.
As described in Note 6, the Company has received cash in exchange for preferred
stock, common stock, and common stock warrants. The warrants were recorded at
their fair market value which was $-0-. At December 31, 2000, nine warrants are
outstanding and exercisable into 750,000 shares of common stock. The warrants
have exercise prices that range from $1 to $5 and will expire in August 2003.
(Unaudited)
Subsequent to December 31, 2000, an additional 150,000 shares were issued for
cash of $200,000, and 10,000 shares were issued for services valued at $20,000.
Additionally, the Company entered into a contract with an employee to acquire
intellectual property in exchange for 500,000 common shares with a fair value of
$750,000. The contract can only be settled through the issuance of stock;
accordingly, the obligation has been recorded in stockholders' deficit at
September 30, 2001.
8. RELATED PARTIES
A member of a law firm that provides legal services to the Company is affiliated
with an investor in the Company. Fees related to services performed by this firm
were approximately $53,000 for the year ended December 31, 2000.
(Unaudited)
Subsequent to December 31, 2000, two stockholders funded $400,000 in the form of
notes payable, bearing interest at 10%. The notes are classified as current.
13
<Page>
Digital Vision Systems, Inc.
Notes to Financial Statements (continued)
December 31, 2000 and September 30, 2001 (Unaudited)
9. CONTINGENCIES
Prior to December 31, 2000, the Company exercised its rights under a contract
between Digital Vision Systems, Inc. and Cieffe whereby the Company held
Cieffe in default of the agreement for failure to address a series of
requests from the Company for technical support related to the Company's
license for software and hardware. Cieffe failed to cure the default as
provided in the contract, which contained provisions making future
consideration, including stock issued into escrow, contingent upon
performance by either party. As a result, an escrow agent, holding all plans
and specifications for the intellectual property hardware and software assets
in Geneva, Switzerland, released those assets to the Company subsequent to
December 31, 2000. In addition, a stock certificate representing 1,500,000
shares of the Company's common stock was returned to the Company and is held
by the Company as treasury stock. As the stock was issued pending the
performance contingency, and was returned to treasury, the Company has not
shown the stock outstanding at December 31, 2000. The Company has no further
obligation to Cieffe under that contract through which the Company originally
purchased the intellectual property that it uses in its products.
Cieffe has claimed that the Company is in default of the contract for failing to
make a scheduled payment due after the default date and that the Company had no
rights to ask the escrow agent to disburse the stock or other assets. The
Company believes that the likelihood of incurring a loss as a result of any
action by Cieffe is remote.
10. INCOME TAXES
The reconciliation between the federal statutory tax rate at 35% and the
Company's effective tax rate is as follows at December 31, 2000:
<Table>
Expected tax expense (benefit) $ (486,270)
Nondeductible interest on liability for preferred stock
subscribed but not issued 103,950
Nondeductible meals and entertainment 3,560
Change in valuation allowance 378,760
------------------
$ -
==================
</Table>
14
<Page>
Digital Vision Systems, Inc.
Notes to Financial Statements (continued)
December 31, 2000 and September 30, 2001 (Unaudited)
10. INCOME TAXES (CONTINUED)
The sources of the differences between the financial accounting and tax bases of
the Company's assets and liabilities which give rise to the deferred tax assets
and deferred tax liabilities are as follows at December 31, 2000:
<Table>
Deferred tax assets:
Net operating loss $ 378,466
Contributions carryover 105
Amortization, net 5,174
------------------
Total deferred tax assets 383,745
Valuation allowance (378,760)
------------------
Net deferred tax assets 4,985
Deferred tax liabilities:
Depreciation 4,985
------------------
Net deferred tax liabilities $ -
==================
</Table>
At December 31, 2000, the Company had, subject to the limitations discussed
below, a net operating loss carryforward for tax purposes of approximately
$1,081,000. This loss carryforward will expire in 2020 if not utilized.
Uncertainties exist as to the future realization of the deferred tax asset under
the criteria set forth under SFAS No. 109. Therefore, the Company has
established a valuation allowance of $378,760 for deferred tax assets at
December 31, 2000.
11. SUBSEQUENT EVENTS (UNAUDITED)
On April 2, 2001, Docucon Inc. (Docucon) announced that its Board of Directors
had agreed to the terms of a letter of intent calling for Docucon's acquisition
of all outstanding and issued shares of the Company in a reverse merger. On
September 6, 2001, Docucon approved changed terms of the letter of intent, and
reported that the proposed reverse merger of the Company into Docucon would
result in the Company's stockholders owning 92.5% and Docucon stockholders
owning the remaining 7.5% of Docucon's common stock. The Board of Directors of
Docucon approved the terms of the letter of intent on December 28, 2001. The
proposed combination is subject to various significant conditions
15
<Page>
Digital Vision Systems, Inc.
Notes to Financial Statements (continued)
December 31, 2000 and September 30, 2001 (Unaudited)
11. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
including but not limited to negotiation and execution of definitive agreements,
the Company's premerger commitment to fund an additional $2.5 million in
operating capital, and approval by both Docucon's and the Company's
stockholders. There can be no assurances that the transaction described above
will be consummated.
On January 25, 2002, the Company entered into an agreement with a group of
investors to issue 1,000,000 shares of common stock in exchange for $700,000
cash and notes receivable of $1,800,000. The notes bear interest at 7% and are
payable quarterly maturing in January 2007.
16
<Page>
====================
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE PROPOSED AGREEMENT
AND PLAN OF MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED AGREEMENT AND PLAN
OF MERGER. TO FACILITATE THE MERGER WITH DVS, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THE PROPOSED RESOLUTION APPROVING ADOPTION OF THE PROPOSED
AGREEMENT AND PLAN OF MERGER.
PROPOSAL 2: AUTHORIZATION TO IMPLEMENT A REVERSE SPLIT OF THE COMPANY'S
COMMON STOCK
GENERAL
In order to facilitate the Merger, the Company's Board of Directors
recommends that the Stockholders of the Company authorize the Board of
Directors to effectuate a reverse split of one share of Common Stock for
fifteen (15) shares of the issued and outstanding Common Stock of the Company
(the "Reverse Split"). The number of authorized shares of the Company's Common
Stock shall not be reduced. The effect of a Reverse Split upon holders of
Common Stock would be that the total number of shares of the Company's Common
Stock (each, an "Old Share") held by each Stockholder would be automatically
converted into the number of whole shares of Common Stock equal to the number
of shares of Common Stock owned immediately prior to the Reverse Split,
divided by fifteen, adjusted, as described below, for any fractional shares
(each, a "New Share"). Should a Reverse Split be effectuated, each
Stockholder's percentage ownership interest in the Company and proportional
voting power will remain unchanged, except for the shares issued pursuant to
the terms of the Merger and minor differences resulting from adjustments for
fractional shares. The rights and privileges of the holders of shares of
Common Stock will be substantially unaffected by a Reverse Split. Should a
Reverse Split be effectuated, no certificates or scrip representing fractional
shares of the Company's Common Stock will be issued to Stockholders. All
fractional shares will be increased to the next higher whole number of shares.
Should a Reverse Split be effectuated, the conversion ratio for the Company's
outstanding Preferred Stock will be adjusted in accordance with the prescribed
ratio. Similarly, if applicable the exercise price and number of shares of
each outstanding warrant and option to purchase shares of the Company's Common
Stock will be adjusted in accordance with the prescribed ratio.
PRINCIPAL EFFECTS OF A REVERSE SPLIT
The Certificate of Incorporation of the Company currently authorizes the
Company to issue 10,000,000 shares of its Preferred Stock and 25,000,000 shares
of its Common Stock. As of November 15, 2001, there were (1) 3,658,767 shares of
Common Stock outstanding, (2) 7 shares of Series A Preferred Stock, par value
$1.00 per share outstanding, (3) 0 (zero) options granted and outstanding,
cancelled or exercised, and (4) 0 (zero) warrants granted to purchase shares of
Common Stock. If any Reverse Split is effectuated, no change in authorized
shares will result; however, if a Reverse Split is effectuated at, for example,
the maximum rate proposed (one share for fifteen shares), the principal result
will be a decrease from 3,658,767 shares to approximately 243,918 in the number
of shares of Common Stock issued and outstanding, based upon the number of
shares outstanding on November 15, 2001. Similarly, each share of Series A
Preferred Stock, currently convertible into 8,333 shares of Common Stock, would
be convertible into 1,333 shares of Common Stock. A Reverse Split may result in
some Stockholders owning "odd-lots" of fewer than 100 shares of Common Stock.
Brokerage commissions and other costs of transactions in odd-lots are generally
somewhat higher than costs of transactions in "round-lots" of even multiples of
100 shares. Pursuant to Delaware law, the Company's Stockholders are not
entitled to dissenters' rights of appraisal with respect to authority to
effectuate a Reverse Split.
50
EXCHANGE OF STOCK CERTIFICATES
Should a Reverse Split be effectuated, Stockholders will be required to
exchange their stock certificates for new certificates representing the New
Shares of Common Stock. At the appropriate time, the Company's transfer agent
will furnish to the Stockholders the necessary materials and instructions to
surrender and exchange their stock certificates. Stockholders will not be
required to pay any transfer or other fee in connection with the exchange of
certificates. Stockholders should not submit any certificates until requested to
do so.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), the applicable
Treasury Regulations promulgated thereunder, judicial authority and current
administrative rulings and practices as in effect on the date of this Proxy
Statement. The Company has not sought and will not seek an opinion of counsel or
a ruling from the Internal Revenue Service regarding the federal income tax
consequences of the Reverse Split. The Company, however, believes that because
the Reverse Split is not part of a plan to periodically increase a Stockholder's
proportionate interest in the assets or earnings and profits of the Company, the
Reverse Split will have the following federal income tax effects: (1) the
Reverse Split will constitute a reorganization within the meaning of Section 368
(a) (1) (E) of the Code; (2) a Stockholder will not recognize gain or loss on
the exchange and, in the aggregate, the Stockholder's basis in the New Shares
will equal such Stockholder's basis in the Old Shares; (3) a Stockholder's
holding period for the New Shares will be the same as the holding period of the
Old Shares for which such New Shares are exchanged; and (4) the Company will not
recognize any gain or loss on the exchange based on the terms of Section 1032 of
the Code.
THE ABOVE DISCUSSION OF THE FEDERAL INCOME TAX CONSEQUENCES OF A REVERSE
SPLIT IS INCLUDED FOR GENERAL INFORMATION ONLY. ALL STOCKHOLDERS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING ANY FEDERAL, STATE, LOCAL, OR FOREIGN
TAX CONSEQUENCES APPLICABLE TO THEM THAT COULD RESULT FROM A REVERSE SPLIT.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS HAS APPROVED THE MERGER. TO FACILITATE THE MERGER WITH DVS, THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED RESOLUTION AUTHORIZING THE BOARD
OF DIRECTORS, IN ITS DISCRETION, TO IMPLEMENT A REVERSE SPLIT OF THE COMPANY'S
COMMON STOCK OF ONE (1) SHARE OF COMMON STOCK FOR FIFTEEN (15) SHARES OF COMMON
STOCK.
51
PROPOSAL 3: CHANGE OF COMPANY NAME
The Board of Directors proposes to the Company's Stockholders, pursuant to
and as a result of the proposed Merger, to amend the Company's Articles of
Incorporation to reflect a change of the Company's name from "Docucon,
Incorporated" to "DVS Holdings, Inc." Under this Proposal, the Company's
Stockholders would authorize the Board of Directors to carry out all actions
necessary to make effective the amendment to the Company's Articles of
Incorporation.
The proposed new name of the Company will accurately reflect and describe
the nature of the Company's post-merger business.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THE PROPOSED CHANGE OF THE
COMPANY'S NAME IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS HAS SUBMITTED SUCH CHANGE OF NAME FOR
APPROVAL BY THE COMPANY'S STOCKHOLDERS. TO FACILITATE THE CHANGE OF THE
COMPANY'S NAME FROM "DOCUCON, INCORPORATED" TO "DVS HOLDINGS, INC." THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO THE
COMPANY'S ARTICLES OF INCORPORATION THROUGH WHICH THE CHANGE OF THE COMPANY'S
NAME WOULD BE ACCOMPLISHED.
Approval and adoption of this Proposal requires the affirmative vote of
the holders a majority of the Company's issued and outstanding Common Stock
entitled to vote on the proposed amendment of the Company's Articles of
Incorporation.
PROPOSAL 4: ELECTION OF THE BOARD OF DIRECTORS
Through this Proposal, the Company's Stockholders would elect five (5) new
members to a seven (7) member Board of Directors of the Company. Two (2) members
of the current Board would remain on the Board of Directors, and five (5) new
members would be added to the Board. DVS would designate all five (5) new
members of the Company's Board of Directors. Consequently, the Board of
Directors would consist of Edward P. Gistaro and Robert W. Schwartz, both of
whom are current members of the Board of Directors, and Kyle L. Cole, J. Kelly
Gray, Phillip Michael Hardy, Robert A. Rosenthal and J. Collier Sparks, of whom
Phillip Michael Hardy is currently a director of DVS.
On the closing date, the Company's Board of Directors would consist of
seven (7) members, divided into three (3) classes: Class 1, Class 2 and Class 3.
Messrs. Edward P. Gistaro, Robert W. Schwartz and Robert A. Rosenthal would be
Class 1 directors and would serve until the 2003 annual Stockholders' meeting;
Messrs. Kyle L. Cole and Phillip Michael Hardy would be Class 2 directors and
would serve until the 2004 annual Stockholders' meeting; and Messrs. J. Kelly
Gray and J. Collier Sparks would be Class 3 directors and would serve until the
2005 annual Stockholders' meeting. Upon election of Class 1, Class 2 and Class 3
directors at, respectively, the 2003, 2004 and 2005 annual Stockholders'
meetings, each director would
52
thereafter serve a three (3) year term, at the conclusion of which he or she
could be reelected at the corresponding annual Stockholders' meeting.
Directors will be elected by a plurality of the shares of Common Stock
present and entitled to vote at the Special Meeting of Stockholders.
The information set forth below is intended for your review in connection
with the evaluation of this Proposal and the other Proposals contained in this
Proxy Statement. Please give careful consideration to this information.
MANAGEMENT OF THE COMPANY
POST-MERGER MANAGEMENT OF THE COMPANY
As part of the Merger, as of the closing, the number of directors on the
Company's Board of Directors will be seven (7), with two of the directors
(Edward P. Gistaro and Robert W. Schwartz) remaining on the Board, and five (5)
new members joining the Board (Kyle L. Cole, J. Kelly Gray, Phillip Michael
Hardy, Robert A. Rosenthal and J. Collier Sparks). All directors will be Class
1, Class 2 or Class 3 directors, pursuant to the terms described above, and
after the 2003, 2004 and 2005 annual Stockholders' meetings, Class 1, Class 2
and Class 3 directors will serve three (3) year terms. Cumulative voting is not
permitted in the election of directors. In the absence of instructions to the
contrary, the person named in the accompanying Proxy will vote in favor of the
election of all persons named below as the Company's nominees for directors of
the Company. Each nominee has consented to be named herein and to serve if
elected. It is not anticipated that any nominee will become unable or unwilling
to accept nomination or election, but if such event occurs, the person named in
the Proxy intends to vote for the election in his stead of such person as the
Board of Directors of the Company may recommend.
The following table sets forth certain information as to the persons who
are nominated to serve as directors and certain information regarding the
executive officers of the Company after the Merger:
53
NAME AGE POSITION
- ------------------------ ----- ---------------------------------------------------
Phillip Michael Hardy 53 Chairman of the Board of Directors, President and
Chief Executive Officer
J. Collier Sparks 44 Chief Operating Officer and Director and Secretary
Edward P. Gistaro 65 Director
Robert W. Schwartz 55 Director
Kyle L. Cole 43 Director
Robert A. Rosenthal 41 Director
Charles R. Leone III 42 Chief Financial Officer and Treasurer
J. Kelly Gray 48 Director
BACKGROUNDS OF THE MEMBERS OF THE POST-MERGER MANAGEMENT OF THE COMPANY
Phillip Michael Hardy has served as Director of DVS since its founding
in 2000. Mr. Hardy has served as Chief Financial Officer of DVS from May 2000
until January 2001 when he became President. Mr. Hardy, a certified public
accountant, operated Phillip M. Hardy Consultants, a financial consulting
firm, from 1985 until 1999 when he became one of the founders of DVS. Mr.
Hardy also served as Chief Financial Officer of Stone Oak Inc., a real estate
development company that operated and developed mixed-use properties and a
utility company in Texas from 1983 until it was sold in 1985. Mr. Hardy served
as Chief Financial Officer and Treasurer of Cullen/Frost Bankers, Inc. from
1977 until 1983. Cullen/Frost is a regional bank holding company with
subsidiary banks throughout Texas with assets, at the time, of over $3
billion. Hardy also served as a Manager of Ernst & Whinney (now Ernst & Young)
from 1972 until 1977.
J. Collier Sparks was elected Executive Vice President in April of 2001
and was promoted to Chief Operating Officer on January 1, 2002. Sparks served as
Vice President of Southern Steel, the nation's largest detention equipment
manufacturer from 1995 until 2001. Sparks, an electrical engineer, was
responsible for the Electronics Division of Southern Steel and was primarily
involved in system integration. Prior to 1995, Sparks owned and operated a
business that was the first to launch an integrated system approach to the
corrections industry.
Edward P. Gistaro served as Chairman of the Board of the Company from 1990
until 2002. He served as Chief Executive Officer of the Company from June 4,
1988 until April 1998, when the Board of Directors accepted his recommendation
that he be replaced by Douglas Gill as Chief Executive Officer. Mr. Gistaro also
served as President of the Company from 1988 until 1991. Mr. Gistaro was
employed by Datapoint Corporation, a company involved in the manufacturing of
computer systems, in various managerial positions from 1973 until 1987. From
1982 to 1985 Mr. Gistaro served as the President and Chief Operating of
Datapoint Corporation, and he served from 1985 to 1987 as its President and
Chief Executive Officer.
