<PAGE>
As filed with the U.S. Securities and Exchange Commission on May 1, 2000
Registration No. 333-_____
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-------------------------
TEKINSIGHT.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 7372 95-4228470
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
5 Hanover Square, 24th Floor
New York, New York 10004
(212) 271-8550
(Address, including zip code and telephone number, including
area code of registrant's principal executive offices)
-------------------------
Steven J. Ross
President and Chief Executive Officer
TekInsight.Com, Inc.
5 Hanover Square, 24th Floor
New York, New York 10004
(212) 271-8550
(Name, address, including zip code and telephone number, including area code,
of agent for service)
-------------------------
Copies to:
PETER W. ROTHBERG ROBERT J. DIEHL, JR.
WILLIAM W. BARKER Bodman, Longley & Dahling LLP
Nixon Peabody LLP 100 Renaissance Center, 34th Floor
437 Madison Avenue, 25th Floor Detroit, Michigan 48243
New York, New York 10022 Telephone: (313) 259-7777
Telephone: (212) 940-3000 Facsimile: (313) 393-7579
Facsimile: (212) 940-3111 www.bodmanlongley.com
www.nixonpeabody.com
Approximate date of commencement of proposed sale to public:
As soon as practicable after this registration statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=======================================================================================================================
Title of Each Class of Securities
to Be Registered Amount to Be Registered(1) Amount of Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Series A convertible preferred stock, $0.0001 par value $18,000,000 $4,752
- -----------------------------------------------------------------------------------------------------------------------
Common stock underlying Series A, $0.0001 par value $18,000,000 $0(2)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act solely for the
purpose of calculating the registration fee.
(2) No filing fee is due pursuant to Rule 457(i.)
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION-APRIL __, 2000
[LOGO OF DATA SYSTEMS] [LOGO OF TEKINSIGHT]
Dear Data Systems Shareholder:
We are pleased to send you this proxy statement/prospectus for a special
meeting of shareholders of Data Systems Network Corporation to be held on June
28, 2000, at 10 a.m. local time, at our headquarters located at 34705 W. 12 Mile
Road, Suite 300, Farmington Hills, Michigan.
At the special meeting, you will be asked to approve the proposed merger
of Data Systems with and into TekInsight Services, Inc., a wholly-owned
subsidiary of TekInsight. If the merger is approved, you will exchange your Data
Systems common stock for a new class of TekInsight Series A convertible
preferred stock that will have an aggregate dollar value of between $12.5
million and $18 million, depending on the average market value of TekInsight
common stock as quoted on the Nasdaq SmallCap Market for the 10 consecutive
trading days immediately prior to the closing date of the merger. We expect the
closing date will be one to two days after the special meeting.
Because the exact price will be determined after the meeting date, we
cannot tell you today, and you will not know when you vote, what the exact value
of your Series A preferred stock will be. However, if the closing of the merger
were [April 26], the average market value over the past 10 days would be
$[2.92], the aggregate merger consideration would be [12.5 million], each share
of Series A preferred stock you receive would be valued at $[3.375] per share,
and you would receive [0.774] shares of Series A preferred stock for every share
of Data Systems common stock you own. You may call 1-800-___ for a daily update
on this information.
The proposed merger was negotiated on an arms' length basis. Although
not required, the board of directors of each of Data Systems and TekInsight
believed it would be helpful to engage its own independent financial advisor and
obtain an opinion regarding the fairness of the merger consideration from a
financial perspective. Data Systems engaged Valuation Counselors Group, Inc. and
TekInsight engaged Valuemetrics, Inc. as their independent financial advisors.
Valuation Counselors delivered their opinion to us, and Valuemetrics delivered
their opinion to the board of directors of TekInsight, that the merger
consideration is fair from a financial perspective. Your board of directors
unanimously recommends that you vote "FOR" the merger.
Shareholders of Data Systems have appraisal rights under Michigan law,
which are explained in detail beginning on page __ of this proxy
statement/prospectus.
Whether or not you plan to attend the special meeting, please complete
the enclosed white proxy card, sign it, and return it to us so that your vote
will be counted. Not returning the enclosed white proxy card and not voting at
the meeting will have the same effect as voting against the merger. Your proxy
can be revoked either by attending the special meeting and voting in person or
by sending us a properly executed later-dated proxy card.
An investment in TekInsight involves material risks. Please carefully
read "Risk Factors" beginning on page __ of this proxy statement/prospectus.
Sincerely,
Michael W. Grieves
President and Chief Executive Officer
Data Systems Network Corporation
April __, 2000
Farmington Hills, Michigan
Neither the Securities and Exchange Commission nor any state securities
commission has approved the securities being offered and issued in the merger or
passed on the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
This proxy statement/prospectus is dated April __, 2000, and is first
being mailed to shareholders on April __, 2000.
<PAGE>
DATA SYSTEMS NETWORK CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 28, 2000
---------------------
To the Shareholders of Data Systems:
We will hold a special meeting of the shareholders of Data Systems on
June 28, 2000, at 10 a.m., local time, at our headquarters located at 34705 W.
12 Mile Road, Suite 300, Farmington Hills, Michigan to consider and vote upon a
proposal to adopt the agreement and plan of merger among TekInsight.Com, Inc.,
its wholly-owned subsidiary, TekInsight Services, Inc., and Data Systems.
Under the merger agreement, shareholders of Data Systems will receive
their proportionate share of TekInsight Series A convertible preferred stock
that will have an aggregate dollar value of between $12.5 million and $18
million depending on the average market value of TekInsight's common stock as
quoted on the Nasdaq Small Cap Market for the 10 consecutive trading days
immediately prior to the closing date of the merger. Accordingly, based upon
5,542,448 shares of Data Systems common stock outstanding as of [April 26], if
the merger is approved, the Series A preferred stock received would be valued at
$[3.375] per share. You would receive [0.774] shares of Series A preferred stock
for every share of Data Systems common stock you own. Cash will be paid for
fractional shares.
We do not expect to transact any other business at the special meeting.
The record date for the special meeting is May 19, 2000. Only
shareholders of Data Systems of record at the close of business on the record
date are entitled to notice of, and to vote at, the special meeting and any
adjournments or postponements.
We cannot complete the merger unless the agreement and plan of merger is
adopted by a majority of the outstanding shares held by shareholders of Data
Systems.
The board of directors of Data Systems unanimously recommends that you
vote "FOR" the merger proposal.
Shareholders of Data Systems have appraisal rights under Michigan law,
which are explained in detail beginning on page ___ of this proxy
statement/prospectus.
You are cordially invited to attend the special meeting. Whether or not
you plan to attend the special meeting, please complete the enclosed white proxy
card, sign it and return it to us so that your vote will be counted. Not
returning the enclosed white proxy card and not voting at the meeting will have
the same effect as voting against the merger. Your proxy can be revoked either
by attending the special meeting and voting in person or by sending a properly
executed later-dated proxy card.
By Order of the Board of Directors,
Michael W. Grieves
President and Chief Executive Officer
Data Systems Network Corporation
April __, 2000
Farmington Hills, Michigan
Please do not send in your stock certificates at this time.
<PAGE>
[LOGO OF TEKINSIGHT]
Dear TekInsight Stockholder:
We are pleased to announce that the board of directors of
TekInsight.Com, Inc. and Data Systems Network Corporation have each unanimously
approved the merger of Data Systems with and into TekInsight Services, Inc., our
wholly-owned subsidiary.
You will be asked to approve two proposals at a special meeting of
stockholders of TekInsight to be held on June 28, 2000, at 10 a.m. local time,
at the law offices of Nixon Peabody LLP, located at 437 Madison Avenue, 24th
Floor, New York, New York 10022, in connection with the proposed merger of
TekInsight Services and Data Systems.
We are soliciting your approval pursuant to Nasdaq Rule 4310 which
requires Nasdaq-listed companies to obtain stockholder approval before issuing
20% or more of their common stock or securities convertible into common stock in
connection with a transaction other than a public offering. This would include
the Series A preferred stock to be issued to shareholders of Data Systems in the
merger. The issuance of shares of our Series A preferred stock in the merger
will exceed the 20% threshold.
We are also soliciting your approval to amend our 1992 employee stock
option plan to increase the number of shares of common stock reserved for
issuance under the 1992 plan from 500,000 shares to 2,000,000 shares. The
purpose of the increase is to cover future option grants to our officers,
directors, key employees and consultants.
The board of directors of TekInsight unanimously recommends that you
vote "FOR" both proposals.
Whether or not you plan to attend the special meeting, please complete,
sign and date the enclosed blue proxy card, and return it to us so that your
vote will be counted. Your proxy can be revoked either by attending the special
meeting and voting in person or by sending us a properly executed later-dated
proxy card.
Sincerely,
Steven J. Ross
President and Chief Executive Officer
TekInsight.Com, Inc.
New York, New York
April ___, 2000
<PAGE>
TEKINSIGHT.COM, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 28, 2000
-------------------------
To the Stockholders of TekInsight:
We will hold a special meeting of stockholders of TekInsight on June 28,
2000, at 10 a.m., local time, at the law offices of Nixon Peabody LLP, located
at 437 Madison Avenue, 24th Floor, New York, New York to consider and vote upon
the following:
o Stockholder approval pursuant to Nasdaq Rule 4310 which requires
Nasdaq-listed companies to obtain stockholder approval before
issuing 20% or more of their common stock or securities convertible
into common stock in a transaction other than a public offering.
This would include the Series A preferred stock to be issued to
shareholders of Data Systems in the merger. The issuance of shares
of our Series A preferred stock in the merger will exceed the 20%
threshold.
o Amendment of our 1992 employee stock option plan to increase the
number of shares of common stock reserved for issuance from 500,000
shares to 2,000,000 shares. The purpose of this increase is to cover
future option grants to our officers, directors, key employees and
consultants.
The record date for the special meeting is May 10, 2000. Only
stockholders of TekInsight of record at the close of business on the record date
are entitled to notice of, and to vote at, the special meeting and any
adjournments or postponements.
We cannot complete the merger unless pursuant to Nasdaq Rule 4310 the
proposal to issue the Series A preferred stock is approved by a majority of the
votes cast on the proposal at the special meeting in person or by proxy. The
proposed amendment to the 1992 plan must also be approved by a majority of votes
cast on the proposal at a special meeting in person or by proxy.
You are cordially invited to attend the special meeting. Whether or not
you plan to attend the special meeting, please complete, sign and date the
enclosed blue proxy and promptly return it in the enclosed postage-paid
envelope. Your proxy can be revoked either by attending the special meeting and
voting in person or by sending us a properly executed later-dated proxy card.
By Order of the Board of Directors,
Stephen J. Ross
President and Chief Executive Officer
TekInsight.Com, Inc.
New York, New York
April __, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Q&A ABOUT THE MERGER............................................................................................iii
SUMMARY...........................................................................................................1
RISK FACTORS......................................................................................................9
BACKGROUND OF THE MERGER.........................................................................................15
Data Systems' Reasons for the Merger; Recommendations of the Board of Directors.............................16
Tekinsight's Reasons for the Merger; Recommendation of Board Of Directors...................................17
Interests of Certain Persons in the Merger..................................................................19
MERGER AGREEMENT.................................................................................................21
OPINIONS OF FINANCIAL ADVISORS...................................................................................26
Opinion of Data Systems' Financial Advisors -- Valuation Counselors Group, Inc..............................26
Opinion of Tekinsight's Financial Advisors -- Valuemetrics, Inc.............................................30
DESCRIPTION OF SERIES A PREFERRED STOCK..........................................................................35
COMPARISON OF SHAREHOLDER RIGHTS.................................................................................37
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER...........................................................41
DISSENTERS' RIGHTS...............................................................................................43
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION OF TEKINSIGHT.COM, INC. AND SUBSIDIARIES........................................................45
INFORMATION ABOUT TEKINSIGHT.....................................................................................50
INFORMATION ABOUT DATA SYSTEMS...................................................................................84
VOTING SECURITIES AND PRINCIPAL HOLDERS.........................................................................115
MARKET PRICE INFORMATION........................................................................................118
PROPOSAL 2--APPROVAL BY TEKINSIGHT STOCKHOLDERS OF ISSUANCE
OF SHARES PURSUANT TO NASDAQ RULE 4310.....................................................................120
PROPOSAL 3--INCREASE IN AUTHORIZED COMMON STOCK RESERVED
FOR ISSUANCE UNDER TEKINSIGHT'S 1992 STOCK OPTION PLAN.....................................................121
LEGAL MATTERS...................................................................................................123
EXPERTS.........................................................................................................123
WHERE YOU CAN FIND MORE INFORMATION.............................................................................123
TEKINSIGHT--INDEX TO FINANCIAL STATEMENTS ......................................................................F-
DATASYSTEMS--INDEX TO FINANCIAL STATEMENTS .....................................................................F-
</TABLE>
APPENDIX
<TABLE>
<CAPTION>
<S> <C>
Michigan Business Corporation Act Section 761 through Section 774...............................................A-1
</TABLE>
------------------------------
This proxy statement/prospectus contains "forward-looking statements"
for purposes of Section 27A of Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements may involve
risks and uncertainties that may cause actual results of TekInsight and Data
Systems to be materially different from future results or performance expressed
or implied by such statements. These statements may be identified by the use of
words such as "expect," "anticipate," "project," "intend," "believe" and "plan."
Factors that could contribute to such differences are discussed under "Risk
Factors," "Information About TekInsight" and "Information About Data Systems."
Shareholders of Data Systems should rely only on the information
contained in this prospectus. TekInsight has not authorized anyone to provide
you with different information. TekInsight is not making an offer of these
securities in any jurisdiction where the offer or sale is not permitted. You
should not assume that the information contained in this prospectus is accurate
as of any date other than the date on the front cover of this prospectus.
------------------------------
-i-
<PAGE>
Q&A ABOUT THE MERGER
Q: Why are TekInsight and Data Systems proposing to merge?
A: TekInsight provides advanced Internet, eCommerce and computer network
products, and professional services solutions that include XML streaming
technology.
Data Systems provides computer network integration and data management
services in the distributed computing marketplace. Data Systems also
provides a wide range of network integration services including
installation, consultation, technical support and training to
governmental and corporate accounts.
TekInsight believes that the merger will give TekInsight access to the
superior sales and distribution channel of Data Systems to accelerate
market penetration for its products.
Q: Why are shareholders of Data Systems receiving this document?
A: This proxy statement/prospectus is the proxy statement of Data Systems
used by its board of directors to solicit approval of the merger by
shareholders of Data Systems. It is also the prospectus of TekInsight
covering the offer and sale of the Series A preferred stock to be issued
in exchange of Data Systems common stock in the merger.
Q: Are there any risks that shareholders of Data Systems should consider in
deciding whether or not to vote for the merger?
A: An investment in TekInsight involves material risks. In evaluating the
merger, please carefully consider the factors discussed in the section
entitled "Risk Factors" beginning on page __.
Q: What will shareholders of Data Systems receive in the merger?
A: In exchange for Data Systems shares, shareholders of Data Systems will
receive a new class of TekInsight Series A preferred stock. The merger
consideration could be between $12.5 million and $18 million, depending
upon the average market value of TekInsight's common stock as quoted on
the Nasdaq SmallCap Market for the 10 days immediately prior to the
closing date of the merger.
Because the value of the merger consideration depends on the trading
price of TekInsight stock after the date of the special meeting of Data
Systems, you will not know the exact value of your shares at the time
you vote.
The merger consideration is described in detail under "Merger
Consideration" beginning on page __. We currently expect the value of
the merger to be $12.5 or $16 million, or $[2.26] or $[2.89] per share
of Data Systems common stock, respectively. You may call 1-800-_____ for
a daily update on this information.
Q: What are the material federal income tax consequences of the merger to
shareholders of Data Systems?
A: In the opinion of tax counsel, the merger will be a tax-free
reorganization.
Q: What do I need to do now?
A: If you are a Data Systems shareholder, after you carefully read this
proxy statement/prospectus, indicate on the enclosed white proxy card
whether you are voting "FOR or "AGAINST" the merger or will "ABSTAIN"
from voting. Sign and mail the white proxy card to us in the enclosed
white prepaid return envelope as soon as possible.
Do not send in your Data Systems certificates now. Wait until the
exchange agent contacts you with instructions. Then, send your Data
Systems certificates to the exchange agent and the exchange agent will
send you your Series A preferred stock. The exchange agent is:
American Stock Transfer & Trust
Company
40 Wall Street, 46th Floor
New York, NY 10005
(212) 936-5100
-ii-
<PAGE>
Q: What do I do if I want to change my vote?
A: You may change your vote:
o by sending a written notice stating that you would like to revoke
your proxy to the corporate secretary of Data Systems before the
special meeting;
o by signing a later-dated proxy card and returning it by mail before
the special meeting; or
o by attending the special meeting and voting in person.
Q: If my broker holds my shares in "street name," will my broker vote my
shares for me?
A: If you do not provide your broker with instructions on how to vote your
shares held in "street name," your broker will not be permitted to vote
them at the special meetings. Broker non-votes and abstentions have the
same effect as a vote "AGAINST" the merger. If you want to vote "FOR"
the merger, be sure to provide your broker with instructions on how to
vote your shares.
Q: When do you expect to complete the merger?
A: We are working to complete the merger as quickly as possible. We expect
to complete the merger within one to two days of obtaining approval of
shareholders of Data Systems at their special meeting.
Q: Where can I find more information about the companies.
A: TekInsight and Data Systems each file reports with the SEC. You may read
and copy this information at the SEC's public reference facilities. Call
the SEC at 1-800-SEC-0330 for information about these facilities. This
information is also available at the Internet Web site of the SEC at
www.sec.gov.
Q: Whom should I call with questions?
A: Data Systems and TekInsight shareholders should direct questions to
Katrina Kostes, TekInsight's Communications Director, at (212) 271-8550.
Q: Are stockholders of TekInsight required to approve the merger?
A: No. Stockholders of TekInsight are not required to approve the merger.
However, as part of its corporate governance rules, in a transaction
other than a public offering, Nasdaq requires that stockholders of
Nasdaq-listed companies approve issuances of 20% or more of certain
securities which would have a dilutive effect. Accordingly, TekInsight
is soliciting stockholder approval to issue the Series A preferred stock
in the proposed merger which is convertible into 20% or more of its
currently outstanding shares of its common stock. TekInsight is also
soliciting stockholder approval to increase the number of shares of
common stock reserved for issuance under its 1992 employee stock option
plan.
-iii-
<PAGE>
SUMMARY
This is a summary of the proposed merger and other information in this
proxy statement/prospectus. While complete in material respects, this summary is
qualified by reference to the detailed information appearing elsewhere in this
proxy statement/prospectus including appendices. Please carefully read all of
these materials.
The Bidder--TekInsight.Com, Inc.
TekInsight was initially incorporated in Delaware in 1989 as Universal
Self Care, Inc. It changed its name to Tadeo Holdings, Inc. in 1998, and changed
its name to TekInsight in 1999. TekInsight has been a public company since 1992.
TekInsight provides advanced Internet, eCommerce and computer network products
and professional services solutions that include XML streaming technology.
Customers of TekInsight include Microsoft, IBM and other Fortune 500 companies.
Its proprietary products include Web-based diagnostic software agents and
Web-based eCommerce performance and analysis tools. TekInsight products are sold
throughout the United States and internationally. TekInsight Services is a
wholly-owned subsidiary of TekInsight. The principal executive offices of
TekInsight are located at 5 Hanover Square, 24th Floor, New York, New York 10004
and its telephone number is (212) 271-8550.
The Acquired Company--Data Systems Network Corporation
Data Systems was incorporated in Michigan in 1986 and has been a public
company since 1994. Data Systems provides computer network integration and data
management services in the distributed computing marketplace. Data Systems also
provides a wide range of network integration services including installation,
consultation, technical support and training to governmental and corporate
accounts. The principal executive offices of Data Systems are located at 34705
W. 12 Mile Road, Suite 300, Farmington Hills, Michigan 48331 and its telephone
number is (248) 489-8700.
Date, Time and Place of the Special Meetings
The special meeting of shareholders of Data Systems will be held on
June 28, 2000, at 10 a.m., local time, at the headquarters of Data Systems.
The special meeting of stockholders of TekInsight will be held on June
28, 2000, at 10 a.m., local time, at the law offices of Nixon Peabody LLP,
counsel to TekInsight.
Record Date; Voting Rights
Only common stockholders of Data Systems of record at the close of
business on May 19, 2000 and of TekInsight at the close of business on May 10,
2000 will be entitled to notice of and to vote at their respective special
meeting. Holders of record are entitled to one vote per share on each matter
properly presented at the special meeting.
Neither shareholders of Data Systems nor stockholders of TekInsight
have cumulative voting rights. Voting will be based solely upon a majority of
votes cast "FOR" or "AGAINST" the proposals such that persons beneficially
owning more shares will have greater voting power than persons owning fewer
shares. Broker non-votes and abstentions have the same effect as a vote against
the merger proposal.
Neither the board of directors of Data Systems nor TekInsight expects
any other matters to come before either special meeting. However, if any other
matters are properly presented at either special meeting for consideration, the
persons named in the respective enclosed forms of proxy will have discretion to
vote or not vote on those matters in accordance with their judgment, unless
authorization to use that discretion is withheld. If a proposal to adjourn
either special meeting is properly presented, however, the persons named in the
enclosed form of proxy will not have discretion to vote in favor of the
adjournment proposal any shares which have been voted against the proposal to
approve the merger.
- 1 -
<PAGE>
Revocability of Proxy
You may change your vote by attending the meeting and voting in person.
You may also change your vote by sending us a later dated properly executed
replacement proxy card.
Proposal 1--Approval of the Merger by Shareholders of Data Systems
TekInsight proposes to exchange a new class of its Series A preferred
stock for Data Systems common stock and merge Data Systems with and into
TekInsight Services, a wholly-owned subsidiary of TekInsight. To accomplish
this, shareholders of Data Systems are being asked to consider and vote upon a
proposal to approve the agreement and plan of merger dated as of February 18,
2000, as amended on April 4, 2000, among TekInsight, TekInsight Services and
Data Systems.
The board of directors of Data Systems has unanimously approved the
merger. It recommends that shareholders of Data Systems vote "FOR" approval of
the merger.
Vote Required for Approval of Merger by Shareholders of Data Systems
On the record date 5,542,448 shares of Data Systems common stock were
issued and outstanding and held by approximately 2,285 beneficial owners.
Michigan law and the bylaws of Data Systems require that the merger be approved
by a majority of the outstanding shares of Data Systems common stock entitled to
vote.
Effect of the Merger
If a majority of the outstanding Data Systems shares of common stock
are voted to approve the merger, and all required conditions are satisfied or
waived, the merger will be completed and Data Systems will be merged with and
into TekInsight Services. TekInsight Services will be the surviving company.
Each share of Data Systems common stock will be exchanged for the merger
consideration. The status of Data Systems as a public company will be
terminated.
Effective Time of the Merger; Closing Date of the Merger
If the merger proposal is approved by the shareholders of Data Systems,
and the Nasdaq Rule 4310 proposal is approved by the stockholders of TekInsight,
then the merger will be completed upon filing the required documents with the
appropriate offices in the State of Delaware and the State of Michigan. The
closing of the merger is expected to occur one to two days after the
satisfaction or waiver of all material conditions of the merger agreement,
including obtaining the requisite shareholder approval. No conditions are
expected to be waived. No federal or state regulatory approvals are necessary.
The closing will be held at the offices of Nixon Peabody LLP, counsel for
TekInsight, 437 Madison Avenue, New York, New York 10022, or at such other time
and place as the parties agree.
Accounting Treatment
The merger will be accounted for as a purchase. This means that after
the merger the combined results of operations of Data Systems will be included
in the consolidated results of operations of TekInsight. For purposes of
preparing consolidated financial statements, the purchase price, including the
fees and other costs of TekInsight associated with the merger at the date of
completion will be allocated to the assets and liabilities of Data Systems based
on their fair market values, with the excess allocated to goodwill to be
amortized over the estimated economic life of the assets.
- 2 -
<PAGE>
Conditions to the Merger; Termination Provisions (Page ___)
Completion of the merger is subject to a number of customary conditions
including approval of the merger by shareholders of Data Systems, obtaining an
opinion of special tax counsel regarding federal income tax matters, and
obtaining the approval by stockholders of TekInsight of the issuance of the
Series A preferred stock pursuant to Nasdaq Rule 4310. It is a condition to
completion of the merger that the Series A preferred stock issued to
shareholders of Data Systems be listed on the Nasdaq SmallCap Market under the
symbol "TEKSX." The merger may also be terminated for a number of reasons
including by mutual consent of both companies, if the merger is not completed by
June 30, 2000, if the market value of TekInsight common stock falls below $2.00
per share for the 10 consecutive trading days prior to the closing date, or if
5% or more of the shareholders of Data Systems exercise their dissenters'
rights.
Merger Consideration (Page ___)
The Series A preferred stock to be issued in the merger will have a
dollar value of between $12.5 million and $18 million, depending on the average
market value of the underlying TekInsight common stock as quoted on the Nasdaq
SmallCap Market for the 10 consecutive trading days immediately prior to the
closing date:
If the Market Value of TekInsight Then the Total Value
Common Stock Quoted on the Nasdaq of the Merger
SmallCap Market on the Closing Date Is: Consideration Will Be:
--------------------------------------- ----------------------
Less than $5.00 per share....................... $12.5 million
Between $5.00 and $7.00 per share............... $16 million
Over $7.00 per share............................ $18 million
Because this exact price will be determined after the meeting date, we
cannot tell you today, and you will not know when you vote, what the exact value
of the merger or the Series A preferred stock will be. However, if the closing
of the merger were today, the average closing price of TekInsight common stock
as quoted on the Nasdaq SmallCap Market for the past 10 days (excluding today)
would be $[2.92]. Under the merger agreement, the total value of the merger
consideration would be $[12.5 million]. Based upon 5,542,448 shares outstanding
as of today's date, your Data Systems Common Stock would be valued, today, at
$[2.26] per share, and the exchange ratio would be [0.774]:1. Shareholders of
Data Systems may receive a daily update on this information by calling
1-800-________.
Over the last 60 days, TekInsight common stock has closed at a high of
$[6.50] and a low of $[2.50]. For [46] days out of the past [60] days, the
TekInsight common stock closed at less than $5.00 per share. TekInsight
therefore believes the value of the merger consideration will likely be
$12.5 million. The actual merger consideration received by you may be higher or
lower.
Share Ownership of Data Systems Management (Page ___)
Officers and directors of Data Systems beneficially own 20.6% of the
outstanding common stock. Michael W. Grieves, President and Chief Executive
Officer of Data Systems, and Gregory D. Cocke, a founder of Data Systems
(together representing 19.1% of the outstanding shares of Data Systems) have
entered into lock-up agreements with TekInsight and, accordingly, have agreed to
vote their shares "FOR" the merger. Mr. Cocke is not an affiliate of Data
Systems. The votes of Mr. Grieves and Mr. Cocke are not by themselves sufficient
to assure that the merger will be approved.
- 3 -
<PAGE>
Interests of Directors and Officers in the Merger (Page ___)
Officers and directors of Data Systems may have interests in the merger
that are different from, or in addition to, yours. Data Systems does not,
however, believe that any of these interests presents a material conflict of
interest.
Fairness Opinions by Financial Advisors of Data Systems and TekInsight
(Page ___ and Page _____)
TekInsight is not an affiliate of Data Systems. The proposed merger was
negotiated on an arms' length basis. Although not required, the board of
directors of each of Data Systems and TekInsight believed it would be helpful to
engage its own independent financial advisor and obtain an opinion regarding the
fairness of the merger consideration from a financial perspective. Data Systems
engaged Valuation Counselors, and TekInsight engaged Valuemetrics, as its
independent financial advisor. Valuation Counselors delivered its opinion to us,
and Valuemetrics delivered its opinion to the board of directors of TekInsight,
that the merger consideration is fair from a financial perspective. Both the
Valuemetrics fairness opinion and the Valuation Counselors fairness opinion are
described in detail in this proxy statement/prospectus.
Management of TekInsight after the Effective Date of the Merger (Page ___)
The officers of TekInsight before the merger will be the officers of
TekInsight after the merger. The board of directors of TekInsight immediately
prior to the merger (with the addition of Steven J. Ross, President and Chief
Executive Officer of TekInsight, Michael W. Grieves and Walter J. Aspatore),
will be the initial board of directors of TekInsight after the merger.
Material Federal Income Tax Consequences (Page ___)
In the opinion of Nixon Peabody LLP, special tax counsel to TekInsight,
and Bodman, Longley & Dahling LLP, special tax counsel to Data Systems, the
merger will be a tax-free reorganization under Section 368(a)(2)(D) of the
Internal Revenue Code.
Comparison of Shareholder Rights (Page ___)
The rights of Series A preferred stockholders are determined by
Delaware law, by the Series A preferred certificate of designations, and by
TekInsight's certificate of incorporation and bylaws. The rights of Series A
preferred stockholders are similar to the rights of shareholders of Data Systems
but differ in a number of respects. Please review these differences carefully.
Dissenters' Rights (Page ___)
If you are a Data Systems shareholder, you have appraisal rights with
respect to your shares of Data Systems stock under Michigan law as described in
Sections 761 through 774 of the Michigan Business Corporation Act, which are
attached as Appendix A to this joint proxy statement/prospectus. In order to
exercise appraisal rights you must be a holder of record of Data Systems shares
on the date that you make your written demand for appraisal, continuously hold
your shares through the effective date of the merger, deliver a written demand
for appraisal to Data Systems prior to the vote on approval of the merger, not
vote "FOR" approval of the merger or deliver an unmarked proxy. A Data Systems
shareholder voting by proxy who desires to preserve his or her appraisal rights
must either vote "AGAINST" approval of the merger or "ABSTAIN" from voting.
Written demands should be addressed to Data Systems Network Corporation, 34705
W. 12 Mile Road, Suite 300, Farmington Hills, Michigan 48331, Attention:
Secretary. Voting "FOR" or delivering an unmarked proxy, will, unless revoked
prior to the vote on approval of the merger, constitute a waiver of your
appraisal rights and will nullify any previous written demand for appraisal
submitted by you. The full text of Section 761 through Section 774 of the
Michigan Business Corporation Act is attached as Appendix A to this proxy
statement/prospectus.
- 4 -
<PAGE>
Per Share Market Price Information of Data Systems and TekInsight (Page ___)
TekInsight common stock is traded on the Nasdaq SmallCap Market under
the symbol "TEKS." Data Systems shares are traded in the over-the-counter market
under the symbol "DSYS." The following table presents trading information for
TekInsight common stock and Data Systems common stock on February 17, 2000 and
April 27, 2000. February 17, 2000 was the last full trading day before our
announcement of the signing of the merger agreement. April 27, 2000 was the last
practicable trading day for which information was available before the date of
this proxy statement/prospectus.
<TABLE>
<CAPTION>
Data Systems common stock
---------------------------------------
Date High Low Closing
---- ---- --- -------
<S> <C> <C> <C>
February 17, 2000............................ $1.50 $1.12 $1.12
April 27, 2000............................... $1.12 $1.01 $1.01
TekInsight common stock
---------------------------------------
Date High Low Closing
---- ---- --- -------
February 17, 2000............................ $4.81 $4.40 $4.50
April 27, 2000............................... $3.62 $3.06 $3.62
</TABLE>
Proposal 2--Approval by TekInsight stockholders for TekInsight to Issue 20% or
More of its Convertible Securities Pursuant to Nasdaq Rule 4310 (Page ___)
Nasdaq Rule 4310 requires that TekInsight obtain stockholder approval
by a majority of shares cast on the proposal at the special meeting prior to
issuing 20% or more of its common stock or securities convertible into common
stock, which would include the Series A preferred stock to be issued to
shareholders of Data Systems in the merger. Since more than 20% of TekInsight's
common stock may be issued or reserved for issuance on conversion of the Series
A preferred stock, TekInsight's board of directors is soliciting stockholder
approval for this issuance. The TekInsight board of directors unanimously
recommends that its stockholders vote "FOR" this proposal.
Proposal 3--TekInsight Approval to Increase the Number of Authorized Shares of
Stock Reserved Under TekInsight's 1992 plan. (Page ___)
The board of directors of TekInsight is required to obtain stockholder
approval by a majority of shares cast on the proposal at the special meeting to
amend the 1992 plan to increase the number of shares of common stock reserved
for issuance under the 1992 plan from 500,000 shares to 2,000,000 shares.
Options to purchase 500,000 shares have already been issued under the 1992 plan.
This increase is necessary to cover future stock option grants to officers,
directors, key employees and consultants of TekInsight. The TekInsight board of
directors recommends that the stockholders of TekInsight vote "FOR" this
proposal.
Persons Making the Solicitation
This solicitation of approval of the merger from shareholders of Data
Systems is being made by the board of directors of Data Systems. The
solicitation of the proposal to issue the Series A preferred stock pursuant to
Nasdaq Rule 4310 and amend the 1992 plan is being made by the board of directors
of TekInsight. Each company will bear it own costs of solicitation, estimated to
be less than $5,000 for each company.
- 5 -
<PAGE>
SELECTED PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
Selected Pro Forma and Historical Consolidated Financial Data of TekInsight
The following table provides selected consolidated financial data for
TekInsight for the five years ended June 30, 1999, the six months ended December
31, 1999 and 1998, and pro forma financial data for the year ended June 30, 1999
and the six months ended December 31, 1999. The statement of operations data for
1995 through 1999 and balance sheet data for 1995 through 1999 are derived from
our audited financial statements. The statement of operations data for the six
months ended December 31, 1999 and 1998 and balance sheet data as of December
31, 1999 are derived from unaudited quarterly information for the six months
ended December 31, 1999. Interim unaudited data reflect, in the opinion of
management of TekInsight, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results for the interim
periods presented. The financial data for 1995 through 1999 was derived from the
financial statements of TekInsight and of its predecessor companies for those
years. The pro forma data reflects TekInsight's acquisition of Data Systems as
of each of June 30, 1999 and December 31, 1999. The pro forma information should
be read in conjunction with the pro forma condensed consolidated financial
statements include elsewhere in this proxy statement/prospectus.
<TABLE>
<CAPTION>
Pro forma Pro forma
Six months ended year ended six months ended
Year ended June 30, December 31, June 30, 1999 December 31, 1999
---------------------------------------- ----------------------- ------------- -----------------
1995 1996 1997 1998 1999 1998 1999
----- ------ ------ ----- ------ -------- --------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues............. $ - $ - $ 455 $ 997 $ 1,515 $ 967 $ 962 $ 69,256 $ 26,224
Cost of revenues..... - - 73 248 700 286 459 56,278 21,743
------ ------- ------- ------- ------- ------- ------- -------- --------
Gross margin........ - - 382 749 815 681 503 12,978 4,481
Operating expenses . 800 1,381 992 2,354 3,573 1,703 982 16,736 6,275
------ ------- ------- ------- ------- ------- ------- -------- --------
Loss from operations (800) (1,381) (610) (1,605) (2,758) (1,022) (479) (3,758) (1,794)
Gain on sale of
marketable securities - - - - 1,690 - 93 1,690 93
Other income
(expense), net ... - - 2 452 590 533 201 (1,028) 598
------ ------- ------- ------- ------- ------- ------- -------- --------
Loss from continuing
operations ......... - - (608) (1,153) (478) (489) (185) (3,096) (1,103)
------ ------- ------- ------- ------- ------- ------- -------- --------
Discontinued
Operations
Loss from
discontinued
operations ......... - - (1,816) (2,122) - - - - -
Gain from disposal,
including operating
losses through
disposal date of
$1,489,272 (less
income taxes of
$1,104,000)....... - - - 5,141 1,492 - - 592 -
------ ------- ------- ------- ------- ------- ------- -------- --------
Total income (loss)
from discontinued
operations - - (1,816) 3,018 1,492 - - - -
------ ------- ------- ------- ------- ------- ------- -------- --------
Net income (loss). $ (800) $(1,381) $(2,424) $(1,865) $ 1,013 $ (489) $ (185) $ (2,504) $ (1,103)
====== ======= ======= ======= ======= ======= ======= ======== ========
Net income (loss)
per share........
Continued $(0.21) $ (0.21) $ (0.08) $ (0.11) $ (0.03) $ (0.04) $ (0.01) $ (0.18) $ (0.06)
====== ======= ======= ======= ======= ======= ======= ======== ========
Discontinued.... $ - $ - $ (0.17) $ 0.25 $ 0.10 $ - $ - $ 0.03 $ -
====== ======= ======= ======= ======= ======= ======= ======== ========
Net loss per share
basic and diluted $(0.21) $ (0.23) $ (0.25) $ (0.14) $ (0.07) $ (0.04) $ (0.01) $ (0.15) $ (0.06)
====== ======= ======= ======= ======= ======= ======= ======== ========
Weighted average
shares outstanding 3,809 .004 10,379 12,019 14,728 12,459 15,808 17,229 18,308
====== ======= ======= ======= ======= ======= ======= ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of
December 31,
As of June 30, (unaudited)
---------------------------------------------------------- ---------------------------
Balance Sheet Data:
1999 Pro forma 1999
1995 1996 1997 1998 1999 (unaudited) (unaudited)
---------- ---------- ------- ------- ------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.. $ 87 $ 91 $ 542 $ 2,406 $ 7,618 $ 5,869 $ 7,137
Working capital............ 768 297 3,129 1,233 5,365 4,831 2,405
Total assets............... 17,132 18,209 18,298 8,864 16,487 14,428 41,844
Total liabilities.......... 13,439 15,242 14,776 1,611 2,872 2,411 17,309
Total stockholders' equity. 3,693 2,966 3,523 5,731 13,615 12,017 24,517
</TABLE>
- 6 -
<PAGE>
Selected Historical Consolidated Financial Data of Data Systems
The following table provides selected consolidated financial data for
Data Systems for the five years ended December 31, 1999. The statement of
operations data for 1996 through 1999 and the balance sheet data for 1996
through 1999 shown below are derived from the audited financial statements of
Data Systems. Statement of operations data and the balance sheet data for 1995
are derived from the unaudited financial statements of Data Systems.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operations Data:
Revenues................. $ 30,506 $ 32,577 $ 85,997 $ 85,323 $ 52,825
Cost of revenues......... 27,933 27,616 73,516 71,238 42,825
-------- -------- -------- -------- --------
Gross margin............. 2,573 4,961 12,481 14,085 10,000
Operating expenses....... 3,228 8,211 16,149 15,365 10,787
-------- -------- -------- -------- --------
Loss from operations..... (655) (3,250) (3,668) (1,280) (787)
Other income (expense),
net.................... (280) (185) (749) (2,419) 978
-------- -------- -------- -------- --------
Net earnings (loss) before
discontinued operations &
extraordinary item..... (935) (3,435) (4,417) (3,699) 191
Extraordinary Item....... 322 75 - - -
-------- -------- -------- -------- --------
Loss before discontinued
operations............. (613) (3,360) (4,417) (3,699) 191
Discontinued Operations:
Loss from operations of
Unified Network Services - (481) (557) (1,686) -
Gain on disposal of
Unified Network Services - - - 706 -
-------- -------- -------- -------- --------
- (481) (557) (980) -
-------- -------- -------- -------- --------
Net earnings (loss)...... $ (613) $ (3,841) $ (4,974) $ (4,679) $ 191
-------- -------- -------- -------- --------
Earnings (loss) per common
share - basic and
diluted
Continuing operations.. $ (0.24) $ (1.23) $ (1.02) $ (0.76) $ 0.40
======== ======== ======== ======== ========
Discontinued operations $ - $ (0.18) $ (0.13) $ (0.20) -
======== ======== ======== ======== ========
Net earnings (loss) per
common share........... $ (0.24) $ (1.41) $ (1.15) $ (0.96) $ 0.04
======== ======== ======== ======== ========
Weighted average shares
outstanding - basic and
diluted................ 2,560 2,719 4,324 4,859 5,205
======== ======== ======== ======== ========
As of December 31,
-------------------------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
(unaudited)
Balance Sheet Data:
Cash and cash equivalents $ 3,171 $ 1,521 $ 4 $ 2,395 $ 1,517
Working capital (deficit) 2,040 (6,073) (2,371) (5,356) (2,177)
Total assets............ 11,938 20,565 45,082 22,666 17,308
Long-term obligations,
less current portion.. 100 75 - - -
Redeemable convertible
preferred stock....... - - - - -
Total stockholders'
(deficit) equity...... 3,477 2,396 6,244 1,571 2,392
</TABLE>
- 7 -
<PAGE>
Comparative Per Share Data
Shown separately below are the net loss and book value per common share
data for TekInsight on a historical basis, for TekInsight on a pro forma
consolidated basis, for Data Systems on a historical basis and for TekInsight on
a pro forma consolidated basis per Data Systems equivalent share. The pro forma
data are based on the assumption that the average market value as quoted on the
Nasdaq Small Cap Market for the 10 days immediately prior to the closing date of
the merger is below $5 per share, resulting in an aggregate merger consideration
of $12,500,000, and therefore 2,500,000 shares of Series A preferred stock being
issued to Data Systems common shareholders. The data are also based on the
assumption that all the shares of Series A preferred stock are converted into
shares of common stock of TekInsight.
The unaudited pro forma consolidated data below are for illustrative
purposes only. The companies may have performed differently had they been
combined at the assumed dates. Do not rely on this information as being
indicative of the historical results that would have been achieved had the
companies been combined at the assumed dates or of the future results that
TekInsight will experience after the merger.
You should read the information below together with the historical
financial statements of TekInsight and Data Systems, the related notes, and the
Unaudited Pro Forma Consolidated Financial Information and related notes
starting on page ___.
<TABLE>
<CAPTION>
For the
For the six months
year ended ended
June 30, 1999 December 31, 1999
------------- -----------------
<S> <C> <C>
TekInsight historical per common share data
Net loss per common share............................................... $ 0.07 $(0.01)
Book value per share ................................................... $ 0.89 $0.76
TekInsight pro forma consolidated per TekInsight common share data:
Net loss per common share (1)........................................... $ (0.15) $(0.06)
Book value per share (2)................................................ $1.50 $1.34
Data Systems historical per common share data:
Net loss per common share............................................... $ (0.57) $(0.11)
Book value per share ................................................... $0.54 $0.45
TekInsight pro forma consolidated per Data Systems equivalent common
share data: (3)
Net loss per common share............................................... $(0.07) $(0.03)
Book value per share ................................................... $0.68 $0.61
</TABLE>
- ----------
1) The TekInsight pro forma consolidated net loss per common share is
calculated by dividing the total of the TekInsight weighted average shares
outstanding and the assumed conversion of 2,500,000 Series A preferred
shares being issued to Data Systems common shareholders into common stock
of TekInsight at the beginning of the respective periods.
2) The TekInsight pro forma consolidated book value per share is calculated by
dividing the pro forma consolidated stockholders' equity by the total
number of TekInsight common shares outstanding and assumes the conversion
of 2,500,000 Series A preferred shares being issued to Data Systems common
shareholders into common stock of TekInsight.
3) The TekInsight pro forma consolidated per Data Systems equivalent per share
data amounts are calculated by multiplying the TekInsight pro forma
consolidated common share data by the assumed exchange ratio of .453784417.
- 8 -
<PAGE>
RISK FACTORS
An investment in TekInsight involves material risks. Carefully consider
all of the risks described in this section and elsewhere in this prospectus.
Additional risks that we are not presently aware of or that we currently
consider immaterial may also adversely affect our business.
Because the merger consideration is based on the average trading price of
TekInsight's common stock for the 10 days prior to the closing (one to two days
after the special meeting of Data Systems), we cannot tell you today and you
will not know when you vote, what the value of the merger consideration will be
at the time that you vote.
The total value of the merger is based upon the average closing price
of TekInsight common stock for the ten days immediately preceding closing as
quoted on the Nasdaq SmallCap Market. Since the closing will not occur until one
to two days after the special meeting, you will not know when you vote what the
exact value of the merger or the Series A preferred stock will be. We expect,
however, that the aggregate merger consideration will be $12.5 million.
The $2 million termination fee payable by Data Systems if the merger agreement
is terminated may discourage other companies from trying to acquire Data
Systems.
In the merger agreement, Data Systems has agreed to pay a termination
fee of $2 million to TekInsight in specified circumstances where a third party
agrees to acquire Data Systems. Even though the board of directors of Data
Systems may terminate the merger agreement if required to meet its fiduciary
duties, this termination fee could discourage other companies from trying to
acquire Data Systems even if they would propose terms that are superior to the
terms of this merger. Payment by Data Systems of the termination fee could also
have a material adverse effect on the financial condition of Data Systems and
its results of operations.
We may not achieve the cost savings and sales increases that we expect to result
from the integration of TekInsight and Data Systems.
Data Systems provides sales and marketing channels and experience that
we do not have. The merger will not be successful unless Data Systems can
increase sales of our existing products. The success of Data Systems and timing
in realizing increased sales depends on the quality and speed of the integration
of TekInsight and Data Systems. Data Systems may not realize the cost savings
and sales increases that it anticipates following completion of the merger as
fully or as quickly as it expects. Although we expect synergies to result from
the merger, management did not commission a formal analysis of synergies and did
not attempt to quantify anticipated synergies. We cannot assure you that
synergies will result.
TekInsight will face technical, operational and strategic challenges as a result
of the merger that may prevent it from successfully integrating with Data
Systems.
The integration of Data Systems will be a complex, time-consuming and
expensive process and may disrupt our business. Following the merger, TekInsight
Services and Data Systems must operate as a combined organization using common
information and communication systems, operating procedures, financial controls
and human resources practices. TekInsight and TekInsight Services may encounter
substantial difficulties, costs and delays involved in integrating the
operations of Data Systems including:
o potential incompatibility of business cultures;
o perceived adverse changes in business focus;
o difficulties in integrating products and services;
- 9 -
<PAGE>
o the loss of key employees or clients; and
o diversion of the attention of management from other ongoing business
concerns.
The integration of operations and technologies following the merger may
distract management of both companies from day-to-day business, the development
or acquisition of new products, services and technologies, and the pursuit of
other business acquisition opportunities. Successful integration of the sales
and marketing departments of the two companies will require TekInsight's sales
and marketing personnel to learn about the products, services and technologies
of Data Systems.
We have lost money on our operations since inception, and we expect to lose more
money during the next several years.
As of December 31, 1999, we had an accumulated deficit of $8,319,800.
We may continue to incur net losses and negative cash flow during the next
several years whether or not we consummate the merger. Our ability to generate
profits and positive cash flow will depend in large part on our obtaining enough
customers for our services and products to offset the costs of marketing and
staffing our professional services business and developing the software products
that we sell. To the extent that we cannot achieve operating profitability or
positive cash flows from operating activities, our business will be adversely
affected.
Failure to obtain additional funding would limit our ability to expand our
business.
Following completion of the merger, we expect to incur significant
expense during the next several years to expand the number of proprietary
products that we develop for public sale and increase research and development
and sales and marketing personnel to further develop products and services and
increase sales of products and professional and electronic commerce services. We
also expect to incur significant expense in connection with the acquisition of
businesses that either augment our existing product lines or extend us into new
product lines. Actual costs may be more. We will need significant additional
capital to complete this product and service expansion and for any additional
acquisitions. We cannot assure you that we can raise sufficient capital to
follow through with our plans. To the extent that we cannot, our growth and
prospects will be limited and our stock price may suffer.
If we are not able to manage our growth and changing operations, our business
will be adversely affected.
Our ability to grow depends, in part, upon our:
o successfully implementing our strategy;
o evaluating markets;
o securing financing; and
o hiring and retaining qualified personnel.
In addition, as we increase our service and product offerings and
expand our sales and marketing expenses, we will have additional demands on our
customer support, sales and marketing, administrative, research and development
resources. In order to manage growth and change effectively, we must implement
and improve our operational systems, procedures and controls on a timely basis.
If we cannot effectively manage our growth and implement and improve these
systems, our business and results of operations will be adversely affected.
- 10 -
<PAGE>
Acquisitions and joint ventures could strain our business and resources.
If we acquire additional companies or businesses, or enter into joint
ventures, we may be subject to:
o miscalculation of the value of the acquired company or joint venture;
o diversion of resources and management time;
o difficulties in integration of the acquired business or joint venture
with our operations;
o damage to customer relationships as a result of changes in
management;
o additional liabilities or obligations as a result of the acquisition
or joint venture; and
o additional financial burdens or dilution incurred with the
transaction.
Our quarterly financial results are subject to significant fluctuations.
Our quarterly revenues, expenses and operating results may fluctuate
significantly due to a number of factors, including:
o change in demand for our products;
o size and timing of significant orders and when they are filled;
o our ability to develop and upgrade our technology;
o changes in our level of operating expenses and unexpected expenses;
o our ability to compete in a highly competitive market; and
o undetected software errors and other product quality problems.
We depend on a limited number of customers for our revenues.
We have derived substantially all of our revenues since 1998 from a
limited number of customers, including large financial institutions, independent
software vendors, or ISVs, and customers entering into electronic commerce. To
compete in this market, we believe that we must devote substantial resources to
expanding our marketing and advertising, to continuing product development, and
to diversifying. Our operating revenues have increased over the last two years
but our operations have not produced net income to date. Net income has resulted
solely from the sale of securities and the nonrecurring sale of our former
operating business. Therefore, unless we increase sales, it is unlikely that we
can achieve net income in the future.
Our products and services are subject to rapid technological change.
The market for our products and services is characterized by rapid
technological change, frequent new product introductions, short product life
cycles, changes in customer demands and evolving industry standards. Our
products and services could be quickly rendered obsolete if new products are
introduced or new industry standards emerge and we fail to adapt quickly. We
rely on our relationships with Microsoft and attempt to coordinate our product
offerings with the future releases of its operating systems.
We also believe that operating system software vendors, particularly
Microsoft and Novell, could enhance their products to include functionality that
we currently provide in our products. If these vendors include our software
functionality as standard features of their operating system or other software,
our products could quickly become obsolete. Even if the functionality of the
standard software features of these vendors is more limited than ours, there is
a substantial risk that a significant number of customers would elect to keep
this limited functionality rather than purchase additional software.
- 11 -
<PAGE>
The market for the professional services and the electronic commerce
services provided by our subsidiaries are fragmented and characterized by few
barriers to entry. Competitors include ISVs such as IBM and Microsoft (who are
also customers of ours) and consulting firms such as Andersen Consulting. Many
of these companies have much greater resources than we do, making it difficult
for us to compete.
Client/server computing environments and the Internet are inherently
complex and continually developing. New products and product enhancements can
require long development and testing periods, which depend significantly on our
ability to hire and retain or contract with increasingly scarce technically
competent personnel. Our ability to provide highly technical professional
services related to the Internet and LAN management are similarly constrained.
Significant delays in new product releases, or in hiring the necessary
technically skilled personnel, could seriously damage our business. We have, on
occasion, experienced delays in scheduled introduction of new products. We
cannot be sure that such delays will not occur again.
To be successful, we must enhance existing products, develop and
introduce new products, satisfy customer requirements for our products and
services and achieve market acceptance. We cannot be sure that we will
successfully identify new product opportunities and develop and bring new
products to market in a timely and cost-effective manner. Further, the products,
capabilities or technologies developed by others may render our products or
technologies obsolete or shorten their life cycles. Similarly, we cannot be sure
that we will be able to provide the right professional and electronic commerce
services at the right price in the future. To the extent that we cannot do so,
our business will be adversely affected.
Loss of key personnel would adversely affect us.
Our success depends largely on the efforts of our executive officers,
in particular, Alexander Kalpaxis, President of TekInsight Services and Chairman
of the Board and Chief Technology Officer of TekInsight. We have an employment
contract requiring Mr. Kalpaxis to continue his employment through October 2001.
The loss of the services of one or more of our key individuals or the failure to
attract and retain additional qualified personnel could adversely affect our
business. We do not maintain key man life insurance policies on any of our
executive officers.
There is no assurance our intellectual property rights can be protected.
We rely on a combination of trademark, trade secret, patent, and
copyright laws and contractual restrictions to protect our technology. These
legal protections provide only limited protection. We may not be able to detect
unauthorized use or take appropriate steps to enforce our intellectual property
rights. Litigation is expensive regardless of the outcome, diverts management
resources and may not be adequate to protect our business in any event. We also
could be subject to claims alleging infringement by third-parties of their
intellectual property rights. In addition, we may be required to indemnify our
distribution partners and end-users for similar claims made against them. Any
claims against us could require us to spend significant time and money in
litigation, pay damages, develop non-infringing intellectual property or acquire
licenses to intellectual property that is the subject of the infringement
claims.
Our investments in other companies may not be successful.
We may continue to make investments in companies with technologies,
services or products that we find attractive. We may have difficulty integrating
the personnel and operations, technology, services or products acquired through
these acquisitions. Acquisitions can disrupt our ongoing business, distract
management and other resources and make it difficult to maintain our standards,
controls and procedures. We may also lose all or a part of our investment if
these businesses fail.
- 12 -
<PAGE>
Undetected software errors may damage our business reputation.
Our software products are complex and may from time to time contain
undetected bugs or errors, particularly when first introduced or when new
versions or enhancements are released. Despite testing, we cannot be sure that
bugs or errors will be discovered in our products before we commence commercial
shipping. Undetected bugs or errors could result in adverse publicity, loss of
customer confidence, delay in market acceptance or claims against us, any of
which could adversely affect our business.
We face risk of product liability claims.
Our agreements with customers typically contain provisions intended to
limit liability claims. These limitations may not preclude all potential claims,
however. Liability claims could require us to spend significant time and money
in litigation or to pay significant damages. As a result, any claims against us,
whether or not ultimately successful, could adversely impact our business and
damage our reputation.
Our stock price is volatile which presents an additional litigation risk.
The market price of our common stock is sometimes volatile. Trading
volume is sometimes low. In the past, companies that have experienced volatility
in the market price of their stock have been the object of securities class
action litigation in the event of a drop in market price. If we were to become
the object of securities litigation, it could result in substantial costs and
diversion of management resources.
Security breaches could expose us to a risk of loss, litigation and possibly
liability.
Although we are not aware of any attempts by hackers to penetrate our
network security, there is no assurance that security breaches will not occur in
the future. A person able to penetrate our network security could misappropriate
our proprietary information or that of our clients, or cause interruptions in
our operations, which may adversely affect our business. We may be required to
spend significant amounts of money to protect us against the threat of security
breaches or to alleviate problems caused by security breaches, which could be
expensive. Concerns over the security of Internet transactions and the privacy
of users may also inhibit the growth of the Internet as a means of conducting
commercial transactions.
Our electronic commerce services business would be adversely affected if
Internet service were interrupted due to hardware, software, telecommunications
or other breakdowns.
Our operations may be interrupted if the computer hardware or software
owned by us, our clients or by service providers upon whom we depend (including
Internet service providers) are damaged or prevented from operating. To the
extent that we experience temporary or permanent business interruptions, whether
due to a casualty or an operating malfunction, our business is adversely
affected. If interruptions happen often enough, loss of customer confidence may
adversely affect our business; and if such interruptions result from general
Internet service deprivations, the loss of generalized confidence in Internet
operability may adversely affect our business that is specifically targeted at
electronic commerce.
We may be liable for online content provided by third parties.
The law of the Internet is uncertain and is changing. We may face
potential liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that appear on Web sites that we host through our subsidiaries. Claims of this
type have been successfully prosecuted from time to time. Liability could be
material.
- 13 -
<PAGE>
Government regulation of Internet communications may influence our business.
We currently are not subject to direct regulation by any governmental
agency, other than regulations applicable to business generally. However, in the
future we could become subject to specific industry regulation by regulatory
agencies. Changes in the regulatory environment could have a material adverse
impact on our business and financial condition.
If our stock becomes subject to the SEC's "penny stock" rules it could become
more difficult to buy and sell our stock, which may adversely impact our trading
market.
Continued quotation of our common stock in the Nasdaq SmallCap Market
is conditioned upon continuing to meet Nasdaq eligibility requirements. In
addition, if the trading price of TekInsight common stock remains below $5.00
per share, sales of common stock would be subject to Rule 15g-9 under the
Securities Exchange Act of 1934, applicable to "low price stocks," which imposes
additional sales practice requirements on broker-dealers making sales of
low-priced stock to the public. For transactions covered by this rule, a
broker-dealer must make a special suitability determination respecting each
purchaser and have received each purchaser's written consent to the transaction
prior to sale. If TekInsight fails to meet Nasdaq's eligibility requirements or
sales of our common stock become subject to Rule 15g-9, the ability of holders
to sell their common stock in the secondary market could be adversely affected.
A sale of a significant number of our shares may adversely impact us.
Sales of substantial amounts of TekInsight common stock (including
shares issued upon the exercise of warrants or stock options), or the perception
in the market that such sales could occur, could adversely affect the market
price of TekInsight common stock and could also impair our ability to raise
capital through an offering of our equity securities in the future. Assuming
exercise of all outstanding convertible securities, and a market price of $4.99
per share for our common stock used to determine the number of Series A
preferred stock to be issued to shareholders of Data Systems, we would have
22,136,172 shares of common stock outstanding, of which 17,243,277 will be
transferable without restriction under the Securities Act. The remaining
7,941,242 shares of common stock to be outstanding on completion of the merger
are "restricted securities" under Rule 144. Restricted Securities may be
publicly sold only if registered under the Securities Act, or if sold pursuant
to an applicable exemption and in compliance with Rule 144. Under Rule 144,
assuming satisfaction of other conditions, a person, including an affiliate of
TekInsight, who has beneficially owned restricted securities for at least one
year is entitled to sell within any three-month period up to the greater of 1%
of the total number of outstanding shares of the same class or, since our common
stock is quoted on the Nasdaq SmallCap Market, the average weekly trading volume
during the four calendar weeks preceding the sale. A person who has not been an
affiliate of TekInsight for three months and who has beneficially owned the
restricted securities for at least two years, is entitled to sell such
restricted shares under Rule 144 without regard to any of the limitations
described above.
- 14 -
<PAGE>
BACKGROUND OF THE MERGER
Background of the Merger
In March 1998, the board of directors of Data Systems determined that
it would seek to enhance shareholder value. Data Systems subsequently entered
into a merger agreement with Information Architects Corp, then named Alydaar
Software Corporation, on January 31, 1999. That agreement was mutually
terminated on September 15, 1999 and a press release announcing the termination
was issued by both companies.
On September 16, 1999, Robert Arnold of Amtech, Inc., a business merger
and acquisition firm, saw the notice of termination and contacted Michael W.
Grieves, Chief Executive Officer of Data Systems. Mr. Arnold wanted to introduce
TekInsight to Data Systems in order to discuss a possible merger. TekInsight,
then named Tadeo Holdings, Inc., was in the process of changing its business. It
had been in the medical services business but had sold its medical services
business in 1998 and acquired AstraTek, a privately held technology development
and professional services company. TekInsight wanted to combine TekInsight
Services' technology, professional services and new electronic commerce
capabilities with the sales, support, and infrastructure of Data Systems to
create a leading Internet technology and services company.
Mr. Arnold was invited to address the board of directors by conference
call at a Data Systems board of directors meeting on September 30, 1999. Mr.
Arnold addressed Data Systems board of directors and discussed a framework for a
possible transaction. The Data Systems board of directors agreed that Mr. Arnold
should pursue a possible transaction with TekInsight. On October 4, 1999,
TekInsight representatives faxed to Mr. Grieves an outline of a proposal letter.
Mr. Grieves, Chief Executive Officer of Data Systems, subsequently met
with Mr. Alexander Kalpaxis, at the time Executive Vice President and Chief
Technology Officer of TekInsight, and Mr. Damon Testaverde, a member of the
TekInsight board of directors, on October 14 and 18, 1999 to discuss the
strategic advantages of combining TekInsight and Data Systems, and a possible
transaction of some type. Data Systems continued to have discussions with
TekInsight representatives, along with other interested parties, throughout the
end of the year.
During the end of 1999 and into January 2000, TekInsight, Data Systems
and their respective representatives discussed the terms of a possible
transaction between the parties and each party conducted due diligence. On
January 12, 2000 TekInsight proposed a valuation that was in excess of Data
Systems' then current market value. Mr. Grieves agreed to present the TekInsight
proposal to the board of directors of Data Systems. On January 14, 2000, the
board of directors of Data Systems discussed the TekInsight proposal and
determined that it was superior to other tentative proposals under consideration
due to its superior valuation, its potential for increasing in value as
TekInsight stock price increased and its definitiveness.
The letter of intent was authorized by the TekInsight board of
directors on January 14, 2000. On January 18, 2000, the parties executed a
letter of intent and issued a joint press release announcing the merger.
During February 2000, the parties and their respective advisors
continued their due diligence and negotiated the terms of a definitive merger
agreement. In addition, Data Systems engaged Valuation Counselors, and
TekInsight engaged Valuemetrics, to evaluate and render a written opinion on the
fairness of the merger consideration from a financial perspective to the
shareholders of each company, respectively. Valuation Counselors presented the
Data Systems board of directors with its fairness opinion on February 8, 2000.
- 15 -
<PAGE>
The board of directors, along with the management, of Data Systems,
convened by conference call in a special meeting of the board of directors on
February 17, 2000 to consider the merger agreement. Mr. Jansen, Chief Financial
Officer of Data Systems, led the discussion of the possible merger transaction.
