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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 2)
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Filed by a party other than the Registrant |_|
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Check the appropriate box:
|X| Preliminary Proxy Statement |_| Definitive Proxy Statement
|_| Definitive Additional Materials |_| Soliciting Material Under Rule 14a-12
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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TEKINSIGHT.COM, INC.
(Name of Registrant as Specified in Its Charter)
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
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(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
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|_| Check box if any part of the fee is offset as provided by Exchange
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by registration statement number, or the Form or Schedule and the
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(1) Amount Previously Paid:
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TEKINSIGHT.COM, INC.
18881 Von Karman Avenue, Suite 250
Irvine, California 92612
Dear Stockholder:
We are pleased to announce that the board of directors of
TekInsight.com, Inc. has approved the acquisition of DynCorp Management
Resources, Inc., a wholly owned subsidiary of DynCorp ("DMR"). The acquisition
is to be accomplished by merging DMR with and into Newport Acquisition Corp.,
our wholly owned subsidiary. You will be asked to approve three proposals at the
Special Meeting of stockholders of TekInsight to be held on October__, 2001 (the
"Special Meeting"), in connection with the proposed merger of DMR with and into
our subsidiary.
First, we are soliciting your approval of our amended and restated
certificate of incorporation. The proposed amendments (1) change our name to
DynTek, Inc., and (2) establish a new class of Class B common stock, shares of
which we intend to issue to DynCorp as consideration for the merger. Holders of
shares of our new Class B common stock would be entitled separately to nominate
and elect the same proportion of the members of our board of directors as the
total number of outstanding shares of Class B common stock bears to the total
number of outstanding shares of all classes of common stock (but never as much
as a majority of the members of the board of directors), which proportion
initially will represent three of our seven directors. Otherwise, the Class B
common stock would be substantially similar to our existing common stock, which
will be re-classified as Class A common stock.
Second, we are soliciting your approval pursuant to Nasdaq Rule 4350
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 Class B common stock to be issued to DynCorp as consideration for
the merger. The issuance of shares of our Class B common stock in the merger
would exceed the 20% threshold. The Class B common stock shares to be issued to
DynCorp will constitute 40% of the aggregate of our outstanding common stock and
the number of common stock shares issuable upon conversion of our outstanding
Series A preferred stock. Based upon the number of shares of common stock and
Series A Preferred Stock currently outstanding, 17,711,951 shares of Class B
common stock are expected to be issued to DynCorp at merger closing. Under the
terms of the merger, under specified conditions we are also obligated to issue
to DynCorp additional shares of Series B common stock during the five-year
period following merger closing, which number of shares is neither specified nor
subject to a maximum limit. However, under the terms of the Series B common
stock, the holders of shares of Series B common stock shall at no time have the
power to elect a majority of the members of our board of directors.
Third, we are soliciting your approval of our 2001 stock option plan
(the "2001 Plan"). The purpose of the 2001 Plan is to cover future option grants
to our officers, directors, key employees and consultants, including those who
join us as a result of the merger, in order to provide an incentive for good
performance. Our existing 1992 employee stock option plan (the "1992 Plan") will
expire in June 2002, and we do not have sufficient shares available under the
1992 Plan to accomplish this goal.
Finally, we will transact such other business as may properly come
before the Special Meeting or any adjournment thereof.
We cannot complete the merger unless our amended and restated
certificate of incorporation is approved at the Special Meeting. Similarly, we
cannot complete the merger unless, pursuant to Nasdaq Rule 4350, the proposal to
issue the Class B common stock to DynCorp is approved at the Special Meeting.
The board of directors of TekInsight recommends that you vote "FOR"
each of these three proposals.
The Special Meeting will be held at 10 a.m., local time, on October___,
2001, at TekInsight's executive offices, located at 18881 Von Karman Avenue,
Suite 250, Irvine, California. Whether or not you plan to attend the Special
Meeting in person, please complete, sign and date the enclosed proxy card and
promptly return it to us so that
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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. This proxy statement is first being sent or given to
our stockholders on or about October __, 2001.
Sincerely,
Steven J. Ross
President and Chief Executive Officer
TekInsight.com, Inc.
Irvine, California
October __, 2001
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TEKINSIGHT.COM, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER __, 2001
To the Stockholders of TekInsight:
We will hold a Special Meeting of stockholders of TekInsight on
October__, 2001, at 10 a.m., local time, at TekInsight's executive offices
located at 18881 Von Karman Avenue, Suite 250, Irvine, California, to consider
and vote upon the following:
o Approval of our amended and restated certificate of
incorporation. We are proposing to amend and restate our
certificate of incorporation to (1) change our name to DynTek,
Inc., and (2) establish a new class of Class B common stock,
shares of which we intend to issue to DynCorp as consideration
for the merger of DynCorp Management Resources, Inc., a wholly
owned subsidiary of DynCorp ("DMR"), with and into our Newport
Acquisition Corp. subsidiary. Holders of shares of our new
Class B common stock would be entitled separately to nominate
and elect the same proportion of the members of our board of
directors as the total number of outstanding shares of Class B
common stock bears to the total number of outstanding shares
of all classes of common stock (but never as much as a
majority of the members of the board of directors), which
proportion initially will represent three of our seven
directors. Otherwise, the Class B common stock would be
substantially similar to our existing common stock, which will
be re-classified as Class A common stock.
o Approval pursuant to Nasdaq Rule 4350 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 Class B common stock
to be issued to DynCorp as consideration for the merger. The
issuance of shares of our Class B common stock in the merger
would exceed the 20% threshold.
o Approval of our 2001 stock option plan (the "2001 Plan"). The
purpose of the 2001 Plan is to cover future option grants to
our officers, directors, key employees and consultants,
including those who join us as a result of the merger, in
order to provide an incentive for good performance. Our
existing 1992 employee stock option plan (the "1992 Plan")
will expire in June 2002, and we do not have sufficient shares
available under the 1992 Plan to accomplish this goal.
o Transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
The record date for the Special Meeting is October 24, 2001. Only
holders of record of TekInsight common stock and Series A preferred stock 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 thereof.
We cannot complete the merger unless our amended and restated
certificate of incorporation is approved by a majority of the votes cast on the
proposal at the Special Meeting in person or by proxy. Similarly, we cannot
complete the merger unless, pursuant to Nasdaq Rule 4350, the proposal to issue
the Class B common stock to DynCorp is approved by a majority of the votes cast
on the proposal at the Special Meeting in person or by proxy. The proposed 2001
Plan must also be approved by a majority of votes cast on the proposal at the
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 in person, please complete, sign and date
the enclosed proxy card and promptly return it to us in the enclosed
postage-paid return 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,
Steven J. Ross
President and Chief Executive Officer
TekInsight.com, Inc.
Irvine, California
October __, 2001
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SUMMARY TERM SHEET
This Summary Term Sheet is a summary of the proposed merger and certain
other information in this proxy statement. While complete in material respects,
this summary is qualified by reference to the detailed information appearing
elsewhere in this proxy statement, including the Annexes hereto. Please
carefully read all of these materials.
THE PARTIES
o TEKINSIGHT.COM, INC. (PAGE ___)
o 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.
o TekInsight provides support services and enabling technologies
to state and local government customers, which are used to
increase efficiency in operations and improve access to
government functions. TekInsight's comprehensive Government
Transformation Methodology includes consulting, infrastructure
planning and deployment, application development, legacy
integration and support.
o TekInsight's ePluribus(TM) Software Suite is comprised of
custom and modular e-government applications that enable
governments to provide services to their citizens using the
Internet, such as processing tax and violation payments,
licenses, parks and recreation management, deeds and more.
TekInsight's ProductivIT(TM) application is an IT support tool
designed to enhance help desk support, track IT assets and
provide customizable data on a remote basis using proprietary
data transfer techniques over the Internet.
o TekInsight competes in the provision of technology and related
services to government customers with companies such as
National Information Consortium Inc. (Nasdaq:EGOV) and Maximus
(NYSE:MMS).
o The principal executive offices of TekInsight and Newport
Acquisition Corp. are located at 18881 Von Karman Avenue,
Suite 250, Irvine, California 92612. Their telephone number is
(949) 955-0078.
o NEWPORT ACQUISITION CORP. (PAGE ___)
o Newport Acquisition Corp. is a wholly owned subsidiary of
TekInsight that was formed specifically for the purpose of
acquiring DMR in the merger. It is not presently an operating
company.
o DYNCORP (PAGE ___)
o DynCorp is a $1.8 billion, employee-owned company that
provides diverse information technology and outsourcing
services to government clients. Founded in 1946, DynCorp
employs more than 20,000 professional and technical workers
who perform services at 550 company and customer locations
worldwide.
o DYNCORP MANAGEMENT RESOURCES, INC. (PAGE ___)
o DMR is a wholly owned subsidiary of DynCorp.
o DMR was formed in 1996 to leverage DynCorp's strengths and to
deliver high-quality services to state and local governments.
DMR currently serves more than a dozen clients in twelve
states providing a variety of information technology and
business process outsourcing services.
THE PROPOSED MERGER
o STRUCTURE OF THE MERGER
o DMR will be merged with and into Newport Acquisition Corp. and
will become a wholly owned subsidiary of TekInsight.
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o REASONS FOR THE MERGER (PAGE ___)
o We believe that the merger will give TekInsight access to
DMR's experience and knowledge of the management services
marketplace. In addition, the merger with DMR should increase
our multi-state operations and give us an enlarged state
coverage footprint, providing us with customers located in
more states. The merger should also broaden our available
service set and increase our contract revenue backlog when
combined with DMR contracts.
o REASONS FOR THE NAME CHANGE (PAGE ___)
o We believe that changing our name to DynTek, Inc. will signify
the combination of the two businesses, along with our
emergence as a premier provider of diversified services to
state and local governments. We feel that the new name will
enhance the perception of our company as having taken a strong
direction into this marketplace with a clear strategic focus.
o EFFECTIVE TIME OF THE MERGER; CLOSING DATE OF THE MERGER (PAGE ___)
o If the requisite votes are obtained, and if all required
conditions to the merger are satisfied or waived, then the
merger will be completed upon the filing of the required
documents with the appropriate offices in the State of
Delaware and the Commonwealth of Virginia. We expect to
complete the merger on or about the third business day
following the satisfaction or waiver of all of the conditions
of the merger agreements, including obtaining the requisite
stockholder approval, negotiating and executing certain
ancillary agreements between DynCorp or its affiliates and
TekInsight and securing a firm irrevocable financing
commitment under which at least $20 million of financing will
be available to the combined entity following the merger. No
federal or state regulatory approvals are necessary. The
closing will be held at the offices of Nixon Peabody LLP,
counsel for TekInsight, or at such other place as the parties
agree.
o MERGER CONSIDERATION (PAGE E-39)
o DynCorp will receive initial merger consideration consisting
of a number of shares of our new Class B common stock equal to
two-thirds of our previously outstanding shares of common
stock and two-thirds of all shares of our common stock
issuable upon conversion, redemption or exchange of any
outstanding shares of preferred stock of TekInsight. Based
upon the number of shares of common stock and Series A
preferred stock currently outstanding, 17,711,951 shares of
Class B common stock are expected to be issued to DynCorp at
merger closing. As a result, DynCorp will own approximately
40% of the outstanding shares of our common stock and common
stock equivalents, as identified above, following the merger.
o In addition, during the five-year period following the
consummation of the merger, DynCorp may receive additional
merger consideration if and whenever we issue or sell any
shares of our Class A common stock pursuant to the exercise or
conversion of any option, warrant or similar security
outstanding at the time of the merger (excluding up to
2,000,000 shares issuable to our employees upon exercise of
options granted under the 1992 Plan and excluding shares of
common stock issuable upon conversion of the Series A
preferred stock used to calculate the initial merger
consideration), if any such shares are issued or sold at a
price that is less than the then fair market value of a share
of Class A common stock. If such triggering shares are issued
or sold, then we will issue to DynCorp, for no additional
consideration, a number of shares of our Class B common stock
whose value equals 40% of the difference between such
triggering shares' fair market value and the price at which
they were issued. Under the terms of the merger, such number
of additional shares of Series B common stock is neither
specified nor subject to a maximum limit. However, under the
terms of the Series B common stock, the holders of shares of
Series B common stock shall at no time have the power to elect
a majority of the members of our board of directors.
o CONDITIONS TO THE MERGER; TERMINATION PROVISIONS (PAGE ___)
o Completion of the merger is subject to a number of conditions.
These conditions include TekInsight stockholder approval and
receipt by us of a firm irrevocable financing commitment under
which at least $20 million of financing will be available to
the combined entity following the merger. In addition, we are
required to negotiate and enter into a registration rights
agreement with DynCorp, DynCorp is required to
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negotiate and enter into a transition services agreement with
Newport Acquisition Corp., DMR is required to enter into a
strategic alliance agreement with DynRide LLC (an affiliate
of DynCorp), and we are required to enter into a new
three-year employment agreement with Steven J. Ross, our
President and Chief Executive Officer.
o We anticipate that all of the closing conditions will be
satisfied or waived prior to the Special Meeting.
o The merger may be terminated for a number of reasons,
including by mutual consent of both companies, if the merger
is not completed by October 31, 2001, if either party breaches
the agreement and plan of reorganization and such breach is
not cured within 30 days of receipt of notice thereof, or if
any governmental authority issues a final non-appealable order
enjoining or otherwise prohibiting the merger.
o CHANGES IN STOCKHOLDER RIGHTS (PAGE ___)
o You will have the same number of shares of TekInsight common
stock or Series A preferred stock that you presently have,
with substantially the same rights as you now hold. Any
options or warrants you hold will be similarly unaffected.
o The amendments to our certificate of incorporation will result
in a classified board. Following the merger, DynCorp, as
holder of all of the outstanding shares of Class B common
stock, will be entitled separately to nominate and elect the
same proportion of the members of our board of directors as
the total number of outstanding shares of Class B common stock
bears to the total number of outstanding shares of all classes
of common stock (but never as much as a majority of the
members of the board of directors), which proportion initially
will represent three of our seven directors. Holders of
TekInsight Class A common stock and Series A preferred stock,
voting together as a single class, will have the right to
elect the remaining directors, who will initially represent
four of our seven directors. As a result of certain required
changes to our by-laws, Class B common stock directors
designated by DynCorp will have the ability to veto certain
significant decisions that may be favored by a majority of the
board of directors, including decisions that could be
favorable to the holders of the Class A common stock and/or
the Series A preferred stock.
o In addition, your shares will represent a significantly
smaller percentage of the total shares of TekInsight that will
be outstanding after all of the shares are issued to DynCorp,
as compared to your current percentage ownership of
TekInsight. After the merger, however, TekInsight will have
more resources than it currently does, including a larger and
more diversified revenue base, additional locations and
additional experienced management.
o Our board will also amend and restate our by-laws to provide
generally that certain significant board decisions can only be
made with the consent of a super-majority of 80% of the entire
board of directors, in addition to approval by the entire
board in the usual manner for all other actions. Among other
things, these super-majority voting provisions will apply to
matters concerning mergers by TekInsight or its subsidiaries,
sales of all or substantially all of the assets of any
TekInsight subsidiary or a sale of more than 30% of
TekInsight's consolidated assets, liquidations, dissolutions
or bankruptcy petitions by TekInsight or its subsidiaries,
amendments to the charters or by-laws of TekInsight or its
subsidiaries, the incurrence of indebtedness by TekInsight or
its subsidiaries in an amount in excess of $5 million or the
creation of liens with respect to such indebtedness, or any
continuation or other support of any operations of our
ProductivIT subsidiary unless its business achieves specified
revenue targets.
o PROVISIONS WITH POTENTIAL ANTI-TAKEOVER EFFECTS (PAGE ___)
o Certain provisions of the amended and restated certificate of
incorporation and amended and restated by-laws could have the
effect of delaying, discouraging or preventing tender offers
or other unsolicited attempts to take over and acquire the
business of TekInsight. These provisions include the
following:
o The supermajority board approval of any
merger or other business combination;
o Approval by holders of 80% of the Class B
common stock for removal of Class B
directors (with or without cause);
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o The provisions regarding procedures for
making changes in the by-laws and
certificate of incorporation;
o The inability of stockholders, except the
holders of Class B common stock, to call a
special meeting of stockholders;
o The amended and restated by-laws' ban
against stockholder appeals to the Delaware
courts for the purpose of filling vacancies
in the board;
o The existence of authorized but unissued
common stock and preferred stock;
o The ability of the board to increase the
number of directors and to elect the
additional directors; and
o The absence of cumulative voting for
directors.
o INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER (PAGE ___)
o Officers and directors of TekInsight may have interests in the
merger that are different from, or in addition to, yours. We
do not, however, believe that any of these interests present a
material conflict of interest.
o Damon Testaverde, a director of TekInsight, is a registered
representative with Network One Financial Services, Inc., the
principal market maker of TekInsight shares, and each of
Messrs. Ross, Linesch and Grieves is a party to an employment
agreement with TekInsight. In addition, it is a condition to
the merger that TekInsight enter into a new employment
agreement with Mr. Ross with a term of at least three years.
o We anticipate that Messrs. Aspatore, Bookmeier and Testaverde
will resign as directors of TekInsight effective upon
consummation of the merger. The vacancies will be filled with
the nominees of DynCorp in accordance with our by-laws and
will thereafter serve until our next annual meeting as Class B
directors. The four current directors who remain on the board
following the merger will thereafter serve as Class A
directors who are elected by holders of Class A common stock
and Series A preferred stock acting together as a single
class.
o FAIRNESS OPINION (PAGE ___)
o TekInsight is not an affiliate of DMR and the merger was
negotiated on an arms' length basis. Although not required,
our board of directors believed it would be helpful to engage
independent financial advisors to deliver an opinion regarding
the fairness of the terms of the merger, from a financial
point of view, to our stockholders. We engaged CBIZ Valuation
Counselors as our independent financial advisor, and it
delivered its opinion to us that the terms of the merger are
fair, from a financial point of view, to our stockholders.
o MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE ___)
o The merger has been structured to qualify as a tax-free
reorganization for federal income tax purposes under Section
368 of the Internal Revenue Code of 1986, as amended. Because
the outstanding shares of TekInsight will remain unchanged as
a result of the merger, existing TekInsight stockholders will
not recognize any gain or loss for federal income tax purposes
as a result of the merger. In addition, neither TekInsight nor
our subsidiary, Newport Acquisition Corp., will recognize any
gain or loss for federal income tax purposes as a result of
the merger.
o ACCOUNTING TREATMENT
o The merger will be accounted for as a purchase. This means
that after the merger the combined results of operations of
DMR will be included in the consolidated results of operations
of Newport Acquisition Corp. and 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 Newport Acquisition
Corp. based on their fair market values, with the excess
allocated to goodwill to be amortized over the estimated
economic life of the assets.
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o APPRAISAL RIGHTS
o Our stockholders are not entitled to appraisal rights in
connection with the proposals.
THE SPECIAL MEETING
o DATE, TIME AND PLACE OF THE SPECIAL MEETING (PAGE ___)
o The Special Meeting of stockholders of TekInsight will be
held on October 5, 2001, at 10 a.m., local time, at our
executive offices, located at 18881 Von Karman Avenue, Suite
250, Irvine, California.
o RECORD DATE; VOTING RIGHTS (PAGE ___)
o Holders of record of TekInsight common stock and Series A
preferred stock, at the close of business on September 4,
2001, will be entitled to notice of and to vote at the Special
Meeting. Holders of record of common stock are entitled to one
vote per share on each matter properly presented at the
Special Meeting. Holders of record of Series A preferred stock
are entitled to 2.5 votes per share on each matter properly
presented at the Special Meeting.
o Stockholders of TekInsight do not have cumulative voting
rights. Voting will be based solely upon a majority of votes
cast "FOR" or "AGAINST" each of the proposals such that
persons beneficially owning more shares will have greater
voting power than persons owning fewer shares. Abstentions
will have the same effect as a vote against the proposals.
Broker non-votes will not count for or against the proposals.
A majority of the outstanding shares entitled to vote at the
Special Meeting will constitute a quorum. Abstentions and
broker non-votes will be counted towards determining whether
there is a quorum present at the Special Meeting.
o The board of directors of TekInsight does not expect any other
matters to come before the Special Meeting. However, if any
other matters (other than adjournment of the Special Meeting)
are properly presented at the Special Meeting for
consideration, the persons named in the enclosed proxy card,
if it is properly executed, will have discretion to vote or
not vote on those matters in accordance with their judgment,
unless authorization to use that discretion is withheld. In
addition, unless otherwise directed by the grantor of the
proxy, the persons named in the enclosed proxy card, if it is
properly executed, will vote the shares represented thereby in
favor of each of the three proposals. If a proposal to adjourn
the Special Meeting is properly presented, however, the
persons named in the enclosed proxy card will not have
discretion to vote in favor of the adjournment proposal any
shares which were to have been voted against proposal 1 or
proposal 2.
o VOTE REQUIRED FOR APPROVAL (PAGE ___)
o On the record date _________ shares of TekInsight common stock
were issued and outstanding and held by approximately ________
beneficial owners, and ____ shares of TekInsight Series A
preferred stock were issued and outstanding and held by
approximately ___ beneficial owners. Delaware law and our
by-laws require that proposals 1, 2 and 3 each be approved by
a majority of the aggregate voting power of the outstanding
shares of TekInsight common stock and Series A preferred stock
present in person or represented by proxy at the Special
Meeting and entitled to vote on each of proposal 1, proposal 2
and proposal 3, voting together as a single class. Holders of
record of common stock are entitled to one vote per share on
proposals 1, 2 and 3. Holders of record of Series A preferred
stock are entitled to 2.5 votes per share on proposals 1, 2
and 3.
o REVOCABILITY OF PROXY (PAGE ___)
o You may change your vote by attending the meeting and voting
in person. You may also change your vote by sending us a
properly executed later-dated proxy card.
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o PERSONS MAKING THE SOLICITATION (PAGE ___)
o This solicitation is being made by the board of directors of
TekInsight. TekInsight will bear the costs associated with the
solicitation, estimated to be not more than $10,000.
TekInsight does not anticipate engaging any outside
solicitation firm to assist with the solicitation of proxies.
o ADDITIONAL INFORMATION (PAGE ___)
o TekInsight and DynCorp, DMR's sole stockholder, 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.
o In addition, we filed copies of the agreement and plan of
reorganization, the agreement and plan of merger and the stock
option agreement as exhibits to our Current Report on Form 8-K
that was filed with the SEC on May 2, 2001. You can obtain
copies of these documents from the SEC as described above. We
will also provide you copies, free of charge, upon request.
Our proposed amended and restated certificate of incorporation
is attached to this proxy statement as Annex A, our proposed
amended and restated by-laws are attached to this proxy
statements as Annex B, the opinion of our financial advisors
is attached to this proxy statement as Annex C, and our
proposed 2001 stock incentive plan is attached to this proxy
statement as Annex D.
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TABLE OF CONTENTS
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PAGE
SUMMARY TERM SHEET............................................................i
Q&A ABOUT THE MERGER..........................................................3
INTRODUCTION..................................................................8
FORWARD-LOOKING STATEMENTS...................................................10
STOCKHOLDER PROPOSALS........................................................11
VOTING SECURITIES AND PRINCIPAL HOLDERS......................................12
SELECTED PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA................15
PROPOSAL 1--AMENDED AND RESTATED CERTIFICATE OF INCORPORATION................18
PROPOSAL 2--APPROVAL OF ISSUANCE OF SHARES PURSUANT TO NASDAQ RULE 4350......18
THE MERGER...................................................................20
AMENDMENTS TO CHARTER DOCUMENTS..............................................28
OPINION OF FINANCIAL ADVISORS................................................34
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.....42
INFORMATION ABOUT TEKINSIGHT.................................................45
INFORMATION ABOUT DMR........................................................53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF DMR.........................................................59
INTERESTS OF CERTAIN PERSONS IN THE MERGER...................................63
PROPOSAL 3--2001 STOCK INCENTIVE PLAN........................................65
INCORPORATION BY REFERENCE...................................................69
WHERE YOU CAN FIND MORE INFORMATION..........................................69
ANNEX A: AMENDED AND RESTATED CERTIFICATE OF INCORPORATION...........A-1
ANNEX B: AMENDED AND RESTATED BY-LAWS................................B-1
ANNEX C: OPINION OF FINANCIAL ADVISORS...............................C-1
ANNEX D: 2001 STOCK INCENTIVE PLAN...................................D-1
<Page>
ANNEX E: AGREEMENT AND PLAN OF REORGANIZATION, AGREEMENT AND
PLAN OF MERGER, AND STOCK OPTION AGREEMENT, EACH DATED
AS OF APRIL 25, 2001, AS AMENDED............................E-1
INDEX TO FINANCIAL STATEMENTS OF DMR........................................F-1
</Table>
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Q&A ABOUT THE MERGER
Q: Why am I receiving these materials?
A: We have reached an agreement with DynCorp to acquire DMR, its wholly
owned subsidiary, by merging DMR into our newly created, wholly owned
subsidiary in exchange for newly issued shares of our class of Class B
common stock. To accomplish the merger, we will be amending and
restating our certificate of incorporation to (1) change our name to
DynTek, Inc., and (2) provide for a new class of Class B common stock.
As a result, holders of shares of our new Class B common stock would be
entitled separately to nominate and elect the same proportion of the
members of our board of directors as the total number of outstanding
shares of Class B common stock bears to the total number of outstanding
shares of all classes of common stock (but never as much as a majority
of the members of the board of directors), which proportion initially
will represent three of our seven directors. Otherwise, the Class B
common stock would be substantially similar to our existing common
stock, which will be re-classified as Class A common stock. We cannot
complete the merger unless our amended and restated certificate of
incorporation is approved at the Special Meeting.
In addition, Nasdaq Rule 4350 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
Class B common stock to be issued to DynCorp in the merger. The
issuance of shares of our Class B common stock in the merger would
exceed the 20% threshold. The Class B common stock shares to be issued
to DynCorp will constitute 40% of the aggregate of our outstanding
common stock and the number of common stock shares issuable upon
conversion of our outstanding Series A preferred stock. Based upon the
number of shares of common stock and Series A Preferred Stock currently
outstanding, 17,711,951 shares of Class B common stock are expected to
be issued to DynCorp at merger closing. Under the terms of the merger,
under specified conditions we are also obligated to issue to DynCorp
additional shares of Series B common stock during the five-year period
following merger closing, which number of shares is neither specified
nor subject to a maximum limit. However, under the terms of the Series
B common stock, the holders of shares of Series B common stock shall at
no time have the power to elect a majority of the members of our board
of directors. As with the proposal to amend and restate the certificate
of incorporation, we cannot complete the merger unless the proposal to
issue the Class B common stock to DynCorp is approved at the Special
Meeting.
Finally, we also need approval for our 2001 Plan. The purpose of the
2001 Plan is to cover future option grants to our officers, directors,
key employees and consultants, including those who join us as a result
of the merger, in order to provide an incentive for good performance.
Our existing 1992 Plan will expire in June 2002, and we do not have
sufficient shares available under the 1992 Plan to accomplish this
goal.
Q: Why is TekInsight proposing to acquire DMR?
A: DMR is a subsidiary of DynCorp, a $1.8 billion, employee-owned company
that provides diverse information technology and outsourcing services
to government clients. DMR was formed in 1996 to leverage DynCorp's
strengths and to deliver high-quality service to state and local
governments. DMR currently serves more than a dozen clients in twelve
states providing a variety of information technology and business
process outsourcing services.
We believe that the merger will give TekInsight access to DMR's
experience and knowledge of the management services marketplace. In
addition, the merger with DMR should increase our multi-state
operations and give us an enlarged state coverage footprint, providing
us with customers located in more states. The merger should also
broaden our available service set and increase our contract revenue
backlog when combined with DMR contracts.
For a more complete description of the terms of the merger you are
encouraged to carefully read the section of this proxy statement
entitled "The Merger", which begins on page ___.
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Q: Why is TekInsight proposing to change its name to DynTek, Inc.?
A: We believe that the DynTek, Inc. name signifies the combination of the
two businesses, along with our emergence as a premier provider of
diversified services to state and local governments. We feel that the
new name will enhance the perception of our company as having taken a
strong direction into this marketplace with a clear strategic focus.
Q: When do you expect to complete the merger?
A: We are working to complete the merger as quickly as possible. In
addition to obtaining stockholder approval, we must satisfy certain
other conditions set forth in the agreement and plan of reorganization,
including negotiating and executing certain ancillary agreements
between DynCorp or its affiliates and TekInsight and securing a firm
irrevocable financing commitment under which at least $20 million of
financing will be available to the combined entity following the
merger. Assuming that all other conditions are satisfied in a timely
manner, we expect to complete the merger on or about the third business
day following obtaining stockholder approval at the Special Meeting.
Q: What consideration will DynCorp, the sole stockholder of DMR, receive
in the merger?
A: DynCorp will receive initial merger consideration consisting of a
number of shares of our new Class B common stock equal to two-thirds of
our previously outstanding shares of common stock and two-thirds of all
shares of our common stock issuable upon conversion, redemption or
exchange of any outstanding shares of preferred stock of TekInsight or
any subsidiary of TekInsight. As a result, DynCorp will own
approximately 40% of the outstanding shares of our common stock and
common stock equivalents, as identified above, following the merger.
In addition, during the five-year period following the consummation of
the merger, DynCorp may receive additional merger consideration if and
whenever we issue or sell any shares of our Class A common stock
pursuant to the exercise or conversion of any option, warrant or
similar security outstanding at the time of the merger (excluding up to
2,000,000 shares issuable to our employees upon exercise of options
granted under the 1992 Plan and excluding shares of common stock
issuable upon conversion of the Series A preferred stock used to
calculate the initial merger consideration), if any such shares are
issued or sold at a price that is less than the then fair market value
of a share of Class A common stock. If such triggering shares are
issued or sold, then we will issue to DynCorp, for no additional
consideration, a number of shares of our Class B common stock whose
value equals 40% of the difference between such triggering shares' fair
market value and the price at which they were issued.
Q: How will the creation of the new series of Class B common stock and the
issuance of the shares to DynCorp affect my ownership of TekInsight?
A: You will have the same number of shares of TekInsight common stock,
which will be re-classified as Class A common stock, or Series A
preferred stock that you presently have, with substantially the same
rights as you now hold. Any options or warrants you hold will be
similarly unaffected.
The amendments to our certificate of incorporation will result in a
classified board. Following the merger, DynCorp, as holder of all of
the outstanding shares of Class B common stock, will be entitled
separately to nominate and elect the same proportion of the members of
our board of directors as the total number of outstanding shares of
Class B common stock bears to the total number of outstanding shares of
all classes of common stock (but never as much as a majority of the
members of the board of directors), which proportion initially will
represent three of our seven directors. As a result of certain
amendments to our by-laws following approval of the proposed amendments
to our certificate of incorporation, Class B common stock directors
designated by DynCorp will have the ability to veto certain significant
decisions that may be favored by a majority of the board of directors,
including decisions that could be favorable to the holders of the Class
A common stock and/or the Series A preferred stock. Holders of
TekInsight Class A common stock and
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Series A preferred stock, voting together as a single class, will
have the right to elect the remaining directors, who initially will
represent four of our seven directors.
In addition, your shares will represent a significantly smaller
percentage of the total shares of TekInsight that will be outstanding
after all of the shares are issued to DynCorp, as compared to your
current percentage ownership of TekInsight. After the merger, however,
TekInsight will have more resources than it currently does, including a
larger and more diversified revenue base, additional locations and
additional experienced management.
Q: Will TekInsight amend its by-laws as well as its certificate of
incorporation?
A: If we receive stockholder approval of the amended and restated
certificate of incorporation, our board of directors will also amend
and restate our by-laws. Such amendments will provide generally that
certain significant board decisions can only be made with the consent
of a super-majority of 80% of the entire board of directors, in
addition to approval by the entire board in the usual manner for all
other actions. As a result, Class B common stock directors designated
by DynCorp will have the ability to veto certain significant decisions
that may be favored by a majority of the board of directors, including
decisions that could be favorable to the holders of the Class A common
stock and/or the Series A preferred stock.
Q: Will the merger result in any changes in management?
A: The present officers and directors of Newport Acquisition Corp. will
continue to serve as the officers and directors of the combined entity
following the merger.
We anticipate that Messrs. Aspatore, Bookmeier and Testaverde will
resign as directors of TekInsight effective upon consummation of the
merger. The vacancies will be filled with the nominees of DynCorp in
accordance with our by-laws and will thereafter serve until our next
annual meeting as Class B directors who are elected exclusively by
holders of Class B common stock. The four current directors who remain
on the board following the merger will thereafter serve as Class A
directors who are elected by holders of Class A common stock and Series
A preferred stock voting together as a group.
Q: Does the board of directors of TekInsight recommend voting in favor of
these proposals?
A: Our board of directors has determined that each of the three proposals
is fair to and in the best interests of TekInsight's stockholders. Our
board recommends that all TekInsight stockholders vote "FOR" each of
the three proposals.
Q: Did the board of directors obtain any expert opinions regarding the
fairness of the merger?
A: TekInsight is not an affiliate of DMR and the merger was negotiated on
an arms' length basis. Although not required, our board of directors
believed that it would be helpful to engage independent financial
advisors to deliver an opinion regarding the fairness of the terms of
the merger, from a financial point of view, to our stockholders. We
engaged CBIZ Valuation Counselors as our independent financial advisor,
and it delivered its opinion to us that the terms of the merger are
fair, from a financial point of view, to our stockholders. CBIZ
Valuation Counselors' fairness opinion is described in detail in this
proxy statement under the heading "Opinion of Financial Advisors" and a
copy of their opinion is attached to this proxy statement as Annex C.
Q: How does the stock option granted to DynCorp at the time that the
merger agreement was signed work?
A: TekInsight and DynCorp entered into a stock option agreement in
connection with the merger. Under the terms of the stock option
agreement, TekInsight granted to DynCorp an option to purchase up to
19.9% of TekInsight's outstanding common stock, or 3,753,807 shares, at
an exercise price of $1.94 per share. In general, the option is
exercisable by DynCorp in the event that TekInsight fails to consummate
the merger or takes steps to terminate the merger agreements or
TekInsight's board of directors withdraws its recommendation that
stockholders vote in favor of the merger.
In addition, the stock option agreement grants DynCorp the right to put
its option to TekInsight for cash in the event TekInsight enters into
and closes an agreement with a third party to merge or sell
substantially all of its
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assets or 51% or more of its voting stock, or any third party
acquires beneficial ownership of 51% or more of TekInsight's voting
stock. Should any such event occur, the purchase price for the
option would be equal to the difference between the highest price per
share paid for TekInsight common stock during the six-month period
following one of the trigger events described in the immediately
preceding sentence and the exercise price of the option, multiplied by
the number of shares subject to the stock option agreement. In
addition, DynCorp would be entitled to have any shares of TekInsight
common stock it had already acquired pursuant to exercise of the option
repurchased by TekInsight on the same basis. The stock option agreement
also grants DynCorp registration rights with respect to the shares of
TekInsight common stock subject to the option.
The stock option agreement will terminate automatically upon the
consummation of the merger.
Q: Where can I find more information about the companies?
A: TekInsight and DynCorp, DMR's sole stockholder, 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.
In addition, we filed copies of the agreement and plan of
reorganization, the agreement and plan of merger and the stock option
agreement as exhibits to our Current Report on Form 8-K that was filed
with SEC on May 2, 2001. You can obtain copies of these documents from
the SEC as described above. We will also provide you copies, free of
charge, upon request. Our proposed amended and restated certificate of
incorporation is attached to this proxy statement as Annex A, our
proposed amended and restated by-laws are attached to this proxy
statement as Annex B, the opinion of our financial advisers is attached
to this proxy statement as Annex C, and our proposed 2001 stock
incentive plan is attached to this proxy statement as Annex D.
Q: What are the material federal income tax consequences of the merger to
me? How will the merger be accounted for?
A: The merger has been structured to qualify as a tax-free reorganization
for federal income tax purposes under Section 368 of the Internal
Revenue Code of 1986, as amended. Because the outstanding shares of
TekInsight will remain unchanged as a result of the merger, existing
TekInsight stockholders will not recognize any gain or loss for federal
income tax purposes as a result of the merger. In addition, neither
TekInsight nor our subsidiary, Newport Acquisition Corp., will
recognize any gain or loss for federal income tax purposes as a result
of the merger.
The merger will be accounted for as a purchase.
Q: Will I have any appraisal rights with respect to the proposals?
A: Our stockholders will not have any appraisal rights with respect to the
proposals.
Q: What do I need to do now?
A: After you carefully read this proxy statement, whether or not you plan
to attend the Special Meeting in person, indicate on the enclosed proxy
card whether you are voting "FOR or "AGAINST" each proposal or will
"ABSTAIN" from voting. Sign and date the proxy card and return it to us
in the enclosed postage-paid return envelope as soon as possible so
that your vote will be counted.
Q: When and where will the Special Meeting take place?
A: The Special Meeting will be held on October 5, 2001, at 10 a.m., local
time, at TekInsight's executive offices located at 18881 Von Karman
Avenue, Suite 250, Irvine, California.
Q: What do I do if I want to change my vote?
A: You may change your vote by signing a later-dated proxy card and
returning it to us before the Special Meeting, or by attending the
Special Meeting and voting in person.
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Q: If my broker holds my shares in "street name," will my broker vote my
shares for me? What will happen if I abstain from voting?
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 will not count for or
against the proposals, because although they will count towards the
quorum necessary to hold the meeting they do not represent part of the
voting power present for any particular matter to come before the
meeting and thereby have no effect on the outcome of the voting. By
contrast, abstentions represent part of the voting power present.
Therefore, if the vote required to approve an action brought before a
meeting is a majority of the voting power present, as with the three
proposals brought before the Special Meeting, abstentions will have the
same effect as a vote "AGAINST" the three proposals. If you want to
vote "FOR" the proposals, be sure to provide your broker with
instructions on how to vote your shares.
Q: Whom should I call if I have any questions?
A: Stockholders should direct questions to Linda Wise, TekInsight's
Marketing Manager, at (949) 955-0078, extension 115.
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<Page>
INTRODUCTION
This proxy statement is being furnished in connection with the
solicitation by the board of directors of TekInsight of proxies in the
accompanying form to be used at our Special Meeting of stockholders to be held
at 10 a.m., local time, on October ___, 2001, at TekInsight's executive offices
located at 18881 Von Karman Avenue, Suite 250, Irvine, California.
The board of directors has called the Special Meeting in connection
with its proposed acquisition of DMR, a wholly owned subsidiary of DynCorp.
Pursuant to the agreements entered into among TekInsight, Newport Acquisition
Corp., DynCorp and DMR, DMR will be merged into our subsidiary, Newport
Acquisition Corp., in exchange for newly issued shares of Class B common stock.
DMR is a subsidiary of DynCorp, a $1.8 billion, employee-owned company
that provides diverse information technology and outsourcing services to
government clients. DMR was formed in 1996 to leverage DynCorp's strengths and
to deliver high-quality service to state and local governments. DMR currently
serves more than a dozen clients in twelve states providing a variety of
information technology and business process outsourcing services.
We believe that the merger will give TekInsight access to DMR's
experience and knowledge of the management services marketplace. In addition,
the merger with DMR should increase our multi-state operations and give us an
enlarged state coverage footprint, providing us with customers located in more
states. The merger should also broaden our available service set and increase
our contract revenue backlog when combined with DMR contracts. We also believe
that changing our name to DynTek, Inc. will signify the combination of the two
businesses, along with our emergence as a premier provider of diversified
services to state and local governments. We feel that the new name will enhance
the perception of our company as having taken a strong direction into this
marketplace with a clear strategic focus.
To accomplish the merger, we are proposing to amend and restate our
certificate of incorporation to (1) change our name to DynTek, Inc., and (2)
provide for a new class of common stock. As a result, holders of shares of our
new Class B common stock would be entitled to nominate and elect the same
proportion of the members of our board of directors as the total number of
outstanding shares of Class B common stock bears to the total number of
outstanding shares of all classes of common stock (but never as much as a
majority of the members of the board of directors), which proportion initially
will represent three of our seven directors. Otherwise, the Class B common stock
would be substantially similar to our existing common stock, which will be
re-classified as Class A common stock. In addition, pursuant to Nasdaq Rule
4350, we are required to seek stockholder approval in connection with the merger
because the consideration for the merger - the Class B common stock to be issued
to DynCorp - would exceed 20% of the presently outstanding shares of our common
stock (and securities convertible into our common stock). The Class B common
stock shares to be issued to DynCorp will constitute 40% of the aggregate of our
outstanding common stock and the number of common stock shares issuable upon
conversion of our outstanding Series A preferred stock. Based upon the number of
shares of common stock and Series A Preferred Stock currently outstanding,
17,711,951 shares of Class B common stock are expected to be issued to DynCorp
at merger closing. Under the terms of the merger, under specified conditions we
are also obligated to issue to DynCorp additional shares of Series B common
stock during the five-year period following merger closing, which number of
shares is neither specified nor subject to a maximum limit. However, under the
terms of the Series B common stock, the holders of shares of Series B common
stock shall at no time have the power to elect a majority of the members of our
board of directors.
Holders of record of TekInsight common stock and Series A preferred
stock, at the close of business on September 4, 2001, will be entitled to notice
of and to vote at the Special Meeting. Holders of record of common stock are
entitled to one vote per share on each matter properly presented at the Special
Meeting. Holders of record of Series A preferred stock are entitled to 2.5 votes
per share on each matter properly presented at the Special Meeting.
Stockholders of TekInsight do not have cumulative voting rights.
Assuming the presence of a quorum at the Special Meeting, voting will be based
solely upon a majority of votes cast "FOR" or "AGAINST" each of the proposals
such that persons beneficially owning more shares will have greater voting power
than persons owning
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fewer shares. Abstention and broker non-votes will be counted towards
determining whether there is a quorum present at the Special Meeting.
Abstentions are deemed to be part of the voting power present for a proposal
and will have the same effect as a vote against the proposals. Broker
non-votes are not deemed to be part of the voting power present for purposes
of determining the number of votes necessary to approve a proposal, and will
not count for or against the proposals. A majority of the outstanding shares
entitled to vote at the Special Meeting will constitute a quorum, and
affirmative vote of a majority of the voting power present is necessary to
approve each of the three proposals to come before the Special Meeting.
This proxy statement is first being sent or given to our stockholders
on or about September 5, 2001.
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FORWARD-LOOKING STATEMENTS
This proxy statement contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Stockholders are
cautioned that certain statements in this proxy statement are "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and involve known and unknown risks, uncertainties and other factors.
Such uncertainties and risks include, among others, certain risks associated
with the operation of a newly combined entity, the impact of government
procurement regulations on the agreements to be transferred to and to be entered
into by the combined company, the ability to turn the projected contract backlog
into revenue and net income by the combined company, the ability of the combined
company to be properly managed by the current and future management teams, the
continuing desire of state and local governments to outsource to private
contractors the performance of government services, and the continuation of
general economic and business conditions that are conducive to government
outsourcing of service performance. Actual events, circumstances, effects and
results may be materially different from the results, performance or
achievements expressed or implied by the forward-looking statements.
Consequently, the forward-looking statements contained in this proxy statement
should not be regarded as representations by TekInsight or any other person that
the projected outcomes can or will be achieved.
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STOCKHOLDER PROPOSALS
Our certificate of incorporation and by-laws require any stockholder
who wishes to bring any proposal before a meeting of stockholders or to
nominate a person to serve as a director to give written notice thereof and
certain related information to us at least 60 days prior to the date that is
one year from the date of the immediately preceding annual meeting, if such
proposal or nomination is to be submitted at an annual meeting, or within ten
days of the giving of notice to the stockholders, if such proposal or
nomination is to be submitted at a Special Meeting. The written notice must
set forth with particularity:
o The name and business address of the stockholder submitting
such proposal and all persons acting in concert with such
stockholder;
o The name and address of the persons identified above, as they
appear on our books (if they so appear);
o The class and number of shares of the voting securities
beneficially owned by the persons identified above;
o A description of the proposal containing all material
information relating thereto, including the reasons for
submitting such proposal; and
o Such other information as the board of directors reasonably
determines is necessary or appropriate to enable the board of
directors and stockholders to consider such proposal.
We do not know of any matters that are likely to be brought before the
Special Meeting other than those referred to in this proxy statement. However,
in the event that any other matters properly come before the Special Meeting,
the persons named in the enclosed proxy will vote in accordance with their
judgment on such matters.
The presiding officer at the Special Meeting may determine that any
stockholder proposal or nomination was not permissible under or was not made in
accordance with the foregoing procedures or is otherwise not in accordance with
law and, if he or she so determines, he or she may refuse to allow the
stockholder proposal or nomination to be considered at the Special Meeting.
Under the rules of the SEC, stockholder proposals intended to be
presented at our next annual meeting (to be held in 2002) must be received by us
on or before February 5, 2002 to be included in the proxy statement and proxy
for that meeting. Proposals should be directed to the Corporate Secretary,
TekInsight.com, Inc., 18881 Von Karman Avenue, Suite 250, Irvine, California
92612.
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VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth information regarding the beneficial
ownership of outstanding Series A Preferred Stock, on an "as converted" basis,
and Common Stock, taken together as of August 9, 2001 by (i) each of the
Company's directors and executive officers, (ii) all directors and executive
officers as a group, and (iii) each owner of more than 5% of the Company's
Common Stock, referred to as the 5% owners.
<Table>
<Caption>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF OF COMMON STOCK OUTSTANDING OF
BENEFICIAL OWNER(2) BENEFICIALLY OWNED(1) COMMON STOCK OWNED
---------------- ------------------ ------------------
Brian D. Bookmeier(3) 437,065 1.6%
c/o Las Vegas Golf & Tennis
42705 Grand River Avenue, Suite 20
Novi, MI 48152
Estate of Fred Kassner(4) 3,045,610 11.5%
59 Spring Street
Ramsey, NJ 07446
James Linesch (5)(7) 360,573 1.4%
Damon D. Testaverde(4)(5) 909,794 3.4%
580 Oak Dale Street
Staten Island, NY 30312
Steven J. Ross(6) 478,845 1.8%
Michael W. Grieves(8) 657,729 2.5%
34705 West 12 Mile Road, Suite 300
Farmington Hills, MI 48009
Walter J. Aspatore(9) 83,410 *
255 East Brown Street Center, Suite 120
Birmington, MI 48009
H. T. Ardinger & Sons, Inc.(10) 2,403,550 9.4%
9040 Governors Row
P.O. Box 569360
Dallas, TX 75356
Mr. Douglas Adkins(11) 1,342,800 5.2%
1601 Elm Street
Dallas, Texas 75201
ALL OFFICERS AND DIRECTORS 2,927,416 10.5%
as a group (6 persons)(3)(4)(5)(6)(7)(8)(9)
</Table>
* Less than 1%
(1) As used herein, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of
1934 as consisting of sole or shared voting power (including the power
to vote or direct the vote) and/or sole or shared investment power
(including the power to dispose or direct the disposition of) with
respect to the security through any contract, arrangement,
understanding, relationship or
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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.
(2) Except as set forth in the footnotes to this table, the business
address of each director and executive officer listed is c/o
TekInsight.com, Inc., 18881 Von Karman Avenue, Irvine, California
92612.
(3) Includes 253,315 shares of Common Stock held by Mr. Bookmeier. Also
includes 8,750 shares of Common Stock which are issuable upon
conversion of 3,500 shares of Series A Preferred Stock on and after
August 14, 2001, options to purchase 125,000 shares of Common Stock at
$1.35 per share, granted in connection with the waiver of certain 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 40,000 shares of Common Stock granted
under the Company's 1997 Non-Employee Directors' Stock Option Plan
(10,000 exercisable at $1.81 per share of Common Stock, 10,000
exercisable at $3.78 per share of Common Stock, 10,000 exercisable at
$2.81 per share of Common Stock and 10,000 exercisable at $2.25 per
share of Common Stock).
(4) For the Estate of Mr. Kassner, includes 40 shares of Common Stock
underlying the Company's publicly-traded Class A Warrants and 100,000
shares of Common Stock underlying Warrants granted in connection with
certain financial accommodations granted by Mr. Kassner related to the
release of security interests in Company assets. For Mr. Testaverde,
includes the shares underlying 371,855 options granted under the 1992
Employee Stock Option Plan exercisable at prices ranging from $1.25 to
$1.50 per share.
(5) Includes 40,000 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, 10,000
exercisable at $3.78 per share of Common Stock, 10,000 exercisable at
$2.81 per share of Common Stock) and 10,000 options granted to Mr.
Testaverde exercisable at $2.25 per share of Common Stock under the
Company's 1997 Non-Employee Director's Stock Option Plan, and includes
8,750 shares of Common Stock which are issuable to each of Messrs.
Linesch and Testaverde upon conversion on and after August 14, 2001 of
3,500 shares of Series A Preferred Stock held by each such person.
(6) Includes options to purchase 400,000 shares of common stock
exercisable at $1.25 per share granted to Mr. Ross under the Company's
1992 Employee Stock Option Plan, 10,000 shares of Common Stock
underlying options granted at $2.81 per share under the Company's 1997
Non-Employee Director's Stock Option Plan, 19,845 shares of Common
Stock which are issuable upon conversion of 7,938 shares of Series A
Preferred Stock on and after August 14, 2001, and 49,000 shares of
Common Stock underlying options to purchase 19,600 shares of
TekInsight Series A Preferred Stock with a strike prices of $1.69 per
share.
(7) Includes options to purchase 175,000 shares of common stock granted to
Mr. Linesch at prices ranging from $1.25 to $3.00 under the 1992
Employee Stock Option Plan.
(8) Mr. Grieves owns 226,754 shares of TekInsight Series A Preferred
Stock, which he received as merger consideration in connection with
the merger of Data Systems with TekInsight. Based upon the merger
conversion ratio, Mr. Grieves also received beneficial ownership of
options to purchase 36,338 shares of TekInsight Series A Preferred
Stock with strike prices of $2.39 per share to $33.80 per share. The
TekInsight Series A Preferred Stock shares are available for
conversion into TekInsight common stock on and after August 14, 2001.
Mr. Grieves' Series A Preferred Stock is convertible into 566,883
shares of Common Stock, and the shares of Series A Preferred Stock
which may be acquired on his option exercise are convertible into
90,846 shares of Common Stock.
(9) Mr. Aspatore owns 13,292 shares of TekInsight Series A Preferred
Stock. Mr. Aspatore is the beneficial owner of options to purchase
16,072 shares of TekInsight Series A Preferred Stock with strike
prices of between $2.25 and $23.92 per share. The TekInsight Series A
Preferred Stock shares are available for conversion into TekInsight
common stock on and after August 14, 2001. Mr. Aspatore's Series A
Preferred is convertible into 33,230 shares of Common Stock, and the
shares of Series A Preferred Stock which may be acquired on his option
exercise are convertible into 40,180 shares of Common Stock. This also
includes
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10,000 options granted to Mr. Aspatore at $2.25 per share of Common
Stock under the Company's 1997 Non-Employee Directors' Stock Option
Plan.
(10) Includes 90,000 shares of TekInsight Series A Preferred Stock
available for conversion into Common Stock on and after August 14,
2001, which shares of Series A Preferred Stock are convertible into
225,000 shares of Common Stock. The President and a principal
stockholder of H. T. Ardinger & Sons, Inc. is also the Chairman of
ViewCast.com, Inc., and H.T. Ardinger & Sons, Inc. is a principal
stockholder of ViewCast.com, Inc. The Company has been informed
that H.T. Ardinger & Sons, Inc. beneficial ownership of any shares
of Common Stock held by ViewCast.com, Inc. over which it may
otherwise be deemed to have beneficial ownership.
(11) Includes 118,000 shares of TekInsight Series A Preferred Stock
available for conversion into Common Stock on and after August 14,
2001. Mr. Adkins has beneficial ownership of the 295,000 shares of
Common Stock into which such shares of Series A Preferred Stock are
convertible.
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SELECTED PRO FORMA AND HISTORICAL
CONSOLIDATED FINANCIAL 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, 2001, and pro forma
financial data for the year ended June 30, 2001. The statement of operations
data for 1997 through 2001 and balance sheet data for 1997 through 2001 are
derived from our audited financial statements. The pro forma data reflects
TekInsight's acquisition of DMR as of June 30, 2001. The pro forma
information should be read in conjunction with the pro forma condensed
consolidated financial statements included elsewhere in this proxy statement.
<Table>
<Caption>
(IN THOUSANDS, EXCEPT PER YEAR ENDED JUNE 30, PRO FORMA
SHARE DATA) -------------------------------------------------------- YEAR ENDED JUNE 30, 2001
2001 2000 1999 1998 1997 2001
------- ------- ------- ------- ------- ----
(UNAUDITED)
STATEMENT OF
OPERATIONS DATA:
Revenues................. $ 44,910 $ 1,962 $ 1,515 $ 997 $ 455 $ 77,163
Cost of revenues......... 35,492 1,373 700 248 73 64,996
-------- -------- -------- -------- -------- --------
Gross margin............. 9,418 589 815 749 382 12,167
Operating expenses....... 19,081 3,848 3,573 2,354 992 24,940
-------- -------- -------- -------- -------- --------
Loss from operations..... (9,663) (3,259) (2,758) (1,605) (610) (12,773)
Gain (Loss) on sale of
marketable securities.... (480) (1,191) 1,690 - - (480)
Other income
(expense), net......... (755) (43) 590 452 2 (889)
-------- -------- -------- -------- -------- --------
Loss from continuing
operations............... (10,898) (4,493) (478) (1,153) (608) (14,142)
-------- -------- -------- -------- -------- --------
Net income (loss)
applicable to common
share holders............ $(10,763) $ (3,975) $ 986 $ 1,680 $ (2,636) $(14,007)
======== ======== ======== ======== ======== ========
Net income (loss) per
share....................