54
Robert W. Schwartz was elected to the Board of Directors of the Company in
1998. Mr. Schwartz founded the Schwartz Heslin Group, Inc. ("SHG"), an
investment banking firm, in 1985. As Managing Director of SHG, Mr. Schwartz
specializes in corporate planning, finance and development. From 1980 to 1985,
he was founder, President and Chief Operating Officer and Director of Coradian
Corporation and as Vice President and Chief Financial officer of Garden Way
Manufacturing Corporation form 1975 to 1980 and 1970 to 1975, respectively. The
Company has retained SHG in the past to provide investment and financial advice.
Kyle L. Cole is a certified public accountant with more than ten years
Big Five accounting firm experience. Mr. Cole was a tax specialist with a
concentration in mergers and acquisitions. In 1990 Mr. Cole co-founded and
was President of SATEX Investment Partners, Inc. (SATEX), a small venture
capital company based in San Antonio that invested in and managed initial and
second stage companies, primarily in the technologies area. Currently Mr.
Cole is a private investor.
Robert A. Rosenthal is a Partner with the law firm of Loeffler, Jonas &
Tuggey LLP, with offices in San Antonio, Texas, Austin, Texas and Washington,
D.C. Mr. Rosenthal has extensive experience in commercial real estate, lending
and other finance matters. He has advised public and private, for profit and
non-profit owners, developers, and lenders in the purchase, sale, lease,
finance, development and improvement of real estate. The law firm of Loeffler,
Jonas and Tuggey LLP serves as counsel to DVS in connection with the Merger.
J. Kelly Gray oversees and directs all operations of The Service Group, an
Austin, Texas insurance and financial services company. The Service Group
includes Service Life and Casualty Insurance Company, a provider of credit life
insurance to the automobile dealers industry; Service Lloyds, providing
workmen's compensation insurance; Service Guard, for extended service agreements
to automobile owners; and Service Asset Management Company, a full service
broker dealer. The Service Group, founded by Mr. Gray's father in 1971, has over
$8 billion of insurance in force and serves 65% of the automobile dealer market
in Texas and New Mexico.
Charles R. Leone III has served as the Chief Financial Officer of the
Company since October 15, 2001. Mr. Leone co-founded Federal Services
Corporation ("FSC"), an investment management and venture capital firm, in 1990.
FSC specializes in the acquisition of distressed and non-performing loan
portfolios as well as providing capital for start up businesses. Mr. Leone
founded Penntex Investments, Inc. ("Penntex") in 1992. Penntex, like FSC,
specializes in the acquisition of distressed and non-performing loan portfolios
as well as providing capital for start up businesses. Since September 1997, Mr.
Leone has been an advisor to the Board of Directors of Collins Financial
Services, Inc. Mr. Leone also served as a Director of HomeCapital Investment
Corporation and it subsidiary, Home, Inc. from 1996 to 1998.
55
CURRENT DIRECTORS AND OFFICERS OF THE COMPANY
NAME AGE WITH THE COMPANY SINCE
AND PRINCIPAL
OCCUPATION
- -------------------- ------ ---------------------------------- ---------
Edward P. Gistaro 65 Chairman of the Board 1988
Robert W. Schwartz 55 Director, President, Chief 1998
Executive Officer;
Managing Director, Schwartz Heslin
Group, Inc.
Douglas P. Gill 52 Director 1998
Ralph Brown 67 Secretary; 1997
Attorney, San Antonio, Texas
Al R. Ireton 66 Director; 1993
Chairman, Manchester Partners
Chauncey E. Schmidt 69 Director; Chairman, C.E. 1993
Chairman, C.E. Schmidt
& Associates
BACKGROUNDS OF THE COMPANY'S CURRENT DIRECTORS AND OFFICERS
Douglas P. Gill was elected as a Director of the Company on May 19, 2000.
From April 1998 to May 2000, he had served as President an Chief Executive
Officer. Mr. Gill was a general partner of Foster Management Company, a venture
capital firm, from 1994 until 1998. From 1984 to 1994, Mr. Gill served as First
Vice President of Janney Montgomery Scott, Inc., a regional investment banking
and brokerage firm, and in various management capacities at Scott paper Company
from 1975 to 1984. Mr. Gill also served as a senior auditor at Arthur Andersen &
Co. from 1972 to 1975.
Ralph Brown, an attorney in private practice since 1968, has served as a
Director and as Secretary of the Company since May 1987. From 1987 to 1989, he
served also as Treasurer of the Company. Mr. Brown has also served since 1975 as
President of Cherokee Ventures, Inc., a real estate leasing firm, since 1978 as
President of East Central Development Corporation and since 1982 as President of
southeast Suburban Properties, Inc. The latter two businesses are real estate
development firms.
Al R. Ireton was elected as a Director of the Company in May 1993. Mr.
Ireton has been Chairman of Manchester Partners, an investment and growth
strategy advisory organization providing capital and strategic assistance to
growing companies, since October 1988. From 1985 through September 1988, he
served as President and Chief Executive Officer of Texet
56
Corporation, a desktop publishing company. Mr. Ireton has 25 years experience
serving as president and chief executive officer of growth-oriented companies
and has served on several corporate boards.
Chauncey E. Schmidt was elected as a Director of the Company in February
1993. He has been Chairman of C.E. Schmidt & Associates, an investment firm,
since April 1989. From 1987 to March 1989, he was Vice Chairman of the Board of
AMFAC, Inc., a New York Stock Exchange-listed company engaged in diversified
businesses. He has previously served as President of The First National Bank of
Chicago and Chairman of the board and Chief Executive Officer of The Bank of
California, N.A. Mr. Schmidt is on the Board of Trustees of the U. S. Naval War
College Foundation and is active in several civic and charitable organizations.
Edward P. Gistaro and Robert W. Schwartz are described above.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE
COMPANY
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 15, 2001 (a) by each of
the Company's Directors, (b) by the Company's Chief Executive Officer (there
were no other executive officers whose 1998 compensation exceeded $100,000), and
(c) by all Directors and executive officers as a group.
NAME AND ADDRESS NATURE OF PERCENTAGE
BENEFICIAL BENEFICIAL AND
TITLE OF CLASS OWNERS (1) OWNERSHIP (2) CLASS (3)
- ---------------------------------------------------------------------------------------------------
Common Stock, Edward P. Gistaro 166,187 4.46
par value $.01 Douglas P. Gill 142,451 3.78
per share Ralph Brown 80,708 2.16
Al R. Ireton 50,708 1.35
Chauncey E. Schmidt 50,708 1.35
Robert W. Schwartz 170,501 4.58
Warren D. Barratt 8,334 0.22
Paul M. Nunley 8,334 0.22
All Directors and
Executive Officers
as a Group (8 persons
including the above) 677,931 17.48%
----------------------------------------------------------------------
(1) The address for all persons named is 8 Airport Park Boulevard, Latham, New
York, 12110.
(2) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
except as otherwise indicated.
(3) Unless otherwise indicated below, the percentage of ownership is based upon
3,717,098 shares of Common Stock outstanding, which includes 140,000 shares
of Common Stock into which outstanding shares of Series A Preferred Stock
are convertible and which the holders of the Preferred Stock are entitled
to vote.
57
EXECUTIVE COMPENSATION - THE COMPANY
The following table sets forth compensation paid or awarded to the Chief
Executive Officer for all services rendered to the Company in 2001, 2000, and
1999. No other executive officer of the Company had compensation that exceeded
$100,000 in 2001.
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
BONUS/ANNUAL
NAME AND RESTRICTED SECURITIES ALL
PRINCIPAL INCENTIVE OTHER ANNUAL STOCK UNDERLYING OTHER
POSITION Year SALARY (1) AWARD(2) COMPENSATION AWARDS(3) OPTIONS COMPENSATION
ROBERT W. 2001 $ -- $ -- $ -- -- -- $ --
SCHWARTZ, 2000 -- -- -- 150,000 -- --
PRESIDENT, CHIEF
EXECUTIVE OFFICER
AND CHIEF
FINANCIAL OFFICER
DOUGLAS P. GILL 2000 94,779 10,407 -- 71,920 96,666
PRESIDENT AND 1999 200,000 20
CHIEF EXECUTIVE
OFFICER
WARREN D. BARRATT 2000 56,287 -- -- -- -- 42,430
SENIOR VICE 1999 140,000 7,285 -- -- 116,825 20
PRESIDENT CHIEF
FINANCIAL OFFICER
AND TREASURER
PAUL M. NUNLEY
VICE PRESIDENT,
OPERATIONS AND 2000 46,795 -- -- -- -- 39,604
TECHNOLOGY 1999 130,000 6,764 -- 98,460 -- 20
58
(1) Effective March 31, 2000, the Company terminated the employment agreements
of Messrs. Gill, Barratt, Nunley and Hardin (Controller of Company) and
entered into Employment Agreement Settlement Agreements as further
described below.
(2) Aggregate perquisites and other personal benefits did not exceed the lesser
of either $50,000 or 10% of the total annual salary and bonus listed above.
(3) In May 2000, as consideration for acceptance of services as the Company's
President, the Company's Board of Directors authorized the issuance of
150,000 shares of the Company's Common Stock to Mr. Schwartz. These options
have since been canceled, and in lieu thereof, Mr. Schwartz is to receive
Common Stock described above. See "Interest of Certain Persons in the
Merger."
STOCK OPTION GRANTS IN 2001
INDIVIDUAL GRANTS
% OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING OPTIONS TO EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR PER SHARE DATE
ROBERT W. SCHWARTZ - - - - - - - -
DOUGLAS P. GILL - - - - - - - -
WARREN D. BARRATT - - - - - - - -
PAUL M. NUNLEY - - - - - - - -
STOCK OPTION EXERCISES IN 2001 AND OPTION VALUES AT NOVEMBER 30, 2001
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT NOVEMBER 30, 2001 (1) AT NOVEMBER 30, 2001
ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
ROBERT W. SCHWARTZ - - $ - - - - - - $ - - $ - -
DOUGLAS P. GILL - - $ - - 346,920 - - $ - - $ - -
WARREN D. BARRATT - - $ - - 216,825 - - $ - - $ - -
MICHAEL C. MOONEY - - $ - - 72,275 - - $ - - $ - -
PAUL M. NUNLEY - - $ - - 173,460 - - $ - - $ - -
(1) The Company is reporting options outstanding, but unexercised, prior to the
consummation of the TAB Sale. The Company believes all such options are now
terminated.
59
EMPLOYMENT AGREEMENTS
Effective March 31, 2000, the Company terminated the employment agreements
of Messrs. Gill, Barratt, Nunley and Hardin and entered into Employment
Agreement Settlement Agreements. Under the terms of these settlement agreements,
the Company paid a total amount of $308,830.19. The amount included $196,500,
which represented thirty percent (30%) of the amount these officers would be
entitled to receive as severance under their respective employment contracts
with the Company. In addition, these officers were paid an aggregate of
$85,846.14 for unpaid wages and accrued vacation through April 30, 2000.
Two-thirds of the total payments, or $205,886.79 were paid at closing of the TAB
Sale, with the balance to be paid at the termination of the Escrow Agreement,
from available cash of the Company less any reasonable provision for additional
net costs to wind-down and/or dispose of the Company. Since no cash will be
available, no additional monies or consideration will be paid to Messrs. Gill,
Barratt, Nunley or Hardin.
In full and final payment of the Company's obligations to Mr. Alan
Hobgood, former President of the Company, under a buyout of his employment
contract in 1998 and consulting agreement with Company, Mr. Hobgood and the
Company entered into a Business Consultant Agreement Settlement Agreement for
the amount of $113,615. This amount represents $25,000 in past due amounts
payable, and thirty percent (30%) of the balance due to Mr. Hobgood under the
buyout agreement. Mr. Hobgood was paid two-thirds of this amount at closing of
the sale, or approximately $75,743.33, with the balance being owed at
termination of the escrow period. The remaining obligation to Mr. Hobgood will
be discharged prior to closing on the Merger. See above, "Interest of Certain
Persons in the Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS BELIEVES THE PROPOSED ELECTION OF MEMBERS TO THE
COMPANY'S BOARD IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. TO
FACILITATE THE ELECTION OF MEMBERS TO THE COMPANY'S BOARD, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO ELECT A SEVEN (7)
MEMBER BOARD OF DIRECTORS COMPRISED OF EDWARD P. GISTARO AND ROBERT W. SCHWARTZ
FROM THE COMPANY AND KYLE L. COLE, J. KELLY GRAY, PHILLIP MICHAEL HARDY, ROBERT
A. ROSENTHAL AND J. COLLIER SPARKS, WHO WOULD SERVE IN NEWLY CREATED CLASS 1,
CLASS 2 AND CLASS 3 DIRECTOR POSITIONS PURSUANT TO THE TERMS DESCRIBED ABOVE.
60
PROPOSAL 5: APPROVAL OF 2002 NON-QUALIFIED STOCK OPTION PLAN
In order for the Company to attract and maintain highly qualified
employees the Board of Directors seeks approval by the Stockholders of a new
2002 Non-Qualified Stock Option Plan. Upon approval of the Agreement and Plan
of Merger and proposed Reverse Split, the Company needs to have in place such
new stock plan in order to make it possible for the Company's management to
provide stock options to employees and other individuals. The 2002
Non-Qualified Stock Option Plan addresses the Company's changed circumstances
as a result of the Merger and provides an updated and logical plan to allow
the Company to attract and maintain qualified employees and other individuals
by offering to them incentive stock options in the Company. The 2002
Non-Qualified Stock Option Plan is attached hereto as Exhibit B.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES ADOPTION OF THE 2002
NON-QUALIFIED STOCK OPTION PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS HAS SUBMITTED SUCH PLAN FOR
APPROVAL BY THE COMPANY'S STOCKHOLDERS. TO FACILITATE ADOPTION OF THE 2002
NON-QUALIFIED STOCK OPTION PLAN THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR THE PROPOSED PLAN.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY AFTER THE MERGER
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Certificate of Incorporation of the Company currently authorizes the
Company to issue 10,000,000 shares of its Preferred Stock and 25,000,000 shares
of its Common Stock. As of November 15, 2001, there were (1) 3,658,767 shares of
Common Stock outstanding, (2) 7 shares of Series A Preferred Stock, par value
$1.00 per share outstanding, (3) 0 (zero) options granted and outstanding,
cancelled or exercised, and (4) 0 (zero) warrants granted to purchase shares of
Common Stock. After the Merger, no change in authorized shares will result.
However, as a result of the Reverse Split, the number of shares of Common Stock
issued and outstanding will decrease from 3,658,767 shares to approximately
243,918, based upon the number of shares outstanding on November 15, 2001.
Similarly, each share of Preferred Stock, currently convertible into 8,333
shares of Common Stock, will be convertible into 1,333 shares of Common Stock.
COMMON STOCK
The Company will have 284,837 shares of Common Stock outstanding after the
Reverse Split has been effectuated, the issuance of Common Stock to certain
interested Stockholders has taken place and the outstanding shares of Series A
Preferred Stock have been converted into Common Stock (see above).
PREFERRED STOCK
If each holder of Preferred Stock consents, the Company will have no
shares of Series A Preferred Stock issued and outstanding after the Merger and
Reverse Split have been effectuated, and after all previously issued and
outstanding shares of Series A Preferred Stock have been converted into Common
Stock.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
GENERAL
ON FEBRUARY 28, 2001, THE COMPANY REPORTED THE CHANGE IN COMPANY'S
CERTIFYING ACCOUNTANT FROM ARTHUR ANDERSEN LLP TO ROTHSTEIN, KASS & COMPANY,
P.C. ROTHSTEIN, KASS & COMPANY, P.C. HAS SERVED AS INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE COMPANY AND ITS SUBSIDIARIES FOR THE FISCAL YEAR ENDED 2000,
AND SERVED IN THAT CAPACITY UNTIL SEPTEMBER 21, 2001. ON SEPTEMBER 25, 2001, THE
COMPANY SELECTED ERNST & YOUNG, LLP TO SERVE THE COMPANY DURING THE REMAINDER OF
THE 2001 FISCAL YEAR. MANAGEMENT EXPECTS THAT A REPRESENTATIVE OF ERNST & YOUNG,
LLP WILL BE PRESENT AT THE SPECIAL MEETING TO MAKE A STATEMENT IF HE OR SHE
DESIRES TO DO SO AND TO BE AVAILABLE TO ANSWER APPROPRIATE QUESTIONS POSED BY
STOCKHOLDERS.
AUDIT FEES
In 2001, the Company paid Rothstein, Kass & Co., LLP 10,500.00 for
auditing services rendered.
NON-AUDIT FEES
In 2001, the Company paid $10,000.00 to Ernst & Young LLP and $15,554
to Rothstein, Kass & Co., LLP for professional services in connection with
the Company's 10Q quarterly securities filings.
61
OTHER MATTERS
AT THE TIME OF PREPARATION OF THIS PROXY STATEMENT, THE COMPANY'S BOARD OF
DIRECTORS KNOWS OF NO OTHER MATTERS TO BE PRESENTED FOR ACTION AT THE SPECIAL
MEETING. AS STATED IN THE ACCOMPANYING PROXY CARD, IF ANY OTHER BUSINESS SHOULD
COME BEFORE THE SPECIAL MEETING, HOLDERS OF PROXIES HAVE DISCRETIONARY AUTHORITY
TO VOTE THEIR SHARES ACCORDING TO THEIR BEST JUDGMENT, INCLUDING, WITHOUT
LIMITATION, A MOTION TO ADJOURN OR POSTPONE THE SPECIAL MEETING TO ANOTHER TIME
AN/OR PLACE FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES IN ORDER TO APPROVE
THE AGREEMENT OR OTHERWISE.
