<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
-------------------------------------------------------------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): May 28, 1999
DESIGN AUTOMATION SYSTEMS, INC.
(Exact Name of Registrant as Specified in Charter)
TEXAS
(State or Other Jurisdiction of
Incorporation or Organization)
0-9129 75-1657943
------ ----------
(Commission File Number) (I.R.S. Employer Identification No.)
3200 Wilcrest, Suite 370, Houston, Texas 77042
----------------------------------------------
(Address of principal executive offices including zip code)
(713) 784-2374
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Inapplicable
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 28, 1999, Design Automation Systems, Inc. ("Company") acquired
all of the issued and outstanding stock of Dynamic Professional Services, LLC,
("Dynamic") an information technology consulting firm, in an arm lengths
transaction between the Company and the six shareholders of Dynamic. The
consideration for the acquisition was: (1) 524,000 shares of Company common
stock, (2) $200,000 cash, payable $100,000 at closing, and $100,000 payable
in quarterly installments of $25,000 beginning 90 days from the closing date.
Four stockholders of Dynamic entered into employment agreements, which terminate
in 2001 and include a non-compete provision for the term of the agreement and
one year thereafter. However, the Company can provide no assurance the
non-compete will be enforceable. This transaction has been accounted for as a
purchase. The acquisition of Dynamic has been deemed "significant," accordingly,
historical and pro forma financial statements are filed herewith.
Effective July 30, 1999, the Company acquired all of the issued and
outstanding stock of Connected Software Solutions, Inc. ("Connected"), an
e-business consulting and training firm, in an arms length transaction
between the Company and the shareholders of Connected. The consideration for
the aquisition was: (1) 300,000 shares of Company common stock, (2) $300,000
cash payable in six quarterly installments of $50,000 each beginning 90 days
from the closing date, and (3) additional stock consideration if on August 1,
2000 the closing price for the Company common stock for the prior 15 business
days is less than $5.15 per share, in an amount equal to 3,000 shares for
each $0.01 below $5.15. The Company has reserved 1,500,000 shares of Company
common stock for the additional consideration. The two shareholders of
Connected entered into employment agreements with the Company's, wholly-owned
subsidiary, COAD Solutions, Inc., which will continue on a year-to-year basis
and include a non-complete provision for the term of the agreement and one
year thereafter. However, the Company can provide no assurance the
non-compete will be enforceable. This transaction has been accounted for as
a purchase. The acquisition of Connected has been deemed "significant,"
accordingly, separate historical and pro forma financial statements will be
filed no later than seventy-five days after the consummation of the
acquisition.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Inapplicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Inapplicable.
ITEM 5. OTHER EVENTS
Inapplicable.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS
Inapplicable.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The financial statements relating to the acquisition required
pursuant to Item 310 of Regulation S-B are attached hereto
as Annex A.
(b) Pro Forma Financial Information
The pro forma financial information relating to the
acquisition required pursuant to Item 310 of Regulation S-B
is attached hereto a Annex B.
(c) Exhibit No. 10.1
Agreement and Plan of Merger and Among Design Automation
Systems, Inc., Connected Software Solutions, Inc., and COAD
Solutions, Inc.
ITEM 8. CHANGE IN FISCAL YEAR
Inapplicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DESIGN AUTOMATION SYSTEMS, INC..
By: /s/ Robert E. Nelson
-----------------------------------
Robert E. Nelson
Chief Financial Officer, Principal
Financial and Accounting Officer
DATE: August 11, 1999
<PAGE>
DYNAMIC PROFESSIONAL SERVICES ANNEX A
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT............................................................................ F-1
BALANCE SHEETS - December 31, 1998 and March 31, 1999 (unaudited)....................................... F-2
STATEMENTS OF INCOME - Year Ended December 31, 1998 and the period from
inception, June 26, 1997, through December 31, 1997 and
the three months ended March 31, 1999 and 1998 (unaudited)........................................ F-3
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL - Year Ended December 31, 1998 and
the period from inception, June 26, 1997, through December 31, 1997
and the three months ended March 31, 1999 (unaudited)............................................. F-4
STATEMENTS OF CASH FLOWS - Year Ended December 31, 1998 and the period from
inception, June 26, 1997, through December 31, 1997
and the three months ended March 31, 1999 and 1998 (unaudited).................................... F-5
NOTES TO FINANCIAL STATEMENTS........................................................................... F-6
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS................................................... F-8
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Partners
Dynamic Professional Services
We have audited the accompanying balance sheet of Dynamic Professional
Services, a Texas general partnership, as of December 31, 1998, and the
related statements of income, changes in partners' capital and cash flows for
the year ended December 31, 1998 and the period from inception, June 26,
1997, through December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dynamic Professional
Services, a Texas general partnership, as of December 31, 1998, and the
results of its operations and its cash flows for the year ended December 31,
1998 and the period from inception, June 26, 1997, through December 31, 1997,
in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Houston, Texas
July 9, 1999
F-1
<PAGE>
DYNAMIC PROFESSIONAL SERVICES
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------------- -----------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 140,951 $ 114,169
Account receivable - trade, no allowance for doubtful accounts 171,948 214,612
--------------- ---------------
Total current assets 312,899 328,781
OFFICE EQUIPMENT, net of accumulated depreciation 13,786 13,786
--------------- ---------------
Total assets $ 326,685 $ 342,567
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 23,850 $ 27,450
Accrued expenses 189,112 129,011
--------------- ---------------
Total current liabilities 212,962 156,461
CONTINGENCIES (Notes 3 and 4) - -
PARTNERS' CAPITAL 113,723 186,106
--------------- ---------------
Total liabilities and partners' capital $ 326,685 $ 342,567
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
DYNAMIC PROFESSIONAL SERVICES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
JUNE 26, 1997, THREE MONTHS
YEAR ENDED THROUGH ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------------------
1998 1997 1999 1998
----------------- ----------------- ----------------- -----------------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 1,265,368 $ 175,924 $ 506,404 $ 145,000
OPERATING EXPENSES:
Cost of revenues 1,027,373 128,979 461,789 119,534
General and administrative 24,565 4,997 5,906 3,168
----------------- ----------------- ----------------- -----------------
1,051,938 133,976 467,695 122,702
----------------- ----------------- ----------------- -----------------
Net income $ 213,430 $ 41,948 $ 38,709 $ 22,298
================= ================= ================= =================
</TABLE>
F-3
<PAGE>
DYNAMIC PROFESSIONAL SERVICES
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION,
JUNE 26, 1997, THREE MONTHS
YEAR ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1997 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
BEGINNING PARTNERS' CAPITAL $ 44,648 $ - $ 113,723
Net income 213,430 41,948 38,709
Contributions by partners 18,000 10,580 33,674
Distributions to partners (162,355) (7,880) -
----------- ----------- -----------
ENDING PARTNERS' CAPITAL $ 113,723 $ 44,648 $ 186,106
=========== =========== ===========
</TABLE>
F-4
<PAGE>
DYNAMIC PROFESSIONAL SERVICES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION,
JUNE 26, 1997 THREE MONTHS ENDED
YEAR ENDED THROUGH MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------------
1998 1997 1999 1998
----------- ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 213,430 $ 41,948 $ 38,709 $ 22,298
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,019 266 - -
Changes in:
Accounts receivable (130,650) (41,298) (42,664) (12,922)
Accounts payable 23,850 - 3,600 -
Accrued expenses 157,475 31,637 (60,101) 16,891
----------- ----------- ----------- ------------
Net cash provided by (used in)
operating activities 266,124 32,553 (60,456) 26,267
CASH FLOWS FROM INVESTING ACTIVITIES -
purchase of office equipment (7,520) (8,551) - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions by partners 18,000 10,580 33,674 -
Distributions to partners (162,355) (7,880) - -
----------- ----------- ----------- ------------
Net cash provided by (used in)
financing activities (144,355) 2,700 33,674 -
----------- ----------- ----------- ------------
NET CHANGE IN CASH 114,249 26,702 (26,782) 26,267
CASH, at beginning of period 26,702 - 140,951 26,702
----------- ----------- ----------- ------------
CASH, at end of period $ 140,951 $ 26,702 $ 114,169 $ 52,969
=========== =========== =========== ============
</TABLE>
F-5
<PAGE>
DYNAMIC PROFESSIONAL SERVICES, LLP
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Dynamic Professional Services (the "Partnership"), a
Texas general partnership, was formed in June 1997 in the state of
Texas.The Partnership is an information technology consulting and
staffing firm providing services primarily in Austin, Texas. The
Partnership's primary focus is providing PeopleSoft consulting services
to the public and private sectors.
REVENUE RECOGNITION - The Partnership recognizes revenue as services are
performed.
OFFICE EQUIPMENT - Equipment consists mainly of computer equipment and
is stated at cost, adjusted for accumulated depreciation. Depreciation
is calculated using the straight-line method over the estimated useful
lives of the related assets, which is five years.
FEDERAL INCOME TAXES - The Partnership is not subject to federal taxes
on its income. The partners include in their federal tax returns their
respective portion of the Partnership's results of operations.
Accordingly, no provision for federal income taxes has been made for the
Partnership.
COMPREHENSIVE INCOME - Comprehensive income is defined as all changes in
partners' capital, exclusive of transactions with owners, such as
capital investments. Comprehensive income includes net income or loss,
changes in certain assets and liabilities that are reported directly in
capital, such as translation adjustments on investments in foreign
subsidiaries, and certain changes in minimum pension liabilities. The
Partnership's comprehensive income was equal to its net income for all
periods presented in these financial statements.
USE OF ESTIMATES - The preparation of the Partnership's financial
statements in conformity with generally accepted accounting principles
requires the Partnership's management to make estimates and assumptions
that affect the amounts reported in these financial statements and
accompanying results. Actual results could differ from these estimates.
UNAUDITED INTERIM INFORMATION - The accompanying financial information
as of March 31, 1999 and for the three-month periods ended March 31,
1999 and 1998 has been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
The financial statements reflect all adjustments, consisting of normal
recurring accruals, which are, in the opinion of management, necessary
to fairly present such information in accordance with generally accepted
accounting principles.
2. PROFIT SHARING PLAN
The Partnership has a profit sharing plan (the "Plan"). Eligible
employees may make voluntary contributions to the Plan up to 15% of the
employee's compensation. The amount of the employee contribution is
limited as specified in the Plan. The Partnership may, at its
discretion, make additional contributions to the Plan. No matching
contributions were made during 1998 of 1997. The Company contributed
approximately $5,700 during the three months ended March 31, 1999.
3. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Partnership to
concentration of credit risk are accounts receivable. The Partnership
performs ongoing credit evaluations as to the financial condition of its
customers. Three customers made up approximately 78% and 83% of accounts
receivable at December 31, 1998 and March 31, 1999. Three customers and
one customer accounted for approximately 82% and 100% of total revenues
for the year ended December 31, 1998 and the period from inception, June
26, 1997, through December 31, 1997, respectively. Three customers
accounted for approximately 83% of total revenues for the three months
ended March 31, 1999.
F-6
<PAGE>
4. YEAR 2000
The Partnership has begun to address possible remedial efforts in
connection with computer software that could be affected by the Year
2000 problem. The Year 2000 problem is the result of computer programs
being written using two digits rather than four to define the applicable
year. Any programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
result in a major system failure or miscalculations. The Year 2000
problem may impact or be impacted by other entities with which the
Partnership transacts business.
5. SUBSEQUENT EVENT
On April 14, 1999, the Partnership completed its conversion to a limited
liability company and, accordingly, changed its name to Dynamic
Professional Services, L.L.C. (the "L.L.C."). All assets, rights,
liabilities and obligations of the Partnership were transferred to the
L.L.C. The partners of the Partnership became members of the L.L.C., and
their partnership units were converted into common units of the L.L.C.
on a one-for-one basis.
Effective May 28, 1999, 100% of the L.L.C. was merged into COAD
Solutions, Inc., a wholly-owned subsidiary of Design Automation Systems,
Inc. ("DASI"), through a forward triangular merger for consideration in
the form of cash and DASI common stock of approximately $2,900,000.
F-7
<PAGE>
ANNEX B
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements of Design
Automation Systems, Inc. ("DASI" or the "Company") for the year ended
December 31, 1998 and the unaudited three months ended March 31, 1999 and the
unaudited pro forma balance sheet as of March 31, 1999 (the "Unaudited Pro
Forma Consolidated Financial Statements") give effect to (i) the Dynamic
Professional Services ("Dynamic") acquisition under the purchase method of
accounting, and (ii) the COAD Solutions, Inc. ("COAD") acquisition under the
purchase method of accounting.
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1998 and the unaudited three months ended March 31, 1999,
were prepared assuming that the transactions described above were consummated
at the beginning of 1998. The unaudited pro forma balance sheet as of
March 31, 1999 was prepared assuming the transactions were consummated on
March 31, 1999.
The Unaudited Pro Forma Consolidated Financial Statements are based upon the
historical financial statements of the Company, which were previously filed
on Form 10-K; Dynamic, which are included elsewhere herein, for the year
ended December 31, 1998; and COAD, which were previously filed on Form 8-K/A,
for the year ended December 31, 1998 should be read in conjunction with those
statements and notes thereto. The Unaudited Pro Forma Financial Statements
may not be indicative of the results that actually would have occurred if the
acquisitions of Dynamic and COAD had been in effect on the dates indicated or
of future results of operations of the combined entity.
The pro forma adjustments and the resulting Unaudited Pro Forma Consolidated
Financial Statements have been prepared based upon information and certain
assumptions and estimates deemed appropriate by the Company. The Company's
management believes, however, that the pro forma adjustments and the underlying
assumptions and estimates reasonably present the significant effects of the
transaction reflected thereby and that any subsequent changes in the underlying
assumptions and estimates will not materially affect the Unaudited Pro Forma
Consolidated Financial Statements presented herein. The Unaudited Pro Forma
Consolidated Financial Statements do not purport to represent what the Company's
results of operations actually would have been had the transaction occurred on
the date indicated or to project the Company's financial position or results of
operations for any future date or period. Furthermore, the Unaudited Pro Forma
Consolidated Financial Statements do not reflect changes that may occur as the
result of post-transaction activities and other matters.
F-8
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
DASI DYNAMIC ADJUSTMENTS(C) PRO FORMA
------------------------ -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,245,829 $ 114,169 $ (100,000) $ 1,259,998
Account receivable - trade, no allowance for doubtful accounts 5,204,895 214,612 - 5,419,507
Net assets - discontinued operations 105,052 - - 105,052
Other assets 34,755 - - 34,755
----------- ----------- ---------- -----------
Total current assets 6,590,531 328,781 (100,000) 6,819,312
PROPERTY AND EQUIPMENT, net 132,923 13,786 - 146,709
Goodwill 2,898,147 - 2,742,326 5,640,473
----------- ----------- ---------- -----------
Total assets $ 9,621,601 $ 342,567 $2,642,326 $12,606,494
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUTIY
CURRENT LIABILITES:
Note payable $ 2,530,821 $ 27,450 $ 100,000 $ 2,658,271
Accounts payable 3,298,062 129,011 29,832 3,456,905
Accounts payable to affiliate 39,944 - - 39,944
Accrued expenses and other current liabilities 1,001,213 - - 1,001,213
----------- ----------- ---------- -----------
Total current liabilities 6,870,040 156,461 129,832 7,156,333
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock 207,600 - 5,240 212,840
Additional paid in capital 2,715,028 - 2,693,360 5,408,388
Partners' Capital 186,106 (186,106) -
Retained earnings (accumulated deficit) (171,067) - - (171,067)
----------- ----------- ---------- -----------
Total shareholders' equity 2,751,561 186,106 2,512,494 5,450,161
----------- ----------- ---------- -----------
Total liabilities and shareholders' equity $ 9,621,601 $ 342,567 $2,642,326 $12,606,494
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
</TABLE>
F-9
<PAGE>
DESIGN AUTOMATION SYSTEMS, Inc.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------ ADJUSTMENTS PRO FORMA
DASI DYNAMIC COAD (a) (b) and (c) OPERATIONS
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 20,442,937 $ 1,265,368 $ 2,138,586 $ - $ 23,846,891
OPERATING EXPENSES:
Cost of Revenues 18,124,043 1,027,373 1,924,083 21,075,499
Selling, general and administrative 2,058,842 24,565 108,610 414,243 2,606,260
----------------------------------------------------------------------------
20,182,885 1,051,938 2,032,693 414,243 23,681,759
----------------------------------------------------------------------------
INCOME FROM OPERATIONS 260,052 213,430 105,893 (414,243) 165,132
OTHER INCOME (EXPENSE):
Interest expense (61,060) - - - (61,060)
Interest income 56,074 - - - 56,074
Other income 5,266 - - - 5,266
----------------------------------------------------------------------------
280 - - - 280
----------------------------------------------------------------------------
INCOME FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES 260,332 213,430 105,893 (414,243) 165,412
INCOME TAXES - - - (249,071) (249,071)
----------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ 260,332 $ 213,430 $ 105,893 $ (663,314) $ (83,659)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EARNINGS PER
COMMON SHARE FROM
CONTINUING OPERATIONS-
BASIC AND DILUTED $ -
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING -
BASIC and DILUTED 21,283,986
============
</TABLE>
F-10
<PAGE>
DESIGN AUTOMATION SYSTEMS, Inc.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------ ADJUSTMENTS PRO FORMA
DASI DYNAMIC COAD (a) (b) and (c) OPERATIONS
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 7,675,309 $ 506,404 $ 578,644 $ 8,760,357
OPERATING EXPENSES:
Cost of Revenues 6,894,075 461,789 459,199 7,815,063
Selling, general and administrative 744,248 5,906 105,659 125,492 981,305
----------------------------------------------------------------------------
7,638,323 467,695 564,858 125,492 8,796,368
----------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 36,986 38,709 13,786 (125,492) (44,803)
OTHER INCOME (EXPENSE):
Interest expense - -
Interest income 17,316 - - 17,316
Other income 23,926 - 165 24,091
----------------------------------------------------------------------------
41,242 - 165 - 41,407
----------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 78,228 38,709 13,951 (125,492) (5,396)
INCOME TAXES (26,300) (23,743) (50,043)
----------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ 51,928 $ 38,709 $ 13,951 $ (149,235) $ (44,647)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EARNINGS
PER COMMON SHARE
FROM CONTINUING
OPERATIONS - -
BASIC AND DILUTED
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING-
BASIC AND DILUTED 21,283,982
============
</TABLE>
F-11
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE THREE MONTHS MARCH 31, 1999
1. BASIS OF PRESENTATION:
The unaudited pro forma consolidated Statements of Operations for
the year ended December 31, 1998 and the three months ended March
31, 1999, are presented as if the transaction occurred at the
beginning of 1998. The unaudited pro forma balance sheet is presented
as if the transactions occurred on March 31, 1999. The Unaudited
Pro Forma Consolidated Statements of Operations for the periods
presented may not be indicative of the results which would have
actually occurred if the transactions had been in effect on the date
or for the periods indicated or which may result in the future.
2. PRO FORMA ADJUSTMENTS:
The pro forma adjustments to the unaudited pro forma consolidated
financial statements reflect the following;
a) SALARIES - The adjustment reflects the contractual compensation
arrangements executed upon effectiveness of the transactions and
for members of DASI management.
b) INCOME TAXES - The adjustment for income taxes represents the
tax effect of DASI's, COAD and Dynamic income before taxes
giving effect to the foregoing pro forma adjustments computed
at a 34% income tax rate for estimated federal and state income
taxes. DASI and COAD had been historically taxed under the
Subchapter S provisions of the Internal Revenue Code, and Dynamic
as a partnership whereby their respective earnings had been
taxed at the shareholder and partner level for federal purposes.
c) GOODWILL - The recognition of goodwill is a result of applying
purchase accounting to these transactions and will be amortized
over a ten year period. Amortization of goodwill is not
deductible for tax purposes, therefore yielding a higher
effective tax rate than would be expected from applying a
statutory rate of 34% to income before taxes.
F-12
<PAGE>
AGREEMENT
AND
PLAN OF MERGER
BY AND AMONG
DESIGN AUTOMATION SYSTEMS, INC.
(A TEXAS CORPORATION)
AND
CONNECTED SOFTWARE SOLUTIONS, INC.
(A TENNESSEE CORPORATION)
AND
COAD SOLUTIONS, INC.
(A TEXAS CORPORATION)
(A WHOLLY OWNED SUBSIDIARY OF DESIGN AUTOMATION SYSTEMS, INC.)
