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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[OR]
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Number: 0-9129
DESIGN AUTOMATION SYSTEMS, INC.
formerly known as LOCH EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1657943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 WILCREST, SUITE 370
HOUSTON, TEXAS 77042-3366
(Address of principal executive offices)
(713) 784-2374
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Registrant's revenues for the year ended December 31, 1998 were $127,353.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the last sales price as quoted by the OTC Electronic
Bulletin Board on April 9, 1999 was $19,093,919. As of April 9, 1999, the
registrant had 20,904,700 shares of common stock outstanding.
Documents Incorporated by Reference: None.
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TABLE OF CONTENTS
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PART I
ITEMS PAGE
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ITEM 1 DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2 DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . . . . .10
ITEM 3 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . .13
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . .13
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
ITEM 6 SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . .15
ITEM 7 MANAGEMENT=S DISCUSSION AND ANALYSIS. . . . . . . . . . . . . . .16
ITEM 8 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . .21
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . .21
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTANT. . . . . . . . .21
ITEM 11 EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . .22
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . .24
ITEM 14 EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . .25
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Form 10-K for Design Automation
Systems, Inc. (the "Company") discuss future expectations, contain
projections of results of operation or financial condition or state other
"forward-looking" information. The Company wishes to caution readers not to
place undue reliance on any forward-looking statements as these statements
are subject to known and unknown risks, uncertainties, and other factors that
could cause the actual results to differ materially from those contemplated
by the statements. The forward-looking information is based on various
factors and is derived using numerous assumptions. Important factors that
may cause actual results to differ from projections include, but are not
limited to:
- - - the success or failure of management's efforts to implement the Company's
business strategy;
- - - the loss of any of the Company's significant vendors;
- - - the loss of any of the Company's significant customers;
- - - the uncertainty of consumer demand for our products;
- - - the failure to fulfill product orders in a timely and effective manner;
- - - the ability of the Company to compete with major established companies;
- - - the failure to effectively integrate acquired companies;
- - - the effect of changing economic conditions;
- - - the ability of the Company to attract and retain quality employees; and
- - - other risks which may be described in future filings with the SEC.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions, which may be
made to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
HISTORY
The Company is a Texas corporation, which was originally incorporated
under the name Loch Exploration, Inc. in June 1979, and historically engaged
generally in the oil and gas business. In April 1989, the Company filed for
Chapter 11 bankruptcy, and was reorganized in connection with its Plan of
Reorganization, effective November 17, 1989. In connection with the Plan,
approximately 70,000 shares of Company common stock were issued to former
stockholders. In December 1998, the Company transferred all of its assets
and liabilities to Loch Energy, Inc. ("LEI"), in exchange for 1,295,286
shares of Company common stock, whereby LEI became a subsidiary of the
Company. In January 1999, the Company acquired all of the issued and
outstanding capital stock of Design Automation Systems Incorporated, a
private company, ("DASI") in exchange for 16,560,000 shares of Company common
stock. The acquisition of DASI was intended to qualify as a tax-free
reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code
of 1984, as amended. The acquisition of DASI was accounted for as a
purchase. In April 1999, DASI was merged into the Company, and the Company's
Articles of Incorporation were amended to change the name of the Company to
Design Automation Systems Incorporated. The Company operates as a system
integrator, custom programmer and dealer of security solution through the
parent corporation, and conducts the oil and gas business through its
subsidiary, LEI. The Company has agreed to distribute the shares of LEI
common stock held by the Company to the Company stockholders of record as of
December 2, 1998. The distribution is expected to be complete in the second
quarter of fiscal year 1999. Upon completion of the distribution, the
Company and LEI will operate as completely separate entities, with the
ongoing business of the Company being that of the parent company. The
Company's executive offices are located at 3200 Wilcrest, Suite 370, Houston,
Texas 77042 and its telephone number is (713) 784-2374.
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PARENT BUSINESS
RECENT DEVELOPMENTS
In March 1999, the Company acquired all of the issued and outstanding
stock of COAD Solutions, Inc., an information technology consulting firm, in
an arms length transaction between the Company and the two stockholders of
COAD. The consideration for the acquisition was: (1) 600,000 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, and (3) for a period of 24 months each COAD stockholder
will receive a 20% royalty on gross sales revenues of SQLACE products. The
two stockholders of COAD entered into employment agreements, which terminate
in December 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 COAD has been deemed
"significant," accordingly, separate historical and pro forma financial
statements will be filed on Form 8-K.
GENERAL
The Company engages in the business of providing computer system
integration specializing in UNIX client server architecture and its
components, and offering system management services with a complete software
selection. The Company's integration services assist customers in dealing
with issues during the entire life cycle of their systems; including system
architecture and design, product acquisition, configuration and
implementation, ongoing operational support, and evolutions in technology.
The Company provides solutions to complex information technology problems
including system availability and performance, UNIX/Microsoft Windows NT
integration, client server database implementation, network security, and
internet/intranet electronic commerce/electronic business World Wide Web
application deployment.
Management believes that its success is attributed principally to its
technical expertise, marketplace relationships, vendor alliances, direct
sales strategy and customer service orientation. The Company intends to grow
primarily through the acquisition of other strategic, geographically located
value-added reseller businesses and consulting service businesses with similar
characteristics to the Company, and leveraging the common pool of resources
created by such acquisitions.
INDUSTRY BACKGROUND
Dealing with the forces of change such as eroding profit margins,
shrinking business cycles and increased global competition has become a
central issue for businesses. Organizations of all sizes have recognized
information technology as being a competitive advantage in coping with such
market forces. These organizations have also realized that systems built on
networked technology, including client server databases, Internet protocol
("IP") based networks and the internet/intranet electronic
commerce/electronic business systems can be more effective in enabling this
competitive advantage than are legacy systems built on older technology.
The increasingly complex nature and rapid change in technology has
created increased demand for companies with the expertise to design,
integrate, implement and manage the technology. This requires the services
of a systems integrator that has the proper blend of vendor relationships,
resources, technical expertise, products and services to integrate these
technologies. In recognition of the increasing complexity of computer
systems and technologies, growing numbers of technology users have been
utilizing systems integrators to coordinate their acquisition of information
technology services and products. Management believes that the relationships
of value-added resellers and consulting services with certain
industry-leading technology vendors provide them with access to resources
such as technical training, technical documentation, evaluation units and
leading-edge industry information. These resources represent significant
value to large and mid-sized companies that typically do not maintain such
in-house resources. Management also believes that reduced cost, increased
productivity and broader sales coverage, particularly in the burgeoning
middle market, is motivating technology vendors to sell their products
through the value-added channel. Given these market forces, management
believes that value-added resellers such as the Company will be well
positioned to capitalize on anticipated growth in the industry.
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BUSINESS STRATEGY
The Company's objective is to provide customers with comprehensive
information technology products, services and support. Management plans to
achieve this goal through a combination of growth through acquisition and
accelerated internal growth. The Company intends to carryout the following
strategies.
EXPANDING NEW AND EXISTING MARKETS THROUGH ACQUISITIONS: The Company
intends to pursue an aggressive acquisition strategy to enhance its position
in its current markets and acquire operations in new markets. In particular,
the Company will focus its acquisition strategy on candidates that have a
proven record of delivering high-quality technical services, a customer base
of large and mid-sized companies and which may benefit from the synergies
offered by the Company's acquisition strategy. Management believes the
Company will have many acquisition opportunities in a fragmented market and be
able to offer the management of these acquisition candidates an opportunity to
continue operating their respective businesses, as well as, to participate in
a company with a growth strategy and liquid trading market for its securities.
The Company looks forward to expanding into new and existing markets by
acquiring well-established value-added resellers that are leaders in their
regional markets. Given the size and highly fragmented composition of the
industry, the Company believes that there is an opportunity to implement a
market roll-up program within the value-added reseller and consulting industry.
ACCELERATING INTERNAL GROWTH: A key component of the Company's strategy
is to accelerate internal growth of the Company's existing business as well as
the existing business of its acquisitions. The Company expects that internal
growth can be accelerated by:
APPLYING ADDITIONAL RESOURCES TO CURRENT OPERATIONS: The value-added
reseller organizations, which the Company expects to acquire, are primarily
small, privately held companies. The Company intends to facilitate internal
growth of these acquisitions by providing them with access to capital
resources and technical expertise in product procurement and integration
services.
LEVERAGE ADDITIONAL OPPORTUNITY THROUGH THE COLLECTIVE SKILL SET: While
the collective skills of the acquired companies may have a high degree of
overlap there will also be technical and market areas that are unique to
particular companies. The Company intends to create an environment in which
each of the acquired companies is able to cross-leverage their unique skills
and markets for the benefit of the entire organization. Management believes
this will result in increased operating efficiencies without proportionate
increases in administrative costs.
INCREASE SERVICES REVENUES: The Company plans to implement a marketing
initiative designed to increase service revenues through the development of
standardized service packages. The Company intends to create standardized
service packages in several areas, including systems administration, database
administration, security and systems and network performance tuning.
Management believes that such service packages will make the Company's
products and services more cost-effective and accessible to customers as well
as increase the Company's profit margins.
DEVELOPMENT OF IDENTITY: The Company intends to produce marketing materials
and develop the market image and reputation of the Company as a "national
organization" of regional companies, with the goal of providing business
opportunities which would not normally be available to a regional company.
ACQUISITION STRATEGY
The Company believes there are many attractive acquisition candidates in
its industry because of the highly fragmented composition of the marketplace,
the industry participants' need for capital and their owners' desire for
liquidity. The Company intends to pursue an aggressive acquisition program to
consolidate and enhance its position in its current market and to acquire
operations in new markets.
Initially, the Company intends to expand its business through selective,
strategic acquisitions of other companies with complementary businesses in a
revenue range of $5 million to $15 million per annum. Management believes that
companies in this range of revenues may be receptive to the Company's
acquisition program as often they are too small to be identified as acquisition
targets of larger public companies or to attempt independently their
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own public offerings. In particular, the Company intends to focus its
acquisition strategy on candidates which have a strong relationship with key
technology vendors, a proven record of delivering high-quality network
computing solutions, enterprise resource planning/enterprise relationship
management ("erp/erm") consulting services, e-business solutions, and a
customer base of large and mid-sized companies.
The Company believes it can successfully implement its acquisition
strategy due to:
- - - the highly fragmented composition of the market;
- - - its strategy for creating a national company, which should enhance the
acquired Company's ability to compete in its local and regional market
through an expansion of offered services and lower operating costs;
- - - the additional capital that management anticipates will become available
for internal growth;
- - - the potential for increased profitability as a result of the Company's
centralization of certain administrative functions, greater purchasing
power, and economies of scale;
- - - the Company's status as a public corporation;
- - - a decentralized management strategy, which should, in most cases, enable
the acquired Company's management to remain involved in the operation of
the Company; and
- - - the ability to utilize its experienced management in identifying
acquisition opportunities.
A "first tier acquisition" is defined by management as one that creates
a significant presence for the Company in a new geographic market. The
Company intends, where possible, to make a first tier acquisition in a
targeted market by acquiring an established, high quality local company. The
Company will retain the management as well as the operating, sales and
technical personnel of a first tier acquisition to maintain continuity of
operations and customer service. The Company will seek to increase an
acquired company's revenues and improve its profitability by implementing the
Company's operating strategies for internal growth.
A "second tier acquisition," on the other hand, will more likely occur
in an existing market, will be smaller than a first tier acquisition and will
enable the Company to offer additional services or expand into secondary
markets within the region already served. When justified by the size and
business line of an existing market acquisition, the Company expects to
retain the management, along with the operating, sales and technical
personnel of the acquired company while seeking to improve that company's
profitability by implementing the Company's operating strategies. The
Company also contemplates effecting second tier acquisitions of small
companies or individual systems integration operations in existing markets.
Management believes in most instances, operations acquired by a second tier
acquisition will be able to be integrated into the Company's existing
operations in that market, resulting in elimination of duplicative overhead
and operating costs.
PRODUCTS AND SERVICES
The Company is a provider of data processing computing solutions. The
Company markets a broad range of information technology products and services
intended to transform discrete hardware and software components into an
integrated system. The Company offers integration services which assist
customers in dealing with issues during the entire life cycle of their
systems, including system architecture and design, product acquisition,
configuration and implementation, ongoing operational support, and evolutions
in technology. The Company provides solutions to complex information
technology problems including system availability and performance,
UNIX/Microsoft Windows NT integration, client server database implementation,
network security, internet/intranet, e-business/e-commerce, erp/erm
implementation and World Wide Web application deployment.
The Company's customer base varies in range from relatively small
companies to Fortune 1,000 and other large and mid-sized companies. They are
geographically located in the Continental United States, primarily in Texas,
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Oklahoma, Missouri, Massachusetts and Louisiana; and they span various
industries including manufacturing, telecom, publishing, financial,
hospitality, distribution, energy, education, and state and local government.
For the year ended December 31, 1998, two of the Company's customers
accounted for 64% of its account receivable balances. The loss of either of
these customers could have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company's ability to deliver integrated solutions is principally
attributable to its technical expertise and its value-added reseller
agreements with industry-leading vendors of information technology products
such as Sun Microsystems Computer Corporation, International Business Machines
Corp., Hewlett-Packard Company, Oracle Corporation, Check Point Software
Technologies, Ltd., Peoplesoft, Inc., Siebel Systems, Inc. and Cisco Systems,
Inc. To date, most of the Company's revenues have been derived from the
resale of products from these vendors.
In July 1992, the Company entered into an Indirect Value Added Reseller
Agreement with Sun Microsystems whereby the Company is authorized to purchase
certain Sun Microsystems products from a designated Sun Microsystems
authorized master distributor and to resell those products in the United
States to end users other than the federal government. Sun Microsystems pays
the Company 2.36% of the value of its purchases of products for the Company's
reseller services. The agreement is automatically renewed on an annual basis,
but may be terminated by either party without cause upon 90 days written notice.
The Company has been a value added reseller of Sun Microsystems products
since 1988.
Effective January 1998, the Company entered into a Distributor
Authorized Reseller Agreement with Hewlett-Packard and Client Systems, LLC
whereby the Company was designated an authorized reseller of Hewlett-Packard
products through Client Systems, LLC. The agreement is automatically
renewed on an annual basis, but may be terminated by any party without cause
upon 30 days written notice or with cause upon 15 days written notice. The
Company has been a value added reseller of Hewlett-Packard products since
1991.
In September 1998, the Company entered into a Distributor Authorized
Reseller Agreement with Hewlett-Packard and Hall-Mark Computer Products
whereby the Company was designated an authorized reseller of Hewlett-Packard
products through Hall-Mark Computer Products. The agreement is automatically
renewed on an annual basis, but may be terminated by any party without cause
upon 30 days written notice or with cause upon 15 days written notice.
Effective October 1998, the Company entered into a Business Partner
Agreement with IBM and Hall-Mark Computer Products whereby the Company was
designated an authorized reseller of IBM products and services through
Hall-Mark Computer Products. The agreement is automatically renewed on an
annual basis, but may be terminated by any party with or without cause upon 90
days written notice. The Company has been a value added reseller of IBM
products since 1991.
For the year ended December 31, 1998, the Company purchased approximately
82% of its inventory from the foregoing vendors. The loss of any of these
vendors could have a material adverse effect on the Company's business,
results of operations and financial condition. Additional sales are accrued
to small, niche vendors whose products augment those of the three major
hardware vendors in areas such as backup management, security and network and
infrastructure management. The Company has also established relationships
with leading aggregators of computer hardware and software products. These
agreements enable the Company to provide its customers with competitive
product pricing, ready product availability and services such as electronic
product ordering, product configuration and testing and product warehousing
and delivery.
The Company plans to implement a marketing initiative designed to
increase services revenues through the development of standardized service
packages. The Company intends to create standardized service packages in
several areas, including systems administration, database administration,
security and systems and network performance tuning. Management believes that
such service packages will make the Company's products and services more
cost-effective and accessible to customers as well as increase the Company's
profit margins.
The Company has a strategy for providing products and services in four
practice areas. They are: Network Interoperability; Information Technology
Management; Electronic Business and Electronic Commerce; and Database and
Erp/Erm Application Integration. The Company's business strategy is to
combine market-leading products with its highly skilled technical personnel
to deliver comprehensive information technology solutions based within these
practice areas to new and existing customers.
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NETWORK INTEROPERABILITY
Management believes there is a tremendous opportunity for system
integrators in view of the split in the business community over the use of
computer operating systems between UNIX and Microsoft Windows NT. UNIX
appears to have captured a larger share of the enterprise-computing
environment, whereas Windows NT has a larger percentage of the workgroup
server and desktop market. The traditional enterprise application such as
financial applications, distribution, manufacturing and order entry are
typically run in a UNIX or mainframe environment, whereas the workgroup
technologies that have been commonly deployed on the Internet have been
typically rendered on the Windows NT platform. In order for applications
such as SAP, BAAN and Peoplesoft to be made available over the Internet, UNIX
and Windows NT must be effectively integrated to a reliable and stable
computing infrastructure. This creates tremendous opportunities for systems
integrators such as the Company to provide network interoperability services
to middle market and Fortune 1000 companies.
The Company designs networks, conducts performance audits, integrates
differing technologies and provides consulting services for issues such as
data backup and restore, disaster recovery, and server consolidation. All of
these services are designed to drive product sales in the areas of enterprise
and departmental servers, software licenses, network components, UNIX
workstations, and related equipment.
INFORMATION TECHNOLOGY MANAGEMENT
The growth in internet activity and connections has provided a huge
opportunity for business, however, at the same time it has exposed businesses
to risk through unauthorized access to corporate data which is
mission-critical and confidential. It is more important now than ever to
ensure that customer networks and data are secure. The Company has built a
practice around data and network security, which is a rapidly growing market.
The service and product offerings in this area are numerous. From a product
standpoint, the Company offers software for firewalls, virus protection,
attack recognition, content protection, network monitoring, data encryption,
and user authentication. From a services perspective, the Company's
offerings include services to build a security policy, design and implement
security solutions, perform penetration testing, carry out security audits,
and provide training and support.
ELECTRONIC BUSINESS AND ELECTRONIC COMMERCE
While electronic business and electronic commerce are different, they
share the same underlying technologies and quite often go hand-in-hand. The
advent of the Internet has brought electronic business to virtually every
aspect of business. While growth in this area has paved the way for
companies to do business over the Internet (inter-company communication as
well as business to business electronic commerce), it has also created a
technology management nightmare for corporations around the world. Products
from a multitude of hardware and software vendors have created a mixture of
incompatible technologies. The Company helps these customers design, and
build networks that will become the infrastructure not only for electronic
business, but for electronic commerce as well. Electronic business is no
longer being looked at as a novelty. It is now being viewed by many medium
and large-sized companies as a necessity. Unfortunately, these systems have
not been designed with the features that are necessary to achieve
compatibility among systems. The Company provides the correct mix of
computer hardware, software and expertise to design and implement networks
and e-business/e-commerce systems. The Company can help evaluate, select,
test, design, implement, and support networks for a variety of end users from
small single location users to large industrial multi-location users.
DATABASE AND APPLICATION INTEGRATION
As data has proliferated within corporations, it has done so using many
formats, technologies, and system platforms. For example, manufacturing and
distribution information may be stored on a mainframe or enterprise UNIX
system while sales and marketing information is possibly stored on NT Servers
in small departmental networks and product information is being stored on
UNIX based engineering workstations and networks. This data is often
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fragmented, stored in many different products and formats, and can be
difficult to access and consolidate. Data needs to be integrated with
information that is currently available on a company's web-site, and made
accessible in a secure manner. This data fragmentation has created a need to
develop systems that will standardize and centralize data storage and
delivery techniques. The Company offers implementation and custom
development services for erp/erm products that are designed to accomplish
fulfill this need.
SALES AND MARKETING
The Company currently focuses its marketing and sales efforts on referrals
from vendors and major corporations through its direct sales and marketing
staff. The Company believes that its direct sales and support, including having
salespersons serve as client-relationship managers, lead to better account
penetration and management, better communications and long-term relationships
with its customers and more opportunities for follow-on sales of products and
services to its existing client base. To date, the Company has focused its
sales and marketing efforts on large and mid-sized customers within the
Continental United States, principally in Texas, Oklahoma, Missouri,
Massachusetts and Louisiana.
As part of its business strategy, the Company intends to expand the size
of the Company's sales and marketing staff. Historically, the Company has
conducted limited marketing. Most business has been made through referrals
from direct sales calls made by individual sales personnel, and some
referrals from vendors. Each salesperson's compensation is 100%
commission-based. Sales personnel derive sales leads from individual
business contacts, the marketing department's efforts and from customer
referrals from suppliers and vendors, many of whom receive requests from
customers seeking an authorized reseller to design and install their new
systems.
The Company benefits from the name recognition of the products that it
sells and has successfully leveraged its relationships with vendors and
manufacturers to build strong product and service sales. Management expects
to continue to utilize these relationships. Management believes additional
significant business opportunities with some of its major global and national
customers will develop as a result of the implementation of the Company's
acquisition strategy.
The Company intends to hire additional sales and service personnel as the
business grows. The Company's sales and marketing focus continues to be
technology-driven, with systems engineers participating with direct sales
personnel as part of a team approach to sales and marketing. Sales personnel
also participate in training programs designed to introduce new products and
new versions of existing products and to provide industry information and
sales technique instruction. Management believes that it maintains a
competitive advantage by hiring highly technical sales personnel with in-depth
product knowledge who require little technical assistance in the sales
process, which reduces overhead.
In addition, management has plans to develop a marketing department
dedicated to facilitating the sales process. External marketing efforts would
continue to include brochures, direct mail programs, formulation of marketing
strategies designed to create new business opportunities, development of sales
presentation materials and follow-up of prospects introduced to the Company by
its existing customers and vendors. Many of the Company's brand name vendors
have earned marketing revenue programs in which 1%-2% of overall sales are put
aside in designated marketing funds. In addition, all of the Company's
distributors have in-house marketing programs whose sole purpose is to assist
the Company in its marketing efforts.
COMPETITION
The information technology value-added channel is comprised of a large
number of participants and is subject to rapid change and intense competition.
The Company faces competition from system integrators, value-added resellers,
local and regional network services firms, telecommunications providers,
network equipment vendors and computer system vendors, many of which have
significantly greater financial, technical and marketing resources and greater
name recognition and generate greater revenue than does the Company. The
Company expects to continue to face additional competition from new entrants
into its markets. Increased competition may result in price reductions, fewer
client projects, under utilization of Company personnel, reduced operating
margins and loss of
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market share, any of which could materially adversely effect its business,
operating results and financial condition. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors. The failure of the Company to compete successfully would have a
material adverse effect on its business, operating results and financial
condition.
PERSONNEL
As of April 9, 1999, the Company employed 25 persons, of whom 8 were
engaged in sales and marketing, 2 were engaged in providing the Company's
technical services, 8 were consultants, and 12 were engaged in finance,
administration and management functions.
None of the Company's employees is covered by a collective bargaining
agreement. There is increasing competition for experienced technical
professionals and sales and marketing personnel. The Company's future
success will depend in part on its ability to continue to attract, retain and
motivate highly qualified personnel. The Company considers relations with
its employees to be excellent.
SUBSIDIARY BUSINESS
RECENT DEVELOPMENTS
In November 1998, LEI formed a Texas limited liability company, Kantex
LLC, in which it owns a 50% membership interest. LEI's initial contribution
was 535,000 shares of LEI common stock and approximately $10,000 cash.
Kantex acquired certain oil and gas properties for 465,000 shares of LEI
common stock, $45,000 cash and a note payable in the amount of $15,050.
Kantex also acquired Cherokee Methane Corporation, a gas transport company
located in Independence, Kansas. The purchase price was approximately $30,000
cash, and the issuance of 70,000 shares of LEI common stock valued at
approximately $.17 per share. The acquisition has been accounted for as a
purchase.
GENERAL
LEI is a Texas corporation which was formed in May 1998. LEI is engaged
in exploration for and development of oil and gas reserves, primarily onshore
in the Midwestern and Southwestern area of the United States. To a lesser
extent, LEI has also acquired and sold oil and gas properties. LEI's
executive and administrative offices are located at 202 South Dixon, Suite
204, Gainesville, Texas 76240, and its telephone number is 940-668-1271.
COMPETITION
Significant competition exists for the acquisition of producing oil and
gas properties and undeveloped leases. Many of LEI's competitors have
greater financial capabilities and more sophisticated means for in-house
evaluation than LEI possesses. The principal means of competition for oil
and gas properties is the amount and terms of the consideration offered. The
oil and gas exploration and development industry has been highly competitive,
particularly with respect to the acquisition of desirable undeveloped oil and
gas leases. However, due to the deterioration in prices, the demand for oil
and gas leases has dropped significantly. Competitors include the major oil
companies, independent oil and gas concerns and individual producers and
operators, many of which have financial resources, staffs and facilities
substantially greater than those of LEI. In time of high drilling activity,
exploration for and production of oil and gas may be affected by availability
of the equipment and supplies and by competition for drilling rigs. LEI
cannot predict the effect these factors will have on its operations. LEI
owns no drilling rigs, and all of its drilling is conducted by third parties.
The demand for drilling rigs and equipment has declined sharply due to the
decline in the number of oil and gas wells being drilled. This has led to a
decline in prices being paid to drillers. The principal means of competition
in oil and gas exploration and development are product availability and
price. LEI may be at a competitive disadvantage in acquiring oil and gas
prospects since it must compete with companies which have greater financial
resources and larger technical staffs.
8
<PAGE>
REGULATION
Various state and federal authorities regulate the production and sale of oil
and gas.
STATE REGULATION OF OIL AND GAS PRODUCTION
The State of Texas and other states in which LEI conducts oil and gas
activities regulate the production and sale of oil and natural gas, including
requirements for obtaining drilling permits, the method of developing new
fields, the spacing and operation of wells and the prevention of waste of oil
and gas resources. In addition, most states, including Texas, regulate the
rate of production and may establish maximum daily production allowable from
both oil and gas wells on a market demand or conservation basis. As a result
of recent domestic crude oil shortages, producers have been permitted to
price 100% of allowable daily production on the basis of market demand since
mid-1972; however, production continues to be regulated for conservation
purposes.
ENVIRONMENTAL REGULATIONS
LEI's activities are also subject to existing federal and state laws and
regulations governing environmental quality and pollution control. The
existence of such regulations has had no material effect on LEI's individual
operations and the cost of such compliance has not been material to date. It
is anticipated that compliance with federal, state and local laws, rules and
regulations regulating the discharge of material will not significantly
effect the capital expenditures, earnings or competitive position of LEI.
OIL PRICE REGULATION
Historically, regulatory policy affecting crude oil pricing was derived
from the Emergency Petroleum Allocation Act of 1973, as amended, which
provided for mandatory crude oil price controls until June 1, 1979, and
discretionary controls through September 30, 1981. On April 5, 1979,
President Carter directed the Department of Energy to complete administrative
procedures designed to phase out, commencing June 1, 1979, price controls on
all domestic oil production, effective immediately. Consequently, oil may
currently be sold at unregulated prices.
GAS PRICE REGULATION
The Natural Gas Act of 1938 regulates the interstate transportation and
certain sales for resale of natural gas. The Natural Gas Policy Act of 1978
(the "NGPA") regulates the maximum selling prices of certain categories of
natural gas and provided for graduated deregulation of price controls for
first sales of several categories of natural gas. With certain exceptions,
all price deregulation contemplated under the NGPA as originally enacted in
1978 has already taken place. Under current market conditions, deregulated
gas prices under new contracts tend to be substantially lower than most
regulated price ceilings prescribed by the NGPA.
On July 26, 1989, the Natural Gas Wellhead Decontrol Act of 1989
("Decontrol Act") was ended. The Decontrol Act amends the NGPA to remove as
of July 27, 1989 both price and non-price controls from natural gas not
subject to a first sale contract in effect on July 26, 1989. The Decontrol
Act also provided for the phasing out of all price regulation under the NGPA
by January 1, 1993. The Federal Energy Regulatory Commission is currently
considering the promulgation of regulations pertaining to the Decontrol Act
but has taken no action to date other than to propose such new rules. LEI is
unable to predict the consequences of the Decontrol Act on its operations.
EMPLOYEES
LEI, presently, has one full-time officer. In addition, LEI employs
consultants from time-to-time to assist in its acquiring and evaluating oil
and gas properties. Pursuant to industry practice, the LEI expects it will
pay its consultants a retainer and cash and/or overriding bonus on properties
which prove productive which were brought to the LEI's attention by one or
more such consultants.
9
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Company owns no real property and currently leases all of its office
space. The Company leases the office space that houses its executive offices
in Houston, Texas totaling approximately 7,603 square feet, at a current
monthly rate of $8,596.88. The lease expires in November 2000. The Company
uses this facility for its executive, marketing, administrative, finance and
management personnel. It is expected that this office space will serve the
Company's needs adequately for the foreseeable future.
The following is information with regard to LEI's extractive enterprises:
(A) PHYSICAL FACILITIES
LEI's offices, consisting of approximately 1,000 square feet are leased
on a monthly basis at a rate of $562 per month. It is expected that this
office space will serve LEI's needs adequately for the foreseeable future.
(B) OIL AND GAS DRILLING ACTIVITIES
None.
(C) OIL AND GAS PROPERTIES
All of the LEI's reserves are located in the United States. LEI has no
interests in oil and gas applicable to long-term supply or similar agreements
with foreign governments or authorities in which the LEI acts as producer of
and share of revenues from the reserves of investors accounted for by the
equity method, accordingly, no information pertaining to those categories is
presented herein.
As of December 31, 1998, LEI owned an aggregate of 21,731 gross (1,729
net) acres of developed oil and gas leases.
The oil and gas properties in which LEI owns an interest are held under
oil and gas leases negotiated directly with private mineral owners. The
leases were generally for a specific primary term, such as five years, and so
long thereafter as oil or gas is produced in paying quantities. The leases
generally reserve a royalty of 12-1/2 % to the mineral owner and require a
payment of up to $1 per acre per year as rentals to retain the lease during
the primary term. Some of the leases held by LEI were also subject to
overriding royalty burdens reserved by various predecessor-in-title and
geologists.
LEI paid no rental costs on oil and gas leases for 1998.
The estimate net proved and proved developed reserves of oil and gas,
together with the estimated future net revenue of those reserves, and present
value of estimated future net revenue attributable to those reserves as set
forth in the following tables have been estimated as of December 31, 1998, by
an in-house petroleum engineer.
OIL AND GAS RESERVES
The following table sets forth the estimated net quantities of proved
and proved developed oil and gas reserves as of December 31, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
Fiscal Year Proved Reserves (1) Reserves (2, 3)
Ending ---------------------- -----------------------
December 31 Oil (Bbls) Gas (MCF) Oil (Bbls) Gas (MCF)
- - ----------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
1998 12,296 2,165,164 12,296 2,165,164
1997 39,068 144,067 39,068 144,067
1996 30,748 496,936 30,748 496,936
</TABLE>
10
<PAGE>
- - --------------
(1) For purpose of all tabular information included in Item 2, proved oil and
gas reserves are the estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering date demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e., prices
and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.
(2) For purposes of all tabular information included in Item 2, proved
developed oil and gas reserves are reserves that can be expected to be
recovered through existing wells with existing equipment and operating
methods.
(3) Additional oil and gas expected to be obtained through the application of
fluid injection or other improved recovery techniques for supplementing the
natural forces and mechanisms of primary recovery are included as "proved
developed reserves" only after testing by a pilot project or after the
operation of an installed program has confirmed through production response
that increased recovery will be achieved.
PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE
The following table sets forth information as to the present value of
estimated future net revenues of proved reserves and proved developed reserves
attributable to LEI as of December 31, 1998, 1997 and 1996. Present value of
future net revenues for the years shown below were computed by applying
current contract prices of oil and gas to estimated future production of
proved oil and gas revenues after deducting production taxes, direct lease
operating expenses and ad valorem taxes, discounted by 10% per year, in
accordance with Securities and Exchange Commission rules and regulations.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Present value of estimated future net
revenues from proved reserves:
Developed $1,263,062 $326,176 $524,248
Developed and undeveloped $1,263,062 326,176 524,248
</TABLE>
OIL AND GAS RESERVE ESTIMATES FILED
No reserve reports pertaining to LEI's proved or proved developed
reserve estimates were filed by LEI with or included in reports to any
federal authority or agency since the beginning of the last fiscal year.
NET QUANTITIES OF OIL AND GAS PRODUCED FOR LAST FISCAL YEAR
The following table sets forth information as to quantities of oil and
gas produced, net to LEI's interest, for the years ended December 31, 1998,
1997 and 1996.
<TABLE>
<CAPTION>
Oil Produced Gas Produced
Fiscal Year Ending ------------ ------------
December 31 (Bbls) (1) (MCF) (2)
-----------
<S> <C> <C>
1998 2,761 31,077
1997 3,468 37,000
1996 3,791 41,021
</TABLE>
- - ---------------
(1) Includes production that is owned by LEI and produced to its interest, less
royalties and production due other
(2) Includes only marketable production of a gas on an "as sold" basis.
Recovered gas-lift gas and reproduced gas may not be included until sold.
AVERAGE SALES PRICES AND PRODUCTION COSTS
The following table sets for information as to the average sales price
(including transfers) per unit of oil or gas produced and the average production
costs (lifting cost) per unit of production for the fiscal years ended December
31, 1998, 1997 and 1996.
11
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Average Sales Price
Oil $/Bbls $ 11.61 $15.38 $19.00
Gas $/MCF $ 2.25 $ 2.56 $ 2.55
Average Production Costs (1)
Oil $/Bbls $ 9.05 $11.07 $10.43
Gas $/MCF $ 1.29 $ 1.54 $ 1.74
</TABLE>
- - ----------------
(1) Production (lifting) costs do not include depreciation, depletion, and
amortization of capitalized acquisitions, exploration, and development
costs, and indirect management costs.
GROSS NET PRODUCTIVE OIL AND GAS WELLS AND DEVELOPED ACRES
The following table sets forth, as of December 31, 1998, LEI's interest
in productive oil and gas wells and developed acres:
<TABLE>
<CAPTION>
Product Wells (1)
-------------
Developed Acres (4) Gross(2) NET (3)
--------------- ----- ---
Gross (2) Net (3) Oil Gas Oil Gas
------ --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
21,731 1,729 52 58 2.7 5.54
</TABLE>
Third party operators operate some of LEI's interests in oil and gas wells.
Information as to multiple completions is not available to LEI.
- - -----------------
(1) Includes producing wells and wells capable of production. One or more
completions in the same bore hole are counted as one well.
(2) A gross well or acre is a well or acre in which a working interest is
owned.
(3) A net well or acre is deemed to exist when the sum of factional ownership
working interests in gross wells or acres equals one. The interest owned
in gross wells of acres expressed as whole numbers and factions thereof.
(4) Includes acres spaced or assignable to productive wells.
Undeveloped Acreage as of December 31, 1998: 0 (gross) 0 (net)
----- -----
PRODUCTIVE AND DRY EXPLORATORY AND DEVELOPMENT WELLS
The following table sets forth the number of gross and net productive
and dry development wells drilled in which LEI had an interest for the fiscal
year ended December 31, 1998.
<TABLE>
<CAPTION>
Exp Dev
--- ---
<S> <C> <C>
Gross Wells
Drilled (1): 0 0
Productive (2): 0 0
Dry Holes (3): 0 0
Total Net Wells
Drilled (1): 0 0
Productive (2): 0 0
Dry Holes (3): 0 0
</TABLE>
12
<PAGE>
- - ---------------
(1) Refers to the number of wells (holes) completed any time during the fiscal
year regardless of when drilling was initialed.
(2) A Productive well is an exploratory or a development well that is not a dry
hole.
(3) A dry well (hole) is an exploratory or a development well found to be
incapable of producing either oil or gas in sufficient quantities to
justify completion as an oil or gas well.
(D) NET OIL AND GAS PRODUCTION
Same as (C)
(E) UNIT SALES PRICE AND PRODUCTION COSTS
Same as (C)
(F) RESERVES
Same as (C)
GAS COMPRESSION EQUIPMENT
LEI owns one gas compressor which is currently servicing a well in
Parker County, Texas, which is operated by Spindletop Oil & Gas Co. and is
covered by written lease agreements between LEI and Spindletop Oil & Gas Co.
The current monthly rental payable to LEI under the terms of the rental
agreement is $1,000, less maintenance costs.
ITEM 3. LEGAL PROCEEDINGS
There are currently no legal proceedings pending to which the Company or
LEI is a party or to which any of its properties is subject.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II.
ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market, and
is currently listed on the OTC Bulletin Board under the symbol "LOCX". The
market for the Company's common stock is limited, sporadic and highly
volatile. The following table sets forth the range of high and low bid
quotations as reported by security dealers, but does not include retail
mark-up, mark-down or commissions and does not necessarily represent actual
transactions.
13
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR 1998 BID PRICE
---------
HIGH LOW
---- ---
<S> <C> <C>
1st Quarter 1.36 .75
2nd Quarter 1.36 .30
3rd Quarter .81 .33
4th Quarter .35 .25
<CAPTION>
FISCAL YEAR 1997 BID PRICE
---------
HIGH LOW
---- ---
<S> <C> <C>
1st Quarter 1.00 .03
2nd Quarter 1.00 .68
3rd Quarter .68 .68
4th Quarter .68 .38
</TABLE>
On April 9, 1999, the last sales price of the Company's common stock was
$3.77. The Company believes as of April 9, 1999, there were approximately
3,223 record owners of its common stock.
DIVIDEND POLICY
It is the present policy of the Company not to pay cash dividends and to
retain future earnings to support the Company's growth. Any payment of cash
dividends in the future will be dependent upon the amount of funds legally
available therefor, the Company's earnings, financial condition, capital
requirements and other factors the Board of Directors may deem relevant. The
Company does not anticipate paying any cash dividends in the foreseeable
future.
RECENT SALES OF UNREGISTERED SECURITIES
In January 1999, the Company issued an aggregate 16,560,000 shares of
Company common stock to three stockholders in connection with the acquisition
of DASI. The Company believes this transaction was exempt from registration
pursuant to Section 4(2) and/or Regulation D promulgated under the Securities
Act of 1933, as amended, as a transaction not involving a public offering.
No commissions were paid for the sale of these securities.
In March 1999, the Company issued an aggregate 600,000 shares of Company
common stock to two stockholders in connection with the acquisition of COAD.
The Company believes this transaction was exempt from registration pursuant
to Section 4(2) and/or Regulation D promulgated under the Securities Act of
1933, as amended, as a transaction not involving a public offering. No
commissions were paid for the sale of these securities.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected historical financial
data for LEI for the five years ended December 31, 1998 and is qualified in
its entirety by the more detailed financial statements included in this
report and should be read in conjunction with such financial statements, the
notes thereto and with Management's Discussion and Analysis of Financial
Condition and Results of Operation included in this report.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenues 127,353 178,842 231,623 327,075 222,723
Net Earnings (Loss) (85,699) (81,875) (7,493) 42,970 1,674
Net Earnings (Loss)
Per Common Share (.07) (.06) (.01) .03 --
Total Assets 618,317 291,836 394,746 426,808 393,115
Long-Term Obligations -- 10,153 32,327 59,911 60,882
Cash Dividends per
Common Share -- -- -- -- --
</TABLE>
The following table summarizes certain selected historical financial
data for DASI prior to its acquisition by the Company for the three years
ended December 31, 1998 and balance sheet information for the two years
ended December 31, 1998 and is qualified in its entirety by the more detailed
financial statements included in this report and should be read in
conjunction with such financial statements, the notes thereto and with
Management's Discussion and Analysis of Financial Condition and Results of
Operation included in this report.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
INCOME STATEMENT
Total Revenues 20,442,937 20,074,401 7,843,566
Net Income (Loss) 260,332 (141,581) 369,972
Net Income (Loss)
Per Common Share .02 (.01) .03
1998 1997
---- ----
BALANCE SHEET
Total Assets 5,087,369 3,642,900
Long-Term Obligations -- --
Cash Dividends per
Common Share -- --
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto included elsewhere herein.
GENERAL
Through the fiscal year ended December 31, 1998, the Company was engaged
primarily in the oil and gas business. In December 1998, the Company
transferred all of its assets and liabilities to LEI, in exchange for
1,295,286 shares of Company common stock, whereby LEI became a subsidiary of
the Company. In January 1999, the Company acquired all of the issued and
outstanding capital stock of DASI in exchange for 16,560,000 shares of
Company common stock. The acquisition of DASI was intended to qualify as a
tax-free reorganization pursuant to Section 368(a)(1)(B) of the Internal
Revenue Code of 1984, as amended. The acquisition of DASI was accounted for
as a purchase. In April 1999, DASI was merged into the Company, and the
Articles of Incorporation were amended to change the name of the Company to
Design Automation Systems Incorporated. The Company operates as a system
integrator, custom programmer and dealer of security solution through the
parent corporation, and conducts the oil and gas business through its
subsidiary, LEI. The Company has agreed to distribute the shares of LEI to
the Company stockholders of record as of December 2, 1998. The distribution
is expected to be complete in the second quarter of fiscal year 1999. Upon
completion of the distribution, the Company and LEI will operate as
completely separate entities, with the ongoing business of the Company being
that of the parent company.
PARENT COMPANY RESULTS OF OPERATIONS
The parent company recognizes revenue for products sold when the
customer receives the product.
For the year ended December 31, 1998 and prior years, the parent company
was an S Corporation in accordance with Internal Revenue Code Section 1362.
Accordingly, the parent company's income was taxed directly to the
shareholders, and no provision for federal income taxes was recorded by the
parent company. In connection with the January 1999 reorganization, the
parent company became a C corporation. Accordingly, provision for federal
income taxes will be recorded by the parent company in future periods.
The following is an analysis of the parent company's historical results
of operations for the year ended December 31, 1998 as compared to the year
ended December 31, 1997, and the year ended December 31, 1997 as compared to
the year ended December 31, 1996. As the information presented is prior to
the Company's acquisition of the parent company, the results of operations
discusses only the parent company's value added reseller of systems
integration business.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
For the year ended December 31, 1998, as compared to the year ended
December 31, 1997, revenues increased to $20,442,937 from $20,074,401, an
increase of $368,536 or 2%.
For the year ended December 31, 1998 as compared to the year ended
December 31, 1997, costs of revenues increased to $18,124,043 from
$17,486,967, an increase of $637,076 or 4%. Selling, general and
administrative expenses decreased to $2,058,842 for the year ended December
31, 1998 from $2,724,239 for the year ended December 31, 1997, a decrease of
$665,397 or 24%, primarily due to lower officer compensation. This resulted
in income from operations of $260,052 for the year ended December 31, 1998,
as compared to loss from operations of $136,805 for the year ended December
31, 1997.
16
<PAGE>
For the year ended December 31, 1998 as compared to the year ended
December 31, 1997, other income decreased to $280 from $12,654, a decrease of
$12,374 or 98%, primarily the result of less other income.
For the year ended December 31, 1998, net income was $260,332 as
compared to a net loss of $141,481 for the year ended December 31, 1997,
primarily the result of a significant decrease in selling, general and
administrative expenses in 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
For the year ended December 31, 1997, as compared to the year ended
December 31, 1996, revenues increased to $20,074,401 from $7,843,566, an
increase of $12,230,835 or 156%. The increase was primarily due to an
increase in sales of the value added reseller integrated computer solutions.
For the year ended December 31, 1997 as compared to the year ended
December 31, 1996, costs of revenues increased to $17,486,967 from
$6,377,980, an increase of $11,108,987 or 174%, primarily due to increased
revenues. Selling, general and administrative expenses increased to
$2,724,239 for the year ended December 31, 1997 from $1,403,104 for the year
ended December 31, 1996, an increase of $1,321,135 or 94%, primarily due to
an increase in personnel to service increased revenues and increased
compensation associated thereto, as well as increased officer compensation in
1997. This resulted in a loss from operations of $136,805 for the year ended
December 31, 1997, as compared to income from operations of $62,482 for the
year ended December 31, 1996.
For the year ended December 31, 1997, other income was $12,654 as
compared to other expense of $32,453 for the year ended December 31, 1996,
primarily due to less interest income in 1996.
For the year ended December 31, 1997, the operating results from
discontinued operations was ($17,330) as compared to the operating results
from discontinued operations of $339,943 for the year ended December 31,
1996. This was due to the spin off of the computer aided design division in
1997.
For the year ended December 31, 1997, net loss was $141,481 as compared
to a net income of $369,972 for the year ended December 31, 1996, which net
income resulted primarily from the one time gain in 1996.
SUBSIDIARY RESULTS OF OPERATIONS
LEI follows the full cost method of accounting for its oil and gas
exploration and development activities. Under this method, LEI capitalizes
leasehold acquisition, exploration (including unsuccessful exploration) and
development costs into one cost center. If unamortized costs within the cost
center exceed the cost center ceiling, as defined, the excess will be charged
to expense during the year in which the excess occurs.
Depreciation and amortization for each cost center are computed on a
composite unit-of-production method, based on estimated provided reserves
attributable to the respective cost center. All costs associated with oil
and gas properties are currently included in the base for computation and
amortization. Such costs include all acquisition, exploration and
development costs. All of LEI's oil and gas properties are located within
the continental United States.
Gains and losses on sales of oil and gas properties representing less
than 25% of the reserve quantities for a given cost center are treated as
adjustments of capitalized costs. Gains and losses on sales of oil and gas
properties representing 25% or more of the reserve quantities for a given
cost center are recognized as part of operations. Gains or losses on sales
of property and equipment, other than oil and gas properties, are recognized
as part of operations. Expenditures for renewals and improvements are
capitalized, while expenditures for maintenance and repairs are charged to
operations as incurred.
Costs of oil and gas properties, including leases, are periodically
evaluated by management, and losses are recognized if a property becomes
impaired or the net value of the capitalized cost center exceeds the present
value of discounted future net cash flows.
17
<PAGE>
The following is an analysis of the Company's historical results of
operations for the year ended December 31, 1998 as compared to the year ended
December 31, 1997, and the year ended December 31, 1997 as compared to the
year ended December 31, 1996. As the information presented is prior to the
acquisition of DASI, the results of operations discusses only the Company's
oil and gas business.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
For the year ended December 31, 1998, as compared to the year ended
December 31, 1997, total revenues decreased to $127,353 from $178,842, a
decrease of $51,489 or 29%. Of the total revenues, oil and gas revenues
decreased to $101, 825 for the year ended December 31, 1998 from $148,059 for
the year ended December 31, 1997, a decrease of $46,234 or 31%; equipment
rentals decreased to $8,743 for the year ended December 31, 1998 from $16,584
for the year ended December 31, 1997, a decrease of $7,841 or 47%; and
revenue from lease operations decreased to $2,985 for the year ended
December 31, 1998 from $9,665 for the year ended December 31, 1997, a
decrease of $6,680 or 69%. The decreases were primarily due to lower oil and
gas prices and the loss of compressor rental revenues.
For the year ended December 31, 1998, as compared to the year ended
December 31, 1997, costs and expenses decreased to $213,052 from $260,717, a
decrease of $47,665 or 18%. Of the total expenses, lease operations
decreased to $59,827 for the year ended December 31, 1998 from $95,381 for
the year ended December 31, 1997, a decrease of $35,554 or 37%; and
depreciation, depletion and amortization decreased to $15,918 for the year
ended December 31, 1998 from $18,763 for the year ended December 31, 1997, a
decrease of $2,845 or 15%. The decreases were due primarily to the costs
and expenses for the year ended December 31, 1997, having an increase due to
a one time loss taken in the sale of New York gas producing properties
totaling $40,302.
For the year ended December 31, 1998 as compared to the year ended
December 31, 1997, general and administrative expenses increased to $133,554
from $99,615, an increase of $33,939 or 34%. The increase was primarily due
to increase in officer's compensation.
For the year ended December 31, 1998 as compared to the year ended
December 31, 1997, net loss increased to $96,249 from $81,875, an increase of
$14,374 or 15%. The increase in net loss was primarily due to lower oil and
gas prices and the loss of compressor rental revenues.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
For the year ended December 31, 1997, as compared to the year ended
December 31, 1996, total revenues decreased to $178,842 from $231,623, a
decrease of $52,781 or 23%. Of the total revenues, oil and gas revenues
decreased to $148,059 for the year ended December 31, 1997 from $177,972 for
the year ended December 31, 1996, a decrease of $29,913 or 17%; equipment
rentals decreased to $16,584 for the year ended December 31, 1997 from
$32,465 for the year ended December 31, 1996, a decrease of $15,881 or 49%;
and revenue from lease operations decreased to $9,665 for the year ended
December 31, 1997 from $10,216 for the year ended December 31, 1996, a
decrease of $551 or 5%. The decreases were primarily due to lower oil and
gas prices and compressor rental revenues.
For the year ended December 31, 1997, as compared to the year ended
December 31, 1996, costs and expenses increased to $260,717 from $239,116, an
increase of $21,601 or 9%. Of the total expenses, lease operations decreased
to $95,381 for the year ended December 31, 1997 from $109,393 for the year
ended December 31, 1996, a decrease of $14,012 or 13%; and depreciation,
depletion and amortization decreased to $18,763 for the year ended December
31, 1997 from $23,097 for the year ended December 31, 1996, a decrease of
$4,334 or 19%. The increase was due to a one time loss taken in the sale of
New York gas producing properties totaling $40,302.
For the year ended December 31, 1997 as compared to the year ended
December 31, 1996, general and administrative expenses increased to $99,615
from $95,830, an increase of $3,785 or 4%.
18
<PAGE>
For the year ended December 31, 1997 as compared to the year ended
December 31, 1996, net loss increased to $81,875 from $7,493, an increase of
$74,382 or 993%. The increase in net loss was primarily due to lower oil and
gas prices and the loss of compressor rental revenues.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity and capital resources section of Management's Discussion
and Analysis of Financial Condition and Results of Operations is intended to
present the reader with information regarding the Company's ability to
generate cash to meet its ongoing cash requirements. Accordingly, the
information below speaks as to the parent company's ability to generate cash
to meet its ongoing cash requirements as its business will be the ongoing
business of the Company.
As of December 31, 1998, the Company's primary sources of liquidity were
$850,925 in cash and cash equivalents, $4,020,385 of accounts receivable, and
$1,468,517 of available and unused funds in the Company's line of credit.
The Company had a working capital deficit of $30,419 as of December 31, 1998.
Net cash provided by operating activities was $1,760,270 for the year
ended December 31, 1998, as compared to net cash used in operating activities
of $1,111,976 for the year ended December 31, 1997, the difference was
primarily the result of increased accounts receivable and accounts payable in
1997. Net cash used in investing activities was $644,815 for the year ended
December 31, 1998, as compared to $69,528 for the year ended December 31,
1997, primarily due to advances to a related party in 1998. Net cash used in
financing activities was $619,081 for the year ended December 31, 1998, as
compared to net cash provided by financing activities of $664,395, the
result of a significant reduction in the Company's line of credit in 1998.
As of March 31, 1999, the Company had $1,212,242 in cash. Management
believes that the Company's lines of credit, current assets and cash
generated from operations will be sufficient to accommodate the Company's
current operations through the end of fiscal year 1999.
The Company's business strategy is to pursue the acquisition of
complimentary business and expand current operations, which would increase
its capital requirements. The timing, size and success of the Company's
acquisition and expansion efforts and the associated capital commitments
cannot be readily predicted. The Company currently intends to finance future
acquisitions by using shares of its common stock for a portion of the
consideration to be paid. In the event that the common stock does not
maintain a sufficient market value, or potential acquisition candidates are
otherwise unwilling to accept common stock as part of the consideration for
the sale of their businesses, the Company may be required to utilize more of
its cash resources. If the Company does not have sufficient cash resources,
its growth could be limited unless it is able to obtain additional equity or
debt financing. Except for its current lines of credit, the Company has no
firm commitment for additional financings or borrowings.
The Company purchases its inventory from one of its largest vendors
under a $2,500,000 credit facility with an inventory financing company.
Advances under the agreement are paid directly from the financing company to
the supplier, and a fee is calculated on the invoice amount and remitted to
the financing company by the supplier. Draws are payable in 60 days without
interest and are secured by inventory and receivables. Past due amounts bear
interest at the published prime rate plus 6%. The agreement subjects the
Company to certain restrictive covenants such as limitation on subordinated
debt payments, minimum tangible capital funds requirements and a maximum
ratio of unsubordinated liabilities to tangible net worth. No interest
expense was incurred under this agreement during the year ended December 31,
1998.
The Company has two additional credit facilities whereby it purchases
its inventory from two of its vendors under a $6,000,000, and $2,500,000 line
of credit. Draws are payable in 60 and 45 days, respectively, without interest.
The Company leases office space under a non-cancelable operating lease.
Total rent expense for the years ended 1998, 1997 and 1996 was approximately
$82,000, $46,000 and $42,000, respectively. Future minimum rentals
19
<PAGE>
due under non-cancelable operation leases with an original term of at least
one year are approximately as follows: For the year ending December 31,
1999 the projected minimal lease expense is $104,000 and for the year ending
December 31, 2000 the projected minimal lease expense is $98,000.
YEAR 2000 COMPLIANCE ISSUES
The year 2000 poses certain issues for business and consumer computing,
particularly the functionality of software for two-digit storage of dates and
special meanings for certain dates such as 9/9/99. The year 2000 is also a
leap year, which may also lead to incorrect calculations, functions, or
system failure. The problem exists for many kinds of software, including
software for mainframes, PCs, and embedded systems.
In assessing the effect of the year 2000 problem on the Company,
management has identified, and is currently evaluating, the following three
general areas:
- Internal infrastructure;
- Supplier/third-party relationships;
- Contingency plans.
A discussion of the three general areas as well as management's ongoing
and planned actions with regard to each is set forth below:
Internal Infrastructure. The Company is in the process of verifying
that all of its personal computers, servers, and software are Year 2000
compliant. The Company intends to replace or upgrade all items that are found
not to be Year 2000 compliant. The Company intends to determine if the
software vendors of all its critical applications have represented that their
products are Year 2000 compliant. The Company will obtain certification from
its vendors that these systems are Year 2000 compliant. The costs related to
these efforts have not been nor are they expected to be material to the
Company's business, financial condition, or results of operations.
Suppliers/Third-Party Relationships. The Company has been gathering
information from vendor Web sites and available compliance statements to
identify and, to the extent possible, resolve issues involving the Year 2000
problem. The Company relies on outside vendors for water, electrical, and
telecommunications services as well as climate control, building access, and
other infrastructure services. The Company does not intend to independently
evaluate the Year 2000 compliance of the systems utilized to supply these
services. The Company has received no assurance of compliance from the
providers of these services. There can be no assurance that these suppliers
will resolve any or all Year 2000 problems with these systems before the
occurrence of a material disruption to the Company's business. Any failure
of these third-parties to resolve Year 2000 problems with their systems in a
timely manner could have a material adverse effect on the Company's business,
financial condition, or results of operation.
Contingency Plans. The Company has not currently developed a formal
contingency plan to be implemented as part of its efforts to identify and
correct Year 2000 problems affecting its internal systems. However, if the
Company deems it necessary, it may take the following actions:
- Accelerated replacement of affected equipment or software;
- Short to medium-term use of backup equipment and software;
- Wholesale backup of existing computerized data prior to January 1,
2000;
- Increased work hours for Company personnel; and/or
- Other similar approaches.