After discussion and analysis of the possible merger transaction and the
fairness opinion, the board of directors of Data Systems unanimously approved
the merger agreement and recommended its approval by the shareholders of Data
Systems.
On February 16, 2000, Valuemetrics presented its fairness opinion at a
special meeting of the board of directors of TekInsight. At that meeting, the
board of directors of TekInsight voted and unanimously authorized the merger and
recommended its approval by the stockholders of TekInsight.
Data Systems and TekInsight subsequently executed the merger agreement
on February 18, 2000. On February 28, 2000, Data Systems and TekInsight issued
press releases announcing the merger agreement.
After further discussion between the management of Data Systems and
TekInsight, in which the post-merger organization of the combined companies was
discussed, it was agreed to amend the merger agreement by providing for the
merger of Data Systems into TekInsight Services rather than AstraTek. TekInsight
Services is a wholly owned subsidiary of TekInsight that provides electronic
commerce services to its clients. An amendment to the merger agreement
reflecting this modification was authorized by the boards of directors of Data
Systems and TekInsight and signed by all parties on April 4, 2000.
Data Systems' Reasons for the Merger; Recommendations of the Board of Directors
The board of directors of Data Systems has unanimously approved the
merger agreement and the merger, has authorized the execution and delivery of
the merger agreement and believes that the merger is in the best interests of
Data Systems and its shareholders. Accordingly, the board of directors of Data
Systems unanimously recommends that the shareholders of Data Systems vote "FOR"
the merger.
In making its determination with respect to the merger, the board of
directors of Data Systems considered the following factors material. This is not
an exhaustive list of all the factors considered by the board of directors of
Data Systems. Each member of the board of directors may have considered
different factors or assigned different weights to different factors and the
board of directors of Data Systems evaluated these factors as a whole and did
not quantify or otherwise assign relative weights to the factors considered.
Those factors were:
o The prospective financial condition and results of operations of Data
Systems and TekInsight. The board of directors considered this factor
important in approving the merger because the listing of TekInsight
on the Nasdaq SmallCap Market (which is a condition to the merger)
would provide better liquidity for shareholders of Data Systems and
better access to capital than Data Systems currently has in the
over-the-counter market.
o The current financial condition of Data Systems without combining
with TekInsight. The board of directors considered this factor
important in approving the merger because, although the board
considered a number of other alternatives and merger partners,
TekInsight offered the best terms and prospects.
o The opportunity for Data Systems to accelerate its transition from
the reliance on hardware sales into the higher margin business of
providing professional and electronic commerce services and the
development of software products. The board of directors considered
this factor important because it afforded a good opportunity to
diversify the revenue stream of Data Systems.
- 16 -
<PAGE>
o The opinion of Valuation Counselors that the exchange ratio is fair
from a financial perspective to the shareholders of Data Systems. The
board of directors of Data Systems considered this factor important
because their independent determination corroborated, from a
financial perspective, what the board believed to be the case from a
business perspective.
o The business and financial opportunities that become available to
Data Systems as a result of TekInsight's technical capabilities and
product offerings. The board of directors of Data Systems considered
this to be important from a long-term business perspective and as a
component of adding shareholder value.
o The opportunity to provide new Internet technology to its existing
customers. The board of directors of Data Systems considered this
important as a means of maintaining and expanding its customer base
and adding to its revenue stream.
o The ease of transition for the combined company after the merger due
to the current infrastructure of Data Systems. The board of directors
of Data Systems considered this important because it tended to
support its belief that the merger made sense from a business
perspective.
The determination of the board of directors of Data Systems involved
judgment with respect to, among other things, future economic, competitive and
financial market conditions and future business decisions which may not be
realized and are inherently subject to significant business, economic,
competitive and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of Data Systems.
TekInsight's Reasons for the Merger; Recommendation of Board of Directors
In making its determination with respect to the merger, the board of
directors of TekInsight considered the following factors material. This is not
an exhaustive list of all the factors considered by the board of directors of
TekInsight. Each member of the board of directors may have considered different
factors or assigned different weights to different factors and the board of
directors of TekInsight evaluated these factors as a whole and did not quantify
or otherwise assign relative weights to the factors considered. Those factors
were:
o TekInsight seeks to gain access to Data Systems' established sales
and distribution channel to promote TekInsight products and services.
Data Systems possesses a distribution network covering 16 state and
local governments and a variety of commercial accounts. The board of
directors of TekInsight considered this factor important because
expanding existing sales and distribution channels is critical to
future revenue growth.
o TekInsight seeks to gain access to Data Systems' seasoned sales team
operating in five district offices, without incurring the time and
expense required to establish a channel independently, and increasing
the likelihood that TekInsight will be able to successfully penetrate
target markets. The board of directors of TekInsight considered this
factor important for the same reasons.
o Data Systems' help desk operations is expected to provide valuable
support for TekInsight product rollouts and solutions provided to
clients. The board of directors considered this factor important but
it was not as heavily weighted as the other factors considered.
o Data Systems' professional services group complements the
professional services group of TekInsight. The merged entity will be
able to provide a broader range of technical services to the combined
client bases of both companies. The board of directors of TekInsight
considered this factor important because it directly relates to an
assessment of the combined company's future revenue stream.
- 17 -
<PAGE>
o Data Systems' network engineers and product procurement sources,
combined with the eCommerce development capability and technical
know-how of TekInsight, will allow TekInsight to promote an
"end-to-end" eCommerce solution to commercial and government clients
seeking to leverage the Internet. The board of directors considered
this an important factor in expanding the combined company's customer
base.
o TekInsight expects to realize significant gains in efficiency and
operating profits as a result of organization rationalization and
process improvements in the combined entity. The board of directors
considered this factor important because it tends to support the
belief that the merger makes sense from a business and financial
perspective.
o Although the board of directors of TekInsight did not commission a
formal analysis of synergies and did not attempt to quantify
synergies, TekInsight expects to realize synergies from the
combination of TekInsight's sophisticated product development,
professional services and electronic commerce activity teams with
Data Systems' extensive sales staff. In this case, each merger
participant has particular business operational strengths that are
not as highly developed in the other participant's organization. For
example, TekInsight expects synergies to develop by pairing its
development expertise and lack of sales strength, given its small
sales staff, with Data Systems' large national sales organization and
more limited development staff sophistication. The board of directors
considered this factor important because it tends to support the idea
that each merger participant's access to the other's operational
strengths will lead to more business advantages for each side than
simply the result of adding together the revenues generated by each
party to the merger or spreading existing operating expenses over a
larger revenue base.
The determination of the board of directors of TekInsight involved
judgment with respect to, among other things, future economic, competitive and
financial market conditions and future business decisions which may not be
realized and are inherently subject to significant business, economic,
competitive and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of TekInsight.
- 18 -
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Except as disclosed, none of the current directors or officers of
TekInsight has any substantial interest, direct or indirect, by security
holdings or otherwise, in the merger. Officers and directors of Data Systems may
have interests in the merger that are different from or in addition to other
shareholders of Data Systems. Data Systems does not, however, believe that any
of these interests presents a material conflict of interest.
Employment Agreement
On October 1, 1998, TekInsight entered into a three-year employment
contract with Alexander Kalpaxis. Mr. Kalpaxis is Chairman of the Board and
Chief Technology Officer of TekInsight. Mr. Kalpaxis's employment agreement
provides him with an annual base salary of $160,000. Additionally, Mr. Kalpaxis
will receive a performance bonus based upon the operating results of AstraTek if
EBITDA of AstraTek equals or exceed $1 million.
Consulting Agreements
Steven J. Ross entered into a consulting agreement on December 10, 1999
for his services as a consultant to the newly-formed TekInsight subsidiary,
BugSolver.Com, Inc. The agreement extended through March 31, 2000 and became
automatically renewable for successive 90-day periods unless either party gives
notice of termination. Mr. Ross also agreed to serve as a director of BugSolver.
For his services, Mr. Ross receives (i) $20,000 monthly, and (ii) a bonus of
options to buy 30,000 shares of BugSolver common stock. Following the first
renewal of the consulting agreement and the successful completion of a private
placement of at least $10,000,000 of BugSolver equity securities, Mr. Ross will
receive further options to purchase 4% of the outstanding shares of BugSolver
common stock immediately following completion of the private placement. Under
the consulting agreement, these options will vest one year from the closing of
the private placement.
Indemnity Agreement
TekInsight has entered into agreements which provide indemnification to
each of its directors and officers, to the fullest extent allowed under the
Delaware General Corporate Law. The indemnification agreements provide for
payment by TekInsight of all expenses, judgments and other amounts required to
be paid by an officer or director in connection with a proceeding or suit to
which he is a party or witness or is otherwise involved by reason of the fact he
acted as an officer, employee, director or agent of TekInsight. TekInsight is
not obligated to pay any expenses with respect to any proceeding arising out of
acts or omissions for which an officer or director is prohibited by applicable
law from receiving indemnification or where the attorney representing the
indemnitee has concluded that the indemnitee is not entitled to indemnification
of any amounts.
Consents to be Named as Director
Steven J. Ross, a former director of Data Systems and the current
President and Chief Executive Officer of TekInsight, Michael W. Grieves,
President and Chief Executive Officer of Data Systems, and Walter J. Aspatore, a
director of Data Systems, have each agreed to become a director of TekInsight on
the same terms as TekInsight's other directors after the merger.
- 19 -
<PAGE>
Material Contracts with Data Systems
The following is a summary of the material terms of agreements between
TekInsight and Data Systems pertaining to pre-merger and post-merger operations.
Voting Agreement
Michael W. Grieves and Gregory Cocke, as principal shareholders of Data
Systems, and Data Systems, AstraTek and TekInsight, as parties to the merger,
entered into a voting agreement dated as of February 18, 2000. Pursuant to the
voting agreement, Mr. Grieves and Mr. Cocke agreed to vote their shares of Data
Systems common stock and any other capital stock owned by them (i) in favor of
the merger, (ii) against any action discouraging or inhibiting the completion of
the merger and (iii) against any other merger or reorganization or sale of Data
Systems. During the term of the voting agreement, which shall be effective until
the conclusion of Data Systems' meeting of shareholders held for the purpose of
voting on the merger, neither Mr. Grieves nor Mr. Cocke will solicit proxies in
opposition to the merger, encourage or assist any party in taking action or
directly taking any action to compete with or discourage the merger or become a
member of a group for the purpose of opposing the merger. In connection with the
voting agreement, Mr. Grieves and Mr. Cocke have granted a proxy to either of
Brian Bookmeier or Damon Testaverde to vote their shares of Data Systems in
favor of the merger at the special meeting.
Affiliate Agreement
Michael W. Grieves and Gregory Cocke entered into an affiliate
agreement dated as of February 18, 2000 with TekInsight and Data Systems. Under
the affiliate agreement, Mr. Grieves and Mr. Cocke each agree not to transfer or
sell the preferred stock that they shall receive in the merger unless such sale
is allowed by the terms of Rules 145(c) and (d) under the Securities Act, or
counsel provides an opinion to the effect that sale is exempt from the
registration requirements of the Securities Act, or sale of their shares is
covered by an effective registration statement filed with the SEC. The
shareholders each agree not to transfer or sell Data Systems common stock or
TekInsight Series A preferred stock acquired in the merger during a 30-day
period beginning immediately prior to the effective time of the merger and
ending after TekInsight publishes its first financial statements containing pro
forma financial statements. Under the affiliate agreement, Mr. Grieves and Mr.
Cocke each agree that they do not have any plan to sell or transfer shares of
Series A preferred stock, and do not know of any plan by other shareholders of
Data Systems to sell 50% or more of the Series A preferred stock as determined
on a pre-merger basis.
- 20 -
<PAGE>
MERGER AGREEMENT
The merger agreement is dated as of February 18, 2000, as amended on
April 4, 2000, among TekInsight, TekInsight Services and Data Systems. The
following summary of the material terms of the merger agreement, while complete
in material respects, is nonetheless a summary. It is qualified by reference to
the full text of the merger agreement which is attached as an exhibit to this
proxy statement/prospectus and incorporated herein by reference.
Effect of the Merger
The merger agreement provides that if the merger is approved, at the
effective time a certificate of merger will be filed with the Michigan
Department of Consumer and Industry Services, Securities and Land Development
Bureau and a certificate of merger will be filed with the Delaware Secretary of
State, and upon such filings Data Systems will be merged with and into
TekInsight Services. TekInsight Services will continue as the surviving company.
By operation of law, TekInsight Services shall succeed to the property and
rights of Data Systems and assume all of its debts, liabilities and duties. The
certificate of incorporation and bylaws of TekInsight Services will be the
certificate of incorporation and bylaws of the combined entity.
Management of TekInsight After the Effective Date of the Merger
Steven J. Ross, President and Chief Executive Officer of TekInsight,
will also be a director of TekInsight after the merger. The board of directors
of TekInsight immediately prior to the merger, with the addition of Steven J.
Ross, Michael W. Grieves and Walter J. Aspatore, will be the initial board of
directors of TekInsight after the merger.
The closing of the merger will occur within one to two days after the
satisfaction or waiver of all material conditions of the merger agreement,
including obtaining shareholder approval. No conditions are expected to be
waived. The closing will be at the offices of Nixon Peabody LLP, counsel for
TekInsight, 437 Madison Avenue, New York, New York, or at such other time and
place as the parties may agree in writing.
Merger Consideration; Effect on Capital Stock of Data Systems
Under the merger agreement, the Series A preferred stock of TekInsight
paid as merger consideration will have a dollar value of between $12.5 million
and $18 million, depending on the average of the market value of TekInsight
common stock as quoted on the Nasdaq SmallCap Market for the 10 consecutive
trading days immediately prior to the closing date of the merger. The aggregate
dollar amount of the merger consideration will be determined on the following
basis:
If the Market Value of Then the Total Value
TekInsight Common Stock Quoted on of the Merger
The Nasdaq SmallCap Market at Closing Date Is: Consideration Will Be:
---------------------------------------------- ----------------------
Less than $5.00 per share but more than $12.5 million
$2.00 per share
Equal to or greater than $5.00 and less than $16 million
$7.00 per share
Equal to or greater than $7.00 per share $18 million
- 21 -
<PAGE>
Each shareholder of Data Systems will receive his proportionate share
of TekInsight's Series A preferred stock based on an exchange ratio equal to the
per share amount described immediately above divided by the market value of one
share of TekInsight common stock calculated as described in the table above. For
a full description of the merger consideration formula, with examples, see
"Summary -- Merger Consideration," beginning on page ___ of this proxy
statement/prospectus.
Data Systems common stock will be cancelled without conversion. Cash
will be paid for fractional shares.
Treatment of Data Systems Stock Options
At the effective time of the merger, each outstanding and unexercised
Data Systems stock option which has been issued under its option plan shall be
assumed by TekInsight and shall be deemed to be vested as of the effective date
of the merger. Each assumed stock option shall be exercisable for shares of
Series A preferred stock in accordance with the conversion ratio set forth in
this section in the paragraph above entitled "Merger Consideration; Effect on
Capital Stock of Data Systems."
Shares of Data Systems common stock issued upon the exercise of Data
Systems options which have been granted under its option plan prior to the date
that is three days prior to the effective time of the merger shall be converted
into shares of Series A preferred stock in accordance with the conversion ratio
described above. Such exercised Data Systems options shall be deemed to have
vested not later than the fifth business day prior to the closing date of the
merger.
Surrender of Data Systems Certificates
American Stock Transfer & Trust Company is the exchange agent in the
merger. Immediately after the closing date, TekInsight will give the exchange
agent the number of its shares of Series A preferred stock necessary to complete
the exchange. TekInsight will also give the exchange agent sufficient cash to
pay cash for fractional shares.
The exchange agent will send each shareholder of Data Systems of record
a transmittal letter covering the exchange of shares, together with instructions
for effecting the exchange. Upon surrender of Data Systems stock certificates,
the holders of the surrendered Data Systems certificates will be entitled to
receive their proportionate share of Series A preferred stock, plus any cash
paid for fractional shares.
Shareholders of Data Systems will not be entitled to any dividends or
distributions on Series A preferred stock until their Data Systems share
certificates are surrendered to the exchange agent. Following the surrender of
Data Systems share certificates to the exchange agent, along with a signed and
completed transmittal letter, the exchange agent will deliver to shareholders of
Data Systems certificates representing their shares of Series A preferred stock,
plus cash for any fractional shares. Interest will not be paid between the
closing date and the date shareholders receive their Series A preferred stock.
If a shareholder is the registered holder and would like his Series A preferred
stock issued in any name other than his own, Data Systems certificates
surrendered to the exchange agent must be properly endorsed and proper
instructions must be given to the exchange agent. Any such person to be issued
Series A preferred stock must establish that any transfer or other taxes
required to be paid by reason of the transfer have been paid or are not payable.
The exchange agent will not be liable for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar laws.
After one year from the closing date of the merger, the exchange agent will no
longer be obligated to exchange Data Systems common stock on behalf of
TekInsight or pay cash in lieu of fractional shares or for dividends. After that
date shareholders of Data Systems must look to TekInsight for payment of their
claims.
- 22 -
<PAGE>
No Further Ownership Rights in Data Systems Common Stock After Exchange
All shares of TekInsight Series A preferred stock issued pursuant to
the merger agreement shall be deemed to have been issued in full satisfaction of
all claims pertaining to exchanged shares of Data Systems common stock. Data
Systems certificates presented after the effective time of the merger will be
canceled and exchanged as provided in the merger agreement.
Lost, Stolen or Destroyed Certificates
Certificates for shares of Data Systems common stock that have been
lost, stolen or destroyed may nonetheless be exchanged for Series A preferred
stock by the exchange agent upon proper proof of ownership, including an
affidavit of the holder and bond sufficient to indemnify TekInsight, TekInsight
Services or the exchange agent against possible loss with respect to such
certificates.
Tax Consequences
It is a condition of the merger that TekInsight and Data Systems each
receives a legal opinion that the merger constitute a tax-free reorganization
within the meaning of Section 368(a)(2)(D) of the Internal Revenue Code.
Further Actions by the Parties
The parties each agree that if further action is necessary or desirable
to carry out the purposes of the merger agreement and to vest TekInsight
Services with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Data Systems, that the officers and
directors of Data Systems and TekInsight Services agree to take all such lawful
and necessary action. TekInsight shall cause TekInsight Services to perform its
obligations under the merger agreement.
Representations and Warranties
The merger agreement contains customary representations and warranties
by both parties.
Covenants
The parties have agreed to a number of customary covenants including
the following: Each party has agreed to help to prepare and file a proxy
statement/prospectus with the SEC. Data Systems has agreed to use its best
efforts promptly to hold a special meeting and solicit proxies in favor of the
merger and secure shareholder approval of the merger as required by the rules of
the National Association of Securities Dealers, Michigan law and Delaware law to
obtain such approvals. Both parties have agreed to keep the books and records of
the other party confidential. Data Systems has agreed to a "no shop" provision
subject to fiduciary duties owed by the board of directors of Data Systems to
its shareholders. TekInsight has agreed to use its best efforts to have the
Series A preferred stock listed on the Nasdaq SmallCap Market. Both parties have
agreed to confidentiality provisions, limitations on publicity, labor and other
matters.
Conditions to Closing
The obligations of the parties under the merger agreement are subject
to the satisfaction of a number of customary conditions, none of which is
expected to be waived. Waiver by either board of directors of a material
condition will result in resolicitation of shareholders. The material conditions
of the merger agreement require that:
o shareholders of Data Systems approve the merger;
- 23 -
<PAGE>
o this proxy statement/prospectus be declared effective by the SEC;
o there is no governmental action, including a statute, rule,
regulation, executive order, decree, injunction or order that would
prevent completion of the merger;
o TekInsight and Data Systems each receives from its respective
special tax counsel a tax opinion to the effect that the merger will
be a tax free reorganization within the meaning of Section
368(a)(2)(D) of the Internal Revenue Code;
o Nasdaq list the Series A preferred stock on the Nasdaq SmallCap
Market;
o all third party consents (including consents of lenders) have been
obtained;
o any necessary approvals by TekInsight stockholders have been
obtained;
o other customary covenants have been complied with (that all
representations and warranties are true at closing, no material
adverse changes in the business of TekInsight, receipt of legal
opinions, etc.); and
o no more than 5% of holders of Data Systems common stock have
exercised dissenters' rights.
Events of Termination
The merger agreement may be terminated in the event of any of the
following:
o by mutual consent of the boards of directors of TekInsight and Data
Systems;
o by either party, if the merger is not completed by June 30, 2000 for
any reason;
o automatically on September 30, 2000 if the merger has not been
completed;
o if a governmental entity issues an order, decree, or ruling or takes
any other action after a final order has been entered, or there
shall be any law or regulation having the effect of permanently
restraining, enjoining or otherwise prohibiting the merger;
o if the required approval of the shareholders of Data Systems is not
obtained;
o if the board of directors of Data Systems unanimously fails to
recommend shareholder approval of the merger, withdraws or adversely
changes its recommendation to approve the merger prior to the
approval of its shareholders;
o if the board of directors of Data Systems accepts, publicly
endorses, recommends or executes a letter of intent or similar
document with respect to a proposal more financially favorable to
the shareholders of Data Systems with respect to a sale of Data
Systems or substantially all its assets;
o a tender or exchange offer is commenced with respect to Data Systems
securities and Data Systems does not recommend rejection of the
offer within 10 business days after commencement;
o if an acquisition proposal (other than a tender or exchange offer
relating to the securities of Data Systems) is publicly announced
and, upon TekInsight's request, the board of directors of Data
Systems does not within 10 days issue a press release announcing its
opposition;
o if the board of directors of TekInsight fails unanimously to
recommend stockholder approval of the merger, or amends or adversely
changes its recommendation to approve the merger;
o by either party, if the other breaches any representation, warranty,
covenant or agreement contained in the merger agreement, or if any
representation or factual basis for a covenant becomes inaccurate;
- 24 -
<PAGE>
o by either party, if a tender or an exchange offer with respect to
the securities of Data Systems is accepted by holders of more than
50% of the outstanding shares of Data Systems common stock;
o if in the opinion of outside legal counsel either TekInsight or Data
Systems is required to terminate the merger agreement pursuant to
its fiduciary duties to its shareholders under applicable laws;
o if the average market value for TekInsight common stock for the 10
consecutive trading days prior to the closing date of the merger is
less than $2.00 per share;
o if at any time prior to any required approval of the merger by the
stockholders of TekInsight, the board of directors of TekInsight
withdraws its recommendation; or
o if any necessary approval by the stockholders of TekInsight is not
obtained under the Nasdaq National Stock Market rules and/or
Delaware law.
Fees and Expenses
Each party to the merger will pay its own fees and expenses but will
share fees and expenses incurred in relation to printing and filing of the Data
Systems proxy statement and the registration statement. In addition, Data
Systems has agreed to pay TekInsight $2 million in the event that:
o the merger is not approved by the shareholders of Data Systems;
o a tender or exchange offer is accepted by more than 50% of the
outstanding shares of Data Systems common stock;
o outside legal counsel of either TekInsight or Data Systems is of the
opinion that the merger agreement should be terminated because of
the fiduciary duties the board of directors of either TekInsight or
Data Systems owes its shareholders; or
o prior to approval of the shareholders of Data Systems, the board of
directors of Data Systems withdraws its recommendation that the
shareholders of Data Systems vote "FOR" the merger or except,
publicly endorses, recommends or executes a letter of intent with
respect to a proposal that is more financially favorable to
shareholders of Data Systems;
o the board of directors of Data Systems fails unanimously to
recommend that the shareholders of Data Systems vote "FOR" the
merger, or amend or modify their unanimous recommendation of Data
Systems shareholder approval;
o if the board of directors of Data Systems accepts, publicly
endorses, recommends or executes a letter of intent or similar
document with respect to a proposal more financially favorable to
the shareholders of Data Systems with respect to a sale of Data
Systems or substantially all its assets;
o a tender or exchange offer is commenced with respect to Data Systems
securities and Data Systems does not recommend rejection of the
offer within 10 business days after commencement; or
o if an acquisition proposal (other than a tender or exchange offer
relating to the securities of Data Systems) is publicly announced
and, upon TekInsight's request, the board of directors of Data
Systems does not within 10 days issue a press release announcing its
opposition.
However, with respect to the first four reasons given above, the $2 million fee
will not be payable in the absence of a proposal to acquire at least 10% control
of Data Systems.
Choice of Law
The merger agreement is to be governed and construed under the laws of
the State of New York.
- 25 -
<PAGE>
OPINIONS OF FINANCIAL ADVISORS
Opinion of Data Systems' Financial Advisors-- Valuation Counselors Group, Inc.
The board of directors of Data Systems retained Valuation Counselors to
render its opinion as to whether the consideration to be paid to shareholders of
Data Systems by TekInsight pursuant to the merger agreement is fair from a
financial perspective to the shareholders of Data Systems. Data Systems retained
Valuation Counselors based upon its prominence as a valuation and financial
advisory firm with experience in the valuation of businesses and their
securities in connection with mergers and acquisitions, divestitures, leveraged
buyouts, private placements, and other situations.
On February 8, 2000, Valuation Counselors delivered its written opinion
to the board of directors of Data Systems that, as of the date of the opinion,
based on the review of Valuation Counselors' and subject to the assumptions,
limitations, procedures followed and qualifications described below and set
forth in the opinion, the consideration to be received by the shareholders of
Data Systems from the merger is fair to the shareholders of Data Systems from a
financial perspective. Valuation Counselors is not making, and the opinion
should not be construed as, a recommendation as to whether or not a shareholder
of Data Systems should approve the merger. Additionally, the fairness opinion of
Valuation Counselors does not compare the relative merits of the merger with
those of any other transactions or business strategies available to Data Systems
as alternatives to the merger, and Valuation Counselors was not requested to,
and did not, solicit the interest of any other party in acquiring similar
companies.
The full text of the fairness opinion which contains a description of
the material assumptions and qualifications made, matters considered and
limitations imposed on the review and analysis is set forth in an exhibit
attached to this proxy statement/prospectus and should be read in its entirety.
The board of directors of Data Systems imposed no conditions or limitations on
the scope of the investigation or the methods or procedures to be followed by
Valuation Counselors in rendering the fairness opinion.
In rendering the fairness opinion, Valuation Counselors, among other
things: (i) reviewed the merger agreement; (ii) reviewed and analyzed
consolidated historic and projected financial and operating data of Data
Systems, including audited financial statements for Data Systems; (iii) reviewed
and analyzed other internal information concerning the business and operations
of Data Systems furnished by management; (iv) reviewed and analyzed publicly
available information concerning Data Systems; (v) reviewed and analyzed
publicly available information concerning the terms of selected merger and
acquisition transactions that Valuation Counselors deemed relevant to its
inquiry (based on business line, size, and similar financial characteristics);
(vi) reviewed and analyzed selected market purchase price data that Valuation
Counselors considered relevant to its inquiry; (vii) held meetings and
discussions with TekInsight and employees of Data Systems concerning the
operations, financial condition and prospectus of Data Systems; and (viii)
conducted such other financial studies, analysis investigations, including a
visit to Data Systems' Farmington Hills, Michigan corporate offices, and
considered such other information as Valuation Counselors deemed appropriate.
In arriving at its opinion, Valuation Counselors relied, without
independent verification, on the accuracy and completeness of all of the
financial and other information that was publicly available, supplied or
otherwise communicated to it by Data Systems and TekInsight. Valuation
Counselors assumed that the financial estimates (including the underlying
assumptions and bases thereof) examined by it were reasonably prepared and
reflected the best currently available estimates and good faith judgments as to
the future performance of Data Systems. Valuation Counselors expressed no
opinion with respect to any forecasts or the assumptions on which they were
based. Valuation Counselors did not make an independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of Data Systems. The
fairness opinion is based upon financial, economic, market, and other conditions
and circumstances existing and disclosed to it as of the date of its opinion. As
background for its analyses, Valuation Counselors held discussions regarding the
history, current business operations, financial condition, and future prospects
of Data Systems.
- 26 -
<PAGE>
For purposes of its analysis, Valuation Counselors relied upon the
following SEC filings of Data Systems: Form 10-Ks for the periods ending
December 31, 1996 through December 1, 1998, Form 8-Ks dated January 8, 2000, and
September 15, 1999, Form S-1 dated December 16, 1996, and Form 10-Qs, for the
periods ending September 30, 1999, June 30, 1999, and March 31, 1999.
Valuation Counselor's opinion is directed only to the fairness to Data
Systems and to the shareholders of Data Systems from a financial perspective of
the consideration to be received by the shareholders of Data Systems from the
merger, and does not address any other aspect of the merger. The summary set
forth below describes the material analyses undertaken but is nonetheless a
summary.
In conjunction with rendering its fairness opinion, Valuation
Counselors considered the following financial and comparative analyses:
o a contribution analysis;
o a pro forma merger analysis;
o a discounted cash flow analysis;
o an analysis of selected publicly traded companies;
o an analysis of transactions pursuant to which selected public and
private companies have acquired data networking companies similar to
those of Data Systems; and
o an analysis of other factors.
Contribution Analysis
Valuation Counselors analyzed the respective current contributions of
Data Systems and TekInsight to the estimated revenue, EBITDA, and net income of
the combined company. This analysis indicated that (i) in fiscal 1999, Data
Systems would contribute approximately 94.0% of revenue, 170.0% of EBITDA, and
50.4% of net income, and (ii) TekInsight would contribute approximately 6.0% of
revenue, 70.0% of EBITDA, and 49.6% of net income of the combined company.
Pro Forma Merger Analysis
Valuation Counselors analyzed pro forma effects resulting from the
merger, including, among other things, the impact of the merger on TekInsight's
projected EPS for fiscal years 2000 through 2004 based, in the case of Data
Systems, on internal estimates of the management of Data Systems for fiscal year
2000 and extrapolated for subsequent years based on management's growth rate
estimates and, in the case of TekInsight, on estimates of selected investment
banking firms for fiscal years 2000 through 2004 and extrapolated for subsequent
fiscal years based on analysts' growth estimates for TekInsight. The results of
the pro forma merger analysis suggested that the merger could be accretive to
TekInsight's EPS in each of the fiscal years analyzed. The actual results
achieved by the combined company may vary from projected results and the
variations may be material.
Discounted Cash Flow Analysis
Valuation Counselors analyzed the financial terms of the merger using a
discounted cash flow analysis. The discounted cash flow approach assumes, as a
basic premise, that the intrinsic value of any business or property is the
current value of the future cash flow that the business will generate for its
owners. To establish a current implied value under this approach, future cash
flow must be estimated and an appropriate discount rate determined. The
projected cash flows and terminal value were discounted to present value using a
discount rate of 19%. Valuation Counselors estimated the free cash flows,
defined as total projected cash revenue minus total projected cash expenses.
Valuation Counselors performed a discounted cash flow analysis of the projected
debt-free net cash flow of Data Systems for the fiscal years ending September
30, 2000 through 2004, partially based on internal estimates of the Company's
management. Based on financial information and input from management at Data
Systems, revenues were projected at $58.1 million, $66.9 million, $80.2 million,
$96.3 million, and $115.5 million for the years ending 2000 through 2004. Cost
of sales were projected at $46.3 million, $53.2 million, $63.9 million, $76.7
million, and $92.0 million for the years ending 2000 through 2004. Total
operating expenses, exclusive of depreciation, were projected at $10.2 million,
$11.4 million, $13.3 million, $15.0 million, and $18.0 million for the years
ending 2000 through 2004. After the deduction of depreciation and amortization
expense, other income, and income tax expense, debt-free net income was
$330,000, $589,000, $995,000, $1.8 million, and $2.2 million for the years
ending 2000 through 2004.
- 27 -
<PAGE>
The indicated enterprise value was determined by adding the present
value of the projected debt-free net cash flows over the fiscal years 2000
through 2004 and the present value of Data Systems' estimated terminal value in
2004. This analysis yielded an enterprise value below the purchase price.
Selected Comparable Acquisition Analysis
Valuation Counselors, using publicly available information, reviewed
the purchase prices and implied transaction multiples paid or proposed to be
paid for 69 companies, deemed comparable on the basis of size, financial data
and the like, engaged in the computer networking and information technology
industries. From these transactions Valuation Counselors calculated market value
of invested capital (MVIC) multiples of revenue and earnings before
depreciation, interest, and taxes (EBITDA.) The MVIC/Revenue multiples ranged
from 0.02X to 19.33x with a median of 0.90X. The MVIC/EBITDA multiples ranged
from 0.02X to 38.96X with a median of 9.86X. As detailed in Valuation
Counselors' fairness opinion, Data Systems' multiples derived from the purchase
price fall within the range of the transacted companies' market multiples. These
comparable acquisitions (by acquiree) are as follows:
May & Speh, Barefoot Computer Training, PCM, Metrologie International,
Claremont Technology Group, Spargo Consulting PLC, CSA Holdings, Sentient
Systems, Synexus, Technology Management, ROW Sciences, Vanstar Corp., Computer
Power Group, Logical Software Solutions Corp., FullTime Software, Carnegie
Group, Open Business Systems Group, Mastering, Global Technology Solutions,
Traid Data, Scopus Technology, Video Management, Olivetti, Computer Data
Systems, Micros-To-Mainframes, On-Line Networking, Allegiant Legacy Solutions,
Menhir, Logicon, Expert Business Systems, BDM International, Datalogix
International, Datasvar Support, Future Now, Enterprise Technology Group, Vail
Research and Technology Corp, Vail Research and Technology Corp, Eclipse
Information Systems, H.V. Jones, Confidential, Automated Business Systems of NC,
Kent Consulting Group, Sabor Software Corp., TRECOM Business Systems, 3D
Information Services, Connect Computer Company, Data Aid, Innova Solutions, ESP
Software Services, Lior, Cray Communications, Consolidated Computer Investors,
Comtex Information Systems, Concepts in Communications, Integrex Systems Corp.,
Hi-Tech Connections, STMS, PC Business Solutions, Novadyne Computer Systems,
Costello & Associates, BTG, Solsource Computers, Open System Technologies,
Software Analysis and Management, KCS Computer Services, Delta CompuTec,
Conversion Services International, Quicksilver Group, E-BusinessSolutions.com.
Publicly Traded Guideline Company Analysis
Using publicly available information, Valuation Counselors analyzed the
market values and trading multiples of the following publicly traded guideline
companies: Tier Technologies, Microstrategy, Peregrine Systems, Eltrax Systems,
Socrates Technologies Corporation, Micros to Mainframes, Osage Systems Group,
and Government Technology Services From these guideline companies Valuation
Counselors calculated market value of invested capital (MVIC) multiples of
revenue and earnings before depreciation, interest, and taxes (EBITDA.) These
companies were deemed comparable on the basis of size, financial data and the
like. The MVIC/Revenue multiples ranged from 0.12x to 84.49x with a median of
1.74x. The MVIC/EBITDA multiples ranged from 11.31x to 577.79x with a median of
76.64x. As detailed in Valuation Counselors' fairness opinion, the indicated
multiples based on the purchase price offered for Data Systems fall within the
ranges of the guideline companies' market multiples but below the median levels.
Such a placement is warranted due to Data Systems' smaller size, higher
leverage, and inferior historical and projected growth rates in comparison to
the guideline companies.
- 28 -
<PAGE>
Other Factors and Analysis
In rendering the fairness opinion, Valuation Counselors also considered
other factors relevant to a valuation of Data Systems. These factors included
(i) the premiums paid in acquisitions of companies in the computer networking
and information technology industries and (ii) other offers to purchase Data
Systems' securities. The purchase price for Data Systems equates to a premium of
113.5% to 207.5% over Data Systems' pre-January 19, 2000 common stock share
price. By comparison, between 1995 and 1999, the premiums paid for transacted
companies within the computer networking and information technology industries
ranged between 13.0% and 81.4% with a median of 57.0%. Given this as well as
Data Systems' market presence, the premium to the shareholders of Data Systems
appears fair. Competing offers of expressions of interest were received from
Micros to Mainframes, Dyn Corporation, American United Global, and Alydaar
Software Corporation. With the exception of the Alydaar Software Corporation
offer, all the competing offers were relayed verbally to Data Systems' business
broker. The Micros to Mainframes offer for Data Systems indicated a value
between $12 million and $13 million. The offer was declined due to business
logistics and the fact that Micros to Mainframes was undergoing an assimilation
of a recent acquisition. The Dyn Corporation offer, also presented verbally, had
a value between $12 million to $13 million and was declined due to the use of
privately held stock as a portion of the purchase price. American United Global
offered $12 million for Data Systems but the offer was declined since American
United Global would have had to liquidate a subsidiary in order to finance the
acquisition. These offers compare to the purchase price range between
$12,500,000 and $18,000,000.
The summary set forth above describes the material analyses undertaken
by Valuation Counselors. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances.
Each of the analyses was performed by Valuation Counselors to provide a
different perspective on the transaction and contribute to the total mix of
information available to Data Systems. Valuation Counselors did not form a
conclusion as to whether any one of the analyses, considered in isolation,
supported or failed to support an opinion as to the fairness from a financial
perspective of the merger consideration. Instead, Valuation Counselors, in
reaching its conclusion, considered the results of the analyses taken as a
whole. Valuation Counselors' conclusion involved significant elements of
judgment and qualitative analysis as well as a financial and qualitative
analysis. Valuation Counselors did not place particular emphasis or weighting on
any individual factor, but instead concluded that its analysis taken as a whole
supported its opinion. Accordingly, notwithstanding the separate factors
summarized above, Valuation Counselors believes that its analyses must be
considered as a whole and that selecting portions of its analysis and the
factors it considered without considering all analyses and factors, could create
an incomplete or misleading view of the evaluation process underlying its
opinion. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty
and Valuation Counselors does not assume responsibility for any future
variations from such analyses or estimates.
Valuation Counselors' fairness opinion relates to the relative values
of Data Systems and TekInsight. Valuation Counselors did not express any opinion
as to what the value of TekInsight common stock actually will be when issued to
the shareholders of Data Systems pursuant to the merger or the price at which
TekInsight common stock will trade subsequent to the merger. Although Valuation
Counselors evaluated the exchange ratio from a financial perspective, Valuation
Counselors was not asked to and did not recommend the specific consideration
payable in the merger, which was determined through negotiation between Data
Systems and TekInsight.
- 29 -
<PAGE>
In performing its analyses, Valuation Counselors made numerous
assumptions with respect to industry performance, general business, financial,
economic, and market conditions and other matters, many of which are beyond the
control of Data Systems. Furthermore, events occurring after the date of the
Valuation Counselors fairness opinion may materially affect the assumptions used
in preparing the Valuation Counselors fairness opinion and accordingly the
Valuation Counselors fairness opinion is necessarily based upon market,
economic, and other conditions that exist and can be evaluated as of the date of
the opinion, and on information available to Valuation Counselors as of such
date. In addition, analyses relating to the value of the business or securities
do not purport to be appraisals, or to reflect the prices at which such
businesses or securities can actually be sold. Analyses based on future results
are not necessarily indicative of actual future results that may be
significantly more or less favorable than suggested by such analyses.
Pursuant to an engagement letter dated January 12, 2000, Valuation
Counselors will receive $50,000 for its services in rendering a fairness opinion
to Data Systems. Valuation Counselors will also be reimbursed for its expenses.
Data Systems has agreed to indemnify Valuation Counselors, its affiliates and
each of its directors, officers, employees, agents, consultants and attorneys
and each controlling person, if any, from any liabilities under federal
securities, law, that may arise out of Valuation Counselors' engagement.
Valuation Counselors is principally and continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, divestitures, leveraged buyouts, private placements, and other
situations. Prior to this engagement, Valuation Counselors has had no
relationship with either Data Systems or TekInsight
Opinion of TekInsight's Financial Advisors -- Valuemetrics, Inc.
The following summary of the written opinion of Valuemetrics and the
material analyses undertaken by it is qualified in its entirety by reference to
the full text of its opinion.
On January 10, 2000, the TekInsight board of directors retained
Valuemetrics to act as financial advisor to the TekInsight board of directors
and to render an opinion as to the fairness from a financial perspective to
TekInsight of the merger consideration to be paid in the proposed acquisition of
the stock of Data Systems. Valuemetrics was selected by the TekInsight board of
directors because of its reputation as a recognized firm which is actively
engaged in the valuation of businesses and their securities, particularly in
connection with midsize private and public companies. Valuemetrics also provides
financial advisory and investment banking services, providing fairness and
solvency opinions, structuring transactions and types of securities through
affiliated entities, raising senior and mezzanine debt, placement of private
equity and offering companies for sale.
The amount of the merger consideration to be paid in the proposed
acquisition of the stock of Data Systems pursuant to the merger was determined
by negotiations between TekInsight and Data Systems, not by Valuemetrics.
On February 16, 2000 Valuemetrics delivered to the TekInsight board of
directors its oral opinion that the merger consideration is fair from a
financial perspective to TekInsight. The full text of Valuemetrics' opinion,
which sets forth assumptions made, procedures followed, matters considered and
any limitations on the review undertaken by Valuemetrics, is attached as an
exhibit to this proxy statement/prospectus. As set forth in the opinion,
Valuemetrics relied upon and assumed without independent verification the
accuracy and completeness of the financial and other information provided to it
by the management of Data Systems and TekInsight, including assurances of Data
Systems and TekInsight management that they were unaware of any facts that would
make such information provided to Valuemetrics incomplete or misleading.
Valuemetrics also assumed that the transaction described in the agreement and
plan of merger dated February 18, 2000 would be consummated on the terms set
forth therein, without waiver of any such terms. Valuemetrics did not make or
obtain an independent appraisal of the assets of Data Systems. No limitations
were imposed by Data Systems, TekInsight or their respective boards of directors
on Valuemetrics with respect to the investigation made, or the procedures
followed by it in rendering its opinion. TekInsight, its management, Data
Systems, and its management cooperated fully with Valuemetrics in connection
therewith. Shareholders are urged to read this opinion in its entirety for a
description of the procedures followed, matters considered, assumptions made and
methods employed by Valuemetrics in arriving at its opinion.
- 30 -
<PAGE>
The opinion of Valuemetrics is necessarily based upon conditions as
they existed and could be evaluated on the date thereof. Valuemetrics has no
obligation to update its opinion to take into account any subsequent changes or
events. The opinion of Valuemetrics does not address the underlying business
decision of TekInsight to effect the merger, and Valuemetrics expressed no view
of the effect on TekInsight of the merger. Although Valuemetrics evaluated the
merger consideration from a financial perspective, Valuemetrics did not
recommend the specific merger consideration payable in connection with the
merger, which was determined by TekInsight.
Except for the opinion of Valuemetrics, TekInsight has not received any
report, opinion or appraisal from an outside party which is related to the
valuation of the merger.
In conducting its analysis and arriving at its opinion, Valuemetrics,
among other things, (i) reviewed the letter of intent of the merger between Data
Systems and TekInsight, dated January 18, 2000, (ii) reviewed the agreement and
plan of merger agreement dated February 18, 2000 by and among TekInsight,
AstraTek (before the amendment which changed this party to TekInsight Services)
and Data Systems, (iii) reviewed Data Systems' audited financial statements for
the fiscal years ended December 31, 1996 through December 31, 1998, (iv)
reviewed the unaudited financials of Data Systems for the quarters ended March
31, 1999, June 30, 1999 and September 30, 1999, (v) reviewed operating and
financial information, including interim financial statements and other
financial information provided to Valuemetrics by management of Data Systems
relating to the business and prospects of Data Systems, (vi) met with members of
senior management of Data Systems to discuss the company's operations,
historical financial statements and future prospects, (vii) reviewed the
historical prices and trading volume of Data Systems common stock, (viii)
reviewed publicly available financial data and stock market performance data of
public companies which were deemed generally comparable to Data Systems,
including on the basis of customers served, products and services offered, size
and financial characteristics, (ix) reviewed schedules of options outstanding
and stock ownership prepared by Data Systems and (x) conducted such other
studies, analyses, inquiries and investigations as it deemed appropriate.
In making its presentation to the TekInsight board of directors at a
meeting held on February 16, 2000, and in delivering its opinion dated February
18, 2000, Valuemetrics discussed financial analyses and other factors it deemed
relevant to the determinations of the board of directors of TekInsight,
including:
o errors in planning or integration;
o a review of historical and current trading data of the common stock;
o comparable companies analysis;
o future earnings analysis;
o capitalized cash flow analysis;
o mergers and acquisition analysis; and
o equity premiums analysis.
- 31 -
<PAGE>
In preparing its opinion, Valuemetrics performed a variety of financial
and comparative analyses the material aspects of which are described below. The
following summary, while complete in material respects, is nonetheless a summary
description of the analyses underlying the opinion of Valuemetrics.
Market Price Analysis
Valuemetrics reviewed historical and current data with respect to
prices and trading volume of the shares of Data Systems common stock.
Valuemetrics analyzed the trading market for the shares of Data Systems common
stock, including a review of the historical trading price of the shares of Data
Systems during the prior three months, the last twelve months, and for the three
years preceding February 15, 2000; historical data relating to the trading price
and volume of the shares of Data Systems common stock for the same periods; and
the range of prices at which the shares of Data Systems common stock traded in
the period from January 13, 1997 to February 15, 2000. This analysis indicated
three-year, last twelve months and thirty-day prior to February 15, 2000 average
stock prices of $5.217, $0.980 and $1.25 per share, respectively. On February
15, 2000, the last trading day prior to the TekInsight board of director's
receipt of Valuemetrics' presentation, the closing trade price of Data Systems
common stock was $1.375 per share. Valuemetrics further noted that during the
last three years, Data Systems common stock traded at a high of $16.469 and a
low of $0.4375 per share.
Comparable Company Analysis
Valuemetrics reviewed and compared the financial and market performance
of Data Systems to the financial and market performance of publicly traded
companies which Valuemetrics deemed to be comparable to Data Systems, including,
on the basis of customers served, product and services offered, size and
financial characteristics. Such comparable companies included A Consulting Team,
Inc., Alphanet Solutions, Inc., ASA International, LTD., CACI International,
Inc., Ciber, Inc., Condor Technology Solutions, Inc., Cotelligent, Inc.,
Government Technology Services, Metro Information Services, Inc., Micros to
Mainframes, Inc., Systems and Computer Technology Corp., Tier Technology, Inc.,
Transnet Corp. and Whittman Hart, Inc. Although such companies were considered
similar to Data Systems in some respects, none of such companies possessed
characteristics identical to those of Data Systems. In particular, such
companies may have different product mixes or geographic markets than does Data
Systems. Valuemetrics computed selected ratios of market value to key financial
measures, including sales, earnings, cash flow, EBIT and EBITDA. These
calculations created the following range of multiples: a range of revenue
multiples of .35X to .41X; a range of earnings multiples of 13.8X to 16.0X; a
range of cash flow multiples of 8.4X to 9.7X; a range of EBIT multiples of 9.6X
to 11.1X; and a range of EBITDA multiple of 5.5X to 6.4X. All of these multiples
were then applied to Data Systems' financial measures to calculate a range of
market values for Data Systems. This methodology generated a range of equity
values from $12,417,805 to $21,512,177; and per share prices of $2.25 and $3.90,
respectively.
Future Earnings Analysis
Valuemetrics reviewed and compared the projected earnings performance
of Data Systems to the forecasted earnings performance and current market
performance of the fourteen publicly traded companies which Valuemetrics deemed
to be comparable to Data Systems. Those companies from the Comparable Company
Analysis with publicly available earnings estimates included in the Future
Earnings Analysis were: A Consulting Team, Inc., Alphanet Solutions, Inc., CACI
International, Inc., Ciber, Inc., Condor Technology Solutions, Inc., Metro
Information Services, Inc., Systems and Computer Technology Corp., Tier
Technology, Inc., Whittman Hart, Inc. After review, Valuemetrics chose these
nine companies to compute the ratios of market value to one-year forward
earnings (as determined from mean consensus earnings estimates provided by IBES
through Bloomberg.) These calculations yielded a range of multiples from 16.3X
to 18.8X. These multiples were then applied to Data Systems' projected future
earnings to calculate a market value for Data Systems. This methodology
generated an equity values ranging from $29,453,136 to $34,831,928; and per
share prices of $5.35 and $6.32, respectively.
- 32 -
<PAGE>
Capitalized Cash Flow Analysis
Valuemetrics presented the results of a capitalized cash flow analysis
of Data Systems based upon specified operating and financial assumptions. In its
analysis, Valuemetrics relied partially on estimates and other financial
information provided by Data Systems management for the one-year fiscal period
ending December 31, 2000. Based on forecasts and input from management at Data
Systems, Valuemetrics gave consideration to the following range of financial
performance in deriving estimates of future net free cash flows: revenues within
the range of $53.0 million to $59.8 million; gross profit (defined as revenues
less cost of goods sold) within the range of $10.6 million to $13.9 million;
total operating expenses, exclusive of depreciation and amortization, within the
range of $10.2 million to $10.5 million; operating income after depreciation and
amortization and before other income, interest expense and income taxes within
the range of ($0.93) million to $2.7 million. The comparable company sample was
used to develop a capitalization rate for Data Systems. Data Systems' current
and one-year forward financial information was then used to compute normalized
debt-free cash flows. These debt-free cash flows were then used to calculate a
market value for Data Systems. Using this methodology, Valuemetrics calculated a
range of equity values for Data Systems ranging from $8,664,096 to $27,888,072
and a per share value ranging from $1.57 to $5.06, using capitalization rates
ranging between 10.8 and 18.3, which are based upon a discount rates between 18%
and 16% and growth rates between 8% and 10%, respectively.
Mergers and Acquisitions Analysis
Valuemetrics reviewed and compared the financial performance of Data
Systems to merger and acquisition data from market transactions involving
companies which Valuemetrics deemed to be comparable to Data Systems, based
upon, but not limited to, customers served, product and services offered, their
size and financial characteristics. Although such companies were considered
similar to Data Systems in some respects, none of these companies possessed
characteristics identical to those of Data Systems. In particular, such
companies may have different product mixes or geographic markets than does Data
Systems. There were eleven transactions that occurred in the last three years
deemed similar in respect to Data Systems. The comparable acquisitions (targets)
included the following companies: Computer Data Systems Inc., Claremont
Technology Group Inc, Donnelley Enterprise Solutions, Integrated Systems
Consulting, Transition Systems Inc, Computer Management Sciences, Marcam
Solutions Inc, Nichols Research Corp, Template Software Inc, Government Systems,
Inc. and Questech. Valuemetrics computed selected ratios of market value to key
financial and operating measures, including sales, earnings, EBITDA, total
number of employees and the total number of technical employees. These
calculations created a range of sales multiples of .50X to .66X; a range of
earnings multiples of 20.21X to 26.28X; a range of EBITDA multiples of 8.59X to
11.17X; a range of total number of employees multiples of .07X to .09X; and a
range of total number of technical employees of .21X to .27X. All of these
multiples were then applied to Data Systems' financial and operating measures to
calculate a market value for Data Systems. This methodology generated a range of
equity values from $17,900,735 to $34,588,756; and per share prices of $3.25 and
$6.28, respectively.
Equity Premiums Analysis
Valuemetrics analyzed and compared the merger consideration and the
implied premium paid relative to Data Systems' stock price as of the close of
trading on February 15, 2000 to implied equity premiums in comparable
transactions. Based upon Data Systems' stock price as of the close of trading on
February 15, 2000, the merger consideration (when valued at $12,500,000)
represented an implied equity premium of approximately 65%. Valuemetrics'
analysis of standard published industry data concerning comparable transactions
found a range of implied equity premiums of 9% to 193%, with a mean of 76% and a
median of 64%.
- 33 -
<PAGE>
Based on the foregoing analyses, Valuemetrics concluded that the merger
consideration to be paid for the stock of Data Systems is fair, from a financial
point of view, to TekInsight. Valuemetrics did not base its conclusion on any
individual ratio or range set forth above. Valuemetrics, in presenting its
conclusion to the TekInsight board of directors, did not describe any specific
methodology by which it determined the fairness of the merger consideration in
relation to such ranges and ratios.
The summary set forth above describes the material analyses undertaken
by Valuemetrics. Valuemetrics believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all factors and analyses, may create an incomplete
view of the processes underlying its analyses and fairness opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. In its analyses,
Valuemetrics made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters. Any estimates
contained therein are not necessarily indicative of actual values, which may be
significantly more or less favorable than those set forth therein. Estimates of
value do not purport to be appraisals or necessarily reflect the values which
may be realized if assets are sold. Because such estimates are inherently
subject to uncertainty, neither TekInsight, Data Systems, Valuemetrics nor any
other person assumes responsibility for their accuracy.
Valuemetrics' opinion and analyses were only one of many factors
considered by the board of directors of TekInsight in its evaluation of the
merger and should not be viewed as determinative of the views of TekInsight's
board of directors or TekInsight's management with respect to the merger
consideration and the Merger.
Neither Valuemetrics nor any affiliate of Valuemetrics has performed any
investment banking or other financial services for or had any other material
relationship with Data Systems, or any of their affiliates during the two years
preceding the date of this proxy statement/prospectus.
Pursuant to an engagement letter dated January 10, 2000, Valuemetrics
will receive $50,000 for its services in rendering a fairness opinion to the
board of directors of TekInsight. Valuemetrics will also be reimbursed for its
expenses. TekInsight has indemnified Valuemetrics, and its affiliated entities,
directors, officers, employees, legal counsel, agents and controlling persons
against costs, expenses and liabilities to which they may become subject as a
result of Valuemetrics acting for TekInsight.
Prior to this engagement, Valuemetrics provided services to TekInsight
and its affiliates but had no material relationship with those persons.
- 34 -
<PAGE>
DESCRIPTION OF SERIES A PREFERRED STOCK
The following summary of the terms of our Series A preferred stock,
while complete in material respects, is nonetheless a summary. It is qualified
by reference to the full description our certificate of designation for the
Series D preferred stock, filed as an exhibit to this registration statement.
Ranking of the Series A Preferred Stock
The Series A preferred stock will rank senior to common stock and any
other classes of capital stock subsequently authorized by the board of
directors. The board of directors may, however, authorize classes or series of
capital stock to be issued on equal footing with the Series A preferred stock.
Voting Rights
Except as otherwise required by law, the holders of shares of Series A
preferred stock are entitled to attend all annual and special meetings of
stockholders. Together with the holders of all other classes of stock, holders
of Series A preferred stock are entitled to attend and vote on any matter
properly put before stockholders. Holders of Series A preferred stock will vote
with holders of common stock as a group on an as-converted basis. In addition,
holders of Series A preferred stock are entitled to a separate class vote if
TekInsight:
o takes any action that would alter or change the rights of the Series
A preferred stock;
o creates a new class of capital stock that has a liquidation
preference over the Series A preferred stock or that adversely
changes the rights of the Series A preferred stockholders;
o increases the authorized number of shares of the Series A preferred
stock; or
o takes any action not contemplated by the articles of incorporation
that would result in a tax to Series A preferred stockholders.
All of the preceding actions require approval by holders of a majority of the
Series A preferred shares voting as a class in order to be implemented. If any
of the preceding actions were to be approved, any holders that did not approve
of the transaction have the right for 30 days to convert their shares into
TekInsight common stock.
Dividends
Holders of the Series A preferred stock are entitled to receive
dividends on a pro rata as converted basis to the same extent as holders of
common stock are entitled to receive dividends. Dividends will generally not be
paid to any capital stockholders unless dividends are also paid to the Series A
preferred stockholders. In addition, except for employee repurchases and similar
events, junior securities will not be redeemed unless an equal amount is
available for payment to holders of Series A preferred stock.
Liquidation Preference
Series A preferred stockholders are entitled to a liquidation preference
equal to the average of the closing sales price of TekInsight common stock as
quoted on the Nasdaq SmallCap Market for the 10 consecutive trading days
immediately preceding the closing date of the merger, as adjusted.
- 35 -
<PAGE>
Conversion
The Series A preferred stock is convertible at any time beginning one
year after the closing date of the merger. The Series A preferred stock is also
generally immediately convertible in the event of a:
o reclassification or change in number of shares issuable on conversion
of the Series A preferred (other than changes in par value);
o consolidation, merger or mandatory share exchange (other than mergers
or exchanges where TekInsight is the surviving company); or
o sale of substantially all of TekInsight's property to another
company.
Anti-dilution Adjustments
The conversion ratio of the Series A preferred stock is subject to pro
rata anti-dilution adjustment in the event of stock dividends, stock splits, and
reverse stock splits. In the event a nonstock dividend is declared, Series A
preferred stockholders will receive their pro rata share of the dividend on an
as converted basis along with the common stock, including any adjustments.
Automatic Conversion
Any shares of Series A preferred stock that remain outstanding on the
fifth anniversary of the closing date are subject to mandatory conversion on a
one-for-one basis, as adjusted, subject to payment of any accrued and unpaid
dividends.
- 36 -
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
If the merger is completed, holders of Data Systems common stock will
become holders of TekInsight Series A preferred stock. The rights of holders of
Data Systems common stock are governed by Data Systems' articles of
incorporation, bylaws and the Michigan Business Corporation Act. The rights of
Series A preferred stock holders will be governed by TekInsight's certificate of
designation, for the Series A preferred stock, certificate of incorporation,
bylaws and the Delaware General Corporation Law. The rights of shareholders of
Data Systems differ in a number of respects from the rights of stockholders of
TekInsight. The following is a summary of the material differences. Unless
otherwise noted, the rights of stockholders of TekInsight are generally the same
as those of shareholders of Data Systems.
<TABLE>
<CAPTION>
Data Systems TekInsight
------------ ----------
<S> <C> <C>
CAPITALIZATION Authorized to issue 10,000,000 shares of Authorized to issue 100,000,000 shares of
common stock, $.01 par value, and common stock, $.0001 par value, and
1,000,000 shares of preferred stock, 10,000,000 shares of preferred stock,
$.01 par value. 5,542,448 shares of $.0001 par value. A sufficient number of
common stock outstanding as of March 8, shares of preferred stock will be
2000. designated as Series A preferred stock in
order to consummate the merger.
15,913,529 shares of common stock
outstanding as of March 23, 2000.
BLANK CHECK PREFERRED Board of directors can authorize the Similar.
issuance of Data Systems preferred stock
in one or more Series and fix the
designation, dividend rate, terms of
redemption, preferences, sinking fund
provisions, terms of conversion, voting
rights and any other rights,
preferences, powers and restrictions of
each series without any further vote or
action by the holders of Data Systems
common stock.
NUMBER, ELECTION, VACANCY Board of directors may be between one The number of the board of directors to be
AND REMOVAL and eleven persons. Current number of determined by the board. The current
OF DIRECTORS directors is three. number of directors is four.
Directors are elected at its annual Similar.
meeting of shareholders and serve until
the following annual meeting of
shareholders or until their successors
are elected and qualified. Elections
of directors shall be effected by a
quorum of the holders consisting of
shareholders of at least a majority of
the outstanding shares of Data Systems.
Those individuals receiving a plurality
of the votes shall be elected.
Vacancies filled by the vote of a
majority of the remaining directors,
unless filled by proper action of
shareholders of Data Systems. Each
person so elected shall be a director
for a term of office continuing only
until the next election of directors by
the shareholders.
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
Data Systems TekInsight
------------ ----------
<S> <C> <C>
One director or the entire board of Similar.
directors may be removed, with or
without cause, by vote of holders of a
majority of shares entitled to vote at an
election of directors.
VOTING RIGHTS Each holder of common stock is entitled Similar. The Series A preferred stock
to one vote for every share held. shall vote along with the common stock as
a single class on all matters, unless the
separate vote of the Series A preferred
stock voting as a separate class is
required by the terms of the certificate
of designations, including altering the
rights, preferences or privileges of the
Series A preferred stock, creating a new
series or class of stock having preference
over the Series A preferred stock,
increasing the number of shares of Series
A preferred stock, or doing anything which
would cause taxation of the holders of the
shares of Series A preferred stock not
contemplated under the certificate of
designations, or as is otherwise required
under the Delaware General Corporation
Law.
PREEMPTIVE RIGHTS Holders of common stock do not have Same.
preemptive rights.
AMENDMENTS Bylaws may be altered, amended or Similar.
TO BYLAWS repealed by the shareholders, or by a
majority of its board of directors, at any
meeting duly held in accordance with
the bylaws, provided that notice of the
meeting includes notice of the proposed
amendment.
AMENDMENT TO CERTIFICATE OF Changes to the articles of incorporation Similar. Holders of shares of common
INCORPORATION of Data Systems are governed by the stock and Series A preferred stock vote
applicable provisions of the Michigan together as a class.
Business Corporation Act, and must be
approved by holders of a majority of the
shares of common stock.
SHAREHOLDER Shareholders may take action by vote at Similar.
ACTION a meeting or by written consent of the
holders of outstanding shares having not
less than the minimum number of votes
that would be necessary to authorize or
take such action at a meeting at which
all of the shares entitled to vote thereon
were present and voted.
SPECIAL SHAREHOLDER Special meetings of shareholders may be Similar, except that special meetings may
MEETINGS called by the board of directors, by the not be called by stockholders of
Chairman of the Board (if such office is TekInsight.
filled) or by the President, and shall
be called by the President or Secretary
at the written request of shareholders
holding a majority of the shares of
stock of Data Systems outstanding and
entitled to vote. The request shall
state the purpose for which the meeting
is to be called.