AND
ROGER BARNES AND LANCE DUNBAR
(SOLE SHAREHOLDERS OF CONNECTED SOFTWARE SOLUTIONS, INC.)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLES PAGE
- --------- ----
<S> <C>
ARTICLE I REPRESENTATIONS COVENANTS, AND WARRANTIES
OF DESIGN AUTOMATION SYSTEMS, INC.............. 1
1.01 Organization.............................. 1
1.02 Capitalization............................ 2
1.03 Subsidiaries and Predecessor Corporations. 2
1.04 Financial Statements...................... 2
1.05 Information............................... 3
1.06 Options or Warrants....................... 3
1.07 Absence of Certain Changes or Events...... 3
1.08 Litigation and Proceedings................ 4
1.09 Compliance With Applicable Security Laws.. 4
1.10 Employee Benefits......................... 4
1.11 The Plan.................................. 5
ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES
OF COAD SOLUTIONS, INC......................... 5
2.01 Organization.... ......................... 5
2.02 Capitalization............................ 5
2.03 Information............................... 6
2.04 Absence of Certain Changes or Events...... 6
2.05 The Plan.................................. 7
ARTICLE III REPRESENTATIONS, COVENANTS AND WARRANTIES
OF CONNECTED SOFTWARE SOLUTIONS, INC. ......... 7
3.01 Organization.............................. 7
3.02 Ownership................................. 7
3.03 Subsidiaries and Predecessor Entities..... 7
3.04 Financial Statements...................... 7
3.05 Information............................... 9
3.06 Absence of Certain Changes or Events...... 9
3.07 Title and Related Matters................. 10
3.08 Litigation and Proceedings................ 11
3.09 Contracts................................. 11
3.10 Material Contract Defaults................ 12
3.11 No Conflict With Other Instruments........ 12
3.12 Governmental Authorizations............... 12
3.13 Compliance With Laws and Regulations...... 12
3.14 Insurance................................. 13
-i-
<PAGE>
3.15 Approval of Agreement..................... 13
3.16 Material Transactions or Affiliations..... 13
3.17 Labor Relations........................... 13
3.18 Connected Schedules....................... 13
<CAPTION>
ARTICLES PAGE
- --------- ----
<S> <C>
3.19 Year 2000................................. 14
3.20 The Plan.................................. 14
ARTICLE IV PLAN OF MERGER................................. 14
4.01 The Merger................................ 14
4.02 Closing................................... 16
4.03 Closing Events............................ 16
4.04 Piggyback Registration Rights............. 17
ARTICLE V SPECIAL COVENANTS.............................. 22
5.01 Access to Properties and Records.......... 22
5.02 Delivery of Books and Records............. 22
5.03 Third Party Consents and Certificates..... 22
5.04 Actions Prior to Closing.................. 22
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS
OF DESIGN AUTOMATION SYSTEMS, INC. ............ 23
6.01 Accuracy of Representations............... 24
6.02 Officer's Certificates.................... 24
6.03 No Material Adverse Change................ 24
6.04 Good Standing............................. 24
6.05 Other Items............................... 24
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF
CONNECTED SOFTWARE SOLUTIONS, INC.............. 25
7.01 Accuracy of Representations............... 25
7.02 Officer's Certificate..................... 25
7.03 No Material Adverse Change................ 25
7.04 Good Standing............................. 25
ARTICLE VIII TERMINATION.................................... 25
8.01 Termination............................... 25
8.02 Effect of Termination..................... 26
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ARTICLE IX MISCELLANEOUS.................................. 26
9.01 Brokers................................... 26
9.02 Governing Law............................. 26
9.03 Notices................................... 26
9.04 Arbitration............................... 27
9.05 Confidentiality........................... 28
9.06 Schedules; Knowledge...................... 28
<CAPTION>
ARTICLES PAGE
- --------- ----
<S> <C>
9.07 Third Party Beneficiaries................. 28
9.08 Entire Agreement.......................... 28
9.09 Survival.................................. 29
9.10 Counterparts.............................. 29
9.11 Amendment or Waiver....................... 29
</TABLE>
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<PAGE>
AGREEMENT
AND
PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter referred to as this
"Agreement") is entered into as of the 30th day of July, 1999 by and among
DESIGN AUTOMATION SYSTEMS, INC., a Texas Corporation ("DESIGN"), COAD
SOLUTIONS, INC., a Texas corporation and wholly owned subsidiary of DESIGN
(hereinafter referred to as "COAD") and CONNECTED SOFTWARE SOLUTIONS, INC., a
Tennessee corporation (hereinafter referred to as "CONNECTED") whose sole
shareholders are Roger Barnes and Lance Dunbar ("Shareholders").
PREMISES
This Agreement provides for the 100% acquisition of CONNECTED by
DESIGN through the merger of CONNECTED with and into COAD. It is the
intention of all parties that this transaction qualify as a tax-free
re-organization under Section 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code and as such treated as a Forward Triangular Merger.
AGREEMENT
NOW THEREFORE, on the stated premises and for and in consideration of
the mutual covenants and agreements hereinafter set forth and the mutual
benefits to the parties to be derived here from, it is hereby agreed as
follows:
ARTICLE I
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF DESIGN AUTOMATION SYSTEMS, INC.
As an inducement to, and to obtain the reliance of CONNECTED, DESIGN
represents and warrants as follows:
SECTION 1.01. ORGANIZATION. DESIGN is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Texas.
DESIGN has the corporate power and is duly authorized, qualified, franchised,
and licensed under all applicable laws, regulations, ordinances, and orders
of public authorities to own all of its properties and assets and to carry on
its business in all material respects as it is now being conducted, including
qualification to do business as a foreign corporation in the states in which
the character and location of the assets owned
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by it or the nature of the business transacted by it requires qualification.
Included in Schedule 1.01 are complete and correct copies of the articles of
incorporation, as amended, and bylaws of DESIGN as in effect on the date
hereof. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement in accordance
with the terms hereof will not, violate any provision of these articles of
incorporation or bylaws. DESIGN has taken, or will take prior to Closing,
(as defined in Section 4.02) all action required by laws, its articles of
incorporation, its bylaws, or otherwise to authorize the execution and
delivery of this Agreement. DESIGN has full power, authority, and legal
right and has taken all action required by law, its certificate of
incorporation, bylaws, and otherwise to consummate the transactions herein
contemplated.
SECTION 1.02. CAPITALIZATION. The authorized capitalization of
DESIGN consists of 50,000,000 shares of common stock, $0.01 par value per
share, of which 21,293,986 shares are currently issued and outstanding. A
shareholder list is available for inspection at the offices of DESIGN. All
issued and outstanding shares are legally issued, fully paid, and
non-assessable and not issued in violation of the pre-emptive or other rights
of any person. There are employee incentive options outstanding as shown by
Schedule 1.06.
SECTION 1.03. SUBSIDIARIES AND PREDECESSOR CORPORATIONS. Except for
Coad Solutions, Inc., a Texas corporation, and Loch Energy, Inc., DESIGN does
not have any subsidiaries and does not own, beneficially or of record, any
shares of any other corporation. DESIGN has title to such stock free and
clear of any liens.
SECTION 1.04. FINANCIAL STATEMENTS. DESIGN (i) has delivered or will
cause to be delivered to CONNECTED true and correct copies of Form 10-K for the
fiscal year ended December 31, 1998 ("Form 10-K") and (ii) has delivered its
Form 10-Q ("Form 10-Q") dated effective March 31, 1999 and (iii) has delivered
its audited financial statements for the periods ended December 31, 1997 and
1996 (The "Audits"). As of their respective dates, the Form 10-K, Form 10-Q and
the Audits did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Form 10-K, Form 10-Q and the Audits present fairly the
financial condition, assets, liabilities, and stockholders'
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equity of DESIGN as of its date; each such statement of income and statement
of retained earnings presents fairly the results of operations of DESIGN for
the period indicated and each such statement of changes in financial position
presents fairly the information purported to be shown therein. The Financial
Statements referred to in this Section 1.04 have been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
throughout the periods involved, are correct and complete in all material
respects and are in accordance with the books and records of DESIGN, which
books and records are also complete and correct in all material respects and
have been maintained in accordance with sound business and accounting
practices.
SECTION 1.05. INFORMATION. The information concerning DESIGN set
forth in this Agreement and in Schedules attached hereto is complete and
accurate in all material respects and does not contain any untrue statement
of a material fact or omit to state a material fact required to make the
statements made, in light of the circumstances under which they were made,
not misleading.
SECTION 1.06. OPTIONS OR WARRANTS. Existing options, warrants,
calls, or commitments of any character relating to the authorized and
unissued DESIGN common stock are set forth in Schedule 1.06.
SECTION 1.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in Schedule 1.07 since March 31, 1999:
1. There has not been (i) any material adverse change in the
business, operations, properties, assets, or condition of DESIGN;
or (ii) any damage, destruction, or loss to DESIGN (whether or not
covered by insurance) materially and adversely affecting the
business, operations, properties, assets, or condition of DESIGN;
2. DESIGN has not (i) amended its certificate of incorporation or
bylaws; (ii) declared or made, or agreed to declare or make, any
payment of dividends or distributions of any assets of any kind
whatsoever to stockholders or purchased or redeemed, or agreed to
purchase or redeem, any of its capital stock; (iii) waived any
rights of value which in the aggregate are extraordinary or
material considering the business of DESIGN; (iv) made any
material change in its method of
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management, operation, or accounting; (v) entered into any
other material transaction; (vi) made any accrual or
arrangement for payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or
former officer of employee; (vii) increased the rate of
compensation payable or to become payable by it to any of its
officers or directors or any of its employees whose monthly
compensation exceeds $20,000; or (viii) made any increase in
any profit sharing, bonus, deferred compensation, insurance,
pension, retirement, or other employee benefit plan, payment,
or arrangement made to, for, or with its officers, directors,
or employees; and
3. DESIGN has not (i) borrowed or agreed to borrow any funds or
incurred, or become subject to, any material obligation or
liability (absolute or contingent); (ii) paid any material
obligation or liability (absolute or contingent) other than
current liabilities reflected in or shown on the most recent
DESIGN balance sheet; (iii) sold or transferred, or agreed to sell
or transfer, any of its assets, properties, or rights (except
assets, properties, or rights not used or useful in its business
which, in the aggregate have a value of less than $20,000), or
canceled, or agreed to cancel, any debts or claims (except debts
or claims which in the aggregate are of a value of less than
$1,000); (iv) made or permitted any amendment or termination of
any contract, agreement, or license to which it is a party if such
amendment or termination is material, considering the business of
DESIGN; or (v) issued, delivered, or agreed to issue or deliver
any stock, bonds, or other corporate securities including
debentures (whether authorized and unissued or held as treasury
stock).