AVAILABLE INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 2000, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS
AND SCHEDULES THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
IS INCORPORATED HEREIN BY REFERENCE, AND WILL BE FURNISHED WITHOUT CHARGE TO
ANY STOCKHOLDER OF THE COMPANY WHOSE PROXY IS SOLICITED BY THE FOREGOING PROXY
STATEMENT, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON ADDRESSED TO MR. RALPH
BROWN, SECRETARY, DOCUCON, INCORPORATED, 8 AIRPORT BOULEVARD, LATHAM, NEW
YORK, 12110. SUCH A REQUEST FROM A BENEFICIAL OWNER OF THE COMPANY'S COMMON
STOCK MUST CONTAIN A GOOD-FAITH REPRESENTATION BY SUCH PERSON THAT, AS OF
JANUARY 2, 2002, HE/SHE WAS A BENEFICIAL OWNER OF THE COMPANY'S COMMON STOCK.
SOLICITATION
The cost of soliciting Proxies in the accompanying form will be borne by
the Company. In addition to the solicitation of Proxies by the use of the mails,
certain officers and associates (who will receive no compensation therefor in
addition to their regular salaries) may be used to solicit Proxies personally
and by telephone, electronic mail and telegraph. In addition, banks, brokers and
other custodians, nominees and fiduciaries will be requested to forward copies
of the Proxy material to their principals and to request authority for the
execution of Proxies. The Company will reimburse such persons for their expenses
in so doing.
Please SIGN and RETURN the enclosed Proxy promptly.
By Order of the Board of Directors:
RALPH BROWN - Secretary
Exhibit A - Agreement and Plan of Merger
Exhibit B - 2002 Non-Qualified Stock Option Plan
62
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
By and among
DOCUCONMERGER, L.P.;
DIGITAL VISION SYSTEMS, INC.;
its Stockholders,
and
DOCUCON, INCORPORATED
Dated as of December 28, 2001
63
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is made as of December 28, 2001
(this "AGREEMENT") by and among Docucon Incorporated, a Delaware corporation
("DOCUCON"); DocuconMerger, L.P., a Texas limited partnership (the
"PARTNERSHIP"); Digital Vision Systems, Inc., a Nevada corporation ("DVS") and
each stockholder of DVS, as listed on the signature page hereto (the "DVS
STOCKHOLDERS").
RECITALS
A. DVS is engaged in the business of manufacturing and distributing video
surveillance systems based on digital compression technology (the "BUSINESS").
B. The DVS Stockholders own One Hundred percent (100%) of the outstanding
capital stock of DVS.
C. The Board of Directors of DVS (the "DVS BOARD") and the DVS
Stockholders have unanimously determined that it is advisable and in the best
interest of DVS to consummate the transaction provided for herein, pursuant to
which DVS will merge with and into the Partnership (the "MERGER") and has
approved this Agreement in accordance with the Business Corporation Act of the
State of Texas (the "TEXAS LAW"), and the Nevada Revised Statute of the State
of Nevada (the "NEVADA LAW").
D. The Board of Directors of Docucon (the "DOCUCON BOARD") and DocuconSub,
L.L.C., a Texas limited liability company, the general partner of the
Partnership (the "General Partner"), deem it advisable and in the best interests
of their respective companies, stockholders and partners to consummate the
Merger, and Docucon, as the sole member of General Partner, has approved the
Merger in accordance with the general Corporation Law of the State of Delaware
and Texas Law.
E. For federal income tax purposes, the Merger is intended to qualify as a
reorganization under the provisions of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended.
AGREEMENTS
Therefore, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereby agree as follows:
64
Article I.
THE MERGER
Section 1.01 THE MERGER. Upon the terms and subject to the conditions
contained in this Agreement, and in accordance with Texas Law and Nevada
Law, at the Effective Time (as defined below), DVS shall be merged with
and into the Partnership, the separate corporate existence of DVS shall
cease and the Partnership shall continue as the surviving entity of the
Merger (the "SURVIVING ENTITY").
Section 1.02 EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Texas Law,
Nevada Law and this Agreement. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of DVS and Partnership shall
vest in the Surviving Entity, and all debts, liabilities, obligations,
restrictions, disabilities and duties of each of DVS and the Partnership
shall become the debts, liabilities, obligations, restrictions,
disabilities and duties of the Surviving Entity.
Section 1.03 CONSUMMATION OF THE MERGER. On the terms and subject to the
conditions of this Agreement, and provided that this Agreement has not
been terminated pursuant to Article X, on the second business day
following the satisfaction or, if permissible, waiver (and continued
satisfaction or waiver) of the conditions set forth in Article VIII (or
such other date as may be agreed by each of the parties hereto), the
parties hereto shall cause the Merger to be consummated by filing articles
of merger with the Secretary of State of the State of Nevada (the
"ARTICLES OF MERGER") in the form attached hereto as EXHIBIT A and by
filing a certificate of merger with the Secretary of State of the State of
Texas (the "CERTIFICATE OF MERGER") in the form attached hereto as EXHIBIT
B. For purposes of this Agreement, "EFFECTIVE TIME" shall mean the date
and time of the filing and acceptance of the Articles of Merger by the
Secretary of State of the State of Nevada and the date and time of the
filing and acceptance of the Certificate of Merger by the Secretary of
State of the State of Texas, whichever is later or such later time as may
be agreed by each of the parties hereto and specified in the Articles of
Merger. Immediately prior to the filing of the Articles of Merger, a
closing (the "CLOSING") will be held at the offices of Loeffler, Jonas &
Tuggey, LLP, 755 East Mulberry Avenue, Suite 200, San Antonio, Texas (or
such other place as the parties may agree). The date on which the Closing
occurs is referred to as the "CLOSING DATE".
Section 1.04 CERTIFICATE OF LIMITED PARTNERSHIP; LIMITED PARTNERSHIP
Agreement. At the Effective Time, (i) the Certificate of Limited
Partnership of the Partnership, as in effect immediately prior to the
Effective Time (in the form attached hereto as EXHIBIT C), shall be the
Certificate of Limited Partnership of the Surviving Entity until
thereafter amended as provided by law, and (ii) the Limited Partnership
Agreement of the Partnership, as in effect immediately prior to the
Effective Time (in the form attached hereto as EXHIBIT D), shall be the
Limited Partnership Agreement of the Surviving Entity until thereafter
amended as provided by law.
65
Section 1.05 GENERAL PARTNER AND LIMITED PARTNERS OF THE SURVIVING ENTITY.
As of the Effective Time, the general partner and limited partners of the
Partnership shall be the general partner and limited partners of the
Surviving Entity.
Section 1.06 DIRECTORS AND OFFICERS OF DOCUCON. As of the Effective Time,
the Docucon Board shall be increased by two (2) members to consist of
seven (7) members who shall be designated by Docucon in writing prior to
the Effective Time, and who shall initially include Robert W. Schwartz,
Edward P. Gistaro, and five (5) members appointed by DVS. The officers of
Docucon as of the Effective Time shall be elected by the Docucon Board.
Section 1.07 LOCK-UP AGREEMENT. Prior to Closing, each of the officers and
directors of Docucon and DVS, and any DVS Stockholder and any stockholders
of Docucon who beneficially own five percent (5%) or more of the common
stock as of the Effective Time, shall have executed a lock-up agreement
(in the form attached hereto as EXHIBIT E).
Section 1.08 FURTHER ASSURANCES. If, at any time after the Effective Time,
the Surviving Entity shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Entity its right, title and interest in, to or
under any of the rights, privileges, powers, franchises, properties or
assets of either of DVS or the Partnership, or (ii) otherwise to carry out
the purposes of this Agreement, the Surviving Entity and its general
partner or its designees shall be authorized to execute and deliver, in
the name and on behalf of either DVS, the Partnership or the DVS
Stockholders, all such deeds, bills of sale, assignments and assurances
and do, in the name and on behalf of such entities or persons, all such
other acts and things as may be necessary, desirable or proper to vest,
perfect or confirm the Surviving Entity's right, title and interest in, to
and under any of the rights, privileges, powers, franchises, properties or
assets of such entities and otherwise to carry out the purposes of this
Agreement.
Article II.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.01 CONVERSION OF SECURITIES.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of the Partnership, DVS, the DVS Stockholders or the holders
of any of the following securities:
(i) Each share of common stock, par value One Mill ($0.001) per
share, of DVS ("DVS COMMON STOCK") issued and outstanding
immediately prior to the Effective Time shall be canceled and
converted into the right to receive 0.3737 shares of common stock of
Docucon, par value $.01 per share (the "DOCUCON COMMON STOCK") in
accordance with the terms and conditions of this Article II and
66
subject to the adjustments set forth herein. The foregoing
cancellation and conversation shall be referred to as the
"CONVERSION" and the resulting ratio shall be referred to as the
"CONVERSION RATIO." The shares of Docucon Common Stock so issued in
the Merger are referred herein as the "MERGER CONSIDERATION."
(ii) Each partnership interest in the Partnership shall be
unaffected by the Merger and Docucon shall continue as the limited
partner of the Surviving Entity.
(iii) Each membership interest of the General Partner shall be
unaffected by the Merger, and Docucon shall continue to be the sole
member of the General Partner, and the General Partner shall
continue as the general partner of the Partnership.
(b) From and after the Effective Time, the holders of certificates
formerly representing DVS Common Stock (the "DVS CERTIFICATES") shall
cease to have any rights with respect to such shares, except the right to
convert DVS Common Stock into Docucon Common Stock (such conversion of
Common Stock to be to the record holder of each such DVS Certificate that
formerly evidenced such DVS Common Stock).
Section 2.02 EXCHANGE OF CERTIFICATES; PROCEDURES.
(a) EXCHANGE PROCEDURES. At or following the Closing, each DVS Stockholder
shall surrender to Docucon, all DVS Certificates (in each case together
with any stock transfer tax stamps required by reason of the Conversion to
a person other than the registered holder of the Certificate surrendered),
together with a letter of transmittal or stock power (in customary form)
and such other documents as may reasonably be required by Docucon to
effect such surrender in advance of the Closing, and Docucon shall cause
to be delivered to the DVS Stockholders whose certificates have been so
delivered, the shares of Docucon Common Stock. Immediately following the
Effective Time, all DVS Certificates surrendered to Docucon shall be
canceled. Any DVS Stockholder whose certificates are not delivered at the
Closing shall receive (and Docucon shall cause to be delivered to such DVS
Stockholder) the shares of Docucon Common Stock with respect to such DVS
Certificates upon delivery to Docucon after the Closing of such
Certificates and the other items required pursuant to the first sentence
of this Section 2.02(a). All such shares of Docucon Common Stock issued in
the Merger shall be issued and be deemed to be outstanding as of the
Effective Time.
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF DOCUCON COMMON
STOCK. Dividends or other distributions declared or made after the
Effective Time with respect to Docucon Common Stock with a record date
after the Effective Time shall accrue to but shall not be paid to the
holder of any unsurrendered DVS Certificates with respect to the shares of
Docucon Common Stock represented thereby until the holder of such DVS
Certificates shall surrender such certificate (at which time such payments
shall be made).
(c) NO FURTHER RIGHTS IN DVS COMMON STOCK. Upon conversion of the DVS
Common Stock in accordance with the terms hereof the Docucon Common Stock
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such DVS Common Stock.
67
(d) NO FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of Docucon Common Stock shall be issued upon the surrender for
exchange of DVS Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any other rights of a stockholder
of Docucon. The number of shares issued to each DVS Stockholder in the
Conversion (taking account of all shares of Docucon Common Stock to be
issued to a DVS Stockholder), shall be rounded to the nearest whole number
of shares of Docucon Common Stock.
(e) NO LIABILITY. Neither Docucon nor the Surviving Entity shall be liable
to any DVS Stockholders for the Conversion (or dividends or distributions
with respect thereto).
(f) LOST CERTIFICATES. If any certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such DVS Certificates to be lost, stolen or destroyed, Docucon
shall issue in exchange for such lost, stolen or destroyed DVS
Certificates Docucon Common Stock subject to the Conversion Rate; provided
such person shall indemnify and hold Docucon harmless of any liability
associated with the lost, stolen or destroyed Certificates.
(g) STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer books
of DVS shall be closed and there shall be no further registration of
transfers of DVS Common Stock thereafter on the records of DVS. From and
after the Effective Time, the holders of DVS Certificates representing DVS
Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such DVS Common Stock, except as
otherwise provided in this Agreement or by Law (as defined in Section
3.05).
Article III.
REPRESENTATIONS AND WARRANTIES OF DVS
Except as set forth in the Disclosure Schedule delivered by DVS to
Docucon, the General Partner and the Partnership concurrently with the
execution of this Agreement ("DVS DISCLOSURE SCHEDULE"), DVS hereby represents
and warrants to Docucon and the Partnership that:
Section 3.01 ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES. DVS is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Nevada and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as it is now being conducted. DVS is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in all
jurisdictions in which it is required to obtain such qualification.
68
Section 3.02 CONSTITUENT DOCUMENTS. DVS has heretofore made available to
Docucon a complete and correct copy of the Articles of Incorporation, the
By-laws of DVS, all stock records and all corporate minute books and
records. Such Articles of Incorporation and By-laws are in full force and
effect and have since not been amended, modified, supplemented or
otherwise changed. DVS' stock records accurately reflect in all material
respects all share transactions and the books and records of DVS contain
true, correct and complete copies of all resolutions adopted by the DVS
Stockholders or the DVS Board and any other action formerly taken by them,
as such. DVS is not in violation of any of the provisions of its Articles
of Incorporation or By-laws.
Section 3.03 CAPITALIZATION. The authorized capital stock of DVS consists
of (a) 100,000,000 shares of Common Stock, at the par value of One Mill
($0.001) and (b) no shares of Preferred Stock. As of October 15, 2001, (i)
7,500,000 shares of Common Stock are issued and outstanding, all of which
are validly issued, fully paid and nonassessable, and are held of record
and beneficially by the persons and in the amounts set forth on Section
3.03 of the DVS Disclosure Schedule, (ii) 1,352,500 of Common Stock are
held in the treasury of DVS. Except as set forth in Section 3.03 of DVS
Disclosure Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of DVS or obligating DVS to issue or sell
any shares of capital stock of, or other equity interests in DVS. All
shares of Common Stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instruments pursuant to which
they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 3.03 of DVS Disclosure
Schedule, there are no outstanding contractual obligations of DVS to
repurchase, redeem or otherwise acquire any shares of DVS Common Stock or
any capital stock.
Section 3.04 POWER AND AUTHORITY. The DVS Board, by unanimous written
consent, has (a) determined that this Agreement and Merger are fair to,
and in the best interests of DVS and the DVS Stockholders, (b) adopted and
approved this Agreement and the Merger, and (c) resolved to submit to the
DVS Stockholders and recommend to the DVS Stockholders that they adopt and
authorize this Agreement and the Merger. This Agreement and the Merger
have been unanimously approved by the DVS Stockholders pursuant to an
action by unanimous written consent, a copy of which is included in
Section 3.04 of the DVS Disclosure Schedule. DVS has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the Merger and the
other transactions contemplated by this Agreement. The execution and
delivery of this Agreement by DVS and the consummation by DVS of the
Merger and the other transactions contemplated by this Agreement have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of DVS are necessary to authorize this
Agreement or to consummate the Merger and the other transactions
contemplated by this Agreement (other than, with respect to the Merger,
the filing and recordation of appropriate merger documents as required by
Nevada Law). This Agreement has been duly and validly executed and
delivered by DVS and, assuming the due authorization, execution and
delivery by Docucon, the General Partner and the Partnership, constitutes
a legal, valid and binding obligation of DVS enforceable against DVS in
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accordance with its terms subject to applicable bankruptcy, insolvency and
other similar laws affecting the enforceability of creditors' rights
generally, general equitable principles and the discretion of courts in
granting equitable remedies.
Section 3.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by DVS and the DVS
Stockholders does not, and the performance of this Agreement by DVS and
the DVS Stockholders will not (i) conflict with or violate the Articles of
Incorporation or By-laws of DVS, (ii) to the knowledge of DVS, conflict
with or violate any law, statute, ordinance, rule, regulation, order,
judgment or decree ("LAW") applicable to DVS or by which any property or
asset of DVS is bound or affected (assuming that all consents, approvals,
authorizations and other actions described in Section 3.05(b) have been
obtained and all filings and obligations described in Section 3.05(b) have
been made or fulfilled), or (iii) except as set forth in Section 3.05 of
the DVS Disclosure Schedule, result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a
lien or other encumbrance on any property or asset of DVS.
(b) The execution and delivery of this Agreement by DVS does not, and the
performance of this Agreement by DVS will not, require any consent,
approval, authorization or permit of, or filing with or notification to,
any domestic or foreign governmental or regulatory authority applicable
with respect to it ("GOVERNMENTAL ENTITY"), except for applicable
requirements, if any, of the Securities Exchange Act of 1934, as amended
from time to time (the "EXCHANGE Act"), the Securities Act of 1933, as
amended (together with the rules and regulations promulgated thereunder,
the "SECURITIES ACT"), state securities or "blue sky" laws ("BLUE SKY
LAWS"), state takeover laws, the filing and recordation of appropriate
merger documents as required by Nevada Law.