If the Company is required to implement any of these contingency plans,
such plans could have a material adverse effect on the Company's business,
financial condition, or results of operations.
Based on the actions taken to date as discussed above, the Company is
reasonably certain that it has or will identify and resolve all Year 2000
problems that could materially adversely affect its business and operations.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See Index to Financial Statements on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
In connection with the acquisition of Design Automation Systems
Incorporated, the Company changed its certifying accountant from Farmer,
Fuqua, Hunt & Munselle, P.C. to Hein + Associates LLP. The dismissal of
Farmer, Fuqua, Hunt & Munselle, P.C. was not the result of any disagreements
on any matter involving accounting principles or practices, financial
statement disclosure or auditing scope or procedure. The Company's Board of
Directors approved the engagement of Hein + Associates LLP.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Carl R. Rose 44 Chairman and Chief Executive Officer
Charles H. Leaver, Jr. 42 President and Director
Robert E. Nelson 48 Chief Financial Officer and Director
</TABLE>
CARL R. ROSE has served as a director of the Company since December
1998, and as chief executive officer of the Company since January 1999. Mr.
Rose founded DASI in 1985 and served as chairman from its inception until
April 1999. From inception until January 1999, Mr. Rose served as president
of DASI. From January 1999 until April 1999, Mr. Rose served as chief
executive officer of DASI.
CHARLES H. LEAVER, JR. has served as a director of the Company since
December 1998, and as president of the Company since January 1999. Mr.
Leaver served as president and a director of DASI from January 1999 to April
1999. Prior thereto, Mr. Leaver served as vice president of operations from
September 1997 until December 1998 and vice president of sales from September
1991 until September 1997.
ROBERT E. NELSON has served as a director of the Company since December
1998, and as chief financial officer of the Company since January 1999. Mr.
Nelson served as secretary and controller of DASI from March 1995 until April
1999. Prior thereto, Mr. Nelson served as an accountant to the Montrose
Clinic from August 1994 until February 1995. Mr. Nelson was as a contract
accountant from July 1993 until March 1994.
Directors serve until the expiration of their term at the annual meeting
of stockholders. All officers serve at the discretion of the Board of
Directors. There is no family relationship between or among any executive
officers and directors.
The Board of Directors held two meetings in 1998, and each director of
the Company attended the Board meetings. The Company currently does not
maintain audit and compensation committees.
INTERLOCKING RELATIONSHIPS WITH EXECUTIVE OFFICER OR DIRECTORS
None of the directors has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own beneficially
more than ten percent (10%) of the Common Stock of the Company, to file
21
<PAGE>
reports of ownership and changes of ownership with the Securities and
Exchange Commission. Copies of all filed reports are required to be
furnished to the Company pursuant to Section 16(a). Based solely on the
reports received by the Company and on written representations from reporting
persons, the Company believes that the directors, executive officers, and
greater than ten percent (10%) beneficial owners complied with all applicable
filing requirements during the fiscal year ended December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid by the parent company to its chief executive officer and
other executive officers who received total annual salary and bonus which
exceeded $100,000 during 1998, and information regarding compensation paid by
LEI to its chief executive officer. No other LEI executive officer received
total annual salary and bonus which exceeded $100,000 during 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------
AWARDS PAYOUTS
--------------------------- -------
OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND ANNUAL STOCK UNDERLYING LTIP COMPEN-
PRINCIPAL SALARY BONUS COMPEN- AWARD(S) OPTIONS/SARS PAYOUTS SATION
YEAR ($) ($) SATION($) ($) (#) ($) ($)
---- ------ ----- --------- -------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
POSITION
Carl R. Rose (1)
Chief Executive Officer 1998 300,000 325,235 - - - - -
1997 300,000 1,151,922 - - - - -
1996 175,000 137,816 - - - - -
Charles H. Leaver (1)
President 1998 200,000 100,000 - 12,770 - - -
1997 192,567 117,433 - - - - -
1996 81,000 81,369 - - - - -
Robert E. Nelson (1)
Chief Financial Officer 1998 100,000 15,000 - - - - -
1997 74,687 40,000 - - - - -
1996 52,187 38,735 - - - - -
Kelly Knake (1)
Account Executive 1998 239,260 - - 6,835 - - -
1997 275,582 - - - - - -
1996 143,649 - - - - - -
Glenn Loch (2)
Chief Executive Officer 1998 53,500 - - - - - -
1997 36,000 - - - - - -
1996 36,000 - - - - - -
</TABLE>
- - -----------
(1) Chief executive officer and other executive officers of the parent
corporation.
(2) Chief executive officer of the subsidiary.
MATERIAL EMPLOYMENT AGREEMENTS
In January of 1999, the Company entered into an employment agreement
with Mr. Rose for the position of chief executive officer. The initial term
of the agreement is five years, with successive one-year renewals at the
expiration of the term, unless the agreement is terminated earlier.
Pursuant to the terms of the agreement, Mr. Rose is entitled to receive
an annual salary of $300,000 and an annual incentive bonus equal to fifty
percent (50%) of the base salary which is payable in equal quarterly
installments.
22
<PAGE>
The agreement provides for an annual review by the Board of the compensation
payable to Mr. Rose for adjustment, if appropriate. Mr. Rose is entitled to
the following perquisites: (1) participation in the Company employee benefit
plans, (2) reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Mr. Rose in the performance of his duties,
and (3) other executive perquisites as determined by the Board.
The agreement may be terminated by any of the following methods:
(a) DEATH. In the event of the termination of the agreement by the
employee's death, the estate shall be entitled to all base salary
earned through the date of the employee's death, the pro rata portion
of the incentive bonus and a representative of employee's estate shall
be entitled to exercise vested options, if any, for a period of 120
days from employee's death.
(b) DISABILITY. In the event of the termination of the agreement by
employee's disability, the employee shall be entitled to receive 60%
of base salary for the remaining term of the agreement or one year,
whichever is less.
(c) GOOD CAUSE. The Company may terminate the agreement ten (10)
days after written notice to employee for good cause, which shall be:
(1) employee's gross negligence in the performance or intentional non-
performance (either of which continuing for 10 days after receipt of
written notice of need to cure) of any of employee's material duties
and responsibilities hereunder; (2) employee's willful, material and
irreparable breach of the agreement, (3) employee's willful
dishonesty, fraud or misconduct with respect to the business or
affairs of the Company which materially and adversely affects the
operations or reputation of the Company; (4) the employee's conviction
of a felony crime; or (5) chronic alcohol abuse or illegal drug abuse
by employee. In the event of a termination for good cause, employee
shall have no right to any severance compensation.
(d) WITHOUT CAUSE. The Company or employee may, without cause,
terminate the agreement, effective thirty (30) days after written
notice is provided to the Company. Should employee be terminated by
the Company without cause during the term, employee shall receive from
the Company, at his option, either six (6) months base salary (at the
rate then in effect) payable in a lump-sum payment due on the
effective date of termination or one year's base salary payable from
time-to-time at regular intervals. Further, any termination without
cause by the Company operates to invalidate the terms of any non-
compete clause. If employee resigns or otherwise terminates
employee's employment without cause, employee shall receive no
severance compensation and the terms of the non-compete section shall
be fully enforceable.
The agreement provides that during its term and for a one-year period
thereafter, Mr. Rose shall not compete with the Company. In addition, the
Company has agreed to indemnify Mr. Rose for any threatened pending or
completed action employee may be made a party to, suit or proceeding (whether
civil or administrative, other than an action by the Company against Mr.
Rose) by reason of the fact that Mr. Rose is or was performing services under
this agreement, then the Company shall indemnify Mr. Rose against all
expenses (including attorneys' fees), judgments and amounts paid in
settlement, as actually and reasonably incurred by Mr. Rose in connection
therewith.
In January of 1999, the Company entered into an employment agreement
with Mr. Leaver for the position of president. The terms of Mr. Leaver's
employment agreement are substantially similar to Mr. Rose's employment
agreement except: (1) base salary is $240,000 per year, and (2) termination
by death only provides for the payment to the estate of accrued base salary
through the date of death.
In January of 1999, the Company entered into an employment agreement
with Mr. Knake for the position of account executive. The terms of Mr.
Knake's employment agreement are substantially similar to Messrs. Rose and
Leaver's employment agreements except: (1) salary is 100% commission based,
and (2) termination by death only provides for the payment to the estate of
accrued commissions through the date of death.
23
<PAGE>
STOCK OPTIONS
As of December 31, 1998 there were no options or warrants outstanding to
purchase shares of the Company's common stock. In February 1999, the Board
of Directors adopted, and the majority shareholder approved, the 1999
Employee Stock Option Plan. There are currently no options for Company
common stock issued pursuant to the plan.
The Company has not established, nor does it provide for, long-term
incentive plans or defined benefit or actuarial plans.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes thereto set forth certain information
regarding beneficial ownership of the Company's common stock as of April 9,
1999 by (i) each person known by the Company to beneficially own more than
five percent of the Company's common stock, (ii) each of the Company's
directors, (iii) each named executive officer and (iv) all directors and
officers of the Company as a group.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
NAME AND ADDRESS(1) SHARES OF COMMON STOCK PERCENT OF VOTING POWER
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carl R. Rose 14,400,000 68.8%
- - -----------------------------------------------------------------------------------------------------------
Charles H. Leaver, Jr. 1,440,000 6.8%
- - -----------------------------------------------------------------------------------------------------------
Robert E. Nelson - -
- - -----------------------------------------------------------------------------------------------------------
All officers and directors as a
group (3 persons) 15,840,000 75.6%
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
- - ------------
(1) The address for Messrs. Rose, Leaver and Nelson is 3200 Wilcrest, Suite
370, Houston, Texas 77042-3366.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the formation of DASI, Mr. Rose was issued 1,440
shares of DASI common stock for nominal consideration. In December 1998, Mr.
Leaver was awarded 144 shares of DASI common stock for services rendered
having a value of $12,770, and Mr. Knake was awarded 72 shares of DASI
common stock for services rendered having a value of $6,385. In December
1998, DASI effected a 10,000 for 1 stock split. In connection with the
acquisition of DASI more particularly described in Item 1 hereof, Messrs.
Rose Leaver and Knake exchanged their shares of DASI common stock and the
Company issued Mr. Rose 14,400,000 shares of Company common stock, Mr. Leaver
1,440,000 shares of Company common stock, and Mr. Knake 720,000 shares of
Company common stock.
DASI had $119,497 in management fee income for the year ended December
31, 1998, from a company that is wholly-owned by Mr. Rose.
Mr. Rose advanced DASI an aggregate $422,347, during the years ended
1998, 1997, and 1996. The advances were unsecured, due on demand and bore
interest at a rate of 14% per annum. The interest was paid semi-monthly.
Interest on the advances was $56,000, $33,000 and $39,000 for the years
ended 1998, 1997, and 1996, respectively. In 1998, Mr. Rose forgave the
advances in exchange for cancellation of an account receivable to DASI from a
company wholly-owned by Mr. Rose.
24
<PAGE>
PART IV
ITEM 14: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Listing
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
2.1(1) Exchange Agreement by and between Loch Exploration, Inc. and
Design Automation Systems Incorporated
2.2(2) Exchange Agreement by and between Loch Exploration, Inc. and COAD
Solutions, Inc.
2.3(2) Acquisition Agreement of Cherokee Methane Corporation
2.4(2) Plan of Merger between the Company and Design Automation Systems
Incorporated
3.1(3) Articles of Incorporation
3.2(4) Amended Articles of Incorporation
3.3(3) By-laws
4.1(3) Common Stock Specimen
10.1(4) 1999 Employee Stock Option Plan
10.2(2) Employment Agreement with Carl Rose
10.3(2) Employment Agreement with Charles Leaver
10.4(2) Employment Agreement with Kelly Knake
10.5(2) Lease Agreement
10.6(2) Indirect Reseller Agreement between the Company, Hewlett-Packard
Company and Hall-Mark Computer Products
10.7(2) Indirect Reseller Agreement between the Company, Hewlett-Packard
Company and Client Systems, Inc.
10.8(2) Indirect Value Added Reseller Agreement between the Company and
Sun Microsystems Computer Corporation
10.9(2) IBM Business Partner Agreement for Solution Providers
10.10(2) Line of Credit with Finova Corporation
21.1(2) List of Subsidiaries of the Registrant
27.(2) Financial Data Schedule
</TABLE>
- - ---------------
(1) Filed as an exhibit to the Company's Current Report on Form 8-K dated
January 15, 1999 and incorporated herein by reference.
(2) Filed herewith.
(3) Filed as an exhibit to the Company's Registration Statement on Form
S-1 dated September 7, 1979 and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Definitive Information Statement
filed March 9, 1999 and incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter.
25
<PAGE>
LOCH EXPLORATION, INC. AND SUBSIDIARIES
Index to Financial Statements and Schedules
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1998 and 1997 F-2 - F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the years ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-6
Notes to Financial Statements F-7
</TABLE>
All schedules have been omitted because they are not applicable, not
required, or the information has been supplied in the financial statements or
notes thereto.
DESIGN AUTOMATION SYSTEMS, INC.
<TABLE>
<S> <C>
Independent Auditor's Report F-20
Consolidated Balance Sheets - December 31, 1998 and 1997 F-21
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-22
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the years ended December 31, 1998, 1997 and 1996 F-23
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-24
Notes to Financial Statements F-25
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Loch Exploration, Inc.
We have audited the accompanying consolidated balance sheets of Loch
Exploration, Inc. and subsidiaries (a Texas Corporation) as of December 31,
1998 and 1997, and the related consolidated statements of operations, changes
in shareholders' equity and cash flows for the years ended December 31, 1998,
1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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 Loch Exploration, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years ended December 31, 1998, 1997 and
1996, in conformity with generally accepted accounting principles.
As discussed in Note H to the financial statements, in January 1999, the
Company acquired all of the stock of an unrelated entity in a "reverse
merger" with the intent to spin off the Company's subsidiary that holds all
of the Company's operating assets and liabilities.
FARMER, FUQUA, HUNT & MUNSELLE, P.C.
Dallas, Texas
March 31, 1999
<PAGE>
LOCH EXPLORATION, INC. AND SUBSIDIARIES
BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 34,832 $ 80,457
Trade accounts receivable 83,941 12,067
Accounts receivable, related parties 25,718 33,449
Other accounts receivable --- 45,000
Other current assets 620 501
--------- ---------
Total current assets 145,111 171,474
PROPERTY AND EQUIPMENT - AT COST
Oil and gas properties (full cost method) 425,166 125,777
Equipment 136,894 78,891
--------- ---------
562,060 204,668
Less accumulated depreciation, depletion and
amortization (88,854) (84,306)
--------- ---------
473,206 120,362
--------- ---------
$ 618,317 $ 291,836
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
LOCH EXPLORATION, INC. AND SUBSIDIARIES
BALANCE SHEETS - Continued
December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 185,153 $ 22,172
Accounts payable and accrued liabilities 77,314 11,322
Accounts payable, related parties 22,677 19,912
--------- ---------
Total current liabilities 285,144 53,406
LONG-TERM DEBT, less current portion --- 10,153
MINORITY INTEREST 201,145 ---
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 50,000,000 shares authorized;
1,295,286 and 1,295,286 shares issued and outstanding at
December 31, 1998 and 1997, respectively 12,896 12,896
Additional paid-in capital 326,538 326,538
Accumulated deficit (207,406) (111,157)
--------- ---------
132,028 228,277
--------- ---------
$ 618,317 $ 291,836
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
LOCH EXPLORATION, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
Years Ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Oil and gas revenues $ 101,825 $ 148,059 $ 177,972
Equipment rental 8,743 16,584 32,465
Revenue from lease
operations 2,985 9,665 10,216
Interest income -- -- 1,591
Dividend income 3,384 4,377 3,379
Gain on sale of assets 9,870 -- --
Other 546 157 6,000
----------- ----------- -----------
127,353 178,842 231,623
Expenses
Lease operations 59,827 95,381 109,393
Depreciation, depletion and
amortization 15,918 18,763 23,097
General and administrative 133,554 99,615 95,830
Interest expense 3,753 6,656 10,796
Loss on sale of oil and
gas properties -- 40,302 --
----------- ----------- -----------
213,052 260,717 239,116
----------- ----------- -----------
Net loss before minority interest
in earnings of consolidated
subsidiaries (85,699) (81,875) (7,493)
Minority interest in earnings of
consolidated subsidiaries (10,550) -- --
----------- ----------- -----------
Net loss $ (96,249) $ (81,875) $ (7,493)
----------- ----------- -----------
----------- ----------- -----------
Basic/diluted net loss per share
of common stock $ (.07) $ (.06) $ (.01)
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares
outstanding 1,295,286 1,295,286 1,289,286
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
LOCH EXPLORATION, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 64,388,802 $ 64,388 $ 269,046 $ (21,789) $ 311,645
Effect of 1 for 50 reverse stock split
and change of par value from
$.001/share to $.01/share (63,099,516) (51,498) 51,498 --- ---
Net loss --- --- --- (7,493) (7,493)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 1,289,286 12,890 320,544 (29,282) 304,152
Issuance of stock to acquire gas
gathering system 6,000 6 5,994 --- 6,000
Net loss --- --- --- (81,875) (81,875)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 1,295,286 12,896 326,538 (111,157) 228,277
Net loss --- --- --- (96,249) (96,249)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 1,295,286 $ 12,896 $ 326,538 $ (207,406) $ 132,028
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
LOCH EXPLORATION, INC
STATEMENTS OF CASH FLOWS
Years Ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (96,249) $ (81,875) $ (7,493)
Reconciliation of net loss to net cash
provided by (used for) operating activities
Depreciation, depletion and amortization 15,918 18,763 23,097
Amortization of discount on debentures 949 949 948
Minority interest earnings 10,550 -- --
Gain on sale of property and equipment (9,870) -- --
(Gain) loss on sale of oil and gas properties -- 40,302 --
(Increase) decrease in accounts receivable (4,243) 11,887 (15,304)
Increase in other current assets (119) (501) --
Increase (decrease) in accounts payable 23,494 2,701 6,709
--------- --------- ---------
Net cash provided by (used for) operating activities (59,570) (7,774) 7,957
Cash flows from investing activities
Purchase of oil and gas properties (75,000) (5,305) --
Purchase of property and equipment (1,169) (500) --
Proceeds from sale of property and equipment 18,500 -- --
Proceeds from sale of oil and gas properties 3,215 5,000 4,705
--------- --------- ---------
Net cash provided by (used for) investing activities (54,454) (805) 4,705
Cash flows from financing activities
Repayment of debt (22,172) (30,685) (32,226)
Cash from acquisition of subsidiary 5,571 -- --
Payments for minority interest 85,000 -- --
--------- --------- ---------
Net cash provided by (used for) financing activities 68,399 (30,685) (32,226)
--------- --------- ---------
Decrease in cash (45,625) (39,264) (19,564)
Cash at beginning of period 80,457 119,721 139,285
--------- --------- ---------
Cash at end of period $ 34,832 $ 80,457 $ 119,721
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE A - ORGANIZATION AND NATURE OF OPERATIONS
ORGANIZATION
Loch Exploration, Inc. (the Company) was originally organized under the laws of
the State of Texas, on June 5, 1979.
The Company filed for Chapter 11 bankruptcy in April 1989, and was reorganized
in connection with its Plan of Reorganization (the Plan), effective November 17,
1989. In connection with the Plan, and after giving effect to the stock split
discussed in Note F, approximately 70,000 shares of the Company's common stock
are expected to be issued to the Company's former shareholders, to be exchanged
as follows: one-fiftieth of one share of the Company's $.01 par value common
stock for each eight shares of the Company's pre-reorganization common stock. As
of December 31, 1998, 1997 and 1996, 67,823, 67,823, and 67,823 shares,
respectively, have been issued to former shareholders in connection with the
Plan.
NATURE OF OPERATIONS
The Company is engaged in the exploration for and development of oil and gas
reserves, primarily in the Midwestern and Southwestern United States. To a
lesser extent, the Company also acquires and sells oil and gas properties.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OIL AND GAS PROPERTIES
The Company follows the full cost method of accounting for its oil and gas
exploration and development activities. Under this method, the Company
capitalizes leasehold acquisition, exploration (including unsuccessful
exploration) and development costs into one cost center. If unamortized costs
within the cost center exceed the cost center ceiling, as defined, the excess
will be charged to expense during the year in which the excess occurs.
Depreciation and amortization for each cost center are computed on a composite
unit-of-production method, based on estimated provided reserves attributable to
the respective cost center. All costs associated with oil and gas properties are
currently included in the base for computation and amortization. Such costs
include all acquisition, exploration and development costs. All of the Company's
oil and gas properties are located within the continental United States.
Gains and losses on sales of oil and gas properties representing less than 25%
of the reserve quantities for a given cost center are treated as adjustments of
capitalized costs. Gains and losses on sales of oil and gas properties
representing 25% or more of the reserve quantities for a given cost center are
recognized as part of operations.
F-7
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
OIL AND GAS PROPERTIES - CONTINUED
Gains or losses on sales of property and equipment, other than oil and gas
properties, are recognized as part of operations. Expenditures for renewals and
improvements are capitalized, while expenditures for maintenance and repairs are
charged to operations as incurred.
Costs of oil and gas properties, including leases, are periodically evaluated by
management, and losses are recognized if a property becomes impaired or the net
value of the capitalized cost center exceeds the present value of discounted
future net cash flows.
PROPERTY AND EQUIPMENT
Depreciation is provided in amounts sufficient to relate to the cost of
depreciable assets to operations over their estimated service lives (5 to 15
years). The straight-line method of depreciation is used for financial reporting
purposes, while accelerated methods are used for tax purposes.
STATEMENTS OF CASH FLOWS
Cash and cash equivalents includes cash on hand, demand deposits, and short-term
investments with original maturities of three months or less.
INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
carrying amounts and tax bases of assets and liabilities, using enacted tax
rates in effect in the years in which the differences are expected to reverse.
F-8
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Loch Exploration,
Inc. and its controlled subsidiaries, Loch Energy, Inc. ("LEI"),(53% owned),
Kantex, LLC (50% owned by LEI) and Cherokee Methane Corporation (100% owned by
Kantex). All significant intercompany accounts and transactions have been
eliminated in consolidation. The minority interest amount of $201,145 represents
the outside minority ownership of LEI.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE C - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Trade accounts payable $75,690 $10,346
Accrued sales and payroll taxes 1,624 959
Accrued interest --- 17
------- -------
$77,314 $11,322
------- -------
------- -------
</TABLE>
NOTE D - ACQUISITIONS
In December 1998, the Company acquired 1,295,286 shares (approximately 73%) of
LEI, a related entity of which a director of the Company was the sole
shareholder with 500,000 shares purchased at a par value of $.001 per share. LEI
received approximately $126,000 of net assets in the transaction, which was
accounted for as a purchase. The Company has agreed to distribute the shares of
LEI to the Company shareholders of record as of December 2, 1998.
In November 1998, LEI formed a Texas Limited Liability Company, Kantex, LLC
("Kantex"), in which it owns a controlling 50% membership interest. LEI's
initial contribution was 535,000 shares of LEI stock and approximately
$10,000. The other member initially contributed $85,000 cash and a $15,050
payable. Kantex acquired certain oil and gas properties for 465,000 shares of
the LEI stock, $45,000 cash and a note payable of $175,000. Kantex also
acquired Cherokee Methane Corporation ("CMC"), a gas transport company
located in Independence, Kansas for approximately $30,000 and 70,000 shares
of LEI stock.
F-9
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE D - ACQUISITIONS - CONTINUED
The acquisition has been accounted for using the purchase method of accounting.
Accordingly, CMC's results of operations are included in the consolidated
financial statements since the date of the acquisition.
NOTE E - LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Note payable bearing no interest, payable in
monthly installments of 25% of the net proceeds
of production from new wells completed by the Company $ 175,000 $ ---
12% debentures, interest only payable in monthly
installments through May 1, 1997, principal and interest
payable in 36 monthly installments, beginning April 1,
1997, collateralized by a first mortgage on the Company's
interests in certain oil and gas properties, net of
unamortized discount of $325 and $1,273 at December 31,
1998 and 1997, respectively 10,153 32,325
---------- ----------
185,153 32,325
Less current portion 185,153 22,172
---------- ----------
$ --- $ 10,153
---------- ----------
---------- ----------
</TABLE>
The debentures are convertible into shares of the Company's common stock, in
multiples of $1,000, at the holder's option, at the rate of $.025 per share from
June 1, 1993 to May 31, 1994, $.035 per share from June 1, 1994 to May 31, 1995,
$.05 per share from June 1, 1995 to May 31, 1996, and, thereafter, at the
greater of $2.50 per share after giving effect to the 1-for-50 reverse stock
split discussed in Note F, or the average of the bid/asked price of the
Company's common stock during the prior 20 day trading period.
F-10
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE E - LONG-TERM DEBT - CONTINUED
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ended
December 31, Amount
------------ --------
<S> <C>
1999 $185,153
2000 ---
2001 ---
2002 ---
2003 ---
Thereafter ---
--------
$185,153
--------
--------
</TABLE>
NOTE F - SHAREHOLDERS' EQUITY
In February, 1997, the Board of Directors declared a 1-for-50 reverse stock
split in the Company's common stock, effective February 28, 1997. The Company
also changed the par value from $.001 per share to $.01 per share and reduced
the authorized shares from 150,000,000 to 50,000,000. All share and per share
data, as appropriate, reflect this split. The effect of the split has been
presented retroactively within stockholders' equity at December 31, 1996 by
transferring the excess stated capital to the additional paid-in capital
account.
NOTE G - INCOME TAXES
There was no income tax expense recorded in 1998, 1997 or 1996, due to the
availability of net operating losses and due to the availability of a
nonconventional source fuel credit, which eliminated any federal income taxes.
This credit is available to the extent of the current year tax liability, and is
not available for carryover to future years.
Deferred taxes have not been provided because there are no significant temporary
differences between book and taxable income.
NOTE H - SUBSEQUENT EVENTS (UNAUDITED)
In January 1999, in conjunction with a "reverse merger", the Company acquired
all of the issued and outstanding capital stock of Design Automation Systems
Incorporated ("DASI") in exchange for 16,560,000 shares, approximately 93%, of
Company stock, valued at approximately $4,300,000. The amount of the
consideration was negotiated through an arm's-length transaction. The
transaction was accounted for as a purchase.
F-11
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE H - SUBSEQUENT EVENTS (UNAUDITED) - CONTINUED
The Company changed its name to Design Automation Systems Incorporated and will
operate in the computer systems integration industry. DASI is in the system
integration and custom programming business and is a premier dealer of Sun,
Hewlett Packard, IBM and Digital products and Internet security solutions. The
Company will be headquartered in Houston, Texas. As discussed in Note A, the
Company intends to distribute its shares of LEI to the Company's shareholders,
which will allow LEI and its subsidiaries described in Note E to operate
separately from the Company in the oil and gas exploration industry.
The Company was the legal acquirer; however, DASI was the acquirer for
accounting purposes. Prior to the merger, the Company had approved a spin-off of
the Company's subsidiary that holds all of the Company's operating assets and
liabilities to the stockholders of record prior to the merger. As a result of
the plan to spin off the operations to its stockholders and due to the fact that
going forward the balance sheet will effectively be that of DASI, the historical
operations of the Company are not included in the following unaudited pro forma
balance sheet, which only includes the historical financial statements of DASI.
<TABLE>
<CAPTION>
(Unaudited)
1998
-----------
<S> <C>
Assets
Current assets
Cash and cash equivalents $ 850,925
Trade accounts receivable 4,020,385
Other assets 144,579
-----------
Total current assets 5,015,889
Property and equipment, net 71,480
-----------
Total assets $ 5,087,369
-----------
Liabilities
Current liabilities
Notes payable $ 1,031,483
Accounts payable 3,649,398
Accounts payable, related party 50,419
Accrued expenses and other liabilities 386,488
-----------
Total current liabilities 5,117,788
Total liabilities 5,117,788
Shareholders' Equity
Common stock 54,392
Accumulated deficit (84,811)
-----------
Total shareholders' deficit (30,419)
-----------
Total liabilities and shareholders equity $ 5,087,369
-----------
-----------
</TABLE>
F-12
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE H - SUBSEQUENT EVENTS (UNAUDITED) - CONTINUED
In March 1999, the Company acquired all of the issued and outstanding stock of
COAD Solutions, Inc., an information technology consulting firm, in an arms
length transaction between the Company and the two stockholders of COAD. The
consideration for the acquisition was: (1) 600,000 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, and
(3) for a period of 24 months each COAD stockholder will receive a 20% royalty
on gross sales revenues of SQLACE products. The two stockholders of COAD entered
into employment agreements, which terminate in December 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.
NOTE I - RELATED PARTY TRANSACTIONS
In June 1993, the Company entered into an agreement with a wholly-owned
subsidiary of Spindletop Oil & Gas Co. (Spindletop), a related party, whereby
the parties agreed to combine their talents and resources to evaluate and
acquire producing and non-producing oil and gas properties at various auctions.
Any properties acquired under the terms of this agreement are to be acquired by
initial assignment to Spindletop. Spindletop has agreed to provide the Company
with a recordable assignment of its interest, such interest to be determined by
the proportionate share of monies expended for the acquisition of said
properties. All costs are borne by the Company and Spindletop in the same
proportions as their respective ownership interests. Spindletop serves as
administrator for the properties acquired in connection with this agreement, and
is entitled to an overhead reimbursement for properties for which it serves as
operator. This agreement had an initial term of six months, and continues
month-to-month, thereafter, until canceled by either party. No properties were
acquired in connection with this agreement during 1998, 1997 or 1996.
The Company leases its compressors to Spindletop. During the years ended
December 1998, 1997 and 1996, Spindletop paid the Company approximately $9,000,
$17,000, and $32,000, respectively, under the lease agreements for the
compressors.
The Company operates an inactive oil and gas partnership drilling program, Loch
Exploration, Inc. 1980A, for which it has made commitments, paid expenses and
collected an operating fee.
NOTE J - CASH FLOW INFORMATION
The Company paid approximately $4,000, $7,000 and $11,000 for interest in 1998,
1997 and 1996, respectively. Excluded from the Statements of Cash Flows were the
effects of certain non-cash investing and financing activities, as follows:
F-13
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE J - CASH FLOW INFORMATION - CONTINUED
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Acquisition of gas gathering system in
exchange for stock $ --- $ 6,000 $ ---
Sale of oil and gas properties for
an account receivable --- 45,000 ---
Acquisition of oil and gas properties
in exchange for note payable and stock 302,904 --- ---
Acquisition of fixed assets in
exchange for note payable and stock 10,356 --- ---
Acquisition of subsidiary in exchange
for note payable and stock 41,781 --- ---
Sale of minority interest in
subsidiary for receivable 15,000 --- ---
</TABLE>
NOTE K - EARNINGS PER SHARE
Earnings (loss) per share (EPS) are calculated in accordance with Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS 128), which was
adopted in 1997 for all years presented. Basic EPS is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted EPS does not apply to the Company
due to the absence of dilutive potential common shares. The adoption of SFAS 128
had no effect on previously reported EPS.
NOTE L - CONCENTRATIONS OF CREDIT RISK
Trade accounts receivable as of December 31, 1998 and 1997 are primarily from
oil and gas operators, including Spindletop, related to the Company's interests
in oil and gas wells, and its compressor leases.
NOTE M - COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities on a month to month basis. Total rent
expense incurred was approximately $6,100, $7,800 and $7,400 in 1998, 1997 and
1996, respectively.
The Company's oil and gas exploration and production activities are subject to
Federal, State and environmental quality and pollution control laws and
regulations. Such regulations restrict emission and discharge of wastes from
wells, may require permits for the drilling of wells, prescribe the spacing of
wells and rate of production, and require prevention and clean-up of pollution.
F-14
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE M - COMMITMENTS AND CONTINGENCIES - CONTINUED
Although the Company has not in the past incurred substantial costs in
complying with such laws and regulations, future environmental restrictions
or requirements may materially increase the Company's capital expenditures,
reduce earnings, and delay or prohibit certain activities.
NOTE N - FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at December
31, 1998 and 1997 follow:
<TABLE>
<CAPTION>
1998 1997
------------------------ ----------------------
<S> <C> <C> <C> <C>
Carrying Fair Carrying Fair
Amount value amount Value
Cash and cash equivalents $ 34,832 $ 34,832 $ 80,457 $ 80,457
Trade accounts receivable 83,941 83,941 12,067 12,067
Accounts receivable, related parties 25,718 25,718 33,449 33,449
Other accounts receivable --- --- 45,000 45,000
Notes payable 185,153 185,153 32,325 32,325
</TABLE>
The fair value amounts for each of the financial instruments listed
approximate carrying amounts due to the short maturities of these instruments.
NOTE O - COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, (SFAS 130), requires that total comprehensive income be reported in
the financial statements. For the years ended December 31, 1998, December 31,
1997, and December 31, 1996, the Company's comprehensive income (loss) was
equal to its net income (loss) and the Company does not have income meeting
the definition of other comprehensive income.
NOTE P - SEGMENT INFORMATION
The Company is in one business segment, the oil and gas exploration business,
and follows the requirements of FAS 131, "Disclosures about Segments of an
Enterprise and Related Information."
F-15
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE Q - ADDITIONAL OPERATIONAL AND BALANCE SHEET INFORMATION
Certain information about the Company's operations for the years ended
December 31, 1998, 1997 and 1996 follows.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Capitalized costs relating to oil and gas
producing activities:
Unproved properties $ --- $ --- $ ---
Proved properties 425,166 125,777 245,862
------------ ------------ ------------
Total capitalized costs 425,166 125,777 245,862
Accumulated amortization (54,617) (45,911) (68,799)
------------ ------------ ------------
$ 370,549 $ 79,866 $ 177,063
------------ ------------ ------------
------------ ------------ ------------
Costs incurred in oil and gas property acquisition,
exploration and development:
Acquisition of properties $ 302,904 $ 5,305 $ ---
Exploration costs --- --- ---
Development costs --- --- ---
------------ ------------ ------------
$ 302,904 $ 5,305 $ ---
------------ ------------ ------------
------------ ------------ ------------
Results of operations from producing activities:
Year Ended December 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
Sales of oil and gas $ 101,825 $ 148,059 $ 177,972
Production costs 59,827 88,951 104,109
Amortization of oil and gas properties 8,707 12,199 16,533
------------ ------------ ------------
68,534 101,150 120,642
------------ ------------ ------------
$ 33,291 $ 46,909 $ 57,330
------------ ------------ ------------
------------ ------------ ------------
Sales price per equivalent Mcf $ 2.14 $ 2.56 $ 2.79
------------ ------------ ------------
------------ ------------ ------------
Production cost per equivalent Mcf $ 1.26 $ 1.54 $ 1.63
------------ ------------ ------------
------------ ------------ ------------
Amortization per equivalent Mcf $ .18 $ .21 $ .26
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-16
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE Q - ADDITIONAL OPERATIONAL AND BALANCE SHEET INFORMATION - CONTINUED
In December, 1997, the Company sold, for $50,000, its interest in certain
natural gas producing properties. The full cost method of accounting requires
that sales of oil and gas properties shall be accounted for as adjustments of
capitalized costs, unless such adjustments would significantly alter the
relationship between capitalized costs and proven reserves attributable to a
cost center. Due to the significance of the effect of this sale on the
relationship between capitalized costs and proven reserves, a loss was
recognized on the sale in the 1997 statement of operations.
NOTE R - SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Charged Directly to Expense
--------------------------------------------
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Maintenance and Repairs $ 571 $ 301 $ 1,089
Production taxes 6,619 9,624 11,568
Taxes, other than payroll and income taxes 605 526 345
</TABLE>
NOTE S - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
The Company's net proved oil and gas reserves as of December 31, 1998, 1997
and 1996 have been estimated by Company personnel in accordance with
guidelines established by the Securities and Exchange Commission.
Accordingly, the following reserve estimates were based on existing economic
and operating conditions. Oil and gas prices in effect at December 31 of each
year were used. Operating costs, production and ad valorem taxes and future
development costs were based on current costs with no escalation.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting the future rates of production and timing of
development expenditures. The following reserve data represents estimates
only and should not be construed as being exact. Moreover, the present values
should not be construed as the current market value of the Company's oil and
gas reserves or the costs that would be incurred to obtain equivalent
reserves.
F-17
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE S - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - CONTINUED
Changes in Estimated Quantities of Proved Oil and Gas Reserves
<TABLE>
<CAPTION>
Oil Gas
Blbs Mcf
------------- -------------
<S> <C> <C>
Proved reserves:
- - ----------------
BALANCE, DECEMBER 31, 1995 33,540 586,469
Revisions of previous estimates 999 (48,512)
Production (3,791) (41,021)
------------- -------------
BALANCE, DECEMBER 31, 1996 30,748 496,936
Sale of reserves in place --- (412,334)
Production (3,468) (37,000)
Revisions of previous estimates 11,788 96,465
------------- -------------
BALANCE, DECEMBER 31, 1997 39,068 144,067
Purchase of oil and gas properties --- 1,926,205
Production (2,761) (31,077)
Revisions of previous estimates (24,011) 125,969
-------------- -------------
BALANCE, DECEMBER 31, 1998 12,296 2,165,164
------------- -------------
------------- -------------
Proved Developed Reserves:
- - --------------------------
Balance, December 31, 1996 30,748 496,936
Balance, December 31, 1997 39,068 144,067
Balance, December 31, 1998 12,296 2,165,164
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows and
Changes Therein Relating to Proved Oil and Gas Reserves
(Unaudited)
The Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves ("Standardized Measures")
does not purport to present the fair market value of a company's oil and gas
properties. An estimate of such value should consider, among other factors,
anticipated future prices of oil and gas, the probability of recoveries in
excess of existing proved reserves, the value of probable reserves and
acreage prospects, and perhaps different discount rates. It should be noted
that estimates of reserve quantities, especially from new discoveries, are
inherently imprecise and subject to substantial revision.
Future net cash flows were computed using the contract price, which was not
escalated. Future production includes operating costs and taxes. No deduction
has been made for interest, general corporate overhead, depreciation or
amortization. The annual discount of estimated future net cash flows is
defined, for use herein, as future cash flows discounted at 10% per year,
over the expected period of realization.
F-18
<PAGE>
LOCH EXPLORATION, INC
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998, 1997 and 1996
NOTE S - SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Standardized Measures of Discounted Future
Net Cash Flows:
Future production revenue $ 3,616,095 $ 1,045,705 $ 1,772,577
Future production and development costs (1,305,147) (470,917) (875,088)
------------ ----------- --------
Future net cash flows before Federal
income tax 2,310,948 574,788 897,489
Future Federal income tax (577,737) (143,697) (224,372)
------------ ----------- --------
Future net cash flows 1,733,211 431,091 673,117
Effect of discounting 10% per year (470,149) (104,915) (148,869)
------------ ----------- ---------
$ 1,263,062 $ 326,176 $ 524,248
------------ ----------- --------
------------ ----------- --------
</TABLE>
Change Relating to the Standardized Measures
of Discounted Future Net Cash Flows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Beginning balance $ 326,176 $ 524,248 $ 518,940
Oil and gas sales, net of production costs (41,998) (59,108) (73,863)
Net change in prices, net of production costs (45,306) (8,013) 41,467
Purchase of reserves in place 1,032,715 --- ---
Sales of reserves in place --- (266,873) ---
Revisions of quantity estimates (21,601) 233,293 (55,422)
Accretion of discount 32,618 52,425 51,894
Net change in income taxes 269,985 (113,186) (3,443)
Other (289,527) (36,610) 44,675
------------- ------------- ------------
$ 1,263,062 $ 326,176 $ 524,248
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
F-19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Design Automation Systems, Inc.
We have audited the accompanying balance sheets of Design Automation Systems,
Inc. as of December 31, 1998 and 1997, and the related statements of operations,
shareholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 Design Automation Systems, Inc.
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Certified Public Accountants
Houston, Texas
February 1, 1999
F-20
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 850,925 $ 354,551
Account receivable - trade, no allowance for doubtful accounts 4,020,385 2,980,670
Accounts receivable from affiliates - 176,071
Other assets 144,579 27,467
------------ ------------
Total current assets 5,015,889 3,538,759
PROPERTY AND EQUIPMENT, net 71,480 104,141
------------ ------------
Total assets $ 5,087,369 $ 3,642,900
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Note payable $ 1,031,483 $ 1,784,526
Accounts payable 3,649,398 1,287,353
Advances from shareholder - 288,385
Accounts payable to affiliate 50,419 50,419
Accrued expenses and other current liabilities 386,488 309,797
------------ ------------
Total current liabilities 5,117,788 3,720,480
COMMITMENTS AND CONTINGENCIES (Notes 5, 10 and 11)
SHAREHOLDERS' EQUITY (DEFICIT) :
Shareholder receivable for purchase of common stock - (227,056)
Common stock, no par value; 50,000,000 shares authorized;
16,560,000 and 14,400,000 shares issued and outstanding
at December 31, 1998 and December 31, 1997, respectively 54,392 35,237
Retained earnings (accumulated deficit) (84,811) 114,239
------------ ------------
Total shareholders' equity (deficit) (30,419) (77,580)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 5,087,369 $ 3,642,900
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-21
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ 20,442,937 $ 20,074,401 $ 7,843,566
OPERATING EXPENSES:
Cost of revenues 18,124,043 17,486,967 6,377,980
Selling, general and administrative 2,058,842 2,724,239 1,403,104
------------ ------------ ------------
20,182,885 20,211,206 7,781,084
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 260,052 (136,805) 62,482
OTHER INCOME (EXPENSE):
Interest expense (61,060) (72,176) (74,760)
Interest income 56,074 63,730 36,658
Other income 5,266 21,100 5,649
------------ ------------ ------------
280 12,654 (32,453)
------------ ------------ ------------
INCOME (LOSS) FROM:
Continuing operations 260,332 (124,151) 30,029
Discontinued operations - (17,330) 339,943
------------ ------------ ------------
Net income (loss) $ 260,332 $ (141,481) $ 369,972
------------ ------------ ------------
------------ ------------ ------------
BASIC EARNINGS PER COMMON SHARE:
Continuing operations $ .02 $ (.01) $ -
Discontinued operations $ - $ - $ .02
Net income $ .02 $ (.01) $ .03
WEIGHTED AVERAGE SHARES OUTSTANDING 14,405,918 14,400,000 14,400,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-22
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SHAREHOLDER
RECEIVABLE TOTAL
FOR RETAINED SHARE-
COMMON STOCK PURCHASE OF EARNINGS HOLDERS'
-------------------------- COMMON (ACCUMULATED EQUITY
SHARES AMOUNT STOCK DEFICIT) (DEFICIT)
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1996 14,400,000 $ 35,237 $ (227,056) $ (63,833) $ (255,652)
Net income - - - 369,972 369,972
---------- ------------ ------------ ------------ ------------
BALANCES, December 31, 1996 14,400,000 35,237 (227,056) 306,139 114,320
Spin-off of net assets of CAD
division - - - (50,419) (50,419)
Net loss - - - (141,481) (141,481)
---------- ------------ ------------ ------------ ------------
BALANCES, December 31, 1997 14,400,000 35,237 (227,056) 114,239 (77,580)
Distribution to shareholder - - 227,056 (459,382) (232,326)
Common stock issued as
compensation 2,160,000 19,155 - - 19,155
Net income - - - 260,332 260,332
---------- ------------ ------------ ------------ ------------
BALANCES, December 31, 1998 16,560,000 $ 54,392 $ - $ (84,811) $ (30,419)
---------- ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-23
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 260,332 $ (141,481) $ 369,972
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Discontinued operations - 17,330 (339,943)
Depreciation and amortization 22,803 20,810 66,405
Issuance of common stock as compensation 19,155 - -
Changes in:
Accounts receivable (863,644) (1,578,380) (447,396)
Accounts payable 2,362,045 274,022 154,644
Accrued expenses and other current liabilities 76,691 113,735 103,968
Other, net (117,112) 181,988 (12,206)
------------ ------------ ------------
Net cash provided by (used in) operating activities 1,760,270 (1,111,976) (104,556)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (22,190) (69,528) (31,625)
Proceeds from sale of property and equipment 32,048 - -
Advances to related party (654,673) - -
------------ ------------ ------------
Net cash provided by (used in) investing activities (644,815) (69,528) (31,625)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payment on) notes payable, net (753,043) 644,504 778,027
Advances from shareholder, net 133,962 19,891 (30,742)
------------ ------------ ------------
Net cash provided by (used in) financing activities (619,081) 664,395 747,285
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 496,374 (517,109) 611,104
CASH AND CASH EQUIVALENTS, at beginning of year 354,551 871,660 260,556
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, at end of year $ 850,925 $ 354,551 $ 871,660
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES - interest paid $ 61,060 $ 72,176 $ 74,760
------------ ------------ ------------
------------ ------------ ------------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Spin-off of net assets of CAD division $ - $ 50,419 $ -
------------ ------------ ------------
------------ ------------ ------------
Elimination of shareholder receivable $ (227,056) $ - $ -
Elimination of shareholder advances 422,347 - -
Elimination of related party receivable (654,673) - -
------------ ------------ ------------
Total non-cash distribution to shareholder $ (459,382) $ - $ -
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-24
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Design Automation Systems, Inc. (the "Company"), a
privately held corporation, was incorporated under the laws of the State
of Texas on April 26, 1989. The Company is a value added reseller of
integrated solutions. The Company is headquartered in Houston, Texas and
is a dealer of Sun, HP, and IBM products. The Company sells products and
services throughout the United States.
REVENUE RECOGNITION - The Company recognizes revenue for products sold
when the customer receives the product.
PROPERTY AND EQUIPMENT - Property and equipment 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 are five to seven years.
FEDERAL INCOME TAXES - The Company has received approval from the
Internal Revenue Service to be treated as an S Corporation in accordance
with Internal Revenue Code Section 1362. Accordingly, the Company's
income is taxed directly to the shareholders, and no provision for
federal income taxes is recorded by the Company.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows,
the Company considers cash equivalents to include all cash items, such
as time deposits and short-term investments that mature in three months
or less from the date of acquisition.
EARNINGS PER SHARE - Net income per share is computed on the basis of
the weighted average number of common shares outstanding each year, plus
common stock equivalents related to dilutive stock options.
There were no dilutive securities at December 31, 1998 or 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of financial
instruments, primarily accounts receivable, accounts payable and notes
payable, closely approximate the carrying values of the instruments due
to the short-term maturities of such instruments.
COMPREHENSIVE INCOME (LOSS) - Comprehensive income is defined as all
changes in shareholders' equity, 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 equity such as translation adjustments on investments in
foreign subsidiaries, and certain changes in minimum pension
liabilities. The Company's comprehensive income (loss) was equal to
its net income (loss) for all periods presented in these financial
statements.
F-25
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
USE OF ESTIMATES - The preparation of the Company's financial statements
in conformity with generally accepted accounting principles requires the
Company'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.
2. ADVANCES FROM SHAREHOLDER
The Company has advances due to the Company's majority shareholder. The
advances are unsecured, due on demand and bears interest at a rate of
14% per annum. Interest on the advances is paid semi-monthly. Interest
related to these advances totaled approximately $56,000, $33,000 and
$39,000 for the years ended 1998, 1997 and 1996, respectively. These
advances were converted to equity in 1998.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Furniture and fixtures $ 45,439 $ 36,001
Computer equipment 130,103 155,304
------------ ------------
175,542 191,305
Accumulated depreciation (104,062) (87,164)
------------ ------------
$ 71,480 $ 104,141
------------ ------------
------------ ------------
</TABLE>
4. NOTE PAYABLE
The Company purchases its inventory from one of its largest vendors
under a $2,500,000 credit facility with an inventory financing company.
Advances under the agreement are paid directly from the financing
company to the supplier, and a fee is calculated on the invoice
amount and remitted to the financing company by the supplier. Draws
are payable in 60 days without interest and are secured by inventory
and receivables. Past due amounts bear interest at the published prime
rate plus 6%. The agreement subjects the Company to certain restrictive
covenants such as limitation on subordinated debt payments, minimum
tangible capital funds requirements and a maximum ratio of
unsubordinated liabilities to tangible net worth.
No interest expense was incurred under this agreement during the years
ended December 31, 1998, 1997 or 1996.
F-26
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
5. LEASE COMMITMENTS
The Company leases office space under a non-cancelable operating lease.
Total rent expense for the years ended 1998, 1997 and 1996 was
approximately $82,000, $46,000 and $42,000, respectively. Future minimum
rentals due under non-cancelable operating leases with an original term
of at least one-year are approximately as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
------------------------
<S> <C>
1999 $ 104,000
2000 98,000
------------
$ 202,000
------------
------------
</TABLE>
6. CONCENTRATIONS OF CREDIT RISK
For the year ended December 31, 1998, the Company purchased
approximately 82% of its inventory from three suppliers. For the years
ended December 31, 1997 and 1996, the Company purchased approximately
79% and 74%, respectively, from two suppliers.
Financial instruments that potentially subject the Company to
concentration of credit risk are accounts receivable. The Company
performs ongoing credit evaluations as to the financial condition of its
customers. Generally, no collateral is required. Two customers made up
approximately 64% and 37% of accounts receivable balances at December
31, 1998 and 1997, respectively.
The Company at times maintains deposits which may be in excess of the
Federal Deposit Insurance Corporation insurance limit or the Securities
Investment Protection Corporation insurance limit. Management of the
Company believes the risk of loss in connection with the accounts is
minimal.
7. REVENUES FROM MAJOR CUSTOMERS
A summary of the Companies' revenues from major customers is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Customer A $ 4,739,911 $ 4,276,459 $ 1,213,270
Customer B 2,588,120 633,783 -
Customer C 2,511,147 788,880 -
Other 10,603,759 14,375,279 6,630,296
------------ ------------ ------------
Totals $ 20,442,937 $ 20,074,401 $ 7,843,566
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-27
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
8. DISCONTINUED OPERATIONS
On September 30, 1997, the Board of Directors approved a plan to spin
off its computer-aided design ("CAD") software segment of the business
to a newly formed company that is wholly-owned by the sole shareholder
of the Company at the time of the distribution. The transaction was
completed October 1, 1997. As of the date the transaction was completed,
the book value of the net assets distributed totaled $50,419. This
amount consisted of accounts receivable of $344,047 and accounts payable
and accrued expenses of $293,628.
The financial statements represent the historical amounts of the Company
restated to show the remaining operations of the Company as continuing
operations and the CAD results as discontinued operations.
No gain or loss resulted from this transaction. Operating results of the
discontinued CAD operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues $ 1,254,361 $ 1,300,854
Net income (loss) $ (17,330) $ 339,943
</TABLE>
Included in accounts payable to affiliate as of December 31, 1998
and 1997 was $50,419 due to the same company noted above.
9. RELATED PARTY TRANSACTIONS
The Company had $119,497 and $165,000 management fee income for the
years ended December 31, 1998 and 1997, respectively, from a company
that is wholly-owned by the majority shareholder of the Company.
Accounts receivable related to the management fees was approximately
$163,000 as of December 31, 1997. Additionally, the Company had
approximately $13,000 due from a company that is seventy-percent-owned
by the largest shareholder of the Company.
F-28
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
10. YEAR 2000
The Company 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 Company transacts
business.
11. SUBSEQUENT EVENT
Effective January 1, 1999, Loch Exploration, Inc. ("Loch"), a Texas
corporation, acquired all of the stock of the Company in a "reverse
merger," whereby the Company is the acquiror for accounting purposes. In
connection with the acquisition, Loch (effectively a shell corporation)
issued the Company's shareholders 16,560,000 shares of authorized but
unissued common stock, $.001 par value, valued at approximately $4.3
million. The transaction was funded January 4, 1999. The amount of
consideration was negotiated through an arm's-length transaction. The
transaction was accounted for in a manner similar to a pooling of
interests, whereby no goodwill resulted from this transaction. As a
result of this transaction, the Company will be taxed as a C
Corporation; however, at the date of the transaction, no significant
basis differences existed between tax and financial reporting purposes
that would result in deferred tax balances.
Effective January 1999, the Board of Directors of the Company approved
five-year employment agreements with three key employees for an
aggregate minimum base salary and bonus compensation of $925,000. On
January 4, 1999, the Company's shareholders approved a 10,000-for-one
split of the Company's common stock. Shares issued and outstanding have
been retroactively restated to reflect this split.
In February 1999, the Board of Directors approved the 1999 Employee
Stock Option Plan (the "Plan"). The Board reserved 3,000,000 shares
of common stock for issuance under the Plan.
F-29
<PAGE>
LOCH EXPLORATION, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statement of operations of Loch
Exploration, Inc. (the "Company") for the year ended December 31, 1998, and the
unaudited pro forma consolidated balance sheet of the Company as of December 31,
1998 (the "Unaudited Pro Forma Consolidated Financial Statements") give effect
to the acquisition of Design Automation Systems, Inc. ("DASI") by the Company,
which was effective January 1, 1999. This acquisition was accounted for as a
reverse merger (the "Merger") and recorded for accounting purposes in a manner
similar to a pooling of interests and resulted in no goodwill.
The unaudited pro forma consolidated statement of operations for the year ended
December 31, 1998, was prepared assuming that the transaction described above
was consummated as of the beginning of the period presented. The unaudited pro
forma consolidated balance sheet as of December 31, 1998 was prepared assuming
that the transaction described above was consummated as of December 31, 1998.
The Unaudited Pro Forma Consolidated Financial Statements are based upon the
historical financial statements of DASI which are included elsewhere in this
filing and should be read in conjunction with those financial statements and the
notes thereto. The Merger was accounted for in a manner similar to a pooling of
interests, whereby no goodwill was derived from the transaction. The Company was
the legal acquiror; however, DASI was the acquiror for accounting purposes.
Therefore, for purposes of these Unaudited Pro Forma Consolidated Financial
Statements, the historical financial statements of DASI will become those of the
registrant. Prior to the Merger, the Company had approved a spin-off of the
Company's subsidiary that holds all of the Company's operating assets and
liabilities to the stockholders of record prior to the Merger. As a result of
the plan to spin off the operations to its stockholders, the historical
operations of the Company will not be included in the Unaudited Pro Forma
Consolidated Financial Statements, which will only include the historical
financial statements of DASI and the necessary pro forma adjustments to reflect
contractual compensation arrangements and income taxes. The pro forma
consolidated balance sheet of the Company, giving effect to the Merger and the
spin-off of the subsidiary of the Company, will effectively be that of DASI;
therefore, an Unaudited Pro Forma Consolidated Balance Sheet is not included
herein, and reference should be made to the audited balance sheet of DASI at
December 31, 1998, included elsewhere herein.
The pro forma adjustments and the resulting Unaudited Pro Forma Consolidated
Financial Statements have been prepared based upon available 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 financial position or results of operations actually would have been
had the Merger 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-merger activities and other
matters.
F-30
<PAGE>
LOCH EXPLORATION, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------ -----------------------------
PRO FORMA
DASI ADJUSTMENTS OPERATIONS
------------ ----------- ------------
(a) and (b)
<S> <C> <C> <C>
REVENUES $ 20,442,937 $ - $ 20,442,937
OPERATING EXPENSES:
Cost of revenues 18,124,043 - 18,124,043
Selling, general and administrative 2,058,842 (200,000) 1,858,842
------------ ----------- ------------
20,182,885 (200,000) 19,982,885
------------ ----------- ------------
INCOME FROM OPERATIONS 260,052 200,000 460,052
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 260,332 200,000 460,332
INCOME TAXES - (161,000) (161,000)
------------ ----------- ------------
INCOME FROM CONTINUING OPERATIONS $ 260,332 $ 39,000 $ 299,332
------------ ----------- ------------
------------ ----------- ------------
BASIC EARNINGS PER COMMON SHARE FROM
CONTINUING OPERATIONS $ .02
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 14,405,918
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS.