SECTION 1.08. LITIGATION AND PROCEEDINGS. Except as expressly
disclosed in the Form 10-K, Form 10-Q or The Audits, there is no proceeding
by or before (or, to the best knowledge of DESIGN, any investigation by) any
governmental or other instrumentality or agency or before any court or other
arbitrator of any kind, pending, or, to the knowledge of DESIGN, threatened
against or affecting DESIGN or any of its properties or rights, except for
such actions, suits, proceedings, arbitrations or investigations that do not
have and are not reasonably likely to have, individually or in the aggregate,
a material adverse effect
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<PAGE>
on the condition of DESIGN. There are no proceedings pending or, to the best
knowledge of DESIGN, threatened, seeking to prevent or challenging the
transactions contemplated by this agreement. DESIGN is not subject to any
judgment, order or decree entered in any proceeding, that has had or could
have a material adverse effect on the condition of DESIGN.
SECTION 1.09. COMPLIANCE WITH APPLICABLE SECURITY LAWS. DESIGN has
complied in all material respects with all provisions of the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934 as applicable to
DESIGN.
SECTION 1.10. EMPLOYEE BENEFITS. All shareholders and employees of
CONNECTED shall immediately be entitled to participate in any employee
benefit plans as such term is defined in Section 3(3) of the Employer
Retirement Security Income Security Act of 1974. DESIGN and COAD hereby
represent and warrant that they will not reduce in any material manner the
benefits to which any employees of CONNECTED are entitled under any existing
health plan, 401(k) plan or other employee benefit plan and as further set
forth by his or her employment contract.
Section 1.11. THE PLAN. While it is the intention of the parties
that this transaction qualify as a tax-free reorganization under Section
368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code and be treated as
a Forward Triangular Merger, no representation is made by DESIGN that the
transaction will so qualify.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF COAD SOLUTIONS, INC.
As an inducement and to obtain the reliance of CONNECTED, COAD
represents and warrants as follows:
SECTION 2.01. ORGANIZATION. COAD is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Texas.
COAD has the corporate power and is duly authorized, qualified, franchised,
and licensed under all applicable laws, regulations, ordinances, and orders
of public authorities to own all of its properties and assets and to carry on
its business in all material respects as it is now being conducted, including
qualification to do business as a foreign corporation in the states in which
the character and location of the assets owned by it or the nature of the
business transacted by it requires
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<PAGE>
qualification. Included in Schedule 2.01 are complete and correct copies of
the articles of incorporation and bylaws of COAD as in effect on the date
hereof. The execution and delivery of this Agreement does not, and the
consummation of the transaction contemplated by this Agreement in accordance
with the terms hereof will not, violate any provision of these articles of
incorporation or bylaws. COAD has taken, or will take prior to Closing, (as
defined in Section 4.02) all action required by laws, its articles of
incorporation, its bylaws, or otherwise to authorize the execution and
delivery of this Agreement. COAD has full power, authority, and legal right
and has taken all action required by law, its certificate of incorporation,
bylaws, and otherwise to consummate the transactions herein contemplated.
SECTION 2.02. CAPITALIZATION. The authorized capitalization of COAD
consists of 100,000 shares of common stock, no par value per share, of which
1,000 shares are currently issued and outstanding and held of record by
Design Automation Systems, Inc. All issued and outstanding shares are
legally issued, fully paid, and non-assessable and not issued in violation of
the pre-emptive or other rights of any person. There are employee incentive
options outstanding as shown by Schedule 1.06.
SECTION 2.03. INFORMATION. The information concerning COAD set
forth in this Agreement and in Schedules attached hereto is complete and
accurate in all material respects and does not contain any untrue statement
of a material fact or omit to state a material fact required to make the
statements made, in light of the circumstances under which they were, not
misleading.
SECTION 2.04. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in Schedule 2.04 since March 31, 1999:
A. There has not been (i) any material adverse change in the
business, operations, properties, assets, or condition of COAD; or
(ii) any damage, destruction, or loss to COAD (whether or not
covered by insurance) materially and adversely affecting the
business, operations, properties, assets, or condition of COAD;
B. COAD has not (i) amended its certificate of incorporation or
bylaws; (ii) declared or made, or agreed to declare or make, any
payment of dividends or distributions of any assets of any kind
whatsoever to stockholders or purchased or redeemed, or agreed to
purchase or redeem, any of its capital stock; (iii) waived any
rights of
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<PAGE>
value which in the aggregate are extraordinary or material
considering the business of COAD; (iv) made any material change
in its method of management, operation, or accounting; (v)
entered into any other material transaction; (vi) made any
accrual or arrangement for payment of bonuses or special
compensation of any kind or any severance or termination pay to
any present or former officer of employee; (vii) increased the
rate of compensation payable or to become payable by it to any
of its officers or directors or any of its employees whose
monthly compensation exceeds $20,000; or (viii) made any
increase in any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan,
payment, or arrangement made to, for, or with its officers,
directors, or employees; and
C. COAD has not (i) borrowed or agreed to borrow any funds or
incurred, or become subject to, any material obligation or
liability (absolute or contingent); (ii) paid any material
obligation or liability (absolute or contingent) other than
current liabilities reflected in or shown on the most recent COAD
balance sheet; (iii) sold or transferred, or agreed to sell or
transfer, any of its assets, properties, or rights (except assets,
properties, or rights not used or useful in its business which, in
the aggregate have a value of less than $20,000), or canceled, or
agreed to cancel, any debts or claims (except debts or claims
which in the aggregate are of a value of less than $1,000); (iv)
made or permitted any amendment or termination of any contract,
agreement, or license to which it is a party if such amendment or
termination is material, considering the business of COAD; or (v)
issued, delivered, or agreed to issue or deliver any stock, bonds,
or other corporate securities including debentures (whether
authorized and unissued or held as treasury stock).
2.05. THE PLAN. While it is the intention of the parties that this
transaction qualify as a tax-free reorganization under Section 368(a)(1)(A)
and 368(a)(2)(D) of the Internal Revenue Code and be treated as a Forward
Triangular Merger, no representation is made by COAD that the transaction
will so qualify.
ARTICLE III
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<PAGE>
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF CONNECTED PROFESSIONAL SERVICES, L.L.C.
As an inducement to, and to obtain the reliance of DESIGN, CONNECTED
represents and warrants as follows:
SECTION 3.01. ORGANIZATION. CONNECTED is a Tennessee corporation
duly organized, validly existing, and in good standing under the laws of the
State of Tennessee. CONNECTED has the power and is duly authorized,
qualified, franchised, and licensed under all applicable laws, regulations,
ordinances, and orders of public authorities to own all of its properties and
assets and to carry on its business in all material respects as it is now
being conducted, including qualification to do business as a foreign
corporation in the states in which the character and location of the assets
owned by it or the nature of the business transacted by it requires
qualification. Included in Schedule 3.01 are complete and correct copies of
the articles of incorporation, by-laws and minutes, of CONNECTED as in effect
on the date hereof. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated by this Agreement in
accordance with the terms hereof will not, violate any provision of these
articles of incorporation and by-laws. CONNECTED has taken or will take
prior to closing, all action required by laws, its articles of incorporation
and by-laws to authorize the execution and delivery of this Agreement.
CONNECTED has full power, authority, and legal right and has taken all action
required by law, to consummate the transactions herein contemplated.
SECTION 3.02. OWNERSHIP. The ownership of CONNECTED is as set forth
by Schedule 3.02.
SECTION 3.03. SUBSIDIARIES AND PREDECESSOR ENTITIES. CONNECTED does
not have any subsidiaries and does not own, beneficially or of record, any
other entity. Predecessor information is set forth by Schedule 3.03.
SECTION 3.04. FINANCIAL STATEMENTS.
1. Included in Schedule 3.04(A) is the June 30, 1999 unaudited
balance sheet and statement of operations of CONNECTED. (The
"Financial Statement")
2. The Financial Statement has been prepared on the cash basis of
accounting. CONNECTED did not have, as of the
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date of The Financial Statement, except as set forth on
Schedule 3.04(B), any liabilities or obligations (absolute or
contingent) which should have been be reflected in the balance
sheet or the notes thereto, had such financial statement been
prepared in accordance with generally accepted accounting
principles.
3. CONNECTED and its predecessor has filed all state, federal, and
local income tax returns required to be filed by it from inception
to the date hereof. Included in Schedule 3.04(C) are true and
correct copies of the federal income tax returns of CONNECTED or
its predecessor filed since inception. Except as set forth on
Schedule 3.04(C) none of such federal income tax returns have been
examined by the Internal Revenue Service. Each of such income tax
returns reflects the taxes due for the period covered thereby,
except for amounts which, in the aggregate, are immaterial.
CONNECTED has filed its election with the IRS to be treated as a
corporation.
4. CONNECTED or its Shareholders do not owe any unpaid federal,
state, county, local, or other taxes (including any deficiencies,
interest, or penalties) through the date hereof, for which
CONNECTED or its Shareholders may be liable in its own right or as
a transferee of the assets of, or as a successor to, any other
corporation or entity. Furthermore, except as accruing in the
normal course of business, CONNECTED does not owe any accrued and
unpaid taxes to date of this Agreement.
5. The books and records, financial and otherwise, of CONNECTED are
in all material respects complete and correct and have been
maintained in accordance with good business and accounting
practices.
6. CONNECTED has good and valid title to its assets and, to the best
knowledge of CONNECTED, except as set forth in Schedule 3.04(F) or
any liability has no material consequence.
SECTION 3.05. INFORMATION. The information concerning CONNECTED set
forth in this Agreement and in Schedules attached hereto is complete and
accurate in all material respects and does not contain any untrue statement of a
material fact or omit to
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state a material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading.