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
Data Systems TekInsight
------------ ----------
<S> <C> <C>
LIQUIDATION If Data Systems is liquidated, a If TekInsight is liquidated, a
distribution of its remaining assets distribution will be made to the holders
will be made to the holders of its of the Series A preferred stock. The
common stock. distribution shall be, with respect to
each share of Series A preferred stock,
equal to the average of the closing sales
price per share of common stock as
reported on the Nasdaq SmallCap Market for
the 10 consecutive trading days ending on
the trading day immediately preceding the
closing date of the merger. The remaining
assets shall be paid to the holders of
common stock.
DIVIDENDS May pay dividends to shareholders Cash dividends may be paid to the holders
subject to the relevant provisions of of common stock so long as each holder of
the Michigan Business Corporation Act. shares of Series A preferred stock
receives the same dividend. The dividend
must be paid in accordance with the
relevant provisions of the Delaware
General Corporation Law.
CONVERSION Not applicable. Series A preferred stock issued to holders
OF TEKINSIGHT'S of Data Systems common stock is
SERIES A convertible into shares of TekInsight
PREFERRED common stock at any time after the first
anniversary of the closing of the merger.
The Series A preferred stock shall be
automatically converted into TekInsight
common stock, together with all accrued
and unpaid dividends, on the fifth
anniversary of the closing date of the
merger.
</TABLE>
Control Share Acquisitions under the Michigan Business Corporation Act
Under Chapter 7B of the Michigan Business Corporation Act, a company
that acquires a substantial portion of the shares of a target company may only
gain voting control of such shares if both holders of an absolute majority of
shares of the target company and holders of a majority of non-interested shares
of the target company vote to grant voting control. Interested shares are those
held by officers or employee-directors of the target company, or shares of the
target company held by stockholders of a potential acquiring corporation.
Therefore, the statute ensures that the acquisition of voting control of the
target company shall not take effect without the affirmative vote of holders of
a majority of the disinterested shareholders of the target company. The bylaws
of Data Systems provide that Chapter 7B does not apply to it.
Delaware Anti-Takeover Law
The combined company will be subject to the provisions of Section 203
of the Delaware General Corporation Law. Under Section 203, TekInsight would
generally be prohibited from engaging in any business combination with any
-39-
<PAGE>
stockholder for a period of three years following the time that such stockholder
becomes an interested stockholder unless:
o prior to this time, the board of directors of TekInsight approved
either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;
o upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding shares owned by
persons who are directors and also officers, and by employee stock
plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
o at or subsequent to such time, the business combination is approved
by the board of directors and approved by the affirmative vote of at
least 66-2/3% of shares not owned by the interested stockholder.
In general, Section 203 defines an interested stockholder as any entity
or person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Under Section 203, a "business combination" includes:
o any merger or consolidation involving the corporation and the
interested stockholder;
o any sale, transfer, pledge or other disposition of 10% or more of
the assets of the corporation involving the interested stockholders;
o any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested
stockholders, subject to limited exceptions;
o any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
o the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
-40-
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is the joint opinion of Nixon Peabody LLP, special tax
counsel to TekInsight, and Bodman, Longley & Dahling LLP, special tax counsel to
Data Systems, as to the material federal income tax consequences of the merger.
The joint opinion is based upon the Internal Revenue Code, existing and
proposed treasury regulations, published rulings and court decisions in effect
on the date of this proxy statement/prospectus, all of which are subject to
retroactive change. Our opinion is not binding on the Internal Revenue Service
or the courts. No ruling will be requested from the Internal Revenue Service on
any of the issues described in our opinion. We cannot assure you that the
Internal Revenue Service will not take a position that is contrary to ours. Our
opinion assumes that the information contained in this proxy
statement/prospectus is complete, that the factual representations made to us by
the management of each of TekInsight and Data Systems are accurate, and that the
merger will be completed as described in the merger agreement. Our opinion also
assumes that the Series A preferred stock of TekInsight is not considered
nonqualified preferred stock ("NQPS") under Internal Revenue Code Section
351(g). Special tax counsel does not believe the new NQPS rules should apply to
the Series A preferred stock of TekInsight. However, because of the lack of
guidance from the Internal Revenue Service on this issue, there can be no
assurance that such rules do not apply to the Series A preferred stock of
TekInsight. If the Series A preferred stock of TekInsight is treated as NQPS, it
will be treated as property other than stock for purposes of taxing its
recipients in the merger, and the nonrecognition provisions of the Internal
Revenue Code will not apply. The NQPS provisions were added to the Internal
Revenue Code in August of 1997, and no Internal Revenue Service guidance, in the
form of regulations or otherwise, has been promulgated to clarify definitional
issues and the scope of applicability of the new NQPS rules.
If the Internal Revenue Service were to successfully challenge the
status of the merger as part of a tax-free reorganization, holders of Data
Systems common stock would be treated as if they sold their Data Systems common
stock in a taxable transaction. In such event, each holder would recognize gain
or loss equal to the difference between the holder's tax basis in the shares of
Data Systems common stock surrendered in the merger and the fair market value,
at the effective time of the merger, of the Series A preferred stock of
TekInsight received in exchange therefor (plus any cash received in lieu of a
fractional share of the Series A preferred stock of TekInsight.)
Our opinion applies only to shareholders of Data Systems that hold
their Data Systems common stock as a capital asset. Our opinion does not address
tax consequences that may be relevant to particular taxpayers in light of their
individual circumstances. Our opinion does not address tax consequences to
taxpayers that are subject to special treatment under the federal income tax
laws (such as persons who hold restricted stock or stock options or who
otherwise received compensation for services in the form of stock, options or
other interests in Data Systems common stock, financial institutions, dealers in
securities, tax-exempt organizations, insurance companies, persons holding Data
Systems common stock as part of a hedge, straddle or conversion transaction,
persons subject to the alternative minimum tax, and non-U.S. taxpayers.) Our
opinion does not address any tax consequences arising under the laws of any
state, locality or foreign jurisdiction.
If you are a shareholder of Data Systems prior to the merger, and the
merger is completed as described in the merger agreement, subject to the
assumptions described above, it is our opinion that:
o Except to the extent that you receive cash for fractional shares, if
you exchange your Data Systems common stock for shares of Series A
preferred stock of TekInsight in the merger, you will not recognize
any gain or loss on the exchange.
o Your adjusted tax basis for the Series A preferred stock of
TekInsight received by you in the merger will be the same as your
adjusted tax basis of your Data Systems common stock prior to the
exchange.
-41-
<PAGE>
o Your holding period for the Series A preferred stock of TekInsight
received in the merger will include the holding period of your Data
Systems common stock surrendered in the merger.
o To the extent that you receive cash for shares of Data Systems
common stock, you will recognize gain or loss equal to the
difference between the amount of cash received and your tax basis in
such Data Systems common stock surrendered in the exchange. Any gain
or loss will generally be capital gain or loss.
The foregoing discussion is for general information only. You are
strongly urged to consult with your own tax advisor to determine the specific
impact that the exchange would have on your own tax situation, including tax
consequences under state, local foreign or other tax laws.
-42-
<PAGE>
DISSENTERS' RIGHTS
If you are a shareholder of Data Systems, you have the right to dissent
from the merger and obtain payment of fair value of your Data Systems shares if
you follow the procedures required by Section 761 through Section 774 of the
Michigan Business Corporation Act, the material provisions of which are
summarized below. The full text of these statutes is set out in Appendix A to
this proxy statement/prospectus.
Under the Michigan Business Corporation Act, you may dissent and Data
Systems will pay you the fair value of your shares of Data Systems common stock
if (a) you file with Data Systems before the vote is taken written notice of
your intent to demand payment for your shares if the merger is approved and (b)
you do not vote in favor of the merger. Written demands should be addressed to
Data Systems Network Corporation, 34705 W. 12 Mile Road, Suite 300, Farmington
Hills, Michigan 48331, Attention: Corporate Secretary. For purposes of Section
761 through Section 774, the "fair value" of shares of a dissenting shareholder
is the value of Data Systems shares immediately before the effectuation of the
merger, excluding any appreciation or depreciation in anticipation of the merger
unless the exclusion would be inequitable. Fair value may be determined to be
more than or the same as the merger consideration offered in the merger, but it
may also be determined to be less than the merger consideration.
Because a proxy which does not contain voting instructions will, unless
revoked, be voted for adoption of the merger agreement, a holder of Data Systems
shares who votes by proxy and who wishes to exercise his or her dissenters'
rights must (i) vote against, or (ii) abstain from voting on the merger.
If the merger is approved at the Data Systems special meeting of
shareholders, Data Systems will deliver a written dissenters' notice to those
shareholders of Data Systems who complied with the requirements to provide
notice of intent to demand payment for shares. This dissenters' notice will be
sent no later than 10 days after the effective time of the merger. The
dissenters' notice will (a) state where payment demand must be sent and when
certificates must be deposited, (b) supply a form for demanding payment that
includes the date of the first announcement to the news media or to shareholders
of the terms of the merger and requires that the shareholder certify whether he
or she acquired beneficial ownership of the shares before such date and (c) set
a date by which the payment demand must be received, which date may be not less
that 30 nor more than 60 days after the date the dissenters' notice was
delivered to shareholders.
A shareholder who sends a dissenters' notice must demand payment,
certify whether he or she acquired beneficial ownership of Data Systems common
stock before the date required to be set forth in the dissenters' notice and
deposit his or her certificates in accordance with the terms of the notice.
Shareholders of Data Systems who do not demand payment or deposit certificates
within the time set forth in the dissenters' notice lose all rights to payment
for their Data Systems common stock under the provisions of Section 761 through
Section 774 of the Michigan Business Corporation Act.
Except for shares acquired after the date of the first announcement to
news media or shareholders of the terms of a proposed merger, which are
discussed below, within seven days after the effective time of the merger or
receipt of a payment demand is received, whichever is later, Data Systems will
pay each dissenter the amount Data Systems estimates to be the fair value of the
shares plus accrued interest. The payment will be accompanied by (a) Data
Systems' balance sheet as of the most recent fiscal year end, an income
statement for such fiscal year and a statement of changes in shareholders'
equity for that year plus the latest available interim financial statements; (b)
Data Systems' estimate of the fair value of Data Systems common stock; (c) an
explanation of how interest was calculated; and (d) a statement of the
dissenter's right to make a supplemental demand for payment if the shareholder
believes that the amount paid is less than the fair value of his or her shares
or that the interest due is incorrectly calculated. After-acquired shares may
-43-
<PAGE>
receive different and somewhat less favorable treatment than those shares
acquired before such announcements. At its election, Data Systems may withhold
payment from a dissenter who holds "after-acquired" shares, until such time as
payment to other shareholders is required. Should Data Systems elect to withhold
payment after the effective time, Data Systems will estimate the fair value of
the dissenter's shares plus interest and offer to pay this amount to each
dissenter who agrees to accept it in full satisfaction. Along with its offer,
Data Systems will send a statement of its estimate of the fair value of the
shares, an explanation of how interest was calculated and a statement of the
dissenter's right to make a supplemental demand for payment if the shareholder
believes that the amount offered is less than the fair value of his or her
shares or that the interest due is incorrectly calculated.
If you believe the payment received, or the amount offered, in the case
of after-acquired shares, is less than the fair value of your shares or that the
interest due is incorrectly calculated, you must notify Data Systems in writing
of your own estimate of the fair value of the shares and interest due and make a
supplemental demand for payment of the amount you believe to be owing. This
right is waived unless you make your demand within 30 days after Data Systems
made or offered payment for your shares.
If a supplemental demand remains unsettled, Data Systems shall commence
a proceeding within 60 days after receiving the demand and petition the circuit
court of the county in which Data Systems' principal place of business was
located to determine the fair value and accrued interest. Should Data Systems
fail to do so, it must pay each dissenter whose demand remains unsettled the
amount demanded. If fair value is determined to be more than the merger
consideration, each dissenter that is a party to the proceeding is entitled to
judgment for the amount of the excess with respect to his or her shares plus
interest or, in the case of after-acquired shares for which payment was not
made, the total amount of the fair value plus interest.
A proxy or vote against the merger will not, by itself, be regarded as
a written objection for purposes of asserting dissenters' rights. This summary
is qualified in its entirety by the text of Sections 761 through 774 of the
Michigan Business Corporation Act, which is attached to this proxy
statement/prospectus as Appendix A. Shareholders intending to exercise
dissenters' rights are urged to seek the advice of counsel. Failure to comply
with all requirements of Sections 761 through 774 of the Michigan Business
Corporation Act will result in the loss of dissenters' rights.
-44-
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
OF TEKINSIGHT.COM, INC. AND SUBSIDIARIES
The accompanying unaudited pro forma condensed financial statements
have been prepared to show the effects of the acquisition of Data Systems by
TekInsight pursuant to the terms and conditions of the agreement and plan of
merger dated as of February 18, 2000, as amended April 4, 2000, with an
assumption that the average market value as quoted on the Nasdaq SmallCap Market
for the 10 days immediately prior to the closing date of the merger is below
$5.00 per share resulting in an aggregate merger consideration of $12.5 million.
There are three alternative scenarios for the merger consideration: (i)
$12.5 million if the average market value of TekInsight common stock is less
than $5.00, (ii) $16 million if the average market value of TekInsight common
stock is $5.00 or more but less than $7.00, or (iii) $18 million if the average
market value of TekInsight common stock is $7.00 or more per share. The merger
consideration will be adjusted accordingly through the issuance of Series A
preferred stock in exchange for all of the common stock of Data Systems. The
acquisition is accounted for as a purchase.
The following unaudited pro forma consolidated balance sheet presents
the pro forma financial position of TekInsight at December 31, 1999 as if the
acquisition of Data Systems had occurred on such date. Included is an adjustment
to record the elimination of Data Systems' previous shares and the issuance of
TekInsight's shares of Series A preferred stock to former shareholders of Data
Systems.
The unaudited pro forma consolidated statements of operations for the
six months ending December 31, 1999 and the year ended June 30, 1999 reflect the
combined results of TekInsight and Data Systems as if the acquisition had
occurred on July 1, 1999 and July 1, 1998, respectively.
The unaudited pro forma consolidated statements of operations do not
necessarily represent actual results that would have been achieved had the
companies been together as of July 1, 1998, nor may they be indicative of future
operations. These unaudited pro forma consolidated financial statements should
be read in conjunction with TekInsight's and Data Systems' historical financial
statements and notes thereto.
-45-
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
as of December 31, 1999
<TABLE>
<CAPTION>
Assets Pro Forma Adjustments
---------------------------------------
TekInsight Data Systems Total Debit Credit Pro Forma
------------ ------------- ---------- ----------- ------------ ------------
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash $ 5,868,957 $ 1,516,709 $ 7,385,666 $ $ 250,000 $ 7,135,666
Accounts receivable, net allowance for doubtful 339,633 9,132,585 9,472,218 9,472,218
accounts of $111,500 and $290,000
respectively
Inventories -- 907,207 907,207 907,207
Prepaid expenses 166,667 1,132,070 1,298,737 1,298,737
Note receivable - other 850,000 50,000 900,000 900,000
------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 7,225,257 12,738,571 19,963,828 19,713,828
LONG--TERM NOTES RECEIVABLE 1,490,766 -- 1,490,766 1,490,766
INVESTMENTS - Marketable Securities 4,333,049 -- 4,333,049 4,333,049
PROPERTY AND EQUIPMENT, net of accumulated 98,292 1,385,498 1,483,790 1,483,790
depreciation of $62,701 and $2,258,235
respectively
INTANGIBLE ASSETS, net of accumulated -- 2,832,070 2,832,070 10,357,661 13,189,731
amortization of $0 and $557,938
respectively
CAPITALIZED SOFTWARE COSTS, net 1,237,814 -- 1,237,814 1,237,814
DEPOSITS AND OTHER ASSETS 43,058 351,956 395,014 395,014
------------ ------------ ------------ ------------ ------------ ------------
$ 14,428,23 $ 17,308,095 $ 31,736,331 $ 10,357,661 $ 250,000 $ 41,843,992
============ ============ ============ ============ ============ ============
Liabilities And Shareholders' Equity
CURRENT LIABILITIES:
Accounts payable $ 196,499 $ 6,356,961 $ 6,553,460 $ $ 6,553,460
Bank line of credit -- 5,217,794 5,217,794 5,217,794
Accrued expenses 222,666 1,742,977 1,965,643 1,965,643
Income tax payable 326,480 -- 326,480 326,480
State audit reserves 1,400,000 -- 1,400,000 1,400,000
Deferred revenue -- 1,598,024 1,598,024 1,598,024
Accrued termination costs, short-term 247,750 -- 247,750 247,750
------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 2,393,395 14,915,756 17,309,151 17,309,151
------------ ------------ ------------ ------------
LONG-TERM NOTES PAYABLE, net of current portion 17,675 -- 17,675 17,675
------------ ------------ ------------ ------------
REVOLVING CREDIT LOAN -- -- --
DEFERRED INCOME TAXES PAYABLE--long term -- -- --
REDEEMABLE PREFERRED STOCK, Series A -- -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value, -- -- -- (1) 12,500,000 12,500,000
10,000,000 shares authorized 2,500,000
(pro forma) (1)
Common stock, $.0001 par value 1,585 55,092 56,677 55,092 -- 1,585
100,000,000 shares authorized,
15,848,529 shares issued and outstanding
as of December 31, 1999
Additional paid-in capital 19,302,332 18,575,219 37,877,551 18,575,219 -- 19,302,332
Unrealized gain on securities 1,033,049 -- 1,033,049 1,033,049
Accumulated (deficit) (8,319,800) (16,237,972) (24,557,772) (1) 16,237,972 (8,319,800)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,017,166 2,392,339 14,409,505 18,630,311 28,737,972 24,517,166
------------ ------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,428,23 $ 17,308,095 $ 31,736,331 $ 28,987,972 $ 28,987,972 $ 41,843,992
============ ============ ============ ============ ============ ============
</TABLE>
See notes to pro forma financial statements
-46-
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated
Statement Of Operations for the Six Month Period Ended December 31, 1999
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------
TekInsight Data Systems Total Debit Credit Pro Forma
------------- ------------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
REVENUES $ 962,179 $ 25,261,893 $ 26,224,072 $0,107, $ $26,224,072
COST OF GOODS SOLD 459,516 2,283,264 21,742,780 21,742,780
------------- ------------- ------------- -----------
GROSS PROFIT 502,663 3,978,629 4,481,292 4,481,292
------------- ------------- ------------- -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Selling, general and administrative 781,619 4,483,103 5,264,722 5,264,722
Research and development 174,474 -- 174,474 174,474
Depreciation and amortization 25,946 465,561 491,507 (1) 345,000 836,507
------------- ------------- ------------- ----------- -----------
TOTAL OPERATING EXPENSES 982,039 4,948,664 5,930,703 6,275,703
------------- ------------- ------------- -----------
OPERATING LOSS (479,376) (970,035) (1,449,411) (1,794,411)
GAIN ON SALE OF MARKETABLE SECURITIES 93,439 -- 93,439 93,439
OTHER INCOME (EXPENSE)
Interest income (expense) 200,962 (265,966) (65,004) (65,004)
Other income (expense) -- 662,820 662,820 662,820
------------- ------------- ------------- -----------
NET LOSS $ (184,974)$ (573,181) $ (758,156) $ (1,103,156)
============= ============= ============= ============
NET LOSS APPLICABLE TO COMMON SHARE $ (184,974)$ (573,181) $ (758,155) $ 345,000 $ (1,103,156)
HOLDERS ============= ============= ============= =========== ============
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.01)$ (0.11) $ -- $ -- $ -- $ (0.06)
============= ============= ============= =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES USED IN
COMPUTATION 15,808,455 5,204,703 -- 2,500,000 -- 18,308,455
============= ============= ============= =========== =========== ===========
NET LOSS (184,974) (573,181) (758,155) (1,103,156)
===========
OTHER COMPREHENSIVE LOSS, NET OF TAX -
Unrealized loss on available-for-sale
securities (1,413,460) -- (1,413,460) -- -- (1,413,460)
------------- ------------- ------------- ----------- ----------- -----------
COMPREHENSIVE LOSS $ (1,598,434)$ (573,181) $ (2,171,615) $ 345,000 -- $ (2,516,616)
============= ============= ============= =========== =========== ============
</TABLE>
See notes to pro forma financial statements
-47-
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated
Statement of Operations for the Year Ended June 30, 1999
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------------
TekInsight Data Systems Total Debit Credit Pro Forma
------------ ------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 1,514,849 $ 67,741,420 $69,256,269 $ $ $69,256,269
-
Cost of goods sold 700,254 55,577,676 56,277,930 56,277,930
------------ ------------- ----------- -----------
GROSS PROFIT 814,595 12,163,744 12,978,339 12,978,339
------------ ------------- ----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Selling, general and administrative 3,387,874 11,326,005 14,713,879 14,713,879
Research and development 161,709 -- 161,709 161,709
Depreciation and amortization 23,279 1,146,572 1,169,851(1) 691,000 1,860,851
------------ ------------- ----------- -----------
Total operating expenses 3,572,862 12,472,577 16,045,439 16,736,439
------------ ------------- ----------- -----------
OPERATING LOSS (2,758,267) (308,833) (3,067,100) (3,758,100)
GAIN ON SALE OF MARKETABLE SECURITIES 1,689,664 -- 1,689,664 1,689,664
OTHER INCOME (EXPENSE)
Shareholder settlement -- (630,500) (630,500) (630,500)
Loss on sale of equipment -- (385,419) (385,419) (385,419)
Interest income (expense) 590,092 (547,445) 42,647 42,647
Other income (Expense) -- (54,630) (54,630) (54,630)
------------ ------------- ----------- -----------
590,092 (1,617,994) (1,027,902) (1,027,902)
------------ ------------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (478,511) (1,926,827) (2,405,338) (3,096,338)
DISCONTINUED OPERATIONS
Loss from discontinued operations -- -- -- --
Gain from disposal, including
operating losses, through
disposal date, of $1,489,272
(less applicable income taxes
of $1,104,000) 1,491,923 (899,562) 592,361 592,361
------------ ------------- ----------- -----------
TOTAL INCOME (LOSS) FROM DISCONTINUED
OPERATIONS 1,491,923 (899,562) 592,361 592,361
------------ ------------- ----------- -----------
NET INCOME (LOSS) 1,013,412 (2,826,389) (1,812,978) (2,503,979)
PREFERRED STOCK DIVIDENDS (27,288) -- (27,288) (27,288)
------------ ------------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHARE HOLDERS $ 986,124 $ (2,826,389) $(1,840,266) $ 691,000 $ -- $(2,531,265)
============= ============= =========== ========== =========== ===========
NET INCOME (LOSS) PER SHARE
Continuing $ (0.03) $ (0.39) -- $ -- $ -- $ (0.18)
Discontinued 0.10 (0.18) -- -- -- 0.03
------------ ------------ ------------- ---------- ----------- -----------
NET INCOME (LOSS) PER SHARE - basic and
diluted $ 0.07 $ (0.57) $ -- $ -- $ -- $ (0.15)
============= ============= =========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES USED IN
COMPUTATION 14,728,969 4,895,156 -- 2,500,000 -- 17,228,969
============= ============= =========== ========== =========== ===========
NET INCOME (LOSS) 1,013,412 (2,826,389) (1,812,977) 691,000 (2,503,979)
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gain on available-for-sale
securities 2,446,509 -- 2,446,509 -- -- 2,446,509
------------- ------------- ----------- ---------- ----------- -----------
COMPREHENSIVE INCOME $ 3,459,921 $ (2,826,389) $ 633,532 $ 691,000 $ -- $ 57,470
============= ============= =========== ========== =========== ===========
</TABLE>
See notes to pro forma financial statements
-48-
<PAGE>
TekInsight.Com, Inc. and Subsidiaries/Data Systems Network Corporation
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
A. The following unaudited pro forma adjustments are included in the
accompanying unaudited pro forma consolidated balance sheet at
December 31, 1999:
(1) To record the acquisition of all of the issued stock of
Data Systems with an assumption that the average market
value of TekInsight common stock as quoted on the Nasdaq
SmallCap Market for the 10 days immediately prior to the
closing date of the merger is at or below $5.00 per share
resulting in a purchase price of $12.5 million. However,
there are two alternative scenarios for the merger
consideration: (i) $16 million if the average market value
of TekInsight common stock is more than $5.00 but less than
$7.00, or (ii) $18 million if the average market value of
TekInsight common stock is more than $7.00 per share. The
merger consideration will be adjusted accordingly through
the issuance of Series A preferred stock in exchange for
all of the common stock of Data Systems. The conversion
ratio of the Series A preferred stock is one to one. The
acquisition is accounted for as a purchase. Costs of the
acquisition have been estimated at $250,000.
B. The following pro forma adjustments are included in the
accompanying unaudited pro forma consolidated statements of
operations for the six months ended December 31, 1999 and for
the year ended June 30, 1999:
(1) To record the amount of amortized goodwill recognized in
the six-month period and one-year period, respectively. If
the average market value of TekInsight common stock is
$5.00 or more, the amount of amortization of goodwill will
increase by $39,000 for the six-month period and $232,000
for the one-year period respectively. If the average market
value of TekInsight common stock is $7.00 or more, the
amount of amortization of goodwill will increase by $67,000
for the six-month period and $133,000 for the one-year
period, respectively. The goodwill is amortized over a
fifteen-year period.
C. The weighted average number of shares used in the pro forma
computation of net loss per share assumes the conversion of all
of the Series A preferred shares issued to the shareholders of
Data Systems into common stock of TekInsight.
-49-
<PAGE>
INFORMATION ABOUT TEKINSIGHT
Business
TekInsight was initially incorporated in Delaware on May 27, 1989 as
Universal Self Care, Inc. and changed its name to Tadeo Holdings, Inc. on
February 2, 1998. Tadeo changed its name to TekInsight in November 1999. Prior
to TekInsight's acquisition of AstraTek and the creation of TekInsight Services
(formerly known as Tadeo-E Commerce Corp.), TekInsight supplied and distributed
both prescription and non-prescription medications and durable medical equipment
and supplies principally to persons suffering from diabetes. These businesses
were sold in January 1998.
Since January 1998, TekInsight has operated as a holding company which,
through its two principal operating subsidiaries, AstraTek and TekInsight
Services, (i) develops computer software products and provides computer network
related services for the management of distributed client/server networks
operating on systems such as Microsoft Windows NT, through AstraTek, and (ii)
provides consulting, technical and other services to eCommerce clients on the
Internet, including consulting and development services for the maintenance,
design and enhancement of eCommerce sites through TekInsight Services. Products
and services provided by AstraTek include software solutions for systems
management, security management and network-wide problem management and
resolution.
Recent Developments
On April 4, 2000 TekInsight announced that it signed a letter of intent to
acquire Big Technologies, Inc. for $1.2 million in market value of TekInsight
common stock and an incentive plan which could earn an additional $650,000 in
market value of TekInsight common stock. Big Technologies is an
Internet-solutions firm specializing in the development of government sites with
advanced transactional applications. Big Technologies enhances communications
between governments and constituents, saving both parties time and money. Since
1995 Big Technologies has been creating transactional Web applications for
municipal agencies. The firm's most notable municipal sites are the City of
Boston (www.cityofboston.com) and Suffolk County Registry of Deeds
(www.suffolkdeeds.com.)
BugSolver.Com, Inc., a wholly-owned subsidiary of TekInsight, provides
technology and services for the resolution of computer hardware and software
systems failures. On April 14, 2000, BugSolver announced the public availability
of its first service, BugSolver Developer. BugSolver Developer is capable of
generating an in-depth profile of an operating failure experienced by the user's
personal computer. Using the BugSolver Developer service, the profile is sent
automatically via the Internet to the BugSolver Web site where a professional
reviews the profile, bypassing the need to communicate with the user and cutting
down greatly on the time needed to diagnose and correct a computer failure or
problem.
The Help Desk Institute, a computer services industry research group,
estimates that up to 80% of technical support cost stems from the time it takes
to uncover and re-create the series of events leading to a computer failure.
BugSolver Developer reduces this time significantly and generates information
regarding the condition of the computer at the time of failure, allowing for
more efficient problem-solving.
Industry Overview -- AstraTek
The use of distributed, client/server networks has grown tremendously in the
last ten years, with the increase in PC-based Local Area Networks being one of
the fastest-growing aspects of the client/server market. These LANs, largely
dependent on servers running network operating systems provided by companies
such as Microsoft, are enabling a new generation of client/server applications,
such as e-mail and group collaboration software such as Microsoft Exchange and
Lotus Notes. As a result, LANs which were originally intended to be used as
-50-
<PAGE>
relatively simple workgroup systems, have lost their "local" characteristic and
have developed into mission-critical platforms for enterprise-scale
applications. As LANs, and the network operating systems that support them, have
been used to operate mission-critical applications and services, organizations
have become increasingly dependent upon them. Additionally, TekInsight believes
that the average number of users supported by these LANs has been increasing. As
LANs have grown larger and technically more complex, the problems associated
with maintaining their security and integrity have increased and become more
difficult for information technology departments to manage. The management
challenges associated with maintaining the security and integrity of LANs
include:
Systems Administration
Systems administrators within technology, or IT, departments need to resolve
a wide range of issues and problems on a daily basis, including managing the
configuration of network servers, administering users and groups and managing
disk space on critical servers and workstations. Problems such as these may not
be solved quickly, placing the availability of the network at risk and the use
of mission-critical, client/server applications throughout an enterprise in
jeopardy. Additionally, the implementation of new or upgraded network operating
systems ("NOS") will result in increased strain on an organization's IT
resources. Each NOS upgrade adds levels of complexity and TekInsight believes
this will be particularly true of the next major upgrade of Windows NT.
Computer security breaches are a pervasive and growing problem. Although
many IT organizations have installed firewalls and implemented security
management strategies focusing on preventing "hacking in" from outside the
organization, these efforts do not address the most serious security-related
losses which are the result of unauthorized access by insiders.
IT departments are faced with conflicting pressures both to: (i) manage
increasing complexity and guarantee better service for users who are demanding
assurance of high productivity and availability and (ii) reduce the total cost
of ownership for client/server computing. Adding to this challenge is a lack of
qualified IT personnel. Pressure to reduce the total cost of ownership and the
increasing difficulty and expense in locating qualified IT personnel has driven
IT management to establish processes and develop or purchase tools to manage IT
assets.
AstraTek's mission is: (i) to provide customized professional services to
clients by designing new or altering existing LAN configurations, or by
developing customized systems management tools that manage the security and
integrity of the clients' distributed client/server networks as they increase in
size and complexity, and remediate discovered network problems, all of which
leads to reduced total cost of ownership for their enterprise computing, as well
as (ii) to develop, market (either on its own or through third-party
distributors) and support "shrink wrapped" software products that accomplish the
same network management goals.
TekInsight Services, Inc.
The Internet is an increasingly significant global medium for
communications. The increasing functionality, accessibility and overall usage of
the Internet, and online service providers, such as America Online and The
Microsoft Network, have made the Internet an attractive commercial medium. The
portion of the Internet known as the Web, which has become almost synonymous
with the Internet as a whole, has experienced the fastest growth and the most
acceptance among ordinary users. Growth in Internet usage has been fueled by a
number of factors, including:
o the availability of a growing number of useful products and services via
the Internet;
o the large and growing installed base of personal computers in the
workplace and home;
o advances in the performance and speed of personal computers and modems;
-51-
<PAGE>
o improvements in Internet network infrastructure;
o easier and cheaper access to the Internet; and
o increased awareness of the Internet among businesses and consumers.
As Internet accessibility, usage and functionality continue to grow, the
Internet is increasingly being used as a medium for direct communication among
users, such as e-mail and bulletin boards, as well as a rapidly growing sales
and marketing channel. A growing number of users has transacted business over
the Web, such as trading securities, buying goods, purchasing airline tickets
and paying bills.
Given the size of the projected number of Internet transactions and the
demographics of existing and projected Internet users, management believes that
a large market exists for the provision of services by companies, like
TekInsight Services, that have the capacity to design, maintain and operate a
commercial presence on the Internet (through Web design, hosting and other
arrangements) and to provide further technical and consulting services related
to additional aspects of a client's electronic commerce operations on the
Internet.
Current Operation--AstraTek
Background
AstraTek began operations in 1995, developing software and related products
for Internet and intranet technology and providing consulting and professional
services for several companies. It originally was formed as the Advanced
Technology Consulting group at Bankers Trust and split off from Bankers Trust
and began operating independently in April 1997. TekInsight acquired AstraTek in
October 1998.
Products
Since 1997 AstraTek has had a software license agreement with Viasoft, Inc.
whereby AstraTek granted Viasoft exclusive rights to use AstraTek products,
principally the VisualAudit product. Since February 1998, Viasoft has promoted,
marketed and distributed the VisualAudit products as part of its OnMark 2000
Workbench suite of products. OnMark 2000 Workbench for Excel, which includes
VisualAudit for Excel, is a PC-based software program that discovers, analyzes
and repairs Year 2000 problems in Microsoft Excel spreadsheet applications. This
product has been successfully marketed to Fortune 1000 companies for their
desktop PC-based software Year 2000 compliance needs. AstraTek's VisualAudit
product for Access has also been released by Viasoft as the OnMark 2000
Workbench for Access product. According to the terms of the Viasoft software
license agreement, Viasoft pays a royalty fee to AstraTek equal to 25% of the
gross revenues generated by the sales of AstraTek's products which have been
licensed to Viasoft. AstraTek is obligated under the terms of the Viasoft
software license agreement to provide Viasoft with enhancements to the Viasoft
licensed products and is obligated to devote man hours to the development of
such enhancements. The Viasoft software license agreement sets an absolute limit
for such support to a dollar value, at $100 per man hour, equal to 40% of
royalties received by AstraTek. As of December 31, 1999, AstraTek had earned
$1,022,978 under the Viasoft software license agreement, of which $17,339
remained unpaid.
Under the Viasoft software license agreement, Viasoft has a right of first
negotiation. If AstraTek desires either to sell ownership rights to its
technology not already subject to the Viasoft software license agreement or to
distribute such technology exclusively through another third-party distributor,
AstraTek is obligated first to negotiate in good faith exclusively for a period
of fifteen days with Viasoft for such sale or distribution. The right of first
negotiation does not apply to products AstraTek distributes on a non-exclusive
basis, except that AstraTek is obliged to make available to Viasoft equal terms.
AstraTek is also obligated to grant what is termed Level 2 support to Viasoft
customers who purchase Viasoft licensed products, subject to Viasoft's option to
assign to AstraTek its maintenance contracts for Level 1 support of Viasoft
-52-
<PAGE>
licensed products under specified circumstances. Level 1 support is defined as
initial questions and reports from customers. Level 2 support is more technical,
engineering-type support provided after Viasoft has been unable to respond to a
customer's immediate needs or questions. Problems requiring Level 2 support
usually involve more in-depth review and may require a number of days to
resolve. The software license agreement with Viasoft terminates on June 30, 2001
and is automatically renewable for successive one-year periods unless either
party provides the other with written notice of cancellation at least 90 days
prior to the applicable expiration date.
Professional Services
AstraTek provides professional services to clients encompassing all aspects
of distributed systems applications, including multi-tier client/servers,
Internet-enabled applications, network security, systems management and
performance enhancement. AstraTek has performed these services for several major
software companies and financial institutions and has acted as a development
partner for ISVs, including Microsoft, by assisting them in building their
computer software products. AstraTek has performed the following services for
the following companies:
o helped IBM develop a global single sign-on product allowing a user to log
into and open simultaneously heterogeneous computer systems;
o developed the software registration tool for Microsoft's Windows 2000 and
Windows 98 operating systems, allowing customers to use the Internet to
register Windows and other Microsoft products;
o developed a software testing system for Microsoft. The testing facility
is an automated framework that controls testing across distributed
systems. Its capabilities include multi-threaded test scheduling,
unattended installation of software on test clients, and automatic
re-creation of testing environments for regression testing;
o developed a monitoring and analysis infrastructure for Microsoft to
improve the quality of its software testing process. The system
complements the previously developed testing facility by monitoring
systems under test and collecting log files and other data made available
by plug-in diagnostic probes. The collected data will be stored in a
repository, to be processed by coverage and error analysis tools for
generation of statistical data; and
o developed and enhanced the encryption functionality of the WinFrame
product for Citrix. The work leveraged industry standard encryption
technologies from RSA Data Security. The enhanced encryption abilities
allow WinFrame to be used in secure application markets.
AstraTek entered into a consulting and professional services agreement with
4th Peripheral Technologies, Inc. pursuant to which AstraTek is engaged to
provide executive advisory consulting services, as requested, and on a fee
schedule to be negotiated at the time an assignment is made, intended to
increase 4th Peripheral's value and strategic position in connection with its
business as a developer of cyber extension technology to provide remote access
to data from handheld devices. In an effort to strengthen AstraTek's strategic
relationships with 4th Peripheral, TekInsight purchased in a private placement
of securities 250,000 shares of 4th Peripheral common stock, par value $.0001
per share, for $250,000.
TekInsight Services
General
TekInsight Services provides technical and consulting services to eCommerce
companies (including Web site design, development, maintenance, enhancement and
hosting or operation) and other Internet-based activities, as well as develops
its own proprietary eCommerce businesses. As part of its operating activities,
in order to further strategic alliances generally with companies for which it is
-53-
<PAGE>
providing consulting and technical services, TekInsight may make working capital
loans to or equity investments in such partners. To date, TekInsight Services
has entered into the following two significant contracts for its services:
Customer Relationships
On May 28, 1999, as amended by agreements dated as of June 1, 1999,
TekInsight Services entered into a Web design and consulting agreement with
Azurel, Ltd. Under the terms of the Azurel Web agreement, based upon the fee
schedule to be included in that agreement, TekInsight Services agreed to provide
all necessary consulting and development services to design, maintain and
enhance Azurel's electronic commerce Internet sites and other related electronic
commerce marketing vehicles. TekInsight Services paid Azurel $500,000 for
Azurel's provision of content and marketing consulting services in connection
with assistance provided to TekInsight's Services' electronic commerce
development activities for Azurel and other clients. At the same time, to
enhance the strategic relationship between Azurel, TekInsight Services and
TekInsight, TekInsight Services lent to Azurel an aggregate of $1,528,167 under
the terms of a credit agreement, as amended, dated as of June 1, 1999 (with part
of the aggregate principal reflecting the restructuring of a March 31, 1999
short-term $500,000 promissory note), with interest payable at the rate of 8%
per annum, payable monthly, and with all principal and accrued interest due on
May 28, 2001. Repayment of amounts outstanding under the credit agreement was
secured by a pledge of approximately 66.66% of the outstanding shares of Azurel
operating subsidiaries under the terms of a pledge security agreement, but which
pledge has since been released pending a sale of those subsidiaries by Azurel
and the restructuring of the security arrangement with a pledge to TekInsight
Services of part of the purchase price therefor when it becomes available at
closing. In consideration for its pledge release, the exercise price on warrants
to acquire 500,000 shares of Azurel common stock held by TekInsight and
TekInsight Services was lowered to $.60 per share (the current market price of
Azurel common stock) from $1.50 per share. The Azurel warrants were received
from Azurel originally in further consideration for advances to Azurel under the
credit agreement. The shares acquired upon exercise of such Azurel warrants are
subject to registration rights provided under the terms of a registration rights
agreement, as amended, dated as of June 1, 1999.
Under agreements dated as of June 30, 1999, TekInsight Services entered into
both a Web design and consulting agreement and an online hosting agreement with
StyleSite Marketing, Inc. (formerly Diplomat Direct Marketing Corporation), a
public company engaged in the business of distributing women's and children's
fashion apparel and related accessories through catalogue sales, including the
Lew Magram and Brownstone studios catalogues, and over the Internet. Under the
terms of the Web agreement, based upon the fee schedules provided in that
agreement, TekInsight Services was to provide all necessary consulting and
development services to design, maintain and enhance Style's electronic commerce
Internet sites and other related electronic commerce marketing vehicles, as well
as to host those sites on behalf of Style. TekInsight Services paid Style
$500,000 for Style's provision of content and marketing consulting services in
connection with assistance provided to TekInsight Services' electronic commerce
development activities for Style and other clients. In addition to payments by
Style for the services provided under the Style Web agreements, in further
consideration for its services to Style under the Style Web agreements,
TekInsight Services will receive royalties from Style based upon Style's ongoing
electronic commerce businesses. Style filed for protection under Chapter 11 of
the federal bankruptcy code, and all work under the Web design consulting
agreement and the hosting agreement, has ceased.
TekInsight Services has entered into an agreement with Business Talk
Radio.Net, Inc. under which, for a payment of $250,000, TekInsight Services
obtained an assignable credit for the purchase of advertising time on radio
programs operated by Business Talk having a value of $1,200,000, and shares of
Series C preferred stock convertible into 5% of the currently outstanding
capital stock of Business Talk. As part of the transaction, TekInsight Services
obtained an option to acquire an equivalent number of shares of Business Talk
capital stock for an exercise price of $250,000 (which it exercised in February
2000), as well as the right to "stream" the content of Business Talk programming
on its and its affiliates Web sites during the course of a three-year period
-54-
<PAGE>
without an additional payment to Business Talk. Business Talk creates and
distributes the content of its business-oriented radio programming for
broadcasting on third-party operated radio stations in a variety of markets
throughout the United States.
Other Activities
TekInsight makes strategic investments in other companies as opportunities
arise. TekInsight views these investments as a way to promote strategic
alliances with companies that either provide synergistic products and/or
services, or present opportunities for sales by TekInsight of its own products
and services.
Competition
The market for TekInsight products and services is highly competitive.
TekInsight anticipates that competition will continue to intensify as the use of
computers and the use of the Internet grows. The tremendous potential of the
Internet has attracted many companies from start-ups to well-established
businesses.
AstraTek's principal competition is from providers of security analysis and
audit products, such as Axent Technologies, Inc. and Security Dynamics
Technologies, Inc., and from companies which make desktop management products
such as Microsoft and Intel Corporation. TekInsight expects competition for
AstraTek's products to grow as new companies enter the market and current
competitors expand their line of products and services. ISVs, such as Microsoft,
can also enhance existing products to include the systems management and
functionality aspects which TekInsight currently provides in its own proprietary
products and in its services.
The markets for AstraTek professional services and TekInsight Services'
electronic commerce services are highly fragmented and are attracting many newer
companies, as there are few barriers to entry to the professional services and
Internet technology businesses. ISVs such as IBM and Microsoft are competitive
in this area, as are numerous consulting firms.
TekInsight expects that it will continue to create and offer innovative
products and creative professional services and that TekInsight will continue to
attract new clients in need of TekInsight's value-added electronic commerce
services. However, there is no assurance that TekInsight's competitors will not
introduce comparable products and services at similar or more attractive prices
in the future or that some companies may not create products which they can
integrate directly into their software and NOS. Increased competition could
erode the market for TekInsight's products and services and have a material
adverse affect on TekInsight's business, financial condition and results of
operation.
Future Strategy
TekInsight has not yet actively advertised its products and services, but
has relied on its reputation and contacts in the financial and computer world
for its sources of business. TekInsight has had significant repeat business from
Microsoft and believes that such companies and other large institutions will be
a source of revenues in the future. To date, TekInsight has preferred to rely on
the services of companies like Viasoft and their significant connections,
marketing contacts and expertise to promote and distribute TekInsight's
products.
TekInsight believes that its Web-based and other products and services will
give it greater exposure to the marketplace and will help it more efficiently to
develop products that meet the needs of and reach a greater corporate and
home-user audience that is in need of its various diagnostic tools and other
services.
TekInsight has created separate subsidiaries through which it plans to
develop additional specific products and services for future commercialization.
-55-
<PAGE>
On March 31, 2000, TekInsight signed a non-binding letter of intent to
acquire by merger into a newly formed TekInsight subsidiary Big Technologies,
Inc., a Boston-based Web designer whose reputation has been established in the
municipal and other governmental authority markets. The proposed merger
consideration is up to $1.85 million market value of TekInsight common stock. A
definitive agreement has not yet been reached, and there is no guarantee that
this acquisition will be consummated.
Patents and Trademarks
All employees of TekInsight (and its subsidiaries) are required to sign
confidentiality and non-disclosure agreements which seek to protect TekInsight's
rights in its intellectual property. These agreements assign to TechInsight
rights to intellectual property developed by TekInsight and its subsidiaries'
employees. TekInsight is a party to a software license agreement with Viasoft
through which it is has granted an exclusive license to use the name VisualAudit
and AstraTek. TekInsight has pending trademarks for the following: AstraTek,
BugSolver, TrendSeeker, Testwatch, and Applications Instrumentation Wizard.
Employees
As of December 31, 1999, TekInsight and TekInsight Services had no
employees. AstraTek had 12 full-time employees, four of whom are management
employees. TekInsight believes that its relationships with AstraTek's employees
are good. AstraTek also employs three contract consultants.
Description of Properties
TekInsight does not own any real property. The following table sets forth
information as to the material properties leased by TekInsight.
<TABLE>
<CAPTION>
Expiration Annual Size/Square Purchase
Location and Use Date Rental Feet Option
---------------- ---------- ------ ----------- --------
<S> <C> <C> <C> <C>
11585 Farmington Road(1) Livonia, September 2002 $113,928 6,600 Yes
Michigan 48150 (former executive, sales
and administrative offices)
5 Hanover Square, 24th Floor New York, November 2002 $126,169 6,729 No
New York 10004 (executive, sales and
administration offices)
- --------------------
(1) On August 1, 1999 TekInsight subleased 3,400 square feet to a tenant
that is paying $3,967 a month in base rent, plus an additional 42.5% of the
common area expenses. The sublease ends October 31, 2002.
</TABLE>
Legal Proceedings
TekInsight is not currently a party to any material legal proceedings.
Submission of Matters to a Vote of Security Holders
None.
-56-
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
The following table set forth, for the periods indicated, the relative
percentages that specified income and expense items bear to net sales.
<TABLE>
<CAPTION>
Six months ended
December 31, Year ended June 30,
---------------- -------------------------------
1999 1998 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUES 100% 100% 100% 100% 100%
COST OF REVENUES 48 30 46 25 16
---- ---- ---- ---- ----
GROSS PROFIT 52 70 54 75 84
---- ---- ---- ---- ----
OPERATING EXPENSES:
Selling, general and administrative 81 135 178 159 218
Research and development costs 18 6 11 7 1
Depreciation and amortization 3 1 - -
Settlement of employee contract, (non cash) - 34 - - -
Provisions for state audit - - 46 70 -
---- ---- ---- ---- ----
102 176 235 236 219
INCOME (LOSS) FROM OPERATIONS (50) (106) (181) (161) (135)
GAIN ON SALE OF MARKETABLE SECURITIES 10 - 111 - -
INTEREST INCOME, NET 21 55 39 45 0.6
---- ---- ---- ---- ----
TOTAL INCOME (LOSS) FROM
CONTINUING OPERATIONS (19) (51) (31) (116) (134)
DISCONTINUED OPERATIONS
Loss from discontinued operations - - - (212) (399)
Gain from disposal - - 98 515 -
---- ---- ---- ---- ----
TOTAL INCOME (LOSS) FROM DISCONTINUED OPERATIONS 0 0 98 303 (399)
---- ---- ---- ---- ----
NET INCOME (LOSS) (19) (51) 67 187 (533)
---- ---- ---- ---- ----
</TABLE>
Six Months Ended December 31, 1999 Compared to Six Months Ended December 31,
1998
Revenue for the 1999 six month period was $962,179, a decrease of $5,000, or
less than 1% from the 1998 six-month period. Several offsetting factors
contributed to this variance. A net increase of $189,000 in revenue during the
1999 six-month period, VisualAudit sales decrease of $240,000 for the 1999
six-month period and a decrease of $65,000 in professional services fees from
clients during the 1999 six-month period (a 6% decrease from the 1998 six-month
period.)
Total cost of goods sold during the 1999 six-month period were $459,516,
representing costs of approximately 48% of revenue for the period, while total
cost of goods sold for the 1998 six-month period were $285,749 or approximately
30% of revenue. The increased labor, both time and effort associated with the
various projects, drove up the cost of goods sold during the 1999 six-month
period as compared to the 1998 six-month period.
Total operating expenses during the 1999 six-month period decreased to
$982,039, or 102% of revenue, as compared to $1,703,798, or 176% of revenue,
during the 1998 six-month period. A contributing factor relates to the improved
-57-
<PAGE>
process by which operations record and capture capitalized software costs as it
relates to salary expenses during the 1999 six-month period.
Other income and expenses include interest income of $200,962 during the
1999 six-month period compared to $532,777 during the 1998 six-month period.
Interest expense was $11,184 during the 1999 six-month period and during the
1998 six-month period the expense did not exist.
Net loss for the 1999 six-month period of $184,974 is primarily attributable
to the losses from operations, in the amount of $479,375.
Fiscal Year Ended June 30, 1999 Compared to Fiscal Year Ended June 30, 1998
Revenues for the year ended June 30, 1999 were $1,514,849, an increase of
$518,376, or 52%, from the year ended June 30, 1998. Several factors contributed
to this increase. Revenue associated with the VisualAudit product that is
distributed by Viasoft on behalf of TekInsight increased by $57,988 for the year
ended June 30, 1999, or a 13% increase over the year ended June 30, 1998, and
revenue associated with professional services provided to various clients
increased by $570,900 for the year ended June 30, 1999, or a 235% increase over
the year ended June 30, 1998.
Total cost of goods sold for the year ended June 30, 1999 was $700,254,
representing costs of approximately 46% of revenues for the period, while total
cost of goods sold for the year ended June 30, 1998 was $248,261 or
approximately 25% of revenue. This 21% unfavorable variance as a percent of
revenue is in part the result of increased utilization of outside consultants in
completing time sensitive, single occurrence professional services projects.
Selling, general and administrative expenses for the year ended June 30,
1999 increased to $3,387,874 from $2,259,349 for the year ended June 30, 1998.
Contributing to the unfavorable variance is $1,250,000 in advertising and
marketing expenses associated with services provided by various Internet
organizations that TekInsight has determined to be beneficial to market its
products and services.
Net interest income increased for the year ended June 30, 1999 to $590,092
from $452,016 for the year ended June 30, 1998. This increase is primarily due
to quarterly interest from a promissory note made by Gainor Medical Management
LLC which was paid in April 1999.
Net income decreased to $1,013,412 for the year ended June 30, 1999 from
$1,865,288 for the year ended June 30, 1998. This decrease is primarily due to
the gain from the sale of the discontinued operations which occurred in the 1998
fiscal year.
The sale of marketable securities resulted in a gain of $1,689,664 in
revenue for the year ended June 30, 1999, a 100% increase over the year ended
June 30, 1998.
Fiscal Year Ended June 30, 1998 Compared to Fiscal Year Ended June 30, 1997
Revenues for the year ended June 30, 1998 were $997,433, an increase of
$542,662, or 219%, from the year ended June 30, 1997. Several factors
contributed to this increase. Revenue associated with sales of proprietary
software products increased by $574,200 for the year ended June 30, 1998, or a
100% increase over the year ended June 30, 1997, and revenue associated with
professional services provided to various clients decreased by $32,498 for the
year ended June 30, 1998, or a 7% decrease over the year ended June 30, 1997.
Total cost of goods sold for the year ended June 30, 1998 were $248,261,
representing costs of approximately 25% of revenues for the period, while total
cost of goods sold for the year ended June 30, 1997 were $73,188 or
approximately 16% of revenue. This 9% unfavorable variance as a percent of
-58-
<PAGE>
revenue is in part the result of increased utilization of outside consultants in
completing time sensitive, single occurrence professional services projects.
Selling, general and administrative expenses for the year ended June 3, 1998
increased to $2,354,489 from $992,372 for the year ended June 30, 1997.
Contributing to TekInsight's unfavorable variance is the realization of a full
year of expenses for the year ended June 30, 1998 as compared to only three
months of operations for the year ended June 30, 1997. Salaries, wages and
fringes increased by $612,398, rent and storage increased by $100,000,
professional and consulting services increased by $78,946, contract manpower
increased by $76,181 and research and development expenses increased by $66,424.
Net interest income increased for the year ended June 30, 1998 to $452,016
from $2,673 for the year ended June 30, 1997. This increase is primarily due to
quarterly interest from the Note.
Net income increased to $1,856,288 for the year ended June 30, 1998 from a
loss of $2,242,453 for the year ended June 30, 1997. This increase is primarily
due to the gain from the sale of the discontinued operations which occurred in
the 1998 fiscal year.
Liquidity and Capital Resources
As of December 31, 1999, TekInsight had working capital of $4,831,862,
compared to working capital of $5,365,143 at June 30, 1999. This decrease in
working capital during the 1999 six-month period is primarily due to losses from
operations.
TekInsight currently receives on average $22,763 a month in interest from
its various money market and certificate of deposit accounts.
On September 24, 1998, TekInsight completed a stock purchase agreement with
ViewCast.com Inc. (VCST.) VCST purchased $2,000,000 worth of restricted
TekInsight common stock valued at $2,000,000 for $2,000,000 worth of VCST common
stock. TekInsight issued 1,240,310 shares of its common stock at the sale price
of $1.6125 per share and received 1,000,000 shares of VCST's common stock for
the purchase price of $2.00 per share. In the case of each corporation, the
number of shares issued was less than 20% of the outstanding common stock of the
issuer on September 24, 1998. On November 16, 1999, TekInsight sold
approximately 43,334 shares of VCST in the open market for $4.15625 per share.
TekInsight realized a net gain of $93,439 in this sale. TekInsight currently has
500,000 shares of VCST's common stock remaining in investments--marketable
securities as of December 31, 1999.
On June 30, 1999, TekInsight Services entered into an agreement with
Business Talk, under which an aggregate payment of $250,000 was made in July and
August 1999, whereby TekInsight Services obtained an assignable credit for the
purchase of advertising time on radio programs operated by Business Talk having
a value of $1,200,000, and 564,056 shares of Series C preferred stock, par value
$.0001 per share, convertible into 5% of the current outstanding capital stock
of Business Talk. Each share of Class C preferred stock had a liquidation
preference of $.4432 until January 1, 2000, at which time the Class C preferred
stock preference become $.2217. As part of the transaction, TekInsight Services
obtained an option to acquire an equivalent number of shares of Business Talk
capital stock for an exercise price of $250,000, as well as the right to
"stream" the content of Business Talk programming on its and its affiliates Web
sites during the course of a three-year period without an additional payment to
Business Talk. Business Talk creates and distributes the content of its
business-oriented radio programming for broadcasting on third party operated
radio stations in a variety of markets throughout the United States. On January
3, 2000, TekInsight Services exercised its option and, for a payment of
$250,000, acquired an additional 564,056 shares of Business Talk Series C
preferred stock for $.4432 per share.
-59-
<PAGE>
The aforementioned marketable securities have been classified as available
for sale securities at December 31, 1999 and accordingly, the unrealized gain
resulting from valuing such securities at market value is reflected as a
component of stockholders' equity.
TekInsight provided Azurel, Ltd., a cosmetic manufacturing and marketing
company, with $1,528,167 in loan financing through the issuance of one note
bearing interest at 8% due in May 2001, and $500,000 through the issuance of a
note bearing interest at 20.8% due in August 1999. The $500,000 note was later
amended on August 12, 1999 to (i) extend the due date to June 2000, (ii) reduce
the interest rate to 10%, and (iii) increase the principal of the note from
$500,000 to $550,000 for accrued interest of $26,580 and a premium of $23,420
for lowering the interest rate. In addition, TekInsight received warrants to
acquire 500,000 shares of common stock of such company at an exercise price of
$1.50 per share. On November 25, 1999, TekInsight provided an additional
$200,000 to Azurel, Ltd. to secure computer equipment for increased capacity for
its operation. The $200,000 note bears 10.5% interest on the unpaid principal,
matures on November 25, 2001, and has principal and interest payments made
monthly. Azurel is behind in its interest and principal payments but a default
has not been declared.
On April 20, 2000, TekInsight filed an action against Style and its lender,
First Source Financial LLP, in the United States Bankruptcy Court, Southern
District of New York, to establish a constructive trust in its favor with
respect to, and to request that the court order Style and First Source to
deliver to TekInsight, the $1,000,000 purchase price paid for 10,000 shares of
Style Series G Preferred Stock and the shares of TekInsight common stock having
a $1,000,000 market value delivered to Style in exchange for an equal market
value of Style common stock under an agreement dated June 30, 1999.
One of TekInsight's discontinued wholly-owned subsidiaries underwent an
audit by the California State Controller's Office, Division of Audits, for the
purpose of determining compliance with guidelines of the California Department
of Health Services and the California State Board of Equalization. The
Controller's Office issued a report to the effect that the subsidiary owed, and
issued a Letter of Demand for, $1.3 million, contending that for the period July
1, 1990 to June 30, 1993, the subsidiary practiced unfair pricing to its
customers. Additionally, accrued interest on the amount demanded is also sought
by the Controller's Office. On January 20, 1999, the Superior Court recommended
that the overpayment determination be upheld. In March 1999, the Company's
wholly-owned subsidiary filed an appeal to the Superior Court's decisions with
the California Court of Appeals. On January 26, 2000, TekInsight lost its appeal
with the California Court of Appeals. TekInsight has provided a reserve for the
principal amount of $1,339,785 and $60,215 in accrued interest, or $1,400,000.
TekInsight's appeal of this finding was denied. A demand for payment has not yet
been made by the Controller's Office.
Cash proceeds from the sale of TekInsight's operating assets and the stock
of its two former principal operating subsidiaries, Diabetes Self Care, Inc. and
USCI Healthcare Management Solutions, Inc., to Gainor Medical Management, LLC, a
privately held Georgia company, along with the proceeds from the $9,300,000
prepayment in April 1999 of the Note, has been partially used in operations and
for the investment in and loans to the strategic partners described above. In
connection with these agreements, as part of TekInsight's provision of
professional services to strategic partners, TekInsight's has either made loans
to or equity investments in these strategic partners. The resulting financial
transactions have reduced TekInsight's cash reserves and reduced TekInsight's
monthly interest received on those reserves.
TekInsight's material ongoing fixed expenses are as follows: (1) monthly
rent expense net of sublease of approximately $20,139, (2) $7,633 a month to Mr.
Buchholz's under his employment termination agreement, an aggregate of $247,750
remaining as of December 31, 1999, and (3) approximately $21,657 monthly for
employee salaries and benefits.
-60-
<PAGE>
Year 2000 Compliance
TekInsight did not experience any material Year 2000 compliance issues.
Net Operating Loss Carry Forward
During the year ended June 30, 1999, TekInsight utilized approximately
$3,100,000 of available net operating loss carryforwards. AstraTek has
approximately $1,200,000 of net operating loss carryforwards subject to
limitations on annual utilization because there was "equity structure shifts" or
"owner shifts" involving 5% shareholders (as these terms are defined in Section
382 of the Internal Revenue Code), which have resulted in a more than 50% change
in ownership.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None
Directors and Executive Officers of TekInsight
The executive officers and directors of TekInsight as of April 28, 2000
are as follows:
Name Age Position with TekInsight
---- --- ------------------------
Steven J. Ross 42 President, Chief Executive Officer and
Director
Brian D. Bookmeier 41 Director
Arion Kalpaxis 44 Chief Operating Officer, Acting Chief
Financial Officer and Acting Principal
Accounting Officer
Alexander Kalpaxis 46 Chairman of the Board and Chief Technology
Officer
James Linesch 45 Director
Damon Testaverde 51 Director
Michael W. Grieves 49 Director Nominee
Walter J. Aspatore 55 Director Nominee
Mr. Ross was nominated to become a director of TekInsight after the
effective date of the merger. Mr. Ross has been President and Chief Executive
Officer of TekInsight since February 2000. He was a director of Data Systems
from October 1999 until February 2000. Since February 2000, Mr. Ross has been
chairman of the board and chief executive officer of VarsOnly.com, Inc., an
Internet start-up focusing on computer resellers. Since August 1999, Mr. Ross
has been a director of Interactive Frontiers, Inc., a developer, manufacturer
and marketer of computer-based digital video instructional software. From July
1998 to July 1999 Mr. Ross was Vice President and General Manager of Toshiba
-61-
<PAGE>
America Information Systems, a subsidiary of Toshiba Corp. active in computer
sales, support and manufacturing in North and South America. From October 1995
through June 1998, he was President and General Manager of the reseller
division, and President, Corporate Marketing, for Inacom Corp., a computer
product and service company.
Mr. Bookmeier is an investor and Vice President of Seven Sons, Inc., d/b/a
Las Vegas Golf & Tennis. Seven Sons, Inc. is in the business of franchised
retailing of golf and tennis products. Mr. Bookmeier has held this position
since August 1997. Mr. Bookmeier served as President and Chief Executive Officer
of TekInsight from July 1995 to February 2000, and has served as a director of
TekInsight from July 1995 to the present. From September 1989 until its merger
into TekInsight, Mr. Bookmeier served as Executive Vice President and a Director
of Patient Care Services, a home medical equipment supply company that
specialized in diabetes management, and the sale of related equipment and
supplies. He has been a Director of the American Diabetes Association since June
1995.
Mr. Alexander Kalpaxis has been TekInsight's Chairman of the Board since
February 2000 and Chief Technology Officer since November 1998. He was Executive
Vice President of TekInsight from November 1998 until February 2000. Mr.