F-31
<PAGE>
LOCH EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND AS OF DECEMBER 31, 1998
1. BASIS OF PRESENTATION:
The unaudited pro forma consolidated balance sheet is presented assuming
the Merger occurred December 31, 1998 (see audited balance sheet
included elsewhere herein). The unaudited pro forma consolidated
statement of operations for the year ended December 31, 1998 is
presented as if the Merger occurred at the beginning of 1998. The
Unaudited Pro Forma Consolidated Financial Statements may not
necessarily be indicative of the results which would actually have
occurred if the Merger had been in effect on the date or for the period
indicated or which may result in the future.
2. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS:
The pro forma adjustments to the unaudited pro forma consolidated
statement of operations reflect the following:
(a) SALARIES - This adjustment reflects the contractual compensation
arrangements executed upon effectiveness of the Merger.
(b) INCOME TAXES - The adjustment for income taxes represents the tax
effect of DASI's income before taxes giving effect of the
foregoing pro forma adjustments computed at a 34% income tax rate
for estimated federal and state income taxes. DASI had
historically been taxed under the Subchapter S provisions of the
Internal Revenue Code, whereby the earnings of DASI had been
taxed at the shareholder level for federal purposes.
F-32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DESIGN AUTOMATION SYSTEMS, INC.
By:
-------------------------------------
Carl R. Rose, Chief Executive Officer
April 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
- - -------------------------------- Chairman of the Board and April 15, 1999
Carl R. Rose Chief Executive Officer
- - -------------------------------- President and Director April 15, 1999
Charles H. Leaver, Jr.
- - -------------------------------- Chief Financial Officer, April 15, 1999
Robert E. Nelson Principal Accounting Officer
and Director
<PAGE>
Exhibit 2.2
AGREEMENT
AND
PLAN OF MERGER
BY AND AMONG
LOCH EXPLORATION, INC.,
(DESIGN AUTOMATION SYSTEMS, INC.)
AND
THE SHAREHOLDERS OF
COAD SOLUTIONS, INC.
(A MISSOURI CORPORATION)
AND
COAD SOLUTIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF LOCH EXPLORATIONS, INC.)
(A TEXAS CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLES PAGE
<S> <C> <C>
ARTICLE I REPRESENTATIONS COVENANTS, AND WARRANTIES
OF LOCX........................................ 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
ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES
OF COAD SHAREHOLDERS........................... 4
2.01 Ownership of COAD Solutions, Inc. ........ 4
ARTICLE III REPRESENTATIONS, COVENANTS AND WARRANTIES
OF COAD SOLUTIONS, INC......................... 5
3.01 Organization.............................. 5
3.02 Capitalization............................ 5
3.03 Subsidiaries and Predecessor Corporations. 5
3.04 Financial Statements...................... 5
3.05 Information............................... 7
3.06 Options or Warrants....................... 7
3.07 Absence of Certain Changes or Events...... 7
3.08 Title and Related Matters................. 8
3.09 Litigation and Proceedings................ 9
3.10 Contracts................................. 9
3.11 Material Contract Defaults................ 10
3.12 No Conflict With Other Instruments........ 10
3.13 Governmental Authorizations............... 10
3.14 Compliance With Laws and Regulations...... 10
3.15 Insurance................................. 11
3.16 Approval of Agreement..................... 11
3.17 Material Transactions or Affiliations..... 11
3.18 Labor Relations........................... 11
3.19 Incorporated Schedules.................... 12
3.20 Assistance in Registration................ 12
3.21 Year 2000................................. 13
</TABLE>
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<TABLE>
<CAPTION>
ARTICLES PAGE
<S> <C> <C>
ARTICLE IV PLAN .......................................... 13
4.01 The Agreement............................. 13
4.02 Closing................................... 14
4.03 Closing Events............................ 14
4.04 Piggyback Register........................ 14
ARTICLE V SPECIAL COVENANTS.............................. 19
5.01 Access to Properties and Records.......... 19
5.02 Delivery of Books and Records............. 19
5.03 Special Covenants and Representations
Regarding the exchanged Stock............. 19
5.04 Third Party Consents and Certificates..... 20
5.05 Actions Prior to Closing.................. 20
5.06 Indemnification........................... 21
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS
OF LOCX........................................ 22
6.01 Accuracy of Representations............... 22
6.02 Officer's Certificates.................... 22
6.03 No Material Adverse Change................ 22
6.04 Good Standing............................. 22
6.05 Other Items............................... 22
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF COAD
SOLUTIONS, INC. AND COAD SOLUTIONS, INC.
SHAREHOLDERS................................... 23
7.01 Accuracy of Representations............... 23
7.02 Officer's Certificate..................... 23
7.03 No Material Adverse Change................ 23
7.04 Good Standing............................. 23
7.05 Other Items............................... 24
ARTICLE VIII TERMINATION.................................... 24
8.01 Termination............................... 24
8.02 Effect of Termination..................... 24
ARTICLE IX MISCELLANEOUS.................................. 24
9.01 Brokers................................... 24
9.02 Governing Law............................. 25
9.03 Notices................................... 25
9.04 Arbitration............................... 25
</TABLE>
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<TABLE>
<CAPTION>
ARTICLES PAGE
<S> <C> <C>
9.05 Confidentiality........................... 26
9.06 Schedules; Knowledge...................... 26
9.07 Third Party Beneficiaries................. 27
9.08 Entire Agreement.......................... 27
9.09 Survival.................................. 27
9.10 Counterparts.............................. 27
9.11 Amendment or Waiver....................... 27
</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 this 31st day of March, 1999, by and
among Loch Exploration, Inc., a Texas corporation ("LOCX"), COAD Solutions,
Inc., a Missouri corporation ("COAD") and Jeff Sexton and Thomas E. Scheifler
(COAD shareholders) who are the beneficial owners of 300 shares of common stock
of COAD ("Common Stock"), which constitutes 100% of the outstanding capital
stock of COAD and COAD Solutions, Inc., a Texas corporation and wholly-owned
subsidiary of LOCX ("COAD Texas").
PREMISES
This Agreement provides for the acquisition, through a forward
triangular merger (the "Merger") by COAD into COAD Texas of all of the issued
and outstanding shares of COAD solely in exchange for cash and voting shares of
LOCX, on the terms and conditions hereinafter provided, all for the purpose of
effecting a so-called "tax-free" reorganization pursuant to Section 368 of the
Internal Revenue Code of 1986, as amended.
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 herefrom, it is hereby agreed as follows:
ARTICLE I
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF LOCX
As an inducement to, and to obtain the reliance of COAD and COAD
shareholders, LOCX represents and warrants as follows:
SECTION 1.01. ORGANIZATION. LOCX and COAD Texas are corporations duly
organized, validly existing, and in good standing under the laws of the State of
Texas. LOCX and COAD Texas each have 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 qualification. Included in
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Schedule 1.01 are complete and correct copies of the articles of incorporation,
as amended, and bylaws of each of LOCX and COAD Texas 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. Each of LOCX and COAD Texas has taken, or will take
prior to Closing, (as defined in Article IX) all action required by laws, its
articles of incorporation, its bylaws, or otherwise to authorize the execution
and delivery of this Agreement. Each of LOCX and COAD Texas 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 LOCX
consists of 50,000,000 shares of common stock, $0.01 par value per share, of
which 20,159,986 shares are currently issued and outstanding. A shareholder list
is set forth in Schedule 1.02(a). 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 Texas and except as set forth on Schedule 1.03, LOCX does not have any
subsidiaries and does not own, beneficially or of record, any shares of any
other corporation.
SECTION 1.04. FINANCIAL STATEMENTS. LOCX (i) has delivered or will
cause to be delivered to COAD 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"). As of their respective dates, the Form 10-K and Form
10-Q 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 and Form 10-Q present fairly the financial condition,
assets, liabilities, and stockholders' equity of LOCX as of its date; each such
statement of income and statement of retained earnings presents fairly the
results of operations of LOCX 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 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 LOCX, 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.
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SECTION 1.05. INFORMATION. The information concerning LOCX 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 LOCX
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 December 31, 1998:
A. There has not been (i) any material adverse change in the
business, operations, properties, assets, or condition of
LOCX; or (ii) any damage, destruction, or loss to LOCX
(whether or not covered by insurance) materially and adversely
affecting the business, operations, properties, assets, or
condition of LOCX;
B. LOCX 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 LOCX; (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. LOCX 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
LOCX balance sheet; (iii) sold or transferred, or agreed to
sell or transfer, any
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<PAGE>
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 LOCX; 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 or Form 10-Q, there is no proceeding by or before (or, to the
best knowledge of LOCX, 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 LOCX, threatened against or affecting LOCX 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 on the
condition of LOCX. There are no proceedings pending or, to the best knowledge of
LOCX, threatened, seeking to prevent or challenging the transactions
contemplated by this agreement. LOCX 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 LOCX.
SECTION 1.09. COMPLIANCE WITH APPLICABLE SECURITY LAWS. LOCX 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 LOCX.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF COAD SHAREHOLDERS
As an inducement to, and to obtain reliance of LOCX, the COAD
shareholders represent and warrant as follows:
SECTION 2.01. OWNERSHIP OF COAD SHARES. The COAD shareholders hereby
represent and warrant that they are legal and beneficial owners of the number of
COAD shares set forth opposite his name on Schedule 2.01 hereof, free and clear
of any claims, charges, equities, liens, security interests, and encumbrances
whatsoever, and he has full right, power, and authority to transfer, assign,
convey, and deliver its COAD shares; and delivery of such shares at the closing
will convey to LOCX good and marketable
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<PAGE>
title to such shares free and clear of any claims, charges, equities, liens,
security interests, and encumbrances whatsoever, except for restrictions on
resale imposed by federal and state securities laws.
ARTICLE III
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF COAD SOLUTIONS, INC. AND ITS SHAREHOLDER
As an inducement to, and to obtain the reliance of LOCX, COAD and the
COAD shareholders represent and warrant as follows:
SECTION 3.01. ORGANIZATION. COAD is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Missouri.
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 qualification. Included in Schedule 3.01 are complete
and correct copies of the articles of incorporation, as amended, 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 transactions 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 the, or
will take prior to closing, all action required by laws, its articles of
incorporation, its bylaws, the rules of any applicable stock exchange, 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 3.02. CAPITALIZATION. The authorized capitalization of COAD
consists of 30,000 shares of common stock, at par value of $1.00 per share, of
which 300 shares are currently issued and outstanding. 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
no options, warrants, rights or convertible securities outstanding to purchase
any capital stock of COAD.
SECTION 3.03. SUBSIDIARIES AND PREDECESSOR CORPORATIONS. COAD does not
have any subsidiaries and does not own, beneficially or of record, any shares of
any other corporation.
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SECTION 3.04. FINANCIAL STATEMENTS.
A. Included in Schedule 3.04 (a) is an unaudited balance sheet,
statement of operations and cash flow of COAD for 12 months
ended December 31, 1998.
B. All such financial statements have been prepared in
accordance with generally accepted accounting principles.
The unaudited balance sheet presents fairly as of its
date the financial condition of COAD. COAD did not have,
as of the date of such balance sheet, except as and to
the extent reflected or reserved against therein, any
liabilities or obligations (absolute or contingent) which
should be reflected in a balance sheet or the notes
thereto, prepared in accordance with generally accepted
accounting principles, and all assets reflected therein
are properly reported and present fairly the value of the
assets of COAD in accordance with generally accepted
accounting principles. The statements of income,
stockholders' equity, and changes in financial condition
reflect fairly the information required to be set forth
therein by generally accepted accounting principles.
C. COAD 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 COAD
filed since 1996. 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.
D. COAD does not owe any unpaid federal, state, county,
local, or other taxes (including any deficiencies,
interest, or penalties) through the date hereof, for
which COAD 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, COAD does not
owe any accrued and unpaid taxes to date of this
Agreement.
E. The books and records, financial and otherwise, of COAD are in
all material respects complete and correct and have been
maintained in accordance with good business and accounting
practices.
F. COAD has good and valid title to its assets and, to the
best knowledge of the COAD shareholders, except as set
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<PAGE>
forth in Schedule 3.04(f) or the financial statements of COAD
or the notes thereto, has no material contingent liabilities,
direct or indirect, matured or unmatured.
SECTION 3.05. 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 made, not misleading.
SECTION 3.06. OPTIONS OR WARRANTS. There are no existing options,
warrants, calls, or commitments of any character relating to the authorized and
unissued COAD common stock.
SECTION 3.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in this Agreement or Schedule 3.07, since February 15, 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
value which in the aggregate are extraordinary or
material considering the business of COAD; (iv) made any
material change in its method of management, operations,
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 or 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 $2,000; 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;
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) except
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liabilities incurred in the ordinary course of business; (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, 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, 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 COAD; or (v) issued, delivered, or
agreed to issue or deliver any stock, bonds or other corporate
securities including debentures (whether authorized or
unissued or held as treasury stock); and
D. To the best knowledge of the COAD shareholders, COAD 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 COAD.
SECTION 3.08. TITLE AND RELATED MATTERS. COAD has good and valid title
to all of its properties, inventory, interests in properties, and assets, real
and personal, which are reflected in the most recent balance sheet 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 3.08. Except as
set forth in Schedule 3.08, COAD 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 COAD's business. Except as set forth in Schedule 3.08, no third
party has any right to and COAD has not received any notice of infringement of
or conflict with asserted rights of others with respect to any product,
technology, data,
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trade secrets, know-how, proprietary techniques, trademarks, service marks,
tradenames, or copyrights which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling, or finding, would have a materially adverse
affect on the business, operations, financial condition, income, or business
prospects of COAD or any material portion of its properties, assets, or rights.
SECTION 3.09. LITIGATION AND PROCEEDINGS. Except as set forth in
Schedule 3.09, there are no actions, suits, proceedings, or investigations
pending or, to the knowledge of COAD or the COAD shareholders after reasonable
investigation, threatened by or against COAD or affecting COAD 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.
COAD or the COAD shareholders do 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, after reasonable investigation,
would result in the discovery of such a default.
SECTION 3.10. CONTRACTS.
A. Schedule 3.10 lists all material contracts, agreements,
franchises, license agreements, or other commitments to which
COAD is a party or by which it or any of its assets, products,
technology, or properties are bound;
B. All contracts, agreements, franchises, license agreements, and
other commitments to which COAD is a party or by which its
properties are bound and which are material to the operations
of COAD taken as a whole are valid and enforceable by COAD in
all respects, except as limited by bankruptcy and insolvency
laws and by other laws affecting the rights of creditors
generally;
C. COAD is not a party to or bound by, and the properties of
COAD 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 COAD can now foresee)
materially and adversely affect, the business,
operations, properties, assets, or condition of COAD; and
D. Except as included or described in Schedule 3.10 or reflected
in the most recent COAD balance sheet, COAD is not a party to
any oral or written (i) contract for the employment of any
officer or employee which is not terminable on 30 days or less
notice; (ii) profit
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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 COAD 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 officer or director of
COAD or (viii) contract, agreement, or other commitment
involving payments by it of more than $10,000 in the
aggregate.
SECTION 3.11. MATERIAL CONTRACT DEFAULTS. Except as set forth in
Schedule 3.11, COAD 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 COAD
and there is no event of default in any material respect under any such
contract, agreement, lease, or other commitment in respect of which COAD or the
COAD shareholders have not taken adequate steps to prevent such a default from
occurring.
SECTION 3.12. NO CONFLICT WITH OTHER INSTRUMENTS. Except as set forth
in Schedule 3.12, 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 COAD is a party or to which any of its properties or
operations are subject.
SECTION 3.13. GOVERNMENTAL AUTHORIZATIONS. Set forth in Schedule 3.13
is a description of all licenses, franchises, permits, and other governmental
authorizations that are legally required to enable it to conduct its business in
all material respects as conducted on the date hereof. Except for compliance
with federal and state securities and corporation laws, as hereinafter 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 COAD of this Agreement and the consummation
by COAD of the transactions contemplated hereby.
SECTION 3.14. COMPLIANCE WITH LAWS AND REGULATIONS. Except as set forth
in Schedule 3.14, COAD has complied with all applicable statutes and regulations
of any federal, state, or other
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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 COAD or except to the extent that noncompliance would
not result in the incurrence of any material liability for COAD.
SECTION 3.15. INSURANCE. All the insurable properties of COAD 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 3.15 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 COAD
(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 3.16. APPROVAL OF AGREEMENT. The board of directors and
shareholders of COAD have authorized the execution and delivery of this
Agreement and have approved the transactions contemplated hereby. A copy of the
board of directors and shareholders minutes are attached as Schedule 3.16.
SECTION 3.17. MATERIAL TRANSACTIONS OR AFFILIATIONS. Set forth in
Schedule 3.17 is a description of every material contract, agreement, or
arrangement between COAD and any predecessor and any person who was at the time
of such contract, agreement or arrangement an officer, director, or person
owning of record, or known by COAD or COAD shareholders who own beneficially, 5%
or more of the issued and outstanding common stock of COAD and which is to be
performed in whole or in part after the date hereof or 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, had
been during the full term thereof, and is required to be during the unexpired
portion of the term thereof, no less favorable to COAD than terms available from
otherwise unrelated parties in arm's length transactions. Except as disclosed in
Schedule 3.17 or otherwise disclosed herein, no officer, director, or 5%
shareholder of COAD has, or has had since inception of COAD, any interest,
direct or indirect, in any material transaction with COAD. There are no
commitments by COAD, 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.
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SECTION 3.18. LABOR RELATIONS. COAD has not had a work stoppage
resulting from labor problems. To the knowledge of COAD and the COAD
shareholders, no union or other collective bargaining organization is organizing
or attempting to organize any employee of COAD.
SECTION 3.19. COAD SCHEDULES. COAD has delivered to LOCX as part of
this Agreement the following additional schedules, all certified by the chief
executive officer of COAD as complete, true, and correct:
A. Schedule 3.19(a) containing a description of all real property
owned by COAD 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;
B. Schedule 3.19(b) listing the accounts receivable and
notes and other obligations receivable of COAD as of
December 31, 1998, or that arose thereafter other than in
the ordinary course of business of COAD, 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
C. Schedule 3.19(c) listing the accounts payable and notes
and other obligations payable of COAD as of December 31,
1998, or that arose thereafter other than in the ordinary
course of the business of COAD, 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-
offs, reimbursements, discounts, or other adjustments
which in the aggregate are material and due or payable
to COAD respecting such obligations.
SECTION 3.20. ASSISTANCE IN REGISTRATION. COAD and the shareholders of
COAD represent and warrant that they will execute all additional instruments and
do all things reasonably requested by LOCX in order to assist LOCX in the
registration under the Securities Act of 1933. LOCX is registering the Shares
which are being distributed to LOCX shareholders as of December 2, 1998. LOCX
agrees to provide the Holder with respect to the resale of the Shares and any
other securities issued or issuable at any time or from time to time in respect
of the Shares upon a stock split, stock dividend, recapitalization or other
similar event involving LOCX (collectively, the "Securities") unlimited rights
to register the resale under the Securities Act of 1933, as amended
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("Securities Act") on a "piggyback" basis in a firm commitment underwritten
offering of LOCX securities, subject to the provisions of this Agreement.
SECTION 3.21. YEAR 2000. Year 2000 defects resulted from computer
programs being written using two digits rather than four to define the
applicable year. COAD and the shareholders of COAD represent and warrant that
COAD'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 COAD.
ARTICLE IV
PLAN OF MERGER
SECTION 4.01. THE MERGER.
A. Subject to the provisions of this Agreement, COAD shall
be merged with and into COAD Texas in accordance with the
provisions of the Texas Business Corporation Act and the
Missouri General and Business Corporation Act
(collectively, the "Merger Law"), whereupon the separate
existence of COAD shall cease and COAD Texas shall be the
surviving corporation (COAD and COAD Texas are sometimes
herein referred to as the "Constituent Companies" and
COAD Texas after the Merger is sometimes herein referred
to as the "Surviving Company".
B. 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 LOCX in
a form reasonably acceptable to counsel to COAD (the
"Articles of Merger"), with both the Secretary of State
of the State of Texas and the Secretary of State of the
State of Missouri 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 Merger is duly filed with, and
accepted by, the Secretary of State of both the State of
Texas and the State of Missouri (the "Effective Time").
C. At the Effective Time, the separate existence of COAD shall
cease and COAD shall be merged with and into COAD Texas and
COAD Texas shall be the surviving Company.
D. From and after the Effective Time: (i) the Articles of
Incorporation of the Surviving Company shall be the Articles
of Incorporation of COAD Texas; (ii) the Bylaws
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of COAD Texas, 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 Texas 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
Texas 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.
E. 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 or on
the part of the COAD shareholders.
(1) each share of common stock of COAD Texas
outstanding immediately prior to the Effective Time
shall, automatically and without any action on the
part of the holder thereof, be converted into one
share of common stock of the Surviving Company; and
(2) all of the COAD Common Stock shall, automatically
and without any action on the part of the COAD
Shareholders, cease to be outstanding and shall be
converted into the right to receive the merger
consideration set forth on Schedule 4.01 (the "Merger
Consideration"). All of the COAD Common Stock, when
so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall
cease to exist, and the COAD Shareholders shall cease
to have any rights with respect thereto, except the
right to receive the Merger Consideration.
SECTION 4.02. CLOSING. The closing ("Closing") of the transactions
contemplated by this Agreement shall be close of business on the 31st day of
March, 1999.
SECTION 4.03. CLOSING EVENTS. At the Closing, each of the respective
parties hereto shall authorize the filing of the Articles of Merger, as provided
in Section 4.01, and shall execute, acknowledge, and deliver (or shall cause to
be executed, acknowledged, and delivered) any and all certificates, schedules,
agreements, resolutions, or other instruments required by this Agreement to be
so delivered at or prior to the Closing, together with such other items as may
be reasonably requested by the parties hereto and their respective legal counsel
in order to effectuate or evidence the transactions contemplated hereby.
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SECTION 4.04. PIGGYBACK REGISTRATION RIGHTS. With respect to Jeff
Sexton and Tom Scheifler's ("Holder") right to Piggyback on a firm commitment
underwriting of the LOCX securities pursuant to Section 3.20, the parties agree
as follows:
A. (1) LOCX will (i) promptly give to the Holder written
notice of any registration relating to a firm commitment
public offering of LOCX 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
LOCX), and in the underwriting involved therein, all the
Securities specified in Holder's written request or
requests, herein within 30 days after the date of such
written notice from LOCX.
(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 LOCX 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 LOCX. 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 LOCX 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 LOCX have requested to have
included in such registration and underwriting. To facilitate
the allocation of shares in accordance with the above
provisions, LOCX 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 LOCX and the
managing
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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 relating thereto, or such other shorter
period of time as the underwriters may require.
B. REGISTRATION PROCEDURE. With respect to each Registration
Right, the following provisions shall apply:
(1) The Holder shall be obligated to furnish to LOCX and the
underwriters (if any) such information regarding the
Securities and the proposed manner of distribution of the
Securities as LOCX 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 LOCX 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, LOCX 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
LOCX 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 LOCX under
the Securities Act and the Exchange Act (at all times
during which LOCX 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 LOCX
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(including, but not limited to, the expenses of any
qualifications under the blue-sky or other state securities
laws and compliance with governmental 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 LOCX.
(4) In connection with the preparation and filing of a
registration statement under the Securities Act pursuant to
this Agreement, LOCX 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 LOCX 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 LOCX. (1) In the event of any registration
of the Securities of LOCX under the Securities Act, LOCX
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 LOCX 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 proceeding in respect thereof);
provided that LOCX shall not be liable in any such case to the
extent that any
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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 LOCX 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. LOCX may require, as a
condition to including the Securities in any registration
statement filed pursuant to this Agreement, that LOCX shall
have received an undertaking satisfactory to it from the
Holder, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in Section 2.1) LOCX, each
director of LOCX, each officer of LOCX and each other person,
if any, who controls LOCX, 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 LOCX 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 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 LOCX or any such
director, officer or controlling person and shall survive the
transfer of the Securities by the Holder.
(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 Article
Two, 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
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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
Article Two, 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. LOCX and COAD will each
afford to the officers and authorized representatives of the other full access
to the properties, 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.
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SECTION 5.02. DELIVERY OF BOOKS AND RECORDS. At the closing, COAD shall
deliver to LOCX the originals of the corporate minute books, books of account,
contracts, records, and all other books or documents.
SECTION 5.03. SPECIAL COVENANTS AND REPRESENTATIONS REGARDING THE
EXCHANGED STOCK. The consummation of this Agreement and the transactions herein
contemplated, including the issuance of the exchanged LOCX stock to the
shareholders of COAD as contemplated hereby constitutes the offer and sale of
securities under the Securities Act and applicable state statutes. Such
transaction shall be consummated in reliance on exemptions from the registration
and prospectus delivery requirements of such statutes which depend, inter alia,
upon the circumstances under which the COAD shareholders acquired such
securities. In connection with reliance upon exemptions from the registration
and prospectus delivery requirements for such transactions, at the Closing the
COAD shareholders shall deliver to LOCX letters of representation in the form
attached hereto as Schedule 5.03.
SECTION 5.04. THIRD PARTY CONSENTS AND CERTIFICATES. LOCX and COAD
agree to cooperate with each other in order to obtain any required third party
consents to this Agreement and the transactions herein and therein contemplated.
SECTION 5.05. ACTIONS PRIOR TO CLOSING.
A. 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, LOCX and COAD 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
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employees, and to maintain its relationship with its
material suppliers and customers; and
(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.
B. From and after the date of this Agreement until the Closing
Date, neither COAD nor LOCX will:
(i) make any change in their articles of incorporation
(except as provided for in Section 5.01) or bylaws;
(ii) take any action described in Section 1.07 in the case of LOCX
or Section 3.07 in the case of COAD (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.
SECTION 5.06. INDEMNIFICATION.
A. COAD and the COAD shareholders hereby agree to indemnify
LOCX and each of the officers, agents and directors of
LOCX as of the date of execution of this Agreement
against any loss, liability, claim, damage, or expense
(including, but not limited to, any and all expense
whatsoever reasonably incurred in investigating,
preparing, or defending against any litigation, commenced
or threatened, or any claim whatsoever), to which it or
they may become subject arising out of or based on any
breach of any representation or warranty of COAD or the
COAD shareholders made in this Agreement. The
indemnification provided for in this paragraph shall
survive the Closing and consummation of the transactions
contemplated hereby for a period of two (2) years.
B. LOCX hereby agrees to indemnify COAD and each of the
officers, agents and directors of COAD as of the date of
execution of this Agreement against any loss, liability,
claim, damage, or expense (including, but not limited to,
any and all expense whatsoever reasonably incurred in
investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim
whatsoever), to which it or they may become subject
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arising out of or based on any breach of any representation or
warranty of LOCX under this Agreement. The indemnification
provided for in this paragraph shall survive the Closing and
consummation of the transactions contemplated hereby for a
period of two (2) years.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF LOCX
The obligations of LOCX 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 representations and
warranties made by COAD and the COAD shareholders 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 COAD and the
COAD shareholders shall have performed or complied with all covenants and
conditions required by this Agreement to be performed or complied with by COAD
and the COAD shareholders prior to or at the Closing. LOCX shall be furnished
with a certificate, signed by a duly authorized officer of COAD and dated the
Closing Date, to the foregoing effect.
SECTION 6.02. OFFICER'S CERTIFICATES. LOCX shall have been furnished
with a certificate dated the Closing Date and signed by a duly authorized
officer of COAD to the effect that no litigation, proceeding, investigation, or
inquiry is pending or, to the best knowledge of COAD 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 COAD 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
COAD.
SECTION 6.04. GOOD STANDING. LOCX 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 COAD is in good standing as a corporation in the State of Texas
and has filed all tax returns required to have been filed by it to date and has
paid all taxes reported as due thereon.
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SECTION 6.05. OTHER ITEMS.
A. LOCX shall have received uniform commercial code certificates
from the appropriate state or local authority or agency for
each county and state in which any personal property of COAD
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.
B. LOCX shall have received such further documents, certificates,
or instruments relating to the transactions contemplated
hereby as LOCX may reasonably request.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF COAD AND THE COAD SHAREHOLDERS
The obligations of COAD under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
SECTION 7.01. ACCURACY OF REPRESENTATIONS. The representations and
warranties made by LOCX 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 LOCX shall have performed and complied
with all covenants and conditions required by this Agreement to be performed or
complied with by LOCX prior to or at the Closing. COAD shall have been furnished
with a certificate, signed by a duly authorized executive officer of LOCX and
dated the Closing Date, to the foregoing effect.
SECTION 7.02. OFFICER'S CERTIFICATE. COAD shall have been furnished
with a certificate dated the Closing Date and signed by a duly authorized
executive officer of LOCX to the effect that no litigation, proceeding,
investigation, or inquiry is pending or, to the best knowledge of LOCX
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 LOCX 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
LOCX.
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SECTION 7.04. GOOD STANDING. COAD 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 LOCX is in good standing as a corporation in the State of Texas
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 7.05. OTHER ITEMS.
A. COAD shall have received uniform commercial code certificates
from the appropriate state or local authority or agency for
each county and state in which any personal property of LOCX
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.
B. COAD shall have received such further documents, certificates,
or instruments relating to the transactions contemplated
hereby as COAD may reasonably request.
ARTICLE VIII
TERMINATION
SECTION 8.01. TERMINATION. Certain of the parties may
terminate this Agreement as provided below:
A. LOCX and COAD may terminate this Agreement by mutual
written consent at any time prior to Closing;
B. LOCX may terminate this Agreement by giving written
notice to COAD at any time prior to Closing in the event
COAD is in breach, and COAD may terminate this Agreement
by giving written notice to LOCX at any time prior to
Closing in the event LOCX 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;
C. COAD may terminate this Agreement by giving written notice to
LOCX 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, all obligations of
the parties hereunder shall terminate without any liability of any
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party to the other party (except for any liability of any party then in breach).
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. BROKERS. LOCX and COAD 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 other than as set
forth in Schedule 9.01. At the Closing, COAD Texas shall satisfy all such fees
and expenses of Stanford Keene in respect to its representation of COAD and the
COAD shareholders. COAD and LOCX each agree to indemnify the other against any
claim by any third person other than those described above 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 than as shown by Schedule 9.01.
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, with the laws of
Texas.
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 mail, postage prepaid, or by prepaid
telegram addressed as follows:
If to LOCX, 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 COAD, to: Jeff Sexton
34 Autumn Oak Drive
Austin, Texas 78738
With copies to: Tom Scheifler
5866 Itaska St.
St. Louis, MO 63109
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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.
A. 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
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).
B. 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, 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.
- 26 -
<PAGE>
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 LOCX
contained herein or in any other document executed and delivered in connection
herewith is based upon the knowledge of LOCX, such knowledge shall be deemed to
include (i) the best actual knowledge, information and belief of the executive
officers of LOCX 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 (including consultation with legal counsel) on
behalf of LOCX.
Whenever any representation or warranty of COAD contained herein or in
any other document executed and delivered in connection herewith is based upon
the knowledge of COAD, such knowledge shall be deemed to include (i) the best
actual knowledge, information and belief of the executive officers of 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 (including consultation with legal counsel) on behalf of COAD.
SECTION 9.07. THIRD PARTY BENEFICIARIES. This contract is solely
between LOCX and COAD and the COAD shareholders and, 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, including
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 Closing Date and 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
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<PAGE>
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 corporate parties hereto have caused this
Agreement to be executed by their respective officers, hereunto duly authorized,
as of the date first above-written.
LOCH EXPLORATION, INC.
By: /s/ Charles Leaver
--------------------------------
Charles Leaver, President
COAD SOLUTIONS, INC.
(A MISSOURI CORPORATION)
By: /s/ Jeff Sexton
--------------------------------
Jeff Sexton, President
COAD SOLUTIONS, INC.
(A TEXAS CORPORATION)
By: /s/ Jeff Sexton
--------------------------------
Jeff Sexton, President
COAD SHAREHOLDERS
(A MISSOURI CORPORATION)
/s/ Jeff Sexton
--------------------------------
Jeff Sexton, Shareholder
/s/ Tom Scheifler
--------------------------------
Tom Scheifler, Shareholder
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<PAGE>
MERGER CONSIDERATION
TO SHAREHOLDERS OF COAD
1. $100,000.00 Cash at closing, being $50,000.00 payable to
Jeff Sexton and $50,000.00 payable to Thomas E. Scheifler.
2. $50,000.00 payable to Jeff Sexton in quarterly installments of
$12,500.00 each with the first payment ninety (90) days from
date of closing and a like payment every ninety (90) days
thereafter until paid in full.
3. $50,000.00 payable to Thomas E. Scheifler in quarterly
installments of $12,500.00 each with the first payment ninety
(90) days from date of closing and a like payment every ninety
(90) days thereafter until paid in full.
4. At closing 600,000 shares of LOCH Exploration, Inc. being
300,000 to Jeff Sexton and 300,000 to Thomas E. Scheifler in a
triangular exchange between LOCH, COAD and a 100% owned
subsidiary of LOCH, to wit COAD Solutions, Inc., a Texas
corporation.
5. LOCH covenants the assumption and timely payments of the
transaction fee obligation to Standford Keene and the bank
loan.
FURTHER AGREEMENT OF THE PARTIES
1. 100,000 shares of LOCH Stock will be distributed to key
employees of COAD under an incentive option plan approved by
the Board of Directors of LOCH and the current shareholders of
COAD.
2. From SQLACE gross sales revenue Jeff Sexton and Thomas E
Scheifler for a period of twenty-four (24) months, will each
receive as a royalty 20% of the gross sales revenues. The
royalty percentage will be reviewed every six (6) months
during the 24 month term by the Board of Directors of LOCH and
the current shareholders of COAD.
Schedule 4.01
<PAGE>
EXHIBIT 2.3
PURCHASE AGREEMENT
THIS AGREEMENT made this 21st day of August, 1998, by and between
KanMap, Inc. and Cherokee Methane Corporation, the persons signatory hereto as
named in Exhibit "A" attached hereto; (hereinafter referred to as "SELLERS") and
Loch Exploration, Inc. (hereinafter referred to as "BUYER") or assigns.
WITNESSETH:
WHEREAS, SELLERS are the owners and holders of all of the issued and
outstanding capital stock of KanMap, Inc., a Kansas corporation (KM"), the
number of shares owned and held by each of the SELLERS being set forth in
Exhibit "A" attached hereto and Vance K. Cain is the owner and holder of fifty
percent (50%) of all of the issued and outstanding capital stock of Cherokee
Methane Corporation, a Kansas corporation ("CMC") the number of shares owned and
held by the SELLERS being set forth in Exhibit "A" attached hereto; and
WHEREAS KM owns certain intangible and tangible assets (the "KM
ASSETS") including, but not limited to; interests in oil and gas leased,
equipment, tools, inventory, supplies, rolling stock, oil and gas reserves,
office equipments, furniture, etc.; and CMC owns certain intangible and tangible
assets (the "CMC ASSETS") including but not limited to; gas gathering systems,
gas gathering contracts, right of ways, compression and dehydration facilities,
etc.; and
WHEREAS SELLER(S) is (are) willing to sell to BUYER and BUYER is
willing to purchase from SELLER(S) all the KM ASSETS, fifty percent (50%)
working interest in and to the CMC ASSETS, all upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, it is agreed to as follows:
ARTICLE I
Sale and Purchase
1.1 AGREEMENT TO SELL AND PURCHASE. Subject to the terms and
conditions of this Agreement, SELLER(S) agree to sell and
BUYER agrees to purchase and pay for all of the Assets which
are owned and held by SELLER(S).
1.2 PURCHASE PRICE. The purchase price to be paid by BUYER to
SELLER(S) for said Assets shall be as follows:
1.2.1 The sum of $600,000.00 for all the KM ASSETS; plus
1.2.2 Fifty percent (50%) interest in and to the CMC
ASSETS.
<PAGE>
a) It is the intent of BUYER to acquire ALL the
Assets of Cherokee Methane Corporation. SELLER(S)
shall provide reasonable assistance to BUYER, as
necessary, to obtain the remaining CMC ASSETS.
b) The fund described in 1.2.1 above shall be
reduced by the cost of completion of certain
remaining obligations of KanMap, Inc. These
obligations are estimated at approximately
$200,00.00 and are as follows:
- Completion of seven (7) new wells (the
Fredonia wells) located in Wilson County,
Kansas (TAI '96B).
- Completion of three (3) new wells and four
(4) recompletion wells located in Montgomery
County, Kansas (TAI '96A).
- Completion of construction of a gas
gathering system segment located in
Montgomery County, Kansas (CMC Expansion
'98).
1.3 PAYMENT. The purchase price shall be paid as follows:
1.3.1 KANMAP, INC. The sum of $4,000.00, as a deposit,
within five (45) days of the date of execution of
this Agreement, payable in cash or certified
funds to KanMap, Inc.
a) In the event SELLER(S) are unable to perform
their obligations under this Agreement on or
prior to the closing date, SELLER(S) shall
immediately return such deposit in full to
purchaser.
b) In the event that BUYER is unable to perform its
obligations under this agreement on or prior to
the closing date, SELLER(S) shall be entitled to
retain the deposit as liquidated damages.
plus,
1.3.2 The sum of $71,000.00 payable in cash or
certified funds, upon closing, on or about
September 1, 1998, but no later than October 21,
1998.
1.3.3 The sum of $175,000.00 payable as periodic
installments. The amount and frequency of such
installments shall be twenty-five percent (25%)
of the net proceeds of production, payable by
check, monthly, from new wells caused to be
completed by BUYER.
1.3.4 The equivalent of $150,000.00 of capital stock
(approximately 300,000 shares of stock) in Loch
Energy, Inc.
-2-
<PAGE>
1.4 CLOSING. The consummation of this transaction (the "Closing")
shall take place on or about September 1, 1998, but no later
than September 31, 1998 at a mutually agreeable location in
Independence, Kansas.
1.5 EFFECTIVE TIME. This transaction shall be effective for all
purposes as of 12:01 a.m., September 1, 1998 (the "Effective
Time").
ARTICLE II
Representations of SELLER(S)
SELLER(S) represent to BUYER as follows:
2.1 RIGHT, TITLE. SELLER(S) have good right, title and authority
to enter into this Agreement and to sell, free and clear of
any lien, claim or encumbrance.
2.2 CORPORATE STATUS, AUTHORITY. KanMap, Inc. and Cherokee Methane
Corporation (CORPORATIONS) are Kansas corporations, in good
standing, authorized to transact business in the State of
Kansas.
2.3 CAPITALIZATION. The CORPORATIONS each have authorized capital
of 10,000 shares of common stock, with par value of $10.00 per
share, of which 10,000 shares are issued and outstanding.
There are no outstanding warrants, options, calls,
subscriptions, contracts, right or other agreements or
commitments obligating the CORPORATIONS or SELLER(S) to issue,
purchase or sell any shares of capital stock of the
CORPORATIONS, nor are there any securities, debts, obligations
or rights outstanding which are convertible into or
exchangeable for shares of the capital stock of the
CORPORATIONS.
2.4 TAX RETURNS. The CORPORATIONS have filed all federal, state
and local income tax, severance tax, production tax, excise
tax, employment tax and ad valorem tax returns due for all
prior periods and there are no taxes, interest or penalties
due from the CORPORATIONS to any income tax authority except
as may be accrued and shown upon the financial statements of
the CORPORATIONS.
2.5 FINANCIAL STATEMENTS. The financial statements of the
CORPORATIONS up through the statements dated December 31,
1996, shall have been prepared in a consistent manner, in
accordance with generally accepted accounting principles, and
fairly represent the financial condition of the CORPORATIONS
from an historic standpoint, but without reference to the fair
adverse changes in the financial condition of the
CORPORATIONS.
-3-
<PAGE>
2.6 ASSETS. The assets of the CORPORATIONS as of the Effective
Time shall consist of "Cash" and "Cash Equivalents", "Accounts
Receivable", "Fixed Assets", and "Other Assets" as previously
described.
The description of assets set forth in the financial
statements are general and approximate in character and do not
constitute any warranty as to quantity, quality, fitness,
condition, value, productivity, performance, collectability or
recoverability.
2.7 LIABILITIES. The liabilities of the CORPORATIONS as of the
Effective Time shall consist only of liabilities as agreed by
the parties.
2.8 DEPRECIATION, DEPLETION, AND AMORTIZATION, ADJUSTMENTS,
CONTINGENCIES. The entries appearing on the CORPORATIONS'
financial statements for depreciation, depletion and
amortization are subject to final adjustment to conform with
generally accepted accounting principles and have no necessary
relationship to the actual condition or value of the assets of
the CORPORATIONS.
2.9 CONTRACTS, COMMITMENTS. The CORPORATIONS and their assets are
not subject, as of the Effective Time, to any contracts or
commitments except as follows:
2.9.1 The liabilities of the CORPORATIONS as appear from
financial statements.
2.9.2 Contracts for purchase and sale of natural gas into
and from certain natural gas gathering systems.
2.9.3 Advance Payment Agreement with Cherokee Methane
Corporation.
2.9.4 The general duties to comply with all applicable
federal, state and local laws, statutes, rules and
regulations, including without limitation, those
relating to environmental protection.
2.9.5 A Purchase and Management Agreement with Crescent
Investments, Inc., subsequently assigned to Scotti
Industries, Inc. relating to the sale of Section 29
of IRS Code Federal Tax Credits from SELLER(S)
interest in certain qualifying natural gas wells.
2.10 SUITS, CLAIMS. There are, to the knowledge of SELLER(S), no
suits, claims or administrative proceedings pending or
threatened against the CORPORATIONS, except to the extent of
class constituting liabilities and reflected on the financial
statements as hereinabove described.
-4-
<PAGE>
2.11 EMPLOYMENT. The CORPORATIONS are not subject to any collective
bargaining agreement or any contract or obligation with any
employee, consultant or contractor which would bind the
CORPORATIONS beyond the Effective Time. Further, the
CORPORATIONS do not have in effect any employee benefit plan,
retirement plan, pension plan, or other arrangement for the
benefit of past or present employees which would bind the
CORPORATIONS subsequent to the Effective Time or with respect
to which any unfunded liability exists.
2.12 INSURANCE. Pending closing, SELLER(S) shall cause the
CORPORATIONS to maintain in force its existing public
liability, auto liability, and workman's compensations
insurance coverages.
2.13 PROHIBITIONS. The execution of this document is not in any way
prohibited by the CORPORATIONS' Articles of Incorporation or
Bylaws, or by any contract, covenant or agreement to which the
SELLER(S) or the CORPORATIONS are parties, or by the order of
any court or regulatory body by virtue of any judicial or
administrative proceedings to which SELLER(S) or the
CORPORATIONS are parties.
2.14 ACCESS. SELLER(S) will afford BUYER complete access to the
corporate records, financial statements and business records
of the CORPORATIONS, and to the assets described and the
technical files and data pertaining thereto.
2.15 ENVIRONMENTAL MATTERS. SELLER(S) are not aware of any
violations with respect to the CORPORATIONS or their assets of
any applicable environmental law, statute, rule or regulation.
2.16 TITLE. SELLER(S) have no actual knowledge of any adverse
claims to the CORPORATIONS' title to its assets.
2.17 CONDITION. SELLER(S) make no warranty or representation
whatsoever as to the condition of the assets of the
CORPORATIONS and that such condition is strictly "AS IS".
ARTICLE II
Miscellaneous
3.1 EMPLOYMENT AGREEMENT. BUYER shall employ Terri L. Bryant-Cain
at a salary of $3,000.00 per month, for a minimum period of
one year. Her responsibilities shall include the day to day
activities and administrative management of the field office
located in Independence, Kansas and shall be consistent with
those currently performed and as further agreed upon by the
parties.
-5-
<PAGE>
3.2 CONSULTING AGREEMENT. BUYER shall retain Vance K. Cain for
consulting purposes and to provide guidance and direction for
field operations, at a rate of $1,500.00 per month, for a
minimum period of six months.
3.3 FIELD OFFICE SHOP AND YARD. Vance K. Cain and Terri L.
Bryant-Cain are the owners of the real estate located at 2101
W. Maple St., Independence, Kansas 67301, containing offices,
shop and yard. It is the intent of the above named owners to
rent these facilities, in whole or part, to BUYER at a rate to
be mutually agreed upon and commensurate with those rates used
in the prevailing area.
3.4 BUYER is granted a First Right of Refusal to purchase property
at 2101 W. Maple for a period of 24 months after the effective
date.
SELLER(S)
KanMap, Inc. Cherokee Methane Corporation
By: //s// Vance K. Cain By: //s// Vance K. Cain
------------------------------ -------------------------------
Vance K. Cain Vance K. Cain
President President
BUYER
Loch Energy, Inc.
By: //s// Glenn L. Loch
------------------------------
Glenn L. Loch
President
-6-
<PAGE>
Exhibit 2.4
ARTICLES OF MERGER OF A PARENT
AND A SUBSIDIARY
PURSUANT TO ARTICLE 5.16
TEXAS BUSINESS CORPORATIONS ACT
Pursuant to the provisions of Article 5.16 of the Texas Business
Corporations Act, the undersigned Corporations adopt the following articles of
merger for the purpose of effecting a merger in accordance with the provisions
of Article 5.16 of the Texas Business Corporations Act.
1. A plan of merger adopted in accordance with the provisions of Article 5.16 of
the Texas Business Corporations Act providing for the combination of LOCH
Exploration, Inc., a Texas corporation, and Design Automation Systems, Inc., a
Texas corporation, and resulting in LOCH Exploration, Inc. being the surviving
corporation.
2. Shareholder approval is not required. LOCH Exploration, Inc. owns 100% of the
issued and outstanding stock of Design Automation Systems, Inc. (1,440 shares
outstanding).
3. The Board of Directors of LOCH Exploration, Inc. approved the Plan of Merger
on the 24th day of February, 1999.
4. The merger will become effective upon the issuance of the Certificate of
Merger by the Secretary of State.
<PAGE>
DATED this 5th day of April, 1999.
LOCH EXPLORATION, INC. DESIGN AUTOMATION SYSTEMS, INC.
By /s/ Charles Leaver By /s/ Charles Leaver
--------------------- -------------------------
Its President Its President
-2-
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between, Design
Automation Systems, Inc. (the "Company"), and Carl Rose, ("Employee") is hereby
entered into and effective as of the close, of business on December 31, 1998.
This Agreement hereby supersedes, any other employment agreements or
understandings, written or oral, between the parties.
RECITALS
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing computer system integration, specializing in UNIX client
server architecture and its components, and offering system management services
with a complete software, selection.
Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of, Employee's employment with the Company, will
be instrumental in the, development of the Company's business and has and will
continue to, become familiar with and aware of information as to the Company's,
customers, specific manner of doing business, including the, processes,
techniques and trade secrets utilized by the Company, and future plans with
respect thereto, all of which has been and, will be established and maintained
at great expense to the Company; this information is a trade secret and
constitutes the valuable, good will of the Company.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of, each, it is hereby agreed as
follows:
AGREEMENTS
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as Chief Executive Officer. As
such, Employee shall have the responsibilities, duties, and authority reasonably
accorded to and expected of such position, and such other duties as are assigned
to him and will report, directly to the Board of Directors. Employee hereby
accepts this, employment upon the terms and conditions herein contained and,
subject to Section 1 (c), agrees to devote such time, attention and, efforts as
are reasonably necessary to promote and further the, business of the Company.
(b) Employee shall adhere to, execute and fulfill all reasonable and
uniformly applied policies established by the, Company.
(c) Employee shall not, during the term of Employee's employment
hereunder, be engaged in any other business activity, pursued for gain,
profit or other pecuniary advantage if such, activity interferes with
Employee's duties and responsibilities, hereunder. The foregoing limitations
shall not be construed as, prohibiting Employee from making personal
investments in such form, or manner as will
<PAGE>
neither require Employee's services in the, operation or affairs of the
companies or enterprises in which such, investments are made nor violate the
terms of Section 3 hereof.
2. COMPENSATION. For all services rendered by Employee, the Company shall
compensate Employee as follows:
(a) BASE SALARY. The base salary payable to Employee shall be $300,000.00
per year, payable twice monthly on the 5th and 20th.
(b) INCENTIVE BONUS. Employee shall be entitled to receive the following
bonus compensation: Fifty (50%) percent of the base, salary paid in equal
quarterly installments. On at least an annual, basis the Board of Directors will
review Employee's performance and, make increases to such base salary and
bonuses as appropriate.
(c) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall
be entitled to receive additional benefits and compensation from the Company in
such form and to such extent as, specified below:
(i) Admittance for participation for Employee under health,
hospitalization, disability, dental, life and other, insurance plans that the
Company may have in effect from, time to time, with the benefits provided to
Employee, under this clause (i) to be at least equal to such, benefits provided
to key executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of Employee's
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission of any
request for reimbursement and in a format and manner consistent with expense
reporting policy of the Company.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee by the
Board of Directors and participation in all other the Company-wide employee
benefits as available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Employee will not, during the period of Employee's employment by or
with the Company, and for a period of one (1) year, immediately following the
termination of Employee's employment, under this agreement for any reason other
than the expiration of, its term or termination by the Company without cause,
directly or, indirectly, for Employee or on behalf of or in conjunction with
any, other person, persons, company, partnership, corporation or, business of
whatever nature:
(i) call upon any person who is, at that time, an employee of the
Company in any capacity
- 2 -
<PAGE>
for the purpose or with the intent of enticing such employee away from or out of
the employ of the Company; or,
(ii) Call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to that time a customer of the Company for
the purpose of soliciting or selling products or services in direct competition
with the Company.
The foregoing covenant shall not be deemed to prohibit Employee from
acquiring as an investment not more than three, percent (3%) of the capital
stock of a competing business, whose stock is traded on a national securities
exchange or over-the-counter. The foregoing covenant shall not be deemed to
prohibit Employee from any business practice authorized by the Board of
Directors.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant and because of the
immediate and irreparable damage that could be caused to the Company for which
it would have no other adequate remedy Employee agrees that the foregoing
covenant may be enforced by the Company in the event of breach by Employee, by
injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
Section 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company on the date of the execution of this Agreement; but
is also the intent of the Company and Employee that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of the Company throughout the term of this covenant, whether before or after the
date of termination of the employment of Employee. For example, if, during the
term of this Agreement, the Company engage in new and different activities,
enter a new business or establish new locations for its current activities or
business in addition to or other than the activities or business enumerated
under the Recitals above or the locations currently established therefor, then
Employee will be precluded from soliciting the customers or employees of such
new activities or business, except as specifically provided for herein.
(d) The covenants in this Section 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable and the
Agreement shall thereby be reformed.
4. PLACE OF PERFORMANCE.
(a) Employee's duties shall be carried out in Houston, Texas except for
occasional traveling which may be involved in the ordinary course of Employee's
duties.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and
- 3 -
<PAGE>
Employee refuses, such refusal shall not constitute cause for termination of
this Agreement under the terms of Section 5(c).
5. TERM; TERMINATION RIGHTS ON TERMINATION. The term of this Agreement
shall begin January 1, 1999 and continue until December 31, 2004 (the Term),
and, unless terminated sooner as, herein provided or at the end of the Term by
either party, shall continue thereafter on a year-to-year basis on the same
terms and conditions contained herein in effect as of the time of renewal.
This Agreement and Employee's employment shall be terminated in any, one of the
following ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate. In the event
of Employee's death, Employee's estate shall be entitled to all Base Salary
earned through the date of death and the pro rata portion of the Incentive
Bonus, is any, then due Employee calculated through the end of the calendar
month prior to the month in which Employee dies. The representative of
Employee's estate shall also be entitled to exercise, for a period of one
hundred twenty (120) days after Employee's death, the option covering all vested
Option shares, if any, including but not limited to the pro rata portion of the
Option Shares, if any, that would have vested in Employee through the date of
his death if he had been employed by the Company on the next vesting date. At
the end of this period, the option shall terminate as to all Option Shares with
respect to which the option has not been exercised.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from full-time duties
hereunder for two (2) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such two (2)
month period, but which shall not be effective earlier than the last day of such
two (2) month period), the Company may terminate Employee's employment hereunder
provided Employee is unable to resume full-time duties at the conclusion of such
notice period. Also, Employee may terminate Employee's employment hereunder
provided Employee is unable to resume full-time duties at the conclusion of such
notice period. Also, Employee may terminate Employee's employment hereunder if
Employee's health should become impaired to an extent that makes the continued
performance of Employee's duties hereunder hazardous to Employee's physical or
mental health or life, provided that Employee shall have furnished the Company
with a written statement from a qualified doctor to such effect and provided,
further, that, at the Company's request made within thirty (3) days of the date
of such written statement, Employee shall submit to an examination by a doctor
selected by the Company who is reasonably acceptable to Employee or Employee's
doctor and such doctor shall have concurred in the conclusion of Employee's
doctor. In the event this agreement is terminated as a result of Employee's
disability, Employee shall receive from the Company sixty percent (60%) of the
Base Salary at the rate then in effect for whatever time period is remaining
under the Term of this Agreement or for one (1) year, whichever amount is less,
payable at regular pay intervals. The Company may satisfy this obligation
through provision of a disability policy covering Employee that, meets the terms
of this Section, with the premiums for such policy being paid by the Company.
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<PAGE>
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Employee for good cause, which shall be: (1) Employee's
gross negligence in the performance or intentional non-performance (either of
which continuing for ten days after receipt of written notice of need to cure)
of any of Employee's material duties and responsibilities hereunder; (2)
Employee's willful, material and irreparable breach of this Agreement; (3)
Employee's willful dishonesty, fraud or misconduct with respect to the business
or affairs of the Company which materially and adversely affects the operations
or reputation of the Company; (4) Employee's conviction of a felony crime; or
(5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of a
termination for good cause, as enumerated above, Employee shall have no right to
any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
the Company or Employee may, Without cause, terminate this Agreement and
Employee's employment, effective thirty (30) days after written notice is
provided to the Company. Should Employee be terminated by the Company without
cause during the Term, Employee shall receive from the Company, at his option
either six (6) months Base Salary (at the rate then in effect) payable in a
lump-sum payment due on the effective date of termination or one year's Base
Salary payable from time to time at regular intervals. Further, any termination
without cause by the Company shall operate to invalidate the terms of Section 3.
If Employee resigns or otherwise terminates Employee's employment without cause
pursuant to this Section 5(d), Employee shall receive no severance compensation
and the terms of Section 3 shall be fully enforceable.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which Employee is
entitled under this Agreement or as a result of, any other breach of this
Agreement by the Company, pursuant to the provisions of Section 17 below, the
Company shall pay all amounts and damages to which Employee may be entitled as a
result of such breach, including interest thereon and all reasonable legal fees
and expenses and other costs incurred by Employee to enforce Employee's rights
hereunder. Further, none of the provisions of Section 3 shall apply in the event
this Agreement is terminated as a result of a breach by the Company.