Continuing operations.. $ (0.63) $ (0.25) $ (0.03) $ (0.11) $ (0.08) $ (0.40)
======== ======== ======== ======== ======== ========
Discontinued operations $ 0.00 $ 0.00 $ 0.10 $ 0.25 $ (0.17) $ -
======== ======== ======== ======== ======== ========
Net (loss) income per
share basic and diluted.. $ ( 0.63) $ ( 0.25) $ 0.07 $ 0.14 $ (0.25) $ (0.40)
======== ======== ======== ======== ======== ========
Weighted average
shares outstanding..... 17,169 15,878 14,728 12,019 10,379 34,798
======== ======== ======== ======== ======== ========
</Table>
<Table>
<Caption>
AS OF JUNE 30, AS OF JUNE 30,
---------------------------------------------------------- --------------
BALANCE SHEET DATA: 2001 2000 1999 1998 1997 PRO FORMA 2001
------------------- ---- ---- ---- ---- ---- --------------
(UNAUDITED)
Cash and cash equivalents... $1,309 $ 3,691 $ 7,618 $ 2,575 $ 542 $ 1,061
Working capital............. (4,985) 1,784 5,365 777 3,129 (4,959)
Total assets................ 33,997 12,525 16,487 9,913 18,298 66,798
Total liabilities........... 17,540 2,907 2,872 4,413 14,776 20,548
Total stockholders' equity.. 16,457 9,618 13,615 5,500 3,523 46,250
</Table>
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SELECTED HISTORICAL ANNUAL FINANCIAL DATA OF DMR
The following table presents selected historical financial data
derived from the audited financial statements of operations of DMR for each
of the three fiscal years ended December 28, 2000, December 30, 1999 and
December 31, 1998, the audited balance sheets as of December 28, 2000 and
December 30, 1999, the unaudited statements of operations for the fiscal year
ended December 31, 1997, and the unaudited balance sheets as of December 31,
1998 and December 31, 1997. During these periods, DMR paid no cash dividends
on its common stock. The following information should be read in conjunction
with the section of this proxy statement entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations of DMR" and the
audited and unaudited financial statements and related notes thereto included
elsewhere in this proxy statement.
<Table>
<Caption>
(in thousands) FISCAL YEAR ENDED
-----------------
December 28, December 30, December 31, December 31,
2000 1999 1998 1997
----- ----- ----- ----
Statements of Operations Data:
Revenues $ 26,755 $ 24,536 $ 18,056 $ 1,554
Net (loss) income from continuing operations $ (739) $ (1,575) $ 256 $ (1,384)
Balance Sheet Data:
Total assets $ 5,863 $ 6,449 $ 2,701 $ 931
Advances from DynCorp $ 6,118 $ 5,537 $ 2,914 $ 1,926
</Table>
SELECTED HISTORICAL QUARTERLY FINANCIAL DATA OF DMR (UNAUDITED)
A summary of quarterly financial data for 2000 and 1999 is as follows:
<Table>
<Caption>
(in thousands)
2000 QUARTERS 1999 QUARTERS
-------------- -------------
(unaudited) (unaudited)
First Second Third Fourth First Second Third Fourth
Revenue $ 6,505 $ 7,127 $ 6,078 $ 7,045 $ 6,120 $ 6,636 $ 6,786 $ 4,994
Gross profit $ 986 $ 1,162 $ (528) $ 958 $ 1,087 $ 1,013 $ 531 $ (2,011)
Net income (loss)
from continuing
operations $ 349 $ 213 $ (1,244) $ (57) $ 604 $ 595 $ 9 $ (2,784)
</Table>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DMR is covered by DynCorp's policy to use derivative financial
instruments to manage its market risk exposures from fluctuations in interest
rates and foreign exchange rates as warranted. DynCorp manages its exposure
to this market risk through the monitoring of its available financing
alternatives including, in certain circumstances, the use of derivative
financial instruments. DynCorp does not hold or issue derivative financial
instruments for trading purposes. There were no such financial instruments
held by DMR during 2000 and 1999.
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PER SHARE DATA REGARDING TEKINSIGHT
Shown separately below are the net loss and book value per common
share data for TekInsight on a historical basis and for TekInsight and DMR on
a pro forma consolidated basis. The per share data for DMR is not presented
separately, since DMR was a privately held subsidiary prior to the
acquisition. The per share data are prepared with the assumption that
17,629,000 shares of Class B common stock will be issued to DMR's sole
stockholder. The pro forma statements do not reflect the assumption that an
additional $20 million of financing has been secured, as a condition of the
closing, since the nature of this financing, as a combination of debt and
equity, has not yet been determined.
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. This information should not be relied upon as
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 38.
<Table>
<Caption>
FOR THE FOR THE
YEAR ENDED YEAR ENDED JUNE
JUNE 30, 2001 30 2000
------------- -------
TEKINSIGHT HISTORICAL PER COMMON SHARE DATA
Net loss from continuing operations per common share................. $(0.63) $ (.25)
Book value per share................................................. $0.83 $.59
Tangible Book value per share $(0.11) $ .45
TEKINSIGHT PRO FORMA CONSOLIDATED PER TEKINSIGHT COMMON SHARE DATA:
Net loss from continuing operations per common share (1)............. $(0.40) $ (.34)
Book value per share (2)............................................. $ 1.24 $1.16
Tangible Book value per share $(0.77) $ .30
</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 issuance of 17,629,000 shares of
Class B common stock to DMR's sole stockholder 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 issuance of 17,629,000 shares of Class B common stock to DMR's
sole stockholder at the beginning of the respective periods.
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PROPOSAL 1--AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
We are soliciting your approval of our amended and restated
certificate of incorporation. The proposed amendments (1) change our name to
DynTek, Inc., and (2) establish a new class of Class B common stock, shares
of which we intend to issue to DynCorp as consideration for the merger.
Holders of shares of our new Class B common stock would be entitled
separately to nominate and elect the same proportion of the members of our
board of directors as the total number of outstanding shares of Class B
common stock bears to the total number of outstanding shares of all classes
of common stock (but never as much as a majority of the members of the board
of directors), which proportion initially will represent three of our seven
directors. Otherwise, the Class B common stock would be substantially similar
to our existing common stock, which will be re-classified as Class A common
stock. As a result of certain amendments to our by-laws following approval of
the proposed amendments to our certificate of incorporation, Class B common
stock directors designated by DynCorp will have the ability to veto certain
significant decisions that may be favored by a majority of the board of
directors, including decisions that could be favorable to the holders of the
Class A common stock and/or the Series A preferred stock.
We believe that the DynTek, Inc. name signifies the combination of
our two businesses, along with our emergence as a premier provider of
diversified services to state and local governments. We feel that the new
name will enhance the perception of our company as having taken a strong
direction into this marketplace with a clear strategic focus.
We cannot complete the merger unless our amended and restated
certificate of incorporation is approved at the Special Meeting. Similarly,
we cannot complete the merger unless, pursuant to Nasdaq Rule 4350, proposal
2 to issue the Class B common stock to DynCorp as consideration for the
merger is approved at the Special Meeting.
TekInsight's board of directors believes that the merger is in the
best interests of stockholders of TekInsight. We believe that the merger will
give TekInsight access to DMR's experience and knowledge of the management
services marketplace. In addition, the merger with DMR should increase our
multi-state operations and give us an enlarged state coverage footprint,
providing us with customers located in more states. The merger should also
broaden our available service set and increase our contract revenue backlog
when combined with DMR contracts.
TekInsight is not an affiliate of DMR and the merger was negotiated
on an arms' length basis. Although not required, our board of directors
believed it would be helpful to engage independent financial advisors to
deliver an opinion regarding the fairness of the terms of the merger, from a
financial point of view, to our stockholders. We engaged CBIZ Valuation
Counselors as our independent financial advisor, and it delivered its opinion
to us that the terms of merger are fair, from a financial point of view, to
our stockholders.
The board of directors of TekInsight recommends that all
stockholders vote "FOR" approval of the amended and restated certificate of
incorporation. IT IS A CONDITION TO CONSUMMATION OF THE MERGER THAT PROPOSAL
1, THE AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION, IS
APPROVED BY THE STOCKHOLDERS OF TEKINSIGHT.
PROPOSAL 2--APPROVAL OF ISSUANCE
OF SHARES PURSUANT TO NASDAQ RULE 4350
Nasdaq Rule 4350 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 Class B common stock to
be issued to DynCorp in the merger. The issuance of shares of our Class B
common stock in the merger would exceed the 20% threshold. As with the
proposal to amend and restate the certificate of incorporation, we cannot
complete the merger unless the proposal to issue the Class B common stock to
DynCorp is approved at the Special Meeting.
DynCorp will receive initial merger consideration consisting of a
number of shares of our new Class B common stock equal to two-thirds of our
previously outstanding shares of common stock and two-thirds of all shares
-18-
<Page>
of our common stock issuable upon conversion, redemption or exchange of any
outstanding shares of preferred stock of TekInsight. As a result, DynCorp
will own approximately 40% of the outstanding shares of our common stock and
common stock equivalents, as identified above, following the merger. Based
upon the number of shares of common stock and Series A preferred stock
currently outstanding, 17,711,951 shares of Class B common stock are expected
to be issued to DynCorp at merger closing.
In addition, during the five-year period following the consummation
of the merger, DynCorp may receive additional merger consideration if and
whenever we issue or sell any shares of our Class A common stock pursuant to
the exercise or conversion of any option, warrant or similar security
outstanding at the time of the merger (excluding up to 2,000,000 shares
issuable to our employees upon exercise of options granted under the 1992
Plan and excluding shares of common stock issuable upon conversion of the
Series A preferred stock used to calculate the initial merger consideration),
if any such shares are issued or sold at a price that is less than the then
fair market value of a share of Class A common stock. If such triggering
shares are issued or sold, then we will issue to DynCorp, for no additional
consideration, a number of shares of our Class B common stock whose value
equals 40% of the difference between such triggering shares' fair market
value and the price at which they were issued. Under the terms of the merger,
such number of additional shares of Series B common stock is neither
specified nor subject to a maximum limit. However, under the terms of the
Series B common stock, the holders of shares of Series B common stock shall
at no time have the power to elect a majority of the members of our board of
directors.
The board of directors of TekInsight recommends that all
stockholders vote "FOR" approval of the proposal pursuant to Nasdaq Rule 4350.
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<Page>
THE MERGER
TekInsight, Newport Acquisition Corp., DynCorp and DMR entered into
an agreement and plan of reorganization and an agreement and plan of merger,
each dated as of April 25, 2001. TekInsight and DynCorp also entered into a
related stock option agreement dated as of April 25, 2001. The following
summary of the material terms of the above-identified agreements
(collectively, the "merger agreements"), while complete in material respects,
is nonetheless a summary. It is qualified by reference to the full text of
the merger agreements. We filed copies of the merger agreements as exhibits
to our Current Report on Form 8-K that was filed with the SEC on May 2, 2001.
Copies of the merger agreements are appended to this proxy statement as
Annexes G and H.
REASONS FOR THE MERGER
DMR is a subsidiary of DynCorp, a $1.8 billion, employee-owned
company that provides diverse information technology and outsourcing services
to government clients. DMR was formed in 1996 to leverage DynCorp's strengths
and to deliver high-quality service to state and local governments. DMR
currently serves more than a dozen clients in twelve states providing a
variety of information technology and business process outsourcing services.
We believe that the merger will give TekInsight access to DMR's
experience and knowledge of the management services marketplace. In addition,
the merger with DMR should increase our multi-state operations and give us an
enlarged state coverage footprint, providing us with customers located in
more states. The merger should also broaden our available service set and
increase our contract revenue backlog when combined with DMR contracts. The
combined service offerings of the post-merger company are intended to be
provided to current customers of both TekInsight and DMR, in order to expand
existing relationships. Additionally, the post-merger company can combine the
current service offerings of both TekInsight and DMR to offer more
comprehensive proposals for additional contracts. Finally, it is intended
that the management, administration and marketing functions of both companies
will be consolidated, allowing the post-merger company to benefit from
anticipated economies of scale.
We believe that changing our name to DynTek, Inc. will signify the
combination of the two businesses, along with our emergence as a premier
provider of diversified services to state and local governments. We feel that
the new name will enhance the perception of our company as having taken a
strong direction into this marketplace with a clear strategic focus.
EFFECT OF THE MERGER
The merger agreements provide that if the merger is approved, at the
effective time, a certificate of merger will be filed with the Secretaries of
State of each of Delaware and Virginia, and upon such filings DMR will be
merged with and into Newport Acquisition Corp. Newport Acquisition Corp. will
continue as the surviving company and as a wholly owned subsidiary of
TekInsight. By operation of law, Newport Acquisition Corp. will succeed to
all of the property and rights of DMR and assume all of its debts,
liabilities and obligations. The certificate of incorporation and by-laws of
Newport Acquisition Corp. will be the certificate of incorporation and
by-laws of the combined entity following the merger.
MANAGEMENT OF NEWPORT ACQUISITION CORP. AFTER THE EFFECTIVE DATE OF THE MERGER
The present officers and directors of Newport Acquisition Corp. will
continue to serve as the officers and directors of the combined entity
following the merger. Those officers and directors are currently comprised of
the following persons:
- Steven J. Ross - President, Chief Executive Officer and
Director
- James Linesch - Executive Vice President, Chief Financial
Officer, Secretary and Director
- Brian D. Bookmeier - Director
- Damon D. Testaverde - Director
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- Michael W. Grieves - Director
- Walter J. Aspatore - Director
It is anticipated that certain current officers and directors of DMR may
become officers and directors of the combined entity at some time following
consummation of the merger.
We expect the closing of the merger to occur on the third business
day following satisfaction or waiver of all of the conditions to the merger,
including obtaining stockholder approval, executing certain ancillary
agreements and securing a firm irrevocable financing commitment under which
at least $20 million of financing will be available to the combined entity
following the merger. 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 place as the parties may agree in writing.
MERGER CONSIDERATION
DynCorp will receive initial merger consideration consisting of a
number of shares of our new Class B common stock equal to two-thirds of our
previously outstanding shares of common stock and two-thirds of all shares of
our common stock issuable upon conversion, redemption or exchange of any
outstanding shares of preferred stock of TekInsight or any subsidiary of
TekInsight. As a result, DynCorp will own approximately 40% of the
outstanding shares of our common stock and common stock equivalents, as
identified above, following the merger. Based upon the number of shares of
common stock and Series A preferred stock currently outstanding, 17,711,951
shares of Class B common stock are expected to be issued to DynCorp at merger
closing.
In addition, during the five-year period following the consummation
of the merger, DynCorp may receive additional merger consideration if and
whenever we issue or sell any shares of our Class A common stock pursuant to
the exercise or conversion of any option, warrant or similar security
outstanding at the time of the merger (excluding up to 2,000,000 shares
issuable to our employees upon exercise of options granted under the 1992
Plan and excluding shares of common stock issuable upon conversion of the
Series A preferred stock used to calculate the initial merger consideration),
if any such shares are issued or sold at a price that is less than the then
fair market value of a share of Class A common stock. If such triggering
shares are issued or sold, then we will issue to DynCorp, for no additional
consideration, a number of shares of our Class B common stock whose value
equals 40% of the difference between such triggering shares' fair market
value and the price at which they were issued. Under the terms of the merger,
such number of additional shares of Series B common stock is neither
specified nor subject to a maximum limit. However, under the terms of the
Series B common stock, the holders of shares of Series B common stock shall
at no time have the power to elect a majority of the members of our board of
directors.
TAX CONSEQUENCES
The merger has been structured to qualify as a tax-free
reorganization for federal income tax purposes under Section 368 of the
Internal Revenue Code of 1986, as amended. Because the outstanding shares of
TekInsight will remain unchanged as a result of the merger, existing
TekInsight stockholders will not recognize any gain or loss for federal
income tax purposes as a result of the merger. In addition, neither
TekInsight nor our subsidiary, Newport Acquisition Corp., will recognize any
gain or loss for federal income tax purposes as a result of the merger.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase. This means that
after the merger the combined results of operations of DMR will be included
in the consolidated results of operations of Newport Acquisition Corp. and
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 Newport Acquisition Corp. based on their fair market
values, with the excess allocated to goodwill to be amortized over the
estimated economic life of the assets.
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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 agreements and to vest
Newport Acquisition Corp. with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of DMR, the
officers and directors of DynCorp, DMR and TekInsight will take all such
lawful and necessary action. TekInsight and DynCorp will also cause Newport
Acquisition Corp. and DMR, respectively, to perform their obligations under
the merger agreements.
REPRESENTATIONS AND WARRANTIES
The merger agreements contain customary representations and
warranties by each of the parties. The representations and warranties will
not survive the closing of the merger.
COVENANTS
The parties have agreed to a number of covenants. TekInsight has
agreed:
- To prepare and file this proxy statement with the SEC;
- To use its best efforts to promptly hold a Special Meeting and
solicit proxies necessary for the merger and secure
stockholder approval as required by the rules of the National
Association of Securities Dealers and Delaware law;
- To abide by a "no shop" provision whereby, subject to
fiduciary duties owed by the board of directors of TekInsight
to its stockholders, neither TekInsight nor any of its
affiliates may solicit or participate in any discussions or
provide any material nonpublic information relating to any
tender offer or other proposal to acquire any substantial
equity interest in, or substantial portion of the assets of,
TekInsight;
- To use its best efforts to secure a firm irrevocable financing
commitment on prevailing market terms under which at least $20
million will be available to the combined entity to support
its operations for at least two years subsequent to the
closing of the merger;
- To cause the combined entity to retain all of DMR's employees
following the closing at the same base salary or base hourly
rate as is presently paid to them by DMR and on terms and
conditions no less favorable to them than those afforded to
similarly situated employees of TekInsight. In addition,
TekInsight has agreed to cause the combined entity to treat
such employees' service with DMR as if it had been with the
combined entity. This includes waiving any deductibles,
co-payments, out-of-pocket maximums or similar benefits
requirements for calendar year 2001 (except to the extent they
applied prior to the merger to limit or deny coverage and
except to the extent TekInsight's insurance company would not
allow such waivers), and granting severance benefits based on
such prior periods of service with DMR to any such employees
who are terminated by DMR within one year of the closing of
the merger; and
- To use its good faith best efforts to replace DynCorp's surety
or other bonds, and to release any guaranty by DynCorp of
DMR's obligations, as soon as is reasonably practicable, and
to indemnify DynCorp and its affiliates for any losses
relating to any of such surety or other bonds or any such
guarantees. From time to time, DMR is required to post surety
bonds in favor of its customers to support its contract
performance and induce the customer to award a contract to
DMR. DynCorp, as the corporate parent, obtains such bonds for
its subsidiaries. DynCorp has informed us that there are four
currently outstanding surety bonds in favor of DMR's
customers, having an aggregate face amount of approximately
$3.3 million, and that DynCorp's current cost for these bonds
is approximately $30,000 per year. DynCorp has informed us
that the only DynCorp guaranty to be replaced is a guaranty to
the Virginia Department of Medical Assistance Services of
DMR's performance and satisfaction of all its obligations
under the Virginia NET contract.
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DynCorp has agreed:
- Not to compete with the combined entity or TekInsight,
directly or indirectly, including through any of its
subsidiaries, for three years following the merger, for any
revenue producing service contracts with state or local
government agencies in vertical lines of business in which DMR
of any of TekInsight's subsidiaries are actively engaged in as
of the closing of the merger (subject to certain exceptions,
for example for existing contracts that are not material and
for contracts with the federal government that provide
incidental benefits to state or local government agencies);
- To deliver to TekInsight audited and unaudited financial
statements of DMR necessary to meet applicable securities law
requirements for inclusion in this proxy statement;
- To preserve, for one year, all surety and other bonds that are
currently in place with respect to any outstanding contracts
to which DMR is a party;
- To use its reasonable efforts in good faith to negotiate and
enter into a Transition Services Agreement with TekInsight and
Newport Acquisition Corp. for the continued provision of
certain specified services to the post-merger company, for
prescribed periods of time, which services had previously been
provided to DMR in connection with its ongoing pre-merger
business operations; and
- To use its reasonable efforts in good faith to cause DMR and
DynRide LLC to enter into a Strategic Alliance Agreement for
the provision to DMR of DynRide LLC's web-based trip
consolidation and reverse-auction technology for application
in DMR's transportation management services business.
TekInsight and DynCorp have agreed:
- To submit promptly any governmental applications, notices or
other filings necessary for the merger;
- To cooperate and use their reasonable efforts in good faith to
cause the merger to occur; and o To keep the books and records
of the other party confidential and to consult with each other
prior to making any public disclosures regarding the merger.
TekInsight and DMR have agreed to operate their respective
businesses in the usual, regular and ordinary course of business prior to the
closing of the merger.
TekInsight and Newport Acquisition Corp. have agreed not to use the
name "DynCorp" or any derivation thereof except in connection with existing
stationary, labels, product literature and similar materials for up to 60
days following the merger. However, DynCorp has consented to TekInsight
changing its name to DynTek.
CONDITIONS TO CLOSING
The obligations of the parties under the agreements are subject to
the satisfaction or waiver of a number of conditions. The material conditions
of the agreement and plan of reorganization include the following:
- All corporate action necessary to approve the merger and the
amendment and restatement of TekInsight's certificate of
incorporation, including TekInsight stockholder approval, must
have been taken or obtained, as a condition to each party's
obligations;
- The parties must have received all regulatory approvals
required or mutually deemed necessary in connection with the
merger, as a condition to each party's obligations;
- There must be in effect no governmental action, including any
statute, rule, regulation, executive order, decree, injunction
or order, that would prevent completion of the merger, as a
condition to each party's obligations;
- TekInsight must have secured a firm irrevocable financing
commitment, in form and substance "reasonably acceptable" to
DynCorp and TekInsight, respectively, under which no less than
$20 million of
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financing will be available to the combined entity to
support its operations for a period of at least two years
subsequent to the closing of the merger, as a condition to
each party's obligations. TekInsight has no direct
knowledge as to what form and substance of such financing
would be "reasonably acceptable" to DynCorp. Although
DynCorp has discretion to reject financing proposals, by
contract it cannot reject terms that a reasonable major
stockholder of a public corporation would deem to be
commercially reasonable;
o TekInsight must have filed its amended and restated
certificate of incorporation with the Delaware Secretary of
State, as a condition to DynCorp's obligations;
o TekInsight's board of directors must have adopted the amended
and restated by-laws, as a condition to DynCorp's obligations;
o DMR must have entered into a strategic alliance agreement with
DynRide LLC, an affiliate of DynCorp, as a condition to
TekInsight's obligations;
o TekInsight, Newport Acquisition Corp., and DynCorp must have
entered into a transition services agreement with respect to
the period immediately following the closing of the merger, as
a condition to each party's obligations;
o TekInsight and DynCorp must have entered into a registration
rights agreement with respect to the shares of Class B common
stock to be issued to DynCorp in connection with the merger,
as a condition to DynCorp's obligations;
o TekInsight must have entered into an employment agreement
(including an assignment by Mr. Ross to TekInsight of any
rights he may have in any intellectual property developed
while he is employed by TekInsight), effective on or before
the closing of the merger, with Steven J. Ross as the Chief
Executive Officer of TekInsight having a term of not less than
three years, in form and substance reasonably acceptable to
DynCorp and Mr. Ross, as a condition to DynCorp's obligations.
This Agreement is currently being negotiated, and the most
recent draft contemplates an annual base salary of $400,000,
an annual bonus of up to $200,000 (subject to the substantial
achievement of the business plan and general business
objectives), forgiveness in 2002 of an outstanding loan in the
amount of $100,000, a one-time bonus of $175,000 (including
$70,000 of loan forgiveness) and a minimum of two-years
advance notice in the event TekInsight intends not to renew
the agreement;
o TekInsight and DynCorp must have received from their
respective special tax counsel (Nixon Peabody LLP for
TekInsight and Arnold & Porter for DynCorp), respectively, a
tax opinion to the effect that the merger will be a tax free
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, as a condition to each party's
obligations;
o All necessary third party consents to the merger (including
consents of lenders) must have been obtained, as a condition
to each party's obligations; and
o Other customary covenants must have been complied with (that
all representations and warranties are true at closing, no
material adverse changes in the business of TekInsight or DMR,
receipt of secretary's certificates, etc.), as a condition to
each party's obligations.
We anticipate that all of the closing conditions will be satisfied or
waived prior to the Special Meeting.
EVENTS OF TERMINATION
The agreement and plan of reorganization and the agreement and plan of
merger may be terminated in the event of any of the following:
o By mutual written consent of the parties;
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o By any party to the merger agreements, if the merger is not
completed by October 31, 2001 for any reason (other than the
failure of such party to perform its obligations under the
merger agreements);
o By any party to the merger agreements, if any applications for
prior approval submitted to any federal governmental agency,
department or body in connection with the merger are finally
denied, and the time period for appeals and requests for
reconsideration has run;
o By any party to the merger agreements, if any governmental
entity of competent jurisdiction has issued a final
nonappealable order enjoining or otherwise prohibiting the
merger;
o By TekInsight or DynCorp, if the other breaches any
representation, warranty, covenant or agreement contained in
the agreement and plan of reorganization unless such breach is
cured within 30 days of receipt of notice thereof; or
o By any party to the merger agreements if any necessary
approval by the stockholders of TekInsight is not obtained
under Nasdaq rules and/or Delaware law.
FEES AND EXPENSES
In the event the agreement and plan of reorganization and the
agreement and plan of merger are terminated due to a material breach of any
representation, warranty, covenant or agreement that is not timely cured, or
due to the failure by TekInsight to obtain any necessary stockholder
approval, then, under the terms of the agreement and plan of reorganization,
the breaching party must reimburse the non-breaching party for all of its
reasonable out-of-pocket expenses, up to $300,000. Except in the case of such
a termination, each party to the merger will pay its own fees and expenses.
CHOICE OF LAW
The agreements are governed by and construed in accordance with the
laws of the State of Delaware.
STOCK OPTION AGREEMENT
TekInsight and DynCorp also entered into a stock option agreement in
connection with the merger. Under the terms of the stock option agreement,
TekInsight granted to DynCorp an option to purchase up to 19.9% of TekInsight's
outstanding common stock at an exercise price of $1.94 per share, payable in
cash. The option is generally exercisable by DynCorp if any of the following
occurs prior to consummation of the merger or termination of the agreement and
plan of reorganization and agreement and plan of merger:
o TekInsight enters into an agreement with a third party to
merge or sell substantially all of its assets or 10% or more
of its voting stock, or any third party acquires beneficial
ownership of 10% or more of TekInsight's voting stock;
o TekInsight breaches the agreement and plan of reorganization
following announcement by a third party that it intends to
acquire 10% or more of TekInsight's voting stock or acquire
TekInsight by merger or otherwise; or
o Following announcement by a third party that it intends to
acquire 10% or share of TekInsight's voting power or acquire
TekInsight by merger or otherwise, TekInsight stockholders
fail to approve the merger.
In addition, the stock option agreement grants DynCorp the right to put
its option to TekInsight for cash in the event TekInsight enters into and closes
an agreement with a third party to sell substantially all of its assets or 51%
or more of its voting stock, or any third party acquires beneficial ownership of
51% or more of TekInsight's voting stock. In such event, the purchase price for
the option would be equal to the difference between the highest price per share
paid for TekInsight common stock during the six-month period following such
triggering event and the exercise price of the option, multiplied by the number
of shares subject to the stock option agreement. In addition, DynCorp would be
entitled to have any shares of TekInsight common stock it had already acquired
pursuant to exercise of the option
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repurchased by TekInsight on the same basis. The stock option agreement also
grants DynCorp registration rights with respect to the shares of TekInsight
common stock subject to the option.
The stock option agreement will terminate automatically upon (i) the
consummation of the merger or (ii) the termination of the agreement and plan of
reorganization in accordance with its terms, in the absence of a breach thereof
by TekInsight following receipt of a proposal generally to merge or sell
substantially all of its assets or the failure of TekInsight shareholders to
approve the merger following receipt of such a proposal.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
It is a condition to the merger that TekInsight amend and restate its
certificate of incorporation and by-laws prior to or at the time of the merger.
See the section entitled "Amendments to Charter Documents" beginning on page A-1
for a discussion of the amendments.
REGISTRATION RIGHTS AGREEMENTS
It is a condition to the merger that TekInsight execute and deliver to
DynCorp a registration rights agreement with respect to the Class B common stock
to be issued to DynCorp in the merger. Pursuant to the currently proposed terms
of the registration rights agreement, TekInsight will grant to DynCorp two
rights to demand registration of its shares of Class B common stock, including
by means of a shelf registration if available, and unlimited rights to include
its shares in any registration TekInsight undertakes on its own behalf or on
behalf of any third person.
The proposed registration rights agreement contains customary covenants
and agreements, including with respect to the procedures for registering the
shares. TekInsight will pay all expenses associated with the demand or
incidental registrations, including filing, attorneys', accountants' and
underwriters' fees, but excluding underwriters' discounts and commissions and
any stock transfer taxes. TekInsight will also indemnify DynCorp, any
underwriter and their respective affiliates for any alleged untrue statements of
fact or omissions of material facts. Any purchaser of any shares of Class B
common stock from DynCorp will succeed to the registration rights to be granted
by the proposed agreement with respect to such shares.
In the event any of DynCorp's demand registrations are underwritten and
the lead underwriter informs TekInsight that not all of the shares to be offered
can be sold successfully in the offering, then DynCorp's shares shall be
included in such registration, to the extent possible, in priority to any other
shares to be so offered. Similarly, in the event any registration TekInsight
underwrites on its own behalf or on behalf of any third person is underwritten
and the lead underwriter informs TekInsight that not all of the shares to be
offered can be sold successfully in the offering, then DynCorp's shares shall be
included in such registration, to the extent possible, after any shares to be
sold by TekInsight or any other third person requesting registration, but before
any shares subject to incidental registration rights similar to those held by
DynCorp.
TRANSITION SERVICES AGREEMENT
It is a condition to the merger that TekInsight, Newport Acquisition
Corp. and DynCorp negotiate and enter into a transition services agreement.
Pursuant to the currently proposed terms of the transition services agreement,
DynCorp will offer to provide the combined entity, during the one-year period
immediately following the consummation of the merger, with certain accounting,
information technology and bid and proposal services necessary for it to operate
the acquired business. For example, DynCorp will provide payroll, accounts
payable, and general ledger support, telephone and data support, computer
systems and server management support, and graphic and printing assistance in
the preparation and publication of bids and proposals. It is anticipated that
the services will be substantially similar to those currently being provided to
DMR by DynCorp. In exchange for the services actually used by the combined
entity, if any, the combined entity will pay DynCorp monthly fees equal to the
amounts that would have been charged to DMR if it had continued to operate as a
wholly owned subsidiary of DynCorp. Such fees are intended to reimburse DynCorp
only for its actual costs for providing such services. There will not be any
charge to the combined entity for services it does not use. In addition, for the
first year following the Closing, and thereafter
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if mutually agreeable, DynCorp will permit the combined entity to use office
space currently occupied by DMR in DynCorp's Reston, Virginia facility for a
monthly rental of $2.90 per square foot.
The proposed transition services agreement contains customary
covenants and agreements, including with respect to mutual indemnification
for losses incurred as a result of a breach of the agreement and a disclaimer
of warranties by DynCorp. The combined entity is not obligated to purchase
any services from DynCorp under the proposed agreement, and the proposed
agreement limits such services to those presently being provided by DynCorp
to DMR.
STRATEGIC ALLIANCE AGREEMENT
It is a condition to the merger that DMR and DynRide LLC, an affiliate
of DynCorp, negotiate and enter into a strategic alliance agreement. DynRide LLC
has developed and is offering an internet-based trip consolidation technology to
support DMR's transportation services management business. The technology allows
DMR to coordinate concurrent trips for more than one passenger and advise
transportation providers of specific ride requirements through the internet.
With use of this technology, the provider can use the internet to respond to the
request for transport services and at the same time quote its lowest price for
the services. DMR can then award the specific task to the lowest bidder in what
becomes a reverse auction, with the winner being the lowest rather than the
highest bidder. As a result, service costs to the agency-customer can be reduced
by obtaining lower bids and consolidated rides. The trip consolidation and
internet aspects of this technology, but not the reverse auction aspects, are
currently being implemented as a cost saving solution by DMR in its performance
under non-emergency medical transportation management contracts with the State
of Connecticut and the Commonwealth of Virginia.
Pursuant to the currently proposed terms of the strategic alliance
agreement, which will be in effect through December 31, 2009, DMR will have the
exclusive right to utilize the DynRide LLC technology in connection with its
transportation management services business until December 31, 2004. Thereafter,
the alliance will continue, but DMR will no longer have an exclusive right to
use the DynRide LLC technology for its specified purposes, and DynRide LLC will
be permitted to offer its technology services to any third party, including
DMR's competitors in the transportation management business. During the second
period of the strategic alliance relationship, beginning in January 2005, DMR
will be entitled to certain preferential pricing for its use of the subject
technology, which will not be available to DMR's competitors and other parties.
Fees to DynRide LLC under the proposed strategic alliance agreement are to be
separately negotiated during the alliance period, on a contract-by-contract
basis, in each instance that DMR wants to utilize the DynRide LLC technology to
support its own contractual performance. It is anticipated that the fee for
utilization of the DynRide LLC technology will be calculated on a
per-transaction basis, with the cost to DMR being passed through to its own
customers or to vendors under the terms of DMR's prime contract or subcontract.
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AMENDMENTS TO CHARTER DOCUMENTS
In the event our stockholders approve our amended and restated
certificate of incorporation and the proposal to issue the shares of Class B
common stock to DynCorp in the merger, we will file the amended and restated
certificate of incorporation with the Delaware Secretary of State, which will
(1) change our name to DynTek, Inc., and (2) re-classify our existing common
stock as Class A common stock and establish a new class of common stock referred
to as our Class B common stock. Our board will also amend and restate our
by-laws to provide generally that certain significant board decisions will
require the consent of a super-majority of 80% of the entire board of directors,
in addition to approval by the entire board in the usual manner for all other
actions. In addition, we will make certain additional administrative changes to
our certificate of incorporation and by-laws that are not described here.
Our proposed amended and restated certificate of incorporation is
attached to this proxy statement as Annex A, and our proposed amended and
restated by-laws are attached to this proxy statement as Annex B. You are
encouraged to carefully read the amended and restated certificate of
incorporation and amended and restated by-laws in their entirety.
NAME
We believe that changing our name to DynTek, Inc. will signify the
combination of our two businesses, along with our emergence as a premier
provider of diversified services to state and local governments. We feel that
the new name will enhance the perception of our company as having taken a strong
direction into this marketplace with a clear strategic focus.
CLASS B COMMON STOCK
The following summary of the proposed terms of our Class B common
stock, while complete in material respects, is nonetheless a summary. It is
qualified by reference to the form of our amended and restated certificate of
incorporation attached as Annex A to this proxy statement.
The Class B common stock will rank equally with our existing,
re-classified Class A common stock with respect to dividends, liquidation
preference and other similar matters and, except as set forth below, will have
the same rights and preferences as our Class A common stock.
VOTING RIGHTS
Except as otherwise required by law, and subject to any rights that may
be granted to holders of TekInsight preferred stock (including our existing
Series A preferred stock), the holders of shares of Class A and Class B common
stock are entitled to attend all annual and Special Meetings of stockholders
and, voting together as a single class along with the Series A preferred stock,
to vote on any matter properly put before our stockholders. However, holders of
Class A common stock are not entitled to vote on any change in the powers or
rights of the Class B common stock that would not adversely affect the rights of
the Class A common stock. Examples of proposals that would adversely affect the
rights of the Class A common stock might include amendments granting the Class B
common stock a preference upon liquidation or in the payment of dividends,
increased voting rights or special conversion or redemption rights.
Holders of Class B common stock are entitled to a separate class vote
so long as the outstanding shares of Class B common stock represent 5% or more
of all outstanding shares of common stock of TekInsight:
o On any action that would alter or change the rights of the
Class B common stock;
o To nominate and elect the same proportion of the members of
our board of directors as the total number of outstanding
shares of the Class B common stock bears to the total number
of outstanding shares of all classes of common stock (but
never as much as a majority of the members of the board of
directors), which proportion initially will represent three of
our seven directors; and
o To call a special meeting of stockholders.
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All of the preceding actions require approval by holders of a majority of the
Class B common stock voting together as a separate class to be implemented,
except that holders of 10% or more of the voting power of the Class B common
stock are entitled to call a special meeting of stockholders.
Any director elected by the Class B stockholders (a "Class B director")
may be removed from office at any time, with or without cause, by the
affirmative vote of at least 80% of the voting power of the Class B common
stock. Only Class B stockholders are entitled to vote for the election of Class
B directors.
So long as any holders of Class B common stock have the right to
nominate and elect the Class B directors, the holders of Class B common stock
will be entitled to vote for Class B directors only. In such case, the holders
of Class B common stock will not vote along with the holders of Class A common
stock and Series A preferred stock for any of the Class A directors. The Class A
and Class B directors will not have staggered terms.
DIVIDENDS
Holders of the Class B common stock are entitled to receive dividends
and other distributions, on a pro rata basis, to the same extent as holders of
Class A common stock. In case of dividends payable in shares of common stock,
only Class A common stock will be paid or distributed with respect to Class A
common stock and only Class B common stock will be paid or distributed with
respect to Class B common stock.
LIQUIDATION PREFERENCE
In the event of any dissolution, liquidation, or winding up of the
affairs of TekInsight, holders of Class A common stock and Class B common stock
are entitled to receive the same amount per share.
CONVERSION
The Class B common stock is convertible into an equal number of shares
of Class A common stock at any time at the request of the holder. In addition,
if any shares of Class B common stock are transferred or encumbered, in any
manner whatsoever, and such shares do not constitute a majority of the shares of
Class B common stock then outstanding, then such shares will be automatically
converted into an equal number of shares of Class A common stock. Finally, at
such time as a majority of the shares of Class B common stock outstanding
immediately following the merger are converted into shares of Class A common
stock, in one or more transactions, then the remaining outstanding shares of
Class B common stock will be automatically converted into an equal number of
shares of Class A common stock.
OTHER AMENDMENTS
The amended and restated certificate of incorporation also contains
certain other amendments not directly related to the terms of the Class B common
stock but intended to protect or clarify the rights granted to them.
The amended and restated certificate of incorporation provides that,
once adopted, TekInsight's by-laws may be altered or repealed only by:
o The affirmative vote of a majority of the members of the board
of directors then in office, subject to the provision in the
amended and restated by-laws requiring approval of a
supermajority of 80% of the entire TekInsight board of
directors for any such alteration or repeal; or
o The affirmative vote of a majority of the voting power of the
Class A common stock and Class B common stock. However, any
change in the by-laws that affects the Class B directors or
the Class B common stock must be separately approved by a
majority of the voting power of the Class B common stock.
The amended and restated certificate of incorporation may be amended,
altered, changed or repealed at any time as authorized by law, except as
otherwise provided by the amended and restated certificate of incorporation,
subject to the provision in the amended and restated by-laws requiring approval
of a supermajority of 80% of the entire TekInsight board of directors for any
such amendment, alteration, change or appeal.
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The Corporation will indemnify its directors and officers to the
fullest extent permitted by law.
The amended and restated certificate of incorporation also addresses
the potential conflicts of interest relating to the Class B common stock. In
general, under the amended and restated certificate of incorporation, any
majority stockholder (or affiliated company), whether such majority holder is
DynCorp or another third party, may engage in similar lines of business as the
combined entity and may engage in material business transactions with the
combined entity. Any such majority stockholder (and its affiliated companies),
whether such majority holder is DynCorp or another third party, has no fiduciary
duty, duty of loyalty or other duty not to:
o Engage in the same or similar business as the combined entity;
o Do business with any client or customer of the combined
entity; or
o Employ any former officer or employee of the combined entity.
The amended and restated certificate of incorporation provides that
directors, officers and employees of any majority holder of the Class B common
stock (or any affiliated company thereof), whether such majority holder is
DynCorp or another third party, may serve as director of the combined entity
following the merger. The amended and restated certificate of incorporation
further provides that when acting as an agent of such majority holder, any such
director will not be deemed to be breaching his or her duty of loyalty to
TekInsight merely because he or she participates in such majority holder's
acting in its own best interest rather than in the best interest of TekInsight
when it competes with, solicits employees of or seizes a corporate opportunity
available to TekInsight. This is different than would generally be the case in
that under Delaware law directors, regardless of who appointed them or who
employs them, have a broad duty of loyalty to the corporation on whose board of
directors they serve. However, the amended and restated certificate of
incorporation would not diminish or alter any other duty of such directors to
TekInsight, such as the directors' duty of care, or diminish or alter the
directors' duty of loyalty to TekInsight other than as strictly specified.
Notwithstanding the absence of restrictions on the majority holder of
the Class B common stock under the amended and restated certificate of
incorporation, DynCorp is still subject to the restrictions set forth in its
non-compete agreement with TekInsight. See "Covenants" on pages 19-20.
AMENDED AND RESTATED BY-LAWS
In the event the amended and restated certificate of incorporation is
approved by our stockholders and filed with the Delaware Secretary of State, our
board will amend and restate our by-laws.
The proposed amended and restated by-laws provide that a majority of
the Class B directors must be present at any meeting of the board of directors
to establish a quorum unless the meeting is a regularly scheduled meeting, or
the meeting is not a regularly scheduled meeting and after having been duly
notified of the meeting the Class B directors who are absent do not communicate
in writing to the secretary of TekInsight good cause for such absence in advance
of the meeting.
The proposed by-laws would also require approval of a supermajority of
80% of the entire TekInsight board of directors prior to taking any of the
following actions:
o The entry by TekInsight or any of its subsidiaries into any
merger, consolidation or amalgamation whether with or into any
other person;
o A sale, spin-off, transfer or other disposition of all or
substantially all of the assets or capital stock of any
subsidiary of TekInsight, or a sale of greater than 30% of the
assets of TekInsight, in each case in any transaction or
series of transactions;
o A liquidation, recapitalization or dissolution of TekInsight
or any of its subsidiaries or the filing of a bankruptcy
petition by TekInsight or any of its subsidiaries;
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o The redemption, repurchase or issuance of capital stock of
TekInsight or any of its subsidiaries (including options,
warrants or other rights to acquire any such capital stock) in
any amount, other than the issuance of employee stock options
pursuant to employment contracts or employee benefit plans
(including our 1992 Plan) that are administered by the board
of directors (or a committee thereof), or the redemption of
securities at the option of the holder thereof in accordance
with the terms of such securities;
o Any amendment to the amended and restated certificate of
incorporation or by-laws of TekInsight or any of its
subsidiaries;
o Any change in the accounting policies of the TekInsight or any
of its subsidiaries, including any change in fiscal year,
except as required by applicable generally accepted accounting
practices;
o Any distribution or dividend by TekInsight;
o The incurrence of indebtedness by TekInsight or any of its
subsidiaries which results in a level of indebtedness of
TekInsight (on a consolidated basis) in excess of $5 million,
or the creation, assumption or incurrence of any lien on the
assets of TekInsight or any of its subsidiaries, individually
or in the aggregate, with respect to indebtedness in excess of
$5 million outstanding at any time;
o Any continuation or other support of any operations of
ProductivIT unless the anticipated monthly revenue from signed
contracts for such operations as of June 30, 2001 exceeds the
actual costs related to such operations incurred during June
2001, including any general and administrative overhead
allocations to such operations; and
o The making of any investment other than:
o Any capital contribution of $5 million or
less per annum to any subsidiary of
TekInsight (or joint venture or similar
entity involving a profit sharing
arrangement);
o The incurrence of indebtedness by TekInsight
or any of its subsidiaries in an amount in
any transaction or series of transactions,
individually or in the aggregate, totaling
$5 million or less at any time outstanding;
o Any investment in capital stock or assets of
any person in any transaction or series of
related transactions in an amount of $5
million or less by TekInsight or any its
subsidiaries; or
o The investment, in the ordinary course of
business, by TekInsight or any of its
subsidiaries of excess cash in obligations
of the U.S. government or of "first tier"
financial institutions.
REMOVAL AND REPLACEMENT OF CLASS B DIRECTORS
Pursuant to both the amended and restated certificate of incorporation
and by-laws, no Class B director may be removed from office, with or without
cause, unless the removal is approved by holders of 80% of the voting power of
the Class B common stock. Any vacancy relating to a Class B director will be
filled by a majority of the remaining Class B directors or, if less than two
such directors remain, then by holders of a majority of the voting power of
Class B common stock.
DELAWARE ANTI-TAKEOVER LAW
TekInsight is, and will continue to be, subject to the provisions of
Section 203 of the Delaware General Corporation Law. Under Section 203,
TekInsight is generally prohibited from engaging in any business combination
with any interested stockholder for a period of three years following the time
that such stockholder becomes an interested stockholder, unless:
o Prior to such time, the board of directors of TekInsight approved either
the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
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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 TekInsight 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 optionees
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 authorized by the affirmative vote of at least
two-thirds of the outstanding voting stock 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
stockholder;
o Any transaction that results in the issuance or transfer by
the corporation of any stock of the corporation to the
interested stockholder, 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.
PROVISIONS WITH POTENTIAL ANTI-TAKEOVER EFFECTS
Certain provisions of the amended and restated certificate of
incorporation and amended and restated by-laws could have the effect of
delaying, discouraging or preventing tender offers or other unsolicited attempts
to take over and acquire the business of TekInsight. These provisions include
the following:
o The supermajority board approval of any merger or other
business combination;
o Approval by holders of 80% of the Class B common stock for
removal of Class B directors (with or without cause);
o The provisions regarding procedures for making changes in the
by-laws and certificate of incorporation. For example, in
general once the amended and restated bylaws have been adopted
any bylaw provision may be altered or repealed by the
affirmative vote of at least 80% of the members of the Board
of Directors at a meeting at which at least a majority of the
Class B Directors are present; PROVIDED, that any
change in the amended and restated bylaws that affects the
Class B Directors or the Class B common stock must also be
approved by a majority of the voting power of the Class B
common stock. Furthermore, the amended and restated
certificate of incorporation similarly can not be amended
without the affirmative vote of at least 80% of the members of
the Board of Directors at a meeting at which at least a
majority of the Class B Directors are present; PROVIDED, that
in addition to the usual requirements of the
Delaware General Corporation Law with respect to approval of
such an amendment by affirmative vote of a majority of the
outstanding shares of voting capital stock, any proposed
amendment of the amended and restated certificate of
incorporation which would adversely alter or change the
powers, preferences or special rights of the shares of Class A
common stock or Class B common stock shall also require the
approval of a majority of the votes entitled to be cast by
holders of the shares affected by the proposed amendment,
voting separately as a class. Finally, any amendment of the
amended and restated certificate of incorporation that takes
away any rights, preferences and privileges conferred upon
stockholders, directors
- 32 -
<Page>
or officers of TekInsight granted under the amended and
restated certificate of incorporation, or which lowers
below a majority of the voting power of common stock the
vote necessary to amend the amended and restated certificate
of incorporation, may not be adopted without the affirmative
vote of at least 80% of the voting power of all common stock;
o The inability of stockholders, except the holders of Class B
common stock, to call a special meeting of stockholders;
o The amended and restated by-laws' ban against stockholder
appeals to the Delaware courts for the purpose of filling
vacancies in the board;
o The existence of authorized but unissued common stock and
preferred stock;
o The ability of the board to increase the number of directors
and to elect the additional directors; and
o The absence of cumulative voting for directors.
The provisions of the amended and restated certificate of incorporation and
amended and restated by-laws do not create any limitations on TekInsight's
ability to privately place authorized but unissued common stock or preferred
stock, other than to require approval by at least 80% of the members of the
Board of Directors to issue additional shares of capital stock other than the
issuance of employee stock options (and the shares underlying them) pursuant to
employee benefit plans administered by the Board of Directors.
By discouraging potential takeover bids, these provisions might
diminish the opportunity for TekInsight's stockholders to sell their shares at a
premium over then-prevailing market prices. In addition, under these provisions,
management may prevent or delay a change in control of TekInsight, even if the
change might be beneficial to the holders of Class A common stock, the holders
of Series A preferred stock or all of the common stock and preferred stock as a
group. These provisions might also be deemed to give the holders of Class B
common stock disproportionate control over the combined entity.
The inclusion of these provisions was not intended for anti-takeover
purposes, and we are not aware of any attempt to take over control of
TekInsight. In most cases, these provisions were intended to protect the rights
of the holders of Class B common stock and to prevent the holders of Class A
common stock and Series A preferred stock, who together hold a majority of the
voting power of TekInsight, from taking any actions that might restrict or
diminish the rights of the holders of Class B common stock. In certain other
cases, such as with respect to the existence of authorized but unissued common
stock and preferred stock, the absence of cumulative voting, and the ability of
the directors to determine the size of the board, the provisions were included
for administrative convenience.
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OPINION OF FINANCIAL ADVISORS
TekInsight is not an affiliate of DMR and the merger was negotiated on
an arms' length basis. Although not required, our board of directors retained
CBIZ Valuation Counselors to render its opinion as to whether the terms of the
merger are fair, from a financial point of view, to TekInsight's stockholders.
We retained CBIZ 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. Prior to this
engagement, CBIZ Valuation Counselors has not performed any services for, or
accepted any fees or other compensation from, TekInsight or DMR.
On April 18, 2001, CBIZ Valuation Counselors delivered its written
opinion to the board of directors of TekInsight that, as of the date of the
opinion, based on its review of DMR and subject to the assumptions, limitations,
procedures followed and qualifications described below and set forth in the
opinion, the terms of the merger were fair, from a financial point of view, to
TekInsight's stockholders.
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 attached to this proxy
statement as Annex C. The board of directors of TekInsight imposed no conditions
or limitations on the scope of the investigation or the methods or procedures to
be followed by CBIZ Valuation Counselors in rendering the fairness opinion.
In arriving at its opinion, CBIZ Valuation Counselors relied upon and
assumed, without independent verification, the accuracy and completeness of the
financial and other information that was provided to it by DMR and TekInsight.
CBIZ Valuation Counselors also assumed that the information presented to it by
TekInsight, DMR and their representatives represented efforts to describe and
convey the current and prospective status of DMR from an operational and
financial point of view.
In rendering its fairness opinion, CBIZ Valuation Counselors, was
provided financial information, drafts of the transaction documents (in
substantially the forms executed by the parties on April 25, 2001) and other
document by the management or representatives of TekInsight and DMR including,
among other things:
o The draft agreement and plan of reorganization dated as of
April 18, 2001;
o The draft agreement and plan of merger dated as of April 18,
2001;
o The draft registration rights agreement pertaining to the
Class B common stock dated as of April 18, 2001;
o DMR management's fourth quarter 2000 operating review;
o Financial statement for DMR prepared by DMR management for the
years ended December 31, 1998, 1999 and 2000 and for the two
months ended February 28, 2001;
o Publicly available information concerning DynCorp and
TekInsight, including copies of DynCorp's Annual Reports on
Form 10-K as filed on March 10, 1999, March 29, 2000 and March
27, 2001; DynCorp's Annual Reports to stockholders for fiscal
years 1998 and 1999; TekInsight's Annual Reports on Form 10-K
as filed on October 13, 1999 and October 11, 2000; and
TekInsight's Quarterly Report on Form 10-Q as filed on
February 16, 2001;
o Operating budgets for DMR prepared by DMR management for the
years ending December 31, 2001 through December 31, 2005; and
o Projections of operations for DMR prepared by DMR management
for the quarterly periods ending March 31, 2001 through June
30, 2002.
In rendering its fairness opinion, CBIZ Valuation Counselors considered
the following factors which it considered relevant to assessing the fairness of
the merger to the stockholders of TekInsight:
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o The operations of DMR through February 28, 2001;
o A review of a projection of operations and related documents,
including copies of customer lists, contract summaries,
contract proposals and management's operating review regarding
the fourth quarter of fiscal year 2000;
o Discussions with the management of DMR concerning operations,
business strategy, business lines, market research,
competition, expected financial performance, business and
market risk, and prospects for DMR;
o Discussions with TekInsight regarding the rationale for the
merger;
o A search for companies offering similar or competing products
and services. The following companies were considered by CBIZ
Valuation Counselors to provide the most meaningful comparison
to DMR: Laidlaw (LDM), Rural/Metro Corp. (RURL), Community
Medical Transport (CMTI), Maximus (MMS), Charles River
Associates (CRAI), Commerce Group (GIB), KPMG Consulting
(KCIN), American Management Systems (AMSY), Metro Information
Services (MISI), First Consulting Group (FCGI), Lockheed
Martin (LMT), TekInsight (TEKS) and Unisys (UIS)
(collectively, the Guideline Companies");
o A comparison, including common size analysis and financial
ratio analysis, of the historic financial statements and
projected financials of DMR to the historic financial
statements and analysts' projections of the Guideline
Companies;
o A review of analysts reports, public filings and other
information to gain insight into the outlook for the industry
in which DMR operates and companies which presently or are
expected to compete in the industry;
o A review of precedent transactions occurring in calendar years
1999 and 2000 involving companies in the same or similar lines
of business. The following acquisitions were considered by
CBIZ Valuation Counselors: Opinion Research Corporation
acquired Macro International (May 1999), AnswerThink
Consulting acquired CFT Consulting (July 1999), Yellow Corp.
acquired Jevic Transportation (July 1999), Stagecoach Holdings
acquired CoachUSA (July 1999), Universal Media Holdings
acquired E-Trans Logistics (February 2000), Interliant
acquired ReSource Partners (February 2000), Perot Systems
Corporation acquired Solutions Consulting (March 2000), Tier
Technologies acquired The SCA Group (March 2000), EpicEdge
acquired IPS Associates (June 2000), RevCare acquired Orange
County Professional Services (August 2000) and Ford Motor
Company acquired Carey International (September 2000);
o A review of the market prices of the Guideline Companies for
the fifteen trading days ended March 30, 2001;
o An analysis of the expected cash flows of DMR based upon the
projections provided and potential long-term scenarios and
CBIZ Valuation Counselors' assessment of the risks inherent in
achieving those projections, consisting primarily of DMR's
ability to secure contracts in the proposal process and the
ability of DMR management to effectively implement projected
cost reductions; and
o The performance of other financial studies, analyses and
investigations as CBIZ Valuation Counselors deemed appropriate
for purposes of its opinion (including pro forma post-merger
financial statement analysis and sensitivity analyses).