Section 3.06 ABSENCE OF LITIGATION. There is no litigation, suit, claim,
action, pro-ceding or investigation pending or, to the knowledge of DVS,
threatened against DVS, or to the knowledge of DVS, pending or threatened
against any of its officers, directors or employees (to the extent such
litigation, suit, claim, action proceeding or investigation relates to
such officer's, director's or employee's actions on behalf of DVS), or any
property or asset of DVS, before any court, arbitrator or Governmental
Entity, domestic or foreign, which if decided adversely against DVS or
such officer, director or employee (i) has had, or could reasonably be
expected to have a material adverse effect or (ii) could delay or prevent
the consummation of the Merger. Except as set forth on Section 3.06 of the
DVS Disclosure Schgdule, to DVS' knowledge, without any independent
investigation, there are no facts which, DVS believes, if known by a
potential claimant or governmental authority, would give rise to a claim
or proceeding which, if asserted or conducted with results unfavorable to
DVS, would have a material adverse effect or could impair or delay the
consummation of the Merger. Neither DVS nor any property or asset of DVS
is subject to any continuing order of, consent decree, settlement
agreement or other similar written agreement with, or, to the knowledge of
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DVS, continuing investigation by, any Governmental Entity, or any order,
writ, judgment, injunction, decree, determination or award of any
Governmental Entity or arbitrator that has or could reasonably be expected
to have a material adverse effect.
Section 3.07 FINANCIAL STATEMENTS.
(a) DVS' books, accounts and records are, and have been, maintained in
DVS' usual, regular and ordinary practices and all material transactions
to which DVS is, or has been, a party are properly reflected therein. True
and complete copies of (i) the audited consolidated balance sheet of DVS
as of December 31, 2000, and the related statements of income, changes in
stockholders' equity and cash flows for the year ended December 31, 2000,
together with all related notes and schedules thereto and compilation
reports thereon (collectively referred to herein as the "2000 FINANCIAL
STATEMENTS"), and (ii) the unaudited consolidated balance sheet of DVS as
of September 30, 2001 (the "REFERENCE BALANCE SHEET"), and the related
statements of income and cash flows for the fiscal period ended September
30, 2001 of DVS (collectively referred to herein as the "INTERIM FINANCIAL
STATEMENTS"), are attached as Section 3.07 of the DVS Disclosure Schedule.
Except as set forth in Section 3.07 of the DVS Disclosure Schedule, the
Interim Financial Statements (including, in each case, any notes thereto)
were prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by GAAP) and
each of the 2000 Financial Statements and the Interim Financial Statements
present fairly, in all material respects, the consolidated financial
position of DVS at the respective dates thereof and for the respective
periods indicated therein, in each case except as otherwise noted therein
(and subject, in the case of unaudited statements, to normal and recurring
year-end adjustments which are not material).
(b) Except as set forth on Section 3.07 of the DVS Disclosure Schedule,
DVS does not have any obligation or liability of any kind or nature
whatsoever (direct or indirect, matured or unmatured, absolute, accrued,
contingent, known or unknown or otherwise), whether or not required by
GAAP to be provided or reserved against on a balance sheet (all the
foregoing herein collectively being referred to as the "LIABILITIES")
except (i) Liabilities of DVS specifically provided for or reserved
against in the balance sheet contained in the Financial Statements; (ii)
Liabilities under the Material Contracts listed in Section 3.10 of DVS
Disclosure Schedule; and (iii) Liabilities of DVS which have been incurred
since the date of the Reference Balance Sheet, in the ordinary course of
business and consistent with past practice which are not material (none of
which is a liability for breach of contract, breach of warranty, torts or
infringement).
Section 3.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 2001,
except as contemplated by or as disclosed in this Agreement or as set
forth in Section 3.08 of the DVS Disclosure Schedule, DVS has conducted
its businesses only in the ordinary course.
Section 3.09 ERISA AND EMPLOYEES. DVS is in compliance with all currently
applicable laws and regulations respecting terms and conditions of
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employment including, without limitation, applicant and employee
background checking, immigration laws, discrimination laws, verification
of employment eligibility, employee leave laws, classification of workers
as employees and independent contractors, wage and hour laws, and
occupational safety and health laws. There are no proceedings pending or,
to DVS' knowledge, reasonably expected or threatened, between DVS, on the
one hand, and any or all of its current or former employees, on the other
hand, including, but not limited to, any claims for actual or alleged
harassment or discrimination based on race, national origin, age, sex,
sexual orientation, religion, disability, or similar tortuous conduct,
breach of contract, wrongful termination, defamation, intentional or
negligent infliction of emotional distress, interference with contract or
interference with actual or prospective economic disadvantage. There are
no claims pending, or, to DVS' knowledge, reasonably expected or
threatened, against DVS under any workers' compensation or long term
disability plan or policy. DVS is not a party to any collective bargaining
agreement or other labor union contract, nor does DVS know of any
activities or proceedings of any labor union to organize its employees.
DVS has provided all employees with all wages, benefits, pension,
relocation benefits, stock options, bonuses and incentives, and all other
compensation that became due and payable through the date of this
Agreement.
Section 3.10 CONTRACTS.
(a) Section 3.10 of the DVS Disclosure Schedule lists all written
contracts and agreements of DVS (such contracts and agreements being
"MATERIAL CONTRACTS").
(b) Each Material Contract is valid and binding and in full force and
effect and represents the entire agreement between the parties thereto
with respect to the subject matter thereof.
(c) Except as set forth on Section 3.10(c) of the DVS Disclosure Schedule,
each Material Contract will not cease to be valid and binding and in full
force and effect on terms identical to those currently in effect as a
result of the consummation of the transactions contemplated by this
Agreement, nor will the consummation of the transactions contemplated by
this Agreement constitute a breach or default under each Material Contract
or otherwise give any party thereto a right to terminate any Material
Contract.
(d) (i) DVS has not received any notice of termination or cancellation
under any Material Contract, (ii) DVS has not received any notice of a
breach or default under any Material Contract, which breach has not been
cured, and (iii) DVS has not granted to any other third party any rights,
adverse or otherwise, under any Material Contract that would constitute a
breach thereof.
(e) Neither DVS, nor, to the knowledge of DVS, any other party to any
Material Contract is in breach or default in any material respect, and, to
DVS knowledge, no event has occurred that, with notice or the lapse of
time would constitute such a breach or default or permit termination,
modification or acceleration under any Material Contract.
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(f) Except as set forth on Section 3.10(f) of the DVS Disclosure Schedule,
there are no material outstanding contractual obligations of DVS to make
any investment (in the form of a loan, capital contribution or otherwise)
in any Person.
(g) Except as set forth on Section 3.10(g) of the DVS Disclosure Schedule,
DVS is not a party to any oral contract that, if written, would be
required to be disclosed under Section 3.10(a).
Section 3.11 ENVIRONMENTAL MATTERS.
(a) DVS (i) is in compliance with all, and is not subject to any
liability, potential liability or obligation under, applicable
Environmental Laws (as defined below), (ii) holds all Environmental
Permits (as defined below) and (iii) is in compliance with its
Environmental Permits. No Hazardous Materials are present at, on or under,
any of the real property owned or leased by DVS except in accordance with
applicable Environmental Laws.
(b) For purposes of this Agreement:
(i) "ENVIRONMENTAL LAWS" means any federal, state or local statute,
law, ordinance, regulation, rule, code or order of the United
States, or any other jurisdiction and any enforceable judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to
pollution or protection of the environment or natural resources,
including, those relating to the use, handling, transportation,
treatment, storage, disposal, release or discharge of Hazardous
Materials, as in effect as of the date of this Agreement.
(ii) "ENVIRONMENTAL PERMITS" means any permit, approval, license
and other authorization required under any applicable Environmental
Law to conduct DVS' business in the manner in which it is currently
conducted.
(iii)"HAZARDOUS MATERIALS" means (a) any petroleum, petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials or polychlorinated biphenyls or (b)
any chemical, material or substance defined or regulated as toxic or
hazardous or as a pollutant or contaminant under any applicable
Environmental Law.
Section 3.12 INTELLECTUAL PROPERTY.
(a) Section 3.12 of the DVS Disclosure Schedule sets forth a true and
complete list of all (i) United States and foreign patents and patent
applications, statutory invention registrations, trademarks, service
marks, trademark and service mark registrations, and trademark and service
mark applications, trade dress, slogans, logos, registered copyrights and
copyright applications, and Internet domain names, and to the knowledge of
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DVS, identifiable unregistered copyrights and confidential and proprietary
information heretofore reduced to written form, including trade secrets
and know-how, in each case owned by DVS and material to the business of
DVS, excluding items covered by (ii), (iii) and (iv) below (the items
disclosed under this (a)(i), together with any other unregistered
copyrights and confidential and proprietary information, including trade
secrets and know-how, owned by DVS and material to the Business), ("DVS
OWNED INTELLECTUAL PROPERTY") (ii) computer software developed by or on
behalf of DVS, including all computer software and databases operated or
used by DVS on its web sites or used by DVS and owned by DVS ("DVS OWNED
SOFTWARE"), (iii) computer software, including databases, operated or used
by DVS on its web sites or otherwise used by DVS, excluding DVS Owned
Software and excluding all off-the-shelf software ("DVS LICENSED
SOFTWARE") and collectively with the DVS Owned Software, the ("DVS
SOFTWARE"), and (iv) licenses, sublicenses, and other agreements
pertaining to Intellectual Property (as defined herein) or DVS Software to
which DVS is a party (whether as licensor, licensee or otherwise but
excluding off-the-shelf software agreements), in each case that are
material to the business of DVS ("DVS IP AGREEMENTS"). As used in this
Agreement, "INTELLECTUAL PROPERTY" means any and all of the following: (i)
United States, international, and foreign patents, patent applications and
statutory invention registrations, (ii) trademarks, service marks, trade
names, trade dress, slogans, logos, and Internet domain names, including
registrations and applications for registration thereof, (iii) copyrights,
including registrations and applications for registration thereof and (iv)
confidential and proprietary information, including trade secrets and
know-how.
(b) To DVS' knowledge, the use of the DVS Owned Intellectual Property and
DVS Software (collectively "DVS IP") by DVS does not infringe upon or
misappropriate the Intellectual Property rights of any third party. No
written claim has been received by DVS that the use of the DVS IP does or
may infringe upon or misappropriate the Intellectual Property rights of
any third party.
(c) Except as disclosed in Section 3.12(c) of the DVS Disclosure Schedule,
DVS is the sole and exclusive owner of the entire and unencumbered right,
title and interest in and to each item of DVS Owned Intellectual Property
and DVS Owned Software, subject to the rights granted by DVS pursuant to
the agreements listed on the DVS Disclosure Schedule pursuant to Section
3.12(a), and DVS is entitled to use the DVS IP in the ordinary course of
its business.
Section 3.13. TAXES. Except as set forth in Section 3.13 of the DVS
Disclosure:
(a) (i) all returns and reports in respect of federal or income-based
Taxes (as defined herein) required to be filed with respect to DVS have
been timely filed (including under any extensions granted), and all
returns and reports in respect of any other Taxes required to be filed, in
respect of which the failure to file returns and reports would have a
material adverse effect, have been timely filed (including under any
extensions granted); (ii) all Taxes required to be paid, or which are
otherwise due, have been timely paid; (iii) all such returns and reports
are true, correct and complete in all material respects.
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(b) DVS has withheld and paid to the appropriate authority all Taxes
required to be withheld from compensation paid or owing to persons
providing services to DVS.
(c) DVS has not waived any statute of limitation in respect of Taxes or
agreed to any extension of time with respect to Tax assessment or
deficiency.
(d) As used in this Agreement, "TAXES" shall mean any and all taxes, fees,
levies, duties, tariffs, imposts and other charges of any kind (together
with any and all interest, penalties, additions to tax and additional
amounts imposed with respect thereto) imposed by any government or taxing
authority, including taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers'
compensation, unemployment compensation or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value added or gains taxes; license, registration and documentation fees;
and customers' duties, tariffs and similar charges.
Section 3.14 ASSETS. Except as set forth in Section 3.14 of the DVS
Disclosure Schedule, DVS owns, leases or has the legal right to use all of
the properties and assets, including, real property and personal property
(other than Intellectual Property covered by Section 3.12 hereof),
material to the conduct of the Business or otherwise owned, leased or used
by DVS and material to the conduct of the Business (all such properties,
assets and contract rights being the "DVS ASSETS"). Except as set forth in
Section 3.14 of the DVS Disclosure Schedule, DVS has good and marketable
title to, or, in the case of leased or subleased DVS Assets, valid and
subsisting leasehold interests in, all the DVS Assets, free and clear of
all liens, claims, encumbrances and security interests except for the
following: (i) statutory liens for Taxes not yet due; (ii) statutory liens
of landlords, carriers, warehousemen, mechanics and materialmen incurred
in the ordinary course of business for sums not yet due; (iii) liens
incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of
social security or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return of money bonds and similar obligations; and (iv)
minor irregularities of title which do not in the aggregate materially
detract from the value or use of DVS Assets.
Section 3.15 PERMITS: COMPLIANCE WITH LAW.
(a) To DVS' knowledge, DVS is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders of any Governmental Entity
necessary for DVS to own, lease and operate its material properties or to
carry on its business as it is now being conducted except for such
franchises, grants, authorizations, licenses, permits, easements,
variances, exceptions, consents, certificates, approvals and orders the
failure of which to obtain in the aggregate could not reasonably be
expected to have a material adverse effect (the "DVS PERMITS"), and, to
the knowledge of DVS no suspension or cancellation of any of the DVS
Permits is pending or threatened.
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(b) DVS is not in violation of, in noncompliance with, or delinquent with
respect to, any judgment, writ, injunction, decree, order or arbitration
award or law, statute, or regulation of or agreement with, or any permit
from, any Governmental Entity to which the property, assets, personnel or
activities material to the conduct of the Business are subject, which
violation, noncompliance or delinquency could reasonably be expected to
have a material adverse effect or materially impair the ability of Docucon
to carry out or realize the intended benefits of the transactions
contemplated hereby.
Section 3.16 INSURANCE POLICIES. Section 3.16 of the DVS Disclosure
Schedule sets forth a true and complete list of all insurance policies
held by DVS or which name DVS as an insured (or loss payee), true and
correct copies of which have been delivered by DVS to Docucon. All
premiums due to the date hereof on such policies have been paid. All
pending claims, if any, made against DVS, which are covered by insurance,
are being defended by the appropriate insurance companies and are
described on the DVS Disclosure Schedule. DVS has not failed to give any
notice or present any claim under any such policy in a timely fashion.
Such insurance to the date hereof has (i) been maintained in full force
and effect and (ii) not been canceled or changed, except to extend the
maturity dates thereof.
Section 3.17 ACCOUNTS RECEIVABLE. Subject to any reserves set forth in the
Financial Statements, the accounts receivable (the "ACCOUNTS RECEIVABLE")
shown on the Financial Statements represent or will represent valid
obligations arising from sales actually made or services actually
performed, and other business transactions in the ordinary course of
business consistent with past practices in each case with persons other
than affiliates, are not subject to any prior assignment, lien or security
interest and are not subject to valid defenses, set-offs or counter
claims.
Section 3.18 BROKERS. None of the DVS Stockholders nor DVS has or will
have any liability or any obligation to any broker, finder or investment
banker for any brokerage, finder's or other fee or commission in
connection with the Merger or the other transactions contemplated by this
Agreement based upon arrangements made by or on behalf of DVS or the DVS
Stockholders.
Section 3.19 PREMISES. DVS does not own or lease (or has any commitment to
own or lease) any real estate except for the premises identified in
Section 3.19 of the DVS Disclosure Schedule as being so leased (the
"LEASED PREMISES"). The Leased Premises is leased to DVS pursuant to a
written lease, a true, correct and complete copy of which has been
delivered to Docucon prior to the date hereof.
Section 3.20 FULL DISCLOSURE. The representations, warranties and
statements of DVS in this Agreement or contained in any schedule, list or
document delivered pursuant to this Agreement do not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements contained therein, in light of the
circumstances under which such representations, warranties and statements
are made, not misleading. The copies of all documents furnished by DVS
pursuant to or in connection with this Agreement are true, complete and
correct, and have been furnished to Docucon prior to the date hereof.
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Article IV.
REPRESENTATIONS AND WARRANTIES OF THE DVS STOCKHOLDERS
Except as set forth in the Disclosure Schedule delivered by DVS
Stockholders to Docucon concurrently with the execution of this Agreement (the
"DVS Stockholder Disclosure Statement"), each stockholder hereby represents and
warrants only with respect to such DVS Stockholder to Docucon, the General
Partner and the Partnership that:
Section 4.01 INVESTMENT KNOWLEDGE. DVS Stockholder has such knowledge and
experience in financial and business matters that he, she or it is capable
of evaluating the merits and risks of the investment in Docucon Common
Stock that such DVS Stockholder is making by reason of the Merger and the
other transactions contemplated by this Agreement. Such DVS Stockholder's
financial condition is such that he, she or it is able to bear all
economic risks of investment in Docucon Common Stock, including a complete
loss of such DVS Stockholder's investment.
Section 4.02 INVESTMENT INTENT. DVS Stockholder is acquiring the Docucon
Common Stock for investment for his, her or its own account and not with
the view to, or for resale in connection with, any distribution thereof,
DVS Stockholder understands that the shares of Docucon Common Stock have
been registered under the Securities Act by reason of a specific exemption
from the registration provisions of the Securities Act which depends upon,
among other things, the bona fide nature of the investment intent as
expressed herein. DVS Stockholder further represents that he, she or it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to any third person with
respect to any shares of the Docucon Common Stock, except as provided by
this Agreement.
Section 4.03 RESTRICTIONS; LEGENDS. DVS Stockholder understands and agrees
that the Docucon Common Stock is restricted stock and each share
certificate will include the following restriction:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT
TO OR EXEMPTION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
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THE SHARES EVIDENCED HEREBY ARE SUBJECT TO AN AGREEMENT AND PLAN OF MERGER
BY AND AMONG DOCUCONMERGER, L.P.; DIGITAL VISION SYSTEMS, INC.; ITS
SHAREHOLDERS AND DOCUCON INCORPORATED (A COPY OF WHICH MAY BE OBTAINED
UPON WRITTEN REQUEST FROM THE ISSUER), AND BY ACCEPTING ANY INTEREST IN
SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO
AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID AGREEMENT.