6. RETURN OF THE COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or, on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company, and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data, pertaining to the
business, activities or future plans of the, Company which are collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or
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<PAGE>
not, which are conceived or made by Employee, solely or jointly with another,
during the period of employment, and which are directly related to the business
or activities of the Company and which Employee conceives as a result of
Employee's employment by the Company. Employee hereby assigns and agrees to
assign all Employee's interests therein to the Company or its nominee. Whenever
requested to do so by the Company, Employee shall execute any and all
applications, assignments or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that Employee will not during or after the
Term of this Agreement with the Company disclose the Specific terms of the
Company's relationships or agreements with its respective significant vendors or
customers or any other significant vendors or customers or any other significant
and material trade secret of the Company, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever.
9. INDEMNIFICATION. In the event Employee is made a party to any threatened,
pending or completed action, suit or proceeding, whether civil or administrative
(other than an action by the, Company against Employee), by reason of the fact
that Employee is or was performing services under this Agreement, then the
Company shall indemnify Employee against all expenses (including attorneys'
fees), judgments and amounts paid in settlement, as actually and reasonably
incurred by Employee in connection therewith. In the event that both Employee
and the Company are made a party to the same third-party action, complaint, suit
or proceeding, the Company agrees to engage competent legal representation, and
Employee agrees to use the same representation, provided that if counsel
selected by Company shall have a conflict of interest that prevents such counsel
from representing Employee, Employee may engage separate counsel and the Company
shall pay all reasonable attorneys' fees of such separate counsel. Employee will
not be held liable to the Company for errors or omissions where Employee has not
exhibited gross, willful and wanton negligence and, misconduct or performed
criminal and fraudulent acts which materially damage the business of the
Company. The indemnity provisions contained herein shall be deemed to extend to
protect Employee to the maximum extent permitted by law.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and Employee's
employment by the Company and the performance of Employee's duties hereunder
will not violate or be a breach of any written agreement with a former employer,
client or any other person or entity. Employee agrees to indemnify the Company
for any claim, including, but not limited to, attorneys' fees and expenses of
investigation by any such third party that such third party may now have or may
hereafter come to have against the Company based upon or arising out of any
written non-competition agreement, invention or secrecy agreement between
Employee and such third party which was in existence as of or prior to the date
of this Agreement. Company agrees to indemnify Employee for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any third party that such third party may now have or may hereafter come to have
against Employee where there was not a written
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<PAGE>
non-competition agreement invention or secrecy agreement between Employee and
such third party which was in existence as of or prior to the date of this
Agreement and where Employee committed no illegal or fraudulent act.
11. ASSIGNMENTS; BINDING EFFECT. Employee understands that Employee has
been selected for employment by the Company on the basis of Employee's personal
qualifications, experience and skills. Employee agrees, therefore, that Employee
cannot assign all or any portion of Employee's performance under this Agreement.
Subject to the preceding two (2) sentences and the express provisions of Section
12 below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its, officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final
complete and exclusive statement and expression of the Agreement between the
Company and Employee and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of the Company
and Employee, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: Design Automation Systems, Inc.
3200 Wilcrest, Suite 370
Houston, Texas 77042-3366
with a copy to: Ronald B. Pruitt
2950 North Loop West, Suite 270
Houston, Texas 77092
To Employee: Carl R. Rose
1013 Oak Knoll Court
Sugar Land, Texas 77478
Notice shall be deemed given and effective three (3) days after the
deposit in the U.S. mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, or when actually received. Either
party may change the address for notice by notifying the other party of such
change in accordance with this Section 13.
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<PAGE>
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
Section headings herein are for reference purposes only and are not intended in
any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. Any unresolved dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by first
mediation and then, if necessary, by arbitration, conducted before a panel of
three (3) arbitrators in Houston, Texas, in accordance with the rules of the
American Arbitration Association then in effect. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in Sections 5(b) and 5(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The direct expense of any
arbitration proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas with giving effect to Texas
conflicts laws provisions.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
EMPLOYEE: DESIGN AUTOMATION SYSTEMS, INC.
/S/ CARL R. ROSE BY: /S/ CARL R. ROSE
- - ----------------------- --------------------------------
CARL R. ROSE NAME: CARL R. ROSE
TITLE: PRESIDENT
This Agreement subject to approval of the Board of Directors of Design
Automation Systems, Inc.
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<PAGE>
I, the Secretary of Design Automation Systems, Inc. do hereby certify
that the Board of Directors approved this Agreement on the, 21st day of
December, 1998.
/S/ Robert Nelson, Secretary
--------------------------------
Robert Nelson, Secretary
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<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between DESIGN
AUTOMATION SYSTEMS, INC. (the "Company") and CHARLES LEAVER ("Employee") is
hereby entered into and effective as of the close of business on December 31,
1998. This Agreement hereby supersedes any other employment agreements or
understandings, written or oral, between the parties.
RECITALS
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in
the business of providing computer system integration, specializing in UNIX
client server architecture and its components, and offering system management
services with a complete software selection.
Employee is employed hereunder by the Company in a confidential
relationship wherein Employee, in the course of Employee's employment with the
Company, will be instrumental in the development of the Company's business and
has and will continue to become familiar with and aware of information as to the
Company's customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by the Company, and future plans with
respect thereto, all of which has been and will be established and maintained at
great expense to the Company; this information is a trade secret and constitutes
the valuable good will of the Company.
Therefore, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby agreed
as follows:
AGREEMENTS
1. EMPLOYMENT AND DUTIES
(a) The Company hereby employees Employee as President. As such,
Employee shall have the responsibilities, duties and authority reasonably
accorded to and expected of such position and such other executive duties as are
assigned to him and will report directly to the Chief Executive Officer and the
Board of Directors. Employee hereby accepts this employment upon the terms and
conditions herein contained and, subject to Section 1 (c), agrees to devote such
time, attention and efforts as are reasonably necessary to promote and further
the business of the Company.
(b) Employee shall adhere to, execute and fulfill all reasonable and
uniformly applied policies established by the Company.
<PAGE>
(c) Employee shall not, during the term of Employee's employment
hereunder, be engaged in any other business activity pursued for gain, profit or
other pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of Section 3 hereof.
2. COMPENSATION. For all services rendered by Employee, the Company shall
compensate Employee as follows:
(a) BASE SALARY. The base salary payable to Employee shall be
$240,000.00 per year, payable on a twice monthly on the 5th and 20th.
(b) INCENTIVE BONUS. Employee shall be entitled to receive the
following bonus compensation: Fifty percent (50%) of the base salary paid in
equal quarterly installments on at least an annual basis. The Board of Directors
will review Employee's performance and make increases to such base salary and
bonuses as applicable.
(c) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Admittance for participation for Employee under health,
hospitalization, disability, dental, life and other insurance
plans that the Company may have in effect from time to time,
with the benefits provided to Employee under this clause (i)
to be at least equal to such benefits provided to key
executives.
(ii) Reimbursement for all business travel and other out-of- pocket
expenses reasonably incurred by Employee in the performance of
Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in
reasonable detail by Employee upon submission of any request
for reimbursement, and in a format and manner consistent with
expense reporting policy of the Company.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for
Employee by the Board of Directors and participation in all
other Company-wide employee benefits as available from time to
time.
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<PAGE>
3. NON-COMPETITION AGREEMENT
(a) Employee will not, during the period of Employee's employment by or
with the Company, and for a period of one (1) year immediately following the
termination of Employee's employment under this Agreement for any reason other
than the expiration of its term or termination by the Company without cause,
directly or indirectly, for Employee or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature:
(i) call upon any person who is, at that time, an employee of the
Company in any capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of the
Company; or
(ii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a
customer of the Company for the purpose of soliciting or
selling products or services in direct competition with the
Company.
The foregoing covenant shall not be deemed to prohibit Employee from
acquiring as an investment not more than three percent (3%) of the capital stock
of a competing business, whose stock is traded on a national securities exchange
or over-the-counter. The foregoing covenant shall not be deemed to prohibit
Employee from any business practice authorized by the Board of Directors.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Company for which
they would have no other adequate remedy, Employee agrees that the foregoing
covenant may be enforced by the Company in the event of breach by Employee, by
injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
Section 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company on the date of the execution of this Agreement; but
it is also the intent of the Company and Employee that such covenants be
construed and enforced in accordance with the changing activities, business and
locations of the Company throughout the term of this covenant, whether before or
after the date of termination of the employment of Employee. For example, if,
during the term of this Agreement, the Company engage in new and different
activities, enter a new business or establish new locations for their current
activities or business in addition to or other than the activities or business
enumerated under the Recitals above or the locations currently established
therefor, then Employee will be precluded from soliciting the
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<PAGE>
customers or employees of such new activities or business, except as
specifically provided for herein.
(d) The covenants in this Section 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
4. PLACE OF PERFORMANCE
(a) Employee's duties shall be carried out in Houston, Texas, except
for occasional traveling which may be involved in the ordinary course of
Employee's duties.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of Section 5(c).
5. TERM; TERMINATION RIGHTS ON TERMINATION. The term of this Agreement shall
begin January 1, 1999 and continue until December 31, 2004 (the "Term"), and,
unless terminated sooner as herein provided or at the end of the Term by either
party, shall continue thereafter on a year-to-year basis on the same terms and
conditions contained herein in effect as of the time of renewal. This Agreement
and Employee's employment may be terminated in any one of the following ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate. In the event
of Employee's death, Employee's estate shall be entitled to all Base Salary
earned through the date of death.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from full-time duties
hereunder for two (2) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such two (2)
month period, but which shall not be effective earlier than the last day of such
two (2) month period), the Company may terminate Employee's employment hereunder
provided Employee is unable to resume full-time duties at the conclusion of such
notice period. Also, Employee may terminate Employee's employment hereunder if
Employee's health should become impaired to an extent that makes the continued
performance of Employee's duties hereunder hazardous to Employee's physical or
mental health or life, provided that Employee shall have furnished the Company
with a written statement from a qualified doctor to such effect and provided,
further, that,
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<PAGE>
at the Company's request made within thirty (30) days of the date of such
written statement, Employee shall submit to an examination by a doctor selected
by the Company who is reasonable acceptable to Employee or Employee's doctor and
such doctor shall have concurred in the conclusion of Employee's doctor. In the
event this Agreement is terminated as a result of Employee's disability,
Employee shall receive from the Company sixty percent (60%) of the Base Salary
at the rate then in effect for whatever time period is remaining under the Term
of this Agreement or for one (1) year, whichever amount is less, payable at
regular pay intervals. The Company may satisfy this obligation through provision
of a disability policy covering Employee that meets the terms of this Section,
with the premiums for such policy being paid by Company.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after written notice to Employee for good cause, which shall be: (1) Employee's
gross negligence in the performance or intentional nonperformance (either of
which continuing for ten (10) days after receipt of written notice of need to
cure) of any of Employee's material duties and responsibilities hereunder; (2)
Employee's willful, material and irreparable breach of this Agreement; (3)
Employee's willful dishonesty, fraud or misconduct with respect to the business
or affairs of the Company which materially and adversely affects the operations
or reputation of the Company; (4) Employee's conviction of a felony crime; or
(5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of a
termination for good cause, as enumerated above, Employee shall have no right to
any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
the Company or Employee may, without cause, terminate this Agreement and
Employee's employment, effective thirty (30) days after written notice is
provided to the Company. Should Employee be terminated by the Company without
cause during the Term, Employee shall receive from the Company, at his option,
either six (6) months Base Salary (at the rate then in effect) payable in a
lump-sum payment due on the effective date of termination or one year's Base
Salary payable from time to time at regular intervals. Further, any termination
without cause by the Company shall operate to invalidate the terms of Section 3.
If Employee resigns or otherwise terminates Employee's employment without cause
pursuant to this Section 5(d), Employee shall receive no severance compensation
and the term sof Section 3 shall be fully enforceable.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which Employee is
entitled under this Agreement or as a result of any other breach of this
Agreement by the Company, pursuant to the provisions of Section 17 below, the
Company shall pay all amounts and damages to which Employee may be entitled as a
result of such breach, including interest thereon and all reasonable legal fees
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<PAGE>
and expenses and other costs incurred by Employee to enforce Employee's rights
hereunder. Further, none of the provisions of Section 3 shall apply in the event
this Agreement is terminated as a result of a breach by the Company.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business plans,
financial statements, manuals, memoranda, lists and other property delivered to
or compiled by Employee by or on behalf of the Company or their representatives,
vendors or customers which pertain to the business of the Company shall be and
remain the property of the Company, as the case may be, and be subject at all
times to their discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment, and which are
directly related to the business or activities of the Company and which Employee
conceives as a result of Employee's employment by the Company. Employee hereby
assigns and agrees to assign all Employee's interests therein to the Company or
its nominee. Whenever requested to do so by the Company, Employee shall execute
any and all applications, assignments or other instruments that the Company
shall deem necessary to apply for and obtain Letters Patent of the Untied States
or any foreign country or to otherwise protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that Employee will not, during or after the
Term of this Agreement with the Company, disclose the specific terms of the
Company's relationships or agreements with significant vendors or customers or
any other significant and material trade secret of the Company, to any person,
firm, partnership, corporation or business for any reason or purpose whatsoever.
9. INDEMNIFICATION. In the event Employee is made a party to any threatened,
pending or completed action, suit or proceeding, whether civil or administrative
(other than an action by the Company against Employee), by reason of the fact
that Employee is or was performing services under this Agreement, then the
Company shall indemnify Employee against all expenses (including attorneys'
fees), judgments and amounts paid in settlement, as actually and reasonably
incurred by Employee in connection therewith. In the event that both Employee
and the Company are made a party to the same third-party action, complaint, suit
or proceeding, the Company agrees to engage competent legal representation, and
Employee
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<PAGE>
agrees to use the same representation, provided that if counsel selected by
Company shall have a conflict of interest that prevents such counsel from
representing Employee, Employee may engage separate counsel and the Company
shall pay all reasonable attorneys' fees of such separate counsel. Employee will
not be held liable to the Company for errors or omissions where Employee has not
exhibited gross, willful and wanton negligence and misconduct or performed
criminal and fraudulent acts which materially damage the business of the
Company. The indemnity provisions contained herein shall be deemed to extend to
protect Employee to the maximum extent permitted by law.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the Company
that the execution of this Agreement by Employee and Employee's employment by
the Company and the performance of Employee's duties hereunder will not violate
or be a breach of any written agreement with a former employer, client or any
other person or entity. Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any written
non-competition agreement, invention or secrecy agreement between Employee and
such third party which was in existence as of or prior to the date of this
Agreement. Company agrees to indemnify Employee for any claim, including, but
not limited to, attorneys' fees and expenses of investigation, by any third
party that such third party may now have or may hereafter come to have against
Employee where there was not a written non-competition agreement, invention or
secrecy agreement between Employee and such third party which was in existence
as of or prior to the date of this Agreement and where Employee committed no
illegal or fraudulent act.
11. ASSIGNMENTS; BINDING EFFECT. Employee understands that Employee has been
selected for employment by the Company on the basis of Employee's personal
qualifications, experience and skills. Employee agrees, therefore, that Employee
cannot assign all or any portion of Employee's performance under this Agreement.
Subject to the preceding two (2) sentences, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future employment.
Employee has no oral representations, understandings or agreements with the
Company or any of its officers, directors or representatives covering the same
subject matter as this Agreement. This written Agreement is the final, complete
and exclusive statement and expression of the agreement between the Company and
Employee and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral or
written agreements. This written Agreement
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<PAGE>
may not be later modified except by a further writing signed by a duly
authorized officer of the Company and Employee, and no term of this Agreement
may be waived except by writing signed by the party waiving the benefit of such
term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given in
writing addressed as follows:
TO THE COMPANY: Design Automation Systems, Inc.
3200 Wilcrest, Suite 370
Houston, Texas 77042
WITH A COPY TO: Ronald B. Pruitt
2950 North Loop West, Suite 270
Houston, Texas 77092
TO EMPLOYEE: Charles Leaver
1336 Vassar
Houston, Texas 77006
Notice shall be deemed given and effective three (3) days after the
deposit in the U.S. mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, or when actually received. Either
party may change the address for notice by notifying the other party of such
change in accordance with this Section 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be deemed valid and
operative and, so far as is reasonable and possible, effect shall be given to
the intent manifested by the portion held invalid or inoperative. The Section
headings herein are for reference purposes only and are not intended in any way
to describe, interpret, define or limit the extent or intent of the Agreement or
of any part hereof.
15. ARBITRATION. Any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by first mediation
and then, if necessary, by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the rules of the American
Arbitration Association then in effect. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in Sections 5(b) and 5(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the
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<PAGE>
arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The direct expense of any
arbitration proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed according
to the laws of the State of Texas with giving effect to Texas conflicts laws
provisions.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2) or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
DESIGN AUTOMATION SYSTEMS, INC.
EMPLOYEE:
/s/ Charles Leaver
------------------------------
Charles Leaver
This Agreement subject to approval of the Board of Directors of Design
Automation Systems, Inc.
I, the Secretary of Design Automation Systems, Inc. do hereby
certify that the Board of Directors approved this Agreement on the
2 day of December, 1998.
/s/ Robert Nelson
------------------------------
Secretary
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<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this 29th day of August,
1995, by and between the Lessor and Lessee hereinafter named.
1. DEFINITIONS AND BASIC PROVISIONS. The following definitions and basic
provisions shall be construed in conjunction with other provisions of this
Lease:
(a) "Lessor": MXM Mortgage L.P. d/b/a MPC Mortgage L.P., a Delaware
corporation
(b) "Lessee": Design Automation Systems, Inc.
(c) "Premises": approximately 4,270 square feet of Net Rentable Area
(the "Net Rentable Area of the Premises") on Floor 3 of the Building, as
shown on the plan attached hereto as Exhibit "A."
(d) "Building": the building located on a tract of land in Harris
County, Texas, as described on Exhibit "B" attached hereto and made a part
hereof for all purposes, more commonly known as Westchase III, and
containing approximately 163,696 square feet of Net Rentable Area (the "Net
Rentable Area of the Building").
(e) "Term" or "Lease Term": a period of 60 months (plus a partial
month if the Commencement Date is not on the first day of a month)
commencing on the Commencement Date (as defined in Section 2) and ending
on the last day of the 60th full calendar month thereafter, as same may be
extended only by the written agreement of the parties or an express
provision of this Lease.
(f) "Basic Monthly Rental": the sum of $ * per month,
which Lessee shall pay in advance on or before the first of each month
during the Lease Term. However, Basic Monthly Rental for the first month
of the Lease Term shall be prorated, if the actual Commencement Date does
not occur on the first day of a month.
<TABLE>
<S> <C>
*Months 01-12 $3,469.38 $9.75**
Months 13-24 $3,558.33 $10.00
Months 25-36 $3,647.29 $10.25
Months 37-48 $3,736.25 $10.50
Months 49-60 $3,825.21 $10.75
</TABLE>
**per square foot of Net Rentable Area of the Premises per year.
(g) "Initial Basic Costs Amount": The actual Basic Costs (as defined
herein) for calendar year 1995.
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(h) "Prepaid Rental": $3,469.38, representing payment of rental for
the second month of the Lease Term, which Lessee shall pay upon its
execution of this Lease.
(i) "Security Deposit": N/A
(j) "Permitted Use": General business office purposes.
(k) "Lessor's Address": MXM Mortgage L.P. d/b/a MPC Mortgage L.P.
c/o Transwestern Property Company
3200 Wilcrest, Suite 325
Houston, TX 77042
with a copy to: MXM Mortgage L.P. d/b/a MPC Mortgage L.P.
5847 San Felipe, Suite 2600
Houston, TX 77057
Attn: J. Richard Rosenberg
(l) "Lessee's Address": Prior to the Commencement Date, Design
Automation Systems, Inc., __________________________________; thereafter,
3200 Wilcrest, Suite 370, Houston, Texas 77042.
(m) "Rent": Basic Monthly Rental, Basic Costs Excess, Parking Rent
and all other monetary obligations of Lessee hereunder.
(n) "Lessee's Proportionate Share": 2.60 percent, which represents
the ratio that the Net Rentable Area of the Premises bears to the Net
Rentable Area of the Building, subject to adjustment as provided in
Section 8(f).
(o) "Net Rentable Area": In the case of a single-tenancy floor, all
floor area measured from the inside surface of the outer glass or wall line
of the Building excluding only the areas ("Service Areas") used for
Building stairs, fire towers, elevator shafts, flues, vents, stacks, pipe
shafts and vertical ducts (which Service Areas shall be measured from the
midpoint of walls enclosing the Service Areas), but including any such
Service Areas which are for the specific use of a particular tenant such as
special stairs or special elevators, plus Lessee's Proportionate Share of
the square footage of the Building elevator and mechanical and electrical
rooms, maintenance areas, public areas and Building management offices
("Support Areas"). In the case of a floor to be occupied by more than one
tenant, all floor areas within the inside surface of the outer glass or
wall line enclosing the leased premises and measured to the midpoint of the
walls separating areas leased by or held for lease to other tenants or
areas devoted to Common Areas on the particular floor, but including a
proportionate part of the Common Areas located on such floor based upon the
ratio which the Lessee's Net Rentable Area (excluding Common Areas) on such
floor bears to the aggregate Net Rentable Area (excluding Common Areas) on
such floor plus Lessee's Proportionate Share of the Support Areas of the
Building. No deductions from Net Rentable Area shall be made for columns
or projections necessary to the Building. In the
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event of any dispute concerning the exact Net Rentable Area, the decision
of Lessor's designer, architect or engineer shall be binding on both
parties.
(p) "Allocated Number": Up to 15 garage parking spaces, which Lessee
may lease from time to time during the Term from Lessor in the Parking
Facilities (as hereinafter defined). Up to four of the parking spaces may
be marked by Lessee as "reserved."
(q) "Parking Rent": Lessor's prevailing monthly charge for assigned
and unassigned spaces in the parking garage adjacent to the Building on the
property described on Exhibit "B" (the "Parking Facilities"). Lessor and
Lessee stipulate that such prevailing rates, for the first 60 months of the
Lease Term are $0.00 per space per month for unassigned spaces and $0.00
per space per month for assigned spaces. In addition to the foregoing,
Parking Rent shall also include any taxes levied by any governmental
authorities on such Parking Rent, which additional amount shall be paid by
Lessee on demand from Lessor.
(r) "Calendar Year": A 12-month period commencing January 1 and
ending December 31.
(s) "Default Interest Rate": The interest rate which is equal to the
lower of (i) 18 percent per annum or (ii) the maximum non-usurious rate
allowed by applicable law.
(t) "Building Holidays": New Year's Day, Good Friday, Memorial Day,
Fourth of July, Labor Day, Thanksgiving Day, Christmas Day and any other
holidays commonly observed by lessors of comparable office Buildings in the
Market Area.
(u) "Building Standard": The quantity and quality of services,
materials, finishes and workmanship from time to time specified by Lessor
as standard for the Building.
(v) "Non-Building Standard": All materials, finishes and workmanship
used in connection with the construction and/or installation of leasehold
improvements which exceed or deviate from Building Standard in terms of
quantity or quality (or both).
(w) "Market Area": Westchase area of Houston.
(x) "Project": The Building, the Parking Facilities and/or any other
improvements now or hereafter located on the land described on Exhibit "B."
(y) "Common Areas": The portions of the Project intended to be used
by more than one tenant, including without limitation the Parking
Facilities, corridors, elevator foyers, rest rooms, mechanical rooms,
janitor closets, telephone and equipment rooms, vending areas and other
similar facilities.
2. CONDITION OF PREMISES; COMMENCEMENT DATE.
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Lessee has inspected the Premises, the Common Areas of the Building, and
the Parking Facilities, is familiar with their condition and accepts same in
their present condition, "AS IS," including any latent defects. Lessee
acknowledges that Lessor is not obligated to do any further construction or make
any additional improvements. As used herein, the term, the term "Commencement
Date" shall mean the first to occur of September 15, 1995, or the date that
Lessee first occupies any portion of the Premises for its intended Permitted
Use.
3. GRANTING CLAUSE. In consideration of the obligation of Lessee to pay
Rent as herein provided and in consideration of the other terms, covenants and
conditions hereof, Lessor hereby demises and leases to Lessee, and Lessee hereby
takes from Lessor, the Premises, to have and to hold the same for the Lease Term
specified herein, all upon the terms and conditions set forth in this Lease.
4. SERVICES BY LESSOR.
(a) So long as Lessee is not in default hereunder and Lessee is
occupying the Premises, Lessor agrees to furnish Lessee the following
services:
(i) Hot and cold water at those points of supply provided for
the public use of tenants.
(ii) Heating, ventilation and air conditioning ("HVAC") in
season, between the hours of 7:00 a.m. and 6:00 p.m. Monday through
Friday and 8:00 a.m. and 1:00 p.m. Saturday, exclusive of Building
Holidays (such hours being hereinafter referred to as "Business
Hours"), and at such temperatures and in such amounts as are
reasonably considered by Lessor to be standard for comparable
buildings in the Market Area. If Lessee requires HVAC outside
Business Hours, Lessor shall furnish it to Lessee only at Lessee's
request, and Lessee shall bear the entire charge therefor, which
charge shall be payable on demand and in an amount equal to the rate
Lessor at such time is charging for such service plus 15% of such
costs to cover Lessor's overhead costs.
(iii) Passenger elevator service in common with other tenants
for ingress to and egress from the Premises, provided that Lessor may
reduce the number of operating elevators to not less than one before
or after Business Hours.
(iv) Janitorial cleaning services as are reasonably considered
by Lessor to be standard for comparable buildings in the Market Area.
(v) Electric lighting for public areas and special service
areas of the Building in the manner and to the extent reasonably
deemed by Lessor to be standard for comparable buildings in the Market
Area.
(vi) Ballast and lamp replacement for Building Standard ceiling
mounted fluorescent lighting fixtures located in the Premises.
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(vii) Electric energy that Lessee shall reasonably require for
normal office equipment such as personal computers, standard business
office word processing and photocopying equipment, telecopiers,
typewriters, dictation machines, calculators and other machines of
similar electrical consumption, and lighting in the Premises, provided
that Lessor shall not be obligated to provide (unless otherwise
specifically agreed in writing) dedicated circuits or electrical power
in excess of Building Standard.
(viii) Security services as Lessor may from time to time
reasonably deem to be standard for comparable buildings in the Market
Area. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, LESSEE
EXPRESSLY ACKNOWLEDGES AND AGREES THAT LESSOR IS NOT WARRANTING THE
EFFICACY OF ANY SUCH SECURITY PERSONNEL, SERVICE, PROCEDURES OR
EQUIPMENT AND THAT LESSEE IS NOT RELYING AND SHALL NOT HEREAFTER RELY
ON ANY SUCH PERSONNEL, SERVICE, PROCEDURES OR EQUIPMENT. LESSOR SHALL
NOT BE RESPONSIBLE OR LIABLE IN ANY MANNER FOR FAILURE OF ANY SUCH
SECURITY PERSONNEL, SERVICES, PROCEDURES OR EQUIPMENT TO PREVENT OR
CONTROL, OR APPREHEND ANY ONE SUSPECTED OF, PERSONAL INJURY OR
PROPERTY DAMAGE IN, ON OR AROUND THE PROJECT.
(b) Notwithstanding anything herein to the contrary, the obligations
of Lessor to provide the services and utilities provided above shall be
subject to governmental regulation (e.g., rationing, temperature control,
etc.) and any such regulation which requires Lessor to provide or not
provide such services or utilities other than as herein provided shall not
constitute a default hereunder but rather compliance with such regulation
shall be deemed to be compliance by Lessor hereunder.
(c) The failure to any extent to furnish, or any stoppage of, any
services shall not render Lessor liable in any respect for damages to
either person or property, nor be construed as an eviction of Lessee or
work an abatement of rent, nor relieve Lessee from fulfillment of any
covenant or agreement hereof. Should any equipment or machinery necessary
for the services set forth in subsection (a) above break down, or for any
cause cease to function properly, Lessor shall use reasonable diligence to
repair same promptly, but Lessee shall have no claim for rebate of rent or
damages on account of any interruptions in service occasioned thereby or
resulting therefrom. Notwithstanding the foregoing, in the event of the
failure to furnish, any stoppage of or other interruption in the
furnishing of the services or utilities described in subsection (a) above
which continues for five business days after receipt by Lessor of written
notice thereof from Lessee, and such failure, stoppage or interruption
is not caused by Force Majeure (as hereinafter defined), a casualty
covered by Section 13 below, a failure on the part of a public utility,
or by any act or omission of Lessee, its agents, employees or
contractors, Lessee shall be entitled, as its sole and exclusive remedy,
to an abatement of Basic Monthly Rent and Basic Costs Excess in
proportion to the untenantability of the Premises caused by such
failure, stoppage or
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interruption, with such abatement to begin on the sixth business day
after the receipt by Lessor of written notice of such occurrence and
continuing until such failure or stoppage or interruption has been cured.
5. RENT PAYMENTS.
(a) Lessee shall pay all Rent hereunder at the times and in the
manner herein provided. Unless otherwise expressly provided herein, all
Rent shall be due and payable without demand, notice, offset, reduction or
abatement. All payments of Rent shall be made to Lessor at Lessor's
Address unless otherwise directed in writing by Lessor. The obligation of
Lessee to pay Rent is an independent covenant, and no act or circumstance,
whether constituting a breach of covenant by Lessor or not, shall release
or modify Lessee's obligation to pay Rent.
(b) Lessee shall pay to Lessor Basic Monthly Rental as provided in
Section 1(f) and Basic Costs Excess as provided in Section 8.
(c) Lessee shall pay Lessor the reasonable cost for the replacement
of all Non-Building Standard electric, fluorescent, and other lamps and
ballasts.
(d) In the event payment of any installment or portion of Rent is not
made within 10 days of the date due, a late charge of five percent of said
overdue amount(s) will be added and owing as additional Rent to compensate
Lessor for additional administrative handling, which amount will be due
immediately. If such failure to pay Rent continues beyond such 10 day
period, any and all due and unpaid Rent shall bear interest at the Default
Interest Rate from the date such Rent became due until the date such Rent
is received by Lessor. Such interest, as accrued, shall be immediately due
and payable as additional Rent hereunder. The collection of such late
charge and/or such interest by Lessor shall be in addition to and
cumulative of any and all other remedies available to Lessor. It is the
intention of Lessor and Lessee to conform to all applicable laws concerning
the contracting for, charging and receiving of interest. In the event
that any payments of interest required under this Lease are ever found to
exceed any applicable limits, Lessor shall credit the amount of any such
excess paid by Lessee against any amount owing under this Lease or if all
amounts owing under this Lease have been paid, Lessor shall refund to
Lessee the amount of such excess paid by Lessee. Lessor and Lessee agree
that Lessor shall not be subject to any applicable penalties in connection
with any such excess interest, it being agreed that any such excess
interest contracted for, charged or received pursuant to this Lease shall
be deemed a result of a bona fide error and a mistake.
6. ASSIGNMENT OR SUBLETTING.
(a) Lessee shall not sublet, mortgage, assign or otherwise encumber
this Lease, the Premises, or any portion thereof, or allow the Premises, or
any portion thereof, to be used for any purpose other than the Permitted
Use without the prior written consent of Lessor, which consent may be
withheld by Lessor in Lessor's sole good faith judgment. Without
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<PAGE>
limitation, Lessor may withhold its consent if such proposed assignment or
subletting would not be for the Permitted Use hereunder or if Lessor is
dissatisfied with the credit worthiness or business reputation of the
proposed assignee or sublessee, such proposed assignment or subletting
would violate an exclusive use provision granted to any other tenant in the
Building, or such proposed assignee or sublessee would increase the traffic
in or other use of the Common Areas. In the event the Lessee desires to
assign or sublet the Premises, Lessee shall provide Lessor with not less
than 30 days prior written notice of Lessee's request, specifying in detail
any and all terms of such assignment or sublease ("Lessee's Request").
Lessor reserves the right to cancel and terminate this Lease upon 60 days
prior written notice by giving written notice to Lessee within 30 days
after Lessor's receipt of Lessee's Request. In the event that Lessor has
not notified Lessee of its approval or denial of Lessee's Request, or of
Lessor's exercise of its right to terminate this Lease, within 30 days
after Lessor's receipt of Lessee's Request, Lessor shall be deemed to have
(i) denied Lessee's request to assign or sublease this Lease and (ii) not
exercised its right to terminate. In addition, in the event Lessor
consents to an assignment or sublease of the Premises, and such assignment
or sublease results in rental payments in excess of the monthly payments
due and owing under the terms of this Lease (other than pursuant to this
provision), such excess rental payments shall be deemed to be rental
payments due and owing solely to Lessor. In the event that Lessor elects
to have any proposed sublease or assignment document submitted by Lessee
reviewed by an attorney on Lessor's behalf, Lessee agrees to pay on demand
the reasonable attorney's fees incurred by Lessor in connection with such
review. At Lessor's request, Lessee shall use the standard form of
assignment and subletting agreement proposed by Lessor (with such
modifications as are reasonably necessary to reflect the agreement between
Lessee and the proposed subtenant or assignee). In addition, in the event
Lessor consents to an assignment or sublease of the Premises which
contemplates alterations or renovations and Lessor incurs any architectural
or engineering design fees in connection therewith, Lessee shall pay Lessor
on demand the amount of such fees incurred by Lessor.
(b) No assignment, subletting or other transfer by Lessee shall
relieve Lessee of Lessee's obligations under this Lease. Any consent by
Lessor to an assignment, subletting or other transfer by Lessee shall not
be deemed to be a waiver of Lessor's right to withhold its consent to any
future assignment, sublease or other transfer by Lessee nor a consent to
any future assignment or sublease or other transfer, but shall only be
deemed to be a consent to the one assignment, sublease or other transfer
for which such consent is given.
(c) If Lessee is a corporation, then any transfer of this Lease from
Lessee by merger, consolidation or dissolution or any change in ownership
or power to vote a majority of the voting stock in Lessee outstanding at
the time of execution of this Lease shall constitute an assignment for the
purpose of this Lease. For purposes of this section, the term "voting
stock" shall refer to shares of stock regularly entitled to vote for the
election of directors of the corporation involved. If Lessee is a general
partnership having one or more corporations as partners or if Lessee is a
limited partnership having one or more corporations as general partners,
the provisions of the preceding sentence shall apply to each of such
corporations as if such corporation alone had been the Lessee hereunder.
If Lessee
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is a general partnership (whether or not having any corporation as
partners) or if Lessee is a limited partnership (whether or not having
any corporation as general partners), the transfer of the partnership
interest or interests constituting a majority shall constitute an
assignment for purposes of this Lease.
7. TRANSFER OF LESSOR'S RIGHTS. Lessor shall have the right to transfer
and assign, in whole or in part, its rights and obligations hereunder and in the
Project. Such transfers or assignments, however made, shall in all things be
respected and recognized by Lessee. Lessee shall look solely to Lessor's
successor in interest for performance under this Lease.
8. OPERATING EXPENSES.
(a) For each Calendar Year (or portion thereof) during the Term, in
addition to the other Rent due hereunder, Lessee shall pay the amount by
which Basic Costs (as hereinafter defined) exceed the Initial Basic Costs
Amount set forth in Section 1(g) ("Basic Costs Excess"). Such payments of
Basic Costs Excess shall be made as follows:
(i) Prior to the Commencement Date and before the beginning of
each Calendar Year (or portion thereof) thereafter during the Term,
Lessor shall furnish Lessee with Lessor's estimate of Basic Costs
Excess for such Calendar Year. On or before the first day of each
month during such Calendar Year, in addition to other Rent due
hereunder at such time, Lessee shall pay a monthly installment equal
to 1/12 of the estimated Basic Costs Excess for such Calendar Year.
Lessor shall have the right to adjust such estimated Basic Costs
Excess before the beginning of each calendar quarter and 1/12 of such
adjusted estimated Basic Costs Excess shall be payable on the first
day of each month thereafter during such Calendar Year.
(ii) Within 150 days after the conclusion of each Calendar Year
during Lessee's occupancy, or as soon thereafter as practicable,
Lessor shall furnish to Lessee a statement of actual Basic Costs for
the previous Calendar Year (or fraction thereof if the Commencement
Date occurred after the first day of the previous Calendar Year). A
lump sum payment (which payment shall be considered a payment of Rent
for all purposes) will be made by Lessee, within 30 days of the
delivery of that statement, equal to the excess, if any, of the actual
Basic Costs over the aggregate amount paid by Lessee hereunder for
Basic Costs Excess for such Calendar Year. If the amount of the
actual Basic Costs is less than the aggregate amount actually paid by
Lessee hereunder for Basic Costs Excess for such Calendar Year, Lessor
shall (provided Lessee is not in default hereunder) at Lessor's
election either refund such difference (the "Basic Costs Overage") to
the Lessee within 30 days of the issuance of that statement, or apply
such Basic Costs Overage to the next accruing installments of Rent due
hereunder. The effect of this reconciliation payment or adjustment
shall be that Lessee will pay with respect to each Calendar Year (or
portion thereof) during the Term, in addition to the other Rent due
hereunder, the amount by which Basic Costs exceeds the Initial Basic
Costs Amount.
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(b) As used herein "Basic Costs" means: (i) Lessee's Proportionate
Share of all Operating Expenses (as defined below), which costs shall
include all expenditures by Lessor to maintain all facilities in operation
at the beginning of the Term and such additional facilities in subsequent
years as Lessor may consider necessary or beneficial for the operation of
the Project; and (ii) an amount equal to Lessee's Proportionate Share of
the management fee paid by Lessor with respect to the Project. All
Operating Expenses shall be determined according to generally accepted
accrual accounting principles which shall be consistently applied.
"Operating Expenses" as used herein means all reasonable expenses, costs,
and disbursements of every kind which Lessor shall pay or incur in
connection with the ownership, operation and maintenance of the Project,
including without limitation, the following:
(i) Wages, salaries and fees of all personnel or entities
(exclusive of Lessor's executive personnel) engaged in the operation,
maintenance, traffic control or access control of the Project,
including taxes, insurance, and benefits relating thereto; provided,
however, that if during the Term such personnel or entities are
working on other projects of Lessor, their wages, salaries, fees, and
related expenses, shall be appropriately allocated among all of such
projects and only that portion of such expenses reasonably allocable
to the Project shall be included in Operating Expenses.
(ii) All supplies, tools, equipment and materials used in the
operation and maintenance of the Project.
(iii) Cost of all maintenance, janitorial, and service
agreements for the Project and the equipment therein, including,
without limitation, alarm service, access control, traffic control,
janitorial service, security services, if any, window cleaning,
elevator maintenance and landscaping.
(iv) Cost of all insurance relating to the Project, including,
without limitation, the cost of casualty and liability insurance
applicable to the Project and Lessor's personal property used in
connection therewith and the cost of rent loss or business
interruption insurance in such amounts as Lessor elects to carry.
(v) All taxes, assessments, and other governmental charges,
whether federal, state, county or municipal, and whether assessed by
taxing districts or authorities presently taxing the Project or by
others, subsequently created or otherwise, and any other taxes and
assessments attributable to the Project or its operation, exclusive of
any inheritance, gift, franchise, income, corporate or profit taxes
which may be assessed against Lessor; provided, however, that if at
any time during the Term, the present method of taxation or assessment
is changed so that all or any part of the taxes, assessments, levies,
impositions or charges now levied, assessed or imposed on real estate
and improvements thereof shall be discontinued and as a substitute
thereof or in lieu of or in addition thereto, any taxes, assessments,
levies, impositions or charges shall be levied, assessed and/or
imposed wholly or partially as a capital levy or otherwise on the
rents received from the Project or the rents reserved herein
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or any part thereof, then such substitute or additional taxes,
assessments, levies, impositions or charges to the extent so
levied, assessed or imposed, shall be deemed to be included within
Operating Expenses to the extent that such substitute or additional
tax would be payable if the Project were the only property of the
Lessor subject to such tax. At Lessor's option, Lessee shall be
responsible for ad valorem taxes on its personal property and on
the value of leasehold improvements to the Premises to the extent
that they exceed Building Standard improvements, in which event
Lessor may make a reasonable allocation of the ad valorem taxes
assessed on the Building to give effect to this provision.
(vi) Cost of repairs and general maintenance undertaken by
Lessor in its sole discretion on or of the Project (excluding repairs
and general maintenance paid by Lessee or by proceeds of insurance or
other third parties, and alterations attributable solely to tenants of
the Building).
(vii) Amortization of the cost of installation of capital items
which are primarily to reduce operating costs for the benefit of all
the Building's tenants or enhance the Project or which may be required
by any governmental authority, including without limitation any
asbestos abatement. All such costs, including interest costs, shall
be amortized over the reasonable life of the capital items, according
to generally accepted accounting principles, but in no event shall
such amortization extend beyond the reasonable life of the Building.
(viii) Cost of all utilities for the Project, including the cost
of water, electricity, gas, fuel oil, heating, lighting, air
conditioning and ventilating for the Project.
(ix) Lessor's central accounting costs, and legal, appraisal,
and management fees relating to the operation of the Project.
(c) Notwithstanding anything contained in Section 8(b) above to the
contrary, the following shall be excluded from "Operating Expenses":
(i) Costs of repairs or other work occasioned by fire,
windstorm or other casualty, or condemnation, to the extent reimbursed
to Lessor by insurers or by governmental authorities in eminent
domain.
(ii) Leasing commissions, attorney's fees, costs and
disbursements and other expenses incurred in connection with
negotiations for leases with tenants, other occupants, or prospective
tenants or other occupants of the Building and similar costs incurred
in connection with disputes between Lessor and tenants, other
occupants, or prospective tenants or other occupants of the Building.
(iii) Costs incurred in renovating, decorating, redecorating or
otherwise improving (as opposed to making repairs to) space for
tenants in, or other occupants of, the Building, or vacant, leasable
space in the Building.
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(iv) Costs of correcting defects (including latent defects) in
the construction of the Building, the Parking Facilities, or in the
equipment used therein, except that, for the purposes hereof,
conditions (not occasioned by construction defects) resulting from
ordinary wear and tear, asbestos abatement or alterations of the HVAC
system to meet legal requirements, and use, fire, casualty, vandalism,
and other matters not occasioned by construction defects shall not be
deemed to be defects.
(v) Except as provided in Section 8(b)(vii), depreciation and
amortization, or costs of a capital nature, in accordance with
generally accepted accounting principles, consistently applied.
(vi) Lessor's costs of services or utilities which are not
Building Standard and which are not available to Lessee without
specific charge therefor, but which are provided to another tenant or
occupant and for which such other tenant or occupant is specifically
charged by Lessor.
(vii) Costs (limited to penalties, fines and associated legal
expenses) incurred by Lessor due to the violation by Lessor, Lessee
or any tenant in the Building of the terms and conditions of this
Lease or of the leases of other tenants in the Building and applicable
federal, state, and local governmental laws, codes and similar
regulations that would not have been incurred but for any such
violations by Lessor, Lessee, or other tenants in the Building it
being intended that each party shall be responsible for the costs
resulting from its own violation of such leases and laws, codes and
regulations as same shall pertain to the Building and the Parking
Facilities. Notwithstanding the foregoing, interest or penalties
incurred in connection with assessments or taxes which are reasonably
contested by Lessor shall be included in Operating Expenses.
(viii) Except for the management fee paid by Lessor with respect
to the Project and other fees to the Lessor specifically provided in
this Lease, overhead and profit increments paid to subsidiaries or
other affiliates of Lessor for services on or to the Project, to the
extent that the costs of such services exceed competitive costs for
such services rendered by non-affiliated persons or entities of
similar skill, competence and experience.
(ix) Interest on debt or amortization payments on any mortgage
or mortgages, and rental under any ground or underlying leases or
lease (except to the extent the same may be made to pay or reimburse,
or may be measured by, ad valorem taxes).
(x) Costs of Lessor's general overhead and general
administrative expenses (individual, partnership or corporate, as the
case may be), which costs would not be chargeable to Operating
Expenses, in accordance with generally accepted accrual accounting
principles, consistently applied.
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(xi) Any compensation paid to clerks, attendants or other
persons in commercial concessions (such as a snack bar or restaurant),
if any, operated by Lessor.
(xii) All items and services for which Lessee specifically
reimburses Lessor (other than Basic Cost Excess) or which Lessee pays
third persons.
(xiii) Advertising and promotional expenses incurred to publicize
the Building.
(d) Nothing in Section 8(b) or (c) shall be construed as requiring
Lessor to provide any services which are not specifically set forth in this
Lease as obligations of Lessor.
(e) If the Building is not fully occupied during any Calendar Year of
the Term, an adjustment shall be made in computing the Operating Expenses
for that Calendar Year so that the Operating Costs shall be increased for
that year to the amount that, in Lessor's reasonable judgment, would have
been incurred had the total Net Rentable Area of the Building been occupied
during that year.
(f) If the number of square feet of (i) the Net Rentable Area of the
Building or (ii) the Net Rentable Area of the Premises changes, the
Lessee's Proportionate Share shall be adjusted effective as of the date of
any such change. Any changes made pursuant to this Subsection (f) will not
alter the computation of Basic Costs for prior periods.
9. INDEMNITY. Lessee shall indemnify and hold harmless Lessor, its
agents and employees from all claims, causes of action, costs, losses, damages
and reasonable attorneys fees incurred by any such party as a result of the
negligent or willful act or omission of Lessee, its agents or employees in, on
or about the Project, or the default of Lessee hereunder. Subject to any
contrary provisions of Section 21 of this Lease or Exhibit "C," Lessor shall
indemnify and hold harmless Lessee, its agents and employees from all claims,
causes of action, costs, losses, damages and reasonable attorneys fees incurred
by any such party as a result of the negligent or willful act or omission of
Lessor, its agents or employees in, on or about the Project.
10. LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE. Lessee will not
occupy or use, nor permit any portion of the Premises to be occupied or used for
any purpose other than the Permitted Use and not for any business or purpose
which is unlawful in part or in whole or in Lessor's good faith judgment
disreputable in any manner, or extra hazardous, nor permit anything to be done
which will in any way increase the rate of fire insurance on the Building or
contents, and in the event that, by reason of any acts of Lessee or its conduct
of business, there shall be any increase in the rate of insurance on the
Building or its contents, then Lessee hereby agrees to pay such increase.
Lessee shall maintain the Premises in a clean and sanitary condition and shall
comply with all laws, ordinances, orders, rules and regulations (state, federal
and municipal, and other agencies or bodies having any jurisdiction thereof)
with reference to use, condition or occupancy of the Premises. Without
limitation of the foregoing, Lessee shall not, without Lessor's prior written
consent, use, store, install, spill, remove, release or dispose of within or
about the Premises or any other portion of the Project, any asbestos-containing
materials or any solid, liquid or gaseous material now or hereafter considered
toxic or hazardous under the
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provisions of 42 U.S.C. Section 9601 et seq. or any other applicable
environmental law which may now or hereafter be in effect. If Lessor does
give written consent to Lessee pursuant to the foregoing sentence, Lessee
shall comply with all applicable laws, rules and regulations pertaining to
and governing such use by Lessee, and shall remain liable for the costs of
any clean up or removal required to be performed with respect to such
asbestos-containing, toxic or hazardous materials.
11. INSURANCE. During the Lease Term, Lessee shall, at its own cost and
expense, for the benefit and protection of Lessor and Lessee (naming Lessee as
insured and Lessor, and any other party in interest from time to time designated
by Lessor in written notice to Lessee, as additional insureds) maintain and
provide (a) comprehensive general liability insurance coverage (including
contractual liability coverage) in an amount not less than $2,000,000 to more
than one person arising out of any one accident or occurrence and for damages to
property in an amount not less than $1,000,000 extended to include personal
injury and (b) fire and extended coverage casualty insurance covering Lessee's
personal property in the Premises and all Non-Building Standard leasehold
improvements in the Premises, with limits not less than 90% of replacement
value. All insurance provided hereunder shall be secured from responsible
companies acceptable to the Lessor and qualified to do business and in good
standing in the state where the Premises are located. All such insurance
policies shall be maintained by Lessee in full force and effect during the
entire Lease Term. Lessee shall provide to Lessor, as soon as practicable after
obtaining same but in no event later than 10 days after Lessee takes possession
of all or any part of the Premises, certificates of insurance in form reasonably
acceptable to Lessor, indicating that such policies are in force and providing
for 30 day notice to Lessor prior to cancellation or amendment.
12. WAIVER OF SUBROGATION. Notwithstanding anything herein to the
contrary, neither Lessor nor Lessee shall be liable (by way of subrogation or
otherwise) to the other party (or to any insurance company insuring the other
party) for any personal injury or loss or damage to any of the property of
Lessor or Lessee, as the case may be, to the extent covered by insurance carried
or required to be carried by a party hereto even though such loss might have
been occasioned by the negligence or willful acts or omissions of the Lessor or
Lessee or their respective employees, agents, contractors or invitees. All
policies of fire, extended coverage or similar casualty insurance which either
party obtains as required hereunder shall include a clause or endorsement
denying the insurer any rights of subrogation against the other party.
13. CASUALTY DAMAGE.
(a) If the Premises or the portion of the Common Areas which serve
the Premises (the "Material Common Areas") are damaged by any cause or
means whatsoever not caused or contributed to by the negligence or fault
of Lessee, its agents, employees or contractors, said damage can be
repaired within a period of 60 working days from the date of such casualty
by using standard working methods and procedures, and Lessor's mortgagee
does not elect to take the insurance proceeds otherwise payable to Lessor
and apply same to the mortgage held by such mortgagee, Lessor shall within
a reasonable time after the occurrence of said damage enter and make
repairs provided however that Lessor's obligation to repair shall be
limited to repairing damage to Building Standard items or improvements, and
this Lease shall not be affected but shall continue in full force and
effect, except as provided in
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subsection (c) below. Lessee shall be obligated to restore or repair
all Non-Building Standard items or leasehold improvements in the
Premises.
(b) If, however, (i) such damage to the Premises or to the Material
Common Areas cannot be repaired within a period of 60 working days from the
date of such casualty by using standard working methods and procedures
and/or (ii) any other portion of the Building not referred to in subsection
(a) above is damaged by any cause or means whatsoever and in Lessor's good
faith judgment, it is not commercially practicable to repair and restore
the Building, the Lessor shall have the option of either (x) terminating
this Lease upon 30 days prior written notice and Lessee shall pay Rent
hereunder to such date of termination and surrender the Premises to Lessor
no later than the date of such termination or (y) keeping this Lease in
full force and restoring the Building Standard items in the Premises and
the Material Common Areas to substantially the same condition as existed
prior to the date of such occurrence. Lessor shall give Lessee written
notice of Lessor's election within 60 days after the date of such casualty.
If Lessor so elects to continue the Lease and restore the Premises, Lessor
shall within a reasonable time after the date of the notice of said
election enter and make repairs, and this Lease shall not be affected
except as provided in Subsection (c) below.
(c) Notwithstanding anything herein to the contrary, Basic Monthly
Rental and Basic Costs Excess shall be reduced or abated from the date of
the casualty until the date of substantial completion by Lessor of its work
under (a) or (b) above, or termination of this Lease, as applicable, in the
proportion (if any) that the Premises are untenantable during such period.
If, however, such damage is contributed to or results from the fault of the
Lessee, Lessee's employees, contractors, agents, or (if the damage is
within the Premises) visitors, such damage shall be repaired by Lessor at
the expense of the Lessee (together with an additional 15% to cover
Lessor's overhead), and all Rent shall continue without abatement or
reduction regardless of length of time of repair.
(d) The completion of the repairs of all such damages is subject to
reasonable delays resulting from survey of such damage, obtaining plans and
letting contracts for repair, adjustment for insurance loss, strikes, labor
difficulties, unavailability of material, or other causes beyond the
control of the party obligated to make such repairs. In no event shall
Lessor be liable to Lessee for damages for loss of business or
inconvenience which might result from any such damage, and Lessee hereby
waives any such claim for damages which may arise in connection with such
damage.
14. ALTERATIONS. Lessee will not make or allow to be made any alteration
or additions in or to the Premises without the prior written consent of Lessor,
which consent shall not unreasonably be withheld so long as such alterations or
additions do not affect any structural, mechanical, electrical or plumbing items
or installations in the Building and do not affect the appearance of the
exterior of the Building or the appearance of the Premises from the Common Areas
of the Building. Should Lessee desire to perform any alterations, Lessee shall
submit plans and specifications for same to Lessor for Lessor's written approval
before beginning such work. Upon receipt by Lessee of the written approval of
Lessor of such plans and specifications, and
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upon payment by Lessee to Lessor of the reasonable fees incurred by Lessor to
have such plans and specifications reviewed, Lessee may proceed to make such
approved alterations so long as they are in compliance with such approved
plans and specifications and are performed by a contractor approved by
Lessor, such approval not to be unreasonably withheld (provided that Lessor
may designate the contractors to be used for structural, mechanical,
electrical or plumbing work). Any and all such alterations, physical
additions or improvements shall become the property of the Lessor and shall
in no event be removed by the Lessee including those improvements made at the
Lessee's expense or under any agreement with the Lessee whereby the Lessee is
given an allowance or rent reduction in exchange for Lessee's agreement to
install or allow to be installed lease improvements, such as by way of
example but not limitation, wall coverings, floor coverings or carpet,
paneling, doors, cabinets, appliances, such as refrigerators and dishwashers
and hardware. The foregoing sentence shall not apply to movable, nonattached
trade fixtures of the Lessee. Notwithstanding the foregoing, it is the
responsibility of the Lessee to restore the Premises to the condition that
existed when Lessee first took possession if Lessor so requests. If any
mechanic's lien is filed against the Premises or the real estate of which the
Premises form a part, which lien arises out of work done by or at the
direction of Lessee, Lessee shall cause same to be discharged within 10 days
after the lien is filed by Lessee paying or bonding over said lien. If
Lessee fails to comply with the foregoing sentence Lessor shall (without
limitation of its other rights or remedies) have the right, but not the
obligation, to discharge said lien and Lessee shall immediately reimburse
Lessor for any sum of money expended by Lessor in connection with obtaining
such discharge (together with an additional 15 percent thereof to cover
Lessor's administrative costs), which amount shall be deemed to be Rent
hereunder for all purposes.
15. LESSOR'S RIGHT OF ENTRY. Lessor, its agents, employees and
contractors shall have the right to enter on and about the Premises at all
reasonable times during the Term, upon reasonable notice to Lessee, except in
the event of an emergency (in which event no notice shall be required), to
inspect same, to show the Premises to prospective tenants, lenders or
purchasers, to determine if Lessee is in compliance with this Lease, to perform
the services or make the repairs Lessor is obligated or elects to perform under
this Lease, to repair adjoining premises, to cure any default of Lessee
hereunder that Lessor elects to cure, to remove any improvements or property
placed in the Premises in violation of this Lease, and/or to carry out any other
applicable provision of this Lease. Lessee waives any claim for damages
including loss of business resulting from any such entry.
16. REPAIRS. Lessee shall, at Lessee's sole cost and expense, keep the
Premises in sound condition and good repair, and shall at Lessor's option
perform or reimburse the cost incurred by Lessor of performing (together with an
additional 15 percent thereof to cover Lessor's administrative cost) the repair
or replacement of any damage or injury done to the Project or any part thereof
by Lessee or Lessee's agent's, employees, contractors or invitees. Lessee
shall, at Lessee's sole cost and expense, maintain its personal property and
Non-Building Standard leasehold improvements in good working order and Lessee
shall be solely responsible for any and all damage to the Premises, to the
premises or property of other tenants and/or to the Project caused by the
malfunction of such property. Lessee will not commit or allow any waste or
damage to be committed on any portion of the Premises, and shall, at termination
of this Lease
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by lapse of time or otherwise, deliver up said Premises to Lessor in as good
condition as at date of possession, ordinary wear and tear excepted, in a
neat and clean condition. Upon termination or expiration of this Lease,
Lessor shall have the right to reenter and resume possession of the Premises.