In performing its analyses, CBIZ Valuation Counselors made numerous
assumptions, including with respect to:
o Legal fee and property title, which it assumed to be good and
marketable in all cases;
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<Page>
o Legal, engineering and other professional matters, which it
assumed have been or will be obtained from appropriate
professional sources;
o Regulations of any governmental entity to control or restrict
the use of DMR's property, which it assumed not to exist or
apply to DMR;
o Government regulations, codes, ordinances and statutes, with
which it assumed DMR's property will comply;
o The management of DMR following the merger, with respect to
which it assumed DMR will be competently managed and
maintained by financially sound owners;
o Financial data operating histories and other data relating to
income and expense attributed to DMR as provided by DMR's
management or its representatives, which it accepted without
further verification;
o Possible energy shortages or the effect on DMR of future
federal, state or local legislation, including environmental
or ecological matters or interpretations thereof;
o Tax regulations, which it assumed will not change; and
o Supply and demand matters and market conditions, which it
assumed will not change materially.
CBIZ Valuation Counselors did not rely completely upon any single item
of information to the exclusion of other information. All opinions as to
economic fairness and value were presented as CBIZ Valuation Counselors'
considered opinion based on the facts and data obtained during its investigation
and set forth in its fairness opinion and presentation to the board of
directors. Actual results achieved during the period covered by its prospective
financial analysis will vary from those described in its reports and the
variations may be material.
In reaching its opinion, CBIZ Valuation Counselors considered the fair
market value of DMR as indicated by the Discounted Cash Flow Methodology of the
Income Approach and the Exchange and Acquisition Methodologies of the Market
Approach.
In its utilization of the Discounted Cash Flow Methodology, CBIZ
Valuation Counselors analyzed the DMR's financial projections and performed a
discounted debt-free cash flow analysis. Debt-free cash flow is defined as:
Earnings Before Interest and Income Taxes
Less: Provision for Income Taxes
Equals: Debt-Free Net Income After-Tax
Plus: Depreciation
Less: Working Capital Additions
Less: Capital Expenditures
Equals: Debt-Free Cash Flow
CBIZ Valuation Counselors calculated a terminal value by applying the Gordon
Growth Model, utilizing a range of long-term growth rates from 2.0% to 8.0%. The
cash-flow streams, the undiscouted rounded sum of which totaled $11.2 million,
and terminal values, which ranged from $28.5 million (rounded) to $54.6 million
(rounded), were then discounted to the present using a range of discount rates
from 20.0% to 25.0%. Such present values were then adjusted for DMR's debt to
arrive at equity values. Based on this analysis, CBIZ Valuation Counselors
calculated a range of rounded equity values for the DMR of $17.8 million (25.0%
discount rate, 2.0% long-term growth rate) to $33.8 million (20.0% discount
rate, 8.0% long-term growth rate), with a concluded rounded value of $22.5
million (23.0% discount rate, 5.0% long-term growth rate, rounded discounted sum
of cash flows of $5.8 million, rounded discounted terminal value of $16.7
million).
In its utilization of the Exchange Methodology, CBIZ Valuation
Counselors compared the financial performance of DMR with the Guideline
Companies, as discussed in the bullet points above. Due to a lack of positive
earnings for LDM, RURL, CMTI, KCIN, FCGI, TEKS and LMT, CBIZ Valuation
Counselors applied market value of invested capital to revenue multiples to
DMR's historic revenue for the 12 months ended December 31, 2000 (multiple
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of 0.7) and to DMR's projected revenue for the 12 months ending March 31,
2002 (multiple of 0.5). After adjusting for DMR's debt, the application of
the historic and projected revenue multiples indicated rounded equity values
of $18.9 million and $31.1 million, respectively. These indicated values were
equally weighted, resulting in a concluded rounded equity value $25.0
million. Due to the variance in size of the Guideline Companies, as measured
by market value of invested capital, revenue and total assets, and by the
variance in lines of business of the Guideline Companies relative to each
other and to DMR, the usefulness of this analysis was limited relative to the
Income Approach analysis.
In its utilization of the Acquisition Methodology, CBIZ Valuation
Counselors identified selected precedent transactions, which included all of
the transactions identified as precedent transactions in the bullet points
above, and compared the enterprise values indicated by the respective
transactions to revenue and earnings of the acquired companies. The indicated
enterprise values (equal to the announced purchase prices) and the indicated
revenue multiples (equal to the enterprise value divided by annual revenue)
are as follows: Macro International (enterprise value [EV] = $22.3 million,
revenue multiple [RM] = 0.4), AnswerThink Consulting (EV = $23.8 million, RM
= 1.4), Jevic Transportation (EV = $172.2 million, RM = 0.7), CoachUSA (EV =
$1.3 billion, RM = 1.5), E-Trans Logistics (EV = $4.0 million, RM = 2.7),
ReSource Partners (EV = $40.8 million, RM = 1.6), Solutions Consulting (EV =
$122.1 million, RM = 2.0), Tier Technologies (EV = $16.2 million, RM = 0.9),
Epicedge (EV = $42.5 million, RM = 3.4), Orange County Professional Services
(EV = $10.5 million, RM = 1.1) and Carey International (EV = $179.7 million,
RM = 0.8). Due to a lack of reported earnings data for CoachUSA, Carey
International and E-Trans Logistics and negative earnings for ReSource
Partners, Epicedge and Tier Technologies, CBIZ Valuation Counselors applied
an enterprise value to revenue multiple of 1.2 (median of CoachUSA, Jevic
Transportation, Carey International and E-Trans Logistics whose business
lines are most similar to those of DMR) to DMR's revenue for the 12 months
ended December 31, 2000, resulting in a rounded equity value conclusion of
$31.5 million. Due to the variance in size of the acquired companies, as
measured by revenue and enterprise value, and the variance in lines of
business relative to each other and DMR, the usefulness of this analysis was
limited relative to the Income Approach analysis.
The summary set forth herein does not purport to be a complete
description of the analyses performed by CBIZ Valuation Counselors in
connection with its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to a partial analysis or
summary description. The fair market value indications provided by the
methodologies employed were considered in concert with each other and were
correlated based on the reliability of the data and assumptions underlying
each methodology. As indicated, however, the usefulness of the Exchange and
Acquisition Methodologies were considered limited relative to the usefulness
of the Income Approach. As such, the conclusion indicated by the Discounted
Cash Flow Methodology was afforded a higher degree of importance in the
analysis, 80% as compared to 10% each for the Exchange and Acquisition
Methodologies.
The amount of consideration to be delivered to DynCorp in connection
with the merger was determined by the managements of TekInsight and DynCorp
prior to TekInsight's engagement of CBIZ Valuation Counselors to render its
fairness opinion, and was not based on a recommendation by CBIZ Valuation
Counselors.
Pursuant to an engagement letter dated April 3, 2001, CBIZ Valuation
Counselors is to receive $50,000 for its services in rendering a fairness
opinion to TekInsight. CBIZ Valuation Counselors is also to be reimbursed for
its expenses. TekInsight has agreed to indemnify CBIZ 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 CBIZ
Valuation Counselors' engagement.
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<Page>
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION OF TEKINSIGHT AND SUBSIDIARIES
The accompanying unaudited pro forma condensed financial statements
have been prepared to show the effects of the acquisition of DMR by
TekInsight pursuant to the agreement and plan of reorganization and agreement
and plan of merger, each dated as of April 25, 2001. The statements are
prepared with the assumption that 17,629,000 shares of Class B common stock
will be issued with a value of $1.69 per share, and the merger costs are
estimated to be $250,000. The price of $1.69 per share assumes that the value
of the Class B common stock will be approximately 85% of the value of
Company's Class A common stock at the closing date (assumed to be $1.99 per
share). Should TekInsight's market value of its common stock increase or
decrease at the time of the merger, the calculation of the consideration paid
may change. The pro forma statements do not reflect the assumption that an
additional $20 million of financing has been secured, as a condition of the
closing, since the nature of this financing, as a combination of debt and
equity, has not yet been determined. The merger agreement contains certain
terms for the payment of additional consideration to DynCorp, in the form of
TekInsight common stock, to be issued in connection with the exercise of
certain convertible securities in the future that exist at the date of the
merger. Such additional consideration is not included in the pro forma
statements as the amount cannot be determined at this time. The merger
agreement provides for a three-year employment agreement with TekInsight's
Chief Executive Officer, the terms of which have not been finalized and have
not been included in the pro forma financial statements.
The following unaudited pro forma consolidated balance sheet
presents the pro forma financial position of TekInsight at June 30, 2001 as
if the acquisition of DMR had occurred on such date. Included is an
adjustment to record the elimination of DMR's previous shares and the
issuance of TekInsight" shares of Class B common stock to DMR's sole
stockholder.
The unaudited pro forma consolidated statements of operations for
year ended June 30, 2001 and the year ended June 30, 2000 reflect the
combined results of TekInsight and DMR as if the acquisition had occurred on
July 1, 2000 and July 1, 1999, respectively. The pro forma consolidated
statement of operations for the year ended June 30, 2001 also gives effect to
the acquisition of Data Systems, which was acquired on August 14, 2000. The
results of Data Systems for the period July 1, 2000 through August 13, 2000
have been reflected in the accompanying pro forma consolidated statements of
operations (See note 9 to the pro-forma financial statements). Such
acquisition of Data Systems was approved by TekInsight shareholders pursuant
to a separate proxy statement/prospectus dated July 13, 2000 at a
stockholders' meeting held on August 14, 2001.
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, 1999 or July 1, 2000, respectively, nor
may they be indicative of future operations. These unaudited pro forma
consolidated financial statements should be read in conjunction with
TekInsight and DMR's historical financial statements and notes thereto.
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<Page>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<Table>
<Caption>
ASSETS
-------- PRO FORMA
(amounts in thousands) TEKINSIGHT DMR TOTAL ADJUSTMENTS PRO FORMA
------------ ------- ------- ------------- ----------
AS OF AS OF
JUNE 30, JUNE 28,
2001 2001 DEBIT CREDIT
----------- ------- ----- -------
CURRENT ASSETS:
Cash $ 1,309 $ 2 $ 1,311(1) $ $ 250 $ 1,061
Accounts receivable, net allowance
for doubtful accounts $ 282 and $ 0
respectively 6,835 4,799 11,634 11,634
Contracts in progress 1,617 957 2,574 2,574
Prepaid expenses and other assets 2,794 76 2,870 2,870
-------- ------- -------- ---------
TOTAL CURRENT ASSETS 12,555 5,834 18,389 18,139
LONG-TERM NOTE RECEIVABLE -
INVESTMENTS - Marketable Securities 846 - 846 846
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $80
and $26 respectively 669 396 1,065 1,065
CAPITALIZED SOFTWARE COSTS, net of
accumulated amortization of $ 1,175 914 - 914 914
ACQUIRED CUSTOMER LIST, net of
accumulated amortization of $ 1,351 9,459 - 9,459(2) 9,000 18,459
PURCHASED SOFTWARE,
net of accumulated amortization of $ 152 538 - 538 538
INTANGIBLE ASSETS, net of accumulated
depreciation of $ 398 and $ 13
respectively 8,466 675 9,141(3) 17,146 26,287
INVESTMENT IN SUBSIDIARY AT COST 356 - 356 356
DEPOSITS AND OTHER ASSETS 194 194 194
-------- ------- -------- -------- ------- ----------
$33,997 $ 6,905 $40,902 $26,146 $ 250 $ 66,798
======== ======= ======== ======== ======= ==========
</Table>
See Notes to consolidated financial statements
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<Page>
LIABILITIES AND
STOCKHOLDERS' EQUITY
<Table>
<Caption>
PRO FORMA
TEKINSIGHT DMR TOTAL ADJUSTMENTS PRO FORMA
---------- ------ ----- --------------------- -----------
AS OF AS OF
(amounts in thousands, except share data) JUNE 30, 2001 JUNE 28, 2001 DEBIT CREDIT
------------- ------------- --------- ---------
CURRENT LIABILITIES:
Accounts payable $ 8,821 $ 2,393 $ 11,214 $ $ $ 11,214
Line of Credit 2,503 - 2,503 2,503
Deferred maintenance 1,261 - 1,261 1,261
State audit reserves 1,792 - 1,792 1,792
Accrued expenses 3,163 615 3,778 3,778
--------- -------- -------- --------
TOTAL CURRENT LIABILITIES 17,540 3,008 20,548 20,548
LONG-TERM NOTES PAYABLE 6,870 6,870 (4) 6,870 0
--------- -------- -------- --------
MINORITY INTEREST IN SUBSIDIARY 222 - 222 222
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value,
10,000,000 shares authorized,
2,189,800 shares issued and
outstanding as of March 31, 2001 1 - 1 1
Class B Common Stock, $ .0001 par value,
25,000,000 shares authorized
17,629,000 shares issued and outstanding - - - (5) 2 2
Common stock, $.0001 par value, 65,000,000
shares authorized, 17,313,350
shares issued and outstanding as of
March 31, 2001 2 - 2 2
Additional paid-in capital 40,060 750 40,810 (6) 750 29,791 69,851
Unrealized loss on securities (954) - (954) (954)
Accumulated deficit (22,874) (3,723) (26,597)(7) 3,723 (22,874)
--------- -------- -------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 16,235 (2,973) 13,262 46,028
--------- -------- -------- ------- ------- --------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY (DEFICIT) $ 33,997 $ 6,905 $ 40,902 $ 7,620 $33,516 $ 66,798
========= ======== ======== ======= ======= ========
</Table>
See Notes to consolidated financial statements
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<Page>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
JUNE 30, 2001
<Table>
<Caption>
(amounts in thousands, PRO FORMA ADJUSTMENTS PRO FORMA
except per share data) TEKINSIGHT DATA SYSTEMS(9) DMR(12) TOTAL --------------------- ---------
----------- --------------- ------- -------- DEBIT CREDIT
REVENUES $ 44,910 $ 4,548 $27,705 $77,163 $ 77,163
COST OF GOODS SOLD 35,492 3,741 25,763 64,996 64,996
------------ --------- -------- -------- ------- ------ --------
GROSS PROFIT 9,418 807 1,942 12,167 12,167
------------ --------- -------- -------- ------- ------ --------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative 16,334 1,079 3,391 20,804 20,804
Depreciation and amortization 2,747 103 55 2,905 (8) 1,231 4,136
------------ --------- -------- -------- ------- ------ --------
TOTAL OPERATING EXPENSES 19,081 1,182 3,446 23,709 24,940
------------ --------- -------- -------- ------- ------ --------
OPERATING LOSS (9,663) (375) (1,504) (11,542) (12,773)
LOSS ON SALE OF MARKETABLE SECURITIES (480) - - (480) (480)
RESERVE FOR UNCOLLECTIBLE NOTE RECEIVABLE - - - -
OTHER INCOME (EXPENSE)
Interest income (expense) (480) (49) - (529) (529)
Other income (expense) (275) (9) (76) (360) (360)
------------ --------- -------- -------- ------- ------ --------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (10,898) (433) (1,580) (12,911) (14,142)
------------ --------- -------- -------- ------- ------ --------
INCOME TAX BENEFIT 76 - - 76 (10) 76
LOSS FROM CONTINUING OPERATIONS (10,822) (433) (1,580) (12,835) (14,066)
------------ --------- -------- -------- ------- ------ --------
NET LOSS FROM CONTINUING OPERATIONS PER
SHARE - basic and diluted (0.63) (11) (0.40)
===========
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTATION 17,169 34,768
===========
NET LOSS (10,763) (433) (1,580) (12,776) (14,007)
OTHER COMPREHENSIVE LOSS, NET OF TAX
Unrealized loss on
available-for-sale securities (1,918) - (1,918) (1,918)
------------ --------- -------- -------- ------- ------ --------
COMPREHENSIVE LOSS $ (12,681) $ (433) $ (1,580) $(14,694) $ 1,231 $ - $(15,925)
============ ========= ======== ======== ======= ====== ========
</Table>
See notes to pro forma financial statements
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma adjustments are included in the
accompanying unaudited pro forma consolidated balance sheet at June 30, 2001:
(1) To record estimated acquisition costs of $250,000.
(2) To record estimated value of acquired customer lists.
(3) Eliminates the Goodwill of DMR ($675,000) and records value of
consideration paid over identified assets purchased
($17,821,000). Allocation of consideration is as follows:
(thousands of dollars)
Value of shares issued $ 29,793
Acquisition costs 250
Liabilities assumed 3,008
--------------
Total paid $ 33,051
--------------
VALUE OF ASSETS PURCHASED:
Current assets $ 5,834
Property & equipment 396
Contracts assumed 9,000
Goodwill 17,821
--------------
Fair value of assets acquired $ 33,051
--------------
(4) Under the terms of the merger, the sole shareholder of DMR
will forgive the intercompany receivable with DMR as at the
date of the merger.
(5) Represents the par value of the shares of Class B common
stock. The value of Class B common stock issued is calculated
as follows:
<Table>
<Caption>
(amounts in thousands)
TekInsight common shares outstanding
at June 30, 2001 19,470
TekInsight Series A preferred
stock outstanding at June 30, 2001 2,189
Common equivalent of Series A
Preferred stock (2.5:1) 5,474
Bugsolver.com preferred stock
outstanding at June 30, 2001 1,000
Common stock equivalent of
Bugsolver.com preferred stock 1,500
-------------
Total common stock equivalent of
outstanding securities at June 30, 2001 26,444 60%
Total Class B common shares issued 17,629 40%
-------------
Total consolidated voting shares issued 44,073 100%
-------------
Per share value of Class B common
shares issued $ 1.69
-------------
Total value of Class B common shares $ 29,793
-------------
Par value Class B shares at $.001 $ 2
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Paid in Capital Class B common shares 29,791
-------------
$ 29,793
-------------
</Table>
(6) Eliminates the additional paid-in capital of DMR ($750,000)
and records the paid-in capital, in excess of par, for the
issuance of the shares of Class B common stock ($29,791,000).
(7) Eliminates the accumulated deficit for DMR.
The following pro forma adjustments are included in the accompanying
unaudited pro forma consolidated statements of operations for the year ended
June 30, 2001:
(8) To record the amortization of intangible assets acquired in
the amount of $9,000,000, using a seven-year life. Goodwill
value will be tested for impairment on a periodic basis, and
shall be adjusted accordingly, as necessary.
On August 14, 2000, TekInsight acquired all of the
outstanding capital stock of Data Systems through a merger
with its Services subsidiary. In connection with this
acquisition, TekInsight assumed numerous ongoing customer
relationships, representing the majority of its revenues. In
the acquisition TekInsight recorded $18,509,000 in total
goodwill and intangible assets allocated as follows:
$7,009,000 in Goodwill which will be amortized over 20
years, $10,810,000 in capitalized customer list amortized
over 7 years and $690,000 of capitalized software amortized
over 5 years. The values of intangible assets recorded were
derived from the discounted future derivation of free cash
flows methodology, performed by an independent appraiser. An
analysis of Data Systems historical revenues and margins
determined the allocations of the intangibles to the
customer lists and to the software acquired. The
amortization periods were based on the customer and company
relationship history, number of customers, types of
customers and service expertise delivered to the customers.
The value of the intangibles will continue to be reviewed
for impairment quarterly by the Derivation of Free Cash
Flows method and any valuation differences will be booked
accordingly. Property and equipment were evaluated for
adjustments to fair value, and generally were recorded at
the net book values from the prior company, which were
considered to approximate fair value.
A summary of the business assets acquired is as follows:
<Table>
<Caption>
(Amounts in thousands)
Stock issued $ 12,500
Acquisition costs 300
Liabilities assumed 13,765
-------------
Total consideration $ 26,565
-------------
ASSETS ACQUIRED:
Cash $ 1,313
Accounts receivable, net 4,935
Prepaid expenses, deposits and other assets 1,387
Property and equipment 421
Customer list 10,810
Software 690
Goodwill 7,009
-------------
Fair value of assets acquired $ 26,565
-------------
</Table>
-43-
<Page>
The acquisition price was $12,500,000. The aggregate consideration paid
to Data Systems stockholders consisted of approximately 2,185,755
shares of TekInsight Series A Convertible Preferred Stock based on an
aggregate of 5,575,906 shares of common stock of Data Systems
outstanding as of the effective time of the merger and an exchange
ratio of 0.392 of a share of TekInsight preferred stock for each share
of Data Systems common stock outstanding. On August 14, 2001, such
shares became convertible into shares of Tekinsight common stock at the
exchange rate of 2.5 shares of common stock for one share of preferred
stock. In addition, the Company assumed 462,500 options and 50,000
warrants issued by Data Systems which were converted into the right to
acquire 181,300 and 19,600 shares of TekInsight preferred stock,
respectively.
(9)To record the operations of Data Systems Network Corporation for the
period July 1, 2000 through August 14, 2000. TekInsight acquired Data
Systems on August 14, 2000.
(10) Due to the uncertainty of future taxable income, all additional
deferred tax assets and carryforwards have been reserved.
(11) The weighted average number of shares used in the pro forma computation
of net loss per share assumes the issuance of the new Class B common
stock to DynCorp as follows:
(Amounts in thousands)
<Table>
Weighted average shares TekInsight common
stock for the fiscal year ended June 30, 2001 17,169
Class B shares issued 17,629
---------------
Total pro forma weighted average shares outstanding 34,798
---------------
Pro forma consolidated loss $(14,007)
Pro forma loss per share $ (0.40)
---------------
</Table>
(12) The results of DMR for the twelve months ended June 30, 2001 have been
derived from unaudited quarterly reporting for the six month period
ended December 31, 2000 and the unaudited six month period ended June
30, 2001, since DMR reports results on a fiscal year ended December 31,
2000.
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<Page>
INFORMATION ABOUT TEKINSIGHT
TekInsight.com, Inc. was initially incorporated in Delaware on May 27,
1989 as Universal Self Care, Inc. Universal 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. The company changed its name to Tadeo Holdings, Inc. on
February 2, 1998, and subsequently changed its name to TekInsight in November
1999.
TekInsight is a holding company which, through its four active
subsidiaries, TekInsight Research and Development, Inc., or "Research",
TekInsight Services, or "Services", TekInsight e-Government, or "e-Government"
and BugSolver.com, Inc., dba ProductivIT ("ProductivIT"), is involved in the
development of computer software products and the provision of services for the
management and support of distributed client/server and Internet-based networks
in private and governmental markets. We provide consulting, technical and
related services to clients for the development of electronic customer
interaction on the internet, including consulting and development services for
the maintenance, design and enhancement of electronic commerce Internet sites
that interface with database systems. Pursuant to the terms of TekInsight's
proposed amended and restated by-laws, if the merger is consummated TekInsight
will be prohibited from continuing its operation and support of ProductivIT
unless either (a) 80% of TekInsight's post-merger board of directors approves
such continuing operation and support or (b) the anticipated monthly revenue
from signed contracts for such operations as of June 30, 2001 exceeds the actual
costs related to such operations incurred during June 2001.
In May 2000, we acquired Big Technologies, an Internet professional
service firm specializing in the development of e-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. On June 30, 2000 Big Technologies changed its name to TekInsight
e-Government Services, Inc.
E-Government offers states, municipalities and government agencies
products for designing and implementing custom e-Government Internet presences
utilizing a unique suite of customizable software modules, each providing a
different online service which can interface with existing websites and
integrated into existing databases. E-Government's products and services enable
governments to process tax payments, violation payments, purchasing, licensing
and deeds online in real time.
In August 2000, TekInsight merged its Services subsidiary with Data
Systems Network Corporation. Data Systems provided 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 generated revenues by providing consulting and network
installation services, legacy system integration services, selling add-on
hardware components to existing clients and providing after-installation service
and support, training services and network management services. Data Systems
primarily served government customers in five states.
Research is primarily involved in developing web-based diagnostic
software agents and analysis tools, such as our ProductivIT product, and
web-based electronic commerce performance and analysis tools. We use these tools
to create applications, which are both sold and rented to customers, and to
develop custom solutions for government and private sector enterprises. We are
currently marketing our ProductivIT product, a support tool that gathers
extensive data from network workstations, servers and stand-alone systems, to
customers on an application service provider or ASP basis for use over the
Internet. ProductivIT is designed to be used for problem resolution and system
planning, by assisting in the accumulation of data and making it accessible
through a secure, centralized, web-based portal. The ProductivIT product
provides hardware and software support, enterprise network support, detailed
asset tracking and software migration analysis. Our current marketing strategy
is to offer the ProductivIT
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<Page>
product primarily through resellers. We also intend
to utilize this product, in our own network support services offered to
customers, as an enabling technology for creating efficiencies in our
operations.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the
three-year period ended June 30, 2001 to the chief executive officer of
TekInsight and the other four most highly paid executive officers of TekInsight
whose annual salary and bonus, exceeded $100,000 for all services rendered to
TekInsight during each such annual period.
<Table>
<Caption>
OTHER
Name and ANNUAL RESTRICTED ALL OTHER
Principal COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARDS SARS(#) PAYOUTS SATION
Steven J. Ross
President and 1999 $ -- -- $ -- $ -- -- $ -- $ --
Chief Executive a)2000 $ 143,000 0 $ 0 $ 0 0 $ 0 $ 0
Officer and Director 2001 $ 175,000 0 $ 25,000 $ 0 810,000 $ 0 $ 0
James Linesch
Chief Financial
Officer and Executive 1999 $ -- -- $ -- $ -- -- $ -- $ --
Vice President 2000 $ -- -- $ -- $ -- -- $ -- $ --
and Director b)2001 $ 138,000 10,000 $ 25,000 $ 0 335,000 $ 0 $ 0
Alex Kalpaxis
Chairman of the Board, 1999 $ 160,000 0 $ 0 $ 0 0 $ 0 $ 0
Chief Technology Officer 2000 $ 160,000 0 $ 0 $ 0 0 $ 0 $ 0
and Director c)2001 $ 160,000 0 $ 25,000 $ 0 0 $ 0 $ 0
</Table>
a) On December 10, 1999, Mr. Ross entered into a consulting agreement with
BugSolver.com, Inc., a TekInsight subsidiary. The agreement provided
for a monthly consulting fee of $20,000. On May 15, 2000, TekInsight
entered into a consulting agreement with Mr. Ross, which replaced the
December 10, 1999 agreement with BugSolver.com, Inc. The agreement was
to expire in February 2002 and automatically renew for successive
90-day periods unless terminated by either party. The agreement
provided for a monthly consulting fee of $23,000. Mr. Ross entered into
an Employment Agreement with TekInsight in January 2001 and his
consulting agreement was terminated.
b) Mr. Linesch entered into an employment agreement with TekInsight on
August 14, 2001, at a base salary of $157,500 per year, for an annually
renewable term of one year.
c) Mr. Kalpaxis and TekInsight entered into a separation agreement,
effective June 30, 2001, pursuant to which Mr. Kalpaxis terminated his
employment with TekInsight and resigned as an officer and director of
TekInsight and all subsidiaries in consideration for 12 equal monthly
severance payments aggregating $160,000 (his base salary during the
2001 fiscal year).
OPTION GRANTS
The following table sets forth certain information, as of June 30,
2001, concerning individual grants of stock options made during the fiscal year
ended June 30, 2001 to each of the persons named in the Summary Compensation
Table above.
-46-
<Page>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
Number of
Securities Percent of Total Potential realizable Value
Underlying Options/SAR's Exercise or at assumed Annual rates of
Options/SAR's Granted In Fiscal Base Price stock price appreciation for
Name Granted (#) Year (S/SH) option term
(a) (b) (c) (d) 5% 10%
------------------------ ------------ ----------- ---------------- ------------ -----------
Steven J. Ross 810,000 94% $1.27 $635,000 $1,607,000
------------------------ ------------ ----------- ---------------- ------------ -----------
James Linesch 335,000 92% $1.82 $372,000 $939,000
------------------------ ------------ ----------- ---------------- ------------ -----------
Alex Kalpaxis 0 0 0 0 0
</Table>
The following table sets forth information concerning exercises of
stock options by each of the executive officers named in the Summary
Compensation Table during the fiscal year ended June 30, 2001 and the fiscal
year-end values of options held by such named individuals.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
-------------------------------------------------------------------------------
<Table>
<Caption>
Number of Securities
Underlying Value of Unexercised
Unexercised In-The-Money
Shares acquired Options/SARS at Options/SARS at
Name on Exercise (#) Value Realized ($) FY-End (#) FY-End ($)
(A) (B) (C) (D) (E)
------------------------ --------------- --------------- --------------- ---------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
Steven J. Ross -- 0 59,000/400,000 $519,000/$436,000
James Linesch -- 0 15,000/150,000 $100,725/$163,500
Alex Kalpaxis -- 0 0 / 0 $ 0 /$ 0
</Table>
<Table>
<Caption>
-------------------------------------------------------------------------------------------------------------------------
10-YEAR OPTION/SAR REPRICINGS
-------------------------------------------------------------------------------------------------------------------------
Number of Length Of
Shares of Original.
Common Stock Option Term
Underlying Market Price of Exercise Price Remaining At
Options/ Common Stock At At time Of Date Of
SARs Repriced Time Of Repricing Repricing Or New Exercise Repricing Or
Name Date Or Amended Or Amendment Amendment Price Amendment
(#) ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g)
-------------------------------------------------------------------------------------------------------------------------
Steven J. Ross, January 2, 400,000 shares $0.8125 $3.00 $1.25 52 months
President and 2001
Chief
Executive
Officer
-------------------------------------------------------------------------------------------------------------------------
</Table>
On May 15, 2000, TekInsight entered into a consulting agreement with
Steven J. Ross, its President, CEO and a director. The agreement was to expire
in February 2002 and automatically renews
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<Page>
for successive 90-day periods unless terminated by either party. The agreement
provides for a monthly consulting fee of $23,000 and options to purchase 400,000
shares of the Company's common stock at $3.00 per share. Of the options granted,
200,000 were vested and exercisable as of February 1, 2000. The remaining
200,000 options were to vest and become exercisable, 100,000 each when the
average closing price for one share of common stock for the five trading days
immediately prior to such date attains $6.00 and $8.00 per share, respectively.
In addition, the President also received options to purchase 30,000 shares of
the common stock of ProductivIT $1.50 and may be granted additional options to
acquire shares of ProductivIT if certain funding transactions are arranged. Upon
the signing of the employment agreement with Mr. Ross on January 2, 2001, all
existing options were forfeited and under the terms of his employment agreement
five-year options to purchase 400,000 shares of common stock were granted at an
exercise price of $1.25 per share.
EMPLOYMENT AGREEMENTS
On October 1, 1998, TekInsight entered into a three-year employment
contract with Mr. Kalpaxis, through October 1, 2001. 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
TekInsight Research, Inc, a wholly-owned subsidiary of TekInsight, in which
Earnings Before Taxes Interest Depreciation and Amortization, ("EBITDA") equals
or exceed one million dollars. On May 31, 2001, TekInsight and Mr. Kalpaxis
entered into an agreement pursuant to which Mr. Kalpaxis agreed to step down as
Chairman of the Board and Chief Technology Officer and to resign from the board
of directors effective upon execution of the letter agreement. Under the terms
of the agreement, Mr. Kalpaxis continued to be employed in a non-executive
position as Chief Technologist of TekInsight through June 30, 2001. After that
date, Mr. Kalpaxis shall be retained on a consulting basis as his services are
required. Mr. Kalpaxis will receive 12 equal monthly severance payments
aggregating $160,000 (his base salary during the 2001 fiscal year).
On January 2, 2001, TekInsight entered into an employment agreement
with Steven J. Ross, our President and Chief Executive Officer. The agreement is
for one year and automatically renews for subsequent one-year periods unless
TekInsight provides written notice of its intention not to renew at least six
months prior to anniversary date. The agreement includes a base salary of
$350,000 per year. Under the terms of the agreement, Mr. Ross was granted
400,000 options to purchase Company Common Stock. In the event Mr. Ross is
terminated without cause within four months prior to or following a change in
control, he is entitled to receive a lump sum payment equal to one year's salary
plus benefits. In connection with this agreement, the Company made a secured
loan to Mr. Ross in the amount of $170,000, due December 28, 2001. In addition,
Mr. Ross is entitled to the same benefits afforded executive management.
On August 14, 2000, TekInsight entered into an employment agreement
with James Linesch, its Chief Financial Officer and Executive Vice President.
The agreement is for one year and automatically renews for subsequent one-year
periods unless TekInsight provides written notice of its intention not to renew
at least six months prior to the anniversary date. The initial compensation is
$157,500 per year, subject to annual increases. In connection with his
employment, Mr. Linesch was granted 100,000 options vesting over one year with
an exercise price of $3.00 per share. In addition, Mr. Linesch is entitled to
the same benefits afforded non-employee directors.
COMPENSATION OF DIRECTORS
Directors, other than those who also are employees of TekInsight, are
paid an annual Board Membership fee of $25,000, are reimbursed for certain
reasonable expenses incurred in attending Board or Committee meetings and are
eligible for awards under the TekInsight 1997 Non-employee Directors' Stock
Option Plan. The Non-employee Directors' Plan provides for option grants with
respect to 10,000 shares of Common Stock to be made to each eligible director
upon each July 1st on which such director is a member of the TekInsight Board of
Directors. Options are exercisable for 5 years after the date of
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<Page>
grant. The exercise price for any option under the plan shall be equal to the
fair market value of the Common Stock at the time such option is granted. The
plan provides that grants thereunder vest immediately. During the year ended
June 30, 2001, each of Messrs. Bookmeier, Linesch and Testaverde received
grants in accordance with the Non-employee Directors' Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During the fiscal year ended June 30, 2001, Messrs. Damon D.
Testaverde, James Linesch and Michael Grieves served as the members of the
Compensation Committee of the board of directors. Messrs. Linesch and Grieves
were employees of TekInsight during the fiscal year.
A $200,00 promissory note was issued for a portion of the consideration
for some 13% subordinated promissory notes of Data Systems Network Corporation
acquired by Mr. Grieves, Data Systems' Chairman, President and Chief Executive
Officer, pursuant to Data Systems' Plan of Reorganization in 1992. Under the
renegotiated Grieves Note, payments will be made at the end of each fiscal
quarter and all outstanding principal and accrued interest was paid by March 31,
2001. The negotiated Grieves note bore interest on the principal at an annual
rate of 9.5%.
Following the merger with Data Systems, Mr. Grieves was employed by
TekInsight under an employment agreement which terminated on August 14, 2001,
for compensation equal to $20,000 per month and the standard employee benefits
awarded to all TekInsight employees.
As part of the merger with Data Systems, TekInsight assumed an
agreement with Interactive Frontiers ("IF") whereby, IF provides access to its
Internet Golf Academy to TekInsight for use at trade shows or any other venues
as determined by TekInsight. Michael W. Grieves, a director of TekInsight, is a
significant investor and non-executive Chairman of the Board of IF. The term of
the agreement was for six months beginning August 1, 2000, with a renewal of six
months upon election of TekInsight. The fee is $126,000 per six-month period,
and the agreement was not renewed.
In September 2000, TekInsight raised $3,000,000 through an issuance of
1,000,000 shares of redeemable preferred stock in its ProductivIT subsidiary.
Each of Mr. Douglas Adkins and H.T. Ardinger & Sons, Inc., 5% stockholders of
TekInsight, purchased 500,000 shares of such preferred stock. Mr. Testaverde
acted as an agent in selling those securities, was paid $150,000 and was issued
50,000 options to acquire stock of the subsidiary at $1.50 per share under the
Company's 1992 Employee Stock Option Plan.
In March 2001, the Company raised $2,718,500 through a private
placement issuance of an aggregate 2,718,550 shares of TekInsight common stock.
Mr. Testaverde acted as an agent in selling those securities and received
broker's commissions equal to 7% of the sales proceeds of those common stock
sales. Mr. Testaverde was also granted 271,855 options to acquire an equal
number of shares of TekInsight common stock under the Company's 1992 Employee
Stock Option Plan at an exercise price of $1.25 per share.
In March 2000, in connection with the initial capitalization of
ProductivIT, certain officers and directors of TekInsight were issued options to
purchase ProductivIT common stock at a $1.50 strike price. Mr. Testaverde
received options to acquire 200,000 shares of ProductivIT common stock.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for reviewing TekInsight's
compensation program. The Compensation Committee did not meet separately during
the fiscal year ended June 30, 2001 for the purpose of reviewing employee salary
issues, but its members did participate in all full Board meetings at which
employee compensation issues were discussed. The Compensation Committee met once
during the fiscal year ended June 30, 2001 for the purposes of granting stock
options under TekInsight's 1992 Employee Stock Option Plan.
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<Page>
COMPENSATION PHILOSOPHY.
Our compensation program generally is designed to motivate and reward
the TekInsight executive officers and its employees for promoting financial,
operational and strategic objectives while reinforcing the overall goal of
enhancing shareholder value. Our compensation program generally provides
incentives to achieve short and long term objectives. The major components of
compensation for executive officers are base salary, bonus incentives (on an
individual basis in TekInsight's discretion), and stock option grants. Each
component of the total executive officer compensation package emphasizes a
different aspect of TekInsight's compensation philosophy. These elements
generally are blended to provide compensation packages which provide competitive
pay, reward the achievement of financial, operational and strategic objectives,
and align the interests of our executive officers and employees with those of
TekInsight shareholders.
COMPONENTS OF EXECUTIVE COMPENSATION.
BASE SALARY. Base salaries for TekInsight's executive officers are
determined by evaluating the responsibilities required for the position held,
individual experience and breadth of knowledge, and by reference to the
competitive marketplace for management talent.
STOCK AWARDS. To promote our long-term objectives, all directors,
officers and employees of TekInsight are eligible for grants of stock options.
The stock awards are made to directors, officers and employees pursuant to the
Company's 1992 Employee Stock Option Plan, as amended, in the form of incentive
stock options, and to non-employee directors pursuant to the 1997 Non-employee
Directors Stock Option Plan, in the form of non-qualified stock options.
Stock options represent rights to purchase shares of TekInsight common
stock in varying amounts pursuant to a vesting schedule determined by the
Compensation Committee or the full Board at a price per share specified in the
option grant, which may be less than the fair market value on the date of the
grant under certain circumstances when non-qualified options are awarded. Stock
options expire at the conclusion of a fixed term (generally 5 years).
Since the stock options may grow in value over time, these components
of our compensation plan are designed to reward performance over a sustained
period and to enhance shareholder value through the achievement of corporate
objectives. We intend that these awards will strengthen the focus of its
directors, officers and employees on managing TekInsight from the perspective of
a person with an equity stake in TekInsight. The number of options granted to a
particular employee is based on the position, level, competitive market data and
annual performance assessment of each employee.
During the fiscal year ended June 30, 2001, Mr. Linesch was awarded
options to purchase 355,000 shares of Common Stock and Mr. Testaverde was
awarded options to purchase 321,855 shares of Common Stock under the TekInsight
1992 Employee Stock Option Plan. Additional option grants made to directors
during the fiscal year ended June 30, 2001 consisted of options with respect to
30,000 shares of Common Stock under our 1997 Non-employee Directors' Stock
Option Plan.
OPTION REPRICINGS. In consideration for Mr. Ross agreeing to become an
employee of TekInsight in January 2001 and the execution of his Employment
Agreement at that time, options to acquire 400,000 shares of Common Stock,
exercisable at $3.00 per share, which were granted to Mr. Ross under his
previous Consulting Agreement were cancelled and new options to acquire 400,000
shares of Common Stock, exercisable at $1.25 per share were granted under the
TekInsight 1992 Employee Stock Option Plan. The reason for the repricing was to
provide Mr. Ross with an incentive to become an employee of TekInsight and to
further align his interests with those of TekInsight and its stockholders.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Section 162(m) of the
Internal Revenue Code of 1986, as amended, imposes limitations upon the federal
income tax deductibility of compensation paid to our chief executive officer and
to each of the other four most highly compensated executive officers of
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<Page>
TekInsight. Under these limitations, we may deduct such compensation only to the
extent that during any fiscal year the compensation paid to any such officer
does not exceed $1,000,000 or meets certain specified conditions (such as
certain performance-based compensation that has been approved by our
shareholders). Based on our current compensation plans and policies and proposed
regulations interpreting the Internal Revenue Code, TekInsight and the
Compensation Committee believe that, for the near future, there is not a
significant risk that TekInsight will lose any significant tax deduction for
executive compensation. Our compensation plans and policies will be modified to
ensure full deductibility of executive compensation if TekInsight and the
Compensation Committee determine that such an action is in the best interests of
TekInsight.
COMPENSATION COMMITTEE
Damon D. Testaverde
James Linesch
Michael Grieves
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<Page>
STOCK PRICE PERFORMANCE
Set forth below is a line graph comparing the cumulative total shareholder
return on TekInsight Common Stock, based upon the market price of TekInsight
Common Stock as reported by The Nasdaq Stock Market, with the cumulative total
return of companies in the Nasdaq Composite Index and the Nasdaq Computer Index
for the period from September 30, 1996 through June 30, 2001.
<Table>
<Caption>
------------------------------------------------------------------------------------------------------------------
6/30/00 9/30/00 12/31/00 3/31/01 6/30/01
------------------------------------------------------------------------------------------------------------------
TekInsight 93.77 68.77 29.17 37.73 78.00
------------------------------------------------------------------------------------------------------------------
NASDAQ Composite Index 424.89 393.47 264.67 197.15 226.91
------------------------------------------------------------------------------------------------------------------
NASDAQ Computer Index 697.28 631.69 371.84 264.16 319.60
------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
----------------------------------------------------------------------------------------------------------------------
6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99 3/31/00
----------------------------------------------------------------------------------------------------------------------
TekInsight 32.30 47.93 33.33 33.33 130.20 83.33 94.80 132.30
----------------------------------------------------------------------------------------------------------------------
NASDAQ Composite Index 202.98 181.46 234.90 263.69 287.76 294.19 432.47 489.88
----------------------------------------------------------------------------------------------------------------------
NASDAQ Computer Index 252.58 253.89 337.40 388.21 412.40 447.34 688.91 803.57
----------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
------------------------------------------------------------------------------------------------------------------
6/30/96 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98
------------------------------------------------------------------------------------------------------------------
TekInsight 112.50 81.27 118.77 97.93 91.67 83.33 57.30 54.17
------------------------------------------------------------------------------------------------------------------
NASDAQ Composite Index 126.95 131.44 138.31 130.88 154.49 180.59 168.23 196.66
------------------------------------------------------------------------------------------------------------------
NASDAQ Computer Index 128.28 139.17 154.33 145.07 176.55 209.11 184.04 229.95
------------------------------------------------------------------------------------------------------------------
</Table>
- 52 -
<Page>
INFORMATION ABOUT DMR
GENERAL INFORMATION
DynCorp Management Resources, Inc.("DMR"), a Virginia corporation, was
originally formed in 1996 as DynCorp Management Resources LLC ("LLC"), a
predecessor limited liability company organized under the laws of the
Commonwealth of Virginia, by DynCorp as its majority equity holder. LLC was
created to serve the state and local government markets with primary focus on
Information Technology and Business Process Outsourcing services. DynCorp,
organized in 1946, is a privately owned technical service and information
technology business primarily serving agencies of the federal government.
Effective June 28, 2000, DynCorp purchased all of the third-party owned
equity in LLC (approximately 15%). Subsequent to this transaction, LLC, was
merged into DMR, a newly formed wholly-owned subsidiary of DynCorp, through
which the business of LLC has been continued and expanded.
OPERATING STRATEGY
DMR secures the majority of the contracts for its services through open
competitions conducted by states and municipalities. DMR receives and reviews
numerous requests for proposals, or RFPs, from governmental entities for the
provision of services and identifies those that are suitable for responsive bid
by DMR. In government contract award procedures, following proposal submission
contracts are often awarded based on subsequent negotiations with the bidder
offering the most attractive proposal, price and other contracting factors. In
certain cases low price may be the determining factor, while in others price may
be secondary when compared with the quality of technical skills or management
approach. DMR, as other bidders, may occasionally submit proposals to act as
subcontractor to other bidders competing for the same position as primary
contractor for a government contract.
DMR also competes for business through Indefinite Delivery-Indefinite
Quantity-type, or IDIQ, contracts that may be awarded by a government agency to
one or more potential vendors. These contracts pre-qualify the vendor(s) to
provide certain types of goods and services to governmental agencies at certain
fixed or maximum prices. The award does not represent a firm order for any
services, and the type and quantity of goods and services to be delivered, if
any, are indefinite in nature. Instead, the agency may solicit offers for
contracts from the pre-qualified vendor(s) for goods and services covered by the
IDIQ contract. Even if it is the sole vendor awarded an IDIQ contract, the
potential customers may not desire to procure any of the goods and services
offered by DMR.
Government contracts awarded to DMR generally encompass a combination
of short-term task orders granted under multi-project contract vehicles, and
large multi-year contracts, that are won by responding to RFPs. Payment for
services under such government contracts can be based on fixed-price or
fixed-unit-price, time-and-materials, cost-plus-fixed-fee, revenue-sharing, or a
combination of the above payment methods. DMR's strategy is to seek long- term
partnerships with its customers so that each can reap the benefits of a mutual
commitment to success.
DMR operates its business generally by setting up field offices
(temporary or long-term) in close proximity to government customer sites, with
staff and facilities dedicated to performance of specific contracts. Services
are delivered either at the government customer site, or from a shared facility
located in close proximity. DMR hires a staff of knowledgeable program
professionals which blend public and private sector expertise to perform its
contracted services.
By employing its operating strategy to the delivery of government
services, DMR applies proven project management tools and techniques to
facilitate the delivery of government services by state and
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local governments, allowing such government customers to achieve compliance
with public mandates more efficiently, effectively and accurately.
DMR presently employs 165 full time employees, including 12 employees
located at its headquarters office in Reston, Virginia. DMR is not a party to
any employment contracts with its employees, and it is not a party to any
material agreements with independent contractors or other persons for the
provision of consulting services.
CURRENT BUSINESS
The business conducted by DMR can be divided into two related sectors:
Information Technology Services and Business Process Outsourcing Services.
BUSINESS PROCESS OUTSOURCING. Fiscal and service delivery pressures
have led state and local governments increasingly to seek outside,
non-governmental business partners who can assume and ensure the delivery of
high quality services at less cost and greater quality than traditional
government service offerings. These outsourcing projects require vendors with a
commitment to partnership, because governmental requirements change regularly.
DMR has contracted to be responsible for outsourced program operations for
government clients in several areas. Typically these contracts are for
multi-year periods of performance, with options to renew for additional periods.
Such contracts are generally awarded through competitive procurements. Payment
is based on either fixed-price, fixed-unit- price based on contractual
allocations, revenue sharing, or a combination of the above.
One of DMR's focus areas is serving as a broker, on behalf of the
governmental "primary" contracting entity, for the arrangement of non-emergency
medical transportation for eligible Medicaid, general relief and welfare
recipients. Under a contract with the State of Connecticut, DMR brokers more
than 85,000 units of transportation service per month, an effort which DMR
estimates saves the State of Connecticut approximately $3 million annually.
Another area of focus for DMR is performance of privatized child
support enforcement services, pursuant to which DMR assumes responsibility for
the determination and location of legally established paternity and support
obligations, enforcement of court or administrative orders for such obligations,
location of absent responsible parents or other persons obligated for such
payments and location of relevant assets which may be used for satisfaction of
such obligations.
In addition to direct outsourcing services, DMR also provides
consulting expertise to state and local governments interested in designing and
evaluating outsourced operations. DMR outsourcing services customers have
included various governmental departments in the states of Connecticut,
Arkansas, Virginia, Illinois, North Carolina, Kansas and Nebraska. Approximately
70% of DMR's revenue in the six months ended June 28, 2001 resulted from
outsourcing services.
INFORMATION TECHNOLOGY. The need for governments effectively to
implement and employ technologies that utilize stored data, or information, in
the provision of a variety of government services grows every day. So do the
available choices and complexity of the technologies that can be used to provide
those services. DMR helps governments surmount these challenges by providing
hands-on support to manage government information resources with available
technology in the following areas:
o Project management
o Implementation Support
o System Training
o Testing and Quality Assurance
o Conversion Support
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o Network Services
o Document Management
o Systems Integration
o Seat Management (e.g., providing all technology services to
each computer terminal operated by a contract customer, with
contracted payments based on the number of terminals served).
DMR information technology customers have included various governmental
departments in the states of New Mexico, California, Kansas, Colorado,
Mississippi and Virginia.
Approximately 30% of DMR's revenue in the six months ended June 28,
2001 resulted from information technology services.
CURRENT SIGNIFICANT CONTRACTS
DMR derives a significant portion of its revenues from providing
non-emergency transportation services, or NET services, on behalf of state and
local governments on an outsourced basis under several contracts. NET services
include any type of transportation to or from the source of medical care other
than through emergency medical means, including, but not limited to, basic
non-emergency ambulance service, medicars, service cars, livery services taxis,
private autos and exceptional modes of transportation for trips greater than 100
miles one way (such as train and long distance bus).
Performance measurements used to determine the quality of service
provided by DMR under its outsourced contracts include the timeliness of
determinations with respect to the provision of service and various call center
response times. These contracted services are delivered by DMR directly to the
beneficiaries of relevant government programs, such as the Medicaid and Social
Security programs.
Two of DMR's NET services contracts are the source of a significant
portion of DMR's ongoing revenue. Neither is an IDIQ contract. Under a contract
with The State of Connecticut Department of Social Services, DMR has generated
base revenue of approximately $50 million over a 41-month period ended June 28,
2001. Such revenue constituted over 60% of DMR's total revenue during the annual
period ended December 28, 2000 and the quarter ended March 29, 2001. The
contract has been extended on a monthly basis since June 2001 and is currently
extended through June 2002, with a slight increase in fees. The customer has
indicated an intent to offer the contract for new bid competition for the period
following June 2002.
Pursuant to a contract with the Commonwealth of Virginia Department of
Medical Assistance Services, DMR will generate base revenues of approximately
$60 million over the two-year period ending June 2003. This contract includes
un-priced options for renewal for up to four successive one-year periods.
Therefore, at the end of the initial term and the end of each option term, DMR
and the customer would negotiate the prices for the following year using a
pre-determined formula for setting the price for the ensuing option year. Both
of these NET services contracts provide for services to be delivered on a
fixed-fee per service basis, with revenue earned based upon the number of
eligible participants to whom services are provided.
DMR derived approximately 60% of its revenues from a contract with the
State of Connecticut during the annual period ended December 28, 2000 and the
six months ended June 28, 2001. No other customer accounted for more than 10% of
revenues during such periods.
COMPETITION
As the demand for public sector IT services and business process
outsourcing has grown substantially in recent years, due to government desires
to streamline processes, improve customer
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service, upgrade and web-enable systems, enhance efficiencies, and take
advantage of the latest in technology, government agencies have increasingly
turned to outside contractors to supply many of their information technology
and business processing services needs that were historically performed
in-house. But the market for the provision of such services by outside
vendors is fragmented.
DMR provides services principally to health, transportation, and human
services agencies of state and local governments. In its provision of services
to health and human services agencies, DMR's competitors in providing services
to health and human services agencies include Affiliated Computer Services (IMS
division acquired from Lockheed Martin), MAXIMUS, Policy Studies, Inc., Tier
Technologies and GovConnect. DMR has been successful in securing contracts in
this area due to the track record and credibility of its key management team in
providing these services in both the public and private sectors prior to their
joining DMR. In addition, the community of child support professionals is small
and closely nit, providing barriers to entry for additional potential
competitors. DMR's competitors in providing services related to the development
of intelligent transportation systems and transportation regulatory regimes for
state and local governments include Affiliated Computer Services (IMS division
recently acquired from Lockheed Martin), Transcore and Adesta Transportation.
LEGAL PROCEEDINGS
DMR is not a defendant in any material adverse legal proceedings. From
time to time, certain legal matters arise in the normal course of its business,
such as labor-related claims. Such matters are not anticipated to result in
material adverse claims against DMR.
REAL PROPERTY
DMR is primarily a service-oriented company, and the ownership or
leasing of real property is an activity that is not material to an understanding
of its operations. DMR leases numerous commercial facilities used in connection
with its provision of various services to its customers. None of these
properties is unique, all are expected to continue to be utilized in the
operation of DMR's business post-merger and they are believed by TekInsight
management to be adequate for the present needs of DMR's business.
FINANCING OBLIGATIONS
DMR is a guarantor of DynCorp's obligations under a Credit Agreement,
dated as of December 10, 1999 among DynCorp, Citicorp USA, Inc., certain other
lenders and other parties. This guaranty will be released upon consummation of
the merger with TekInsight.
DMR also owes monies to DynCorp for advances received under DynCorp's
cash management practices. Any amounts owed by DMR to DynCorp as of consummation
of the merger will be forgiven and capitalized on the financial records of DMR
at that time.
INTELLECTUAL PROPERTY
DMR holds no patents, copyrights, trademarks or service marks and does
not conduct any research and development activities. DMR uses certain business
process source code developed by a former subsidiary of DynCorp in connection
with performance under DMR's outsourcing services contract with the State of
Connecticut Department of Social Services for the provision of Non-Emergency
Transportation Services. This intellectual property is significant to DMR's
performance under the State of Connecticut contract. Information 1st, Inc., the
purchaser of the former DynCorp subsidiary, has delivered a copy of the source
code to DMR, with unlimited permission to use the source code at no charge and
with no time limit.
In addition, DMR uses certain other proprietary business process
technologies that it licenses from DynRide LLC, an affiliate of DynCorp,
pursuant to an inter-company agreement. The terms of
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DMR's continued use of the technologies will be set forth in the strategic
alliance agreement described in the section of this proxy statement entitled
"The Merger - Strategic Alliance Agreement", which begins on page __.
TekInsight management believes the identified intellectual property
licenses are adequate for the present needs of DMR's business.
ADDITIONAL OPERATIONAL CONSIDERATIONS
FIXED PRICE CONTRACTS. DMR derives a material portion of its revenue
from fixed-price contracts, based upon certain specified criteria. To the extent
that DMR accurately determines its projected costs under these contracts, it can
effectively estimate the ultimate profitability derived from the services
rendered. When experience under the contract indicates that such cost estimates
need to be revised, DMR has in the past and it may in the future revise its
estimate for costs of completion and profitability for its services.