Kalpaxis is the CEO and President of AstraTek, Inc. From October 1984 to April
1997 Mr. Kalpaxis was Bankers Trust Chief Technology Officer. Mr. Kalpaxis led
projects in global infrastructure development, client/server systems and tools,
object technology, and engineering. Prior to Bankers Trust, Mr. Kalpaxis was a
research electrical engineer for Photonics Laser Institute at the City
University of New York. He has received several patents and awards, including
the Simon Sokin Medal for Excellence in Experimental Physics.
Mr. Linesch has served as a Director of TekInsight since February 1997. Mr.
Linesch is currently an independent financial consultant. Since April 1996 he
has been the President, Chief Executive Officer and Chief Financial Officer of
CompuMed, a public computer company involved with computer assisted diagnosis of
medical conditions. He joined CompuMed in April 1996 as Vice President and Chief
Financial Officer. Mr. Linesch served as a Vice President, Chief Financial
Officer and Controller of TekInsight from August 1991 to April 1996.
Mr. Testaverde has been a director since January 1998. From May 1991 until
June 1995, Mr. Testaverde served as President and Chief Executive Officer of
TekInsight. Since March 1994, Mr. Testaverde has been a registered
representative with Network One Financial Services, Inc., a full service
securities broker-dealer.
Mr. Arion Kalpaxis was appointed Chief Operating Officer of TekInsight in
February 2000. Mr. Kalpaxis has served as Chief Operating Officer of AstraTek
since April 1997. From 1995 to May 1996 Mr. Kalpaxis was Vice President for BT
Ventures and the Bankers Trust Electronic Commerce group responsible for the
development of business models for new initiatives in electronic commerce. Prior
to 1995 Mr. Kalpaxis was a partner at Metron Consulting Group where he advised
clients in business strategy and development, and managed efforts designed to
bring about fundamental changes in support of new business initiatives.
Mr. Grieves was nominated to become a director of TekInsight effective after
the effective date of the merger, and has consented to do so. Mr. Grieves
previously served as Data Systems' President, Chief Executive Officer and
Chairman of the Board from its inception in 1986. In August 1991, Data Systems
filed for protection under Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court for the Eastern District of Michigan (Case No.
91-09916-S.) In May 1992, Data Systems' plan of reorganization was confirmed by
the Bankruptcy Court and the case was ordered closed in January 1997.
Mr. Aspatore was nominated to become a director of TekInsight effective
after the effective date of the merger, and has consented to do so. Mr. Aspatore
has been a director of Data Systems since November 1994, has been Managing
Director of Amherst Capital Partners, which provides investment banking services
to medium and small businesses, since its founding in 1994. Prior to the
-62-
<PAGE>
formation of Amherst Capital Partners, Mr. Aspatore was President of Onset
BIDCO, which supplies financing and management services to companies with strong
growth potential, from 1991 to November 1994. Mr. Aspatore was the President of
Cross & Trecker Corporation, a $500 million worldwide factory automation
company, from 1988 to 1991 and served that company in various capacities for
approximately 22 years. Mr. Aspatore has a total of more than 27 years of senior
level management experience in operations and finance in the worldwide factory
automation, automotive and aerospace industries.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on its review of the copies of Section 16(a) forms received by
it since July 1, 1998, or written representations from reporting persons that no
Form 5's were required for those persons, TekInsight believes that its officers,
directors and greater than 10% beneficial owners, other than the Rubin Family
Trust, filed all reports required under Section 16(a) of the Securities Exchange
Act of 1934, as amended.
Executive Compensation
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
---------------------------------------------------------------------------------
Other All
Name and Annual Restricted Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Awards SARS(#) Payouts sation
- -------- ---- ------ ----- -------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian Bookmeier. 1997 $116,667 0 $9,000 $ 0 $ 0 $ 0 $ 0
President and Chief 1998 $ 87,500 0 1,000 $ 0 $ 0 $ 0 $ 0
Executive Officer 1999 $ 17,308 0 $ 0 $ 0 $ 0 $128,333 $ 0
and Director
Alex Kalpaxis, 1997 $160,000 0 $ 0 $ 0 $ 0 $ 0 $ 0
Executive V.P., Chief 1998 $160,000 0 $ 0 $ 0 $ 0 $ 0 $ 0
Technology Officer 1999 $160,000 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
Employment and Consulting Agreements
Mr. Buchholz was the President and Chief Executive Officer of Healthcare
Management Solution, Inc., a former subsidiary of TekInsight, from 1996 to
January 1998. On January 28, 1998, TekInsight and Mr. Buchholz entered into a
termination agreement with respect to his employment agreement. TekInsight
agreed to make severance payments aggregating $708,000 to Mr. Buchholz, (i)
$250,000 paid by TekInsight, Inc. as the initial payment and (ii) $458,000 to be
paid by TekInsight in sixty equal monthly installments of $7,633.
On July 10, 1998, TekInsight and each of Messrs. Brian Bookmeier, Alan Korby
and Matthew Gietzen, entered into TekInsight termination agreements. Messrs.
Korby and Gietzen are former officers and Directors of TekInsight. Severance
payments were made as follows: (i) $128,333.33 was paid to each and (ii) each
received a $75,000 promissory note bearing 7% annual interest with principal
payable on January 1, 2000. Messrs. Korby and Gietzen were each issued 84,166
shares of TekInsight common stock for the purchase price of $1 per share (which
subscriptions were paid for in exchange for additional severance payments of
$84,167 under the termination agreements) and (iv) Mr. Bookmeier was granted
stock options under the TekInsight-Employee Stock Option Plan to purchase 84,167
shares of common stock exercisable at $1.00 per share (which options were
exercised by Mr. Bookmeier in exchange for an additional $84,167 severance
payment under the termination agreements.)
On October 1, 1998, TekInsight entered into a three-year employment contract
with Mr. Kalpaxis. Mr. Kalpaxis is Chairman of the Board and Chief Technology
Officer of TekInsight. Mr. Kalpaxis's employment agreement provides him with an
annual base salary of $160,000. Additionally, Mr. Kalpaxis will receive a
-63-
<PAGE>
performance bonus based upon the operating results of AstraTek, in which EBITDA
equals or exceed one million dollars.
Consulting Agreements
Steven J. Ross entered into a consulting agreement on December 10, 1999 for
his services as a consultant to the newly-formed TekInsight subsidiary,
BugSolver.Com, Inc. The agreement extended through March 31, 2000 and became
automatically renewable for successive 90-day periods unless either party gives
notice of termination. Mr. Ross also agreed to serve as a director of BugSolver.
For his services, Mr. Ross receives (i) $20,000 monthly, and (ii) a bonus of
options to buy 30,000 shares of BugSolver common stock. Following the first
renewal of the consulting agreement and the successful completion of a private
placement of at least $10,000,000 of BugSolver equity securities, Mr. Ross will
receive further options to purchase 4% of the outstanding shares of BugSolver
common stock immediately following completion of the private placement. Under
the consulting agreement, these options will vest one year from the closing of
the private placement.
Compensation of Directors
Each director of TekInsight receives a $25,000 annual directors' fee for
attendance at board meetings, as well as reimbursement for the actual expenses
incurred in attending such meetings. Officers and key employees of TekInsight
receive employment benefits (e.g., health insurance, automobile allowances)
other than cash compensation and interests in TekInsight's employee stock option
plan.
In November 1997, TekInsight established the 1997 stock option plan for
non-employee directors, which authorizes the issuance of up to 300,000 options
to purchase common stock at an exercise price of 100% of the common stock's
market price. Subsequent to its adoption at the annual meeting in February 1998,
30,000 five- year options were granted under this plan to directors at an
exercise price of $1.81 per share.
The following table sets forth information concerning individual grants of
stock options made during the last completed fiscal year to each of the
executive officers named in the Summary Compensation Table.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
Individual Grants for Option Term
- --------------------------------------------------------------------------------- ----------------------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% (%)
- ---- ------------ ------------ -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Brian Bookmeier 84,167 22% $ 1.00 7/10/01 $ 259,603 $271,965
10,000 3% $ .9375 3/23/04 $ 31,500 $ 33,000
</TABLE>
-64-
<PAGE>
The following table sets forth information concerning options exercised and
the number of unexercised options, and the value of such unexercised options,
for any persons named in the Summary Compensation Table.
Aggregated Option Exercises in Fiscal Year 1999
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at June 30, 1999 (#) Options at June 30, 1999 ($)(1)
---------------------------------------- -------------------------------
Shares
Acquired
on Exercise Value
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brian Bookmeier 84,167 0 135,000 0 $349,730 0
</TABLE>
Certain Relationships and Related Party Transactions
On November 25, 1998, TekInsight advanced $70,000 to Brian Bookmeier,
TekInsight's President, in exchange for a note receivable which bore interest at
the rate of 10% per annum. This note was paid in full during the fiscal year
ended June 30, 1999.
In September 1998, TekInsight acquired and retained for investment purposes
approximately 9.2% of the common stock of ViewCast.com. In May 1999, as amended
as of June 1999, TekInsight Services entered into a Web design and consulting
agreement with Azurel. In June 1999, TekInsight Services entered into both a Web
design and consulting agreement and a online hosting agreement with Style. Mr.
Testaverde, who is a director of TekInsight, is also a director and officer of
Network One Financial, Inc., which has acted over the last year and currently
acts as a market maker for the common stock of TekInsight, ViewCast, Azurel and
Style. See "Information About TekInsight-Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources"
and "-TekInsight Services-Customer Relationships."
On November 22, 1999, TekInsight loaned Seven Sons, Inc., a golf and tennis
equipment store, of which Brian Bookmeier, a director of TekInsight, is a
principal, $100,000 for its operations. The $100,000 secured note bore interest
at 10% (per annum) and its original December 30, 1999 maturity was extended to
March 31, 2000 in consideration for an increase in interest rate to 11% per
annum. The note was paid in full at maturity.
-65-
<PAGE>
INFORMATION ABOUT DATA SYSTEMS
General
Data Systems was incorporated in Michigan in 1986. Data Systems and its
subsidiaries provide computer network services and products that allow companies
to control their complex distributed computing environments, allowing companies
to capitalize on their investments in technology and people. Data Systems
provides a wide range of services including applications development, network
services, enterprise management, help desk and security services. Data Systems
also provides a wide range of network integration services including
installation, consultation, technical support and training to governmental and
corporate accounts.
Recent Developments
On February 1, 1999, Data Systems announced a definitive merger
agreement with Alydaar Software Corporation, now known as Information Architechs
Corp. of Charlotte, North Carolina. Under the terms of the agreement Alydaar was
to exchange 1.6 million shares of its common stock for all outstanding shares of
Data Systems stock. On September 15, 1999, Data Systems and Information
Architects mutually agreed to terminate their Agreement and Plan of Merger dated
January 31, 1999. Information Architects gave a promissory note to Data Systems
in the amount of $250,000 as reimbursement for expenses incurred as a result of
the terminated merger.
On February 17, 1999, Data Systems announced that it had entered into a
stipulation of settlement of the consolidated complaint in a shareholder class
action lawsuit captioned, In Re: Data Systems Securities Litigation (Case No.
98-70854, Michigan Federal District Court) The complaints alleged violations of
the Securities Exchange Act of 1934 resulting from alleged non-disclosures and
misrepresentations of information concerning Data Systems' financial results and
future prospects due to accounting irregularities. On May 24, 1999, the court
determined the settlement to be fair. Under the terms of the settlement and
subject to various conditions, Data Systems created a gross settlement fund for
the benefit of purchasers who bought Data Systems stock during the period from
May 16, 1996 through February 24, 1998. The fund was comprised of $900,000
provided by Data Systems' insurer, and 650,000 shares of Data Systems common
stock which were issued June 22, 1999. In agreeing to the settlement, Data
Systems and individual defendants made no admission of any wrongdoing.
On February 18, 2000, as amended April 4, 2000, Data Systems and
TekInsight entered into an agreement and plan of merger pursuant to which Data
Systems will be merged with and into TekInsight Services.
Products and Services
Data Systems provides computer network services and products that allow
companies to control their complex distributed computing environments. Such
services include the design, sale and service of LANs and WANs. Data Systems
generates revenues by providing consulting and network installation services,
selling add-on hardware components to existing clients and providing
after-installation service and support, training services and network management
services. Data Systems is an authorized dealer, reseller or integrator for the
products of many major vendors including Compaq, Sun Microsystems, Dell, Nortel
Networks, Hewlett-Packard, Novell, Microsoft, Cisco, Meridian Data, 3COM, Intel,
and Oracle. Data Systems has developed applications for remote network
management and can sell private label computer systems, primarily to state
governments. In addition, Data Systems provides application development services
in database management.
-66-
<PAGE>
Resellers who meet specified qualifications receive customer referrals
and recommendations and advanced technical assistance and support from
manufacturers, giving the qualifying resellers a competitive advantage over
other resellers in the market. These qualifications vary from manufacturer to
manufacturer and typically include some or all of the following components:
specific training for technical personnel, specific training for sales
personnel, possession of some advanced equipment, ongoing training requirements,
and minimum purchase targets. The process of obtaining and maintaining these
manufacturer authorizations is time-consuming and has cost associated with
obtaining and maintaining a single authorization. These costs include, but are
not limited to, acquisition of hardware, software, facilities and spare parts,
training fees, personnel and travel expenses and fees paid to the manufacturer
for certification.
Data Systems generally sells equipment in conjunction with its higher
margin network engineering services. These services include design, consulting,
installation, and network administration for both LANs and WANs. Data Systems
provides turnkey implementation and support services and, for some customers,
on-site support personnel who work in conjunction with the customer's personnel
on a continuous basis.
Data Systems also provides on-going technical and maintenance support
through a variety of service programs tailored to fit each specific customer's
service needs and budget. These programs include a two-hour response service for
critical network components, help desk, Computer Associates, Unicenter and
dispatch services. Data Systems generally passes through warranties provided by
manufacturers to the purchaser. Data Systems offers no warranty separate from
manufacturers' warranties.
Marketing and Customers
Data Systems markets its products and services through its internal
sales force in the following states: Florida, Louisiana, Massachusetts, Michigan
and New York. Data Systems has no retail sales outlets and has no intention of
entering the retail market.
Data Systems directs its marketing efforts at state and local
governments, Fortune 1000, middle market corporations and institutional users,
such as hospitals and universities. Current marketing efforts are generally
focused on customers located in the states in which Data Systems has offices.
The State of Michigan accounted for 4% of Data Systems' revenue in 1999
and 29% of Data Systems revenue in each of 1998 and 1997. Purchases by agencies
of the State of Michigan were made pursuant to a blanket agreement, which
expired in September 1998. Data Systems continues to provide network services
and maintenance services to the State of Michigan through a third-party master
contractor blanket purchase order. As with all of Data Systems' service
contracts and purchase orders, there are no assurances that any contract can be
extended further or that, if re-bid, Data Systems will be awarded a new
agreement under the same terms and conditions.
The State of New York accounted for 25% of Data Systems revenue in 1999
and 12% of Data Systems' revenue in 1998. Data Systems was awarded a three-year
contract, renewable in one-year increments, to provide system peripheral
equipment. The first year expired May 1999. The contract was renewed and the
second year expires May 2000. Data Systems is also an authorized reseller of
Novell, Nortel Systems and Cisco products and software to the State of New York.
-67-
<PAGE>
Vendors
Data Systems purchases the microcomputers and related products it sells
directly from manufacturers and indirectly through distributors such as Merisel,
Tech Data and Ingram Micro Corporation. In general, Data Systems must be
authorized by a manufacturer in order to sell its products, whether the products
are purchased from distributors or directly from manufacturers. Data Systems is
an authorized reseller for microcomputers, workstations, and related products of
over 50 manufacturers. Sales by Data Systems of products manufactured by Compaq,
Hewlett-Packard, Cisco, Novell, Sun Microsystems, Nortel Networks, Dell, and IBM
accounted for between 35% an 40% of revenues during each of the last three
fiscal years. However, sales of commodity products, such as IBM and Dell, have
substantially declined over this period. Typically, vendor agreements provide
that Data Systems has been appointed, on a non-exclusive basis, as an authorized
reseller of specified products at specified locations. The agreements generally
are terminable on 30 to 90 days' notice or immediately upon the occurrence of
specified events, and are subject to periodic renewal. The loss of a major
manufacturer or the deterioration of Data Systems' relationship with a major
manufacturer could have a material adverse effect on Data Systems' business as
some product offerings that are requested by customers would not be available to
Data Systems.
Data Systems determines whether to purchase products from distributors
or directly from manufacturers by surveying prices and product availability
among the manufacturers and the distributors with whom it has contractual
relationships. Distributors, which purchase products in large quantities, often
are able to offer a better price on products due to volume discounts granted by
manufacturers. Data Systems' agreement with Ingram Micro, through which it made
17.6% of its product purchases in 1999, provides competitive pricing, inventory
and asset management terms and conditions. The loss of Data Systems
relationships with distributors could result in higher product prices to Data
Systems and potentially reduce Data Systems' profit margins. Data Systems
believes, however, that the loss of its relationship with any particular
distributor would not have a material adverse effect on Data Systems' results of
operations or financial condition due to the availability of other sources of
supply.
Competition
The network integration market is highly competitive. Data Systems
competes with different classes of competitors, depending on the type of
business opportunity. For project-oriented sales, Data Systems competes with
system integrators and with computer hardware manufacturers. Data Systems also
competes with a wide variety of local, regional and national hardware resellers
for add-on equipment sales. Because Data Systems is not as price-aggressive as
some of these competitors, Data Systems relies on its sales force to provide
superior servicing and post-sale technical support to maintain its customer
relationships. Depending on the customer, Data Systems competes on the basis of
technological capability, price, breadth of product offerings and quality of
service. Competitors also vary project-to-project depending upon the geographic
location of the work to be performed.
Many competitors are larger than Data Systems and have significantly
greater financial, marketing and human resources, and geographic coverage. Data
Systems believes that it can compete against these competitors on the basis of
its extensive experience in the network integration and management market,
authorization to sell a broad range of products and experienced technical staff.
Employees
As of December 31, 1999, Data Systems employed 180 employees, 44 were
sales personnel, 118 were service personnel and 18 were administrative or
management personnel. Data Systems' employees have no union affiliations. Data
Systems believes its relationship with its employees is good.
-68-
<PAGE>
Properties
Data Systems' corporate headquarters is located in Farmington Hills,
Michigan, in a leased facility consisting of approximately 12,555 square feet of
office space rented under a lease expiring in November 2002. Data Systems also
leases a technical facility located in Farmington Hills, Michigan with
approximately 7,000 square feet rented under a lease expiring in March 2003.
Data Systems also has a telephone "help desk" center located in Baton Rouge,
Louisiana, which is part of its State of Louisiana maintenance contract, and is
located in a facility with 8,200 square feet rented under a lease that expired
in November 1999, and is currently leased on a month-to-month basis.
Data Systems also leases direct sales offices totaling approximately
25,000 square feet under leases with terms of one to five years, in 10 locations
in the United States. Data Systems believes that its existing facilities and
offices and additional space available to it are adequate to meet its
requirements for its present and reasonably foreseeable needs.
Legal Proceedings
Data Systems filed suit on December 9, 1999 against Unified Network
Services, Inc. (UNS) in the State of Michigan, Oakland County Circuit Court
(Case No. 99-019541-CK.) Effective June 1, 1998, Data Systems sold its interest
in the UNS subsidiary for $7,000 in cash and a note for $3,000,000, secured by
the stock of UNS. The note called for interest only payments to commence July 1,
1998 for a period of twelve months followed by monthly payments of $50,000 plus
interest on the unpaid balance until the note is fully repaid at June 1, 2004.
Interest was to accrue on the unpaid balance at a per annum rate equal to the
Bank One, Michigan prime rate. The suit alleges UNS breached its agreement with
Data Systems by failing and refusing to make payments due on the note. The case
was removed to U.S. District Court Eastern District of Michigan on April 13,
2000 (Case No. 00-71592.)
On June 16, 1998, Data Systems filed suit in Oakland County Circuit
Court (Case No. 98-006905-CZ), Michigan, against Softech, Inc. alleging that
Softech wrongfully retained monies due Data Systems in accordance with an asset
purchase agreement dated September 12, 1996. In addition, Data Systems stated
that Softech owed Data Systems rent under a sublease agreement, and had not paid
invoices for work completed by Data Systems. It also stated that software
acquired by Data Systems in the acquisition of the Network Systems Group did not
perform properly. The complaint alleged fraud, breach of contract, conversion
and unjust enrichment (the "Data Allegations.")
On November 3, 1998, Softech, Inc. filed a demand for arbitration
against Data Systems. Data Systems' claim was dismissed in February 1999 without
prejudice due to the arbitration provision in the asset purchase agreement.
Softech alleged that Data Systems had breached the September 12, 1996 asset
purchase agreement by failure to register shares of stock on a timely basis,
failure to pay monies owed for inventory purchases and receivables, equipment
and commissions paid by Softech on behalf of Data Systems, funds owed to
employees, advances to former employees of Softech who became employees of Data
Systems and rents. Data Systems filed a counterclaim with respect to the Data
Allegations in connection with the arbitration. The arbitration hearing is
scheduled for June 2000 and Data Systems intends to pursue its counterclaim and
vigorously defend itself against Softech's claims.
Other than the above, Data Systems is not party to any other legal
proceedings other than routine litigation that is incidental to its business,
none of which is material.
In February 1998 Data Systems disclosed a possible overstatement of
earnings in prior periods that it believed may have been due to inadequate
internal controls following several acquisitions and rapid internal growth. The
SEC subsequently contacted Data Systems and informed it that it was conducting
an
-69-
<PAGE>
informal investigation into the matter. Data Systems appointed a special
committee to investigate the problem and has since restated its financial
statements, made personnel changes, and instituted accounting systems and
controls that it believes are adequate to handle the increased accounting
burden. In October 1998, the SEC informed Data Systems it was conducting a
private formal investigation into the matter. This inquiry is ongoing, and Data
Systems is cooperating with the investigation.
Submission of Matters to a Vote of Security Holders
None.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis compares the financial results for
the three-year period ending December 31, 1999 and should be read in conjunction
with Data Systems financial statements and notes thereto.
Results of Operations
For the periods indicated, the following table sets forth selected items
from Data Systems' Consolidated Statements of Operations included in this
Report, expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
Revenues: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Product revenue 61.4% 74.5% 78.9%
Service revenue 38.6% 25.5% 21.1%
------- ------ -------
Total revenues 100.0% 100.0% 100.0%
Cost of revenues:
Cost of products 50.4% 61.2% 68.9%
Cost of services 30.7% 22.3% 16.6%
------- ------ ------
Total cost of revenues 81.1% 83.5% 85.5%
Gross profit 18.9% 16.5% 14.5%
Operating expense 20.4% 18.0% 18.8%
Other income (expense) 1.9% (2.9%) (0.9%)
------- ------ ------
Income /(loss) before discontinued
operations 0.4% (4.4%) (5.2%)
Discontinued operations:
Loss from operation of UNS - (2.0%) (0.6%)
Gain on disposal of UNS - 0.8% -
------- ----- ------
Net Income / (Loss) 0.4% (5.6%) (5.8%)
======= ===== ======
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues
Data Systems' total revenues declined to $52.8 million in 1999, compared
to $85.3 million in 1998. The decline (38.1%) is the cumulative effect of the
termination of a specific product sales contract, non-recurring product project
work and a change in sales strategy to an emphasis on service sales.
-70-
<PAGE>
Data Systems' product sales component of the business declined to $32.4
million in 1999 from $63.5 million in 1998 due primarily to the completion and
expiration on September 30, 1998, of Data Systems' master contractor purchase
order with the State of Michigan. Product sales to the State of Michigan were
made under that agreement and accounted for $17.1 million in sales in 1998. The
State of Michigan continues to buy network services and service maintenance
contracts from Data Systems. Non-recurring product project work completed in
1998 for Hooper Homes and the State of Louisiana accounted for $4.7 million and
$3.1 million, respectively, of the decline in product revenues from 1998 to
1999.
In prior periods, Data Systems would sell equipment and absorb the full
burden of financing those sales. During 1999, Data Systems worked with key
vendors to pass through hardware sales directly to the customer. This allows the
vendor to absorb the risk and burden of financing the equipment component of the
sale. As a result, Data Systems recognized a commission on the sale without the
risk and cost associated with carrying a receivable for equipment sales. This
change was implemented as part of Data Systems' strategic move towards service
sales with less emphasis on the hardware component of its business. The change
implemented by Data Systems of equipment sales pass through to the vendors
accounted for approximately $10.9 million of the product revenue decline from
1998 to 1999. Data Systems' shift in emphasis to service sales from product
sales is due to the expectation of higher margins generally associated with
sales of technical services.
Service revenues declined 6.4% to $20.4 million in 1999 from $21.8
million in 1998. The decline is due to the loss of the service revenue
associated with the State of Michigan master product purchase order, which
expired September 30, 1998, and the termination of unprofitable imaging
services. Service sales accounted for 38.6% of total revenue in 1999 versus
25.5% in 1998. This percentage increase was due to the overall decline in
product revenue as described above.
Cost of Revenues
The decline in cost of revenues in 1999 is consistent with the reduction
in product sales due to the termination of the State of Michigan master
contractor purchase order, non-recurring product project work and Data Systems'
success with involving key vendors in the financing of large equipment sales. In
addition, Data Systems continues to manage external labor costs, increase
internal technical work force utilization and increase high-end network service
work. Primarily as a result of this activity, cost of revenues decreased to
81.1% of total revenues in 1999 from 83.5% of total revenues in 1998.
Cost of product revenue decreased as a percentage of total revenues to
50.4% in 1999 from 61.2% in 1998. The decline in product revenue and the ability
to pass through product sales accounts for the reduction in the cost of product
revenue. Product revenue gross margins increased to 18.0% in 1999 versus 17.8%
in 1998.
Cost of service revenue increased to 30.7% of total revenues in 1999
from 22.3% of total revenues in 1998 due to the decrease in overall sales.
However, service revenue gross margins increased to 20.6% in 1999 versus 12.7%
in 1998 due to management by Data Systems of external labor while increasing the
utilization of the internal technical workforce.
Overall, gross profit in 1999 decreased $4.1 million, or 29.0%, from
1998. However, gross margin as a percent of revenue increased in 1999 to 18.9%,
versus 16.5% in 1998. The increase in margin is attributable to Data Systems'
ability to negotiate vendor discounts for product purchases, vendor financing of
large equipment transactions and increases in service margins as described
above.
-71-
<PAGE>
Operating Expenses
Operating expenses increased to 20.4% of total revenues in 1999 from
18.0% of total revenues in 1998. Sales expenses remained constant at 11.6% of
total revenues in 1999 and 1998 respectively. General and administrative expense
increased to 8.8% of total revenues in 1999 from 6.4% of total revenues in 1998.
The increase in operating expense margin is directly related to the decrease in
total revenue. However, overall operating expenses declined 29.8% due to cost
controls and overhead reductions put in place during 1999. Specifically, sales
offices in Chicago, IL, Raleigh, NC, and Lexington, KY were closed and
administrative positions were consolidated through attrition, without
jeopardizing controls or procedures. Included in 1999, are non-recurring
expenses for professional fees and unprofitable operations as a result of Data
Systems operating under the terms of a merger agreement with Information
Architects that was terminated on September 15, 1999. The differential between
1998 and 1999 was impacted by the fact that 1998 included some non-recurring
costs required to complete Data Systems' year-end audits for 1997 and 1996
reporting, costs associated to Data Systems' shareholder class action lawsuit,
and bank audit and examination expenses.
Other Income (Expenses)
Other income for 1999 increased $3,397,373 to $978,252 and was primarily
attributable to the settlement of Data Systems' shareholder class action
lawsuit. Data Systems established an accrual in 1998 of approximately $1.8
million for the estimated fair market value of the shares of Data Systems common
stock that were to be contributed into the gross settlement fund for the suit.
At the time of settlement (June 22, 1999), Data Systems recognized as income
approximately $1.1 million of the accrual because the actual fair market value
of the common stock issued was $630,500. The remaining change was due to Data
Systems' reversal of some accrued costs offset by a loss on sale of non-revenue
producing assets. The disposal of the assets was related to the closure of three
sales offices.
Interest expense decreased $.2 million due primarily to Data Systems'
success at negotiating more advantageous payment terms with its key vendors and
overall reductions in Data Systems' bank borrowings.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Data Systems' total revenues declined slightly to $85.3 million in 1998,
compared to $86.0 million in 1997. The decline (0.8%) was due to the net effect
of the termination of a specific product sales contract offset by Data Systems'
organic growth in service sales and in the eastern region of the United States.
Data Systems' product sales component of the business declined to $63.5
million in 1998 from $67.8 million in 1997 was due primarily to the completion
and expiration on September 30, 1998, of Data Systems master contractor purchase
order with the State of Michigan. Product sales to the State were made under
that agreement. The State continues to buy network services and service
maintenance contracts from Data Systems. Of the $4.3 million decline in product
sales, approximately $3.8 was attributed to the completion of the State of
Michigan agreement. The remainder of the decline in product sales was due to
management's continued focus on new account penetration through the offering of
advanced services, including network management services. Data Systems' shift in
emphasis to service sales from product sales was due to the expectation of high
margins generally associated with sales of technical services.
Service revenues increased 20.4% to $21.8 million in 1998 from $18.1
million in 1997. Service sales accounted for 25.5% of total revenue in 1998
versus 21.1% in 1997. This increase was primarily
-72-
<PAGE>
due to the allocation of additional resources to further develop Data Systems'
capabilities to deliver advanced services.
Cost of Revenues
The decline in cost of revenues in 1998 was consistent with the
reduction in product sales due to the termination of the Sate of Michigan master
contractor purchase order and the shift to service revenue. Management had
refocused Data Systems' business in conjunction with these changes by shifting
resources away from the lower margin direct product component of revenue, in
favor of the higher returns generated from advanced service and network
management offerings. Primarily as a result of this activity, cost of revenues
decreased to 83.5% of total revenues in 1998 from 85.5% of total revenues in
1997.
Cost of product revenue decreased as a percentage of total revenues to
61.2% in 1998 from 68.9% in 1997. Certain software purchases in support of
maintenance contracts were reclassified as cost of services versus cost of
products. This change, along with the decline in product revenue, accounts for
the reduction in the cost of product revenue. Product revenue gross margins
increased to 17.8% in 1998 versus 12.7% in 1997. Data Systems had been more
selective in pricing large projects and believes that the increase in product
gross margin is reflective of the strategic shift away from low margin sales.
Cost of service revenue increased to 22.3% of total revenues in 1998
from 16.6% of total revenues in 1997 due to the significant increase in total
service revenues and reclassification of software costs that are more closely
related to service revenue. Additionally, due to Data Systems decision to move
towards a higher mix of service sales, Data Systems increased its technical
personnel to assist the sales effort with specialized internal resources. By
providing in-house technical resources to support revenue growth, Data Systems
increased expenditures in third party consultants and technicians to support
existing contracts.
Overall, gross profit increased $1.6 million or 12.9% over 1997. Gross
margin in 1998 was 16.5% versus 14.5% in 1997. To maintain its strategic
direction, emphasizing a shift towards higher margin service sales, Data Systems
did invest resources in technical personnel, hardware, software and processes.
Operating Expenses
Operating expenses decreased to 18.0% of total revenues in 1998 from
18.8% of total revenues in 1997. Sales expenses decreased to 11.6% of total
revenues in 1998 versus 12.0% of total revenues in 1997. General and
administrative expense decreased to 6.4% of total revenues in 1998 from 6.8% of
total revenues in 1997. Overall, operating expenses declined due to cost
controls and overhead reductions put in place during 1998. Specifically, sales
offices in Atlanta, GA, Charlotte, NC, Greensboro, NC, Pittsburgh, PA and
Dallas, TX were closed or consolidated into other more strategically located
offices. Administrative and other overhead reductions were completely offset by
the additional expenditures necessary to address legal and auditing issues. The
non-recurring legal, auditing, and professional fees exceeded just over $1.0
million during 1998. These expenses related to the extraordinary efforts
required to complete Data Systems' year-end 1997 and 1996 reporting, the class
action lawsuits, and bank audit and examination expenses. All totaled, these
matters account for 1.2% of total revenue.
Other Income (Expenses)
The increase in other expense in 1998 was due primarily to the
recognition of $1.8 million of liability associated with the proposed
stipulation of settlement of Data
-73-
<PAGE>
Systems' shareholder class action lawsuit. Data Systems established an accrual
for the estimated fair market value of the shares of Data Systems' common stock
that will be contributed into the gross settlement fund. Other expenses, net of
the shareholder lawsuit accrual, declined to $.6 million from $.8 million in
1997. The decrease was due to a $.8 million decrease in interest expense due
primarily to Data Systems' success at negotiating more advantageous payment
terms with its key vendors and overall reductions in Data Systems' bank
borrowings.
Discontinued Operations
Pursuant to the terms of the original 1996 purchase agreement by which
Data Systems acquired Unified Network Services Inc., the minority shareholders
of UNS elected to exercise a contract right to initiate re-purchase of the the
stock of UNS owned by Data Systems. The board of directors of Data Systems
accepted the proposal and adopted a plan to discontinue operations. Effective
June 1, 1998, Data Systems sold its 70% interest in the UNS subsidiary for cash
and notes and discontinued operations in its large account network management
business. The terms of the sale included $7,000 in cash and a note for
$3,000,000, secured by the stock of UNS. The buyers also assumed the existing
liabilities of UNS. The gain upon disposal of the discontinued segment was
$705,742 which is net of an allowance of $3,000,000 due to the uncertainty of
the buyers ability to pay the note. Data Systems deferred the recognition of a
gain on sale related to the note until payments on the note began. The gain is
also net of additional allowances of $614,000 and $375,000, due to the
uncertainty of the buyer's ability to reimburse Data Systems for working capital
and payment of assumed liabilites.
Data Systems has restated its prior financial statements to present the
operating results of the UNS segment as a discontinued operation.
On December 9, 1999, Data Systems filed suit against Unified Network
Services, Inc (UNS) in the State of Michigan, Oakland County Circuit Court. The
suit alleges UNS breached its agreement with Data Systems by failing and
refusing to make payments due on the note.
Financial Condition
As of December 31, 1999, cash and investments totaled $1.5 million, a
decrease of $1.1 million from 1998. Cash used in operating activities for 1999
was $3.1 million compared to cash provided by operations of $18.1 million in
1998. The cash used in operating activities was primarily due to a decrease in
accounts payable of $3.3 million, reversal of the shareholder lawsuit accrual by
$1.1 million and recognition of deferred maintenance revenues of $2.3 million.
These uses were partially offset by income of $191,190 generated in 1999 and
depreciation of $1.1 million and collection of accounts receivable of $2.2
million. Data Systems, in accordance with its bank financing agreement, applies
all available cash to its outstanding line of credit balance. During the year,
Data Systems borrowed $2.0 million against the line of credit. In accordance
with Data Systems' credit agreement with Foothill Capital Corporation, all funds
are applied to the outstanding loan balance. Daily working capital requirements
are managed through daily borrowings.
On September 30, 1998 Data Systems and Foothill Capital Corporation
entered into a credit facility. The Foothill agreement provides for an initial
revolving line of credit not to exceed $15 million. Data Systems may, at its
option and subject to collateral requirements, increase the line to $20 million
during the term of the Foothill agreement. Borrowing limits under the Foothill
agreement are determined based on a collateral formula, which includes 85% of
qualified trade receivables. Borrowings under the Foothill agreement bear
interest at 1% over Norwest Bank's prime rate and have a term extending to
September 30, 2001. As of December 31, 1999, the line of credit under the
Foothill Agreement bore interest at 9.5%. As of December 31, 1999, the line of
credit collateral formula permitted borrowings of up to $6.2 million, of which
$5.2 million was outstanding.
-74-
<PAGE>
The Foothill agreement contains financial covenants related to earnings
before interest, taxes, depreciation and amortization (EBITDA), net worth and
capital expenditures. There are other covenants that require Data Systems'
receivables to be genuine and free of all other encumbrances and requires Data
Systems' inventory to be kept only at specified locations and to be free of all
other encumbrances. In addition, there are restrictions with respect to dividend
distribution. At December 31, 1999, Data Systems was in compliance with all of
the financial covenants referenced above.
The Data Systems working capital deficiency as of December 31, 1999 was
$2.2 million. Data Systems believes that the combination of present cash
balances, future operating cash flows, and working capital provided by the
Foothill agreement or alternate working capital financing secured by Data
Systems will be adequate to fund Data Systems' current short and long term cash
flow requirements. Included in cash of Data Systems is $1.5 million which is
restricted in connection with various maintenance agreements.
Upon completion of its proposed merger with TekInsight, Data Systems
believes that additional financing resources will be available and some
synergies relating to business opportunities will arise. However, the Agreement
and Plan of Merger requires Data Systems to conduct business in the usual and
ordinary course but under certain restrictions and limitations, these
restrictions and limitations, in the aggregate, could have an effect on Data
Systems' ability to quickly respond to changes in its business.
Year 2000 Compliance Results
The Year 2000 (Y2K) issue arose as a result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. The concern
was that computer systems would be unable to interpret dates beyond the year
1999, which could cause a system failure or other computer errors, leading to
disruptions in operations. In 1997, Data Systems developed a three-phase program
for Y2K information systems compliance. Phase I was to identify those systems
with which Data Systems has exposure to Y2K issues. Phase I was completed in
1998. Phase II was the development and implementation of action plans to be Y2K
compliant in all areas by mid 1999. Those plans were developed and implemented
as scheduled. Phase III was the final testing of each major area of exposure to
ensure compliance and was completed during the fourth quarter 1999. In
implementing its three-phase program, the Company had identified three major
areas determined to be critical for successful Y2K compliance: (1) financial and
informational system applications, (2) customer relationships and equipment
applications and (3) third-party consultant and vendor relationships.
Data Systems, in accordance with Phase I of the program, conducted an
internal review and inventory of all systems (including information technology
and non-information technology systems), and contacted all critical suppliers to
determine major areas of exposure to Y2K issues. In the financial and
information system area, a number of applications were identified as Y2K
compliant due to their recent implementation. Data Systems' core financial and
reporting systems were completely replaced as of January 1, 1999, which brought
this critical area into Y2K compliance. In the customer relationships and
equipment applications area, Data Systems completed all remediation and testing
efforts. As a result of its Phase I assessment of its non-information technology
systems, Data Systems did not incur significant costs remediating those systems
for Y2K compliance. In the third-party consultant and vendor relationships area,
Data Systems contacted most of those parties and they stated they were to be Y2K
compliant.
Data Systems spent approximately $154,000 in 1998 to replace its core
financial and reporting systems and had spent 1,100 man-hours through December
31, 1999 to bring the systems network, financial and informational applications
into Y2K compliance at an estimated cost of $55,000. Because of Data Systems'
expertise in this area, internal personnel undertook the majority of this work.
-75-
<PAGE>
Data Systems believes it did not experience any Y2K disruptions due to
the three-phase program it developed and implements.
The foregoing disclosure contains information regarding Y2K readiness
that constitutes a "Year 2000 Readiness Disclosure" as defined in the Year 2000
Readiness Disclosure Act.
Quantitative and Qualitative Disclosure About Market Risk
In the normal course of business, the financial position of Data Systems
is routinely subjected to a variety of risks. In addition to the market risk
associated with interest on outstanding debt, other examples of risk include
collectibility of accounts receivable and recoverability of residual values of
assets placed in service.
Data Systems is subject to an element of market risk due to possible
changes in interest rates. Data Systems regularly assesses these risks and has
established collection policies and business practices to minimize the adverse
effects of these and other potential exposures. Data Systems does not currently
anticipate any material losses in these areas, due primarily to the lack of
significant fluctuation in the prime-lending rate on which Data Systems'
interest expenses are determined. The financial instruments included in the debt
of Data Systems consists of all of Data Systems' cash and cash equivalents, bank
financing, bank credit facilities and lines of credit, vendor credit lines,
leases, and, if applicable, marketable securities, and any short and long-term
investments.
Data Systems assesses the risk of loss due to the impact of changes in
interest rates on market sensitive instruments. Interest rates effecting Data
Systems' debt are market based and will fluctuate as a result. Data Systems
prepares forecasts and cost of funds analysis on significant purchases to
anticipate the effect of market interest rate changes.
Data Systems' earnings are affected by changes in short-term interest
rates as a result of its use of bank (line of credit) financing for working
capital. If market interest rates based on the prime lending rate average 2%
more in 2000 than they did during 1999, Data Systems' interest expense, after
considering the effects of interest income, would increase, and income before
taxes would decrease by approximately $100,000 assuming comparable average
borrowings. Comparatively, if market interest rates based on the prime lending
rate averaged 2% more in 1999 than they did in 1998, Data Systems' interest
expense, after considering the effects of any interest income, would have
increased, and income before taxes would have decreased, by $200,000 assuming
comparable average borrowings. These amounts are determined by considering the
impact of the hypothetical change in the interest rates on Data Systems'
borrowing cost and short-term investment balances, if any. These analyses do not
consider the effects of the reduced level of overall economic activity that
could exist in such an environment. Further, in the event of a change of such
magnitude, management would likely take actions to further mitigate its exposure
to the change. However, due to the uncertainty of the specific actions that
would be taken and their possible effects, the sensitivity analysis assumes no
changes in Data Systems' financial structure.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
On October 15, 1998, Plante & Moran, LLP informed the board of directors
of Data Systems that it would decline to stand for reappointment, if asked, as
auditors for Data Systems. Plante also notified Data Systems at that time that,
as of the date of such notification, the client-auditor relationship between the
parties was terminated. Data Systems placed no limitations on Plante responding
fully to inquiries of the successor accountant. The reports of Plante on the
financial statement of Data Systems for each of the fiscal years ended December
31, 1997 and 1996 contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principle, except that, as
-76-
<PAGE>
issued, Plante's report dated August 20, 1998 included a modification addressing
Data Systems' going concern uncertainty. The plans of Data Systems concerning
these matters are described in the footnotes attached to the financial statement
referenced in that report. In connection with its audits for the fiscal years
December 31, 1997 and 1996, and through October 15, 1998, (i) there were no
disagreements between Data Systems and Plante on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of Plante
would have caused them to make reference thereto in their report on the
financial statement for such fiscal years and (ii) there were no reportable
events as defined in Regulation S-K Item 304(a)(1)(v) except that Plante advised
the Audit Committee of Data Systems' board of directors, by letter dated May 21,
1998, of items it considered to be material weaknesses in internal controls in
1997 relating to Data Systems' general accounting practices then in place,
including those relating to billing, accounts payable, and inventory. These
items were discussed with the Audit Committee on September 15, 1998. Management
has addressed and will continue to address the recommendations of Plante.
Directors and Executive Officers of Data Systems
The following is a list of the members of the board of directors and the
executive officers of Data Systems and includes information regarding the
individual's age, principal occupation, other business experience, directorships
in other publicly held companies and term of service with Data Systems. Each
director holds office until the next annual meeting of shareholders and until
his successor has been elected and qualified.
Name Age Position
---- --- --------
Michael W. Grieves 49 Chairman of the Board,
President, Chief Executive
Officer and Director
Walter J. Aspatore 55 Director
John O. Lychos, Jr. 44 Director
Diane L. Grieves 50 Executive Vice President
and Secretary
Michael Jansen 42 Chief Financial Officer, Treasurer
and Assistant Secretary
Garrett L. Denniston 49 Vice President - Sales
Mr. Grieves has served as Data Systems' President, Chief Executive
Officer and Chairman of the Board since its inception in 1986. Prior to 1986,
Mr. Grieves served in executive, managerial and technical capacities with
Computer Alliance Corporation, a turnkey system house, Quanex Management
Sciences, a computer services bureau, and Lear Siegler Corporation, and has more
than 25 years of experience in the computer industry. Mr. Grieves is married to
Diane L. Grieves, Data Systems' Executive Vice President and Secretary.
Mr. Aspatore has been a director of Data Systems since November 1994,
has been Managing Director of Amherst Capital Partners, which provides
investment banking services to medium and small businesses, since its founding
in 1994. Prior to the formation of Amherst Capital Partners, Mr. Aspatore was
President of Onset BIDCO, which supplies financing and management services to
companies with
-77-
<PAGE>
strong growth potential, from 1991 to November 1994. Mr. Aspatore was the
President of Cross & Trecker Corporation, a $500 million worldwide factory
automation company, from 1988 to 1991 and served that company in various
capacities for approximately 22 years. He has a total of more than 27 years of
senior level management experience in operations and finance in the worldwide
factory automation, automotive and aerospace industries.
Mr. Lychos has been a director of Data Systems since August 1999, and
had been the Chief Financial Officer of Data Systems from May 1998 through July
1999. Mr. Lychos is currently the Chief Financial Officer of Atlas Oil Company.
Prior to joining Data Systems, he was a Vice President/Area Controller for Waste
Management Inc., and held a variety of other responsible financial management
positions with that company throughout his fifteen-year tenure.
Ms. Grieves is Data Systems' Executive Vice President and Secretary.
She has held executive positions in sales, operations, and administration at
Data Systems since its inception. From 1984 to 1985, Ms. Grieves was Vice
President of Sales at Executive Data Solutions, Inc., a computer sales
organization. Prior to that, Ms. Grieves held numerous sales and sales
management positions with American Telephone and Telegraph and the Bell
operating companies.
Mr. Jansen, Data Systems' Chief Financial Officer, Treasurer and
Assistant Secretary has been with Data Systems since November 1998. Before
becoming the Chief Financial Officer, Mr. Jansen had been the Vice President -
Corporate Controller of Data Systems. Mr. Jansen is a CPA with over 15 years of
finance, accounting and business experience. Prior to joining Data Systems, he
spent 13 years in various financial management positions with a Fortune 500
Company.
Mr. Denniston, Data Systems' Vice-President - Sales, has held various
sales management and executive positions with Data Systems since 1996. Prior to
1996, Mr. Denniston was employed in sales and sales management capacities at
Memorex-Telex, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Data
Systems' officers and directors, and persons who own more than 10% of a
registered class of Data Systems' equity securities, to file reports of
ownership and changes in ownership with the SEC. Officers, directors and greater
than 10% shareholders are required by SEC regulation to furnish Data Systems
with copies of all Section 16(a) forms they file. Based solely on its review of
the copies of such forms received by it since January 1, 1999, or written
representations from reporting persons that no Form 5's were required for those
persons, Data Systems believes that its officers, directors, and greater than
10% beneficial owners filed all reports required under Section 16(a) of the
Securities Exchange Act of 1934, as amended.
Executive Compensation
Summary
The following table sets forth the compensation paid by Data Systems to
the Chief Executive Officer and other executive officers who earned more than
$100,000 in salary and bonus during 1999.
-78-
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Awards
Compensation Securities
Name and --------------------- ------------------
Principal Position Year Salary Bonus Underlying Options
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael W. Grieves 1999 $ 160,000 -- --
1998 $ 160,000 -- --
Chairman, President and 1997 $ 160,000 $ 30,000 8,000
Chief Executive Officer
Diane L. Grieves 1999 $ 120,000 $ 34,017 --
Executive Vice President 1998 $ 120,000 $ 30,000 --
And Secretary 1997 $ 120,000 $ 15,375 7,500
Michael Jansen 1999 $ 92,000 $ 16,000 --
Chief Financial Officer 1998 $ 15,000 -- 10,000
1997 -- -- --
Garret L. Denniston 1999 $ 150,000 $ 80,000 --
Vice-President - Sales 1998 $ 150,000 $ 60,000 --
1997 $ 50,000 -- --
</TABLE>
Employment Agreements
As of May 12, 1998, Data Systems entered into an employment agreement
with Diane L. Grieves. As of November 2, 1998, Data Systems entered into an
employment agreement with Michael Jansen and as of December 20, 1999, Data
Systems entered into an employment agreement with Garrett Denniston. Ms.
Grieves' agreement has a term ending May 11, 2003, or, if earlier on the
executive's sixty-second birthday, unless the agreement is terminated earlier in
accordance with its terms. Messrs. Jansen's and Denniston's agreements each has
a term ending November 1, 2003, or, if earlier, on the executive's sixty-second
birthday, unless the agreement is terminated earlier in accordance with its
terms. Each of the employment agreements provides that the executive will
receive an annual base salary and incentive compensation as determined by the
board of directors of Data Systems or the chief executive officer. Each of Ms.
Grieves, Mr. Jansen and Mr. Denniston has agreed not to compete with Data
Systems during the period of his/her employment and for up to one year following
the termination of his/her employment. Upon termination of his/her employment
without cause or in the event of specified unilateral changes in his/her
employment resulting in termination of the executive, each of Ms. Grieves, Mr.
Jansen and Mr. Denniston is entitled to continue to receive benefits for up to
six months and severance payments equal to six month's salary plus his/her pro
rata share of any earned annual incentive compensation. If a change in control
occurs prior to such termination, the incentive compensation payable under each
agreement will equal the entire annual award.
-79-
<PAGE>
Option Holdings
The following table provides information with respect to the unexercised
options held as of the end of 1999 by the Named Officers.
Aggregated Option/SAR Exercises in Last Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Unexercised Options/SARs at Value of Unexercised In-the-
F-Y End (Number) Money/SARs at F-Y End ($)
--------------------------- ----------------------------
Number of
Date Shares Shares Value
Name Acquired Exercised Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------- --------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael W. Grieves - - - 18,000 - - -
Diane L. Grieves - - - 26,251 3,794 - -
Michael Jansen - - - - 10,000 - -
Garrett L. Denniston 8/26/96 1,000 13,625 51,000 - - -
</TABLE>
(a) Value was determined by multiplying the number of shares subject to the
option by the difference between the last sale price of the Common
Stock reported for December 31, 1999 on the Over-the-Counter Bulletin
Board and the option exercise price.
Director Compensation
Customarily, Data Systems has paid non-employee directors an annual
retainer of $1,000 and a fee of $500 for each board of directors or committee
meeting attended. On the date of each annual shareholders meeting, each
non-employee director elected or reelected as such will also receive an option
under the 1994 stock option plan to purchase 1,000 shares of Data Systems common
stock, exercisable beginning one year after the grant date, at an exercise price
equal to the fair market value on the grant date. Data Systems also reimburses
out-of-pocket expenses related to non-employee directors in attendance at such
meetings.
Data Systems did not hold an annual shareholders meeting in 1999. During
1999 Data Systems did not pay directors for their services. However, in order to
compensate the board of directors for their services to Data Systems, it was
resolved that the board of directors members would receive shares of Data
Systems' stock in lieu of cash. The compensation is $2,000 per month in value of
Data Systems common stock beginning with the fourth quarter of Quarter 1999.
In 1999, Data Systems granted options pursuant to the 1994 stock option
plan for 50,000 shares to a director of Data Systems exercisable at a price of
$.66 per share when the fair market value at the date of the grant was $1.03.
Fifty percent of such options vest on the second anniversary date of the grant,
and the 25% vest each of the next two years.
Certain Relationships and Related Party Transactions
A $200,000 promissory note was issued for a portion of the consideration
for some 13% subordinated promissory notes of Data Systems acquired by Mr.
Grieves, Data Systems' Chairman, President and Chief Executive Officer, pursuant
to Data Systems' Plan of Reorganization in 1992. The Grieves note was
renegotiated effective January 1, 2000. Under the renegotiated Grieves Note,
payments will be made at the end of each fiscal quarter with all outstanding
principal and accrued interest paid by December 31, 2000. The renegotiated
Grieves note bears interest on the unpaid principal at an annual rate of 9.5%.
-80-
<PAGE>
MARKET PRICE INFORMATION
Price Range Of Outstanding TekInsight Common Stock
The following table sets forth the high and low sales prices for each
fiscal quarter during the fiscal years ended June 30, 1999 through the third
quarter of 2000, as reported on the Nasdaq SmallCap Market. Such quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
do not necessarily represent actual transactions.
FISCAL YEAR ENDED JUNE 30, 1999 HIGH LOW
------------------------------- ----- ---
First quarter ended September 30, 1998 $1.44 $1.38
Second quarter ended December 31, 1998 1.06 1.00
Third quarter ended March 31, 1999 1.13 1.00
Fourth quarter ended June 30, 1999 4.00 3.81
FISCAL YEAR ENDING JUNE 30, 2000 HIGH LOW
-------------------------------- ---- ---
First quarter ended September 30, 1999 $4.00 $2.50
Second quarter ended December 31, 1999 4.13 2.19
Third quarter ended March 31, 2000 6.69 2.38
TekInsight has never paid cash dividends on our common stock and do not
anticipate paying cash dividends in the foreseeable future. We intend to retain
future earnings for reinvestment in our business. Payment of dividends is
restricted under TekInsight's credit and security agreements.
-81-
<PAGE>
Price Range Of Outstanding Data Systems Common Stock
As of December 31, 1999 Data Systems common stock was traded only in the
over-the-counter market under the symbol "DSYS." During 1998, Data Systems
common stock was also listed on the Nasdaq SmallCap Market under the symbol
"DSYS" and on the Pacific Stock Exchange under the symbol "DSY." Due to late SEC
filings, Data Systems was de-listed from Nasdaq and the PSE.
The high and low sales prices for Data Systems common stock on the
Nasdaq SmallCap Market and the over-the-counter market from January 1, 1998
through December 31, 1999 is as follows:
FISCAL YEAR ENDED DECEMBER 31, 1998 HIGH LOW
----------------------------------- ---- ---
First quarter ended March 31, 1998 $14.75 $5.50
Second quarter ended June 30, 1998 7.25 0.25
Third quarter ended September 30, 1998 3.88 0.75
Fourth quarter ended December 31, 1998 2.41 0.75
FISCAL YEAR ENDED DECEMBER 31, 1999 HIGH LOW
----------------------------------- ---- ---
First quarter ended March 31, 1999 $3.13 $1.03
Second quarter ended June 30, 1999 1.31 0.81
Third quarter ended September 30, 1999 1.19 0.38
Fourth quarter ended December 31, 1999 1.19 0.53
Data Systems has never declared or paid any dividends on its capital
stock. Data Systems does not anticipate paying any cash dividends in the
foreseeable future. The primary lender of Data Systems, Foothill Capital
Corporation, must also approve any dividends.
-82-
<PAGE>
PROPOSAL 2--APPROVAL BY TEKINSIGHT STOCKHOLDERS OF ISSUANCE OF
SHARES PURSUANT TO NASDAQ RULE 4310
Nasdaq Stock Market Rule 4310(25)(G) requires Nasdaq-listed companies
to obtain stockholder approval before issuing 20% or more of their common stock
or securities convertible into common stock in a transaction other than a public
offering. The board of directors of TekInsight, therefore, must obtain your
approval to issue Series A preferred stock which is convertible into 20% or more
of the currently outstanding common stock of TekInsight in connection with the
merger. Under Nasdaq Rule 4310, this proposal must be approved by a majority of
votes cast on this proposal at the special meeting in person or by proxy.
On April 27, 2000 TekInsight had approximately 15.9 million shares of
common stock issued and outstanding. Because the merger consideration will not
be determined until after the special meeting date, we do not currently know the
exact number of Series A preferred stock shares that will be issued in the
merger. Based upon Nasdaq Rule 4310, however, the issuance of more than 3.1
million shares would require stockholder approval. If the average market value
of our common stock for the 10 days prior to the merger is $5.01 per share, the
total value of the merger consideration will be $16 million. Assuming that there
were 5,542,448 shares of Data Systems common stock outstanding, we would be
issuing 3,193,029 shares [(based on an exchange ratio of .58:1], which exceeds
20% of our currently outstanding common stock.
For the reasons discussed in "The Background of the Merger--TekInsight's
Reasons for the Merger," TekInsight's board of directors unanimously believes
that the merger is in the best interests of stockholders of TekInsight. The
merger consideration was negotiated at arms' length and the board of directors
believes it reflects the market value of Data Systems. Valuemetrics has given
its opinion to TekInsight and its board of directors, and Valuation Counselors
has given its opinion to the board of directors of Data Systems, that the merger
consideration is fair from a financial perspective. Therefore, we believe that
any dilution in your percentage of ownership is more than offset by the benefits
of the merger. In the event that this proposal is not approved, we would
consider other alternatives including resoliciting stockholders and smaller
acquisitions to promote corporate growth.
The board of directors of TekInsight unanimously recommends that
stockholders vote "FOR" approval of the proposal pursuant to Nasdaq Rule 4310.
-83-
<PAGE>
PROPOSAL 3--INCREASE IN AUTHORIZED COMMON STOCK RESERVED FOR
ISSUANCE UNDER TEKINSIGHT'S 1992 STOCK OPTION PLAN
The board of directors of TekInsight adopted the 1992 employee stock
option plan to help TekInsight and its subsidiaries to attract and retain highly
capable employees and selected key consultants, and to encourage them to promote
the growth and profitability of TekInsight and its subsidiaries. 500,000 shares
of common stock were initially reserved for issuance under the plan, all of
which have already been issued in connection with options previously granted by
the TekInsight board of directors.
The purpose of the increase is to cover future option grants to attract
and retain officers, employees and directors. If the number of shares of common
stock available under the 1992 plan is not increased, there will be an
insufficient number of shares to cover such future grants to officers, employees
and directors.
Options granted under the 1992 plan may be either incentive options
within the meaning of Section 422 of the Internal Revenue Service Code of 1986,
non-qualified options, or options not intended to be incentive options. The
amendment does not alter the considerations of the compensation committee with
respect to grants under the 1992 plan.
The following is a summary description of the material features of the
1992 plan.
Under the 1992 plan, TekInsight may grant options to purchase up to an
aggregate of 500,000 shares of common stock, subject to adjustment under
specified circumstances, to employees of TekInsight, or other individuals whose
participation is determined to be in the best interests of TekInsight by the
compensation committee. As of March 31, 1999, options to purchase 500,000 shares
of common stock had been granted under the 1992 plan, at exercise prices ranging
from $.93 to $5.50 per share.
The 1992 plan provides for the grant of options that are intended to
qualify as incentive stock options, or ISOs, under Section 422 of the Internal
Revenue Code to employees of TekInsight, as well as the grant of non-qualifying
options, or NSOs, to officers, directors or key employees of TekInsight or other
individuals whose participation in the 1992 plan is determined to be in the best
interest of TekInsight by the compensation committee.
The 1992 plan is administered by the compensation committee. The
compensation committee selects the optionees and determines the number of shares
of common stock covered by each option and the terms of the option agreement to
be executed by TekInsight and the optionee.
The option exercise price for ISOs granted under the 1992 plan may not
be less than 100% of the fair market value of the common stock on the date of
grant, or 110% in the case of an ISO granted to an optionee beneficially owning
more than 10% of the outstanding common stock. The option exercise price for
NSOs granted under the 1992 plan may not be less than 85% of the fair market
value of the common stock on the date of grant of the option.
The maximum option term is thirty days after the fifth anniversary of
the date of grant. The vesting schedule of options granted under the 1992 plan
shall be determined by the compensation committee and provided in the particular
option agreement issued to an optionee. There is a $100,000 limit on the value
of common stock (determined at the time of grant) covered by ISOs that first
become exercisable by an optionee in any calendar year. No option may be granted
more than ten years after the effective date of the 1992 plan. Subject to the
-84-
<PAGE>
terms of the optionee's stock option agreement, options may only be transferable
by will or in accordance with the laws of descent and distribution.
Payment for shares purchased under the 1992 plan may be made either in
cash or, if permitted by the particular option agreement, by exchanging shares
of common stock of TekInsight with a fair market value equal to the total option
exercise price, plus cash for any difference.
If an employee's employment with TekInsight terminates by reason of
retirement, the employee's options, to the extent exercisable, may be exercised
within three months after such termination of employment, but not later than the
date the option would otherwise expire. If an employee's employment with
TekInsight terminates by reason of death or disability, the employee's options,
to the extent exercisable, shall terminate on the first anniversary of the
optionee's date of termination, but not later than the date the option would
otherwise expire. If the employee's employment terminates for any reason other
than retirement or death or disability, options held by such optionee terminate
on the date of such termination.
The board of directors may terminate the 1992 plan at any time. Unless
previously terminated, the 1992 plan will terminate automatically in June 2002,
the tenth anniversary of the date of adoption of the 1992 plan by the board of
directors.
Approval of the 1992 plan amendment proposal will require the
affirmative vote of holders of a majority of the shares of common stock present
in person or represented by proxy at the special meeting.
The board of directors of TekInsight unanimously recommends that the
stockholders of TekInsight vote "FOR" the 1992 plan amendment proposal.
-85-
<PAGE>
LEGAL MATTERS
Nixon Peabody LLP, New York, New York passed on the validity of the
shares, and as special tax counsel has provided an opinion on behalf of
TekInsight concerning the federal tax consequences of the merger. Bodman Longley
& Dahling LLP, special tax counsel to Data Systems, has provided an opinion on
behalf of Data Systems concerning the federal tax consequences of the merger.