17. SIGNS. Lessee shall not place or permit to be placed or maintained on
any exterior door, wall or window of the Premises any sign, awning, canopy,
advertising matter or similar item of any kind, and will not place or maintain
any decoration, lettering or advertising matter on the glass of any window or
door of the Premises without first obtaining Lessor's prior written approval in
each instance. Lessee at Lessee's sole cost and expense shall maintain any such
sign, awning, canopy, decoration, lettering, advertising matter or similar item
as may be approved by Lessor, in good condition and repair at all times.
18. SUBORDINATION. Lessee hereby subordinates this Lease and all rights
of Lessee hereunder to any mortgage(s), vendor's lien, or similar instruments
which now are or which may from time to time hereafter be placed upon the
Building and to any further or additional advances made thereunder and any
renewals, extensions, or modifications of same. Any and all such mortgage(s),
liens or other instruments shall be superior to and prior to this Lease;
provided, however, that the holder of any such mortgage(s), lien or similar
instrument may, at its option, subordinate its lien to this Lease. Lessee
further covenants and agrees that if the mortgagee or other lienholder acquires
the Building as a purchaser at any foreclosure sale (any such mortgagee or other
lienholder or purchaser at a foreclosure sale being each hereinafter referred to
as the "Purchaser at Foreclosure") Lessee shall thereafter, but only at the
option of the Purchaser at Foreclosure, as evidenced by the written notice of
its election given to Lessee thereafter, remain bound by novation or otherwise
to the same effect as if a new and identical lease between the Purchaser at
Foreclosure, as landlord, and Lessee, as tenant, had been entered into for the
remainder of the Lease Term in effect at the institution of the foreclosure
proceedings. Lessee shall execute any instrument or instruments which may be
deemed necessary or desirable further to effect the subordination and attornment
of this Lease to each such mortgage, lien or instrument or to confirm any
election by the Purchaser at Foreclosure to continue the Lease in effect in the
event of foreclosure, as above provided. Notwithstanding anything contained
herein to the contrary, in the event of a foreclosure against the Building by
any mortgagee or lienholder, Lessee hereby waives any and all rights it may have
to terminate this Lease. Notwithstanding anything contained herein to the
contrary, in the event of any default by Lessor in performing its covenants or
obligations hereunder, Lessee shall not exercise any rights it may have on
account of such default until (a) Lessee gives written notice of such default
(which notice shall specify the exact nature of said default and how the same
may be cured) to each holder of any such mortgage(s), vendor's lien or similar
instrument who has theretofore notified Lessee in writing of its interest and
the address to which notices are to be sent, and (b) each such holder fails to
cure or cause to be cured said default within 30 days from the receipt by such
holder of such notice by Lessee.
19. ABANDONMENT. If the Premises are abandoned or vacated by Lessee,
Lessor shall have the right, but not the obligation, to: (a) relet same for the
remainder of the period covered hereby, and Lessee shall pay and satisfy (i) if
the basic monthly rental and basic costs excess received through such reletting
is not at least equal to the Basic Monthly Rental and Basic Costs
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Excess provided hereunder, any deficiencies between the amount of Basic
Monthly Rental and Basic Costs Excess required by this Lease and that
received through reletting and (ii) all expenses incurred by Lessor for any
such reletting, including but not limited to, the cost of renovating,
altering and decorating for a new occupant, and/or (b) provide for the
storage of any personal property of Lessee or take title to the abandoned
personal property which title shall pass to Lessor under this Lease as a Bill
of Sale without additional payments or credit from Lessor to Lessee.
Notwithstanding the foregoing, during the last 90 days of the Lease Term, if
Lessee removes a substantial portion of Lessee's personal property or Lessee
has been in physical absence for 10 days, Lessee shall be deemed to have
vacated the Premises and Lessor shall have the right but not the obligation
to enter the Premises for purposes of renovating, altering and decorating the
Premises for occupancy at the end of the Lease Term by a new tenant without
in any way affecting Lessee's obligation to pay Rent and comply with all
other terms and conditions of this Lease.
20. HOLDING OVER. In case of holding over by Lessee after expiration or
termination of this Lease, Lessee shall, for the entire holdover period, pay as
liquidated damages a monthly rental equal to one and one-half times the Basic
Monthly Rental applicable to the last month of the Term and all attorney's fees
and expenses incurred by Lessor in enforcing its rights hereunder.
Notwithstanding the foregoing, no holding over by Lessee after the termination
or expiration of the Lease Term without the written consent of Lessor shall
operate to extend this Lease for a longer period than from day-to-day. Lessee
shall indemnify and hold harmless Lessor from and against any and all claims,
causes of action, costs, losses, damages and expenses including reasonable
attorneys' fees incurred by or sought from Lessor by any other tenant or
prospective tenant caused by Lessee's holding over.
21. DEFAULT AND REMEDIES.
(a) The occurrence of any of the following shall be deemed an "Event
of Default": (i) Lessee fails to pay any installment of Rent or any other
monetary obligation hereunder when due and such failure continues for five
days after written notice thereof from Lessor (but in no event shall Lessee
be entitled to such notice or grace period more than twice in any 12-month
period); (ii) Lessee deserts or vacates the Premises; (iii) Lessee fails to
occupy the Premises within 30 days after the Commencement Date; (iv) Lessee
fails to comply with any other term, provision, condition, or covenant of
this Lease or any of the rules and regulations now or hereafter established
for the government of the Project and such failure continues for a period
of 10 days after written notice from Lessor (provided that if such failure
cannot reasonably be cured within such 10 days Lessee shall have up to 30
days to cure such failure so long as Lessee commences the cure within such
10 days and thereafter diligently prosecutes same to completion); (v) any
petition is filed by or against Lessee or any guarantor of Lessee's
obligations hereunder ("Guarantor") under any section or chapter of Title
11, U.S.C., as amended, or under any similar law or statute of the United
States or of any state thereof; (vi) Lessee or any Guarantor becomes
insolvent or makes a transfer in fraud of creditors; (vii) Lessee or any
Guarantor makes a general assignment for the benefit of creditors; (viii) a
receiver is appointed for Lessee or any Guarantor or any of the assets of
Lessee or of any Guarantor; or (ix) any other event or
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matter which is under another provision of this Lease specifically
designated an Event of Default,
(b) If an Event of Default shall occur, Lessor shall have the option
to do any one or more of the following without any notice or demand, in
addition to and not in limitation of any other remedies permitted by law or
by this Lease:
(i) Terminate this Lease, or terminate Lessee's rights under
this Lease (but not its obligations), and in either event Lessor shall
have the right to immediate possession of the Premises and may reenter
the Premises, change the locks and remove all persons and property
therefrom using all force necessary for this purpose without being
guilty in any manner of trespass or otherwise; and any and all damages
to Lessee, or persons holding under Lessee, by reason of such re-entry
are hereby expressly waived; and any such termination or re-entry on
the part of Lessor shall be without prejudice to any remedy available
to Lessor for arrears of rent, breach of contract, damages or
otherwise, nor shall the termination of this Lease or of Lessee's
rights under this Lease by Lessor acting under this subsection be
deemed in any manner to relieve Lessee from the obligation to pay the
Rent and all other amounts due or to become due as provided in this
Lease for and during the entire unexpired portion (or what would have
been the entire unexpired portion) of the Lease Term. In the event of
termination of this Lease or of Lessee's rights under this Lease by
Lessor as provided in this subsection, Lessor shall have the further
right, but not the obligation, to relet the Premises upon such terms,
conditions and covenants as are deemed proper by Lessor for the
account of Lessee, and in such event, Lessee shall pay to Lessor all
costs of renovating and altering the Premises for a new lessee or
lessees in addition to all brokerage and/or legal fees incurred in
connection therewith and Lessor shall credit Lessee only for such
amounts as are actually received from such reletting during the then
remaining Lease Term. Alternatively, at the election of Lessor,
Lessee covenants and agrees to pay as damages to Lessor, upon any such
termination by Lessor of this Lease or of Lessee's rights under this
Lease, such sum as at the time of such termination equals the amount
of the excess, if any, of the then present value of all the Rent which
would have been due and payable hereunder during the remainder of the
Lease Term (had Lessee kept and performed all agreements and covenants
of Lessee set forth in this Lease) over and above the then present
rental value of the Premises for said remainder of the Lease Term.
For purposes of present value calculations, Lessor and Lessee
stipulate and agree to a discount rate equal to the Federal Reserve
Discount Rate, as of the date that the Lease, or Lessee's rights under
this Lease, is or are terminated, as applicable.
(ii) Do whatever Lessee is obligated to do by the provisions of
this Lease and Lessor may enter the Premises, by force if necessary,
without being liable for or subject to any prosecution or any claim
for damages therefor, in order to accomplish this purpose. Lessee
shall reimburse Lessor upon demand for any expenses and interest which
Lessor may incur in thus effecting compliance with this Lease on
behalf of Lessee, plus 15 percent thereof to cover Lessor's
administrative costs.
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(iii) Enter upon the Premises by use of a master key, a
duplicate key, or other peaceable means, and change, alter, and/or
modify the door locks on all entry doors of the Premises, thereby
permanently excluding Lessee, and its officers, principals, agents,
employees, representatives and invitees therefrom. In the event that
Lessor has either permanently repossessed the Premises pursuant to the
foregoing provisions of this Lease or has terminated this Lease by
reason of Lessee's default, Lessor shall not thereafter be obligated
to provide Lessee with a key to the Leased Premises at any time,
regardless of any amounts subsequently paid by Lessee; provided,
however, that in any such instance, during Lessor's normal business
hours and at the convenience of Lessor, Lessor will either (at
Lessor's option) (A) escort Lessee or its authorized personnel to the
Premises to retrieve any personal belongings or other property of
Lessee not subject to the Lessor's lien or security interest described
herein, or (B) obtain a list from Lessee of such personal property as
Lessee intends to remove, whereupon Lessor shall remove such property
and make it available to Lessee at a time and place designated by
Lessor. However, if Lessor elects option (B), Lessee shall pay, in
cash in advance, all costs and expenses estimated by Lessor to be
incurred in removing such property and making it available to Lessee
and all moving and/or storage charges theretofore incurred by Lessor
with respect to such property (plus an additional 15 percent thereof,
to cover Lessor's administrative costs). If Lessor elects to exclude
Lessee from the Premises without permanently repossessing or
terminating pursuant to the foregoing provisions of this Lease, then
Lessor shall not be obligated to provide Lessee a key to reenter the
Premises until such time as all delinquent rental and other amounts
due under this Lease have been paid in full and all other defaults, if
any, have been completely cured to Lessor's satisfaction (if such cure
occurs prior to any actual permanent repossession or termination), and
Lessor has been given assurance reasonably satisfactory to Lessor
evidencing Lessee's ability to satisfy its remaining obligations under
this Lease. The foregoing provision shall override and control any
conflicting provisions of the Texas Property Code, as well as any
successor statute governing the right of a lessor to change the door
locks of commercial tenants.
(iv) Notwithstanding anything herein to the contrary, to the
full extent permitted under applicable law, Lessee hereby releases
Lessor from any and all duty to relet the Premises or otherwise
mitigate damages. Lessor shall not be liable, nor shall Lessee's
obligations hereunder be diminished, because of Lessor's failure to
relet the Premises or collect rent due with respect to such reletting.
In no event shall Lessee be entitled to any excess rents received by
Lessor. In the event, and only in the event, that (despite such
waiver) Texas law requires Lessor to attempt to mitigate damages,
Lessor shall use reasonable efforts to relet the Premises on such
terms and conditions as Lessor in its good faith judgment may
determine (including without limitation a term different than the
Term, rental concessions, alterations and repair of the Premises)
provided, however, that Lessor shall not be obligated to relet the
Premises before leasing all other unoccupied portions of the Building.
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(v) In the event that pursuant to this Section 21, a
determination needs to be made regarding the amount of Rent that
Lessee would have paid hereunder following the termination of this
Lease (or termination of the rights of possession of Lessee under this
Lease) the parties stipulate that Lessee would have paid Parking Rent
during such applicable period based on the greater of (A) the actual
Parking Rent payable by Lessee during the last month prior to such
termination or (B) the Parking Rent prevailing during the last month
prior to such termination for three unassigned parking spaces per
1,000 square feet of Net Rentable Area of the Premises.
(vi) Notwithstanding anything herein to the contrary, including
without limitation Section 9, during any period that any Event of
Default exists, Lessor shall be liable only for the gross negligence
or willful misconduct of Lessor, its agents or employees.
(vii) The foregoing list of remedies of Lessor is without
limitation of all other rights or remedies, available at law or equity
to Lessor as a result of a default of Lessee hereunder.
22. CROSS DEFAULT. In the event Lessee or Lessee's subsidiary or
affiliate shall have other leases for other premises in the Building, any
default by Lessee or by such subsidiary or affiliate of Lessee under such other
leases shall at Lessor's election be deemed to be an Event of Default herein and
Lessor shall be entitled to enforce all rights and remedies as provided for an
Event of Default herein.
23. ATTORNEY'S FEES. In the event that Lessee defaults in the performance
of any of the terms, covenants, agreements or conditions contained in this
Lease, and Lessor places the enforcement of this Lease, or any part thereof, or
the collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Lessee shall pay all of
Lessor's attorney's fees, costs and expenses. In the event of litigation
between Lessee and Lessor regarding this Lease, the prevailing party shall be
entitled to recover from the non-prevailing party the reasonable attorneys fees,
costs and expenses reasonably incurred by the prevailing party.
24. WAIVER. No act or thing done by Lessor or its agents during the Term
shall be deemed an acceptance of a surrender of the Premises, and no agreement
to accept a surrender of the Premises shall be valid unless made in writing and
signed by Lessor. Lessor shall not be deemed to have waived any provision of
this Lease unless Lessor has expressly agreed in writing. Without limitation of
the foregoing, the receipt by Lessor of Rent with knowledge of the breach of any
covenant contained in this Lease shall not be deemed a waiver of such breach;
the failure of Lessor to enforce any provision of this Lease or any of the rules
and regulations attached hereto, or hereafter adopted, against Lessee and/or any
other tenant in the Building shall not be deemed a waiver and the failure of
Lessor to declare any default immediately upon occurrence thereof, or delay in
taking any action in correction therewith, shall not waive such default, but
Lessor shall have the right to declare any such default at any time and take
action as might be lawful or authorized hereunder, either in law or in equity.
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25. NUISANCE. Lessee shall conduct its business, and control its agents,
employees, contractors and invitees, in such a manner as not to create any
nuisance or interfere with, annoy, or disturb other tenants or Lessor in the
Project.
26. CONDEMNATION. If the Premises or the Building shall be taken or
condemned, in whole or part, for any public purpose, the Lease Term shall, upon
such taking, at the option of Lessor, forthwith cease and terminate. If 20
percent or more of the Premises shall be permanently taken or condemned for any
public purpose, Lessee shall have the option, as its sole and exclusive remedy
with respect to such condemnation, to terminate this Lease upon 30 days written
notice by providing written notice thereof to Lessor no later than 10 days after
the effective date of the taking. Lessor shall receive such award from any such
taking and Lessee shall have no claims thereto.
27. FORCE MAJEURE. Whenever a period of time is herein prescribed for
action (other than the payment of money) to be taken by Lessor or Lessee, such
party shall not be liable or responsible for, and there shall be excluded from
the computation for any such period of time, any delays due to strikes, riots,
acts of God, shortages of labor or materials, war, governmental laws,
regulations or restrictions or any other cause of any kind whatsoever which is
beyond the control of such party ("Force Majeure").
28. LIEN FOR RENT. Lessee hereby grants a security interest to Lessor in
all of the goods, wares, furniture, fixtures, office equipment, supplies and
other property of Lessee now or hereinafter placed in or upon the Premises and
all proceeds thereof as security for all of Lessee's obligations under this
Lease. Such security interest shall be in addition to and cumulative of the
Lessor's statutory lien. Lessor agrees that upon request in writing, it shall
subordinate this security interest to a bonafide third party security interest
of a third party lender placed upon said goods, wares, furniture, fixtures,
office equipment, supplies and other property of Lessee now or hereafter placed
in or upon the Premises. Upon request by Lessor, Lessee shall execute and
deliver to Lessor a financing statement in form sufficient to perfect the above
described security interest of Lessor and if Lessee fails to do so, Lessor is
hereby irrevocably appointed as Lessee's attorney-in-fact with full power and
authority to execute one or more financing statements on Lessee's behalf and
take such additional action on Lessee's behalf as may be necessary to perfect
such security interest in the event that Lessee fails to take such action upon
request. Such power of attorney is coupled with an interest. Lessor has all of
the rights and remedies of a secured party under the Texas Uniform Commercial
Code. Lessee acknowledges that 10 days written notice to Lessee is commercially
reasonable notice of any public or private sale made by Lessor pursuant to this
Section 28. Lessee shall not remove or caused to be removed from the Premises
any of the property covered by this Section unless and until Lessee has
satisfied all of its obligations under this Lease or Lessee has consented to
such removal in writing.
29. SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid, or unenforceable under present or future laws effective during the
Lease Term, then and in that event, it is the intention of the parties hereto
that the remainder of this Lease shall not be affected thereby, and it is also
the intention of the parties to this Lease that in lieu of each clause or
21
<PAGE>
provision that is illegal, invalid or unenforceable, there be added as a part of
this Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable. The caption of each paragraph or section hereof is added as a
matter of convenience only and shall be considered to be of no effect in the
construction of any provision or provisions of this Lease.
30. PARKING. The Allocated Number of parking spaces shall, unless
otherwise specifically agreed by Lessor, be leased by Lessee on an unassigned
basis and shall be used in common with the other tenants, in such locations as
may be designated by Lessor from time to time, all subject to Lessor's rules and
regulations from time to time adopted. Lessee agrees that (a) the use by
Lessee, or by Lessee's agents, employees, contractors or invitees of the Parking
Facilities does not create a bailment; (b) the use of the Parking Facilities is
at the user's own risk; (c) Lessor shall not be responsible in any manner for
any damage or loss to the vehicles or other personal property of Lessee or of
Lessee's agents, employees, contractors or invitees; and (d) Lessor shall have
the right to tow any vehicle wrongfully parked in the Parking Facilities.
Lessee shall indemnify and hold harmless Lessor from all claims, causes, costs,
losses, damages or reasonable attorneys fees incurred by Lessor as a result of
any claim by Lessee, its agents, employees, contractors or visitors that its or
their cars have been wrongfully towed by Lessor.
31. SECURITY DEPOSIT. Upon the occurrence of any Event of Default by
Lessee, Lessor shall have the right, but not the obligation, without prejudice
to any other remedy, to use the Security Deposit paid to Lessor by Lessee as
herein provided to the extent necessary to make good any arrears of Rent and any
other damage, injury, expense or liability caused to Lessor by such Event of
Default. In the event that Lessor so uses all or any portion of the Security
Deposit, Lessee shall immediately pay to Lessor the amount necessary to return
the Security Deposit to its original amount. Such Security Deposit shall not be
considered an advance payment of Rent or a measure of Lessor's damages in case
of default by Lessee. Such Security Deposit shall be refunded to Lessee without
interest within 60 days after the later of (a) the expiration or termination of
the Term and (b) the date all obligations of Lessee under the Lease have been
fulfilled including, without limitation the payment of Basic Costs Excess for
the final year of the Lease. Lessor shall have the absolute right to commingle
the Security Deposit with any other funds held by Lessor as Lessor deems fit,
without any liability to Lessee whatsoever. Lessor shall have the right to
assign the Security Deposit in connection with any transfer of Lessor's interest
in the Building, the Premises or this Lease and upon so doing, Lessor shall be
relieved and released of all obligations to Lessee for such Security Deposit and
Lessee agrees to look solely to Lessor's successor-in-interest for the return of
any of the Security Deposit.
32. QUIET POSSESSION. Lessor hereby covenants that Lessee, upon paying
Rent as herein required, and performing all covenants and agreements herein
contained on the part of Lessee, shall and may peacefully and quietly have, hold
and enjoy during the Lease Term the Premises, subject to matters of record on
the date of this Lease.
33. RULES OF BUILDING. Lessee and Lessee's agents, employees, contractors
and invitees, will comply fully with all requirements or rules of the Project
which are attached as Exhibit "D" and made a part hereof as though fully set out
herein. Lessor shall at all times have the right to
22
<PAGE>
change such rules and regulations or to amend them in such manner as Lessor
shall in good faith deem advisable for safety, care and cleanliness of the
Project and its tenanted areas and for preservation of good order therein,
all of which rules and regulations, changes, and amendments shall be
applicable to all tenants of the Building and will be forwarded to Lessee in
writing and shall be carried out and observed by Lessee. In the event of any
conflict between the body of this Lease and any such rules and regulations,
the body of this Lease shall control. Lessor has the right, exercisable
without notice and without liability to Lessee, to change the name and street
address of the Building at any time during the Term and Lessee hereby waives
any and all claims against Lessor with respect to same.
34. ENTIRE AGREEMENT. As a material consideration for the execution of
this Lease, Lessee agrees and warrants and represents that there are and were no
(and Lessee has not relied on any) verbal representations, understandings,
stipulations, agreements or promises pertaining thereto not incorporated in
writing herein; and it is likewise agreed that this Lease shall not be altered,
waived, amended or extended except as otherwise provided herein, unless set
forth in writing and signed by the parties to this Lease or their authorized
agents. Lessee acknowledges and agrees that Lessor's obligations and warranties
are limited to those expressly stated in this Lease and shall not include any
implied duties or implied warranties, now or in the future. No representations
or warranties have been made by Lessor to Lessee other than those specifically
contained in this Lease.
35. ADDENDA; RECORDING. Any addenda to this Lease must be in written form
and, when signed by the contracting parties, shall be deemed a part of this
Lease to the same full extent as if incorporated herein. Lessee shall not
record this Lease nor any memorandum hereof without the prior written consent of
Lessor and any violation of the foregoing by Lessee shall be deemed to be an
Event of Default hereunder for all purposes.
36. EXECUTION. The submission of this Lease by Lessor, its agent or
representative, for examination or execution by Lessee does not constitute an
option or offer to lease the Premises upon the terms and conditions contained
herein or a reservation of the Premises in favor of Lessee, it being intended
hereby that this Lease shall only become effective upon the execution hereof by
both Lessor and Lessee and delivery of a fully executed counterpart hereof to
Lessee.
37. RELOCATION OF LESSEE. Lessor shall have the sole right to relocate
Lessee to any comparable space in the Building upon giving Lessee 90 days prior
written notice, and upon the relocation of Lessee, the new space shall be deemed
to be the Premises hereunder for all purposes. Lessor shall pay Lessee's
expenses associated with Lessee's relocation including the cost of any tenant
improvements necessary to make the new space comparable to the Leased Premies.
38. FINANCIAL STATEMENTS. Lessee warrants and represents that (a) all
financial statements, operating statements or other financial data at any time
given to Lessor by or on behalf of Lessee, any Guarantor, any subsidiary of
Lessee, any affiliate of Lessee and any proposed subtenant or assignee of
Lessee, are, or will be, as of their respective dates, true and correct in all
material respects and do not (or will not) omit any material liability, direct
or contingent; and (b) there have been no material changes between the
respective dates thereof and the date of this Lease in
23
<PAGE>
any such financial statements, operating statements or other financial data
given to Lessor prior to the date hereof by or on behalf of Lessee or any
Guarantor. A breach of any of the foregoing warranties and representations
shall, at the election of Lessor, be deemed an Event of Default hereunder.
39. BINDING EFFECT. The provisions of this Lease shall be binding upon
and inure to the benefit of Lessor and Lessee, respectively, and to their
respective heirs, legal representatives, successors and assigns, subject to the
provisions of Section 6 hereof. Lessor and Lessee each represent and warrant to
the other that the person and/or entity executing this Lease on behalf of such
warranting party has the authority to execute this Lease on behalf of such party
and bind such party hereto.
40. NOTICES. Any notice required or permitted to be given hereunder by
one party to the other shall be deemed to be given when personally delivered or
mailed, postage prepaid by Certified or Registered mail, addressed to the
respective party to whom notice is intended to be given at the address of such
party indicated in Section 1, and such addresses may be changed from time to
time by written notice to the other party pursuant to this Section.
41. BROKERS. Lessee represents and warrants to Lessor that neither it nor
its officers or agents nor anyone on its behalf has dealt with any real estate
broker in the negotiation or making of this Lease, and Lessee agrees to
indemnify and hold Lessor harmless from the claim or claims of any broker or
brokers claiming to have shown or interested Lessee in the Building or Premises
or claiming to have caused Lessee to enter into this Lease.
42. LIMITATION OF LESSOR'S LIABILITY. Notwithstanding anything herein to
the contrary, (a) in no event shall Lessor be liable for consequential or
special damages and (b) the warranties, representations, covenants and
agreements herein made and entered into by Lessor are made and entered into by
it solely for the purpose of binding its interest in the Project, and it is
expressly agreed by Lessee on behalf of Lessee and all persons claiming by,
through or under Lessee, that no personal liability is assumed by or shall at
any time arise or be asserted against Lessor, its agents, officers, employees,
partners or shareholders or against their respective successors, legal
representatives or assigns on account of this Lease or on account of any of the
warranties, representations, covenants and agreements contained herein, either
express or implied, all such liability, if any, being hereby expressly waived
and released by Lessee on behalf of Lessee and all persons claiming by, through
or under Lessee to the extent permitted by law, and that recourse hereunder, if
any, by Lessee or by Lessee's successor or assigns, shall be limited exclusively
to Lessor's said interest in the Project.
43. ESTOPPEL CERTIFICATE. The Lessee shall from time to time upon not
less than 10 days prior request by Lessor or mortgagee of Lessor, deliver to
Lessor a statement in writing certifying (a) that this Lease is unmodified and
in full force and effect (or if there have been modifications that the Lease as
modified is in full force and effect); (b) the dates to which Rent has been
paid; (c) that the Lessor is not in default under any provision of this Lease,
or, if in default, the nature thereof in detail; and (d) such other matters as
Lessor may reasonably request. The Lessee hereby irrevocably appoints the
Lessor as attorney-in-fact for the Lessee with full power and authority
24
<PAGE>
to execute and deliver in the name of the Lessee any such certificate in the
event the Lessee fails to do so on request. Such power of attorney is
coupled with an interest.
44. REVIEW AND CONSTRUCTION. Prior to its execution of this Lease, Lessee
has had this Lease reviewed by an attorney on behalf of Lessee, or has had the
opportunity to do so, and the parties hereto agree that based on the foregoing,
this Lease shall not be construed in favor of one party over the other based on
the drafting of this Lease.
45. JOINT AND SEVERAL LIABILITY. In the event that this Lease is executed
on behalf of Lessee by more than one person, each such person shall be jointly
and severally liable for the obligations of Lessee hereunder.
46. TIME OF THE ESSENCE. Time is of the essence in the performance of
this Lease and all performance deadlines, time schedules and conditions
precedent to exercising a right shall be strictly adhered to without delay
except where otherwise expressly provided.
47. SURVIVAL. Notwithstanding anything herein to the contrary, the
obligations of the parties set forth in Sections 9, 10, 20 and 42 shall survive
the termination or expiration of this Lease.
48. ADA COMPLIANCE. Lessee shall, at Lessee's sole cost comply with all
requirements of the Americans with Disabilities Act [Public Law 101-336 (July
26, 1990) as that act may be amended from time to time ("ADA") which are
applicable to the Premises, including, without limitation, to provide any
accommodations or alterations which are required to be made to the Premises to
accommodate disabled employees and customers of Lessee.
49. RIGHT OF FIRST REFUSAL. If at any time during the Primary Term of
this Lease the 2,889 square feet of space contiguous to the Premises on the
third floor of the Building as shown on Exhibit "A" becomes available and Lessor
desires to lease that space to a third party ("Refusal Space"), Lessor shall
notify Lessee of its intention to lease the Refusal Space and the economic terms
(such as rent, leasehold improvements and allowance, etc.) upon which Lessor is
willing to lease the Refusal Space to a proposed tenant. The Lessee may, within
seven days after it receives that notification from the Lessor, elect to lease
the Refusal Space upon the same term and economic terms as set forth in Lessor's
notification. If the Lessee does not accept this offer within the seven days
provided above, the right of first refusal shall cease to exist, and the Lessor
shall have the right to lease the Refusal Space to the proposed tenant.
IN WITNESS WHEREOF this Lease is entered into by the parties as of the date
first set forth above.
LESSEE: LESSOR:
DESIGN AUTOMATION SYSTEMS, INC. MXM MORTGAGE L.P.
d/b/a MPC MORTGAGE L.P.
25
<PAGE>
By: By: MXM GENERAL PARTNER, INC.,
------------------------------ sole general partner
Name:
---------------------------
As Its:
-------------------------
By:
----------------------
Name:
--------------------
As Its:
-------------------
A-ii
<PAGE>
FIRST AMENDMENT OF LEASE
THIS AGREEMENT made as of this 16th day of June 1998, by and
between Transwestern Westchase III, L.P. ("Landlord"), successor in interest to
MXM. Mortgage L.P. dba MPC Mortgage L.P. ("Previous Landlord") with an address
at 3200 Wilcrest, Suite #485, Houston, Texas 77042 (hereinafter referred to as
"Landlord") and Design Automation Systems, Inc., with an address at 3200
Wilcrest, Suite #350 Houston, Texas 77042, (hereinafter referred to as
"Tenant").
W I T N E S S E T H:
WHEREAS, Previous Landlord and Tenant entered into a Lease Agreement
(hereinafter called the "Lease") dated December 1, 1995 covering approximately
4,270 square feet of net rentable area on the third floor of that certain
building known as Westchase III (hereinafter called the "Building") located at
3200 Wilcrest, Houston, Texas 77042; and
WHEREAS, it is the desire of the of the parties hereto to amend said Lease
in certain aspects.
NOW THEREFORE, in consideration of the premises and the mutual benefits to
be derived therefrom, it is hereby agreed by and between the parties that said
Lease shall be amended as follows:
1. Effective on the Commencement Date, as hereinafter defined, approximately
2,179 square feet of net rentable area ("Expansion Space A") located on the
fourth (4th) floor of the building known as Westchase III, being shown
crosshatched on Exhibit "A" attached hereto and made a part hereof and
approximately 1,154 square feet of net rentable area ("Expansion Space B")
located on the fourth (4th) floor of the building known as Westchase III, being
shown crosshatched on Exhibit "B" attached hereto and made a part hereof, shall
be included in the Lease upon the same terms and conditions as contained in the
Lease, except as hereinafter specifically set forth, bringing the total square
footage of net rentable area to 7,603 square feet. Expansion spaces shall be
known as Suite 400 and Suite 485.
2. The projected commencement Date for the Expansion Space "A" and the
Expansion Space "B" is July 1, 1998; however, the Commencement Date for the
Expansion Space "A" and Expansion Space "B" shall not occur until after the
Expansion Space "A" and Expansion Space "B" shall be deemed ready for
occupancy. In the event the improvements to the Expansion Space "A" and
Expansion Space "B" should not be completed or said Expansion Space "A" and
Expansion Space "B" should not be ready for occupancy by said Commencement
Date for any reason, Landlord shall not be liable or responsible for any
claims, damages or liabilities in connection therewith or by reason thereof.
The Expansion Space shall be deemed ready for occupancy by Tenant on the date
that Landlord's leasehold improvements will be completed so as to enable
Tenant to begin business within the Expansion Spaces and the Commencement
Date shall occur seven (7) days after such notice from Landlord to Tenant,
unless the Expansion Space is occupied earlier by Tenant, and, in such event,
Commencement Date will be the date of such earlier occupancy. It is
expressly agreed and understood that in the event of Lessee Delay, the
Commencement Date and Lessee's obligations under the Lease, including without
limitation the obligation to pay Rent, shall be adjusted so that the
Commencement Date shall be the date that the Commencement Date would have
occurred but for such Lessee Delay. If the Commencement Date for Expansion
Space "A" and Expansion Space "B" do not occur on the same day, then the
rental rate will be prorated accordingly.
Page 1
<PAGE>
3. Effective on the Commencement Date, Base Rental per month for the
approximate 7,603 square feet of the total leased space, shall be as follows:
MONTHLY AMOUNT
<TABLE>
<S> <C>
Commencement Date - 11/30/98 $8,507.92
12/1/98 to 5/31/99 $8,596.88
6/1/99 to 11/30/99 $8,735.75
12/1/99 to 5/31/00 $8,824.71
6/1/00 to 11/30/00 $8,963.59
</TABLE>
"Tenant's Share of Actual Operating Cost" in each year shall be adjusted a
provided for in paragraph 8 of the Lease.
4. Landlord agrees to provide Tenant with a Tenant Improvement Allowance equal
to $3.50 per square foot of net rentable area for the entire expansion
space, which consists of 3,333 square feet of net rentable area. The Work
Letter from the Lease dated 12/1/95 will govern this expansion.
5. Lessee will be granted an additional eleven (11) unassigned parking spaces
at no cost for the initial term of the lease.
In all other respects, the Lease dated December 1, 1995, shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Lease the day and year first above written.
TENANT:
DESIGN AUTOMATION SYSTEMS, INC.
/s/ Carl R. Rose
- - --------------------------------
By: Carl R. Rose
-----------------------------
Its: President
---------------------------
LANDLORD:
TRANSWESTERN WESTCHASE III, L.P.
By: Transwestern Investment Company, L.L.C., as authorized Agent
/s/ Dirk Degenaars
- - ---------------------------------
By: Dirk Degenaars
Its: Vice President
Page 2
<PAGE>
Exhibit 10.6
Design Automation Houston, Texas
Systems Incorporated Tulsa, Oklahoma
Ann Arbor, Michigan
Oklahoma City, Oklahoma
September 1, 1998
Design Automation Systems, Inc. has submitted their HP Indirect Computer
Reseller Application and Administrative Letter of Understanding to me on
September 3, 1998.
\s\John Stevens
----------------------------
John Stevens
<PAGE>
HP Indirect Computer Reseller Application [LOGO]
Signature Page for HP 9000/3000/NetServer/
Workstation/Software/PC/Peripheral Resellers
- - --------------------------------------------------------------------------------
1. Distributor Information
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Distributor Name: Hall-Mark Computer Products Distributor Account No.:
--------------------------- --------------
Business Address: 2211 South 47th Street Phone: (800) 409-1483 Fax: (602) 414-6262
--------------------------- -------------- ---------------
City: Phoenix State: AZ Zip: 85034
--------------------------------------- ----------------- -----
Distributor Contact Name: Christopher Swahn Title: NW Regional Manager
------------------- -------------------------------
E-mail Address: [email protected] Phone: (303) 799-7812
----------------------------- -------------------------------
Distributor Sales Rep: John M. Stevens Phone: (713) 917-8810
---------------------- -------------------------------
E-mail Address: [email protected]
-------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
2. Reseller Information
- - --------------------------------------------------------------------------------
Reseller Name (name used on business license, permits, and State and Federal
Tax ID numbers: DESIGN AUTOMATION SYSTEMS, INC.
----------------------------------------------------------------
Date business established using this name: 1985
-------------------------------------
DBA (other names under which reseller does business):
---------------------------
Address: 3200 Wilcrest Drive Suite 370 Phone: (713) 784-2374
----------------------------------- ------------------------
City: Houston State: Texas Zip: 77042-3366
------------------ ---------------- ----------
Executive Contact: Charles Leaver Corporate Web Address: www.da.com
-------------- ---------------------
Internet Address: [email protected]
-------------------------------------------------------------
- - --------------------------------------------------------------------------------
3. Statement of Ownership
- - --------------------------------------------------------------------------------
Form of Organization (i.e., Corporation, General Partnership, Limited
Partnership, Sole Proprietor): Corporation
-------------------------------------------------
For a Corporation, specify whether: [ ] Publicly Held [X] Privately Held
[ ] State of Incorporation/Organization
Identify company ownership and management structure as follows (attach
additional pages if necessary):
- - - SOLE PROPRIETOR: Identify all owners, officers, and ownership
percentages held
- - - TRUST Identify Trustee(s), Administrators, and
Beneficiaries of Trust
- - - PARTNERSHIP: Identify all General Partners, Limited
Partners, Officers, and ownership percentages
held (specify dollar investment of limited
partners)
- - - PRIVATELY HELD CORPORATION: Identify all shareholders with class and
percentage ownership, Officers, and Board of
Director Members
- - - PUBLICLY HELD CORPORATION: Identify owners of 20% or more of each class of
shares with class and percentage ownership,
Officers, and Board of Director Members
<TABLE>
<CAPTION>
OWNERSHIP INTEREST TYPE OF OWNERSHIP
Percentage Ownership INTEREST
(Dollar Investment in (Assets, Common or
NAMES TITLES Limited Partners) Preferred Shares
<S> <C> <C> <C>
Carl R. Rose CEO/Founder 100% assets
</TABLE>
Page 1 of 2
<PAGE>
If Company is 100% owned by another corporation, identify the parent
corporation's ownership and management structure on the previous page and
identity of the parent corporation below:
Parent/Owner, including DBA(s):
-------------------------------------------------
Address:
------------------------------------------------------------------------
CITY: State: Zip:
------------------------ ------------------ ---------------------
Phone: ( ) Fax: ( )
---------------------- ---------------------------------------------
State of Parent/Owner's Incorporation:
------------------------------------------
- - --------------------------------------------------------------------------------
4. Authorized Signatures
- - --------------------------------------------------------------------------------
In the event that this application is approved, Distributor and Reseller agree
that their contract, whether its other terms are oral or written, will include
the written terms attached as the U.S. Reseller Agreement and U.S. Solutions
Reseller Certification, and the HP Software License Terms Addendum for
authorization to resell HP 90OOs/30OOs/Workstations/Software; and the U.S.
Volume Reseller Addendum for authorization to resell HP
NetServers/PCs/Peripherals.
RESELLER
By Reseller's signature below, Reseller agrees the statements provided in the
attached application are true and complete. Reseller agrees to the terms of the
certifications and authorizations, of which all terms are included in this
agreement by this reference. If any changes occur, I will notify the Distributor
and HP in writing.
Authorized Signature: Date: September 4, 1998
----------------------- --------------------------
Print Name: Charles Leaver Title: President
-------------------------------- --------------------------
DISTRIBUTOR
To best of Distributor's knowledge, the statements provided in this application
and the accompanying documentation are true and accurate.
Company Name: Hall-Mark Computer Products
----------------------------------------------------------------
Authorized Signature: \s\ John Stevens Date: 9/4/98
-------------------- -----------------------------
Print Name: JOHN STEVENS Title: ACCOUNT MANAGER
----------------------------- ---------------------------
- - --------------------------------------------------------------------------------
HEWLETT-PACKARD COMPANY
- - --------------------------------------------------------------------------------
Susan Weatherman
Reseller Contracts and Negotiation Manager
May 31, 1999
- - ----------------------------------------------- -------------------------------
Effective Date Expiration Date
Page 2 OF 2
<PAGE>
HP INDIRECT COMPUTER RESELLER HEWLETT
APPLICATION SHORT FORM PACKARD
The HP Indirect Computer Reseller Application Short Form applies to indirect and
direct VARs (transitioning to indirect reseller status) who are renewing their
HP reseller authorization and whose business focus remains unchanged. Additional
office locations may also be added using this form.
- - --------------------------------------------------------------------------------
1. Distributor Name
- - --------------------------------------------------------------------------------
Hall-Mark Computer Products
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
2. Reseller Company Profile
- - --------------------------------------------------------------------------------
A. Reseller Company Name: Design Automation Systems, Inc. [x] HQ
-------------------------------- [ ] Branch Location
B. If requesting authorization to resell any NEW HP platforms/products, mark
the appropriate information below and COMPLETE the questions listed which
can be found in the complete HP Indirect Computer Reseller Application for
HP 9000/3000/NetServer/Workstation/Software/PC/Peripheral Resellers.
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
HP HARDWARE HP SOFTWARE
[X] HP-UX Servers (must complete 6A-F. 7A-C, 9A) [ ] HP OpenView
[X] HP-UX Workstations (must complete 6A-B, 9E, 9G, 11A-G)
(must complete 6A-F, 7A-C, 9A) [ ] HP Changengine Admin Edition
[ ] HP 3000 Servers (must complete 6A-F, sA-C, 9A) (must complete 6A, 6D, 12A-L)
[X] HP NetServers/PCs/Peripherals [ ] HP VirtualVault (must complete 13A-M)
(must complete 10A-D)
[ ] Other [ ] HP OpenMail (must complete 6A, 14A-G)
----------------------------------------- [ ] HP Smart Contact (must complete 15A-R)
</TABLE>
C. What is your company's revenue (last 12 months)? $30M Percent HP share: 35%
---- ---
D. What is your company's projected revenue (next 12 months)? $38M Projected HP
share: 35%
---
E. Is your solution [xx] Hardware [xx] Service [xx] Software
Briefly describe your primary value-added product/service (for example,
consulting, software development, hardware integration, network management,
etc.). Attach all brochures and data sheets. Include specific details on your
customer support plan.
Networking, Database, Internet Security, CAD/CAM, Document Imaging, &
- - --------------------------------------------------------------------------------
Backup Solutions
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
F. List any relationships with HP or other companies (manufacturers,
distributors, software suppliers, etc.).
<TABLE>
<CAPTION>
----------------------------------------------------------------------
HP SUN IBM AUTODESK
Manufacturer:
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hardware/ Hardware/ Hardware/ Software
Major Products Sold: Software Software Software
- - -------------------------------------------------------------------------------------------------------
% of Total Sales: 35% 30% 25% 10%
----------------------------------------------------------------------
</TABLE>
Page 1 of 2
<PAGE>
G. Identify the geographic selling area where the value-add
product(s)/service(s) will be promoted and sold.
Selling Area (city and state): Texas, Louisiana, Oklahoma
---------------------------------------------
If international indirect reseller, do you wish to renew your international
status? [ ] Yes [ ] No
If yes, complete appropriate forms: HP-UX SERVERS/WORKSTATIONS/HP
3000s, or HP SOFTWARE - HP Solutions Reseller International Access
Application - Form C and HP Solutions Reseller International Letter of
Agreement - Form D; HP NETSERVERS, PCs, OR PERIPHERALS - Requirements
for Becoming an HP Volume International VAR - Form F and HP Volume
International VAR Business Profile and Application - Form G.
H. List the current number of permanent employees by job function for this
location. If a single employee performs more than one function, estimate the
fraction of time spent on each function (for example, if an employee's time
is split among inside sales, presales hardware support, and postsales
software support, each function should be represented as "1/3").
<TABLE>
<CAPTION>
IDENTIFY HP FOCUSED RESOURCES FROM TOTAL
NUMBER OF EMPLOYEES
- - ------------------------------------------------------------------------------------------------------------------------
JOB FUNCTION NO. OF PERMANENT JOB FUNCTION NO. OF PERMANENT
EMPLOYEES EMPLOYEES
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Administration/Other: 5 HP-Focused-Champions: 2
- - ------------------------------------------------------------------------------------------------------------------------
Hardware Support: 3 Certifications:
- - ------------------------------------------------------------------------------------------------------------------------
Inside Sales: 1 HP Sales* 3
- - ------------------------------------------------------------------------------------------------------------------------
Outside Sales: 4 HP Software* 3
- - ------------------------------------------------------------------------------------------------------------------------
Professional: 3 HP Technical* 2
- - ------------------------------------------------------------------------------------------------------------------------
Software Programmers: 1 Other**
- - ------------------------------------------------------------------------------------------------------------------------
Software Support: 3
- - ------------------------------------------------------------------------------------------------------------------------
Total No. of Employees: 20 Total HP Focused 3
Employees:
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Attach certification documentation (include employee name and certification
level and, where applicable, vertical focus).
** Please explain.
- - --------------------------------------------------------------------------------
1. List two customer references which demonstrate your primary solutions
expertise.
Company Name: Intermedics Phone: (409) 848-4496
------------------------ ----------------------------
Contact Name: Elizabeth Laughlin Title: IS Administration
------------------------ ----------------------------
City: Angleton State: TX ZIP:
-------------------------------- ------------ ---------
Company Name: Citizens Telecommunicatios Phone: (214) 365-3818
------------------------ ----------------------------
Contact Name: George Carter Title: UNIX Administrator
---------------------------- ---------------------------
City: Dallas State: TX ZIP:
------------------------------------ ------------ ---------
Page 2 of 2
<PAGE>
U.S. SOLUTIONS RESELLER CERTIFICATION
1 ADDED VALUE: LIMITS ON ACTIVITY
A. Reseller certifies that each HP Product purchased from Distributor for
resale by Reseller will be incorporated into a system, marketed as
such, and sold only with a substantial added value to the system as
specified in the Reseller's Application.
B. Reseller certifies that it is experienced in the use and operation of
the HP Products and will be primarily responsible for the support of
the Products to end users.
C. The following limitations will apply to approved Reseller sales
activity:
1. Reseller will not advertise, promote, or resell HP Products to
Customers outside any vertical market(s) specified and agreed to
in writing by HP.
2. Reseller will not advertise, promote, or resell HP Products
outside any geographic area(s) recognized and agreed to in
writing by HP.
3. Reseller will not resell HP Products without the added value
described in the Reseller's Application and agreed to in writing
by HP.
4. Reseller will sell HP Products only to end-user customers (other
than Reseller's corporate parent, division, or any subsidiary of
corporate parent) located in Reseller's authorized geographic
selling areas in the U.S. for use in the U.S.
5. Reseller will sell add-on HP Products and upgrades to HP systems
previously purchased if: (1) Reseller initially resold the HP
systems being enhanced or upgraded (the "Initial System") in
accordance with the terms and conditions set forth in this
Certification, including but not limited to any added value or
other requirements set forth in the Reseller's Application, and
Reseller has provided and continues to provide ongoing support an
the Initial System to its end user, or (2) Reseller did not
initially resell the Initial System but the Reseller sells the
upgrade or add-on with the added value specified in the
Reseller's Application.
D. For System Integrators, the following additional terms will apply:
1. System Integrator will, at all times during the period of the specific
project, have access to a computer system sufficient for System
Integrator to fully support the end-user customer.
2. Except as otherwise agreed to in writing by HP and System Integrator,
System Integrator will be responsible for the marketing and support of
the HP Products purchased hereunder. System integrator may subcontract
support services from third parties, including HP.
3. Any HP Products that a System Integrator purchases or licenses
hereunder for use in the project may only be resold or redistributed
to an end-user customer for its end-use as part of a specific project
in which System Integrator assumes responsibility to provide the total
system solution to the end-user customer for a project (Prime
Contractor).
4. System Integrator will assume Prime Contractor responsibilities as
designated by the end-user customer, maintain single point project
responsibility, develop custom software and/or hardware to meet
systems integration requirements, and provide value add to HP
Products.
5. "Value Added" will be defined as the total services invoiced to the
end-user customer that contribute to managing, developing and
implementing a project which utilizes HP Products as the hardware
platform for such project. System Integrator will be considered to
have provided value-added for each project if System Integrator has
been designated a Prime Contractor and project manager by the end-user
customer, and has:
a. Provided or developed custom application software; or
b. Integrated customer software/hardware applications and networks
in a multi-vendor environment; or
c. Provided customer conversion or re-engineering services.
6. System Integrator's value added will, for each project, equal or
exceed the aggregate published list price of the HP Products which are
incorporated for use in such Project.
7. For each project, System Integrator will enter into an agreement which
details the specific terms and conditions, obligations and
responsibilities under which the System Integrator will team with HP
to pursue any project (Project Agreement). The Project Agreement must
specify the value added to be provided by the System Integrator.
8. The System Integrator certifies and agrees that it is experienced in
the use and operation the HP Products to be purchased hereunder for
the purpose of developing specific system integration solutions to
meet the needs of end-user customers and is experienced in supplying
or subcontracting support services from third parties, including HP.
In the event the SI and HP does subcontract support services from HP
then the subcontracting terms advance of negotiations and execution of
the Prime Contractor and the end user customer. Subcontractor and
Prime Contractor will owrk in good faith to include these additional
terms and conditions in the Project Agreement. In the event mutually
acceptable subcontract terms cannot be negotiated by the parties with
a reasonable time, and in any event within thirty (30)
Page 1 of 2
<PAGE>
days after notice of award of the prime contract,the Prime Contractor
will have the right upon ten (10) day's prior notice to the other
party, to terminate its obligation to subcontract goods or services
from such other party for such project.
2. RELATIONSHIPS
A. Distributor and Reseller are independent contractors engaged in
purchasing HP Products for resale to their respective customers.
Neither Distributor nor Reseller is an agent or legal representative
of HP for any purpose, and neither has any authority to act for, bind,
or commit HP.
B. Neither Distributor nor Reseller has any authority to make any
commitment on behalf of HP with respect to quantities, deliveries,
modifications, interfacing capability, suitability of software, or
suitability in specific applications. Reseller has no authority to
modify the warranty offered with HP Products. Reseller will indemnify
Distributor and HP from liability for any modified warranty or other
commitment by Reseller.
C. For the term of this Certification, Reseller will only be authorized
to purchase HP Products from Distributor with which Reseller applies
and is approved by HP.
D. If Reseller's relationship with Distributor is terminated during the
term of this Certification, Reseller may only change its purchasing
relationship to another Distributor once during the remaining term.
E. Any change in the Reseller's vertical market(s), reselling geography,
added value, or other business plans covered in the Reseller's
Application must be approved in writing by HP prior to reselling HP
Products based on those changes.
F. HP, Distributor, or Reseller may terminate this Certification without
cause at any time upon thirty (30) days written notice or with cause
at any time upon fifteen (15) days written notice.
G. This Certification will terminate immediately if Reseller ceases to
have a buying relationship with Distributor, or HP's Agreement with
Distributor terminates.
3. RESELLER OBLIGATIONS
A. The following criteria applies to all Resellers in order to obtain and
maintain HP authorization to sell HP Products.
1. Reseller must comply with all training requirements designated by
HP on each Product line the Reseller carries.
2. Reseller must maintain an active HP support contract for each HP
Product line carried or obtain equivalent technical support from
authorizing Distributor. Direct HP support is available only for
Resellers holding a valid contract. If support is maintained
solely at a headquarters location, the Reseller must obtain
support services through its headquarters location. Support
situations must be duplicated on the contracted installation.
3. Reseller's sale of HP "System Support Options" and other support
services to its end-user customers is subject to the terms and
conditions set forth in the applicable HP support reference
materials.
4. Reseller will provide the following information to Distributor
(or upon request, to HP), at time of order, or prior to shipment
of HP Products to end-user customer:
a. Name and address of end-user customer
b. Ship date of HP Products to end-user customer
c. HP Product numbers and serial numbers
d. Primary and alternate end-user customer Response Center
caller
e. Other information which HP may reasonably require
5. Reseller is responsible for maintaining support services for the
added value portion of the system.
4. LICENSING
A. Unless prior written consent is obtained from HP, Reseller will not
copy or modify any HP materials supplied through Distributor, except
that software materials may be copied for archival purposes, to
replace a defective copy, or for program error verification. Reseller
will not remove, omit, or alter any label or copyright notice on these
materials.
B. Reseller is granted the right to distribute software materials
supplied by HP in accordance with the Software License Terms attached
hereto. Reseller may also use the materials for demonstration purposes
in accordance with those Software License Terms.
1. Where an end-user agreement is supplied with the software, the
user must sign the agreement or indicate acceptance by opening
the media package in order to obtain a license to use the
software. Use of the software will be subject to the terms of the
agreement.
2. Where the software is designated as confidential or trade secret
in its license terms, Reseller will safeguard the software in
accordance with industry standards and applicable law, using the
same degree of care to prevent unauthorized disclosure as it uses
with its own trade secrets and those of other suppliers.
5. DEMONSTRATION UNIT PURCHASE TERMS
A. Each Reseller location may purchase from Distributor up to five (5)
systems for each authorized Product line for demonstration/development
or support purposes only, per one -(1) year period.
B. Reseller agrees not to resell the demonstration HP Products for a one
- (1) year period from the date of purchase.
Page 2 of 2
<PAGE>
HP SOFTWARE LICENSE TERMS ADDENDUM
1. DEFINITIONS
A. Software" means one or more programs capable of operating on a
controller, processor or other hardware Product ("Device"). Software
is either a separate Product, included with another Product ("Bundled
Software"), or fixed in a Device and not removable in normal operation
("Firmware 11).
B. "Use" means storing, loading, installing, executing, or displaying
Software on a Device.
C. "Products" means hardware, Software, documentation, accessories,
supplies, parts and upgrades that are determined by HP to be available
from HP upon receipt of Customer's order. "Custom Products" means
Products modified, designed or manufactured to meet Customer
requirements.
D. "Software License" means the Use authorization(s) for the Software
specified by HP in its quotation, invoice or other documentation. Each
Software License has a corresponding License Fee.
E. "License Fee" means the fee or fees designated by HP for Use of
Software. Different License Fees may apply to particular Software if
more than one Software License is available for that Software.
2. LICENSES
In return for the License Fee, HP grants Customer a non-exclusive license
to Use the Software listed in Customer's order in conformance with the
applicable Software License. Details of the types of Software Licenses
offered are available from HP on request. If no Software License is
specified, then, in return for the applicable fee, HP grants Customer a
license to Use one copy of the Software on one Device at any one time. All
Software Licenses will be perpetual unless terminated, transferred or
otherwise specified.
If Customer is an HP Authorized Reseller, Customer may sublicense the
Software to an end-user for its Use, or (if applicable) sublicense the
Software to an HP authorized reseller for subsequent distribution to an
end-user for its Use. These sublicenses must incorporate the terms of this
license in a written sublicense agreement, which will be made available to
HP upon request.
3. GENERAL LICENSE TERMS
A. Unless otherwise permitted by HP, Customer may only make copies or
adaptations of the Software for archival purposes or when copying or
adaptation is an essential step in the authorized Use of the Software
an a backup Device, provided that copies and adaptations are used in
no other manner and provided further that the Use on the backup Device
is discontinued when the original or replacement Device becomes
operable.
B. Customer must reproduce all copyright notices in or on the original
Software on all permitted copies or adaptations. Customer may not copy
the Software onto any public or distributed network.
C. Bundled Software or Firmware provided to Customer may only be used
when operating the associated Device in configurations as sold or
subsequently upgraded by HP. Customer may transfer Firmware only upon
transfer of the associated Device.
D. Updates, upgrades or other enhancements are available under HP Support
Agreements. HP reserves the right to require additional licenses and
fees for Use of the Software on upgraded Devices.
E. The Software is owned and copyrighted by HP or by third party
suppliers. Customer's license confers no title or ownership and is not
a sale of any rights in the Software, its documentation, or the media
on which they are recorded or printed. Third party suppliers may
protect their rights in the Software in the event of any infringement.
F. Customer will not disassemble or decompile the Software without HP's
prior written consent. Where Customer has other rights under statute,
Customer will provide HP with reasonably detailed information
regarding any intended disassembly or decompilation. Customer will not
decrypt the Software unless necessary for legitimate use of the
Software.
G. Customer's Software License is transferable subject to HP's prior
written authorization and payment to HP of any applicable fees.