POSSIBLE TERMINATION OF GOVERNMENT CONTRACTS. Typically, a government
contract has an initial term of one year combined with options to extend the
contract for one-year periods, exercisable at the discretion of the government
contracting entity. The government contracting entity is not obligated to
exercise its option to extend a contract. At completion of a government contract
and any optional extensions, the contract is again submitted for competitive bid
by eligible contractors, including DMR. Contracts between DMR and either
government contracting entities or their prime contractors, may also contain
standard provisions for termination at the convenience of the government or the
prime contractor. Rather than termination for convenience, contracts with state
and local governments typically provide for termination in the event the
contract is not funded in the future by the state or local legislature.
There is no assurance that terminations will not occur in DMR's
existing or future government contracts, and any such terminations could
adversely affect DMR's business.
NO ASSURANCE OF REVENUES UNDER INDEFINITE DELIVERY, INDEFINITE QUANTITY
CONTRACTS. Many government contracts, particularly those involving information
technology, are IDIQ contracts. An agency may award an IDIQ contract to one or
more contractors, but the award does not represent a firm order for services.
Instead the contractor(s) may then identify specific projects and propose to
perform the specified service for a potential customer covered by the IDIQ
contract, which customer may or may not decide to order the services. As a
result, a contracting party to an IDIQ contract cannot assure that it will
generate a specific level, in any revenue under such contract. One of DMR's
contracts with The Commonwealth of Virginia, under which DMR is authorized to
provide information technology services rather than NET services, is an IDIQ
contract.
RELIANCE ON A FEW LARGE CONTRACTS. DMR derives a substantial portion of
its revenues from a small number of contracts. The loss of one or more of these
contracts could have a significant adverse effect on DMR's ability to generate
revenue and achieve profitability. There can be no assurance that these
contracts will not be terminated by the other parties to the contracts or that
they will be renewed following their expiration.
REGULATORY REQUIREMENTS. DMR administers contracts for state agencies
for the provision of services that are partially funded under federal government
programs, such as Medicaid and other programs for the provision of services
under health, social services and related regulatory frameworks. The services
required by the state agency customer must comply with pertinent federal
regulations, as well as the social services regulations of the individual
contracting states. Such regulations may change during the course of DMR's
contract performance, and the scope of required services may increase or
decrease from time to time. State budgets and available federal funds may be
affected by such changes. Changes in regulations that reduce the scope of
services may adversely affect DMR's ability to generate
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revenue, and funding constraints that do not adapt to increased levels of
services could adversely affect DMR's ability to achieve profitability from
its contract performance.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DMR
The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of DMR's
results of operations and financial condition for the six months ended June 28,
2001 and June 29, 2000 and for the fiscal years ended 2000, 1999 and 1998. The
discussion should be read in conjunction with DMR's audited 2000, 1999 and 1998
financial statements and unaudited financial statements for the six-month
periods ending June 28, 2001 and June 29, 2000 appearing elsewhere in this proxy
statement.
RESULTS OF OPERATIONS
Information for the period to August 7, 2000 related to DMR's
predecessor, DynCorp Management Resources LLC.
DMR provides diversified services to agencies of state and local
governments within the United States, often covering functions that had been
performed by employees of such agencies. Services provided have included
management of the provision of non-emergency transportation to eligible
citizens, development of information system applications and enforcement of
child support programs. Significant customers have included government agencies
in Connecticut, Virginia, North Carolina, Illinois, Kansas, Arkansas,
Mississippi and California.
For the six months ended June 28, 2001 and June 29, 2000 and for the
each of the three years 1998 through 2000, one contract to manage the provision
of non-emergency medical transportation services in the State of Connecticut has
accounted for approximately 60% of revenue. The contract has been extended
through June 2002, with a slight increase in fees. The customer has indicated an
intent to offer the contract for new bid competition for the period following
June 2002.
On June 1, 2001, DMR commenced performance on a three-year, fixed-price
contract to provide non-emergency transportation coordination and management
services to the State of Illinois on a statewide basis. During the first four
days of operation, DMR experienced customer call volume through its call center
that was significantly higher than the customer's estimate and at a level that
could not be efficiently handled by DMR's personnel. On June 7, 2001, the
customer issued a notice of breach of contract. After negotiations with the
customer, an amendment to the contract was executed on June 14, 2001, permitting
DMR to stagger the phase-in of its services through out the state. This had the
effect of curing the notice of breach. DMR believes that the high call volume
resulted from a state letter to all transportation users that erroneously asked
all participants (not just those desiring to arrange transportation) to contact
DMR's call center. DMR has increased staffing and is considering alternatives
under the contract for recovering any increased costs resulting from the
incident. The staggered phase-in, as well as the higher start-up costs, has
resulted in lower revenue and profit in 2001 than previously planned. Phase-in
is expected to be complete by the end of October 2001.
On July 17, 2001, 50 Virginia-based transportation vendors, who
previously provided non-emergency medical transportation directly to the
Commonwealth, filed suit in the Circuit Court for the City of Petersburg,
Virginia, seeking to enjoin DMR and certain other companies that were recently
awarded similar non-emergency medical transportation contracts by the
Commonwealth from proceeding with the performance of such contacts. On September
17, 2001, the vendors voluntarily dismissed the litigation without prejudice.
Although the suit could be re-filed within 90 days, DMR believes that it has
meritorious defenses to all allegations in the lawsuit.
On August 1, 2001, DMR received a notification from the Commonwealth of
Virginia regarding certain alleged contract performance deficiencies under its
March 2001 contract with the Commonwealth for non-emergency medical
transportation brokerage services. The notice gives DMR until September 7,
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2001 to correct all such alleged deficiencies in order to avoid a possible
default termination. DMR has taken appropriate action to deal with the
various issues raised by the Commonwealth and the Commonwealth has notified
DMR that it is in substantial compliance with all material contractual terms,
except for five areas that need continued improvement. The Commonwealth has
given DMR until September 21, 2001 to fix those areas and DMR believes it
will be able to correct them prior to such date. DMR is also in the process
of notifying the Commonwealth regarding certain defenses and mitigating
circumstances that DMR believes bear upon the alleged deficiencies.
REVENUE
DMR's revenue for the six months ended June 28, 2001 were $14.58
million compared to $7.13 million and $13.63 million for the comparable period
in 2000, an increase of $0.95 million, or 7%. The increase primarily resulted
from the addition and ramp up of four new child support collection service
contracts in Kansas and North Carolina. These contracts contributed additional
revenue of $2.23 million in the six months ended June 28, 2001. Partially
offsetting the increase was the San Bernardino County California contract that
ended prior to 2001. This contract provided revenue of $1.03 million in the six
months ended June 29, 2000.
DMR's revenue increased by $2.22 million, or 9%, to $26.75 million in
2000 over revenue of $24.54 million for 1999. The primary cause of the increase
was from revenue generated from the State of Kansas contract to provide child
support services, commencing in 2000. The Connecticut non-emergency
transportation contract generated increased revenue, which was offset by a
decline on a Virginia contract, which was substantially completed in 1999.
DMR's revenue for 1999 increased by $6.48 million, or 36%, to $24.54
million in 1999 over revenue of $18.06 million for 1998. Two new contracts in
the State of Arkansas and new contracts in New Mexico and California contributed
to this increase, along with increased services provided under the Connecticut
non-emergency transportation contract.
COST OF SERVICES
DMR's cost of services for the six months ended June 28, 2001 was
$13.10 million, compared to $11.53 million for the comparable period in 2000, an
increase of $1.57 million or 14%. Cost of services for the six months ended June
28, 2001 were 90% of revenues as compared to 85% for the comparable 2000 period.
The decrease in margins resulted primarily from decreased margins on the
Connecticut transportation services contract and the loss of the San Bernardino
contract, which generated a 42% gross margin for the six months ended June 28,
2000.
DMR's cost of services for 2000 of $24.18 million, or 90% of revenues,
increased by $0.26 million over cost of services for 1999, which were 97% of
revenues. The improvement in gross margin on revenues in 2000 was primarily due
to period losses experienced on two contracts in 1999 that did not recur in
2000.
DMR's cost of services for 1999 of $23.92 million, or 97% of revenues,
increased by $8.20 million over cost of services for 1998, which were $15.72
million or 87% of revenues. The decrease in gross margin from revenues in 1999
was primarily due to losses experienced on two contracts in 1999 that were not
incurred in the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
DMR's selling, general and administrative expenses for the six months
ended June 28, 2001 were $1.72 million, as compared to $1.59 million in the
comparable 2000 period, an increase of $0.14 million, or 9%. The increase was
primarily due to an increase in divisional staff. Partially offsetting this
increase was a decrease in consultant expenses.
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DMR's selling, general and administrative expenses for 2000 increased
by $1.09 million, or 50%, over such costs incurred in 1999, to $3.28 million.
Contributing to this increase were an increase in management staff deemed
necessary to handle the expanding contract base, increased bid and proposal
costs, and legal fees incurred to favorably impact the resolution of disputes
related to 1999's loss contracts.
DMR's selling, general and administrative expenses increased by $0.13
million, or 6%, over such costs in 1998, to $2.19 million.
NET (LOSS) INCOME
DMR reported net loss of $0.28 million for the six months ended June
28, 2001 as compared to net income of $0.51 million in the same period in 2000.
The decrease in net income was due to higher selling, general and administrative
expenses, lower margins on the Connecticut transportation services contract and
the loss of the San Bernardino contract as noted above.
DMR reported a net loss of $0.74 million for 2000, after recovery of
$0.40 million on a Mississippi contract that partially offset losses recorded in
1999. The loss for 2000 reflects the fact that operating profits on in-process
contracts were insufficient to offset general and administrative expenses.
Additionally, reimbursement rates for the Connecticut non-emergency
transportation contract were insufficient to provide the necessary contribution
to DMR's gross margin. Negotiations are in process to improve the rates and
extend the term of this contract.
DMR reported a net loss of $1.58 million for 1999 and generated net
income of $0.26 million for 1998. Disputes with a subcontractor on a Mississippi
contract contributed to the 1999 loss, in an amount of over $1.5 million.
Insufficient rates, precipitated by faulty data provided by the customer prior
to submission of the bid, resulted in an operating loss on an Arkansas contract
of over $1.3 million. DMR's obligations on both contracts were completed in
2000.
WORKING CAPITAL, CASH FLOWS AND LIQUIDITY
Working capital, defined as current assets less current liabilities,
was $2.83 million at June 28, 2001, as compared with $2.44 million at December
28, 2000, an increase of $0.39 million. The increase was primarily due to higher
receivables and contracts in progress associated with the new medical
transportation contracts in Illinois and Virginia. Partially offsetting this
activity was an increase in accounts payable and payroll liabilities associated
with these two contracts. The ratio of current assets to current liabilities was
1.9 at June 28, 2001, compared to 2.0 at December 28, 2000.
Working capital was $2.44 million at December 28, 2000, an
insignificant change from $2.57 million at December 30, 1999. The ratio of
current assets to current liabilities was 2.0 at December 28, 2000, compared to
1.7 at December 30, 1999, due to faster collections from customers, which
facilitated the payment of subcontractor payables.
For the six months ended June 28, 2001, cash flows used in operations
was $0.59 million. Cash flows generated from operations for the six months ended
June 29, 2000 was $0.67 million. This reduction of $1.26 million was primarily
due to start up activities associated with the Illinois and Virginia contracts.
Cash flows from operations were $(0.45) million for 2000 as compared
with $(2.48) million for 1999, an improvement of $2.03 million. The improvement
reflects the reduction in net loss for 2000 as well as faster collection of
accounts receivable from customers. Cash flows from operations for 1999 of
$(2.48) million declined from $(0.82) million for 1998, primarily because of the
impact of 1999's losses.
DMR's negative cash flows have been funded by DynCorp, its parent
company. Advances from DynCorp from the inception of DMR through June 28, 2001,
totaled $6.87 million. The need for cash
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advances has been precipitated primarily by working capital required to
conduct new contracts and by operating losses.
DynCorp intends to continue funding the working capital requirements of
DMR unless the proposed merger of DMR with and into TekInsight's subsidiary is
consummated. The proposed merger of DMR with TekInsight will eliminate this
parent company support. However, the merger is contingent upon the combined
company securing a firm irrevocable financing commitment under which at least
$20 million of financing will be available to the combined entity following the
merger.
On July 17, 2001, 50 Virginia-based transportation vendors, who
previously provided non-emergency medical transportation directly to the
Commonwealth, filed suit in the Circuit Court for the City of Petersburg,
Virginia, seeking to enjoin DMR and certain other companies that were recently
awarded similar non-emergency medical transportation contracts by the
Commonwealth from proceeding with the performance of such contracts. On
September 17, 2001, the vendors voluntarily dismissed the litigation without
prejudice. Although the suit could be re-filed within 90 days, DMR believes that
it has meritorious defenses to all allegations in the lawsuit.
On August 1, 2001, DMR received a notification from the Commonwealth of
Virginia regarding certain alleged contract performance deficiencies under its
March 2001 contract with the Commonwealth for non-emergency medical
transportation brokerage services. The notice gives DMR until September 7, 2001
to correct all such alleged deficiencies in order to avoid a possible default
termination. DMR has taken appropriate action to deal with the various issues
raised by the Commonwealth and the Commonwealth has notified DMR that it is in
substantial compliance with all material contractual terms, except for five
areas that need continued improvement. The Commonwealth has given DMR until
September 21, 2001 to fix those areas and DMR believes it will be able to
correct them prior to such date. DMR is also in the process of notifying the
Commonwealth regarding certain defenses and mitigating circumstances that DMR
believes bear upon the alleged deficiencies. Loss of this contract could have a
material impact on DMR's financial position and results of operations.
FORWARD-LOOKING STATEMENTS
This and related sections of the proxy statement contain certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which are intended to be covered by the safe harbors created
thereby. Stockholders are cautioned that certain statements in this and related
sections of the proxy statement are "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and involve
known and unknown risks, uncertainties and other factors. Such uncertainties and
risks include, in addition to those discussed under the heading "Forward-Looking
Statements" on page 3 of this proxy statement, the early termination of, or
failure of a customer to exercise option periods under, a significant DMR
contract, technological change, the inability of DMR to manage its growth or to
execute its internal performance plan, the inability of DMR to integrate the
operations of acquisitions, and the inability of DMR to attract and retain the
technical and other personnel required to perform its contracts. Actual events,
circumstances, effects and results may be materially different from the results,
performance or achievements expressed or implied by the forward-looking
statements. Consequently, the forward-looking statements contained in this and
related sections of the proxy statement should not be regarded as
representations by TekInsight, DMR or any other person that the projected
outcomes can or will be achieved.
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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. We do not, however, believe that any of
these interests presents a material conflict of interest.
EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS
TekInsight is a party to employment agreements with Steven J. Ross,
James Linesch and Alexander Kalpaxis, each of which is discussed under the
heading "Employment Agreements" beginning on page 48 of the proxy statement.
INDEMNITY AGREEMENTS
TekInsight has entered into agreements which provide indemnification to
each of its directors and officers, to the fullest extent allowed under the
Delaware General Corporation 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.
NEW DIRECTORS
We anticipate that Messrs. Aspatore, Bookmeier and Testaverde will
resign as directors of TekInsight effective upon consummation of the merger. The
vacancies will be filled with nominees designated by DynCorp in accordance with
our by-laws, which new directors will thereafter serve until our next annual
meeting as Class B directors. The four current directors who remain on the board
following the merger will thereafter serve as directors elected solely by the
holders of the Class A common stock and the Series A preferred stock (the "Class
A directors"). We anticipate that DynCorp will nominate David L. Reichardt,
Marshall S. Mandell and Thomas R. Davies to serve as the initial Class B
directors. The business experience and present occupations of each of such
persons is as follows:
DAVID L. REICHARDT, age 58, has served as Senior Vice President and
General Counsel of DynCorp since 1986. He served as President of Dynaletric
Company, a former subsidiary of DynCorp, from 1984 to 1986 and as Vice President
and General Counsel of DynCorp from 1977 to 1984. He serves as a director of
DynCorp.
MARSHALL S. MANDELL, age 58, has served as Senior Vice President,
Corporate Development of DynCorp since 1998. He served as Vice President,
Business Development of DynCorp from 1994 to 1998. He also served as Acting
President of the Information & Engineering Technology strategic business unit of
DynCorp from 1997 to 1998. He served as Vice President, Business Development,
Applied Sciences Group of DynCorp from 1992 to 1994. He was Senior Vice
President, Eastern Computers, Inc. from 1991 to 1992 and President of the
Systems Engineering Group, Ogden/Evaluation Research Corporation from 1984 to
1991.
THOMAS R. DAVIES, 49, is currently and has been the Senior Vice
President-Products and Solutions for Current Analysis Incorporated, a market and
competitive intelligence services company, since December 1999. Prior to holding
that position, Mr. Davies was employed by Federal Sources, Inc. as Senior Vice
President for Internet Services from December 1998 to December 1999, and as Vice
President-State and Local Government Consulting from December 1995 to December
1998. Before
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joining Federal Sources, Inc., Mr. Davies was employed in various positions
by EDS Corporation, with the last such position being Senior Director for
State and Local Government Strategy.
EMPLOYMENT AGREEMENT WITH STEVEN J. ROSS
It is a condition to the merger that we enter into a new employment
agreement with Mr. Ross, on or before the closing of the merger, with at least a
term of three years. The revised agreement must be on terms that are reasonably
satisfactory to Mr. Ross and to DynCorp and must include an assignment by Mr.
Ross to TekInsight of any rights he may have in any intellectual property
developed while he is employed by TekInsight. This agreement is currently being
negotiated, and the most recent draft contemplates an annual base salary of
$400,000, an annual bonus of up to $200,000 (subject to the substantial
achievement of the future business plan and general business objectives of
TekInsight post-merger), forgiveness in 2002 of an outstanding loan in the
amount of $100,000, a one-time bonus of $175,000 (including $70,000 of loan
forgiveness), and a minimum of two-years advance notice in the event TekInsight
intends not to renew the agreement. We anticipate that the other terms of the
new employment agreement will be substantially similar to those of Mr. Ross's
present employment agreement.
OTHER RELATIONSHIPS
Damon Testaverde, a director of TekInsight, is a registered
representative of Network One Financial Services, Inc., the principal market
maker with respect to the securities of TekInsight.
MATERIAL CONTACTS WITH DMR
Neither TekInsight nor any of its subsidiaries is party, or has been
party during the prior two years, to any negotiations, transactions or material
contacts with DMR, DynCorp or any of their respective subsidiaries or
affiliates.
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PROPOSAL 3--2001 STOCK INCENTIVE PLAN
The board of directors of TekInsight adopted the 1992 Plan to help
TekInsight and its subsidiaries attract and retain highly capable officers,
directors and employees and selected key consultants, and to encourage them to
promote the growth and profitability of TekInsight and its subsidiaries.
2,000,000 shares of common stock are presently reserved for issuance under the
1992 Plan, 1,992,855 of which shares either have already been issued in
connection with the exercise of options or subject to unexercised options
previously granted by the board of directors.
We are soliciting your approval of our 2001 Plan. The purpose of the
2001 Plan is to cover future option grants to our officers, directors, key
employees and consultants, including those who join us as a result of the
merger, in order to provide an incentive for good performance. Our existing 1992
Plan will expire in June 2002, and we do not have sufficient shares available
under the 1992 Plan to accomplish this goal. If the 2001 Plan is not approved,
there will be an insufficient number of shares to cover future grants to
officers, employees, directors and consultants of TekInsight and the combined
entity following the merger to promote the best interests of the stockholders of
TekInsight. Although adoption of the 2001 Plan is not a condition to the merger,
it is an important component of our ability to incentivize the management of the
combined entity and, therefore, will constitute an important factor in our
ability to make the merger a success.
The 2001 Plan is attached to this proxy statement as Annex D. You are
encouraged to carefully read the 2001 Plan in its entirety.
THE FOLLOWING IS A SUMMARY DESCRIPTION OF THE MATERIAL FEATURES OF THE 2001
PLAN.
Under the proposed 2001 Plan, TekInsight may grant options to purchase
up to an aggregate of 2,000,000 shares of common stock, subject to adjustment
under specified circumstances, to officers, directors, key employees and
consultants of TekInsight and its majority-owned subsidiaries. We anticipate
that approximately seven directors and our anticipated officers and key
employees, of TekInsight and its majority owned subsidiaries, will be eligible
to receive options under the 2001 Plan. An indeterminate, but anticipated small
number, of consultants will be eligible to receive options under the 2001 Plan.
The total number of shares with respect to which options may be granted to any
one participant may not exceed 250,000 shares per calendar year.
The 2001 Plan provides for the grant of options that are intended to
qualify as incentive stock options ("ISOs"), under Section 422 of the Internal
Revenue Code, to key employees of TekInsight and its subsidiaries, as well as
the grant of non-qualifying options ("NQSOs") to officers, directors, key
employees and consultants of TekInsight and its subsidiaries.
The 2001 Plan is administered by the compensation committee, which will
consist solely of two or more non-employee outside directors. The compensation
committee will select the optionees and determine 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 2001 Plan may not
be less than the fair market value of the common stock on the date of grant, or
110% of the fair market value 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 NQSOs granted under the 2001 Plan may not be less than 85% of
the fair market value of the common stock on the date of grant. 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.
The maximum option term is ten years from the date of grant (or five
years for an ISO granted to an optionee beneficially owning more than 10% of the
outstanding common stock). The vesting
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schedule, which establishes when an option becomes exercisable, and the terms
of the options granted under the 2001 Plan will be determined on a
case-by-case basis by the compensation committee and provided in the
particular option agreement issued to an optionee. No option may be granted
more than ten years after the effective date of the 2001 Plan. Subject to the
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. To the extent required under SEC Rule 16b-3, options (or the
shares of common stock issued upon exercise of the options) must be held for
at least six months following the date of grant.
Payment for shares purchased under the 2001 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, or by a combination of common stock of TekInsight plus cash
equal to the total option exercise price.
If an optionee's employment with TekInsight terminates by reason of
death or disability, the optionee's options that are vested on the date of death
or disability shall terminate on the first anniversary of the optionee's date of
termination (unless otherwise stated), but not later than the date the option
would otherwise expire. If the optionee's employment terminates for any reason
other than death or disability, the optionee's options that are vested on the
date of termination may be exercised within three months after such termination
of employment (unless otherwise stated), but not later than the date the option
would otherwise expire. All of an optionee's options that are unvested as of the
optionee's date of termination will be forfeited (unless otherwise stated).
Additionally, notwithstanding the foregoing, an optionee's vested options may
not be exercised after termination of employment if the compensation committee
reasonably determines that the termination of employment of such optionee
resulted from willful acts or failure to act by the optionee that were
detrimental to TekInsight or any of its affiliates, or if the compensation
committee reasonably determines that the optionee competed with the business of
TekInsight prior to such termination of employment.
In the event of a merger or consolidation, liquidation or sale of all
or substantially all of the assets or stock of TekInsight, the compensation
committee must take any one or more of the following actions:
o Provide that all or any outstanding options will become fully
vested and exercisable in full prior to such event;
o Provide that all or any outstanding options will be assumed,
or substantially equivalent stock-based awards shall be
substituted, by the acquiring or succeeding corporation (or an
affiliate thereof); or
o In the event of a merger under the terms of which holders of
common stock will receive a cash payment for each share
surrendered in the merger, make or provide for a cash payment
for each option held by the optionees equal to the difference
between the merger price per share and the exercise price of
the options.
The board of directors and the compensation committee may amend or
terminate the 2001 Plan at any time, provided that they cannot, without prior
stockholder approval, increase the maximum number of shares reserved for
issuance pursuant to the 2001 Plan, increase the number of options that may be
granted per year per optionee, change the class of eligible optionees or modify
the 2001 Plan in a manner that requires stockholder approval under applicable
law. Unless previously terminated, the 2001 Plan will terminate automatically on
the tenth anniversary of the date of its adoption.
FEDERAL INCOME TAX CONSEQUENCES
This tax discussion is a general discussion of the principal tax
attributes of options awarded under the Plan based on the tax rules in effect on
the effective date of this filing. State and local income tax consequences are
not discussed, and may vary from locality to locality.
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NONQUALIFIED STOCK OPTIONS. A participant who is granted a NQSO will
not recognize any income at the time of grant, nor is TekInsight entitled to a
tax deduction at the time of grant. On the date a participant exercises the
NQSO, the participant will generally recognize ordinary income in an amount
equal to the excess of the fair market value of the shares on the date of
exercise over the option's exercise price. The holding period for capital gain
and loss purposes will begin on the date of exercise and the participant's basis
in the shares will equal the fair market value of the shares on the date of
exercise. When the participant disposes of shares acquired pursuant to a NQSO,
any gain or loss on the shares will be treated as long-term or short-term
capital gain, depending on the holding period of the shares.
Subject to Section 162(m) of the Internal Revenue Code (the "Code"),
which limits the deductibility of compensation in excess of $1,000,000 for
certain executive officers, TekInsight will be entitled to a deduction on the
date of exercise equal to the amount of ordinary income recognized by the
participant.
If the exercise price of a NQSO is paid by surrendering TekInsight
common stock, the Internal Revenue Service treats such exchange as if there were
two transactions. The first transaction is treated as a non-taxable exchange of
the previously-acquired common stock for an equal number of shares of new common
stock. The basis of the new shares will be the same basis as the shares
surrendered and the holding period of the new shares will include the holding
period of the shares surrendered. The second transaction concerns the number of
shares that the participant receives upon exercise of the option in excess of
the number of surrendered shares, i.e., the "additional shares." The participant
will recognize ordinary income upon the exercise equal to the fair market value
of these additional shares on the date of exercise, less any cash paid towards
the exercise price. The basis of the additional shares will be equal to their
fair market value on the date of exercise, and their holding period will begin
on that date.
INCENTIVE STOCK OPTIONS. A participant receiving an ISO will not be
subject to income tax upon either the grant of such option or, assuming the ISO
requirements are satisfied, its subsequent exercise. The spread between the
option's exercise price and the fair market value on the date of exercise will,
however, be included in the participant's alternative minimum taxable income for
purposes of determining the participant's liability, if any, for the alternative
minimum tax. If stock received on exercise of an ISO is disposed of in the same
year the option was exercised, and the amount realized is less than the stock's
fair market value at the time of exercise, the amount includable in alternative
minimum taxable income will be the amount realized upon the sale or exchange of
the stock, less the taxpayer's basis in the stock. If the participant holds the
shares acquired upon exercise for more than one year after exercise and two
years after grant, the difference between the amount realized on a subsequent
sale or other taxable disposition of the shares and the option's exercise price
will constitute long-term capital gain or loss at the time of sale.
If the participant disposes of the shares before the expiration of more
than one year after exercise and two years after grant, the participant will be
deemed to have made a "disqualifying disposition" of the shares. This will
require the participant to recognize ordinary income in the year of the
disposition in an amount equal to the difference between the exercise price and
the lesser of: (i) the fair market value of the shares on the date the ISO was
exercised; or (ii) the amount realized on the sale or exchange of the shares.
Additionally, if the sales price on the date of disposition exceeds the fair
market value of the shares on the exercise date, the sale will trigger capital
gain on such excess.
TekInsight will generally not be entitled to a federal income tax
deduction with respect to the grant or exercise of an ISO. However, in the event
of a disqualifying disposition, TekInsight will be entitled to a federal income
tax deduction in the year of the disqualifying disposition in an amount equal to
the ordinary income realized by the participant.
If the exercise price of an ISO is paid by surrendering TekInsight
common stock, the Internal Revenue Service treats such exchange as if there were
two transactions. The first transaction is treated as a non-taxable exchange of
the previously-acquired common stock for an equal number of shares of new
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common stock. The basis of the new shares will be the same basis as the
shares surrendered and the holding period will include the holding period of
the shares surrendered. The second transaction concerns the number of shares
that the participant receives upon exercise of the option in excess of the
number of surrendered shares, i.e., the "additional shares." No income or
gain is recognized on the receipt of these additional shares. However, the
basis of these additional shares will equal zero (I.E., the participant is
treated as having paid nothing for these shares). The holding period for the
additional shares begins on the date of the exchange. To take advantage of
this special rule, the participant cannot surrender common stock that has
been acquired through the exercise of an incentive stock option and which has
not been held for the requisite period.
WITHHOLDING TAXES. Whenever TekInsight proposes or is required to issue
or transfer shares of common stock under the Plan to a current or former
employee, TekInsight has the right to require the participant to remit to
TekInsight an amount sufficient to satisfy any federal, state and/or local
income and employment withholding tax requirements prior to the delivery of any
certificate for such shares or to take any other appropriate action to satisfy
such withholding requirements. Notwithstanding the foregoing and subject to such
rules established by TekInsight, TekInsight may permit a participant to satisfy
such obligation in whole or in part by electing to have TekInsight withhold
shares of common stock from the shares to which the participant is otherwise
entitled.
SECTION 162(m). Subject to certain exceptions, Section 162(m) of the
Code generally denies a publicly held corporation a deduction for federal income
tax purposes for compensation in excess of $1 million paid per year per person
to its chief executive officer and four other officers whose compensation is
required to be disclosed in its annual meeting proxy statements. Section 162(m)
deduction limits generally do not apply to compensation related to stock options
if the exercise price of the option equals or exceeds that stock's fair market
value on the date the option is granted, the options are granted under a plan
that states the maximum number of shares with respect to which options may be
granted to any participant during a specified period, and the plan under which
the options are granted is approved by stockholders and is administered by a
compensation committee comprised of outside directors. The 2001 plan is intended
to satisfy these requirements with respect to ISOs, and we intend to administer
the plan to satisfy these requirements with respect to NQSOs. In particular, to
the extent the compensation committee grants NQSOs that are intended to be
exempt from the deduction limits under Section 162(m), the compensation
committee will set the exercise price for such NQSOs at an amount that equals or
exceeds the fair market value of the stock on the date the option is granted.
If, however, any options granted to any of the officers described above are
deemed not to be exempt from the provisions of Section 162(m) and the officer's
non-exempt compensation, including such options, exceeds $1 million in any given
year, such excess amount would not be deductible by TekInsight.
Approval of the 2001 Plan will require the affirmative vote of holders
of a majority of the aggregate voting power of the outstanding shares of common
stock and Series A preferred stock present in person or represented by proxy at
the Special Meeting and entitled to vote on the proposal, voting together as a
single class. Holders of record of common stock are entitled to one vote per
share on this proposal. Holders of record of Series A preferred stock are
entitled to 2.5 votes per share on this proposal.
The board of directors of TekInsight recommends that all stockholders
of TekInsight vote "FOR" the 2001 Plan.
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INCORPORATION BY REFERENCE
TekInsight is incorporating by reference in this proxy statement the
following documents which have been previously filed with the Securities and
Exchange Commission:
1. Annual report for the fiscal year ended June 30, 2001. This
report contains:
o Audited consolidated balance sheets for TekInsight
and its subsidiaries as of June 30, 2001 and 2000;
o Audited consolidated statements of operations,
changes in stockholders' equity, and cash flows for
TekInsight and its subsidiaries for the fiscal years
ended June 30, 2001, 2000 and 1999;
o Management's discussion and analysis of TekInsight's
financial condition and results of operations for
applicable periods; and
o Quantitative and qualitative disclosures about
TekInsight's market risk, as applicable.
o Information required by Item 402 of Regulation S-K
concerning Executive Compensation.
A copy of our Annual Report for the fiscal year ended June 30, 2001 is
being delivered to you along with a copy of this proxy statement for your
review.
Representatives of our principal accountants for the current fiscal
year and most recently completed fiscal year are not expected to be present at
the Special Meeting, and as a result such representatives will not have the
opportunity to make a statement or to be available to respond to your questions.
WHERE YOU CAN FIND MORE INFORMATION
TekInsight and DynCorp, DMR's sole stockholder, 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.
In addition, we filed copies of the agreement and plan of
reorganization, the agreement and plan of merger and the stock option agreement
as exhibits to our Current Report on Form 8-K that was filed with SEC on May 2,
2001. You can obtain copies of these documents from the SEC as described above.
We will also provide you copies, free of charge, upon request. Our proposed
amended and restated certificate of incorporation is attached to this proxy
statement as Annex A, our proposed amended and restated by-laws are attached to
this proxy statement as Annex B, the opinion of our financial advisers is
attached to this proxy statement as Annex C, and our proposed 2001 stock
incentive plan is attached to this proxy statement as Annex D.
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ANNEX A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TEKINSIGHT.COM, INC.
Tekinsight.com, Inc., a Delaware corporation (the "Corporation"),
hereby certifies as follows:
1. The name of the corporation is Tekinsight.com, Inc. The original
certificate of incorporation of the Corporation (the "Original Certificate of
Incorporation") was filed with the Secretary of State of the State of
Delaware and adopted on May 12, 1989, under the name Universal Self Care,
Inc., restored and revived on July 24, 1991, and amended on October 21, 1992,
October 21, 1997, February 4, 1998 and November 30, 1999,
2. This Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") amends and restates in its entirety the
Corporation's Original Certificate of Incorporation and subsequent amendments
thereto and has been duly adopted in accordance with Sections 242 and 245 of
the General Corporation Law of the State of Delaware (the "DGCL") and
approved by the stockholders of the Corporation at a special meeting of
stockholders held on _____________ ____, 2001 and duly executed and
acknowledged by the officers of the Corporation in accordance with Section
103 of the DGCL.
3. At ____ a.m./p.m. on _________, 2001 (the "Effective Time"), each
share of the Corporation's common stock, $.0001 par value per share, issued
and outstanding immediately prior to the Effective Time (the "Old Common
Stock") shall be reclassified as and changed into one (1) validly issued,
fully paid and non-assessable share of Class A Common Stock, $0.0001 par
value per share (the "Class A Common Stock") authorized by paragraph (A) of
Article FOURTH of the Certificate of Incorporation, without any action by the
holder thereof (the "Reclassification"). Each Certificate that theretofore
represented a share or shares of Old Common Stock shall thereafter represent
that number of shares of Class A Common Stock into which the share or shares
of Old Common Stock represented by such certificates shall have been
reclassified.
4. The Original Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
FIRST: The name of the corporation is TekInsight.com, Inc.
SECOND: Its registered office and place of business in the State of
Delaware is to be located at 15 North Street in the Dover, Delaware 19901.
The Registered Agent in charge at such address is National Corporate
Research, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "DGCL").
FOURTH: A. Authorized Shares. The Corporation shall be authorized to
issue 100,000,000 shares of stock, of which (i) 85,000,000 shares shall be
shares of Class A Common Stock, par value $0.0001 per share (the "Class A
Common Stock"), and 15,000,000 shall be shares of Class B Common Stock, par
value $0.0001 per share (the "Class B Common Stock") (the Class A Common
A-1
Stock and the Class B Common Stock being collectively referred to herein as
the "Common Stock"), and (ii) 10,000,000 shares shall be shares of Preferred
Stock, par value $0.0001 per share (the "Preferred Stock").
B. Preferred Stock.
(1) The Preferred Stock may be issued from time to time in one
or more classes or series. The Board of Directors is hereby authorized to
provide for the issuance of shares of Preferred Stock in one or more classes
or series and, by filing a certificate pursuant to the DGCL (hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to
time the number of shares to be included in each such class or series, and to
fix the designations, voting powers (if any), privileges, preferences and
relative, participating, optional or other special rights of the shares of
each such class or series and the qualifications, limitations and
restrictions thereon. The authority of the Board of Directors with respect to
each class or series shall include, but not be limited to, determination of
the following:
(a) the designation of the class or series, which may be
by distinguishing number, letter or title;
(b) the number of shares of the class or series, which
number the Board of Directors may thereafter (except where otherwise provided
in the Preferred Stock Designation) increase or decrease (but not below the
number of shares thereof then outstanding) in the manner permitted by law;
(c) the rate of any dividends (or method of determining
the dividends) payable to the holders of the shares of such class or series,
any conditions upon which such dividends shall be paid and the date or dates
or the method for determining the date or dates upon which such dividends
shall be payable;
(d) whether dividends, if any, shall be cumulative or
noncumulative and, in the case of shares of any class or series having
cumulative dividend rights, the date or dates or method of determining the
date or dates from which dividends on the shares of such class or series
shall cumulate;
(e) if the shares of such class or series may be redeemed
by the Corporation, the price or prices (or method of determining such price
or prices) at which, the form of payment of such price or prices (which may
be cash, property or rights, including securities of the Corporation or of
another corporation or other entity) for which, the period or periods within
which and the other terms and conditions upon which the shares of such class
or series may be redeemed, in whole or in part, at the option of the
Corporation or at the option of the holder or holders thereof or upon the
happening of a specified event or events, if any, including the obligation,
if any, of the Corporation to purchase or redeem shares of such class or
series pursuant to a sinking fund or otherwise;
(f) the amount payable out of the assets of the
Corporation to the holders of shares of the class or series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(g) provisions, if any, for the conversion or exchange of
the shares of such class or series, at any time or times, at the option of
the holder or holders thereof or at the option of the Corporation or upon the
happening of a specified event or events, into shares of any other class or
classes or any other series of the same class of capital stock of the
A-2
Corporation or into any other security of the Corporation, or into the stock
or other securities of any other corporation or other entity, and the price
or prices or rate or rates of conversion or exchange and any adjustments
applicable thereto, and all other terms and conditions upon which such
conversion or exchange may be made;
(h) restrictions on the issuance of shares of the same
class or series or of any other class or series of capital stock of the
Corporation, if any; and
(i) the voting rights and powers, if any, of theholders of
shares of the class or series.
(2) 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
previously filed by the Corporation on August 11, 2000 pursuant to the DGCL
is incorporated by reference and remains in full force and effect; provided,
however, that each reference therein to shares of Common Stock, par value
$0.0001 per share, shall mean the Class A Common Stock.
C. Common Stock. The following is a statement of the
relative powers, preferences and participating, optional or other special
rights, and the qualifications, limitations and restrictions of the Class A
Common Stock and Class B Common Stock of the Corporation:
(1) Except as otherwise set forth below in this Article
FOURTH, the relative powers, preferences and participating, optional or other
special rights, and the qualifications, limitations or restrictions of the
Class A Common Stock and Class B Common Stock shall be identical in all
respects.
(2) Subject to the rights of the holders of Preferred Stock,
and subject to any other provisions of this Certificate of Incorporation,
holders of Class A Common Stock and Class B Common Stock shall be entitled to
receive such dividends and other distributions in cash, stock of any
corporation (other than Common Stock of the Corporation) or property of the
Corporation as may be declared thereon by the Board of Directors from time to
time out of assets or funds of the Corporation legally available therefor and
shall share equally on a per share basis in all such dividends and other
distributions. In the case of dividends or other distributions payable in
Common Stock, including distributions pursuant to stock splits or divisions
of Common Stock of the Corporation, only shares of Class A Common Stock shall
be paid or distributed with respect to Class A Common Stock and only shares
of Class B Common Stock shall be paid or distributed with respect to Class B
Common Stock. The number of shares of Class A Common Stock and Class B Common
Stock so distributed on each share shall be equal in number. Neither the
shares of Class A Common Stock nor the shares of Class B Common Stock may be
reclassified, subdivided or combined unless such reclassification,
subdivision or combination occurs simultaneously and in the same proportion
for each class.
(3) (a) At every meeting of the stockholders of the
Corporation, every holder of Common Stock shall be entitled to one vote in
person or by proxy for each share of Common Stock standing in his, her or its
name on the transfer books of the Corporation. Except as may be otherwise
required by law or by this Certificate of Incorporation, the holders of Class
A Common Stock and Class B Common Stock shall vote together as a single class
and their votes shall be counted and totaled together, subject to any voting
rights which may be granted to holders of Preferred Stock, on all matters
submitted to a vote of stockholders of the Corporation; provided, however,
that so long as the holders of Class B Common Stock shall have the right to
nominate and elect\
A-3
the Class B Directors (as defined below) as provided in Article FOURTH,
paragraph D below, such holders shall not have the right to vote on the
election of directors of the Corporation other than the Class B Directors.
Notwithstanding any other provision of this Certificate of Incorporation to
the contrary, holders of Class A Common Stock shall not be eligible to vote
on any alteration or change in the powers, preferences or special rights of
the Class B Common Stock that would not adversely affect the rights of the
Class A Common Stock; provided that, for the foregoing purposes, any
provision for the voluntary, mandatory or other conversion or exchange of the
Class B Common Stock into or for Class A Common Stock on a one for one basis
shall be deemed not to adversely affect the rights of the Class A Common
Stock.
(b) Except as otherwise provided by law, and subject to
any rights of the holders of Preferred Stock, the provisions of this
Certificate of Incorporation shall not be modified, revised, altered or
amended, repealed or rescinded in whole or in part, without the approval of a
majority of the votes entitled to be cast by the holders of the Class A
Common Stock and the Class B Common Stock, voting together as a single class
(except as otherwise provided in paragraph (C)(3)(a) above); provided,
however, that with respect to any proposed amendment of this Certificate of
Incorporation which would alter or change the powers, preferences or special
rights of the shares of Class A Common Stock or Class B Common Stock so as to
affect them adversely, the approval of a majority of the votes entitled to be
cast by the holders of the shares affected by the proposed amendment, voting
separately as a class, shall be obtained in addition to the approval of a
majority of the votes entitled to be cast by the holders of the Class A
Common Stock and the Class B Common Stock voting together as a single class
as hereinbefore provided. To the fullest extent permitted by law, any
increase in the authorized number of shares of any class or classes of stock
of the Corporation or creation, authorization or issuance of any securities
convertible into, or warrants, options or similar rights to purchase, acquire
or receive, shares of any such class or classes of stock shall be deemed not
to affect adversely the powers, preferences or special rights of the shares
of Class A Common Stock or Class B Common Stock.
(c) Every reference in this Certificate of Incorporation
to amajority or other proportion of shares, or a majority or other proportion
of the votes of shares, of Common Stock, Class A Common Stock or Class B
Common Stock shall refer to such majority or other proportion of the votes to
which such shares of Common Stock, Class A Common Stock or Class B Common
Stock are entitled.
(d) At any meeting of stockholders, the presence in person
or by proxy of the holders of a majority of the voting power of the shares of
the Corporation issued and outstanding and entitled to vote on every matter
that is to be voted on at such meeting shall constitute a quorum.
(4) In the event of any dissolution, liquidation or winding up of
the affairs of the Corporation, whether voluntary or involuntary, after payment
in full of the amounts required to be paid to the holders of Preferred Stock,
the remaining assets and funds of the Corporation shall be distributed pro rata
to the holders of Common Stock, and the holders of Class A Common Stock and the
holders of Class B Common Stock will be entitled to receive the same amount per
share in respect thereof. For purposes of this paragraph (C)(4), the voluntary
sale, conveyance, lease, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the assets of
the Corporation or a consolidation or merger of the Corporation with one or more
other corporations (whether or not the Corporation is the corporation surviving
such consolidation or merger) shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary.
(5) Except as shall otherwise be approved by a majority of the
votes entitled to be cast by the holders of each class of Common Stock voting
separately as a class, in case of any reorganization or any consolidation of
the Corporation with one or more other corporations or a merger
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of the Corporation with another corporation in which shares of Class A Common
Stock or Class B Common Stock are converted into (or entitled to receive with
respect thereto) shares of stock and/or other securities or property
(including cash), each holder of a share of Class A Common Stock shall be
entitled to receive with respect to such share the same kind and amount of
shares of stock and other securities and property (including cash) receivable
upon such reorganization, consolidation or merger by a holder of a share of
Class B Common Stock and each holder of a share of Class B Common Stock shall
be entitled to receive with respect to such share the same kind and amount of
shares of stock and other securities and property (including cash) receivable
upon such reorganization, consolidation or merger by a holder of a share of
Class A Common Stock. In the event that the holders of Class A Common Stock
(or of Class B Common Stock) are granted rights to elect to receive one of
two or more alternative forms of consideration, the foregoing provision shall
be deemed satisfied if holders of Class A Common Stock and holders of Class B
Common Stock are granted substantially identical election rights.
(6) (a) Upon the request of a holder of Class B Common Stock
or upon the voluntary or involuntary sale, exchange, assignment, transfer,
attempted transfer, devise, bequest, or other disposal, or pledge,
hypothecation, or other encumbrance (each, a "Transfer") of shares of Class B
Common Stock other than a Transfer of shares of Class B Common Stock
representing a majority of the shares of Class B Common Stock outstanding at
such time in a single transaction, such shares of Class B Common Stock so
requested to be converted or so Transferred shall be automatically converted
to shares of Class A Common Stock, on a one share to one share basis;
provided, however, that if a majority of the shares of Class B Common Stock
initially outstanding are converted to shares of Class A Common Stock, the
remaining outstanding shares of Class B Common Stock shall be automatically
converted to shares of Class A Common Stock on a one share to one share basis
(any conversion of shares of Class B Common Stock to shares of Class A Common
Stock is referred to herein as a "Conversion"). At the time of a Conversion,
the record holder of the shares of Class B Common Stock to be converted shall
deliver to the principal office of the Corporation or any transfer agent for
shares of the Class A Common Stock (i) the certificate or certificates
representing the shares of Class B Common Stock to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer and (ii)
written notice to the Corporation specifying the number of shares of Class B
Common Stock to be converted into shares of Class A Common Stock and stating
the name or names (with addresses) and denominations in which the certificate
or certificates representing the shares of Class A Common Stock issuable upon
such Conversion are to be issued and including instructions for the delivery
thereof. Notwithstanding the foregoing sentence, conversion shall be deemed
to have been effected at the time specified in the request for Conversion or
upon the Transfer, as the case may be, and as of such time each person named
in such written notice as the person to whom a certificate representing
shares of Class A Common Stock is to be issued shall be deemed to be the
holder of record of the number of shares of Class A Common Stock to be
evidenced by that certificate. Delivery of such certificates and such written
notice shall obligate the Corporation to issue such shares of Class A Common
Stock, and thereupon the Corporation or its transfer agent shall promptly
issue and deliver at such stated address to such record holder of shares of
Class A Common Stock a certificate or certificates representing the number of
shares of Class A Common Stock to which such record holder is entitled by
reason of such Conversion, and shall cause such shares of Class A Common
Stock to be registered in the name of such record holder.
(b) Upon any conversion of shares of Class B Common Stock
into shares of Class A Common Stock pursuant to the provisions of this
paragraph, any dividend for which the record date or payment date shall be
subsequent to such conversion and/or which may have been declared on the
shares of Class B Common Stock so converted, shall be deemed to have been
declared, and shall be payable, with respect to the shares of Class A Common
Stock into or for which such shares of Class B Common Stock shall have been
so converted, and any such dividend which shall have been declared on such
shares payable in shares of Class B Common Stock shall be deemed to have been
declared, and shall be payable, in shares of Class A Common Stock.
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(c) The Corporation shall at all times reserve and keep
available, out of its authorized but unissued Common Stock, such number of
shares of Class A Common Stock as would become issuable upon the conversion
of all shares of Class B Common Stock then outstanding. The Corporation
covenants that all of the shares of Class A Common Stock so issuable shall,
when so issued, be duly and validly issued, fully paid and non-assessable and
free from liens and charges, other than those created by the holder thereof.
The Corporation shall take all action as may be necessary to ensure that all
such shares of Class A Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirements of any national
securities exchange upon which the shares of Class A Common Stock are or may
be listed, or of any inter-dealer quotation system of a registered national
securities association upon which the shares of Class A Common Stock are or
may be listed.
(d) The Corporation will not be required to pay any
documentary, stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of shares of Class A Common Stock on the conversion of
shares of Class B Common Stock, and no such issue or delivery shall be
made unless and until the person effecting such transfer has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
D. Class B Common Stock. As long as there are outstanding shares of
Class B Common Stock that represent five percent (5%) or more of all
outstanding shares of Common Stock of the Corporation, holders of Class B
Common Stock shall have the following rights in addition to any rights
provided by the DGCL:
(1) Any amendment, alteration, change or repeal, direct or
indirect, of this Article FOURTH, paragraph D shall require the affirmative
vote of the holders of shares of not less than a majority of the voting power
of the Class B Common Stock of the Corporation, voting together as one class.
(2) Holders of Class B Common Stock, voting as a single class,
shall have the right to nominate and elect such proportion of the total
number of members of the Board of Directors as the total number of
outstanding shares of the Class B Common Stock represents to the total number
of outstanding shares of all Common Stock; provided, that, any fractional
amount in the number of directors to be elected by the holders of the Class B
Common Stock resulting from the foregoing calculation shall be rounded up to
the nearest whole number, based on the fractional amount involved (the "Class
B Directors"); provided, however, that in no event shall the Class B
Directors constitute a majority of the directors then in office. Any vacancy
relating to a Class B Director shall be filled by a majority vote of the
remaining Class B Directors or a nominee selected by holders of a majority of
the voting power of Class B Common Stock.
(3) Holders representing a majority of the voting power of the
outstanding Class B Common Stock shall have the right to call a special
meeting of stockholders.
(4) Except as specified in Article FOURTH, Section C(3)(a) or
clauses (1) - (3) above and any other matters as to which holders of Class B
Common Stock have the right to vote separately as a class under the DGCL,
holders of Class B Common Stock shall have the right to vote on any matter as
to which holders of Class A Common Stock have the right to vote. With regard
to any such matter, holders of Class B Common Stock shall vote together with
holders of Class A Common Stock as a single class.
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FIFTH: A. Stockholder Meetings.
(1) Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. An annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as may come before the meeting shall be
held at such time and place as shall be determined in accordance with the
Bylaws. Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws.
(2) Except as otherwise required by law and subject to the rights
of the holders of any class or series of stock having a preference over the
Common Stock as to dividends or distributions upon liquidation, special
meetings of stockholders of the Corporation of any class or series for any
purpose or purposes may be called only by:
(a) the Chairman of the Board of Directors;
(b) the Vice-Chairman of the Board of Directors;
(c) the President of the Corporation;
(d) a majority of the Board of Directors; or
(e) holders of a majority of the voting power of Class B Common
Stock pursuant to Article FOURTH, paragraph D.
B. Written Consent. Except as may be otherwise provided in a
resolution or resolutions providing for any class or series of stock other
than Common Stock with respect to action by written consent by holders of
such class or series of stock, any action required or permitted to be taken
at any annual or special meeting of the stockholders may be effected by
written consent of such stockholders pursuant to Section 228 of the DGCL.
SIXTH: A. Powers of the Board of Directors. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, which shall be constituted as provided in this Article and as
provided by law.
B. Number of Directors. The Board of Directors shall initially
consist of seven (7) directors, which number of directors may be increased or
decreased from time to time pursuant to a resolution adopted by the
affirmative vote of a majority of the entire Board of Directors, including at
least one Class B Director, if any.
C. Removal of non-Class B Directors. Any director, other than a
Class B Director, may be removed from office at any time, only for cause (as
defined by the Corporation's Bylaws), by the affirmative vote of the holders
of at least eighty percent (80%) of the votes entitled to be cast by the
Common Stock.
D. Removal of Class B Directors. Any Class B Director may be
removed from office at any time, with or without cause (as defined by the
Corporation's Bylaws), by the affirmative vote of the holders of at least
eighty percent (80%) of the votes entitled to be cast by the Class B Common
Stock.
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E. Meetings of the Board of Directors. Meetings of the Board
of Directors may be held within or without the State of Delaware, as the
Bylaws may provide.
SEVENTH: A director of the Corporation shall, to the maximum extent
permitted by the laws of the State of Delaware, as now or hereafter in
effect, have no personal liability to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
The Corporation shall indemnify its directors and officers to the fullest
extent authorized or permitted by law, as now or hereafter in effect, and
such right to indemnification shall continue as to a person who has ceased to
be a director or officer of the Corporation and shall inure to the benefit of
his or her heirs, executors and personal and legal representatives; provided,
however, that, except for proceedings to enforce rights to indemnification,
the Corporation shall not be obligated to indemnify any director or officer
(or his or her heirs, executors or personal or legal representatives) in
connection with a proceeding (or part thereof) initiated by such person
unless such proceeding (or part thereof) was authorized or consented to by
the Board of Directors. The right to indemnification conferred by this
Article SEVENTH shall include the right to be paid by the Corporation the
expenses incurred in defending or otherwise participating in any proceeding
in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement
of expenses to employees and agents of the Corporation similar to those
conferred in this Article SEVENTH to directors and officers of the
Corporation.
The rights to indemnification and to the advance of expenses conferred in
this Article SEVENTH shall not be exclusive of any other right which any
person may have or hereafter acquire under this Certificate of Incorporation,
the Bylaws of the Corporation, any statute, agreement, vote of stockholders
or disinterested directors or otherwise.
Any repeal or modification of this Article SEVENTH by the stockholders of
the Corporation shall not adversely affect any rights to indemnification and
to the advancement of expenses or other protection of a director, officer,
employee or agent of the Corporation existing at the time of such repeal or
modification with respect to any acts or omissions occurring prior to such
repeal or modification.
Any repeal or modification of the laws of the State of Delaware, as now
or hereafter in effect, shall not adversely affect any rights to
indemnification and to the advancement of expenses or other protection of a
director, officer, employee or agent of the Corporation existing at the time
of such repeal or modification with respect to any acts or omissions
occurring prior to such repeal or modification.