SECTION 3.06. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in this Agreement or Schedule 3.06, since July 1, 1999:
1. There has not been (i) any material adverse change in the
business, operations, properties, assets, or condition of
CONNECTED or its predecessor; or (ii) any damage, destruction, or
loss to CONNECTED (whether or not covered by insurance) materially
and adversely affecting the business, operations, properties,
assets, or condition of CONNECTED;
2. CONNECTED has not (i) amended its articles of incorporation or
by-laws; (ii) waived any rights of value which in the aggregate
are extraordinary or material considering the business of
CONNECTED; (iii) made any material change in its method of
management, operations, or accounting; (iv) entered into any
other material transaction; (v) made any accrual or arrangement
for payment of bonuses or special compensation of any kind or
any severance or termination pay to any present or former
shareholder or employee; (vi) increased the rate of
compensation payable or to become payable by it to any of its
Shareholders or any of its employees whose monthly compensation
exceeds $2,000; or (vii) made any increase in any profit
sharing, bonus, deferred compensation, insurance, pension,
retirement, or other employee benefit plan, payment, or
arrangement made to, for, or with its Shareholders, or
employees;
3. CONNECTED has not (i) borrowed or agreed to borrow any funds or
incurred, or become subject to, any material obligation or
liability (absolute or contingent) except liabilities incurred in
the ordinary course of business which includes expenses related to
this Agreement and the Merger; (ii) paid any material obligation
or liability (absolute or contingent) other than current
liabilities reflected in or shown on the financial statement, and
current liabilities incurred since that date in the ordinary
course of business; (iii) sold or transferred, or agreed to sell
or transfer, any of its assets,
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properties, or rights (except assets, properties, or rights not
used or useful in its business which, in the aggregate have a
value of less than $2,000), or canceled, or agreed to cancel,
any debts or claims (except debts or claims which in the
aggregate are of a value of less than $2,000); (iv) made or
permitted any amendment or termination of any contract,
agreement, or license to which it is a party if such amendment
or termination is material, considering the business of
CONNECTED; and
4. To the best knowledge of CONNECTED, CONNECTED has not become
subject to any law or regulation which materially and adversely
affects, or in the future could reasonably be expected to
materially and adversely affect, the business, operations,
properties, assets, or condition of CONNECTED.
SECTION 3.07. TITLE AND RELATED MATTERS. CONNECTED has good and
valid title to all of its properties, inventory, interests in properties, and
assets, real and personal, which are reflected in The Financial Statement or
acquired after that date (except properties, interests in properties, and
assets sold or otherwise disposed of since such date in the ordinary course
of business), free and clear of all liens, pledges, charges, or encumbrances
except (a) statutory liens or claims not yet due and payable and/or
delinquent; (b) such imperfections of title and easements as do not and will
not materially detract from or interfere with the present or proposed use of
the properties subject thereto or affected thereby or otherwise materially
impair present business operations on such properties; and (c) as described
in Schedule 3.07. Except as set forth in Schedule 3.07, CONNECTED owns, free
and clear of any liens, claims, encumbrances, royalty interests, or other
restrictions or limitations of any nature whatsoever, any and all products it
is currently manufacturing, including the underlying technology and data, and
all procedures, techniques, marketing plans, business plans, methods of
management, or other information utilized in connection with CONNECTED's
business. Except as set forth in Schedule 3.07, no third party has any right
to and CONNECTED has not received any notice of infringement of or conflict
with asserted rights of others with respect to any product, technology, data,
trade secrets, know-how, proprietary techniques, trademarks, service marks,
trade names, or copyrights which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling, or finding, would have a materially
adverse
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affect on the business, operations, financial condition, income, or business
prospects of CONNECTED or any material portion of its properties, assets, or
rights.
SECTION 3.08. LITIGATION AND PROCEEDINGS. Except as set forth in
Schedule 3.08, there are no actions, suits, proceedings, or investigations
pending or, to the knowledge of CONNECTED, threatened by or against CONNECTED
or affecting CONNECTED or its properties, at law or in equity, before any
court or other governmental agency or instrumentality, domestic or foreign,
or before any arbitrator of any kind. CONNECTED does not have any knowledge
of any default on its part with respect to any judgment, order, writ,
injunction, decree, award, rule, or regulation of any court, arbitrator, or
governmental agency or instrumentality or of any circumstances which would
result in the discovery of such a default.
SECTION 3.09. CONTRACTS.
1. Schedule 3.09 lists all material contracts, agreements,
franchises, license agreements, or other commitments to which
CONNECTED is a party or by which it or any of its assets,
products, technology, or properties are bound;
2. All contracts, agreements, franchises, license agreements, and
other commitments to which CONNECTED is a party or by which its
properties are bound and which are material to the operations of
CONNECTED taken as a whole are valid and enforceable by CONNECTED
in all respects, except as limited by bankruptcy and insolvency
laws and by other laws affecting the rights of creditors
generally;
3. CONNECTED is not a party to or bound by, and the properties of
CONNECTED are not subject to: any contract, agreement, other
commitment or instrument; any charter or other corporate
restriction; or any judgment, order, writ, injunction, decree, or
award, which materially and adversely affects, or in the future
may (as far as CONNECTED can now foresee) materially and adversely
affect, the business, operations, properties, assets, or condition
of CONNECTED; and
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4. Except as included or described in Schedule 3.09 or reflected in
The Financial Statement, CONNECTED is not a party to any oral or
written (i) contract for the employment of any shareholder or
employee which is not terminable on 30 days or less notice; (ii)
profit sharing, bonus, deferred compensation, stock option,
severance pay, pension benefit or retirement plan, agreement, or
arrangement covered by Title IV of the Employee Retirement Income
Security Act, as amended; (iii) agreement, contract, or indenture
relating to the borrowing of money; (iv) guaranty of any
obligation, other than one on which CONNECTED is a primary
obligor, of the borrowing of money or otherwise, excluding
endorsements made for collection and other guaranties of
obligations, which in the aggregate do not exceed more than one
year or providing for payments in excess of $10,000 in the
aggregate; (vi) collective bargaining agreement; (vii) agreement
with any present or former shareholder, of CONNECTED or (viii)
contract, agreement, or other commitment involving payments by it
of more than $10,000 in the aggregate.
SECTION 3.10. MATERIAL CONTRACT DEFAULTS. Except as set forth in
Schedule 3.10, CONNECTED is not in default in any material respect under the
terms of any outstanding contract, agreement, lease, or other commitment
which is material to the business, operations, properties, assets, or
condition of CONNECTED and there is no event of default in any material
respect under any such contract, agreement, lease, or other commitment in
respect of which CONNECTED has not taken adequate steps to prevent such a
default from occurring.
SECTION 3.11. NO CONFLICT WITH OTHER INSTRUMENTS. Except as set
forth in Schedule 3.11, the execution of this Agreement and the consummation
of the transactions contemplated by this Agreement will not result in the
breach of any term or provision of, or constitute an event of default under,
any material indenture, mortgage, deed of trust, or other material contract,
agreement, or instrument to which CONNECTED is a party or to which any of its
properties or operations are subject.
SECTION 3.12. GOVERNMENTAL AUTHORIZATIONS. Set forth in Schedule
3.12 is a description of all licenses, franchises, permits, and other
governmental authorizations that are legally required by CONNECTED to conduct
its business in all material
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respects as conducted on the date hereof. Except for compliance with federal
and state laws, as herein-after provided, no authorization, approval,
consent, or order of, or registration, declaration, or filing with, any court
or other governmental body is required in connection with the execution and
delivery by CONNECTED of this Agreement and the consummation by CONNECTED of
the transactions contemplated hereby.
SECTION 3.13. COMPLIANCE WITH LAWS AND REGULATIONS. Except as set
forth in Schedule 3.13, CONNECTED has complied with all applicable statutes
and regulations of any federal, state, or other governmental entity or agency
thereof, except to the extent that noncompliance would not materially and
adversely affect the business, operations, properties, assets, or condition
of CONNECTED or except to the extent that noncompliance would not result in
the incurrence of any material liability for CONNECTED.
SECTION 3.14. INSURANCE. All the insurable properties of CONNECTED
are insured in their full replacement value against all risks customarily
insured against by persons operating similar properties in localities where
such properties are located and under valid and enforceable policies by
insurers of recognized responsibility. Such policy or policies containing
substantially equivalent coverage will be outstanding on the date of
consummation of the transactions contemplated by this Agreement. Set forth
on Schedule 3.14 is a list of all policies or binders of fire, liability,
product liability, worker's compensation, vehicular or other insurance held
by or on behalf of CONNECTED (specifying for each such policy the insurer,
the policy number or covering note number with respect to binders, and each
pending claim thereunder, if any, and setting forth the aggregate amount paid
out under each policy through the date hereof.
SECTION 3.15. APPROVAL OF AGREEMENT. The Shareholders of CONNECTED
have, or will by the Closing, have authorized the execution and delivery of
this Agreement and have approved the transactions contemplated.
SECTION 3.16. MATERIAL TRANSACTIONS OR AFFILIATIONS. Set forth in
Schedule 3.16 is a description of every material contract, agreement, or
arrangement between CONNECTED and any predecessor entity and a person who was
at the time of such contract, agreement or arrangement a Shareholder, or
person owning of record, or known by CONNECTED to own beneficially, 5% or
more in CONNECTED and which is to be performed in whole or in part after the
date hereof or
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which was entered into not more than three years prior to the date hereof. In
all of such transactions, the amount paid or received, whether in cash, in
services, or in kind, is, and is required to be during the unexpired portion
of the term thereof, no less favorable to CONNECTED than terms available from
otherwise unrelated parties in arm's length transactions. There are no
commitments by CONNECTED, whether written or oral, to lend any funds to,
borrow any money from, or enter into any other material transaction with, any
such affiliated person nor is there any pending material transaction with any
affiliated person.
SECTION 3.17. LABOR RELATIONS. CONNECTED has not had a work stoppage
resulting from labor problems. To the knowledge of CONNECTED, no union or
other collective bargaining organization is organizing or attempting to
organize any employee of CONNECTED.