Customer will immediately upon transfer deliver all copies of the
Software to the transferee. The transferee must agree in writing to
the terms of Customer's license. All license terms will be binding an
involuntary transferees, notice of which is hereby given. Customer's
license will automatically terminate upon transfer
H. HP may terminate Customer's or any transferee's or sublicensee's
Software License upon notice for failure to comply with any applicable
license terms. Immediately upon termination, the Software and all
copies of the Software will be destroyed or returned to HP. Copies of
the Software that are merged into adaptations, except for individual
pieces of data in Customer's or transferee's or sublicensee's data
base, will be removed and destroyed or returned to HP. With HP's
written consent, one copy of the Software may be retained subsequent
to termination for archival purposes.
Page 1 of 2
<PAGE>
1. In this clause on Licenses to the U.S. Government, the term "Customer"
means HP's direct purchaser, any entity sublicensing the Software, and the
end-user.
1. If Software is licensed for use in the performance of a U.S government
prime contract or subcontract, Customer agrees that Software has been
developed entirely at private expense. Customer agrees that Software,
and any derivatives or modifications, is adequately marked when the
Restricted Rights Legend below is affixed to the Software or to its
storage media and is perceptible directly or with the aid of a machine
or device. Customer agrees to conspicuously put the following legend
on the Software media with Customer's name and address added below the
notice:
RESTRICTED RIGHTS LEGEND
Use, duplication or disclosure is subject to HP standard commercial
license terms or to the following restrictions, whichever is
applicable
1. for non-DOD Departments and Agencies of the U.S. Government, as
set forth in FAR 52.227-19(c)(1-2)(Jun 1987)
2. for the DOD and its Agencies, as set forth in OFARS
252.227-7013 (c) (1) (ii) (Oct 1988), DFARS 252.211-
7015(C)(May 1991), whichever is applicable.
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304 U.S.A
Copyright (c) 199- Hewlett-Packard Company. All Rights
Reserved
2. Customer further agrees that Software is delivered and licensed
as "Commercial computer software" as defined in DFARS
252.227-7013 (Oct 1988), DFARS 252.211 7015(May 1991) or OFARS
252.227-7014 (Jun 1995), or as a "commercial item" as defined in
FAR 2.101(A), or as "Restricted computer software" as defined in
FAR 52.227-19 (Jun 1987) (or any equivalent agency regulation or
contract clause), whichever is applicable. The Customer agrees
that it has only those rights provided for such Software by the
applicable FAR or DFARS clause or the HP standard software
agreement for the Product involved.
J. Neither party may assign any rights or obligations hereunder
without prior written consent of the other party.
K. Customer who exports, re-exports or imports HP licensed
Products, technology or technical data purchased hereunder,
assumes responsibility for complying with applicable laws
and regulations and for obtaining required export and import
authorizations. HP may suspend performance if Customer is in
violation of any applicable laws or regulations.
L. Disputes arising in connection with this Agreement will be
governed by the laws of the country and locality in which HP
accepts the order.
M. These HP Software License Terms supersede any previous
communications, representations or agreements between the
parties, whether oral or written, regarding transactions
hereunder. Customer's additional or different terms and
conditions will not apply. These HP Software License Terms
may not be changed except by an amendment signed by an
authorized representative of each party.
Page 2 of 2
<PAGE>
U.S. RESELLER AGREEMENT
1. APPOINTMENT
A. Hewlett-Packard Company ("HP") appoints Reseller as an authorized,
non-exclusive Reseller for marketing HP Products listed on the
Product Exhibits and sold by and purchased from an HP Authorized
Distributor.
B. Reseller's appointment is subject to the terms and conditions set
forth in this Agreement, Addenda, Product Exhibits and HP Product
Categories (collectively, the "Agreement") for the period from the
effective date through the expiration date of this Agreement.
Reseller accepts appointment on these terms.
2. STATUS CHANGE
A. Reseller's approved company names, including DBA(s) and selling
locations, are listed on the HP Exhibit L and are the only names
and selling locations under which Reseller may represent and sell
HP Products. If Reseller wishes to:
1. Change its name;
2. Add, close or change an approved shipment, delivery, other
HP-authorized location;
3. Undergo a merger, acquisition, consolidation or other
reorganization with the result that any entity controls 25% or
more of Reseller's capital stock or assets after such
transaction; or
4. Undergo a significant change in control or management of Reseller
operations; then Reseller shall notify HP in writing prior to the
intended date of change. In no event may such notice be provided
more than ten (10) days after the change has occurred.
B. HP agrees to promptly notify Reseller of its approval or disapproval
of any proposed change, provided that Reseller has given HP all
information and documents reasonably requested by HP.
C. HP must approve proposed Reseller changes prior to any obligation of
HP to perform under this Agreement with Reseller as changed.
3. RESELLER RESPONSIBILITIES
A. Reseller agrees to:
1. Advertise, promote, demonstrate and sell HP products only within
the geographies defined in this Agreement and, when defined by
the HP Product Categories, on a face-to-face basis.
2. Represent HP Products fairly to all Customers.
3. Forward promptly to Customers all technical sales and promotional
materials, suggested price lists and other information provided
by HP for the purpose of reshipment to Customers
4. Provide Customers with any HP ergonomics information, including,
where applicable, HP WORKING IN COMFORT materials (in paper and
electronic form) and any warning or advisory tags, labels, or
other information relating to the use of HP Products containing
keyboards.
5. Ensure that ongoing pre-sales support and post-sales technical
support of HP Products and Reseller's value added solutions is
provided to all Customers. Reseller agrees to maintain or make
available such qualified personnel as necessary to provide timely
and knowledgeable support services sufficient to ensure a high
level of Customer satisfaction.
6. Ensure that no sale, advertising, promotion, display, or
disclosure of any features, availability or price of any new HP
Product takes place before HP's public announcement of that
Product.
7. Respond promptly to all Customer inquiries or requests related to
HP Products.
8. Report promptly to HP all suspected defects in HP Products.
9. Ensure that its employees complete any required training courses
and certification designated by HP.
10. Confer periodically with HP at HP's request on matters relating
to market conditions, sales forecasting, and Product planning.
11. Use catalogs and telemarketing sales techniques only in
conformity with current HP policies and only as a complement to
face-to-face sales activity.
12. Identify and keep current a primary and secondary support contact
for both marketing communications and post sales technical
support at each approved Selling Location.
13. Provide Customers with a written invoice stating the Customer's
name and address, the date of purchase, and serial numbers, if
any, of HP Products. Reseller will retain such records, or their
equivalent to enable reseller to notify Customers of Product
safety information, corrections for operational problems, and the
like.
B. Reseller may advertise only those HP Products which it is authorized
to sell. Reseller's advertising may in no way mention Reseller as an
authorized reseller for any other HP Product.
4. MULTIPLE AGREEMENT DISCOUNTS
Unless otherwise specified by HP in writing, purchases of HP Products
under any HP Product Exhibit in this Agreement and purchases under any
other HP Product Exhibits in this or any other HP Agreement are exclusive
of each other for the purpose of calculating volume commitment and discount
levels.
Page 1 of 4
<PAGE>
7. PRICES
Upon request from Reseller, at its discretion, HP may grant special
pricing for particular end-user Customer transactions. In good faith, HP
may retract the special pricing any time before acceptance by the end-user
Customer. HP may extend the pricing on an exclusive or non-exclusive basis
and may condition the pricing on a pass-through to the end-user of all or
part of the non-standard offering extended by HP.
9. ORDERS AND DELIVERY
HP may, from time to time, offer Reseller certain HP Products on special
promotional terms. Such purchases may not, in some cases, be eligible for
promotional allowance funds, price protection or stock adjustments. With
these exceptions, Reseller's purchases in response to these special
promotional offers are subject to the terms set forth in Reseller's
Agreement.
10. SOFTWARE
Reseller is granted the right to distribute software materials supplied by
HP only in accordance with the license terms supplied with these materials.
Reseller may alternatively acquire the software materials from HP for its
own demonstration purposes in accordance with the terms for use in those
license terms.
11. TRADEMARKS
A. From time to time, HP may authorize Reseller to display one or more
designated HP trademarks, logo types, trade names, and insignia ("HP
Marks"). Reseller may display the HP Marks solely to promote HP
Products. Any display of the HP Marks must be in good taste, in a
manner that preserves their value as HP Marks, and in accordance with
standards provided by HP for their display. Reseller will not use any
name or symbol in a way which may imply that Reseller is an agency or
branch of HP; Reseller will discontinue any such use of a name or mark
as requested by HP. Any rights or purported rights in any HP
trademarks acquired through Reseller's use belong solely to HP.
B. Reseller grants HP the non-exclusive, royalty-free right to display
Reseller's trademarks in advertising and promotional material solely
for directing prospective purchasers of HP Products to Reseller's
Selling Locations. Any display of the trademarks must be in good
taste, in a manner that preserves their value as Reseller's
trademarks, and in accordance with standards provided by Reseller for
their display. Any rights or purported rights in any Reseller
trademarks acquired through HP's use belong solely to Reseller.
13. LIMITATION OF LIABILITY AND REMEDIES
A. The remedies provided in this Agreement are Reseller's sole and
exclusive remedies against HP. IN NO EVENT WILL HP BE LIABLE FOR LOSS
OF DATA, FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS) OR FOR ANY OTHER DAMAGES WHETHER BASED ON
CONTRACT, TORT, OR ANY OTHER LEGAL THEORY.
B. Notwithstanding the foregoing, HP will be liable for damage to
tangible property, bodily injury or death to the extent a court of
competent jurisdiction determines that an HP Product sold under this
Agreement is defective and has directly caused such property damage,
bodily injury or death, provided that HP's liability for damage to
tangible property will be limited to $1,000,000 per incident or the
purchase price of the specific HP Products that caused such damage.
14. INTELLECTUAL PROPERTY PROTECTION
A. HP will defend or settle any claim against Reseller that any HP
Product furnished under this Agreement infringes a patent, utility
model, industrial design, copyright, trade secret, mask work or
trademark in the country where Reseller acquires or sells the Product
from HP, provided that Reseller:
1. Promptly notifies HP in writing of the claim;
2. Cooperates with HP in and grants HP sole authority to control the
defense and any related settlement, and
3. Sold said Products or Support in complete compliance with this
Agreement.
HP will pay the cost of such defense or settlement and any costs and
damages finally awarded by a court against Reseller.
B. HP's indemnity shall extend to Reseller's authorized Customers under
this Agreement provided they comply with the obligations above.
C. HP may procure for Reseller, its Customers and end-users the right to
continued sale or use, as appropriate, of the Product or HP may modify
or replace the Product. If a court enjoins the sale or use of the
Product and HP determines that none of the above alternatives is
reasonably available, or in the case of a settlement agreement which
binds HP, HP will have the option to replace the Product with a
non-infringing Product, modify the Product so it becomes
non-infringing at HP's expense, or repurchase the HP Product from
Distributor or Authorized Reseller at Net Distributor price less
depreciation.
D. HP has no obligation for any claim of infringement arising from:
1. HP's compliance with any designs, specifications or instructions
of Reseller;
2. Modification of the Product by Reseller or a third party;
3. Use of the Product in a way not specified by HP; or
4. Use of the Product with products not supplied by HP.
E. This Section states HP's entire liability for intellectual property
infringement by HP Products furnished under this Agreement.
15. RECORD-KEEPING AND AUDIT
A. At HP's discretion and upon reasonable notice to Reseller, HP or HP's
designate will be given prompt access during normal business hours,
either on site, or through other means specified by HP, to Reseller's
Customer records, inventory records, other books and records of
account specifically related to Products as which HP believes are
reasonably necessary to verify and audit Reseller's compliance with
the terms of this Agreement.
Page 2 of 4
<PAGE>
<PAGE>
Exhibit 10.7
[LOGO] DAR AUTHORIZATION REPORT
<TABLE>
<S> <C> <C> <C>
FAX TO:
FSS/PSS Name: Dianne Ceynowa SRName: Larry Wardlaw
FSS/PSSFAX: (T/612-603-3002) SRFax: (214) 830-8969
DESIGN AUTOMATION SYSTEMS
3200 Wilcrest Dr. #370
Houston TX 77042-3366 DistName: Client Systems, Inc.
Phone: (713) 784-2374 DAR ID: DAR06530 Type: DAR - Solution Implementor
FAX: (713) 784-2486 EffDate: 1/9/96 ExpDate: 1/9/99
Contact Name: Gary Reece
Status: Active
</TABLE>
<TABLE>
<CAPTION>
GRegionName Prod_fam_nm Special Code Stop Date
- - ------------------------ ----------------------------- ----------------------- ---------------
<S> <C> <C> <C>
ARKANSAS HP 3000 Systems/Servers DEM-3525
LOUISIANA HP 9000 Workstations
OKLAHOMA HP 9000 Servers
TEXAS HP Netstations (X-Stations)
</TABLE>
Memo: Value-add: approved for Gates Arrow for for S700, S800, and x-stations
for systems integration, document management, and Autodesk Reseller to
Oil and Gas Industry in AR, LA, OK, and TX, Education Industry Reseller
Approved as Solutions Implementor for Client Systems for S3000 ONLY in
AR, LA, OK, and TX. Education Industry Reseller.
<PAGE>
EXHIBIT E67S
HP DISTRIBUTOR AUTHORIZED RESELLER DAR) APPLICATION SHORT FORM
The HP DAR Application Short Form applies to certain DARs (Software Developers,
OEMs, Solution Implementors with a single selling area, and System Integrators)
and direct VARs (transitioning to DAR status) who are renewing their HP
reseller authorization and whose business focus and HP product authorization are
unchanged. An HP Distributor Authorized Reseller Application (Exhibit E67) must
be completed for all other DAR authorizations.
1. RESELLER COMPANY PROFILE
A. Reseller Company Name: DESIGN AUTOMATION SYSTEMS, INC.
-------------------------------
/X/ HQ / / Branch Location
Address: 3200 WILCREST DRIVE, SUITE 370 City: HOUSTON
------------------------------ State: TX Zip: 77042
-- -----
Phone: (713) 784-2374 Fax: (713) 784-2486
-------------- --------------
Internet Address: [email protected]
------------
Company Contact: CARL R. ROSE Title: PRESIDENT Phone: (713) 784-2374
------------ --------- --------------
B. What is your company's revenue (last 12 months)? $20 million
----------------
Percent HP share: 45%
-----
C. What is your company's projected revenue (next 12 months)? S30 million
-----------
Projected HP share: 45%
-----
D. Is your solution /X/ Hardware? /X/ Software? /X/ Service?
Briefly describe your primary value-added product/service (for
example, accounting, CASE, network management, banking, etc.).
Attach all brochures and data sheets.
Systems Integrator, Document Management, Database Consulting, Web
----------------------------------------------------------------------
Security and Implementation, Autodesk Reseller
----------------------------------------------------------------------
----------------------------------------------------------------------
E. List any NEW relationships with HP or other companies (manufacturers,
distributors, software suppliers, etc.)
Manufacturer:
------ ------ ------ ------ ------ ------
Major Product(s) Sold:
------ ------ ------ ------ ------ ------
% of Total Sales:
------ ------ ------ ------ ------ ------
2. RESELLER INFRASTRUCTURE BY COMPANY SITE/LOCATION
A. Identify the geographic selling area where the value-add
product(s)/service(s) will be promoted and sold (if necessary,
complete Additional Reseller Site/Locations [Appendix B]). If
International DAR, do you wish to renew your international status?
/ / Yes / / No
If yes complete a new HP DAR International Access Application
(Form D).
Reseller Company Name: DESIGN AUTOMATION SYSTEMS, INC.
------------------------------
/X/ HO / / Branch Location
Address: 3200 WILCREST DRIVE, SUITE 370 City: HOUSTON State: TX
------------------------------ ------- --
Selling Area (city & state): TEXAS, LOUISIANA ---------------------
B. List the current number of permanent employees by job function for the
above location. If a single employee performs more than one function,
estimate the fraction of time spent on each function (for example, if an
employee's time is split among inside sales, presales hardware support, and
postsales software support, each function should be represented as "1/3").
<TABLE>
<CAPTION>
IDENTIFY HP-FOCUSED RESOURCES FROM TOTAL NUMBER OF EMPLOYEES.
-------------------------------------------------------------
# OF PERMANENT # OF PERMANENT
JOB FUNCTION EMPLOYEES JOB FUNCTION EMPLOYEES
- - ------------ -------------- ------------ --------------
<S> <C> <C> <C>
Outside Sales: 9 HP-Focused Champions: 2
Inside Sales: 4 HP Sales Certified*: 3
Hardware Support: 4 HP Presales Technical Certification*: 2
Software Support: 4 HP Postsales Technical Certification*: 2
Professional Consultants*: 6 HP OpenView Certification*: 4
---
Software Programmers: 2 Total HP-Focused Employees: 13
---
Administrator/Other: 6 ---
---
Total Number of Employees: 35
---
---
</TABLE>
* Attach certification documentation (include employee name and certification
level and, where applicable, vertical focus).
3. AUTHORIZED SIGNATURE
In the event that this application is approved, Distributor and reseller
agree that their contract, whether its other terms are oral or written,
will include the written terms attached as the HP Distributor Authorized
Reseller Certification (Exhibit E68), which includes the HP Software
License Terms (Exhibit E36).
- - --------------------------------------------------------------------------------
RESELLER
I certify that the information contained herein is true and correct. If any
changes occur, I will notify the Distributor in writing.
Authorized Signature: /s/ KELLY A. KNAKE Date: 11/21/97
-------------------------------------- --------
Print Name: Kelly A. Knake Title: ACCOUNT EXECUTIVE
-------------------------- ---------------------------
- - --------------------------------------------------------------------------------
DISTRIBUTOR
To the best of Distributor's knowledge, the statements provided in this
application and the accompanying documentation are true and accurate.
Company Name: CLIENT SYSTEMS, LLC
--------------------------------------
Authorized Signature: /S/ BUD MICHAEL Date: 11/24/97
-------------------------------------- --------
Print Name: BUD MICHAEL Title: VP SALES AND MARKETING
-------------------------- ---------------------------
Page 1 OF 1
<PAGE>
HP DISTRIBUTOR AUTHORIZED RESELLER AR) CERTIFICATION EXHIBIT E68
Distributor Name: CLIENT SYSTEMS, LLC
----------------------------------
Reseller Name: DESIGN AUTOMATION SYSTEMS, INC.
-------------------------------------
This certification is intended by the Distributor and Reseller named above as an
addition and amendment to any other terms and conditions of sale to which they
may mutually agree with regard to Distributor sale and Reseller purchase of
products supplied by Hewlett-Packard Company (HP). If HP approved Distributor's
sale of these products to Reseller, HP will be regarded as a third-party
beneficiary of the agreements and commitments made herein. Subject to such
approval, and for good and valuable consideration, including Distributor's
willingness to sell these products to Reseller, Reseller certifies and agrees as
follows:
1. ADDED VALUE: LIMITS ON ACTIVITY
A. Reseller certifies that each HP product purchased from Distributor for
resale by Reseller will be incorporated into a system, marketed as
such, and sold only with substantial added value to the system as
specified in the Reseller's DAR Application (Exhibit E67).
B. Reseller certifies that it is experienced in the use and operation of
the HP products and will be primarily responsible for the support of
the products to end users.
C. The following limitations will apply to approved Reseller sales
activity:
1. Reseller will not advertise, promote, or resell HP products to
customers outside any vertical market(s) specified in Exhibit E67
and agreed to in writing by HP.
2. Reseller will not advertise, promote, or resell HP products
outside any geographic area(s) recognized and agreed to in
writing by HP.
3. Reseller will not resell HP products without the added value
described in Exhibit E67 and agreed to in writing by HP.
4. Reseller will sell HP products only to end-user customers (other
than Reseller's corporate parent, division, or any subsidiary of
corporate parent) located in Reseller's authorized geographic
selling areas in the U.S. for use in the U.S.
5. Reseller will sell add-on HP products and upgrades to HP systems
previously purchased if: (1) Reseller initially resold the HP
systems being enhanced or upgraded (the "Initial System") in
accordance with the terms and conditions set forth in this
exhibit, including but not limited to any added value or other
requirements set forth in Exhibit E67, and Reseller has provided
and continues to provide ongoing support on the Initial System to
its end user, or (2) Reseller did not initially resell the
Initial System but the Reseller sells the upgrade or add-on with
the added value specified in Exhibit E67.
6. For resellers who are either Corporate Resellers or Small
Disadvantaged Businesses as defined in Exhibit E67, the Reseller
will sell HP products only into named account locations
recognized and agreed to in writing by HP.
2. RELATIONSHIPS
A. Distributor and Reseller are independent contractors engaged in
purchasing HP products for resale to their respective customers.
Neither Distributor nor Reseller is an agent or legal representative
of HP for any purpose, and neither has any authority to act for, bind,
or commit HP.
B. Neither Distributor nor Reseller has any authority to make any
commitment on behalf of HP with respect to quantities, deliveries,
modifications, interfacing capability, suitability of software, or
suitability in specific applications. Reseller has no authority to
modify the warranty offered with HP products. Reseller will indemnify
Distributor and HP from liability for any modified warranty or other
commitment by Reseller.
C. When selling HP products, Reseller will provide customers with a
written invoice stating the customer's name and address, the date of
purchase, and serial numbers, if any, of the HP products. Reseller
will retain such records, or their equivalent, to enable Reseller to
notify customers of product safety information, corrections for
operational problems, and the like.
D. Reseller will not represent itself in any way that implies Reseller is
an agent or branch of HP. Reseller will immediately change or
discontinue any representation or business practice found to be
misleading or deceptive by Distributor or HP.
E. For the term of this Certification, Reseller will only be authorized
to purchase HP products from Distributor with which Reseller applies
and is approved by HP.
F. If Reseller's relationship with Distributor is terminated during the
term of this Certification, Reseller may only change its purchasing
relationship to another Distributor once during the remaining term.
G. This Certification is effective upon notice of approval by HP. This
Certification will expire automatically upon the earliest of the
following dates: the "Anniversary Date" of any agreement between HP
and Reseller using HP's "Business Terms" (Exhibit E99); the expiration
of any other reseller DAR Certification (this applies to DARs with
multiple locations); or 12 months from the date of HP's notice of
approval.
H. HP may, from time to time, give Reseller written notice of amendments
to this Certification. Any such amendment will automatically become a
part of this Certification 30 days from the date of the notice, unless
otherwise specified in the notice.
Page 1 of 3
<PAGE>
HP DISTRIBUTOR AUTHORIZED RESELLER AR) CERTIFICATION EXHIBIT E68
2. RELATIONSHIPS (CONTINUED)
I. Any change in the Reseller's vertical market(s), reselling geography,
added value, or other business plans covered in Exhibit E67 must be
approved in writing by HP prior to reselling HP products based on
those changes.
J. HP, Distributor, or Reseller may terminate this Certification without
cause at any time upon 30 days written notice or with cause at any
time upon 15 days written notice.
K. This Certification will terminate immediately if Reseller ceases to
have a buying relationship with Distributor, or HP's agreement with
Distributor terminates.
L. Upon expiration without renewal or termination of this Certification
for any reason, Reseller will immediately cease to be an HP Reseller
and will refrain from representing itself as such and from using any
HP trademark or trade name.
M. Upon expiration without renewal or termination of this Certification,
all rights to any accrued HP Impact Program funds will automatically
lapse.
3. RESELLER OBLIGATIONS
A. At HP's discretion, and upon reasonable notice to Reseller, HP or HP's
designate will be given on-site access to Reseller's customer lists,
mailing lists, customer satisfaction files, inventory records,
invoices, and other books and records of account as necessary to
enable HP to verify and audit Reseller's compliance with the terms of
this Certification. Failure to comply with HP's request will be
considered a repudiation of this Certification justifying HP's
termination of this Certification.
B. HP may debit Reseller's HP IMpact account for reimbursement of all
reasonable actual costs associated with compliance verification
procedures.
C. HP may debit Reseller's HP IMpact account for all wrongfully claimed
discounts, promotional allowances, or other amounts determined as a
result of HP's audit of the Reseller.
D. HP products are not specifically designed, manufactured, or intended
for sale as parts, components, or assemblies for the planning,
construction, operation, or use in any nuclear facility. Reseller
agrees that HP is not liable in whole or in part for any claim or
damages arising from such use. If Reseller or any direct or indirect
end user uses HP products for these applications, Reseller agrees to
indemnify and hold HP harmless from any claim for loss, cost, damage,
expense, or liability arising out of or in connection with the use and
performance of HP products or services in such nuclear applications.
E. The following criteria applies to all Resellers in order to obtain and
maintain HP authorization to sell HP products.
1. Reseller must comply with all training requirements designated by
HP on each product line the Reseller carries.
2. Reseller must maintain an active HP support contract for each HP
product line carried or obtain equivalent technical support from
authorizing Distributor. Direct HP support is available only for
Resellers holding a valid contract. If support is maintained
solely at a headquarters location, the Reseller must obtain
support services through its headquarters location. Support
situations must be duplicated on the contracted installation.
3. Reseller's sale of HP "System Support Options" and other support
services to its end-user customers is subject to the terms and
conditions set forth in the applicable HP support reference
materials.
4. Reseller will provide the following information to Distributor
(or upon request, to HP), at time of order, or prior to shipment
of HP products to end-user customer:
a. Name and address of end-user customer
b. Ship date of HP products to end-user customer
c. HP product numbers and serial numbers
d. Primary and alternate end-user customer Response Center
caller
e. Other information which HP may reasonably require
5. Reseller is responsible for maintaining support services for the
added-value portion of the system.
4. LICENSING
A. Unless prior written consent is obtained from HP, Reseller will not
copy or modify any HP materials supplied through Distributor, except
that software materials may be copied for archival purposes, to
replace a defective copy, or for program error verification. Reseller
will not remove, omit, or alter any label or copyright notice on these
materials.
B. Reseller is granted the right to distribute software materials
supplied by HP in accordance with the Software License Terms (Exhibit
E36) attached hereto. Reseller may also use the materials for
demonstration purposes in accordance with those Software License
Terms.
1. Where an end-user agreement is supplied with the software, the
user must sign the agreement or indicate acceptance by opening
the media package in order to obtain a license to use the
software. Use of the software will be subject to the terms of the
agreement.
Page 2 of 3
<PAGE>
HP DISTRIBUTOR AUTHORIZED RESELLER AR) CERTIFICATION EXHIBIT E68
4. LICENSING (CONTINUED)
2. Where the software is designated as confidential or trade secret
in its license terms, Reseller will safeguard the software in
accordance with industry standards and applicable law, using the
same degree of care to prevent unauthorized disclosure as it uses
with its own trade secrets and those of other suppliers.
5. TRADEMARKS; LOGOS; TRADE NAMES
A. From time to time, HP may authorize Reseller, in writing, to use one
or more designated HP trademarks, logotypes, trade names, and
insignias ("HP Marks"). Reseller is authorized, upon HP's execution of
this Certification to use the HP Mark known as the HP Channel Partner
insignia. Reseller may use the HP Marks solely in connection with the
sale, advertisement, and promotion of the HP products purchased from
Distributor. Any use of the HP Marks must be in good taste, in a
manner that preserves their value as HP Marks, and in accordance with
all standards and guidelines provided by HP for their use.
B. Reseller will not use any HP Mark or symbol in a way which may imply
that Distributor or Reseller is an agency or branch of HP. Upon HP's
request, Reseller will discontinue the use of any HP Mark or symbol.
Any rights or purported rights in any HP Marks acquired through
Distributor's or Reseller's use belong solely to HP. All rights to use
the HP Marks shall cease upon expiration or termination of this
Certification, at which time Reseller will immediately cease to be an
HP authorized HP Reseller and will refrain from representing itself
as such.
6. DEMONSTRATION UNIT PURCHASE TERMS
A. Each Reseller location may purchase from Distributor up to five
systems for each authorized product line for demonstration/development
or support purposes only, per one-year period.
B. Reseller agrees not to resell the demonstration HP products for a
one-year period from the date of purchase.
7. AUTHORIZED SIGNATURES
The exhibit listed below is attached to and made part of this Certification:
HP Software License Terms Exhibit E36 Revision 961101-2T
- - --------------------------------------------------------------------------------
RESELLER
Authorized Signature: /s/ KELLY A. KNAKE Date: 11/21/97
-------------------------------------- --------
Print Name: Kelly A. Knake Title: ACCOUNT EXECUTIVE
-------------------------- ---------------------------
- - --------------------------------------------------------------------------------
DISTRIBUTOR
Company Name: CLIENT SYSTEMS, LLC
-----------------------------
Authorized Signature: /s/ BUD MICHAEL Date: 11/24/97
-------------------------------------- --------
Print Name: BUD MICHAEL Title: VP SALES AND MARKETING
------------------------------- ----------------------
- - --------------------------------------------------------------------------------
HP hereby approves Reseller as an authorized Reseller of HP products through
Distributor named herein.
HEWLETT-PACKARD COMPANY
Authorized Signature: Date:
--------------------------------------- --------
Print Name: Title:
------------------------------- ----------------------
Page 3 of 3
<PAGE>
HP SOFTWARE LICENSE TERMS EXHIBIT E36
1. DEFINITIONS
A. "Software" means one or more programs capable of operating on a
controller, processor or other hardware Product ("Device"). Software
is either a separate Product. included with another Product ("Bundled
Software"), or fixed in a Device and not removable in normal operation
("Firmware").
B. "Use" means storing, loading, installing, executing, or displaying
Software on a Device.
C. "Products" means hardware, Software, documentation, accessories,
supplies, parts and upgrades that are determined by HP to be available
from HP upon receipt of Customer's order. "Custom Products" means
Products modified, designed or manufactured to meet Customer
requirements.
D. "Software License" means the Use authorization (s) for the Software
specified by HP in its quotation, invoice or other documentation. Each
Software License has a corresponding License Fee.
E. "License Fee" means the fee or fees designated by HP for Use of
Software. Different License Fees may apply to particular Software if
more than one Software License is available for that Software.
2. LICENSES
In RETURN for the License Fee, HP grants Customer a non-exclusive license
to Use the Software listed in Customer's order in conformance with the
applicable Software License. Details of the types of Software Licenses
offered are available from HP on request. If no Software License is
specified, then, in return for the applicable fee, HP grants Customer a
license to Use one copy of the Software on one Device at any one time. All
Software Licenses will be perpetual unless terminated, transferred or
otherwise specified.
If Customer is an HP authorized reseller, Customer may sublicense the
Software to an end user for its Use, or (if applicable) sublicense the
Software to an HP authorized reseller for subsequent distribution to an end
user for its Use. These sublicenses must incorporate the terms of this
license in a written sublicense agreement, which will be made available to
HP upon request.
3. GENERAL LICENSE TERMS
A. UNLESS OTHERWISE PERMITTED BY HP, CUSTOMER MAY ONLY MAKE copies or
adaptations of the Software for archival purposes or when copying or
adaptation is an essential step in the authorized Use of the Software
on a backup Device, provided that copies and adaptations are used in
no other manner and provided further that the Use on the backup Device
is discontinued when the original or replacement Device becomes
operable.
B. Customer must reproduce all copyright notices in or on the original
Software on all permitted copies or adaptations. Customer may not copy
the Software onto any public or distributed network.
C. Bundled Software or Firmware provided to Customer may only be used
when operating the associated Device in configurations as sold or
subsequently upgraded by HP. Customer may transfer Firmware only upon
transfer of the associated Device.
D. Updates, upgrades or other enhancements are available under HP Support
agreements. HP reserves the right to require additional licenses and
fees for Use of the Software on upgraded Devices.
E. The Software is owned and copyrighted by HP or by third-party
suppliers. Customer's license confers no title or ownership and is not
a sale of any rights in the Software, its documentation, or the media
on which they are recorded or printed. Third-party suppliers may
protect their rights in the Software in the event of any infringement.
F. Customer will not disassemble or decompile the Software without HP's
prior written consent. Where Customer has other rights under statute,
Customer will provide HP with reasonably detailed information
regarding any intended disassembly or decompilation. Customer will not
decrypt the Software unless necessary for legitimate use of the
Software.
G. Customer's Software License is transferable subject to HP's prior
written authorization and payment to HP of any applicable fees.
Customer will immediately upon transfer deliver all copies of the
Software to the transferee. The transferee must agree in writing to
the terms of Customers license. All license terms will be binding on
involuntary transferees, notice of which is hereby given. Customer's
license will automatically terminate upon transfer.
H. HP may terminate Customer's or any transferee's or sublicensee's
Software License upon notice for failure to comply with any applicable
license terms. Immediately upon termination, the Software and all
copies of the Software will be destroyed or returned to HP. Copies of
the Software that are merged into adaptations, except for individual
pieces of data in Customer's or transferee's or sublicensee's data
base, will be removed and destroyed or returned to HP. With HP's
written consent, one copy of the Software may be retained subsequent
to termination for archival purposes.
Page 1 of 2
<PAGE>
HP SOFTWARE LICENSE TERMS EXHIBIT E36
I. In this clause on Licenses to the U.S. Government, the term "Customer'
means HP's direct purchaser, any entity sublicensing the Software, and
the end user.
1. If Software is licensed for use in the performance of a U.S
Government prime contract or subcontract, Customer agrees that
Software has been developed entirely at private expense. Customer
agrees that Software, and any derivatives or modifications, is
adequately marked when the Restricted Rights Legend below is
affixed to the Software or to its storage media and is
perceptible directly or with the aid of a machine or device.
Customer agrees to conspicuously put the following legend on the
Software media with Customers name and address added below the
notice:
RESTRICTED RIGHTS LEGEND
Use, duplication or disclosure is subject to HP standard
commercial license terms or to the following restrictions,
whichever is applicable;
1) for non-DOD Departments and Agencies of the U.S. Government,
as set forth in FAR 52.227-19(c)(12)(Jun 1987)
2) for the DOD and its Agencies, as set forth in DFARS
252.227-7013(c)(1)(ii)(Oct 1988), DFARS 252.211-7015(c)(May
1991), whichever is applicable.
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304 U.S.A.
Rights for non-DoD U.S. Government Departments and Agencies are
as set forth in FAR 52.227-19 (c) (1,2).
Copyright 0 199- Hewlett-Packard Company. All Rights Reserved
2. Customer further agrees that Software is delivered and licensed
as "Commercial computer software" as defined in DFARS 252.227-
7013(Oct 1988), DFARS 252.211-7015(May 1991) or DFARS
252.227-7014(Jun 1995), or as a "commercial item" as defined in
FAR 2.101 (a), or as "Restricted computer software" as defined in
FAR 52.227-19 (Jun 1987) (or any equivalent agency regulation or
contract clause), whichever is applicable. The Customer agrees
that it has only those rights provided for such Software by the
applicable FAR or DFARS clause or the HIP standard software
agreement for the product involved.
J. Neither party may assign any rights or obligations hereunder without
prior written consent of the other party.
K. Customer who exports, re-exports, or imports HP licensed Products,
technology, or technical data purchased hereunder, assumes
responsibility for complying with applicable laws and regulations and
for obtaining required export and import authorizations. HP may
suspend performance if Customer is in violation of any applicable laws
or regulations.
L. Disputes arising in connection with this Agreement will be governed by
the laws of the country and locality in which HP accepts the order.
M. These HP Software License Terms supersede any previous communications
representations or agreements between the parties, whether oral or
written, regarding transactions hereunder. Customer's additional or
different terms and conditions will not apply. These HP Software
License Terms may not be changed except by an amendment signed by an
authorized representative of each party.
Page 2 of 2
<PAGE>
Exhibit 10.8
SUN MICROSYSTEMS COMPUTER CORPORATION
U.S. INDIRECT VALUE ADDED RESELLER ("IVAR") AGREEMENT
This Agreement is effective on July 10, 1992 )("Effective Date") by and
between Sun Microsystems Computer Corporation ("Sun"), a Delaware
corporation, having a place of business at 2550 Garcia Avenue, Mountain View,
California 94043 and sign Automation Systems Inc. ("Reseller") having a place
of business at 6100 Corporate Dr., Suite 380, Houston, TX 77036.
1. SCOPE
This Agreement governs Reseller's authorization to purchase certain Sun
products ("Products") from a designated Sun Authorized master reseller
("Master Reseller") and to resell those Products in the United States to
end users other than the Federal Government ("End Users"). Products
(identified by "Product Tiers"), approved buying and selling locations,
and the identity of the designated Master Reseller are set out in Exhibit
A. Sun may discontinue any Product upon sixty (60) days' notice.
2. APPOINTMENT
Sun appoints Reseller as a non-exclusive indirect Value Added Reseller
("IVAR"). IVAR is authorized to purchase Products from its designated
Master Reseller. Products must be (i) sold, leased or rented
(collectively referred to as "sold") as part of a total solution
consisting of Products and the added value set forth in Exhibit B, (ii)
sold directly to End Users on a face-to-face basis, and (iii) installed
at an End User site in the United States ("Authorized Sale"). The sale of
Products to resellers and to the federal government is prohibited unless
consented to in writing by Sun. IVAR's primary business must at all times
be the sale and support of computer systems.
3. RESELLER DEVELOPMENT FUNDS
IVAR shall receive directly from Sun, Reseller Development Funds ("RDF")
equal to two and thirty-six hundredths percent (2.36%) of the value of
its purchases of Products computed at Sun's list price, excluding
Products purchased from SunExpress and Products not purchased for resale.
Sun may modify this Section upon ninety (90) days' Notice.
4. BUSINESS PLAN
IVAR agrees to market and support Products in compliance with a Business
Plan developed by IVAR and approved by Sun (attached as Exhibit C).
Either party may initiate a review of IVAR's selection of and/or
compliance with objectives, strategies, and tactics under the Business
Plan upon thirty (30) days' notice, provided that Sun shall initiate no
more than one review per calendar quarter. IVAR's failure to comply with
its tactics under the Business Plan shall constitute a material breach of
this Agreement.
5. IVAR REFERENCE GUIDE
Sun's IVAR policies are detailed in its VAR Reference Guide ("Guide").
IVAR represents that it has read the Guide and will comply with all
applicable rules and procedures. Sun may modify the Guide from time to
time upon sixty (60) days' Notice.
6. RESELLER COMMISSION PROGRAM
IVAR may participate in Sun's Reseller Commission Program as detailed in
the Guide.
7. EXHIBITS
The attached Exhibits may be modified only upon the mutual consent of the
parties, except that Sun may modify Exhibit D (Object Code License) at
any time. The current version of each Exhibit is hereby incorporated by
reference.
8. IVAR's OBLIGATIONS
A. SALE AND SUPPORT. IVAR shall use its best efforts to promote the sale
of Products, and shall purchase and maintain the demonstration
configuration identified in the Guide for each authorized Product
Tier at each authorized selling location, IVAR shall provide to each
End User, as detailed in the Guide and the Business Plan, (i)
complete pre- and post-installation support, including complete
installation, training, and continuous technical service and (ii)
hardware and software maintenance support. IVAR must submit and Sun
must approve a detailed, location specific support plan prior to
installing Products at any End User site located more than 200 miles
from an authorized selling location. The sale and direct support of
Products must be performed at all times by full-time employees who
are Sun trained and Sun certified, including at least one full time
Sun dedicated sales representative and one full time, Sun dedicated
systems engineer per authorized selling location. Training and
certification may be secured directly from Sun or from any Sun
Authorized training provider. Sun's support options are set out in
the Guide.
B. SPARE PARTS. The use of spare parts purchased under the authority
granted by this Agreement is strictly limited to (i) resale to an
IVAR's End User for internal use, or (ii) the service of Products
sold and installed by IVAR under this Agreement, except that IVAR may
use such parts to service all of an End User's systems if IVAR has
sold and installed at least twenty-five percent (25%) of the systems
for which service is being provided.
C. IVAR DOCUMENTATION, BUSINESS RECORDS, AND REPORTS. IVAR shall furnish
to its End Users, at the time of delivery of Products, a sale receipt
stating the date of sale, and, if applicable, the serial number of
Products sold. IVAR shall, during the term of this Agreement and for
five (5) years thereafter, keep and maintain complete and accurate
business records with respect to its purchase and sale of all
Products, including, all documents relating to or exchanged between
IVAR and its End Users. Master Reseller and Sun. Sun may review these
records upon request.
IVAR shall provide monthly Productivity Status Reports ("PSRs") to
Sun as detailed in the Guide. Upon the initial failure to timely
submit a complete PSR, Sun will put IVAR on notice that it is in
breach of its obligation. If IVAR fails to remedy this initial breach
or subsequently fails to timely submit a PSR, Sun may cancel RDF
accruals and suspend participation in other programs. Any subsequent
failure to remedy or timely submit a PSR may result in immediate
termination of this Agreement.
D. INDEMNITY AND INSURANCE. IVAR agrees to indemnify and hold Sun
harmless from and against all claims from IVAR's End Users or third
parties arising out of any acts and/or omissions of IVAR or its
employees or representatives. IVAR shall carry liability insurance to
protect Sun from all such claims, pay the premiums therefor, and
deliver to Sun, upon request, proof of such insurance (which shall
require thirty (30) days' written notice to Sun in event of
modification or termination).
E. FAIR REPRESENTATION. IVAR shall display, demonstrate, and represent
Products fairly and shall make no representations concerning Sun or
its Products which are false, misleading, or inconsistent with those
representations set forth in promotional materials, literature and
manuals published and supplied by Sun. IVAR shall comply with all
applicable laws and regulations in performing under this Agreement.
<PAGE>
F. "SUN SPARC ONLY". I-VAR shall not sell, lease, or otherwise deal in
any product based on SPARC Architecture, unless such product (i) is a
Sun Product or (ii) is a "laptop system". A product is a "laptop"
system if it is (i) transportable, (ii) battery operated, (iii) under
sixteen (16) pounds total weight including case, and (iv) packaged
without a CRT. IVAR is not prohibited by this Agreement from selling
any product that does not contain the SPARC Architecture.
G. IVAR shall purchase all Sun Products for resale from its designated
Master Reseller unless an exception is granted by Sun in writing.
Purchase terms and conditions as may be agreed upon between IVAR and
designated Master Reseller shall govern the purchase of Products. All
Product warranties or claims against such warranties shall be between
IVAR and its designated Master Reseller. Sun will permit IVAR to
change the identity of its designated Master Reseller only once per
year, by Notice (which shall include the effective date of the
transition), during the thirty (30) days' period prior to each year's
Expiration Date
H. LIMITED WARRANTY. IVAR must provide a warranty to its End Users at
least equivalent to the warranty provided by Master Reseller. IVAR
agrees to indemnify Sun for any liability or damages caused by IVAR's
provision of any other warranty.
I. Failure to comply with any of the foregoing obligations will
constitute a material breach of this Agreement.
9. HIGH RISK ACTIVITIES
A. PRODUCTS ARE NOT FAULT-TOLERANT AND ARE NOT DESIGNED, MANUFACTURED OR
INTENDED FOR USE OR RESALE AS ON-LINE CONTROL EQUIPMENT IN HAZARDOUS
ENVIRONMENTS REQUIRING FAIL-SAFE CONTROLS, SUCH AS IN THE OPERATION
OF NUCLEAR FACILITIES, AIRCRAFT NAVIGATION OR COMMUNICATION SYSTEMS,
AIR TRAFFIC CONTROL, LIFE SUPPORT, OR WEAPONS SYSTEMS ("HIGH RISK
ACTIVITIES"). SUN SPECIFICALLY DISCLAIMS ANY EXPRESS OR IMPLIED
WARRANTY OF FITNESS FOR SUCH HIGH RISK ACTIVITIES.
B. IVAR represents and warrants that it will not use, or knowingly
distribute or resell, Products for such High Risk Activities and that
it will ensure that its customers and End-Users of Products are
provided with the notice in A. above.
10. TRADEMARKS
"Sun Trademarks" shall mean all names, logos, designs, and other
designations or brands used by Sun in connection with Products, including
Sun, Sun Microsystems, the Sun Logo and the Sun system enclosure design
elements. IVAR is granted no right or license to use, any Sun Trademarks,
except that IVAR has the right to use the Sun Value Added Reseller logo and
to refer to Sun products and technologies by their associated Sun
Trademarks in IVAR's advertising or marketing materials, in the form set
out in the Guide. Sun shall have the right to approve all such materials,
and IVAR agrees, on request, to modify any materials which do not comply
with these provisions. IVAR may not re-logo or co-logo Products, or
otherwise modify, conceal or remove any Trademark or other proprietary
rights notice without Sun's written consent.
11. S0FTWARE
A. LICENSE. IVAR is granted a non-exclusive nontransferable limited
license to distribute and sublicense Products consisting of software
in machine readable form ("Software") to run on Sun CPUs sold to End
Users in accordance with the terms of this Agreement. IVAR shall
require each of its End Users to execute a sublicense containing, at
a minimum, the provisions set forth on Exhibit D and shall provide
copies to Sun on request. IVAR shall keep records specifying the End
User, its location, the serial numbers of the CPU(s) on which the
Software was licensed, and the license capacity (single user or
multi-user). The records may be audited once per year by Sun.
B. INTERNAL USE. The provisions of Exhibit D (Object Code License) shall
govern IVAR's internal use of Software, including use for
demonstration, development or training purposes.
C. RESTRICTIONS. Title to all copies of Software is retained by Sun or
its Licensor. IVAR agrees not to decompile, disassemble, or otherwise
reverse engineer Software.
12. TERM AND TERMINATION
A. TERM. This Agreement shall commence on the Effective Date and shall
remain in force until the date established according to the following
schedule:
<TABLE>
<CAPTION>
EFFECTIVE DATE: EXPIRATION DATE:
(of each following year):
<S> <C>
January 1 - March 31 March 31
April 1 - June 30 June 30
July 1 - September 30 September 30
October 1 - December 31 December 31
</TABLE>
It shall be automatically renewed on an annual basis thereafter, unless at least
thirty (30) days prior to any year's Expiration Date, Sun or IVAR tenders Notice
of intention not to renew.
B. TERMINATION
(1) This Agreement (which, for purposes of termination by Sun, may be
construed as referring to individual authorized buying or selling
locations) may be terminated by either party (i) without cause, for
any reason, on ninety (90) days' Notice to the other party, (ii)
immediately, by Notice, upon material breach by the other party, if
such breach cannot be remedied; (iii) by Notice, if the other party
fails to cure any material remediable breach of this Agreement within
thirty (30) days of receipt of Notice of such breach, or (iv)
immediately by Notice upon the second commission of a previously
remedied material breach.
(2) Sun may terminate this Agreement immediately, by Notice in the event
that (i) there is any material change in the management or control of
IVAR, or transfei of any substantial part of IVAR's business, (ii)
Sun discovers that IVAR has made a material misrepresentation or
omission in its Reseller Application, or (iii) IVAR makes an
unauthorized sale.
C. EFFECT OF TERMINATION. Upon any termination or expiration of this
Agreement, IVAR shall no longer be authorized to purchase Products
from Master Reseller. With the exception of those rights and
obligations which by their nature should survive, all rights and
licenses granted to IVAR under this Agreement shall immediately cease
and terminate. Neither party shall be liable to the other for damages
of any kind, on account of the termination or expiration of this
Agreement in accordance with its terms and conditions.
<PAGE>
13. LIMITATION OF LIABILITY
Except for express obligations to indemnify under this Agreement, and/or
breach of Sections 9 (High Risk Activity), 11 (Software), or 15
(Confidentiality):
A. Each party's liability to the other for claims related to this
Agreement, whether for breach or in tort, shall be limited to
$10,000, and
B. IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INDIRECT, PUNITIVE,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGE IN CONNECTION WITH OR
RELATED TO THIS AGREEMENT (INCLUDING LOSS OF PROFITS, USE, DATA, OR
OTHER ECONOMIC ADVANTAGE), HOWSOEVER ARISING, WHETHER FOR BREACH OF
THIS AGREEMENT, INCLUDING BREACH OF WARRANTY, OR IN TORT, EVEN IF
THAT PARTY HAS BEEN PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE.
14. DISCLAIMER OF WARRANTY
EXCEPT AS SPECIFIED IN THIS AGREEMENT, ALL EXPRESS OR IMPLIED
REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT, ARE
HEREBY EXCLUDED.
15. CONFIDENTIALITY
If Sun desires that information provided to IVAR under this Agreement be
held in confidence, Sun agrees to identify such information as
"Confidential" or "Proprietary" ("Confidential Information"). All Software
is Confidential Information. IVAR will not disclose Confidential Information
and will use it only for purposes specifically related to this Agreement.
This Agreement shall not affect any confidential disclosure agreement
between the parties.
16. NO EXPORTATION
IVAR agrees that it shall resell Products only to End Users in the
continental United States, Alaska, and Hawaii, unless IVAR has been accepted
into Sun's Passport Program and has executed a Passport Addendum to this
Agreement. Products, including technical data, are subject to the U.S.
Export Administration Act and its associated regulations and may be subject
to export or import regulations in other countries. IVAR agrees to comply
strictly with all such regulations and acknowledges that it has the
responsibility to obtain licenses to export or re-export Products.
17. GENERAL
A. DISPUTE RESOLUTION. Any action related to this Agreement will be
governed by California law, excluding choice of law rules, and will
be brought exclusively in the United States District Court for
Northern California or the California Superior Court for the County
of Santa Clara. The parties hereby submit to the personal
jurisdiction and venue of such courts.
Agreement No.: IVAR
B. RELATIONSHIP. The parties are independent contractors under this
Agreement and no other relationship is intended, including a
partnership, franchise, joint venture, agency, employer/ employee, or
master/servant relationship. Neither party shall be authorized to bind
the other, or act in a manner which expresses or implies a relationship
other than that of independent contractor.
C. ASSIGNMENT. IVAR may not assign or otherwise transfer any of its
rights or obligations under this Agreement, without the prior written
consent of Sun.
D. WAIVER OR DELAY. Any waiver of any provision of this Agreement, or a
delay by either party in the enforcement of any right hereunder, shall
neither be construed as a continuing waiver, nor create an expectation
of non-enforcement, of that or any other provision or right.
E. FORCE MAJEURE. A party is not liable for non-performance of this
Agreement, to the extent to which the non-performance is caused by
events or conditions beyond that party's control, and the party gives
prompt Notice and makes all reasonable efforts to perform.
F. NOTICE. All Notices (upper-case "N") under this Agreement must be in
writing and delivered either in person or by a means evidenced by a
delivery receipt, to the address specified, below. Notice will be
effective upon receipt.
If to Sun: Sun Microsystems Computer Corporation
2550 Garcia Avenue, M/S MIL06-20
Mountain View, CA 94043
Attn: Manager, Sales Contracts
If to IVAR: Design Automation Systems, Inc.
6100 Corporate Dr., Suite 380
Houston, TX 77036
G. EXECUTION. This Agreement shall become effective only after it has
been signed by an authorized officer of IVAR and an authorized
officer of Sun.
H. ENTIRE AGREEMENT. This Agreement, including all attachments
incorporated by reference, is the parties' entire agreement relating to
Products and, (i) supersedes all prior or contemporaneous oral or
written communications, proposals and representations with respect to
its subject matter; and (ii) prevails over any conflicting or additional
terms of any quote, order, acknowledgement, or similar communication
between the parties during the term of this Agreement. No modification
to this Agreement will be binding, unless in writing and signed by a
duly authorized representative of each party.
SUN AND IVAR ACKNOWLEDGE THAT EACH HAS READ AND UNDERSTOOD THIS AGREEMENT AND
CONSENTS TO BE BOUND BY ITS TERMS.
SUN MICROSYSTEMS IVAR: DESIGN AUTOMATION SYSTEMS, INC.
COMPUTER CORPORATION:
By: /s/ Linda Cladden By: /s/ Carl A. Rose
------------------------------------- -------------------------------
Name: Linda Cladden Name: Carl A. Rose
----------------------------------- -----------------------------
Title: Director, USFO Contract Management Title: President
---------------------------------- ----------------------------
Date: 7/10/92 Date: 7-1-92
----------------------------------- -----------------------------
<PAGE>
<PAGE>
[LETTERHEAD]
October 6, 1998
IBM APPLICATION FORM
IBM Solution Provider Agreement
IBM Reseller Agreement
Re: Design Automation Systems, Inc.
To Whom It May Concern:
This communication is to serve as a formal cover letter regarding renewing our
legal rights to continue to resell the specific IBM products and services
covered within this new Agreement. We have been a valued reseller of certain IBM
products and services for a number of years. This year IBM is making substantial
changes in the categories and structure of their reseller Channel.
Our goal is to gain ground in this transition and not lose the progress we have
made to date. We have made significant investments in our IBM business
relationship with the intention of them being long-term investments. Design
Automation has strived to maintain the appropriate levels of certification while
generating revenues in excess of expectations. This is a symbiotic relationship
as our firm has benefited from the association.
We believe that we have completed the forms and are submitting the necessary
information to attain the VAE's and Customer Growth classification which we
desire. It is our further understanding that missing documentation can be
submitted at a later date when it is secured as long as it is no later than your
final date. We are sincerely requesting your assistance and guidance through
this new process making us a more formidable IBM Reseller as a result. If you
have any questions, please contact me at 713-784-2374.
Sincerely,
/s/ Gary A. Reece
Gary A. Reece
Account Executive/Partnering
cc: Mr. Chuck Leaver/President, Design Automation Systems, Inc.
<PAGE>
[LOGO]
Solution Provider Business Plan (Firms Acquiring IBM Product from
Distributors) The purpose of this document is to provide IBM and the
Distributor from which your firm acquires or will acquire IBM products,
current information that is collected during the Solution Provider
Application Process, and is updated periodically thereafter. This information
will be used to help IBM and your Distributor work with your firm. As this
form is designed to assist your company with the marketing of IBM products,
please complete all questions and be as specific as possible. All questions
must be answered for this document to be meaningful. Attach any additional
information which you deem appropriate and helpful.
DESIGN AUTOMATION SYSTEMS 0019498
- - ----------------------------------- ---------------------------------------
Legal Business Name Business Partner Indentification Number
3200 WILCREST DRIVE, S. 370
HOUSTON, TX 77042 (713) 784-2374 784-2486
- - --------------------------------- ------------------------ ------------------
Street, City, State Zip Telephone Number Fax Number
GARY A. REECE ACCOUNT EXECUTIVE/PARTNERING
- - --------------------------------- ------------------------------------------
Key Executive Contact Title
Solution Provider Profile
How many years have you been in business? 14 Total annual Computer/Computer
Related Revenue? $27M
Last 12 months IBM Revenue? $5M
From how may locations do you sell computers/computer related products? 1
What are the locations and how many miles from each is the majority of your
business based? HOUSTON DALLAS AUSTIN
------- ------ ------
- - ------------- ------------- ------------- ------------- -------------
(Attach separate listing it needed)
How many of your personnel are currently, or will be, involved with your
Solution Provider relationship? 20
How many are currently at each of the following skill levels in each of the
following job responsibilities?
( ILLEGIBLE )
<TABLE>
<CAPTION>
Skill Level 4 Skill Level 3 Skill Level 2 Skill Level 1
<S> <C> <C> <C> <C>
Sales Representatives 4 2 1
Programmers/Software Developers 2
Service/Support Personnel 2 2 2
Administrative Support 1 3
Demonstration Center Personnel 1
Other __________________________
</TABLE>
What percentage (%) of your past twelve (12) months sales have been in the
following market segments?
10 Small Business (Less than 50 employees)?
- - ----
60 Large accounts (over 1000 employees)?
- - ----
10 Government Accounts State and Local (Y/N Y ) Federal (Y/N )
- - ---- ---- ----
Other (Explain)
- - ---- --------------------------------------------------------
20 Medium sized businesses (50 to 1000) employees
- - ---- Consumer / Home
- - ----
What percentage (%) of your Past twelve months sales have been focused on a
specific industry or industries (e.g. health, banking)?