EXPERTS
The consolidated financial statements of TekInsight as of June 30, 1999
and 1998 and for each of the three years in the period ended June 30, 1999 have
been audited by Feldman Sherb Horowitz & Co., P.C., independent accountants as
stated in their reports appearing herein and elsewhere in the registration
statement and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Data Systems Network
Corporation as of December 31, 1999 and 1998 and for each of the two years in
the period ended December 31, 1999 have been audited by Grant Thornton LLP,
independent certified public accountants, as stated in their reports appearing
herein and elsewhere in the registration statement and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Data Systems Network
Corporation for the year ended December 31, 1997 have been audited by Plante &
Moran, LLP, independent accountants as stated in their reports appearing herein
and elsewhere in the registration statement and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
TekInsight and Data Systems file reports with the SEC on a regular
basis. You may read or copy any document filed by either company at the SEC's
Public Reference Room located at 450 5th Street, N.W., Washington, D.C. 20549.
You may obtain information about the Public Reference Room by calling the SEC
for further information at 1-800-SEC-0330. Filings by TekInsight and Data
Systems are also available online at www.sec.gov.
TekInsight filed a registration statement on Form S-4 with the SEC
covering sale of the Series A preferred stock and describing the merger, of
which this prospectus is a part. This prospectus does not contain all of the
information contained in the registration statement, as permitted by SEC rules.
Statements in this prospectus about documents filed as exhibits, while complete
in material respects, are nonetheless summaries and are qualified by reference
to the full text of documents filed as exhibits. The Form S-4 filed by
TekInsight is available for inspection and copying at the SEC as described
above.
-86-
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
(formerly Tadeo Holdings, Inc.)
Index To
Consolidated Financial Statements
June 30, 1999
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Independent Auditors' Report ........................................................ F-68
Consolidated Balance Sheets.......................................................... F-69
Consolidated Statements of Operations................................................ F-70
Consolidated Statement of Changes in Stockholders' Equity............................ F-71
Consolidated Statements of Cash Flow................................................. F-72-F-73
Notes to Consolidated Financial Statements .......................................... F-74
</TABLE>
F-1
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
To the Stockholders and
Board of Directors
TekInsight.Com, Inc.
We have audited the accompanying consolidated balance sheets of
TekInsight.Com, Inc. (formerly Tadeo Holdings, Inc.) and Subsidiaries as of June
30, 1999 and 1998, and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended June 30, 1999, 1998 and
1997. These financial statements are the responsibility of TekInsight.Com,
Inc.'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 TekInsight.Com, Inc.
and Subsidiaries as of June 30,1999 and 1998 and the results of its operations
and its cash flows for the years ended June 30, 1999, 1998 and 1997 in
conformity with generally accepted accounting principles.
/s/ FELDMAN SHERB HOROWITZ & CO., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
September 15, 1999
New York, New York
F-2
- --------------------------------------------------------------------------------
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
(formerly Tadeo Holdings, Inc.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
As of As of
December 31, 1999 June 30,
------------------ ------------------------------------
Assets (unaudited) 1999 1998
------------------ ---------------- ----------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................................... $ 5,868,957 $ 7,618,259 $ 2,575,356
Interest receivable......................................... -- 25,521 276,005
Accounts receivable, net of allowance for doubtful
accounts $111,500 and $0 and $0 respectively.......... 339,633 45,750 11,550
Prepaid expenses and other assets........................... 166,667 30,000 --
Note receivable - other .................................... 850,000 500,000 162,627
--------------- ---------------- ----------------
Total current assets.................................. 7,225,257 8,219,530 3,025,538
Long-term note receivable........................................ 1,490,766 1,528,167 6,000,000
Investments - marketable securities.............................. 4,333,049 5,533,177 --
Property and equipment, net...................................... 98,292 71,938 79,966
Capitalized software costs, net................................. 1,237,814 1,091,793 696,871
Deferred finance costs........................................... -- -- 67,079
Deposits and other assets........................................ 43,058 43,058 43,058
--------------- ---------------- ----------------
$ 14,428,236 $ 16,487,663 $ 9,912,512
=============== ================ ================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable............................................ $ 196,499 $ 421,179 $ 451,106
Accrued expenses............................................ 222,666 125,000 150,425
Income tax payable.......................................... 326,480 628,000 --
Notes payable - current portion............................. -- -- 163,260
State audit reserves........................................ 1,400,000 1,400,000 700,000
Accrued termination costs, short-term....................... 247,750 280,209 784,053
--------------- ---------------- ----------------
Total current liabilities............................. 2,393,395 2,854,388 2,248,844
--------------- ---------------- ----------------
Accrued termination costs, long-term............................. -- -- 280,209
--------------- ---------------- ----------------
Long-term notes payable, net of current portion.................. 17,675 17,675 663,853
--------------- ---------------- ----------------
Redeemable preferred stock, Series A............................. -- -- 1,219,141
--------------- ---------------- ----------------
Commitments and contingencies:
Stockholders' equity:
Preferred stock, Series B cumulative convertible,
$.0001 par value, 10,000,000 shares authorized,
1,000,000 shares issued and outstanding...................... 505,000 505,000
Common stock, $.0001 par value, 100,000,000 shares
authorized, 15,848,528 shares issued and outstanding as of
December 31, 1999 and 15,348,528 shares issued and outstanding
as of June 30, 1999 and 12,019,479 issued and outstanding
as of June 30, 1998.......................................... 1,585 1,535 1,202
Additional paid-in capital....................................... 19,302,332 18,797,382 14,115,213
Unrealized gain on securities.................................... 1,033,049 2,446,509 --
Accumulated deficit.............................................. (8,319,800) (8,134,826) (9,120,950)
--------------- ---------------- ----------------
Total stockholders' equity............................ 12,017,166 13,615,600 5,500,465
--------------- ---------------- ----------------
Total liabilities and stockholders' equity............ $ 14,428,236 $ 16,487,663 $ 9,912,512
=============== ================ ================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
(formerly Tadeo Holdings, Inc.)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six months ended
December 31,
---------------------------- Year ended June 30,
(unaudited) -------------------------------------------
1999 1998 1999 1998 1997
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 962,179 $ 967,228 $ 1,514,849 $ 997,433 $ 454,771
Cost of goods sold.................................. 459,516 285,749 700,254 248,261 73,188
------------ ----------- ------------ ----------- -----------
Gross Profit................................... 502,663 681,479 814,595 749,172 381,583
Operating expenses:
Selling, general and administrative............ 781,619 1,303,393 3,387,874 2,259,349 985,663
Research and development....................... 174,474 62,496 161,709 71,424 5,000
Depreciation and amortization.................. 25,946 10,408 23,279 23,716 1,709
Settlement of employment contracts (non-cash).. -- 327,501 -- -- --
------------ ----------- ------------ ----------- -----------
Total operating expenses.................. 982,039 1,703,798 3,572,862 2,354,489 992,372
Loss from operations................................ (479,375) (1,022,319) (2,758,267) (1,605,317) (610,789)
Gain on sale of marketable securities............... 93,439 -- 1,689,664 -- --
Interest Income..................................... 200,962 532,777 590,092 452,016 2,673
------------ ----------- ------------ ----------- -----------
Loss from continuing operations..................... (184,974) (489,542) (478,511) (1,153,301) (608,116)
Discontinued operations
Loss from discontinued operations.............. -- -- -- (2,122,296) (1,816,337)
Gain from disposal, including operating losses,
through disposal date, of $1,489,272 (less
applicable income taxes of $1,104,000).............. -- -- 1,491,923 5,140,885 --
------------ ----------- ------------ ----------- -----------
Total income (loss) from discontinued
operations............................... -- -- 1,491,923 3,018,589 (1,816,337)
------------ ----------- ------------ ----------- -----------
Net income (Loss)................................... (184,974) (489,542) 1,013,412 1,865,288 (2,424,453)
Preferred stock dividends........................... -- (27,288) (27,288) (186,150) (211,780)
------------ ----------- ------------ ----------- -----------
Net income (loss) applicable to common
Shareholders....................................... $ (184,974) (516,830) $ 986,124 $ 1,679,138 $(2,636,233)
============ =========== ============ =========== ===========
Net income (loss) per share:
Continuing operations.......................... (0.01) (0.04) (0.03) $ (0.11) $ (0.08)
Discontinued operations........................ -- -- 0.10 0.25 (0.17)
------------ ----------- ------------ ----------- -----------
Net income (loss) per share - basic and diluted..... $ (0.01) (0.04) $ 0.07 $ 0.14 $ (0.25)
============ =========== ============ =========== ===========
Weighted average number of shares used in
computation......................................... 15,808,455 12,459,027 14,728,969 12,019,479 10,379,178
============ =========== ============ =========== ===========
Net income (loss)................................... $ (184,974) (516,830) $ 1,013,412 $ 1,865,288 $(2,424,453)
Other comprehensive income (loss), net of tax
Unrealized gains (loss) on available-for-sale
securities ......................................... (1,413,460) -- 2,446,509 -- --
------------ ----------- ------------ ----------- -----------
Comprehensive income (loss)......................... $ (1,598,434) (516,830) $ 3,459,921 $ 1,865,288 $(2,424,453)
============ =========== ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
(formerly Tadeo Holdings, Inc.)
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Series B Common Stock Additional Unrealized Total
--------------------- --------------------- Paid-In Gain on Accumulated Stockholders'
Shares Amount Shares Amount Capital Securities Deficit Equity
--------- --------- -------- --------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1996....... 1,000,000 $505,000 10,182,906 $ 1,018 $10,693,171 $ -- $ (8,163,855) $ 3,035,334
Shares issued in connection
with private offering........ -- -- 500,000 50 999,950 -- -- 1,000,000
Shares issued in connection
with private offering........ -- -- 250,000 25 499,975 -- -- 500,000
Debt converted as
consideration for exercise
of options................... -- -- 1,009,415 101 2,018,729 -- -- 2,018,830
Dividends paid on redeemable
preferred stock Series A..... -- -- -- -- -- -- (211,780) (211,780)
Various expenses associated
with private placement....... -- -- -- -- (100,004) -- -- (100,004)
Various expenses associated
with consulting services..... -- -- 1,700 -- 3,400 -- -- 3,400
Shares issued in connection
with expenses associated with
debt conversion ............. -- -- 75,458 8 (8) -- -- --
Net loss -- -- -- -- -- -- (2,424,453) (2,424,453)
---------- -------- ----------- ------- ----------- ---- ------------ -----------
Balance - June 30, 1997....... 1,000,000 505,000 12,019,479 1,202 14,115,213 -- (10,800,088) 3,821,327
Dividends paid on redeemable
preferred stock Series A..... -- -- -- -- -- -- (186,150) (186,150)
Net income.................... -- -- -- -- -- -- 1,865,288 1,865,288
---------- -------- ----------- ------- ----------- ---- ------------ -----------
Balance - June 30, 1998....... 1,000,000 505,000 12,019,479 1,202 14,115,213 -- (9,120,950) 5,500,465
Shares issued upon converting
redeemable preferred stock
Series A..................... -- -- 1,363,163 136 1,149,609 -- -- 1,149,745
Shares issued in connection
with private offering ....... -- -- 136,837 14 205,242 -- -- 205,256
Shares issued to employees in
connection with termination
of employment agreements..... -- -- 168,334 17 168,317 -- -- 168,334
Shares issued to an employee
in connection with exercise
of stock option.............. -- -- 84,167 8 84,159 -- -- 84,167
Shares issued in connection
with stock purchase
agreement.................... -- -- 30,523 3 74,997 -- -- 75,000
Shares of common stock
exchanged with ViewCast...... -- -- 1,240,310 124 1,999,876 -- -- 2,000,000
Changes in unrealized
gain on securities
available-for-sale........... -- -- -- -- -- 2,446,509 -- 2,446,509
Shares issued in connection
with repayment of promissory
note......................... -- -- 20,000 2 (2) -- -- --
Shares of common stock
exchanged with Diplomat...... -- -- 285,715 29 999,971 -- -- 1,000,000
Dividends paid on preferred
stock Series A............... -- -- -- -- -- -- (27,288) (27,288)
Net Income.................... -- -- -- -- -- -- 1,013,412 1,013,412
---------- -------- ----------- ------- ----------- --------- ------------ -----------
Balance - June 30, 1999 ...... 1,000,000 505,000 15,348,528 1,535 18,797,382 2,446,509 (8,134,826) 13,615,600
Shares issued upon
converting Redeemable Series
"A" Preferred Stock.........(1,000,000) (505,000) 500,000 50 504,950 -- -- --
Changes in unrealized
gain on securities
available-for-sale........... -- -- -- -- -- (1,413,460) -- (1,413,460)
Net loss...................... -- -- -- -- -- -- (184,974) (184,974)
---------- -------- ----------- ------- ----------- ---------- ------------ -----------
Balance - December 31, 1999
(unaudited).................. -- -- 15,848,528 $1,585 $19,302,332 $1,033,049 $ (8,319,800) $12,017,166
========== ======== =========== ======= =========== ========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
(formerly Tadeo Holdings, Inc.)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
December 31,
(unaudited) Year Ended June 30,
--------------------------- --------------------------------------------
1999 1998 1999 1998 1997
------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)..................................... $ (184,974) $ (489,542) $1,013,412 $ 1,865,288 $(2,424,453)
---------- ----------- ---------- ----------- -----------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation ..................................... 25,946 10,408 23,279 244,443 652,860
Amortization of deferred finance costs and debt
discount......................................... -- 37,853 105,993 84,507 --
Amortization of capitalized software costs........ 157,890 244,989 312,966 82,674 20,489
Settlement of employment contracts (non-cash)..... -- 327,501 327,501 -- --
Gain on sale of marketable securities............. -- -- (1,689,664) -- --
Gain on sale of operations........................ -- -- -- (5,140,885) --
Gain on collection of note........................ -- -- (3,300,000) -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable........ (293,883) (230,250) (34,200) 132,884 (144,434)
Decrease (increase) in interest receivable........ 25,521 (5,992) 250,484 (276,005) --
Additions to capitalize software costs............ (303,911) (1,147,367) -- (654,660) --
Increase in prepaid expenses...................... (136,667) -- (30,000) -- --
Increase in deferred finance costs................ -- (108,000) (108,000) (105,000) --
Increase in other assets.......................... -- -- -- (18,224) (15,000)
Increase in accounts payable...................... (224,679) (35,581) (29,927) 325,244 84,593
Increase in state audit reserve................... 97,665 (19,229) 700,000 -- --
(Decrease) increase in accrued expenses........... -- -- (25,425) 46,628 103,797
(Decrease) increase in income tax payable......... (301,520) -- 628,000 -- --
Changes in operating assets and liabilities of
discontinued operations........................ -- -- -- 2,002,440 (2,221,612)
(Decrease) in accrued termination costs........... (32,459) (503,232) (784,053) -- --
---------- ----------- ---------- ----------- -----------
Total adjustments......................... (986,096) (1,428,900) (3,653,046) (3,275,954) (1,519,307)
---------- ----------- ---------- ----------- -----------
Net cash used in operating activities............. (1,171,072) (1,918,443) (2,639,634) (1,410,666) (3,943,760)
---------- ----------- ---------- ----------- -----------
Cash Flows From Investing Activities:
Cash proceeds from the sale of operation.......... -- -- -- 8,065,336 --
Cash proceeds from the sale of securities......... (180,107) -- 2,739,996 -- --
Capital expenditures.............................. (40,624) (120,002) (718,425) (730,148) (420,749)
Collection on note receivable..................... -- -- 9,300,000 -- --
Purchase of convertible preferred stock........... (1,000,000) -- (1,000,000) -- --
Amortization of warrants.......................... (12,499) -- -- -- --
Increase in note receivable....................... 250,000 -- (2,028,167) -- --
---------- ----------- ---------- ----------- -----------
Net cash (used in) provided by investing
activities....................................... (983,230) (120,002) 8,293,404 7,335,188 (420,749)
Cash Flows From Financing Activities:
(Decrease) increase in notes payable -- (67,533) (163,260) 488,149 --
Repayment/ (issuance) of related party loans (100,000) 162,627 (162,627) -- (60,000)
Proceeds from debt financing -- 818,567 183,230 658,351 --
Borrowing of revolving credit line -- -- -- -- 4,365,410
Repayment of revolving credit line -- -- -- (4,365,410) --
Net proceeds from (repayment of) long-term debt -- (302,074) (646,178) (239,656) 96,927
Issuance of common stock, net of expenses 505,000 205,256 205,256 2,005 1,403,499
Dividends paid on Series A preferred stock -- (27,288) (27,288) (186,150) (211,780)
Redemption of Series A preferred stock -- -- -- (610,517) (416,551)
---------- ----------- ---------- ----------- -----------
Net cash provided by (used in) financing
activities....................................... 405,000 789,555 (610,867) (4,253,228) 5,177,505
---------- ----------- ---------- ----------- -----------
Net increase (decrease) in cash....................... (1,749,302) (1,248,890) 5,042,903 1,671,294 812,996
Cash at beginning of period........................... 7,618,259 2,575,356 2,575,356 904,062 91,066
---------- ----------- ---------- ----------- -----------
Cash at end of period ................................ $ 5,868,957 $ 1,326,467 $7,618,259 $ 2,575,356 $ 904,062
========== =========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
(formerly Tadeo Holdings, Inc.)
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Six months ended Six months ended Year ended June 30,
December 31, 1999 December 31, 1998 ---------------------------------
(unaudited) (unaudited) 1999 1998 1997
----------------- ----------------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ -- $ -- $ 84,507 $550,201 $ 623,804
Cash paid for income taxes........................ $301,520 $ -- $ 476,269 $ -- $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Convertible notes converted to common stock....... $ -- $ -- $ 20,000 $ -- $2,018,830
Redeemable series "A" preferred stock converted
to common stock................................. $ -- $ -- $1,149,745 $ -- $ --
Private offering of common stock.................. $ -- $ -- $ 205,256 $ -- $ --
Issuance of common stock in conjunction with
termination of employment contracts............. $ -- $ -- $ 168,334 $ -- $ --
Issuance of common stock in conjunction with
exercise of stock option........................ $ -- $ -- $ 84,167 $ -- $ --
Issuance of common stock in conjunction with
retirement of debt.............................. $ -- $ -- $ 75,000 $ -- $ --
Exchange of common stock with another company's
common stock.................................... $ -- $ -- $2,000,000 $ -- $ --
Exchange of common stock with another company's
common stock.................................... $ -- $ -- $1,000,000 $ -- $ --
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited with respect to the six months ended December 31, 1999 and 1998)
TekInsight.Com, Inc. incorporated in Delaware on May 27, 1989 as Universal
Self Care, Inc. and changed its name to Tadeo Holdings, Inc. on February 2,
1998. Tadeo changed its name to TekInsight.Com, Inc. in November 1999. Prior to
TekInsight's acquisition of AstraTek and the creation of TekInsight Services,
Inc. (formerly Tadeo-E Commerce Corp.), TekInsight supplied and distributed both
prescription and non-prescription medications and durable medical equipment and
supplies principally to persons suffering from diabetes. On October 27, 1998,
TekInsight acquired AstraTek, Inc., a New York corporation, pursuant to a merger
of a wholly-owned subsidiary of TekInsight into AstraTek, with AstraTek being
the surviving corporation and becoming a wholly-owned subsidiary of TekInsight.
The accompanying financial statements and footnotes are presented to reflect the
acquisition under the pooling of interests method of accounting, which requires
the restatement of prior years' financial statements as if the acquisition was
consummated at the beginning of all periods presented.
On May 25, 1999, TekInsight incorporated TekInsight Services in Delaware as
a wholly-owned subsidiary of TekInsight to be active in the electronic commerce
industry.
TekInsight is the parent corporation for the following wholly-owned
subsidiaries: Physicians Support Services, Inc., a California corporation;
Clinishare Diabetes Centers, Inc., d/b/a SugarFree Centers, Inc., a California
corporation; USC-Michigan, Inc., a Michigan corporation, and its wholly-owned
subsidiary, PCS, Inc.-West, a Michigan Corporation. The above-named subsidiaries
have discontinued operations.
1. Summary of Significant Accounting Policies
A. Principles of Consolidation - The financial statements include the
accounts of TekInsight and its wholly-owned subsidiaries. All significant
inter-company transactions have been eliminated.
B. Revenue Recognition - TekInsight licenses software to end users under
license agreements. TekInsight has recognized revenues in accordance with
Statement of Position 97-2 entitled "Software Revenue Recognition" (SOP 97-2),
issued by the American Institute of Certified Public Accountants.
C. Property and Equipment - Property and equipment is stated at cost and is
depreciated on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized over the term of their respective
leases or service lives of the improvements, whichever is shorter.
D. Income (loss) per Common Share - Basic earnings per share has been
calculated based upon the weighted average number of common shares outstanding.
Convertible preferred stock has been excluded as common stock equivalents in the
diluted earnings per share because they are either antidilutive, or their effect
is not material.
E. 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.
F. Cash and Cash Equivalents - TekInsight considers all highly liquid
temporary cash investments with an original maturity of three months or less
when purchased, to be cash equivalents.
F-8
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited with respect to the six months ended December 31, 1999 and 1998)
(Continued)
G. Stock Based Compensation - TekInsight accounts for employee stock
transactions in accordance with APB Opinion No. 25, "Accounting For Stock Issued
To Employees." TekInsight has adopted the pro forma disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting For Stock-Based
Compensation."
H. Fair Value of Financial Instruments - The carrying amounts reported in
the balance sheet for cash, trade receivables, accounts payable and accrued
expenses approximate fair value based on the short-term maturity of these
instruments.
I. Impairment of Long-Lived Assets - TekInsight reviews long-lived assets
for impairment whenever circumstances and situations change such that there is
an indication that the carrying amounts may not be recovered. At December 31,
1999 and at June 30, 1999, TekInsight believes that there has been no impairment
of its long-lived assets.
J. Capitalized Software Costs - TekInsight accounts for costs of developing
computer software for sale in accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed", under which costs incurred prior to the
establishment of a product's technological feasibility are expensed as research
and development and costs incurred from the point of technological feasibility
through the point that a product is ready for market are capitalized and
amortized in the greater of the relations that revenues earned bear to total
expected revenues over the life of the product or straight-line over the life of
the product. Capitalized software costs are evaluated periodically and written
down to net realizable value when necessary. Amortization of capitalized
software costs for the periods ended June 30, 1999, 1998, and 1997 were
$312,966, $82,674, and $20,489, respectively.
K. Comprehensive Income - TekInsight has adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130) "Reporting Comprehensive Income."
Comprehensive income is comprised of net income (loss) and all changes to the
statements of stockholders' equity, except those due to investments by
stockholders, changes in paid-in capital and distribution to stockholders.
L. Interim Financial Statements. The consolidated financial statements as of
December 31, 1999 and for the six months ended December 31, 1999 and 1998 are
presented as unaudited. In the opinion of management, these financial statements
include all adjustments necessary to present fairly the information set forth
therein. These adjustments consist solely of normal recurring accruals. The
interim results of operations for the six months ended December 31, 1999 and
1998 are not necessarily indicative of the results to be expected for the full
year or for any other interim period.
2. Discontinued Operations
On January 28, 1998, TekInsight sold its operating assets and the stock of
its two principal operating subsidiaries, Diabetes Self Care, Inc. and USCI
Healthcare Management Solutions, Inc., to Gainor Medical Management, LLC, a
privately held Georgia company, for a gross purchase price of $34 million in
cash, as reduced by $8,725,226 of specified liabilities of TekInsight, and $17
million by the delivery of a Gainor convertible subordinated promissory note .
Out of the cash received at closing, TekInsight satisfied an aggregate of
$4,451,136 in liabilities to permit the required transfer of assets to Gainor
free and clear of encumbrances. The note bore interest at a simple rate of 7%
per annum through December 31, 1998 and 8% thereafter until payment in full of
the principal balance no later than January 28, 2003. Prior to its maturity, the
note was convertible into equity securities of Gainor, at the election of
TekInsight, upon the successful completion of a public offering of such equity
securities by Gainor, subject to restrictions. TekInsight's stockholders
F-9
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited with respect to the six months ended December 31, 1999 and 1998)
(Continued)
approved the sale of its business at their annual meeting held on January 26,
1998 in Livonia, Michigan, at which time they also approved an amendment to
TekInsight's certificate of incorporation, changing its name to TekInsight.
In addition to offsets for customary indemnification under the asset
purchase agreement among the parties, dated November 14, 1997, the principal
amount of the note was subject to reduction in the event that (i) such principal
amount did not equal at least 75% of Gainor's revenues from operation of
Diabetes during calendar 1998, in which event the note would be reduced by the
difference between 75% of such revenues and $17 million, (ii) Gainor would not
able to collect at least $5.75 million from the accounts receivable sold to
Gainor as part of the transaction during the one-year period succeeding the
closing, in which event the note would be reduced by the difference between
$5.75 million and the amount of receivables actually collected, and (iii) prior
to July 28, 1998 fewer than 3,334 former customers of PCS, Inc. West will be
customers of Gainor, in which event the note would be reduced by $600 for each
former customer of PCS, Inc. West less than the minimum 3,334 who fails to
transfer to Gainor, up to a maximum amount of $2 million.
In September 1998, Gainor notified TekInsight that the assignment of
benefits provision is currently at the maximum adjustment level of $2 million.
Gainor made a $559,800 downward adjustment to the note principal, and granted an
extension until November 21, 1998 of the time for a sufficient number of
assignments of benefits to be received by Gainor in order to avoid further
downward adjustment to the note principal. Gainor had previously reduced the
note balance by approximately $145,000, for what were claimed to be unrecorded
purchase date accruals, as an adjustment to the closing balance sheet under the
asset purchase agreement. In addition, Gainor notified TekInsight that as of
August 31, 1998, (i) its collection of receivables purchased from TekInsight
pursuant to the asset purchase agreement were behind schedule that, an
annualized basis, would result in collecting more than $5.75 million of such
account, and (ii) its generation of revenues from operations of the purchased
business was not as anticipated, either of which could result in additional
downward adjustments to the note principal under the terms of the asset purchase
agreement.
As a result of the aforementioned, TekInsight reduced the carrying basis of
the note to $6 million at June 30, 1998 based on what management believed would
be the value of the note if it were to be sold to an unrelated third party in an
arms-length transaction.
Accordingly, TekInsight reduced the gain on the disposal of the discontinued
business by $11 million.
In April 1999, the note was prepaid by Gainor in the amount $9.3 million and
TekInsight recognized a gain of $3.3 million on the collection of such Note.
In connection with TekInsight's sale of Diabetes, the accompanying financial
statements have been restated to present such businesses as discontinued
operations.
The revenue of the discontinued businesses was $19,136,465 and $34,001,626
for the fiscal years ended June 30, 1998 and 1997, respectively.
3. Business Acquisition
On October 27, 1998, TekInsight completed the acquisition of AstraTek
pursuant to a merger. TekInsight acquired AstraTek pursuant to a merger of
AstraTek Acquisition Corp., a wholly-owned subsidiary of TekInsight, with and
F-10
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited with respect to the six months ended December 31, 1999 and 1998)
(Continued)
into AstraTek, with AstraTek becoming the wholly-owned subsidiary of TekInsight.
The merger was effected in accordance with an agreement and plan of merger,
dated as of October 23, 1998, among TekInsight, AstraTek Acquisition Corp.,
AstraTek and the stockholders of AstraTek.
AstraTek develops software tools and related products for Internet and
intranet technology and provides consulting and professional services for
several major companies. As per the merger agreement delivered to AstraTek
stockholders, TekInsight issued 2,294,900 shares of TekInsight's common stock in
exchange for cancellation of all the issued and outstanding shares of the
capital stock of AstraTek prior to the merger and the issuance of 100 shares of
AstraTek common stock to TekInsight post-merger. The acquisition is accounted
for as a pooling of interests business combination. Accordingly, TekInsight's
prior years' financial statements are restated as if the acquisition had been
consummated at the beginning of all periods presented. The revenue and net
income for TekInsight and AstraTek from July 1, 1998 through October 27, 1998,
and the fiscal years ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
July 1, 1998 through Year ended Year Ended
October 27, 1998 June 30, 1998 1997
------------------------ ------------------------ ------------------------
TekInsight AstraTek TekInsight AstraTek TekInsight AstraTek
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 363,594 $ 996,473 $454,771
Net income (loss) $(461,879) $(211,116) $2,394,351 (529,063) $(2,653,231) 228,778
</TABLE>
4. Marketable Securities
On September 24, 1998, TekInsight completed a stock purchase agreement
between ViewCast.com Inc. (VCST) and TekInsight. VCST purchased $2 million worth
of restricted TekInsight common stock valued at $2 million for $2 million worth
of VCST common stock. TekInsight issued 1,240,310 shares of TekInsight common
stock at the sale price of $1.6125 per share and received one million shares of
VCST's common stock for the purchase price of $2.00 per share. In the case of
each corporation, the number of shares issued was less than 20% of the
outstanding common stock of the issuer on September 24, 1998. On April 23, 1999,
TekInsight sold approximately 460,000 shares of VCST for $6.00 a share in a
private transaction. TekInsight realized a net gain of approximately $1,690,000
after brokerage commissions from this sale.
In June 1999, TekInsight exchanged $1 million market value of its common
stock, $.0001 par value, for $1 million market value of shares of common stock,
$.0001 par value, of a direct marketing company, StyleSite Marketing, Inc.
(formerly Diplomat Direct marketing Inc.) under the terms of a securities
purchase agreement. In addition, TekInsight purchased 10,000 shares of Style
convertible preferred stock at $100.00 per share from the same direct marketing
company.
Pursuant to an agreement with Business Talk Radio.Net, Inc. (See note 10)
TekInsight owns 564,056 shares of Business Talk Series C preferred stock, par
value $.0001 per share, convertible into 5% of the current outstanding capital
stock of Business Talk. Each share of Class C preferred stock has a liquidation
preference of $.4432 until January 1, 2000, at which time the Class C preferred
stock preference becomes $.2217. On January 3, 2000, TekInsight Services
exercised an option, which, for a payment of $250,000, TekInsight acquired an
additional 564,056 shares of Business Talk Series C preferred stock for $.4432
per share.
F-11
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited with respect to the six months ended December 31, 1999 and 1998)
(Continued)
Style announced on January 21, 2000 that it had filed a Chapter 11 Petition
in the New York Southern District for itself and its subsidiaries. TekInsight
has set up an allowance for doubtful accounts on its receivables from Style in
the amount of $111,500 as of December 31, 1999. TekInsight is currently carrying
on its balance sheet at December 31, 1999 under "Investments - marketable
securities", 1,066,098 shares of common stock of Style at 54% below cost, or at
$.438 per share. TekInsight also has 10,000 shares of Series G preferred stock
of Style at $100.00 per share. TekInsight holds a personal guarantee from Robert
Rubin, an affiliate of Style, on obligations with respect to the preferred
stock, and the value has been kept at cost.
On September 1, 1999, AstraTek entered into a consulting and professional
service agreement with 4th Peripheral Technologies, Inc., pursuant to which
AstraTek is engaged to provide executive advisory consulting services, as
requested, and on a fee schedule to be negotiated at the time an assignment is
made, intended to increase 4th Peripheral's value and strategic position in
connection with its business as a developer of cyber extension technology to
provide remote access to data from handheld devices. In an effort to strengthen
AstraTek's strategic relationships with 4th Peripheral, TekInsight purchased in
private placement of securities 250,000 shares of 4th Peripheral common stock,
par value $.0001 per share, for $250,000.
The aforementioned marketable securities have been classified as available
for sale securities at December 31, 1999 and June 30, 1999 and accordingly, the
unrealized gain resulting from valuing such securities at market value is
reflected as a component of stockholders' equity.
5. Asset Purchase Agreement
In August 1997, TekInsight executed an agreement with Bankers Trust, under
which TekInsight acquired the rights to some of its software, which was under
development by principals of TekInsight in their capacity as employees of
Bankers Trust. In connection with the agreement, Bankers Trust is owed $100,000
and an approximate quarterly revenue share amount of $25,000 (which are included
in June 30, 1999 year end accruals.) The quarterly accrual is related to asset
purchase agreement, in which Bankers Trust will receive 10% of all revenues
associated with the VisualAudit for Excel product until such time as Bankers
Trust has received $250,000 and 5% of all revenues associated with the
VisualAudit for Excel product until such time as Bankers Trust has received
$500,000.
6. Note Receivable
TekInsight provided a cosmetic manufacturing and marketing company, Azurel
Ltd, with $1,528,167 in loan financing through the issuance of one note bearing
interest at 8% due in May 2001, and $500,000 through the issuance of a note
bearing interest at 20.8% due in August 1999. The $500,000 note was later
amended on August 12, 1999 to (i) extend the due date to June 2000, (ii) reduce
the interest rate to 10%, and (iii) increase the principal of the note from
$500,000 to $550,000 for accrued interest of $26,580 and a premium of $23,420
for extending the maturity date and lowering the interest rate. In addition,
TekInsight received warrants to acquire 500,000 shares of common stock of such
company at an exercise price of $1.50 per share. As of December 31, 1999, the
cosmetics manufacturer and marketing company was behind in its interest and
principal payments, but a default has not been declared.
F-12
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited with respect to the six months ended December 31, 1999 and 1998)
(Continued)
7. Property and Equipment
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999 1998
------------ -----------------------
<S> <C> <C> <C>
Furniture and fixtures...................... $ 20,905 $ 20,906 $ 20,906
Computer software........................... 7,862 7,862 6,450
Computer equipment.......................... 132,226 92,424 75,360
Machinery and equipment..................... - -- 3,227
160,993 121,192 105,943
-------- --------- --------
Less: accumulated depreciation............ (62,701) (49,254) (25,977)
-------- --------- --------
$ 98,292 $ 71,938 $ 79,966
======== ======== ========
</TABLE>
8. Notes Payable
Notes payable at December 31, 1999, June 30, 1999 and June 30, 1998,
respectively, consist of the following:
<TABLE>
<CAPTION>
Creditor Maturity Date Interest Rate 1999 1999 1998
-------- ------------- ------------- ----------- ------- ----
<S> <C> <C> <C> <C> <C>
Officer (B) None $17,675 $17,675 $ 77,500
Former Owner March 31, 1999(C) 10% 109,021
Trust(A) June 1, 2000 Floating Prime -- -- 640,592
------- ------- --------
17,675 827,113
Less: Short Term -- 163,260
------- ------- --------
Long-Term Notes $17,675 $17,675 $663,853
======= ======= ========
- -------------------
(A) Agreement dated June 1, 1997, subsequently assigned to a trust, the
beneficiaries of which are relatives of an officer, stockholder and
director, to provide maximum funding of $750,000, collateralized by
substantially all of AstraTek, Inc.'s assets. The debt went into a
default because of the non-payment of interest. On October 22, 1998,
AstraTek, Inc. obtained a waiver from the holder to forebear any action
through November 30, 1998. In exchange, TekInsight agreed to pay a fee
of $10,000 and to convert $350,000 of the principal into 378,829 shares
of common stock
(B) To be repaid out of future profits, if any, at a maximum aggregate
amount of $2,000 per month.
(C) Due to a former owner of a subsidiary, unsecured, payable monthly.
</TABLE>
9. Concentration of Credit Risk
TekInsight maintains cash balances at a financial institution located in New
York. Accounts at the institution are insured by Federal Deposit Insurance
Corporation up to $100,000. TekInsight's cash balances exceeded such insured
limits.
10. Commitments, Contingencies, and Other Agreements
TekInsight is obligated under two leases for base annual rent of
approximately $114,000 (Michigan) and $126,000 (New York City) through September
2002 and November 2002, respectively. A portion of the Michigan location has
been subleased for rent of $47,592 annually, plus an allocation of 42.5% of
common area expenses under the master lease.
F-13
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited with respect to the six months ended December 31, 1999 and 1998)
(Continued)
Department of Health Services - One of TekInsight's discontinued
wholly-owned subsidiaries underwent an audit by the California State
Controller's Office, Division of Audits, for the purpose of determining
compliance with guidelines of the California Department of Health Services
("Medi-Cal") and the California State Board of Equalization. The controller's
office issued a report to the effect that the subsidiary owed, and issued a
letter of demand for, $1.3 million, contending that for the period July 1, 1990
to June 30, 1993, the subsidiary practiced unfair pricing to its customers.
Additionally, accrued interest on the amount demanded is also sought by the
controller's office. The subsidiary has appealed the ruling, which has been
upheld. The California Court of Appeals has also upheld the ruling. TekInsight
has provided a reserve of $1,400,000, $700,000 of which was accrued in the year
ended June 30, 1999. There is no other material litigation against TekInsight or
its subsidiaries.
On May 28, 1999, as amended by agreements dated as of June 1, 1999,
TekInsight Services entered into a Web design and consulting agreement with
Azurel, Ltd., a public company engaged in the business of manufacturing and
distributing cosmetics and other related products. Under the terms of the Azurel
Web agreement, based upon the fee schedule to be included in that agreement,
TekInsight Services agreed to provide all necessary consulting and development
services to design, maintain and enhance Azurel's electronic commerce Internet
sites and other related electronic commerce marketing vehicles. TekInsight
services paid Azurel $500,000 for Azurel's provision of content and marketing
consulting services in connection with assistance provided to TekInsight
Services' electronic commerce development activities for Azurel and other
clients. At the same time, to enhance the strategic relationship between Azurel,
TekInsight and TekInsight Services, TekInsight Services lent to Azurel an
aggregate of $1,528,167 under the terms of a credit agreement, as amended, dated
as of June 1, 1999 (with part of the aggregate principal reflecting the
restructuring of a March 31, 1999 short-term $500,000 promissory note), with
interest payable at the rate of 8% per annum, payable monthly, and with all
principal and accrued interest due on May 28, 2001. Repayment of amounts
outstanding under the credit agreement is secured by a pledge of approximately
66.66% of the outstanding shares of Azurel operating subsidiaries, under the
terms of a pledge security agreement, as amended, by and between Azurel,
TekInsight and TekInsight Services. In further consideration for its advances to
Azurel under the credit agreement, TekInsight Services received from Azurel
warrants to acquire 500,000 shares of Azurel common stock, exercisable at $1.50
per share, with the shares acquired upon exercise of such warrants being subject
to registration rights provided under the terms of registration rights
agreement, as amended, dated as of June 1, 1999. On May 12, 1999, TekInsight
extended a $500,000 loan to Azurel, due August 1999, bearing interest at 20.8%.
The $500,000 note was later amended on August 12, 1999 to (i) extend the due
date to June 2000, (ii) reduce the interest rate to 10%, and (iii) increase the
principal of the note from $500,000 to $550,000 for accrued interest of $26,580
and a premium of $23,420 for extending the maturity date and lowering the
interest rate.
Under agreements dated as of June 30, 1999, TekInsight Services entered into
both a Web design and consulting agreement and an online hosting agreement with
Style, a public company engaged in the business of distributing women's and
children's fashion apparel and related accessories through catalogue sales and
over the Internet. Under the terms of the Style Web agreements, based upon the
fee schedules provided in those agreements, TekInsight Services was to provide
all necessary consulting and development services to design, maintain and
enhance Style's electronic commerce Internet sites and other related electronic
commerce marketing vehicles, as well as to host those sites on behalf of Style.
TekInsight Services paid Style $500,000 for Style's provision of content and
marketing consulting services in connection with assistance provided to
TekInsight Services' electronic commerce development activities for Style and
other clients. In addition to payments by Style for the services provided under
the Style Web agreements, in further consideration for its services to Style
under the Style Web agreements, TekInsight Services will receive royalties from
Style based upon Style's ongoing electronic commerce businesses.
F-14
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited with respect to the six months ended December 31, 1999 and 1998)
(Continued)
The royalties are equal to 5% of Style's electronic commerce revenues, until
$500,000 has been paid to TekInsight Services, and thereafter 20% of specified
Style electronic commerce net income in perpetuity. Pursuant to Style's Chapter
11 filing in January 2000 it is uncertain as to whether TekInsight will be able
to enforce Style's obligation to pay royalties under the Web agreement.
TekInsight Services has entered into an agreement with Business Talk under
which, for a payment of $250,000, TekInsight Services obtained an assignable
credit for the purchase of advertising time on radio programs operated by
Business Talk having a value of $1,200,000, and shares of Series C preferred
stock convertible into 5% of the currently outstanding capital stock of Business
Talk. As part of the transaction, TekInsight Services obtained an option to
acquire an equivalent number of shares of Business Talk capital stock for an
exercise price of $250,000 (which it exercised in February 2000), as well as the
right to "stream" the content of Business Talk programming on its and its
affiliates Web sites during the course of a three-year period without an
additional payment to Business Talk. Business Talk creates and distributes the
content of its business-oriented radio programming for broadcasting on
third-party operated radio stations in a variety of markets throughout the
United States.
11. Income Taxes
TekInsight accounts for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS No. 109.) SFAS No. 109
requires the recognition of deferred tax assets and liabilities for both the
expected impact of differences between the financial statements and tax basis of
assets and liabilities, and for the expected future tax benefit to be derived
from tax loss and tax credit carryforwards. SFAS No. 109 additionally requires
the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets.
The benefit for income taxes from continuing operations differs from the
amount computed applying the statutory federal income tax rate to loss before
income taxes as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998 1997
------------- --------------- ----------
<S> <C> <C> <C>
Income tax benefits computed at statutory rate $(248,000) $(392,000) $(207,000)
Income tax benefit not recognized 248,000 392,000 207,000
--------- --------- ---------
Income tax benefit $ -- $ -- $ --
========= ========= =========
</TABLE>
During the year ended June 30, 1999, TekInsight utilized approximately
$3,100,000 of available net operating loss carryforwards. AstraTek has
approximately $1,200,000 of net operating loss carryforwards subject to
limitations on annual utilization because there was "equity structure shifts" or
"owner shifts" involving 5% Shareholders (as these terms are defined in Section
382 of the Internal Revenue Code), which have resulted in a more than 50% change
in ownership. The resulted deferred tax asset from such net operating loss
carryforwards has been fully reserved for.
12. Stockholders' Equity
A. Preferred stock - The certificate of incorporation of TekInsight
authorizes the issuance of a maximum of 10,000,000 shares of preferred stock.
TekInsight's Board of Directors is vested with the authority to divide the class
F-15
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited with respect to the six months ended December 31, 1999 and 1998)
(Continued)
of preferred shares into series and to fix and determine the relative rights and
preferences of shares of any such series to the extent permitted by the laws of
the State of Delaware and the Articles of Incorporation.
B. Series A redeemable preferred stock - In April 1995, in connection with
the acquisition of PCS, Inc. -West, TekInsight issued 580,000 shares of Series A
redeemable preferred stock. The shares contained a liquidation preference of $5
per share and paid no dividends. They are mandatorily redeemable at $5 per
share, over a five-year period in equal monthly installments beginning in
October 1995. TekInsight recorded the present value of the required future
payments as a liability utilizing a discount rate of 9%. The portion of the
monthly redemption installments which are attributed to this discounting factor
are accounted for as preferred stock dividends. At June 30, 1998, there were
229,950 shares outstanding. In August 1998, TekInsight amended the certificate
of designation to allow for the conversion of the Series A preferred stock and
the remaining balance was converted into 1,363,163 shares of common stock in
September 1998.
C. In April 1995, in connection with the acquisition of PCS, TekInsight
issued 1,000,000 shares of Series B cumulative convertible preferred stock. Each
share contains a liquidation preference of $1.00 per share. Each share was
convertible into common stock at the rate of two shares for one common share and
paid a cumulative dividend at the rate of $.02 per share annually, beginning in
September 1996, increasing to $.12 per share through June 30, 2000. However,
such dividend only become payable if, in the immediate preceding fiscal year,
TekInsight had pre-tax income of at least $500,000. In August 1999, all Series B
preferred stock was converted into 500,000 shares of common stock in accordance
with the corporate charter and at the request of the holders.
D. In connection with its December 1992 public offering, TekInsight has
1,143,800 Class A warrants outstanding to purchase common stock at $3.30 per
share which expire in December 1999.
13. Stock Option Plan
A. TekInsight's 1992 employee stock option plan was approved by TekInsight's
board of directors and stockholders in June 1992. On July 28, 1993, 210,000
stock options, exercisable at $1.50 per share, for a period of ten years, were
issued under the 1992 plan. Options granted under the 1992 plan may include
those qualified as incentive stock options under Section 422A of the Internal
Revenue Code of 1986, as amended, as well as non-qualified options. Employees as
well as other individuals, such as outside directors, who provide necessary
services to TekInsight are eligible to participate in the 1992 plan.
Non-employees and part-time employees may receive only non-qualified stock
options. The maximum number of shares of common stock for which options may be
granted under the 1992 plan is 500,000 shares.
B. In November 1997, TekInsight established the 1997 stock option plan for
non-employee directors, which authorizes the issuance of up to 300,000 options
to purchase common stock at an exercise price of 100% of the common stock's
market price. Subsequent to its adoption at the annual meeting in February 1998,
30,000 five-year options were granted under this plan at an exercise price of
$1.81 per share. On each of July 1, 1999 and 1998, an additional 30,000
five-year options were granted at an exercise price of $3.78 and $.97 per share,
respectively.
F-16
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited with respect to the six months ended December 31, 1999 and 1998)
(Continued)
14. Accounting for Stock Options
TekInsight accounts for stock options issued to employees under APB Opinion
No. 25, "Accounting for Stock Issued to Employees", under which no compensation
expense is recognized if the exercise price equals the stock market value on the
measurement date (generally the grant date.) TekInsight has adopted the pro
forma disclosure requirements of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation."
For disclosure purposes, the fair value of each option is measured at the
grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions used for stock options granted during the years
ended June 30, 1999, 1998 and 1997, respectively; annual dividends of $0.00 for
all years; expected volatility of 50% for the year ended June 30, 1999, and
86.3% for the years ended June 30, 1998 and 1997; risk free interest rate of
5.7% for the year ended June 30, 1999, and 7.0% for the years ended June 30,
1998 and 1997, and expected life of five years for all years.
If TekInsight had recognized compensation cost in accordance with SFAS No.
123, TekInsight's pro forma net loss and net loss per share would have been $3.1
million and $.30 for fiscal 1997. The effect for fiscal 1999 and 1998 would not
be material.
The following table summarizes the changes in options outstanding and the
related price ranges:
<TABLE>
<CAPTION>
Weighted
Average Range of
Shares Expected Price Exercise Price
--------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1996......... 1,081,667 $ 1.33 $1.00 - $1.50
Granted.............................. 275,999 1.72 .70 - 1.50
--------- ------ -------------
Balance June 30, 1997................ 1,357,666 1.41 1.00 - 2.25
Granted.............................. 55,000 2.15 1.81 - 2.50
--------- ------ -------------
Balance June 30, 1998................ 1,412,666 1.44 1.00 - 2.50
Granted.............................. 306,167 .99 94 - 1.00
Exercised............................ (84,167) 1.00 1.00
--------- ------ -------------
BALANCE JUNE 30, 1999................ 1,634,666 $ 1.27 $ .93 - 2.50
========= ====== =============
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1999:
Weighted Average
Range of Average Remaining Contractual
Exercise Prices Outstanding Life in Years
--------------- ---------------- ---------------------
$.93 - $5.50 1,634,666 4.45
Options exercisable at June 30, 1999 and 1998 were 1,490,666 and
1,412,666 respectively.
15. Note Receivable - Officer
On November 25, 1998, TekInsight advanced $70,000 to Brian Bookmeier,
TekInsight's president, in exchange for a note receivable, which bore interest
at the rate of 10% per annum. This note was paid in full during the fiscal year
ended June 30, 1999.
F-17
<PAGE>
TekInsight.Com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited with respect to the six months ended December 31, 1999 and 1998)
(Continued)
On November 22, 1999, TekInsight loaned Seven Sons, Inc., a golf and tennis
equipment store, of which Brian Bookmeier, a director of TekInsight, is a
principal, $100,000 for its operations. The $100,000 secured note bore interest
at 10% (per annum) and its original December 30, 1999 maturity was extended to
March 31, 2000 in consideration for an increase in interest rate to 11% per
annum. The note was paid in full at maturity.
16. Termination Agreements
TekInsight entered into the following contracts subsequent to the disposal
of its business:
A. TekInsight agreed to make severance payments aggregating $708,000 to a
former operating officer. An initial payment of $250,000 was paid and the
remaining $458,000 was to be paid in sixty equal monthly installments of $7,633
commencing March 1998 and continuing through March 2003. TekInsight recorded the
present value of this contract at $359,265. The balance which was $280,209 at
June 30, 1999 is currently payable since the note due from Gainor was prepaid
(See Note 2). Additionally, TekInsight will continue to pay quarterly premiums
on the officer's existing $350,000 life insurance policy through December 31,
1999.
B. TekInsight entered into agreements with three former officers in July
1998, for an aggregate consideration of $862,498, with $385,000 paid in August
1998, $225,000 settled through the issuance of notes payable due in January
2000, bearing interest at 7% per annum and the $252,490 balance settled by
exchanging cash severance payments for the direct issuance of 168,334 shares of
common stock (at $1.00 value per share) and the exercise price of concurrently
granted options to acquire 84,167 shares of common stock at $1.00 per share.
TekInsight has retired these contracts as of June 30, 1999.
17. Subsequent Event
On January 18, 2000, TekInsight signed a letter of intent with Data Systems.
Pursuant to the letter of intent, Data Systems agreed to enter into a proposed
acquisition transaction calling for Data Systems to be merged into TekInsight
Services, Inc., a wholly owned and principal operating subsidiary of TekInsight.
In consideration for the merger, shareholders of Data Systems will receive a
number of shares of a new class of TekInsight convertible preferred stock
(convertible into TekInsight common stock on a one to one basis) proposed to be
listed on the Nasdaq SmallCap Market that will have a market value of between
$12,500,000 and $18,000,000, with such value to be based upon the market price
of TekInsight common stock at the time of closing. Although no assurances can be
given, the parties intend to close the merger by June 30, 2000.
On February 18, 2000, TekInsight and Data Systems entered into an agreement
and plan of merger pursuant to which Data Systems will be merged into TekInsight
Services, Inc., a wholly owned and operating subsidiary of TekInsight. In
consideration for the merger, shareholders of Data Systems' will receive a
varying purchase price which will equal $12,500,000 if the market price of
TekInsight's common stock at the time of closing is less than $5.00 per share,
$16,000,000 if the market price is between $5.00 and $7.00 per share, and
$18,000,000 if the market price is over $7.00 per share. The merger price will
be delivered to shareholders of Data Systems through a distribution of a number
of shares of a new class of TekInsight convertible preferred stock proposed to
be listed on the Nasdaq SmallCap Market, with the number of such shares to be
found by dividing the applicable merger price by the market price. Completion of
the merger is subject to a number of conditions, including receipt of TekInsight
and Data Systems shareholder approval, acceptance by Nasdaq for the listing of
the convertible preferred stock and other customary closing conditions. There
can be no assurance the Nasdaq listing will be obtained for the newly issued
convertible preferred stock, or that any of the closing conditions will be
satisfied. Although no assurances can be given, the parties intend to close the
merger no later than June 30, 2000.
F-18
<PAGE>
Data Systems Network Corporation
Index To Consolidated Financial Statements
Page Number
-----------
Report of Independent Certified Public Accountants.......................100
Independent Auditor's Report.............................................101
Consolidated Balance Sheets as of December 31, 1999 and 1998.............102
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997.....................................103
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997.....................................104
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.....................................105
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1999, 1998 and 1997.....................................106
F-19
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Data Systems Network Corporation
We have audited the consolidated balance sheets of Data Systems Network
Corporation and Subsidiaries (a Michigan corporation) as of December 31, 1999
and 1998, and the related statements of operations, stockholders' equity, and
cash flows for the years then ended. 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, based on our audits, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Data Systems Network Corporation and Subsidiaries as of December 31, 1999 and
December 31, 1998, and the results of operations and cash flows for the years
then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has suffered recurring losses from operations
and has a deficit in working capital. These matters, among others, as discussed
in Note B to the financial statements, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note B. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Grant Thornton LLP
/s/ Grant Thornton LLP
Southfield, Michigan
February 14, 2000
F-20
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS REPORT
To the Directors and Shareholders
Data Systems Network Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Data Systems Network Corporation for the
year ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements of Data Systems Network
Corporation referred to above present fairly, in all material respects, the
results of its operations and its cash flows for the year ended December 31,
1997 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced
significant recurring losses from operations, which raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
concerning these matters are also described in Note B. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Plante & Moran, LLP
/s/ Plante & Moran, LLP
Southfield, Michigan
August 20, 1998
F-21
- --------------------------------------------------------------------------------
<PAGE>
Data Systems Network Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
---------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,516,709 $ 2,695,863
Accounts receivable (net of allowance of $290,000 and
$561,600 at December 31, 1999 and December 31, 1998
respectively.) 9,132,585 11,339,484
Notes receivable 50,000 60,000
Inventories 907,207 1,296,145
Other current assets 1,132,070 347,983
----------- ------------
Total current assets 12,738,571 15,739,475
Property and Equipment, net 1,385,498 2,522,978
Goodwill, (net of amortization of $557,938 and $388,438 at
December 31, 1999 and December 31, 1998 respectively.) 2,832,070 3,001,570
Other assets 351,956 1,402,298
----------- ------------
Total assets $17,308,095 $ 22,666,321
=========== ============
Liabilities and Shareholders' Equity
Current Liabilities:
Bank line of credit 5,217,794 3,231,287
Accounts payable 6,356,961 9,640,159
Accrued liabilities 1,742,977 2,590,906
Shareholder Settlement Liability -- 1,768,000
Deferred maintenance revenues 1,598,024 3,865,320
----------- ------------
Total current liabilities 14,915,756 21,095,672
Commitments and Contingencies -- --
Shareholders' Equity
Preferred stock, authorized 1,000,000 shares, none outstanding
Common stock ($.01 par value; authorized 10,000,000
shares; issued and outstanding 5,509,224 and 4,859,224
at December 31, 1999 and December 31,1998 respectively.) 55,092 48,592
Additional paid-in capital 18,575,219 17,951,219
Accumulated deficit (16,237,972) (16,429,162)
----------- ------------
Total shareholders' equity 2,392,339 1,570,649
----------- ------------
Total liabilities and shareholders' equity $17,308,095 $22,666,321
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
Data Systems Network Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Product revenue $32,451,828 $63,530,818 $67,845,466
Service revenue 20,373,707 21,792,682 18,151,674
----------- ----------- -----------
Total revenues 52,825,535 85,323,500 85,997,140
COST OF REVENUES:
Cost of products 26,608,898 52,213,508 59,227,854
Cost of services 16,216,325 19,024,585 14,287,978
----------- ----------- -----------
Total cost of revenues 42,825,223 71,238,093 73,515,832
GROSS PROFIT 10,000,312 14,085,407 12,481,308
OPERATING EXPENSES:
Selling expenses 6,105,959 9,896,255 10,334,103
General and administrative expenses 4,681,415 5,468,613 5,814,607
----------- ----------- -----------
Total operating expenses 10,787,374 15,364,868 16,148,710
LOSS FROM OPERATIONS (787,062) (1,279,461) (3,667,402)
OTHER INCOME (EXPENSE):
Shareholder settlement 1,137,500 (1,768,000) --
Loss on sale of equipment (385,419) -- --
Interest income 109,957 109,592 371,716
Interest expense (564,859) (802,328) (1,612,583)
Other income 681,073 41,615 491,638
----------- ----------- -----------
978,252 (2,419,121) (749,229)
Earnings (loss) before discontinued operations 191,190 (3,698,582) (4,416,631)
DISCONTINUED OPERATIONS
Loss from operations of Unified Network Services -- (1,686,053) (557,469)
Gain on Disposal of Unified Network Services -- 705,742 --
----------- ----------- -----------
-- (980,311) (557,469)
----------- ----------- -----------
NET EARNINGS (LOSS) $ 191,190 $(4,678,893) $(4,974,100)
=========== =========== ===========
Earnings (loss) per common share -
basic and diluted
Continuing operations $ 0.04 $ (0.76) $ (1.02)
Discontinued operations -- (0.20) (0.13)
----------- ----------- -----------
Net loss per common share $ 0.04 $ (0.96) $ (1.15)
=========== =========== ===========
Weighted average shares outstanding 5,204,703 4,859,224 4,324,229
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
Data Systems Network Corporation
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON ADDITIONAL PAID-IN
STOCK CAPITAL (ACCUMULATED DEFICIT) TOTAL
------- ------------------ --------------------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $32,550 $ 9,139,153 $ (6,776,169) $ 2,395,534
Exercise of stock options and
warrant redemptions 16,030 8,806,453 -- 8,822,453
Net loss -- -- (4,974,100) (4,974,100)
------- ---------- ----------- ----------
Balance at December 31, 1997 48,580 17,945,606 (11,750,269) 6,243,917
Exercise of stock options 12 5,613 -- 5,625
Net loss -- -- (4,678,893 (4,678,893)
------- ---------- ----------- ----------
Balance at December 31, 1998 48,592 17,951,219 (16,429,162) 1,570,649
Issuance of shares in connection
with Shareholder Settlement 6,500 624,000 -- 630,500
Net Earnings -- -- 191,190 191,190
------- ---------- ----------- ----------
Balance at December 31, 1999 $55,092 $18,575,219 $(16,237,972) $ 2,392,339
======= =========== ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
Data Systems Network Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Earnings (loss) $ 191,190 $ (4,678,893) $ (4,974,100)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 1,041,812 1,145,088 883,084
Loss on sale of equipment 385,419 -- --
Gain on disposal of UNS -- 866,335 --
Changes in assets and liabilities that provided (used)
cash net of effects of discontinued operations:
Investments -- 6,203,361 (6,203,361)
Accounts receivable 2,206,899 15,004,496 (16,410,447)
Notes receivable 10,000 137,133 (97,043)
Inventories 388,938 (294,795) 244,812
Other current assets (784,087) 189,797 223,524
Other assets 1,050,342 3,349,668 (667,355)
Accounts payable (3,283,198) (6,514,071) 8,798,041
Accrued liabilities (847,929) (322) 1,346,598
Shareholder Settlement (1,137,500) 1,768,000 --
Deferred maintenance revenues (2,267,296) 2,938,166 (13,473)
Decrease in net liabilities of discontinued operations -- (2,021,070) (75,944)
----------- ------------ ------------
Net cash (used in) provided by operations (3,045,410) 18,092,891 (16,945,664)
----------- ------------ ------------
Cash Flows From Investing Activities:
Acquisition of property and equipment, net (120,251) (1,104,305) (1,627,789)
Issuance of common stock and exercise of stock options - 5,625 -
----------- ------------ ------------
Net cash provided by (used in) investing activities (120,251) (1,098,680) (1,627,789)
----------- ------------ ------------
Cash Flows From Financing Activities:
Net current borrowings (repayment) under bank line of credit 1,986,507 (14,065,272) 8,071,347
Payment of principal on long-term debt -- -- (75,000)
Proceeds from issuance of common stock (net offering costs) -- -- 8,822,483
Net proceeds (repayment) from capital lease obligation financing -- (237,539) 237,539
----------- ------------ ------------
Net cash provided by (used in) financing activities 1,986,507 (14,302,811) 17,056,369
Net Increase (decrease) in cash and cash equivalents (1,179,154) 2,691,400 (1,517,084)
Cash and cash equivalents at beginning of period 2,695,863 4,463 1,521,547
----------- ------------ ------------
Cash and cash equivalents at end of period $ 1,516,709 $ 2,695,863 $ 4,463
=========== ============ ============
Supplemental Disclosure of Cash Flows
Cash paid during the period for:
Interest $ 565,000 $ 802,000 $ 1,612,000
=========== ============ ============
Income taxes -- -- $ 60,000
=========== ============ ============
During the year, Data Systems settled a shareholder lawsuit
through the issuance of 650,000 shares of common stock. $ 630,500
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
Data Systems Network Corporation
Notes To Consolidated Financial Statements
Note A - Nature of Business and Significant Accounting Policies
Data Systems Network Corporation (Data Systems), incorporated in
Michigan in 1986, provides computer network services and products that allow
companies to control their complex distributed computing environments, allowing
companies to capitalize on their investments in technology and people. Data
Systems wide range of services includes applications development, network
services, enterprise management, help desk and security services. Data Systems
also provides a wide range of network integration services including
installation, consultation, technical support and training to governmental and
corporate accounts.
Principles of Consolidation
The consolidated financial statements include the accounts of Data
Systems and its former subsidiary, Unified Network Service, Inc (UNS.) The
operations of UNS were sold during 1998 and they are shown as discontinued
operations (See Note C.)
Cash Equivalents
For purposes of the statement of cash flows, Data Systems considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Restricted Cash
At December 31, 1999, cash of $1,513,000 was restricted in connection
with maintenance agreements. It will become unrestricted as revenue is
recognized according to the terms of the agreements.
Inventories
Inventories are stated at the lower of cost or market as determined by
the weighted average method. Inventories consist of goods for resale and service
parts which represent equipment spares utilized for service contracts.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed principally using the straight-line method based upon estimated
useful lives ranging from 5 to 7 years. Amortization of leasehold improvements
is provided over the terms of the various leases.
Goodwill and Long-Lived Assets
The cost in excess of net assets acquired (goodwill) is amortized using
the straight-line method over twenty years which is the estimate of future
periods to be benefited. Data Systems performs a review for impairment when
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Undiscounted estimated future cash flows of an asset are
compared with its carrying value, if the cash flows are less than the carrying
value, an impairment loss is recognized.
F-26
<PAGE>
Data Systems Network Corporation
Notes To Consolidated Financial Statements
(Continued)
Income Taxes
Income taxes are accounted for by using an asset and liability approach.