SECTION 3.18. CONNECTED SCHEDULES. CONNECTED has delivered to DESIGN
as part of this Agreement the following additional schedules, all certified
by the manager of CONNECTED as complete, true, and correct:
1. Schedule 3.18(a) containing a description of all real property
owned by CONNECTED together with a description of every mortgage,
deed of trust, pledge, lien, agreement, encumbrance, claim, or
equity interest of any nature whatsoever in such real property;
2. Schedule 3.18(b) listing the accounts receivable and notes and
other obligations receivable of CONNECTED as of July 1, 1999, or
that arose thereafter other than in the ordinary course of
business of CONNECTED, indicating the debtor and amount, and
classifying the accounts to show in reasonable detail the length
of time, if any, overdue, and stating the nature and amount of any
refunds, set offs, reimbursements, discounts, or other adjustments
which are in the aggregate material and due to or claimed by such
creditor; and
A. Schedule 3.18(c) listing the accounts payable and notes and other
obligations payable of CONNECTED as of July 1, 1999, or that arose
thereafter other than in the ordinary course of the business of
CONNECTED, indicating the creditor and amount, classifying the
accounts to show in reasonable detail the length of time, if any,
overdue, and stating the nature and amount of any refunds, set-
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offs, reimbursements, discounts, or other adjustments which in the
aggregate are material and due or payable to CONNECTED respecting
such obligations.
SECTION 3.19. YEAR 2000. Year 2000 defects resulted from computer
programs being written using two digits rather than four to define the
applicable year. CONNECTED represents and warrants that CONNECTED's
operation systems are free from Year 2000 defects, or that if such defects
exist the cost of repair would not have a material adverse effect on the
financial condition of CONNECTED.
SECTION 3.20. THE PLAN. CONNECTED represents and warrants that
CONNECTED has received no representation from DESIGN or COAD that the plan
will or will not qualify under Sections 368(a)(1)(A) and 368(a)(2)(D) of the
Internal Revenue Code as a tax free Forward Triangular Merger.
ARTICLE IV
PLAN OF MERGER
SECTION 4.01. THE MERGER.
1. Subject to the provisions of this Agreement, CONNECTED shall be
merged with and into COAD in accordance with the provisions of the
Texas Business Corporation Act and the applicable laws of the
State of Tennessee (collectively, the "Merger Law"), whereupon the
separate existence of CONNECTED shall cease and COAD shall be the
survivor, COAD and CONNECTED are sometimes referred to herein as
"Constituent Companies", and COAD as the "Surviving Company".
2. As soon as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Closing, the
Constituent Companies shall execute and file Articles of Merger,
prepared by counsel to DESIGN in a form reasonably acceptable to
counsel to CONNECTED (the "Articles of Merger"), with the
Secretary of State of the State of Texas and with the State of
Tennessee in accordance with the Merger Law, and shall otherwise
make all other filings or recordings required by the Merger Law in
connection with the Merger. The Merger shall become effective at
such date and time as the Articles of
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Merger are duly filed with, and accepted by, the Secretary of
State (the "Effective Time").
3. At the Effective Time, the separate existence of CONNECTED shall
cease and CONNECTED shall be merged with and into COAD and COAD
shall be the Surviving Company.
4. From and after the Effective Time: (i) the Articles of
Incorporation of the Surviving Company shall be the Articles of
Incorporation of COAD; (ii) the Bylaws of COAD as in effect
immediately prior to the Effective Time, shall be the Bylaws of
the Surviving Company, until thereafter amended in accordance with
applicable law; (iii) the directors of COAD at the Effective Time
shall become the directors of the Surviving Company, until their
respective successors are duly elected or appointed and qualified
in accordance with applicable law; and (iv) the officers of COAD
at the Effective Time shall become the initial officers of the
Surviving Company, to serve at the pleasure of the board of
directors of the Surviving Company.
5. At the Effective Time by virtue of the Merger and the applicable
provisions of the Merger Law and without any further action on the
part of the Constituent Companies, all rights, franchises, and
interests of CONNECTED in and to every type of property (real,
personal, and mixed) and causes of action shall be transferred to
and vested in the Surviving Company by virtue of the Merger
without any deed or other transfer, and the Surviving Company at
the Effective Time and without any order or other action on the
part of any court or otherwise, shall hold and enjoy all rights of
property, franchises, and interests in the same manner and to the
same extent as such rights, franchises, and interest were held or
enjoyed by CONNECTED and COAD, respectively, immediately prior to
the Effective Time. All corporate acts, plans, policies,
contracts, approvals, and authorizations of CONNECTED and COAD,
and their respective shareholders, Boards of Directors, committees
elected or appointed thereby, officers, and agents, which were
valid and effective immediately prior to the Effective Time of the
Merger, shall be taken for all purposes as the acts, plans,
policies, contracts, approvals, and authorizations of the
Surviving Company, and shall be as effective and binding
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thereon as the same were with respect to CONNECTED and COAD.
6. At the Effective Time, the Surviving Company shall be liable for
all liabilities of CONNECTED, and all debts, liabilities,
obligations, and contracts of CONNECTED, whether matured or
unmatured, whether accrued, absolute, contingent, or otherwise,
and whether or not reflected or reserved against on balance
sheets, books, accounts, or records of CONNECTED, as the cases may
be, shall be those of, and are hereby expressly assumed by, the
Surviving Company, and shall not be released or impaired by the
Merger; and all rights of creditors and other obligees and all
liens on property of CONNECTED shall be preserved unimpaired. At
the Effective Time, the Surviving Company shall be liable for all
then existing indemnification obligations of CONNECTED, under its
Articles of Incorporation, Bylaws or under any other agreement.
7. At the Effective Time, the Shareholder Interests of CONNECTED
shall be converted into the right to receive the Common Stock, par
value $0.01 per share of DESIGN in the amount set forth on
Schedule 4.01 (the "Merger Consideration").
SECTION 4.02. CLOSING. The closing ("Closing") of the transactions
contemplated by this Agreement shall be close of business as of the 30th day
of July, 1999.
SECTION 4.03. CLOSING EVENTS.
A. As of the Closing, each of the respective parties hereto shall
authorize the filing of the Articles of Merger.
B. At the Closing, the Shareholders of CONNECTED shall receive the
Merger Consideration from DESIGN consisting of (i) 300,000 shares
of DESIGN. All such shares of common stock of DESIGN shall be
distributed among the Shareholders of CONNECTED as shown in
Schedule 4.01 hereof.
C. In addition to the stock referred to in Subsection B of this
Section 4.03, the Shareholders of CONNECTED shall receive from
DESIGN, the aggregate, $300,000.00 in cash to be distributed in
six (6) quarterly installments of $50,000.00 each beginning ninety
(90) days from closing. Such cash payments shall be distributed
among the
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Shareholders of CONNECTED as shown in Schedule 4.01 hereof.
DESIGN may provide written evidence of such obligation as may
be requested from time to time by the Shareholders of CONNECTED
set forth on Schedule 4.01.
D. On August 1, 2000, DESIGN shall deliver to the Shareholders of
CONNECTED the additional Merger Consideration provided for in
Schedule 4,01, if any, together with all documentation required
thereby evidencing the closing price calculation.
E. If at any time after the Closing, or after August 1, 2000 to the
extent any additional Merger Consideration shares are issued,
DESIGN shall receive a written request from the Shareholders to
effect the registration under the Securities Act of any Common
Stock owned by the Shareholders, then as soon as practicable
thereafter, but in no event later than 90 days following the
receipt of such request, DESIGN shall file a registration
statement with the Securities and Exchange Commission with respect
to such DESIGN Common Stock and shall thereafter use its best
efforts to cause such registration to become effective under the
Securities Act in accordance with the provisions of this
paragraph. The Company shall be responsible for all expenses in
connection with the registration including legal, accounting and
filing fees. The same registration obligations set forth in this
paragraph will be applicable with respect to any such additional
shares which may be issued pursuant to Schedule 4.01 on August 1,
2000.
SECTION 4.04. PIGGYBACK REGISTRATION RIGHTS. The individuals named in
Schedule 4.01 (Holder) are granted right to Piggyback on a firm commitment
underwriting of DESIGN securities for three (3) years with the shares set forth
beside their names as follows:
1. (1) DESIGN will (i) promptly give to the Holder written notice of
any registration relating to a firm commitment public offering of
DESIGN securities; and (ii) include in such registration (and
related qualification under blue sky laws or other compliance,
unless such expense or terms of such qualification is unreasonable
in comparison to the number of securities to be registered in such
jurisdiction, as determined in the sole discretion of DESIGN), and
in the underwriting involved therein, all the Securities specified
in Holder's written request or
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requests, herein within 30 days after the date of such written
notice from DESIGN.
(2) The right of Holder to registration shall be conditioned upon
Holder's participation in such underwriting, and the inclusion of
the Securities in the underwriting shall be limited to the extent
provided herein. The Holder and all other holders proposing to
distribute their securities through such underwriting shall
(together with DESIGN and the other holders distributing their
securities through such underwriting) enter into an underwriting
agreement in customary form with the managing underwriter selected
for such underwriting by DESIGN. Notwithstanding any other
provision of this Agreement, if the managing underwriter
determines that marketing factors require a limitation of the
number of shares to be underwritten, the managing underwriter may
limit some or all of the Securities that may be included in the
registration and underwriting as follows: the number of Securities
that may be included in the registration and underwriting by the
Holder shall be determined by multiplying the number of shares of
Securities of all selling shareholders of DESIGN which the
managing underwriter is willing to include in such registration
and underwriting, times a fraction, the numerator of which is the
number of Securities requested to be included in such registration
and underwriting by the Holder, and the denominator of which is
the total number of Securities which all selling shareholders of
DESIGN have requested to have included in such registration and
underwriting. To facilitate the allocation of shares in
accordance with the above provisions, DESIGN may round the number
of shares allocable to any such person to the nearest 100 shares.
If the Holder disapproves of the terms of any such underwriting it
may elect to withdraw therefrom by written notice to DESIGN and
the managing underwriter, delivered not less than seven days
before the effective date. Any securities withdrawn from such
underwriting by the Holder shall be withdrawn from such
registration, and shall not be transferred in a public
distribution prior to 120 days after the effective date of the
registration statement relatig thereto, or such other shorter
period of time as the underwriters may require.
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2. REGISTRATION PROCEDURE. With respect to each Registration Right,
the following provisions shall apply:
(1) The Holder shall be obligated to furnish to DESIGN and the
underwriters (if any) such information regarding the Securities
and the proposed manner of distribution of the Securities as
DESIGN and the underwriters (if any) may request in writing and as
shall be required in connection with any registration,
qualification or compliance referred to herein and shall otherwise
cooperate with DESIGN and the underwriters (if any) in connection
with such registration, qualification or compliance.