30% in Energy industry; 20% in Telecom industry; % in industry
- - -- ------ -- ------- -- -----------
From which distributors are you acquiring or proposing to acquire which IBM
products (e.g. Distributor A, AS/400)?
Distributor HALL-MARK. Product All IBM; Distributor . Product ;
--------- ------- -------- ------
Distributor . Product ; Distributor . Product ;
--------- ------- -------- ------
What current relationship(s) do you nave with other IT vendors?
Vendor ACCESS GRAPHICS Product SUN Vendor HALL-MARK Product HP
--------------- --- --------- --
Vendor Product
--------------- ---
Software Application / Solution Value Added Enhancement (VAE)
Describe your application or business solution:
---------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
What VAE(s) are you applying for or approved to sell? (VAE(s) should equal that
in SP Application or current contract.)
-----------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SPI30 SAM
PAGE I
<PAGE>
Marketing Plans
What are your revenue objectives for the IBM products that your firm markets or
will market in this relationship:
AS/400 AS/400 9401/150
-------- -------------
RS/6000 $2M RS/6000 SP $1.4M
-------- ------------------
STORAGE $1M Networking
------- ------------------
POS Printers
---------- --------------------
PC Products Software $.6M
----- --------------------
Services $1M Support
----- ---------------------
Other (Explain)
----------- -------------------------------------------------
Total IBM Revenue
-------------------------------------------------------------
What is your Marketing Strategy which will enable your firm to achieve your
marketing goals? ("What business are you in?)
PREVIOUSLY SUBMITTED
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
Describe or list, your key "go to market" plans to achieve your annual revenue
goals and objectives:
PREVIOUSLY SUBMITTED
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
What assistance do you require to make your annual revenue plan:
From Distributor?
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
From IBM?
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
What are the key education plans for your employees?
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
THE ABOVE INFORMATION IS DEEMED TO BE ACCURATE AND PROPERLY REFLECTS OUR FIRM'S
CURRENT MARKETING PLAN FOR THE TWELVE MONTHS BEGINNING __/__/__ WE UNDERSTAND
THIS INFORMATION WILL BE USED BY IBM AND OUR DISTRIBUTOR FOR THE PURPOSES OF
PROVIDING OUR FIRM WITH ASSISTANCE AS REQUIRED DURING THE COURSE OF THE NEXT 12
MONTH PERIOD. THIS INFORMATION WILL BE CONSIDERED PART OF THE APPLICATION
PROCESS AND AS SUCH WILL BE USED IN THE CONTRACT RENEWAL PROCESS BY IBM AND OUR
DISTRIUBTOR.
Gary A. Reece Account Executive/partnering
- - ------------------------------------ ---------------------------------------
Signature Title
(713) 784-2374
- - ------------------------------------
Telehone Number
<PAGE>
IBM BUSINESS PARTNER AGREEMENT FOR SOLUTION PROVIDERS
1. MARKETING APPROVAL
As our IBM Business Partner-Solution Provider, we approve you under the
terms of this Agreement to market to End User, Products and Services
specified in this Agreement. As our remarketer, you acquire such Products
and Services from an IBM Distributor. When approved as a Solution Provider
under a remarketer relationship, you may also be approved under a
complimentary marketing relationship. If we approve you to market the same
Product and Services under both remarketer and complementary marketing
terms, all transactions will be under remarketer terms. You may unilaterally
elect not to participate under remarketer terms for a specific transaction
or business segment by providing your IBM Distributor-signed IBM Business
Partner Statement of Election. If you meet the requirements of the Marketing
Approval section of the Complementary Marketing Terms Attachment for
Solution Providers, you may participate under those terms.
Certain Products we make available to your IBM Distributor are eligible for
marketing in both Canada and the United States. Your IBM Distributor will
advise you of those Products which are eligible for export between Canada
and the United States.
We may specify the specific industry codes to which you market Products. If
we do so, you agree to comply.
2. DEFINITIONS
END USER is anyone, who is not part of the Enterprise of which you are a
part, who uses Services or acquires Products for its own use and not for
resale.
ENTERPRISE is any legal entity and the subsidiaries it owns by more than
50%.
MACHINE is a machine, its features, conversions, upgrades, elements,
accessories, or any combination of them. The term "Machine" includes an IBM
Machine and any non-IBM Machine (including other equipment) that we approve
you to market.
PRODUCT is a Machine or Program.
PROGRAM is an IBM Program or a non-IBM Program provided under its applicable
license terms that we approve you to market.
SERVICE is the performance of a task, provision of advice and counsel,
assistance, or use of a resource that we approve you to market.
3. VALUE ADDED ENHANCEMENT
For products we specify to your IBM Distributor, you are required to have a
solution which is a value added enhancement, that we approve and specify and
which significantly adds to the Product's function and capability. You agree
to market. Products and Services only with your approved value added
enhancement as part of an integrated solution for End Users. Certain
Products we specify do not require a value added enhancement.
In the event we withdraw approval of your value added enhancement, we also
withdraw your approval as an IBM Business Partner for that value added
enhancement.
We may,at any time, modify the criteria for approval of your value added
enhancement. You are responsible to modify your Value added enhancement to
meet these criteria.
You agree to market Products including processor upgrades requiring a
processor, serial number change only to End Users for whom your value added
enhancement is their primary reason for acquiring the Products. A sale to
an End User without a value added enhancement, when required, is a material
breach of the Agreement.
However, your value added enhancement is not required to be the End User's
primary reason for acquiring upgrades to systems you previously installed
with your enhancement and where your enhancement is still in productive use.
Upgrades include processor upgrades (non-serial number change), peripherals,
and programs.
Unless we specify otherwise in writing, you may market upgrades only to
those End Users where you have installed your value added enhancement, and
who intend on-going use of that value added enhancement.
4. Our Relationship
Each of us agrees that:
1. each of us is responsible for our own expenses regarding fulfillment of
our responsibilities and obligations under the terms of this
Agreement.
2. neither of us will assume or create any obligations on behalf of the
other or make any representations or warranties about the other, other
than those authorized.
3. niether of us will bring a legal action against the other more than two
years after the cause of action arose unless otherwise provided by
local law wilhout the possibility of contractual waiver.
4. failure by either of us to insist on strict performance or to exercise
a right when entitled does not prevent either of us from doing so at a
later time either in relation to that default or any subsequent one,
and
<PAGE>
5. IBM may change the terms of this Agreement on one month's written
notice. Otherwise, for any other change to be valid, both of us must
agree in writing. Changes are not retroactive. Additional or different
terms in a communication from you are void, and
6. IBM reserves the right to assign, in whole or in part, this
Agreement to any other IBM related company.
5. YOUR RESPONSIBILITIES TO IBM
You agree:
1. to develop a mutually acceptable business plan with us or your IBM
Distributor, as we specify, if we require one. Such plan will document
your marketing plans as they apply to our relationship. IBM or your IBM
Distributor will review the plan, at a minimum, once a year;
2. that, unless precluded by applicable law, if we specify a minimum
annual attainment, one of the requirements for you to retain this
relationship is that you achieve such attainment;
3. to provide us, or our representative, with access to your facilities in
order for us to fulfill our obligations and to review your compliance
with the Agreement;
4. if you acquire Products you are approved to market from your
Distributor for demonstration, development, and evaluation purposes,
to use such Products primarily in support of your Product marketing
activities and to retain such Products for twelve months from the
Date of Installation of the Products, unless specified otherwise for
specific Products by your Distributor. If you acquire Products you
are approved to market from your Distributor for internal use, to use
such Products only within your Business Partner operations. Any value
added enhancement or system integration service otherwise required by
your relationship is not applicable when you acquire Products for
internal use. You must retail such Products for a minimum of twelve
months unless otherwise specified by your Distributor;
5. to comply with all terms regarding Program upgrades;
6. your rights under this Agreement are not property rights and,
therefore, you can not transfer them to anyone else or encumber them
in any way;
7. to maintain the criteria we specified when we approved you;
8. for a Program requiring the End User's signature on the Program's
license agreement, to obtain the signature before providing the
Program to the End User, and return any required documentation to
your IBM Distributor (all other Programs are licensed under the terms
of the agreement provided with them);
9. to retain records of each Product and Service transaction (for example,
a sale, a credit or a warranty claim) for three years and provide us
relevant records on request. We may reproduce and retain copies of these
records;
10. to provide information, including installation reporting, to us or
your IBM Distributor, as we require your Distributor to provide to us;
11. to report to us any suspected Product defects or safety problems, and to
assist us in tracing and locating Products;
12. if during our review of your compliance with your Business Partner
Agreement with us, we find that you have materially breached the
terms of this Agreement, then in addition to IBM's remedies under the
terms of this Agreement, you may be subject to restitution of
discount or other financial penalties under the terms of your
agreement with your IBM Distributor; and
13. to comply with the highest ethical principles in performing under the
Agreement You will not offer or make payments or gifts (monetary or
otherwise) to anyone for the purpose of wrongfully influencing
decisions in favor of IBM, directly or indirectly. IBM may terminate
this Agreement immediately in case of a) a of breach of this clause
or b) when IBM reasonably believes such a breach has occurred.
6. YOUR RESPONSIBILITIES TO END USERS
You agree to:
1. be responsible for customer satisfaction and to participate in
customer satisfaction programs as we determine;
2. refund the amount paid for a Product returned to you because the End
User returned it to you under the terms of its warranty or did not
accept the terms of the license or a money-back guarantee we offer End
Users. You may return such Products to the IBM Distributor from whom you
acquired them for credit;
3. develop a plan agreed to by the End User for installation and post
installation support for the offering you market. For Products and
Services we approve you to market, support includes your being the
primary contact for Product information, technical advice and
operational advice associated with the offering. You may delegate
these support responsibilities for Products and Services and any
other associated products, to another IBM Business Partner who is
approved to market such Products. If you do, you retain customer
satisfaction responsibilities. Alternatively, such support
responsibilities will be provided by IBM if you market the applicable
IBM Services to the End User. If you do, we assume customer
satisfaction responsibilities for such support;
4. provide a dated written record, such as a sales receipt or an invoice,
which specifies the End User's name, the part number or Machine
type/model and serial number, if applicable;
5. inform your End User in writing who the warranty provider is, if
other than yourself, and of any other applicable Warranty
information, as well as any modification you or the IBM Distributor
make to a Product and advise that such modification may void the
warranty;
<PAGE>
6. inform your End User that the sales receipt (or other documentation we
may specify, such as Proof of Entitlement if it is will be necessary for
proof of warranty entitlement and for Program upgrades;
7. provide to your End Users the Program Services the IBM Distributor
provides to you; and
8. assist the End User to achieve productive use of your solution and the
Products and Services you marketed.
7. STATUS CHANGE
You agree to give us prompt written notice (unless precluded by law or
regulation) of any substantive change or anticipated change to the
information supplied in your application. Upon notification of such change,
(or in the event of failure to give notice of such change) IBM may, at its
sole discretion, immediately terminate this Agreement.
8. MARKETING FUNDS AND PROMOTIONAL OFFERINGS
We may provide marketing funds and promotional offerings. If we do, you
agree to use them according to our guidelines and to maintain records of
your activities regarding the use of such funds and offerings for three
years. We may withdraw or recover marketing funds and promotional offerings
from you if you breach any terms of the Agreement. Upon notification of
termination of the Agreement, marketing funds and promotional offerings will
no longer be available for use by you, unless we specify otherwise in
writing.
9. PRODUCTION STATUS
Each IBM Machine is manufactured from new parts, or new and used parts. In
some cases, the IBM Machine may not be new and may have been previously
installed. Regardless of the IBM Machine's production status, our
appropriate warranty terms apply. You agree to inform your End User of these
terms, in writing. Warranty information is available from your IBM
Distributor.
10. ISM WARRANTY SERVICE
If we approve you to provide IBM Warranty Service, you agree to do so for
those Products specified and according to the guidelines provided to you.
11. MARKETING of SERVICES
The following are the conditions under which you may market Services, which
your Distributor makes available to you
1. if you marketed a Product to the End User; or
2. regardless of whether you marketed a Product to the End User, you may
market the Services we specify in this Agreement.
You may market Services on eligible non-IBM Products regardless of whether
you marketed a Machine or Program to the End User
MARKETING OF SERVICES FOR A FEE
If you market an IBM Service which is eligible for a fee and which your
IBM Distributor makes available to you, we will pay the fee to your IBM
Distributor. Alternatively, if such IBM Service is not available from
your IBM Distributor, but is available to you from us, we will pay the
fee to you.
In either case we pay the fee when 1) you identify the opportunity and
perform the marketing activities; 2) you provide the order and any
required documents signed by the End User; and 3) A Standard Statement of
Work is used and there are no changes, and no marketing assistance from
us is required.
Additionally, for Services we specify, and which are not available from
your IBM Distributor, we WILL pay you a fee when you provide us a lead
and the following criteria are met; 1) it is submitted on the form we
provide to you; 2) it is for an opportunity which is not known to us; and
3) it results in the End User ordering the Service from us within six
months from the date we receive the lead from you.
We will not pay you the fee if 1) the machine or program is already under
the Applicable Service; 2) we have an agreement with the End User to
place the machine or program under the applicable Service; or 3) the
Service was terminated by the End User within the last six month.
REMARKETING OF SERVICES
We provide terms in an applicable Attachment governing your remarketing of
Services the End User purchases from you and which we perform under the
terms of the IBM Service agreement signed by the End User.
Shrink-wrap Services are performed under the terms of the agreement provided
with them. If the terms of the agreement are not visible on the shrink-wrap
package, you agree to provide (or, if applicable, request your Remarketer to
provide) the Services terms to the End User before such Services are
acquired by the End User.
<PAGE>
12. MARKETING OF FINANCING
If we approve you on the signature page of this Agreement, you may market
our Financing Services for Products and Services and any associated
products and services you market to the End User. If you market our
Financing Services we will pay a fee if specified in the Business Partner
Financing Fee Schedule.
We provide Financing Services to End Users under the terms of our
applicable agreements signed by the End User. You agree, that for the
items that will be financed, 1) you WILL promptly provide us, or your
Distributor, as we specify, any required documents including invoices,
with serial numbers, if applicable; 2) the supplier will transfer clear
title to us; and 3) you will not transfer to us any obligations under
your agreements with the End User.
We will make payment for the items to be financed when the End User has
initiated financing and acknowledged acceptance of the items being
financed. Payment WILL be made to you, your Distributor, or the supplier,
as appropriate.
13. EXPORT
You may actively market Products and Services only within the geographic
scope specified in this Agreement. You may not market outside this scope,
and you agree not to use anyone else to do so. If a customer acquires a
Product for export, our responsibilities, if any, under this Agreement no
longer apply to that Product unless the Product's warranty or license
term state otherwise. You agree to use your best efforts to ensure that
your customer complies with all export laws and regulations including
those of the United States and the country specified in the Governing Law
Section of this Agreement, and any laws and regulations of the country in
which the Product is imported or exported. Before your sale of such
Product, you agree to prepare a support plan for it and obtain your
customer's agreement to that plan. Within one month of sale, you agree to
provide us with the customer's name and address, Machine type/model and
serial number, date of sale, and destination country. We exclude these
Products from any of your attainment objectives and qualification for
applicable promotional offerings and marketing funds.
14. LICENSED INTERNAL CODE
Machines ("Specific Machines") containing Licensed Internal Code will be
identified to you by the IBM Distributor. We grant the rightful possessor
of a Specific Machine a license to use the code (or any replacement we
provide) on, or in conjunction with, only the Specific Machine designated
by serial number, for which the code is provided. We license the code to
only one rightful possessor at a time. You agree that you are bound by
the terms of the separate license agreement that is provided to you.
YOUR RESPONSIBILITIES
You agree to inform your customer and record on the sales receipt, that the
Machine you provide is a Specific Machine. The license agreement must be
provided to the customer before the sale is finalized.
15. MACHINE CODE
For certain machines we may provide basic input/output system code,
utilities diagnostics, device drivers, or microcode (collectively called
"Machine Code"). This Machine Code is licensed under the terms of the
agreement provided with it. You agree to ensure the End User is provided
such agreement.
16. TRADEMARKS
We will notify you in written guidelines of the IBM Business Partner
title and emblem which you are authorized to use. You may not modify the
emblem in in any way. You may use our Trademarks (which include the
title, emblem, IBM Trademarks and service marks) only
1. within the geographic scope of this Agreement;
2. in association with Products and Services we approve you to market; and
3. as described in the written guidelines provided to you.
The royalty normally associated with non-exclusive use of the trademarks
will be waived, since the use of this asset is in conjunction with marketing
activities supporting sales of Products and Services. You agree to promptly
modify any advertising or promotional materials that do not comply with our
guidelines. It you receive any complaints about your use of a Trademark, you
agree to promptly notify us. When this Agreement ends, you agree to
promptly stop using our Trademarks. If you do not, you agree to pay any
expenses and fees we incur in getting you to stop.
You agree not to register or use any mark that is confusingly similar to any
of our Trademarks.
Our Trademarks and any goodwill resulting from your use of them, belong to
us.
17. LIABILITY
Circumstances may arise where because of a default or other liability one of
us is entitled to recover damages from the other. In each such instance,
regardless of the basis on which damages can be claimed, the following terms
apply as your exclusive remedy and our exclusive liability.
We are responsible for the amount of any actual loss or damage, up to the
greater of $100,000 or the charges (if recurring 12 months charges apply)
for the Product that is the subject of the claim.
<PAGE>
Under no circumstances (except as required by law) are we liable for
third-party claims against you for losses or damages or for special,
incidental, or indirect charges, or for any economic consequential damages
(including lost profits or savings even if we are informed of their
possibility.
In addition to damages for which you are liable under law and the terms of
this Agreement you will indemnify us for claim made against us by others
(particularly regarding statements, representations, or warranties not
authorized by us) arising out of your conduct under this Agreement or as a
result of your relations with anyone else.
18. Electronic Communications
Each of us may communicate with the other by electronic means, and such
communication is acceptable as a signed writing the extent permissible under
applicable law. Both of us agree that for all electronic communications, an
identification code (called a "user ID") contained in an electronic document
is sufficient to verify the sender's identity and the document's
authenticity.
19. Confidential Information
This section comprises a Supplement to the IBM Agreement for Exchange of
Confidential Information (AECI). "Confidential Information" means:
1. all information IBM marks or otherwise states to be confidential.
2. any of the following prepared or provided by IBM:
A. sales leads,
B. information regarding End Users,
c. unannounced information about Products and Services,
d. business plans, or
e. market intelligence, and
3. any of the following written information you provide to us on our
request and which you mark as confidential
a. reporting data,
b. financial data, or
c. the business plan.
All other information exchanged between us is nonconfidential, unless
disclosed under a separate Supplement to the IBM Agreement for Exchange
of Confidential Information.
20. Ending the Agreement
Either of us may terminate this Agreement with or without cause, on three
months' written notice. If, under applicable law a longer period is
mandatory, then the notice period is the minimum notice period allowable.
If we terminate for cause we may, at our discretion, allow you a reasonable
opportunity to cure. If you fail to do so, the date of termination is that
specified in the notice.
However, if either party breaches a material term of the Agreement, the
other party may terminate the Agreement on written notice. Examples of such
breach by you are if you do not maintain customer satisfaction; if you
repudiate this Agreement; or if you make any material misrepresentations to
us. You agree that our only obligation is to provide the notice called for
in this section and we are not liable for any claims or losses if we do so.
If the relationship between you and your named IBM Distributor ends, or the
relationship between IBM and that Distributor ends, and you reapply with a
new IBM Distributor to continue as our Business Partner, you must notify us
within two months of the name of your new IBM Distributor. We will review
your application to acquire Products from this IBM Distributor and advise
the new IBM Distributor when the application is approved.
You agree that if we permit you to perform certain activities after this
Agreement ends, you will do so under the terms of this Agreement.
21. Geographic Scope
All the rights and obligations of both of us are valid only in the United
States and Puerto Rico.
22. Governing Law
The laws of the State of New York govern this Agreement.
The "United Nations Convention on the International Sale of Goods" does
not apply.
<PAGE>
[LOGO]
APPLICATION FORM
for
IBM SOLUTION PROVIDER AGREEMENT
or
IBM RESELLER AGREEMENT
(FOR BUSINESS PARTNERS ACQUIRING IBM PRODUCTS FROM DISTRIBUTORS)
<PAGE>
IBM SOLUTION PROVIDER / RESELLER APPLICATION
(FOR BUSINESS PARTNERS ACQUIRING IBM PRODUCTS FROM DISTRIBUTORS)
Thank you for your interest in an IBM Business Partner (BP) relationship.
Questions included in this application are designed to ensure that the IBM
Business Partner designation continues to represent commitment to excellence and
superior customer service.
This form is to be used by firms applying for either a Solution Provider or a
Reseller relationship with IBM. An IBM Solution Provider (SP) is a firm with
approval to remarket IBM products which usually require a Value Added
Enhancement (VAE). SPs may also remarket other selected IBM products which do
not require a VAE. An IBM Reseller (RS) is a firm with approval to remarket
selected IBM products which do not have a VAE requirement.
Generally, a VAE is a software solution which, when operational on an end-user
system, provides the primary business justification for the purchase of a
system. In most cases, the VAE product is not owned by IBM. There are also
standardized VAEs for various IBM products. Your Distributor can assist you in
defining your VAE.
APPLICATION INSTRUCTIONS:
- - - A senior executive who has the responsibility for managing the IBM BP
relationship should complete and sign this application.
- - - Applicants must complete applicable sections, attaching the requested
documents and supporting information. If additional space is needed to
answer questions on the application, separate pages can be attached.
- - - Once this application is completed and signed, submit it to your sponsoring
Distributor for endorsement and their submission to IBM.
- - - Upon our approval of this application, IBM will send applicants an
Agreement for their immediate signature. It is recommended that applicants
review the terms and conditions of the Agreement prior to submitting this
application.
- - - Applicants requesting approval for IBM products which require a Minimum
Annual Attainment (MAA) or an IBM Certification must attain the revenue
target and meet the Certification requirements annually to remain a BP.
Firms not attaining MAA or Certification requirements will lose their
authorization to remarket IBM systems products, and must wait twelve (12)
months from termination to re-apply to become a SP or RS. "Firm" in this
regard includes all your company's executives, owners or directors who have
had or have been involved in an IBM BP relationship.
APPLICATION CRITERIA:
To be eligible for the IBM Business Partner program, a firm must meet the
following criteria: (Refer to Matrix)
- - - For approval to remarket products which require a VAE, the firm must have a
VAE which complies with IBM's requirements and is Year 2000 Ready (Y2K)
- - - Firms applying to remarket one or more Group 1 products must nave a minimum
of ten (10) full-time (W-2) employees and at least $500,000 in prior year
revenues.
- - - Firms applying to remarket Group 2 or Group 3 products must have a minimum
of three (3) full-time (W-2) employees. Currently approved Group 2 or Group
3 SPs requesting new Group 1 products and/or VAEs must meet current Group 1
Selection Criteria: e.g., 10 employees. $500,000 in prior year revenue, in
order to be considered for the Group 1 product/VAE approval.
- - - Demonstrate an ability to meet IBM's MAA requirements.
- - - Meet required IBM product family-specific Certification or education
requirements within six months of approval.
- - - Demonstrate a history of excellent customer service and support by
submitting a minimum of two customer references per VAE or product family
(or for similar competitive products), which must be written by the
customer on their letterhead stationary and include the following:
- a specific name of the VAE or product sold and installed by your
firm;
- a statement that the VAE or product is currently in use and the brand
name of the system on which it is installed;
- a statement of the level of customer satisfaction with the performance
of the VAE or product and the support and service provided by your
firm; and
- the customer signature title and telephone number.
Sponsoring Distributor: HALL-MARK COMPUTER PRODUCTS
---------------------------------
Applicant Firm: DESIGN AUTOMATION SYSTEMS,INC
-----------------------------------------
Page 2
<PAGE>
IBM SOLUTION PROVIDER / RESELLER APPLICATION
SELECTION CRITERIA & MAA MATRIX
(for Business Partners Acquiring IBM Products From Distributors)
Applicants should refer to this matrix to match their qualifications with the
appropriate relationship. This is page 1 of 2.
Finds may not apply for a "Netfinity Only" relationship if they already have an
IBM BP relationship to remarket IBM Personal Computers.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
Group 1 Group 2
-------------------------------------------- ---------------------------------------------
RS/6000 Netfinity S7390 9401-150 POS Storage Network
CRITERIA AS/400 RS/6000 SP (only) including 9406-170 (only) (only) Integration
R & P 390 (only) (only)
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Agreement SP SP Reseller SP SP SP Reseller Reseller
- - ----------------------------------------------------------------------------------------------------------------------------------
VAE required(1) yes yes yes(1) yes no - 150 yes no(1) no
yes - 170
- - ----------------------------------------------------------------------------------------------------------------------------------
Number of employees 10 10 10 10 3 3 3 3
- - ----------------------------------------------------------------------------------------------------------------------------------
Prior 12 months minimum revenue $500,000 $500,000 $500,000 $500,000 n/a n/a n/a n/a
- - ----------------------------------------------------------------------------------------------------------------------------------
Two (2) references required per VAE, VAE VAE like VAE like like like like
product, of service. Type required. product product product product product
- - ----------------------------------------------------------------------------------------------------------------------------------
IBM Certification of product-specific Cert. Cert. n/a Product Cert. Product Product n/a
training & education classes required specific specific specific
- - ----------------------------------------------------------------------------------------------------------------------------------
Overall Minimum Annual Attainment
- Year 1 MAA $50,000 $50,000 $50,000 $250,000 $50,000(1) waived $50,000 n/a
- Subsequent years MAA $100,000 $100,000 $100,000 $250,000 $50,000(150) $50,000 $100,000
(NOTE: THE S7390 MAA IS EXCLUSIVE OF $100,000(170)
OTHER PRODUCTS)
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) VAE IS REQUIRED FOR SELECTION & APPROVAL; BUT IS NOT REQUIRED FOR SALE TO
END USER CUSTOMERS.
(2) THE MAA FOR THE MODEL 150 IS WAIVED DURING THE FIRST MAA PERIOD.
(3) 3590 - CIX REQUIRES A VAE; USES SP AGREEMENT.
Firms approved for multiple product families may attain the overall MAA
listed above in any nine of the products, except the S/390 product family
which must be attained independently. The MAA requirements as shown above are
in U.S. dollars. As announced on July 28, 1998, (announcement 598-835) there
is a MAA conversion factor to be used for Canadian business.
Page 3
<PAGE>
IBM SOLUTION PROVIDER / RESELLER APPLICATION
SELECTION CRITERIA & MAA MATRIX
(for Business Partners Acquiring IBM Products From Distributors)
<TABLE>
<CAPTION>
Page 2 of 2
- - ---------------------------------------------------------------------------------------------
Group 3 - IBM GLOBAL SERVICES
-----------------------------------------------------
CRITERIA Project Support Network Professional
Services (PSS) Services (NS) Services (PS)
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Type of Agreement SP SP SP
- - ---------------------------------------------------------------------------------------------
VAE required(1) No Yes, except for No
Internet/Intranet
- - ---------------------------------------------------------------------------------------------
Number of employees 3 3 3
- - ---------------------------------------------------------------------------------------------
Prior 12 months minimum revenue n/a n/a n/a
- - ---------------------------------------------------------------------------------------------
Two (2) references required per VAE, Like Like Like
product, of service. Type required. Service Service(1) Service(1)
- - ---------------------------------------------------------------------------------------------
IBM Certification of product-specific n/a Service-Specific Service-Specific
training & education classes required Training(1) Training(1)
- - ---------------------------------------------------------------------------------------------
Overall Minimum Annual Attainment
- Year 1 MAA $50,000 Waived for Year 1 $50,000(2)
- Subsequent years MAA $100,000 $50,000 $50,000(2)
- - ---------------------------------------------------------------------------------------------
</TABLE>
(1) REQUIREMENT SATISFIED BY EITHER TWO REFERENCES FOR THE SERVICE OR SERVICE-
SPECIFIC TRAINING, AS DETERMINED BY MAA.
(2) FOR GREAT PLAINS & IBM HOSTING SERVICES, THE MAA IS THE SALE OF 15 NET
SEATS (END USER DESKTOPS) IN THE FIRST YEAR AND 20 NET SEATS ON SUBSEQUENT
YEARS.
Page 4
<PAGE>
IBM SOLUTION PROVIDER / RESELLER APPLICATION
1. Type of application (check all which apply)
<TABLE>
<S> <C>
___ New Applicant ___ Reapply for BP Relationship
___ Additional VAE ___ Additional IBM Product
___ Change of Company Name ___ Change of Address/Telephone/Fax
___ Change in Company Structure ___ Change of Contact Name
___ Change of Distributor ___ Change of Executive(s)
_X_ Change to VAE ___ Notice of Company Withdrawl as BP
</TABLE>
2. Application is for an IBM BP relationship for the following IBM products:
(check all which apply)
<TABLE>
<CAPTION>
Group 1 product family: Group 2 product family: Group 3 product family:
- - ----------------------- ----------------------- -----------------------------
<S> <C> <C>
_X_ AS/400 ___ AS/400 9401-150 ___ Product Support Services
_X_ RS/6000 ___ AS/400 9406-170 ___ Network Services
_X_ RS/6000 SP ___ Networking ___ Professional Services
___ Netfinity only** ___ Point of Sale (POS)
___ S/390 ___ Storage (specify category:___________________________________)
___ R/390; P/390 Comments:__________________________________________________________
</TABLE>
*Not including AS/400 Entry models 9401-150 & 9406-170; check either or both
of those separately, if desired
**Firms approved for other products (except Storage only) are automatically
approved for Netfinity. too
3. For the requested IBM products, what is your 12 month forecast for sales
(in K for thousands): $4M
----
4. For products related to this application, who manufactures the hardware
products you most often recommend?
1st: IBM 2nd: SUN
------------------- -----------------------
COMPANY INFORMATION
5. Company (Legal) Name: Design Automation Systems, Inc.
------------------------------------------------------
------------------------------------------------------
Street Address (No. P.O. Box): 3200 Wilcrest, Suite 370
---------------------------------------------
City: Houston State: TX Zip: 77042 Country: USA
------- -- ----- ---
Telephone: (713) 784-2374 Fax: (713) 784-2486
-------------- --------------
Date Established: (MM/YY) Web site: WWW.DA.COM
------------- -----------------
Contact Name: Gary A. Reece
-------------------------------
Contact Title: Account Executive/Partnering
------------------------------
Contact E-mail: garyr @da.com
-----------------------------
For the following, check those which apply
- Is this company a minority-owned business? ____
- Is this company a woman-owned business? ____
- Does this company have Federal 8A status? ____
If so, are you certified? ____
6. Number of full-time (W-2) employees: Total: 34
----
Sales Reps: 10 Tech Reps: 8 Services Reps: 3 Other: 13
---- --- --- ----
7. Company's prior year annual sales (in K
for thousands). Total: $3,600K (for IBM)
-------
Hardware: $2,800 K Software: $400 K Services: $400 K Other: $
-------- ------ ------ ------
Page 5
<PAGE>
IBM SOLUTION PROVIDER / RESELLER APPLICATION
CURRENT SP APPLYING FOR ADDITIONAL VAE APPROVAL MAY SKIP TO QUESTION 13.
CURRENT RS OR GROUP 3 SP APPLYING FOR ADDITIONAL PRODUCT(S) MAY SKIP TO THE
APPLICANT CHECKLIST.
8. Is this company a subsidiary of another company, a parent or holding?
Y or N _N_ If Yes, state relationship and name of the other company.
-----------------------------------------------------------------------
9. Is this company currently an IBM Business Partner or was an IBM Business
Partner within the last 12 months in the U.S. or Canada? (Y or N) _Y_ If
yes, please answer the following questions:
(a) Which IBM Business Partner program(s)? Solution Provider
-------------------------------
(b) IBM Branch Office (city, state, country), contact and telephone number
and ASPID # (if known)? Houston, TX
----------------------------------------------
(c) Why are you changing to this program?
Re-applying for VAES per requiremnts of IBM.
----------------------------------------------------------------------
(d) If applicable, who,is your current sponsoring Distributor and what is
the effective date of your IBM Agreement?
Hall-Mark Computer Products 5-2-97
----------------------------------------------------------------------
10. (a) List the names of the owner(s). CEO and President of the firm and their
previous employer:
Owner(s): Carl Rose
--------------------------------------------------------------
--------------------------------------------------------------
CEO: Carl Rose
--------------------------------------------------------------
President: Chuck Leaver
--------------------------------------------------------------
(b) If the person(s) responsible for the IBM BP relationship is not listed
above, what is their name, title and previous employer?
Gary A. Reece, Account Executive/Partnering
---------------------------------------------------------------------------
Previous Employer - HV Jones
---------------------------------------------------------------------------
11. (a) Are any owner(s), CEO, President, Vice Presidents, Directors or higher
level, executives currently employed by or have been employed by another
company with an IBM Business Partner relationship? (Y or N) _N_
If Yes, provide name and other/former employer(s).
------------------------
---------------------------------------------------------------------------
(b) Have any owner(s), CEO, President, Vice Presidents, Directors or
higher level executives ever been involved in a legal dispute, with IBM?
(Y or N) _N_ If Yes, describe the dispute, identify the individuals
involved, and provide approximate dates.
-----------------------------------
---------------------------------------------------------------------------
12. Is this company in the computer equipment leasing or brokerage business, or
affiliated with one that is? (Y or N) _N_ If Yes, describe:
----------------
---------------------------------------------------------------------------
NEW APPLICANTS FOR THE RS OR SP GROUP 3 RELATIONSHIP: I.E., NO VAE, MAY SKIP
QUESTIONS 13 THROUGH 17
Page 6
<PAGE>
QUESTIONS 13 THROUGH 17 SHOULD BE COMPLETED INDIVIDUALLY FOR EACH REQUESTED VAE.
MAKE ADDITIONAL COPIES OF THIS PAGE IF NEEDED.
THIS IS VAE PAGE: 1 OF 10
---- ----
13. (a) Enter the VAE Name: E-BUSINESS ELECTRONIC COMMERCE SOLUTIONS
----------------------------------------
(b) Check the VAE Category type:
Application Technology Customer Growth* Public Sector*
X
--- --- --- ---
*Candidates for these categories must complete the Sales Location
Addendum. See Applicant Checklist for details.
(c) Is this an IBM Standard VAE? (Y or N) Y
----
If Yes, what is the IBM VAE Number? T003
---------
(d) In what Industry is the VAE typically sold? (e.g. health,
manufacturing, cross industry): Cross Industry
--------------
(e) What is IBM two digit industry code(s) of the customer set who buys
this VAE?
--------------------------------------------------------
14. Typical solution price, and the percentage breakdown among hardware,
software, and services:
Total (in $K): $120 Hardware: 40% Software: 20% Services: 40%
---- --- --- ---
15. (a) Does the VAE solution include software?
(Y or N) Y If No, go to question #17.
---
(b) Does the VAE solution include just IBM software?
(Y or N) Y If Yes, go to question #17.
---
(c) If this VAE includes non-IBM software, are you the owner or author of
the software? (Y or N)
---
(d) If No, have you obtained marketing rights for the software?
(Y or N)
---
("Marketing rights" as it applies to the Business Partner contracts
and VAE statements means the remarketer firm must have a valid,
existing agreement with the software owner to remarket, deliver,
install, bill the end user customer, and support the software
solution.)
(e) Name of the software owner
------------------------------
16. For a custom (non-IBM standard) VAE solution, please provide the following
additonal information:
(a) IBM Platform(s) on which VAE runs: e.g., AS/400 Entry:
---------------
(b) Is this VAE ported to IBM Platform? (Y or N)
---
(c) List the minimum set of base or core modules which will always be
installed. (For example, the minimum set of modules in a physicians
management system might include: patient scheduling, patent history,
physician scheduling, insurance billing, and accounts receivable.)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
17. IBM requires for approval of your VAE that each of your products and
deliverables resulting from your services, forming a part of the VAE be
Year 2000 Ready. A product or deliverable resulting from services is "Year
2000 Ready" if, when used in accordance with its associated documentation,
it is capable of correctly processing, providing and/or receiving date data
within and between the twentieth and twenty-first centuries, provided that
all products (for example. hardware, software and firmware) are used with
the product or deliverable properly exchange accurate date data with it.
Are each of your products and deliverables forming a part of your VAE Year
2000 Ready? (Y or N) Y
---
Page 7
<PAGE>
QUESTIONS 13 THROUGH 17 SHOULD BE COMPLETED INDIVIDUALLY FOR EACH REQUESTED VAE.
MAKE ADDITIONAL COPIES OF THIS PAGE IF NEEDED.
THIS IS VAE PAGE: 2 OF 10
---- ----
13. (a) Enter the VAE Name: SERVER CONSOLIDATION
--------------------
(b) Check the VAE Category type:
Application Technology Customer Growth* Public Sector*
X
--- --- --- ---
*Candidates for these categories must complete the Sales Location
Addendum. See Applicant Checklist for details.
(c) Is this an IBM Standard VAE? (Y or N) Y
----
If Yes, what is the IBM VAE Number? T007
---------
(d) In what Industry is the VAE typically sold? (e.g. health,
manufacturing, cross industry): Cross Industry
--------------
(e) What is IBM two digit industry code(s) of the customer set who buys
this VAE?
--------------------------------------------------------
14. Typical solution price, and the percentage breakdown among hardware,
software, and services:
Total (in $K): $120 Hardware: 60% Software: 30% Services: 30%
---- --- --- ---
15. (a) Does the VAE solution include software?
(Y or N) Y If No, go to question #17.
---
(b) Does the VAE solution include just IBM software?
(Y or N) Y If Yes, go to question #17.
---
(c) If this VAE includes non-IBM software, are you the owner or author of
the software? (Y or N)
---
(d) If No, have you obtained marketing rights for the software?
(Y or N)
---
("Marketing rights" as it applies to the Business Partner contracts
and VAE statements means the remarketer firm must have a valid,
existing agreement with the software owner to remarket, deliver,
install, bill the end user customer, and support the software
solution.)
(e) Name of the software owner
------------------------------
16. For a custom (non-IBM standard) VAE solution, please provide the following
additonal information:
(a) IBM Platform(s) on which VAE runs: e.g., AS/400 Entry:
---------------
(b) Is this VAE ported to IBM Platform? (Y or N)
---
(c) List the minimum set of base or core modules which will always be
installed. (For example, the minimum set of modules in a physicians
management system might include: patient scheduling, patent history,
physician scheduling, insurance billing, and accounts receivable.)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
17. IBM requires for approval of your VAE that each of your products and
deliverables resulting from your services, forming a part of the VAE be
Year 2000 Ready. A product or deliverable resulting from services is "Year
2000 Ready" if, when used in accordance with its associated documentation,
it is capable of correctly processing, providing and/or receiving date data
within and between the twentieth and twenty-first centuries, provided that
all products (for example. hardware, software and firmware) are used with
the product or deliverable properly exchange accurate date data with it.
Are each of your products and deliverables forming a part of your VAE Year
2000 Ready? (Y or N) Y
---
Page 8
<PAGE>
QUESTIONS 13 THROUGH 17 SHOULD BE COMPLETED INDIVIDUALLY FOR EACH REQUESTED VAE.
MAKE ADDITIONAL COPIES OF THIS PAGE IF NEEDED.
THIS IS VAE PAGE: 3 OF 10
---- ----
13. (a) Enter the VAE Name: BUSINESS INTELLIGENCE
---------------------
(b) Check the VAE Category type:
Application Technology Customer Growth* Public Sector*
X
--- --- --- ---
*Candidates for these categories must complete the Sales Location
Addendum. See Applicant Checklist for details.
(c) Is this an IBM Standard VAE? (Y or N) Y
----
If Yes, what is the IBM VAE Number? T001
---------
(d) In what Industry is the VAE typically sold? (e.g. health,
manufacturing, cross industry): Cross Industry
--------------
(e) What is IBM two digit industry code(s) of the customer set who buys
this VAE?
--------------------------------------------------------
14. Typical solution price, and the percentage breakdown among hardware,
software, and services:
Total (in $K): $120K Hardware: 40% Software: 20% Services: 40%
----- --- --- ---
15. (a) Does the VAE solution include software?
(Y or N) Y If No, go to question #17.
---
(b) Does the VAE solution include just IBM software?
(Y or N) Y If Yes, go to question #17.
---
(c) If this VAE includes non-IBM software, are you the owner or author of
the software? (Y or N)
---
(d) If No, have you obtained marketing rights for the software?
(Y or N)
---
("Marketing rights" as it applies to the Business Partner contracts
and VAE statements means the remarketer firm must have a valid,
existing agreement with the software owner to remarket, deliver,
install, bill the end user customer, and support the software
solution.)
(e) Name of the software owner
------------------------------
16. For a custom (non-IBM standard) VAE solution, please provide the following
additonal information:
(a) IBM Platform(s) on which VAE runs: e.g., AS/400 Entry:
---------------
(b) Is this VAE ported to IBM Platform? (Y or N)
---
(c) List the minimum set of base or core modules which will always be
installed. (For example, the minimum set of modules in a physicians
management system might include: patient scheduling, patent history,
physician scheduling, insurance billing, and accounts receivable.)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
17. IBM requires for approval of your VAE that each of your products and
deliverables resulting from your services, forming a part of the VAE be
Year 2000 Ready. A product or deliverable resulting from services is "Year
2000 Ready" if, when used in accordance with its associated documentation,
it is capable of correctly processing, providing and/or receiving date data
within and between the twentieth and twenty-first centuries, provided that
all products (for example. hardware, software and firmware) are used with
the product or deliverable properly exchange accurate date data with it.
Are each of your products and deliverables forming a part of your VAE Year
2000 Ready? (Y or N) Y
---
Page 9
<PAGE>
QUESTIONS 13 THROUGH 17 SHOULD BE COMPLETED INDIVIDUALLY FOR EACH REQUESTED VAE.
MAKE ADDITIONAL COPIES OF THIS PAGE IF NEEDED.
THIS IS VAE PAGE: 4 OF 10
---- ----
13. (a) Enter the VAE Name: E-BUSINESS WEB APPLICATION SERVER SOLUTIONS
-------------------------------------------
(b) Check the VAE Category type:
Application Technology Customer Growth* Public Sector*
X
--- --- --- ---
*Candidates for these categories must complete the Sales Location
Addendum. See Applicant Checklist for details.
(c) Is this an IBM Standard VAE? (Y or N) Y
----
If Yes, what is the IBM VAE Number? T004
---------
(d) In what Industry is the VAE typically sold? (e.g. health,
manufacturing, cross industry): Cross Industry
--------------
(e) What is IBM two digit industry code(s) of the customer set who buys
this VAE? Cross Industry
--------------------------------------------------------
14. Typical solution price, and the percentage breakdown among hardware,
software, and services:
Total (in $K): $120 Hardware: 40% Software: 20% Services: 40%
---- --- --- ---
15. (a) Does the VAE solution include software?
(Y or N) Y If No, go to question #17.
---
(b) Does the VAE solution include just IBM software?
(Y or N) Y If Yes, go to question #17.
---
(c) If this VAE includes non-IBM software, are you the owner or author of
the software? (Y or N)
---
(d) If No, have you obtained marketing rights for the software?
(Y or N)
---
("Marketing rights" as it applies to the Business Partner contracts
and VAE statements means the remarketer firm must have a valid,
existing agreement with the software owner to remarket, deliver,
install, bill the end user customer, and support the software
solution.)
(e) Name of the software owner
------------------------------
16. For a custom (non-IBM standard) VAE solution, please provide the following
additonal information:
(a) IBM Platform(s) on which VAE runs: e.g., AS/400 Entry:
---------------
(b) Is this VAE ported to IBM Platform? (Y or N)
---
(c) List the minimum set of base or core modules which will always be
installed. (For example, the minimum set of modules in a physicians
management system might include: patient scheduling, patent history,
physician scheduling, insurance billing, and accounts receivable.)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
17. IBM requires for approval of your VAE that each of your products and
deliverables resulting from your services, forming a part of the VAE be
Year 2000 Ready. A product or deliverable resulting from services is "Year
2000 Ready" if, when used in accordance with its associated documentation,
it is capable of correctly processing, providing and/or receiving date data
within and between the twentieth and twenty-first centuries, provided that
all products (for example. hardware, software and firmware) are used with
the product or deliverable properly exchange accurate date data with it.
Are each of your products and deliverables forming a part of your VAE Year
2000 Ready? (Y or N) Y
---
Page 10
<PAGE>
IBM SOLUTION PROVIDER / RESELLER APPLICATION
QUESTIONS 13 THROUGH 17 SHOULD BE COMPLETED INDIVIDUALLY FOR EACH REQUESTED VAE.
MAKE ADDITIONAL COPIES OF THIS PAGE IF NEEDED.
THIS IS VAE PAGE: 5 OF 10
---- ----
13. (a) Enter the VAE Name: HIGH AVAILABILITY
-----------------
(b) Check the VAE Category type:
Application Technology Customer Growth* Public Sector*
X
--- --- --- ---
*Candidates for these categories must complete the Sales Location
Addendum. See Applicant Checklist for details.
(c) Is this an IBM Standard VAE? (Y or N)
----
If Yes, what is the IBM VAE Number? T005
---------
(d) In what Industry is the VAE typically sold? (e.g. health,
manufacturing, cross industry): CROSS INDUSTRY
--------------
(e) What is IBM two digit industry code(s) of the customer set who buys
this VAE?
--------------------------------------------------------
14. Typical solution price, and the percentage breakdown among hardware,
software, and services:
Total (in $K): $120 Hardware: 40% Software: 20% Services: 40%
---- --- --- ---
15. (a) Does the VAE solution include software?
(Y or N) Y If No, go to question #17.
---
(b) Does the VAE solution include just IBM software?
(Y or N) Y If Yes, go to question #17.
---
(c) If this VAE includes non-IBM software, are you the owner or author of
the software? (Y or N)
---
(d) If No, have you obtained marketing rights for the software?
(Y or N)
---
("Marketing rights" as it applies to the Business Partner contracts
and VAE statements means the remarketer firm must have a valid,
existing agreement with the software owner to remarket, deliver,
install, bill the end user customer, and support the software
solution.)
(e) Name of the software owner
------------------------------
16. For a custom (non-IBM standard) VAE solution, please provide the following
additonal information:
(a) IBM Platform(s) on which VAE runs: e.g., AS/400 Entry:
---------------
(b) Is this VAE ported to IBM Platform? (Y or N)
---
(c) List the minimum set of base or core modules which will always be
installed. (For example, the minimum set of modules in a physicians
management system might include: patient scheduling, patent history,
physician scheduling, insurance billing, and accounts receivable.)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
17. IBM requires for approval of your VAE that each of your products and
deliverables resulting from your services, forming a part of the VAE be
Year 2000 Ready. A product or deliverable resulting from services is "Year
2000 Ready" if, when used in accordance with its associated documentation,
it is capable of correctly processing, providing and/or receiving date data
within and between the twentieth and twenty-first centuries, provided that
all products (for example. hardware, software and firmware) are used with
the product or deliverable properly exchange accurate date data with it.
Are each of your products and deliverables forming a part of your VAE Year
2000 Ready? (Y or N) Y
---
Page 11
<PAGE>
QUESTIONS 13 THROUGH 17 SHOULD BE COMPLETED INDIVUALLY FOR EACH REQUESTED VAE.
MAKE ADDITIONAL COPIES OF THIS PAGE IF NEEDED.
THIS IS VAE PAGE #: 6 OF 10
--- ---
13. (a) Enter the VAE Name: STORAGE AVAILABILITY
--------------------
(b) Check the VAE Category type:
Application X Technology Customer Growth* Public Sector*
--- --- --- ---
* Candidates for these categories must complete the Sales Location
Addendum. See Applicant Checklist for details.
(c) Is this an IBM Standard VAE? (Y or N) Y
---
If Yes, what Is the IBM VAE Number? T008
--------
(d) In what industry is the VAE typically sold? (e.g. health,
manufacturing, cross industry): CROSS INDUSTRY
---------------------
(e) What is the IBM two digit industry code(s) of the customer set who
buys this VAE?
------------------------------------------------------
14. Typical solution price, and the percentage breakdown among hardware,
software, and services:
Total (in $K): $100K Hardware: 40% Software: 20% Services: 40%
----- --- --- ---
15. (a) Does the VAE solution include software? (Y or N) Y
---
If No go to question #17.
(b) Does the VAE solution include just IBM software? (Y or N) Y
---
If Yes, go to question #17.
(c) If this VAE includes non-IBM software, are you the owner or author of
the software? (Y or N)
---
(d) If No, have you obtained marketing rights for the software?
(Y or N)
---
("Marketing rights" as it applies to the Business Partner contracts
and VAE statements means the remarketer firm must have a valid,
existing agreement with the software owner to remarket, deliver,
install, bill the end user customer, and support the software
solution.)
(e) Name of the software owner
16. For a custom (non-IBM standard) VAE solution, please provide the following
additional information:
(a) IBM Platform(s) on which VAE runs: eg., AS/400 Entry:
----------------
(b) Is this VAE ported to IBM Platform? (Y or N)
---
(c) List the minimum set of base or core modules which will always be
installed. (For example, the minimum set of modules in a physicians
management system might include: patent scheduling, patient history,
physician scheduling, insurance billing, and accounts receivable.)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
17. IBM requires for approval of your VAE that each of your products and
deliverables resulting from your services, forming a part of the VAE, be
Year 2000 Ready. A product or deliverable resulting from services is "Year
2000 Ready" if, when used in accordance with its associated documentation,
it is capable of correctly processing, providing and/or receiving date data
within and between the twentieth and twenty-first centuries, provided that
all products (for example, hardware, software and firmware) are used with
the product or deliverable properly exchange accurate date data with it.
Are each of your products and deliverables forming a part of your VAE Year
2000 Ready? (Y or N) Y
---
Page 12
<PAGE>
QUESTIONS 13 THROUGH 17 SHOULD BE COMPLETED INDIVIDUALLY FOR EACH REQUESTED VAE.
MAKE ADDITIONAL COPIES OF THIS PAGE IF NEEDED.
THIS IS VAE PAGE #: 7 of 10
--- ---
13 (a) Enter the VAE Name. IBM SYSTEM MIGRATIONS & UPGRADE
-------------------------------
(b) Check the VAE Category type.
Application Technology X Customer Growth* Public Sector*
--- --- --- ---
*Candidates for these categories must complete the Sales Location
Addendum. See Applicant Checklist for details.
(c) Is this an IBM Standard VAE? (Y or N) Y
---
If Yes, what is the IBM VAE Number? GOO1
--------
(d) In what industry is the VAE typically sold? (e.g. health,
manufacturing, cross industry) CROSS INDUSTRY
--------------
(e) What is the IBM two digit industry code(s) of the customer set who
buys this VAE?
------------------------------------------------------
14. Typical solution price, and the percentage breakdown among hardware,
software, and services.
Total (in $K) $120 Hardware: 60% Software: 20% Services: 20%
----- --- --- ---
15. (a) Does the VAE solution include software? (Y or N) Y
---
If No, go to question #17
(b) Does the VAE solution include just IBM Software? (Y or N) Y
---
If Yes, go to question #17
(c) It this VAE includes non-IBM software, are you the owner or author of
the software? (Y or N)
---
(d) If No, have you obtained marketing rights for the software?
(Y or N)
---
("Marketing rights" as it applies to the Business Partner contracts
and VAE statements means the remarketer firm must have a valid,
existing agreement with the software owner to remarket, deliver,
install, bill the end user customer, and support the software
solution.)
(e) Name of the software owner:
------------------------------------------
16. For a custom (non-IBM standard) VAE solution, please provide the following
additional information:
a) IBM Platform(s), on which VAE runs: e. g. AS/400 Entry
--------------
b) Is this VAE ported to IBM Platform (Y or N)
---
c) List the minimum set of base or core modules which will always be
installed. For example, the minimum set of modules in a physicians
management system might include: patient scheduling, patient history,
physicians scheduling, insurance billing, and accounts receivable)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
17. IBM requires for approval of your VAE that each of your products and
deliverables resulting from your services, forming a part of the VAE, be
Year 2000 Ready. A product or deliverable resulting from services is "Year
2000 Ready" if, when used in accordance with its associated documentation,
it is capable of correctly processing, providing and/or receiving date data
within and between the twentieth and twenty-first centuries, provided that
all products (for example, hardware, software, and firmware) are used with
the product or deliverable properly exchange accurate date data with it.
Are each of your products and deliverables forming a part of your VAE Year
2000 Ready? (Y or N) Y
---
Page 13
<PAGE>
QUESTIONS 13 THROUGH 17 SHOULD BE COMPLETED INDIVIDUALLY FOR EACH REQUESTED VAE.
MAKE ADDITIONAL COPIES OF THIS PAGE IF NEEDED.
THIS IS VAE PAGE #: 8 of 10
--- ---
13. (a) Enter the VAE Name: COMPETITIVE SYSTEM CONVERSION
-----------------------------
(b) Check the VAE Category type:
Application X Technology Growth* Public Sector
--- --- --- ---
* Candidates for these categories must complete the Sales Location
Addendum. See Applicant Checklist for details.
(c) Is this an IBM Standard VAE? (Y or N) Y
---
If Yes. what is the IBM VAE Number? G002
--------
(d) In what industry is the VAE typically sold? (e.g. health,
manufacturing, cross industry). CROSS INDUSTRY
-------------------------
(e) What is the IBM two digit industry code(s) of the customer set who
buys this VAE?
-------------------------------------------------------
14. Typical solution price, and the percentage breakdown among hardware,
software, and services:
Total(in $K): $140 Hardware: 50% Software: 20% Services: 30%
---- --- --- ---
15. (a) Does the VAE solution include software? (Y or N) Y
---
If No, go to question #17.
(b) Does the VAE solution include just IBM software? (Y or N) Y
---
If Yes, go to question #17.
(c) If this VAE includes non-IBM software, are you the owner or author of
the software? (Y or N)
---
(d) If No, have you obtained marketing rights for the software?
(Y or N)
---
("Marketing rights" as it applies to the Business Partner contracts
and VAE statements means the remarketer firm must have a valid,
existing agreement with the software owner to remarket, deliver,
install, bill the end user customer, and support the software
solution.)
(e) Name of the software owner:
-------------------------------------------
16. For a custom (non-IBM standard) VAE solution, please provide the following
additional information:
(a) IBM Platform(s) on which VAE runs. e.g., AS/400 Entry:
----------------
(b) Is this VAE ported to IBM Platform? (Y or N)
---
(c) List the minimum set of base or core modules which will always be
installed. For example, the minimum set of modules in a physicians
management system might include: patient scheduling, patient history,
physician scheduling, insurance billing, and accounts receivable):
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
17. IBM requires for approval of your VAE that each of your products and
deliverables resulting from your services, forming a part of the VAE, be
Year 2000 Ready. A product or deliverable resulting from services is "Year
2000 Ready" if, when used in accordance with its associated documentation,
it is capable of correctly processing, providing and/or receiving date data
within and between the twentieth and twenty-first centuries, provided that
all products (for example, hardware, software and firmware) are used with
the product or deliverable properly exchange accurate date data with it.