EIGHTH: A. Certain Acknowledgments. The provisions of this Article EIGHTH
shall regulate and define the conduct of certain of the business and affairs
of the Corporation in relation to any Significant Stockholder and Affiliated
Companies (as defined below in this Article EIGHTH) thereof, in recognition
and anticipation that:
(1) the directors, officers and/or employees of a Significant
Stockholder or of Affiliated Companies thereof may serve as directors and/or
officers of the Corporation;
(2) the Significant Stockholder and the Affiliated Companies
thereof engage, are expected to continue to engage, and may in the future
engage in the same, similar or related lines of business as those in which
the Corporation, directly or indirectly, may engage and/or other
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business activities that overlap with or compete with those in which the
Corporation, directly or indirectly, may engage;
(3) the Corporation and Affiliated Companies thereof will or
may engage in material business transactions with the Significant Stockholder
and Affiliated Companies thereof; and
(4) as a consequence of the foregoing, it is in the best
interests of the Corporation that the respective rights and duties of the
Corporation, the Significant Stockholder and the Affiliated Companies of
each, and the duties of any directors or officers of the Corporation who are
also or have been directors, officers or employees of the Significant
Stockholder or Affiliated Companies thereof, be determined and delineated in
respect of any agreements, arrangements or transactions between, or
opportunities that may be suitable for both, the Corporation and Affiliated
Companies thereof, on the one hand, and the Significant Stockholder and
Affiliated Companies thereof, on the other hand.
Any person or entity purchasing or otherwise acquiring any interest in
shares of capital stock of the Corporation shall be deemed to have notice of
and consented to the provisions of this Article EIGHTH.
The provisions of this Article EIGHTH are in addition to, and not in
limitation of, the provisions of the DGCL and the other provisions of this
Certificate of Incorporation. Any agreement, arrangement, transaction or
business relationship which does not comply with the procedures set forth in
this Article EIGHTH shall not by reason thereof be deemed void or voidable or
result in any breach of any fiduciary duty or duty of loyalty or failure to
act in good faith or in the best interests of the Corporation or derivation
of any improper personal benefit, but shall be governed by the provisions of
this Certificate of Incorporation, the Bylaws, the DGCL and other applicable
law.
B. Certain Agreements, Arrangements and Transactions Permitted; Certain
Fiduciary Duties of Certain Stockholders, Directors and Officers. The
Corporation may from time to time enter into and perform, and cause or permit
any Affiliated Company of the Corporation to enter into and perform, one or
more agreements (or modifications or supplements to pre-existing agreements),
arrangements or transactions with the Significant Stockholder or Affiliated
Companies thereof pursuant to which the Corporation or an Affiliated Company
thereof, on the one hand, and the Significant Stockholder or an Affiliated
Company thereof, on the other hand, agree to or do engage in transactions of
any kind or nature with each other or with Affiliated Companies thereof
and/or agree to or do compete, or refrain from competing or limit or restrict
their competition, with each other, including allocating and causing their
respective directors, officers and employees (including any who are or have
been directors, officers or employees of both) to allocate opportunities
between or to refer opportunities to each other. No such agreement,
arrangement or transaction shall be considered void or voidable solely (i)
due to the nature of the parties thereto or due to the existence of
circumstances as described in paragraph (A) of this Article EIGHTH or (ii)
because any one or more of the officers or directors of the Corporation who
are also or have been directors or officers of the Significant Stockholder or
any Affiliated Companies thereof are present at or participate in the meeting
of the Board of Directors or committee thereof which authorizes the
agreement, arrangement or transaction, or solely because his or their votes
are counted for such purpose. No such agreement, arrangement or transaction
or the performance thereof by the Corporation or the Significant Stockholder
or any Affiliated Company thereof shall be considered (i) contrary to any
fiduciary duty or duty of loyalty that the Significant Stockholder or any
Affiliated Company thereof may owe to the Corporation or any Affiliated
Company thereof or to any stockholder or other owner of an equity interest in
the Corporation by reason of the Significant Stockholder or any Affiliated
Company thereof being a Significant Stockholder of the Corporation or
participating in control of the Corporation or any Affiliated Company thereof
or (ii) contrary to any fiduciary duty or duty of loyalty of any director or
officer of the Corporation who is also or has been a director, officer or
employee of the Significant Stockholder or any Affiliated Company thereof to
the Corporation or such Affiliated Company or any stockholder or other owner
of an equity interest therein. In addition, with respect to any such
agreement, arrangement or transaction, the directors and officers of the
Corporation who are also or have been directors and officers of the
Significant Stockholder or any Affiliated
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Company thereof (i) shall have fully satisfied their fiduciary duties to the
Corporation and the stockholders, (ii) shall be deemed to have acted in good
faith and in a manner such persons reasonably believe to be in and not
opposed to the best interests of the Corporation and (iii) shall be deemed
not to have breached their duties of loyalty to the Corporation and its
stockholders and not to have derived an improper personal benefit therefrom,
if any of the following conditions shall have been satisfied:
(1) such agreement, arrangement or transaction shall have been
approved (a) by the Board of Directors by the affirmative vote of a majority
of the directors (even though less than a quorum) who are not Interested
Persons (as defined below in this Article EIGHTH) in respect of such
agreement, arrangement or transaction or (b) by a committee of the Board of
Directors constituted solely of directors who are not Interested Persons in
respect of such agreement, arrangement or transaction by the affirmative vote
of a majority of the members of such committee or (c) by one or more officers
or employees of the Corporation (including officers or employees of the
Corporation acting as directors, officers, trustees, partners or members of,
or in any similar capacity on behalf of, any Affiliated Company of the
Corporation) who in each case is not an Interested Person in respect of such
agreement, arrangement or transaction and to whom the authority to approve
such agreement, arrangement or transaction has been delegated either by the
Board of Directors by the same affirmative vote required by paragraph
(B)(1)(a) of this Article EIGHTH for approval of such agreement, arrangement
or transaction by the Board of Directors or by a committee of the Board of
Directors constituted as provided by and acting by the same affirmative vote
as required by paragraph (B)(1)(b) of this Article EIGHTH for approval of
such agreement, arrangement or transaction by such committee or, in the case
of an employee, to whom such authority has been delegated by an officer to
whom authority to approve such agreement, arrangement or transaction has been
so delegated; provided, however, that, before approval of such agreement,
arrangement or transaction, the material facts of the relationship between
the Corporation or such Affiliated Company thereof, on the one hand, and the
Significant Stockholder or such Affiliated Company thereof, on the other
hand, and the material terms and facts as to such agreement were disclosed to
or were known by the members of the Board of Directors or of such committee
or the officer or officers or employee or employees who acted on approval of
such agreement, arrangement or transaction, as the case may be; or
(2) such agreement, arrangement or transaction was fair to the
Corporation as of the time it was entered into by the Corporation; or
(3) such agreement, arrangement or transaction was approved by
the affirmative vote of the holders of a majority of the voting power of the
shares of capital stock of the Corporation entitled to vote thereon and who
do vote thereon, exclusive of the Significant Stockholder and any Affiliated
Company thereof and any Interested Person in respect of such agreement,
arrangement or transaction; or
(4) in the case of any such agreement, arrangement or
transaction that did not satisfy the requirements of clause (1), (2) or (3)
of this paragraph (B), such agreement, arrangement or transaction shall have
been approved or ratified by (a) the Board of Directors of the Corporation by
the affirmative vote of a majority of the directors (even though less than a
quorum) who are not Interested Persons in respect of such agreement,
arrangement or transaction or (b) by a committee of the Board of Directors
constituted solely of directors who are not Interested Persons in respect of
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such agreement, arrangement or transaction by the affirmative vote of a
majority of the members of such committee or (c) by one or more officers or
employees of the Corporation (including officers or employees of the
Corporation acting as directors, officers, trustees, partners or members of,
or in any similar capacity on behalf of, any Affiliated Company of the
Corporation) who in each case is not an Interested Person in respect of such
agreement, arrangement or transaction and to whom the authority to approve
such agreement, arrangement or transaction has been delegated either by the
Board of Directors by the same affirmative vote required by paragraph
(B)(4)(a) of this Article EIGHTH for approval of such agreement, arrangement
or transaction by the Board of Directors or a committee of the Board of
Directors constituted as provided by and acting by the same affirmative vote
as required by paragraph (B)(4)(b) of this Article EIGHTH for approval of
such agreement, arrangement or transaction by such committee or, in the case
of an employee, to whom such authority has been delegated by an officer to
whom authority to approve such agreement, arrangement or transaction has been
so delegated; provided, however, that, before such approval or ratification,
the material facts of the relationship between the Corporation or such
Affiliated Company thereof, on the one hand, and the Significant Stockholder
or such Affiliated Company thereof, on the other hand, and the material facts
as to such agreement, arrangement or transaction were disclosed to or were
known by the members of the Board of Directors or of such committee or the
officer or officers or employee or employees who acted on approval or
ratification of such agreement, arrangement or transaction, as the case may
be; or
(5) in case of any such agreement, arrangement or transaction
that did not satisfy the requirements of clause (1), (2), (3) or (4) of this
paragraph (B), such agreement, arrangement or transaction was approved or
ratified by the affirmative vote of the holders of a majority of the voting
power of capital stock of the Corporation entitled to vote thereon and who do
vote thereon, exclusive of the Significant Stockholder and any Affiliated
Company thereof and any Interested Person in respect of such agreement,
arrangement or transaction.
Neither the Significant Stockholder nor any Affiliated Company thereof, as
a stockholder of the Corporation or participant in control of the Corporation,
shall have or be under any fiduciary duty or duty of loyalty to refrain from
entering into any agreement or participating in any agreement, arrangement or
transaction that meets the requirements of any of clauses (1), (2), (3), (4) or
(5) of this paragraph (B) and no director, officer or employee of the
Corporation who is also or has been a director, officer or employee of the
Significant Stockholder or any Affiliated Company thereof shall have or be under
any fiduciary duty or duty of loyalty to the Corporation to refrain from acting
on behalf of the Corporation or any Affiliated Company thereof in respect of any
such agreement, arrangement or transaction or performing any such agreement,
arrangement or transaction in accordance with its terms. The failure of any
agreement, arrangement or transaction between the Corporation or an Affiliated
Company thereof, on the one hand, and the Significant Stockholder or an
Affiliated Company thereof, on the other hand, to satisfy the requirements of
this Article EIGHTH shall not, by itself, cause such agreement, arrangement or
transaction to constitute any breach of any fiduciary duty or duty of loyalty to
the Corporation or to any Affiliated Company thereof, or to any stockholder or
other owner of an equity interest therein, by the Significant Stockholder or
such Affiliated Company thereof or by any director or officer of the
Corporation, the Significant Stockholder or any of their respective Affiliated
Companies.
Directors of the Corporation who are also or have been directors,
officers or employees of the Significant Stockholder or an Affiliated Company
may be counted in determining the presence of a quorum at a meeting of the
Board of Directors or of a committee which authorizes the agreement,
arrangement or transaction. Common Stock owned by the Significant Stockholder
and any Affiliated Companies may be counted in determining the presence of a
quorum at a meeting of stockholders which authorizes the agreement,
arrangement or transaction.
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The Corporation may from time to time enter into and perform, and cause
or permit any Affiliated Company of the Corporation to enter into and perform
one or more agreements (or modifications or supplements of pre-existing
agreements), arrangements or transactions with one or more officers or
directors of the Corporation. With respect to any such agreement, arrangement
or transaction, any director or officer of the Corporation party thereto (i)
shall have fully satisfied his or her fiduciary duties to the Corporation and
the stockholders, (ii) shall be deemed to have acted in good faith and in a
manner such persons reasonably believe to be in and not opposed to the best
interests of the Corporation and (iii) shall be deemed not to have breached
his or her duties of loyalty to the Corporation and its stockholders and not
to have derived an improper personal benefit therefrom, if any of the
conditions specified in clauses (1), (2), (3), (4) or (5) of this paragraph
B, have been satisfied with respect to such agreement, arrangement or
transaction. The failure of any agreement, arrangement or transaction between
the Corporation or an Affiliated Company thereof, on the one hand, and any
officers or directors of the Corporation, on the other hand, to satisfy the
requirements of this Article EIGHTH shall not, by itself, cause such
agreement, arrangement or transaction to constitute any breach of any
fiduciary duty or duty of loyalty to the Corporation or to any Affiliated
Company thereof, or to any stockholder or other owner of an equity interest
therein, by any director or officer of the Corporation, the Significant
Stockholder or any of their respective Affiliated Companies.
For purposes of this Article EIGHTH, any agreement, arrangement or
transaction with any corporation, partnership, joint venture, association or
other entity in which the Corporation owns (directly or indirectly) fifty
percent or more of the outstanding voting stock, voting power, partnership
interests or similar ownership interests, or with any officer or director
thereof, shall be deemed to be an agreement, arrangement or transaction with
the Corporation.
C. Corporate Opportunities.
(1) The Significant Stockholder and its Affiliated Companies
shall have no fiduciary duty, duty of loyalty or other duty not to (i) engage
in the same or similar activities or lines of business as the Corporation,
(ii) do business with any client or customer of the Corporation or (iii)
employ or otherwise engage any officer or employee of the Corporation, and
none of the Significant Stockholder nor its Affiliated Companies nor any
officer or director thereof shall be liable to the Corporation or its
stockholders or other owner of an equity interest therein for breach of any
fiduciary duty or duty of loyalty by reason of any such activities of the
Significant Stockholder or any Affiliated Company thereof or of such person's
participation therein. In the event that the Significant Stockholder or any
Affiliated Company thereof acquires knowledge of a potential transaction or
matter which may be a corporate opportunity for both the Significant
Stockholder or any Affiliated Company thereof and the Corporation, neither
the Significant Stockholder nor its Affiliated Companies nor any officer or
director thereof (even if such officer or director is also an officer or
director of the Corporation) shall have any duty to communicate or present
such corporate opportunity to the Corporation and shall not be liable to the
Corporation or its stockholders or other owner of an equity interest therein
for breach of any fiduciary duty or duty of loyalty by reason of the fact
that the Significant Stockholder or any Affiliated Company thereof pursues or
acquires such corporate opportunity for itself or the Significant Stockholder
or any of its Affiliated Companies or any officer or director thereof (even
if such officer or director is also an officer or director of the
Corporation) directs such corporate opportunity to another person or does not
present such corporate opportunity to the Corporation.
(2) For the purposes of this Article EIGHTH,
"corporate opportunities" shall include, but not be limited to, business
opportunities which the Corporation is financially able to undertake, which are,
from their nature, in the line of the Corporation's business, are of practical
advantage to it and are ones in which the Corporation has an interest or a
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reasonable expectancy, and in which, by embracing the opportunities, the
self-interest of the Significant Stockholder or any Affiliated Company or its
officers or directors, will be brought into conflict with that of the
Corporation.
(3) If any agreement, arrangement or transaction between the
Corporation and the Significant Stockholder and any Affiliated Company
involves a corporate opportunity and is approved in accordance with the
procedures set forth in paragraph (B) of this Article EIGHTH, the officers
and directors of the Corporation, the Significant Stockholder and any
Affiliated Company and their officers and directors shall (even if such
officers and directors are also officers and directors of the Corporation)
also for the purposes of this Article EIGHTH and the other provisions of this
Certificate of Incorporation and the provisions of the By-laws (a) have fully
satisfied and fulfilled their fiduciary duties to the Corporation and its
stockholders or other owner of an equity interest therein, (b) be deemed to
have acted in good faith and in a manner such persons reasonably believe to
be in and not opposed to the best interests of the Corporation and (c) be
deemed not to have breached their duties of loyalty to the Corporation and
its stockholders or other owner of an equity interest therein and not to have
derived an improper personal benefit therefrom. Any such agreement,
arrangement or transaction involving a corporate opportunity not so approved
shall not by reason thereof result in any such breach of any fiduciary duty
or duty of loyalty or failure to act in good faith or in the best interests
of the Corporation or derivation of any improper personal benefit, but shall
be governed by the other provisions of this Article EIGHTH, this Certificate
of Incorporation, the Bylaws, the DGCL and other applicable law.
D. Modification. No alteration, amendment or repeal of any provision of
this Article EIGHTH shall terminate the effect of such provisions or
eliminate or reduce the effect of this Article EIGHTH in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article EIGHTH, would accrue or arise, prior to such alteration, amendment,
repeal or adoption.
E. Certain Definitions. For purposes of this Article EIGHTH, the
following definitions shall apply:
(1) "Affiliated Company" shall mean in respect of the
Significant Stockholder any company which controls, is controlled by or is
under common control with the Significant Stockholder (other than the
Corporation and any company that is controlled by the Corporation) and in
respect of the Corporation shall mean any company controlled by the
Corporation.
(2) "Interested Person" in respect of an agreement,
arrangement or transaction referred to in paragraph (B) of Article EIGHTH
shall mean any present or former director, officer or employee of the
Significant Stockholder or an Affiliated Company thereof and any person who
has a financial interest that is material to such person in the Significant
Stockholder or such Affiliated Company or otherwise has a personal financial
interest that is material to such person in such agreement, arrangement or
transaction; provided, however, that no such financial interest shall be
considered material by reason of a person's ownership of securities of the
Significant Stockholder or an Affiliated Company thereof;
(3) "Significant Stockholder" shall mean a holder or
beneficial owner, in the aggregate, of at least a majority of Class B Common
Stock.
NINTH: The books of the Corporation may be kept (subject to any
provision contained in the DGCL or other applicable statutes) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the Bylaws of the Corporation.
A-13
TENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, in a summary way, on the
application of the Corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for the Corporation
under the provisions of Section 291 of the DGCL or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of the DGCL, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class
of stockholders of the Corporation, as the case may be, to be summoned in
such manner as said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ELEVENTH: The Bylaws of the Corporation may be adopted, consistent with
law and the provisions of this Certificate of Incorporation (including any
Preferred Stock Designation), and once adopted, any Bylaw may be altered or
repealed, subject to the provisions of this Certificate of Incorporation, by:
(1) the affirmative vote of at least a majority of the members of the Board
of Directors then in office, subject to the powers of the Class B Directors
as set forth in the Bylaws; or (2) the affirmative vote of at least a
majority of the voting power of the Common Stock; provided, however, that any
change in the Bylaws that affects the Class B Directors or the Class B Common
Stock shall be approved by a majority of the voting power of the Class B
Common Stock.
TWELFTH: A. General Right to Amend Certificate of Incorporation.
(1) The Corporation hereby reserves the right at any time
and from time to time to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, and to add thereto any other
provision authorized by the laws of the state of Delaware at the time in
force, and except as may otherwise be explicitly provided by any provision of
this Certificate of Incorporation, all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or officers of the
Corporation or any other person whomsoever by and pursuant to this
Certificate of Incorporation in its present form, or as hereafter amended,
are granted subject to the right reserved in this paragraph (A)(1).
(2) Subject to the provisions of paragraph (B) below, the
rights of the holders of Preferred Stock and the other provisions of this
Certificate of Incorporation, the provisions of this Certificate of
Incorporation may only be altered, amended or repealed, and any inconsistent
provision adopted, with such action (if any) of the Board of Directors as is
provided by law, and in addition to any other vote of stockholders (if any)
required by law, and notwithstanding that a lower vote (or a no vote) of
stockholders otherwise would be required, by the approval of at least a
majority of the voting power of Common Stock.
B. Amendment of this Article. The affirmative vote of the holders of at
least eighty percent (80%) of the voting power of all Common Stock shall be
required to alter, amend or repeal, or to adopt any provision inconsistent
with, this Article TWELFTH.
THIRTEENTH: The Corporation shall have perpetual existence.
A-14
IN WITNESS WHEREOF, this Certificate of Incorporation which restates,
integrates and amends the provisions of the Original Certificate of
Incorporation of the Corporation and subsequent amendments thereto, and which
has been duly adopted in accordance with Sections 242 and 245 of the Delaware
General Corporation Law, has been executed by an authorized officer of the
Corporation this ____ day of ____, 2001.
TEKINSIGHT.COM, INC.
By:
-----------------------------------
Name:
Title:
A-15
ANNEX B
AMENDED AND RESTATED
BYLAWS
OF
TEKINSIGHT.COM, INC.
(A Delaware Corporation)
ARTICLE I.
Offices
SECTION 1. Principal Office. The principal office of the Corporation shall
be located in Irvine,
California.
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 than said principal office at 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.
SECTION 4. Certain Definitions. Except where otherwise explicitly
provided, all references herein to the "Certificate of Incorporation" shall
mean the certificate of incorporation of the Corporation as from time to time
amended or restated and in effect including any certificates of designation
filed under Section 151(g) (or any successor provision) of the General
Corporation Law of the State of Delaware, as amended and in effect from time
to time (the "DGCL"), starting with the Amended and Restated Certificate of
Incorporation dated ___________, 2001 in effect on the date these Bylaws
become effective. In the event of any amendment of these Bylaws that does not
involve a complete restatement thereof, any reference herein to "the Bylaws"
or "these Bylaws" or "herein" or "hereof" or a like reference shall refer to
these Bylaws as so amended. Defined terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Certificate of
Incorporation.
ARTICLE II.
Meetings of Stockholders
SECTION 1. Place of Meetings. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at such place as
may be 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. Except as otherwise provided by law and by
the Certificate of Incorporation, special meetings of the stockholders 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, other than by Class B Common Stockholders, as provided in
the Certificate of Incorporation.
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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 purposes, 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
stockholder entitled to vote at such meeting, and, if mailed, it shall be
directed to such stockholder at his address as it appears on the 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, the Secretary,
or the Class B Common Stockholders, whichever shall have called the meeting.
Notice of any meeting of stockholders shall not be required to be given to
any stockholder 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 not 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 in voting power of the outstanding stock of the Corporation issued
and outstanding and entitled to vote on every matter that is to be voted on
at such a meeting shall be present in person or by proxy to constitute a
quorum for the transaction of business, except as otherwise provided by law
and by the Certificate of Incorporation. In the absence of a quorum, the
holders of a majority in voting power 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, if 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 law or by 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. The record date for determining the holder
of record shall be:
(a) the date fixed pursuant to the provisions of Section 6 of Article
V of these Bylaws 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.
Each stockholder entitled to vote at any meeting of the stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. Any such proxy shall be delivered to the
secretary of such meeting at or prior to the time designated in the order of
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business for so delivering such proxies. Except as otherwise provided by law
or the Certificate of Incorporation or these Bylaws, 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 law 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 stockholder acting, or by his proxy, if there
be such proxy, and shall state the number of shares voted.
SECTION 9. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical
order, showing the address of and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours at the principal place of business of the Corporation for a period of
at least ten (10) days prior to the 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 stockholder 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 stockholder
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, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock 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
shares entitled to vote thereon were present and vote.
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 law or the Certificate of
Incorporation directed or required to be exercised or done by the
stockholders.
SECTION 2. Number, Qualifications, Election and Term of Office. Except
as otherwise provided by the Certificate of Incorporation, 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
B-3
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 law, these Bylaws and the Certificate of Incorporation,
the directors shall be elected at the annual meeting of the stockholders.
Subject to the rights of holders of the Class B Common Stock as set forth in
the Certificate of Incorporation, 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 Bylaws.
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.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman, by a majority of the directors, or by a
majority of the Class B 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 Bylaws, 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 residence 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.
SECTION 7. Quorum and Manner of Acting.
(a) Subject to subsection (b) of this Section 7, 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 law, the Certificate of Incorporation or
these Bylaws, 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.
(b) At least a majority of the directors designated by the holders of
Class B Common Stock pursuant to the Certificate of Incorporation ("Class
B Directors") must be present at any meeting of the Board of Directors in
B-4
order to establish a quorum to conduct business, as long as there are
Class B Directors on the Board of Directors; provided, however, that the
Board of Directors will be entitled to take any action at any meeting if a
quorum is otherwise present if (i) the meeting is a regularly scheduled
meeting of the Board of Directors or (ii) the meeting is not a regularly
scheduled meeting and, after having been sent notice of such meeting, the
Class B Directors are not present at such meeting, and the Class B
Directors who are absent shall, in either the case of either (i) or (ii),
have failed to communicate in writing to the Secretary good reason for
such absence in advance of the relevant meeting.
SECTION 8. Supermajority Matters. The approval of at least 80% of the
members of the Board of Directors then in office shall be required to approve
each of the following transactions:
(a) the entry by the Corporation or any Subsidiary into any merger,
consolidation or amalgamation whether with or into any other Person;
(b) a sale, spin-off, transfer or other disposition of all or
substantially all of the assets or capital stock of any Subsidiary, or a
sale of greater than 30% of the assets of the Corporation, in each case in
any transaction or series of transactions;
(c) a liquidation, recapitalization or dissolution of the Corporation
or any Subsidiary or the filing of a bankruptcy petition by the
Corporation or any Subsidiary;
(d) the redemption, repurchase or issuance of capital stock of the
Corporation or any Subsidiary (including options, warrants or other rights
to acquire any such capital stock) in any amount, other than the issuance
of employee stock options pursuant to employee benefit plans (including
the 1992 Stock Option Plan) that are administered by the Board of
Directors, or the redemption of securities at the option of the holder
thereof in accordance with the terms of such securities.
(e) any amendment to the Certificate of Incorporation or Bylaws of the
Corporation or any Subsidiary;
(f) any change in the accounting policies of the Corporation or any
Subsidiary, including any change in fiscal year, except as required by
applicable generally accepted accounting practices;
(g) any distribution or dividend by the Corporation;
(h) (i) the incurrence of Indebtedness by the Corporation or any
Subsidiary which results in a level of Indebtedness of the Corporation (on
a consolidated basis) in excess of $5 million or (ii) the creation,
assumption or incurrence of any Lien on the assets of the Corporation or
any Subsidiary, individually or in the aggregate, with respect to
Indebtedness in excess of $5 million outstanding at any time;
(i) any continuation or other support of any operations of
[ProductivIT] unless the anticipated monthly revenue from signed contracts
for such operations as of June 30, 2001 exceeds the actual June 2001 costs
related to such operations, including any general and administrative
overhead allocations to such operations; and
(j) the making of any Investment other than a Permitted Investment.
B-5
For purposes of this Article Three, the following terms shall have the
meanings ascribed to them below:
"Guarantee" shall mean any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions or otherwise)
or (ii) entered into for purposes of assuring in any other manner the obligee
of such Indebtedness or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part); provided,
however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Indebtedness" shall mean, with respect to any Person at any date of
determination (without duplication): (i) all indebtedness of such Person for
borrowed money; (ii) all obligations of such Person evidenced by bonds,
debentures including any convertible debentures not converted, notes or other
similar instruments; (iii) all obligations of such Person in respect of
letters of credit or other similar instruments (including reimbursement
obligations with respect thereto); (iv) all obligations of such Person to pay
the deferred and unpaid purchase price of property or services, which
purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services; (v) all obligations of such Person as lessee under capitalized
leases; (vi) all indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such indebtedness is assumed by such Person;
provided, however, that the amount of such Indebtedness shall be the lesser
of (A) the fair market value of such asset at such date of determination and
(B) the amount of such indebtedness; and (vii) all indebtedness of other
Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person. The amount of Indebtedness of any Person at any
date shall be (without duplication) the outstanding balance at such date of
all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency has not occurred and the occurrence of the underlying contingency
is entirely within the control of such Person).
"Investment" in any Person shall mean any direct advance, loan or other
extension of credit (including, without limitation, by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of capital
stock, bonds, notes, debentures or other similar instruments issued by, such
Person.
"Lien" shall mean any mortgage, option, right of first refusal, right of
a third party, restriction on transfer or other ownership interest of any
kind, pledge, security interest, encumbrance, lien or charge of any kind
(including, without limitation, any conditional sale or other title retention
agreement or lease in the nature thereof), any sale with recourse against a
seller or any affiliate of a seller, or any agreement to give any security
interest.
"Permitted Investment" shall mean: (i) any capital contribution of $5
million or less per annum to any Subsidiary (or joint venture or similar
entity involving a profit sharing arrangement); (ii) the incurrence of
Indebtedness by the Corporation or any Subsidiary in an amount in any
transaction or series of transactions, individually or in the aggregate,
totaling $5 million or less at any time outstanding; (iii) any Investment in
capital stock or assets of any Person an amount in any transaction or series
of related transactions of $5 million or less by the Corporation or any
Subsidiary; or (iv) the Investment, in
B-6
the ordinary course of business, by the Corporation or any Subsidiary of
excess cash in obligations of the U.S. government or of "first tier"
financial institutions.
"Person" shall mean an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, or other entity of whatever nature.
"Subsidiary" shall mean any Person in which the Corporation, directly
or indirectly, now or hereafter owns, acquires or holds an equity interest
in excess of 50% of all equity interests of such Person.
SECTION 9. 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 10. 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 its receipt. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary
to make it effective.
SECTION 11. Vacancies. Except as otherwise provided herein or by the
Certificate of Incorporation, any vacancy in the Board of Directors, whether
arising from death, resignation, removal (with or without 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; provided, however, that any vacancy relating to a Class B Director
shall be filled by the vote of a majority of the remaining Class B Directors
or by holders of a majority in voting power of the Class B Common Stock.
Stockholders of the Corporation 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 12. Removal of Directors. Except as otherwise provided herein or
by the Certificate of Incorporation, a director may only be removed for
cause, such removal to be by the affirmative vote of the shares representing
eighty percent (80%) of the votes entitled to be cast by the Common Stock;
provided, however, that no Class B Director shall be removed from office,
with or without cause, unless the removal is approved by holders of 80% of
the voting power of Class B Common Stock. "Cause" for removal of a director
shall be deemed to exist only if: (i) the director whose removal is proposed
has been convicted, or when a director is granted immunity to testify when
another has been convicted, of a felony by a court of competent jurisdiction
and such conviction is no longer subject to direct appeal; (ii) such director
has been found by the affirmative vote of a majority of the Directors then in
office at any regular or special meeting of the Board of Directors called for
that purpose, or by a court of competent jurisdiction, to have been guilty of
willful misconduct in the performance of his duties to the Corporation in a
matter of substantial importance to the Corporation; (iii) such director has
been adjudicated by a court of competent jurisdiction to be mentally
incompetent, which mental
B-7
incompetency directly affects his ability as a director the Corporation; or
(iv) the entry of any order against such director by any governmental body
having regulatory authority with respect to the Corporation's business.
Notwithstanding the foregoing, whenever holders of outstanding shares of one
or more series of Preferred Stock are entitled to elect directors of the
Corporation pursuant to the provisions applicable in the case of arrearages
in the payment of dividends or other defaults contained in the resolution or
resolutions of the Board of Directors providing for the establishment of any
such series, any such director of the Corporation so elected may be removed
in accordance with the provisions of such resolution or resolutions;
provided, however, that any vacancy relating to a Class B Director shall be
filled by a majority vote of the remaining Class B Directors or, if less than
two such directors remain, then by holders of a majority in voting power of
Class B Common Stock. "Common Stock" shall mean the shares of the then
outstanding capital stock entitled to vote generally on the election of
directors and shall exclude any class or series of capital stock only
entitled to vote in the event of dividend arrearages thereon or other
defaults thereunder, whether or not at the time of the determination there
are any such dividend arrearages or defaults.
SECTION 13. 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 14. Committees. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors including at least one Class B
Director, 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 as alternate
members of any committee, who may replace any absent member at any meeting of
the committee. Except to the extent restricted by law and 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 15. 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 16. Telephonic Meeting. Unless restricted by the Certificate of
Incorporation or by law, 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 other
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 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, a
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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 Bylaws.
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 other duties as may from time to time be
assigned 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.
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.
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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
to 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 Bylaws and as required by law;
(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.
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SECTION 13. 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. 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.
ARTICLE V.
Stock Certificates and Their Transfer
SECTION 1. Stock Certificates. Each owner of stock 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 stockholder 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 stock 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 be 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.
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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 Bylaws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the Corporation.
SECTION 6. Fixing of Record Date. The Board of Directors may fix, in
advance, a date not more than sixty (60) 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 sixty (60) nor less than ten (10) 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
SECTION 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the
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fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer, of the Corporation or is or
was serving at the request of the Corporation as a director or officer of
another company, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of such proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as a director or officer shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said
law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
incurred or suffered by such person in connection therewith and such director
or officer and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in Section 2
hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated
by such person only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation. The right to indemnification
conferred in this Section 1 shall be a contract right and shall include the
right to be paid by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition; provided, however, that,
if the DGCL requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director
or officer, including, without limitation, service to an employee benefit
plan) in advance of the final disposition of a proceeding, shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately
be determined that such director or officer is not entitled to be indemnified
under this Section 1 or otherwise. The Corporation may, by action of its
Board of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification
of directors and officers.
SECTION 2. Right of Claimant to Bring Suit.
If a claim under Article VI, Section 1 is not paid in full by the
Corporation within thirty (30) days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid
also the expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which
make it permissible under the DGCL for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the DGCL, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
SECTION 3. Non-Exclusivity of Rights.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article VI shall not be exclusive of any other right which any person may have
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or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
SECTION 4. Insurance.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against
any such expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under the DGCL.
ARTICLE VII.
General Provisions
SECTION 1. Dividends. Subject to the law, the Certificate of
Incorporation and the other provisions of these Bylaws, 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 law and 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 stockholder
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
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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.
ARTICLE VIII.
Force and Effect of Bylaws
These Bylaws are subject to the provisions of the DGCL and the
Corporation's Certificate of Incorporation, as it may be amended from time to
time. If any provision in these Bylaws is inconsistent with a provision in
the DGCL or the Certificate of Incorporation, the provision of the DGCL or
the Certificate of Incorporation shall govern. Wherever in these Bylaws
references are made to more than one incorporator, director, or stockholder,
they shall, if this is a sole incorporator, director, stockholder
corporation, be construed to mean the solitary person, and all provisions
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 Bylaws may be amended or repealed or new Bylaws 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
Bylaws is contained in the notice of such meeting and provided, further, that
any change that affects the rights of holders of the Class B Common Stock or
the Class B Directors shall be approved by a majority in voting power of the
Class B Common Stock. These Bylaws may also be amended or repealed or new
Bylaws may be adopted by the Board of Directors, subject to Article III,
Section 8. Bylaws adopted by the Board of Directors may be amended or
repealed by the stockholders.
<Page>
ANNEX C
OPINION OF FINANCIAL ADVISORS
CBIZ Valuation Counselors
989 Lenox Drive, Suite 100
Lawrenceville, New Jersey 08648-2315
Phone (609) 896-0300
Fax: (609) 896-0300
April 18, 2001
Board of Directors
TekInsight.com, Inc.
18881 Von Karman Avenue
Suite 250
Irvine, California 92612
Gentlemen
CBIZ Valuation Counselors was retained to provide financial advisory services to
TekInsight.com, Inc. ("TekInsight") pursuant to the contemplated merger with
DynCorp Management Resources, Inc. (DMR). The contemplated merger is pursuant to
a Draft Agreement and Plan of Merger dated April 18, 2001 (the Draft Agreement
and Plan of Merger).
Per the Draft Agreement and Plan of Merger, all of the outstanding common stock
of DMR shall automatically and without any action on the part of the holder
thereof become and be converted into a number of shares of Class B common stock
of TekInsight equal to two-thirds of the number of TekInsight Outstanding Share
Equivalents (as defined in the Draft Agreement and Plan of Merger) outstanding
immediately prior to the effective time of the merger.
Formed in 1996, DMR is a subsidiary of DynCorp, a $1.4 billion, employee-owned
company. DMR was formed to leverage DynCorp's strengths and to deliver high
quality service to state and local governments. Since then, DMR has grown
rapidly and serves more than a dozen clients in 12 states.
The scope of our financial services was to analyze and evaluate the transaction
terms of the Draft Agreement and Plan of Merger in order to express our opinion
as to whether the terms of the Draft Agreement and Plan of Merger are fair, from
a financial point of view, to TekInsight's shareholders (the Opinion). The
effective date of our opinion is as of the date of this advisory letter.
In the process of our analysis in preparing the Opinion, we have accepted
certain relevant information provided by TekInsight, DMR and their
representatives without further investigation as proper representations of DMR's
operations. We have not independently investigated the accuracy or completeness
of the data provided to us and express no opinion or other form of assurance
regarding the accuracy or completeness of the data.
INFORMATION PROVIDED
We were provided with copies of certain financial information, transaction
documents and other documents by the management or representatives of TekInsight
and DMR. We relied upon and assumed without independent verification, the
accuracy and completeness of financial and other information provided to us. We
C-1
have further assumed that all information provided to us by TekInsight, DMR and
their representatives represented good faith efforts to describe and convey the
current and prospective status of DMR from an operational and financial point of
view. Documents and materials that we received and analyzed included, but were
not necessarily limited to, the following:
o The draft Agreement and Plan of Reorganization dated as of
April 18, 2001, by and among DMR and Newco and joined in by
DynCorp and TekInsight.
o The Draft Agreement and Plan of Merger by and between DMR,
TekInsight, DynCorp and Newco.
o The Registration Rights Agreement pertaining to the Class B
Common Stock to be issued in connection with the merger.
o A copy of DMR management's fourth Quarter 2000 Operating Review.
o Financial statements for DMR prepared by DMR management for
the years ended December 31, 1998 through December 31, 2000
and the two months ended February 28, 2001.
o Securities and Exchange Commission (SEC) forms 10-K for
DynCorp filed on March 10, 1999, March 29, 2000, and March 27,
2001.
o SEC forms 10-K for TekInsight filed on October 13, 1999 and
October 11, 2000.
o SEC form 10-Q for TekInsight filed on February 16, 2001.
o Operating budgets for DMR prepared by DMR management for the
years ending December 31, 2001 through December 31, 2005.
o Projections of operations for DMR prepared by DMR management
for the quarterly periods ending March 31, 2001 through June
30, 2002.
TERMS AND PROVISIONS OF MERGER
Per the Draft Agreement and Plan of Merger, all of the outstanding common stock
of DMR shall automatically and without any action on the part of the holder
thereof become and be converted into a number of shares of Class B common stock
of TekInsight equal to two-thirds of the number of TekInsight Outstanding Share
Equivalents (as defined in the Draft Agreement and Plan of Merger) outstanding
immediately prior to the effective time of the merger. As a result of the
merger, the former holders of DMR common stock shall hold 40% of the TekInsight
Outstanding Share Equivalents.
Background
TekInsight intends to merge with DMR through a tax-free reorganization.
TekInsight believes the merger will benefit the shareholders of TekInsight by:
o Providing additional scale;
o Increasing geographic reach to the Connecticut, California,
Texas, Illinois and North Carolina markets;
o Accelerating growth; and
o Adding complimentary competencies that help create a "Total
Solution".
Scope
The purpose of our services is to express our opinion as to whether the terms of
the Draft Agreement and Plan of Merger are fair, from a financial point of view,
to TekInsight's shareholders (the Opinion).
In rendering our opinion, we gave weight to those factors which we
considered relevant to assessing the fairness of the Draft Agreement and Plan of
Merger including, but not limited to, the following:
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<Page>
o The operations of DMR through February 28, 2001;
o A review of a projection of operations and related documents;
o Discussions with the management of DMR concerning operations;
business strategy; business lines; market research;
competition; expected financial performance; business and
market risks; and prospects for DMR;
o Discussions with TekInsight regarding their rationale for the
merger;
o Market research which we conducted on companies offering
similar or competing products and services;
o A comparison of the historic and projected financials of DMR
to those of publicly-traded companies in the same or similar
lines of business;
o A review of analysts reports, public filings and other
information to gain insight into the outlook for the industry
and companies which presently or are expected to compete in
the industry;
o A review of acquisitions of companies in the same or similar
lines of business;
o A review of the market prices of companies in the same or
similar lines of business and which are actively traded on the
public exchanges;
o An analysis of the expected cash flows of DMR based upon the
projections provided and potential long-term scenarios and our
assessment of the risks inherent in achieving those
projections; and
o The performance of other financial studies, analyses and
investigations as we deemed appropriate for purposes of this
opinion.
In formulating the Opinion, we have assumed:
1. Continued operation of DMR within Newco;
2. DMRs operations will be competently managed and maintained by
financially sound owners; and
3. No additional financings, distributions, or acquisitions will
occur during the protection period.
CONCLUSION
Based upon our analysis, which relied upon the financial, operating and market
factors and conditions as they existed as of the date of this letter and subject
to the assumptions presented herein, it is our opinion that the terms and
conditions of the Draft Agreement and Plan of Merger are fair from a financial
point of view to TekInsight's shareholders.
The Opinion is for the confidential use of TekInsight and is applicable only for
the purpose stated herein; and use or reliance for any other purpose, by you or
third parties, is invalid. We hereby consent 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 CBIZ Valuation Counselors, which
consent shall not be unreasonably withheld.
All the terms and conditions as contained in our engagement letter dated April
3, 2001 are incorporated and apply herein.
CBIZ 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
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situations. Prior to this engagement, CBIZ Valuation Counselors has had no
relationship with TekInsight or DMR.
This Opinion is subject to the Statement of Assumptions and Limiting Conditions
contained herein.
We thank you for this opportunity to serve you. Should you have any questions
regarding this opinion, please contact Gregory R. Watts at (609) 896-0300.
Respectfully submitted,
CBIZ Valuation Counselors
/s/ Raymond Ghelardi
Raymond Ghelardi, ASA
Managing Director
C-4
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
CBIZ Valuation Counselors strives to clearly and accurately disclose the
assumptions and limiting conditions that directly affect an analysis, opinion or
conclusion. In order to assist the reader in interpreting this opinion, such
assumptions are set forth as follows:
Assignments are accepted with the understanding that there is no obligation to
furnish services after completion of the original assignment. If the need for
subsequent services related to an assignment (e.g., testimony, updates,
conferences, reprint or copy services) is contemplated, special arrangements
acceptable to CBIZ Valuation Counselors must be made in advance. CBIZ Valuation
Counselors reserves the right to make adjustments to the analysis, opinion and
conclusion set forth in the opinion as we deem necessary by consideration of
additional or more reliable data that may become available.
No opinion is rendered as to legal fee or property title, which are assumed to
be good and marketable.
It is assumed that: no opinion is intended in matters that require legal,
engineering or other professional advice which has been or will be obtained from
professional sources; there are no regulations of any government entity to
control or restrict the use of the property unless specifically referred to in
the opinion; and that the property will not operate in violation of any
applicable government regulations, codes, ordinances or statutes.
Information provided by others is presumed to be reliable and where so specified
in the opinion, has been verified; however, no responsibility, whether legal or
otherwise, is assumed for its accuracy and cannot be guaranteed as being
certain. All facts and data set forth in the opinion are true and accurate to
the best of CBIZ Valuation Counselors' knowledge and belief. No single item of
information was completely relied upon to the exclusion of other information.
All financial data, operating histories and other data relating to income and
expenses attributed to the business have been provided by management or its
representatives and have been accepted without further verification except as
specifically stated in the opinion.
Opinions may contain prospective financial information, estimates or opinions
that represent the analyst's view of reasonable expectations at a particular
point in time, but such information, estimates or opinions are not offered as
predictions or as assurances that a particular level of income or profit will be
achieved, that events will occur or that a particular price will be offered or
accepted. All opinions as to value are presented as CBIZ Valuation Counselors
considered opinion based on the facts and data obtained during the investigation
and set forth in the opinion. Actual results achieved during the period covered
by our prospective financial analysis will vary from those described in our
opinion and the variations may be material.
It should be specifically noted that the opinion assumes the property will be
competently managed and maintained by financially sound owners over the expected
period of ownership. This opinion engagement does not entail an evaluation of
management's effectiveness, nor are we responsible for future marketing efforts
and other management or ownership actions upon which actual results will depend.
No effort has been made to determine the impact of possible energy shortages or
the effect on this project of future federal, state or local legislation,
including any environmental or ecological matters or interpretations thereof.
Neither the opinion nor any portions thereof, especially any conclusions as to
value, the identity of the analyst or CBIZ Valuation Counselors shall be
disseminated to the public through public relations media, news media, sales
media or any other public means of communications without the prior written
consent and approval of CBIZ Valuation Counselors. The opinion is based on the
purchasing power of the United States dollar as of the indicated date.
Unless otherwise noted, CBIZ Valuation Counselors assumes that there will be no
changes in tax regulations.
No significant change is assumed in the supply and demand patterns indicated in
the opinion. The opinion assumes market conditions observed as of the stated
date. These market conditions are believed to be correct; however, the analyst
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<Page>
assumes no liability should market conditions materially change because of
unusual or unforeseen circumstances.
The opinion is intended for the information of the person or persons to whom it
is addressed, for the purposes stated and should not be relied upon for any
other purpose. Neither the opinion nor any reference to the analyst or CBIZ
Valuation Counselors may be referred to or quoted in any registration statement,
prospectus, offering memorandum, sales brochure, other appraisal, loan or other
agreement or document given to third parties without our prior written consent.
Permission will be granted only upon meeting certain conditions.
Notwithstanding the prior statement, CBIZ Valuation Counselors has granted its
permission to the Company and its representatives to refer to and quote the
opinion in required proxy statements and Securities and Exchange Commission
Filings, including in any preliminary or definitive proxy statement with respect
to TekInsight's Special Meeting of stockholders to be held on October 5, 2001.
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<Page>
ANNEX D
DYNTEK, INC.
2001 STOCK INCENTIVE PLAN
1. BACKGROUND AND PURPOSE
DynTek, Inc. (the "Company") hereby establishes the DynTek, Inc. 2001 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to attract and retain
key employees, directors and consultants and provide them with an incentive to
maintain and enhance the Company's long-term performance. It is intended that
this purpose will be achieved by granting certain key employees incentive stock
options ("ISOs") or certain key employees, directors or consultants
non-qualified stock options ("NQSOs"), individually or in any combination, under
the Plan pursuant to the rules set forth in Sections 83, 162(m), 421 and 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
2. ADMINISTRATION
The Plan shall be administered by a committee appointed by the Company's
Board of Directors (the "Committee"), which shall consist of at least two
non-employee members of the Company's Board of Directors. For purposes of making
grants intended to qualify as "performance-based compensation" under Code
Section 162(m), the Committee shall consist of at least two members who are
"outside directors", as that term is defined in Code Section 162(m) and the
regulations thereunder. Subject to the provisions of the Plan, the Committee
shall possess the authority, in its discretion, (a) to determine the eligible
participants of the Company to whom, and the time or times at which, ISOs and/or
NQSOs (ISOs and NQSOs are collectively referred to as "options" or "awards")
shall be granted; (b) to determine at the time of grant whether an award will be
an ISO or a NQSO or a combination of these awards and the number of shares to be
subject to each award; (c) to prescribe the form of the award agreements and any
appropriate terms and conditions applicable to the awards and to make any
amendments to such agreements or awards; (d) to interpret the Plan; (e) to make
and amend rules and regulations relating to the Plan; (f) to grant an award in
substitution for an award granted under another stock incentive plan of the
Company or an affiliate; (g) to determine the fair market value of the Company's
Class A Common Stock, par value ____ per share ("Common Stock"); and (h) to make
all other determinations necessary or advisable for the administration of the
Plan. The Committee's determinations shall be conclusive and binding. No member
of the Committee shall be liable for any action taken or decision made in good
faith relating to the Plan or any award granted hereunder.
3. ELIGIBLE PARTICIPANTS
Awards may be granted under the Plan only to key employees, directors and
consultants of the Company or its subsidiaries (which shall include all
corporations of which more than fifty percent (50%) of the voting stock is owned
by the Company directly or through one or more corporations of which more than
fifty percent (50%) of the voting stock is so owned and which are consolidated
with the Company for purposes of financial reporting). Employees may be awarded
any type of award offered under the Plan. Consultants and non-employee directors
may only be awarded NQSOs. Only those consultants who satisfy the definition set
forth in the rules and regulations of the Securities and Exchange Commission for
treatment on the same terms as Company employees shall receive awards under the
Plan.
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4. SHARES AVAILABLE
The total number of shares of the Common Stock available in the aggregate
for awards under the Plan is 2,000,000 (subject to substitution or adjustment as
provided in Section 9). Shares with respect to which awards may be granted may
be authorized and unissued shares or may be treasury shares. The total number of
shares with respect to which an option may be granted to any one participant
shall not exceed 250,000 shares per calendar year (subject to substitution or
adjustment as provided in Section 9).
If an award expires, terminates or is canceled without being exercised or
becoming vested, new awards may thereafter be granted under the Plan covering
such shares. No award may be granted more than 10 years after the effective date
of the Plan.
5. TERMS AND CONDITIONS OF ISOs
Each ISO granted under the Plan shall be evidenced by an ISO agreement in
such form as the Committee shall approve from time to time, which agreement
shall conform with this Plan and contain the following terms and conditions:
(a) Exercise Price. The exercise price under each option shall equal
the fair market value of the Common Stock (as defined in Section 5(f)) at
the time such option is granted. If an option is granted to an officer or
employee who at the time of grant owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company (a "10-percent Shareholder"), the purchase price shall be at least
110 percent of the fair market value of the stock subject to the option.
(b) Duration of Option. Each option by its terms shall not be
exercisable after the expiration of ten years from the date such option is
granted. In the case of an option granted to a 10-percent Shareholder, the
option by its terms shall not be exercisable after the expiration of five
years from the date such option is granted.
(c) Options Nontransferable. Each option by its terms shall not be
transferable by the participant otherwise than by will or the laws of
descent and distribution and shall be exercisable, during the participant's
lifetime, only by the participant, the participant's guardian or the
participant's legal representative. To the extent required for the option
grant and/or exercise to be exempt under Rule 16b-3, options (or the shares
of Common Stock upon exercise of the options) must be held by the
participant for at least six months following the date of grant.
(d) Exercise Terms. Each option granted under the Plan shall become
exercisable on a schedule and pursuant to the terms and conditions
determined by the Committee at the time of grant, which schedule and terms
may vary from one grant to another. Options may be partially exercised from
time to time during the period extending from the time they first become
exercisable until a date established by the Committee which shall not
extend beyond the tenth anniversary (fifth anniversary for a 10-percent
Shareholder) of the date of grant.
No outstanding option may be exercised by any person if the employee to
whom the option is granted is, or at any time after the date of grant has been,
in competition with the Company or an affiliated company. The Committee has the
sole discretion to determine whether an employee's actions constitute
competition with the Company or an affiliated company. The Committee may impose
any terms and conditions on the options or the shares that may be acquired
pursuant to such options as it deems appropriate to serve the purposes for which
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this Plan has been established (including, but not limited to, non-compete and
nondisclosure provisions in favor of the Company).
(e) Maximum Value of ISO Shares. No ISO shall be granted to an
employee under the Plan or any other ISO plan of the Company or its
subsidiaries to purchase shares as to which the aggregate fair market value
(determined as of the date of grant) of the shares which first become
exercisable by the employee in any calendar year exceeds $100,000.
(f) Payment of Exercise Price. An option shall be exercised upon
written notice to the Company accompanied by payment in full for the shares
being acquired. The payment shall be made in cash, by check or, if the
option agreement or Committee so permits, by delivery of shares of Common
Stock beneficially owned by the participant, duly assigned to the Company
with the assignment guaranteed by a bank, trust company or member firm of
the New York Stock Exchange, or by a combination of the foregoing. Any such
shares so delivered shall be deemed to have a value per share equal to the
fair market value of the shares on such date and must have been held by the
participant for more than six months. For this purpose, "fair market value"
shall equal: (i) the closing price of the Common Stock on the national
stock exchange or NASDAQ stock market on which such stock is traded on the
date the option is exercised; (ii) if there was no trading in such stock on
the date of such exercise, the closing price on the last preceding day on
which there was such trading; or (iii) if the Common Stock is not traded on
a national stock exchange or NASDAQ stock market, an amount determined by
the Committee to be the fair market value of such shares.
6. TERMS AND CONDITIONS OF NQSOs
Each NQSO granted under the Plan shall be evidenced by a NQSO option
agreement in such form as the Committee shall approve from time to time, which
agreement shall conform to the Plan and contain the same terms and conditions as
the ISO option agreement except that:
(a) the Committee may grant a NQSO having an exercise price that is
less than the fair market value of the Common Stock at the time the option
is granted; provided that such exercise price shall not be less than 85% of
the fair market value of the Common Stock at the time the option is
granted. Notwithstanding the foregoing, the exercise price of a NQSO that
is intended to qualify as "performance-based compensation" under Code
Section 162(m) shall not be less than the fair market value of the Common
Stock on the date of grant;
(b) the 10-percent Shareholder restrictions in Sections 5(a), 5(b) and
5(d) and the limitations of Section 5(e) shall not apply to NQSO grants;
(c) the Committee may impose any terms and conditions on the options
or the shares that may be acquired pursuant to such options as it deems
appropriate to serve the purposes for which this Plan has been established
(including, but not limited to, non-compete and nondisclosure provisions in
favor of the Company).
To the extent an option initially designated as an ISO exceeds
the value limit of Section 5(e) or otherwise fails to satisfy the requirements
applicable to ISOs, it shall be deemed a NQSO and shall otherwise remain in full
force and effect.
D-3
7. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES
The Company shall not be required to deliver any certificate upon the
grant, vesting or exercise of any award until it has been furnished with such
opinion, representation or other document as it may reasonably deem necessary to
ensure compliance with any law or regulation of the Securities and Exchange
Commission or any other governmental authority having jurisdiction under this
Plan. Certificates delivered upon such grant, vesting or exercise may bear a
legend restricting transfer absent such compliance. Each award shall be subject
to the requirement that, if at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of the shares
subject to such award upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such awards or the issue or purchase of shares thereunder, such awards may not
vest or be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee in the exercise of its reasonable
judgment.
8. IMPACT OF TERMINATION OF EMPLOYMENT
If the employment (which for this purpose includes the provision of
services as a consultant or a director) of a participant with the Company or any
subsidiary corporation of the Company terminates by reason of death or permanent
and total disability (as determined by the Committee), any option may be
exercised by the participant or, in the event of the participant's death, by the
participant's personal representative any time prior to the earlier of the
expiration date of the option or the expiration of one year after the date of
termination of employment, but only if, and to the extent that, the participant
was entitled to exercise the option at the date of such termination. Upon
termination of the participant's employment with the Company or any subsidiary
corporation of the Company for any reason other than death or disability, any
vested option that was exercisable immediately preceding termination may be
exercised at any time prior to the earlier of the expiration date of the option
or the expiration of 3 months after the date of such termination of employment.
Notwithstanding the foregoing, an option may not be exercised after termination
of employment if the Committee reasonably determines that the termination of
employment of such participant resulted from willful acts or failure to act by
the participant that are detrimental to the Company or any of its affiliates.