(2) With a view to making available the benefits of certain rules
and regulations of the Commission which may at any time permit the
sale of the Restricted Securities (used herein as defined in Rule
144 under the Securities Act) to the public without registration,
DESIGN agrees to use its best lawful efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the
Securities Act, at all times during which DESIGN is subject
to the reporting requirements of the Securities Exchange
Act of 1934, as amended ("Exchange Act");
(b) File with the Commission in a timely manner all reports
and other documents required of DESIGN under the Securities
Act and the Exchange Act (at all times during which DESIGN
is subject to such reporting requirements); and
(c) Remove all restrictive legends and stop transfer orders
applicable to any shares to be sold under Rule 144.
(3) All expenses (except for costs of any interim audit required
by underwriters, any underwriting and selling discounts and
commissions and legal fees for Holder's attorneys) of any
registrations permitted pursuant to this Agreement and of all
other offerings by DESIGN (including, but not limited to, the
expenses of any qualifications under the blue-sky or other state
securities laws and compliance with governmental
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requirements of preparing and filing any post-effective
amendments required for the lawful distribution of the
Securities to the public in connection with such registration,
of supplying prospectuses, offering circulars or other
documents) will be paid by DESIGN.
(4) In connection with the preparation and filing of a
registration statement under the Securities Act pursuant to this
Agreement, DESIGN will give the Holder, its counsel and
accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its
books and records and such opportunities to discuss the business
of DESIGN with its officers and the independent public accountants
who have certified its financial statements as shall be necessary
to conduct a reasonable investigation within the meaning of the
Securities Act.
C. INDEMNIFICATION BY DESIGN. (1) In the event of any registration
of the Securities of DESIGN under the Securities Act, DESIGN
agrees to indemnify and hold harmless the Holder and each other
person who participates as an underwriter in the offering or sale
of such securities against any and all claims, demands, losses,
costs, expenses, obligations, liabilities, joint or several,
damages, recoveries and deficiencies, including interest,
penalties and attorneys' fees (collectively, "Claims"), to which
the Holder or underwriter may become subject under the Securities
Act or otherwise, insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based on any untrue statement or alleged
untrue statement of any material fact contained in any
registration statement under which Holder's Securities were
registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and DESIGN will reimburse the Holders and each such
underwriter for any legal or any other expenses reasonably
incurred by them in connection with investigating or defending any
such Claim (or action or
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proceeding in respect thereof); provided that DESIGN shall not
be liable in any such case to the extent that any such Claim
(or action or proceeding in respect thereof) or expense arises
out of or is based on an untrue statement or alleged untrue
statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in
reliance on and in conformity with written information
furnished to DESIGN through an instrument duly executed by the
Holders specifically stating that it is for use in the
preparation thereof. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf
of the Holders or any such underwriter and shall survive the
transfer of the Securities by the Holder.
(2) INDEMNIFICATION BY THE HOLDER. DESIGN may require, as a
condition to including the Securities in any registration
statement filed pursuant to this Agreement, that DESIGN shall have
received an undertaking satisfactory to it from the Holder, to
indemnify and hold harmless DESIGN, each director of DESIGN, each
officer of DESIGN and each other person, if any, who controls
DESIGN, within the meaning of the Securities Act, with respect to
any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary
prospectus contained therein, or any amendment or supplement
thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance on and in conformity with
written information furnished to DESIGN through an instrument duly
executed by the Holder specifically stating that it is for use in
the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or
supplement. Notwithstanding-standing the foregoing, the maximum
liability hereunder which any holder shall be required to suffer
shall be limited to the net proceeds to such Holder from the
Shares sold by such Holder in the offering. Such indemnity shall
remain in full force and effect, regardless of any investigation
made by or on behalf of DESIGN or any such director, officer or
controlling person and shall survive the transfer of the
Securities by the Holder.
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(3) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or
proceeding involving a Claim referred to in this Subsection C,
such indemnified party will, if a claim in respect thereof is to
be made against an indemnifying party, give written notice to the
latter of the commencement of such action, provided that the
failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under
this Subsection C, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnifying party,
unless in such indemnified party's reasonable judgment a conflict
of interest between such indemnified and indemnifying parties may
exist in respect of such Claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified to
the extent that it may wish, with counsel reasonably satisfactory
to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense
thereof other than reasonable costs of investigation. No
indemnifying party shall, without the consent of the indemnified
party, consent to the entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such Claim.
(4) INDEMNIFICATION PAYMENTS. The indemnification required by
this Article shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is
incurred.
ARTICLE V
SPECIAL COVENANTS
SECTION 5.01. ACCESS TO PROPERTIES AND RECORDS. DESIGN and CONNECTED
will each afford to the officers and authorized representa-tives of the
other, full access to the properties,
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books, and records of each other as the case may be, in order that each may
have full opportunity to make such reasonable investigation as it shall
desire to make of the affairs of the other, and each will furnish the other
with such additional financial and operating data and other information as to
the business and properties of each other, as the case may be, as the other
shall from time to time reasonably request.
SECTION 5.02. DELIVERY OF BOOKS AND RECORDS. At the Closing,
CONNECTED shall deliver to Ronald B. Pruitt, attorney for DESIGN and COAD,
the originals of the corporate books, books of account, contracts, records,
and all other books or documents.
SECTION 5.03. THIRD PARTY CONSENTS AND CERTIFICATES. DESIGN and
CONNECTED agree to cooperate with each other in order to obtain any required
third party consents to this Agreement and the trans-actions herein and
therein contemplated.
SECTION 5.04. ACTIONS PRIOR TO CLOSING.
1. From and after the date of this Agreement until the Closing Date
and except as set forth in the Agreement or Schedules attached
hereto or as permitted or contemplated by this Agreement, DESIGN
and CONNECTED respectively, will each:
(i) carry on its business in substantially the same manner as it has
heretofore;
(ii) maintain and keep its properties in states of good repair and
condition as at present, except for depreciation due to ordinary
wear and tear and damage due to casualty;
(iii) maintain in full force and effect insurance comparable in amount
and in scope of coverage to that now maintained by it;
(iv) perform in all material respects all of its obligation under
material contracts, leases, and instruments relating to or
affecting its assets, properties, and business;
(v) use its best efforts to maintain and preserve its business
organization intact, to retain its key employees, and to maintain
its relationship with its material suppliers and customers; and
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(vi) fully comply with and perform in all material respects all
obligations and duties imposed on it by all federal and state laws
and all rules, regulations, and orders imposed by federal or state
governmental authorities.
2. From and after the date of this Agreement until the Closing Date,
neither CONNECTED nor DESIGN will:
(i) make any change in their articles of incorporation or articles of
organization, bylaws or regulations;
(ii) take any action described in Section 1.07 in the case of DESIGN or
Section 3.06 in the case of CONNECTED (all except as permitted
therein or as disclosed in the applicable party's schedules); or
(iii) enter into or amend any contract, agreement, or other instrument
of any of the types described in such party's schedules, except
that a party may enter into or amend any contract, agreement, or
other instrument in the ordinary course of business involving the
sale of goods or services.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF DESIGN
The obligations of DESIGN under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
SECTION 6.01. ACCURACY OF REPRESENTATIONS. The representa- tions and
warranties made by CONNECTED in this Agreement were true when made and shall
be true at the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date
(except for changes therein permitted by this Agreement), and CONNECTED shall
have performed or complied with all covenants and conditions required by this
Agreement to be performed or complied with by CONNECTED prior to or at the
Closing. DESIGN shall be furnished with a certificate, signed by a duly
authorized Shareholder of CONNECTED and dated the Closing Date, to the
foregoing effect.
SECTION 6.02. OFFICER'S CERTIFICATES. DESIGN shall have been
furnished with a certificate dated the Closing Date and signed by
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a duly authorized Shareholder of CONNECTED to the effect that no litigation,
proceeding, investigation, or inquiry is pending or, to the best knowledge of
CONNECTED threatened, which might result in an action to enjoin or prevent
the consummation of the transactions contemplated by this Agreement.
SECTION 6.03. NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date,
there shall not have occurred any material adverse change in the financial
condition, business, or operations of CONNECTED nor shall any event have
occurred which, with the lapse of time or the giving of notice, may cause or
create any material adverse change in the financial condition, business, or
operations of CONNECTED.
SECTION 6.04. GOOD STANDING. DESIGN shall have received a
certificate of good standing from the Secretary of State of the State of
Tennessee or other appropriate office, dated as of a date within ten days
prior to the Closing Date certifying that CONNECTED is in good standing in
the State of Tennessee and has filed all tax returns required to have been
filed by it to date and has paid all taxes reported as due thereon.
SECTION 6.05. OTHER ITEMS.
1. DESIGN shall have received or waived uniform commercial code
certificates from the appropriate state or local authority or
agency for each county and state in which any personal property of
CONNECTED with a value in excess of $1,000 is situated, dated as
of the Closing Date, to the effect that there are no liens on such
personal property, other than those disclosed in a schedule
attached hereto.
2. DESIGN shall have received or waived such further documents,
certificates, or instruments relating to the transactions
contemplated hereby as DESIGN may reasonably request.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF CONNECTED
The obligations of CONNECTED under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
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SECTION 7.01. ACCURACY OF REPRESENTATIONS. The representa-tions and
warranties made by DESIGN in this Agreement were true when made and shall be
true as of the Closing Date (except for changes therein permitted by this
Agreement) with the same force and effect as if such representations and
warranties were made at and as of the Closing Date, and DESIGN shall have
performed and complied with all covenants and conditions required by this
Agreement to be performed or complied with by DESIGN prior to or at the
Closing. CONNECTED shall have been furnished with a certificate, signed by a
duly authorized executive officer of DESIGN and COAD and dated the Closing
Date, to the foregoing effect.
SECTION 7.02. OFFICER'S CERTIFICATE. CONNECTED shall have been
furnished with a certificate dated the Closing Date and signed by a duly
authorized executive officer of DESIGN and COAD to the effect that no
litigation, proceeding, investigation, or inquiry is pending or, to the best
knowledge of DESIGN threatened, which might result in an action to enjoin or
prevent the consummation of the transactions contemplated by this Agreement.
SECTION 7.03. NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date,
there shall not have occurred any material adverse change in the financial
condition, business, or operations of DESIGN nor shall any event have
occurred which, with the lapse of time or the giving of notice, may cause or
create any material adverse change in the financial condition, business, or
operations of DESIGN.