Section 4.04 BINDING. This Agreement when executed and delivered by such
DVS Stockholder will constitute valid and legally binding obligations of
the DVS Stockholder, to the extent a party thereto, enforceable in
accordance with their terms.
Section 4.05 RESIDENCE. The address set forth on the signature pages of
this Agreement is such DVS Stockholder's true and correct business,
residence or domicile address, and DVS Stockholder has not been solicited
with respect to the transactions contemplated by this Agreement except in
the jurisdiction of his residence. DVS Stockholder has received and read
and is familiar with this Agreement.
Section 4.06 INFORMATION. DVS Stockholder has been furnished access to the
business records of Docucon and such additional information and documents
as such DVS Stockholder has requested and has been afforded an opportunity
to ask questions of, and receive answers from, representatives of Docucon
concerning the terms and conditions of this Agreement, the business,
operations, market potential, capitalization, financial condition and
prospects of Docucon, and all other matters deemed relevant to such DVS
Stockholder. Such DVS Stockholder acknowledges that he, she or it has had
an opportunity to evaluate all information regarding DVS as he, she or it
has deemed necessary or desirable in connection with the transactions
contemplated by this Agreement, has independently evaluated the
transactions contemplated by this Agreement and has reached his, her or
its own decision to enter into this Agreement.
Section 4.07 TITLE. Except as set forth in Section 4.07 of DVS Stockholder
Disclosure Schedule, DVS Stockholder has good and marketable title to, and
is the sole record and beneficial owner of the shares of Common Stock
indicated as being owned by DVS Stockholder on EXHIBIT F hereto, free and
clear of all liens, claims, encumbrances, security interests and
restrictions whatsoever. DVS Stockholder has no other interests in, or
right to receive any shares of, the capital stock or any other securities
of DVS, directly or indirectly.
Section 4.08 INTELLECTUAL PROPERTY. All inventions developed by DVS
Stockholder during the course of such DVS Stockholder's employment with
DVS or with any subsidiary or predecessor of DVS used in respect of, or
related to, the Business belong to and are the sole property of DVS. Such
DVS Stockholder has not sold, transferred or assigned any such invention
or right therein to a third party, and such DVS Stockholder shall execute
such applications, assignments or other documents as may be necessary or
convenient to vest in the Surviving Entity full title to each such
invention and as may be necessary or convenient to obtain United States or
foreign patents, copyrights and trademarks thereon to the extent the
Surviving Entity may so choose.
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Article V.
REPRESENTATIONS AND WARRANTIES OF DOCUCON
Except as set forth in the Disclosure Schedule delivered by Docucon to DVS
concurrently with the execution of this Agreement (the "DOCUCON DISCLOSURE
SCHEDULE"), Docucon and the Partnership hereby jointly and severally represent
and warrant to DVS and the DVS Stockholders that:
Section 5.01 ORGANIZATION AND QUALIFICATION: SUBSIDIARIES. Each of
Docucon, General Partners and the Partnership is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction
of its organization and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as it is now
being conducted. Each of Docucon, General Partner and the Partnership is
duly qualified or licensed as a foreign entity to do business, and is in
good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary. Docucon is the sole member of the
General Partner and the sole limited partner of the Partnership. Except as
set forth on Section 5.01 of the Docucon Disclosure Schedule, Docucon has
no interest in any corporation, joint venture partnership, limited
partnership, limited liability company or other entity.
Section 5.02 CONSTITUENT DOCUMENTS. Docucon has heretofore made available
to DVS a complete and correct copy of the Articles of Incorporation and
the By-laws of Docucon, the Articles of Organization and Regulations of
the General Partner and the Certificate of Limited Partnership and
Partnership Agreement of the Partnership and all stock records and all
corporate minute books and records. Except as set forth in Section 5.02 of
the Docucon Disclosure Schedule, such Articles of Incorporation and
By-laws of Docucon, Articles of Organization and Regulations of the
General Partner and the Certificate of Limited Partnership and Partnership
Agreement of the Partnership are in full force and effect and have since
not been amended, modified, supplemented or otherwise changed. Docucon and
the stock records accurately reflect in all material respects all share
transactions and the books and records of Docucon, the General Partner and
the Partnership contain true, correct and complete copies of all
resolutions adopted by the stockholders of Docucon, the General Partner
and the Partnership or the Docucon Board and the board of managers of the
General Partner and any other action formerly taken by them, as such.
Neither Docucon nor General Partner is in violation of any of the
provisions of the Articles of Incorporation or By-laws of Docucon and
Articles of Organization and Regulations of the General Partner.
Section 5.03 CAPITALIZATION. (a) Except as set forth in Section 5.03 of
the Docucon Disclosure Schedule, the authorized capital stock of Docucon
consists of (a) 25,000,000 shares of Docucon Common Stock, par value $0.01
per share and (b) 10,000,000 shares of preferred stock, par value $0.01
per share ("DOCUCON PREFERRED STOCK"). As of October 15, 2001, (i)
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3,658,767 shares of Docucon Common Stock are issued and outstanding, all
of which are validly issued, fully paid and non-assessable, (ii) 4,495
shares of Docucon Common Stock are held in the treasury of Docucon, and
(iii) 7 shares of Series A Convertible Preferred Stock ("DOCUCON SERIES A
PREFERRED") are issued and outstanding, all of which are validly issued
fully paid and nonassessable. Other than as set forth herein or in Section
5.03 of the Docucon Disclosure Schedule, there are no options, warrants or
other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Docucon or obligating
Docucon to issue or sell any shares of capital stock of, or other equity
interests in, Docucon. The shares of Docucon Common Stock to be issued
pursuant to the Merger in accordance with Section 2.01 will be duly
authorized, validly issued, fully paid and non-assessable and not subject
to preemptive rights created by statute, Docucon's Articles of
Incorporation or By-laws or any agreement to which Docucon is a party or
is bound; and (b) the authorized membership units of the General Partner
consists of 1,000 shares of membership interests, with no par value, all
of which are duly authorized, validly issued, fully paid and
non-assessable and free of any preemptive rights in respect thereof and
all of which are owned by Docucon.
Section 5.04 POWER AND AUTHORITY. This Agreement and the Merger have been
approved by the Docucon Board and the General Partner pursuant to actions
by unanimous written consent, copies of which are included as Section 5.04
of the Docucon Disclosure Schedule. All requisite corporate action on the
part of Docucon has been taken to authorize the execution and delivery of
this Agreement to which Docucon is or will be a party subject only to the
approval of the Agreement by Docucon's stockholders as contemplated by
this Section 5.04. The affirmative vote of the holders of a majority of
the shares of Docucon's Common Stock outstanding on the record date for
the stockholders meeting called pursuant to this Section 5.04 (the
"REQUIRED DOCUCON STOCKHOLDER VOTE") is the only vote of the holders of
any of Docucon's capital stock necessary under Delaware Law to approve
this Agreement and the Merger contemplated hereby. The Board of Directors
of Docucon has unanimously (i) approved this Agreement and the Merger,
(ii) determined that in its opinion the Merger and this Agreement is in
the best interests of the stockholders of Docucon and is on terms that are
fair to such stockholders and (iii) recommended that the stockholders of
Docucon approve this Agreement and the Merger. Each of the General Partner
and the Partnership has all necessary corporate power and authority to
execute and deliver this Agreement, and to perform its obligations
hereunder and to consummate the Merger and the other transactions
contemplated by this Agreement. The execution and delivery of this
Agreement by each of Docucon, the General Partner and the Partnership and
the consummation by each of Docucon, the General Partner and the
Partnership of the Merger and the other transactions contemplated by this
Agreement have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of Docucon, the
General Partner or the Partnership are necessary to authorize this
Agreement or to consummate the Merger and the other transactions
contemplated by this Agreement (other than, with respect to the Merger,
the filing and recordation of appropriate merger documents as required by
Texas Law). This Agreement has been duly and validly executed and
delivered by each of Docucon, the General Partner and the Partnership, and
assuming due authorization, execution and delivery by DVS, constitutes a
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legal, valid and binding obligation of each of Docucon, the General
Partner and the Partnership, enforceable against each of Docucon, the
General Partner and the Partnership in accordance with its terms subject
to applicable bankruptcy, insolvency and other similar laws affecting the
enforceability of creditors' rights generally, general equitable
principles and the discretion of courts in granting equitable remedies.
Section 5.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by each of Docucon, the
General Partner and the Partnership do not, and the performance of this
Agreement by each of Docucon, the General Partner and the Partnership will
not (i) conflict with or violate the Certificate of Incorporation or
By-laws of Docucon or any equivalent organizational documents of the
General Partner and the Partnership, (ii) to the knowledge of the Docucon,
assuming that all consents, approvals, authorizations and other actions
described in Section 5.05(b) have been obtained and all filings and
obligations described in Section 5.05(b) have been made, conflict with or
violate any Law applicable to Docucon or by which any property or asset of
Docucon is bound or affected, or (iii) except as set forth in Section 5.05
of the Docucon Disclosure Schedule, result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a
lien or other encumbrance on any property or asset of Docucon.
(b) The execution and delivery of this Agreement by each of Docucon, the
General Partner and the Partnership do not, and the performance of this
Agreement by each of Docucon and the Partnership will not, require any
consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity, except for applicable
requirements, if any, of the Securities Exchange, Blue Sky Laws, the
Securities Act, state takeover laws, the filing and recordation of
appropriate merger documents as required by the Texas Law.
Section 5.06 ABSENCE OF LITIGATION. There is no litigation, suit,
judgment, order, decree, claim, action, proceeding or investigation
pending or, to the knowledge of Docucon, the General Partner and the
Partnership, threatened against Docucon, the General Partner and the
Partnership or to the knowledge of Docucon, the General Partner and
Partnership, pending or threatened against any officer, director or
employee thereof or any property or asset of Docucon, the General Partner
and the Partnership, by or before any court, arbitrator or Governmental
Entity, domestic or foreign, which, if decided adversely to Docucon, the
General Partner and Partnership, or such officer, director or employee (i)
has had, or could reasonably be expected to have a material adverse effect
or (ii) could delay or prevent the consummation of the Merger or any other
material transaction contemplated by this Agreement. Except as set forth
in Section 5.06 of the Docucon Disclosure Schedule, Docucon, the General
Partner and the Partnership's conduct of its business has been lawful,
except to the extent that failure to be lawful has not had or could not
reasonably be expected to have a material adverse effect. Neither the
Docucon, the General Partner and the Partnership nor any property or asset
of the Docucon is subject to any continuing order of, consent decree,
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settlement agreement or other similar written agreements with, or, to the
knowledge of the Docucon, the General Partner and the Partnership,
continuing investigation by, any Governmental Entity, or any order, writ,
judgment, injunction, decree, determination or award of any Governmental
Entity or arbitrator having a material adverse effect.
Section 5.07 FINANCIAL STATEMENTS; SEC REPORTS.
(a) Docucon's books, accounts and records are, and have been, maintained
in Docucon's usual, regular and ordinary practices and all material
transactions to which the Docucon is, or has been, a party are properly
reflected therein. True and complete copies of (i) the balance sheet of
the Docucon as of December 31, 2000, and the related audited statements of
income, changes in stockholders' equity and cash flows for the year ended
December 31, 2000, together with all related notes and schedules thereto
(collectively referred to herein as the "2000 DOCUCON FINANCIAL
STATEMENTS"), and (ii) the unaudited consolidated balance sheet of the
Docucon as of September 30, 2001 (the "DOCUCON REFERENCE BALANCE SHEET"),
and the related unaudited statements of income and cash flows for the
fiscal period ended September 30, 2001 of the Docucon (collectively
referred to herein as the "DOCUCON INTERIM FINANCIAL STATEMENTS"), are
attached as Section 5.07 of the Docucon Disclosure Schedule. Except as set
forth in Section 5.07 of the Docucon Disclosure Schedule, the Docucon
Interim Financial Statements (including, in each case, any notes thereto)
were prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by GAAP) and
each of the 2000 Docucon Financial Statements and the Docucon Interim
Financial Statement present fairly, in all material respects, the
consolidated financial position of the Docucon as at the respective dates
thereof and for the respective periods indicated therein, in each case
except as otherwise noted therein (and subject, in the case of unaudited
statements, to normal and recurring year-end adjustments which are not
material).
(b) Except as set forth on Section 5.07(b) of the Docucon Disclosure
Schedule, Docucon does not have any obligation or Liabilities except (i)
Liabilities of Docucon specifically provided for or reserved against in
the balance sheet contained in the Docucon Financial Statements; or (ii)
Liabilities of the Docucon which have been incurred since the date of the
Docucon Reference Balance Sheet, in the ordinary course of business and
consistent with past practice which are not material (none of which is a
liability for breach of contract, breach of warranty, torts or
infringement).
(c) Docucon has made available to DVS or its counsel through EDGAR a true
and complete copy of each statement, report, registration statement,
definitive proxy statement, and other filing filed with the SEC by Docucon
since January 1, 1997, and, prior to the Effective Time, Docucon will have
made available to DVS or its counsel through EDGAR true and complete
copies of any additional documents filed with the SEC by Docucon prior to
the Effective Time (collectively, the "SEC Documents"). In addition,
Docucon has made available to DVS all exhibits to the SEC Documents filed
prior to the date hereof which are (i) requested by DVS and (ii) are not
available in complete form through EDGAR ("REQUESTED CONFIDENTIAL
EXHIBITS") and will promptly make available to DVS all Requested
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Confidential Exhibits to any additional SEC Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the SEC
Documents have been so filed, and all material contracts so filed as
exhibits are in full force and effect, except those that have expired in
accordance with their terms, and neither Docucon nor any of its
subsidiaries is in default thereunder. As of their respective filing
dates, none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the
extent corrected by a subsequently filed SEC Document prior to the date
hereof. The financial statements of Docucon, including the notes thereto,
included in the SEC Documents (the "DOCUCON FINANCIAL STATEMENTS"),
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a
basis consistent throughout the periods indicated and consistent with each
other (except as may be indicated in the notes thereto or, in the case of
unaudited statements included in Quarterly Reports on Form 10-QSBs, as
permitted by Form 10-QSB of the SEC). The Docucon Financial Statements
fairly present the consolidated financial condition and operating results
of Docucon and its subsidiaries at the dates and during the periods
indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments). There has been no change in
Docucon accounting policies except as described in the notes to the
Docucon Financial Statements.
Section 5.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30,
2001, except as contemplated by or as disclosed in this Agreement or as
set forth in Section 5.08 of the Docucon Disclosure Schedule, Docucon has
conducted its businesses only in the ordinary course.
Section 5.09 BROKERS. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with
the Merger or the other transactions contemplated by this Agreement based
upon arrangements made by or on behalf of Docucon.
Section 5.10 OPERATIONS OF THE GENERAL PARTNER. The General Partner was
formed solely for the purpose of being the General Partner of the
Partnership and to engage in the transactions contemplated by the Agent,
has engaged in no other business activities and has conducted its
operations only as contemplated by its Agent.
Section 5.11 ENVIRONMENTAL MATTERS.
(a) Docucon (i) is in compliance with all, and is not subject to any
liability, potential liability or obligation under, applicable
Environmental Laws (as defined below), (ii) holds all Environmental
Permits (as defined below) and (iii) is in compliance with its
Environmental Permits. No Hazardous Materials are present at, on or under,
any of the real property owned or leased by DVS except in accordance with
applicable Environmental Laws.
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(b) For purposes of this Agreement:
(i) "ENVIRONMENTAL LAWS" means any federal, state or local statute,
law, ordinance, regulation, rule, code or order of the United
States, or any other jurisdiction and any enforceable judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to
pollution or protection of the environment or natural resources,
including, those relating to the use, handling, transportation,
treatment, storage, disposal, release or discharge of Hazardous
Materials, as in effect as of the date of this Agreement.
(ii) "ENVIRONMENTAL PERMITS" means any permit, approval, license
and other authorization required under any applicable Environmental
Law to conduct Docucon's business in the manner in which it is
currently conducted.
(iii) "HAZARDOUS MATERIALS" means (a) any petroleum, petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials or polychlorinated biphenyls or (b)
any chemical, material or substance defined or regulated as toxic or
hazardous or as a pollutant or contaminant under any applicable
Environmental Law.
Section 5.12 OPERATIONS OF THE PARTNERSHIP. The Partnership was formed
solely for the purpose of engaging in the transactions contemplated by
this Agreement, has engaged in no other business activities and has
conducted its operations only as contemplated by this Agreement.
Section 5.13 INTELLECTUAL PROPERTY.
(a) Section 5.13 of the Docucon Disclosure Schedule sets forth a true and
complete list of all (i) United States and foreign patents and patent
applications, statutory invention registrations, trademarks, service
marks, trademark and service mark registrations, and trademark and service
mark applications, trade dress, slogans, logos, registered copyrights and
copyright applications, and Internet domain names, and to the knowledge of
Docucon, identifiable unregistered copyrights and confidential and
proprietary information heretofore reduced to written form, including
trade secrets and know-how, in each case owned by Docucon and material to
the business of Docucon, excluding items covered by (ii), (iii) and (iv)
below (the items disclosed under this (a)(i), together with any other
unregistered copyrights and confidential and proprietary information,
including trade secrets and know-how, owned by Docucon and material to the
Business), ("DOCUCON OWNED INTELLECTUAL Property") (ii) computer software
developed by or on behalf of Docucon, including all computer software and
databases operated or used by Docucon on its web sites or used by Docucon
and owned by Docucon ("DOCUCON OWNED SOFTWARE"), (iii) computer software,
including databases, operated or used by Docucon on its web sites or
otherwise used by Docucon, excluding Docucon Owned Software and excluding
all off-the-shelf software ("DOCUCON LICENSED SOFTWARE") and collectively
with the Docucon Owned Software, the ("DOCUCON SOFTWARE"), and (iv)
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licenses, sublicenses, and other agreements pertaining to Intellectual
Property (as defined herein) or Docucon Software to which Docucon is a
party (whether as licensor, licensee or otherwise but excluding
off-the-shelf software agreements), in each case that are material to the
business of Docucon ("DOCUCON IP AGREEMENTS"). As used in this Agreement,
"INTELLECTUAL PROPERTY" means any and all of the following: (i) United
States, international, and foreign patents, patent applications and
statutory invention registrations, (ii) trademarks, service marks, trade
names, trade dress, slogans, logos, and Internet domain names, including
registrations and applications for registration thereof, (iii) copyrights,
including registrations and applications for registration thereof and (iv)
confidential and proprietary information, including trade secrets and
know-how.