All options that are
Notwithstanding the foregoing, the Committee has the authority to prescribe
different rules that apply upon the termination of employment of a particular
participant, which shall be memorialized in the participant's original or
amended award agreement or similar document. Unless otherwise determined by the
Committee, an authorized leave of absence shall not constitute a termination of
employment for purposes of this Plan.
An option that remains unexercised after the latest date it could have been
exercised under any of the foregoing provisions shall be forfeited.
9. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the Company by reason of
any recapitalization, stock dividend, stock split, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or of any similar
change affecting the Common Stock, the number and kind of shares authorized
under Section 4, the number and kind of shares which thereafter are subject to
an award under the Plan and the number and kind of unexercised options set forth
in awards under outstanding agreements and the price per share shall be adjusted
automatically consistent with such change to prevent substantial dilution or
enlargement of the rights granted to, or available for, participants in the
Plan.
D-4
10. WITHHOLDING TAXES
All benefits payable to a participant under the terms of this Plan shall be
subject to such federal, state and local income and employment tax withholdings
as benefits of this type are normally subject. Whenever the Company proposes or
is required to issue or transfer shares of Common Stock under the Plan, the
Company shall have the right to require the recipient to remit to the Company an
amount sufficient to satisfy any federal, state and/or local income and
employment withholding tax requirements or to take any other appropriate action
to satisfy such withholding requirements prior to the delivery of any
certificate or certificates for such shares. Notwithstanding the foregoing,
subject to such rules as the Committee may promulgate and compliance with any
requirements under Rule 16b-3, the participant, at the Company's discretion, may
satisfy such obligation in whole or in part by electing to have the Company
withhold shares of Common Stock from the shares to which the participant is
otherwise entitled, provided that the amount of such withholding shall not
exceed the Company's statutory withholding requirements.
11. NO EMPLOYMENT RIGHTS
The Plan and any awards granted under the Plan shall not confer upon any
participant any right with respect to continuance as an employee or consultant
of the Company or any affiliate, nor shall they interfere in any way with the
right of the Company or any affiliate to terminate the participant's position as
an employee or consultant at any time.
12. RIGHTS AS A SHAREHOLDER
The recipient of any option under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for the shares of
Common Stock issued upon exercise are delivered to the recipient.
13. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the Committee, the
Board of Directors of the Company or the shareholders of the Company, except
that the Committee or the Board of Directors of the Company may not, without
approval of the holders of a majority of the outstanding shares of the Company
entitled to vote present in person or by proxy, increase the maximum number of
shares as to which awards may be granted under the Plan, increase the number of
awards that may be granted per year per participant, change the class of
eligible persons, or modify or terminate the Plan in a manner that requires
shareholder approval under applicable law without obtaining such approval.
Except as provided by the foregoing, to the extent permitted by law, the
Committee or the Board of Directors of the Company may amend the Plan without
the approval of shareholders. Except as required by law, no modification or
termination of the Plan may, without the written consent of a participant to
whom any award shall theretofore have been granted, adversely affect the rights
of such participant under such award.
14. MERGER, CONSOLIDATION, SALE, LIQUIDATION, ETC.
(a) General. In the event of a consolidation or merger,
reorganization, sale of all or substantially all of the assets or stock of
the Company or liquidation of the Company, the Committee shall take any one
or more of the following actions: (i) provide that outstanding awards shall
be assumed, or substantially equivalent stock and stock based awards shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any options substituted for ISOs shall meet the
requirements of Section 424(a) of the Code; (ii) in the event of a merger
D-5
under the terms of which holders of Common Stock will receive upon
consummation thereof a cash payment for each share surrendered in the
merger (the "Merger Price"), make or provide for a cash payment to the
participants equal to the difference between (A) the Merger Price times the
number of shares of Common Stock subject to such outstanding options (to
the extent then exercisable at prices not in excess of the Merger Price)
and (B) the aggregate exercise price of all such outstanding options in
exchange for the termination of such options, such total cash payment to be
equitably distributed to the participants as the Committee shall determine;
or (iii) provide that all or any outstanding options shall become
exercisable in full immediately prior to such event.
(b) Substitute Stock Rights. The Company may grant awards under the
Plan in substitution for stock and stock based awards held by employees of
another corporation who concurrently become employees of the Company as the
result of a merger or consolidation of the employing corporation with the
Company, or as a result of the acquisition by the Company of property or
stock of the employing corporation. The Company may direct that the
substitute awards shall be granted on such terms and conditions as the
Committee considers appropriate under the circumstances.
(c) No Effect on Power of Company to Effect Transactions. The grant of
any awards pursuant to the Plan shall not effect in any way the power of
the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or consolidate or
to dissolve, liquidate or sell or transfer all or any part of its assets.
15. CERTAIN REPURCHASE AND OTHER RIGHTS OF THE COMPANY
The Committee, in its sole discretion, may require that any Common Stock
issued to a participant under the Plan as the result of the exercise of an
option may be subject to a right of first refusal, a repurchase right or a
similar right in favor of the Company, pursuant to such terms established by the
Committee.
16. EFFECTIVE DATE
The effective date of the Plan is _________, 2001 the date on which the
Company's Board of Directors and shareholders approved the Plan.
17. DEFINITIONS
Any terms or provisions used herein which are defined in Sections 83,
162(m), 421, or 422 of the Internal Revenue Code as amended, or the regulations
thereunder or corresponding provisions of subsequent laws and regulations in
effect at the time awards are made hereunder, shall have the meanings as therein
defined.
D-6
18. GOVERNING LAW
To the extent not inconsistent with the provisions of the Internal Revenue
Code that relate to awards, this Plan and any award agreement adopted pursuant
to it shall be construed under the laws of the State of New York.
Dated as of ___________, 2001 DYNTEK, INC.
By: ______________________________
Chief Executive Officer
Date of Shareholder Approval: __________________
D-7
ANNEX E-1
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION ("Reorganization Agreement" or
"Agreement") dated as of April 25, 2001, by and among DynCorp Management
Resources Inc. (the "Company"), a Virginia corporation having its principal
executive office at 11710 Plaza America Drive, Reston, Virginia 20190, and
Newport Acquisition Corp. ("Newco"), a Delaware corporation having its principal
executive office at 18881 Von Karman Avenue, Suite 250, Irvine, California
92612, and joined in by DynCorp ("Company Parent"), a Delaware corporation
having its principal executive office at 11710 Plaza America Drive, Reston,
Virginia 20190, and Tekinsight.com, Inc. ("Newco Parent"), a Delaware
corporation having its principal executive office at 18881 Von Karman Avenue,
Suite 250, Irvine, California 92612.
WITNESSETH
WHEREAS, the parties hereto desire that the Company shall be acquired by
Newco Parent through the merger ("Merger") of the Company with and into Newco,
with Newco as the surviving corporation pursuant to an Agreement and Plan of
Merger substantially in the form attached hereto as Annex A ("Plan of Merger");
and
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
Article I.
DEFINITIONS
1.1 "Agreement" is defined in the preamble hereto.
1.2 "Affiliate" shall mean, as to any specified Person, any other Person,
which, directly, or indirectly controls, is controlled by or is under common
control with, such specified Person. For purposes of this definition, "control"
means the possession of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise and "Person" shall mean an individual,
corporation, partnership, association, trust, estate, governmental authority or
other entity.
1.3 "Closing" is defined in Section 4.8 hereof.
1.4 "Closing Date" shall mean the date specified pursuant to Section 4.8
hereof as the date on which the parties hereto shall close the transactions
contemplated herein.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6 "Commission" or "SEC" shall mean the Securities and Exchange
Commission.
1.7 "Company" is defined in the preamble hereto.
1.8 "Company Claims" is defined in Section 4.12 hereof.
1.9 "Company Common Stock" is defined in Section 2.1 hereof.
1.10 "Company Financial Statements" shall mean the unaudited balance sheet
of the Company and its predecessor(s) as of December 28, 2000 and
E-1
as of March 29, 2001, and statements of income for the respective
twelve-month and three-month periods ending on December 28, 2000 and March
29, 2001.
1.11 "Company Liabilities" is defined in Section 4.12 hereof.
1.12 "Company Parent" is defined in the recitals hereto.
1.13 "Company Parent's Insurance Policies" is defined in Section 4.12
hereof.
1.14 "Company Parent Plans" is defined in Section 4.9 hereof.
1.15 "Company Parent Welfare Plans" is defined in Section 4.9 hereof.
1.16 "Confidentiality Agreement" is defined in Section 4.5 hereof.
1.17 "Continuing Employees" is defined in Section 4.9 hereof.
1.18 "Effective Date" is defined in Section 4.8 hereof.
1.19 "Environmental Action" is defined in Section 2.14 hereof.
1.20 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.21 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.22 "Financing" is defined in Section 4.17 hereof.
1.23 "IRS" shall mean the Internal Revenue Service.
1.24 "Intellectual Property" means domestic and foreign letters patent,
patents, patent applications, patent licenses, software licensed or owned,
know-how licenses, trade names, common law and other trademarks, service marks,
licenses of trademarks, trade names and/or service marks, trademark
registrations and applications, service mark registrations and applications and
copyright registrations and applications.
1.25 "Material Adverse Effect" shall mean, with respect to the Company or
Newco Parent, as the case may be, a material adverse effect on the business,
results of operations or financial condition of such party and any Subsidiary of
the party taken as a whole or a material adverse effect on such party's ability
to consummate the transactions contemplated hereby; provided, however, that in
determining whether a Material Adverse Effect has occurred there shall be
excluded any effect on the referenced party the cause of which is any action or
omission of the Company, Company Parent or Newco Parent or any Subsidiary of any
of them taken with the prior written consent of Newco Parent or Company Parent,
as applicable, in contemplation of the Merger.
1.26 "Merger" is defined in the recitals hereto.
1.27 "Merger Consideration" is defined in the Plan of Merger.
1.28 "Nasdaq" shall mean the Nasdaq Small Cap Market.
1.29 "Newco" is defined in the preamble hereto.
1.30 "Newco Parent" is defined in the preamble hereto.
E-2
1.32 "Newco Parent Class B Common Stock" shall mean shares of Class B
common stock, par value $0.001 per share, of Newco Parent to be issued to
Company Parent pursuant to the Plan of Merger.
1.33 "Newco Parent Common Stock" is defined in Section 3.1 hereof.
1.34 "Newco Parent ERISA Affiliate" is defined in Section 3.12 hereof.
1.35 "Newco Parent Financial Statements" shall mean (i) the audited
consolidated balance sheets of Newco Parent as of June 30, 2000 and 1999 and the
related consolidated statements of income, cash flows and changes in
shareholders' equity (including related notes, if any) for each of the three
years ended June 30, 2000, 1999 and 1998, respectively, as filed by Newco Parent
in SEC Documents, (ii) the unaudited consolidated balance sheets of Newco Parent
and related consolidated statements of income, cash flows and changes in
shareholders' equity (including related notes, if any) as filed by Newco Parent
in SEC Documents as of December 31, 2000, for the six months ended December 31,
2000, and with respect to periods ended subsequent to December 31, 2000 and
(iii) the unaudited consolidated balance sheets of Newco Parent and related
consolidated statements of income, cash flows and changes in shareholders'
equity (including related notes, if any) as of, or with respect to the 8-month
period ended, February 28, 2001.
1.36 "Newco Parent Plan" is defined in Section 3.12 hereof.
1.37 "Newco Parent Preferred Stock" is defined in Section 3.1 hereof.
1.38 "Newco Parent Subsidiary" shall mean each Subsidiary of Newco Parent
as disclosed in its annual report of Form 10-K for the year ended June 30, 2000,
as well as Newco.
1.39 "Non-Continuing Employees" is defined in Section 4.9 hereof.
1.40 "Option Agreement" shall mean the stock option agreement, dated as of
the date hereof, in the form attached hereto as Annex B with respect to the
option granted by Newco Parent to Company Parent to acquire certain shares of
Newco Parent Common Stock in the circumstances set forth therein.
1.41 "Plan" is defined in Section 2.9 hereof.
1.42 "Plan of Merger" is defined in the recitals hereto.
1.43 "Previously Disclosed" shall mean disclosed prior to the execution
hereof in a letter dated of even date herewith from the party making such
disclosure and delivered to the other party prior to the execution hereof. Any
information disclosed by one party to the other for any purpose hereunder shall
be deemed to be disclosed for all purposes hereunder. The inclusion of any
matter in information Previously Disclosed shall not be deemed an admission or
otherwise to imply that any such matter is material for purposes of this
Agreement.
1.44 "Proxy Statement" shall mean the proxy statement (or similar document)
together with any supplements thereto sent to the stockholders of Newco Parent
to solicit their votes in connection with this Agreement and the Plan of Merger.
1.45 "Registration Rights Agreement " shall mean the registration rights
agreement in the form attached hereto as Annex C with respect to the Newco
Parent Class B Common Stock to be issued in connection with the Merger.
1.46 "Rights" shall mean warrants, options, rights, convertible securities
and other arrangements or commitments which obligate an entity to issue or
dispose of any of its capital stock, and stock
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appreciation rights, performance units and other similar stock-based rights
whether they obligate the issuer thereof to issue stock or other securities or
to pay cash.
1.47 "Reorganization Agreement" is defined in the preamble hereto.
1.48 "SEC" shall mean the Securities and Exchange Commission.
1.49 "SEC Documents" shall mean all reports and registration statements
filed, or required to be filed, by a party hereto pursuant to the Securities
Laws.
1.50 "Securities Act" shall mean the Securities Act of 1933, as amended.
1.51 "Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended; and the rules and
regulations of the Commission promulgated thereunder.
1.52 "Subsidiary" or "Subsidiaries" shall mean with respect to any party,
any corporation, partnership or other organization, whether incorporated or
unincorporated, which is consolidated with such party for financial reporting
purposes.
1.53 "Takeover Laws" is defined in Section 3.21 hereof.
1.54 "Takeover Proposal" is defined in Section 4.7(c)(12) hereof.
1.55 "Tax" or "Taxes" shall mean all taxes, however denominated, including
any interest, penalties, or additions to tax or other additional amounts that
may become payable in respect thereof, imposed by any federal, state, local or
foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income taxes, payroll and employment taxes, withholding taxes,
unemployment insurance taxes, social security (or similar) taxes, sales and use
taxes, excise taxes, franchise taxes, gross receipts taxes, occupation taxes,
real and personal property taxes, stamp taxes, value added taxes, transfer
taxes, profits or windfall profits taxes, licenses in the nature of taxes,
estimated taxes, severance taxes, duties, workers' compensation taxes, premium
taxes, environmental taxes, disability taxes, registration taxes, alternative or
add-on minimum taxes, estimated taxes, and other fees, assessments, charges or
obligations of the same or of a similar nature.
1.56 "Tax Return" or "Tax Returns" shall mean all returns, reports,
estimates, information statements or other written submissions, and any
schedules or attachments thereto, required or permitted to be filed pursuant to
the statutes, rules and regulations of any federal, state, local or foreign
government Tax authority, including but not limited to, original returns and
filings, amended returns, claims for refunds, and information returns.
Article II.
REPRESENTATIONS AND WARRANTIES OF COMPANY
AND COMPANY PARENT
Except as Previously Disclosed, the Company and Company Parent hereby
jointly and severally represent and warrant to Newco Parent and Newco as
follows:
2.1 Capital Structure of Company
The authorized capital stock of the Company consists of (i) 100 shares of
common stock, par value $1.00 per share ("Company Common Stock"), of which, as
of the date hereof, 100 shares are issued and outstanding and held by Company
Parent and no shares are held in treasury. As of the Closing Date, all
outstanding Company Common Stock will be held by Company Parent free and clear
of all liens, encumbrances, charges, defaults or equitable interests. As of the
date hereof, no shares of Company Common Stock are reserved for issuance. All
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outstanding shares of Company Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable. The Company does not have and is
not bound by any Rights which are authorized, issued or outstanding with respect
to the capital stock of the Company except as set forth above. None of the
shares of the Company's capital stock has been issued in violation of the
preemptive rights of any person. The Company has no Subsidiary.
2.2 Organization, Standing and Authority of the Company
The Company is a duly organized corporation, validly existing and in good
standing under the laws of the Commonwealth of Virginia with full corporate
power and authority to carry on its business as now conducted and is duly
licensed or qualified to do business in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or the conduct
of its business requires such qualification, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on the Company.
The Company is qualified to do business under the laws of those jurisdictions as
Previously Disclosed.
2.3 Authorized and Effective Agreement
(a) Each of the Company and Company Parent has all requisite corporate
power and authority to enter into and perform all of its obligations under this
Reorganization Agreement and the Plan of Merger. The execution and delivery of
this Reorganization Agreement and the Plan of Merger and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
the Company and Company Parent.
(b) Assuming the accuracy of the representation contained in Section 3.5(b)
hereof, this Reorganization Agreement and the Plan of Merger constitute legal,
valid and binding obligations of the Company and Company Parent, in each case
enforceable against it in accordance with their respective terms, subject as to
enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(c) Neither the execution and delivery of this Reorganization Agreement or
the Plan of Merger, nor consummation of the transactions contemplated hereby or
thereby, nor compliance by the Company or Company Parent with any of the
provisions hereof or thereof shall (i) conflict with or result in a breach of
any provision of the certificate of incorporation or bylaws of the Company or
Company Parent, (ii) assuming the consents and approvals contemplated by Section
4.3 hereof and the consents and approvals which are Previously Disclosed are
duly obtained, constitute or result in a breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or asset of the
Company pursuant to, any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation, or (iii) assuming the consents and approvals
contemplated by Section 4.3 hereof and the consents and approvals which are
Previously Disclosed are duly obtained, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company or Company Parent,
except (in the case of clauses (ii) and (iii) above) for such violations,
rights, conflicts, breaches, creations or defaults which, either individually or
in the aggregate, would not have a Material Adverse Effect on the Company.
(d) Other than as contemplated by Section 4.3 hereof and except as
expressly referred to in this Reorganization Agreement, no consent, approval or
authorization of, or declaration, notice, filing or registration with, any
governmental or regulatory authority, or any other person, is required to be
made or obtained by the Company or Company Parent on or prior to the Closing
Date in connection with the execution, delivery and performance of this
Agreement and the Plan of Merger or the consummation of the transactions
contemplated hereby or thereby.
2.4 Financial Statements; Books and Records; Minute Books
The Company Financial Statements have been prepared in accordance with
Company Parent's customary accounting procedures, designed to present fairly the
financial position of the Company and the results of its operations as of the
dates and for the periods indicated. The books and records of the Company fairly
reflect in all material respects the transactions to which it is a party or by
which its properties are subject or bound. Such books and records have been
properly kept and maintained and are in compliance in all material respects with
all applicable legal and accounting requirements. The minute books of the
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Company contain records which are accurate in all material respects of all
corporate actions of its shareholders and Board of Directors (including
committees of its Board of Directors).
2.5 Material Adverse Change
The Company has not suffered any change in its financial condition, results
of operations or business since December 31, 2000 which individually or in the
aggregate with any other such changes would constitute a Material Adverse Effect
with respect to the Company and no event or circumstance has occurred since
December 31, 2000 that individually or in the aggregate is reasonably likely to
have a Material Adverse Effect on the financial condition, results of operations
or business of the Company.
2.6 Absence of Undisclosed Liabilities
The Company does not have any liability (contingent or otherwise),
excluding contractually assumed contingencies, that is material to the Company,
or that, when combined with all similar liabilities, would be material to the
Company, except as disclosed in the Company Financial Statements except for
liabilities incurred in the ordinary course of business subsequent to December
28, 2000.
2.7 Properties
The Company has good and marketable title free and clear of all liens,
encumbrances, charges, defaults or equitable interests to all of the properties
and assets, real and personal, which, individually or in the aggregate, are
material to the business of the Company taken as a whole, and which are
reflected on the Company Financial Statements as of December 28, 2000 or
acquired after such date, except (i) liens for taxes not yet due and payable,
(ii) such imperfections of title, easements and encumbrances, if any, as are not
material in character, amount or extent and (iii) dispositions and encumbrances
for adequate consideration in arm's length transactions at fair market value in
the ordinary course of business. All leases pursuant to which the Company, as
lessee, leases real and personal property which, individually or in the
aggregate, are material to the business of the Company taken as a whole are
valid and enforceable in accordance with their respective terms except where the
failure of such lease or leases to be valid and enforceable would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
All tangible property used in the business of the Company is in good condition,
reasonable wear and tear excepted, and is usable in the ordinary course of
business consistent with the Company's past practices.
2.8 Tax Matters
(a) All Tax Returns required to be filed by or with respect to the Company
have been timely filed, except where the failure to file timely such Tax Returns
would not, in the aggregate, have a Material Adverse Effect on the Company. All
such filed Tax Returns are true and correct in all material respects. All Taxes
due and owing by or with respect to the Company (including, without limitation,
any Taxes arising under Treasury Regulation Section 1.1502-6 or any
corresponding provision of foreign, state or local law) have been paid or
adequate reserves have been established by Company Parent or on the Company
Financial Statements for the payment of such Taxes, except where any such
failure to pay or establish adequate reserves would not, in the aggregate, have
a Material Adverse Effect on the Company. The Company will not have any
liability for any such Taxes in excess of the amounts so paid or reserves or
accruals so established except where such liability would not have a Material
Adverse Effect on the Company.
(b) Neither the Company nor Company Parent has requested, nor has there
been granted, any extension of time within which to file any Tax Returns by or
with respect to the Company which have not since been filed. Neither the Company
nor Company Parent has received any notice of assessment or proposed assessment
in connection with any Tax Returns filed by or with respect to the Company
except as accrued by the Company Parent or on the Company Financial Statements,
and there are no pending material Tax examinations of, or Tax claims asserted
with respect to, the Company. There are currently no agreements in effect with
respect to the Company, or Tax Returns with respect to the Company, to extend
the period of limitations for the assessment or collection of any Tax.
(c) The Company is not a party to any agreement (other than an agreement
exclusively among Company Parent and its subsidiaries) providing for the
allocation or sharing of, or indemnification for, Taxes.
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(d) The Company (i) has not been a member of any affiliated group filing a
consolidated federal income Tax Return other than a group the common parent of
which was the Company and (ii) has no liability for the Taxes of any Person
(other than any of the Company, Company Parent or its Subsidiaries) under
Treasury Regulations Section 1.1502-6 (or any corresponding provision of
foreign, state or local law).
2.9 Employee Benefit Plans
The Company does not sponsor, maintain or contribute to any material Plan,
other than any such Plan that is sponsored or maintained by Company Parent and
that will not cover the Continuing Employees with respect to their employment
after the Closing Date. For purposes of this Section 2.9, "Plan" means any
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, medical, life or other insurance, profit-sharing, or
pension plan, program, agreement or arrangement, and each other employee benefit
plan, program, agreement or arrangement.
2.10 Certain Contracts
(a) The Company is not a party to, nor is bound by, (i) any material
contract as defined in Item 601(b)(10) of Regulation S-K of the SEC or any other
material contract or similar arrangement whether or not made in the ordinary
course of business or any agreement restricting the nature or geographic scope
of its business activities in any material respect, (ii) any agreement,
indenture or other instrument relating to the borrowing of money by the Company
or the guarantee by the Company of any such obligation, other than instruments
relating to transactions entered into in the ordinary course of business or with
Company Parent or a Subsidiary of Company Parent, (iii) any agreement,
arrangement or commitment relating to the employment of a consultant who was
formerly a director or executive officer or the employment, election, retention
in office or severance of any present or former director or officer, (iv) any
contract, agreement or understanding with a labor union, in each case whether
written or oral or (v) any material agreement between Company Parent or any of
its Affiliates, on the one hand, and the Company, on the other.
(b) The Company is not in default under any material agreement, commitment,
arrangement, lease, insurance policy or other instrument whether entered into in
the ordinary course of business or otherwise and whether written or oral, and
there has not occurred any event that, with the lapse of time or giving of
notice or both, would constitute such a default, except for such defaults which
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company.
2.11 Legal Proceedings
There are no actions, suits or proceedings instituted, pending or, to the
knowledge of the Company and Company Parent, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against the Company or against
any asset, interest or right of the Company as to which there is a reasonable
probability of an unfavorable outcome and which, if such an unfavorable outcome
was rendered, would, individually or in the aggregate, have a Material Adverse
Effect on the Company. To the knowledge of the Company and Company Parent, there
are no actual or threatened actions, suits or proceedings which present a claim
to restrain or prohibit the transactions contemplated herein or to impose any
material liability in connection therewith as to which there is a reasonable
probability of an unfavorable outcome and which, if such an unfavorable outcome
was rendered, would, individually or in the aggregate, have a Material Adverse
Effect on the Company. There are no actions, suits or proceedings instituted,
pending or, to the knowledge of the Company and Company Parent, threatened (or
unasserted but considered probable of assertion and which if asserted would be
reasonably expected to have an unfavorable outcome) against any present or, to
the knowledge of the Company and Company Parent, former director or officer of
the Company, that would reasonably be expected to give rise to a claim for
indemnification and that (i) has a reasonable probability of an unfavorable
outcome and (ii) in the event of an unfavorable outcome, would, individually or
in the aggregate, have a Material Adverse Effect on the Company.
2.12 Compliance with Laws
The Company is in compliance in all material respects with all statutes and
regulations applicable to the conduct of its business, and neither the Company
nor Company Parent has received notification with respect to the Company from
any agency or department of federal, state or local government (i) asserting a
material violation of any such statute or regulation, (ii)
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threatening to revoke any license, franchise, permit or government
authorization or (iii) restricting or in any way limiting its operations, except
for such noncompliance, violations, revocations and restrictions which would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company.
2.13 Labor Matters
With respect to the employees of the Company, neither the Company nor
Company Parent is a party to any labor agreement with any labor organization,
group or association and has not engaged in any unfair labor practice. Since
January 1, 2001 and prior to the date hereof, neither the Company nor Company
Parent has experienced, with respect to the Company, any attempt by organized
labor or its representatives to make the Company conform to demands of organized
labor relating to employees or to enter into a binding agreement with organized
labor that would cover the employees of the Company. To the knowledge of the
Company and Company Parent, there is no unfair labor practice charge or other
complaint by any employee or former employee of the Company against the Company
or Company Parent with respect to the Company pending before any court,
arbitrator or governmental agency arising out of the Company's activities, which
charge or complaint (i) has a reasonable probability of an unfavorable outcome
and (ii) in the event of an unfavorable outcome would, individually or in the
aggregate, have a Material Adverse Effect on the Company; there is no labor
strike or labor disturbance pending or, to the knowledge of the Company and
Company Parent, threatened against the Company; and the Company has not
experienced a work stoppage or other material labor difficulty since January 1,
2001.
2.14 Environmental Liability
Neither the Company nor Company Parent has received with respect to the
Company any written notice of any legal, administrative, arbitral or other
proceeding, claim or action and, to the knowledge of the Company and Company
Parent, there is no governmental investigation of any nature ongoing with
respect to the Company, in each case that would reasonably be expected to result
in the imposition, on the Company of any liability arising under any local,
state or federal environmental statute, regulation or ordinance including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (each, an "Environmental Action"), which
liability would have a Material Adverse Effect on the Company. There are no
facts or circumstances which would reasonably be expected to form the basis for
any proceeding, claim, action or governmental investigation that would impose
any liability in an Environmental Action; and the Company is not subject to any
agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any liability
in an Environmental Action.
2.15 Intellectual Property
The Company owns the entire right, title and interest in and to, or has
valid licenses with respect to, all of the Intellectual Property necessary to
conduct the business and operations of the Company as presently conducted,
except where the failure to do so would not, individually or in the aggregate,
have a Material Adverse Effect on the Company and all such Intellectual Property
has been Previously Disclosed. The ownership, licensing or use of such
Intellectual Property by the Company does not conflict with, infringe,
misappropriate or otherwise violate the Intellectual Property rights of any
other person or entity. None of the Intellectual Property used by the Company is
subject to any outstanding order, decree, judgment, stipulation, settlement,
lien, charge, encumbrance or attachment, which order, decree, judgment,
stipulation, settlement, lien, charge, encumbrance or attachment would have a
Material Adverse Effect on the Company.
2.16 Tax Treatment
Neither the Company nor Company Parent has taken or agreed to take any
action or is aware of any facts or circumstances that might prevent or impede
the Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
2.17 Brokers and Finders
Neither Company Parent, the Company nor any Affiliate of the Company, nor
any of their respective officers, directors or employees, has employed any
broker, finder or financial advisor or incurred any liability for any fees or
commissions in connection with the transactions contemplated herein or the Plan
of Merger, in each case which such fees or commissions would be payable by the
Company, Newco or Newco Parent.
2.18 Insurance
Company Parent and/or the Company currently maintain insurance in amounts
considered by Company Parent and/or the Company, as applicable to be reasonably
necessary for the operations of the Company. Neither Company Parent
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nor the Company has received any notice of a material premium increase or
cancellation with respect to any of its insurance policies or bonds held with
respect to the business of Company, and within the last three years, neither
Company Parent nor the Company has been refused any insurance coverage sought
or applied for with respect to the business of the Company, and neither
Company Parent nor the Company has any reason to believe that existing
insurance coverage with respect to the Company's business could not be renewed
as and when the same shall expire, upon terms and conditions as favorable as
those presently in effect, other than possible increases in premiums or
unavailability in coverage that have not resulted from any extraordinary loss
experience of the Company. A list of all outstanding material claims as of the
date hereof under any such insurance policy with respect to the Company have
been Previously Disclosed.
2.19 Investment Representation
Company Parent is acquiring the Newco Parent Class B Common Stock for its
own account and/or for the account of one or more of its Subsidiaries and not
for distribution and acknowledges that it must bear the economic risk of the
investment in the Newco Parent Class B Common Stock for an indefinite period of
time under applicable Securities Laws. Company Parent has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of acquiring the Newco Parent Class B Common Stock pursuant
to the Plan of Merger; and Company Parent has the financial ability to bear the
economic risks of acquiring and holding the Newco Parent Class B Common Stock to
be acquired by it pursuant to the Plan of Merger for investment. Company Parent
has had the opportunity to ask questions and receive answers to Company Parent's
satisfaction concerning the terms and conditions of the transfer of Newco Parent
Class B Common Stock pursuant to the Plan of Merger. Company Parent understands
that the Newco Parent Class B Common Stock has not been registered under the
Securities Act and agrees that it may only dispose of the Newco Parent Class B
Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or pursuant to an exemption from
registration thereunder. Certificates evidencing the shares of Newco Parent
Class B Common Stock to Company Parent under the Plan of Merger may be endorsed
with legends regarding the foregoing transfer restrictions; provided, that Newco
Parent shall provide Company Parent, upon request, with certificates not bearing
such legends at such time as such transfer restrictions no longer apply.
Article III.
REPRESENTATIONS AND WARRANTIES OF
NEWCO PARENT AND NEWCO
Except as Previously Disclosed, Newco Parent and Newco hereby jointly and
severally represent and warrant to the Company and Company Parent as follows:
3.1 Capital Structure of Newco Parent
The authorized capital stock of Newco Parent consists at April 24, 2001 of
(i) 10,000,000 shares of preferred stock, par value $0.0001 per share ("Newco
Parent Preferred Stock"), of which 2,189,800 shares were issued and outstanding
as Series A Preferred Stock and 191,880 shares have been reserved for issuance
pursuant to option agreements exercisable for Newco Parent Series A Preferred
Stock, and (ii) 100,000,000 shares of common stock, par value $0.0001 per share
("Newco Parent Common Stock"), of which: 18,863,000 shares were issued and
outstanding or in the process of being issued based upon contractual obligations
for their issuance; no shares were held in treasury; 3,753,807 shares have been
reserved for issuance pursuant to the Option Agreement; 7,492,542 shares have
been reserved for issuance of Newco Parent Common Stock pursuant to redemption
of a subsidiary's preferred stock, warrant and option agreements; and 5,954,200
shares have been reserved for issuance upon conversion of Newco Parent Series A
Preferred Stock. All outstanding shares of Newco Parent capital stock have been
duly authorized and validly issued and are fully paid and nonassessable. None of
the shares of Newco Parent's capital stock has been issued in violation of the
preemptive rights of any person. The shares of Newco Parent Class B Common Stock
to be issued in connection with the Merger will, as of the Closing Date, be duly
authorized and, when issued in accordance with the terms of this Reorganization
Agreement and the Plan of Merger, will be validly issued, fully paid,
nonassessable and free and clear of any preemptive rights.
3.2 Organization, Standing and Authority of Newco Parent
Newco Parent is a duly organized corporation, validly existing and in good
standing under the laws of Delaware, with full corporate power and authority to
carry on its business as now conducted and is duly licensed or
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qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires such qualification, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Newco Parent.
Newco Parent is qualified to do business under the laws of those jurisdictions
as Previously Disclosed.
3.3 Ownership of Newco Parent Subsidiaries; Capital Structure of Newco
Parent Subsidiaries
Newco Parent has no Subsidiary other than those disclosed in its annual
report on Form 10-K for the year ended June 30, 2000, Newco or any Subsidiary
that is not a significant subsidiary under Regulation S-X of the SEC. Other than
the Newco Parent Subsidiaries, no Subsidiary of Newco has any material assets or
material liabilities or carries on any business or has any operations. The
outstanding shares of capital stock of the Newco Parent Subsidiaries have been
duly authorized and validly issued and are fully paid and nonassessable and all
such shares are directly or indirectly owned by Newco Parent free and clear of
all liens, claims and encumbrances. No Newco Parent Subsidiary has or is bound
by any Rights which are authorized, issued or outstanding with respect to the
capital stock of any Newco Parent Subsidiary and there are no agreements,
understandings or commitments relating to the right of Newco Parent to vote or
to dispose of said shares. None of the shares of capital stock of any Newco
Parent Subsidiary has been issued in violation of the preemptive rights of any
person.
3.4 Organization, Standing and Authority of Newco Parent Subsidiaries
Each Newco Parent Subsidiary is a duly organized corporation, validly
existing and in good standing under applicable laws. Each Newco Parent
Subsidiary (i) has full power and authority to carry on its business as now
conducted, and (ii) is duly licensed or qualified to do business in the states
of the United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such licensing or qualification
and where failure to be licensed or qualified would have a Material Adverse
Effect on Newco Parent. Each Newco Parent Subsidiary has all federal, state,
local and foreign governmental authorizations necessary for it to own or lease
its properties and assets and to carry on its business as it is now being
conducted, except where the failure to be so authorized would not have a
Material Adverse Effect on Newco Parent. Each Newco Parent Subsidiary is
qualified to do business under the laws of those jurisdictions as Previously
Disclosed.
3.5 Authorized and Effective Agreement
(a) Each of Newco Parent and Newco has all requisite corporate power and
authority to enter into and perform all of its obligations under this
Reorganization Agreement, the Plan of Merger, the Option Agreement and the
Registration Rights Agreement and all other documents or agreements contemplated
hereby or thereby. The execution and delivery of this Reorganization Agreement,
the Plan of Merger, the Option Agreement and the Registration Rights Agreement
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action in respect
thereof on the part of Newco Parent and Newco. The Board of Directors of Newco
Parent has directed that the transactions contemplated by this Reorganization
Agreement and the Plan of Merger be submitted to Newco Parent's stockholders for
approval at a special meeting to be held as soon as practicable.
(b) Assuming the accuracy of the representation contained in Section 2.3(b)
hereof, this Reorganization Agreement, the Plan of Merger and the Option
Agreement constitute, and upon execution the Registration Rights Agreement will
constitute, legal, valid and binding obligations of each of Newco Parent and
Newco, as the case may be, in each case enforceable against it in accordance
with their respective terms subject, as to enforceability, to bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(c) Neither the execution and delivery of this Reorganization Agreement,
the Plan of Merger, the Option Agreement, or the Registration Rights Agreement,
nor consummation of the transactions contemplated hereby or thereby, nor
compliance by Newco Parent or Newco with any of the provisions hereof or thereof
shall (i) conflict with or result in a breach of any provision of the articles
or certificate of incorporation or bylaws of Newco Parent or any Newco Parent
Subsidiary, (ii) assuming the consents and approvals contemplated by Section 4.3
hereof and the consents and approvals which are Previously Disclosed are duly
obtained, constitute or result in a breach of any term, condition or provision
of, or constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of Newco Parent or any
Newco Parent Subsidiary pursuant to, any note, bond, mortgage,
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indenture, license, agreement or other instrument or obligation, or (iii)
assuming the consents and approvals contemplated by Section 4.3 hereof and the
consents and approvals which are Previously Disclosed are duly obtained, violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Newco Parent or any Newco Parent Subsidiary, except (in the case of clauses
(ii) and (iii) above) for such violations, rights, conflicts, breaches,
creations or defaults which, either individually or in the aggregate, would not
have a Material Adverse Effect on Newco Parent.
(d) Except for approvals specified in Section 4.3 hereof and except as
expressly referred to in this Reorganization Agreement, no consent, approval or
authorization of, or declaration, notice, filing or registration with, any
governmental or regulatory authority, or any other person, is required to be
made or obtained by Newco Parent or Newco on or prior to the Closing Date in
connection with the execution, delivery and performance of this Agreement and
the Plan of Merger or the consummation of the transactions contemplated hereby
or thereby.
3.6 SEC Documents
Newco Parent has filed all SEC Documents required by the Securities Laws
and such SEC Documents complied, as of their respective dates, in all material
respects with the Securities Laws.
3.7 Financial Statements; Books and Records; Minute Books
The Newco Parent Financial Statements prior to the date of this Agreement
fairly present, and the Newco Parent Financial Statements filed by Newco Parent
in SEC Documents after the date of the Agreement will fairly present, the
consolidated financial position of Newco Parent and its consolidated
Subsidiaries as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity and cash flows of Newco Parent and
its consolidated Subsidiaries for the periods then ended and each such financial
statement has been or will be, as the case may be, prepared in conformity with
generally accepted accounting principles applied on a consistent basis except as
disclosed therein and except in the case of unaudited statements, as permitted
by Form 10-Q. The books and records of Newco Parent and each Newco Parent
Subsidiary fairly reflect in all material respects the transactions to which it
is a party or by which its properties are subject or bound. Such books and
records have been properly kept and maintained and are in compliance in all
material respects with all applicable legal and accounting requirements. The
minute books of Newco Parent and the Newco Parent Subsidiaries contain records
which are accurate in all material respects of all corporate actions of its
stockholders and Board of Directors (including committees of its Board of
Directors).
3.8 Material Adverse Change
Newco Parent has not, on a consolidated basis, suffered any change in its
financial condition, results of operations or business since December 31, 2000
which individually or in the aggregate with any other such changes would
constitute a Material Adverse Effect with respect to Newco Parent and no event
or circumstance has occurred since December 31, 2000 that individually or in the
aggregate is reasonably likely to have a Material Adverse Effect on the
financial condition, results of operations or business of Newco Parent on a
consolidated basis.
3.9 Absence of Undisclosed Liabilities
Neither Newco Parent nor any Newco Parent Subsidiary has any liability
(contingent or otherwise), excluding contractually assumed contingencies, that
is material to Newco Parent on a consolidated basis, or that, when combined with
all similar liabilities, would be material to Newco Parent on a consolidated
basis as disclosed in the Newco Parent Financial Statements filed with the SEC
prior to the date hereof and except for liabilities incurred in the ordinary
course of business subsequent to June 30, 2000.
3.10 Properties
Newco Parent has good and marketable title free and clear of all liens,
encumbrances, charges, defaults or equitable interests to all of the properties
and assets, real and personal, which, individually or in the aggregate, are
material to the business of Newco Parent taken as a whole, and which are
reflected on the Newco Parent Financial Statements as of December 31, 2000 or
acquired after such date, except (i) liens for taxes not yet due and payable,
(ii) such imperfections of title, easements and encumbrances, if any, as are not
material in character, amount or extent and (iii) dispositions and encumbrances
for adequate consideration in arm's length transactions at fair market value in
the ordinary course of business. All leases pursuant to which Newco Parent, as
lessee, leases real and personal property which, individually or in the
aggregate, are material to the business of Newco Parent taken as a whole are
valid and enforceable in accordance with their respective terms except where the
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failure of such lease or leases to be valid and enforceable would not,
individually or in the aggregate, have a Material Adverse Effect on Newco
Parent. All tangible property used in the business of Newco Parent is in good
condition, reasonable wear and tear excepted, and is usable in the ordinary
course of business consistent with Newco Parent's past practices.
3.11 Tax Matters
(a) All Tax Returns required to be filed by or with respect to Newco Parent
and each Newco Parent Subsidiary have been timely filed, except where the
failure to file Tax Returns would not, in the aggregate, have a Material Adverse
Effect on Newco Parent. All such filed Tax Returns are true and correct in all
material respects. All Taxes due and owing by or with respect to Newco Parent or
any Newco Parent Subsidiary have been paid or adequate reserves have been
established on the Newco Parent Financial Statements for the payment of such
Taxes, except where any such failure to pay or establish adequate reserves would
not, in the aggregate, have a Material Adverse Effect on Newco Parent. Newco
Parent and each Newco Parent Subsidiary will not have any liability for any such
Taxes in excess of the amounts so paid or reserves or accruals so established
except where such liability would not have a Material Adverse Effect on Newco
Parent.
(b) None of Newco Parent or any Newco Parent Subsidiary has requested, nor
has there been granted, any extension of time within which to file any Tax
Returns with respect to Newco Parent or any Newco Parent Subsidiary which have
not since been filed. None of Newco Parent or any Newco Parent Subsidiary has
received any notice of assessment or proposed assessment in connection with any
Tax Returns filed by or with respect to Newco Parent or any Newco Parent
Subsidiary except as accrued on the Newco Parent Financial Statements, and there
are no pending material tax examinations of, or Tax claims asserted with respect
to, Newco Parent or any Newco Parent Subsidiary. There are currently no
agreements in effect with respect to Newco Parent or any Newco Parent Subsidiary
to extend the period of limitations for the assessment or collection of any Tax.
(c) None of Newco Parent or any Newco Parent Subsidiary is a party to any
agreement (other than an agreement exclusively among Newco Parent and a Newco
Parent Subsidiary) providing for the allocation or sharing of, or
indemnification for, Taxes.
(d) For purposes of this Section 3.11, (i) references to Newco Parent and
any Newco Parent Subsidiary shall include predecessors thereof and (ii) "Newco
Parent Subsidiary" shall include each Subsidiary (as defined in Article 1
hereof) of Newco Parent, and each corporation, partnership, limited liability
company, joint venture or other entity which Newco Parent controls directly or
indirectly (through one or more intermediaries). For purposes of the previous
sentence, "control" means the possession, direct or indirect, of the power
either (1) to vote fifty percent (50%) or more of the voting interests of a
corporation, partnership, limited liability company, joint venture or other
entity, or (2) to direct or cause the direction of the management and policies
of a corporation, partnership, limited liability company, joint venture or other
entity, whether by contract or otherwise.
3.12 Newco Parent Employee Benefit Plans
(a) Each material Newco Parent Plan has been Previously Disclosed. For
purposes of this Agreement, "Newco Parent Plan" means each bonus, deferred
compensation, incentive compensation, stock purchase, stock option, severance
pay, medical, life or other insurance, profit-sharing, or pension plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement or arrangement, sponsored, maintained or contributed to or required to
be contributed to by Newco Parent or by any trade or business, whether or not
incorporated, that together with Newco Parent would be deemed a "single
employer" under Section 414 of the Code (a "Newco Parent ERISA Affiliate").
(b) With respect to each of the Newco Parent Plans, Newco Parent has
heretofore delivered or made available to Company Parent true and complete
copies of each of the following documents: (i) the Newco Parent Plan and related
documents (including all amendments thereto); (ii) the two most recent annual
reports and financial statements, if any; (iii) the most recent summary plan
description, together with each summary of material modifications, required
under ERISA with respect to such Newco Parent Plan, and (iv) the most recent
determination letter received from the IRS with respect to each Newco Parent
Plan that is intended to be qualified under the Code and all material
communications to or from the IRS or any other governmental or regulatory
authority relating to each Newco Parent Plan.
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(c) No liability under Title IV of ERISA has been incurred by Newco Parent
or any Newco Parent ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to Newco Parent or any Newco
Parent ERISA Affiliate of incurring any liability under such Title.
(d) Neither Newco Parent nor any Newco Parent ERISA Affiliate, nor any of
the Newco Parent Plans, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction in connection with which
Newco Parent, any Newco Parent ERISA Affiliate, or any of the Newco Parent
Plans, could, directly or indirectly, be subject to a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA, a tax imposed pursuant to Section
4975, 4976, 4980B, or 4980D of the Code, or any similar civil penalty or tax. No
retirement benefit plan sponsored, maintained, contributed to or required to be
contributed to by Newco Parent or a current or past ERISA Affiliate of Newco
Parent has incurred an "accumulated funding deficiency" as defined under Code
Section 412.
(e) Full payment has been made, or will be made in accordance with Section
404(a) (6) of the Code, of all amounts that Newco Parent or any Newco Parent
ERISA Affiliate is required to pay under the terms of the Newco Parent Plans or
applicable law.
(f) No Newco Parent Plan is (i) subject to Section 412 of the Code or Title
IV of ERISA, (ii) a "multiemployer plan," as such term is defined in Section
3(37) of ERISA, (iii) a "multiple employer welfare arrangement," as such term is
defined in Section 3(40) of ERISA, or (iv) single employer plan that has two or
more contributing sponsors, at least two of whom are not under common control,
within the meaning of Section 4063(a) of ERISA.
(g) A favorable determination letter has been issued by the IRS with
respect to each of the Newco Parent Plans that is intended to be "qualified"
within the meaning of Section 401(a) of the Code, and no condition exists that
presents a material risk of any such letter being revoked. Each of the Newco
Parent Plans that is intended to satisfy the requirements of Section 125 or 501
(c) (9) of the Code satisfies such requirements in all material respects. Each
of the Newco Parent Plans has been operated and administered in all material
respects in accordance with its terms and applicable laws, including but not
limited to ERISA and the Code.
(h) There are no claims pending, or, to the knowledge of Newco Parent,
threatened or anticipated (other than routine claims for benefits) against any
Newco Parent Plan, the assets of any Newco Parent Plan, or against Newco Parent
or any Newco Parent ERISA Affiliate with respect to any Newco Parent Plan. There
are no pending or threatened audits or investigations by any governmental body,
commission or agency involving any Newco Parent Plan.
(i) Neither the execution of this Agreement nor the consummation of the
transactions contemplated hereby will result in, or is a precondition to, (a)
any employee of Newco Parent or any of its Affiliates becoming entitled to
severance pay or any similar payment, (b) the acceleration of the time of
payment or vesting, or an increase in the amount of, any compensation due to any
employee of Newco Parent or any of its Affiliates, or (c) the renewal or
extension of the term of any agreement regarding the compensation of any
employee of Newco Parent or any of its Affiliates.
3.13 Certain Contracts
(a) Neither Newco Parent nor any Newco Parent Subsidiary is a party to, nor
is bound by, (i) any material contract as defined in Item 601(b)(10) of
Regulation S-K of the SEC or any other material contract or similar arrangement
whether or not made in the ordinary course of business (other than loans or loan
commitments and funding transactions in the ordinary course of business of any
Newco Parent Subsidiary) or any agreement restricting the nature or geographic
scope of its business activities in any material respect, (ii) any agreement,
indenture or other instrument relating to the borrowing of money by Newco Parent
or any Newco Parent Subsidiary or the guarantee by Newco Parent or any Newco
Parent Subsidiary of any such obligation, other than instruments relating to
transactions entered into in the ordinary course of business, (iii) any
agreement, arrangement or commitment relating to the employment of a consultant
who was formerly a director or executive officer or the employment, election,
retention in office or severance of any present or former director or officer,
or (iv) any contract, agreement or understanding with a labor union, in each
case whether written or oral.
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(b) Neither Newco Parent nor any Newco Parent Subsidiary is in default
under any material agreement, commitment, arrangement, lease, insurance policy
or other instrument whether entered into in the ordinary course of business or
otherwise and whether written or oral, and there has not occurred any event
that, with the lapse of time or giving of notice or both, would constitute such
a default, except for such defaults which would not, individually or in the
aggregate, have a Material Adverse Effect on Newco Parent.
3.14 Legal Proceedings
There are no actions, suits or proceedings instituted, pending or, to the
knowledge of Newco Parent and Newco, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against Newco Parent, Newco or any Newco
Parent Subsidiary or against any asset, interest or right of Newco Parent or any
Newco Parent Subsidiary as to which there is a reasonable probability of an
unfavorable outcome and which, if such an unfavorable outcome was rendered,
would, individually or in the aggregate, have a Material Adverse Effect on Newco
Parent. To the knowledge of Newco Parent, there are no actual or threatened
actions, suits or proceedings which present a claim to restrain or prohibit the
transactions contemplated herein or to impose any material liability in
connection therewith as to which there is a reasonable probability of an
unfavorable outcome and which, if such an unfavorable outcome was rendered,
would, individually or in the aggregate, have a Material Adverse Effect on Newco
Parent. There are no actions, suits or proceedings instituted, pending or, to
the knowledge of Newco Parent, threatened (or unasserted but considered probable
of assertion and which if asserted would be reasonably expected to have an
unfavorable outcome) against any present or, to Newco Parent's knowledge, former
director or officer of Newco Parent, that would reasonably be expected to give
rise to a claim for indemnification and that (i) has a reasonable probability of
an unfavorable outcome and (ii) in the event of an unfavorable outcome, would,
individually or in the aggregate, have a Material Adverse Effect on Newco
Parent.
3.15 Compliance with Laws
Each of Newco Parent and the Newco Parent Subsidiaries is in compliance in
all material respects with all statutes and regulations applicable to the
conduct of its business, and none of them has received notification from any
agency or department of federal, state or local government (i) asserting a
material violation of any such statute or regulation, (ii) threatening to revoke
any license, franchise, permit or government authorization or (iii) restricting
or in any way limiting its operations, except for such noncompliance,
violations, revocations and restrictions which would not, individually or in the
aggregate, have a Material Adverse Effect on Newco Parent. None of Newco Parent
or any Newco Parent Subsidiary is subject to any regulatory or supervisory cease
and desist order, agreement, directive, memorandum of understanding or
commitment which could be reasonably anticipated to have a Material Adverse
Effect on Newco Parent, and none of them has received any communication
requesting that they enter into any of the foregoing.
3.16 Labor Matters
With respect to their employees, neither Newco Parent nor any Newco Parent
Subsidiary is a party to any labor agreement with any labor organization, group
or association and has not engaged in any unfair labor practice. Since January
1, 2001 and prior to the date hereof, Newco Parent and the Newco Parent
Subsidiaries have not experienced any attempt by organized labor or its
representatives to make Newco Parent or any Newco Parent Subsidiary conform to
demands of organized labor relating to their employees or to enter into a
binding agreement with organized labor that would cover the employees of Newco
Parent or any Newco Parent Subsidiary. To the knowledge of Newco Parent and the
Newco Parent Subsidiaries, there is no unfair labor practice charge or other
complaint by any employee or former employee of Newco Parent or any Newco Parent
Subsidiary against any of them pending before any court, arbitrator or
governmental agency arising out of Newco Parent's or such Newco Parent
Subsidiary's activities, which charge or complaint (i) has a reasonable
probability of an unfavorable outcome and (ii) in the event of an unfavorable
outcome would, individually or in the aggregate, have a Material Adverse Effect
on Newco Parent; there is no labor strike or labor disturbance pending or, to
the knowledge of Newco Parent and the Newco Parent Subsidiaries, threatened
against any of them; and neither Newco Parent nor any Newco Parent Subsidiary
has experienced a work stoppage or other material labor difficulty since January
1, 2001.
3.17 Brokers and Finders
Neither Newco Parent nor any Newco Parent Subsidiary, nor any of their
respective officers, directors or employees, has employed any broker, finder or
financial advisor or incurred any liability for any fees or commissions in
connection with the transactions contemplated herein or the Plan of Merger.
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Prior to the execution and delivery of this Agreement, Valuation Counselors has
delivered to the Board of Directors of Newco Parent an opinion that the Merger
is fair from a financial point of view to the stockholders of Newco Parent.
3.18 Insurance
Newco Parent and the Newco Parent Subsidiaries each currently maintains
insurance in amounts considered by Newco Parent and any Newco Parent Subsidiary
as applicable, to be reasonably necessary for their operations. Neither Newco
Parent nor any Newco Parent Subsidiary has received any notice of a material
premium increase or cancellation with respect to any of its insurance policies
or bonds, and within the last three years, neither Newco Parent nor any Newco
Parent Subsidiary has been refused any insurance coverage sought or applied for,
and Newco Parent has no reason to believe that existing insurance coverage
cannot be renewed as and when the same shall expire, upon terms and conditions
as favorable as those presently in effect, other than possible increases in
premiums or unavailability in coverage that have not resulted from any
extraordinary loss experience of Newco Parent or any Newco Parent Subsidiary.
Newco Parent and the Newco Parent Subsidiaries have Previously Disclosed a list
of all outstanding claims as of the date hereof by Newco Parent and the Newco
Parent Subsidiaries under any insurance policy.
3.19 Environmental Liability
Neither Newco Parent nor any Newco Parent Subsidiary has received any
written notice of any legal, administrative, arbitral or other proceeding, claim
or action and, to the knowledge of Newco Parent and the Newco Parent
Subsidiaries, there is no governmental investigation of any nature ongoing, in
each case that could reasonably be expected to result in the imposition, on
Newco Parent or any Newco Parent Subsidiary of any liability arising under an
Environmental Action, which liability would have a Material Adverse Effect on
Newco Parent; there are no facts or circumstances which could reasonably be
expected to form the basis for any proceeding, claim, action or governmental
investigation that would impose any liability in an Environmental Action; and
neither Newco Parent nor any Newco Parent Subsidiary is subject to any
agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any liability
in an Environmental Action.