Are each of your products and deliverables forming a part of your VAE Year
2000 Ready? (Y or N) Y
---
Page 14
<PAGE>
QUESTIONS 13 THROUGH 17 SHOULD BE COMPLETED INDIVIDUALLY FOR EACH REQUESTED VAE.
MAKE ADDITIONAL COPIES OF THIS PAGE IF NEEDED.
THIS IS VAE PAGE #: 9 of 10
--- ---
13. (a) Enter the VAE Name. NEW CUSTOMER
------------
(b) Check the VAE Category type:
Application Technology X Customer Growth* Public Sector*
--- --- --- ---
* Candidates for these categories must complete the Sales Location
Addendum, See Applicant Checklist for details.
(c) Is this an IBM Standard VAE? (Y or N) Y
---
If Yes, what is the IBM VAE Number? G003
--------
(d) In what industry is the VAE typically sold? (e.g. health,
manufacturing, cross industry): CROSS INDUSTRY
-------------------
(e) What is the IBM two digit industry code(s) of the customer set who
buys this VAE?
-------------------------------------------------------
14. Typical solution price, and the percentage breakdown among hardware,
software, and services:
Total(in $K): $140 Hardware: 50% Software: 20% Services: 30%
---- --- --- ---
15. (a) Does the VAE solution include software? (Y or N) Y
---
If No, go to question #17.
(b) Does the VAE solution include just IBM software? (Y or N) Y
---
If Yes, go to question #17.
(c) If this VAE includes non-IBM software, are you the owner or author of
the software? (Y or N)
---
(d) If No, have you obtained marketing rights for the software?
(Y or N)
---
("Marketing rights" as it applies to the Business Partner contracts
and VAE statements means the remarketer firm must have a valid,
existing agreement with the software owner to remarket, deliver,
install, bill the end user customer, and support the software
solution.)
(e) Name of the software owner:
-------------------------------------------
16. For a custom (non-IBM standard) VAE solution, please provide the following
additional information:
(a) IBM Platform(s) on which VAE runs, e.g., AS/400 Entry:
----------------
(b) Is this VAE ported to IBM Platform? (Y or N)
---
(c) List the minimum set of base or core modules which will always be
installed. For example, the minimum set of modules in a physicians
management system might include: patient scheduling, patient history,
physician scheduling, insurance billing, and accounts receivable)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
17. IBM requires for approval of your VAE that each of your products and
deliverables resulting from your services, forming a part of the VAE, be
Year 2000 Ready. A product or deliverable resulting from services is "Year
2000 Ready" if, when used in accordance with its associated documentation,
it is capable of correctly processing, providing and/or receiving date data
within and between the twentieth and twenty-first centuries, provided that
all products (for example, hardware, software, and firmware) are used with
the product or deliverable properly exchange accurate date data with it.
Are each of your products and deliverables forming a part of your VAE Year
2000 Ready? (Y or N) Y
---
Page 15
<PAGE>
QUESTIONS 13 THROUGH 17 SHOULD BE COMPLETED INDIVIDUALLY FOR EACH REQUESTED VAE.
MAKE ADDITIONAL COPIES OF THIS PAGE IF NEEDED.
THIS IS VAE PAGE #: 10 OF 10
--- ---
13. (a) Enter the VAE Name: SOLUTION DEVELOPMENT
--------------------
(b) Check the VAE Category type:
Application Technology X Customer Growth* Public Sector*
--- --- --- ---
Candidates for these categories must complete the Sales Location
Addendum. See Applicant Checklist for details.
(c) Is this an IBM Standard VAE? (Y or N) Y
---
If Yes, what Is the IBM VAE Number? G004
--------
(d) In what industry is the VAE typically sold? (e.g. health,
manufacturing, cross industry): CROSS INDUSTRY
--------------
(e) What is the IBM two digit Industry code(s) of the customer set who
buys this VAE?
-------------------------------------------------------
14. Typical solution price, and the percentage breakdown among hardware,
software, and services:
Total(in $K): $140 Hardware: 50% Software: 20% Services: 30%
---- --- --- ---
15. (a) Does the VAE solution include software? (Y or N) Y
---
If No, go to question #17.
(b) Does the VAE solution include just IBM software? (Y or N) Y
---
If Yes, go to question #17.
(c) It this VAE includes non-IBM software, are you the owner or author of
the software? (Y or N)
---
(d) If No, have you obtained marketing rights for the software?
(Y or N)
---
("Marketing rights" as it applies to the Business Partner contracts
and VAE statements means the remarketer firm must have a valid,
existing agreement with the software owner to remarket, deliver,
install, bill the end user customer, and support the software
solution.)
(e) Name of the software owner:
-------------------------------------------
16. For a custom (non-IBM standard) VAE solution, please provide the following
additional information:
(a) IBM Platform(s) on which VAE runs, e.g., AS/400 Entry:
----------------
(b) Is this VAE ported to IBM Platform? (Y or N)
---
(c) List the minimum set of base or core modules which will always be
installed. For example, the minimum set of modules in a physicians
management system might include: patient scheduling, patient history,
physician scheduling, insurance billing, and accounts receivable)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
17. IBM requires for approval of your VAE that each of your products and
deliverables resulting from your services, forming a part of the VAE, be
Year 2000 Ready. A product or deliverable resulting from services is "Year
2000 Ready" if, when used in accordance with its associated documentation,
it is capable of correctly processing, providing and/or receiving date data
within and between the twentieth and twenty-first centuries, provided that
all products (for example, hardware, software and firmware) are used with
the product or deliverable properly exchange accurate date data with it.
Are each of your products and deliverables forming a part of your VAE Year
2000 Ready? (Y or N) Y
---
Page 16
<PAGE>
APPLICANT CHECKLIST: Please be sure to send the following supporting documents,
as applicable, with your completed application to your sponsoring Distributor.
*N/A FOR GROUP 1 APPLICANTS, A COPY OF RELEVANT PAGES FROM FINANCIAL
--- STATEMENT OR TAX FORM, OR A LETTER FROM YOUR CPA CONFIRMING AT LEAST
$500,000 IN REVENUE DURING THE PRIOR 12 MONTHS
X TWO CUSTOMER REFERENCE LETTERS PER VAE, PRODUCT, OR SERVICE
---
*N/A BROCHURE OR MARKETING COLLATERAL USED TO MARKET EACH VAE
---
*N/A PRODUCT EXPERIENCE PROFILES OF TECHNICAL PERSONNEL WHO WILL SUPPORT
--- THIS VAE OR PRODUCT
**N/A SOLUTION PROVIDER BUSINESS PLAN SHOWING ABILITY TO MEET MAA AND
--- CERTIFICATION (OR EDUCATION) REQUIREMENTS
X IF YOU HAVE MULTIPLE BUSINESS LOCATIONS (defined as an office with a
--- minimum of one full time sales employee and one full time technical
employee, and a telephone number in the name of the business),
PLEASE LIST THEM ON AN ATTACHMENT (ADDRESS, CITY, STATE, ZIP,
TELEPHONE)
X IF YOU ARE APPLYING FOR EITHER A "CUSTOMER GROWTH" OR A "PUBLIC
--- SECTOR" VAE APPROVAL, THE SALES LOCATION ADDENDUM MUST BE COMPLETED
AND ATTACHED FOR EACH LOCATION FOR WHICH YOU WANT APPROVAL
* On file previously submitted.
** See attached.
The statements provided in this application are accurate to the best of my
knowledge. I understand and agree to the following:
If selected for program participation, inaccurate information may be
grounds for IBM to terminate my Solution Provider or Reseller relationship.
IBM or the Distributor may contact any person or institution identified in
this application for the purpose of verifying the information.
The VAE(s) contained in this application are currently operative on or with
IBM platforms and are Y2K Ready.
I may not sell the same IBM product family in another IBM Business Partner
relationship except IBM Sales AGENT. Therefore, if my application is
approved, I hereby terminate my current IBM Business Partner relationship
for this IBM product family.
Once a BP is approved under a Distributor's sponsorship, the SP may request
to change Distributors for any given product family by giving notice ONLY
WITHIN TWO MONTHS of the anniversary date of the BP/Reseller Agreement.
IBM's approval of the move is contingent upon the BP meeting its MAA
objective. To request a sponsorship change, a BP will be required, in
conjunction with the newly selected Distributor, to submit a new Solutions
Provider/Reseller Application indicating a desire to change. Also. the BP
must inform its current Distributor of the intention to move.
If currently under contract with IBM in another Business Partner
relationship, I understand that my current Profile may be modified to
include the IBM products requested in this application and that the terms
and conditions of my current contract will apply, in addition to the
applicable Minimum Annual Attainment, if appropriate.
If I am currently an authorized IBM Business Partner, the following
activities must be performed prior to approval of this application:
A) All IBM accounts receivable must be current.
B) All uninstalled equipment must be installed.
C) All open, unshipped, backlog must be canceled or transferred.
D) If a change in Distributor is requested, my current Distributor
has been informed in writing of my intention to change.
Applicant Firm Name: DESIGN AUTOMATION SYSTEMS, INC.
-------------------------------
Contact Name: GARY A. REECE Title: ACCOUNT EXECUTIVE/PARTNERING
----------------------- ----------------------------
Signature: /S/ GARY A. REECE Date: 10-5-98
--------------------------- -------
Page 17
<PAGE>
SALES LOCATION ADDENDUM
THIS INFORMATION IS REQUIRED FOR FIRMS APPLYING FOR EITHER THE CUSTOMER GROWTH
OR THE PUBLIC SECTOR VAE.
This is Addendum #: 1 of 3
--- ---
(Please complete one Addendum for each VAE for which you are requesting
approval. Make as many copies of this form as vou need.)
Company Name: DESIGN AUTOMATION SYSTEMS, INC.
-------------------------------
City: HOUSTON State: TX
----------- -------
Sponsoring Distributor: HALL-MARK
-------------
Requested VAE Category (please check as appropriate):
CUSTOMER GROWTH PUBLIC SECTOR
--------------- --------------
X IBM System Migration & Upgrade (GO01) Education
--- ---
X Competitive Systems Conversion (GO02) State & Local Government
--- ---
X New Customer (GO03) Federal Government
--- ---
X Solution Development (GO04)
---
Note: A firm applying for these VAEs must meet the following minimum
eligibility requirements:
-- approved as an AS/400 or RS/6000 Solution Provider or Systems
Integrator for a minimum of one year
-- attained its MAA
-- currently approved for an Application, Technology, or Custom VAE
-- have IBM Certified employees resident at each requested location
(sales employee located within a 100 radius:
technical employee within a 300 mile radius)
-- sales location is located within a 150 or a 300 mile radius of
the customer (150 miles for firms east of the Mississippi River
or a 300 mile radius for firms west of the Mississippi River)
-- has local IBMILink access at the sales location
-- dedicated business phone line listed in the firm name at the
sales location
What is the name of your prerequisite Application, Technology, or Custom VAE?
SERVER CONSOLIDATION (T007) E-BUSINESS ELEC COMMERCE (T003)
- - --------------------------------------------------------------------------------
Information about this Sales Location:
Address (no P.O. Box): 3200 Wilcrest, Suite 370 City: Houston
------------------------------- -------------
State: TX Zip: 77042 Business telephone number: 713-784-2374
---- ----- -------------
Certified Sales employee at this location: Gary A. Reece
--------------------------------
Certified Technical employee at this location: Jose Escudero
-----------------------------
The Solution Development VAE (GO04) requires an additional IBM Certified
Technical employee for each sales location. Who is that person for this
request?
-------------------------------------------------------------------
Page 18
<PAGE>
IBM SOLUTION PROVIDER/RESELLER APPLICATION
SALES LOCATION ADDENDUM
This information is required for firms applying for the Customer Growth VAE.
This Is Addendum #: 2 of 3
--- ---
(Please complete one Addendum for each VAE for which you are requesting
approval. Make as many copies of this form as you need.)
Firms applying for Customer Growth VAEs must meet the following minimum
eligibility requirements:
- - -- Approved as an AS/400 or RS/6000 Solution Provider or Systems Integrator
for a minimum of one year
- - -- Attained Minimum Annual Attainment (MAA)
- - -- Currently approved or provisionally approved (if applicable) for an
Application or Technology category VAE or a Custom VAE
- - -- Have a minimum of two full-time employees (1 sales and 1 technical) at
each requested location. Sales employee is to be located within a 100 mile
radius: the technical employee within a 300 mile radius. These employees
can be counted for only one sales location. Product certification
requirements must be met at each approved sales location, except for
RS/6000 SP.
- - -- Sales Location is located within a 150 or a 300 mile radius of the customer
(150 miles for firms east and 300 miles for firms west of the Mississippi
River)
- - -- IBMLink access at the sales location
- - -- Dedicated business phone line listed in the firm name at the sales location
SECTION ONE
1. Company Name: Design Automation Systems, Inc.
------------------------------
Main (HQ) location: City: Houston St: TX
-------- -----
Sponsoring Distributor: Hall-Mark
---------
2. Requested VAE Category (please check as appropriate):
CUSTOMER GROWTH AS/400 RS/6000
--------------- ------ -------
X IBM System Migration & Upgrade(G001) X
--- ------ -------
X Competitive Systems Conversion(G002) X
--- ------ -------
X New Customer(G003) X
--- ------ -------
X Solution Development(G004) X
--- ------ -------
3. Indicate the number of qualifying VAEs you currently are approved for:
AS/400 RS/6000
------ -------
Application
------ -------
Custom
------ -------
Technology
------ -------
4. Information about this Sales Location:
Street Address: 555 Republic Drive #200
-----------------------
City: Dallas State: TX Zip: 75074
--------- ---- -----
Telephone number: 972-896-0575 Fax number: 972-414-3871
------------ ------------
SECTION TWO
If you are applying for approval for either the IBM System Migration & Upgrade
(GO01) or Solution Development (GO04) VAEs, please complete the following
questions:
AS/400 ONLY RS/6000 ONLY BOTH
----------- ------------ ----
5. Number of full-time Sales (only)
employees at this location: 1 1 6
Number of full-time Technical (only)
employees at this location: 2 2
Continued on the next page ..............
Page 19
<PAGE>
IBM SOLUTION PROVIDER/RESELLER APPLICATION
SALES LOCATION ADDENDUM, continued
7. Indicate whether you are approved for equivalent withdrawn VAEs AND the
number of new systems installed or processors upgraded during the previous
12 months within the specified geographic distance of the proposed sales
location:
<TABLE>
<CAPTION>
CHECK IF APPROVED FOR: 12-MONTH INSTALL/UPGRADES:
VAE REQUESTED / WITHDRAWN VAE OR PROGRAM AS/400 RS/6000 AS/1400 RS/6000
- - ---------------------------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
IBM System Migration & Upgrade (G001)
A. System/3X to AS/400 Migration
------ ------- ------ -------
B. Orphaned End User
------ ------- ------ -------
C. System/3X to RS/6000 Migration
------ ------- ------ -------
D. RS/6000 SP Migration/Middleware
------ ------- ------ -------
E. ACT NOW!
------ ------- ------ -------
F. Customer Focus
------ ------- ------ -------
Solution Development (GO04)
------ ------- ------ -------
G. AS/400 Optimized Client/Server
------ ------- ------ -------
H. AS/400 LAN Client/Server
------ ------- ------ -------
I. RS/6000 Client/Server Networking #
------ ------- ------ -------
Other--List VAE name
J.
----------------------------------- ------ ------- ------ -------
K.
----------------------------------- ------ ------- ------ -------
L.
----------------------------------- ------ ------- ------ -------
M.
----------------------------------- ------ ------- ------ -------
</TABLE>
8. For firms applying for VAE G001, indicate the TOTAL NUMBER of System/3x
migrations within the specified geographic distance of the proposed sales
location.
AS/400 RS/6000
------ -------
New Systems
------ -------
Processor Upgrades
------ -------
9. Check your IBM Business Partner status: Member Advanced X Premier
--- --- ---
Note: The Solution Development VAE (GO04) requires an additional IBM Certified
Technical employee for each sales location (up to a maximum of ten employees)
for each approved product. These additional employees may be assigned to any
location within the firm, including the headquarters location. An employee can
be counted for only one Sales Location.
NOTE: For more information about the new customer growth VAE refer to IBM
announcements 598-148 and 598-145 or Channel Communications CC9807-113,
CC9807-100 and CC9809-145. For information regarding certification refer to IBM
announcement 598-080 and Channel Communication CC9809-146.
Page 20
<PAGE>
IBM SOLUTION PROVIDER/RESELLER APPLICATION
SALES LOCATION ADDENDUM
This information is required for firms applying for the Customer Growth VAE.
THIS IS ADDENDUM #: 3 of 3
--- ---
(Please complete one Addendum for each VAE for which you are requesting
approval. Make as many copies of this form as you need.)
Firms applying for Customer Growth VAEs must meet the following minimum
eligibility requirements:
- - -- Approved as an AS/400 or RS/6000 Solution Provider or Systems Integrator
for a minimum of one year
- - -- Attained Minimum Annual Attainment (MAA)
- - -- Currently approved or provisionally approved (if applicable) for an
Application or Technology category VAE or a Custom VAE
- - -- Have a minimum of two full-time employees (1 sales and 1 technical) at each
requested location. Sales employee is to be located within a 100 mile
radius: the technical employee within a 300 mile radius. These employees
can be counted for only one sales location. Product certification
requirements must be met at each approved sales location, except for
RS/6000 SP.
- - -- Sales Location is located within a 150 or a 300 mile radius of the customer
(150 miles for firms east and 300 miles for firms west of the Mississippi
River)
- - -- IBMLink access at the sales location
- - -- Dedicated business phone line listed in the firm name at the sales location
SECTION ONE
1. Company Name: DESIGN AUTOMATION SYSTEMS, INC.
-------------------------------
Main (HQ) location: City: HOUSTON State: TX
------- --
Sponsoring Distributor: HALL-MARK
---------
2. Requested VAE Category (please check as appropriate):
CUSTOMER GROWTH AS/400 RS/6000
--------------- ------ -------
IBM System Migration & Upgrade (GO01) X X
------ -------
Competitive Systems Conversion (GO02) X X
------ -------
New Customer (GO03) X X
------ -------
Solution Development (GO04) X X
------ -------
3. Indicate the number of qualifying VAEs you currently are approved for:
AS/400 RS/6000
------ -------
Application
------ -------
Custom
------ -------
Technology
------ -------
4. Information about this Sales Location:
Street Address (NO P.O. Box): 701 Brazos Suite 500
--------------------
City: Austin State: TX Zip: 78701
------ -- -----
Telephone number: 512-320-9169 Fax number: 512-320-5728
------------ ------------
SECTION TWO
If you are applying for approval for either the IBM System Migration & Upgrade
(G001) or Solution Development (GO04) VAEs, please complete the following
questions:
AS/400 ONLY RS/6000 BOTH
----------- ------- ----
5. Number of full-time Sales (only)
employees at this location: 1 1
----------- ------- ----
Number of full-time Technical (only)
employees at this location: 2 2
----------- ------- ----
Continued on the next page ..............
Page 21
<PAGE>
IBM SOLUTION PROVIDER / RESELLER APPLICATION
SALES LOCATION ADDENDUM, continued
7. Indicate whether you are approved for equivalent withdrawn VAEs and the
number of new systems installed or processors upgraded during the previous
12 months within the specified geographic distance of the proposed sales
location:
<TABLE>
<CAPTION>
CHECK IF APPROVED FOR: 12-MONTH INSTALL/UPGRADES:
VAE REQUESTED / WITHDRAWN VAE OR PROORAM AS/400 RS/6000 AS/400 RS/6000
- - ---------------------------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
IBM System Migration & Upgrade (G001)
A. System/3X to AS/400 Migration
------ ------- ------ -------
B. Orphaned End User
------ ------- ------ -------
C. System/3X to RS/6000 Migration
------ ------- ------ -------
D. RS/6000 SP Migration/Middleware
------ ------- ------ -------
E. ACT NOW!
------ ------- ------ -------
F. Customer Focus
------ ------- ------ -------
Solution Development (GO04)
G. AS/400 Optimized Client/Server
H. AS/400 LAN Client/Server
I. RS/6000 Client/Server Networking
Other - List VAE name
J. ----------------------------------- ------ ------- ------ -------
K. ----------------------------------- ------ ------- ------ -------
L. ----------------------------------- ------ ------- ------ -------
M. ----------------------------------- ------ ------- ------ -------
</TABLE>
8. For firms applying for VAE G001, indicate the TOTAL NUMBER of System/3X
migrations within the specified geographic distance of the proposed sales
location.
AS/400 RS/6000
------ -------
New Systems
------ -------
Processor Upgrades
------ -------
1 9. Check your IBM Business Partner status: Member Advanced X Premier
--- --- ---
Note: The Solution Development VAE (GO04) requires an additional IBM Certified
Technical employee for each sales location (up to a maximum of ten employees)
for each approved product. These additional employees may be assigned to any
location within the firm, including the headquarters location. An employee can
be counted for only one Sales Location.
Note: For more information about the new Customer Growth VAE refer to IBM
Announcements 598-148 AND 598-145 or Channel Communications CC9807-113,
CC9807-100 and CC9809-145. For information regarding Certification refer to IBM
Announcement 598-080 and Channel Communication CC9809-146.
Page 22
<PAGE>
Exhibit 10.10
FINOVA
FINANCIAL INNOVATORS
FINOVA CAPITAL CORPORATION
MASHELLMAC OFFICE COMPLEX
1060 FIRST AVENUE
KING OF PRUSSIA, PA 19406
TEL 610 354 8250
FAX 610 354 8270
July 16, 1996
Mr. Carl R. Rose, President
Design Automation Systems, Inc.
3200 Wilcrest Drive Suite 370
Houston, Texas 77042-3366
RE: Credit Line for Inventory Financing
Dear Mr. Rose:
We are pleased to advise you that FINOVA Capital Corporation (FINOVA) has
conditionally approved an inventory financing Credit line of $750,000.00 based
upon completing the information listed below.
The terms under which such financing will be provided to you are Net 60 days.
FINOVA maintains a common due date program whereas all payments are due in our
office on the 5th, 15th or 25th of each month. From time to time, FINOVA may
offer different terms to you after notice. You will receive transaction
confirmations and monthly statements from us.
In order to activate this credit line, the following documentation needs to be
completed:
1. All enclosed Loan and Security Documentation including but not limited
to:
a. UCC 1 Forms - Broad Lien, First Priority Filing on Business
Assets.
b. Dealer Loan and Security Agreement.
c. Personal Guarantees of Carl Rose and spouse.
d. Evidence of casualty insurance in an amount equal to
$750,000.00 and lenders loss payable clause favoring FINOVA
Capital Corporation.
e. Landlord Waiver.
f. Monthly accounts receivable, accounts payable, and inventory
reports.
g. Quarterly financial statements.
h. Termination of NationsCredit UCC Filings.
i. Subordination of notes from previous stockholder.
j. Verification of payment of note receivable from Eagle Custom
Homes.
k. Satisfactory references.
To maintain this facility we will additionally require current fiscal year end
financial statements to be received not later than 3 months after your fiscal
year end; and other information as we may request from time to time. Also, you
must maintain full compliance with the terms and conditions of the Dealer Loan
and Security Agreement. We reserve the right to discontinue this inventory
financing at any time at our sole discretion. Any invoice not paid within the
period listed above will be charged at a default rate of Prime Rate plus six
<PAGE>
percent from the due date until payment is received. Offset to payments to your
account are not to be made unless authorized by FINOVA. Any unauthorized offsets
will be charged the standard default rate.
Your account, once activated will be handled on a daily basis by Account
Executive Martha Welch. If you have any questions concerning the items above
please contact Martha, or myself at your convenience.
We look forward to a lasting relationship with you and your company. Let me take
this opportunity to thank you for allowing us to be of service. If we can be of
further assistance, please feel free to contact us at 1-800-777-3731.
Please return the documents to us promptly, along with an acknowledgement copy
of this letter.
Sincerely,
/s/ PATRICK SMITH
- - -------------------
Patrick Smith
Portfolio Manager
Acknowledged and Accepted
CC: John Reed
Scott Simmons
Martha Welch
<PAGE>
DEALER LOAN AND SECURITY AGREEMENT
FINOVA Capital Corporation
1060 First Avenue
Suite 100
King of Prussia, PA 19406
Design Automation Systems, Inc.
_______________________________
Exact Legal Name
3200 Wilcrest Drive
_______________________________
Street Address
Houston, TX 77042-3366
_______________________________
City, State, Zip Code
Gentlemen:
1. We are an authorized dealer of goods manufactured and/or distributed
by various manufacturers and distributors (hereinafter called
"Manufacturer"). As such, we from time to time buy goods from Manufacturer to
be held by us as our inventory for sale by us in the normal course of our
business. We may, as more fully set forth herein, from time to time obtain
loans from you in order to finance the purchase of certain of such goods,
including parts and accessories therefor, from Manufacturer, and desire by
this Agreement to set forth in writing our understanding of our loan
arrangements with you and secure repayment of such loans and other related
debts and liabilities we may have to you, whether now existing or hereafter
arising.
2. Upon our request from time to time, you may, at your sole discretion
and without any obligation to do so, make loans to us, under such terms and
with such conditions as you shall specify, to enable us to acquire rights in
inventory from Manufacturers pre-approved by you for financing programs. We
understand that each such loan will be solely at your discretion, and we
expressly disclaim any right to expect otherwise, either from the course of
our dealing, our need therefor, your dealings with others, your arrangements
with Manufacturer, or otherwise. Conversely, nothing herein will prevent us
from obtaining financing from other sources, provided that you are completely
satisfied that such other financing will not jeopardize our ability to comply
with our financial obligations to you and that adequate procedures will be
implemented to absolutely assure your ability to identify your Collateral.
Accordingly, we will obtain both your written permission prior to arranging
such other financing and such acknowledgements and undertakings from our
other lenders as you may require.
We understand that certain terms and conditions applicable to loans
obtained by us from you will be set forth in materials to be made available
from time to time to us and other dealers, the terms of which, as revised
from time to time, being deemed incorporated herein by reference. We
understand that these materials are subject to change by you at any time and
from time to time, and expressly assume the responsibility of confirming
directly with you, upon our request for each loan, the exact terms and
conditions then being stated by you, including without limitation rate of
interest and terms of repayment. In no event will we view such materials as a
commitment or other offer on your part to loan, and we will have no
right to any loan under any particular terms until actually made and under
the terms so made. We understand and agree that the full amount of each loan
will be paid to you on its due date without deduction for any sums due from
Manufacturer or any Credit Memo that may have been issued to you, unless you
have previously notified us that you have received and applied the amount of
the Credit Memo issued by the Manufacturer.
We understand that you may, from time to time, issue advices to us. Such
advices may include, but need not be limited to, periodic or monthly
statements of our account, periodic letter advices in the nature of
statements of account, issued from time to time, and letter forms or other
forms of notices of due dates of finance plan payments and of the specific
terms of loans which we have with you. Unless we, within ten (10) days from
the date of any such advice, give you written and itemized objection to the
contents of such advice, we shall be fully bound thereby and acknowledge that
the content of such advice is true, correct, and complete, and accurately
reflects our obligations to you as of the date thereof.
In connection with each loan requested, we will deliver to you such
other writings as you shall require, which may include notes or other
appropriate evidence of debt. Such notes or other evidence of debt,
Manufacturer invoices, and other like materials as may be revised from time
to time ("Collateral Documents"), together with this Agreement, contain our
entire understanding, and we acknowledge that we will not be relying upon any
prior oral or written promises or undertakings or future oral promises
between us. No modification hereof or of the Collateral Documents will be
binding upon you unless in a writing duly executed on your behalf by an
officer holding the rank of Vice President or higher.
We hereby authorize you to disburse the proceeds of each loan directly
to Manufacturer on our behalf. Further, we shall and hereby authorize
Manufacturer to deliver its invoice for inventory, together with all
Certificates of Origin, directly to you. You may assume that all such
invoices so submitted are authentic and accurate and that they have been
submitted on our behalf and with our permission. Receipt by you from us or
Manufacturer of an invoice for inventory shall be your authority to make a
loan to us under terms and conditions then being stated by you. In addition
we shall and hereby authorize the Manufacturer to issue as Credit Memos
directly to you.
We acknowledge that the term "Prime Rate", as used in the Collateral
Documents in reference to the rate of interest applicable to loans to us,
will mean the average of the Prime Rates (the base rate for corporate loans
at large U.S. money center commercial banks) quoted in the Wall Street
Journal under the caption "Money Rates", and agree that the interest rate
applicable to our loans from you will automatically change from time to time
effective upon each change in the published Prime Rate. We further agree that
interest on our loans from you will be calculated on the basis of a 360 day
year but will be chargeable for the actual days that principal is outstanding
in the then current year.
3. We acknowledge that our financial arrangements with you are
completely independent of our arrangements with Manufacturer, and that
neither you nor Manufacturer are an agent for or acting on behalf of the
other. We are not relying, in our understanding with you, on any statements,
promises or representations, oral or written, made by Manufacturer, whether
or not purportedly on your behalf, relating to the subject matter hereof and
of our loans with you. Although we may receive official literature, brochures
and other written materials disseminated by you through Manufacturer, we
expressly assume the risk that the materials so received are the most
current, up to date materials then authorized by you to be disseminated. None
of our obligations to you will be affected or impaired, or be subject to any
defense, set-off, counterclaim, crossclaim or recoupment, by reason of any
claim which we now or hereafter have against Manufacturer or its agents,
including without limitation any claim for breach of express or implied
warranty of title, or otherwise restated to the condition of the Collateral
or our dealings with Manufacturer.
4. As used herein, the following terms shall have the following meaning:
a) "Inventory" means all present and future inventory, as that term
is defined in the Pennsylvania Uniform Commercial Code ("Code"), together
with all parts and accessories, and all replacements, substitutions and
additions thereof or thereto.
<PAGE>
b) "Accounts" means all present and future Accounts, as that term
is defined in the Code.
c) "General Intangibles" means all present and future General
Intangibles, as that term is defined in the Code, and shall
include, without limitation, all Credit Memos and other sums
due from Manufacturer, all books, records, ledgers, journals,
check books, computer tapes and disks, print outs and other
information and sources of information, and all licenses,
permits, franchises, tradenames and other rights and privileges
used or useful in the conduct of our business and the sale
of inventory.
d) "Proceeds" means present and future Proceeds, as that term is
defined in the Code, and shall include, without limitation,
insurance payable by reason of loss or damage to any of the
Collateral.
e) "Collateral" means, individually and collectively, inventory,
Accounts, General Intangibles and Proceeds.
5. a) In order to secure repayment to you of each loan made by you to
us the proceeds of which enable us to acquire rights in or the
use of inventory, we hereby grant to you a purchase money
security interest in such inventory, the Proceeds thereof and
all General intangibles related thereto, to secure repayment of
such loan. It is intended by this subparagraph (a) that only the
Inventory so acquired, with Proceeds and related General
Intangibles, will secure the loan the proceeds of which enabled
us to acquire rights in or the use of such Inventory.
b) In order to secure repayment to you of all debts and
liabilities we may now or hereafter have to you under this
Agreement or any other agreement, whether such debt or liability
be obtained by you by assignment, negotiation or otherwise, and
whether direct or indirect, primary or secondary, absolute or
contingent, or otherwise, including but not limited to all loans
made by you to us to finance the purchase of Inventory, we
hereby grant to you a security interest in all of our inventory
and in all Accounts and General Intangibles no matter how
obtained by us, whether now existing or hereafter acquired, and
the Proceeds of all of the foregoing.
c) All payments made by us will be deemed to be applied by you
first to the loan (i) the proceeds of which enabled us to acquire
rights in or the use of Inventory which we have previously sold
and (ii) with the earliest due date.
6. We hereby represent to you that all information provided by us to
you in connection with our application for each loan from you is and will be
complete and accurate in every respect. WE WILL IMMEDIATELY NOTIFY YOU IN
WRITING OF ANY CHANGE IN ANY OF THIS INFORMATION.
7. We will from time to time execute and/or deliver or cause to be
executed and/or delivered to you such financing statements, amendments to
financing statements, continuation statements, documents of sale,
manufacturers' certificate of origin, warehouse receipts, bills of lading,
vehicle titles, waivers, consents and such other manner of things, and take
all manner of actions, as you may from time to time request which are in your
sole opinion necessary or desirable in order to perfect, protect, maintain,
continue, realize and/or enforce your rights and security interests granted
herein. This shall include, without limitation, the written waiver by the
landlord of each location at which any Collateral is located. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement and may be filed in any public office as a financing
statement.
8. We will maintain the Inventory in excellent, salable condition,
consistent with the highest standards in the industry, and will comply with
all applicable laws relating to our use thereof. We will provide you or your
designated representatives with access, at any time, during normal business
hours, whether announced or unannounced, to each location at which any
Collateral is located, to inspect and examine the Inventory and other
Collateral and business records, including without limitation all financial
records. We agree, at our sole cost, to keep all Inventory insured against
risks covered by standard forms of fire, theft and extended coverage and
such other risks as may be reasonably required by you and under policies
issued by an insurance company or companies and in amounts satisfactory to
you. You shall be named to the extent your interest may appear under a
Lendor's Loss Payable Clause in such policy, which shall provide that the
insurance cannot be canceled without at least thirty (30) days prior written
notice to you and shall insure you notwithstanding any act or neglect on our
part. At our expense, we shall furnish you with evidence of the same in form
satisfactory to you, and shall provide you with a Certificate thereof naming
you as certificate holder. We will promptly remit to you in the form
received, with all necessary endorsements, any Proceeds of such insurance.
You may make and settle claims and endorse our name on any checks or drafts.
You may apply any Proceeds of insurance which may be received by you toward
payment of any obligations or liabilities owed to you by us, whether or not
then due, in such order of application as you may determine.
Loss, damage or destruction of all or any of the Collateral shall not
affect or diminish our liabilities to you and we assume all responsibility
and risk for the existence, character, quality, condition, value, and
delivery of Inventory.
9. We will pay and/or cause to be paid all taxes, levies and other
governmental charges and assessments payable on or with respect to the
Collateral and any premises of which the Collateral is located, which if
unpaid may result in a lien or imposition thereon. Such taxes, levies,
charges and assessments will be paid prior to the date that any penalty for
late payment may be assessed with respect thereto, and if requested by you we
will, at our expense, provide you with receipts or other evidence of payment
in form satisfactory to you.
10. We will not suffer or permit any lien, security interest, charge,
claim or encumbrance to be placed on any of the Collateral, other than in
your favor, or suffer or permit any interest to exist therein which is
adverse to your own. We represent that we are, and agree to remain, the sole
and absolute owner of the Collateral, until sold in the ordinary course of
our business, and are and will remain qualified under the terms of all
applicable laws and under our dealership arrangements with Manufacturer to
conduct our business as presently conducted, with all necessary governmental
and other licenses, consents and authorizations having been obtained.
11. At your option, without any obligation to do so, you may pay and
discharge taxes, liens, levies, security interests or other encumbrances
against the Collateral, may pay for insurance on and for the maintenance and
preservation of the Collateral and perform on our behalf any other obligation
required to be performed by us hereunder but which we have failed to so do.
We shall reimburse you on demand for any payment made or any expense incurred
by you pursuant to the authority hereof, with Interest at the highest rate
chargeable on any of our loans with you, and will pay you a late charge of
1.5% per month of the amount due to you, or the highest legally permissable
rate if lower.
12. We will furnish you such information regarding our business and
financial condition as you may request from time to time, including without
limitation such financial statements, in such form and bearing such
certifications, as you shall require. We agree that you may audit or cause to
be audited our books and records at any and all times, during normal business
hours, whether announced or unannounced, and to permit you access to each
location at which any of our General Intangibles are located.
13. We will provide you with written notice of the following matters
immediately upon the occurrence thereof:
a) A change in any information provided by us to you herein, in
any application made by us in connection with any loan, or
otherwise, including without limitation, any change in the
location of any Collateral or in any other circumstances
regarding the Collateral or our business operations;
<PAGE>
b) Loss, theft, or substantial damage or destruction of any of the
Collateral or related to our business operations generally; or
c) Any other matter which might have a material adverse affect on
our financial condition or operations or which, upon the giving of notice or
passage of time, or both, would result in an event of default by us hereunder.
14. Any one or more of the following shall be an event of default by us
under this Agreement;
a) Failure by us or any person jointly or otherwise liable to you
for our obligations to you, as surety, guarantor or otherwise ("Other
Obligor") to pay any amount due you, as and when due, contained or referred
to herein or in any other instrument, document, or agreement to which we or
such Other Obligor are a party or by which we or such Other Obligor are bound
to you, whether now existing or hereafter created; or
b) Failure by us or any Other Obligor to perform or comply with
any other obligation, covenant or liability contained or referred to herein
or in any other instrument, document, or agreement to which we or such Other
Obligor are a party or by which we or such Other Obligor are bound to you,
whether now existing or hereafter created, and such failure, if reasonably
susceptible of cure, is not cured within fifteen (15) days of the occurrence
thereof; or
c) If any warranty, representation, or statement made or furnished
to you by us or on our behalf or on behalf of an Other Obligor, including any
representation made on our behalf by Manufacturer, proves to be false,
misleading or incomplete in any respect; or
d) Loss, theft or substantial damage or destruction of any of the
Collateral, or the molding of any levy, seizure, or attachment thereof or
thereon; or
e) Dissolution, merger, consolidation, sale or other disposition
of a controlling interest in our ownership or of substantially all of our
assets, termination of existence, insolvency, business failure,
appointment of a receiver, trustee, sequestrator, conservator, or other
judicial representative, whether similar or dissimilar, for us or for all or
any part of our property, assignment by us for the benefit of creditors or
the commencement of any proceeding by or against us under any provision of
any federal or state bankruptcy or insolvency laws; or
f) Failure by us to pay any obligation(s) or liability(ies)
whatsoever, past, present or future, when due to any other creditor, or the
occurrence of any event of default by us under any agreement with any of our
respective creditors, including without limitation the occurrence of an event
of default under any loose relating to any premises upon which all or any
part of our Inventory or other Collateral is located; or
g) If we give notice of a Bulk Sale or intended Bulk Sale, or call
a meeting of our respective unsecured creditors or offer a composition or
extension to such creditors, or cease to operate our respective business.
15. Upon the occurrence of an event of default; you shall have the right
to repossess the inventory and also any and all rights available under the
Code, including, without limitation, the right to declare any and all unpaid
balances of principal, interest, costs and expenses arising out of any and
all of our obligations or liabilities to you, whether past, present or
future, direct or indirect, measured or unmeasured, liquidated or
unliquidated, immediately due and payable without notice to or demand on us.
We irrevocably authorize you or your agent to enter all premises to take
possession of and remove the inventory and other Collateral and release you
from any and all liability with respect to such entry or removal. We shall in
case of default, if you so request, assemble and deliver the inventory and
other Collateral, at our expense, to a place to be designated by you. We
shall pay all of the costs you incur in the enforcement of any of our
obligations to you or the collection of any liabilities owed to you by us,
including, without limitation, costs, expenses and reasonable attorneys' fees.
If any notification of intended deposition of any of the inventory or other
Collateral is required by law, such notification shall be deemed reasonably
and properly given if mailed by ordinary mail or overnight delivery service
at least ten (10) days before such disposition, postage prepaid, addressed to
us, either at our address shown in this Agreement, or at such other address
as we may have designated to you in writing.
16. To the extent permitted by applicable law, we authorize you, your
designee, the Clerk of the Court, or any attorney of any Court in the
Commonwealth of Pennsylvania or any other state, to appear for us at any time
in any and all actions and to confess judgment against us for all sums then
owed to you, whether or not then payable, together with an attorney's fee of
15% of all sums then owed and/or for the recovery of any or all of the
inventory in our possession. Wherever this provision is prohibited,
unenforceable or unlawful, it is deemed stricken from this Agreement.
17. Any law, custom or usage to the contrary notwithstanding, you shall
have the right at all times to enforce the covenants and provisions of this
Agreement in strict accordance with the terms hereof, notwithstanding any
conduct or custom on your part in refraining from so doing at any time or
times. Your failure at any time to invoke your rights under the covenants and
provisions of this Agreement strictly in accordance with the same shall not be
construed as having created a custom in any way or manner contrary to the
specific terms and provisions of this Agreement or as having in any way or
manner modified, altered or waived the same. Time is of the essence in our
performance hereunder and under all other agreements with you. All of your
remedies are cumulative and not alternative, and can be exercised in any
order and in any manner, separately or simultaneously, and from time to time
until all liabilities and obligations to you are satisfied in full.
18. This Agreement may be assigned by you, but we may not assign this
Agreement without your prior written consent. If you assign this Agreement,
you shall have no further obligation hereunder. All of your rights hereunder
shall inure to the benefit of your successors and assigns and all our
obligations shall bind our successors and assigns. If there be more than one
party obligated to you under this Agreement, their obligations hereunder
shall be joint and several, and the terms "we" "us" or "our" as used herein
shall refer to them jointly and severally.
19. We authorize and empower you or your employees, agents or
representatives, on our behalf, and in our name, to complete and supply any
omission or blank spaces in this Agreement and in any documents or financing
statements executed by us and including amendments and continuations thereof
under the Code; to execute and/or have acknowledged any form of security
instruments, notes, drafts and documents; and to make any requests
affidavits which may be necessary or required by you, and/or which you may
desire to evidence or secure advances made by you pursuant to the forms of
this Agreement. All of the foregoing may be executed in such form and
substance as you in your sole discretion may deem necessary or proper, and
this power of attorney, being coupled with an interest, is irrevocable.
20. Our offices, by execution hereof, warrant and represent to you that
we are a duly formed corporation and are qualified to do business in the
state(s) in which our place(s) of business is (are) located; and, at a Board
of Directors meeting duly convened, our officer(s) were properly authorized
to execute and deliver this Agreement and as other documents whether
hereunder or otherwise; that the execution and delivery of this Agreement
does not contravene the Articles of Incorporation, By-Laws, or any agreement,
documents or instrument to which we are a party or by the terms of which we
are bound.
21. Any provision or part thereof in this Agreement found upon judicial
interpretation or construction to be prohibited by law shall be ineffective
to the extent of such prohibition, without invalidating the remaining
provisions hereof. All words used shall be understood and construed to be of
such gender or number as the circumstances may reasonably require.
<PAGE>
22. THIS AGREEMENT SHALL BE DEEMED EFFECTIVE WHEN ACCEPTED AND EXECUTED
BY YOU IN THE COMMONWEALTH OF PENNSYLVANIA AND THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA.
23. AS AN INDEPENDENT COVENANT, WE IRREVOCABLY CONSENT TO THE
JURISDICTION OF THE COURTS OF COMMON PLEAS OF PHILADELPHIA, PENNSYLVANIA
AND/OR THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF
PENNSYLVANIA IN ANY AND ALL ACTIONS BETWEEN US WHETHER UNDER THIS AGREEMENT
OR OTHERWISE AND TO THE SERVICE OF PROCESS THEREIN BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO US AT THE ADDRESS AS SET FORTH HEREIN OR ON YOUR
RECORDS, AND IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND
ALL ACTIONS BETWEEN US, WHETHER UNDER THIS AGREEMENT OR OTHERWISE.
WE HEREBY ACKNOWLEDGE THAT WE HAVE READ AND UNDERSTAND ALL OF THE TERMS
AND PROVISIONS OF THIS AGREEMENT.
Intending to be legally bound, signed and delivered on July 24, 1996 .
-----------------
Design Automation Systems, Inc.
- - ------------------------------------
(Corporate Name)
By: /s/ Carl R. Rose
--------------------------------
President
Attest: /s/ Jenta G. Rose
----------------------------
Secretary
(CORPORATE SEAL)
APPROVED AND ACCEPTED IN KING OF
PRUSSIA, PENNSYLVANIA
FINOVA CAPITAL CORPORATION
(Secured Party)
BY: /s/ Melissa J. Brown
------------------------------
DATE: July 25, 1996
----------------------------
Federal Tax ID# 76-0293306
<PAGE>
INDIVIDUAL GUARANTY
TO: FINOVA Capital Corporation
1060 First Avenue
King of Prussia, PA 19406
1. IDENTIFICATION. This Guaranty is made by each of the undersigned,
jointly and severally if more than one, in your favor. In order to induce you
to enter into one or more notes, loan agreements and/or security agreements
(herein, the "Agreements") with DESIGN AUTOMATION SYSTEMS, INC. (herein, the
"Debtor") or to otherwise extend or continue financial accommodations in
favor of the Debtor or to acquire obligations or indebtedness owing by the
Debtor.
2. GUARANTY OBLIGATION.
(a) We unconditionally guarantee to you and undertake the
obligations of a surety with respect to the following described obligations
and liabilities of the Debtor (herein, the "Debtor's Liabilities"):
(i) the prompt payment in full of any and all now existing or
hereafter arising indebtedness or obligations of the Debtor to you of every
kind or nature, whether acquired by you by negotiation, assignment or
otherwise, and whether direct or indirect, absolute or contingent, matured or
unmatured, or otherwise, and including without limitation all advances and
other loans now or at any time hereafter made by you to the Debtor under or
secured by the Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING
GUARANTY SHALL EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU
UNDER ANY AGREEMENT OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN
YOU AND THE DEBTOR MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY
CONTEMPLATED. WE ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FROM
TIME TO TIME DIRECTLY FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE
CONCERNING THE OBLIGATIONS AND INDEBTEDNESS GUARANTEED HEREBY, WHICH
RESPONSIBILITY IS REASONABLE IN LIGHT OF OUR RELATIONSHIP WITH THE DEBTOR; and
(ii) the prompt, full and faithful performance and discharge by the
Debtor of each and every form, condition, agreement, representation, warranty
and provision on the part of the Debtor contained in any of the Agreements or
in any modification, amendment or substitution thereof or in any other
document or instrument evidencing or securing any obligation or indebtedness
of the Debtor to you.
(b) We shall, on your demand, reimburse you for all expenses,
collection charges, court costs and attorneys' fees incurred by you in
endeavoring to collect Debtor's Liabilities, and to enforce, protect or
defend any of your rights and remedies against us and/or the Debtor or
against any other person or entity primarily or secondarily liable for the
obligations and indebtedness guaranteed hereby (herein, an "Obligor"), or
against or with respect to any property, real or personal, now or hereafter
granted to or obtained by you as security for Debtor's Liabilities or for our
liabilities and obligations to you hereunder or for those of any Obligor
(herein, "Secured Property"), together with interest thereon until reimbursed
at a rate equal to five (5) percent above the rate of interest payable on the
Debtor's Liabilities guaranteed hereby (or for the highest rate permitted by
law) of the amount due by us to you.
3. LIABILITY ABSOLUTE; WAIVERS.
(a) We shall pay all of the foregoing amounts and perform all of the
foregoing terms, covenants and conditions notwithstanding that any part or
all of the Agreements or other documents or instruments evidencing the
Debtor's Liabilities, or any financial accommodation for or transaction with
the Debtor, shall be invalid, void, voidable or otherwise unenforceable, in
whole or in part, as against the Debtor, any property of the Debtor, or any
of the Debtor's creditors. Including a trustee in bankruptcy of Debtor or
Debtor as a debtor-in-possession, including without limitation by reason of
any theory or provision of law or equity, statutory or otherwise, relating to
consideration, or the lack thereof, or to any alleged fraudulent,
preferential or other improper transfer or conveyance, and including further,
without limitation, by reason of failure by any person, including yourself,
to any document or take any other action to make any of your rights against
the Debtor, any other Obligor or any property, pursuant to the Agreements or
otherwise, enforceable in accordance with their respective terms.
(b) You shall have the right from time to time, and at any time,
without notice to or consent from us, and without affecting, impairing or
discharging, in whole or in part, our obligations to you hereunder, to enter
into agreements with the Debtor or any other Obligor to modify, change or
supplement, in any respect whatsoever, any evidence of indebtedness, or any
agreement or transaction between you and the Debtor or between you and any
other Obligor, or any portion or provision of any thereof; to grant
extensions of time and other indulgences of any kind to the Debtor or other
Obligor; to compromise, release, substitute, exercise, enforce, or fail or
refuse to exercise or enforce any claims, rights or remedies of any kind
which you may have at any time, against the Debtor or any other Obligor, or
any portion thereof, or with respect to any Secured Property; and to release,
substitute or surrender and to enforce, collect or liquidate any security of
any kind held by you at any time, and all of the foregoing whether done
negligently, willfully or otherwise.
(c) Our obligations to you shall not be affected, impaired or
discharged, in whole or in part, by reason of your failure to obtain, in the
first instance, rights against any person or entity, including without
limitation, the Debtor, or in or with respect to any property, or to protect,
perfect, continue or maintain any such rights.
(d) We waive notice of acceptance hereof and all notices and demands of
any kind to which we may otherwise be entitled including, without limitation,
all demands of payment and notice of nonpayment, protest and dishonor, to us
or to the Debtor, or to the makers or endorsers of any notes or other
instruments for which we are or may be liable hereunder, and further waive
notice of any adverse change in the Debtor's financial condition, the value
of any Secured Property, or any other fact which might materially increase
our risk to you hereunder.
(e) We waive any right to require you to, prior to proceeding against
us hereunder: (i) proceed against Debtor and/or any other Obligor; (ii)
proceed against or exhaust any Secured Property; or (iii) pursue any other
remedy which you may have.
<PAGE>
4. Primary Nature of Obligations: No Set-Off.
Our Facility to you hereunder is primary, absolute, unconditional,
continuing, direct and independent of the obligations of the Debtor. Nothing
shall discharge or satisfy our ability hereunder except the full performance
and payment of all of the Debtor's Liabilities. In the event that all of
Debtor's Liabilities shall have at any time been paid and performed in full,
this Guaranty and our obligations hereunder shall nevertheless remain in full
force and effect and be operative with respect to Debtor's Liabilities
incurred or arising at any time or times thereafter. We shall have no right
of subrogation, reimbursement or indemnity whatsoever and no right of
recourse to or with respect to the Debtor and/or any property of the Debtor,
unless and until all of Debtor's Liabilities have been paid and performed in
full. Our liability to you hereunder shall not be subject to set-off
counterclaim, orderclaim or defense arising out of or by virtue of any claim
or right which we may at any time have against the Debtor or other Obligor,
or which we may at any time have against you in connection with this or any
other transaction with or acquired by you.
5. Continuing Nature of Guaranty.
Our obligations under this Guaranty shall be constituting. This
instrument shall continue in full force and effect until our obligations to
you are terminated by the actual receipt by you of written notice from us of
such termination. Such termination shall be applicable only to such of
Debtor's Liabilities as have their inception thereafter. Specifically,
without limitation, we shall, after and notwithstanding such termination,
remain obligated to you under the terms hereof for: (i) all of Debtor's
Liabilities incurred prior to your actual receipt of such notice of
termination, including interest or other finance charges at any time
theretofore accrued or thereafter accruing or payable thereon, (ii) all of
your costs and expenses, including attorneys' fees, at any time incurred in
connection with your enforcement and collection of of Debtor's Liabilities
incurred prior to your actual receipt of such notice of termination, (iii)
Debtor's Liabilities incurred subsequent to your actual receipt of such
notice of termination, pursuant to any perceived or actual commitment made on
your part prior to such notice of termination, arising out of any course of
dealing or other perceived or actual legal or other requirement obligating or
committing you to make advances, loans or other financial accommodations
giving rise to such Debtor's Liabilities, and (iv) advances at any time made
by you to protect your interests under or in connection with Debtor's
Liabilities incurred prior to your actual receipt of such notice of
termination. We acknowledge that, upon such termination, you will have
absolutely no further obligation to consider any further requests for loans
or other extensions of credit or financial accommodations for the Debtor.
6. Security for Guaranty.
All sums at any time to our credit and any of our present and
future property at any time in your possession shall be deemed held by you as
security for any and all of our obligations to you hereunder.
7. Subordination.
Any and all present and future indebtedness and obligations of the
Debtor to us are hereby agreed to be postponed in your level. Upon written
notice given by you to us, which you may give at any time whether or not the
Debtor is in default to you, we will refrain from accepting any payments on
account of such indebtedness tendered by the Debtor or any other Obligor
thereon, or realized from any security therefor, and any amounts received by
us in violation of the foregoing shall be held by us upon an express trust
for your benefit and turned over to you upon demand. Until such notice, we
will accept only such payments which are in the nature of regularly scheduled
payments made pursuant to periodic reductions required by the terms of the
documents evidencing such indebtedness, and shall not accept any prepayment
thereof, whether on default, on demand under any demand instrument, or
otherwise. We represent to you that all such indebtedness owing to us is, and
agree that it shall remain, and any future indebtedness shall be unsecured.
8. No Waiver.
No failure, omission or delay on your part in exercising any rights
hereunder or under the Agreements or with respect to Debtor's Liabilities,
either against the Debtor or any other Obligor, or any Secured Property,
shall operate as a waiver of such rights or shall, in any manner, prejudice
your rights against us hereunder or otherwise.
9. Cumulative Remedies.
All of your rights and remedies under the Agreements, this Guaranty
and under any other document or instrument evidencing or securing Debtor's
Liabilities are separate and cumulative and may be pursued separately,
accessively or concurrently, are non-exclusive and the exercise of any one or
more of them shall in no way limit or prejudice any other legal or equitable
right, remedy or recourse to which you may be entitled. This Guaranty shall
be deemed to be in addition to, and not in lieu of, any prior suretyship or
guaranty delivered by us to you, and any suretyship or guaranty at any time
hereafter delivered by us to you shall be deemed to be in addition to, and
from in lieu of, this Guaranty.
10. Application of Funds.
Any payment made by us hereunder, or by the Debtor or any other
Obligor, and only proceeds realized by you from any Secured Property, may be
applied by you to any of Debtor's Liabilities on any order which you may
determine, notwithstanding any designation by us, the Debtor or other Obligor
to the contrary. To the extent that the Debtor has at any time any
liabilities or obligations to you for which we are not obligated to you under
the terms of this Guaranty, any payments received by you from the Debtor or
any other Obligor, or proceeds realized by you from any security, and
regardless of any designation by any person or entity to the contrary, may be
applied by you to such other liabilities and obligations prior to your
applying any amounts to Debtor's Liabilities for which we are obligated to
you hereunder.
11. Modifications.
No provision hereof shall be modified or limited, except by a
written agreement expressly referring hereto and to the provision so modified
or limited, and signed by us and you.
12. Merger.
This writing is intended as a final, complete and exclusive
expression of our agreement with you relative to the subject matter hereof.
No course of prior dealing between you and us, no usage of the trade, and no
parole of extrinaic evidence of any nature, shall be used or be relevant to
supplement or explain or modify any term used in this Guaranty.
13. Severability.
In case any one of more of the provisions contained in this Guaranty
shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegibility or unenforceability shall not
affect any other provisions hereof, and this Guaranty shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
Loch Energy, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 34,832
<SECURITIES> 0
<RECEIVABLES> 83,941
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 145,111
<PP&E> 562,060
<DEPRECIATION> 88,854
<TOTAL-ASSETS> 618,317
<CURRENT-LIABILITIES> 285,144
<BONDS> 0
0
0
<COMMON> 12,896
<OTHER-SE> 119,132
<TOTAL-LIABILITY-AND-EQUITY> 132,028
<SALES> 101,825
<TOTAL-REVENUES> 127,353
<CGS> 75,745
<TOTAL-COSTS> 209,299
<OTHER-EXPENSES> 10,550
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,753
<INCOME-PRETAX> (96,249)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (96,249)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