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial basis and tax basis
of assets and liabilities. Assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Revenue Recognition
Revenue recognition for consulting, network installation services, time
and materials services, and training is recognized when the services are
rendered. Revenue from the sale of merchandise is recognized when the customer
receives the product. Revenue from the sales of after-installation service
maintenance contracts is recognized on a straight-line basis over the lives of
the respective contracts.
Product Returns and Service Adjustments
Product returns and service adjustments are estimated based upon
historical data. Data Systems' customers have no contractual rights to return
products. Data Systems determines whether to accept product returns on a
case-by-case basis and will generally accept product returns only upon payment
of a restocking fee and/or if the products may be returned to the manufacturer.
Data Systems offers no warranty separate from the product manufacturers'
warranties.
Earnings or Loss Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" (SFAS 128.) SFAS 128 specifies the
computation and presentation and disclosure requirements for earnings per share
(EPS) of entities with publicly held common stock or potential common stock.
SFAS 128 defines two EPS calculations, basic and diluted. The objective of basic
EPS is to measure the performance of an entity over the reporting period by
dividing income available to common stock by the weighted average of shares
outstanding. The objective of diluted EPS is consistent with that of basic EPS
while giving effect to all dilutive potential common shares that were
outstanding. For year ended December 31, 1999, there were no potentially
dilutive common shares. For year ended December 31, 1998, all potential common
shares were excluded from the computation of diluted earnings per share because
the effect would have been anti-dilutive.
Use of Estimates
The preparation of financial statements in accordance 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.
Fair Value of Financial Instruments
The carrying amounts of Data Systems' financial instruments consist
primarily of cash and cash equivalents, bank lines of credit, accounts
receivables, accounts payable and short-term and long-term debt, approximate
their fair values.
F-27
<PAGE>
Data Systems Network Corporation
Notes To Consolidated Financial Statements
(Continued)
Financial Statement Presentation
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the 1999 presentation.
Note B - Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the financial
statements, the year ended December 31, 1999 reflected net earnings of
approximately $191,000, however, Data Systems had a loss from operations of
approximately $787,000. During the years ended December 31, 1998 and 1997, Data
Systems incurred losses of $4,678,893 and $4,974,100, respectively. These losses
have contributed to Data Systems' deficit in working capital of $2,177,185 at
December 31, 1999. These factors, among others, could raise doubt about Data
Systems' ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Management's plans with respect to this matter include a continued focus
on reducing operational and overhead costs and the implementation of a change in
strategy to emphasize service sales rather than product sales, which is expected
to increase margins. Management believes the consolidation of its business
operations and the stabilization of strategic business relationships will enable
Data Systems to meet its obligations and attain a level of operations that are
profitable.
In addition, upon completion of the merger with TekInsight (See Note P),
Data Systems believes that additional financial resources will be available and
synergies relating to business opportunities will be realized to help return
Data Systems to profitability.
Note C - Discontinued Operations - Sale of Unified Network Services Inc.
During 1998, Data Systems decided to sell its 70% interest in its large
account network management services operation, Unified Network Services Inc.
Under the terms of the original purchase agreement, the minority shareholders of
UNS elected to exercise a contract option to purchase the UNS subsidiary. The
terms of the sale included $7,000 in cash and a note for $3,000,000, which is
secured by the stock of UNS. The buyers also assumed the existing liabilities of
UNS. The gain upon disposal of the discontinued operations is net of allowances
of $3,000,000 due to the uncertainty of the buyer's ability to repay the note
and $989,400 in advances made by Data Systems for working capital, and payment
of assumed liabilities.
The results of operations of the discontinued operations for the years
ended December 31, 1998 and 1997 are summarized below:
For the years ended December 31, 1998 1997
----------- ----------
Revenues $ 278,060 $2,013,309
Loss from discontinued operations $(1,686,054) $ (557,469)
F-28
<PAGE>
Data Systems Network Corporation
Notes To Consolidated Financial Statements
(Continued)
Note D - Property and Equipment
Property and equipment are summarized as follows at December 31:
1999 1998
---- ----
Computer equipment and software $ 2,992,909 $ 3,889,597
Furniture and Fixtures 650,824 856,720
Leasehold improvements 257,831 257,831
----------- -----------
3,901,564 5,004,148
Less accumulated depreciation and
amortization (2,516,066) (2,481,170)
----------- -----------
$ 1,385,498 $ 2,522,978
=========== ===========
Depreciation and amortization expense was approximately $874,000, $914,000 and
$574,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Note E - Other Assets
Other assets consist of the following at December 31,
1999 1998
---- ----
Prepaid expenses $351,956 $ 606,662
Accounts receivable - other 0 795,636
-------- ----------
$351,956 $1,402,298
======== ==========
Note F - Accrued Liabilities
Accrued liabilities consist of the following at December 31,
1999 1998
---- ----
Compensation benefits and taxes $ 889,334 $1,229,821
Customer advances 42,106 140,181
State sales and other taxes 41,163 74,208
Other 770,374 1,146,696
---------- ----------
$1,742,977 $2,590,906
========== ==========
Note G - Lines of Credit
On September 30, 1998 Data Systems and Foothill Capital Corporation
entered into a credit facility. The Foothill Agreement provides for an revolving
line of credit not to exceed $15 million. The available line of credit at
December 31,1999 was $644,003. Data Systems may, at its option and subject to
specified collateral requirements, increase the line to $20 million during the
term of the Foothill Agreement. Borrowing limits under the Foothill Agreement
are determined based on a collateral formula, which includes 85% of qualified
trade receivables. Borrowings under the Foothill Agreement bear interest at 1%
over Norwest Bank prime (9.5 % at December 31, 1999) and have a term extending
to September 30, 2001.
F-29
<PAGE>
Data Systems Network Corporation
Notes To Consolidated Financial Statements
(Continued)
Data Systems is required to maintain financial ratios. At December 31,
1999, Data Systems was in compliance with all of the ratios required by Foothill
Capital Corporation. In addition, there are restrictions with respect to
dividend distribution.
In connection with the Foothill agreement, Data Systems issued a warrant
for 50,000 shares of common stock with an exercise price not greater than $2.20
per share. This warrant will expire September 30, 2003.
Note H - Lease Commitments
Data Systems has entered into several non-cancelable operating leases
for office space, computer equipment, and furniture and fixtures that expire at
various dates through 2004. The approximate future minimum annual rentals under
non-cancelable operating leases are as follows:
Years Ended December 31,
------------------------
2000 $ 824,987
2001 725,299
2002 499,651
2003 187,045
2004 42,530
----------
Total minimum lease obligations $2,279,512
==========
Total rent expense for the years ended December 31, 1999, 1998, and
1997 was approximately $1,028,000, $1,558,000 and $1,130,000,
respectively.
Note I - Income Taxes
Deferred tax assets and liabilities at December 31, consist of the
following:
1999 1998
----- ----
Deferred tax assets:
Net operating loss carry forwards $ 4,285,000 $ 3,336,000
Deferred maintenance revenue 17,000 17,000
Allowance for doubtful accounts 383,000 273,000
Shareholder lawsuit settlement - 601,000
Inventory - -
Depreciation - -
Accrued vacation 92,000 102,000
----------- -----------
4,777,000 4,329,000
Deferred tax liabilities
Depreciation (66,000) (138,000)
Amortization (126,000) (114,000)
Other -- --
----------- ------------
(192,000) (252,000)
Less valuation allowance (4,585,000) (4,077,000)
----------- ------------
$ -- $ --
=========== ============
The net operating loss carry forwards expire in 2007 - 2018.
F-30
<PAGE>
Data Systems Network Corporation
Notes To Consolidated Financial Statements
(Continued)
The income tax provision reconciled to the tax computed at the statutory
federal rate for continuing operations was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
--------- ----------- -----------
<S> <C> <C> <C>
Tax (benefit) at statutory rates applied to
income before federal income tax from
continuing operations $ 65,000 $(1,260,000) $(1,502,000)
Effect of nondeductible items 28,000 41,000 52,000
Other (144,000)
Changes in treatment on income tax return (601,000) 939,000 0
Valuation allowance 508,000 280,000 1,594,000
--------- ----------- -----------
$ - $ - $ -
========= =========== ===========
</TABLE>
Note J - Redemption of Warrants
During February 1997, Data Systems called all of its outstanding
redeemable common stock purchase warrants for redemption as of March 10, 1997
pursuant to the warrant agreement, dated October 28, 1994, setting forth the
terms of the purchase warrants. Approximately 99% of the warrants were exercised
on or prior to the date of redemption at a price of $6.25 per warrant, resulting
in net proceeds to Data Systems of approximately $7,400,000. In connection with
the receipt of consent to the redemption, Data Systems agreed to file a
registration statement with the Securities and Exchange Commission with respect
to 60,000 units, issued to the underwriters' representatives in Data Systems'
initial public offering, consisting of two common shares and two warrants to
purchase an additional two common shares which may be purchased upon exercise of
a warrant. The exercise price of these warrants was reduced from $16.50 to
$12.50 per unit and the exercise price of the purchase warrants was reduced from
$10.3125 to $6.25 per unit. The registration was completed in July 1997 and
during the third quarter of 1997, all related warrants were exercised, resulting
in net proceeds to Data Systems of approximately $1,400,000.
Note K - Stock Option Plans
In April 1994 Data Systems adopted the 1994 stock option plan. A total
of 200,000 shares were reserved for issuance under the 1994 plan. The options
vest over a two-year period at the rate of 50% per year, beginning on the first
anniversary of the grant date. In April 1997, Data Systems amended the 1994 plan
to increase the reserved shares to 600,000. The vesting period in Data Systems'
form option grant agreement was also changed to 50% on the second anniversary of
the grant date and 25% on each of the third and fourth anniversaries of the
grant date. Data Systems' Compensation Committee retains the ability to change
the vesting schedule at any time.
F-31
<PAGE>
Data Systems Network Corporation
Notes To Consolidated Financial Statements
(Continued)
In 1999 Data Systems granted options for 50,000 shares to a director of
Data Systems excercisable at a price of $.66 per share when the fair market
value at the date of the grant was $1.03. Such options vest 50% on the second
anniversary date, and the 25% vest each of the next two years. In 1998 and 1997,
Data Systems granted options for 40,000 and 3,000, shares, respectively,
excercisable at a price of $.88 and $9.83 per share, respectively, which was the
fair market value at the date of grant, to Directors of Data Systems. Such
options vest one year from the grant date.
The per share weighted-average fair value of stock options granted
during 1999, 1998 and 1997 was $1.03, $3.86 and $9.83 per share, respectively.
Average
Shares per Share
Under Options Exercise Price
------------- --------------
Balance at December 31, 1996 191,703 $ 4.55
Issued 215,350 $ 9.82
Forfeited (9,062) $ 6.19
Exercised (21,768) $ 4.57
--------
Balance at December 31, 1997 376,223 $ 7.54
Issued 138,750 $ 3.86
Forfeited (137,900) $10.10
Exercised (1,250) $ 3.88
---------
Balance at December 31, 1998 375,823 $ 5.15
Issued 50,000 $ .66
Forfeited (73,212) $ 6.59
Exercised $
---------
Balance at December 31, 1999 352,611 $ 4.21
======== ======
The range of exercise prices on outstanding options at December 31, 1999 is as
follows:
Weighted Average
Average Remaining
Price Range Shares Exercise Price Life
------------ ------ -------------- ---------
.66 - 2.50 158,125 $0.96 8.9
2.51 - 5.00 90,186 4.25 5.9
5.01 - 7.50 55,400 6.84 7.2
7.51 - 10.00 15,700 8.90 7.3
10.01 - 13.75 33,200 12.98 7.9
-------
352,611
As of December 31, 1999, 1998 and 1997 the number of options exercisable
was 169,512, 193,123 and 62,461, respectively and the weighted average exercise
price of those options was $5.89, $5.29 and $4.53, respectively.
The Financial Accounting Standard Board has issued Statement No. 123,
"Accounting for Stock Based Compensation" (SFAS No. 123.) The Statement
established a fair value method of accounting for employee stock options and
similar equity instruments such as warrants, and encourages all companies to
adopt that method of accounting for all of their stock compensation plans.
However, the statement allows companies to continue measuring compensation for
such plans using accounting guidance in place prior to SFAS No. 123. Companies
that elect to remain with the former method of accounting must make pro-forma
disclosures of net earnings and earnings per share as if the fair value method
provided for in SFAS No. 123 had been adopted.
F-32
<PAGE>
Data Systems Network Corporation
Notes To Consolidated Financial Statements
(Continued)
The fair value of each grant is estimated on the date of grant using the
Black-Scholes option - pricing model with the following weighted average
assumptions for grants in 1999: dividend yield of 0%, expected volatility of
136.820%, risk-free interest rate of 6.751% and expected life of ten years.
Data Systems has not adopted the fair value accounting provisions of
SFAS No. 123. Accordingly, SFAS No. 123 has no impact on Data Systems' financial
position or results of operations.
Data Systems accounts for the stock option plan under APB Opinion No.
25, "Accounting for Stock Issued to Employees." No compensation costs have been
recognized. Had compensation cost for the plan been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS No.
123, Data Systems' net earnings (loss) and earnings (loss) per share would have
been as follows (in thousands, except for per share data):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Earnings (Loss) as reported $191 $(4,678) $(4,974)
Pro Forma 7 (4,985) (5,418)
Earnings (Loss) per share as reported $.03 $ (.96) $ (1.15)
Pro Forma - (1.03) (1.25)
</TABLE>
Note L - Employee Benefit Plans
Data Systems maintains a defined contribution 401(k) plan that covers
substantially all employees. Contributions to the Plan may be made by Data
Systems (which are discretionary) or by plan participants through elective
salary reductions. No contributions were made to the plan by Data Systems during
the years ended December 31, 1999, 1998, and 1997.
Note M - Major Customers
In 1998 and 1997, the State of Michigan accounted for approximately 29%
of revenue in each year. Additionally, the State of New York represented 25% and
12% of total revenues for 1999 and 1998 respectively.
Note N -Commitments and Contingencies
Data Systems is involved in routine legal proceedings which are
incidental to its business. All of these proceedings arose in the ordinary
course of Data Systems' business and, in the opinion of Data Systems, any
potential liability of Data Systems with respect to these legal actions will
not, in the aggregate, be material to Data Systems' financial condition or
operations.
Note O - Settlement of Lawsuit
On February 17, 1999, Data Systems announced that it had agreed to a
stipulation of settlement of the consolidated complaint in the shareholder class
action lawsuit captioned, In Re: Data Systems Securities Litigation, Case No.
98-70854. The stipulation of settlement has been filed in federal court in
Detroit, Michigan and the court determined the settlement to be fair on May 24,
1999. Under the terms of the settlement, and subject to various conditions, Data
Systems created a gross settlement fund. The fund benefits a settlement class of
purchasers who bought Data Systems' stock during the period from May 16, 1996
through February 24, 1998. The fund was comprised of $900,000 provided by Data
Systems insurer, and, 650,000 shares of Data Systems' common stock which were
issued June 22, 1999. In agreeing to the settlement, Data Systems and individual
defendants made no admission of any wrongdoing.
As of December 31, 1998, Data Systems recorded a liability for this
settlement in the amount of $1,768,000. The amount of the liability was
calculated assuming that a proposed merger with Information Architects had taken
place and that the shares to be issued were those of Information Architects.
When the plan of merger with Information Architects did not take place
as planned the shares issued in the settlement were those of Data Systems rather
than Information Architects. As a result, the amount of the settlement of the
lawsuit was less than anticipated at December 31, 1998 and Data Systems
recognized $1,137,500 as income in 1999.
F-33
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS
Security Ownership of Certain Beneficial Owners and Management of TekInsight
The following table identifies as of March 31, 1999 each person known to
TekInsight to be the beneficial owner of more than five percent of its common
stock, each executive officer, each director of TekInsight, each nominee for
director, and all the directors and executive officers of TekInsight as a group.
The table sets forth the number of shares of TekInsight's common stock
beneficially owned by each such person and such group and the percentage of the
shares of TekInsight's outstanding common stock owned by each such person and
such group. In all cases, the named person has sole voting power and sole
investment power of the securities, unless otherwise specified.
<TABLE>
<CAPTION>
Number of Shares of Percentage of Outstanding
Name and Address Common Stock Shares of Common
Beneficial Owner Beneficially Owned (1) Stock Owned
---------------- --------------------- -----------
<S> <C> <C>
Estate of Fred Kassner 2,809,455 17.6%
Spring Street
Ramsey, NJ 07446 (4)
ViewCast.Com, Inc. 1,240,310 7.8
Villa Creek Drive, Suite 200
Dallas, TX 75234
Alexander Kalpaxis (2) (5) 788,583 4.9
Arion Kalpaxis (2) (5) 292,500 1.8
Michael W. Grieves 0 0
34705 W. 12 Mile Road
Suite 300
Farmington Hills, MI 48331
Damon D. Testaverde (2) (4)(6) 659,189 4.1
Walter J. Aspatore 0 0
255 East Brown Street Center
Suite 120
Birmingham, MI 48009
Brian D. Bookmeier (2) (3) 327,867 2.0
James Linesch 166,823 1.0
Walnut Avenue
Manhattan Beach, CA 90266 (6)
Steven J. Ross (2) (7) 200,000 1.2
All officers and directors as a
group (4 persons) (3) (5) (6) (7) 2,142,462 15.0%
</TABLE>
----------
(1) The term beneficial ownership with respect to a security is defined
by Rule 13d-3 under the Securities Exchange Act of 1934 as consists
of sole or shared voting power and/or sole or shared investment
power with respect to the security through any contract,
arrangement, understanding, relationship or otherwise, including a
right to acquire such power(s) during the next 60 days. Unless
otherwise noted, beneficial ownership consists of sole ownership,
voting and investment rights.
F-34
<PAGE>
(2) The principal business address for such person is 5 Hanover Square,
24th Floor, New York, New York 10004
(3) Includes 182,867 shares of common stock held by Mr. Bookmeier. Also
includes options to purchase 125,000 shares of common stock at $1.35
per share, granted in connection with the waiver of some cash
compensation in 1996, options to acquire 10,000 shares of common
stock granted under the 1992 Employee's Stock Option Plan at $.9375
per share and options to purchase 10,000 shares of common stock
granted under TekInsight's 1997 Non-Employee Director's Stock Option
Plan at $3.78 per share. 39,179 of the shares of common stock issued
to Mr. Bookmeier have been pledged to Barbara Milinko to secure a
$325,000 note payable to Ms. Milinko by Alan Korby, Mr. Bookmeier
and Mr. Gietzen.
(4) The Estate of Mr. Kassner, includes 40 shares of common stock
underlying TekInsight's publicly traded Class A Warrants and 100,000
shares of common stock underlying warrants granted in connection
with financial accommodations granted by Mr. Kassner related to the
release of security interests in TekInsight assets. For Mr.
Testaverde, includes the shares underlying 50,000 warrants granted
in connection with the waiver of defaults under then existing
indebtedness exercisable at $1.00 per share and 100,000 options
granted under the 1992 Employee Stock Option Plan exercisable at
$1.50 per share.
(5) Does not include an aggregate of 161,166 shares of common stock
transferred by Alexander Kalpaxis to three employees of AstraTek,
Inc. which shares are held in escrow for varying periods of time and
returned to Mr. Kalpaxis under specified circumstances. The number
of shares listed for Mr. Arion Kalpaxis includes 97,500 shares of
Common Stock which are held in escrow and may be returned to
Alexander Kalpaxis.
(6) Includes 30,000 options granted to each of Messrs. Linesch and
Testaverde (10,000 exercisable at $1.81 per share of common stock,
10,000 exercisable at $.9375 per share of common stock and 10,000
exercisable at $3.78 per share of common stock) under TekInsight's
1997 Non-Employee Director's Stock Option Plan. Includes 20,000
options granted to Mr. Bookmeier (10,000 exercisable at $3.78 per
share of common stock and 10,000 exercisable at $.9375 per share of
common stock) under TekInsight's 1997 Non-Employee Director's Stock
Option Plan and 1992 Employee Stock Option Plan, respectively.
(7) Includes options to purchase 200,000 shares of common stock at $3.00
per granted to Mr. Ross in connection with Mr. Ross's duties as a
consultant and as President and Chief Executive Officer of
TekInsight.
F-35
<PAGE>
Security Ownership of Certain Beneficial Owners and Management of Data Systems
The following table sets forth, as of March 8, 2000, beneficial
ownership information with respect to common stock ownership by each director
and each named executive officer of Data Systems, all current directors and
current executive officers as a group and all other persons known by Data
Systems to beneficially own more than 5% of the outstanding shares of common
stock. Unless otherwise noted below, each person has sole voting and investment
power over the shares beneficially owned.
<TABLE>
<CAPTION>
Number of Shares of Percentage of Outstanding
Name and Address Common Stock Shares of Common
Beneficial Owner(1) Beneficially Owned (2) Stock Owned(3)
---------------- ---------------------- -------------
<S> <C> <C>
Michael W. Grieves(5) 711,306 12.6%
Greg Cocke (4)(5) 361,250 6.5%
Garret L. Denniston 51,000 .9%
Diane L. Grieves 26,251 .5%
John O. Lychos 8,306 .1%
Walter J. Aspatore 13,306 .2%
Michael Jansen -- --
All executive officers and directors
as a group (6 persons) 1,171,419 20.7%
</TABLE>
-------------------
(1) The address for each beneficial owner named in the table is 34705 12
Mile Road, Suite 300, Farmington Hills, Michigan 48331.
(2) The term beneficial ownership with respect to a security is defined
by Rule 13d-3 under the Securities Exchange Act of 1934 consists of
sole or shared voting power and/or sole or shared investment power
with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, including a right to
acquire such power(s) during the next 60 days. Unless otherwise
noted, beneficial ownership consists of sole ownership, voting and
investment rights. This column includes the following number of
option shares of common stock that may be acquired upon the exercise
of stock options that are presently exercisable or become
exercisable within 60 days: Mr. Grieves 18,000; Mr. Cocke none; Mr.
Denniston 51,000; Ms. Grieves 26,251; Mr. Lychos none; Mr. Aspatore
1,000; Mr. Jansen none.
(3) For purposes of calculating the percentage of common stock
beneficially owned, the shares issuable to such person under stock
options or warrants exercisable within 60 days are considered
outstanding and are added to the shares of common stock actually
outstanding. Shares attributable to one person, however, are not
cross-attributed to any other person.
(4) Mr. Cocke is a former vice-president of Data Systems.
(5) In connection with the proposed merger, Mr. Grieves and Mr. Cocke
entered into a voting agreement, dated as of February 18, 2000 with
TekInsight, TekInsight Services and Data Systems pursuant to which
Mr. Grieves and Mr. Cocke each granted irrevocable proxies in favor
of TekInsight, and each of Damon Testaverde and Brian D. Bookmeier,
directors of TekInsight. The irrevocable proxies grant each of the
proxyholders the right to vote the shares of Data Systems common
stock held by Mr. Grieves and Mr. Cocke at any meeting of
shareholders of Data Systems called for purposes of approving the
merger. The voting agreement will terminate upon the earliest to
occur of the conclusion of the meeting held to vote on the
TekInsight merger or the termination of the agreement and plan of
merger, dated as of February 18, 2000, as amended April 4, 2000,
among TekInsight, TekInsight Services and Data Systems.
F-36
<PAGE>
Appendix A
CHAPTER 7B
CONTROL SHARE ACQUISITIONS
(Added by P.A. 58, L. '88, eff. 4-1-88.)
450.1790 [CONTROL SHARES]. - (1) This chapter shall be known and may be
cited as the "Stacey, Bennett, and Randall shareholder equity act."
(2) As used in this chapter, "control shares" means shares that, except
for this chapter, would have voting power with respect to shares or an issuing
public corporation that, when added to all other shares of the issuing public
corporation owned by a person or in respect to which that person may exercise or
direct the exercise of voting power, would entitle that person, immediately
after acquisition of the shares, directly or indirectly, alone or as pan of a
group, to exercise or direct the exercise of the voting power of the issuing
public corporation in the election of directors within any of the following
ranges of voting power:
(a) 1/5 or more but less than K/3 of all voting power.
(b) 1/3 or more but less than a majority of all voting power.
(c) A majority of all voting power.
450.1791 [CONTROL SHARE ACQUISITION]. - (1) As used in this chapter,
"control share acquisition" means the acquisition, directly or indirectly, by
any person of ownership of, or the power to direct the exercise of voting power
with respect to, issued and outstanding control shares.
(2) For purposes of this section, shares or the power to direct the
exercise of voting power acquired within a 90-day period, or shares or the power
to direct the exercise of voting power acquired pursuant to a plan to make a
control share acquisition, are considered to have been acquired in the same
acquisition.
(3) For purposes of this section, a person who acquires shares in the
ordinary course of business for the benefit of others in good faith and not for
the purpose of circumventing this chapter has voting power only of shares in
respect of which that person would be able to exercise or direct the exercise of
votes without further instruction from others.
(4) For purposes of this section, the acquisition of any shares of an
issuing public corporation does not constitute a control share acquisition if
the acquisition is consummated in any of the following circumstances:
(a) Before January 1, 1988.
(b) Pursuant to a contract existing before January 1, 1988.
<PAGE>
(c) By gift, testamentary disposition, marital settlement, descent and
distribution, or otherwise without consideration.
(d) Pursuant to the satisfaction of a pledge or other security interest
created in good faith and not for the purpose of circumventing this chapter.
(e) Pursuant to a merger or share exchange effected in compliance with
sections 701 to z 735 if the issuing public corporation is a party to the
agreement of merger or share exchange.
(f) By a governmental official acting in an official or fiduciary
capacity.
(5) For purposes of this section, the acquisition of shares of an
issuing public corporation in good faith and not for the purposes of
circumventing this chapter by any person whose voting rights previously had been
authorized by shareholders in compliance with this chapter, or whose previous
acquisition of shares of an issuing public corporation would have constituted a
control share acquisition but for subsection (4), does not constitute a control
share acquisition, unless the acquisition entitles a person, directly or
indirectly, alone or as part of a group, to exercise or direct the exercise of
voting power of the corporation in the election of directors in excess of the
range of the voting power which the acquiring person was entitled to exercise or
direct prior to such acquisition. (Last amended by P.A. 91, L. '93, eff.
10-1-93.)
450.1792 [INTERESTED SHARES]. - As used in this chapter, "interested
shares" means the shares of an issuing public corporation entitled to vote
pursuant to section 798(2) in respect of which any of the following persons may
exercise or direct the exercise of the voting power of the corporation:
(a) An acquiring person or member of a group with respect to a control
share acquisition.
(b) Any officer of the issuing public corporation.
(c) Any employee of the issuing public corporation who is also a
director of the corporation.
(d) If the corporation is a bank holding company, as defined by section
1841 of the bank holding company act of 1958, 12 U.S.C. 1841, the chairperson of
the board, president, executive vice president, or other director, officer, or
employee as may be designated by the board of directors prior to the filing of
an acquiring person statement.
450.1793 [ISSUING PUBLIC CORPORATION]. - (1) As used in this chapter,
"issuing public corporation" means a corporation that has all of the following:
(a) 100 or more shareholders of record.
(b) Its principal place of business, its principal office, or
substantial assets within Michigan.
-2-
<PAGE>
(c) 1 more of the following:
(i) More than 10% of its shareholders of record resident in
Michigan.
(ii) More than 10% of its shares owned of record by Michigan
residents.
(iii) 10,000 shareholders of record resident in Michigan.
(2) The residence of a shareholder is presumed to be the address
appearing in the records of the corporation.
(3) Shares held by banks, except as trustee, guardian, conservator,
personal representative, executor, or other fiduciary; brokers; or nominees
shall be disregarded for purposes of calculating the percentages or numbers
under this section.
450.1794 [CONTROL SHARES' VOTING RIGHTS ONLY AS CONFERRED BY SECTION
798, UNLESS OTHERWISE PROVIDED]. - Unless the corporation's articles of
incorporation or bylaws provide that this chapter does not apply to control
share acquisitions of shares of the corporation before the control share
acquisition, control shares of an issuing public corporation acquired in a
control share acquisition have only such voting rights as are conferred by
section 798.
450.1795 [ACQUIRING PERSON STATEMENT]. - Any person who proposes to
make or has made a control share acquisition may at the person's election
deliver an acquiring person statement to the issuing public corporation at the
issuing public corporation is principal office. The acquiring person's
statement, if submitted, is for informational purposes only. If the acquiring
person statement is delivered to the corporation, the person shall also file a
copy of the statement with the administrator. The acquiring person statement
shall set forth all of the following:
(a) The identity of the acquiring person and each other member of the
group of which the person is a part for purposes of determining control shares.
(b) A statement that the acquiring person statement is given pursuant
to this chapter.
(c) The number of shares of the issuing public corporation owned,
directly or indirectly, by he acquiring person and each other member of the
group and the number of shares not owned by such person, but with respect to
which each person has the power, directly or indirectly, to direct the exercise
of voting power.
(d) The range of voting power under which the control share acquisition
falls or, if consummated, would fall.
(e) If the control share acquisition has not taken place:
(i) A description in reasonable detail of the terms of the
proposed control share acquisition.
-3-
<PAGE>
(ii) Representations of the acquiring person, together with a
statement in reasonable detail of the facts upon which
they are based, that the proposed control share
acquisition, if consummated, will not be contrary to law.
(iii) A statement that the acquiring person has the Financial
ability to consummate the proposed control share
acquisition from its own internal funds, or the acquiring
person has entered into a definitive financing agreement,
with 1 or more responsible financial institutions or other
entities having the necessary financial capacity, for any
financing of the proposed control share acquisition not to
be provided by funds of the acquiring person. A copy of
the definitive financing agreement and evidence of the
acquiring person's financial capability to consummate the
proposed control share acquisition shall be provided to
the corporation with the acquiring person statement.
(iv) A statement as to the purpose of the acquisition,
including if the purpose is to acquire control of the
business of the issuer of the securities, any plans or
proposals which such persons may have to liquidate such
issuer, to sell its assets to or merge it with any other
persons, or to make any other major change in its business
or corporate structure.
450.1796 [REQUEST FOR SPECIAL MEETING OF SHAREHOLDERS FOR PURPOSE OF
CONSIDERING VOTING RIGHTS]. - (1) If the acquiring person so requests at the
time of delivery of an acquiring person statement and gives an undertaking to
pay the corporation's expenses of a special meeting, within 10 days after the
delivery, the directors of the issuing public corporation shall call a special
meeting of shareholders of the issuing public corporation for the purpose of
considering the voting rights to be accorded the shares acquired or to be
acquired in the control share acquisition. The corporation may require the
acquiring person in advance of the meeting to pay or provide for payment of the
amount reasonably estimated by the corporation as its expenses of a special
meeting.
(2) Unless the acquiring person agrees in writing to another date, the
special meeting of shareholders shall be held within 50 days after receipt by
the issuing public corporation of the request.
(3) If no request is made, but an acquiring person statement has been
filed with the corporation, the voting rights to be accorded the shares acquired
in the control share acquisition shall be presented at the next special or
annual meeting of shareholders.
(4) If the acquiring person so requests in writing at the time of
delivery of the acquiring person statement, the special meeting shall not be
held sooner than 30 days after receipt by the issuing public corporation of the
acquiring person statement.
450.1797 [NOTICE OF SPECIAL MEETING AND ACCOMPANYING STATEMENTS]. - (1)
If a special meeting is requested, notice of the special meeting of shareholders
shall be given as promptly as reasonably practicable by the issuing public
corporation to all shareholders of record as of the record date set for the
meeting, whether or not entitled to vote at the meeting.
-4-
<PAGE>
(2) Notice of the special or annual shareholder meeting at which the
voting rights are to be considered shall include or be accompanied by both of
the following:
(a) A copy of the acquiring person statement delivered to the issuing
public corporation pursuant to this chapter.
(b) A statement by the board of directors of the corporation,
authorized by its directors, of its position or recommendation, or that it is
taking no position or making no recommendation with respect to the control share
acquisition.
450.1798 [CONTROL SHARES, VOTING RIGHTS OF, RESOLUTIONS FOR]. - (1)
Control shares acquired in a control share acquisition have the same voting
rights as were accorded the shares before the control share acquisition only to
the extent granted by resolution approved by the shareholders of the issuing
public corporation.
(2) To be approved under this section, the resolution shall be approved
by both of the following:
(a) A majority of the votes cast by the holders of shares entitled to
vote thereon, and if the proposed control share acquisition would, if fully
carried out, result in any action which would require a vote as class or series,
by a majority of the votes cast by the holders of shares of each such class or
series entitled to vote thereon.
(b) A majority of the votes cast by the holders of shares entitled to
vote and a majority of the votes cast by the holders of shares of each class or
series entitled to vote as a class or series, excluding all interested shares.
450.1799 [REDEMPTION; DISSENTERS' RIGHTS, NOTICE OF; FAIR VALUE]. - (1)
If authorized in an issuing public corporation's articles of incorporation or
bylaws before a control share acquisition has occurred, control shares acquired
in a control share acquisition, with respect to which no acquiring person
statement has been filed with the issuing public corporation, may, at any time
during the period ending 60 days after the last acquisition of control shares or
the power to direct the exercise of voting power of control shares by the
acquiring person, be subject to redemption by the corporation at the fair value
of the shares pursuant to the procedures adopted by the corporation.
(2) If authorized in a corporation's articles' or bylaws before a
control share acquisition has occurred, after an acquiring person statement has
been filed and after the meeting at which the voting rights of the control
shares acquired in a control share acquisition are submitted to the
shareholders, the shares are subject to redemption by the corporation at the
fair value of the shares pursuant to the procedures adopted by the corporation
unless the shares are accorded full voting rights by the shareholders as
provided in section 798.
-5-
<PAGE>
(3) Unless otherwise provided in a corporation's articles of
incorporation or bylaws before a control share acquisition has occurred, in the
event control shares acquired in a control share acquisition are accorded full
voting rights and the acquiring person has acquired a majority of all voting
power of the corporation, shareholders of the issuing public corporation, other
than the acquiring person, have dissenters' rights as provided in this section.
(4) As soon as practicable after such events have occurred, the board
of directors shall cause a notice to be sent to all shareholders of the
corporation advising them that they have dissenters' rights to receive the fair
value of their shares and making an offer to pay for the shares at a specified
price deemed by the corporation to be the fair value. The issuing public
corporation and the shareholders shall have 2 all further rights as are provided
in this act.
(5) As used in this section, "fair value" means a value not less than
the highest price paid per share by the acquiring person in the control share
acquisition. (Last amended by P.A. 121, L. '89, eff. 10-1-89.)
-6-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
ARTICLE SEVENTH of the certificate of incorporation of the registrant
eliminates the personal liability of directors to the registrant or its
shareholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that such elimination of the personal liability of a director
of the registrant does not apply to (i) any breach of the director's duty of
loyalty to the registrant or its shareholders, including, but not limited to,
any appropriation, in violation of his duties, of any business opportunity of
the registrant, (ii) acts or omissions which involve intentional misconduct or a
knowing violation of law, (iii) actions prohibited under Section 174 of the
Delaware General Corporation Law (i.e., liabilities imposed upon directors who
vote for or assent to the unlawful payment of dividends, unlawful repurchases or
redemption of stock, unlawful distribution of assets of the registrant to the
Shareholders without the prior payment or discharge of the registrant's debts or
obligations, or unlawful making or guaranteeing of loans to directors), or (iv)
any transaction from which the director derived an improper personal benefit. In
addition, Article Ninth of the registrant's certificate of incorporation, as
amended, provides that the registrant shall indemnify its corporate personnel,
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, as amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 145 further provides that a corporation may indemnify a person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper. To the extent
that a director, officer, employee or agent of a corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding referred
to above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
-123-
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a list of all exhibits filed as part of this
registration statement:
<TABLE>
<CAPTION>
Exhibit Number Exhibit Description
-------------- -------------------
<S> <C>
2.1 Agreement and plan of merger, as amended, dated February 18, 2000 between TekInsight,
TekInsight Services and Data Systems (incorporated by reference from Form 8-K filed
February 29, 2000, SEC File No. 1-11568)
3.1 Amended certificate of incorporation (incorporated by reference from Form 8-K filed
December 6, 1999)
3.2 Amended and restated bylaws of TekInsight
4.1 Form of certificate of designations for Series A preferred stock
5.1 Opinion of Nixon Peabody LLP regarding legality of shares issued (including consent)
8.1 Form of joint opinion of Nixon Peabody LLP and Bodman, Langley & Dahling LLP regarding tax
matters (including consent)
9 Voting agreement between shareholders of Data Systems, TekInsight Services and TekInsight
dated as of February 18, 2000
10.1 Form of indemnity agreement between TekInsight and its officers and directors
10.2 Affiliate agreement dated as of February 18, 2000 between Michael W. Grieves and Gregory
Cocke, as principal shareholders, and Data Systems, TekInsight Services and TekInsight, as
parties to the merger
10.3 Consulting Agreement between Steven J. Ross and BugSolver.Com, Inc. dated as of December
10, 1999
23.1 Consent of Nixon Peabody LLP (contained in Exhibit 5.1 and Exhibit 8.1)
23.2 Consent of Bodman, Longley & Dahling LLP (contained in Exhibit 8.1)
23.3 Consent of Feldman Sherb Horowitz & Co., P.C.
23.4 Consent of Grant Thornton LLP
23.5 Consent of Plante & Moran, LLP
23.6 Consent of Valuemetrics, Inc.
23.7 Consent of Valuation Counselors Group, Inc.
24 Power of Attorney (included on signature page)
99.1 Consent of Steven J. Ross to being named a director
99.2 Consent of Michael W. Grieves to being named a director
99.3 Consent of Walter J. Aspatore to being named a director
99.4 Form of amendment to 1992 employee stock option plan
99.5 Opinion of Financial Advisor, Valuation Counselors
Group, Inc.
99.6 Opinion of Financial Advisor, Valuemetrics, Inc.
</TABLE>
-124-
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the SEC pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3,
Form S-8 or Form F-3, and the information required to be included
in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the SEC by the
registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include
any financial statements required by ss. 210.3-19 of this chapter
at the start of any delayed offering or throughout a continuous
offering. Financial statements and information otherwise required
by Section 10(a)(3) of the Act need not be furnished, provided that
the registrant includes in the prospectus, by means of a
post-effective amendment, financial statements required pursuant to
this paragraph (a)(4) and other information necessary to ensure
that all other information in the prospectus is at least as current
as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act
or ss.210.3-19 of this chapter if such financial statements and
information are contained in periodic reports filed with or
furnished to the SEC by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference on Form F-3.
-125-
<PAGE>
(b) The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of
1933, as amended may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement
when it became effective.
-126-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of New York, New York on May 1, 2000.
TekInsight.Com, Inc.
By: /s/ Arion Kalpaxis
---------------------------------------
Arion Kalpaxis, Chief Operating Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Steven J. Ross and Arion Kalpaxis and each
or any of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any amendment to this registration statement,
and to file same, with all exhibits thereto and other documents in connection
therewith, with the Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Steven J. Ross President and Chief Executive
- ----------------------------------- Officer May 1, 2000
Steven J. Ross
/s/ Alexander Kalpaxis Chairman of the Board and Chief
- ----------------------------------- Technology Officer May 1, 2000
Alexander Kalpaxis
Chief Operating Officer, Acting Chief
/s/ Arion Kalpaxis Financial Officer and Principal
- ----------------------------------- Accounting Officer May 1, 2000
Arion Kalpaxis
/s/ Brian D. Bookmeier Director May 1, 2000
- -----------------------------------
Brian D. Bookmeier
/s/ Damon Testaverde Director May 1, 2000
- -----------------------------------
Damon Testaverde
/s/ James Linesch Director May 1, 2000
- -----------------------------------
James Linesch
</TABLE>
-127-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Exhibit Description
-------------- -------------------
<S> <C>
3.2 Amended and restated bylaws of TekInsight
4.1 Form of certificate of designations for Series A preferred stock
5.1 Opinion of Nixon Peabody LLP regarding legality of shares issued (including consent)
8.1 Form of joint opinion of Nixon Peabody LLP and Bodman, Longley & Dahling LLP regarding tax
matters (including consent)
9 Voting agreement between shareholders of Data Systems, TekInsight Services and TekInsight
dated as of February 18, 2000
10.1 Form of indemnity agreement between TekInsight and its officers and directors
10.2 Affiliate agreement dated as of February 18, 2000 between Michael W. Grieves and Gregory
Cocke, as principal shareholders, and Data Systems, TekInsight Services and TekInsight, as
parties to the merger
10.3 Consulting Agreement between Steven J. Ross and BugSolver.Com, Inc. dated as of December 10, 1999
23.1 Consent of Nixon Peabody LLP (contained in Exhibit 5.1 and Exhibit 8.1)
23.2 Consent of Bodman, Longley & Dahling LLP (contained in Exhibit 8.1)
23.3 Consent of Feldman Sherb Horowitz & Co., P.C.
23.4 Consent of Grant Thornton LLP
23.5 Consent of Plante & Moran, LLP
23.6 Consent of Valuemetrics, Inc.
23.7 Consent of Valuation Counselors Group, Inc.
24 Power of Attorney (included on signature page)
99.1 Consent of Steven J. Ross to being named a director
99.2 Consent of Michael W. Grieves to being named a director
99.3 Consent of Walter J. Aspatore to being named a director
99.4 Form of amendment to 1992 employee stock option plan
99.5 Opinion of Financial Advisor, Valuation Counselors
Group, Inc.
99.6 Opinion of Financial Advisor, Valuemetrics, Inc.
</TABLE>
-128-
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS OF
TEKINSIGHT.COM, INC.
(A Delaware Corporation)
ARTICLE I.
Offices
SECTION 1. Principal Office. The principal office of the Corporation
shall be located in New York, New York.
SECTION 2. Registered Offices and Agent. The registered office of the
Corporation in the State of Delaware is 15 North Street, Dover Delaware 19901.
The registered agent shall be National Corporate Research, Ltd.
SECTION 3. Other Offices. The Corporation may also have an office or
offices other then said principal office a such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
ARTICLE II.
Meetings of Stockholders
SECTION 1. Place of Meetings. All meetings of the stockholders or the
election of directors or for any other purpose shall be held at such place as
may he fixed from time to time by the Board of Directors, or at such other
place, either within or without the state of Delaware; as shall be designated
from time to time by the Board of Directors.
SECTION 2. Annual Meeting. The annual meeting of the stockholders of
the Corporation for election of directors and for the transaction of such other
business as may properly come before the meeting, shall be designated from time
to time by the Board of Directors.
SECTION 3. Special Meetings. Special meetings of the stockholders,
unless otherwise prescribed by statute, maybe called at any time by the Board of
Directors or the Chairman of the Board, if one shall have been elected, or the
Vice-Chairman of the Board, if one shall have been elected, or the President and
shall not be called by the stockholders of the Corporation.
SECTION 4. Notice of Meetings. Notice of the place, date and hour of
holding of each annual and special meeting of the stockholders and, unless it is
the annual meeting, the purpose or purpose, thereof, shall be given personally
or by mail in a postage prepaid envelope, not less than ten (10) nor more than
sixty (60) days before the date of such meeting, to each Shareholder entitled to
vote at such meeting, and, if mailed, it shall be directed to such shareholder
<PAGE>
at his address as it appears on she record of stockholders, unless he shall have
filed with the Secretary of the Corporation a written request that notices to
him be mailed at some other address, in which case it shall be directed to him
at such other address. Any such notice for any meeting other then the annual
meeting shall indicate that it is being issued at the direction of the Board of
Directors, the Chairman of the Board, the Vice-Chairman of the Board, the
President or the Secretary, whichever shall have called the meeting. Notice of
any meeting of stockholders shall not be required to be given to any shareholder
who shall attend such meeting in person or by proxy and shall not, prior to the
conclusion of such meeting, protest the lack of notice thereof, or who shall,
either before or after the meeting, submit a signed waiver of notice, in person
or by proxy. Unless the Board of Directors shall fix a new record date for an
adjourned meeting, notice of such adjourned meeting need nos be given if the
time and place to which the meeting shall be adjourned were announced at the
meeting at which the adjournment is taken.
SECTION 5. Quorum. At all meetings of the stockholders the holders of a
majority of the shares of the Corporation issued and outstanding and entitled to
vote thereat shall be present in person or by proxy to constitute a quorum for
the transaction of business, except as otherwise provided by statute. In the
absence of a quorum, the holders on a majority of the shares present in person
or by proxy and entitled to vote may adjourn the meeting from time to time. At
any such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 6. Organization. At each meeting of the stockholders, the
Chairman of the Board, ii one shall have been elected, shall act as chairman of
the meeting. In the absence of the Chairman of the Board or if one shall not
have been elected, the Vice-Chairman of the Board, or in his absence or if one
shall not have been elected, the President shall act as chairman of the meeting.
The Secretary, or in his absence or inability to act, the person whom the
chairman of the meeting shall appoint secretary of the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 7. Order of Business. The order of business at all meetings of
the stockholders shall be determined by the chairman of the meeting
SECTION 8. Voting. Except as otherwise provided by statutes or the
Certificate of Incorporation, each holder of record of shares of the corporation
having voting power shall be entitled at each meeting of the stockholders to one
vote for each share standing in his name on the record of stockholders of the
Corporation.
(a) on the date fixed pursuant to the provisions of Section 6 of
Article V of these By-Laws as the record date for the determination of
the stockholders who shall be entitled to notice of and to vote at such
meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice
thereof shall be given.
-2-
<PAGE>
Each shareholder entitled to vote at any meeting of the shareholders may
authorize another person or persons to act for him by a proxy signed by such
shareholder or his attorney-in-fact. Any such proxy shall be delivered to the
secretary of such meeting at or peter to the time designated in the order of
business for so delivering such proxies, except as otherwise provided by statute
or the Certificate of Incorporation or these By-Laws, any corporate action to be
taken by vote of the stockholders shall be authorized by a majority of the votes
cast at a meeting of stockholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action. Unless required by
statute, or determined by the chairman of the meeting to be advisable, the vote
on any question need not be by ballot. On a vote by ballot, each ballot shall be
signed by the shareholder acting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
SECTION 9. List of Stockholders. A list of stockholders as of the
record date, certified by the Secretary of the Corporation or by the transfer
agent for the Corporation, shall be produced at any meeting of the stockholders
upon the request of any shareholder made at or prior to such meeting.
SECTION 10. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act on the request of any shareholder entitled to vote at such
meeting, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspector
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
results and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
shareholder entitled to vote thereat, the inspector shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by him. No director or candidate for the office
of director shall act as an inspector of an election of directors. Inspectors
need not be stockholders.
SECTION 11. Action by consent. Whenever stockholders are required or
permitted to take any action by vote, such action may be taken without a meeting
on written consent, setting forth the action so taken signed by the holders of a
majority of the outstanding shares of the Corporation entitled to vote thereon.
ARTICLE III.
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and do
all such lawful act and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
-3-
<PAGE>
SECTION 2. Number, Qualifications, Election and Term of Office. The
number of directors constituting the Board of Directors shall be determined by
the Board of Directors. Any decrease in the number of directors shall be
effective at the time of the next succeeding annual meeting of the stockholders
unless there shall be vacancies in the Board of Directors, in which case such
decrease may become effective at any time prior to the next succeeding annual
meeting to the extent of the number of such vacancies. All the directors shall
be at least eighteen years of age. Directors need not be stockholders. Except as
otherwise provided by statute or these By-Laws, the directors shall be elected
at the annual meeting of the stockholders. At each meeting of the stockholders
for the election of directors at which a quorum is present the persons receiving
a plurality of the votes cast at such election shall be elected. Each director
shall hold office until the next annual meeting of the stockholders and until
his successor shall have been elected and qualified, or until his death, or
until he shall have resigned, or have been removed, as hereinafter provided in
these By-Laws.
SECTION 3. Place of Meetings. Meeting of the Board of Directors shall
be held at the principal office of the Corporation in the State of Delaware or
at such other place, within or without such state, as the Board of Directors may
from time to time determine or as shall be specified in the notice of any such
meeting.
SECTION 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and place as the Board of Directors may fix. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day. Notice
of regular meetings of the Board of Directors need not be given except as
otherwise required by statute or these By-Laws.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman or by a majority of the directors.
SECTION 6. Notice of Meeting. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 6, in which notice shall be stated the time and place of meeting. Except
as otherwise required by these By-Laws, such notice need not state the purposes
of such meeting. Notice of each such meeting shall be mailed, postage prepaid,
to each director, addressed to him at his residents or usual place of business,
by first-class mail, at least five days before the day on which such meeting is
to be held, or shall be sent addressed to him at such place by telegraph, cable,
telex, telecopier or other similar means, or be delivered to him personally or
be given to him by telephone, or ocher similar moans, at least forty-eight hours
before the time at which such meeting is co be held. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting without
professing, prior to or at its commencement, the lack of notice to him.
-4-
<PAGE>
SECTION 7. Quorum and Mannner of Acting. A majority of the entire Board
of Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of Incorporation or these By-Laws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the directors present thereat
may adjourn such meeting to another time and place. Notice of the time and place
of any such adjourned meeting shall be given to the directors unless such time
and place were announced at the meeting at which the adjournment was taken. At
any adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally called.
The directors shall act only as a Board and the individual directors shall have
no power as such.
SECTION 8. Organization. At each meeting of the Board of Directors, the
Chairman of the Board, if one shall have been elected, shall act as the chairman
of the meeting, or in his absence or if one shall not have been elected, the
Vice-Chairman of the Board, or in his absence, or if one shall not have been
elected, the President, if he or she is a director (or, in his absence, another
director chosen by a majority of the directors present) shall act as chairman of
the meeting and preside thereat. The Secretary (or, in his absence, any person
- -- who shall be an Assistant Secretary, if any of them shall be present at such
meeting --. appointed by the chairman) shall act as secretary of the meeting and
keep the minutes thereof.
SECTION 9. Resignations. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors
or the Chairman of the Board or the Vice-Chairman of the Board or the President
or the Secretary. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon ins receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 10. Vacancies. Subject to any expressed provision of the
Certificate of Incorporation, any vacancy in the Board of Directors, whether
arising from death, resignation, removal (with or whether cause), an increase in
the number of directors or any other cause, may be filled by the vote of a
majority of the directors then in office, though less then a quorum, or by the
stockholders at the next annual meeting thereof or at a special meeting thereof.
Stockholders of the Company may not apply to request that the Delaware Court of
Chancery summarily order an election to be held to fill vacancies in the Board
of Directors. Each director so elected shall hold office until the next meeting
of the stockholders in which the election of directors is in the regular order
of business and until his successor shall have been elected and qualified.
SECTION 11. Removal of Directors. Except as otherwise provided by
statute, any director may be removed, either with or without cause, at any time,
by the stockholders at a special meeting thereof. Except as otherwise provided
by statute, any director may be removed for cause by the Board of Directors at a
special meeting thereof.
-5-
<PAGE>
SECTION 12. Compensation. The Board of Directors shall have authority
to fix the compensation, including fees and reimbursement of expenses, of
directors for services to the Corporation in any capacity.
SECTION 13. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, including an executive committee, each committee to consist of two
or more of the directors of the Corporation. The Board of Directors may
designate one or more directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent member at any meeting of the committee. Except to the extent
restricted by statute or the Certificate of Incorporation, each such committee,
to the extent provided in the resolution creating it, shall have and may
exercise all the authority of the Board of Directors. Each such committee shall
serve at the pleasure of the Board of Directors and have such name as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors.
SECTION 14. Action by Consent. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may participate in a meeting of the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee consent in writing to the adoption
of a resolution authorizing the action. The resolution and the written consents
thereto by the members of the Board of Directors or such committee shall be
filed with the minutes of the proceedings of the Board of Directors or such
committee.
SECTION 15. Telephonic Meeting. Unless restricted by the Certificate of
Incorporation or by statute, any one or more members of the Board of Directors
any committee thereof may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each ocher
an the same time. Participation by such means shall constitute presence in
person at a meeting.
ARTICLE IV.
Officers
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be elected by the Board of Directors and shall include the Chairman of the
Board, elected from among the directors, and shall include a President and a
Secretary, who need not be directors. If the Board of Directors wishes, it may
also elect such other officers of the Corporation, including Vice-Chairman of
the Board (including a chief operating officer, a chief financial officer, a
chief technology officer, one or more Vice Presidents, a Treasurer, one or more
Assistant Treasurers and one or more Assistant Secretaries), as may be necessary
or desirable for the business of the Corporation. Any two or more offices may be
held by the same person. Each officer shall hold office until the first meeting
of the Board of Directors following the next annual meeting of stockholders, and
until his successor shall have been elected and shall have qualified, or until
his death, or until he shall have resigned or have been removed, as hereinafter
provided in these By-Laws.
-6-
<PAGE>
SECTION 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors
or the Chairman the Board or the Vice-Chairman of the Board, if one shall be
elected, or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt. Unless
otherwise specified therein, the acceptance of any such resignation shall not be
necessary to make it effective.
SECTION 3. Removal. Any officer of the Corporation may be removed,
either with or without cause, at any time, by the Board of Directors at any
meeting thereof.
SECTION 4. Chairman of the Board. The Chairman of the Board shall be an
officer of the Corporation and shall be a member of the Board and, if present,
shall preside at each meeting of the Board of Directors or the stockholders. He
shall perform all duties incident to the office of Chairman, and shall perform
such other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 5. Vice-Chairman of the Board. The Vice-Chairman of the Board,
if one shall have been elected, shall be a member of the Board, an officer of
the Corporation and, if present, shall preside at each meeting of the Board of
Directors if no Chairman of the Board has been elected or if the Chairman of the
Board is absent, or is unable or refuses to act. He shall advise and counsel the
Chairman of the Board, and in the Chairman's absence, the President, and, in the
President's absence, other executives of the corporation, and shall perform such
ocher duties as may from time to time be assignee to him by the Board of
Directors.
SECTION 6. President. The President shall be the chief executive
officer of the Corporation and shall have general and active control of its
affairs and business and general supervision of its officers, agents and
employees. He shall, in the absence of the Chairman of the Board and the
Vice-Chairman of the Board or if neither has been elected, preside at each
meeting of the Board of Directors (if he/she is a director) or the stockholders.
He shall perform all duties incident to the office of the Chief Executive
Officer and President and chief executive officer and such other duties as may
from time to time be assigned to him by the Board of Directors.
SECTION 7. Chief Operating Officer. The Chief Operating Officer shall
perform all duties incident to the office of chief operating officer and such
other duties as may from time to time be assigned to him/her by the Board of
Directors.
SECTION 8. Chief Financial Officer. The Chief Operating Officer shall
perform all duties incident to the office of chief financial officer and such
other duties as may from time to time be assigned to him/her by the Board of
Directors.
-7-
<PAGE>
SECTION 9. Chief Technology Officer. The Chief Technology Officer shall
perform all duties incident to the office of chief technology officer and such
other duties as may from time to time be assigned to him/her by the Board of
Directors.
SECTION 10. Vice President. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Board of Directors or
the President. At the request of the President, or in his absence or in the
event of his inability or refusal to act, the Vice-President, or if there shall
be more that one, the Vice-Presidents in the order determined by the Board of
Directors (or if there be no such determination, then the Vice-Presidents in the
order of their election), shall perform the duties of the President, and, when
so called, shall have the power of and be subject to the restrictions placed
upon the President in respect of the performance of such duties.
SECTION 11. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may he designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition of the
Corporation; and
(g) in general, perform all duties incident to the office of the
Treasurer and such other duties as from time to time may be assigned co
him by the Board of Directors.
SECTION 12. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
-8-
<PAGE>
(c) be custodian of the records of the corporation and affix and
attest the seal to all certificates for shares of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to
all other documents to be executed on behalf of the Corporation under
its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are
properly kept and filed; and
(e) in general, perform all duties incident to the office of the
secretary and such other duties as from time to time may be assigned to
him by the Board of Directors.
SECTION 13. The Assistant Treasurer. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of his inability or refusal to act, perform the duties and exercise she powers
of the Treasurer and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 14. The Assistant Secretary. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Secretary in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 15. Officers' Bonds or Other Security Assistant. If required by
the Board of Directors, any officer of the Corporation shall give a bond or
other security for the faithful performance of his duties, in such amount and
with such surety or sureties as the Board of Directors may require.
SECTION 16. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a director of
the corporation.
-9-
<PAGE>
ARTICLE V.
Shares, etc.
SECTION 1. Share Certificates. Each owner of shares of the Corporation
shall be entitled to have a certificate, in such form as shall be approved by
the Board of Directors, certifying the number of shares of the Corporation owned
by him. The certificates representing shares shall be signed in the name of the
Corporation by the Chairman of the Board or the Vice-Chairman of the Board or
the President or a Vice-President and by the Secretary, an Assistant Secretary,
the Treasurer or an Assistant Treasurer, and sealed with the seal of the
Corporation (which seal may be a facsimile, engraved or printed); provided,
however, that where any such certificate is countersigned by a transfer agent,
or is registered by a registrar (other than the Corporation or one of its
employees), the signatures of the Chairman of the Board, Vice-Chairman of the
Board, President, Vice-President, Secretary, Assistant Secretary, Treasurer or
Assistant Treasurer upon such certificates may be facsimiles, engraved or
printed. In case any officer who shall have signed any such certificate shall
have ceased to be such officer before such certificate shall be issued, it may
nevertheless be issued by the Corporation with the same effect as if such
officer were still in office at the date of their issue. When the Corporation is
authorized to issue shares of more than one class, there shall be set forth upon
the face or back of the certificate, (or the certificate shall have a statement
that the Corporation will furnish to any shareholder upon request and without
charge) a full statement of the designation, relative rights, preferences, and
limitations of the shares of each separate class, or of the different shares
within each class, authorized to be issued and, if the Corporation is authorized
to issue any class of preferred shares in series, the designation, relative
rights, preferences and limitations of each such series so far as the same have
been fixed and the authority of the Board of Directors to designate and fix the
relative rights, preferences and limitations of other series.
SECTION 2. Books of Account and Record of Stockholders
There shall be kept correct and complete books and records of account
of all the business and transactions of the Corporation. There shall also kept,
at the office of the Corporation, or at the office of its transfer agent, a
record containing the names and addresses of all stockholders of the
Corporation, the number of shares held by each, and the dates when they became
the holders of record thereof.
SECTION 3. Transfer of Shares
Transfers of shares of the Corporation shall be made on the records of
the Corporation only upon authorization by the registered holder thereof, or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Secretary or with a transfer agent, and on surrender of the certificate
or certificates for such shares properly endorsed or accompanied by a duly
executed stock transfer power and the payment of all taxes thereon. The person
in whose name shares shall stand on the record of stockholders of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation. Whenever any transfer of shares shall be made for collateral
security and not absolutely and written notice thereof shall be given to the
Secretary or to a transfer agent, such fact shall be noted on the records of the
Corporation.
SECTION 4. Transfer Agents and Registrars. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars and may require all certificates for shares of
stock to bear the signature of any of them.
SECTION 5. Regulations. The Board of Directors may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the Corporation.
-10-
<PAGE>
SECTION 6. Fixing of Record Date. The Board of Directors may fix, in
advance, a date not more than fifty (50) nor less than ten (10) days before the
date when fixed for the holding of any meeting of the stockholders or before the
last day on which the consent or dissent of the stockholders may be effectively
expressed for any purpose whether a meeting, as the time as of which the
stockholders entitled to notice of and to vote at such meeting or whose consent
or dissent is required or may be expressed for any purpose, as the case may be,
shall be determined, and all persons who were stockholders of record of voting
shares at such time and no others, shall be entitled to notice of and to vote at
such meeting or to express their consent or dissent, as the case may be. The
Board of Directors may fix, in advance, a date not more than fifty nor less than
ten days preceding the date fixed for the payment of any dividend or the making
of any distribution or the allotment of rights to subscribe for securities of
the Corporation, or for the delivery of evidence of rights or evidences of
interests arising out of any change, conversion or exchange of shares or other
securities, as the record date for the determination of the stockholders
entitled to receive any such dividend, distribution, allotment, rights or
interests, and in such case only the stockholders of record at the time so fixed
shall be entitled to receive such dividend, distribution, allotment, rights or
interests.
SECTION 7. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing shares of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of such certificate, and the
Corporation may issue a new certificate in the place of any certificate
theretofore issued by it which the owner thereof shall allege to have been lost
or destroyed or which shall have been mutilated. The Board of Directors may, in
its discretion, require such owner or his legal representatives to give to the
Corporation a bond in such sum, limited or unlimited, and in such form and with
such surety to sureties as the Board of Directors in its absolute discretion
shall determine, to indemnify the corporation against any claim that may be made
against it on account of the alleged loss or destruction of any such
certificate, or the issuance of such new certificate.
ARTICLE VI.