3.20 Intellectual Property
Newco Parent or a Newco Parent Subsidiary owns the entire right, title and
interest in and to, or has valid licenses with respect to, all of the
Intellectual Property necessary to conduct the business and operations of Newco
Parent and the Newco Parent Subsidiaries as presently conducted, except where
the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Newco Parent and all such Intellectual Property has
been Previously Disclosed. The ownership, licensing or use of Intellectual
Property by Newco Parent or its Subsidiaries does not conflict with, infringe,
misappropriate or otherwise violate the Intellectual Property rights of any
other person or entity. None of such Intellectual Property is subject to any
outstanding order, decree, judgment, stipulation, settlement, lien, charge,
encumbrance or attachment, which order, decree, judgment, stipulation,
settlement, lien, charge, encumbrance or attachment would have a Material
Adverse Effect on Newco Parent.
3.21 Takeover Laws
Newco Parent and Newco have taken all action required to by taken by each
of them in order to exempt this Reorganization Agreement and the Plan of Merger
and the transactions contemplated hereby and thereby from, and this
Reorganization Agreement and the Plan of Merger and the transactions
contemplated hereby and thereby are exempt from, the requirements of any
"moratorium," "control share," "fair price," "affiliate transaction," "business
combination," or other antitakeover laws and regulations of any state
(collectively, "Takeover Laws"), including, without limitation, the State of
Delaware.
3.22 Tax Treatment
Neither Newco Parent nor any Newco Parent Subsidiary has taken or agreed to
take any action or is aware of any facts or circumstances that might prevent or
impede the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
3.23 Merger Consideration
Newco Parent will have, at the Effective Date (as defined in Article 4
hereof), unissued shares of Newco Parent Class B Common Stock sufficient to
provide the Merger Consideration that are not reserved for any other purpose.
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Article IV.
COVENANTS
4.1 Stockholders' Meeting
Newco Parent shall submit this Reorganization Agreement and the Plan of
Merger and the issuance of Newco Parent Class B Common Stock thereunder and the
amendment to its certificate of incorporation and bylaws as set forth in Annex D
to its stockholders for approval at a special meeting to be held as soon as
reasonably practicable. Subject to the fiduciary duties of the board of
directors of Newco Parent as determined after consultation with counsel, the
board of directors of Newco Parent shall recommend that the stockholders of
Newco Parent vote to approve such matters submitted.
4.2 Proxy Statement
As promptly as reasonably practicable after the date hereof, Newco Parent
shall prepare the Proxy Statement to be mailed to the stockholders of Newco
Parent in connection with this Agreement and the transactions contemplated
hereby.
4.3 Applications
As promptly as reasonably practicable after the date hereof, each of the
parties hereto shall, and they shall cause their respective subsidiaries to,
submit any applications, notices or other filings to any other state or federal
government agency, department or body the approval of which is required for
consummation of the Merger. The Company and Newco Parent each represents and
warrants to the other that all information concerning it and its directors,
officers, stockholders and subsidiaries included (or submitted for inclusion) in
any such application and furnished by it shall be true, correct and complete in
all material respects.
4.4 Best Efforts
(a) Subject to the terms and conditions of this Agreement, Newco Parent,
Newco, Company Parent and the Company shall each use its reasonable efforts in
good faith, and each of them shall cause its Subsidiaries to use their
reasonable efforts in good faith, to (i) furnish such information as may be
required in connection with the preparation of the documents referred to in
Sections 4.2 and 4.3 above, subject to the provisions of Section 4.23 and (ii)
take or cause to be taken all action necessary or desirable on its part so as to
permit consummation of the Merger at the earliest possible date, including,
without limitation, (1) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or professional entity
whose consent or approval is required for consummation of the transactions
contemplated hereby, and (2) requesting the delivery of appropriate opinions,
consents and letters from its counsel and independent auditors. Subject to the
terms and conditions of this Agreement, no party hereto shall take or fail to
take, or cause or permit its Subsidiaries to take or fail to take, or to the
best of its ability permit to be taken or omitted to be taken by any third
persons, any action that would substantially impair the prospects of completing
the Merger pursuant to this Reorganization Agreement and the Plan of Merger,
that would materially delay such completion, or that would adversely affect the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code. In the event that either party has taken any action, whether
before, on or after the date hereof, that would adversely affect such
qualification, each party shall take such action as the other party may
reasonably request to cure such effect to the extent curable without a Material
Adverse Effect on either of the parties.
(b) The Company shall give prompt notice to Newco Parent, and Newco Parent
shall give prompt notice to the Company, of (i) the occurrence, or failure to
occur, of any event which occurrence or failure would be reasonably likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate at any time from the date hereof to the Closing Date such that the
condition set forth in Section 5.2(a) or 5.3(a), as applicable, would not be met
if such failure to be true or accurate were to occur or be continuing on the
Closing Date, and (ii) any material failure of the Company or Newco Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder, and each party shall use all
reasonable best efforts to remedy such failure.
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(c) Each party shall provide and shall request its auditors to provide the
other party with such historical financial information regarding it (and related
audit reports and consents) as the other party may reasonably request for
disclosure purposes under the Securities Laws.
4.5 Investigation and Confidentiality
The Company and Newco Parent each will keep the other advised of all
material developments relevant to its business and to consummation of the
transactions contemplated herein and in the Plan of Merger. Newco Parent and the
Company each may make or cause to be made such investigation of the financial
and legal condition of the other as such party reasonably deems necessary or
advisable in connection with the transactions contemplated herein and in the
Plan of Merger, provided, however, that such investigation shall be reasonably
related to such transactions and shall not interfere unnecessarily with normal
operations. Newco Parent and the Company agree to furnish the other and the
other's advisors with such financial data and other information with respect to
its business and properties as such other party shall from time to time
reasonably request. No investigation pursuant to this Section 4.5 shall affect
or be deemed to modify any representation or warranty made by, or the conditions
to the obligations to consummate the Merger of, any party hereto. Each party
hereto shall hold all information furnished by the other party or any of such
party's Subsidiaries or representatives pursuant to this Agreement in confidence
to the extent required by, and in accordance with, the provisions of the
confidentiality agreement, dated January 11, 2001, between Company Parent and
Newco Parent (the "Confidentiality Agreement").
4.6 Press Releases
The Company and Newco Parent shall agree with each other as to the form and
substance of any press release related to this Reorganization Agreement and the
Plan of Merger or the transactions contemplated hereby or thereby, and shall
consult each other as to the form and substance of other public disclosures
related thereto, provided, however, that nothing contained herein shall prohibit
any party, following notification to the other parties, from making any
disclosure which is required by applicable law or Nasdaq rules.
4.7 Actions Pending the Merger
(a) Prior to the Closing Date, and except as otherwise provided for by this
Reorganization Agreement and the Plan of Merger, or consented to or approved by
the other parties hereto, each of Newco Parent and the Company shall, and shall
cause each of its Subsidiaries to, use its reasonable best efforts to preserve
its properties, business and relationships with customers, employees and other
persons.
(b) The Company shall not, and to the extent applicable as regards its
relationship with the Company, Company Parent shall itself not and shall cause
its Affiliates to not, except with the prior written consent of Newco Parent
which will not be unreasonably withheld and except as Previously Disclosed or
expressly contemplated or permitted by this Agreement or the Plan of Merger:
(i) carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted;
(ii) declare, set aside, make or pay any dividend or other distribution in
respect of its capital stock other than distributions to Company Parent in
the ordinary course consistent with past practices;
(iii) issue any shares of its capital stock or permit any treasury shares
to become outstanding other than pursuant to Rights outstanding and
Previously Disclosed at the date hereof;
(iv) incur any additional debt obligation or other obligation for borrowed
money other than in the ordinary course of business consistent with past
practice;
(v) issue, grant or authorize any Rights or effect any recapitalization,
reclassification, stock dividend, stock split or like change in
capitalization, or redeem, repurchase or otherwise acquire any shares of
its capital stock;
(vi) amend its certificate of incorporation or bylaws;
(vii) merge with any other corporation or permit any other corporation to
merge into it or consolidate with any other corporation; acquire control
over any other corporation or organization or create any Subsidiary;
(viii) waive or release any material right or cancel or compromise any
material debt or claim;
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(ix) liquidate or sell or dispose of any material assets or acquire any
material assets; except as Previously Disclosed, make any capital
expenditure in excess of $500,000 in any instance or $2,000,000 in the
aggregate;
(x) increase the rate of compensation of, pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees except in a manner consistent with past
practice or as required by law or contractual obligation in effect as of
the date hereof;
(xi) change its methods of accounting in effect at December 28, 2000,
except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants; or
(xii) agree to do any of the foregoing.
(c) Newco Parent shall not, and shall not permit any of the Newco Parent
Subsidiaries to, except with the prior written consent of the Company Parent or
as expressly contemplated or permitted by this Agreement or the Plan of Merger:
(1) carry on its business other than in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted;
(2) declare, set aside, make or pay any dividend or other distribution in
respect of its capital stock except as Previously Disclosed;
(3) issue any shares of its capital stock or permit any treasury shares to
become outstanding other than pursuant to Rights outstanding at the date hereof;
(4) incur any additional debt obligation or other obligation for borrowed money
other than in the ordinary course of business consistent with past practice;
(5) issue, grant or authorize any Rights or effect any recapitalization,
reclassification, stock dividend, stock split or like change in capitalization,
or redeem, repurchase or otherwise acquire any shares of its capital stock;
(6) amend its certificate of incorporation or bylaws;
(7) merge with any other corporation or permit any other corporation to merge
into it or consolidate with any other corporation; acquire control over any
other corporation or organization or create any Subsidiary;
(8) waive or release any material right or cancel or compromise any material
debt or claim;
(9) liquidate or sell or dispose of any material assets or acquire any material
assets; except as Previously Disclosed, make any capital expenditure in excess
of $500,000 in any instance or $2,000,000 in the aggregate;
(10) increase the rate of compensation of, pay or agree to pay any bonus to, or
provide any other employee benefit or incentive to, any of its directors,
officers or employees except in a manner consistent with past practice or as
required by law or contractual obligation in effect as of the date hereof;
(11) change its methods of accounting in effect at December 31, 2000, except as
required by changes in generally accepted accounting principles concurred in by
its independent certified public accountants;
(12) authorize or permit any of its officers, directors, employees or agents to
directly or indirectly solicit or initiate any inquiries relating to, or the
making of any proposal which constitutes, a "Takeover Proposal" (as defined
below), or, except to the extent legally required in the judgment of Newco
Parent's Board of Directors after consultation with outside counsel for the
discharge of the fiduciary duties of its Board of Directors, recommend or
endorse any Takeover Proposal, or participate in any discussions or
negotiations, or provide third parties with any material nonpublic information,
relating to any such inquiry or proposal or otherwise knowingly facilitate any
effort or attempt to make or implement a Takeover Proposal; provided, however,
that the Newco Parent may communicate information about any such Takeover
Proposal to its stockholders if, in the judgment of the Newco Parent's Board of
Directors, after consultation with outside counsel, such communication is
necessary in order to comply with its fiduciary duties to the Newco Parent's
stockholders required under applicable law. Newco Parent will take all actions
necessary or advisable to inform the appropriate individuals or entities
referred to in the first sentence of this subsection 12 of the obligations
undertaken herein. Newco Parent will notify Company Parent promptly if any such
inquiries or Takeover Proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, Newco Parent, and Newco Parent will promptly inform
Company Parent in writing of all of the relevant details with respect to the
foregoing. As used in this Agreement, "Takeover Proposal" shall mean any tender
or exchange offer, proposal for a merger, consolidation or other business
combination involving Newco Parent or any proposal or offer to acquire in any
manner a substantial equity interest in, or a substantial portion of the assets
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of, Newco Parent other than the transactions contemplated or permitted by this
Agreement, and the Plan of Merger; or
(13) agree to do any of the foregoing.
4.8 Closing; Certificate of Merger and Articles of Merger
The transactions contemplated by this Reorganization Agreement and the Plan
of Merger shall be consummated at a closing ("Closing") to be held at the
offices of Nixon Peabody LLP, 437 Madison Avenue, New York, NY 10022 on the
third business day following satisfaction of the conditions to consummation of
the Merger set forth in Article 5 hereof (other than such conditions relating to
the actions to be taken at the Closing) or such later date as may be mutually
specified by Newco Parent and Company Parent. In connection with such Closing,
Newco shall execute (a) a certificate of merger and shall cause such certificate
to be delivered to the Delaware Secretary of State in accordance with Section
251(c) of the Delaware General Corporation Law and (b) articles of merger and
shall cause such articles to be delivered to the State Corporation Commission of
Virginia. The Merger shall be effective at the time and on the date such
certificate of merger has been accepted for filing by the Delaware Secretary of
State and such articles of merger have been accepted for filing by the State
Corporation Commission of Virginia, or on the date specified therein as mutually
agreed by the parties hereto (the "Effective Date").
4.9 Employee Matters
(a) At least ten (10) days prior to the Closing Date, the Company and
Company Parent shall provide to Newco and Newco Parent a list of employees of
the Company who are not to be employed by Newco following the Closing Date (the
"Non-Continuing Employees"). All costs associated with any severance of the
Non-Continuing Employees shall be accrued on the books of the Company and paid
by Newco following the Merger. Other than the Non-Continuing Employees, Newco
Parent and Newco agree that each person who is an employee of the Company as of
the Closing Date (individually, a "Continuing Employee" and collectively, the
"Continuing Employees") shall be an employee of Newco immediately following the
Closing Date except for such employees as Previously Disclosed. After the
Closing Date, each Continuing Employee, while employed by Newco or any of its
Affiliates shall be employed (i) at a base salary or base hourly wage that is
not less than that which such Continuing Employee was receiving immediately
prior to the Closing Date, and (ii) on terms and conditions that are no less
favorable to the Continuing Employee than those applicable to other similarly
situated employees of Newco Parent and its Affiliates.
(b) Commencing immediately following the Closing Date, Newco Parent shall
cause the Continuing Employees, while employed by Newco, Newco Parent or any of
Newco Parent's Affiliates, to be eligible to participate in Newco Parent Plans
that provide employee benefits (including but not limited to pension, welfare,
incentive compensation, severance, and vacation pay benefits) that are not less
favorable to the Continuing Employees than those afforded to other similarly
situated employees of Newco Parent and its Affiliates. Newco Parent shall cause
the Newco Parent Plans that cover the Continuing Employees or any of their
dependents or beneficiaries to treat the employment and service of the
Continuing Employees with the Company, its Affiliates and any predecessor
employers through the Closing Date as employment and service with Newco Parent
and its Affiliates for all purposes under Newco Parent Plans. The Continuing
Employees and their dependents and beneficiaries shall not be required for
calendar year 2001 to satisfy any deductible, co-payment, out-of pocket maximum
or similar requirements under Newco Parent Plans that provide medical, dental
and other welfare benefits to the extent of amounts previously credited for such
purposes under the medical, dental and other welfare benefit plans of Company
Parent and its Affiliates that covered the Continuing Employees prior to the
Closing Date (the "Company Parent Welfare Plans"), and any waiting periods,
pre-existing condition exclusions and requirements to show evidence of good
health contained in such Newco Parent Plans shall not apply with respect to the
Continuing Employees and their dependents and beneficiaries, (i) except to the
extent that any waiting period, pre-existing condition exclusion, or requirement
to show evidence of good health applied prior to the Closing to limit or deny
coverage to a Continuing Employee or any dependent or beneficiary thereof under
a Company Parent Welfare Plan and (ii) except to the extent that Newco Parent
has Previously Disclosed that Newco Parent Plans are offered through an
insurance company that would not allow the waiver of any waiting periods,
pre-existing condition exclusion or requirement to show evidence of good health.
The Continuing Employees shall receive full credit under Newco Parent's vacation
plan or policy for all unused vacation credited to the Continuing Employees as
of the Closing Date.
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(c) Following the Closing Date, Newco Parent and its Affiliates shall have
sole liability and obligation for (i) all wages, commissions, employee
withholdings, or taxes relating to the employment of the Continuing Employees
and all other current or former employees of the Company, (ii) any workers'
compensation or similar workers' protection claims with respect to the
Continuing Employees that relate to an incident that occurs on or after the
Closing Date, and (iii) all short-term disability benefits, sick pay or salary
continuation rights relating to events occurring prior to, on or after the
Closing Date with respect to the Continuing Employees and all other current or
former employees of the Company. Except as set forth in the previous sentence,
Company Parent shall be solely responsible for all liabilities and/or benefits
payable to current or former Company employees under the employee benefit plans
maintained by Company Parent that covered the Company's employees prior to the
Closing Date (the "Company Parent Plans") and shall retain all liabilities and
responsibilities relating to Company Parent Plans.
(d) If a Continuing Employee's employment is terminated by Newco Parent or
any of its Affiliates within one (1) year after the Closing Date, such
Continuing Employee shall be entitled to severance benefits from Newco Parent
and its Affiliates that are not less than those provided to other similarly
situated employees of Newco Parent and its Affiliates whose employment is
terminated by such companies after similar longevity of employment (determined
taking into account employment service with the Company and its Affiliates prior
to the Closing Date in accordance with Section 4.9(b) hereof).
(e) Prior to the Closing Date, the Board of Directors of Newco Parent will
take such action as may be required to set the number of directors of Newco
Parent at seven and to elect as directors of Newco Parent, effective as of the
Closing Date, three individuals designated by Company Parent to serve as
directors of Newco Parent as required under Article FOURTH, Section D(2) of the
Amended and Restated Certificate of Incorporation of Tekinsight.com, Inc.
4.10 Tax-Free Reorganization
Each party to this Agreement shall use its best efforts to cause the
Merger to qualify, and shall not take any action which could prevent the Merger
from qualifying, as a reorganization within the meaning of Section 368(a) of the
Code.
4.11 Post-Closing Tax Matters
(a) After the Closing Date, each of Newco Parent and the Company Parent
shall (and shall cause their respective Subsidiaries to) cooperate fully, as and
to the extent reasonably requested by the other party, in connection with filing
of Tax Returns with respect to the Company and in any audit, litigation or other
proceeding with respect to Taxes of the Company. Such assistance and cooperation
shall include, but is not limited to, the following:
(i) assist the other party in preparing any Tax Returns which such
other party is responsible for preparing and filing;
(ii) cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding, any Tax Returns with respect to the Company;
(iii) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to Taxes
with respect to the Company; and
(iv) provide timely notice to the other in writing of any pending or
threatened Tax audits or assessments with respect to the Company for taxable
periods for which the other party may have liability, and furnish the other
party with copies of all correspondence received from any taxing authority in
connection with any Tax audit or information request with respect to any taxable
period.
(b) Commencing on the Closing Date, Newco Parent shall (and shall cause its
Subsidiaries to) retain until 90 days after the expiration of any applicable
statutes of limitations, and the Company Parent shall have access to, and the
right to copy, at its expense, during usual business hours upon reasonable prior
notice to Newco Parent, copies of all Tax Returns, work schedules and other
books, records or information which Newco Parent or any of its Subsidiaries
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possesses relating to the Company and which may be reasonably required by the
Company Parent in connection with its Tax matters (including as may be necessary
to enable the Company Parent to prepare for or to respond to any Tax audit).
4.12 Insurance Matters.
(a) Effective as of the Closing Date: (i) Company Parent will terminate or
cause its Affiliates to terminate all coverage relating to the Company and its
businesses, assets and current or former employees under the general corporate
policies of insurance, cancelable surety bonds and hold harmless agreements of
Company Parent for the benefit of the Company, the identities of and the terms
of which shall be Previously Disclosed (provided that no such termination of
occurrence liability policies shall be effected so as to prevent Newco (as
successor to the Company) from recovering under such policies for losses from
events occurring prior to the Closing Date); and (ii) Newco Parent shall become
solely responsible for all insurance coverage and related risk of loss based on
events occurring on and after the Closing Date with respect to the Company as
merged into Newco and its businesses, assets and current or former employees.
Commencing as of the Closing Date, Newco Parent shall also be solely responsible
for, and shall indemnify, defend and save Company Parent and its Affiliates
harmless from, all losses, liabilities, claims, damages and expenses relating to
the Company and its businesses, assets and current or former employees, except
in instances in which such losses, liabilities, claims, damages and expenses
relate to matters resulting from a material breach of covenants and agreements
that was not known by Newco or Newco Parent as of the Closing Date, or the
non-disclosure of which was a material breach of representations and warranties
that was not known by Newco or Newco Parent as of the Closing Date, by the
Company or Company Parent under this Reorganization Agreement, the Plan of
Merger, the Confidentiality Agreement or any ancillary agreement contained in
Annexes to this Reorganization Agreement.
(b) Notwithstanding clause (a), to the extent that (i) any insurance
policies controlled by Company Parent and its Affiliates ("Company Parent's
Insurance Policies"), cover any loss, liability, claim, damage or expense
relating to the Company or its businesses, assets and current or former
employees ("Company Liabilities") and relating to or arising out of occurrences
prior to the Closing Date and (ii) Company Parent's Insurance Policies continue
after the Closing to permit claims to be made thereunder with respect to Company
Liabilities relating to or arising out of occurrences prior to the Closing Date
("Company Claims"), Company Parent shall cooperate and cause its Affiliates to
cooperate with Newco Parent and Newco in submitting Company Claims (or pursuing
Company Claims previously made) on behalf of Newco Parent or Newco under Company
Parent's Insurance Policies; provided that Company Parent shall be under no
obligation to commence or maintain litigation to enforce any Company Claim and
that Newco Parent shall reimburse, indemnify and hold Company Parent and its
Affiliates harmless from all liabilities, costs and expenses (including all
present or future premiums, deductibles, legal and administrative costs,
attorney's fees, overhead and costs of compliance under Company Parent's
Insurance Policies) of any nature actually incurred by Company Parent or its
Affiliates as a result of Company Claims made under Company Parent's Insurance
Policies. Upon the incurrence of any such liability, cost or expense relating to
Company Claims made under Company Parent's Insurance Policies and upon receipt
from Company Parent of a statement of the amount of such liabilities, costs and
expenses in reasonable detail, from time to time, Newco Parent shall make
payment promptly to Company Parent or its Affiliates of the amount indicated in
such statement.
(c) To the extent that, after the Closing Date, Newco Parent or Company
Parent requires any information regarding claim data, payroll or other
information in order to make filings with insurance carriers or self insurance
regulators, Company Parent shall promptly supply such information to Newco
Parent and Newco Parent shall promptly supply such information to Company
Parent.
4.13 Assumption of Proceedings.
Except for any matters relating to Taxes (which matters shall be governed
by the provisions of Section 4.11) and actions, suits or proceedings instituted
or pending against the Company or against any asset, interest or right of the
Company that have not been Previously Disclosed (or arise after the date hereof
and are disclosed to Newco Parent prior to the Closing Date) as to which there
is a reasonable probability of an unfavorable outcome and which, if such an
unfavorable outcome was rendered, would have a Material Adverse Effect
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on the Company, from and after the Closing Date, Newco Parent agrees to and
shall, or shall cause Newco to, assume the defense of and indemnify and hold
Company Parent and its affiliates harmless from and against any and all actions,
suits, claims and administrative or other proceedings of every kind and nature
instituted or pending against Company Parent or any of its affiliates at any
time before or after the Closing Date that relate to or arise out of (but only
to the extent that such proceedings relate to or arise out of) the assets,
business, operations, conduct, products and/or employees (including former
employees) of the Company (and any predecessors), whether relating to or arising
out of occurrences prior to or after the Closing Date. At the request of Company
Parent, Newco Parent shall assume and conduct the defense of any matters assumed
by it pursuant to this Section and Company Parent and its Affiliates shall
cooperate in such defense to the extent reasonably requested by Newco Parent.
4.14 Intercompany Indebtedness and Intercompany Tax Settlement.
(a) Except as set forth in Section 4.14(b), on or immediately prior to the
Closing Date, the Company and Company Parent shall cause all intercompany
indebtedness between the Company and Company Parent to be capitalized.
(b) On or immediately prior to the Closing Date, the Company and Company
Parent shall cause all intercompany Tax accounts to be settled and paid.
4.15 Name and Mark.
(a) From and after the Closing Date, Newco and Newco Parent shall not own
or license any rights to, the name "DynCorp", any derivative of the name
"DynCorp" (including, without limitation, the use of any product name containing
a derivative of the name "DynCorp") or any other name, designation or symbol
which consists of or includes any trade name, trademark or service mark owned or
used by Company Parent or any of its Subsidiaries (including the Company) prior
to the Closing Date, and shall not own or license any rights to use any other
designation indicating affiliation after the Closing Date with Company Parent or
any of its Subsidiaries. From and after the Closing Date, Newco and Newco
Parent, at their own expense, shall cause the Company/Newco to change all names
on all signage and all stationery, contracts, and other business forms and
documents to names which (i) do not use the name "DynCorp", any derivative of
the name "DynCorp" or any other name, designation or symbol which consists of or
includes any trade name, trademark or service mark owned or used by Company
Parent or any of its Subsidiaries (including the Company) prior to the Closing
Date and (ii) are not in any way similar to the name of Company Parent or any of
its Subsidiaries; provided, however, that Newco shall have the right to use
existing stationary, forms, labels, product literature, invoices, purchase
orders and other similar documents containing the name of the Company until the
earlier of 60 days after the Closing or such time as such supplies are
exhausted. Upon Company Parent's request therefor, Newco Parent will provide
Company Parent with a certificate signed on behalf of Newco Parent by an
appropriate officer thereof to the effect that the provisions of paragraph (a)
of this Section 4.15 have been complied with.
(b) Newco and Newco Parent acknowledge that a breach of their obligations
under this Section 4.15 would cause Company Parent irreparable injury and that
damages would be inadequate, and that therefore Company Parent shall have the
right to an injunction or other equitable relief in any court of competent
jurisdiction enjoining such breach. The existence and exercise of this right
shall not preclude any other rights and remedies Company Parent may have at law
or in equity or otherwise.
4.16 Post-Closing Cooperation; Surety Bonds.
(a) Company Parent, Newco and Newco Parent agree that so long as any books,
records and files relating to the business, properties, assets or operations of
the Company, to the extent that they pertain to the operations of the Company
prior to the Closing Date, remain in existence and available (which shall be for
a period of not less than six years after the Closing Date, or such longer
period as may be required by applicable law), each party (at its expense) shall
have the right to inspect and to make copies of the same at any time during
normal business hours for any proper purpose.
(b) Company Parent agrees that it shall preserve, through and for a period
not to exceed 365 days after the Closing Date, all surety or other bonds
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that are currently in place with respect to any outstanding contracts and
agreements to which the Company is a party; provided, that Newco and Newco
Parent use their good faith best efforts to replace Company Parent's role in
support of such surety or other bonds as soon as reasonably practicable
following the Closing Date and provided further that Newco Parent shall
indemnify and hold Company Parent and its affiliates harmless from and against
any and all losses and damages relating to, or claims under, any of such surety
or other bonds that have been so preserved.
4.17 Working Capital Facility.
Newco Parent shall use its best efforts to secure a firm irrevocable
financing commitment and/or credit facility on prevailing market terms and
conditions under which, collectively, no less that $20 million of financing will
be available to Newco to support and finance its operations for a period of at
least 2 years subsequent to the Closing (the "Financing"), contingent only upon
the Closing. Company Parent shall cooperate in supporting Newco Parent's efforts
in this regard.
4.18 Management Matters.
On or before the Closing Date, Company Parent and Newco Parent shall agree
as to the officers of Newco following the Merger and thereafter Company Parent
shall use its best efforts to cause any officers of the Company who are not to
continue as officers of Newco following the Merger to resign such offices;
provided, however, that all costs associated with any such severance shall be
accrued on the books of the Company and paid by Newco following the Merger.
4.19 Guarantee Covenant.
(a) Company Parent shall use good faith reasonable efforts to obtain the
release of the Company for each and every guarantee by the Company of
obligations of Company Parent or an Affiliate of Company Parent. If Company
Parent is unable to effect such a release with respect to such guarantees after
using good faith reasonable efforts to do so, Company Parent hereby agrees to
indemnify Newco Parent and Newco from any losses or damages arising from such
guarantees.
(b) Newco Parent shall use good faith reasonable efforts to obtain the
release of Company Parent and its Affiliates for each and every guarantee by
Company Parent or an Affiliate of Company Parent of obligations of the Company.
If Newco Parent is unable to effect such a release with respect to such
guarantees after using good faith reasonable efforts to do so, Newco Parent
hereby agrees to indemnify Company Parent and all Affiliates of Company Parent
and Newco from any losses or damages arising from such guarantees. Without
limiting the foregoing, after the Closing Date, Newco Parent and Newco will not,
and will not permit any of their Affiliates to, renew, extend, amend or
supplement any loan, contract, lease or other obligation that is covered by any
such guarantee without providing Company Parent with evidence reasonably
satisfactory to Company Parent that the guarantees by Company Parent and its
Affiliates have been released. Any cash or other collateral posted by Company
Parent or an Affiliate of Company Parent (other than the Company) in respect of
any such guarantee shall be delivered to Company Parent.
4.20 TechServ Agreement.
Neither Company Parent nor the Company shall take any action to terminate
or cancel the Agreement, to be dated as of October 1, 2000 between the Company
and TechServ LLC, other than in the event of a breach of such agreement by
TechServ LLC.
4.21 Non-Competition.
Company Parent agrees that neither it nor any of its Subsidiaries shall,
for a period of three (3) years after the Closing Date, compete directly or
indirectly with Newco or Newco Parent and its Subsidiaries (including, without
limitation, by seeking business opportunities, responding to requests for bids
or other proposals, and by performing contracts) for revenue producing service
contracts with state and local government agencies in the state and local
government markets (which shall refer to vertical lines of business and not
geographic areas) in which the Company and Newco Parent's Subsidiaries are
actively engaged in business as of the Closing Date; provided, however, that
such restriction shall not apply, and Company Parent and its Subsidiaries shall
be free at all times to pursue and perform any and all of the following
contracts secured before, during and after the aforementioned restriction
period:
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(a) Contracts and business in the health-related, transportation, law
enforcement and public safety markets pursued by Company Parent's Subsidiaries,
AdvanceMed Corporation, DynRide LLC, DynCorp Information and Enterprise
Technology, Inc. and DynCorp Information Systems, respectively;
(b) Any and all business that is conducted by Company Parent or any of its
Subsidiaries under or in connection with, or as an outgrowth of, any federal
government contract regardless of when awarded to Company Parent or a
Subsidiary;
(c) Any and all business that is conducted by Company Parent or any of its
Subsidiaries under any non-federal government contract that is in effect as of
the Closing Date (other than contracts that are currently being performed, or
are presently contemplated to be performed, by the Company);
(d) Any and all business that is conducted at any time by any business or
entity that may be acquired by Company Parent or any of its Subsidiaries, so
long as the aggregate revenue of such business or entity from contracts with
state and local governments does not exceed, in the year of acquisition, more
than the lesser of 15% of total annual revenue of such acquired business or
entity or $7,500,000;
(e) Any and all business that is conducted by an Affiliate of Company
Parent that is not a Subsidiary consolidated with Company Parent (or its parent)
for financial reporting purposes;
(f) Any and all business that is conducted by (i) any Subsidiary of Company
Parent subsequent to Company Parent's complete divestiture of such Subsidiary or
(ii) any non-affiliated third party that purchases any portion of Company
Parent's or any of its Subsidiaries' business;
(g) Any and all business under contracts or proposals of any Subsidiary of
Company Parent (other than the Company) outstanding as of the Closing Date with
other than state and local government agencies, but for services ultimately
beneficial, directly or indirectly, to a state or local government;
(h) Contracts to provide information technology desk top or "seat"
management hardware and services to a state or local government agency if, after
reasonable notice of the opportunity by Company Parent or a Subsidiary to Newco
or Newco Parent, Newco or Newco Parent has failed to actively seek or pursue
such opportunity; and
(i) Investments in any business that may be involved in providing services
to state and local government agencies so long as the securities of such
businesses are publicly traded and the aggregate investment by Company Parent
does not exceed 1% of the total outstanding securities in which the investment
is made.
4.22 Outstanding Common Stock Equivalents.
Newco Parent shall take all action necessary to ensure that effective as of
the Closing Date, the terms of all options, warrants, rights or other securities
of Newco Parent or any Subsidiary of Newco Parent that are convertible into
shares of Newco Parent Common Stock have been amended or modified in such a
manner that such options, warrants, rights or other securities are convertible
into shares of Class A Common Stock, par value $0.0001 per share, of Newco
Parent.
4.23 Company Financial Statements.
Within thirty (30) days following the Closing Date, Company Parent and the
Company shall deliver to Newco Parent audited and unaudited financial statements
of the Company necessary to meet applicable Securities Laws requirements for
inclusion in the Proxy Statement, which audited financial statements shall
include, but not be limited to, balance sheets for each of the Company's last
two fiscal years and related statements of income, cash flow and equity for each
of the last three fiscal years, necessary footnote disclosure and an unqualified
opinion from an independent certified public accountant reasonably acceptable to
Newco Parent.
Article V.
CONDITIONS PRECEDENT
5.1 Conditions Precedent to Obligations of Newco Parent, Newco, Company
Parent and the Company
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The respective obligations of the parties to effect the Merger shall be
subject to satisfaction or waiver of the following conditions at or prior to the
Closing Date:
(a) All corporate action necessary to authorize the execution, delivery and
performance of this Reorganization Agreement and the Plan of Merger and
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken;
(b) The parties hereto shall have received all regulatory approvals
required or mutually deemed necessary in connection with the transactions
contemplated by this Reorganization Agreement and the Plan of Merger, all notice
periods and waiting periods required after the granting of any such approvals
shall have passed and all conditions contained in any such approval required to
have been satisfied prior to consummation of such transactions shall have been
satisfied, provided, however, that no such approval shall have imposed any
condition or requirement that, in the reasonable good faith opinion of the Board
of Directors of Newco Parent or the Company so materially and adversely affects
the anticipated economic benefits to Newco Parent or the Company, respectively,
of the transactions contemplated by this Agreement as to render consummation of
such transactions inadvisable;
(c) To the extent that any lease, license, loan, financing agreement or
other contract or agreement to which the Company, Company Parent, Newco Parent
or Newco is a party requires the consent of or waiver from the other party
thereto as a result of the transactions contemplated by this Agreement, such
consent or waiver shall have been obtained, unless the failure to obtain such
consents or waivers, individually or in the aggregate, would not have a Material
Adverse Effect on Newco Parent;
(d) None of the parties hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the transactions contemplated by this
Reorganization Agreement and the Plan of Merger;
(e) Company Parent shall have received an opinion of Arnold & Porter, and
Newco Parent shall have received an opinion of Nixon Peabody LLP, in each case
in form and substance reasonably satisfactory to the Company Parent and Newco
Parent, as the case may be, dated as of the Closing Date, substantially to the
effect that, on the basis of facts, representations and assumptions set forth or
referred to in such opinion, the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
The issuance of such opinions shall be conditioned on the receipt of tax
representation letters from each of the Company, Newco Parent, Newco, and the
Company Parent, which letters shall be in such form and substance as may
reasonably be required by Arnold & Porter and Nixon Peabody LLP. Each such tax
representation letter shall be dated on or before the date of such opinion and
shall not have been withdrawn or modified in any material respect as of the date
of such opinion. Arnold & Porter and Nixon Peabody LLP shall, in rendering their
opinions, be entitled to rely on the facts, representations and assumptions
contained in such letters.
5.2 Conditions Precedent to Obligations of the Company and Company Parent
The obligations of the Company and Company Parent to effect the Merger
shall be subject to satisfaction of the following additional conditions at or
prior to the Closing Date unless waived by the Company and Company Parent
pursuant to Section 6.4 hereof:
(a) The representations and warranties of Newco Parent and Newco contained
in this Agreement shall be true and correct in all material respects as of the
date of this Reorganization Agreement (except that representations and
warranties qualified by materiality or Material Adverse Effect shall be true and
correct in all respects), and the representations and warranties of Newco Parent
and Newco contained in this Reorganization Agreement shall be true and correct
in all material respects as of the Closing Date as though made on and as of the
Closing Date (except that representations and warranties qualified by
materiality or Material Adverse Effect shall be true and correct in all
respects) except for changes specifically contemplated by this Reorganization
Agreement and except for those representations and warranties that address
matters only as of a particular date, which shall remain true and correct in all
material respects (except that representations and warranties qualified by
materiality or Material Adverse Effect shall be true and correct in all
respects) as of such particular date, with the same force and effect as if made
on and as of the Closing Date;
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(b) Since the date of this Agreement, there shall have been no material
adverse change in the financial condition, business, assets or operations of
Newco Parent and its Subsidiaries, taken as a whole;
(c) The Financing shall have been secured in form and substance reasonably
acceptable to Company Parent;
(d) Newco Parent shall have executed and delivered the Registration Rights
Agreement;
(e) The certificate of incorporation and bylaws of Newco Parent shall have
been amended substantially as set forth in Annex D;
(f) Newco Parent and Newco shall have entered into a transition services
agreement with Company Parent, in a form reasonably satisfactory to Company
Parent, Newco and Newco Parent;
(g) Newco Parent shall have entered into an employment agreement (including
an intellectual property assignment), effective on or before the Closing Date,
with Steve Ross as Chief Executive Officer of Newco Parent having a term of no
less than three years, in form and substance reasonably satisfactory to Company
Parent and Mr. Ross;
(h) Newco Parent and Newco shall have in all material respects performed
all obligations and complied with all covenants required by this Reorganization
Agreement and the Plan of Merger to be performed or complied with at or prior to
the Closing Date; and
(i) Each of Newco Parent and Newco shall have delivered to the Company a
certificate, dated the Closing Date and signed by its respective Chairman, CEO,
Executive Vice President or Senior Vice President to the effect that the
conditions set forth in paragraphs (a) through (g) of this section have been
satisfied.
5.3 Conditions Precedent to Obligations of Newco Parent and Newco
The respective obligations of Newco Parent and Newco to effect the Merger
shall be subject to satisfaction of the following additional conditions at or
prior to the Closing Date unless waived by Newco Parent pursuant to Section 6.4
hereof:
(a) The representations and warranties of Company Parent and the Company
contained in this Agreement shall be true and correct in all material respects
as of the date of this Reorganization Agreement (except that representations and
warranties qualified by materiality or Material Adverse Effect shall be true and
correct in all respects), and the representations and warranties of Company
Parent and the Company contained in this Reorganization Agreement shall be true
and correct in all material respects as of the Closing Date as though made on
and as of the Closing Date (except that representations and warranties qualified
by materiality or Material Adverse Effect shall be true and correct in all
respects) except for changes specifically contemplated by this Reorganization
Agreement and except for those representations and warranties that address
matters only as of a particular date, which shall remain true and correct in all
material respects (except that representations and warranties qualified by
materiality or Material Adverse Effect shall be true and correct in all
respects) as of such particular date, with the same force and effect as if made
on and as of the Closing Date;
(b) The Company and Company Parent shall have in all material respects
performed all obligations and complied with all covenants required by this
Reorganization Agreement and the Plan of Merger to be performed or complied with
at or prior to the Closing Date;
(c) Since the date of this Agreement, there shall have been no material
adverse change in the financial condition, business, assets or operations of the
Company;
(d) The Company shall have entered into a strategic alliance agreement with
DynRide LLC, in a form reasonably satisfactory to Company Parent and Newco
Parent;
(e) Company Parent shall have entered into a transition services agreement
with Newco and Newco Parent, in a form reasonably satisfactory to Company
Parent, Newco and Newco Parent;
(f) The Financing shall have been secured in form and substance reasonably
acceptable to Newco Parent; and
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(g) The Company shall have delivered to Newco Parent and Newco a
certificate, dated the Closing Date and signed by its President or any Vice
President to the effect that the conditions set forth in paragraphs (a) through
(f) of this section have been satisfied.
Article VI.
TERMINATION, WAIVER AND AMENDMENT
6.1 Termination
This Reorganization Agreement and the Plan of Merger may be terminated,
either before or after approval by the stockholders of the Company or Newco
Parent:
(a) At any time on or prior to the Effective Date, by the mutual consent in
writing of the parties hereto;
(b) At any time on or prior to the Closing Date, by Newco Parent in
writing, if the Company or Company Parent has, or by the Company in writing, if
Newco Parent or Newco has, in any material respect, breached (i) any covenant or
agreement contained herein or in the Plan of Merger or (ii) any representation
or warranty contained herein, and in either case if (x) such breach has not been
cured by the earlier of 30 days after the date on which written notice of such
breach is given to the party committing such breach or the Closing Date and (y)
such breach would entitle the non-breaching party not to consummate the
transactions contemplated hereby under Article V hereof;
(c) At any time, by any party hereto in writing, if the applications for
prior approval referred to in Section 4.3 hereof have been finally denied, and
the time period for appeals and requests for reconsideration has run, or if any
governmental entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the Merger;
(d) At any time, by any party hereto in writing, if the stockholders of
Newco Parent do not approve the transactions contemplated herein and the
amendment of its certificate of incorporation and bylaws as contemplated herein
at the special meeting duly called for that purpose; or
(e) By any party hereto in writing, if the Closing Date has not occurred by
the close of business on October 31, 2001 unless the failure of the Closing to
occur by such date shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe the covenants and agreements set forth
herein.
6.2 Effect of Termination
(a) In the event this Reorganization Agreement and the Plan of Merger is
terminated pursuant to Section 6.1 hereof, this Agreement and the Plan of Merger
shall become void and have no effect, except that (i) the provisions relating to
confidentiality and expenses set forth in Sections 4.5 and 7.1 hereof,
respectively, shall survive any such termination and (ii) a termination pursuant
to Section 6.1(b)(i) or (b)(ii) shall not relieve the breaching party from
liability for an uncured willful breach of such covenant or agreement or
representation or warranty giving rise to such termination.
(b) If this Agreement is terminated pursuant to Section 6.1(b)(i) or
(b)(ii), the breaching party shall reimburse the non-breaching party for all
reasonable out-of pocket expenses incurred by the non-breaching party and its
Affiliates (including, without limitation, legal and accounting fees and fees
payable to banks and other financial institutions and advisers) or on its behalf
in connection with the negotiation, preparation, execution and performance of
this Agreement and the transactions contemplated hereby up to an aggregate of
$300,000. For purposes of this Section 6.2(b), Newco and Newco Party shall be
considered to be one party and the Company and Company Parent shall be
considered to be the other party.
(c) If this Agreement is terminated pursuant to Section 6.1(d), Newco
Parent shall reimburse the Company and Company Parent for all reasonable out-of
pocket expenses incurred by the Company and Company Parent and their Affiliates
(including, without limitation, legal and accounting fees and fees payable to
banks and other financial institutions and advisers) or on their behalf in
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connection with the negotiation, preparation, execution and performance of this
Agreement and the transactions contemplated hereby up to an aggregate of
$300,000.
6.3 Survival of Representations, Warranties and Covenants
All representations, warranties and covenants in this Reorganization
Agreement and the Plan of Merger or in any instrument delivered pursuant hereto
or thereto shall expire on, and be terminated and extinguished at, the Effective
Date other than covenants that by their terms are to survive or be performed
after the Effective Date.
6.4 Waiver
Except where not permitted by law, Newco Parent and Company Parent,
respectively, by written instrument signed by an executive officer of such
party, may at any time (whether before or after approval of this Reorganization
Agreement and the Plan of Merger by the stockholders of Newco Parent and the
Company) extend the time for the performance of any of the obligations or other
acts of the Company or Company Parent, on the one hand, or Newco Parent or
Newco, on the other hand, and may waive (i) any inaccuracies of such parties in
the representations or warranties contained in this Agreement, the Plan of
Merger or any document delivered pursuant hereto or thereto, (ii) compliance
with any of the covenants, undertakings or agreements of such parties, or
satisfaction of any of the conditions precedent to its obligations, contained
herein or in the Plan of Merger or (iii) the performance by such parties of any
of its obligations set out herein or therein.
6.5 Amendment or Supplement
This Reorganization Agreement and the Plan of Merger may be amended or
supplemented at any time only by mutual agreement of the parties hereto or
thereto. Any such amendment or supplement must be in writing and approved by
their respective boards of directors and/or officers authorized thereby and
shall be subject to the proviso in Section 6.4 hereto.
Article VII.
MISCELLANEOUS
7.1 Expenses
Each party hereto shall bear and pay all costs and expenses incurred by it
in connection with the transactions contemplated in this Reorganization
Agreement, including fees and expenses of its own financial consultants,
accountants and counsel.
7.2 Entire Agreement
This Reorganization Agreement and the Plan of Merger contain the entire
agreement between the parties with respect to the transactions contemplated
hereunder and thereunder and supersede all prior arrangements or understandings
with respect thereto, written or oral, other than documents referred to herein
or therein and the Confidentiality Agreements. The terms and conditions of this
Reorganization Agreement and the Plan of Merger shall inure to the benefit of
and be binding upon the parties hereto and thereto and their respective
successors. Except as specifically set forth herein, or in the Plan of Merger,
nothing in this Reorganization Agreement or the Plan of Merger, expressed or
implied, is intended to confer upon any party, other than the parties hereto and
thereto, and their respective successors, any rights, remedies, obligations or
liabilities. This Reorganization Agreement and the Plan of Merger, taken
together, shall constitute a plan of reorganization within the meaning of
Section 368 of the Code. EXCEPT AS TO THOSE MATTERS EXPRESSLY COVERED BY THE
REPRESENTATIONS AND WARRANTIES IN THIS AGREEMENT, EACH PARTY HERETO DISCLAIMS
ALL OTHER WARRANTIES, REPRESENTATIONS AND GUARANTIES WHETHER EXPRESS OR IMPLIED.
NO PARTY MAKES ANY REPRESENTATION OR WARRANTY AS TO MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE AND NO IMPLIED WARRANTIES WHATSOEVER. The
representations and warranties are included in this Agreement as a matter of
risk allocation only and the inaccuracy or breach of any representation and
warranty in no event shall be used as evidence of or be deemed to constitute bad
faith, misconduct, misrepresentation or fraud even if it is shown that the party
making such representation or warranty knew or should have known that it was
incorrect when made. Each party acknowledges that no other party nor any of its
representatives or any other person has made any representation or warranty,
express or implied, as to the accuracy or completeness of any memoranda, charts
or summaries heretofore made available by one party or its representatives to
any other party or any other information which is not included in this Agreement
or the documents referred to herein, and no party nor any of its representatives
or any other person will have or be subject to any liability to another party or
any other person resulting from the distribution of any such information to, or
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use of any such information. No party makes any representations or warranties
with respect to any estimates, projections, forecasts or forward-looking
information provided to another party. There is no assurance that any estimated,
projected or forecasted results will be achieved. It is understood that any cost
estimates, forecasts, projections or other predictions contained or referred to
in any materials that have been or shall hereafter be provided to a party are
not and shall not be deemed to be representations or warranties by the party
providing such information. Each party acknowledges that (i) there are
uncertainties inherent in attempting to make such estimates, projections and
other predictions, (ii) it is familiar with such uncertainties, (iii) it is
taking full responsibility for making its own evaluation of the adequacy and
accuracy of all estimates, projections and other predictions so furnished to it,
and (iv) it shall have no claim against any other party or any of its officers,
directors, or agents with respect thereto.
7.3 No Assignment
No party hereto may assign any of its rights or obligations under this
Reorganization Agreement to any other person.
7.4 Notices
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
facsimile transmission or overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to the Company or Company Parent:
DynCorp
11710 Plaza America Drive
Reston, VA 20190
Attn: David L. Reichardt
Facsimile No.: (703) 261-5074
With a required copy to:
Arnold & Porter
555 Twelfth Street, N.W.
Washington, DC 20004
Attn: Steven Kaplan, Esquire
Facsimile No.: (202) 942-5999
If to Newco Parent or Newco:
Tekinsight.com, Inc.
18881 Von Karman Avenue, Suite 250
Irvine, CA 92612
Attn: James Linesch
Facsimile No.: (949) 955-0086
With a required copy to:
Nixon Peabody LLP
437 Madison Avenue
New York, NY 10022
Attn: Peter W. Rothberg, Esquire
Facsimile No.: (212) 940-3111
7.5 Captions
The captions contained in this Reorganization Agreement are for reference
purposes only and are not part of this Reorganization Agreement.
7.6 Counterparts
This Reorganization Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
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7.7 Governing Law
This Reorganization Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and entirely to be performed within such jurisdiction, except to the extent
federal law may be applicable.
7.8 Severability
If any provision of this Agreement or the application of any such provision
is held invalid, illegal or unenforceable in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any such provision of this
Agreement or invalidate or render unenforceable such provision in any other
jurisdiction. In the event that any provision of this Agreement shall be finally
determined by a court of competent jurisdiction to be unenforceable, such court
shall have jurisdiction to reform this Agreement so that it is enforceable to
the maximum extent permitted by law and the parties shall abide by such court's
determination.
[Remainder of this page left intentionally blank.]
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Reorganization Agreement to be executed in counterparts
by their duly authorized officers, all as of the day and year first above
written.
DYNCORP MANAGEMENT
RESOURCES INC.
By /s/ David L. Reichardt
------------------------------
Name: David L. Reichardt
Title: Senior Vice President
NEWPORT ACQUISITION CORP.
By /s/ Steven J. Ross
------------------------------
Name: Steven J. Ross
Title: CEO
TEKINSIGHT.COM, INC.
By /s/ Steven J. Ross
------------------------------
Name: Steven J. Ross
Title: CEO
DYNCORP
By /s/ David L. Reichardt
------------------------------
Name: David L. Reichardt
Title: Senior Vice President
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ANNEX E-2
AGREEMENT AND PLAN OF MERGER OF
DYNCORP MANAGEMENT RESOURCES INC.
WITH AND INTO NEWPORT ACQUISITION CORP.
AGREEMENT AND PLAN OF MERGER ("Plan of Merger") dated as of April 25,
2001 by and between DynCorp Management Resources Inc. (the "Company"), a
Virginia corporation having its principal executive office at 11710 Plaza
America Drive, Reston, Virginia 20190, Tekinsight.com, Inc. ("Newco Parent"), a
Delaware corporation having its principal executive office at 18881 Von Karman
Avenue, Suite 250, Irvine, California 92612, DynCorp ("Company Parent"), a
Delaware corporation having its principal executive office at 11710 Plaza
America Drive, Reston, Virginia 20190 and Newport Acquisition Corp. ("Newco"), a
Delaware corporation and a direct wholly owned subsidiary of Newco Parent,
having its principal executive office at 18881 Von Karman Avenue, Suite 250,
Irvine, California 92612.
WITNESSETH
WHEREAS, the respective Boards of Directors of the Company, Company
Parent Newco and Newco Parent deem the merger of the Company with and into
Newco, under and pursuant to the terms and conditions herein set forth or
referred to, desirable and in the best interests of the respective corporations
and their respective shareholders, and the respective Boards of Directors of the
Company, Company Parent, Newco and Newco Parent have adopted resolutions
approving this Plan of Merger and an Agreement and Plan of Reorganization dated
of even date herewith ("Reorganization Agreement");
WHEREAS, the Plan of Merger has been adopted by the unanimous consent
of the shareholders of the Company and Newco; and
WHEREAS, the parties hereto intend that the Merger shall qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended ("the Code").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto do hereby agree as follows:
I. MERGER
Subject to the terms and conditions of this Plan of Merger, at the
Effective Time (as hereinafter defined), the Company shall be merged with and
into Newco, pursuant to the provisions of, and with the effect provided in the
Delaware General Corporation Law and the Code of Virginia (said transaction
being hereinafter referred to as the "Merger"). At the Effective Time, the
separate existence of the Company shall cease and Newco, as the surviving
entity, shall continue unaffected and unimpaired by the Merger. (Newco as
existing at and after the Effective Time being hereinafter sometimes referred to
as the "Surviving Corporation").
II. CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation and the Bylaws of Newco in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation, in each case until
amended in accordance with applicable law.
III. BOARD OF DIRECTORS
The directors and officers of the Surviving Corporation shall be the
officers and directors of Newco in office immediately prior to the Effective
Time, each to hold office in accordance with the Certificate of Incorporation
and Bylaws of the Surviving Corporation.
IV. CAPITAL
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At the Effective Time, all of the shares of capital stock of Newco
issued and outstanding immediately prior to the Effective Time shall remain
outstanding and unchanged by virtue of the Merger and shall constitute all of
the issued and outstanding shares of capital stock of the Surviving Corporation.
V. INITIAL CONVERSION AND EXCHANGE OF COMPANY SHARES
1. Merger Consideration. At the Effective Time, all of the outstanding
common stock of the Company, par value $1.00 per share ("Company Common Stock"),
issued and outstanding immediately prior to the Effective Time (subject to
Section 6 of this Article 5), shall, by virtue of the Merger, automatically and
without any action on the part of the holder thereof, become and be converted
into the Initial Merger Consideration (as defined below) and the right to
receive the Additional Merger Consideration (as defined below) and Newco Parent
shall deliver certificates representing such Initial Merger Consideration to
Company Parent. The Initial Merger consideration and the Additional Merger
Consideration are collectively referred to herein as the "Merger Consideration."
2. Initial Merger Consideration. The Initial Merger Consideration shall be
a number of shares of Class B common stock of Newco Parent, par value $0.0001
per share ("Newco Parent Class B Stock"), equal to two-thirds of the number of
Newco Parent Outstanding Share Equivalents (as defined below) outstanding
immediately prior to the Effective Time. The "Newco Parent Outstanding Share
Equivalents" shall mean all outstanding shares of common stock of Newco Parent,
plus all shares of common stock of Newco Parent that may be issued upon
conversion, redemption or exchange of or otherwise with respect to any
outstanding shares of preferred stock of Newco Parent, BugSolver.Com, Inc. or
any other company that was a Subsidiary of Newco Parent at the time of issuance
of such shares.
3. Treasury Stock. At the Effective Time, all shares of Company Common
Stock held in the treasury of the Company shall be cancelled and no cash, stock
or other property shall be delivered in exchange therefor.
4. Stock Transfers. At the Effective Time, the stock transfer books of the
Company shall be closed and no transfer of Company Common Stock shall thereafter
be made or recognized. If, after the Effective Time, certificates representing
such shares are presented for transfer to the Surviving Corporation, they shall
be cancelled and exchanged for the Merger Consideration as provided herein.