(b) To Docucon's knowledge, the use of the Docucon Owned Intellectual
Property and Docucon Software (collectively "DOCUCON IP") by Docucon does
not infringe upon or misappropriate the Intellectual Property rights of
any third party. No written claim has been received by Docucon to the
effect that the use of the Docucon IP does or may infringe upon or
misappropriate the Intellectual Property rights of any third party.
(c) Except as disclosed in Section 5.13(c) of the Docucon Disclosure
Schedule, Docucon is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each item of Docucon
Owned Intellectual Property and Docucon Owned Software, subject to the
rights granted by Docucon pursuant to the agreements listed on the Docucon
Disclosure Schedule pursuant to Section 5.13(a), and Docucon is entitled
to use the Docucon IP in the ordinary course of its business.
Section 5.14 TAXES.
(a) (i) Except as set forth on Section 5.14 of the Docucon Disclosure
Schedule, all returns and reports in respect of federal or income-based
Taxes required to be filed with respect to the Docucon have been timely
filed (including under any extensions granted), and all returns and
reports in respect of any other Taxes required to be filed, in respect of
which the failure to file returns and reports would have a material
adverse effect, have been timely filed (including under any extensions
granted); (ii) all Taxes required to be paid, or which are otherwise due,
have been timely paid; (iii) all such returns and reports are true,
correct and complete in all material respects.
(b) Docucon has withheld and paid to the appropriate authority all Taxes
required to be withheld from compensation paid or owing to persons
providing services to Docucon.
(c) Docucon has not waived any statute of limitation in respect of Taxes
or agreed to any extension of time with respect to Tax assessment or
deficiency.
Section 5.15 PERMITS, COMPLIANCE WITH LAW.
(a) To Docucon's knowledge, Docucon is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any
Governmental Entity necessary for the Docucon to own, lease and operate
its material properties or to carry on its business as it is now being
85
conducted except for such franchises, grants, authorizations, licenses,
permits, easements, variances, exceptions, consents, certificates,
approvals and orders the failure of which to obtain in the aggregate could
not reasonably be expected to have a material adverse effect (the "DOCUCON
PERMITS"), and, to the knowledge of Docucon no suspension or cancellation
of any of the Docucon Permits is pending or threatened.
(b) Docucon is not in violation of, in noncompliance with, or delinquent
with respect to, any judgment, writ, injunction, decree, order or
arbitration award or law, statute, or regulation of or agreement with, or
any permit from, any Governmental Entity to which the property, assets,
personnel or activities material to the conduct of the Business are
subject, which violation, noncompliance or delinquency could reasonably be
expected to have a material adverse effect or materially impair the
ability of Docucon to carry out or realize the intended benefits of the
transactions contemplated hereby.
Section 5.16 FULL DISCLOSURE. The representations, warranties and
statements of Docucon in this Agreement or contained in any schedule, list
or document delivered pursuant to this Agreement do not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements contained therein, in light of the
circumstances under which such representations, warranties and statements
are made, not misleading. The copies of all documents furnished by Docucon
to DVS pursuant to or in connection with this Agreement are true, complete
and correct. True, complete and accurate copies of each document referred
to, in the Docucon Disclosure Schedule are contained therein or have been
furnished to DVS prior to the date hereof.
Section 5.17 INSURANCE POLICIES. Section 5.17 of the Docucon Disclosure
Schedule sets forth a true and complete list of all insurance policies
held by Docucon or which name Docucon as an insured (or loss payee), true
and correct copies of which have been delivered by Docucon to DVS. All
premiums due to the date hereof on such policies have been paid. All
pending claims, if any, made against Docucon, which are covered by
insurance, are being defended by the appropriate insurance companies and
are described on the Docucon Disclosure Schedule. Docucon has not failed
to give any notice or present any claim under any such policy in a timely
fashion. Such insurance to the date hereof has (i) been maintained in full
force and effect and (ii) not been canceled or changed, except to extend
the maturity dates thereof.
Article VI.
CONDUCT OF BUSINESSES PENDING THE MERGER
Section 6.01 CONDUCT OF DVS PENDING THE MERGER. DVS agrees that, between
the date of this Agreement and the Effective Time, unless Docucon shall
otherwise consent in writing:
(a) The Business shall be conducted only in, and DVS shall not take any
action except in, the ordinary course of business and consistent with past
practices, except in connection with the transaction contemplated by this
Agreement;
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(b) The financial statements and books and records of DVS shall be
prepared in accordance with GAAP; and
(c) DVS shall use its reasonable best efforts to preserve substantially
intact its business organization, to keep available the services of the
current officers, employees and consultants of DVS and to preserve the
current relationships of DVS with strategic partners, customers, suppliers
and other persons with which DVS has significant business relations.
(d) DVS shall obtain a minimum of Two Million Five Hundred Thousand
Dollars ($2,500,000) ("CAPITAL REQUIREMENT") in new capital prior to the
Merger.
Section 6.02 CONDUCT OF DOCUCON PENDING THE MERGER. Docucon agrees that,
(except with respect to the Financing (as defined below)), between the
date of this Agreement and the Effective Time:
(a) It shall conduct its business only in, and Docucon shall not take any
action except in, the ordinary course of business and consistent with past
practices, except in connection with the transaction contemplated by this
Agreement;
(b) Docucon shall use its reasonable best efforts to preserve
substantially intact its business organization, to keep available the
services of the current officers, employees and consultants of Docucon and
to preserve the current relationships of Docucon with strategic partners,
customers, suppliers and other persons with which Docucon has significant
business relations;
(c) Docucon shall authorize a sufficient number of authorized but unissued
and unreserved shares of Docucon Common Stock to consummate the
transaction contemplated hereby.
Section 6.03 NOTIFICATION OF CERTAIN MATTERS. Docucon shall give prompt
notice to DVS and DVS shall give prompt notice to Docucon, of (a) the
occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause (i) any representation
or warranty of it contained in this Agreement to be untrue or inaccurate
or (ii) any covenant, condition or agreement contained in this Agreement
not to be complied with or satisfied and (b) any failure of Docucon or
DVS, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; PROVIDED,
HOWEVER, that the delivery of any notice pursuant to this Section 6.03
shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice. On the second (2nd) business day prior to
the Closing Date, Docucon and DVS shall each deliver a written statement
to the other setting forth all matters requested to be disclosed pursuant
to this Section 6.03 or a statement that no such matters exist.
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Article VII.
ADDITIONAL AGREEMENTS
Section 7.01 ACCESS TO INFORMATION: CONFIDENTIALITY.
(a) Except with respect to information subject to applicable legal
privilege and except as required pursuant to any confidentiality agreement
or similar agreement or arrangement to which Docucon or DVS or any of
their respective subsidiaries is a party or pursuant to applicable Law,
from the date of this Agreement to the Effective Time, Docucon and DVS
shall (and shall cause their respective subsidiaries to): (i) provide to
the other (and its officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives,
collectively, "REPRESENTATIVES") access at reasonable times upon prior
notice to the officers, employees, agents, properties, offices and other
facilities of the other and its subsidiaries and to the books and records
thereof and (ii) furnish promptly such information concerning the
business, properties, contracts, assets, liabilities, personnel and other
aspects of the other party and its subsidiaries as the other party or its
Representatives may reasonably request; provided that neither Docucon nor
DVS shall be required to disclose source code for software pursuant to
this Section 7.01.
(b) The parties shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under
the Letter of Intent dated March 30, 2001 as amended September 6, 2001
(the "LOI") between DVS and Docucon.
Section 7.02 FURTHER ACTION: CONSENTS: FILINGS. Upon the terms and subject
to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to (i) take, or cause to be taken, all appropriate
action and do, or cause to be done, all things necessary, proper or
advisable under applicable Law or otherwise to consummate and make
effective the Merger and the other transactions contemplated by this
Agreement, (ii) obtain from Governmental Entities any consents, licenses,
permits, waivers, approvals, authorizations or orders required to be
obtained or made by Docucon or DVS or any of their subsidiaries in
connection with the authorization, execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
contemplated by this Agreement, (iii) make all necessary filings, and
thereafter make any other required submissions, with respect to this
Agreement, the Merger and the other transactions contemplated by this
Agreement required under applicable Law, (iv) obtain DVS Consents set
forth in Section 3.05 of the DVS Disclosure Schedule, and (v) take, or
cause to be taken, all appropriate action and do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise to
satisfy the closing conditions set forth in Article VIII. The parties
hereto shall cooperate with each other in connection with the making of
all such filings. DVS agrees to use its best efforts to obtain in writing
all consents, waivers or approvals from third parties whose consent,
waiver or approval is necessary in connection with the transactions
contemplated by this Agreement under any lease, contract, or other
arrangement to which DVS is a party and the failure to obtain such
consents, waiver or approval would be a breach or default or result in an
acceleration of termination, including the DVS Consents.
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Section 7.03 PUBLIC ANNOUNCEMENTS. The initial press release relating to
this Agreement shall be a joint press release the text of which has been
agreed to by each of Docucon and DVS. Thereafter, unless otherwise
required by applicable Law, none of DVS, the DVS Stockholders or Docucon,
nor any of their officers shall issue any press release or otherwise make
any public statements with respect to this Agreement, the Merger or any of
the other transactions contemplated by this Agreement without the prior
written consent of DVS and Docucon.
Section 7.04 INDEMNIFICATION. The Surviving Entity shall keep in effect in
its Certificate of Limited Partnership and Limited Partnership Agreement,
for a period six years from the Effective Time, or, if less, the period
during which the Surviving Entity maintains its existence, a provision
which provides for indemnification, advancements of expenses, exculpation
and the like of the officers, directors and agents of DVS in a manner not
less favorable to the indemnified person than provided by DVS on the date
hereof, except as may be required by Law.
Article VIII.
CONDITIONS TO THE MERGER
Section 8.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations
of DVS, Docucon and Partnership to consummate the Merger are subject to
the satisfaction or waiver (where permissible) of the following
conditions:
(a) No Governmental Entity or court of competent jurisdiction located or
having jurisdiction in the United States shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, judgment,
decree, executive order or award (an "ORDER") which is then in effect and
has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger;
(b) All authorizations, consents, orders and approvals of all Governmental
Entities and officials required in connection with the transactions
contemplated hereby shall have been obtained;
(c) DVS shall have obtained the Capital Requirement, and executed all
agreements, for the closing of such financing.
Section 8.02 CONDITIONS TO THE OBLIGATIONS OF DOCUCON AND THE PARTNERSHIP.
The obligations of Docucon and the Partnership to consummate the Merger
are subject to the satisfaction or waiver (where permissible) of the
following additional conditions:
(a) Each of the representations and warranties of DVS and the DVS
Stockholders contained in this Agreement shall be true and correct in all
material respects as of the Effective Time as though made on and as of the
Effective Time, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct
as of such date, and Docucon shall have received a certificate of a duly
authorized officer of DVS, on behalf of DVS, to such effect;
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(b) DVS and the DVS Stockholders shall have performed or complied in all
material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Effective Time and Docucon shall have received a certificate of a duly
authorized officer of DVS, on behalf of DVS, to that effect;
(c) Docucon shall have received the opinion of Loeffler, Jonas & Tuggey,
LLP, counsel to DVS, substantially in the form attached hereto as EXHIBIT
G;
(d) All promissory notes, agreements, pledges and filings shall have been
terminated and be of no further force and effect and all liens with
respect to the assets of DVS shall have been released, and Docucon shall
have received evidence that such conditions have been satisfied by signed
UCC-3 termination statements, original notes marked canceled, and
cancellation of all security agreements.
(e) No event or events shall have occurred, or be reasonably likely to
occur, which have or could reasonably be expected have, a material adverse
effect, and Docucon shall have received a certificate of a duly authorized
officer of DVS, on behalf of DVS, to such effect;
Section 8.03 CONDITIONS TO THE OBLIGATIONS OF DVS AND DVS STOCKHOLDERS.
The obligations of DVS and the DVS Stockholders to consummate the Merger
are subject to the satisfaction or waiver (where permissible) of the
following additional conditions:
(a) Each of the representations and warranties of Docucon, the General
Partner and the Partnership, contained in this Agreement shall be true and
correct in all material respects as of the Effective Time, as though made
on and as of the Effective Time, except that those representations and
warranties which address matters only as of a particular date shall remain
true and correct as of such date, and DVS shall have received a
certificate of a duly authorized officer of Docucon, on behalf of Docucon,
to such effect;
(b) Docucon, General Partner and the Partnership shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and DVS shall have received a certificate of
a duly authorized officer of Docucon, on behalf of Docucon, to that
effect;
(c) Docucon to take whatever corporate action necessary to (i) convert the
outstanding and issued Preferred Shares into common Shares, and (ii)
terminate any issued and outstanding stock options;
(d) DVS shall have received the opinion of the Law Offices of Mike
Kreager, P.C., counsel to Docucon, substantially in the form attached
hereto as EXHIBIT H;
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(e) No event or events shall have occurred, or be reasonably likely to
occur, which have or could reasonably be expected have, a material adverse
effect, and DVS shall have received a certificate of a duly authorized
officer of Docucon, on behalf of Docucon, to such effect.
Article IX.
INDEMNIFICATION
Section 9.01 SURVIVAL. The representations and warranties contained in
this Agreement, and all statements contained in this Agreement, the
Exhibits to this Agreement, the DVS Disclosure Schedule, the Docucon
Disclosure Schedule and any certificate, financial statement or report or
other document delivered or prepared pursuant to this Agreement
(collectively, the "ACQUISITION DOCUMENTS"), shall survive the Effective
Time to the extent provided in this Article IX. Neither the period of
survival nor the liability of a party hereto with respect to such party's
representations and warranties shall be reduced by any investigation made
from and after the Effective Time, by or on behalf of another party
hereto.
Section 9.02 INDEMNIFICATION BY DVS. DVS shall indemnify, save and keep
harmless each of Docucon, the General Partner, the Partnership, the
Surviving Entity and their respective officers, directors, stockholders,
partners, successors and permitted assigns against and from all Damages
(as herein defined) sustained or incurred by any of them resulting from or
arising out of or by virtue of: (a) any inaccuracy in or breach of any
representation and warranty made by DVS in Article III; or (b) any breach
by DVS of or failure by DVS to comply with, any of it covenants or
obligations under this Agreement.
For purposes of this Agreement, "DAMAGES" shall mean all
liabilities, demands, claims, actions or causes of action, regulatory,
legislative or judicial proceedings or investigations, assessments,
levies, losses, fines, penalties, damages, costs and expenses, including,
without limitation, reasonable attorneys', accountants', investigators',
and experts' fees and expenses, sustained or incurred in connection with
the defense or investigation of any claim.
Section 9.03 INDEMNIFICATION BY THE DVS STOCKHOLDERS. DVS Stockholders,
jointly and severally, shall indemnify, save and keep harmless Docucon,
the General Partner, the Partnership and the Surviving Entity and their
respective officers, directors, stockholders, partners, and successors
from all Damages sustained or incurred by any of them resulting from or
arising out of or by virtue of any inaccuracy in or breach of any
representation and warranty made by each DVS Stockholders in Article IV.
Section 9.04 INDEMNIFICATION BY DOCUCON. Docucon shall indemnify, save and
keep harmless DVS, its respective officers, directors, partners,
successors and DVS Stockholders from all Damages sustained or incurred by
DVS Stockholders resulting from or arising out of or by virtue of. (a) any
inaccuracy in or breach of any representation and warranty made by Docucon
in Article V; or (b) any breach by Docucon of or failure by Docucon to
comply with, any of its covenants or obligations under this Agreement.
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Section 9.05 LIMITATIONS.
(a) No party shall be entitled to recover under Section 9.02, Section
9.03, or Section 9.04 until the aggregate amount which such party would
recover under Section 9.02, Section 9.03 or Section 9.04, but for this
Section 9.05, exceeds Twenty-Five Thousand Dollars ($25,000) in the
aggregate, in which event such party shall be entitled to recovery for all
Damages in excess of twenty-five thousand dollars ($25,000); PROVIDED,
HOWEVER, that the foregoing limitation shall not apply to recovery for any
inaccuracy in a representation or breach of a warranty contained in
Sections 3.03, 3.04, 3.11, 3.12, 4.07, 5.03, 5.04, 5.11 and 5.13;
(b) No party shall be entitled to recover under Section 9.02, 9.03, or
Section 9.04 unless a claim has been asserted by written notice, setting
forth the basis for such claim (a "NOTICE OF LOSS"), delivered to the
other party on or prior to the date which is twelve (12) months from the
Closing Date; PROVIDED, HOWEVER, that the foregoing time limitation shall
not apply to recovery for any inaccuracy in a representation or breach of
a warranty contained in (i) Sections 3.03, 3.04, 3.11, 3.12, and 4.07, for
which there is no time period within which such Notice of Loss must be
delivered to DVS or DVS Stockholders or (ii) Sections 5.03, 5.04, 5.11 and
5.14, for which there is no time period within which such Notice of Loss
must be delivered to Docucon;
(c) Notwithstanding anything to the contrary herein contained, (i) the
limitations contained in this Section 9.05 shall not apply to
indemnification obligations under Section 9.02 for breaches of any
representations, warranties or covenants contained in this Agreement which
is a result of or arises out of fraud, intentional misrepresentation or
intentional torts of DVS or any DVS Stockholders; and (ii) the limitations
contained in this Section 9.05 shall not apply to indemnification
obligations under Section 9.04 for breaches of any representations,
warranties or covenants contained in this Agreement or in any Acquisition
Document delivered to the DVS Stockholders by Docucon or Partnership in
connection with this Agreement which is a result of or arises out of
fraud, intentional misrepresentation or intentional torts of the Docucon
or Partnership.