Indemnification
Except as may otherwise be specifically provided in the Certificate of
Incorporation, no provision of the Certificate of Incorporation is intended by
the Corporation to be construed as limiting, prohibiting, denying or abrogating
any of the general or specific powers or rights conferred under the Delaware
General Corporation Law upon the Corporation, upon its stockholders, bondholders
and security holders, and upon its directors, officers and other corporate
personnel, including, in particular, the power of the Corporation to furnish
indemnification to directors and officers in the capacities defined and
prescribed by the Delaware General Corporation Law and the defined and
prescribed rights of said persons to indemnification as the same are conferred
under the Delaware General Corporate Law. The Corporation shall, to the fullest
extent permitted by the laws of the State of Delaware, including, but not
limited to Section 145 of the Delaware General Corporation Law, as the case may
be amended and supplemented, indemnify any and all persons whom it shall have
power to indemnify under said Section or otherwise under Delaware law from and
against any and all of the expenses, liabilities or other matters referred to or
covered by said Section. The indemnification provisions contained in the
Delaware General Corporation Law shall not be deemed exclusive of any other
rights to which these indemnified may be entitled under any By-Law, agreement,
resolution of stockholders or disinterested directors, or otherwise, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent, both as to action in his official capacity and as to action in another
capacity while holding such office, and shall inure to the benefit of the heirs,
executors and administrators of such person.
-11-
<PAGE>
ARTICLE VII.
General Provisions
SECTION 1. Dividends. Subject to the statute or and the Certificate of
Incorporation, dividends upon the shares of the Corporation may be declared by
the Board of Directors at any regular or special meeting. Dividends may be paid
in cash, in property or in shares of the Corporation, unless otherwise provided
by statute or the Certificate of Incorporation.
SECTION 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed, and once fixed, may thereafter be changed, by resolution of the
Directors.
SECTION 4. Checks, Notes, Drafts Etc.. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
SECTION 5. Execution of Contracts, Deeds, Etc.. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation to enter into or execute and deliver any and all
deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 6. Voting of Stocks in Other Corporations. Unless otherwise
provided by the resolution of the Board of Directors, the Chairman of the Board,
the Vice-Chairman of the Board, the President or any Vice-President, from time
to time may (or may appoint one or more attorneys or agents to) cast the vote
which the Corporation may be entitled to cast as a shareholder or otherwise in
any other corporation, any of whose shares or securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporations, or to consent in writing to any action by any such
other corporation. In the event one or more attorneys or agents are appointed,
the Chairman of the Board, the Vice-Chairman of the Board, the President or any
Vice-President may instruct the person or persons so appointed as to the manner
of casting such votes or giving such consent. The Chairman of the Board, the
Vice-Chairman of the Board, the President or any Vice-President may, or may
instruct the attorneys or agents appointed to, execute or cause to be executed
in the name and on behalf of the Corporation and under its seal or otherwise,
such written proxies, consents, waivers or other instruments as may be necessary
or proper in the premises.
-12-
<PAGE>
ARTICLE VIII.
Force and Effect of By-Laws
These By-Laws ars subject to the provisions of the Delaware General
Corporation Law and the Corporation's Certificate of Incorporation, as it may be
amended from time to time. If any provision in these By-Laws is inconsistent
with a provision in that Act or the Certificate of Incorporation, the provision
of that Act or the certificate of incorporation shall govern. Wherever in these
By-Laws references are made to more than one incorporator, director, or
shareholder, they shall, if this is a sole incorporator, director, shareholder
corporation, be construed to mean the solitary person; an all provision dealing
with the quantum of majorities or quorums shall be deemed to mean the action by
the one person constituting the Corporation.
ARTICLE IX.
Amendments
These By-Laws may be amended or repealed or new By-Laws may be adopted
at an annual or special meeting of stockholders at which a quorum is present or
represented, by the vote of the holders of shares entitled to vote thereon;
provided that notice of the proposed amendment or repeal or adoption of new
By-Laws is contained in the notice of such meeting. These By-Laws may also be
amended or repealed or new By-Laws may be adopted by the Board of Directors.
By-Laws adopted by the Board of Directors may be amended or repealed by the
stockholders.
-13-
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS OF SERIES A
CONVERTIBLE PREFERRED STOCK
AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS THEREOF
OF
TEKINSIGHT.COM, INC.
(Under Section 151 of the Delaware General Corporation Law)
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS OF SERIES A
CONVERTIBLE PREFERRED STOCK
AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS THEREOF
OF
TEKINSIGHT.COM, INC.
(Under Section 151 of the Delaware General Corporation Law)
TekInsight.Com, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware and formerly known as Tadeo Holdings, Inc. and as Universal
Self Care, Inc., in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of
Directors by the Certificate of Incorporation of said Corporation, said Board of
Directors duly adopted a resolution providing for the authorization of a series
of preferred stock consisting of 7,500,000 shares designated Series A
Convertible Preferred Stock, which resolution is as follows:
RESOLVED: That, pursuant to Article FOURTH of the Certificate
of Incorporation of the Corporation, there be and hereby is authorized and
created a series of Preferred Stock, hereby designated as the Series A
Convertible Preferred Stock, to consist of 7,500,000, par value of $.0001 per
share, having the designations, preferences, relative participating, optional
and other special rights, qualifications, limitations and restrictions as
hereinafter set forth (the "Certificate of Designations"):
ARTICLE 1.
DEFINITIONS
SECTION 1.1. Definitions. The terms defined in this Article
whenever used in this Amendment have the following respective meanings:
(a) [Reserved]
(b) "Affiliate" has the meaning ascribed to such term in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.
-2-
<PAGE>
(c) "Average Price" means the average of the closing sale
prices per share of Common Stock as reported on the Nasdaq SmallCap Market for
the ten (10) consecutive trading days ending on the trading day that immediately
precedes the Closing Date.
(d) "Business Day" means a day other than Saturday, Sunday or
any day on which banks located in the State of New York are authorized or
obligated to close.
(e) "Capital Shares" means the Common Shares and any other
shares of any other class or series of Common Stock, whether now or hereafter
authorized and however designated, which have the right to participate in the
distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Corporation.
(f) "Closing Date" means the Closing Date as defined in the
Merger Agreement.
(g) "Common Shares" or "Common Stock" means shares of Common
Stock, $.0001 par value, of the Corporation.
(h) "Common Stock Issued at Conversion" when used with
reference to the securities issuable upon conversion of the Series A Preferred
Stock, means all Common Shares now or hereafter Outstanding and securities of
any other class or series into which the Series A Preferred Stock hereafter
shall have been changed or substituted, whether now or hereafter created and
however designated.
(i) "Conversion Date" means any day on which all or any
portion of shares of the Series A Preferred Stock is converted in accordance
with the provisions hereof.
(j) "Conversion Notice" has the meaning set forth in Section
6.2.
(k) "Conversion Rate" means on any date of determination the
applicable rate (e.g., one-for-one) for the conversion of shares of Series A
Preferred Stock into Common Shares on such day as set forth in Section 6.1.
(l) "Corporation" means TekInsight.Com, Inc., a Delaware
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Surviving
Corporation's assets, or otherwise.
(m) "Current Conversion Date" means the first anniversary of
the Closing Date.
(n) "Holders" means any Persons who become the registered
owners of shares of Series A Preferred Stock pursuant to the terms and
conditions of the Merger Agreement, or any Persons to whom the Series A
Preferred Stock is subsequently transferred in accordance with the provisions
hereof.
(o) "Merger Agreement" means that certain Agreement and Plan
of Merger, dated February 18, 2000, between the Corporation, Astratek, Inc. and
Data Systems Network Corporation.
-3-
<PAGE>
(p) "Outstanding" when used with reference to Common Shares or
Capital Shares (collectively, "Shares"), means, on any date of determination,
all issued and outstanding Shares, and includes all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that any such Shares directly or
indirectly owned or held by or for the account of the Corporation or any
Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes
hereof.
(q) "Person" means an individual, a corporation, a
partnership, an association, a limited liability company, a unincorporated
business organization, a trust or other entity or organization, and any
government or political subdivision or any agency or instrumentality thereof.
(r) "SEC" means the United States Securities and Exchange
Commission.
(s) "SEC Investigation" means the formal private investigation
by the SEC of accounting irregularities experienced by Data Systems Network
Corporation ("DSN") in DSN's 1996 and 1997 fiscal years, and of which DSN was
informed by the SEC on October 29, 1998.
(t) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder, all as in effect
at the time.
(u) "Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(v) "Surviving Corporation" means Astratek, Inc., a New York
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Corporation's
asset, or otherwise.
All references to "cash" or "$" herein means currency of the
United States of America.
ARTICLE 2.
RESERVED
ARTICLE 3.
RANK
The Series A Preferred Stock shall rank (i) prior to the
Common Stock, except as specifically provided for herein; (ii) prior to any
-4-
<PAGE>
class or series of capital stock of the Corporation hereafter created other than
"Pari Passu Securities" (collectively, with the Common Stock, "Junior
Securities"); and (iii) pari passu with any class or series of capital stock of
the Corporation hereafter created specifically ranking on parity with the Series
A Preferred Stock ("Pari Passu Securities").
ARTICLE 4.
DIVIDENDS
SECTION 4.1. Dividends. (a) The Holders shall be entitled to
receive, out of funds legally available therefor, dividends in the same amount
per share as dividends are paid with respect to the Common Stock (treating each
share of Series A Preferred Stock as being equal to the number of shares of
Common Stock into which each such share of Series A Preferred Stock could be
converted pursuant to the provisions of Article 6 hereof, with such number
determined as of the record date for the determination of Holders of Common
Stock entitled to receive such dividend).
(b) As long as any shares of the Series A Preferred Stock are
Outstanding, no dividends shall be declared or paid or set apart for payment on
Pari Passu Securities for any period unless dividends in the same amount per
share as dividends are paid with respect to the Series A Preferred Stock and
Common Stock (with the Series A Preferred Stock being treated along with the
Common Stock in accordance with the requirements of Section 4.1(a)) have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Series A Preferred Stock.
(c) As long as any shares of the Series A Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities (other than the
Common Stock) nor shall any Junior Securities be redeemed, purchased or
otherwise acquired [other than a redemption, purchase or other acquisition of
shares of Common Stock made for purposes of an employee agreement, or incentive
or benefit plan (including a stock option plan), of the Corporation or any
subsidiary (all such dividends, distributions, redemptions or purchases being
hereinafter referred to as a "Junior Securities Distribution")] for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any shares of any such stock) by the Corporation, directly or
indirectly, unless in each case an equal amount of Junior Securities
Distribution per share as dividends, distributions, redemptions or purchase
amounts are paid with respect to the Series A Preferred Stock, any Pari Passu
Securities and the Common Stock (with the Series A Preferred Stock being treated
along with the Common Stock in accordance with the requirements of Section
4.1(a)).
-5-
<PAGE>
ARTICLE 5.
LIQUIDATION PREFERENCE
SECTION 5.1. Liquidation. (a) If the Corporation shall
commence the winding up, dissolution or liquidation of its affairs, and the
Corporation shall liquidate, dissolve or wind up (each such event being
considered a "Liquidation Event"), no distribution shall be made to the Holders
of any shares of capital stock of the Corporation upon liquidation, dissolution
or winding up unless prior thereto, the holders of shares of Series A Preferred
Stock, subject to Article 5, shall have received the Liquidation Preference (as
defined in Section 5.1(b)) with respect to each share. If upon the occurrence of
a Liquidation Event, the assets and funds available for distribution among the
Holders of the Series A Preferred Stock and Holders of Pari Passu Securities
shall be insufficient to permit the payment to such Holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series A Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate Liquidation Preferences payable on all such shares.
(b) For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series A Preferred Stock shall mean an amount equal to
the Average Price (adjusted appropriately for stock splits).
ARTICLE 6.
CONVERSION OF SERIES A PREFERRED STOCK
SECTION 6.1. Conversion. A Holder of any share or shares of
Series A Preferred Stock shall be entitled, at any time and from time to time
after the Current Conversion Date (unless a Liquidation Event has occurred prior
to that date) to cause any or all of such shares to be converted into shares of
Common Stock. The initial Conversion Rate for each share of Series A Preferred
Stock shall be equal to one share of Series A Preferred Stock for one share of
Common Stock, which Conversion Rate shall be adjusted as hereinafter provided.
If a Holder elects to convert Series A Preferred Stock at a time when there are
any declared and unpaid dividends or other amounts due on such shares, to the
extent permitted by applicable law (which the Corporation shall use its best
efforts to comply with in order to permit such payment of declared and unpaid
dividends or other amounts), such dividends and other amounts shall be paid in
full by the Corporation in connection with such conversion.
SECTION 6.2. Exercise of Conversion Privilege. Conversion of
the Series A Preferred Stock may be exercised, in whole or in part, by the
Holder by telecopying an executed and completed notice of conversion in the form
annexed hereto as Annex I (the "Conversion Notice") to the Corporation. Each
date on which a Conversion Notice is telecopied to and received by the
Corporation in accordance with the provisions of this Section 6.2 shall
constitute a Conversion Date. The Corporation shall convert the Series A
-6-
<PAGE>
Preferred Stock and issue the Common Stock Issued at Conversion effective as of
the Conversion Date. The Conversion Notice also shall state the name or names
(with addresses) of the persons who are to become the Holders of the Common
Stock Issued at Conversion in connection with such conversion. The Holder shall
deliver the shares of Series A Preferred Stock to the Corporation by express
courier within five (5) days following the date on which the telecopied
Conversion Notice has been transmitted to the Corporation. Upon surrender for
conversion, the Series A Preferred Stock shall be accompanied by a proper
assignment hereof to the Corporation or be endorsed in blank. As promptly as
practicable after the receipt of the Conversion Notice and the surrender of the
Series A Preferred Stock being converted as aforesaid, the Corporation shall (i)
issue the Common Stock Issued at Conversion in accordance with the provisions of
this Article 6, and (ii) cause to be mailed for delivery to the Holder (X) a
certificate or certificate(s) representing the number of Common Shares to which
the Holder is entitled by virtue of such conversion, (Y) cash, as provided in
Section 6.3, in respect of any fraction of a Share issuable upon such conversion
and (Z) cash in the amount of unpaid dividends as of the Conversion Date. Such
conversion shall be deemed to have been effected at the time at which the
Conversion Notice indicates so long as the Series A Preferred Stock shall have
been surrendered as aforesaid at such time, and at such time the rights of the
Holder of the Series A Preferred Stock, as such, shall cease and the Person and
Persons in whose name or names the Common Stock Issued at Conversion shall be
issuable shall be deemed to have become the Holder or Holders of record of the
Common Shares represented thereby. The Conversion Notice shall constitute a
contract between the Holder and the Corporation, whereby the Holder shall be
deemed to subscribe for the number of Common Shares which it will be entitled to
receive upon such conversion and, in payment and satisfaction of such
subscription (and for any cash adjustment to which it is entitled pursuant to
Section 6.4), to surrender the Series A Preferred Stock and to release the
Corporation from all liability thereon. No cash payment aggregating less than
$1.50 shall be required to be given to any Holder unless specifically requested
by the Holder.
SECTION 6.3. Fractional Shares. No fractional Common Shares or
scrip representing fractional Common Shares shall be issued upon conversion of
the Series A Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series A Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the Average Price (as adjusted for stock splits).
No cash payment of less than $1.50 shall be required to be given unless
specifically requested by the Holder.
SECTION 6.4. Reclassification, Consolidation, Merger or
Mandatory Share Exchange. At any time while the Series A Preferred Stock remains
outstanding and any shares thereof have not been converted, in case of any
reclassification or change of Outstanding Common Shares issuable upon conversion
of the Series A Preferred Stock (other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value or
as a result of a subdivision or combination of outstanding securities issuable
upon conversion of the Series A Preferred Stock) or in case of any
consolidation, merger or mandatory share exchange of the Corporation with or
into another corporation (other than a merger or mandatory share exchange with
another corporation in which the Corporation is a continuing corporation and
which does not result in any reclassification or change, other than a change in
par value, or from par value to no par value per share, or from no par value per
share to par value, or as a result of a subdivision or combination of
Outstanding Common Shares upon conversion of the Series A Preferred Stock), or
in the case of any sale or transfer to another corporation of the property of
the Corporation as an entirety or substantially as an entirety (any of which
-7-
<PAGE>
shall be identified as a "Major Corporate Event"), the Corporation, or such
successor, resulting or purchasing corporation, as the case may be, shall,
without payment of any additional consideration therefor, execute a new Series A
Preferred Stock providing that the Holder shall have the right to convert such
new Series A Preferred Stock (upon terms and conditions not less favorable to
the Holder than those in effect pursuant to the Series A Preferred Stock) and to
receive upon such exercise, in lieu of each Common Share theretofore issuable
upon conversion of the Series A Preferred Stock, the kind and amount of shares
of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, mandatory share exchange, sale
or transfer by the Holder of one Common Share issuable upon conversion of the
Series A Preferred Stock had the Series A Preferred Stock been converted
immediately prior to such reclassification, change, consolidation, merger,
mandatory share exchange or sale or transfer. The provisions of this Section 6.4
shall similarly apply to successive reclassifications, changes, consolidations,
mergers, mandatory share exchanges and sales and transfers.
SECTION 6.5. Reservation of Common Stock. The Corporation
shall at all times reserve and keep available out of its authorized and unissued
Common Stock, solely for issuance upon the conversion of Series A Preferred
Stock as herein provided, free from any preemptive rights or other obligations,
such number of shares of Common Stock as shall from time to time be issuable
upon the conversion of all the Series A Preferred Stock then outstanding. The
Corporation shall prepare and shall use its best efforts to obtain and keep in
force such governmental or regulatory permits or other authorizations as may be
required by law, and shall comply with all requirements as to registration,
qualification or listing of the Common Stock, in order to enable the Corporation
lawfully to issue and deliver to each Holder of record of Series A Preferred
Stock such number of shares of its Common Stock as shall from time to time be
sufficient to effect the conversion of all Series A Preferred Stock then
outstanding and convertible into shares of Common Stock.
SECTION 6.6. Adjustments. The Conversion Rate in effect, or
the number of shares of Common Stock into which the Series A Preferred Stock is
convertible, from time to time shall be subject to adjustment as follows:
(a) Stock Dividends, Subdivisions and Combinations. Upon the
issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock (unless also distributed to Holders of
Series A Preferred Stock in accordance with Section 4.1(a)), the subdivision of
outstanding shares of Common Stock into a greater number of shares of Common
Stock, or the combination of outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the Conversion Rate shall, simultaneously with
the happening of such dividend, distribution, subdivision or combination be
adjusted by multiplying the then effective Conversion Rate by a fraction, the
numerator of which shall be the number of shares of Common Stock Outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock Outstanding immediately after such event. An
adjustment made pursuant to this Section 6.6(a) shall be given effect, in the
-9-
<PAGE>
case of payment of such a dividend or distribution, as of the record date for
the determination of stockholders entitled to receive such dividend or
distribution (on a retroactive basis) and in the case of a subdivision or
combination shall become effective immediately as of the effective date thereof.
(b) Other Adjustments. (i) In event the Corporation shall make
or issue, or fix a record date for the determination of Holders of Common Stock
entitled to receive a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the Holders shall receive
upon conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the number of securities of the Corporation which they
would have received had their Series A Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the respective Conversion
Date, retained such securities receivable by them as aforesaid during such
period, giving application to all adjustments called for during such period
under this Section 6.6 as applied to such distributed securities.
(ii) If the Common Stock issuable upon the conversion of the
Series A Preferred Stock shall be changed into the same or different number of
shares of any class or classes of stock, whether by reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend,
subdivision or combination provided for above, or a reorganization, merger,
consolidation or sale of assets provided for in Section 6.4), then and in each
such event the Holder shall have the right thereafter to convert such share into
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification or other change, by Holders of the number
of shares of Common Stock into which such shares of Series A Preferred Stock
might have been converted immediately prior to such reclassification or change,
all subject to further adjustment as provided herein.
(iii) In the event that as a result of the SEC Investigation
the Corporation or the Surviving Corporation is notified that the SEC
Investigation will result in any form of monetary penalty or other assessment to
be assessed against the Corporation or the Surviving Corporation for payment by
either such company (the "Penalty"), the quotient found by dividing the dollar
amount of the assessed Penalty by the number of shares of Series A Preferred
Stock that became issuable to the Holders on the Closing Date shall be used as
the numerator, and the Average Price shall be used as the denominator, of a
ratio which when multiplied by the then applicable Conversion Rate shall result
in an adjusted Conversion Rate which will be applicable to all outstanding
shares of Series A Preferred Stock; provided, that to the extent that after
further negotiation the announced Penalty is reduced, the Conversion Rate shall
be further adjusted for all then outstanding shares of Series A Preferred Stock
to reflect the actual amount of the Penalty paid at the time that the SEC
Investigation results in a final order issued by the SEC.
SECTION 6.7. Notices. In each case of an adjustment or
readjustment of the Conversion Rate, the Corporation will furnish each
registered Holder with a certificate, prepared by the President or Chief
Financial Officer of the Corporation, showing such adjustment or readjustment,
-9-
<PAGE>
and stating in reasonable detail the facts upon which such adjustment or
readjustment is based.
SECTION 6.8. No Impairment. The Corporation will not, by
amendment of its Certificate of Incorporation, this Certificate of Designations,
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Article 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the Holders of the
Series A Preferred Stock against unreasonable impairment.
SECTION 6.9. Automatic Conversion. In the event that on the
fifth anniversary of the Closing Date there are shares of Series A Preferred
Stock outstanding (the "Mandatory Conversion Date"), all Series A Preferred
Stock outstanding shall be converted to Common Stock at the then applicable
Conversion Rate ("Automatic Conversion").
SECTION 6.10. Notice of Automatic Conversion. Notice of
Automatic Conversion pursuant to Section 6.9 shall be provided by the
Corporation to the Holder in writing (by registered mail or overnight courier at
the Holder's last address appearing in the Corporation's security registry) not
fewer than ten (10) nor more than thirty (30) days prior to the Mandatory
Conversion Date.
SECTION 6.11. Surrender of Series A Preferred Stock. Upon
conversion of the Series A Preferred Stock pursuant to Sections 6.9, the Holder
shall either deliver the Series A Preferred Stock by hand to the Corporation at
its principal executive offices or surrender the same to the Corporation at such
address by express courier. Issuance of the Common Stock upon Automatic
Conversion of the Series A Preferred Stock shall be made by the Corporation to
the Holder against receipt of the Series A Preferred Stock.
SECTION 6.12. Reacquired Shares. Any shares of the Series A
Preferred Stock acquired by the Corporation by reason of purchase, conversion or
otherwise shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued shares of
Preferred Stock, unclassified as to series, and may be reissued as part of any
series of Preferred Stock; provided, however, that no such shares shall be
reissued or sold as Series A Preferred Stock.
ARTICLE 7.
VOTING RIGHTS
SECTION 7.1. Voting Rights.
(a) Except as otherwise expressly provided herein or as
required by law, the Holder of each share of Series A Preferred Stock shall be
entitled to vote on all matters for which Holders of Common Stock are entitled
-10-
<PAGE>
to vote. Each share of Series A Preferred Stock shall entitle the Holder thereof
to such number of votes per share as shall equal the number of shares of Common
Stock into which each share of Series A Preferred Stock is convertible,
determined as of the date for determination of holders of Common Stock entitled
to vote with respect to such matter. Except as otherwise expressly provided
herein (including, without limitation, the provisions of Article 8 hereof) or as
required by law, the Holders of shares of Series A Preferred Stock and Common
Stock shall vote together as a single class on all matters.
(b) The Corporation shall provide each Holder of Series A
Preferred Stock with prior notification of any meeting of the stockholders (and
copies of proxy materials and other information sent to stockholders), which
notice would be provided pursuant to the Corporation's by laws and the Delaware
General Corporation Law ("GCL"). In the event of any taking by the Corporation
of a record of its stockholders for the purpose of determining stockholders who
are entitled to receive payment of any dividend or other distribution, any right
to subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining stockholders who are entitled to vote in connection with any
proposed liquidation, dissolution or winding up of the Corporation, the
Corporation shall mail a notice to each Holder, at least ten (10) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such action is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time.
(c) To the extent that under the GCL the vote of the Holders
of the Series A Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the Holders of at least a majority of the shares
of the Series A Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series A
Preferred Stock (except as otherwise may be required under the GCL) shall
constitute the approval of such action by the class. To the extent that under
the terms of the Company's Certificate of Incorporation and/or the GCL Holders
of the Series A Preferred Stock are entitled to vote on a matter with Holders of
Common Stock, voting together as one class, each share of Series A Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of stockholders as the date as of which the Conversion Rate
is calculated. Holders of the Series A Preferred Stock shall be entitled to
notice of all stockholder meetings or written consents (and copies of proxy
materials and other information sent to stockholders) with respect to which they
would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the GCL.
-11-
<PAGE>
ARTICLE 8.
PROTECTIVE PROVISIONS
So long as shares of Series A Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the GCL) of the Holders of at least a majority
of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series A Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation ("Senior Securities")
or alter or change the rights, preferences or privileges of any Senior
Securities so as to affect adversely the Series A Preferred Stock;
(c) increase the authorized number of shares of Series A
Preferred Stock; or
(d) do any act or thing not authorized or contemplated by this
Amendment which would result in taxation of the Holders of shares of the Series
A Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
In the event Holders of at least a majority of the then
outstanding shares of Series A Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series A
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series A
Preferred Stock, then the Corporation will deliver notice of such approved
change to the Holders of the Series A Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Amendment as they exist prior to such alteration or change or continue
to hold their shares of Series A Preferred Stock.
ARTICLE 9.
MISCELLANEOUS
SECTION 9.1. Loss, Theft, Destruction of Series A Preferred
Stock. Upon receipt of evidence satisfactory to the Corporation of the loss,
theft, destruction or mutilation of shares of Series A Preferred Stock and, in
the case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series A Preferred Stock, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated shares of Series A Preferred Stock, new shares of Series
A Preferred Stock of like tenor. The Series A Preferred Stock shall be held and
owned upon the express condition that the provisions of this Section 9.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series A Preferred Stock and shall preclude any and all other
-12-
<PAGE>
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
SECTION 9.2. Who Deemed Absolute Owner. The Corporation may
deem the Person in whose name the Series A Preferred Stock shall be registered
upon the registry books of the Corporation to be, and may treat it as, the
absolute owner of the Series A Preferred Stock for the purpose of receiving
payment of dividends on the Series A Preferred Stock, for the conversion of the
Series A Preferred Stock and for all other purposes, and the Corporation shall
not be affected by any notice to the contrary. All such payments and such
conversion shall be valid and effectual to satisfy and discharge the liability
upon the Series A Preferred Stock to the extent of the sum or sums so paid or
the conversion so made.
SECTION 9.3. Notice of Certain Events. In the case of the
occurrence of any event described in Sections 6.1, 6.4, 6.6 and 6.9 of this
Certificate of Designations, the Corporation shall cause to be mailed to the
Holder of the Series A Preferred Stock at its last address as it appears in the
Corporation's security registry, at least twenty (20) days prior to the
applicable record, effective or expiration date hereinafter specified (or, if
such twenty (20) days notice is not practicable, at the earliest practicable
date prior to any such record, effective or expiration date), a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, issuance or granting of rights, options or warrants, or if a
record is not to be taken, the date as of which the Holders of record of Series
A Preferred Stock to be entitled to such dividend, distribution, issuance or
granting of rights, options or warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and the date as of
which it is expected that Holders of record of Series A Preferred Stock will be
entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
SECTION 9.4. Register. The Corporation shall keep at its
principal office a register in which the Corporation shall provide for the
registration of the Series A Preferred Stock. Upon any transfer of the Series A
Preferred Stock in accordance with the provisions hereof, the Corporation shall
register such transfer on the Series A Preferred Stock register.
The Corporation may deem the person in whose name the Series A
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series A Preferred Stock
for the purpose of receiving payment of dividends on the Series A Preferred
Stock, for the conversion of the Series A Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversions shall be valid and effective to
satisfy and discharge the liability upon the Series A Preferred Stock to the
extent of the sum or sums so paid or the conversion or conversions so made.
SECTION 9.5. Withholding. To the extent required by applicable
law, the Corporation may withhold amounts for or on account of any taxes imposed
-13-
<PAGE>
or levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
A Preferred Stock.
SECTION 9.6. Headings. The headings of the Articles and
Sections of this Amendment are inserted for convenience only and do not
constitute a part of this Certificate of Designations.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Designations this ___ day of __________, 2000.
TEKINSIGHT.COM, INC.
By:___________________________
Attest:
____________________________
Secretary
<PAGE>
ANNEX I
[FORM OF CONVERSION NOTICE]
TO:
The undersigned owner of this Series A Convertible Preferred
Stock (the "Series A Preferred Stock") issued by TekInsight.Com, Inc. (the
"Corporation") hereby irrevocably exercises its option to convert __________
shares of the Series A Preferred Stock into shares of the common stock, $.0001
par value, of the Corporation ("Common Stock"), in accordance with the terms of
the Certificate of Designations to the Corporation's Certificate of
Incorporation for Series A Preferred Stock (the "Certificate"). The undersigned
hereby instructs the Corporation to convert the number of shares of the Series A
Preferred Stock specified above into Shares of Common Stock Issued at Conversion
in accordance with the provisions of Article 6 of the Certificate. The
undersigned directs that the Common Stock issuable and certificates therefor
deliverable upon conversion, the Series A Preferred Stock recertificated, if
any, not being surrendered for conversion hereby, together with any check in
payment for fractional Common Stock, be issued in the name of and delivered to
the undersigned unless a different name has been indicated below. All
capitalized terms used and not defined herein have the respective meanings
assigned to them in the Certificate.
Dated:____________
_____________________________________
Signature
Fill in for registration of Series A Preferred Stock:
Please print name and address
(including zip code number):
- --------------------------------------------------------------------------------
-1-
<PAGE>
Exhibit 5.1
437 Madison Avenue
New York, New York 10022-7001
(212) 940-3000
Fax: (212) 940-3111
April 28, 2000
TekInsight.Com, Inc.
5 Hanover Square, 24th Floor
New York, NY 10004
Ladies and Gentlemen:
We have acted as counsel to TekInsight.Com, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-4 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), relating to the offering of shares of Series A convertible
preferred stock of the Company, par value $.0001 per share (the "Series A
Preferred Stock"), to be issued in connection with the merger of Data Systems
Network Corporation, a Michigan corporation ("DSNC"), into the Company's
wholly-owned subsidiary, TekInsight Services,Inc., a Delaware corporation
("TSI"), pursuant to the Agreement and Plan of Merger by and among the Company,
DSNC and TSI, dated as of February 18, 2000, as amended (the "Merger
Agreement"), filed as Appendix 1 to the Prospectus/Proxy Statement (the
"Prospectus/Proxy Statement") which forms a part of the Registration Statement.
The Series A Preferred Stock is convertible into shares of the Company's common
stock, par value $.0001 per share (the "Conversion Common Stock", and, together
with the Series A Preferred Stock, the "Securities").
This opinion is being delivered to you in connection with the
Registration Statement.
In connection with the foregoing, we have examined the Registration
Statement, including the Prospectus/Proxy Statement, the Merger Agreement and
the Certificate of Designations for the Series A Preferred Stock (the
"Certificate of Designations"). We also have examined originals or copies,
certified or otherwise identified to our satisfaction, of such corporate
records, certificates and other documents and have made such investigations of
law as we have deemed necessary or appropriate as a basis for the opinions
expressed below.
As to questions of fact material to our opinions expressed herein, we
have, when relevant facts were not independently established, relied upon
certificates of, and information received from, the Company and/or
representatives of the Company. We have made no independent investigation of the
facts stated in such certificates or as to any information received from the
Company and/or representatives of the Company and do not opine as to the
accuracy of such factual matters. We also have relied, without investigation,
upon certificates and other documents from, and conversations with, public
officials.
In rendering the following opinions, we have assumed, without
investigation, the authenticity of any document or other instrument submitted to
us as an original, the conformity
<PAGE>
TekInsight.Com, Inc.
April 28, 2000
Page 2
to the originals of any document or other instrument submitted to us as a copy,
the genuineness of all signatures on such originals or copies, and the legal
capacity of natural persons who executed any such document or instrument at the
time of execution thereof.
Members of our firm involved in the preparation of this opinion are
licensed to practice law in the State of New York and we do not purport to be
experts on, or to express any opinion herein concerning, the laws of any other
jurisdiction other than the laws of the State of New York.
Based upon and subject to the foregoing, and the other qualifications
and limitations contained herein, and after (a) the Commission shall have
entered an appropriate order declaring effective the above-referenced
Registration Statement, and (b) the shares of the Series A Preferred Stock shall
have been and the Conversion Common Stock, upon conversion of the Series A
Preferred Stock, shall be, if required, duly qualified or registered, as the
case may be, for sale under applicable state securities laws, we are of the
opinion that:
1. The Series A Preferred Stock, when issued in accordance with the
Merger Agreement, will be duly authorized, validly issued, fully paid and
non-assessable.
2. The Company has reserved for issuance upon conversion of the Series
A Preferred Stock a sufficient number of shares of Conversion Common Stock. The
Conversion Common Stock, when duly authorized and issued upon conversion of the
Series A Preferred Stock, in accordance with the Certificate of Designations, at
a conversion price of not less than the par value per share of the Conversion
Common Stock, will have been duly authorized and, when executed, countersigned
and delivered against the delivery of the shares of the Series A Preferred Stock
therefor in accordance with the Certificate of Designations, will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name as it appears under the
caption "Legal Matters" in the Registration Statement. In giving such consent,
we do not thereby admit that we come within the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Commission thereunder.
We further consent to the filing of this opinion as an exhibit to
applications to the securities commissioners of the various states of the United
States, to the extent so required, in connection with the registration of the
Securities.
This opinion is intended solely for your benefit in connection with the
transactions described above and, except as provided in the two immediately
preceding paragraphs, may not be otherwise communicated to, reproduced, filed
publicly or relied upon by, any other person or entity for any other purpose
without our express prior written consent. This opinion is limited to the
matters stated herein, and no opinion or belief is implied or may be inferred
beyond the matters expressly stated herein.
<PAGE>
TekInsight.Com, Inc.
April 28, 2000
Page 3
We wish to advise you that certain attorneys who are partners or
employees of Nixon Peabody LLP own shares of the Company's common stock.
Very truly yours,
/s/ Nixon Peabody LLP
--------------------------------
<PAGE>
EXHIBIT 8.1
NIXON PEABODY LLP
437 Madison Avenue, 25th Floor
New York, New York 10004
Telephone: (212) 940-3000
Facsimile: (212) 940-3111
BODMAN, LONGLEY & DAHLING LLP
100 Renaissance Center, 34th Floor
Detroit, Michigan 48243
Telephone: (313) 259-7777
Facsimile: (313) 393-7579
April __, 2000
Board of Directors
TekInsight.Com, Inc
5 Hanover Square, 24th Floor
New York, New York 10004
Board of Directors
Data Systems Network Corporation
34705 W. 12 Mile Road, Suite 300
Farmington Hills, Michigan 48331
Gentlemen:
Nixon Peabody LLP is acting as special tax counsel to TekInsight.Com,
Inc., a Delaware corporation ("TekInsight"), and TekInsight Services, Inc, a
Delaware corporation and a wholly-owned subsidiary of TekInsight ("TekInsight
Services"), in connection with the merger ("Merger") of Data Systems Network
Corporation, Inc., a Michigan corporation ("Data Systems"), with and into
TekInsight or with and into TekInsight Services pursuant to an Agreement and
Plan of Merger, dated as of February 18, 2000, as amended April 4, 2000 ("Merger
Agreement"), by and among TekInsight, TekInsight Services, and Data Systems.
Bodman, Longley & Dahling LLP is acting as special tax counsel to Data Systems
in the same transaction. This is our joint federal income tax opinion.
TekInsight proposes to file a registration statement on Form S-4
("Registration Statement") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended ("1933 Act"), SEC File Number 333- ______,
with respect to the Series A preferred stock $0.01 par value of TekInsight to be
issued to holders of shares of common stock, par value $0.01 per share, of Data
Systems ("Data Systems Common Stock") in connection with the Merger. In
addition, Data Systems has prepared, and we have reviewed, a proxy statement
that is contained in and made a part of the Registration Statement ("Proxy
Statement/Prospectus"). In rendering the opinion set forth below we have relied
upon the facts stated in the Proxy Statement/Prospectus, upon such other
documents as we have deemed appropriate, and representations of TekInsight and
Data Systems in the Merger Agreement and otherwise referred to in the Proxy
Statement/Prospectus.
We confirm that our opinion as to the material federal income tax
consequences of the Merger is as expressed in that section of the
<PAGE>
TekInsight.Com, Inc.
Data Systems Network Corporation
April 24, 2000
Page -2-
Proxy/Statement Prospectus captioned "MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER." Our opinion is subject to all of the assumptions, qualifications
and limitations stated in the Proxy Statement/Prospectus (and including certain
management representations that are assumed to be complete and accurate in all
material respects to be provided by TekInsight and Data Systems to us prior to
the effective time of the Merger).
Each of our opinions is furnished to the board of directors of our
respective clients solely for use in connection with the Registration Statement.
Our opinion may not be used for any other purpose without our prior written
consent. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firms under the caption
"Legal Matters" in the Registration Statement. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the 1933 Act.
Very truly yours,
NIXON PEABODY LLP
Very truly yours,
BODMAN, LONGLEY & DAHLING LLP
<PAGE>
EXHIBIT 9
VOTING AGREEMENT
This VOTING AGREEMENT (the "Agreement"), dated as of February 18, 2000,
among the undersigned stockholders (the "Stockholders") of Data Systems Network
Corporation, a Michigan corporation ("DSNC"), Astratek, Inc., a New York
corporation ("Astratek"), and TekInsight.Com, Inc., a Delaware corporation
("Tek").
STATEMENT OF PURPOSE
A. Concurrently with the execution of this Agreement, DSNC, Astratek
and Tek have entered into an Agreement and Plan of Merger (as the same may be
amended from time to time, the "Merger Agreement");
B. Each Stockholder is the record and beneficial owner of the number of
shares of DSNC's Common Stock set forth opposite its name on Schedule 1 attached
hereto (the "Shares")
C. The approval of the Merger Agreement by the shareholders of DSNC is
a condition to the consummation of the Merger;
D. In order to induce Astratek and Tek to enter into the Merger
Agreement, the Stockholders wish to agree (i) to vote the Shares and any other
such shares of capital stock of DSNC owned by them so as to facilitate
consummation of the transactions contemplated by the Merger Agreement, (ii) not
to transfer or otherwise dispose of any of the Shares, or any other shares of
capital stock of DSNC acquired hereafter and prior to the Expiration Date (as
defined below) and (iii) to deliver an irrevocable proxy to vote the Shares to
Tek.
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. Representations of Stockholders. Each of the Stockholders represents
and warrants (each as to himself or itself) to Astratek and Tek that (a) except
for shares pledged to lending institutions in connection with bona fide loan
transactions, in which case all voting rights relating to such shares are
retained by the Stockholder, such Stockholder lawfully owns the Shares set forth
opposite such Stockholder's name on Schedule 1 free and clear of all liens,
claims, charges, security interests or other encumbrances and, except for this
Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which such Stockholder is a
party relating to the pledge, disposition or voting of any shares of capital
stock of DSNC and there are no voting trusts or voting agreements with respect
to such Shares, (b) such Stockholder does not own any shares of Common Stock
other than such Shares and does not have any options (other than employee stock
options), warrants or other rights to acquire any additional shares of capital
stock of DSNC or any security exercisable for or convertible into shares of
capitol stock of DSNC, and (c) such Stockholder has full power and authority to
enter into, execute and deliver this Agreement and to perform fully such
<PAGE>
Stockholder's obligations hereunder. This Agreement has been duly executed and
delivered and constitutes the legal, valid and binding obligation of such
Stockholder, enforceable in accordance with its terms.
2. Agreement To Vote Shares. Each of the Stockholders agrees during the
term of this Agreement to vote such Stockholder's Shares and any New Shares (as
defined in Section 6 hereof), and to cause any holder of record of such Shares
or New Shares to vote (a) in favor of adoption and approval of the Merger
Agreement, all agreements related to the Merger Agreement and any actions
related thereto at any meeting of the stockholders of DSNC at which such matters
are considered and at every adjournment thereof, (b) against any action or
agreement that would compete with, impede, interfere with or attempt (i) to
discourage the Merger Agreement, all agreements related to the Merger Agreement
and any actions related thereto or (ii) inhibit the timely consummation of the
Merger Agreement, all agreements related to the Merger Agreement and any actions
related thereto, and (c) against any other merger, consolidation, business
combination, reorganization, recapitalization, liquidation or sale or transfer
of any material assets of DSNC or its subsidiaries; provided, that the foregoing
clauses (b) and (c) shall not restrict any director of DSNC from taking any
action as a director that such director reasonably believes after consultation
with outside counsel is required to satisfy such director's fiduciary duty to
stockholders of DSNC. Each Stockholder agrees to deliver to Tek upon request a
proxy substantially in the form attached hereto as Schedule 2, which proxy shall
be irrevocable during the term of this Agreement to the extent permitted under
applicable law.
3. No Voting Trusts. During the term of this Agreement, each of the
Stockholders agrees that such Stockholder will not, nor will such Stockholder
permit any entity under such Stockholder's control, to deposit any of such
Stockholder's Shares in a voting trust or subject any of their Shares to any
arrangement with respect to the voting of such Shares other than agreements
entered into with Tek.
4. No Proxy Solicitations. During the term of this Agreement, each of
the Stockholders agrees that such Stockholder will not, nor will such
Stockholder permit any entity under such Stockholder's control to, (a) solicit
proxies or become a "participant" in a "solicitation," (as such terms are
defined in Regulation 14A under the Securities Exchange Act of 1934 (the "1934
Act") in opposition to or competition with the Merger Agreement, all agreements
related to the Merger Agreement and any actions related thereto, (b) otherwise
encourage or assist any party in taking or planning any action which would
compete with, impede, interfere with or attempt to discourage the Merger
Agreement, all agreements related to the Merger Agreement and any actions
related thereto or inhibit the timely consummation of the Merger Agreement, all
agreements related to the Merger Agreement and any actions related thereto, (c)
directly or indirectly encourage, initiate or cooperate in a stockholders' vote
or action by consent of DSNC's stockholders in opposition to or in competition
with the Merger Agreement, all agreements related to the Merger Agreement and
any actions related thereto, or (d) become a member of a "group" (as such term
is used in Section 13(d) of the 1934 Act) with respect to any voting securities
of DSNC for the purpose of opposing, competing with or impeding the consummation
of the Merger Agreement, all agreements related to the Merger Agreement and any
actions related thereto; provided, that the foregoing shall not restrict any
-2-
<PAGE>
director of DSNC from taking any action as a director that such director
reasonably believed after consultation with outside counsel is required to
satisfy such director's fiduciary duty to stockholders of DSNC.
5. Transfer And Encumbrance. On or after the date hereof and during the
term of this Agreement, each of the Stockholders agrees not to transfer, sell,
offer, exchange, pledge or otherwise dispose of or encumber any of such
Stockholder's Shares or New Shares (other than the disposition in market
transactions of New Shares acquired upon exercise of any employee stock options,
on notice to Tek, as necessary to pay the tax liabilities incurred upon exercise
of any such options).
6. Additional Purchases. Each of the Stockholders agrees that such
Stockholder will not purchase or otherwise acquire beneficial ownership of any
shares of DSNC Common Stock after the execution of this Agreement ("New
Shares"), nor will any Stockholder voluntarily acquire the right to vote or
share in the voting of any shares of DSNC Common Stock other than the Shares,
unless such Stockholder agrees to deliver to Tek immediately after such purchase
or acquisition an irrevocable proxy substantially in the form attached hereto as
Schedule 2 with respect to such New Shares. Each of the Stockholders also
severally agrees that any New Shares acquired or purchased by him or her shall
be subject to the terms of this Agreement to the same extent as if they
constituted Shares.
7. Securities Act Covenants and Representations.
(a) Each Stockholder has been advised that the offering, sale
and delivery of the Common Stock pursuant to the Merger Agreement will be
registered under the Securities Act on a Registration Statement on Form S-4.
Each Stockholder has also been advised, however, that to the extent such
Stockholder is considered an "affiliate" of DSNC at the time the Merger
Agreement is submitted to a vote of the stockholders of DSNC, any public
offering or sale by such Stockholder of any shares of the Tek Preferred Stock
received by Stockholder in the Merger will, under current law, require either
(i) the further registration under the Securities Act of any shares of the
Common Stock to be sold by Stockholder, (ii) compliance with Rule 145
promulgated by the SEC under the Securities Act or (iii) the availability of
another exemption from such registration under the Securities Act.
(b) Each Stockholder has read this Agreement and the Merger
Agreement and has discussed their requirements and other applicable limitations
upon such Stockholder's ability to sell, transfer or otherwise dispose of shares
of the Tek Preferred Stock with such Stockholder's counsel or counsel for DSNC,
to the extent such Stockholder believed necessary.
(c) Each Stockholder also understands that stop transfer
instructions will be given to DSNC's transfer agent with respect to the Tek
Preferred Stock and that a legend will be placed on the certificates for the Tek
Preferred Stock issued to such Stockholder, or any substitutions therefor, to
the extent such Stockholder is considered an "Affiliate" of DSNC at the time the
Merger Agreement is submitted to a vote of the shareholders of DSNC
-3-
<PAGE>
8. Specific Performance. Each party hereto acknowledges that it will be
impossible to measure in money the damage to the other party if a party hereto
fails to comply with any of the obligations imposed by this Agreement, that
every such obligation is material and that, in the event of any such failure,
the other party will not have an adequate remedy at law or damages. Accordingly,
each party hereto agrees that injunctive relief or other equitable remedy, in
addition to remedies at law or damages, is the appropriate remedy for any such
failure and will not oppose the granting of such relief on the basis that the
other party has an adequate remedy at law. Each party hereto agrees that it will
not seek, and agrees to waive any requirement for, the securing or posting of a
bond in connection with any other party's seeking or obtaining such equitable
relief.
9. Entire Agreement. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by all the parties hereto. No waiver of any
provisions hereof by any party shall be deemed a waiver of any other provisions
hereof by any such party, nor shall any such waiver be deemed a continuing
waiver of any provision hereof by such party.
10. Notices. All notices, requests, claims, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally, upon receipt of a transmission confirmation if sent by
telecopy or like transmission and on the next business day when sent by Federal
Express, Express Mail or other reputable overnight comer service to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) If to Astratek and Tek:
TekInsight.Com, Inc.
5 Hanover Square, 24th Floor
New York, NY 10004
Telephone: (212) 271-8511
Telecopy: (212) 271-8083
Attention: Alexander Kalpaxis,
Chief Technology Officer
With a copy to:
Nixon Peabody, LLP
437 Madison Avenue
New York, NY 10022
Telephone: (212) 940-3106
Telecopy: (212) 940-3111
Attention: Peter W. Rothberg, Esq.
(b) If to a Stockholder, to the address or telecopy
number set forth for such Stockholder on the signature page hereof:
-4-
<PAGE>
(c) If to DSNC:
Data Systems Network Corporation
34705 W. 12 Mile Road, Suite 300
Farmington Hills, MI 48331
Telephone: (248) 489-7117
Telecopy: (248) 489-1007
Attention: Michael W. Grieves
With a copy to:
Bodmau, Longley & Dahling LLP
100 Renaissance Center, 34th Floor
Detroit, MI 48243
Telephone: (313) 393-7597
Telecopy: (313) 393-7579
Attention: Robert I. Diehl, Jr.
11. Miscellaneous.
(a) Governing Law. This Agreement shall be deemed a contract
made under, and for all purposes shall be construed in accordance with, the laws
of the State of New York, without reference to principles of conflicts of law.
(b) Severability. It any provision of this Agreement or the
application of such provision to any person or circumstances shall be held
invalid or unenforceable by a court of competent jurisdiction, such provision or
application shall be unenforceable only to the extent of such invalidity or
unenforceability and the remainder of the provision held invalid or
unenforceable and the application of such provision to persons or circumstances,
other than the party as to which it is held invalid, and the remainder of this
Agreement, shall not be affected.
(c) Counterparts. This Agreement may be executed by facsimile
in one or more counterparts, each of which shall be deemed to be an original but
all of which together shall constitute one and the same instrument.
(d) Termination. This Agreement shall terminate upon the
earliest to occur of (i) the conclusion of DSNC's meeting of shareholders held
for the purpose of voting on the Merger Agreement (or, if adjourned, the
conclusion of any subsequent reconvened meeting held for such purpose), and (ii)
the date on which the Merger Agreement is terminated in accordance with its
terms.
(e) Additional Documentation. Each party hereto shall execute
and deliver such additional documents as may be necessary or desirable to effect
the transactions contemplated by this Agreement.
-5-
<PAGE>
(f) Headings. All Section heading hereto are for convenience
of reference any and are not part of this Agreement, and no construction or
reference shall be derived therefrom.
(g) Binding Effect. The obligations of the Stockholders set
forth in this Agreement shall not be effective or binding upon any Stockholder
until after such time as the Merger Agreement is executed and delivered by DSNC,
Astratek and Tek, and the parties agree that there is not and has not been any
other agreement, arrangement or understanding between the parties hereto with
respect to the matters set forth herein. The obligations of each Stockholder who
executes and delivers this Agreement shall be effective and binding regardless
of the failure of other Stockholders to execute and deliver this Agreement. This
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns.
(h) Expenses. The parties hereto shall each bear its own
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, except that in the event of a dispute concerning the terms
or enforcement of this Agreement, the prevailing party in any such dispute shall
be entitled to reimbursement of reasonable legal fees and disbursements from the
other party or parties to such dispute.
(i) Capitalized Terms. All capitalized terms that are not
otherwise defined in this Agreement shall have the meanings ascribed thereto in
the Merger Agreement.
[The remainder of this page is intentionally left blank.]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
DATA SYSTEMS NETWORK CORPORATION
ATTEST:
/s/ Michael Niles By: /s/ Michael W. Grieves
--------------------------------- ----------------------------
Michael Niles, Secretary Name: Michael W. Grieves
[Corporate Seal] Title: President
TEKINSIGHT.COM, INC.
ATTEST:
/s/ Michael Niles By: /s/ Alexander Kalpaxis
--------------------------------- ----------------------------
Michael Niles, Secretary Name: Alexander Kalpaxis
[Corporate Seal] Title: Chief Technology Officer
ASTRATEK, INC.
ATTEST:
/s/ Michael Niles By: /s/ Alexander Kalpaxis
--------------------------------- ----------------------------
Michael Niles, Secretary Name: Alexander Kalpaxis
[Corporate Seal] Title: President
STOCKHOLDERS:
/s/ Michael W. Grieves
--------------------------------
Name: Michael W. Grieves
--------------------------------
Name: Richard R. Burkhart
/s/ Gregory D. Cocke
--------------------------------
Name: Gregory D. Cocke
-7-
<PAGE>
Schedule 1
Shares of DSNC
Common Stock
------------
Michael W. Grieves 707,500
Richard R. Burkhart 140,625
Gregory D. Cocke 361,250
-8-
<PAGE>
Schedule 2
Irrevocable Proxy
-9-
<PAGE>
EXHIBIT 10.1
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT, dated as of April 3, 2000 is made by
and between TekInsight.Com, Inc., a Delaware corporation having an address at 5
Hanover Square, New York, NY 10004 (the "Company"), and [ ], an individual
residing at [ ] (the "Indemnitee").
R E C I T A L S :
A. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors and officers of corporation unless
they are protected by comprehensive liability insurance or indemnification, or
both, due to increased exposure to litigation costs and risks resulting from
their service to such corporations, and due to the fact that the exposure
frequently bears no reasonable relationship to the compensation of such
directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. The Company and Indemnitee recognize that plaintiffs often seek
damages in such large amounts and the costs of litigation may be so enormous
(whether or not the case is meritorious), that the defense and/or settlement of
such litigation is often beyond the personal resources of officers and
directors;
D. The Company believes that it is unfair for its directors and
officers and those serving other entities at the request of the Company to
assume the risk of huge judgments and other expenses which may occur in cases in
which the director or officer received no personal profit and in cases where the
director or officer acted in good faith;
E. The Delaware General Corporation Law (the "DGCL"), under which the
Company is organized, empowers the Company to indemnify its officers, directors,
employees and agents by agreement and to indemnify persons who serve, at the
request of the Company, as the directors, officers, employees or agents of other
corporations or enterprises, and expressly provides that the indemnification
provisions of the DGCL are not exclusive;
F. The Board of Directors has determined that contractual
indemnification as set forth herein is not only reasonable and prudent but
necessary to promote the best interests of the Company and its stockholders;
G. The Company has requested the Indemnitee to serve or continue to
serve the Company free from undue concern for claims for damages arising out of
or related to such services to the Company;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, the parties hereto, intending to be legally bound, hereby agree
as follows:
1. Definitions.
(a) Affiliate(s). Means any affiliate, subsidiary or other entity
similarly related to Company.
(b) Company. For purposes of this Agreement, "Company" shall
include TekInsight.Com, Inc., as well as all of its Affiliates.
(c) Expenses. For purposes of this Agreement. "Expenses" includes
all direct and indirect costs of any type or nature whatsoever
(including, without limitation, attorneys' fees and related
disbursements, other out-of-pocket costs and compensation for time
spent by the Indemnitee for which he or she is not otherwise
compensated by the Company or any third party), incurred by the
Indemnitee in connection with either (i) the investigation, defense or
appeal of or being a witness or otherwise participating or preparing
for a Proceeding or (ii) the establishment or enforcement of
Indemnitee's right to indemnification under this Agreement, the DGCL or
otherwise, including judgments, fines and amounts paid in settlement by
or on behalf of Indemnitee.
(d) Proceedings. For the purposes of this Agreement, "Proceeding"
means any investigation or any threatened, pending or completed action,
suit or other proceeding, whether civil, criminal, administrative,
investigative or any other type whatsoever, whether instituted by, or
in the right of, the Company or by any other person or entity to which
the Indemnitee was or is a party or a witness or is otherwise involved
or is threatened to be made a party or a witness or to be otherwise
involved, by reason of the fact that he is or was a director, officer,
employee, fiduciary or other agent of the Company, or who is or was
serving at the request of the Company as a director, officer, employee,
fiduciary, or agent of another corporation, partnership, joint venture,
trust or other enterprise of the Company.
(e) Reviewing Party. For purposes of this Agreement, "Reviewing
Party" shall be the Special Independent Counsel.
(f) Special Independent Counsel. For purposes of this Agreement,
"Special Independent Counsel" shall mean counsel selected by Indemnitee
and approved by the Company (which approval shall not be unreasonably
withheld) and who has not, unless waived by the Company and Indemnitee,
otherwise performed services for the Company or Indemnitee, within the
last three (3) years. The Company agrees to pay the reasonable fees of
the Special Independent Counsel referred to above and to fully
indemnify such counsel against, any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.
2
<PAGE>
(g) Voting Securities. For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company which vote
generally in the election of directors.
2. Agreement to Serve. The Indemnitee has served and agrees to continue
to serve as a member of the board of directors, an officer, employee and/or
consultant, at his will and will serve in such capacities, so long as he is duly
appointed or elected and qualified as such or until such time as he tenders his
resignation in writing.
3. Basic Indemnity.
(a) The Company shall indemnify the Indemnitee if the Indemnitee is
or was a witness or a party to or is threatened to be made a party to
or is otherwise involved in any Proceeding brought by any person or
entity to the fullest extent permitted by law as soon as practicable,
but in any event no later than ten (10) days after written demand is
presented to the Company, against any and all Expenses, judgments,
fines, penalties and amounts paid or owing in settlement (including all
interest assessments and other charges paid or payable in connection
with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Proceeding.
(b) Notwithstanding anything in this Agreement to the contrary, (i)
the obligations of the Company under Section 3(a) shall be subject to
the condition that the Reviewing Party shall not have determined in a
writing stating the reasons therefor that Indemnitee would not be
permitted to be indemnified under applicable law and (ii) the
obligation of the Company to make an Expense Advance pursuant to
Section 6 shall be subject to the condition that, if, when and to the
extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall
be entitled to be reimbursed by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid; provided,
however, that if Indemnitee has commenced legal proceedings in a court
of competent jurisdiction to secure a determination that Indemnitee
should be indemnified under applicable law, any determination made by
the Reviewing Party that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee
shall not be required to reimburse the Company for any Expense Advance
until such a final judicial determination is made with respect thereto
(as to which all rights of appeal therefrom have been exhausted or
lapsed).
(c) If the Reviewing Party determines that Indemnitee would not be
permitted to be indemnified in whole or in part under applicable law
(such determination to be made by the Reviewing Party independent of
any position of the Company on any aspect of the indemnification
including but not limited to the appropriateness of the amount of any
settlement), Indemnitee shall have the right to commence litigation in
any court, having subject matter jurisdiction thereof, and in which
venue is proper, seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, and the Company hereby consents to service of any process and
to appear in any such proceeding. Any determination by the Reviewing
Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
3
<PAGE>
4. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement to
indemnify or make Expense Advances to Indemnitee with respect to any Proceeding
arising out of acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under applicable law.
5. Partial Indemnity Etc. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a
Proceeding but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
6. Advancement of Expenses. The Company shall advance all Expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any Proceeding for which the Indemnitee is entitled to
such advances, and any such advances to be made hereunder shall be paid by the
Company to or on behalf of the Indemnitee within ten (10) days following
delivery of a written demand therefor by the Indemnitee to the Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement, or the threat of commencement, of any Proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement,
notify the Company of the commencement or threat of commencement
thereof. The failure to notify the Company shall not affect the
Company's obligations to indemnify otherwise than under this Agreement.
(b) In the event the Company shall be obligated hereunder to
provide indemnification for or make any Expense Advances with respect
to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim upon the delivery to
Indemnitee of written notice of the Company's election to do so. The
Company shall keep the Indemnitee and his counsel (which shall be
retained at the Company's expense) reasonably and currently apprised
throughout such negotiations and/or defense of the status thereof and
shall promptly pay the amount of all final judgments and agreed
settlements, including attorneys' fees and costs. The Indemnitee shall
cooperate with the Company in all reasonable ways in such negotiations
and/or defense, but at the sole expense of the Company, and without
incurring or being deemed to have incurred any obligation or liability
of any kind, nature or description by reason thereof.
4
<PAGE>
(c) The Company shall indemnify Indemnitee against any and all
expenses (including attorneys' fees) and, if requested by Indemnitee,
shall, within ten (10) days of such request, advance such expenses to
Indemnitee which are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for (i)
indemnification hereunder or advance payment of Expenses by the Company
under this Agreement (or any other agreement or the Company's
Certificate of Incorporation or By-Laws now or hereafter in effect)
relating to Proceedings and/or (ii) recovery under any director and
officer liability insurance policies maintained by the Company,
regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance, expense payment or insurance
recovery, as the case may be.
(d) For purposes of this Agreement, the termination of any claim,
action, suit or proceeding by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification
is not permitted by applicable law.
8. Insurance. The Company may, but is not obligated to, obtain
directors' and officers' liability insurance ("D&O Insurance") as may be or
become available with respect to which the Indemnitee is named as an insured.
Notwithstanding any other provision of this Agreement, the Company shall not be
obligated to indemnify the Indemnitee for expenses, judgments, fines or
penalties which have been paid directly to the Indemnitee by D&O Insurance. If
the Company has D&O Insurance in effect at the time the Company receives from
the Indemnitee any notice of the commencement of a Proceeding, the Company shall
give prompt notice of the commencement of such Proceeding to the insurers to
pay, on behalf of the Indemnitee, all amounts payable as a result of such
Proceeding in accordance with the terms of such policy.
9. Settlement. The Company shall have no obligation under this
Agreement to indemnify the Indemnitee for any amounts paid in settlement of any
Proceeding effected without the Company's prior written consent. The Company
shall not settle any claim in which it takes the position that the Indemnitee is
not entitled to indemnification in connection with such settlement without the
prior written consent of the Indemnitee, nor shall the Company settle any
Proceeding in any manner which would impose any fine or any obligation on the
Indemnitee, without the Indemnitee's prior written consent. Neither the Company
nor the Indemnitee shall unreasonably withhold such consent to any proposed
settlement; provided, however, that the Indemnitee shall not be obligated to
consent to any proposed settlement unless in connection with such settlement the
Indemnitee shall be fully released from all liability with respect to the
relevant Proceeding either because such Proceeding was settled without liability
to the Indemnitee or, if the Indemnitee shall have any liability with respect to
such Proceeding, the Indemnitee shall be fully Indemnified hereunder from all
Expenses resulting from such Proceeding and/or shall receive payment in the
amount of such Expenses pursuant to D&O Insurance.
5
<PAGE>
10. Nonexclusivity. The provisions for indemnification and advance of
Expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have pursuant to (i) any provision of law, the
Company's Certificate of Incorporation (as amended or restated from time to
time) or Bylaws, (ii) the order or judgment of any court in which a Proceeding
is brought, (iii) the vote of the Company's stockholders or disinterested
directors, or (iv) any other agreements or otherwise, both as to action in his
or her official capacity and to action in another capacity while an Agent of the
Company. The Indemnitee's rights hereunder shall continue after the Indemnitee
has ceased acting as an Agent of the Company and shall inure to the benefit of
the heirs, executors and administrators of the Indemnitee. To the extent that a
change in applicable law (whether by statute or judicial decision) permits
greater indemnification by agreement than would be afforded currently, it is the
intent of the parties hereto that the Indemnitee shall enjoy by this Agreement
the greater benefits afforded by such change.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
12. Termination. No termination of this Agreement shall nullify any of
the rights and obligations of either Indemnitee or the Company hereunder in
respect of any matter occurring prior to the effective date of termination.
13. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby.
14. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
15. Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the heirs, administrators, successors (including
any direct or indirect successor by purchase, merger, consolidation or otherwise
to all or substantially all of the business and/or assets of the Company) and
assigns of the parties hereto.
6
<PAGE>
16. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, (ii) if delivered to
a recognized overnight carrier, such as Federal Express; or (iii) if by
facsimile transmission, upon receipt of a clear transmission report. Addresses
for notice to either party are as shown on the first page of this Agreement, or
as subsequently modified by written notice. At the same time any notice is given
to the Company, copies shall be sent to:
Nixon Peabody LLP
437 Madison Avenue
New York, NY 10022
Attn: Peter W. Rothberg, Esq.
17. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York without giving
effect to the principles of conflicts of laws.
18. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement.
19. Exclusive Agreement. Except as expressly set forth herein, this
Agreement shall supersede and replace in its entirety any prior written or oral
agreement between the Company and the Indemnitee with regard to the subject
matter hereof.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
TEKINSIGHT.COM, INC.
By:_______________________
_______________________
8
<PAGE>
EXHIBIT 10.2
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (the "Agreement") is entered into as of this
18th day of February, 2000 by and between TekInsight.Com, Inc. a Delaware
corporation ("Tek"), and the undersigned stockholder ("Stockholder") of DATA
SYSTEMS NETWORK CORPORATION, a Michigan corporation ("DSNC").
This Agreement is entered into in connection with that certain
Agreement and Plan of Merger, dated as of February 18, 2000 (the "Merger
Agreement"), among Tek, Astratek, Inc., a New York corporation and a
wholly-owned subsidiary of Tek ("Merger Sub"), and DSNC. The Merger Agreement
provides for the merger (the "Merger") of DSNC with and into Merger Sub in a
transaction in which issued and outstanding shares of common stock, $.01 par
value per share, of DSNC (the "DSNC Common Stock") will be converted into shares
of preferred stock, $.0001 par value per share, of Tek (the "Tek Preferred
Stock") on the terms and conditions set forth in the Merger Agreement.
Capitalized terms used herein and not defined herein shall have their defined
meanings as set forth in the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants set forth herein, the parties agree as
follows:
1. Tax and Accounting Treatment. Each Stockholder understands and
agrees that it is intended that the Merger will be treated as a "reorganization"
for federal income tax purposes. Stockholder further understands and agrees that
Stockholder may be deemed to be an "Affiliate" of DSNC within the meaning of
Rule 145 ("Rule 145") promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), although nothing contained herein should be construed as
an admission of either such fact.
2. Reliance upon Representations, Warranties and Covenant. Stockholder
has been informed that a reorganization for federal income tax purposes requires
that a sufficient number of former stockholders of DSNC maintain a meaningful
continuing equity ownership interest in Tek after the Merger. Each Stockholder
understands that the representations and warranties and covenants set forth
herein will be relied upon by Tek, DSNC, their respective counsel and accounting
firms and other stockholders of DSNC.
3. Representations, Warranties and Covenants of each Stockholder. Each
Stockholder represents, warrants and covenants as follows:
(a) Such Stockholder has full power and authority to execute
this Agreement, to make the representations, warranties and covenants herein
contained and to perform such Stockholder's obligations hereunder.
(b) Appendix A attached hereto sets forth all shares of DSNC
Common Stock owned by such Stockholder, including all DSNC Common Stock as to
which such Stockholder bas sole or shared voting or investment power and all
rights and options to acquire DSNC Common Stock.
<PAGE>
(c) Such Stockholder will not sell, transfer, exchange,
pledge, or otherwise dispose of, or make any offer or agreement relating to any
of the foregoing with respect to, any shares of Tek Preferred Stock that such
Stockholder may acquire in connection with the Merger or acquire upon exercise
of any option or right to acquire Tek Preferred Stock, which option or right is
acquired in connection with the Merger, or any securities that may be paid as a
dividend or otherwise distributed thereon or with respect thereto or issued or
delivered in exchange or substitution therefor (all such shares and other
securities of Tek being herein sometimes collectively referred to as "Restricted
Securities"), or any option, right or other interest with respect to any
Restricted Securities, unless (i) such transaction is permitted pursuant to Rule
145(c) and 145(d) under the Securities Act (as described in Section 6 below), or
(ii) counsel representing such Stockholder shall have advised Tek in a written
opinion letter satisfactory to Tek and Tek's legal counsel, and upon which Tek
and its legal counsel may rely, that no registration under the Securities Act
would be required in connection with the proposed sale, transfer or other
disposition, or (iii) a registration statement under the Securities Act covering
the Tek Preferred Stock proposed to be sold, transferred or otherwise disposed
of, describing the manner and terms of the proposed sale, transfer or other
disposition, and containing a current prospectus, shall have been filed with the
SEC and made effective under the Securities Act, or (iv) an authorized
representative of the SEC shall have rendered written advice to such Stockholder
(sought by such Stockholder or counsel to such Stockholder, with a copy thereof
and all other related communications delivered to Tek) to the effect that the
SEC would take no action, or that the staff' of the SEC would not recommend that
the SEC take action, with respect to the proposed disposition if consummated.
(d) Notwithstanding any other provision of this Agreement to
the contrary, such Stockholder will not sell, transfer, exchange, pledge or
otherwise dispose of, or in any other way reduce such Stockholder's risk of
ownership or investment in, or make any offer or agreement relating to any of
the foregoing with respect to any DSNC Common Stock or any rights, options or
warrants to purchase DSNC Common Stock, or any Restricted Securities or other
securities of Tek (i) during the 30-day period immediately preceding the
Effective Time of the Merger and (ii) until such time after the Effective Time
of the Merger as Tek has publicly released a report including the combined
financial results of Tek and DSNC for a period of at least 30 days of combined
operations of Tek and DSNC within the meaning of Accounting Series Release No.
130, as amended, of the SEC. Tek agrees to publish such financial results
expeditiously in a manner consistent with its prior practices; provided, that
nothing contained herein shall obligate Tek to publish its financial results
other than on a quarterly basis.
(e) Each Stockholder has, and as of the Effective Time of the
Merger will have, no present plan or intention (a "Plan") to sell, transfer,
exchange, pledge (other than in a pre-existing bona fide margin account) or
otherwise dispose of, including a distribution by a partnership to its partners,
or a corporation to its stockholders, or any other transaction which results in
a reduction in the risk of ownership (any of the foregoing, a "Sale") of more
than 50% of the shares of Tek Preferred Stock that Stockholder may acquire in
connection with the Merger, or any securities that may be paid as a dividend or
otherwise distributed thereof or with respect thereto or issued or delivered in
exchange or substitution therefor. For purposes of the preceding sentence,
shares of DSNC Common Stock (or the portion thereof, (i) with respect to which
any applicable dissenters' rights are exercised, (ii) which are exchanged for
cash in lieu of fractional shares of Tek Preferred Stock, or (iii) with respect
to which a Sale (A) in a Related Transaction (as defined below) or (B) will
occur prior to the Merger, shall be considered to be shares of DSNC Common Stock
that are exchanged for Tek stock in the Merger and then disposed of pursuant to
- 2 -
<PAGE>
a Plan. Stockholder is not aware of, or participating in, any Plan on the part
of DSNC stockholders to engage in Sales of the shares of Tek Preferred Stock to
be issued in the Merger such that the aggregate fair market value, as of the
Effective Time of the Merger, of the shares subject to such Sales would exceed
50% of the aggregate fair market value of all shares of outstanding DSNC Common
Stock immediately prior to the Merger. For purposes of the preceding sentence,
shares of DSNC Common Stock (i) with respect to which any applicable dissenters'
rights are exercised, (ii) which are exchanged for cash in lieu of fractional
shares of Tek Preferred Stock or (iii) with respect to which a pre-Merger Sale
occurs in a Related Transaction, shall be considered to be shares of DSNC
Preferred Stock that are exchanged for Tek Preferred Stock in the Merger and
then disposed of pursuant to a Plan. A Sale of Tek Preferred Stock shall be
considered to have occurred pursuant to a Plan if, among other things, such Sale
occurs in a Related Transaction. For purposes of this Section 3(e), a "Related
Transaction" shall mean a transaction that is in contemplation of, or related or
pursuant to, the Merger or the Merger Agreement. If any of such Stockholder's
representations in this Section 3(e) ceases to be true at any time prior to the
Effective Time of the Merger, such Stockholder shall deliver to each of DSNC and
Tek, prior to the Effective Time of the Merger, a written statement to that
effect, signed by such Stockholder.
4. Rule 144 and 145. From and after the Effective Time of the Merger
and for so long as is necessary in order to permit Stockholder to sell the Tek
Preferred Stock held by and pursuant to Rule 145 and, to the extent applicable,
Rule 144 under the Securities Act, Tek will use its reasonable best efforts to
file on a timely basis all reports required to be filed by it pursuant to
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), referred to in paragraph (c)(1) of Rule 144 under the Securities Act, in
order to permit Stockholder to sell the Tek Preferred Stock held by it pursuant
to the terms and conditions of Rule 145 and the applicable provisions of Rule
144. Any future disposition by Stockholder of Tek Preferred Stock will be
accomplished in compliance with all applicable securities laws. Stockholder
understands that Tek is under no obligation to register the sale, transfer or
other disposition of any Restricted Securities by or on behalf of such
Stockholder or to take any other action necessary in order to make compliance
with an exemption from registration available.
5. Legend. Each Stockholder agrees that the following legend be placed
upon the certificate evidencing ownership of Tek Preferred Stock:
THESE SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
AS SET FORTH IN RULES 144 AND 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, HYPOTHECATED, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO THE PROCEDURES DESCRIBED
THEREIN.
- 3 -
<PAGE>
6. Limited Resales. Each Stockholder understands that, in addition to
the restrictions imposed under Section 3 of this Agreement, the provisions of
Rule 145 limit such Stockholder's public resales of Restricted Securities, in
the manner set forth in subsections (a), (b) and (c) below, until such time as
such Stockholder has beneficially owned, within the meaning of Rule 144(d), the
Restricted Securities for a period of at least one year (or in some cases two
years) after the date of the Merger, and thereafter if and for so long as such
Stockholder remains an Tek affiliate:
(a) Unless and until the restriction "cut-off" provisions of
Rule 145(d)(2) or Rule 145(d)(3) set forth below become available, public
resales of Restricted Securities may only be made by such Stockholder in
compliance with the requirements of Rule 145(d)(1). Rule 145(d)(1) permits such
resales only (i) while Tek meets the public information requirements of Rule
144(c), (ii) in "brokers' transactions" or in transactions with a "market maker"
in accordance with Rule 144(f) and Rule 144(g) and (iii) where the aggregate
number of Restricted Securities sold at any time together with all sales of Tek
Preferred Stock sold for such Stockholder's account during the preceding
three-month period does not exceed the greater of (x) 1% of the Tek Preferred
Stock outstanding, (y) the average weekly volume of trading in Tek Preferred
Stock on all national securities exchanges and/or reported through the automated
quotation system of a registered securities association during the four calendar
weeks preceding the date of receipt of the order to execute the sale or (z) the
average weekly volume of trading in Tek Preferred Stock reported through the
consolidated transaction reporting system contemplated by Rule llAa3-1 under the
Exchange Act during the four-week period specified in subsection (y) above.
(b) Each Stockholder may make unrestricted resales of
Restricted Securities pursuant to Rule 145(d)(2) if (i) such Stockholder has
beneficially owned (within the meaning of Rule 144(d) under the Securities Act)
the Restricted Securities for at least one year after the Effective Time of the
Merger, (ii) such Stockholder is not an affiliate of Tek and (iii) Tek meets the
public information requirements of Rule 144(c).
(c) Each Stockholder may make unrestricted resales of
Restricted Securities pursuant to Rule 145(d)(3) if such Stockholder (i) has
beneficially owned (within the meaning of Rule 144(d) under the Securities Act)
the Restricted Securities for at least two years and (ii) is not and has not
been for at least three months, an affiliate of Tek.
(d) Tek acknowledges that the provisions of Section 3(c) of
this Agreement will be satisfied as to any sale by the undersigned of the
Restricted Securities pursuant to Rule 145(d) by delivery to Tek of a broker's
letter and a letter from the undersigned with respect to that sale stating that
each of the above-described requirements of Rule 145(d)(1) has been met or is
inapplicable by virtue of Rule 145(d)(2) or Rule 145(d)(3); provided, that Tek
has no reasonable basis to believe such sales were not made in compliance with
such provisions of Rule 145(d).
- 4 -
<PAGE>
7. Notices. All notices, requests, demands or other communications
which are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed to have been duly given upon receipt, if
delivered by hand, by telecopy or telegram, or three days after deposit in the
United States mail, postage prepaid, addressed to a party as follows:
If to Tek: TekInsight.Com, Inc.
5 Hanover Square, 24th Floor
New York, New York 10004
Telecopy: (212) 271-8083
Attention: Alexander Kalpaxis,
Chief Technology Officer
With a copy to: Nixon Peabody LLP
437 Madison Avenue
New York, New York 10022
Telecopy: (212) 940-3111
Attention: Peter W. Rothberg, Esq.
If to Stockholder: At the address set forth beneath such Stockholder's
signature;
or to such other address as any party may designate for itself by notice given
as provided in this Agreement.
8. Termination. This Agreement shall be terminated and shall be of no
further force and effect upon the termination of the Merger Agreement pursuant
to Article VII thereof.
9. Binding Agreement. This Agreement will inure to the benefit of and
be binding upon and enforceable against the parties and their successors and
assigns, including administrators, executors, representatives, heirs, legatees
and devises of each Stockholder and any pledgee holding Restricted Securities as
collateral.
10. Waiver. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing
and signed by each party hereto. each party hereto.
11. Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of New York
without giving effect to principles of conflicts of laws.
12. Attorneys' Fees. In the event of any legal action or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results in
a final judgment.
- 5 -
<PAGE>
13. Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of its Agreement.
14. Third Party Reliance. Counsel to and accountants for the parties
shall be entitled to rely upon the representations, warranties and covenants
contained in this Agreement.
15. Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument
[The remainder of this page is intentionally left blank.]
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TEKINSIGHT.COM, INC.
By: /s/ Alexander Kalpaxis
----------------------------------
Name: Alexander Kalpaxis
Title: Chief Technology Officer
STOCKHOLDERS:
/s/ Michael W. Grieves
-------------------------------------
Name: Michael W. Grieves
-------------------------------------
Name: Richard R. Burkhart
/s/ Gregory D. Cocke
-------------------------------------
Name: Gregory D. Cocke
DIRECTORS:
-------------------------------------
-------------------------------------
-------------------------------------
OFFICERS:
-------------------------------------
-------------------------------------
-------------------------------------
- 7 -
<PAGE>
APPENDIX A
DSNC SECURITIES
Shareholder: Number of Shares
----------------
Michael W. Grieves 707,500
DSNC Common Stock 707,500
Options to Purchase DSNC Common Stock
June 1997 $8.75 8,000
October 1994 $4.75 10,000
Total Options to Purchase DSNC Common Stock - 18,000
- 8 -
<PAGE>
DSNC SECURITIES
Shareholder Number of Shares
----------------
Richard R. Burkhart 140,625
DSNC Common Stock 140,625
Options to Purchase DSNC Common Stock
May 1997 $9.38 1,000
May 1996 $4.00 1,000
May 1995 $3.00 1,000
Total Options to Purchase DSNC Common Stock - 3,000
- 9 -
<PAGE>
DSNC SECURITIES
Shareholder Number of Shares
----------------
Gregory D. Cooke 361,250
DSNC Common Stock 361,250
Options to Purchase DSNC Common Stock
October 1997 $13.25 6,250
July 1997 $12.00 5,000
September 1996 $4.00 15,000
October 1994 $4.75 7,500
Total Options to Purchase DSNC Common Stock- 33,750
- 10 -
<PAGE>
EXHIBIT 10.3
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (this "Agreement"), made and entered into as
of the 10th day of December, 1999, is by and between Steven Ross ("Consultant"),
and BugSolver.Com, Inc., a Delaware Corporation (the "Company").
WITNESSETH THAT:
WHEREAS, the Company desires to engage the Consultant in the capacity
hereinafter stated, and the Consultant desires to enter into an engagement with
the Company in such capacity for the period and on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, it is hereby covenanted and agreed by the Company and the
Consultant as follows:
1. Consulting Period. The Company hereby agrees to employ the
Consultant as its Chief Executive Officer, and the Consultant, in
such capacity, agrees to provide services to the Company for the
period (the "Consulting Period") beginning on the date first above
written and ending, subject to Section 5, on March 31, 2000, which
is the date 110 days after the date hereof (the "Termination Date").
This Agreement will automatically renew for successive ninety-day
periods unless either party gives the other written notice of
termination as described in Section 5 hereof, with each such renewal
period being considered an extension of the Consulting Period.
2. Board of Directors. The Consultant hereby agrees to serve as a
member of the Board of Directors of the Company. The Company agrees
that, without limiting any rights of Consultant under the Company's
certificate of incorporation, (a) Consultant's liability as a
director shall be limited to the maximum extent permitted by law,
(b) Consultant shall be indemnified and held harmless by the Company
from and against any and all losses, liabilities, claims, expenses
and the like incurred by or asserted against Consultant as a
director, to the maximum extent permitted by law and (c) prior to
the Company's filing of a registration statement with respect to an
initial public offering, the Company shall have obtained Directors
and Officers liability insurance providing insurance for the
Consultant against liability as a director of the Company, and the
maintenance of that insurance shall be a condition to Consultant so
serving during the process of filing and having declared effective
such registration statement.
3. Performance of Duties. The Consultant agrees that, during the
Consulting Period, as requested by the Board of Directors of the
Company, the Consultant will provide his best efforts, professional
energy and talent to serving as Consultant and a board member in the
best interests of the Company. Consultant will perform, among other
duties consistent with the position of Chief Executive Officer,
those tasks and duties listed on Exhibit A attached hereto.
4. Compensation. Subject to the terms and conditions of this Agreement,
during the Consulting Period, the Consultant shall be compensated by
the Company for his services as follows:
(a) The Consultant shall receive a consulting fee of $20,000 for
each month he is engaged as a Consultant by the Company under
this Agreement (the "Consulting Fee"), payable on the first day
of each month during the Consulting Period.
<PAGE>
(b) The Consultant shall receive, as a "signing bonus" in
consideration for (i) his agreement to enter into this Agreement
and (ii) his payment to the Company of $300 (which shall be
credited against his first month's payment of the Consulting
Fee), 30,000 shares of the Company's Common Stock, $.01 par
value (the "Common Stock"), which shares shall constitute 1% of
the number of shares of Common Stock initially to be issued to
TekInsight.Com, Inc.
(c) Following both (i) the first renewal of this Consulting
Agreement for an additional Consulting Period and (ii) the
successful completion of a private placement of securities by
the Company the gross proceeds of which to the Company shall
equal at least $10,000,000 (the "Private Placement"), the
Company shall grant to the Consultant five-year options (the
"Options") to purchase that number of shares of the Company's
Common Stock as shall equal 4% of the outstanding shares of
Company Common Stock immediately following completion of the
Private Placement (the "Options"), which Options shall be
exercisable at the price at which shares of the Common Stock are
issued by the Company in the Private Placement. The Options
shall vest one year from the closing date of the Private
Placement (the "Vsting Date"); provided, that in the --------
event that the Company completes an initial public offering of
its securities prior to the Vesting Date. the Options shall vest
on the closing date of such initial public offering. Upon the
termination of the Consulting Agreement by either party hereto,
the Options which have not vested at such time shall
automatically become null and void
(d) The Consultant shall promptly be reimbursed for reasonable
expenses incurred in the performance of his duties hereunder;
provided, that he shall furnish an itemized account satisfactory
to the Board of Directors in substantiation of such
expenditures.
(e) In connection with the issuance of shares of Common Stock and
the granting of the Options to the Consultant, the Consultant
agrees that he shall execute sand deliver to the Company such
agreements and instruments as counsel to the Company shall deem
necessary in order for the Company to comply with applicable
federal and state securities laws.
5. Termination. This Agreement shall terminate upon the occurrence of
any of the following:
(a) Without Cause. Either party may terminate this Agreement upon
thirty (30) days' written notice.
(b) Discharge for Cause. The Board of Directors of the Company may
terminate this Agreement if:
(i) The Consultant is or becomes habitually addicted to drugs
or alcohol.
(ii) The Consultant discloses confidential information in
violation of Section 6.
(iii) The Consultant, voluntarily or involuntarily, steps down
from the Board of Directors of the Company.
(iv) The Company is directed by regulatory or governmental
authorities to terminate the engagement of the Consultant
or the Consultant engages in activities that result in
actions to be taken by regulatory or governmental
-2-
<PAGE>
authorities that have a material adverse effect on the
Company.
(v) The Consultant is convicted of or pleads nolo contendere
to any felony involving moral turpitude or to any crime in
connection with his duties hereunder which causes
substantial detriment to the Company, but specifically
shall not include traffic offenses.
(vi) The Consultant breaches his duties under this Agreement in
any material respect, and that breach is not cured within
ten (10) days of notice thereof from the Company to the
Consultant. Such notice will only be required for the
first said breach.
(vii) The Consultant engages in any misconduct that has a
material adverse effect on the Company.
(viii) The Consultant commits an act of fraud against the
Company or any client of the Company.
6. Confidential Information. Except as may be required by the law or to
enforce the provisions of this Agreement, the Consultant agrees (a)
to keep secret and confidential indefinitely all non-public
information concerning the Company and its affiliates which was
acquired by or disclosed to the Consultant during the course of his
engagement by the Company, including information relating to
customers (including, without limitation, credit history, repayment
history, financial information and financial statements), costs,
operations, financial data and plans (whether past, current or
planned) and (b) not to disclose the same, either directly or
indirectly, to any other person, firm or business entity, or use it
in any way other than to perform its obligations hereunder;
provided, however, that the provisions of this Section 6 shall not
apply to information (a) which is in the public domain, (b) which
was disclosed to the Consultant by independent third parties who, to
Consultant's knowledge, were not bound by an obligation of
confidentiality or (c) which the Consultant is required to disclose
in order to respond to a summons or subpoena or in connection with
any litigation; and provided further, that the Company recognizes
that the Consultant shall, during the course of his engagement with
the Company, acquire certain general information regarding the
financial condition, borrowing trends and business operations of the
Company's customers and agrees that the provisions of this Section 6
shall not apply to the use of such general information; provided
that the use of such information does not violate applicable Federal
or state laws. The Consultant further agrees that he will not make
any statement or disclosure of information gained by him in
connection with the performance of duties under this Agreement which
would be prohibited by applicable Federal or state laws.
7. Successors. This agreement shall be binding on, and inure to the
benefit of, the Company and its successors and assigns and any
person acquiring all or substantially all of the Company's assets
and business, whether by merger, consolidation, purchase of assets
or otherwise.
8. Nonalienation. The interests of the Consultant under this Agreement
are not subject to the claims of his creditors, and may not
otherwise be voluntarily or involuntarily assigned, alienated or
encumbered.
9. Remedies. The Consultant acknowledges that the Company may be
irreparably injured by a violation of Section 6, and agrees that the
Company shall be entitled to an injunction restraining the
-3-
<PAGE>
Consultant from any actual or threatened breach of Section 6, or to
any other appropriate equitable remedy without bond or other
security being required.
10. Waiver of Breach. The waiver by either the Company or the
Consultant of a breach of any provision of this Agreement shall not
operate as or be deemed a waiver of any subsequent breach by either
the Company or the Consultant.
11. Notice. Any notice to be given hereunder by a party hereto shall be
in writing and shall be deemed to have been given when delivered by
hand or by facsimile with confirmation back, one day after delivery
to an overnight courier of national reputation (for next day
delivery) or three days after being deposited in the U.S. mail,
certified or registered mail, postage prepaid:
(a) to the Consultant addressed as follows:
Steven Ross
2 Leesbury Court
Newport Beach, CA 92660
(b) to the Company addressed as follows:
BugSolver.Com, Inc.
C/o TekInsight.Com, Inc.
5 Hanover Square
New York, NY 10004
12. Amendment. This Agreement may be amended or cancelled by mutual
agreement of the parties in writing without the consent of any
other person and no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the
subject matter hereof.
13. Applicable Law. The provisions of this Agreement shall be construed
in accordance with the internal laws of the State of New York,
without regard to its principles of conflict of laws.
14. Termination. All of the provisions of this Agreement shall
terminate upon the expiration of the Consulting Period, as it may
be extended, except that the obligations of Section 6 shall not
terminate and shall remain in effect indefinitely.
-4-
<PAGE>
IN WITNESS WHEROF, the Consultant and the Company have executed this
Consulting Agreement on the ______ day of December, 1999.
STEVEN ROSS BUGSOLVER.COM, INC.
By:___________________________ By:_____________________________
Steven Ross
-5-
<PAGE>
EXHIBIT A
Steven Ross's duties, as a Consultant to BugSolver.Com, Inc, shall include the
following:
He shall devise and write a comprehensive business plan.
He shall help arrange and supervise beta testing.
He shall solicit and enter into vendor relationships.
He shall supervise the marketing of the BugSolver Web site and develop a
strategy to promote the BugSolver Web site.
He shall actively participate in BugSolver's efforts to raise capital through a
private placement.
-6-
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of TekInsight.Com,
Inc. on Form S-4 of our report dated September 15, 1999 relating to the
consolidated balance sheets of TekInsight.Com, Inc.(formerly Tadeo Holdings,
Inc. and Subsidiaries) as of June 30, 1999 and 1998 and the related statements
of operations, changes in stockholders' equity and cash flows for the years
ended June 30, 1999, 1998 and 1997. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/ FELDMAN SHERB HOROWITZ & CO., P.C.
--------------------------------------
FELDMAN SHERB HOROWITZ & CO., P.C.
Certified Public Accountants
April 28, 2000
New York, New York
<PAGE>
Exhibit 23.4
Consent of Independent Certified Public Accountants
We have issued our report dated February 14, 2000, accompanying the
financial statements of Data Systems Network Corporation contained in the
Registration Statement on Form S-4 of TekInsight.Com, Inc. We consent to the use
of the aformentioned report in the Registration Statement and to the use of our
name as it appears under the caption "Experts."
Grant Thornton LLP
/s/ Grant Thornton
Southfield, Michigan
April 28, 2000
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of TekInsight.Com,
Inc. on Form S-4 of our report dated August 20, 1998, appearing in the
Prospectus, which is part of this Registration Statement, and of our report
dated August 20, 1998 relating to the financial statements schedules appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
PLANTE & MORAN, LLP
April 14, 2000
Southfield, Michigan
<PAGE>
EXHIBIT 23.6
Consent of Expert
We consent to the use of our firm's name, and the reference to our
opinion, in the registration statement on Form S-4 to be filed with the
Securities and Exchange Commission relating to the public offering by TekInsight
of shares of its Series A convertible preferred stock in connection with the
proposed merger of Data Systems Network Corporation with and into TekInsight
Services, Inc., a wholly-owned subsidiary of TekInsight.
VALUEMETRICS, INC.
/s/ John L. Miscione
-------------------------
Name: John L. Miscione
Title: Managing Director
Dated this ___ day of April, 2000
<PAGE>
EXHIBIT 23.7
Consent of Expert
We consent to the use of our firm's name, and the reference to our
opinion, in the registration statement on Form S-4 to be filed with the
Securities and Exchange Commission relating to the public offering by TekInsight
of shares of its Series A convertible preferred stock in connection with the
proposed merger of Data Systems Network Corporation with and into TekInsight
Services, Inc., a wholly-owned subsidiary of TekInsight.
VALUATION COUNSELORS GROUP, INC.
/s/ Raymond Ghelardi
--------------------
Name: Raymond Ghelardi
Title: Managing Director
Dated this ___ day of April, 2000
<PAGE>
EXHIBIT 99.1
Consent to be Named as a Director
I hereby consent to be named as a person who will become a director of
TekInsight.Com, Inc. ("TekInsight") in the registration statement on Form S-4 to
be filed with the Securities and Exchange Commission relating to the public
offering by TekInsight of shares of its Series A convertible preferred stock in
connection with the proposed merger of Data Systems Network Corporation with and
into TekInsight Services, Inc., a wholly-owned subsidiary of TekInsight.
/s/ Steven J. Ross
------------------
Name: Steven J. Ross
Dated this ___ day of April, 2000
<PAGE>
EXHIBIT 99.2
Consent to be Named as a Director
I hereby consent to be named as a person who will become a director of
TekInsight.Com, Inc. ("TekInsight") in the registration statement on Form S-4 to
be filed with the Securities and Exchange Commission relating to the public
offering by TekInsight of shares of its Series A convertible preferred stock in
connection with the proposed merger of Data Systems Network Corporation with and
into TekInsight Services, Inc., a wholly-owned subsidiary of TekInsight.
/s/ Michael W. Grieves
------------------------
Name: Michael W. Grieves
Dated this ___ day of April, 2000
<PAGE>
EXHIBIT 99.3
Consent to be Named as a Director
I hereby consent to be named as a person who will become a director of
TekInsight.Com, Inc. ("TekInsight") in the registration statement on Form S-4 to
be filed with the Securities and Exchange Commission relating to the public
offering by TekInsight of shares of its Series A convertible preferred stock in
connection with the proposed merger of Data Systems Network Corporation with and
into TekInsight Services, Inc., a wholly-owned subsidiary of TekInsight.
/s/ Walter J. Aspatore
-------------------------
Name: Walter J. Aspatore
Dated this ___ day of April, 2000
<PAGE>
EXHIBIT 99.4
UNIVERSAL SELF CARE, INC.
1992 EMPLOYEE STOCK OPTION PLAN
Amendment No. I
Pursuant to Article XI, the Plan is hereby amended, effective June 28,
2000, as follows:
1. The Plan is amended by deleting all references to the "Universal
Self Care, Inc. 1992 Employee Stock Option Plan" and substituting in its place
the "TekInsight.Com, Inc. 1992 Employee Stock Option Plan". The Plan is further
amended by deleting all references to "Universal Self Care, Inc." and
substituting in its place "TekInsight.Com, Inc".
2. Section 5(a) is amended by deleting the first sentence and
substituting in its place the following:
"The aggregate number of shares with respect to which Options may be
granted under this Plan shall not exceed in the aggregate 2,000,000
shares."
3. Section 9 is amended by deleting the second sentence and
substituting in its place the following:
"The terms, provisions and benefits to Optionees of such substitute
Options shall in all respects be identical to the terms, provisions and
benefits to Optionees of the options of the other corporation on the
date of substitution, except that such substitute Options shall provide
for the purchase of shares of Company Stock, instead of shares of such
other corporation; provided, however, that such substitute Options may
have different terms, provisions or benefits than the options
previously held by such Optionees in the other corporation as may be
contained in any merger, consolidation or acquisition agreement or
other similar agreement contractually binding the Company to assume
such options in the other corporation."
<PAGE>
IN WITNESS WHEREOF, TekInsight.Com, Inc. has caused its duly authorized
officer to execute this amendment on its behalf this ____ day of June 28, 2000.
TekInsight.COM, Inc.
By:____________________________
Title:_________________________
<PAGE>
February 8, 2000
Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Gentlemen:
You have asked us to render an opinion (the "Opinion") regarding the fairness,
from a financial point of view, of consideration to be paid to shareholders of
Data Systems Network Corporation ("DSNC" or the "Company"), a Michigan
corporation, in connection with the merger of the Company with and into
Astratek, Inc. ("Merger Sub"), a wholly-owed subsidiary of TekInsight.Com, Inc.,
a Delaware corporation ("Tek"). We understand the structure of the proposed
merger (the "Merger") to be as follows:
1. At the Effective Time, as defined below, and subject to and upon the terms
and conditions of the Agreement and Plan of Merger among Tek, Astratek, and
DSNC (the "Agreement") dated January ____, 2000, and subject to the
applicable provisions of the New York Business Corporation Law ("New York
Law") and the Michigan Business Corporation Act ("Michigan Law"), DSNC shall
be merged with and into Merger Sub, the separate corporate existence of DSNC
shall cease and Merger Sub shall continue as the surviving corporation.
Merger Sub, as the surviving corporation after the Merger, is hereinafter
sometimes referred to as the "Surviving Corporation." It is intended that the
Merger shall qualify as a reorganization within the meaning of Section
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended.
2. Subject to the revisions of the Agreement, the parties shall cause the Merger
to be consummated by filing a Certificate of Merger with the Secretary of
State of the State of New York in accordance with the relevant provisions of
New York Law ("Certificate of Merger") and the filing of a Certificate of
Merger with the Michigan Department of Consumer and Industry Services -
Corporation; Securities and Land Development Bureau in accordance with the
relevant provisions of Michigan Law ("Effective Time") as soon as practical
on or after the Closing (as herein defined). The closing of the Merger (the
"Closing") shall take place at the offices of Nixon Peabody LLP, 437 Madison
Avenue, New York, New York 10022, at a time and date to be specified by the
parties, which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Article VI of the
Agreement, or at such other time, date, and location as the parties agree in
writing.
<PAGE>
Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Page 2
3. At the Effective Time, all the property, rights, privileges, powers, and
franchises of DSNC and Merger Sub shall vest in the Surviving Corporation,
and all the debts, liabilities and duties of DSNC and Merger Sub shall become
the debts, liabilities, and duties of the Surviving Corporation. At the
Effective Time, the separate existence of DSNC will cease and DSNC will be
merged with and into Merger Sub.
4. Except as otherwise provided in the Agreement, each share of common stock,
$.01 par value per share, of DSNC issued and outstanding three (3) days prior
to the Effective Time (the "Outstanding DSNC Common Stock"), will be
cancelled and extinguished and automatically converted into the number of
shares (the "Exchange Ratio") of Series A Convertible Preferred Stock, $.0001
par value, of Tek (the "Tek Preferred Stock") equal to the quotient obtained
by dividing $12,500,000 (the "Purchase Price") by the market value of Tek
common stock, $.0001 par value (the "Tek Common Stock"). Notwithstanding the
above, in the event that the market value of Tek Common Stock is equal to a
price that is $5.00 or more but less than $7.00, the Purchase Price shall be
adjusted to equal $16,000,000 with the result of such increase in the market
value being an adjustment in the number of Tek Preferred Stock shares
issuable to DSNC shareholders. In the event that the market value of Tek
Common Stock is equal to $7.00 or more the Purchase Price shall be adjusted
to equal $18,000,000 with the result of such increase in the market value
being an adjustment in the number of Tek Preferred Stock shares issuable to
DSNC shareholders. In the event that the market value of Tek Common Stock is
less than $2.00 per share the Agreement can be terminated by either Tek or
DSNC. The Merger is also subject to termination upon the mutual written
consent by the Board of Directors of Tek and DSNC.
5. Holders of Tek Preferred Stock shall be entitled, as detailed in the
Certificate of Designations, Preferences and Relative, Participating,
Optional, or Other Special Rights of Series A Convertible Preferred Stock and
Qualifications, Limitations, and Restrictions Thereof of TekInsight.Com, Inc.
("Preferred Agreement"), to receive dividends in the same amount per share as
dividends paid to the holders of Tek Common Stock. As long as any shares of
Tek Preferred Stock are outstanding, no dividends shall be declared or paid
or set apart for payment of Tek Common Stock for any period unless dividends
in the same amount per share are paid to the holders of Tek Preferred Stock.
If Tek or Merger Sub shall commence the winding up, dissolution, or
liquidation of its affairs, no distributions shall be made to the holders of
any shares of capital stock of Tek unless holders of Tek Preferred Stock
shall have received the Liquidation Preference, as defined in the Preferred
Agreement. As defined in the Preferred Agreement, Tek Preferred Stock will
commence being convertible into Tek Common Stock on the first (1st)
anniversary of the Closing. Any shares of Tek Preferred Stock that have not
been converted to Tek Common Stock prior to the fifth (5th) anniversary of
the Closing will be mandatorily converted to Tek Common Stock, or redeemed
for a cash payment equal to the market value per share.
6. The market value will equal the average closing sale price for one share of
Tek Common Stock, as reported by the NASDAQ Smallcap Market, for the ten (10)
consecutive trading days ending on the trading day that immediately precedes
<PAGE>
Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Page 3
the Closing; provided, that between the date of execution of the Agreement
and the Closing, all outstanding options and warrants to acquire DSNC Common
Stock that are exercisable prior to the Closing and which are not required to
be assumed by Tek as a result of the Merger, will either be exercised or will
be terminated on the Closing. To the extent that any such options or warrants
are exercised no less than three (3) days prior to the Closing, for purposes
of calculating the number of shares of Tek Preferred Stock to be issued to
DSNC stockholders, the aggregate exercise price will be added to the Purchase
Price (the "Adjusted Purchase Price") which now will be used in the Exchange
Ratio quotient. The Exchange Ratio of DSNC Common Stock to Tek Preferred
Stock will be adjusted by including the number of shares of DSNC Common Stock
acquired upon such exercise in the outstanding DSNC Common Stock.
7. Each share of DSNC Common Stock held by DSNC or owned by Merger Sub, Tek, or
any direct or indirect wholly owned subsidiary of DSNC or of Tek immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion. No fraction of a share of Tek Preferred Stock will be issued by
virtue of the Merger, but in lieu each holder of shares of DSNC Common Stock
who would otherwise be entitled to a fraction of a share of Tek Preferred
Stock shall receive from Tek an amount of cash equal to the product of (i)
such fraction, multiplied by (ii) the market value.
8. At the Effective Time, each outstanding stock option under the Option Plan,
as defined in the Agreement, shall be assumed by Tek. Each outstanding DSNC
option shall be converted into an option, which shall be deemed to be vested
as of the Effective Time, to purchase the same number of shares of Tek
Preferred Stock. The exercise price for each such converted outstanding DSNC
option shall be the quotient obtained by dividing the number of shares of
DSNC Common Stock that are issued and outstanding three (3) days prior to the
Closing which are converted at the Effective Time into one share of Tek
Preferred Stock in accordance with the Exchange Ratio. Shares issued pursuant
to options to purchase DSNC Common Stock under the Option Plan that are
exercised prior to the date that is three business days prior to the Closing
shall be converted into shares of Tek Preferred Stock in accordance to the
Exchange Ratio.
We were provided with copies of certain financial information, merger documents,
and other agreements by the managements or representatives of the Company, Tek,
and Merger Sub. We relied upon and assumed without independent verification, the
accuracy and completeness of financial and other information provided to us. We
have further assumed that all information furnished to us by the Company, Tek,
and Merger Sub, and their representatives represented good faith efforts to
describe the current and prospective status of the Company, Tek, and Merger Sub
from an operational and financial point of view. A non-exhaustive list of these
documents includes:
1. the Agreement and Plan of Merger by and among TekInsight.Com, Inc., Astratek,
Inc., and Data Systems Network Corporation dated January ____, 2000;
2. the Certificate of Designations, Preferences and Relative, Participating,
Optional or Other Special Rights of Series A Convertible Preferred Stock and
<PAGE>
Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Page 4
Qualifications, Limitations, and Restrictions Thereof of TekInsight.Com,
Inc.;
3. the amended and restated DSNC bylaws;
4. the Company's restated articles of incorporation filed April 2, 1986, second
restated articles of incorporation filed February 5, 1990, third restated
articles of incorporation filed November 4, 1993, and fourth amended and
restated articles of incorporation filed May 17, 1994;
5. minutes of the Board of Directors of the Company from April 4, 1989 to
December 16, 1999;
6. the Company's Form 10-K SEC filings for the periods December 31, 1996
through December 31, 1998, Form 8-K SEC filing dated January 18, 2000, Form
8-K SEC filing dated September 15, 1999, Form S-1 SEC filing dated December
16, 1996, Form 10-Q SEC filing for the period ended September 30, 1999, Form
10-Q SEC filing for the period ended June 30, 1999, and Form 10-Q SEC filing
for the period ended March 31, 1999;
7. Tek's Form 10-K SEC filing for the period ended June 30, 1999, Form 10-Q SEC
filing for the period ended September 30, 1999, and Form 8-K filing dated
January 26, 2000;
8. Loan Security Agreement by and between Data Systems Network Corporation and
Foothill Capital Corporation dated September 30, 1998;
9. DSNC year 2000 operating and capital budget;
10. State of Michigan, Oakland County Circuit Court complaint between Data
Systems Network Corporation (plaintiff) and Unified Network Services, Inc.;
11. United States District Court for the Eastern District of Michigan, Southern
Division stipulation of settlement between Data Systems Network Corporation
and Charles Altman, Dolores E. Andersen, Sezgey Bzyhhosnevsky, Joren
Carlson, Debra Carlson, James M. Cerretani, Tony DiFatta, Jeffrey P. Emrich,
David A. Goldberg, P.C., F.P. Krumenacher, C. Krumenacher, J. Krumenacher,
Radha K. Kuchirhotla, Michael Mao, William J. Nelson, R. Pritzker, S.
Pritzker, Sreenivasulu Raja, David L. Ronick, Michael Steele, and Elaine
Weismann; and
12. DSNC Employee Inventions, Nondisclosure, and Nonsolicitation Agreement for
Garrett L. Denniston, Joel C. Koch, Deborah Hartman, Michael Jansen, James
Losinski, Ron Ben-Yishay, John Hawes, George D. Enete, James O. Reynolds,
and John O. Lychos, Jr.
<PAGE>
Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Page 5
During the course of our investigation, which included site visit to DSNC in
Farmington Hills, Michigan, we conducted interviews with management and other
personnel of the Company and Merger Sub and with representatives from Foothill
Capital Corporation, Bodman, Longley & Dahling LLP, Dykema Gossett LLP, AmTech
Associates, and Nixon Peabody LLP. With the exception of access to Tek's board
minutes, we were given access to all materials and personnel requested for our
work, and no limitations were imposed by the Company, Tek, or Merger Sub in the
scope of our investigation.
In connection with this Opinion, we have made such reviews, studies, and
analyses as we deemed necessary and pertinent under the circumstances. We have,
among other things:
1. reviewed the information and documents listed above;
2. reviewed the historical financial performance of the Company and Tek;
3. reviewed management-provided forecasts for the Company;
4. analyzed the condition of the capital and securities markets;
5. participated in discussions with the managements of the Company and Tek
concerning the operations, business strategy, financial performance, and
prospects for the Company, Tek, and Merger Sub;
6. discussed with the managements of the Company and Tek their views of the
strategic rationale for the Merger;
7. analyzed the factors included in Revenue Ruling 59-60, including:
(a) the nature of the businesses and the history of the enterprises from
inception;
(b) the economic outlook in general and the condition of and outlook for the
specific industry;
(c) the book values of the stocks and the financial condition of the
businesses;
(d) the earning capacity of the Company and Tek;
(e) the dividend-paying capacity of the Company and Tek;
(f) whether or not the enterprises have goodwill or other intangible value;
(g) prior sales of ownership interests or offers to purchase the Company or
Tek; and
(h) the market prices of stocks of corporations engaged in the same or a
similar line of business and having their stocks actively traded in a
free and open market.
<PAGE>
Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Page 6
8. compared the financial ratios of the Company and Tek with those of a
portfolio of publicly traded guideline companies operating within similar
lines of business as the Company and Tek;
9. reviewed public filings and other information to gain insight into the
outlook for the industry and for the companies which operate within the
industry;
10. reviewed historical trading prices and volume levels for DSNC and Tek common
stock;
11. reviewed premiums paid over the public stock prices of companies acquired in
the computer networking and information technology industries since 1995;
12. reviewed the marketing process undertaken by the Company and its broker and
analyzed previous offers to purchase the Company;
13. analyzed the anticipated effect of the Merger on the future financial
performance of the consolidated entity; and
14. conducted other financial studies, analysis, and investigations as we deemed
appropriate for the purpose of this Opinion.
In preparing its opinion, Valuation Counselors performed a variety of financial
and comparative analyses, including those described below. The summary of such
analyses does not purport to be a complete description of the analyses
underlying Valuation Counselors' opinion. The preparation of a fairness opinion
is a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, Valuation
Counselors believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying such analyses and opinion. In its analyses, Valuation Counselors made
numerous assumptions with respect to DSNC, Tek, industry performance, general
business, economic, market, and financial conditions and other matters, many of
which are beyond the control of DSNC and Tek. The estimates contained in such
analyses and the valuation ranges resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. Valuation
Counselors' opinion and analyses were only one of the many factors considered by
the Board of Directors of DSNC in its evaluation of the Merger and should not be
<PAGE>
Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Page 7
viewed as determinative of the views of the Board of Directors or management of
DSNC with respect to the Exchange Ratio or the proposed Merger.
Contribution Analysis:
Valuation Counselors analyzed the respective current contributions of DSNC and
Tek to the estimated revenue, EBITDA, and net income of the combined company.
This analysis indicated that (i) in fiscal 1999, DSNC would contribute
approximately 94.0% of revenue, 170.0% of EBDIT, and 50.4% of net income, and
(ii) Tek would contribute approximately 6.0% of revenue, -70.0% of EBDIT, and
49.6% of net income of the combined company.
Pro Forma Merger Analysis:
Valuation Counselors analyzed certain pro forma effects resulting from the
Merger, including, among other things, the impact of the Merger on Tek's
projected earnings per share ("EPS") for fiscal years 2000 through 2004 based,
in the case of DSNC, on internal estimates of the management of DSNC for fiscal
year 2000 and extrapolated for subsequent years based on management's growth
rate estimates and, in the case of Tek, on estimates of selected investment
banking firms for fiscal years 2000 through 2004 and extrapolated for subsequent
fiscal years based on analysts' growth estimates for Tek. The results of the pro
forma merger analysis suggested that the Merger could be accretive to Tek's EPS
in each of the fiscal years analyzed. The actual results achieved by the
combined company may vary from projected results and the variations may be
material.
Discounted Cash Flow Analysis:
Valuation Counselors performed a discounted cash flow analysis of the projected
debt-free net cash flow of DSNC for the fiscal years ending September 30, 2000
through 2004, partially based on internal estimates of the Company's management.
The indicated enterprise value was determined by adding the present value of the
projected debt-free net cash flows over the fiscal years 2000 through 2004 and
the present value of DSNC's estimated terminal value in 2004. The projected cash
flows and terminal value were discounted to present value using a discount rate
of 19%. This analysis yielded an enterprise value below the Purchase Price.
Publicly Traded Guideline Company Analysis:
Using publicly available information, Valuation Counselors analyzed the market
values and trading multiples of the following publicly traded guideline
companies: Tier Technologies, Inc., Microstrategy, Inc., Peregrine Systems,
Inc., Eltrax Systems, Inc., Socrates Technologies Corporation, Micros to
Mainframes, Inc., Osage Systems Group, Inc., and Government Technology Services,
Inc. As shown below, the indicated multiples based on the Purchase Price offered
for DSNC fall within the ranges of the guideline companies' market multiples but
below the median levels. Such a placement is warranted due to DSNC's smaller
<PAGE>
Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Page 8
size, higher leverage, and inferior historical and projected growth rates in
comparison to the guideline companies.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Guideline Companies DSNC Calculated Multiples by Purchase Price
--------------------------------------------------------------------------------------
Market Multiple: High Low Median $12,500,000 $16,000,000 $18,000,000
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MVIC(1)/Revenue 84.49 0.12 1.74 0.35 0.41 0.45
MVIC/EBDIT(2) 577.79 11.31 76.64 17.61 20.99 22.93
(1) MVIC: Market Value of Invested Capital
(2) EBDIT: Earnings Before Depreciation, Interest, and Taxes
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Merger and Acquisition Transaction Analysis:
Valuation Counselors, using publicly available information, reviewed the
purchase prices and implied transaction multiples paid or proposed to be paid
for 69 companies engaged in the computer networking and information technology
industries. As detailed below, DSNC's multiples derived from the Purchase Price
fall within the range of the transacted companies' market multiples.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Market Transaction Companies DSNC Calculated Multiples by Purchase Price
- -----------------------------------------------------------------------------------------------------------
Market Multiple: High Low Median $12,500,000 $16,000,000 $18,000,000
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MVIC(1)/Revenue 19.33 0.02 0.90 0.35 0.41 0.45
MVIC/EBDIT(2) 38.96 0.02 9.86 17.61 20.99 22.93
(1) MVIC: Market Value of Invested Capital
(2) EBDIT: Earnings Before Depreciation, Interest, and Taxes
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Other Factors and Analysis:
In rendering the Opinion, Valuation Counselors also considered other factors
relevant to a valuation of DSNC. These factors included (i) the premiums paid in
acquisitions of companies in the computer networking and information technology
industries and (ii) other offers to purchase the Company's securities. The
Purchase Price equates to a 113.5% to 207.5% premium over the Company's pre
January 20, 2000 common stock share price. By comparison, between 1995 and 1999,
the premium paid for transacted companies within the computer networking and
information technology industries ranged between 13.0% and 81.4% with a median
of 57.0%. Given this as well as the Company's market presence the premium to
DSNC stockholders appears fair. Competing offers of expressions of interest were
received from Micros to Mainframes, Inc., Dyn Corporation, American United
Global, Inc., and Alydaar Software Corporation. With the exception of the
<PAGE>
Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Page 9
Alydaar Software Corporation offer, all the competing offers were relayed
verbally to the Company's business broker. The Micros to Mainframes, Inc. offer
indicated to the Company's representative a value between $12 million and $13
million. The offer was declined due to business logistics and the fact that
Micros to Mainframes, Inc. was undergoing an assimilation of a recent
acquisition. The Dyn Corporation offer, also presented verbally, had a value
between $12 million to $13 million and was declined due to the use of privately
held stock as a portion of the purchase price. American United Global, Inc.
offered $12 million for the Company but the offer was declined since American
United Global, Inc. would have had to liquidate a subsidiary in order to finance
the acquisition. These offers compare to the Purchase Price range between
$12,500,000 and $18,000,000.
In formulating our conclusions from the above valuation approaches, we have
assumed:
1. continued operation of the Company, Tek, and Merger Sub at their present
facilities unless identified to us for disposal;
2. the properties will be competently managed and maintained by financially
sound owners over the period of projected cash flows; and
3. no additional financings, distributions, or acquisitions, other than those
specifically addressed in the Opinion, will occur during the projection
period.
Based upon our study and subject to the assumptions and limitations included
herein and in our engagement letter dated January 12, 2000, it is our opinion,
as of the date of this letter, that the Exchange Ratio as outlined above is
fair, from a financial point of view, to the shareholders of Data Systems
Network Corporation.
The Opinion, as set forth herein, relates to the relative values of DSNC and
Merger Sub. Valuation Counselors did not express any opinion as to what the
value of Tek Common Stock actually will be when issued to DSNC stockholders
pursuant to the Merger or the price at which the Tek Common Stock will trade
subsequent to the Merger. Although Valuation Counselors evaluated the Exchange
Ratio from a financial point of view, Valuation Counselors was not asked to and
did not recommend the specific consideration payable in the Merger, which was
determined through negotiation between DSNC and Tek.
The Opinion is for the confidential use of the Board of Directors of Data
Systems Network Corporation and is applicable only for the purpose stated
herein; any use or reliance for any other purpose, by you or third parties, is
invalid. We hereby consent to: (1) the filing and disclosure of the Opinion with
the Securities and Exchange Commission and any state securities commission or
blue sky authority, if such filing or disclosure is required pursuant to the
rules and regulations thereof, or required by applicable law in the opinion of
Data Systems Network Corporation counsel; and disclosure of the Opinion upon the
demand, order or request of any court, administrative or governmental agency or
regulatory body or as may be required or appropriate in response to any summons,
subpoena, or discovery requests. No other use or reference to the Opinion may be
made without the prior written consent of Valuation Counselors, which consent
shall not be unreasonably withheld.
<PAGE>
Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Page 10
All the terms and conditions as contained in our engagement letter dated January
12, 2000, are incorporated and apply herein.
<PAGE>
Board of Directors
Data Systems Network Corporation
34705 West Twelve Mile Road, Suite 300
Farmington Hills, MI 48331
Page 11
Valuation Counselors is principally and continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
divestitures, leveraged buyouts, private placements, and other situations. Prior
to this engagement, Valuation Counselors has had no relationship with either
Data Systems Network Corporation or TekInsight.Com, Inc.
Respectfully Submitted,
VALUATION COUNSELORS
Beth A. Smoots
Managing Director
89-6234/dj
<PAGE>
February 18, 2000
Board of Directors
TekInsight.com, Inc.
5 Hanover Square - 24th Floor
New York, NY 10004
Attention: Mr. Damon Testaverde
Dear Sirs:
We understand that TekInsight.Com, Inc. (the "Company" or "TEKS"),
Astratek, Inc. ("Merger Co.") and Data Systems Network Corporation ("DSNC") have
entered into an Agreement and Plan of Merger, (the "Agreement"), whereby, among
other things, TEKS will acquire 100% of the capital stock of DSNC by the merger
of DSNC with Merger Co., a wholly-owned subsidiary of TEKS incorporated under
New York law. It is contemplated that DSNC will merge with MergerCo in a
statutory merger under New York law (the "Merger"), with MergerCo as the
surviving corporation of the Merger.
The Merger will become effective at the date and time of the filing by
the parties to the Agreement filing a Certificate of Merger with the Secretary
of State of the State of New York and the filing of a Certificate of Merger with
the Michigan Department of Consumer and Industry Services - Corporation;
Securities and Land Development Bureau (the "Effective Time"). At the Effective
Time and subject to the terms and conditions of the Agreement and the applicable
provisions of New York Law and Michigan Law, DSNC shall be merged with and into
Merger Co., the separate corporate existence of DSNC shall cease and MergerCo
shall continue as the surviving corporation. As consideration for the Merger
(the "Merger Consideration"), subject to the provisions contained in the
Agreement, all outstanding shares of DSNC capital stock will be exchanged for
that number of shares of a newly-created series of TEKS preferred stock (the
"Series A Preferred Stock") that is equal to that number of shares of TEKS
common stock having a market value at Merger closing of $12,500,000 (the
"Purchase Price"). The market value of TEKS common stock at Merger closing will
be equal to the average closing price for TEKS common stock, as reported by the
Nasdaq Smallcap Market, for the ten (10) consecutive trading days ending on the
trading day that immediately precedes the closing date of the Merger (the
"Average Price"). In the event that the Average Price is equal to a price that
is $5.00 or more but less than $7.00, the Purchase Price shall be adjusted to
equal $16,000,000 (the "First Increased Purchase Price"); and in the event that
the Average Price is equal to $7.00 or more, the Purchase Price shall be
adjusted to equal $18,000,000 (the "Second Increased Price"). As a result of any
such increase in the Average Price, the number of Series A Preferred Stock
shares issuable to DSNC shareholders shall be proportionately increased per the
terms of the Agreement.
You have requested our opinion, as financial advisors, as to the
fairness of the Merger Consideration, from a financial point of view, to the
Company.
<PAGE>
In conducting our analysis of DSNC and arriving at our opinion as
expressed herein, we have reviewed and analyzed certain financial and other
information of DSNC that was publicly available, including filings made with the
Securities and Exchange Commission (the "SEC"). The documents reviewed by
Valuemetrics include, but are not limited to:
(i) Audited financial statements (filed with the U.S. Securities and Exchange
Commission) for the fiscal years ended December 31, 1996 through December
31, 1998;
(ii) Unaudited financial statements (filed with the U.S. Securities and
Exchange Commission) for the quarters ended March 31, 1999, June 30, 1999
and September 30, 1999;
(iii) Unaudited management prepared forecasted income statements for the fiscal
years ending December 31, 1999 and 2000;
(iv) Unaudited management prepared forecasted balance sheet for the year
ending December 31, 2000;
(v) Management prepared schedule of Net Operating Losses;
(vi) List of the ten largest customers of Data Systems Network for each fiscal
year 1998 and 1999;
(vii) List of the ten largest vendors of Data Systems Network for each fiscal
year 1998 and 1999;
(viii) Schedule of share ownership prepared by American Stock Transfer & Trust
Company as of 12/31/1999;
(ix) Schedule of options ownership prepared by management dated January 24,
2000;
(x) The stock price trading history of the Company's shares as traded in the
over-the-counter market currently under the OTC Bulletin Board under the
symbol DSYS;
(xi) Letter to the Audit Committee and Board of Directors of Data Systems
Network Corporation from the Company's Auditor, Plante & Moran, LLP dated
May 21, 1998;
(xii) Letter to the Board of Directors of Data Systems Network Corporation from
the Company's Auditor, Grant Thornton, LLP dated September 14, 1999;
(xiii) Draft Agreement and Plan of Merger dated February 18, 2000 by and among
TekInsight.Com, Inc., Astratek, Inc. and Data Systems Network
Corporation; and
(xiv) Letter of Intention of the merger between Data Systems Network
Corporation and TekInsight. Corn, Inc, dated January 18, 2000.
<PAGE>
In addition, Valuemetrics has reviewed available industry and market
research and publicly available financial and stock performance data of
companies that we deemed comparable to DSNC.
In conducting our analysis and arriving at our opinion as expressed
herein, we have reviewed and analyzed certain financial and other information of
the Company. The documents reviewed by Valuemetrics include, but are not limited
to:
(i) Audited financial statements (filed with the U.S. Securities and Exchange
Commission) for the fiscal years ended June 30, 1997 through June 30,
1999;
(ii) Unaudited financial statements (filed with the U.S. Securities and
Exchange Commission) for the quarters ended September 30, 1999;
(iii) Unaudited internally prepared financial statements for the quarter ending
December 31, 1999;
(iv) Detailed breakdown of marketable securities holdings as of fiscal year
ended June 30, 1999 and fiscal quarter ended September 30, 1999;
(v) Detailed breakdown of accounts of the audited income statement for the
fiscal year ending June 30, 1999;
(vi) Detailed breakdown of accounts of the unaudited income statement for the
fiscal quarters ending September 30, 1999 and December 31, 1999;
(vii) Unaudited management prepared forecasted income statements for the
calendar years ending December 31, 2000, 2001 and 2002; and
(viii) U.S. Securities and Exchange Commission Form 8-K filing dated July 30,
1999.
In addition, we have reviewed available industry and market research
pertaining to TEKS' operations and various assets.
In rendering our opinion, we have conducted on site due diligence and
held discussions with certain officers, employees and representatives (including
counsel) of the Company and DSNC, respectively, concerning the business and
operations, assets, present condition and future prospects of the Company and
DSNC and undertook such other studies, analyses and investigations as we have
deemed appropriate.
<PAGE>
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information supplied to or
otherwise used by us in arriving at our opinion and have not attempted
independently to verify such information. We have not assumed any responsibility
for the independent verification of any such information or projections provided
to us and we have further relied upon the assurance of the management of the
Company and DSNC that they are unaware of any facts that would make the
information or projections provided to us incomplete or misleading. In arriving
at our opinion, we have not performed or obtained any independent appraisal of
the Company's or DSNC's assets or liabilities. We have also assumed that the
transactions described in the Agreement, and related Letter Agreement, would be
consummated on the terms set forth therein, without waiver of any such terms.
We have assumed, with the consent of the Company and DSNC, that the
Merger will comply with applicable federal and state laws, including, without
limitation laws relating to bankruptcy, insolvency, reorganization, fraudulent
conveyance, fraudulent transfer or other similar laws now or hereafter in effect
affecting creditors' rights generally.
As part of our professional services, we are regularly engaged in the
valuation of businesses and securities in connection with mergers, acquisitions,
leveraged buyouts, sales of unlisted securities, and valuations for estate,
corporate and other purposes. We have also taken into account our assessment of
general economic, market and financial conditions and our experience in similar
transactions, as well as our experience in securities valuation in general. Our
opinion necessarily is based upon conditions as they exist and can be evaluated
on the date hereof. Subsequent developments may affect this opinion, and we
disclaim any obligation to update, revise or reaffirm this opinion.
This letter and our opinion as expressed herein are for the benefit and
use of the Board of Directors of the Company in its consideration of the Merger.
The Board of Directors of the Company may rely upon this opinion with respect to
the Merger. This letter does not constitute a recommendation of the Merger over
any other alternative transactions which may be available to the Company and
does not address the underlying business decision of the Board of Directors of
the Company to proceed with or effect the Merger. In addition, in rendering this
opinion, we do not express any view as to the prices at which the Company's
securities may trade prior to or following the Merger. This letter does not
constitute a recommendation by our firm to any particular member of the Board of
Directors or to any stockholder as to how such member or stockholder should vote
in connection with the Merger. We understand that this Opinion will be filed
with the SEC and distributed to DSNC stockholders as part of a Proxy Statement
relating to the Merger. We hereby consent to the foregoing use of this letter.
Otherwise, this letter and the contents hereof may not be published,
disseminated, referred to, summarized, described or otherwise used, nor shall
any public reference to Valuemetrics, Inc. be made, without our prior written
consent (except in documents or communications filed with the SEC and NASDAQ,
including any proxy statements). As you are aware, we will receive a fee for our
services to the Board of Directors in connection with rendering this opinion,
and the Company has indemnified Valuemetrics for certain liabilities arising out
of this engagement including those which result, under certain circumstances,
from the rendering of this opinion.
<PAGE>
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Merger Consideration to be paid under the terms of the
Agreement and in connection with the Merger is fair, from a financial point of
view, to the Company.
Very truly yours,
VALUEMETRICS, INC.