5. Changes in Newco Parent Common Stock. In the event that prior to the
Effective Time, the outstanding shares of common stock shall of any class or
series of Newco Parent have been increased, decreased or changed into or
exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock split
or other like changes in Newco Parent's capitalization, then an appropriate and
proportionate adjustment shall be made to the Merger Consideration.
6. Fractional Shares. Notwithstanding any other provision hereof, each
holder of shares of Company Common Stock who would otherwise have been entitled
to receive pursuant to this Article 5 a fraction of a share of Newco Parent
Class B Stock (after taking into account all certificates delivered by such
holder) shall receive, in lieu thereof, cash in an amount equal to such fraction
of a share of Newco Parent Class B Stock multiplied by the market value (as
defined below) of Newco Parent Class A Stock (as defined below). The "market
value" of Newco Parent Class B Stock shall be the last reported sale price of
the Newco Parent Common Stock on the Nasdaq Small Cap Market for the trading day
immediately preceding the date on which the Effective Time occurs. No such
holder shall be entitled to dividends, voting rights or any other shareholder
right in respect of such fractional share.
7. Lost, Stolen or Destroyed Certificates. In the event any certificate
representing Company Common Stock shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
certificate to be lost, stolen or destroyed and, if required by Newco Parent,
the posting by such person of a bond in such amount as Newco Parent may
reasonably direct as indemnity against any claim that may be made against it
with respect to such certificate, Newco Parent will issue in exchange for such
lost, stolen or destroyed certificate the shares of Newco Parent Class B Stock
constituting the Merger Consideration and cash in lieu of fractional shares
deliverable in respect thereof pursuant to this Plan of Merger.
VI. ADDITIONAL ISSUANCES OF NEWCO PARENT CLASS B STOCK
1. Dilutive Issuances. Subject to Article VI, Section 9 below, if and
whenever on or after the Effective Time, Newco Parent issues or sells any shares
of its Class A common stock, par value $0.0001 per share ("Newco Parent
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Class A Stock"), pursuant to any Stock Equivalents (as defined below) at a
price per share less than the per share Fair Market Value (as defined below) of
the Newco Parent Class A Stock at the time of issue or sale, then upon such
issue or sale (a "Dilutive Issuance"), Newco shall issue to Company Parent for
no additional consideration such number of shares of Newco Parent Class B Stock
as equal the Additional Merger Consideration (as defined below) with respect to
such Dilutive Issuance. Newco shall issue such Additional Merger Consideration
and deliver the corresponding Newco Parent Class B Stock certificate within 90
days after the Dilutive Issuance but in any event prior to the first Trigger
Date after such Dilutive Issuance.
2. Issuance. The issuance of certificates for shares of Newco Parent
Class B Stock issued under this Article VI will be made without charge to
Company Parent for any issuance tax in respect thereof or other cost incurred by
Newco Parent in connection with such issuance of shares of Newco Parent Class B
Stock. Each share of Newco Parent Class B Stock issued hereunder will be fully
paid and nonassessable and free from all liens and charges with respect to the
issuance thereof.
3. Reservation of Newco Parent Class B Stock. Newco Parent shall at all
times reserve and keep available out of its authorized but unissued shares of
Newco Parent Class B Stock solely for the purpose of issuance hereunder, such
number of shares of Newco Parent Class B Stock as may be issuable hereunder,
subject to Section 9 of this Article VI. Newco Parent shall take all such
actions as may be necessary to assure that all such shares of Newco Parent Class
B Stock may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Newco Parent Common Stock may be listed.
4. Fractional Shares. If the determination of the Additional
Merger Consideration has the result that a fractional share of Class B Stock
would be issuable, Newco Parent will at the time of the issuance of the
Additional Merger Consideration, deliver to Company Parent cash in lieu of such
fractional share in an amount equal to the Fair Market Value of the Newco Parent
Class A Stock into which such fractional shares are convertible.
5. Determination of Consideration Received. If any shares of Newco
Parent Class A Stock are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by Newco Parent. In case any shares of Newco Parent Class A
Stock are issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by Newco Parent will be the fair market
value of such consideration. If such consideration is in the form a security
traded in a market identified in the definition of Fair Market Value below, then
the fair market value of such security shall be its Fair Market Value. If such
consideration is neither cash nor in the form a security defined in the
immediately preceding sentence, then its fair market value shall be determined
by agreement between Newco Parent and Company Parent or, failing such agreement,
by an independent appraiser appointed by agreement of Newco Parent and Company
Parent.
6. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of Newco Parent's assets to another Person or other
transaction which is effected in such a way that holders of Newco Parent Common
Stock are entitled to receive (either directly or upon subsequent liquidation)
stock, securities or assets with respect to or in exchange for Newco Parent
Common Stock is referred to herein as "Organic Change." Prior to the
consummation of any Organic Change, Newco Parent will make appropriate provision
(in form and substance reasonably satisfactory to Company Parent) with respect
to Company Parent's rights and interests to ensure that the provisions of this
Article VI will be applicable with respect to shares of stock, securities or
assets issued in connection with the Organic Change, or payable as a result of
the Organic Change with respect to or in exchange for shares of Newco Parent
Common Stock, in each case in respect of Stock Equivalents. Newco Parent will
not effect any such Organic Change, unless prior to the consummation thereof,
the successor entity (if other than Newco Parent) resulting from such Organic
Change or the corporation purchasing such assets in the Organic Change agrees by
written instrument (in form and substance reasonably satisfactory to Company
Parent) to issue to Company Parent shares of capital stock of the successor
entity with respect to Stock Equivalents of the successor entity received in
exchange for, as a result of a conversion of, Stock Equivalents that are subject
to the provisions hereof, on equivalent terms as herein.
7. Notices. Immediately upon any Dilutive Issuance, Newco Parent will
give written notice thereof to Company Parent, setting forth in reasonable
detail the terms of the Dilutive Issuance and certifying the calculation of the
Additional Merger Consideration to be issued to Company Parent. Newco Parent
will also give written notice to Company Parent at least 20 days prior to any
Trigger Event.
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8. Definitions. All Capitalized terms not otherwise defined herein
shall have the meanings ascribed thereto in the Reorganization Agreement.
As used in this Article VI, the following terms have meanings set forth below:
"Additional Merger Consideration" means, with respect to a Dilutive
Issuance, such number of shares of Newco Parent Class B Stock that equal forty
percent (40%) of the quotient obtained by dividing (a) (i) the aggregate of the
Fair Market Value per share of the Newco Parent Class A Stock issued in the
Dilutive Issuance minus (ii) the net consideration received by Newco Parent
(determined in accordance with Article VI, Section 5) by (b) the Fair Market
Value per share of the Newco Parent Class A Stock at the time of the Dilutive
Issuance.
"Fair Market Value" of any security means the closing price of such
security's sales on the principal domestic securities market (including Nasdaq)
on which such security may at the time be listed, or if there has been no such
sales on any measuring day, the average of the highest bid and lowest asked
prices on such market at the end of the day, or, if on any measuring day such
security is not so listed, the average of the highest bid and lowest asked
prices in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of thirty (30) days consisting of the day as of
which "Fair Market Value" is being determined and the 29 consecutive business
days prior to such day.
"Person" means an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
"Stock Equivalents" means any option, warrant, right or similar
security or claim, outstanding at the Effective Time, exercisable into,
exchangeable for, or convertible into shares of Newco Parent Common Stock or
securities that are exercisable into, exchangeable for, or convertible into
Newco Parent Common Stock, excluding stock options covering not more than
2,000,000 shares of Newco Parent Class A Stock granted to employees of Newco
Parent pursuant to its 1992 Stock Option Plan and excluding any shares of
preferred stock of Newco or Newco Parent used to calculate the number of Newco
Parent Outstanding Share Equivalents.
"Trigger Event" means any of the following: (i) the date on which Newco
Parent closes its books or takes a record (A) with respect to any dividend or
distribution upon Newco Parent Common Stock or (B) for determining rights of
stockholders to vote with respect to any matter at any annual or special meeting
of stockholders of Newco Parent or (ii) the date on which any Organic Change,
dissolution or liquidation will take place.
9. Restrictions. Notwithstanding anything hereto to the contrary, (i)
no issuance of Additional Merger Consideration shall be made after the fifth
anniversary of the Effective Time, (ii) in no event shall the numbers of shares
of Newco Parent Class B Stock issued as Additional Merger Consideration exceed
the number of shares of Newco Parent Class B Stock issued as Initial Merger
Consideration, each as adjusted for any reorganization, recapitalization,
reclassification, stock dividend, stock split or other like changes in Newco
Parent's capitalization, and (iii) Company Parent may not assign its right to
receive the Additional Merger Consideration (other than by operation of law).
VII. EFFECTIVE TIME OF THE MERGER
A certificate of merger evidencing the transactions contemplated herein
shall be delivered to the Delaware Secretary of State for filing and articles of
merger evidencing the transactions contemplated herein shall be delivered to the
State Corporation Commission of Virginia, each as provided in the Reorganization
Agreement. The Merger shall be effective at the time and on the date specified
in such certificate of merger and articles of merger (such date and time being
herein referred to as the "Effective Time").
VIII. CONDITIONS PRECEDENT
The obligations of the Company, Company Parent, Newco and Newco Parent
to effect the Merger as herein provided shall be subject to satisfaction, unless
duly waived, of the conditions to the obligations of such person set forth in
Article V of the Reorganization Agreement.
IX. TERMINATION
Anything contained in the Plan of Merger to the contrary
notwithstanding, and notwithstanding adoption hereof by the shareholders of the
Company or Newco, this Plan of Merger may be terminated and the Merger abandoned
as provided in the Reorganization Agreement.
X. MISCELLANEOUS
1. This Plan of Merger may be amended or supplemented at any time prior to the
Effective Time by mutual agreement of the Company, Company Parent, Newco
E-35
and Newco Parent. Any such amendment or supplement must be in writing and
approved by their respective Boards of Directors and/or by officers authorized
thereby.
2. Any notice or other communication required or permitted under this Plan of
Merger shall be given, and shall be effective, in accordance with the provisions
of the Reorganization Agreement.
3. The headings of the several Articles herein are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Plan of Merger.
4. This Plan of Merger shall be governed by and construed in accordance with the
laws of Delaware applicable to the internal affairs of the Company and Newco.
5. This Plan of Merger, taken together with the Reorganization Agreement, shall
constitute a plan of reorganization within the meaning of Section 1.368-2(g) of
the Treasury Regulations promulgated under the Code.
[Remainder of this page left intentionally blank.]
E-36
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have caused this Plan of Merger to be executed in
counterparts by their duly authorized officers, all as of the day and year first
above written.
DYNCORP MANAGEMENT
RESOURCES INC.
By /s/ David L. Reichardt
-----------------------------
Name: David L. Reichardt
Title: Senior Vice President
NEWPORT ACQUISITION CORP.
By /s/ Steven J. Ross
-----------------------------
Name: Steven J. Ross
Title: CEO
TEKINSIGHT.COM, INC.
By /s/ Steven J. Ross
-----------------------------
Name: Steven J. Ross
Title: CEO
DYNCORP
By /s/ David L. Reichardt
-----------------------------
Name: David L. Reichardt
Title: Senior Vice President
E-37
ANNEX E-3
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Option Agreement"), dated as of
April 25, 2001, is by and between Tekinsight.com, Inc. ("Newco Parent"), a
Delaware corporation, as issuer, and DynCorp ("Company Parent"), a Delaware
corporation, as grantee.
WITNESSETH
WHEREAS, the respective Boards of Directors of Newco Parent, Company
Parent, DynCorp Management Resources Inc., a wholly-owned subsidiary of Company
Parent (the "Company"), and Newport Acquisition Corp., a wholly-owned subsidiary
of Newco Parent ("Newco"), have approved an Agreement and Plan of Reorganization
(the "Reorganization Agreement") and have adopted a related Agreement and Plan
of Merger dated as of the date hereof (together with the Reorganization
Agreement, the "Merger Agreements"), providing for certain transactions pursuant
to which the Company would be merged with and into Newco; and
WHEREAS, as a condition to and as consideration for Company Parent's
entry into the Merger Agreements and to induce such entry, Newco Parent has
agreed to grant to Company Parent the option set forth herein to purchase
authorized but unissued shares of common stock, par value $0.0001 per share, of
Newco Parent ("Newco Parent Common Stock");
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions.
Capitalized terms defined in the Merger Agreements and used herein
shall have the same meanings as set forth in the Merger Agreements.
2. Grant of Option.
Subject to the terms and conditions set forth herein, Newco Parent
hereby grants to Company Parent an option ("Option") to purchase up to 3,753,807
shares of Newco Parent Common Stock, at a price of $1.94 per share, payable in
cash as provided in Section 4 hereof; provided, however, that in the event Newco
Parent issues or agrees to issue prior to the Option Termination Date (as
hereinafter defined) any shares of Newco Parent Common Stock (other than as
permitted under the Merger Agreements, pursuant to obligations outstanding on
the date hereof or pursuant to the exercise of options granted under the Newco
Parent 1992 Employee Stock Option Plan or 1997 Non-employee Directors Plan) at a
price less than $1.94 per share (as adjusted pursuant to Section 6 hereof), the
exercise price shall be equal to such lesser price; provided, however, that in
no event shall the number of shares of Newco Parent Common Stock for which the
Option is exercisable exceed 19.9% of the issued and outstanding shares of Newco
Parent Common Stock on the date hereof without giving effect to any shares
subject to or issued pursuant to the Option.
3. Exercise of Option.
(a) Company Parent may exercise the Option, in whole or part, at any
time or from time to time prior to the Option Termination Date (as hereinafter
defined) (x) following the occurrence of a Purchase Event (as defined below) and
while such Purchase Event shall be continuing or (y) following a Final Purchase
Event (as hereinafter defined); provided that, to the extent the Option shall
not have been exercised, it shall terminate and be of no further force and
effect (i) on the Effective Date of the Merger or (ii) upon termination of the
Merger Agreements in accordance with the provisions thereof (other than a
termination resulting from a breach by Newco Parent of any material provision in
a Merger Agreement following receipt of a bona fide proposal to Newco Parent,
Newco or any other Subsidiary of Newco Parent to acquire Newco Parent, Newco or
any other Subsidiary of Newco Parent by merger, consolidation, purchase of all
or substantially all of its assets or any other similar transaction, or,
following the occurrence of a Purchase Event, failure of Newco Parent's
shareholders to approve the transactions and other actions to be approved by
them under the Merger Agreements by the vote required under applicable law or
under Newco Parent's Certificate of Incorporation), or (iii) six (6) months
after termination of the Merger Agreements due to a breach by Newco Parent of
any material provision in a Merger Agreement following receipt of a bona fide
proposal to Newco Parent, Newco or any other Subsidiary of Newco Parent to
acquire Newco Parent, Newco or any other Subsidiary of Newco Parent by merger,
consolidation, purchase of all or substantially all of its assets or any other
similar transaction, or, following the occurrence of a Purchase Event, failure
of Newco Parent's shareholders to approve the transactions and other actions to
be approved by them under the Merger Agreements by the vote required under
applicable law or under Newco Parent's Certificate of Incorporation (with any
date upon which any event referred to in any of subprovisions (i), (ii) or (iii)
shall have occurred being referred to as an Option Termination Date); and
provided further that any such exercise shall be subject to compliance with
applicable provisions of law.
(b) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
E-38
(i) Newco Parent, Newco or any other Subsidiary of Newco
Parent, without having received Company Parent's prior written consent, shall
have entered into an agreement with any person (other than Company Parent or the
Company) to (w) merge or consolidate, or enter into any similar transaction,
with Newco Parent, Newco or any other Subsidiary of Newco Parent, (x) purchase,
lease or otherwise acquire all or substantially all of the assets of Newco
Parent, Newco or any other Subsidiary of Newco Parent, (y) purchase or otherwise
acquire (including by way of merger, consolidation, share exchange or any
similar transaction) securities representing 10% or more of the voting power of
Newco Parent, Newco or any other Subsidiary of Newco Parent or (z) enter into
any substantially similar transaction;
(ii) any person (other than Company Parent or the Company)
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of outstanding shares of Newco Parent representing 10% or more of the
voting power of Newco Parent after the date hereof (the term "beneficial
ownership" for purposes of this Option Agreement having the meaning assigned
thereto in Section 13(d) of the Exchange Act and the regulations promulgated
thereunder);
(iii) any person (other than Company Parent or the Company)
shall have made a bona fide proposal to Newco Parent by public announcement or
written communication that is or becomes the subject of public disclosure to (x)
acquire Newco Parent, Newco or any other Subsidiary of Newco Parent by merger,
consolidation, purchase of all or substantially all of its assets or any other
similar transaction, (y) purchase or otherwise acquire securities representing
10% or more of the voting power of Newco Parent, Newco or any other Subsidiary
of Newco Parent or (z) enter into any substantially similar transaction, and
following such bona fide proposal (1) the shareholders of Newco Parent vote not
to approve the transactions and other actions to be approved by them under the
Merger Agreements, (2) such meeting shall not have been held or shall have been
cancelled prior to the termination of the Merger Agreements or (3) the Board of
Directors of the Company shall have publicly withdrawn or modified, or publicly
announced its intent to withdraw or modify, in any manner materially adverse to
Company Parent, its recommendation that the stockholders of Newco Parent
approve such transactions and actions; or
(iv) Newco Parent or Newco shall have breached any material
provision contained in a Merger Agreement following receipt of a bona fide
proposal to Newco Parent, Newco or any other Subsidiary of Newco Parent to (x)
acquire Newco Parent, Newco or any other Subsidiary of Newco Parent by merger,
consolidation, purchase of all or substantially all of its assets or any other
similar transaction, (y) purchase or otherwise acquire securities representing
10% or more of the voting power of Newco Parent, Newco or any other Subsidiary
of Newco Parent or (z) enter into any substantially similar transaction, which
breach would entitle Company Parent to terminate the Merger Agreements (without
regard to the cure periods provided for therein) and such breach shall not have
been cured prior to the Notice Date (as defined below).
If more than one of the transactions giving rise to a Purchase Event under this
Section 3(b) is undertaken or effected, then all such transactions shall give
rise only to one Purchase Event, which Purchase Event shall be deemed continuing
for all purposes hereunder until all such transactions are abandoned or such
action is reversed, as applicable. As used in this Option Agreement, "person"
shall have the meanings specified in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act.
(c) The term Final Purchase Event shall mean either of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of
securities representing 25% or more of the voting power of Newco Parent, Newco
or any other Subsidiary of Newco Parent; or
(ii) The occurrence of the Purchase Event described in clause
(i) of subsection (b) of this Section 3 (with the voting power percentage
referenced in subprovision (y) thereof to equal 25%).
(d) In the event Company Parent wishes to exercise the Option, it shall
send to Newco Parent a written notice (the date of which being herein referred
to as "Notice Date") specifying (i) the total number of shares it will purchase
pursuant to such exercise, and (ii) a place and date not earlier than five
business days nor later than 60 business days from the Notice Date for the
closing of such purchase ("Closing Date"); provided that, if prior notification
to or approval of any governmental authority is required in connection with such
purchase, Company Parent shall promptly file the required notice or application
for approval and shall expeditiously process the same and the period of time
that otherwise would run pursuant to this sentence shall run instead from the
date on which any required notification period has expired or been terminated or
such approval has been obtained and any requisite waiting period shall have
passed.
4. Payment and Delivery of Certificates.
(a) At the closing referred to in Section 3 hereof, Company Parent
shall pay to Newco Parent the aggregate purchase price for the shares of Newco
Parent Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by a wire transfer to a bank account designated by
Newco Parent.
(b) At such closing, simultaneously with the delivery of funds as
provided in subsection (a), Newco Parent shall deliver to Company Parent a
certificate or certificates representing the number of shares of Newco Parent
Common Stock purchased by Company Parent, and Company Parent shall deliver to
Newco Parent a letter agreeing that Company Parent will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
E-39
provisions of this Option Agreement, and which letter shall include such other
provisions as counsel to Newco Parent deems necessary to comply with applicable
law (including but not limited to State and Federal securities laws).
(c) Certificates for Newco Parent Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend which shall read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFERRED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION
AGREEMENT DATED AS OF APRIL 25, 2001, A COPY OF WHICH MAY BE OBTAINED
FROM THE SECRETARY OF TEKINSIGHT.COM, INC. AT ITS PRINCIPAL EXECUTIVE
OFFICES."
It is understood and agreed that (i) the reference to restrictions arising under
the Securities Act in the above legend will be removed by delivery of substitute
certificate(s) without such reference if such Newco Parent Common Stock shares
have been registered pursuant to the Securities Act, such shares have been sold
in reliance on and in accordance with Rule 144 under the Securities Act or
Company Parent has delivered to Newco Parent a copy of a letter from the staff
of the SEC, or an opinion of counsel in form and substance reasonably
satisfactory to Newco Parent and its counsel, to the effect that such legend is
not required for purposes of the Securities Act and (ii) the reference to
restrictions pursuant to this Agreement in the above legend will be removed by
delivery of substitute certificate(s) without such reference if the shares
acquired evidenced by certificate(s) containing such reference have been sold or
transferred in compliance with the provisions of this Agreement under
circumstances that do not require the retention of such reference.
5. Representations.
(a) Company Parent hereby represents, warrants and covenants to Newco
Parent as follows: shares or other securities acquired by Company Parent upon
exercise of the Option will not be taken with a view to the public distribution
thereof and will not be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the Securities Act.
(b) Newco Parent hereby represents, warrants and covenants to Company
Parent as follows:
(i) Newco Parent shall at all times maintain sufficient
authorized but unissued shares of Newco Parent Common Stock so that the Option
may be exercised without authorization of additional shares of Newco Parent
Common Stock.
(ii) The shares to be issued upon due exercise, in whole or in
part, of the Option, when paid for as provided herein, will be duly authorized,
validly issued, fully paid and nonassessable.
6. Adjustment Upon Changes in Capitalization.
In the event of any change in Newco Parent Common Stock by reason of
stock dividends, split-ups, mergers, recapitalizations, combinations, exchanges
of shares or the like, the type and number of shares subject to the Option, and
the purchase price per share, as the case may be, shall be adjusted
appropriately. In the event that any additional shares of Newco Parent Common
Stock are issued or otherwise become outstanding after the date of this Option
Agreement (other than pursuant to this Option Agreement), the number of shares
of Newco Parent Common Stock subject to the Option shall be adjusted so that,
after such issuance, it equals 19.9% of the number of shares of Newco Parent
Common Stock then issued and outstanding without giving effect to any shares
subject or issued pursuant to the Option. Nothing contained in this Section 6
shall be deemed to authorize or permit Newco Parent to breach any provision of
the Merger Agreements or the rules and regulations of the Nasdaq Stock Market,
Inc. for issuers whose securities are included for trading thereon.
7. Repurchase.
(a) At the request of Company Parent made in accordance with this
Section 7 at any time commencing immediately following the occurrence of a
Repurchase Event (as defined below) and ending on the six (6) month anniversary
thereof ("Repurchase Period"), Newco Parent shall repurchase the Option from
Company Parent together with any shares of Newco Parent Common Stock purchased
by Company Parent pursuant (the "Repurchase Right") thereto, at a price equal to
the sum of (which sum shall be referred to as the "Option Repurchase Price"):
(i) The exercise price paid by Company Parent for any shares
of Newco Parent Common Stock acquired pursuant to the Option (the "Option
Shares");
(ii) The difference between the "market/tender offer" price
for shares of Newco Parent Common Stock (defined as the highest of (a)(x) the
highest price per share paid in any transaction referred to as a Final Purchase
Event in clause (ii) of subsection (c) of Section 3, (y) the highest price per
share paid in a tender or exchange offer that resulted in a Final Purchase Event
as referred to in clause (i) of subsection (c) of Section 3, or (z) the highest
reported closing price for shares of Newco Parent Common Stock within that
portion of the Repurchase Period preceding the date Company Parent gives notice
of the required repurchase under this Section 7, and (b) the exercise price as
determined pursuant to Section 2 hereof, multiplied by the
E-40
number of shares of Newco Parent Common Stock with respect to which the Option
has not been exercised, but only if the market/tender offer price is greater
than such exercise price; and
(iii) The difference between the market/tender offer price (as
defined in Section 7(a)(ii) hereof) and the exercise price paid by Company
Parent for any Option Shares purchased pursuant to the exercise of the Option,
multiplied by the number of shares so purchased, but only if the market/tender
offer price is greater than such exercise price; and
(iv) Company Parent's reasonable out-of-pocket expenses
incurred in connection with the transactions contemplated by the Reorganization
Agreement, including, without limitation, legal, accounting, financial advisory
and investment banking fees; provided that these expenses shall not be paid
under the terms of this Section 7(a)(iv) to the extent that they are reimbursed
to Company Parent under the terms of Section 6.2 of the Reorganization
Agreement.
(b) Company Parent shall exercise its Repurchase Right by delivering to
Newco Parent written notice (a "Repurchase Notice") stating that Company Parent
elects to require Newco Parent to repurchase all or a portion of the Option
and/or the Option Shares as specified therein. The closing of the
Repurchase Right (the "Repurchase Closing") shall take place at the place, time
and date specified in the Repurchase Notice, which date shall not be less than
seven days nor more than fifteen days from the date on which the Repurchase Note
is delivered. At the Repurchase Closing, (i) Newco Parent shall pay to Company
Parent the Option Repurchase Price for the portion of the Option and/or the
Option Shares to be repurchased, as the case may be, by wire transfer of
immediately available funds to an account specified by Company Parent at least
24 hours prior to the Repurchase Closing, and (ii) if the Option is repurchased
only in part, Newco Parent and Company Parent shall execute and deliver an
amendment to this Agreement reflecting the Option Shares or Option for which the
Option is not being repurchased.
(c) To the extent that Newco Parent is prohibited under applicable Law
from repurchasing the portion of the Option or Option Shares designated in such
Repurchase Notice, Newco Parent shall immediately so notify Company Parent and
thereafter deliver, from time to time, to Company Parent the portion of the
Option Repurchase Price that it is no longer prohibited from delivering, within
seven days after the date on which Newco Parent is no longer so prohibited;
provided, however, that if Newco Parent at any time after delivery of a
Repurchase Notice is prohibited under applicable Law from delivering to Company
Parent the full amount of the Option Repurchase Price for the Option or Option
Shares to be repurchased, respectively, Company Parent may rescind the exercise
of the Repurchase Right, whether in whole, in part or to the extent of the
prohibition, and, to the extent rescinded, no part of the amounts, terms or the
rights with respect to the Option or Repurchase Right shall be changed or
affected as if such Repurchase Right were not exercised. Newco Parent shall use
its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices to permit Company Parent to exercise
its Repurchase Right and shall use its reasonable best efforts to avoid or cause
to be rescinded or rendered inapplicable any prohibition on Newco Parent's
repurchase of the Option or the Option Shares.
(d) As used herein, a "Repurchase Event" shall mean any of the
transactions described in clauses (i) or (ii) of Section 3(c) herein except, for
this purpose, the percentages therein shall be 51% and, for purposes of clause
(ii) of Section 3(c), the payment required by this Section 7 shall be due and
payable only upon consummation of the events described in clause (ii) of Section
3(c) of this Agreement.
8. Registration Rights.
(a) If requested by Company Parent at any time and from time to time,
subject to the terms of this Section 8(a), within two years after receipt by
Company Parent of Option Shares (the "Registration Period"), Newco Parent shall
use its reasonable best efforts, as promptly as practicable, to effect the
registration under the Securities Act and any applicable state law (a "Demand
Registration") of such number of Option Shares in accordance with the method of
sale or other disposition reasonably contemplated by Company Parent, including a
"shelf" registration statement under Rule 415 of the Securities Act or any
successor provision, and to obtain all consents or waivers of other parties that
are required therefor. Company Parent shall provide all information reasonably
requested by Newco Parent for inclusion in any registration statement to be
filed hereunder. Except with respect to such a "shelf" registration, Newco
Parent shall keep such Demand Registration effective for a period of not less
than 180 days, unless, in the written opinion of counsel to Newco Parent, which
opinion shall be delivered to Company Parent and which shall be reasonably
satisfactory in form and substance to Company Parent and its counsel, such
registration under the Securities Act is not required in order to lawfully sell
and distribute such Option Shares in the manner reasonably contemplated by
Company Parent. Newco Parent shall only have the obligation to effect two Demand
Registrations pursuant to this Section; provided, however, that only requests
relating to a registration statement that has become effective under the
Securities Act shall be counted for purposes of determining the number of Demand
Registrations made. Newco Parent shall be entitled to postpone for up to 180
days from receipt of Company Parent's request for a Demand Registration the
filing of any registration statement in connection therewith if the Board of
Directors of Newco Parent determines in its good faith reasonable judgment that
such registration would materially interfere with any material event involving
Newco Parent or require premature disclosure of any material non-public
information, the disclosure of which would materially and adversely affect Newco
Parent; provided, however, that Newco Parent shall not have postponed any Demand
Registration pursuant to this sentence during the nine month period immediately
preceding the date of delivery of Company Parent's request for a Demand
Registration.
(b) In connection with any Demand Registration pursuant to this Section
8 that is an underwritten public offering, (i) Newco Parent and Company Parent
shall provide each other and any other underwriter of the offering with
customary representations, warrants, covenants, indemnification and contribution
obligations in connection with such Demand Registration, (ii) Newco Parent shall
E-41
use reasonable best efforts to cause any Option Shares included in such Demand
Registration to be approved for listing on any trading system upon which Newco
Parent securities are then listed, subject to official notice of issuance, which
notice shall be given by Newco Parent upon issuance, and (iii) Newco Parent
shall provide all information reasonably requested by Newco Parent that is
required for inclusion in any registration statement covering the Option Shares.
Company Parent will provide all information reasonably requested by Newco Parent
for inclusion in any registration statement to be filed hereunder. The costs and
expenses incurred by Newco Parent and Company Parent in connection with all
registrations pursuant to this Section 8 (including any fees related to
qualifications under Blue Sky Laws and SEC filing fees) (the "Registration
Expenses") shall be borne by Newco Parent, excluding legal fees of Company
Parent's counsel and underwriting discounts or commissions with respect to
Option Shares to be sold by Company Parent.
9. Severability.
If any term, provision, covenant or restriction contained in this
Option Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Option Agreement shall remain in full force and
effect, and shall in no way be affected, impaired or invalidated. If for any
reason such court determines that the Option will not permit the holder to
acquire or Newco Parent to repurchase pursuant to Section 7 hereof the full
number of shares of Newco Parent Common Stock provided in Section 2 hereof (as
adjusted pursuant to Section 6 hereof), it is the express intention of Newco
Parent to allow the holder to acquire or to require Newco Parent to repurchase
up to the maximum number of shares as may be permissible from time to time,
without any amendment or modification hereof.
10. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
(b) Entire Agreement. Except as otherwise expressly provided herein,
this Option Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Option Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Option Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Option Agreement, except as expressly provided herein.
(c) Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that, in the event a Purchase Event shall have occurred and be
continuing, Company Parent may assign, in whole or in part, its rights and
obligations hereunder.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered in the
manner and to the addresses provided for in or pursuant to Section 7.4 of the
Reorganization Agreement.
(e) Counterparts. This Option Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Option Agreement by
either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(g) Governing Law. This Option Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and entirely to be performed within such state and such federal
laws as may be applicable.
E-42
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the day and year first written above.
TEKINSIGHT.COM, INC.
By /s/ Steven J. Ross
---------------------------------------
Name: Steven J. Ross
Title: CEO
DYNCORP
By /s/ David L. Reichardt
---------------------------------------
Name: David L. Reichardt
Title: Senior Vice President
E-43
INDEX TO FINANCIAL STATEMENTS OF DMR
Balance sheets
As of June 28 2001, December 28, 2000 and December 30, 1999.........F-3
Statements of operations
For the six-month periods ended June 28 , 2001 and June 29, 2000 and
the fiscal years ended December 28, 2000, December 30, 1999 and
December 31, 1998...................................................F-4
Statements of stockholder's deficit
For the six-month period ended June 28, 2001 and the fiscal years ended
December 28, 2000, December 30, 1999 and December 31, 1998....F-5
Statements of cash flows
For the six-month periods ended June 28, 2001 and June 29, 2000 and the
fiscal years ended December 28, 2000, December 30, 1999 and
December 31, 1998...................................................F-6
Notes to financial statements.......................................F-7
F-1
Report of independent public accountants
To DynCorp Management Resources, Inc.:
We have audited the accompanying balance sheets of DynCorp Management Resources,
Inc. (the Company, a Virginia corporation) as of December 28, 2000 and December
30, 1999, and the related statements of operations, stockholder's deficit and
cash flows for each of the two fiscal years in the period ended December 28,
2000, and the year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DynCorp Management Resources,
Inc. as of December 28, 2000 and December 30, 1999, and the results of its
operations and its cash flows for each of the two fiscal years in the period
ended December 28, 2000, and the year ended December 31, 1998, in conformity
with accounting principles generally accepted in the United States.
Vienna, Virginia ARTHUR ANDERSEN LLP
June 22, 2001
F-2
DynCorp Management Resources, Inc.
Balance sheets
As of As of As of
June 28, December 28, December 30,
2001 2000 1999
------------- ------------- ---------------
Assets (unaudited) (audited) (audited)
Current assets:
Cash $ 2,120 $ 3,666 $ 1,166
Accounts receivable 4,799,180 4,507,721 6,170,925
Contracts in progress 956,487 268,814 --
Prepaid expenses, deposits and other 75,657 94,120 18,317
------------- ------------- ---------------
Total current assets 5,833,444 4,874,321 6,190,408
Property and equipment, net 396,523 275,921 258,686
Goodwill, net 675,000 712,500 --
------------- ------------- ---------------
Total assets $ 6,904,967 $ 5,862,742 $ 6,449,094
============= ============= ===============
Liabilities and stockholder's deficit Current liabilities:
Accounts payable $ 2,393,017 $ 1,796,846 $ 3,230,729
Accrued payroll and taxes 615,087 641,325 385,181
------------- ------------- ---------------
Total current liabilities 3,008,104 2,438,171 3,615,910
Advances from DynCorp 6,870,082 6,117,794 5,537,039
------------- ------------- ---------------
Total liabilities 9,878,186 8,555,965 9,152,949
Commitments and contingencies
Stockholder's deficit:
Common stock, par value $1.00 per share,
authorized and issued 100 shares 100 100 100
Capital in excess of par 750,000 750,000 --
Retained deficit (3,723,319) (3,443,323) (2,703,955)
------------- ------------- ---------------
Total stockholder's deficit (2,973,219) (2,693,223) (2,703,855)
------------- ------------- ---------------
Total liabilities and stockholder's deficit $ 6,904,967 $ 5,862,742 $ 6,449,094
============= ============= ===============
The accompanying notes are an integral part of these balance sheets.
F-3
DynCorp Management Resources, Inc.
Statements of operations
For the three months ended For the six months ended For the years ended
-------------------------- ----------------------------- ----------------------------------------------
June 28, June 29, June 28, June 29, Dec. 28, Dec. 30, Dec. 31,
2001 2000 2001 2000 2000 1999 1998
---------- ----------- ----------- ----------- ----------- ------------ --------------
(unaudited) (unaudited) (audited) (audited) (audited)
Revenue $7,849,145 $7,127,397 $14,582,081 $13,631,965 $26,754,604 $24,536,279 $18,056,346
Costs and expenses:
Cost of services 7,123,189 6,016,480 13,101,523 11,534,752 24,176,040 23,916,658 15,722,297
Selling, 1,001,808 949,550 1,723,054 1,586,751 3,279,803 2,192,533 2,062,956
general and
administrative
expenses
Other expenses, net 18,750 -- 37,500 -- 38,129 2,585 15,411
---------- ----------- ----------- ----------- ----------- ------------ --------------
Total costs and
expenses 8,143,747 6,966,030 14,862,077 13,121,503 27,493,972 26,111,776 17,800,664
---------- ----------- ----------- ----------- ----------- ------------ --------------
Net (loss) income $(294,602) $161,367 $(279,996) $510,462 $(739,368) $(1,575,497) $255,682
========== ============ ============ =========== =========== ============ ==============
The accompanying notes are an integral part of these statements.
F-4
DynCorp Management Resources, Inc.
Statements of stockholder's deficit
For the six-month period ended June 28, 2001 and the fiscal years
ended December 28, 2000, December 30, 1999
and December 31, 1998
Common Capital in Retained Stockholder's
stock excess of par deficit deficit
-------- -------- ----------- -----------
Balance, December 31, 1997 $ 100 $ -- $ (1,384,140) $ (1,384,040)
Net income -- -- 255,682 255,682
-------- -------- ----------- -----------
Balance, December 31, 1998 100 (1,128,458) (1,128,358)
Net loss -- -- (1,575,497) (1,575,497)
-------- -------- ----------- -----------
Balance, December 30, 1999 100 -- (2,703,955) (2,703,855)
Purchase of minority interest -- 750,000 -- 750,000
Net loss -- -- (739,368) (739,368)
-------- -------- ----------- -----------
Balance, December 28, 2000 $ 100 $ 750,000 $ (3,443,323) $ (2,693,223)
======== ======== =========== ===========
Net loss (unaudited) -- -- (279,996) (279,996)
======== ======== =========== ===========
Balance June 28, 2001 (unaudited) $ 100 $ 750,000 $ (3,723,319) $ (2,973,219)
======== ======== =========== ===========
The accompanying notes are an integral part of these statements.
F-5
DynCorp Management Resources, Inc.
Statements of cash flows
For the six months ended For the years ended
------------------------------- -----------------------------------------------
June 28, June 29, December 28, December 30, December 31,
2001 2000 2000 1999 1998
------------- -------------- ------------ ------------ --------------
Cash flows from operating activities: (unaudited) (unaudited) (audited) (audited) (audited)
Net (loss) income $ (279,996) $ 510,462 $ (739,368) $(1,575,497) $ 255,682
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities-
Depreciation and amortization 82,901 20,321 146,543 57,387 20,046
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable (291,459) 1,714,549 1,663,204 (2,364,877) (2,884,837)
(Increase) decrease in
contracts in progress (687,673) -- (268,814) -- --
Decrease (increase) in prepaid
expenses, deposits and other 18,463 (86,363) (75,803) (11,906) 784
Increase (decrease) in
accounts payable 596,171 (1,639,349) (1,433,883) 1,250,169 1,591,958
(Decrease) increase in accrued
payroll and taxes (26,238) 149,076 256,144 167,211 192,138
------------- ----------- ------------ ---------- ------------
Net cash (used in) provided by
operating activities (587,831) 668,696 (451,977) (2,477,513) (824,229)
Cash flows from investing activities:
Purchases of property and equipment (166,003) (65,533) (126,278) (144,039) (163,907)
Cash flows from financing activities:
Increase (decrease) in advances
from DynCorp 752,288 (603,163) 580,755 2,622,718 988,136
-------------- ------------ ------------- ----------- -------------
Net change in cash (1,546) -- 2,500 1,166 --
Cash, beginning of period 3,666 1,166 1,166 -- --
-------------- ------------ ------------- ----------- -------------
Cash, end of period $ 2,120 $ 1,166 $ 3,666 $ 1,166 $ --
============== ============ ============= =========== =============
The accompanying notes are an integral part of these balance sheets.
DynCorp Management Resources, Inc.
Notes to financial statements
1. The Company:
DynCorp Management Resources, Inc. (DMR) was formed on August 1, 1996 as a
joint venture between DynCorp and Capital Associates Inc. (CAI) (the Members),
to pursue and perform contracts to furnish professional and technical services
to state governments, to provide professional and technical services support to
other organizations as approved by the Members, and to make investments in
controlled affiliates with similar goals. On February 11, 2000, CAI transferred
its 15% ownership interest in DMR to DynCorp and on June 28, 2000, terminated
all existing agreements with DynCorp in relation to DMR. In consideration of the
transfer and CAI releases, DynCorp paid CAI $750,000. DynCorp's acquisition of
the CAI interest has been "pushed down" to the separate financial statements of
DMR. DMR was converted into a corporation organized under the laws of the
Commonwealth of Virginia on March 14, 2000.
Basis of Presentation of Unaudited Quarterly Financial Statements
F-6
DMR has prepared the unaudited financial statements included herein
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of DMR, the unaudited financial statements included herein reflect all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the financial position, the results of operations and the cash flows for
such interim periods. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
2. Summary of significant accounting policies:
Contract accounting
Contracts in process are stated at the lower of actual cost incurred plus
accrued profits or net estimated realizable value of incurred costs. DMR records
income from major fixed-price contracts, extending over more than one accounting
period, using the percentage-of-completion method. During performance of such
contracts, estimated final contract prices and costs are periodically reviewed
and revisions are made as required. The effects of these revisions are included
in the periods in which the revisions are made. On time-and-material contracts,
revenue is recognized to the extent of billable rates times hours delivered plus
material and other reimbursable costs incurred. Losses on contracts are
recognized when they become known. Disputes arise in the normal course of DMR's
business on projects where DMR is contesting with customers for collection of
funds because of events such as delays, changes in contract specifications and
questions of cost allowability or collectibility. Such disputes, whether claims
or unapproved change orders in the process of negotiation, are recorded at the
lesser of their estimated net realizable value or actual costs incurred, and
only when realization is probable and can be reliably estimated. Claims against
DMR are recognized where loss is considered probable and reasonably determinable
in amount.
DMR derived 60, 63, and 69 percent of its revenues from a contract with the
state of Connecticut in 2000, 1999, and 1998, respectively, and 56 and 62
percent in the first six months of 2001 and 2000, respectively. In 1998, DMR's
second largest customer was the state of Virginia, comprising 19 percent of
revenue. No other customer accounted for more than 10 percent of revenues in any
year. The Connecticut contract has been extended through June 2002, with a
slight increase in fees. The customer has indicated an intent to re-compete the
contract for the period following June 2002.
On June 1, 2001, DMR commenced performance on a three-year, fixed-price
contract to provide non-emergency transportation coordination and management
services to the State of Illinois on a statewide basis. During the first four
days of operation, the Company experienced customer call volume through its call
center that was significantly higher than the customer's estimate and at a level
that could not be efficiently handled by the Company's personnel. On June 7,
2001, the customer issued a notice of breach of contract. After negotiations
with the customer, an amendment to the contract was executed on June 14, 2001,
permitting the Company to stagger the phase-in of its services through out the
state. This had the effect of curing the notice of breach. The Company believes
that the high call volume resulted from a state letter to all transportation
users that erroneously asked all participants (not just those desiring to
arrange transportation) to contact the Company's call center. The Company has
increased staffing and is considering alternatives under the contract for
recovering any increased costs resulting from the incident. The staggered
phase-in, as well as the higher start-up costs, has resulted in lower revenue
and profit in 2001 than previously planned. Phase-in is expected to be complete
by the end of October 2001.
Relationship with DynCorp
DMR is a controlled, consolidated subsidiary of DynCorp. DynCorp provides
substantial corporate support required by DMR, including, but not limited to,
in-house legal, financial, treasury, insurance management, management
information systems, tax, internal audit, and human resources and benefits
services. Accordingly, DMR is allocated general and administrative costs from
DynCorp based on causal or beneficial relationships of various support
activities using various methods including revenue, payroll costs, total costs,
fixed assets, and head count. DynCorp believes that the method used to allocate
general and administrative cost to DMR is reasonable. DMR was allocated
$251,410, $208,810, and $203,218 from DynCorp in 2000, 1999, and 1998,
respectively, and $159,077 and $94,604 in the first six months of 2001 and 2000,
respectively, which is included in selling, general and administrative expenses
F-7
on the accompanying statements of operations. Additionally, certain DynCorp
shared service center allocations to DMR are included in selling, general and
administrative expenses on the accompanying statements of operations.
DMR's employees participate in DynCorp's Saving and Retirement Plan and
Capital Accumulation and Retirement Plan (collectively, the Savings Plans) which
were established effective January 1, 2001, and which replaced DynCorp's former
Savings and Retirement Plan. Prior to this date, DMR employees participated in
DynCorp's former Savings and Retirement Plan. Upon DynCorp's purchase of CAI's
interest in DMR (see Note 1), DMR's employees also began participating in
DynCorp's former Employee Stock Ownership Plan (ESOP), which was merged into the
Savings Plans effective January 1, 2001.
DMR has not generated positive cash flows from operations since inception.
DMR historically has required additional cash advances for working capital
purposes from DynCorp and will likely require such funding in the future.
DynCorp intends to continue funding the working capital requirements of DMR
unless the proposed Agreement and Plan of Reorganization dated April 25, 2001,
among DynCorp and TekInsight.com, Inc. (TekInsight) is consummated (see note 7).
The proposed merger of DMR with TekInsight will eliminate the need for this
parent company support. However, as discussed in note 7, the merger is
contingent upon the combined company securing a firm irrevocable financing
commitment under which at least $20 million of financing will be available to
the combined entity following the merger.
Accounts receivable
It is DMR's policy to provide reserves for the collectibility of accounts
receivable when it is determined that it is probable that DMR will not collect
all amounts due and the amount of the reserve requirement can be reasonably
estimated.
Property and equipment
December 28, December 30,
June 28, 200 2000 1999
------------- ------------ ------------
(unaudited) (audited) (audited)
Furniture and fixtures $ 48,396 $ 87,638 $ 48,396
Computers and peripherals 541,661 376,542 289,506
------------- ------------ ------------
590,057 464,180 337,902
Accumulated depreciation (193,534) (188,259) (79,216)
------------- ------------ ------------
396,523 $ 275,921 $ 258,686
============= ============= ============
DMR computes depreciation using the straight-line method. The estimated
useful lives used in computing depreciation are computers and peripherals, 5
years; and furniture and fixtures, 10 years. Depreciation expense was $109,043,
$57,387, and $20,046 in 2000, 1999 and 1998, respectively, and $45,401 and
$20,321 in the first six months of 2001 and 2000, respectively.
Cost of property and equipment sold or retired and the related accumulated
depreciation or amortization is removed from the accounts in the year of
disposal, and any gains or losses are reflected in the statements of operations.
Expenditures for maintenance and repairs are charged to expense as incurred, and
major additions and improvements are capitalized.
Goodwill, net
Goodwill resulted from DynCorp's buyout of CAI's minority interest in DMR
(see note 1). Goodwill is amortized on a straight-line basis over 10 years and
is shown net of accumulated amortization of $37,500 at December 28, 2000, and
$75,000 at June 28, 2001.
Impairment of long-lived assets
F-8
Long-lived assets, including goodwill, are reviewed for impairment whenever
events or changes in circumstances, such as declines in sales, earnings, or cash
flows or material adverse changes in the business climate, indicate that the
carrying amount of an asset may not be recoverable. DMR assesses the
recoverability of the cost of the asset based on a review of projected
undiscounted cash flows. In the event an impairment loss is identified, it is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset.
Fair value of financial instruments
The carrying amount of DMR's assets and liabilities approximates the fair
value due to their short maturities.
Recently issued accounting standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which was amended by SFAS No.
138, "Accounting for Certain Derivative Instruments and Hedging Activities - an
Amendment of FASB Statement No. 133." SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income based on the guidelines stipulated in SFAS 133. DMR adopted
the provisions of SFAS 133 and 138 on January 1, 2001. Because DMR does not use
derivatives, the adoption of this new standard did not have a material impact on
its results of operations, financial condition or cash flows.
In June 2001, the Financial Accounting Standards Board issued FAS No. 141,
"Business Combinations" and FAS No. 142, "Goodwill and Other Intangible Assets."
FAS 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. The provisions of FAS 142 eliminate
amortization of goodwill and identifiable intangible assets with indefinite
lives and require an impairment assessment at least annually by applying a
fair-value based test. DMR is required to adopt FAS 142 January 1, 2002. DMR
anticipates a annual increase to net income of $75,000 from the elimination of
goodwill amortization. Management does not expect the other provisions of the
statements to have a material impact on DMR's results of operations or financial
condition.
Accounting estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from these estimates.
Fiscal year change
Effective in 1999, DMR's fiscal year became the 52- or 53-week period
ending the last Thursday in December. Previously, DMR's fiscal year coincided
with the calendar year end.
3. Accounts receivable:
The components of accounts receivable were as follows:
June 28, December 28, December 30,
2001 2000 1999
------------ ------------- --------------
(unaudited) (audited) (audited)
Billed $ 1,985,640 $ 906,368 $ 2,419,314
Unbilled 2,813,540 3,601,353 3,751,611
------------ ------------- --------------
Total $ 4,799,180 $ 4,507,721 $ 6,170,925
============ ============= ==============
F-9
Unbilled receivables include amounts earned and contractually billable at
year-end, but which were not billed because customer invoices had not yet been
prepared at year-end. It is expected that all amounts outstanding at December
28, 2000 will be collected within one year. DMR recorded $68,083 of bad debt
expense in 2000, which is included in its Selling, General and Administrative
Expenses on the accompanying statements of operations. No allowance for doubtful
accounts has been established as of December 28, 2000 or December 30, 1999.
F-10
4. Accrued payroll and taxes:
The components of accrued payroll and taxes were as follows:
June 28, December 28, December 30,
2001 2000 1999
------------ ------------- --------------
(unaudited) (audited) (audited)
Employee payroll deductions $ 134,948 $ 99,477 $ 42,541
Employer's payroll liabilities 473,311 465,941 316,808
Accrued gross receipts tax 6,828 75,907 25,832
------------ ------------- --------------
$ 615,087 $ 641,325 $ 385,181
============ ============= ==============
5. Income taxes:
Until 2000 when CAI transferred its ownership interest in DMR to DynCorp,
DMR was taxed as a partnership and was therefore not subject to Federal or state
income taxes. All items of income and expense of DMR were allocable to and
reportable by the Members in their respective Federal and state income tax
returns. Accordingly, no provision is made in the accompanying financial
statements for Federal or state income taxes in 1998 or fiscal year 1999.
Upon DynCorp's purchase of CAI's interest in the joint venture in fiscal
year 2000, DMR became an entity subject to Federal and state income taxes. Upon
the change in DMR's tax status, DMR recognized the cumulative effect of all
temporary differences between the book and tax bases of its assets and
liabilities. DMR files its income tax returns as a member of the DynCorp
consolidated tax return. The consolidated amount of current and deferred tax
expense is allocated to the members of the consolidated group based on each
member's taxable income and differences between the financial statement carrying
amounts and the tax bases of each member's existing assets and liabilities.
These financial statements have been prepared under the "separate return" method
reflecting DMR's allocation of tax expense based on what DMR's current and
deferred tax expense would have been had DMR filed a separate tax return. As a
result of net operating losses in the period in which DMR was a taxable entity,
no current provision is made in the accompanying financial statements for
Federal income taxes in fiscal year 2000. Any Federal tax benefit for net
operating loss carry-back or carry-forwards will be available to DynCorp as part
of the DynCorp consolidated Federal income tax return. Deferred tax assets,
including net operating loss carryforwards, have been fully reserved due to
uncertainty of future taxable income.
F-11
Deferred tax (liabilities) assets are comprised of the following as of
December 28, 2000:
Depreciation and amortization $ (8,918)
Accrued vacation 75,532
Contracts in progress (83,885)
Net operating loss carryforwards 422,535
Valuation allowance (405,264)
------------
Net deferred tax liability $ --
============
The 2000 tax provision differs from the amount obtained by applying the
statutory U.S. Federal income tax rate to the loss before income taxes. The
difference is reconciled as follows:
Expected Federal income tax benefit $ (251,385)
State and local income taxes, net of Federal income tax benefit (29,575)
Special tax benefit from transition to taxable status (137,335)
Other 13,031
Valuation allowance 405,264
------------
Tax provision $ --
============
For the first six months of 2000, DMR reported net income. DMR provides an
income tax provision based on an effective rate of 38%; however, no tax
provision has been provided for the first six months of 2000 as DMR's operations
in 2000 provided a net operating loss (NOL) for which a valuation allowance was
established based on the uncertainty of future taxable income.
DMR generated a NOL carryover in 2000 as well as in the first six months of
2001. Thus, no provision has been made for the first six months of 2001
financial statements. The remaining net deferred tax asset, including NOLs, is
fully reserved.
6. Commitments and contingencies:
Under its contracts, DMR permits various state and local agencies to audit
or investigate its books and records related to claims, disputes and other
allegations regarding business practices. In management's opinion, there are no
outstanding issues of this nature at December 28, 2000 that will have a material
adverse effect on DMR's financial condition, results of operations, or
liquidity.
7. Recent developments:
On April 25, 2001, DynCorp and DMR signed an Agreement and Plan of
Reorganization whereby DMR will merge into a subsidiary of TekInsight.Com, Inc.
(TekInsight), a publicly held company. The merger is contingent upon approval of
the transaction by TekInsight's stockholders and other conditions, including the
ability of TekInsight to obtain at least $20 million of third-party financing,
on terms and conditions acceptable to DynCorp to support the operations of the
combined organization. Closing is scheduled to occur before the end of 2001. As
merger consideration, DynCorp would become a 40 percent owner of TekInsight.
7. Subsequent events:
On July 17, 2001, 50 Virginia-based transportation vendors, who previously
provided non-emergency medical transportation directly to the Commonwealth,
filed suit in the Circuit Court for the City of Petersburg, Virginia, seeking to
enjoin DMR and certain other companies that were recently awarded similar
non-emergency medical transportation contracts by the Commonwealth from
proceeding with the performance of such contacts. DMR is in the process of
responding to this action and believes that it has meritorious defenses to all
allegations in the lawsuit.
F-12
On August 1, 2001, DMR received a notification from the Commonwealth of
Virginia regarding certain alleged contract performance deficiencies under its
March, 2001 contract with the Commonwealth for non-emergency medical
transportation brokerage services. The notice gives DMR until September 7, 2001
to correct all such alleged deficiencies in order to avoid a possible default
termination. DMR has taken or is taking appropriate action to deal with the
various issues raised by the Commonwealth and believes that the Commonwealth
will find DMR in compliance with all material contractual terms by September 7,
2001, except to the extent previously waived or modified by the Commonwealth.
DMR is also in the process of notifying the Commonwealth regarding certain
defenses and mitigating circumstances that DMR believes bear upon the alleged
deficiencies. Loss of this contract could have a material impact on DMR's
financial position and results of operations.
F-13