Section 9.06 NOTICE AND DETERMINATION OF CLAIMS. In the event any party
(each an "INDEMNIFIED PARTY") desires to make a claim or demand against
any other party hereto (the "INDEMNIFYING PARTY") that does not involve a
Third Party Claim, the Indemnified Party shall promptly notify the
Indemnifying Party of such claim (the "CLAIM NOTICE"), provided that the
failure to promptly give such Claim Notice will not relieve the
Indemnifying Party of his, her or its indemnification obligations under
this section except to the extent, if any, that the Indemnifying Party has
actually been materially prejudiced thereby. If the Indemnifying Party
does not notify the Indemnified Party within fourteen (14) days from the
date of delivery of such Claim Notice that such Indemnifying Party
disputes such claim, the amount of such claim shall be conclusively deemed
a liability of the Indemnifying Party hereunder. If the Indemnifying Party
disputes such claim after the giving of any Claim Notice pursuant hereto,
the amount of indemnification to which an Indemnified Party shall be
92
entitled under this Article IX shall be determined: (i) by the written
agreement between the Indemnified Party and the Indemnifying Party; (ii)
by a final judgment or decree of any court of competent jurisdiction; or
(iii) by any other means to which the Indemnified Party and the
Indemnifying Party shall agree.
Section 9.07 THIRD PARTY CLAIMS. In the event that any Indemnified Party
desires to make a claim or demand against any Indemnifying Party, in
connection with any third party litigation, arbitration, action suit,
proceeding, claim or demand at any time instituted against or made upon it
for which it may seek indemnification hereunder (a "THIRD PARTY CLAIM"),
the Indemnified Party shall promptly notify the Indemnifying Party of such
Third Party Claim, specifying the nature of such Third Party Claim and the
amount or the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such claim and
demand) (the "THIRD PARTY CLAIM NOTICE"); provided that the failure to
promptly give such Third Party Claim Notice will not relieve the
Indemnifying Party of its indemnification obligations under this section
except to the extent, if any, that the Indemnifying Party has actually
been materially prejudiced thereby. The Indemnified Party shall have the
right to conduct and control, through counsel of its choosing (which
counsel shall be appropriate for the size and nature of the matter), the
defense, compromise or settlement of any Third Party Claim against such
Indemnified Party as to which indemnification will be sought by any
Indemnified Party from any Indemnifying Party, and in any such case the
Indemnifying Party shall cooperate in connection therewith and shall
furnish such records, information and testimony and attend such
conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested by the Indemnified Party in connection therewith;
provided, that the Indemnifying Party may participate, through counsel
chosen by him, her or it and at his, her or its own expense, in the
defense of such Third Party Claim, as to which the Indemnified Party has
so elected to conduct and control the defense thereof; and, provided,
further, that the Indemnified Party shall not, without the written consent
of the Indemnifying Party (which consent will not be unreasonably
withheld), pay, compromise or settle any such Third Party Claim, except
that no such consent shall be required if, following a written request
from the Indemnified Party, the Indemnifying Party shall fail, within
fourteen (14) days after the making of such request, to acknowledge and
agree in writing that, if such Third Party Claim shall be adversely
determined, the Indemnifying Party has an obligation to provide
indemnification hereunder to such Indemnified Party. Notwithstanding the
foregoing, the Indemnified Party shall have the right to pay, settle or
compromise any such Third Party Claim without such consent; provided, that
kn such event the Indemnified Party shall waive any right to indemnity
thereof hereunder unless such consent is unreasonably withheld.
Section 9.08 EXCLUSIVE REMEDY. Indemnification pursuant to Sections 9.02,
Section 9.03 and Section 9.04 shall be the exclusive remedy of the parties
for any misrepresentation or breach of any representation or warranty or
covenant or obligation (other than violations of Section 7.03 hereof)
contained herein.
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Article X.
TERMINATION
Section 10.01. TERMINATION. This Agreement may be terminated and the
Merger and the other transactions contemplated by this Agreement may be
abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval and adoption of this Agreement and the transactions
contemplated by this Agreement, as follows:
(a) by mutual written consent duly authorized by the DVS Board and the
Docucon Board;
(b) by either Docucon or DVS if the Effective Time shall not have occurred
on or before December 31, 2001; PROVIDED, HOWEVER, that the right to
terminate this Agreement under this Section 10.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before March 31, 2002;
(c) there shall be any Order which is final and non-appealable preventing
the consummation of the Merger;
(d) by Docucon upon twenty (20) business days written notice upon a breach
of any material representation, warranty, covenant or agreement on the
part of DVS set forth in this Agreement, or if any representation or
warranty of DVS shall have become untrue, in either case such that the
conditions set forth in Sections 8.02(a), 8.02(b) or 8.02(e) would not be
satisfied ("TERMINATING DVS BREACH"); PROVIDED, HOWEVER that, such
Terminating DVS Breach remains uncured for twenty (20) business days, or,
if sooner, at the Closing; or
(e) by DVS upon twenty (20) business days written notice upon a breach of
any material representation, warranty, covenant or agreement on the part
of Docucon set forth in this Agreement, or if any representation or
warranty of Docucon shall have become untrue, in either case such that the
conditions set forth in Sections 8.03(a), 8.03(b) or 8.03(d) would not be
satisfied ("TERMINATING DOCUCON BREACH"); PROVIDED, HOWEVER, that, such
Terminating Docucon Breach remains uncured for such twenty (20) business
days, or, if sooner, at the Closing.
Section 10.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 10.01, this Agreement shall forthwith become
void, there shall be no liability under this Agreement on the part of
Docucon or DVS or any of their respective officers or directors, and all
rights and obligations of each party hereto shall cease, subject to
Section 10.03, PROVIDED, HOWEVER, that nothing herein shall relieve any
party from liability for the willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
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Section 10.03 EXPENSES. All Expenses (as defined below) incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by DVS, whether or not the Merger or any other
transaction is consummated. For purposes of this Agreement, "EXPENSES"
shall include all reasonable out-of-pocket expenses (including, all fees
and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or
on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement, the
filing of any required notices with any Governmental Entity and all other
matters related to the closing of the Merger and the other transactions
contemplated by this Agreement.
Article XI.
GENERAL PROVISIONS
Section 11.01 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
courier, by cable, telecopy, facsimile, telegram or telex or by registered
or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address
for a party as shall be specified in a notice given in accordance with
this Section 11.01):
IF TO DOCUCON OR THE PARTNERSHIP:
Docucon Incorporated
Attn: Robert W. Schwartz
8 Airport Park Blvd
Latham, New York 11201
WITH A COPY TO:
Law Offices of Mike Kreager, P.C.
Attn: Michael L. Kreager
7744 Broadway, Suite 204
San Antonio, Texas 782509-3262
IF TO DVS:
Digital Vision Systems, Inc.
Attn: Phillip M. Hardy
329 E. Ramsey
San Antonio, Texas 78216
WITH A COPY TO:
Loeffler, Jonas & Tuggey, LLP
Attn: Timothy N. Tuggey
755 East Mulberry Avenue, Suite 200
San Antonio, Texas 78212
95
IF TO ANY DVS STOCKHOLDERS:
The address provided in the Applicable Subscription Agreement.
Section 11.02 CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "AFFILIATE" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with such specified person;
(b) "BUSINESS DAY" means any day on which banks are not required or
authorized to close in San Antonio, Texas;
(c) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise;
(d) "KNOWLEDGE" means, with respect to any matter in question, that the
officers of DVS or Docucon, as the case may be, responsible to the
corporation with respect to such matters have actual knowledge of such
matter;
(e) "PERSON" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including, a
"PERSON" as defined in section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government;
(f) "SUBSIDIARY" or "SUBSIDIARIES" of any person means any corporation,
partnership, joint venture or other legal entity of which such person
(either alone or through or together with any other subsidiary) owns,
directly or indirectly, more than 50% of the stock or other equity
interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such
corporation or other legal entity; and
(g) whenever the word "INCLUDING" is used, it shall also mean "INCLUDING,
WITHOUT LIMITATION".
Section 11.03 AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of the DVS Board and the Docucon
Board at any time prior to the Effective Time, subject to the applicable
provisions of law. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
96
Section 11.04 WAIVER. At any time prior to the Effective Time, DVS and/or
Docucon may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein or in any document
delivered pursuant hereto, and (c) waive compliance with any agreement or
condition contained herein. Any such extension or waiver shall be valid if
set forth in an instrument in writing signed by the party or parties to be
bound thereby.
Section 11.05 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule
of Law or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as
the economic or legal substance of the transactions contemplated by this
Agreement is not affected in any manner materially adverse to any party,
and the affected term or provision shall be modified to the minimum extent
permitted by law so as to achieve most fully the intention of this
Agreement.
Section 11.06 ASSIGNMENT: BINDING EFFECT: BENEFIT. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties,
provided, however, that either Docucon or Partnership shall be entitled to
assign its rights and obligations hereunder to an affiliate. Subject to
the preceding sentence, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and assigns. Notwithstanding anything contained in this Agreement to the
contrary, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
Section 11.07 ARBITRATION. In the event that DVS, the DVS Stockholders and
Docucon are unable to resolve a Dispute under Article XI within thirty
(30) days after delivery of a Dispute Notice, either Docucon, DVS or the
DVS Stockholders may submit the question in dispute to the San Antonio
office of the certified accounting firm of Ernst & Young LLP (the
"ARBITRATING ACCOUNTANT"). In the event Ernst & Young LLP is unwilling or
unable to serve as Arbitrating Accountant, the parties hereto shall select
by mutual agreement an internationally recognized certified public
accounting firm, which is not rendering services to either Docucon, DVS or
the DVS Stockholders, to serve as the Arbitrating Accountant. If Docucon,
DVS and the DVS Stockholders are unable to agree on an Arbitrating
Accountant pursuant to the foregoing, each of DVS, the DVS Stockholders,
and Docucon shall, within forty-five (45) days after delivery of the
Dispute Notice, select a disinterested arbitrator with relevant experience
of its choice, and the two disinterested arbitrators so selected shall
select within ten (10) days of the selection of such arbitrators, an
Arbitrating Accountant. In connection with the resolution of any dispute,
the arbitrator or arbitrators shall have access to all documents, records,
work papers, facilities and personnel necessary to perform its function as
arbitrator. The arbitrator or arbitrators so selected shall render a
written decision as promptly as practicable, but in no event later than
twenty (20) days after submission of the matter to him, her or them. The
decision of the arbitrator shall be final and binding upon the parties,
97
and judgment may be entered on such decision in a court of competent
jurisdiction. To the extent not otherwise provided herein, the commercial
arbitration rules of the American Arbitration Association as in effect at
the time of any arbitration shall govern such arbitration in all respects.
The fees and expenses of the arbitrator or arbitrators shall equally be
shared among DVS, the DVS Stockholders and Docucon.
Section 11.08 INCORPORATION OF EXHIBITS. The DVS Disclosure Schedule, the
Docucon Disclosure Schedule and all Exhibits attached hereto and referred
to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
Section 11.09 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that
the parties shall be entitled to specific performance of the terms hereof,
in addition to any other remedy at law or in equity.
Section 11.10 NO STRICT CONSTRUCTION. The parties hereto jointly
participated in the negotiation and drafting of this Agreement. The
language used in this Agreement shall be deemed to be the language chosen
by the parties hereto to express their collective mutual intent, this
Agreement shall be construed as if drafted jointly by the parties hereto,
and no rule of strict construction shall be applied against any person or
entity.
Section 11.11 GOVERNING LAW: FORUM. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Texas
applicable to contracts executed in and to be performed in that state.
Each of the DVS Stockholders, DVS, Docucon and the Partnership hereto
irrevocably consent and submit to the exclusive jurisdiction of any local,
state or federal court within the County of Bexar in the State of Texas
for enforcement of this Agreement. Each of the DVS Stockholders, DVS,
Docucon and the Partnership irrevocably waive any objection they may have
to venue in the defense of an inconvenient forum to the maintenance of
such actions or proceedings to enforce this Agreement.
Section 11.12 HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
Section 11.13 COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by
the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
Section 11.14 ENTIRE AGREEMENT. This Agreement (including the Exhibits,
the DVS Disclosure Schedule and the Docucon Disclosure Schedule), the
Confidentiality Agreement and the LOI constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede
all prior agreements and understandings among the parties with respect
thereto. No addition to or modification of any provision of this Agreement
shall be binding upon any party hereto unless made in writing and signed
by all parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the first date written above.
DOCUCON INCORPORATED
By:
------------------------------
Name: Robert W. Schwartz
Title: President and Director
DIGITAL VISION SYSTEMS, INC.
By:
------------------------------
Name: Phillip M. Hardy
Title: President and Director
DocuconMerger, L.P.
By: DocuconSub, L.L.C.
By:
------------------------------
Name: Robert V. Schwartz
Title: President and Manager
of General Partner
DVS STOCKHOLDERS
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
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Section 3.06 Schedule
Absence of Litigation
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100
Section 3.10 Schedule
Contracts
DVS SALE REPRESENTATIVE AGREEMENTS
BurLloyd, Inc.
4308 Normandy
Dallas, TX 75205
Effective Date: September 1, 2001
2001Gauardian Security Systems
Floor No. 12/Falt No. 125
El Maadi-Cairo- Egypt
Effective Date: September 9, 2001
Midwest Sales
60 S. Grove Ave.
Elgin, IL 60120
Effective Date: October 1, 2001
Mooncom
12760 N. Shannon Dr.
Shakopee, MN 55379
Effective Date: October 1, 2001
Timmarron Partners, Inc.
1200 S. White Chapel Road
Southlake, TX 76092
Effective Date: August 29, 2001
F.M. Valenti, Inc.
5 Bourbon Street
Peabody, MA 01960-1339
Effective Date: September 19, 2000
Weller Electronic Sales, Inc.
1319 Worthington Woods Blvd.
Worthington, OH 43085
Effective Date: August 1, 2000
101
FINANCING AGREEMENTS
Mid-America Finance
P.O. Box 54617
Oklahoma City, OK
(Financing of Directors and Officers Liability Insurance premiums)
Amount Financed: $22,191.67
First Pmt. Date: December 26, 2001
Monthly Payment: $ 2,547.14
Term: Nine Months
Interest Rate: 7.85%
102
Section 3.16 Schedule
Insurance Policies
DIRECTORS AND OFFICERS LIABILITY POLICY
e-perils.com
Binder Number: 13438
Limits of Liability: 1,000,000 Aggregate (Including Defense Costs)
Policy Period: From: November 26, 2001
To: 12:01 A.M. on January 26, 2002
PROPERTY INSURANCE
American States Insurance Company of Texas
Policy Number: 04-BO-009168-2
Limits of Liability: Business Personal Property: $210,000
Business Income: Actual Loss Sustained
Tenants Liability: See Business Liability
Outdoor Signs: $ 7,500
Money and Securities:
Inside the Premises: $ 10,000
Outside the Premises: $ 5,000
Accounts Receivable: $ 25,000
Valuable Papers and Records: $ 25,000
Sewer or Drain Back-Up $ 5,000
Ordinance or Law Actual Loss Sustained
Policy Period: From: 12:01 A.M. on August 16, 2001
To: 12:01 A.M. on August 16, 2002
SMALL GROUP EMPLOYEE HEALTH INSURANCE
BlueCross BlueShield of Texas
Group Number: 67756
Plan Selected: M409
Effective Date: January 1, 2001
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Section 3.19 Schedule
Premises
LEASE AGREEMENT
Landlord: Ramsey Loop Realty Corp., a Texas Corporation
Tennant: Digital Vision Systems, Inc., a Nevada Corporation
Leased Premises: Suite 329/330, consisting of approx. 5,770 square feet
Address: 329 E. Ramsey
San Antonio, TX 78216
Term: From: September 1, 2000
To: August 31, 2001
(Currently leasing month to month)
Monthly Lease Pmt: $4,327.50
Security Deposit: $8,655.00
104
Section 5.06 Schedule
Absence of Litigation
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105
Section 5.13 Schedule
Intellectual Property
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106
Section 5.14 Schedule
Taxes
It was discovered on December 19, 2001 that Docucon has not filed its 2000
Delaware Franchise Tax Return. The filing deadline of this tax return was March
1, 2001. It is not currently known what the amount of taxes, interest and
penalty may be due. Docucon is in the process of having this delinquent return
prepared by its accountants, Ernst & Young. DVS is aware that this return has
not been filed.
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Section 5.17 Schedule
Insurance Policies
DIRECTORS AND OFFICERS LIABILITY AND REIMBURSEMENT POLICY
Zurich American Insurance Company
Policy Number: DOC 9273638 00
Limits of Liability: (A) Each Loss $1,000,000
(B) Each Policy Period $1,000,000
Policy Period: From: 12:01 A.M. on February 16, 2001
To: 12:01 A.M. on February 16, 2002
Insured Persons: Any person who has been, now is or shall become a
duly elected director or a duly elected or appointed officer of the Company.