SECTION 7.04. GOOD STANDING. CONNECTED shall have received a
certificate of good standing from the Secretary of State of the State of
Texas or other appropriate office, dated as of a date within ten days prior
to the Closing Date certifying that DESIGN is in good standing in the State
of Texas and has filed all franchise tax returns required to have been filed
by it to date and has paid all taxes reported as due thereon.
ARTICLE VIII
TERMINATION
SECTION 8.01. TERMINATION. The parties may terminate this Agreement as
provided below:
1. DESIGN and CONNECTED may terminate this Agreement by mutual
written consent at any time prior to Closing;
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2. DESIGN may terminate this Agreement by giving written notice to
CONNECTED at any time prior to Closing in the event CONNECTED is
in breach, and CONNECTED may terminate this Agreement by giving
written notice to DESIGN at any time prior to Closing in the event
DESIGN is in breach, of any material representation, warranty, or
covenant contained in this Agreement in any material respect;
provided, however, no party may terminate for such breach by the
other party if the terminating party is itself in breach
hereunder;
3. CONNECTED may terminate this Agreement by giving written notice to
DESIGN in the event the Closing has not taken place within sixty
(60) days from the date hereof.
SECTION 8.02. EFFECT OF TERMINATION. If any party terminates this
Agreement in accordance with Section 8.01 (A) or (C) all obligations of the
parties hereunder shall terminate without any liability of any party to the
other party (except for any liability of any party then in breach). In the
event of such termination the respective parties covenant and agree to return
all documents and information obtained from one another and to keep all such
information confidential and not to use it for competitive purposes or
otherwise.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. BROKERS. DESIGN and CONNECTED agree that there were no
finders or brokers involved in bringing the parties together or who were
instrumental in the negotiation, execution, or consummation of this
Agreement. CONNECTED and DESIGN each agree to indemnify the other against any
claim by any third person for any commission, brokerage, or finders' fee
arising from the trans-actions contemplated hereby based on any alleged
agreement or understanding between the indemnifying party and such third
person, whether express or implied from the actions of the indemnifying party
other.
SECTION 9.02. GOVERNING LAW. This Agreement shall be governed by,
enforced, and construed under and in accordance with the laws of the United
States of America and, with respect to matters of state law, the laws of
Tennessee.
SECTION 9.03. NOTICES. Any notices or other communications required
or permitted hereunder shall be sufficiently given in personally delivered to
it or sent by registered mail or certified
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mail, postage prepaid, or by prepaid telegram addressed as follows:
If to DESIGN, to: Carl R. Rose
3200 Wilcrest, Suite 370
Houston, Texas 77042
Charles Leaver
3200 Wilcrest, Suite 370
Houston, Texas 77042
With copies to: Ronald B. Pruitt
2950 N. Loop W., Suite 270
Houston, Texas 77092
If to CONNECTED, to: Connected Software Solutions, Inc.
357 Riverside, Suite 200
Franklin, TN 37064
With copies to: James Moore
128 E. Commercial
Lebanon, MO 65536
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication
shall be deemed to have been given as of the date so delivered, mailed, or
telegraphed.
SECTION 9.04. ARBITRATION.
1. Any dispute, claim or controversy arising out of or relating to
this Agreement or the interpretation or breach hereof shall be
resolved by binding arbitration under the commercial arbitration
rules of the American Arbitration Association (the "AAA Rules") to
the extent such AAA Rules are not inconsistent with this
Agreement. Judgment upon the award of the arbitrator(s) may be
entered in any court having jurisdiction thereof or such court may
be asked to judicially confirm the award and order its
enforcement, as the case may be. The demand for arbitration shall
be made by any party hereto within a reasonable time after the
claim, dispute or other matter in question has arisen, and in any
event shall not be made after the date when institution of legal
proceedings, based on such claim, dispute or other matter in
question, would be barred by this Agreement or the applicable
statute of limitations. The place of
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arbitration shall be Houston, Texas. The arbitrator(s) shall
be instructed to render its (their) decision within sixty (60)
days after its (their) selection and to allocate all costs and
expenses of such arbitration (including legal and accounting
fees and expenses of the respective parties) to the parties in
the proportions that reflect their relative success on the
merits (including the successful assertion of any defenses).
2. Nothing contained in this Section 9.04 shall prevent any party
hereto from seeking any equitable relief to which it would
otherwise be entitled from a court of competent jurisdiction.
SECTION 9.05. CONFIDENTIALITY. Each party hereto agrees with the
other parties that, unless and until the transactions contemplated by this
Agreement have been consummated, it and its representatives will hold in
strict confidence all data and information obtained with respect to another
party or any subsidiary thereof from any representative, shareholder,
officer, director, or employee, or from any books or records or from personal
inspection, or such other party, and shall not use such data or information
or disclose the same to others, except (i) to the extent such data or
information is published, is a matter of public knowledge, or is required by
law to be published; and (ii) to the extent that such data or information
must be used or disclosed in order to consummate the transactions
contemplated by this Agreement. This covenant shall survive termination of
this Agreement.
SECTION 9.06. SCHEDULES; KNOWLEDGE. Each party is presumed to have
full knowledge of all information disclosed in the other party's schedules
delivered pursuant to this Agreement. Whenever any representation or
warranty of DESIGN or COAD contained herein or in any other document executed
and delivered in connection herewith is based upon the knowledge of DESIGN or
COAD, such knowledge shall be deemed to include (i) the best actual
knowledge, information and belief of the executive officers of DESIGN or COAD
and (ii) any information which any such officer would reasonably be expected
to be aware of in the prudent discharge of his duties in the ordinary course
of business.
Whenever any representation or warranty of CONNECTED contained herein
or in any other document executed and delivered in connection herewith is
based upon the knowledge of CONNECTED, such knowledge shall be deemed to
include (i) the best actual knowledge, information and belief of the
Shareholders of CONNECTED without inquiry, and (ii) any information which any
such Shareholder would
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reasonably be expected to be aware of in the prudent discharge of his duties
in the ordinary course of business on behalf of CONNECTED.
SECTION 9.07. THIRD PARTY BENEFICIARIES. This contract is solely
between DESIGN, CONNECTED and COAD except as specifically provided, no
director, officer, stockholder, employee, agent, independent contractor, or
any other person or entity shall be deemed to be a third party beneficiary of
this Agreement.
SECTION 9.08. ENTIRE AGREEMENT. This Agreement represents the entire
agreement between the parties relating to the subject matter hereof. This
Agreement alone fully and completely expresses the agreement of the parties
relating to the subject matter hereof. There are no other courses of
dealing, understandings, agreements, representations, or warranties, written
or oral, except as set forth herein.
SECTION 9.09. SURVIVAL. The representations, warranties, and
covenants of the respective parties shall survive the consummation of the
transactions herein contemplated.
SECTION 9.10. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original and all of
which taken together shall be but a single instrument.
SECTION 9.11. AMENDMENT OR WAIVER. Every right and remedy provided
herein shall be cumulative with every other right and remedy, whether
conferred herein, at law, or in equity, and may be enforced concurrently
herewith, and no waiver by any party of the performance of any obligation by
the other shall be construed as a waiver of the same or any other default
then, theretofore, or thereafter occurring or existing. At any time prior to
the Closing Date, this Agreement may be amended by a writing signed by all
parties hereto, with respect to any of the terms contained herein, and any
term or condition of this Agreement may be waived or the time for performance
hereof may be extended by a writing signed by the party or parties for whose
benefit the provision is intended.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above-written.
DESIGN AUTOMATION SYSTEMS, INC. COAD SOLUTIONS, INC.
By: By:
----------------------------- -----------------------------
Carl Rose Jeff Sexton
Chief Executive Officer President
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CONNECTED SOFTWARE SOLUTIONS, INC.
By:
------------------------------
Roger W. Barnes, President
- ----------------------------------
Roger W. Barnes, Individually
- ----------------------------------
Lance Dunbar, Individually
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SCHEDULE 4.01
INSTALLMENT PAYMENT:
$300,000.00 payable in six (6) quarterly increments of $50,000.00 each
with the first payment ninety (90) days after closing distributed each
payment as follows:
Roger Barnes: $25,500.00
Lance Dunbar: $24,500.00
COMMON STOCK OF DESIGN AUTOMATION SYSTEMS, INC. AT CLOSING (RESTRICTED):
The number of shares receivable at the closing is:
Roger Barnes: 153,000
Lance Dunbar: 147,000
ADDITIONAL STOCK CONSIDERATION
If on August 1, 2000, the closing price (as determined by NASDAQ or
other mutually agreeable market quotation system) of Design Automation
Systems, Inc. Common Stock ("Design Common Stock") for the prior 15 business
days is less than $5.15 per share, the Shareholders of CONNECTED will each
immediately receive as additional Merger Consideration his or her pro rata
share of Design Common Stock in an amount equal to 3,000 shares for each
$0.01 below $5.15 per share. The pro rata percentages of the Shareholders
are:
Roger Barnes: 51%
Lance Dunbar: 49%
For example, if the average closing price of Design Common Stock as of
the 15 days prior to August 1, 2000 is $4.15, the Shareholders would receive
their pro rata share of 300,000 shares.
Design agrees to reserve for issuance at least 1,500,000 shares of Design
Common Stock for issuance to the Shareholders of
<PAGE>
CONNECTED in accordance with this paragraph. The amount of Design Common
Stock issuable pursuant to this provision shall be adjusted for any
reclassification, split up or other change in capital which would affect the
number of shares issued and outstanding or issuable pursuant to stock
options, stock warrants or other obligations to issue shares not disclosed on
the Closing Date or which would otherwise affect the price of the shares.
Design covenants and agrees that it will provide documentation to the
Shareholders of CONNECTED evidencing the average closing price of the Design
Common Stock for the 15 business days prior to August 1, 2000. Such
documentation shall include any and all information relating to the shares
traded, including but not limited to the record and beneficial owners of any
shares bought or sold during such period of time, the price and amount of
shares traded and a certificate from the senior officers of Design that none
of the shares or trades involved during such 15 day period were beneficially
owned, controlled, directly or indirectly, by Design or any of its affiliates
and that neither Design nor any of its affiliates took any direct or indirect
action to influence the share price during such 15 day period. To the extent
that any such documentation is not readily available on August 1, 2000, then
Design agrees to provide the CONNECTED Shareholders access to such
information not later than September 1, 2000.
The right granted hereby is not assignable.