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Section 5.18 Schedule
Contracts
DELL FINANCIAL SERVICES
2 Dell 18,2GB Servers with Accessories
Lease Number: 077585209-001 & 077585209-002
Amount: $26,197.00
Date: July 2, 1999
Term: 36 Months
Interest Rate: 11.67% (imputed)
Monthly Pmt: $865.96
Docucon may have additional contracts with ComputerShare Investor Services, The
Depository Trust Company and others. If any other contractual relationships do
exist, other than the above-mentioned Dell Financial Services leases, those
contracts or agreements cannot be located at this time. DVS is aware, however,
that contracts or agreements may exist with ComputerShare Investor Services and
The Depository Trust Company.
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EXHIBIT B
DOCUCON, INCORPORATED
----------------------------
2002 NON-QUALIFIED STOCK OPTION PLAN
---------------------------------
SECTION 1 -- PURPOSE
The Purpose of this 2002 Stock Option Plan (this "Plan") is to advance
the interest of Docucon, Incorporated (the "Company"), a Delaware corporation,
by providing an opportunity to selected officers, directors and employees of the
Company and its subsidiaries and affiliates to purchase common stock of the
Company. By encouraging such stock ownership, the Company seeks to attract,
retain and motivate officers, directors and employees. It is intended that this
purpose will be effectuated by issuance of nonqualified stock options
("nonqualified options") as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
SECTION 2 -- EFFECTIVE DATE
The Plan shall be effective as of March 15, 2002, or the date as of which
it is adopted by the stockholders and the Board of the Company (the "Effective
Date"), whichever is later. Shareholders may vote in person or by proxy on this
issue.
SECTION 3 -- STOCK SUBJECT TO THE PLAN
Options issued under this Plan shall be exercisable for the Company's
common stock. The number of shares that may be issued under this Plan shall not
exceed in the aggregate three hundred and seventy-five thousand (375,000) shares
of the common stock, $.01 par value, of the Company (the "Shares"), subject to
adjustment as provided in Sections 8 and 9 below. Under this Plan, options will
be made available over a three- year period of time and granted as of the first
day of each year. Any Shares subject to an option that for any reason expires or
is terminated as to such Shares may again be the subject of an option under this
Plan. In addition, any Shares purchased by an optionee upon exercise of an
option under this Plan that are subsequently repurchased by the Company pursuant
to the terms of such option, and Shares tendered as payment for Shares upon
exercise of an option under this Plan, may again be the subject of an option
under the Plan. The Shares delivered upon exercise of options under this Plan
may, in whole or in part, be either authorized but unissued Shares or issued
Shares reacquired by the Company.
SECTION 4 -- ADMINISTRATION
This Plan shall be administered by a committee consisting of an equal
number of (i) two or more officers of the Company appointed by management of the
Company; and (ii) two or more non-employee members of the Board of Directors of
the Company appointed by the Board (the "Committee"), each of whom meets any
applicable requirements under Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any successor provision,
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as applicable to the Company at the time ("Rule 16b-3"). Subject to the
provisions of the Plan, the Committee shall have full power to construe and
interpret the Plan and to establish, amend and rescind rules and regulations
for its administration. The Committee shall have the right to set the size and
terms of the option agreements including vesting schedules, price, option
period, and other decisions consistent with the purpose of this Plan; and
these determinations need not be the same for any options agreements. All
decisions made by the Committee shall be by a majority vote. Any decisions
made with respect thereto shall be final and binding on the Company, the
optionee and all other persons. The Committee may authorize any one or more of
their members or any officer of the Company to execute and deliver documents
on behalf of the Company. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan.
SECTION 5 -- ELIGIBLE PARTICIPANTS
Options issued under this Plan may be issued to such officers, directors
or employees of the Company as are selected by the Committee. No employee may be
granted options to acquire, in the aggregate, more than 150,000 Shares under the
Plan (subject to adjustment as provided in Sections 8 and 9 below) during any
fiscal year of the Company. If any option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part or shall be repurchased by
the Company, the Shares subject to such option shall be included in the
determination of the aggregate number of Shares deemed to have been granted to
such employee under the Plan.
SECTION 6 -- DURATION OF THE PLAN
This Plan shall remain in effect indefinitely, unless terminated earlier
pursuant to Section 13 hereof, provided no incentive options may be issued after
the tenth anniversary of the Effective Date. Options issued on or before the
date of this Plan's termination shall remain exercisable in accordance with
their respective terms after the termination of the Plan.
SECTION 7 -- TERMS AND CONDITIONS OF OPTIONS
Options issued under this Plan shall be evidenced by written instruments
in such form not inconsistent with this Plan as the Committee shall approve from
time to time, which instruments shall evidence the following terms and
conditions, and such other terms and conditions (which need not be the same in
different opvions) not inconsistent with the Plan as the Committee may approve
from time to time:
(a) PRICE. The purchase price per Share of stock payable upon exercise of each
nonqualified option issued hereunder shall be determined by the Committee.
Fair market value shall be determined in accordance with procedures to be
established in good faith by the Committee and, with respect to incentive
options, conforming to regulations issued by the Internal Revenue Service
with regard to incentive stock options.
(b) NUMBER OF SHARES. Each option agreement shall specify the number of Shares
to which it pertains.
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(c) VESTING PERIOD. Each option issued under the Plan shall vest and be
exercisable in accordance with the schedule determined by the Committee
and set forth in the written instrument evidencing the Options issued
hereunder, subject to adjustment as provided in Section 8 and 9 below.
Such schedule may be amended by mutual agreement of the Committee and the
optionee. In the event that the Participant ceases to be an officer,
director or employee of the Company for any reason prior to the time a
Participant's option becomes fully exercisable, the option will terminate
with respect to the Shares as to which the option is not then vested and
exercisable and all rights of the Participant to such Shares shall
terminate without further obligation on the part of the Company, unless
otherwise agreed by the Committee and evidenced in writing. In the event
that the Participant ceases to be an officer, director or employee of the
Company after his or her option has become exercisable in whole or in
part, such option shall remain exercisable in whole or in part, as the
case may be, in accordance with the terms hereof, unless otherwise agreed
by the Committee.
(d) NOTICE OF EXERCISE AND PAYMENT. An option shall be exercisable only by
delivery of a written notice to the Company's Treasurer or any other
officer of the Company designated by the Committee to accept such notices
on its behalf, specifying the number of Shares for which it is exercised.
If said Shares are not at that time effectively registered under the
Securities Act of 1933, as amended, the optionee shall include with such
notice a letter, in form and substance satisfactory to the Company,
confirming that the Shares are being purchased for the optionee's own
account for investment and not with a view to distribution. Payment of the
aggregate option exercise price shall be made in full at the time the
option is exercised. Payment shall be made by (i) cash; (ii) by check;
(iii) if permitted by vote of the Committee and stated in the Option
agreement, subject to Section 13(c) below, by delivery and assignment to
the Company of Shares previously owned by the optionee for more than six
months and having a value equal to the Option price; (iv) if permitted by
vote of the Committee and stated in the Option agreement (and if permitted
by applicable law), through the delivery of an assignment to the Company
of a sufficient amount of the proceeds from the sale of unrestricted
Shares acquired upon exercise to pay for all of the Shares so acquired and
any tax withholding obligation resulting from such exercise, and an
authorization to the broker or selling agent to pay that amount to the
Corporation; or (v) by a combination of (i), (ii), (iii) and (iv). The
value of the Company stock for purposes of the foregoing clause (iii)
shall be its fair market value as of the date the Option is exercised, as
determined in accordance with procedures to be established by the
Committee.
(e) WITHHOLDING TAXES; DELIVERY OF SHARES. The Company's obligation to deliver
Shares upon exercise of an option, in whole or in part, shall be subject
to the optionee's satisfaction of all applicable federal, state and local
income and employment act withholding obligations. If permitted by vote of
the Committee and stated in the stock option agreement, subject to Section
13(c) below, the optionee may satisfy the obligation, in whole or in part,
(i) by electing to have Shares withheld having a value equal to the amount
to be so satisfied (but not in an amount exceeding the minimum statutory
withholding requirement applicable to such exercise), or (ii) by delivery
and assignment to the Company of Shares previously owned by the optionee
having a value equal to the amount to be so satisfied (but unless such
Shares have been owned by the optionee for more than six months, not in an
amount exceeding the minimum statutory withholding requirement applicable
to such exercise). The
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value of Shares to be withheld or assigned shall be determined based on
the fair market value of the Shares on the date the amount of tax to be
withheld is to be determined.
(e) TERMINATION OF OPTIONS. Each option shall terminate and may no longer be
exercised if the optionee ceases for any reason to perform services as an
employee (or in the case of nonqualified options, as an officer, director
or employee), unless otherwise provided in the optionee's option
agreement, or unless otherwise agreed by the Committee; provided, however,
that no option may be exercised to any extent by anyone after the date of
expiration of the option. Unless otherwise determined by the Committee,
options may be exercised if, at all times during the period beginning with
the date of the granting of the option and ending on the day three months
before the date of such exercise, the optionee was an employee, director,
or officer of the Company (unless the Company terminates such employment
for cause or unless the optionee terminates his or her employment without
the written consent of the Company, in which events the option terminates
immediately on the employment termination date); provided, however, that
the option may also be exercised for up to one year after the employment
termination date if the optionee is disabled within the meaning of section
37 (e) (3) of the internal Revenue Code of 1986, as amended (or any
section that may be substituted for such Section), but in no event at a
date later than the termination date of the option. If an optionee should
die at any time when any portion of an option granted herein to him or her
shall be exercisable by him or her, the option will be exercisable in
whole or in part during the next year succeeding his or her death by the
person or persons to whom, his or her rights under the option shall have
passed by Will or by the laws of descent and distribution, but in no event
at a date later than the termination of the option. Option shares that
terminate will revert to the plan and will be available for reissue.
(g) RIGHTS AS SHAREHOLDER. The optionee shall have no rights as a shareholder
with respect to any Share covered by this option until the purchase
thereof.
(h) NON-TRANSFERABILITY. No option shall be transferable by the optionee
otherwise than by will or the laws of descent or distribution, and each
option shall be exercisable during the optionee's lifetime only by the
optionee. Notwithstanding the foregoing (but in the case of an optionee
that is subject to Section 16 of the Exchange Act, only to the extent
consistent with the requirements of Rule 16b-3 or other rules under
Section 16 of the Exchange Act, and in the case of an incentive option,
only if then permitted for incentive options under the Code and applicable
regulations and rulings), such option may be transferred pursuant to an
order that would constitute a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security
Act or the rules thereunder. Options do not have to be exercised
sequentially in the order granted to the optionee.
(i) REPURCHASE OF SHARES BY THE COMPANY. Any Shares purchased by an optionee
upon exercise of an option may in the discretion of the Committee be
subject to repurchase by the Company if and to the extent specifically set
forth in the option agreement pursuant to which the Shares were purchased.
(j) OPTION AGREEMENT - FORM. The instruments evidencing options may be in the
form of agreements to be executed by both the optionee and the Company or
certificates, letters or similar instruments, which need not be executed
by the optionee but acceptance of which will evidence agreement to the
terms of the issuance.
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SECTION 8 -- STOCK DIVIDENDS; STOCK SPLITS; STOCK COMBINATIONS; RECAPITALIZATION
In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution with respect to holders of the Company's common stock other than
normal cash dividends, automatic adjustment shall be made in the number and kind
of shares as to which outstanding options or portions thereof then unexercised
shall be exercisable and in the available shares set forth in Section 3 hereof,
to the end that the proportionate interest of the option holder shall be
maintained as before the occurrence of such event. Such adjustment in
outstanding options shall be made without change in the total price applicable
to the unexercised portion of such options and with a corresponding adjustment
in the option price per share. Automatic adjustment shall also be made in the
number and kind of shares subject to options subsequently issued under the Plan.
SECTION 9 -- MERGER; SALE OF ASSETS; DISSOLUTION
In the event of a change of the Company's common stock resulting from a
merger or similar reorganization as to which the Company is the surviving
corporation, or the formation of a holding company, the number and kind of
shares which thereafter may be optioned and sold under the Plan and the number
and kind of shares then subject to options issued hereunder or portions thereof
then unexercised and the price per share thereof shall be appropriately adjusted
by the Committee, as determined in the sole discretion of the Committee. If the
Company shall be a party to a merger or a similar reorganization after which the
Company will not survive, or if there will be a sale of substantially all the
common stock of the Company or a sale of all or substantially all of the assets
of the Company, the Committee, in its discretion, may declare (a) that all
outstanding options issued hereunder are to be terminated after giving at least
30 days' notice to holders of outstanding options (but if the Committee
determines that 30 days' notice would be disruptive to the reorganization
transaction with respect to which such notice is given, then the Committee may
give such shorter notice as the circumstances reasonably require, but in no
event less than 10 days), (b) that any outstanding option issued hereunder shall
pertain to and apply, with appropriate adjustments as determined by the
Committee, to the securities of the resulting corporation to which a holder of
the number of Shares subject to the option would have been entitled, or (c) that
the Company or resulting corporation will purchase all outstanding options
issued hereunder from the optionees at a price per Share as to which the option
is outstanding, unexercised and vested equal to the difference between the price
at which Shares of the Company are to be purchased or exchanged in the
transaction and the option price stated in the option agreement. The Committee,
in its discretion, may declare that any unvested options will immediately and
fully vest. And the Committee, in its discretion, has the right to terminate
this Plan in the case of a merger, purchase, formation of a holding company or
similar reorganization.
SECTION 10 -- CERTAIN DEFINITIONS
(a) The term "employee" shall have, for purposes of the Plan, the meaning
ascribed to it under Section 3401(c) of the Code and the regulations promulgated
thereunder.
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(b) the term "option", unless otherwise indicated, means either an incentive
option or a nonqualified option.
(c) the term "optionee" means an officer or employee to whom an option is
issued under this Plan.
SECTION 11 - BOARD OF DIRECTORS - NO RIGHT TO REELECTION
Nothing in the Plan shall be deemed to create any obligation on the part
of the Board of Directors or Committee thereof to nominate any Director for
reelection by the Company's stockholders, nor confer upon any Director the right
to remain a member of the Board for any period of time, or at any particular
rate of compensation.
SECTION 12 -- REGULATORY COMPLIANCE AND LISTING
(a) The issuance or delivery of any Shares subject to exercisable Options
hereunder may be postponed by the Committee for such period as may be required
to comply with any applicable requirements under the Federal securities laws,
any applicable listing requirements of NASDAQ or any national securities
exchange or any requirements under any law or regulation applicable to the
issuance or delivery of such Shares. The Company shall not be obligated to issue
or deliver any such Shares if the issuance or delivery thereof would constitute
a violation of any provision of any law or of any applicable regulation of any
governmental authority, NASDAQ or any national securities exchange.
(b) Should any provision of this Plan require modification or be unnecessary
to comply with the requirements of Section 16 of the Exchange Act and Rule
16b-3, subject, in the case of incentive options, to applicable requirements for
incentive options under the Code, the Committee may waive such provision and/or
amend this Plan to add to or modify the provisions hereof accordingly.
(c) Any election made by an optionee then subject to Section 16 of the
Exchange Act to make payment of any portion of an option price with Shares or to
make payment of any portion of a tax withholding obligation with respect to an
option exercise with Shares or by withholding of Shares shall be subject to any
then-applicable requirements of Rule 16b-3 and other applicable rules under
Section 16 of the Exchange Act.
SECTION 13 -- TERMINATION OR AMENDMENT OF PLAN
The Board of Directors shall have the right to amend, suspend, modify or
terminate the Plan at any time and from time to time; provided, however, that
unless required by law, no such amendment or modification shall (a) affect any
right or obligation with respect to any option theretofore issued; or (b) if
this Plan has been approved by the Company's stockholders, make any modification
or amendment affecting incentive options, for which stockholder approval is
required under the Code, unless such amendment or modification affecting
incentive options has been approved by the stockholders. In addition, no such
amendment or modification shall be made without previous approval by the
stockholders where such approval is necessary to satisfy,
115
nor shall any amendment or modification be made at a time when the same would
violate, any then-applicable requirements of federal securities laws (including
without limitation Rule 16b-3), the Code or rules of NASDAQ or any stock
exchange on which the Company's common stock is listed.
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DOCUCON, INCORPORATED
SPECIAL MEETING OF STOCKHOLDERS - MARCH 15, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints EDWARD P. GISTARO and ROBERT W. SCHWARTZ,
and each of them, with several powers of substitution, proxies to vote the
shares of Common Stock, par value $.01 per share of Docucon, Incorporated which
the undersigned could vote if personally present at the Special Meeting of
Stockholders of Docucon, Incorporated to be held at 329 E. Ramsey, San Antonio,
Texas 78216, on Friday, March 15, 2002, at 9:30 a.m., Central Standard Time, and
any adjournment thereof:
1. Approve and adopt the Agreement and Plan of Merger, as amended, by
and among the Company, DocuconMerger, L.P., a wholly owned
subsidiary of the Company, and Digital Vision Systems, Inc. ("DVS").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Authorize the Board of Directors to effect a reverse split of one
(1) share of the Company's common stock (the "Common Stock") for
fifteen (15) shares of the Company's issued and outstanding Common
Stock, to facilitate the merger with DVS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Amend the Company's Articles of Incorporation to change the
Company's name to "DVS Holdings, Inc."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Elect five new directors to a seven-person Board of Directors. Two
of the current directors will continue in office, and five new
directors will be added by DVS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Approve and adopt the 2002 Non-Qualified Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this Proxy will
be voted FOR the proposed merger described above.
Dated ________________, 2002 Signatures(s)_________________________
________________________ (Please sign
exactly and as fully as your name
appears on your stock certificate.
If shares are held jointly, each
stockholder should sign.)
Print Name(s)________________________
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY, USING THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED
117